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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission file number 0-17650
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FP BANCORP, INC.
(Name of small business issuer in its charter)
Delaware 33-0018976
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
613 West Valley Parkway
Escondido, California 92025-4929
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (760) 741-3312
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Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
None None
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Securities registered pursuant to section 12(g) of the Exchange Act:
Common Stock, par value $.001
-----------------------------
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 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 [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will 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-KSB
or any amendment to this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year: $30,943,000
-----------
The aggregate market value of the voting stock held by nonaffiliates as
of February 20, 1998: $52,256,904
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DOCUMENTS INCORPORATED BY REFERENCE
None.
The number of shares outstanding of Common Stock as of February 20, 1998:
3,122,217
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Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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FP BANCORP, INC.
1997 FORM 10-KSB ANNUAL REPORT
TABLE OF CONTENTS
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PART I
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Item 1. Description of Business............................................I-1
General Development of Business..................................I-1
Proposed Merger Involving Zions Bancorporation...................I-1
Competition......................................................I-2
Supervision and Regulation.......................................I-2
General....................................................I-2
Governmental Policies and Legislation......................I-3
Interstate Banking.........................................I-4
Capital Requirements.......................................I-4
Dividends..................................................I-4
Federal Deposit Insurance Corporation Improvement
Act of 1991..............................................I-4
Deposit Insurance Assessments..............................I-5
Memorandum of Understanding................................I-5
Accounting Standards.............................................I-5
Employees........................................................I-6
Item 2. Description of Properties..........................................I-6
Item 3. Legal Proceedings..................................................I-6
Item 4. Submission of Matters to a Vote of Security Holders................I-6
PART II
Item 5. Market for Common Equity and Related Stockholder Matters..........II-1
Dividends.......................................................II-1
Item 6. Management's Discussion and Analysis..............................II-2
Overview........................................................II-2
Results of Operations...........................................II-2
Net Interest Income.......................................II-2
Provision for Loan Losses.................................II-4
Other Operating Income....................................II-4
Other Operating Expenses..................................II-5
Income Taxes..............................................II-5
Liquidity and Asset/Liability Management........................II-5
Liquidity.................................................II-5
Interest Rates..................................................II-6
Investment Portfolios...........................................II-9
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FP BANCORP, INC.
1997 FORM 10-KSB ANNUAL REPORT
TABLE OF CONTENTS
(CONTINUED)
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Loan Portfolio................................................II-10
Commercial Loans........................................II-11
Real Estate Loans.......................................II-11
Construction Loans......................................II-11
Installment Loans.......................................II-11
Loan Maturity and Interest Rate Sensitivity.............II-12
Nonperforming Assets....................................II-12
Allowance for Loan and Lease Losses.....................II-13
Credit Risk Management..................................II-15
Premises and Equipment, Accrued Interest and Other Assets
and Goodwill and Other Intangibles..........................II-15
Deposits................................................II-15
Financial Ratios........................................II-17
Year 2000 Preparation...................................II-17
Capital Resources.......................................II-17
Item 7. Financial Statements............................................II-19
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure......................................II-19
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.............III-1
Directors and Executive Officers..............................III-1
Compliance with Section 16(a) of the Exchange Act.............III-2
Item 10. Executive Compensation..........................................III-3
Executive Compensation........................................III-3
Bonus Plans.............................................III-3
Certain Noncash Compensation............................III-4
Stock Option Plan.............................................III-4
Administration of the Option Plan.......................III-4
Eligibility.............................................III-4
Shares Covered by the Option Plan.......................III-4
Option Terms............................................III-4
Termination of Options..................................III-5
Corporate Reorganization................................III-5
Employee Stock Ownership Plan.................................III-6
401(k) Savings Plan...........................................III-6
Employment Arrangements.......................................III-6
Williamson Employment Agreement.........................III-6
Deems and Perdue Employment Agreements..................III-6
Salary Continuation Agreements................................III-7
Item 11. Security Ownership of Certain Beneficial Owners and
Management....................................................III-8
Securities Ownership of Officers, Directors and Others........III-8
Item 12. Certain Relationships and Related Transactions..................III-10
Lease Agreement...............................................III-10
Loans to Directors............................................III-10
Item 13. Exhibits List and Reports on Form 8-K...........................III-11
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL DEVELOPMENT OF BUSINESS
FP Bancorp, Inc. (the "Company"), a Delaware corporation, was organized in
1995 and is registered as a bank holding company under the Bank Holding Company
Act of 1956, as amended. The Company is the successor to FP Bancorp, a
California corporation, organized in 1984. The Company is headquartered in
Escondido, California, a city on the northeast edge of San Diego County,
approximately 35 miles north of downtown San Diego. The Company conducts all of
its business activities through branches of its wholly-owned subsidiary bank,
First Pacific National Bank ("FPNB"), which operates five branches in northern
San Diego County and three branches in southern Riverside County. Unless
otherwise indicated, all references to the business and assets of the Company
include the business and assets of FPNB. The Company's administrative offices
are located at 613 West Valley Parkway, Escondido, California 92025-4929,
telephone (760) 741-3312.
FPNB focuses on providing commercial banking services in northern San Diego
County and southern Riverside County. From the time FPNB was formed, management
has worked to build a reputation for service to businesses and professionals
and, through efforts of its Board of Directors and management, has sought to
maintain an identity as a community-oriented commercial bank.
During 1993, the Company completed the offering of $4,575,000 of its 9%
Convertible Subordinated Debentures due December 31, 1997 (the "Debentures"),
$3,400,000 of the proceeds of which increased the capitalization of FPNB in
mid-1993. In light of the definitive merger agreement between the Company and
Zions, the Company extended the time by which holders of the Company's 9%
Subordinated Convertible Debentures due December 31, 1997, would be allowed to
exercise their conversion rights. The Company also allowed those who had already
exercised their conversion rights time to withdraw notices of conversion which
may already have been presented to the Company, if they wished to do so. All
holders of the Debentures elected to convert their Debentures into the Company's
common stock, $.001 par value ("Common Stock"). Accordingly, 340,895 shares of
Common Stock were issued to them in exchange for their Debentures on January 20,
1998.
Pursuant to an Agreement and Plan of Reorganization dated October 12, 1994,
as amended, among FP Bancorp, FPNB and Overland Bank ("Overland"), the Company
agreed to exchange shares of Common Stock, for all of the outstanding shares of
Overland common stock and to merge Overland into FPNB (the "Overland Merger").
The Overland Merger was effective April 1, 1995.
Pursuant to an Agreement and Plan of Reorganization dated January 12, 1996,
by and among FP Bancorp, FPNB, RB Bancorp and its wholly-owned subsidiary, The
Bank of Rancho Bernardo, the Company acquired RB Bancorp and The Bank of Rancho
Bernardo for $7,350,000 in cash and merged The Bank of Rancho Bernardo into FPNB
(the "RB Merger"). The RB Merger was effective April 1, 1996.
As of December 31, 1997, the Company had total assets of $353,204,000,
total deposits of $309,502,000 and total stockholders' equity of $26,189,000.
Net earnings for the year ended December 31, 1997 were $4,383,000 as compared to
net earnings of $4,208,000 for the year ended December 31, 1996, and net
earnings of $1,911,000 for the year ended December 31, 1995.
PROPOSED MERGER INVOLVING ZIONS BANCORPORATION
Pursuant to an Agreement and plan of Merger dated as of December 29, 1997,
the Company agreed, subject to approval of its stockholders, to be acquired by
Zions Bancorporation ("Zions"), a Utah corporation, whose principal executive
offices are located in Salt Lake City, Utah. As of February 27, 1998, the
parties entered into the First Amendment to that agreement. Collectively, that
agreement and the amendment are referred to as the "Merger Agreement" and the
transaction contemplated in the Merger Agreement is referred to as the "Merger."
Under the Merger Agreement, holders of Common Stock will be entitled to 0.627 of
a share of Zions' common stock, including associated rights, for each share of
the Company's Common Stock. The Company plans to present the Merger Agreement to
its stockholders for approval at a stockholder's meeting to be held during the
second quarter of 1998.
On October 16, 1997, pursuant to a letter agreement of that date, (the
"Sandler O'Neill Agreement") the Company engaged Sandler O'Neill, financial
advisors, ("Sandler O'Neill") to provide advisory services, including advice
regarding business
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combinations and other strategic alternatives. Sandler O'Neill advised the
Company in connection with the Merger Agreement. Under the Sandler O'Neill
Agreement, FP has agreed to pay Sandler O'Neill a transaction fee in connection
with the Merger, a substantial portion of which is contingent upon the
consummation of the Merger.
Under the Sandler O'Neill Agreement, the Company has agreed to pay Sandler
O'Neill a transaction fee of 0.6% of the aggregate transaction value if the per
share transaction value is less than or equal to $26.50, plus, in the event the
per share transaction value exceeds $26.50, an additional amount equal to 5% of
the amount by which the actual aggregate transaction value exceeds the aggregate
transaction value of a transaction in which the per share transaction value was
$26.50 (the "Transaction Fee"). The per share transaction value will be based on
the closing price of Zions Common Stock on the date of closing of the Merger. If
the closing of the Merger had occurred on March 6, 1998, the aggregate
Transaction Fee payable would have been approximately $587,000. Of the
Transaction Fee as will be finally determined, $150,000 has been paid, $100,000
will be paid upon approval of the Merger by the Company's stockholders and the
balance will be paid upon consummation of the Merger.
Sandler O'Neill received a fee of $50,000 for rendering the fairness opinion
which it delivered to the Company's Board of Directors. This fee will be
credited against the Transaction Fee and is included in the $150,000 described
above as already paid. The Company also agreed to reimburse Sandler O'Neill for
its reasonable out-of-pocket expenses incurred in connection with its engagement
and to indemnify Sandler O'Neill and its affiliates and their respective
partners, directors, officers, employees, agents and controlling persons against
certain expenses and liabilities, including liabilities under securities laws.
COMPETITION
In general, the banking business in California is highly competitive with
respect to both loans and deposits and is dominated by major banks with many
offices operating over a wide geographic area. In the Company's primary service
area, major banks dominate the commercial banking industry as a result of
acquisitions of other independent banks in the area in recent years. The Company
competes for deposits and loans with other commercial banks and with nonbank
financial institutions, including savings and loan associations and credit
unions.
Institutions such as brokerage firms, credit card companies and even retail
establishments offer alternative investment vehicles such as money market funds
and traditional banking services such as check-writing and cash advances on
credit card accounts. Other entities (both public and private) seeking to raise
capital through the issuance and sale of debt or equity securities also
represent a source of competition for the Company with respect to acquisition of
deposits.
Among the advantages certain of these institutions have over the Company
are their ability to finance wide-ranging and effective advertising campaigns,
to access international money markets and to allocate their investment resources
to regions of highest yield and demand. Major banks operating in the Company's
service area offer services, such as international banking and trust services,
which are not offered by FPNB. Also, by virtue of their greater total
capitalization, such banks have substantially higher lending limits than FPNB.
The Company does not have a dependency upon a single customer or industry,
the loss of which would have a material adverse effect. However, some of FPNB's
commercial, real estate and construction borrowers are to some extent dependent
on the real estate and construction industries. The Company believes that the
unique services it offers, such as courier service and the high quality of its
customer service and attention, distinguish it from other financial institutions
in its market area. In addition, prompt response to lending requests is a
positive contributing factor to the Company's competitive position in its area.
The accessibility of senior management to customers and local decision-making
also distinguish the Company from other financial institutions.
In order to compete with the other financial institutions in its primary
service area, the Company relies principally upon local promotional activities,
personal contact by its officers, directors, employees and stockholders and
specialized services that it offers to customers. For customers whose loan
demands exceed FPNB's lending limit, the Company attempts to arrange for such
loans on a participation basis with other community banks. The Company also
assists customers in obtaining services not offered directly by FPNB from its
correspondent banks or through third-party providers.
SUPERVISION AND REGULATION
General. The Company is subject to the periodic reporting requirements
of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"),
which include, but are not limited to, the filing of annual, quarterly and other
reports with the Securities and Exchange Commission (the "SEC").
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The Company is a bank holding company within the meaning of the Bank
Holding Company Act, and is registered as such with and is subject to the
supervision of the Federal Reserve Bank of San Francisco (the "FRB"). Generally,
a bank holding company is required to obtain the approval of the FRB before it
may acquire all or substantially all of the assets of any bank, or ownership or
control of the voting shares of any bank if, after giving effect to such
acquisition of shares, the bank holding company would own or control more than
5% of the voting shares of such bank. The FRB's approval is also required for
the merger or consolidation of bank holding companies.
The Company is required to file reports with the FRB and provide such
additional information as the FRB may require. The FRB also has the authority to
examine the Company and FPNB, as well as any arrangements between the Company
and FPNB, with the cost of any such examination to be borne by the Company.
Banking subsidiaries of bank holding companies are also subject to certain
restrictions imposed by Federal law in dealings with their holding companies and
other affiliates. Subject to certain restrictions set forth in the Federal
Reserve Act, a bank can loan or extend credit to an affiliate, purchase or
invest in the securities of an affiliate, purchase assets from an affiliate or
issue a guarantee, acceptance or letter of credit on behalf of an affiliate;
provided that the aggregate amount of the above transactions of a bank and its
subsidiaries does not exceed 10% of the capital stock and surplus of the bank on
a per affiliate basis or 20% of the capital stock and surplus of the bank on an
aggregate affiliate basis. In addition, such transactions must be on terms and
conditions that are consistent with safe and sound banking practices and, in
particular, a bank and its subsidiaries generally may not purchase from an
affiliate a low-quality asset, as defined in the Federal Reserve Act. Such
restrictions also prevent a bank holding company and its other affiliates from
borrowing from a banking subsidiary of the bank holding company unless the loans
are secured by marketable collateral of designated amounts. Further, the Company
and its subsidiary are prohibited from engaging in certain tie-in arrangements
in connection with any extension of credit, sale or lease of property or
furnishing of services.
A bank holding company is prohibited from engaging in or acquiring direct or
indirect ownership or control of more than 5% of the voting shares of any
company engaged in nonbanking activities. One of the principal exceptions to
this prohibition is for activities found by the FRB by order or regulation to be
so closely related to banking or managing or controlling banks as to be a proper
incident thereto. In making these determinations, the FRB considers whether the
performance of such activities by a bank holding company would offer advantages
to the public which outweigh possible adverse effects.
As a national bank, FPNB is subject to regulation, supervision and regular
examination by the Office of the Comptroller of the Currency (the
"Comptroller"). Each depositor's account with FPNB is insured by the Federal
Deposit Insurance Corporation (the "FDIC") to the maximum amount permitted by
law, which is currently $100,000 for each insured deposit. FPNB is also subject
to certain regulations promulgated by the FRB and applicable provisions of
California law, insofar as they do not conflict with or are not preempted by
Federal banking law. The Comptroller regulates the number of locations of the
branch offices of a national bank, but may only permit a national bank to
maintain branches in locations and under the same conditions that state banks
are permitted to maintain by state law. California law presently permits a bank
to locate a branch office in any locality in the state. Additionally, California
law exempts banks, including national banks, from California usury law.
The regulations of the FDIC, the Comptroller and the FRB govern most aspects
of the Company's business, including deposit reserve requirements, investments,
loans, certain check clearing activities, issuance of securities, payment of
dividends, branching, deposit interest rate ceilings and numerous other matters.
As a consequence of the extensive regulation of commercial banking activities in
the United States, the Company's business is particularly susceptible to changes
in state and Federal legislation and regulations, which may have the effect of
increasing the cost of doing business, limiting permissible activities or
increasing competition.
Governmental Policies and Legislation. Banking is a business that
depends primarily on rate differentials. In general, the difference between the
interest rates paid by the Company on its deposits and its other borrowings, and
the interest rates received by the Company on loans extended to its customers
and securities held in its portfolios, comprise the major portion of the
Company's net revenues. These rates are highly sensitive to many factors that
are beyond the Company's control. Accordingly, the Company's growth and earnings
are subject to the influence of domestic and foreign economic conditions,
including inflation, recession and unemployment.
The commercial banking business is affected not only by general economic
conditions, but is also influenced by the monetary and fiscal policies of the
Federal government and the policies of regulatory agencies, particularly the
FRB. The FRB implements national monetary policies (with objectives such as
curbing inflation and combating recession) by its open-market operations in U.S.
Government securities, by adjusting the required level of reserves for financial
institutions subject to its reserve requirements and by varying the discount
rates applicable to borrowings by depository institutions. The actions of the
FRB in these areas influence the
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growth of bank loans, investments and deposits, and also affect interest rates
charged on loans and paid on deposits. The nature and impact of any future
changes in monetary policies cannot be predicted.
From time to time, legislation is enacted which has the effect of increasing
the cost of doing business, limiting or expanding permissible activities or
affecting the competitive balance between banks and other financial
institutions. Proposals to change the laws and regulations governing the
operations and taxation of bank holding companies, banks and other financial
institutions are frequently made in Congress, in the California Legislature and
before various bank holding company and bank regulatory agencies. The likelihood
of any major changes and the impact such changes might have are impossible to
predict. Certain of the potentially significant changes which have been enacted
recently by Congress or various regulatory or professional agencies are
discussed below.
Interstate Banking. On September 29, 1994, President Clinton signed into
law the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Banking Act"). The Interstate Banking Act has various provisions
designed to facilitate the acquisition of banks and branching across state
borders. Beginning on September 29, 1995, the FRB is authorized to approve a
bank holding company's application to acquire either control or substantial
assets of a bank located outside the bank holding company's home state,
regardless of whether the acquisition would be prohibited by state law. The
Interstate Banking Act also permitted a bank in one state to merge with another
bank outside its "home state," beginning on June 1, 1997. However, a state may
enact a law after September 29, 1994, but before June 1, 1997, expressly
prohibiting merger transactions with out-of-state banks, provided it applied
equally to all out-of-state banks. Mergers between banks in different states
prior to June 1, 1997 permitted if the home state of each bank involved in the
transaction had a law in effect which applies equally to all out-of-state banks
expressly permitting interstate mergers. Acquisitions of branches and opening of
new branches outside the home state of a bank would continue to be subject to
state law restrictions.
On October 2, 1995, the California legislature adopted the Caldera,
Weggeland, and Killea California Interstate Banking and Branching Act of 1995
(the "California Act"). The California Act expressly permits an out-of-state
bank to acquire an entire California bank by merger or purchase. De novo
branching or acquisition of branches in California by an out-of-state bank
continue to be prohibited. Out-of-state banks are permitted to affiliate with
California institutions and may establish facilities in California (such as loan
production offices) under conditions set forth in the California Act.
Capital Requirements. The FDIC, the Comptroller and the FRB have adopted
risk-based capital adequacy guidelines for bank holding companies and banks. The
risk-based capital adequacy guidelines establish a risk-based capital ratio
based on the overall risk of the entity determined by (i) assigning weighted
risks to each balance sheet asset and certain off-balance sheet commitments and
(ii) adding up all of the weighted risks of all assets and includable
off-balance sheet commitments to obtain the total risk. The guidelines generally
require banks to maintain a total qualifying capital to weighted risk assets
level of 8% (the "Risk-based Capital Ratio"). Of the total 8%, at least 4% of
the total qualifying capital to weighted risk assets (the "Tier 1 Risk-based
Capital Ratio") must be Tier 1 or core capital consisting primarily of equity
stock. Tier 2 capital, which makes up the remainder of total capital, consists
of (i) the allowance for loan losses, up to 1.25% of weighted risk assets, (ii)
mandatory convertible debentures and (iii) other forms of capital. Qualified
preferred capital stock may be considered core capital up to 25% of all core
capital elements.
The FDIC, the Comptroller and the FRB have adopted leverage requirements that
apply in addition to the risk-based capital requirements. Under these
requirements, bank holding companies and banks are required to maintain core
capital of at least 3% of their assets (the "Leverage Ratio"). However, an
institution may be required to maintain core capital of at least 4% or 5%, or
possibly higher, depending upon the activities, risks, rate of growth, and other
factors deemed material by regulatory authorities. As of December 31, 1997, the
Company and FPNB were both considered "well-capitalized." See "Item 6.
Management's Discussion and Analysis -- Capital Resources."
Dividends. There are regulatory restrictions on dividend payments by
both FPNB and the Company that may affect the Company's ability pay dividends on
its Common Stock. See "Item 5. Market for Common Equity and Related Stockholder
Matters."
Federal Deposit Insurance Corporation Improvement Act of 1991. On
December 19, 1991, President Bush signed into law the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA"). FDICIA is an omnibus banking
reform bill which added new regulation and made changes in existing regulation
of the operations, procedures and regulatory reporting of insured institutions,
bank holding companies and affiliates. Among other things, FDICIA establishes
five capital categories applicable to insured institutions, each with specific
regulatory consequences. If the appropriate Federal banking agency determines,
after notice and an opportunity for hearing, that an insured institution is in
an unsafe or unsound condition, it may reclassify the institution to the next
lower capital category (other than critically undercapitalized) and require the
submission of a plan to correct the unsafe or
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unsound condition. The Comptroller has issued regulations (the "Prompt
Corrective Action Regulations") to implement these provisions.
Deposit Insurance Assessments. FDICIA also requires the FDIC to implement a
risk-based assessment system in which the insurance premium relates to the
probability that the deposit insurance fund will incur a loss and directs the
FDIC to set semi-annual assessments in an amount necessary to increase the
reserve ratio of the Bank Insurance Fund (the "BIF") to at least 1.25% of
insured deposits or a higher percentage as determined to be justified by the
FDIC.
The FDIC has promulgated implementing regulations that base an
institution's risk category partly upon whether the institution is
well-capitalized ("1"), adequately-capitalized ("2") or less than
adequately-capitalized ("3"), as defined under the Prompt Corrective Action
Regulations described above. In addition, each insured depository institution is
assigned to one of three "supervisory subgroups." Subgroup "A" institutions are
financially sound institutions with few minor weaknesses, subgroup "B"
institutions demonstrate weaknesses which, if not corrected, could result in
significant deterioration and subgroup "C" institutions are those as to which
there is a substantial probability that the FDIC will suffer a loss in
connection with the institution unless effective action is taken to correct the
areas of weakness. Effective December 1, 1992 the FDIC began notifying each
institution of its assessment risk classification and rate semi-annually. Prior
to June 30, 1995, based on its capital and supervisory subgroups, each BIF
member institution was assigned an annual FDIC assessment rate of between $0.23
and $0.31 per $100 of deposits.
On November 14, 1995, the FDIC Board of Directors voted to further reduce
the insurance premiums paid on deposits covered by the BIF. Under this rate
structure, assessment rates were lowered by four cents per $100 of assessable
deposits for all risk categories, subject to the statutory requirement that all
institutions pay at least $2,000 annually for FDIC insurance. This new rate
structure retained the rate spread of from $0.00 to $0.27 per $100 of assessable
deposits between the highest - and lowest-rated institutions. FPNB was assessed
FDIC insurance premiums of $27,000 and $1,000 for the first and second halves,
respectively, of 1996.
On September 30, 1996, President Clinton signed into law the Deposit
Insurance Funds Act of 1996, which includes provisions recapitalizing the
Savings Association Insurance Fund ("SAIF"), provides for the eventual merger of
the SAIF with the BIF and reallocates payment of the annual Financing Corp.
("FICO") bond obligation. Effective January 1, 1997, SAIF members had the same
risk-based assessment schedule as BIF members. All SAIF and BIF institutions,
including FPNB, will be responsible for sharing the cost of interest payments on
the FICO bonds. The cost will be an annualized charge of 1.3 basis points for
BIF deposits and 6.5 basis points for SAIF deposits.
On November 26, 1996, the FDIC Board of Directors voted to retain the
existing BIF assessment schedule for the first semiannual period of 1997 and to
collect an assessment against BIF-assessable deposits to be paid to FICO. In
addition, the FDIC eliminated the $2,000 minimum annual assessment and
authorized the refund of the fourth-quarter minimum assessment of $500 paid by
certain BIF-insured institutions on September 30, 1996. Under the revised rate
structure, FPNB was assessed $54,000 and $18,000 for the first and second
halves, respectively, of 1997 and $9,500 for the first half of 1998.
Memorandum of Understanding. On May 24, 1993, as a result of supervisory
concerns disclosed during the inspection of the Company by the FRB in December,
1992, the Company entered into a Memorandum of Understanding with the FRB (the
"Memorandum"). The FRB conducted an inspection of FP Bancorp during February
1996. Based on the results of this examination, the FRB terminated the
Memorandum effective April 18, 1996.
ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board, (the "FASB") issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("Statement 130"), which is effective for fiscal years beginning after
December 16, 1997, and therefore, does not impact the financial statements
presented in this report. Statement 130 establishes standards for the reporting
and display of comprehensive income and its components in a full set of
general-purpose financial statements; it does not change the display or
components of present-day net earnings.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("Statement 131"), which is effective for fiscal years beginning after December
15, 1997. Statement 131 establishes standards for the way that public business
enterprises report information about operating segments in interim and annual
financial statements.
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In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits" ("Statement 132"), which is effective for fiscal years
beginning after December 15, 1997. Statement 132 revises employers' disclosures
about pension and other postretirement benefit plans. It does not change the
measurement or recognition of those plans. It standardizes the disclosure
requirements for pensions and other postretirement benefits to the extent
practicable, requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate financial
analysis, and eliminates certain disclosures that are no longer as useful.
EMPLOYEES
As of December 31, 1997, the Company employed 141 persons full-time and 46
persons part-time. The Company's employees are not represented by a union or
covered by a collective bargaining agreement. Management believes that, in
general, its employee relations are excellent.
ITEM 2. DESCRIPTION OF PROPERTIES.
The Company's headquarters and main branch location are located at 613 West
Valley Parkway in the central financial district of Escondido, California. FPNB
leases approximately 16,642 square feet of a three-story professional office
building. The primary office space has a 35-year lease term which commenced July
1, 1984 and provides for various lease adjustments during its term. FPNB leases
the facilities from a partnership in which three of the members of the Board of
Directors of FPNB are partners. See "Item 12 - Certain Relationships and Related
Transactions."
Other properties owned or leased by the Company include seven other branches
located in North San Diego and Southern Riverside Counties, and a second
administrative facility located in Escondido, California. All facilities are
considered by management to be well suited for a financial institution and are
deemed adequate to accommodate current needs, plus reasonable future expansion.
The Company maintains comprehensive general liability and casualty loss
insurance covering its properties and activities conducted in or about its
properties. The Company believes such insurance provides adequate protection for
liabilities or losses which might arise out of the ownership and use of such
properties.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not involved in any pending legal proceedings other than
nonmaterial proceedings arising in the ordinary course of its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
I-6
<PAGE> 10
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is traded on the National Association of
Securities Dealers Automated Quotation System ("Nasdaq") National Market System
under the ticker symbol "FPBN." The table below presents the high and low bid
prices per share of the Common Stock quoted on the Nasdaq National Market
System. The high and low bid prices of the Common Stock do not include retail
markups, markdowns or commissions and may not represent actual transactions.
MARKET PRICES
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1997
Fourth Quarter........... $28.50 $20.00
Third Quarter............ $25.00 $17.00
Second Quarter........... $19.00 $15.00
First Quarter............ $17.87 $10.87
1996
Fourth Quarter........... $12.38 $9.25
Third Quarter............ $10.00 $8.50
Second Quarter........... $ 9.50 $8.25
First Quarter............ $ 9.00 $7.88
</TABLE>
As of December 31, 1997, the Company had 1,031 stockholders of record, as
shown on the records of its transfer agent, U.S. Stock Transfer Corporation.
Trading in the Company's Common Stock has not been extensive and such trades
cannot be characterized as constituting an active trading market. The Company is
aware of at least eight securities dealers which currently make a market in the
Common Stock.
DIVIDENDS
The principal source of FP Bancorp, Inc.'s revenues for the payment of
dividends is dividends from FPNB. Generally, the payment of dividends to the
Company by FPNB is limited to FPNB's current year's net profits, as defined in
Federal regulations, plus retained net profits for the two preceding years.
Payment of dividends in excess of such amount requires prior Federal regulatory
approval. The Comptroller has amended the regulations limiting the payment of
dividends by changing the methods of calculating net profits, but that amendment
has not materially reduced the amounts of dividends that may be paid by FPNB. In
addition to such limitations on dividend payments, the Comptroller has authority
to prohibit FPNB from paying dividends to FP Bancorp if, in the opinion of the
Comptroller and notwithstanding the amount of current year net profits and
retained net profits for the two preceding years, the payment of dividends would
constitute an unsafe or unsound practice in light of the overall financial
condition of FPNB.
In addition to the foregoing regulatory restrictions, the Company's ability
to pay dividends is governed by the Delaware General Corporation Law (the
"Delaware Law"). The Delaware Law provides that a Delaware corporation, such as
the Company, may, unless otherwise restricted by its certificate of
incorporation, declare and pay dividends out of any surplus or, if no surplus
exists, out of net profits for the fiscal year in which the dividend is declared
and the preceding fiscal year, or both (provided that the amount of capital of
the corporation following the declaration and payment of the dividend is not
less than the aggregate amount of the capital represented by the issued and
outstanding stock of all classes having a preference upon the distribution of
assets). The Delaware Law also provides that a corporation may redeem or
repurchase its shares out of surplus. The ability of a Delaware corporation to
pay dividends on or to redeem or repurchase it shares is dependent on the
financial status of the corporation standing alone and not on a consolidated
basis.
No dividends were paid by the Company during 1997, 1996 or 1995. Payment of
stock or cash dividends by the Company in the future will depend upon the
Company's earnings and financial condition and other factors deemed relevant by
the Company, including performance of FPNB and its ability to pay dividends.
FPNB has adopted a policy of approving dividends only in the event that after
payment and for the foreseeable future, FPNB's capital level will not be
adversely affected. The Company has adopted a similar policy with regard to
payment of cash dividends to stockholders. These standards may be greater than
any standard the regulatory agencies may impose. It is the current intention of
management of the Company to follow a policy of
II-1
<PAGE> 11
retaining most of the Company's earnings to increase its capital to support
future growth. Accordingly, no assurance can be given that any dividends will be
declared by the Company in the near future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS.
The following is management's discussion and analysis of the financial
condition and results of operations of the Company as of and for the years ended
December 31, 1997, 1996 and 1995. The discussion should be read in conjunction
with the Company's consolidated financial statements and notes thereto. See
"Item 7. Financial Statements."
OVERVIEW
The Company reported net earnings for 1997 of $4,383,000 or $1.45 per diluted
share as compared to net earnings of $4,208,000 or $1.41 per diluted share in
1996. The increase in net earnings of $175,000 or 4.16% was primarily due to (i)
increased income and efficiencies resulting from the acquisition of the Valley
Center Branch from Wells Fargo, (ii) a reduction in nonperforming assets, (iii)
improved credit quality, and (iv) continued cost control efforts related to
noninterest expenses. The Company's return on average assets and return on
average stockholders' equity were 1.30% and 18.69%, respectively, for the year
ended December 31, 1997 as compared to 1.58% and 22.38%, respectively, for the
year ended December 31, 1996.
The Company reported net earnings for 1996 of $4,208,000 or $1.41 per diluted
share as compared to net earnings of $1,911,000 or $0.72 per diluted share in
1995. The increase in net earnings of $2,297,000 or 120.20% was primarily due to
(i) increased income and efficiencies resulting from the acquisition of RB
Bancorp, (ii) a reduction in nonperforming assets, (iii) improved credit
quality, (iv) continued cost control efforts related to noninterest expenses and
(v) the beneficial tax position of the Company during the year. The Company's
return on average assets and return on average stockholders' equity were 1.58%
and 22.38%, respectively, for the year ended December 31, 1996 as compared to
.95% and 12.98%, respectively, for the year ended December 31, 1995.
RESULTS OF OPERATIONS
Net Interest Income. Net interest income, the most significant component
of the Company's net earnings, is the amount by which the interest and fees
generated from loans and other earning assets exceeds the expense associated
with funding those assets. Net interest income depends upon the difference (the
"interest rate spread") between the gross interest and fees earned on the
Company's loan and investment portfolios ("interest-earning assets") and the
rates paid on its interest-bearing deposits and borrowings ("interest-bearing
liabilities"), and the relative amounts and composition of its interest-earning
assets and interest-bearing liabilities. When the amount of interest-earning
assets exceeds interest-bearing liabilities, a positive interest rate spread
will generate net interest income. When the amount of interest-earning assets is
less than the amount of interest-bearing liabilities, the Company may incur net
interest expense even when its interest rate spread is positive.
Net interest income increased $4,215,000 or 26.80% to $19,941,000 for the
year ended December 31, 1997 from $15,726,000 for the year ended December 31,
1996. The tax equivalent ("TE") rate earned on interest-earning assets in 1997
increased to a 9.61% (TE) from 9.51% (TE) in 1996. The rate paid on
interest-bearing liabilities increased to 3.49% in 1997 from 3.38% in 1996.
Average loans outstanding in 1997 were $226,610,000 which earned interest at
rate of 10.42% (TE) as compared to an average balance of $184,669,000 which
earned a rate of 10.33% (TE) during 1996. The average amount of all other
interest-earning assets, including primarily investment securities and Federal
funds sold, was $70,540,000 during 1997 which earned interest at a rate of 7.00%
(TE) as compared to an average balance of $49,184,000 which earned interest at a
rate of 6.43% (TE) during 1996. Average interest-bearing deposits for 1997 were
$229,720,000 which paid a rate of 3.26% as compared to average interest-bearing
deposits of $187,964,000 which paid a rate of 3.20% for the year ended December
31, 1996. Average debentures, Federal funds purchased and other borrowings were
$13,073,000 which paid a rate of 7.40% for the year ended December 31, 1997 as
compared to an average balance of $4,988,000 which paid a rate of 10.16% during
the year ended December 31, 1996.
Net interest income increased $3,605,000 or 29.74%, to $15,726,000 for the
year ended December 31, 1996 from $12,121,000 for the year ended December 31,
1995. The rate earned on interest-earning assets in 1996 decreased to 9.51% (TE)
from 9.80% (TE) in 1995. The rate paid on interest-bearing liabilities increased
to 3.38% in 1996 from 3.35% in 1995. This increase was due primarily to higher
average interest rates during 1996 as compared to 1995 as a result of numerous
changes in rates implemented by the Federal Reserve Board during those two
years. The average amount of loans outstanding in 1996 was $184,669,000 which
earned interest at the rate of 10.33% (TE) as compared to an average outstanding
amount of $136,425,000 which earned interest at a rate of 10.89% (TE) in 1995.
The average amount of all other interest-earning assets, including primarily
investment securities and Federal funds sold, was $49,184,000 during 1996 which
earned interest at a rate of 6.43% (TE) as compared to an average balance of
other interest-earning assets of $37,776,000 which earned interest at a rate of
5.89% (TE) during 1995. Average interest-bearing
II-2
<PAGE> 12
deposits for 1996 were $187,964,000 which paid a rate of 3.20% as compared to
average interest-bearing deposits of $143,168,000 which paid a rate of 3.12% for
the year ended December 31, 1995. Average debentures, Federal funds purchased
and other borrowings were $4,988,000 which paid a rate of 10.16% for the year
ended December 31, 1996 as compared to an average balance of $4,631,000 which
paid a rate of 10.52% during the year ended December 31, 1995.
Net interest income, when expressed as a percentage of average total
interest-earning assets, is referred to as "net interest margin". The Company's
net interest margin (TE) for the year ended December 31, 1997 was 6.76% as
compared to 6.72% for the year ended December 31, 1996. The increase in the
Company's net interest margin (TE) in 1997 was primarily due to an increase in
the loan portfolio yield and investments in nontaxable municipal bonds during
the year.
The following table presents the major categories of interest-earning assets,
interest-bearing liabilities and stockholders' equity with corresponding average
balances, related interest income (TE) or expense and resulting yields (TE) and
rates for the periods indicated.
ANALYSIS OF NET INTEREST INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------------------------
1997 1996 1995
-----------------------------------------------------------------------------------------------------------
INTEREST RATE
AVERAGE INCOME EARNED AVERAGE INTEREST RATE AVERAGE INTEREST RATE
AMOUNT (TE) / (TE)/ AMOUNT INCOME EARNED AMOUNT INCOME EARNED
OUTSTANDING(1) EXPENSE PAID OUTSTANDING(1) EXPENSE PAID OUTSTANDING(1) EXPENSE PAID
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning
assets:
Loans (2)(3) ......... $ 226,610 $ 23,621 10.42% $ 184,669 $19,082 10.33% $136,425 $ 14,851 10.89%
Taxable investment
securities ......... 63,906 4,475 7.00% 39,062 2,650 6.78% 29,995 1,783 5.94%
Nontaxable investment
securities ......... 4,153 331 7.97% 0 0 0.00% 0 0 0.00%
Interest-earning
deposits ........... 0 0 0.00% 110 6 5.45% 341 19 5.57%
Federal funds sold ... 2,481 132 5.32% 10,012 505 5.04% 7,440 422 5.67%
--------- -------- ----- --------- ------- ----- -------- -------- -----
Total interest-earning
assets ............. 297,150 28,559 9.61% 233,853 22,243 9.51% 174,201 17,075 9.80%
Other assets:
Cash and due from
banks .............. 25,151 18,697 14,069
Other assets, net .... 14,588 13,471 12,670
--------- --------- --------
Total Assets .......... $ 336,889 $ 266,021 $200,940
========= ========= ========
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Interest-bearing
liabilities:
Deposits:
Savings and time ..... $ 103,921 4,858 4.67% $ 84,522 3,862 4.57% $ 63,068 2,903 4.60%
Interest-bearing
demand and money
market .............. 125,799 2,637 2.10% 103,442 2,148 2.08% 80,100 1,564 1.95%
--------- --------- ----- --------- ------- ----- -------- -------- -----
Total interest-bearing
deposits ............ 229,720 7,495 3.26% 187,964 6,010 3.20% 143,168 4,467 3.12%
Debentures, Federal
funds purchased
and securities sold
under agreement to
repurchase .......... 13,073 967 7.40% 4,988 507 10.16% 4,631 487 10.52%
--------- --------- ----- --------- ------- ----- -------- -------- -----
Total interest-
bearing liabilities .. 242,793 8,462 3.49% 192,952 6,517 3.38% 147,799 4,954 3.35%
--------- --------- ----- --------- ------- ----- -------- -------- -----
Noninterest-bearing
demand deposits ...... 69,354 52,920 37,225
Other liabilities ..... 1,288 1,350 1,420
Stockholders' equity .. 23,454 18,833 14,717
Receivable from ESOP
and unrealized net
gain (loss) on
investment securities
available-for-sale .. 0 (34) (221)
--------- --------- --------
Total Liabilities
and Stockholders'
Equity .............. $ 336,889 $ 266,021 $200,940
========= ========= ========
Net interest income ... $ 20,097 $15,726 $ 12,121
========= ======= ========
Net interest margin(4) 6.76% 6.72% 6.96%
</TABLE>
- ---------------
(1) Averages are daily averages.
(2) Loan interest income includes accretion of loan fees of $1,225,000,
$728,000 and $452,000 for the years 1997, 1996 and 1995, respectively.
(3) For the purpose of these computations, nonaccrual loans are included in
average loans.
(4) The net interest margin is calculated by dividing net interest income (TE)
by average total interest-earning assets.
II-3
<PAGE> 13
As discussed above, the Company's net interest income (TE) is affected by the
change in the amount and mix of interest-earning assets and interest-bearing
liabilities, referred to as "volume change," as well as by changes in yields
earned on interest-earning assets and rates paid on deposits and other borrowed
funds, referred to as "rate changes." The following table presents, for the
periods indicated, a summary of changes in interest income and interest expense
for the major categories of interest-earning assets and interest-bearing
liabilities and the amounts of change attributable to variations in volumes and
rates.
RATE/VOLUME ANALYSIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------
1997 COMPARED TO 1996 1996 COMPARED TO 1995
INCREASE (DECREASE) INCREASE (DECREASE)
----------------------------------- -----------------------------------
VOLUME RATE NET VOLUME RATE NET
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Interest earned on
interest-earning
assets:
Loans(1) ............. $ 4,333 $ 206 $ 4,539 $ 5,254 $(1,023) $ 4,231
Taxable investment
securities ......... 1,684 141 1,825 539 328 867
Nontaxable investment
securities ......... 0 331 331 0 0 0
Interest-earning
deposits ............. (6) 0 (6) (13) 0 (13)
Federal funds sold ... (380) 7 (373) 146 (63) 83
------- ------- ------- ------- ------- -------
Total Interest Earned on
Interest-earning
Assets ............... 5,631 685 6,316 5,926 (758) 5,168
Interest paid on
interest-bearing
liabilities:
Interest-bearing
deposits:
Savings and time ..... 887 109 996 987 (28) 959
Interest-bearing
demand ............. 465 24 489 455 129 584
------- ------- ------- ------- ------- -------
Total interest-bearing
deposits ............. 1,352 133 1,485 1,442 101 1,543
Debentures, Federal
funds purchased and
securities sold under
agreement to
repurchase ........... 821 (361) 460 0 20 20
------- ------- ------- ------- ------- -------
Total Interest Paid on
Interest-bearing
Liabilities: ......... 2,173 (228) 1,945 1,442 121 1,563
------- ------- ------- ------- ------- -------
Change in Net Interest
Income (TE) .......... $ 3,458 $ 913 $ 4,371 $ 4,484 $ (879) $ 3,605
======= ======= ======= ======= ======= =======
</TABLE>
- ---------------
(1) Nonaccrual loans are included in the loan totals used in the calculation of
this table.
Provision for Loan Losses. The provision for loan losses is based upon
the Company's evaluation of the quality of the loan portfolio, total outstanding
and committed loans, previous loan losses and current and anticipated economic
conditions. In making its evaluation, the Company takes into account the results
of regulatory examinations of FP Bancorp, Inc. and FPNB, which can be expected
to occur at least once each year. The amount of the provision for loan losses is
a charge against earnings. Actual loan losses are charged against the allowance
for loan and lease losses (the "ALLL").
The Company's ALLL is typically maintained at a level deemed adequate to
provide for known and inherent losses in the loan portfolio. No assurance can be
given that unforeseen adverse economic conditions or other circumstances will
not result in increased ALLL provisions in the future. Additionally, regulatory
examiners may require the Company to recognize additions to the ALLL based upon
their judgment about information available to them at the time of their
examinations.
The provisions for loan losses for the years ended December 31, 1997, 1996
and 1995 were $432,000, $700,000 and $600,000, respectively. A significant
decrease in problem loans resulted in a lower provision in 1997. The increases
in 1996 and 1995 were a result of the increase in loans during those years.
The ALLL was $2,646,000 or 1.15% of total loans as of December 31, 1997 as
compared to $3,121,000 or 1.46% of total loans as of December 31, 1996. See
"Allowance for Loan and Lease Losses."
Other Operating Income. Total other operating income for the year ended
December 31, 1997 increased $528,000 or 26.24% to $2,540,000 from $2,012,000 in
1996. The increase was primarily a result of an increase in service charges from
the
II-4
<PAGE> 14
increase in deposit accounts, new service charges implemented during 1997,
and an increase in the gain (loss) on sale of investment securities.
Total other operating income for the year ended December 31, 1996 increased
$364,000 or 22.09% to $2,012,000 from $1,648,000 in 1995. The increase was
primarily a result of an increase in service charges and other fees resulting
from deposit relationships acquired in the RB Merger and the Company's internal
growth in deposits during the year.
Other Operating Expenses. Total other operating expenses for the year
ended December 31, 1997 increased $740,000 or 5.38% to $14,492,000 from
$13,752,000 for 1996. The most significant increase was in salaries and employee
benefits, which increased $1,019,000 or 15.16% due to employees added in the
acquisition of the Valley Center branch in February 1997 and an increase in
bonus and incentive payouts to employees, partially offset by a significant
reduction in the number of full-time equivalent employees during the year.
Occupancy expense increased $134,000 or 9.56% and furniture and equipment
expense increased $21,000 or 1.89% as a result of adding the Valley Center
location, offset by cost-cutting measures taken during the year. Amortization of
goodwill and other intangibles increased by $119,000 or 46.67% during 1997
resulting from the core deposit intangible recorded in the Valley Center branch
acquisition. Net OREO expenses decreased by $403,000 or 79.33% due to a
significant decrease in OREO balances during 1997, and professional services
decreased by $494,000 or 24.02% as a result of reduction of legal fees and
converting to in-house data processing in July of 1996. The balance of other
noninterest expenses increased $344,000 or 20.28% as a result of the Company's
growth.
Total other operating expenses for the year ended December 31, 1996 increased
$1,666,000 or 13.78% to $13,752,000 from $12,086,000 in 1995. The most
significant increase was in salaries and employee benefits, which increased
$1,098,000 or 19.52% primarily due to the acquisition of RB Bancorp and the
opening of two new branches during 1996. For the same reasons, occupancy expense
increased $237,000 or 20.36% and furniture and equipment expense increased
$274,000 or 32.70%. Additional amortization of goodwill in 1996 resulting from
the RB Merger was $175,000 or an increase of 218.75% over 1995. Conversely, net
OREO expenses decreased by $237,000 or 31.81% due to a significant decrease in
OREO balances during 1996. The FDIC assessment also decreased $218,000 or
86.51%, as a result of a restructuring of FDIC assessment rates effective in
1996. The balance of other noninterest expenses increased $337,000 or 9.96% as a
result of the Company's growth offset by continued cost-cutting measures taken
during 1996.
Income Taxes. The Company recorded income tax expense of $3,174,000 in
1997 as compared to net income tax benefits of $922,000 and $828,000 in 1996 and
1995, respectively. The Company's effective tax rate was approximately 42%
during 1997 as compared to benefits recorded during 1996 and 1995. Management
believes that the realization of the $144,000 in net deferred tax assets as of
December 31, 1997 is more likely than not, based on the expectation that the
Company will generate the necessary amount of taxable income in future periods.
Certain of the acquired net operating loss carryforwards are subject to
limitation.
LIQUIDITY AND ASSET/LIABILITY MANAGEMENT
Effective asset/liability management includes maintaining adequate liquidity
and minimizing the impact of future interest rate changes on net interest
income. The responsibility for monitoring the Company's liquidity and the
sensitivity of its interest-earning assets and interest-bearing liabilities lies
with the executive committee of FPNB which meets each week to review liquidity,
investment strategies, loan demand and the adequacy of funding sources.
Liquidity. The objective of liquidity management is to maintain a
balance between sources and uses of funds in such a way that the cash
requirements of customers for loans and deposit withdrawals are met in the most
economical manner. Management of FPNB monitors its liquidity position
continuously in relation to trends of loans and deposits for short-term as well
as long-term requirements. Liquid assets are monitored on a daily basis to
assure maximum utilization. The Company also manages its liquidity requirements
by maintaining an adequate level of readily marketable assets and access to
short-term funding sources. This is primarily accomplished through investing in
U.S. Government Agency securities, various low-risk mortgage-backed securities
and overnight Federal funds.
The Company defines liquid assets as cash and due from banks, overnight
Federal funds sold, interest-earning deposits and investment securities
available-for-sale. The Company's ratios of liquid assets to deposits and
Federal funds purchased and other borrowings were 25.92% and 25.00% as of
December 31, 1997 and December 31, 1996, respectively.
The Company's overall liquidity position is enhanced by a sizable
concentration of total deposits less certificates of deposit of $100,000 or more
("Core Deposits") which management believes provides a stable and relatively
inexpensive funding base. Average Core Deposits totaled $267,164,000 or 89.33%
of average deposits for the year ended December 31, 1997 compared to
$216,928,000 or 90.05% of average deposits for the year ended December 31, 1996
and $165,176,000 or 91.56% of average deposits for the year
II-5
<PAGE> 15
ended December 31, 1995.
Other than the investment securities portfolios (see "Investment
Portfolios"), the Company may sell excess funds as overnight Federal funds sold
to provide an immediate source of liquidity. There were no Federal funds sold as
of December 31, 1997 or 1996. Federal funds sold were $2,000,000 as of December
31, 1995.
The level of deposits may fluctuate significantly due to seasonal business
cycles of depository customers. Similarly, the level of demand for loans may
vary significantly and at any given time may increase or decrease substantially.
However, unlike the level of deposits, management has more direct control over
lending activities and maintains the level of those activities according to the
amounts of available funds.
As of December 31, 1997, the Company had lines of credit in the amount of
$12,000,000 from correspondent banks, of which $3,100,000 was outstanding as of
December 31, 1997. The lines are renewable annually. The Company also had a
credit line with the Federal Home Loan Bank (the "FHLB"), which would allow the
Company to borrow up to $18,000,000. Borrowings of $8,000,000 were outstanding
on the FHLB line as of December 31, 1997. In addition, the Company had
arrangements for reverse repurchase agreements with an investment broker in the
amount of $40,000,000, none of which was outstanding as of December 31, 1997.
The availability of the lines of credit, as well as adjustments in deposit
programs, provide for liquidity in the event that the level of deposits should
fall abnormally low. These sources of funding may be withdrawn depending upon
the financial strength of FPNB.
FP Bancorp's operations consist primarily of regulatory reporting, raising
capital and planning business strategies. In recent years, FP Bancorp's primary
source of liquidity has been the proceeds from two private offerings completed
in November of 1994, which raised net proceeds of approximately $3,034,000 (the
"Private Offerings"). FP Bancorp's current liquidity is sufficient to permit it
to operate as it has in the past.
INTEREST RATES
While no single measure can completely identify the impact of changes in
interest rates on net interest income, one gauge of interest rate sensitivity is
to measure, over a variety of time periods, the differences in the amounts of
the Company's rate-sensitive assets and rate-sensitive liabilities. These
differences or "gaps" provide an indication of the extent to which net interest
income may be affected by future changes in interest rates. A "positive gap"
exists when rate-sensitive assets exceed rate-sensitive liabilities and
indicates that a greater volume of assets than liabilities will reprice during a
given period. This mismatch may enhance earnings in a rising interest rate
environment and may inhibit earnings in a declining interest rate environment.
Conversely, when rate-sensitive liabilities exceed rate-sensitive assets,
referred to as a "negative gap," it indicates that a greater volume of
liabilities than assets will reprice during the period. In this case, a rising
interest rate environment may inhibit earnings and a declining interest rate
environment may enhance earnings. The cumulative one-year contractual gap as of
December 31, 1997 was $(85,546,000), representing (27.20%) of interest-earning
assets.
II-6
<PAGE> 16
The following table presents the Company's contractual gap position as of
December 31, 1997.
CONTRACTUAL GAP POSITION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
IMMEDIATELY
ADJUSTABLE 1 DAY
OR 1 DAY THROUGH 4 THROUGH 7 THROUGH OVER 12
MATURITY 3 MONTHS 6 MONTHS 12 MONTHS MONTHS TOTAL
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Investments
available-for-sale ....... $ 0 $ 0 $ 0 $ 0 $ 59,366 $ 59,366
Investments
held-to-maturity ......... 0 0 0 375 23,103 23,478
Loans(1)
Installment ............. 7,826 60 95 186 7,683 15,850
Real estate equity
lines of credit ........ 9,031 0 0 0 0 9,031
Long-term real estate ... 5,714 0 0 0 1,034 6,748
Other ................... 128,596 3,687 927 4,529 62,343 200,082
--------- --------- --------- --------- --------- ---------
Total interest-earning
assets .................... $ 151,167 $ 3,747 $ 1,022 $ 5,090 $ 153,529 314,555
========= ========= ========= ========= =========
Other noninterest-earning
assets .................... 38,649
---------
Total Assets ................ $ 353,204
=========
LIABILITIES
Interest-bearing liabilities:
Demand deposits ........... $ 120,784 $ 0 $ 0 $ 0 $ 0 $ 120,784
Savings accounts .......... 20,096 0 0 0 0 20,096
Certificates of deposit ... 1,912 39,304 20,081 28,720 3,810 93,827
Debentures ................ 0 4,575 0 0 0 4,575
Federal funds purchased,
Debentures and other
borrowings ................ 11,100 0 0 0 0 11,100
--------- --------- --------- --------- --------- ---------
Total interest-bearing
liabilities ............... $ 153,892 $ 43,879 $ 20,081 $ 28,720 $ 3,810 250,382
========= ========= ========= ========= =========
Noninterest-bearing
deposits .................. 74,795
Other liabilities ........... 1,838
Stockholders' equity ........ 26,189
---------
Total Liabilities &
Stockholders' Equity ....... $ 353,204
=========
Rate Sensitive Assets less
Rate Sensitive Liabilities
(gap) ...................... $ (2,725) $ (40,132) $ (19,059) $ (23,630) $ 149,719
Gap/interest-earning assets . (0.87%) (12.76%) (6.06%) (7.51%) 47.60%
Cumulative gap .............. $ (2,725) $ (42,857) $ (61,916) $ (85,546) $ 64,173
Cum. Gap/interest-earning
assets ..................... (0.87%) (13.62%) (19.68%) (27.20%) 20.40%
</TABLE>
- ---------------
(1) Loan balances include nonaccrual loans of $614,000 as of December 31, 1997.
The Company actively manages its interest rate gap position. The objectives
of interest rate risk management are to control exposure of net interest income
to risks associated with interest rate movements, achieve consistent growth in
net interest income, and profit from favorable market opportunities. The Company
manages its rate gap position by adjusting the repricing characteristics of its
assets and liabilities. However, even with perfectly matched repricing of assets
and liabilities, interest rate risk cannot be avoided entirely. Interest rate
risk remains in the form of prepayment risk of assets or liabilities and risks
related to differences in the timing and indices for interest rate adjustments
for assets and liabilities with adjustable interest rates.
II-7
<PAGE> 17
The following table presents the Company's financial instruments that are
sensitive to changes in interest rates, categorized by expected maturity, and
the instruments' fair values as of December 31, 1997. Market-risk-sensitive
instruments are generally defined as on and off balance sheet derivatives and
other financial instruments.
<TABLE>
<CAPTION>
MARKET-RISK-SENSITIVE INSTRUMENTS
(DOLLARS IN THOUSANDS)
Expected Maturity Date at December 31, 1997
--------------------------------------------------------------------------------------------
Total
1998 1999 2000 2001 2002 Thereafter Balance Fair Value
-------- -------- -------- -------- -------- -------- -------- --------
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-SENSITIVE ASSETS:
Investment securities - AFS(1) $ 16,160 $ 9,499 $ 5,840 $ 3,014 $ 2,389 $ 22,464 $ 59,366 $ 59,366
Average interest rate 7.16% 7.84% 7.39% 7.39% 7.39% 7.39% 7.38%
Investment securities - HTM(1) 3,335 1,812 0 209 2,235 15,887 23,478 23,780
Average interest rate 7.45% 8.00% 0% 8.40% 7.16% 6.99% 7.33%
Loans receivable:(2)
Real estate 26,061 26,044 14,912 11,162 12,300 32,619 123,098 122,972
Average interest rate 10.00% 9.67% 9.69% 9.60% 9.40% 9.01% 9.42%
Construction 6,753 865 0 0 480 281 8,379 8,304
Average interest rate 10.09% 9.41% 0% 0% 10.00% 9.41% 9.92%
Commercial 34,828 6,520 7,641 7,776 6,681 20,938 84,384 81,470
Average interest rate 10.86% 10.29% 9.90% 10.01% 9.81% 9.76% 10.25%
Installment 2,557 1,889 1,799 2,323 1,983 5,299 15,850 15,665
Average interest rate 14.61% 9.93% 9.73% 9.25% 9.45% 9.95% 10.43%
-------- -------- -------- -------- -------- -------- -------- --------
Total Interest-Sensitive
Assets $ 89,694 $ 46,629 $ 30,192 $ 24,484 $ 26,068 $ 97,488 $314,555 $311,557
======== ======== ======== ======== ======== ======== ======== ========
INTEREST-SENSITIVE LIABILITIES:
Deposits:(3)
Checking $ 64,012 $ 0 $ 0 $ 0 $ 0 $ 0 $ 64,012 $ 64,012
Average interest rate 0.92% 0 0 0 0 0 0.92%
Savings 20,096 0 0 0 0 0 20,096 20,096
Average interest rate 1.98% 0 0 0 0 0 1.98%
Money market 56,772 0 0 0 0 0 56,772 56,772
Average interest rate 3.30% 0 0 0 0 0 3.30%
Time certificates 89,375 3,715 453 73 211 0 93,827 94,059
Average interest rate 5.44% 5.51% 5.94% 5.17% 5.41% 0 5.45%
Borrowings:
Debentures, Federal funds
purchased and securities
sold under agreement to
repurchase 15,675 0 0 0 0 0 15,675 20,250
Average interest rate 7.32% 0 0 0 0 0 7.32%
-------- -------- -------- -------- -------- -------- -------- --------
Total Interest-Sensitive
Liabilities $245,930 $ 3,715 $ 453 $ 73 $ 211 $ 0 $250,382 $255,189
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
- ----------
(1) Expected maturities are based upon contractual maturities adjusted for call
dates on U.S. government agencies and municipal bonds and prepayments to
principal on mortgage-backed securities. The Company obtained current market
speeds for each mortgage-backed security, with CPR's ranging from 5.90% to
24.33%. The actual maturities of these instruments could vary substantially
if future prepayments differ from the street projections.
(2) Expected maturities are based upon contractual maturities adjusted for
prepayments to principal. The Company used certain assumptions to estimate
fair values and expected maturities. The prepayment experience reflected
herein is based on the Company's historical experience. Prepayment
assumptions of 10%, 50%, 50% and 5% of fixed-rate loans per year were used
for commercial, real estate, construction and installment, respectively. The
actual maturities of these instruments could vary substantially if future
prepayments differ from the Company's historical experience.
(3) Expected maturities are based upon contractual maturities. The Company has
not factored in core deposit information. The data on deposits acquired
during the year was not segregated between interest-bearing and non-interest
bearing.
II-8
<PAGE> 18
INVESTMENT PORTFOLIOS
The Company invests funds not used for capital expenditures or lending
purposes in U.S. Government agency bonds, step up bonds, mortgage-backed
securities, and tax-exempt municipal bonds. Obligations of U.S. Government
agencies include callable or noncallable agency bonds and step up bonds which
have no risk as to loss of principal. Mortgage-backed securities include
collateralized mortgage obligations and mortgage-backed security pools with
balloon principal payments. The collateralized mortgage obligations in the
Company's investment securities portfolios are "low risk" as defined by
applicable bank regulations and are diverse as to collateral and interest rates
of the underlying mortgages. The mortgage-backed securities are diverse as to
interest rates and guarantors. Investment maturities range from less than one
year to over ten years for U.S. Government agency bonds, step up bonds,
mortgage-backed securities and municipal bonds.
Investment securities available-for-sale as of December 31, 1997 were
$59,366,000, an increase of $11,961,000 or 25.23% from $47,405,000 as of
December 31, 1996. The increase was primarily due to purchases of $38,866,000
partially offset by sales of $20,752,000 and maturities of $6,323,000.
Investment securities held-to-maturity increased to $23,478,000 as of December
31, 1997 from $9,279,000 as of December 31, 1996, an increase of $14,199,000 or
153.02%. The increase was primarily due to purchases of $15,828,000, partially
offset by maturities of $1,691,000. The majority of held-to-maturity purchases
were made to start a municipal bond portfolio for the Company for tax purposes.
Investment securities available-for-sale as of December 31, 1996 were
$47,405,000, an increase of $19,824,000 or 71.88% from $27,581,000 as of
December 31, 1995. The increase was primarily due to $43,244,000 in purchases,
partially offset by the sale of $21,702,000 in securities and maturities of
$4,504,000. Investment securities held-to-maturity increased to $9,279,000 as of
December 31, 1996 from $7,753,000 as of December 31, 1995, an increase of
$1,526,000 or 19.68%, primarily due to purchases of $1,997,000 partially offset
by maturities of $446,000.
The table below presents the composition of the Company's investment
portfolios as of the dates indicated.
INVESTMENT PORTFOLIOS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------------
1997 1996 1995
-------------------- --------------------- ----------------------
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE COST VALUE
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
AVAILABLE-FOR-SALE:
U.S. Government agencies ... $12,999 $13,153 $ 9,989 $10,062 $11,285 $11,379
Mortgage-backed
securities ............... 43,314 43,653 35,223 35,256 15,472 15,662
Equity bank stock .......... 2,560 2,560 2,087 2,087 540 540
------- ------- ------- ------- ------- -------
Total Available-for-sale ... $58,873 $59,366 $47,299 $47,405 $27,297 $27,581
======= ======= ======= ======= ======= =======
HELD-TO-MATURITY:
U.S. Government agencies ... $ 3,573 $ 3,607 $ 1,000 $ 995 $ 0 $ 0
Step up bonds .............. 997 1,004 997 997 0 0
Mortgage-backed
securities ............... 6,365 6,315 7,079 6,978 7,549 7,441
Municipal Bonds ............ 12,341 12,647 0 0 0 0
Corporate notes ............ 202 207 203 211 204 218
------- ------- ------- ------- ------- -------
Total Held-to-maturity .... $23,478 $23,780 $ 9,279 $ 9,181 $ 7,753 $ 7,659
======= ======= ======= ======= ======= =======
</TABLE>
II-9
<PAGE> 19
The following table presents the maturity distribution based on fair value of
the investment portfolios as of the date indicated.
INVESTMENT PORTFOLIOS -- MATURITY DISTRIBUTION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------
FAIR YIELD
VALUE (TE)
----- ----
<S> <C> <C>
AVAILABLE-FOR-SALE:
U.S. Government agencies:
After five years through ten years $11,134 7.35%
Over ten years ................... 2,019 7.50%
Mortgage-backed securities:
After one year through five years 1,010 7.49%
Over ten years ................... 42,643 7.38%
Equity bank stock(1) ............... 2,560 6.00%
-------
Total Available-for-sale ........... $59,366
=======
HELD-TO-MATURITY:
U.S. Government agencies:
After five years through ten years $ 1,010 7.04%
Over ten years ................... 2,597 8.00%
Step up bonds:
Over ten years ................. 1,004 6.75%
Mortgage-backed securities:
After one year through five years 375 5.94%
After five years through ten years 2,035 5.34%
Over ten years ................... 3,905 4.85%
Municipal bonds:
Over ten years ................... 12,647 7.68%
Other:
After one year through five years 207 8.01%
-------
Total Held-to-maturity ............. $23,780
=======
</TABLE>
- ---------------
(1) Equity bank stock has no maturity.
LOAN PORTFOLIO
The Company's net loans were $227,856,000 as of December 31, 1997, an
increase of $16,980,000 or 8.05% from $210,876,000 as of December 31, 1996. The
increase was primarily attributable to new loan growth generated through active
business development efforts and an improving economy.
The Company's ratio of net loans to total deposits was 73.62% as of December
31, 1997. Typically, the Company maintains a ratio of loans to total deposits of
between 70% and 85%. The loan portfolio primarily consists of commercial and
real estate loans (including real estate term loans, construction loans and
other loans secured by real estate). However, the Company adjusts its mix of
lending and the terms of its loan programs according to market conditions and
other factors. The Company's loans are typically made to businesses and
individuals located within the Company's market area, most of whom have account
relationships with FPNB. There is no concentration of loans exceeding 10% of
total loans which is not disclosed in the categories presented below. The
Company has not made any loans to foreign governments, banks, businesses or
individuals. Commercial, real estate and construction loans in the Company's
portfolio are primarily variable rate loans and have little interest rate risk.
II-10
<PAGE> 20
The table below presents the composition of the Company's loan portfolio as
of the dates indicated.
LOAN PORTFOLIO(1)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Commercial .... $ 84,384 $ 80,894 $ 62,867 $ 60,252 $ 62,629
Real Estate ... 123,098 108,530 68,448 48,391 43,436
Construction .. 8,379 14,507 6,204 9,795 6,192
Installment ... 15,850 12,371 7,515 2,739 4,499
-------- -------- -------- -------- --------
Gross Loans . $231,711 $216,302 $145,034 $121,177 $116,756
======== ======== ======== ======== ========
</TABLE>
- -------------------
(1) Loans are not net of ALLL, deferred loan fees and discounts of $3,855,000,
$5,426,000, $3,104,000, $2,994,000 and $4,282,000 as of December 31, 1997,
1996, 1995, 1994 and 1993, respectively.
Commercial Loans. Commercial loans accounted for 36.42% of the Company's
loan portfolio as of December 31, 1997. Such loans are generally made to provide
operating lines of credit, to finance the purchase of inventory or equipment,
and for other business purposes. Commercial loans are primarily made at rates
that adjust with changes in the prevailing prime interest rate, are generally
made for a maximum term of one year (unless they are term loans), and generally
require interest payments to be made monthly. Typically, loans over one year
require monthly principal and interest payments. The creditworthiness of the
borrower is reviewed, analyzed, and evaluated on a periodic basis. Most
commercial loans are collateralized with business assets such as accounts
receivable, inventory, and equipment. Even with substantial collateralization
such as all the assets of the business and personal guarantees, commercial
lending involves considerable risk of loss in the event of a business downturn
or failure of the business.
Real Estate Loans. Real estate loans accounted for 53.12% of the
Company's loan portfolio as of December 31, 1997. Real estate term lending,
especially lending secured by vacant land, involves risks that real estate
values in general will fall and that the value of the particular real estate
security for a loan will fall. The Company makes commercial and industrial real
estate term loans that are typically secured by a first trust deed. These loans
are generally made for a maximum of five years, typically with a floating
interest rate based on the prevailing prime interest rate, or with a fixed rate
of interest, and with a 15- to 30-year payment amortization. Such loans are
usually made for a maximum of 75% of the appraised value of the collateral.
Construction Loans. Construction loans accounted for 3.62% of the
Company's loan portfolio as of December 31, 1997. Most construction loans are
made to individuals for the purpose of financing the construction of residences
they intend to occupy upon completion of construction. Other construction loans
are primarily made to owners of property who will use the proceeds to build or
develop property for sale upon completion of construction. Construction loans
are generally provided for a maximum of 80% of the appraised value of the
collateral for terms of up to 18 months at floating interest rates based on the
prevailing prime interest rate. Construction loans are provided to customers who
have a demonstrated financial ability to complete the project being financed, a
cash investment in the project, cash flow sufficient to service the debt and
strong financial stability and integrity in the judgment of management. The
borrower is usually prequalified for long-term financing at the time the
construction loan is evaluated. Construction lending differs from other types of
real estate lending because of uncertainties inherent in estimating construction
costs, the length of the construction period, the market for the project upon
completion and, in the case of a property intended for sale or rent, the time
for lease-up or sale. If permanent financing is not obtained by the borrower or
construction is not completed, the risk of default rises. Construction lending
also involves risks that real estate values in general will decrease and that
the value of the particular real estate security for a loan will decrease.
Installment Loans. Installment loans accounted for 6.84% of the
Company's loan portfolio as of December 31, 1997. The Company's installment
loans are primarily for vehicle and aircraft purchases, home improvement and
personal loans. Vehicle financing involves the risk that collateral will decline
in value faster than the balance of the loan it secures.
II-11
<PAGE> 21
Loan Maturity and Interest Rate Sensitivity. The following table
presents the maturity of commercial, real estate, construction and installment
loans outstanding as of December 31, 1997, indicated according to contract
terms.
LOAN MATURITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
WITHIN ONE ONE TO FIVE AFTER FIVE
YEAR YEARS YEARS TOTAL
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Commercial ... $ 32,839 $ 20,662 $ 30,883 $ 84,384
Real Estate .. 17,545 55,854 49,699 123,098
Construction . 5,888 480 2,011 8,379
Installment .. 2,175 6,466 7,209 15,850
-------- -------- -------- --------
$ 58,447 $ 83,462 $ 89,802 $231,711
======== ======== ======== ========
</TABLE>
The following table presents the interest rate sensitivity of loans maturing
after one year as of December 31, 1997.
INTEREST RATE SENSITIVITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C>
Fixed interest rates.......... $ 71,060
Variable interest rates....... 102,204
----------
Total Loans Maturing
After One Year.......... $ 173,264
==========
</TABLE>
Nonperforming Assets. Interest on loans is normally accrued from the
date a disbursement is made and recognized as income as it is accrued. The
Company reviews any loan on which payment has not been made for 90 days for
potential nonaccrual. The loan is examined and the collateral is reviewed to
determine loss potential. If the loan is placed on nonaccrual, any prior accrued
interest which remains unpaid is reversed. Classification of a loan as
nonaccrual does not necessarily mean that the loan will be charged off in the
future. The $614,000 of loans classified as nonaccrual on December 31, 1997
consisted of $394,000 in loans secured by real estate and $220,000 in commercial
loans. The amount of interest income on nonaccrual and restructured loans that
are deemed to be fully collectable is included in net earnings for the years
ended December 31, 1997, 1996 and 1995 in the amounts of $42,000, $65,000 and
$49,000, respectively.
The Company has established a monitoring system for its loans in order to
identify potential problem loans and to permit the periodic evaluation of
impairment and the adequacy of the allowance for loan losses in a timely manner.
Impaired loans included in the Company's loan portfolio as of December 31, 1997
and 1996 were $996,000 and $2,506,000, respectively, which had an aggregate
specific related allowance amounts of $81,000 and $358,000, respectively. The
measurement of impairment may be based on (i) the present value of the expected
future cash flows of the impaired loan discounted at the loan's original
effective interest rate, (ii) the observable market prices of the impaired loan
or (iii) the fair value of the collateral of a collateral-dependent loan. The
amount by which the recorded investment of the loan exceeds the measure of the
impaired loan is recognized by recording a valuation allowance with a
corresponding charge to the provision for loan losses. During 1997, 1996 and
1995 the average balances of impaired loans were $1,699,000, $2,489,000 and
$2,402,000, respectively. During 1997, 1996 and 1995, respectively, $15,000,
$65,000 and $81,000 of interest was recognized on these loans during the period
of impairment on a cash basis in accordance with Company policy.
As of December 31, 1997 and 1996, troubled debt restructurings ("TDR's")
amounted to $525,000 and $717,000, respectively. The Company has not committed
to lend any additional funds to those borrowers under TDR's, and TDR's are
current in accordance with their modified terms. Interest recorded on the TDR's
was $52,000 and $64,000 for the years ended December 31, 1997 and 1996,
respectively.
II-12
<PAGE> 22
The following table presents information with respect to the Company's past
due loans and the components of nonperforming assets as of the dates indicated.
NONPERFORMING ASSET TRENDS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Nonperforming loans:
Loans 90 days or more past due and
still accruing interest .......... $ 41 $ 774 $ 0 $ 6 $ 1,018
Loans on nonaccrual ............... 614 1,374 735 2,587 6,690
------- ------- ------- ------- -------
Total nonperforming loans ........... 655 2,148 735 2,593 7,708
Other real estate owned ............. 1,260 1,329 3,139 5,044 5,202
------- ------- ------- ------- -------
Total Nonperforming Assets ..... $ 1,915 $ 3,477 $ 3,874 $ 7,637 $12,910
======= ======= ======= ======= =======
Interest income which would have been
recorded under original terms
for loans on nonaccrual basis ..... $ 125 $ 111 $ 52 $ 122 $ 378
</TABLE>
Nonperforming assets totaled $1,915,000 or .83% of total loans, leases and
OREO as of December 31, 1997, as compared to $3,477,000 or 1.61% as of December
31, 1996. The following table presents the balance of nonperforming assets by
type as of December 31, 1997.
NONPERFORMING ASSETS BY TYPE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMERCIAL REAL ESTATE CONSTRUCTION INSTALLMENT TOTAL
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Nonperforming
loans:
Current ....... $ 0 $ 20 $ 0 $ 21 $ 41
Noncurrent .... 219 395 0 0 614
Other real estate
owned ......... 335 925 0 0 1,260
------ ------ ------ ------ ------
$ 554 $1,340 $ 0 $ 21 $1,915
====== ====== ====== ====== ======
</TABLE>
Allowance for Loan and Lease Losses. The Company maintains an ALLL which
it considers adequate to cover the risk of losses in the loan portfolio. The
ALLL is based upon management's ongoing evaluation of the quality of the loan
portfolio, total outstanding and committed loans, previous charges against the
allowance and current and anticipated economic conditions. In making its
evaluation, the Company takes into account the results of regulatory
examinations of the Company and FPNB, which can be expected to occur at least
once each year. The Comptroller completed its most recent examinations of FPNB
in August 1997 and August 1996. As a result of the examinations the allowance
was found to be adequate and no additional provision for loan losses was
required. The Company's management believed that as of December 31, 1997 the
allowance was adequate. The amount of the provision for loan losses is a charge
against earnings. Actual loan losses are charged against the ALLL.
Each quarter the management of the Company conducts a thorough analysis of
the composition of the Company's loan portfolio, examines historical information
with regard to charged off loans in each category and determines the adequacy of
the allowance for loan losses based on its analysis. The Company's loan loss
allowance is typically maintained at a level deemed adequate to provide for
known and inherent losses in the loan portfolio. The Company believes that as of
December 31, 1997 the allowance was adequate based on its then current analysis.
No assurance can be given that unforeseen adverse economic conditions or other
circumstances will not result in increased provisions for loan losses in the
future. Additionally, regulatory examiners may require the Company to recognize
additions to the allowance based upon their judgment about information available
to them at the time of their examinations.
The provisions for loan losses for the years ended December 31, 1997 and 1996
were $432,000 and $700,000, respectively. The decrease in the provision during
1997 was due to the significant decrease in problem loans compared to 1996. The
provisions for loan losses for the year ended December 31, 1996 was $700,000 as
compared to $600,000 in 1995. The increase in 1996 as compared to 1995 was due
to the increase in the size of the loan portfolio during the year.
The provisions for loan losses for the years ended December 31, 1995, 1994
and 1993 were $600,000, $0 and $3,106,000, respectively. A significant provision
was recorded during 1993 primarily to provide for increased potential loan
losses due to the deterioration of local real estate markets.
As of December 31, 1997, the ALLL totaled $2,646,000 or 1.15% of total loans
as compared to $3,121,000 or 1.46% of total loans as of December 31, 1996. As of
December 31, 1997 and 1996, the ALLL represented 403.97% and 145.30%,
respectively, of
II-13
<PAGE> 23
nonperforming loans. Management believes that the ALLL as a percent of
nonperforming loans is appropriate given the inherent risk in the portfolio.
As of December 31, 1996, the ALLL totaled $3,121,000 or 1.46% of total loans
as compared with $2,013,000 or 1.40% of total loans as of December 31, 1995. As
of December 31, 1996 and 1995, the ALLL was 145.30% and 273.88%, respectively,
of nonperforming loans. The ALLL increased by $1,108,000 as of December 31, 1996
as compared to December 31, 1995, due to the addition of the ALLL recorded as a
result of the RB Merger of $790,000, the ALLL recorded as a result of the
purchase of a real estate note pool of $500,000 and a provision of $700,000 less
net charge-offs of $882,000.
Net charge-offs for the Company increased to $1,191,000 from $882,000 for the
years ended December 31, 1997 and 1996, respectively, primarily due to the
resolution of a number of large real estate loans. The percentages of net
charge-offs to average loans for the years ended December 31, 1997 and 1996 were
.53% and .48%, respectively.
The following table presents charged-off loans, provisions for loan losses,
recoveries on loans previously charged off, allowance adjustments and the amount
of the ALLL for the dates indicated.
ANALYSIS OF ALLOWANCE FOR LOAN AND LEASE LOSSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $3,121 $2,013 $2,666 $3,830 $4,793
Loan charge-offs:
Commercial .................. 533 834 501 510 993
Real estate ................. 767 58 1,838 853 3,225
Construction ................ 0 460 0 0 0
Installment ................. 138 66 114 98 267
------ ------ ------ ------ ------
Total loan charge-offs ........ 1,438 1,418 2,453 1,461 4,485
Less recoveries:
Commercial .................. 194 278 238 154 347
Real Estate ................. 28 212 14 96 27
Construction ................ 8 10 101 0 0
Installment ................. 17 36 44 47 42
------ ------ ------ ------ ------
Total loan recoveries ......... 247 536 397 297 416
------ ------ ------ ------ ------
Net loan charge-offs ........ 1,191 882 2,056 1,164 4,069
Provisions for loan losses .... 432 700 600 0 3,106
Allowance adjustment (1) ...... 284 1,290 803 0 0
------ ------ ------ ------ ------
Balance at End of Period ...... $2,646 $3,121 $2,013 $2,666 $3,830
====== ====== ====== ====== ======
Ratio of net loan charge-offs
during the period to average
loans outstanding for the
period ....................... 0.53% .48% 1.51% 1.03% 3.16%
Ratio of loan recoveries during
the period to charge-offs
during the period ............ 17.18% 37.80% 16.18% 20.33% 9.28%
</TABLE>
- -------------
(1) Represents allowance acquired in the Overland Merger in 1995, the RB Merger
and a real estate note pool acquisition in 1996 and an additional purchase
accounting adjustment in 1997 related to the real estate note pool
acquisition.
II-14
<PAGE> 24
The following table presents the allocation of the ALLL as of the dates
indicated. Notwithstanding these allocations, the entire allowance for loan
losses is available to absorb charge-offs in any category of loans.
ALLOCATION OF ALLOWANCE FOR LOAN AND LEASE LOSSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------------
1997 1996 1995
---------------------- --------------------- -------------------------
PERCENT OF PERCENT OF PERCENT OF
LOANS IN LOANS IN LOANS IN
ALLOWANCE EACH ALLOWANCE EACH ALLOWANCE EACH
FOR LOAN CATEGORY FOR LOAN CATEGORY FOR LOAN CATEGORY
AND LEASE TO TOTAL AND LEASE TO TOTAL AND LEASE TO TOTAL
LOSSES LOANS LOSSES LOANS LOSSES LOANS
------ ------- ------ -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Commercial .. $ 769 36.42% $ 978 37.40% $ 626 43.35%
Real Estate . 1,229 53.13% 1,785 50.17% 1,037 47.19%
Construction 106 3.62% 113 6.71% 71 4.28%
Installment . 90 6.83% 116 5.72% 84 5.18%
Unallocated . 452 N/A 129 N/A 195 N/A
------ ------- ------ -------- -------- -------
Total ....... $2,646 100.00% $3,121 100.00% $2,013 100.00%
====== ======= ====== ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------
1994 1993
---------------------- ---------------------
PERCENT OF PERCENT OF
LOANS IN LOANS IN
ALLOWANCE EACH ALLOWANCE EACH
FOR LOAN CATEGORY FOR LOAN CATEGORY
AND LEASE TO TOTAL AND LEASE TO TOTAL
LOSSES LOANS LOSSES LOANS
------ ------ ------ --------
<S> <C> <C> <C> <C>
Commercial .. $ 643 49.73% $1,668 53.64%
Real Estate . 1,100 39.93% 1,320 37.20%
Construction 81 8.08% 400 5.30%
Installment . 32 2.26% 95 3.86%
Unallocated . 810 N/A 347 N/A
------ ------- ------ -------
Total ...... $2,666 100.00% $3,830 100.00%
====== ======= ====== =======
</TABLE>
Credit Risk Management. The risk of nonpayment of loans is an inherent
aspect of commercial banking. The degree of perceived risk is taken into account
in establishing the structure of, and interest rates and security for, specific
loans and various types of loans. The Company strives to minimize its credit
risk exposure by its credit underwriting standards and loan policies and
procedures. Management continually evaluates the credit risks of such loans and
believes it has provided adequately for the credit risks associated with these
loans. The Company has implemented and expects to continue to implement and
update new policies and procedures to maintain its credit risk management
systems.
PREMISES AND EQUIPMENT, ACCRUED INTEREST AND OTHER ASSETS AND GOODWILL AND OTHER
INTANGIBLES
Premises and equipment, accrued interest and other assets and goodwill and
other intangibles were $17,507,000 as of December 31, 1997, an increase of
$730,000 or 4.35% from $16,777,000 as of December 31, 1996. The increase was
primarily due to the purchase of keyman life insurance in the amount of
$1,585,000, and a core deposit intangible recorded as a result of the
acquisition of the Wells Fargo, N.A. Valley Center office of $1,038,000. The
balance of the increase was due to the Company's growth during 1997.
DEPOSITS
Average deposits were $299,074,000 for the year ended December 31, 1997, an
increase of $58,190,000 or 24.16% from $240,884,000 of average deposits for the
year ended December 31, 1996. As of December 31, 1997, total deposits were
$309,502,000, representing an increase of $44,981,000 or 17.00% from
$264,521,000 in total deposits as of December 31, 1996. The increase in deposits
during 1997 was due to the acquisition of $16,838,000 in deposits from Wells
Fargo Bank, N.A. in February 1997 combined with internal growth throughout the
other FPNB branches.
Average deposits were $240,884,000 for the year ended December 31, 1996, an
increase of $60,491,000 or 33.53% from $180,393,000 of average deposits for the
year ended December 31, 1995. As of December 31, 1996, total deposits were
$264,521,000, representing an increase of $78,857,000 or 42.47% from
$185,664,000 in total deposits as of December 31, 1995. The increase in deposits
during 1996 was primarily due to the $54,920,000 in deposits acquired from RB
Bancorp combined with significant internal growth throughout the other FPNB
branches.
II-15
<PAGE> 25
The Company has historically maintained demand deposits of greater than 50%
of total deposits, largely due to its strategy of targeting the deposits of
small to medium-sized businesses and professionals and its practice of
encouraging business borrowers to maintain compensating balances. For the year
ended December 31, 1997, average demand deposits were $195,153,000 or 65.25% of
average deposits. For the year ended December 31, 1996, average demand deposits
were $156,362,000 or 64.91% of average deposits. For the year ended December 31,
1995, average demand deposits were $117,325,000 or 65.04% of average deposits.
Average noninterest-bearing demand deposits accounted for 23.19% of average
deposits for the year ended December 31, 1997, 21.97% of average deposits for
the year ended December 31, 1996 and 20.64% of average deposits for the year
ended December 31, 1995.
Average interest-bearing deposits were $229,720,000 for the year ended
December 31, 1997, representing an increase of $41,756,000 or 22.21% over the
$187,964,000 in average interest-bearing deposits for the year ended December
31, 1996. The increase in average interest-bearing deposits during 1997 was a
result of the acquisition of $4,444,000 in interest-bearing deposits from Wells
Fargo Bank, N.A. in February 1997 and significant growth at the other FPNB
branches during the year. Average interest-bearing deposits were $187,964,000
for the year ended December 31, 1996, representing an increase of $44,796,000 or
31.29% over the $143,168,000 in average interest-bearing deposits for the year
ended December 31, 1995. The increase in average interest-bearing deposits
during 1996 was primarily due to the $43,982,000 of interest-bearing deposits
acquired from RB Bancorp on April 1, 1996, which were outstanding for nine
months of the year. See "Net Interest Income."
The Company's ratios of average Core Deposits to average deposits were
89.33%, 90.05% and 91.56% as of December 31, 1997, 1996 and 1995, respectively.
Substantially all of the certificates of deposit of $100,000 and over are held
by customers who have or have had other business relationships with the Company
and who reside within its market area.
The following table presents the Company's average deposits and the average
rate paid for each category of deposits for the periods indicated.
AVERAGE DEPOSIT INFORMATION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------
1997 1996 1995
--------------------- -------------------- ---------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
AMOUNT OF RATE AMOUNT OF RATE AMOUNT OF RATE
DEPOSITS(1) PAID(2) DEPOSITS(1) PAID(2) DEPOSITS(1) PAID(2)
----------- ------- ----------- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing
demand deposits .......... $ 69,354 N/A $ 52,920 N/A $37,225 N/A
Interest-bearing demand
and money market deposits 125,799 2.10% 103,442 2.08% 80,100 1.95%
Savings deposits .......... 20,475 1.98% 17,689 1.97% 13,898 1.98%
Certificates of deposit:
Under $100,000 .......... 51,536 5.15% 42,876 5.12% 33,953 5.18%
$100,000 or more ........ 31,910 5.63% 23,957 5.50% 15,217 5.72%
-------- ------- -------
Total certificates of
deposit ................. 83,446 66,833 49,170
-------- ------- -------
Total Average
Deposits .............. $299,074 $240,884 $180,393
======== ======== ========
</TABLE>
- ---------------
(1) Averages are daily averages.
(2) Rates are annualized.
The following table presents the maturity schedule of certificates of deposit
of $100,000 or more as of December 31, 1997.
CERTIFICATES OF DEPOSIT $100,000 OR MORE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C>
Three months or less ........ $21,756
Over three through six months 6,663
Over six through 12 months .. 7,821
Over 12 months .............. 841
-------
Total ..................... $37,081
=======
</TABLE>
II-16
<PAGE> 26
FINANCIAL RATIOS
The following table presents certain financial ratios for the periods
indicated.
RETURN ON EQUITY AND ASSETS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Return on average total assets(1) ....... 1.30% 1.58% 0.95%
Return on average equity(1) ............. 18.69% 22.38% 12.98%
Dividend payout ratio ................... 0.00% 0.00% 0.00%
Average equity to average total assets(1) 6.96% 7.08% 7.32%
</TABLE>
- ---------------
(1) Averages are daily averages
YEAR 2000 PREPARATION
The Company has conducted a comprehensive review of its computer systems to
identify the systems that could be affected by the year 2000 ("Y2K") issue and
is developing an implementation plan to resolve the issue. The Y2K problem is
the result of computer programs being written using two digits rather than four
to define the applicable year. Any of the Company's programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in major system failure or
miscalculations. The Company presently believes that, with modifications to
existing software and converting to new software, the Y2K problem will not pose
significant operations problems for the Company's computer systems as so
modified and converted. However, if such modifications and conversions are not
completed timely, the Y2K problem may have a material impact on the operations
of the Company. All Y2K expenses will be expensed as incurred. The Company does
not anticipate that costs associated with resolving the Y2K problem will
materially effect the Company's net earnings or financial position in the
future.
CAPITAL RESOURCES
The Company engages in an ongoing assessment of its capital needs in order to
maintain an adequate level of capital to support its growth and protect
depositors. This assessment is based on the Company's evaluation of the capital
needed to effect its business plans and to meet regulatory requirements. The
Company's two sources of capital are internally generated funds and the capital
markets. Historically, the Company relied primarily on internally generated
capital.
During 1993, the Company completed the sale of $4,575,000 of 9% convertible
subordinated debentures due December 31, 1997 (the "Debentures"). Under the
original terms of the Debentures, on December 31, 1997, the holders of the
Debentures were to receive cash in the principal amount, or, if the conversion
rights are exercised, 100 shares of FP Bancorp's common stock (subject to
antidilutive adjustments) for each $1,000 principal of Debentures, subject to
the limitation that the fair market value of the number of shares of common
stock received by the holder of a Debenture shall not exceed twice the principal
amount of the Debenture. FP Bancorp invested $3,400,000 of the proceeds in FPNB,
used approximately $618,000 to provide a reserve for the payment of interest on
the Debentures through January 1, 1995, paid expenses of the offering and other
items, and kept the remaining proceeds available for general corporate purposes
including payment of interest on the Debentures.
Under the original terms of the Debentures, on December 31, 1997, the
Debenture holders were to receive cash or an equivalent amount of shares of FP
Bancorp's common stock (subject to certain antidilutive adjustments). However,
in light of the definitive merger agreement entered into on December 29, 1997,
between the Company and Zions, and the proximity of the date of entry into the
definitive merger agreement and the date on which holders of Debentures would be
permitted to exercise their conversion rights, the Company extended the time in
which the holders of Debentures would be permitted to exercise their conversion
rights to January 19, 1998, and because the 19th was a bank holiday, such time
was effectively extended to January 20, 1998. The fair market value at December
30, 1997 was used to calculate the conversion rate so the conversion rate was
not affected by the extension.
On January 20, 1998, 100% of the Debenture holders elected conversion into
Company Common Stock. In accordance with the antidilutive provision included in
the terms of the Debentures, a conversion rate of 74.5226 shares of Company
Common Stock per $1,000 of principal was utilized. Accordingly, 340,895 shares
of Company Common Stock were issued on that date at a total price of $4,575,000,
less direct costs of issuance.
The FRB and the Comptroller adopted risk-based capital adequacy guidelines
effective March 15, 1989. These guidelines established a "Risk-based Capital
Ratio" determined by allocating assets and specified off-balance sheet
commitments into weighted
II-17
<PAGE> 27
categories, with higher levels of capital required for the activities perceived
as representing a greater risk. The guidelines also require increased capital
levels. The ratio of total qualifying capital to weighted risk assets must equal
at least 8%. Of the total 8%, at least 4% of the total qualifying capital to
weighted risk assets must be "Tier 1" or core capital consisting primarily of
equity stock. In addition, the FRB, the Comptroller and the FDIC adopted
Leverage Ratio requirements effective January 1, 1991 which require the Company
to maintain a minimum core capital of at least 4% of its assets.
As of December 31, 1997, the Company met all regulatory capital ratio
requirements and was considered "well-capitalized" in accordance with FDICIA.
The following table presents the capital levels and ratios as of December 31,
1997. The Company information is based on the FRB risk-based capital adequacy
rules and leverage requirements.
<TABLE>
<CAPTION>
REGULATORY CAPITAL
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1997
-------------------
AMOUNT RATIO
------ -----
<S> <C> <C>
LEVERAGE RATIOS:
Tier 1 capital .............. $21,965 6.29%
Minimum required(1) ......... 17,471 5.00%
------- -----
Excess ..................... $ 4,494 1.29%
======= =====
Total Assets(2) ...... $349,421
RISK-BASED CAPITAL RATIOS:
Tier 1 capital .............. $21,965 9.10%
Minimum required(1) ......... 14,477 6.00%
------- -----
Excess ..................... $ 7,488 3.10%
======= =====
Total capital ............... $24,611 10.20%
Minimum required(1) ......... 24,129 10.00%
------- -----
Excess ..................... $ 482 0.20%
======= =====
Total Risk-
weighted Assets ...... $241,287
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------
AMOUNT RATIO
------ -----
<S> <C> <C>
LEVERAGE RATIOS:
Tier 1 capital............ $16,965 5.54%
Minimum required(3)....... 12,249 4.00%
------- ----
Excess................... $ 4,716 1.54%
======= ====
Total Assets(2). $306,215
RISK-BASED CAPITAL RATIOS:
Tier 1 capital............ $16,965 7.47%
Minimum required(3)....... 9,088 4.00%
------- ----
Excess................... $ 7,877 3.47%
======= ====
Total capital............. $19,808 8.72%
Minimum required(3)....... 18,175 8.00%
------- ----
Excess................... $ 1,633 0.72%
======= ====
Total Risk-
weighted Assets... $227,189
</TABLE>
- ---------------
(1) Represents minimum required to be considered well-capitalized.
(2) Does not include unrealized gains on investment securities
available-for-sale, goodwill and discount on loans acquired.
(3) Represents minimum required to be considered adequately-capitalized.
II-18
<PAGE> 28
ITEM 7. FINANCIAL STATEMENTS.
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report F-1
Consolidated Balance Sheets at December 31, 1997 and
December 31, 1996 F-2
Consolidated Statements of Earnings for the Years
Ended December 31, 1997, 1996 and 1995 F-3
Consolidated Statements of Stockholders' Equity for
the Years Ended December 31, 1997, 1996 and 1995 F-4
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1997, 1996 and 1995 F-5
Notes to Consolidated Financial Statements F-6
</TABLE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
II-19
<PAGE> 29
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
FP Bancorp, Inc.
Escondido, California:
We have audited the accompanying consolidated balance sheets of FP
Bancorp, Inc. and subsidiary (the "Company") as of December 31, 1997 and 1996,
and the related consolidated statements of earnings, stockholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated 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 FP Bancorp,
Inc. and subsidiary as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
San Diego, California
January 20, 1998
F-1
<PAGE> 30
FP BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
---------------------------------
ASSETS 1997 1996
------------- -------------
<S> <C> <C>
Cash and due from banks (note 3) $ 23,737,000 $ 22,919,000
Investment securities available-for-sale,
at fair value (note 4) 59,366,000 47,405,000
Investment securities held-to-maturity, at
amortized cost (note 4) 23,478,000 9,279,000
Loans, net of allowance for loan losses of
$2,646,000 and $3,121,000 in 1997 and 1996,
respectively (note 5) 227,856,000 210,876,000
Other real estate owned, net (note 6) 1,260,000 1,329,000
Premises and equipment, net (note 7) 7,577,000 7,672,000
Goodwill and other intangibles, net of accumulated
amortization of $709,000 and $335,000 in 1997 and 1996,
respectively (note 2) 3,938,000 3,431,000
Accrued interest and other assets 5,992,000 5,674,000
------------- -------------
Total assets $ 353,204,000 $ 308,585,000
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits (notes 4 and 8):
Noninterest-bearing $ 74,795,000 $ 59,541,000
Interest-bearing 234,707,000 204,980,000
------------- -------------
Total deposits 309,502,000 264,521,000
------------- -------------
Federal funds purchased 11,100,000 11,802,000
Other borrowings -- 4,950,000
Convertible subordinated debentures (note 9) 4,575,000 4,575,000
Accrued expenses and other liabilities 1,838,000 1,759,000
------------- -------------
Total liabilities 327,015,000 287,607,000
------------- -------------
Stockholders' equity (notes 13 and 18):
Common stock, par value $.001, authorized 4,000,000 shares;
issued and outstanding 2,778,823 and 2,653,641 shares
in 1997 and 1996, respectively 3,000 3,000
Additional paid-in capital 25,219,000 24,571,000
Retained earnings (accumulated deficit) 681,000 (3,702,000)
Unrealized net gains on investment securities
available-for-sale (note 4) 286,000 106,000
------------- -------------
Total stockholders' equity 26,189,000 20,978,000
------------- -------------
Commitments, contingencies and subsequent events
(notes 15,16,17 and 18)
Total liabilities and stockholders' equity $ 353,204,000 $ 308,585,000
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 31
FP BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Years ended December 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans (note 5) $ 23,577,000 $ 19,082,000 $ 14,851,000
Federal funds sold 132,000 505,000 422,000
Interest-earning deposits -- 6,000 19,000
Investment securities (note 4):
Taxable 4,475,000 2,650,000 1,783,000
Exempt from Federal income tax 219,000 -- --
------------ ------------ ------------
Total interest income 28,403,000 22,243,000 17,075,000
------------ ------------ ------------
Interest expense:
Deposits (note 8) 7,495,000 6,010,000 4,467,000
Other (note 9) 967,000 507,000 487,000
------------ ------------ ------------
Total interest expense 8,462,000 6,517,000 4,954,000
------------ ------------ ------------
Net interest income 19,941,000 15,726,000 12,121,000
Provision for loan losses (note 5) 432,000 700,000 600,000
------------ ------------ ------------
Net interest income after provision
for loan losses 19,509,000 15,026,000 11,521,000
------------ ------------ ------------
Other operating income:
Service charges 2,219,000 1,743,000 1,449,000
Gain (loss) on sale of investment
securities available-for-sale 89,000 (147,000) (158,000)
Other 232,000 416,000 357,000
------------ ------------ ------------
Total other operating income 2,540,000 2,012,000 1,648,000
------------ ------------ ------------
Other operating expenses:
Salaries and employee benefits 7,742,000 6,723,000 5,625,000
Professional services 1,563,000 2,057,000 1,951,000
Occupancy, net 1,535,000 1,401,000 1,164,000
Furniture and equipment 1,133,000 1,112,000 838,000
Other real estate owned, net 105,000 508,000 745,000
Office supplies 602,000 572,000 384,000
Promotional 401,000 487,000 361,000
FDIC assessment 72,000 34,000 252,000
Amortization of goodwill and other intangibles 374,000 255,000 80,000
Other 965,000 603,000 686,000
------------ ------------ ------------
Total other operating expenses 14,492,000 13,752,000 12,086,000
------------ ------------ ------------
Earnings before income tax expense (benefit) 7,557,000 3,286,000 1,083,000
Income tax expense (benefit) (note 11) 3,174,000 (922,000) (828,000)
------------ ------------ ------------
Net earnings $ 4,383,000 $ 4,208,000 $ 1,911,000
============ ============ ============
Basic earnings per share $ 1.62 $ 1.59 $ .78
============ ============ ============
Diluted earnings per share $ 1.45 $ 1.41 $ .72
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 32
FP BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Common Stock:
Balance at beginning of year
(2,653,641, 2,650,811 and 1,821,879 shares,
respectively) $ 3,000 $ 3,000 $ 2,000
Common stock issued in merger (826,132 shares) -- -- 1,000
------------ ------------ ------------
Balance at end of year
(2,778,823, 2,653,641 and 2,650,811 shares,
respectively) 3,000 3,000 3,000
------------ ------------ ------------
Additional Paid-in Capital:
Balance at beginning of year 24,571,000 24,556,000 20,287,000
Exercise of stock options 648,000 15,000 15,000
Common stock issued in merger -- -- 4,254,000
------------ ------------ ------------
Balance at end of year 25,219,000 24,571,000 24,556,000
------------ ------------ ------------
Retained Earnings:
Balance at beginning of year (3,702,000) (7,910,000) (9,821,000)
Net earnings 4,383,000 4,208,000 1,911,000
------------ ------------ ------------
Balance at end of year 681,000 (3,702,000) (7,910,000)
------------ ------------ ------------
Receivable from ESOP:
Balance at beginning of year -- (100,000) (133,000)
Payments from ESOP -- 100,000 33,000
------------ ------------ ------------
Balance at end of year -- -- (100,000)
------------ ------------ ------------
Unrealized Net Gains (Losses) on
Investment Securities Available-for-sale:
Balance at beginning of year 106,000 284,000 (515,000)
Increase (decrease) in unrealized net gains
on investment securities available-for-sale 180,000 (178,000) 799,000
------------ ------------ ------------
Balance at end of year 286,000 106,000 284,000
------------ ------------ ------------
Total $ 26,189,000 $ 20,978,000 $ 16,833,000
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 33
FP BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 4,383,000 $ 4,208,000 $ 1,911,000
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 1,419,000 1,249,000 943,000
Provision for deferred taxes 1,951,000 973,000 678,000
Provision for loan losses 432,000 700,000 600,000
Provision for losses on other real estate owned 33,000 409,000 537,000
Gain on sale of other real estate owned (33,000) (17,000) (213,000)
(Gain) loss on sale of investment securities
available-for-sale (89,000) 147,000 158,000
Increase in other assets and other liabilities (2,302,000) (2,608,000) (2,743,000)
(Decrease) increase in deferred loan
origination fees (101,000) 95,000 239,000
------------ ------------ ------------
Net cash provided by operating activities 5,693,000 5,156,000 2,110,000
------------ ------------ ------------
Cash flows from investing activities:
(Increase) decrease in loans outstanding (17,763,000) (27,886,000) 1,705,000
Proceeds from sale of other real estate owned 2,166,000 2,464,000 6,107,000
Net maturities of interest-earning deposits -- 495,000 1,853,000
Maturities of investment securities
available-for-sale 6,323,000 4,504,000 3,215,000
Maturities of investment securities
held-to-maturity 1,691,000 446,000 1,274,000
Purchase of investment securities
available-for-sale (38,866,000) (43,244,000) (24,859,000)
Purchase of investment securities
held-to-maturity (15,828,000) (1,997,000) (1,871,000)
Proceeds from sale of investment securities
available-for-sale 20,841,000 21,555,000 15,077,000
Payments from ESOP -- 100,000 33,000
Net capital expenditures for premises and equipment (599,000) (973,000) (682,000)
Net cash acquired in merger/acquisition 14,042,000 5,302,000 5,366,000
------------ ------------ ------------
Net cash (used in) provided by investing
activities (27,993,000) (39,234,000) 7,218,000
------------ ------------ ------------
Cash flows from financing activities:
Net increase (decrease) in interest-bearing
deposits 17,312,000 16,568,000 (3,784,000)
Net increase in noninterest-bearing deposits 10,810,000 7,369,000 3,907,000
(Decrease) increase in Federal funds purchased
and other borrowings (5,652,000) 16,752,000 (2,800,000)
Proceeds from exercise of stock options 648,000 15,000 15,000
------------ ------------ ------------
Net cash provided by (used in) financing
activities 23,118,000 40,704,000 (2,662,000)
------------ ------------ ------------
Net increase in cash and cash equivalents 818,000 6,626,000 6,666,000
Cash and cash equivalents at beginning of period 22,919,000 16,293,000 9,627,000
------------ ------------ ------------
Cash and cash equivalents at end of period $ 23,737,000 $ 22,919,000 $ 16,293,000
============ ============ ============
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 8,634,000 $ 6,565,000 $ 4,781,000
Income taxes $ 422,000 $ 43,000 $ 72,000
============ ============ ============
Supplemental disclosure of noncash investing
and financing activities:
Transfer from loans to other real estate owned $ 2,097,000 $ 737,000 $ 2,951,000
============ ============ ============
Loans to facilitate sale of other real estate owned $ -- $ 94,000 $ 62,000
============ ============ ============
Common stock issued in merger $ -- $ -- $ 4,255,000
============ ============ ============
Transfer of investment securities from
held=to=maturity to available=for=sale $ -- $ -- $ 8,450,000
============ ============ ============
Increase (decrease) in net unrealized
gains on investment securities available=
for=sale, net of tax effect $ 180,000 $ (178,000) $ 799,000
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 34
FP BANCORP, INC. AND SUBSIDIARY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of FP Bancorp, Inc. ("FP Bancorp") and its
subsidiary (collectively, the "Company") conform to generally accepted
accounting principles and to general practice within the banking industry.
The following is a description of the more significant of the policies.
(a) Principles of Consolidation:
The consolidated financial statements include the accounts of FP Bancorp and its
wholly-owned subsidiary, First Pacific National Bank ("FPNB"). All material
intercompany accounts and transactions have been eliminated in the consolidated
financial statements. The parent company financial statements are presented
using the equity method of accounting (note 19).
The Company's consolidated financial statements as of and for the year ended
December 31, 1997 include combined operations with the Valley Center branch of
Wells Fargo Bank, N.A., for the period from February 21, 1997 through December
31, 1997 (note 2).
The Company's consolidated financial statements as of and for the year ended
December 31, 1996 include combined operations with RB Bancorp and its
wholly-owned subsidiary for the nine-month period from April 1, 1996 through
December 31, 1996 (note 2).
The Company's consolidated financial statements as of and for the year ended
December 31, 1995 include combined operations with Overland Bank ("Overland")
for the nine-month period from April 1, 1995 through December 31, 1995 (note 2).
(b) Cash and Cash Equivalents:
For purposes of the statements of cash flows, cash and cash equivalents consist
of cash on hand, due from banks and Federal funds sold. Generally, Federal funds
are purchased and sold for one-day periods.
(c) Investment Securities:
Management determines the appropriate classification of securities at the time
of purchase. If management has the intent and the Company has the ability at
time of purchase to hold securities until maturity, they are classified as
held-to-maturity. Investment securities held-to-maturity are stated at cost,
adjusted for amortization of premiums and accretion of discounts over the period
to maturity of the related security using the interest method. Securities to be
held for indefinite periods of time, but not necessarily to be held-to-maturity
or on a long-term basis are classified as available-for-sale and carried at fair
value with unrealized gains or losses reported as a separate component of
stockholders' equity, net of applicable income taxes. Realized gains or losses
on the sale of securities available-for-sale, if any, are determined using the
amortized cost of the specific securities sold. Securities available-for-sale
include securities that management intends to use as part of its asset/liability
management strategy and that may be sold in response to changes in interest
rates, prepayment risk and other related factors. Securities are individually
evaluated for appropriate classification, when acquired; consequently, similar
types of securities may be classified differently depending on factors existing
at the time of purchase.
(d) Loans:
Interest on loans is accrued as earned. The accrual of interest on loans is
discontinued when, in management's judgment, a reasonable doubt exists as to the
collectability of such interest in the normal course of business. Nonaccrual
loans that become current as to both principal and interest can be returned to
accrual status subject to appropriate management approval.
Nonrefundable fees and related direct costs associated with the origination or
purchase of loans are deferred and netted against outstanding loan balances. Net
deferred fees and costs are recognized in interest income over the terms of the
loans using the interest method. The amortization of loan fees is discontinued
on nonaccrual loans.
Loan discounts and premiums acquired are accreted or amortized into interest
income as an adjustment of yield over the terms of the loans using the interest
method.
F-6
<PAGE> 35
FP BANCORP, INC. AND SUBSIDIARY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(e) Allowance for Loan Losses:
An allowance for loan losses is maintained at a level deemed appropriate by
management to adequately provide for known and inherent risks in the loan
portfolio and other extensions of credit, including off-balance sheet credit
extensions. The allowance is based upon a continuing review of the portfolio,
past loan loss experience, current economic conditions which may affect the
borrowers' ability to pay and the underlying collateral value of the loans.
Loans that are deemed to be uncollectible are charged off and deducted from the
allowance. The provision for loan losses and recoveries on loans previously
charged off are added to the allowance.
A loan is considered impaired when it is probable that a creditor will be unable
to collect all amounts due according to the contractual terms of the loan
agreement. If the measure of the impaired loan is less than the recorded
investment in the loan, a valuation allowance is established with a
corresponding charge to the provision for loan losses.
(f) Other Real Estate Owned:
Real estate acquired by foreclosure or deed in lieu of foreclosure is recorded
at fair value. Fair value is based on current appraisals less estimated selling
costs. Write-downs to the fair value at the time of acquisition of the real
estate are made by a charge to the allowance for loan losses, if necessary. Any
subsequent write-downs are charged against operating expenses and recognized as
a valuation allowance. Operating expenses of such properties, net of related
income, and gains and losses on their disposition are included in other
expenses.
(g) Premises and Equipment:
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is charged to operating expense using the
straight-line method over the estimated useful lives of the assets, which range
from three to forty years. Leasehold improvements are capitalized and amortized
to operating expense over the term of the respective lease or the estimated
useful life of the improvement, whichever is shorter. Expenditures for
maintenance and repairs are charged to expense as incurred.
(h) Goodwill and Other Intangibles:
Goodwill, which represents the excess of purchase price over fair value of net
assets acquired, is amortized on a straight-line basis over the expected periods
to be benefited, generally twelve to fifteen years. Other intangibles include
the value of core deposits acquired, and is amortized on a straight-line basis
over the expected period to be benefited of approximately ten years. The Company
assesses the recoverability of goodwill by determining whether the amortization
of the goodwill balance over its remaining life can be recovered through
undiscounted future operating cash flows of the acquired operation. The amount
of goodwill impairment, if any, is measured based on projected discounted future
operating cash flows using a discount rate reflecting the Company's average cost
of funds. The assessment of the recoverability of goodwill will be impacted if
estimated future operating cash flows are not achieved.
(i) Debenture Costs:
Debenture costs were amortized over the term of the debenture using the interest
method. As of December 31, 1997, there were no unamortized debenture costs.
(j) Income Taxes:
The Company accounts for income taxes under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
F-7
<PAGE> 36
FP BANCORP, INC. AND SUBSIDIARY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(k) Earnings Per Share:
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("Statement 128"),
which is effective for fiscal years ending after December 15, 1997. Statement
128 was adopted by the Company for reporting earnings per share for the year
ended December 31, 1997 and all prior periods have been restated to conform with
generally accepted accounting principles.
Basic earnings per share is computed by dividing net earnings by the weighted
average number of shares of common stock outstanding during the period. The
weighted average numbers of shares used for the basic earnings per share
calculations were 2,710,000, 2,652,000 and 2,444,000 in 1997, 1996 and 1995,
respectively.
Diluted earnings per share is computed by dividing net earnings (adjusted for
interest expense on the convertible subordinated debentures and unamortized
debenture costs) by the weighted average number of shares of common stock,
common stock equivalents and other potentially dilutive securities outstanding
during the period. The subordinated convertible debentures are considered to be
other potentially dilutive securities and are included in the diluted earnings
per share calculations unless the effect is determined to be antidilutive. The
adjusted net earnings used for the diluted earnings per share calculations were
$4,622,000, $4,472,000, and $2,175,000 in 1997, 1996 and 1995, respectively. The
weighted average numbers of shares used for the diluted earnings per share
calculations were 3,183,000, 3,182,000 and 3,019,000 in 1997, 1996 and 1995,
respectively.
(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 assets and liabilities and the reported amounts of revenues and
expenses to prepare these consolidated financial statements in conformity with
generally accepted accounting principles. Actual results could differ from those
estimates.
(m) Stock Options:
Prior to January 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board ("APB") No. 25,
"Accounting for Stock Issued to Employees", and related interpretations. As
such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
January 1, 1996, the Company adopted Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("Statement 123"), which
permits entities to recognize as expense over the vesting period the fair value
of all stock-based awards on the date of grant. Alternatively, Statement 123
also allows entities to continue to apply the provisions of APB No. 25 and
provide pro forma net earnings and pro forma net earnings per share disclosures
for employee stock option grants made in 1995 and future years as if the
fair-value-based method defined in Statement 123 had been applied. The Company
has elected to continue to apply the provisions of APB No. 25 and provide the
pro forma disclosure provisions of Statement 123.
(n) New Accounting Standards:
In June 1996, the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities" ("Statement 125"). Statement
125 is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996 and is to be
applied prospectively. This statement provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishments of
liabilities based on consistent application of the financial-components approach
that focuses on control. It distinguishes transfers of financial assets that are
sales from transfers that are secured borrowings. The adoption of Statement 125
did not have a material impact on the Company's financial position, results of
operations or liquidity.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("Statement 130"), which is effective for fiscal years beginning after December
15, 1997, and therefore, does not impact the financial statements presented in
this report. Statement 130 establishes standards for the reporting and display
of comprehensive income and its components in a full set of general-purpose
financial statements; it does not change the display or components of
present-day net earnings.
F-8
<PAGE> 37
FP BANCORP, INC. AND SUBSIDIARY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("Statement 131"), which is effective for
fiscal years beginning after December 15, 1997. Statement 131 establishes
standards for the way that public business enterprises report information about
operating segments in interim and annual financial statements.
In February 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 132, "Employers' Disclosures about Pensions
and Other Postretirement Benefits" ("Statement 132"), which is effective for
fiscal years beginning after December 15, 1997. Statement 132 revises employers'
disclosures about pension and other postretirement benefit plans. It does not
change the measurement or recognition of those plans. It standardizes the
disclosure requirements for pensions and other postretirement benefits to the
extent practicable, requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate financial
analysis, and eliminates certain disclosures that are no longer as useful.
(o) Reclassifications:
Certain 1996 and 1995 amounts have been reclassified to conform to the
presentation used in 1997.
2) MERGERS AND ACQUISITIONS
(a) Overland Bank:
On April 1, 1995, the Company completed the merger of Overland into FPNB (the
"Overland Merger") for a net purchase price of $5,446,000, including acquisition
costs of $1,191,000. The acquisition was recorded using the purchase method of
accounting. Under this method of accounting, the purchase price was allocated to
the respective assets acquired with a fair value of $43,419,000 and liabilities
assumed with a fair value of $39,656,000 at the date of the purchase
transaction. The excess of the purchase price over the fair value of the net
assets acquired was recorded as goodwill. Pursuant to the merger agreement, all
of the outstanding shares of Overland common stock were converted into newly
issued shares of Company common stock. The number of shares of Company common
stock issued upon the conversion of each share of Overland common stock was
0.1006 shares, resulting in the issuance of 826,132 shares of Company common
stock.
(b) RB Bancorp:
On April 1, 1996, the Company completed the merger of RB Bancorp and its
wholly-owned subsidiary, The Bank of Rancho Bernardo, with and into FPNB. The
acquisition was recorded using the purchase method of accounting. Under this
method of accounting, the purchase price was allocated to the respective assets
acquired with a fair value of $60,572,000 and liabilities assumed with a fair
value of $55,552,000 at the date of the purchase transaction. The excess of the
purchase price over the fair value of the net assets acquired was recorded as
goodwill, including $257,000 in acquisition costs. Pursuant to the merger
agreement, shareholders of RB Bancorp received $7,350,000 in cash for the
exchange of all outstanding RB Bancorp shares. The amount of consideration was
determined by negotiations between the Company and RB Bancorp.
The unaudited consolidated information below indicates on a pro forma basis the
results of operations if RB Bancorp had been acquired by the Company as of
January 1, 1995 and if Overland had been acquired by the Company on January 1,
1994.
<TABLE>
<CAPTION>
December 31,
---------------------------------
1996 1995
------------ -----------
<S> <C> <C>
Net interest income $16,438,000 $15,756,000
Net earnings $ 4,266,000 $ 2,461,000
Basic earnings per share $1.61 $.95
Diluted earnings per share $1.44 $.90
</TABLE>
F-9
<PAGE> 38
FP BANCORP, INC. AND SUBSIDIARY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2) MERGERS AND ACQUISITIONS (CONTINUED)
(c) Valley Center Branch Acquisition:
In February 1997, the Company acquired the Wells Fargo Bank, N.A. branch office
located in Valley Center, California. The Company acquired the branch premises
as well as $16,838,000 of deposits and $1,630,000 in loans. A core deposit
intangible of $1,038,000 was recorded.
(d) Zions Bancorporation:
On December 29, 1997, the Company announced that a definitive agreement had been
signed under which the Company will merge with and into Zions Bancorporation
("Zions"), and First Pacific National Bank will merge with and into Grossmont
Bank, a wholly-owned subsidiary of Zions, in exchange for Zions common stock.
The merger is subject to the approval of banking regulators and the stockholders
of the Company. The transaction is expected to close in the second quarter of
1998.
3) RESTRICTIONS ON CASH AND DUE FROM BANKS
The Company is required to maintain reserve balances with the Federal Reserve
Bank. The average amount held at the Federal Reserve Bank for the year ended
December 31, 1997 was approximately $5,107,000.
4) INVESTMENT SECURITIES
a) Investment Securities Available-for-sale:
Mortgage-backed securities are fully guaranteed by the U.S. government. The
amortized cost, gross unrealized gains, gross unrealized losses and fair value
of investment securities available-for-sale as of December 31, 1997 and 1996
were as follows:
<TABLE>
<CAPTION>
1997
---------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Government agencies $12,999,000 $ 154,000 $ -- $13,153,000
Mortgage-backed securities 43,314,000 382,000 (43,000) 43,653,000
Equity bank stock 2,560,000 -- -- 2,560,000
----------- ----------- ----------- -----------
Total $58,873,000 $ 536,000 $ (43,000) $59,366,000
----------- ----------- ----------- -----------
1996
---------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
----------- ----------- ----------- -----------
U.S. Government agencies $ 9,989,000 $ 73,000 $ -- $10,062,000
Mortgage-backed securities 35,223,000 169,000 (136,000) 35,256,000
Equity bank stock 2,087,000 -- -- 2,087,000
----------- ----------- ---------- -----------
Total $47,299,000 $ 242,000 $ (136,000) $47,405,000
----------- ----------- ---------- -----------
</TABLE>
F-10
<PAGE> 39
FP BANCORP, INC. AND SUBSIDIARY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4) INVESTMENT SECURITIES (CONTINUED)
The maturity distribution based on the amortized cost and fair value (excluding
equity bank stock) of investment securities available-for-sale as of December
31, 1997 by contractual maturity is shown below. Mortgage-backed securities have
contractual terms to maturity, but require periodic payments to reduce
principal. In addition, expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
MATURITY DISTRIBUTION
<TABLE>
<CAPTION>
AMORTIZED
COST FAIR VALUE
----------- -----------
<S> <C> <C>
Due after five years through ten years $10,999,000 $11,134,000
Over ten years 2,000,000 2,019,000
----------- -----------
12,999,000 13,153,000
Mortgage-backed securities 43,314,000 43,653,000
----------- -----------
Total $56,313,000 $56,806,000
----------- -----------
</TABLE>
Investment securities available-for-sale with a principal balance of $19,904,000
and $22,568,000 were pledged as security for public deposits and other purposes
as required by various statutes and agreements as of December 31, 1997 and 1996,
respectively. Proceeds from the sale of investment securities available-for-sale
during 1997 and 1996 were $20,841,000 and $21,555,000, respectively. Gross gains
and gross losses of $115,000 and $(26,000), respectively, were realized on 1997
sales. Gross losses of $147,000 and $158,000 were realized on 1996 and 1995
sales, respectively. Cost was determined in computing the realized loss using
the specific identification method.
b) Investment Securities Held-to-maturity:
Mortgage-backed securities are fully guaranteed by the U.S. government. The
amortized cost, gross unrealized gains and losses and fair value of investment
securities held-to-maturity as of December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997
---------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Government agencies $ 3,573,000 $ 34,000 $ -- $ 3,607,000
Step up bonds 997,000 7,000 -- 1,004,000
Mortgage-backed securities 6,365,000 -- (50,000) 6,315,000
Municipal bonds 12,341,000 332,000 (26,000) 12,647,000
Corporate notes 202,000 5,000 -- 207,000
----------- ----------- ----------- -----------
Total $23,478,000 $ 378,000 $ (76,000) $23,780,000
----------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
1996
-----------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Government agencies $1,000,000 $ -- $ (5,000) $ 995,000
Step up bonds 997,000 -- -- 997,000
Mortgage-backed securities 7,079,000 -- (101,000) 6,978,000
Corporate notes 203,000 8,000 -- 211,000
---------- ---------- ---------- ----------
Total $9,279,000 $ 8,000 $ (106,000) $9,181,000
========== ========== ========== ==========
</TABLE>
F-11
<PAGE> 40
FP BANCORP, INC. AND SUBSIDIARY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4) INVESTMENT SECURITIES (CONTINUED)
The maturity distribution based on amortized cost and fair value of investment
securities held-to-maturity as of December 31, 1997 by contractual maturity is
shown below. Mortgage-backed securities have contractual terms to maturity, but
require periodic payments to reduce principal. In addition, expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
MATURITY DISTRIBUTION
<TABLE>
<CAPTION>
AMORTIZED COST FAIR VALUE
-------------- -----------
<S> <C> <C>
Due after one year through five years $ 202,000 $ 207,000
Due after five years through ten years 1,000,000 1,010,000
Over ten years 15,911,000 16,248,000
----------- -----------
17,113,000 17,465,000
Mortgage-backed securities 6,365,000 6,315,000
----------- -----------
Total $23,478,000 $23,780,000
----------- -----------
</TABLE>
Investment securities held-to-maturity with a principal amount of $9,329,000 and
$6,089,000 were pledged as security for public deposits and other purposes as
required by various statutes and agreements as of December 31, 1997 and 1996,
respectively. There were no sales of investment securities held-to-maturity
during 1997, 1996 or 1995.
c) Interest Income on Investment Securities:
The following table presents interest income on investment securities for the
years ended December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Investment securities available-for-sale $3,845,000 $2,182,000 $ 915,000
Investment securities held-to-maturity 849,000 468,000 868,000
---------- ---------- ----------
Total $4,694,000 $2,650,000 $1,783,000
========== ========== ==========
</TABLE>
d) Derivatives:
The Company has had only limited involvement in derivative financial instruments
and does not use them for trading purposes. They are used to manage interest
rate risk in the balance sheet and enhance earnings in the investment portfolio.
The Company has invested in U.S. government agency "step up" bonds, which
provide a higher initial yield than U.S. Treasury bonds or straight agency
bonds. In return for the higher yield, the issuer reserves the right to call the
bond at a given date prior to maturity. If the issuer does not exercise this
"call option", the coupon rate of the bond will "step up" to a contractually
agreed upon rate. Step up bonds mitigate interest rate risk through the exercise
of the call option or, in a rising rate environment, through the increase in
coupon rates. Step up bonds have no risk of loss of principal, and as such are
considered by management to be low risk derivative investments.
There were no derivatives included in investment securities available-for-sale
as of December 31, 1997 and 1996. Derivatives included in investment securities
held-to-maturity had both an amortized cost and fair value of $997,000 and
$1,004,000, respectively, as of December 31, 1997 and both an amortized cost and
fair value of $997,000 as of December 31, 1996.
F-12
<PAGE> 41
FP BANCORP, INC. AND SUBSIDIARY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5) LOANS
Loans were comprised of the following as of December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Commercial $ 84,384,000 $ 80,894,000
Real estate 123,098,000 108,530,000
Construction 8,379,000 14,507,000
Installment 15,850,000 12,371,000
------------- -------------
Total loans 231,711,000 216,302,000
Less allowance for loan losses (2,646,000) (3,121,000)
Less deferred loan fees (561,000) (662,000)
Less discount (648,000) (1,643,000)
------------- -------------
Net loans $ 227,856,000 $ 210,876,000
============= =============
</TABLE>
The Company's loan portfolio consists primarily of loans to borrowers within San
Diego County and Southern Riverside County. Although the Company seeks to avoid
undue concentrations of loans to a single industry or based upon a single class
of collateral, real estate and real estate associated businesses are among the
principal industries in the Company's market area and, as a result, the
Company's loan and collateral portfolios are to some degree concentrated in
those industries. The Company evaluates each credit on an individual basis and
determines collateral requirements accordingly. When real estate is taken as
collateral, advances are generally limited to a certain percentage of the
appraised value of the collateral at the time the loan is made, depending on the
type of loan, the underlying property and other factors.
The maturity distribution of the loan portfolio as of December 31, 1997 was as
follows:
<TABLE>
<CAPTION>
<S> <C>
Within one year $ 58,447,000
One to five years 83,462,000
After five years 89,802,000
-------------
Total $231,711,000
=============
</TABLE>
F-13
<PAGE> 42
FP BANCORP, INC. AND SUBSIDIARY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5) LOANS (CONTINUED)
The sensitivity of loans to changes in interest rates as of December 31, 1997
was as follows:
<TABLE>
<CAPTION>
<S> <C>
Fixed rate loans $ 80,544,000
Variable rate loans 151,167,000
-------------
Total $ 231,711,000
=============
</TABLE>
The Company has established a monitoring system for its loans in order to
identify potential problem loans and to permit the periodic evaluation of
impairment and the adequacy of the allowance for loan losses in a timely manner.
Impaired loans included in the Company's loan portfolio as of December 31, 1997
and 1996 were $996,000 and $2,506,000, respectively, which had an aggregate
specific related allowance amounts of $81,000 and $358,000, respectively. The
measurement of impairment may be based on (i) the present value of the expected
future cash flows of the impaired loan discounted at the loan's original
effective interest rate, (ii) the observable market prices of the impaired loan
or (iii) the fair value of the collateral of a collateral-dependent loan. The
amount by which the recorded investment of the loan exceeds the measure of the
impaired loan is recognized by recording a valuation allowance with a
corresponding charge to the provision for loan losses. During 1997, 1996 and
1995 the average balances of impaired loans were $1,699,000, $2,489,000 and
$2,402,000, respectively. During 1997, 1996 and 1995, respectively, $15,000,
$65,000 and $81,000 of interest was recognized on these loans during the period
of impairment on a cash basis in accordance with Company policy.
As of December 31, 1997 and 1996, troubled debt restructurings ("TDR's")
amounted to $525,000 and $717,000, respectively. The Company has not committed
to lend any additional funds to those borrowers under TDR's, and TDR's are
current in accordance with their modified terms. Interest recorded on the TDR's
was $52,000 and $64,000 for the years ended December 31, 1997 and 1996,
respectively.
A summary of the activity in the allowance for loan losses, which includes
provisions for impaired loans, for the years ended December 31, 1997, 1996 and
1995 was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- ------------
<S> <C> <C> <C>
Balance as of beginning of year $ 3,121,000 $ 2,013,000 $ 2,666,000
Provision charged to expense 432,000 700,000 600,000
Allowance acquired 284,000 1,290,000 803,000
Loan charge-offs (1,438,000) (1,418,000) (2,453,000)
Loan recoveries 247,000 536,000 397,000
----------- ----------- -----------
Balance as of end of year $ 2,646,000 $ 3,121,000 $ 2,013,000
=========== =========== ===========
</TABLE>
The allowance for loan losses is subjective and may be adjusted in the future
because of changes in economic conditions and the repayment abilities of the
borrowers. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Company's allowance. These
agencies may require the Company to recognize additions to the allowance based
on their judgments related to information available to them at the time of their
examinations.
Loans on nonaccrual amounted to $614,000, $1,374,000 and $735,000 as of December
31, 1997, 1996 and 1995, respectively. Interest income of $125,000, $111,000 and
$52,000 would have been recorded for the years ended December 31, 1997, 1996 and
1995, respectively, if nonaccrual loans had been on a current basis, in
accordance with their original terms. Interest income of $42,000, $65,000 and
$49,000 was recognized on loans subsequently transferred to nonaccrual status as
of December 31, 1997, 1996 and 1995, respectively.
In the normal course of business, the Company has made loans to certain
directors, executive officers and their affiliates under terms consistent with
their general lending policies. An analysis of this activity during 1997 is
summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
Loan balances as of December 31, 1996 $ 5,648,000
ADDITIONS 658,000
COLLECTIONS (4,003,000)
-----------
LOAN BALANCES AS OF DECEMBER 31, 1997 $ 2,303,000
===========
</TABLE>
F-14
<PAGE> 43
FP BANCORP, INC. AND SUBSIDIARY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5) LOANS (CONTINUED)
The Company has also extended additional commitments to these directors,
executive officers and their affiliates totaling approximately $1,997,000 as of
December 31, 1997.
6) OTHER REAL ESTATE OWNED
Other real estate owned was comprised of the following as of December 31, 1997
and 1996:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Real estate acquired through settlement of loans $1,377,000 $2,214,000
Less allowance for possible losses 117,000 885,000
---------- ----------
Total $1,260,000 $1,329,000
========== ==========
</TABLE>
A summary of the changes in the allowance for possible losses on other real
estate owned for the years ended December 31, 1997, 1996 and 1995 follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Balance as of beginning of year $ 885,000 $ 880,000 $ 808,000
Provision charged to expense 33,000 409,000 537,000
Charge-offs (801,000) (404,000) (465,000)
--------- --------- ---------
Balance as of end of year $ 117,000 $ 885,000 $ 880,000
--------- --------- ---------
</TABLE>
7) PREMISES AND EQUIPMENT
Premises and equipment were comprised of the following as December 31, 1997 and
1996:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Land $ 2,149,000 $ 2,049,000
Premises 3,936,000 3,726,000
Furniture, fixtures and equipment 5,941,000 5,804,000
Leasehold improvements 1,184,000 1,286,000
----------- -----------
13,210,000 12,865,000
Less accumulated depreciation
and amortization 5,633,000 5,193,000
----------- -----------
Total $ 7,577,000 $ 7,672,000
=========== ===========
</TABLE>
8) DEPOSITS
Interest-bearing deposits were comprised of the following as of December 31,
1997 and 1996:
1997 1996
------------ ------------
Interest-bearing demand deposits $ 64,012,000 $ 54,695,000
Money market deposits 56,772,000 60,405,000
Savings deposits 20,096,000 17,366,000
Time deposits under $100,000 56,746,000 45,095,000
Time deposits of $100,000 or more 37,081,000 27,419,000
------------ ------------
Total interest-bearing deposits $234,707,000 $204,980,000
============ ============
F-15
<PAGE> 44
FP BANCORP, INC. AND SUBSIDIARY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8) DEPOSITS (CONTINUED)
The maturity distribution of time deposits as of December 31, 1997 was as
follows:
<TABLE>
<CAPTION>
TIME DEPOSITS TIME DEPOSITS
=> $100,000 < $100,000 TOTAL
------------- ----------- -----------
<S> <C> <C> <C>
Three months or less $21,756,000 $19,460,000 $41,216,000
Over three through six months 6,663,000 13,418,000 20,081,000
Over six through twelve months 7,821,000 20,899,000 28,720,000
Over twelve months 841,000 2,969,000 3,810,000
----------- ----------- -----------
Total $37,081,000 $56,746,000 $93,827,000
=========== =========== ===========
</TABLE>
Interest expense on deposits was comprised of the following for the years ended
December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Interest-bearing demand deposits $ 583,000 $ 459,000 $ 354,000
Money market deposits 2,055,000 1,689,000 1,211,000
Savings deposits 405,000 348,000 275,000
Time deposits under $100,000 2,656,000 2,191,000 1,747,000
Time deposits of $100,000 or more 1,796,000 1,323,000 880,000
---------- ---------- ----------
Total interest expense on deposits $7,495,000 $6,010,000 $4,467,000
========== ========== ==========
</TABLE>
9) CONVERTIBLE SUBORDINATED DEBENTURES
During 1993, the Company completed the sale of $4,575,000 of 9% convertible
subordinated debentures due December 31, 1997 (the "Debentures"). Under the
original terms of the Debentures, on December 31, 1997, the holders of the
Debentures were to receive cash in the principal amount, or, if the conversion
rights were exercised, 100 shares of FP Bancorp's common stock (subject to
antidilutive adjustments) for each $1,000 principal of Debentures, subject to
the limitation that the fair market value of the number of shares of common
stock received by the holder of a Debenture could not exceed twice the principal
amount of the Debenture. FP Bancorp invested $3,400,000 of the proceeds in FPNB,
used approximately $618,000 to provide a reserve for the payment of interest on
the Debentures through January 1, 1995, paid expenses of the offering and other
items, and kept the remaining proceeds available for general corporate purposes
including payment of interest on the Debentures.
In light of the definitive merger agreement between the Company and Zions (note
2), the Company extended the time by which holders of the Company's 9%
Subordinated Convertible Debentures due December 31, 1997, would be allowed to
exercise their conversion rights. The Company also allowed those who had already
exercised their conversion rights time to withdraw notices of conversion which
may already have been presented to the Company, if they wished to do so (note
18).
10) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments" ("Statement 107"), requires that the Company
disclose estimated fair values for its financial instruments. The following
summary presents a description of the methodologies and assumptions used to
determine such amounts.
Cash and Due From Banks
The carrying amount is assumed to be the fair value because of the liquidity of
these instruments.
Investment Securities
Fair values are based on quoted market prices available as of the balance sheet
date. If a quoted market price is not available, fair value is estimated using
quoted market prices for similar securities.
F-16
<PAGE> 45
FP BANCORP, INC. AND SUBSIDIARY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Loans
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type and further segmented into fixed
and adjustable rate interest terms and by credit risk categories.
The fair value of fixed rate loans and nonperforming or adversely classified
adjustable rate loans is calculated by discounting scheduled cash flows through
the estimated maturity using estimated market discount rates that reflect the
credit and interest rate risk inherent in the loans. The discount rates used for
performing fixed rate loans are the Company's current offer rates for comparable
instruments with similar terms.
The fair value of performing adjustable rate loans is estimated to be carrying
value. These loans reprice frequently at market rates and the credit risk is not
considered to be greater than normal.
Deposits
Under Statement 107, the fair value of deposits with no stated maturity, such as
noninterest-bearing demand deposits, savings and NOW accounts, and money market
and checking accounts, is equal to the amount payable on demand as of December
31, 1997 and 1996. The fair value of certificates of deposit is based on the
discounted value of contractual cash flows. The discount rate is estimated using
the rates currently offered for deposits of similar remaining maturities. No
value has been assigned to the Company's long-term relationships with its
deposit customers (core deposit intangible) since it is not a financial
instrument as defined under Statement 107.
Federal Funds Purchased and Other Borrowings
The carrying amount is assumed to be the fair value because of the liquidity of
these instruments.
Convertible Subordinated Debentures
The fair value of Debentures is estimated based on the amount of discounted
future cash flows through estimated maturity using estimated market discount
rates based on current borrowing rates for similar debt instruments as of
December 31, 1996, and represents the actual market value of the Debentures as
of December 31, 1997.
Commitments to Extend Credit, Standby Letters of Credit and Financial Guarantees
Written The fair value of commitments to extend credit is estimated using the
fees currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
counterparties. The fair value of letters of credit is based on fees currently
charged for similar agreements or on the estimated cost to terminate them or
otherwise settle the obligations with the counterparties.
Limitations
Fair value estimates are made at a specific point in time and are based on
relevant market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could result from
offering for sale at one time the Company's entire holdings of a particular
financial instrument. Because no market exists for a portion of the Company's
financial instruments, fair value estimates are based on what management
believes to be conservative judgments regarding expected future cash flows,
current economic conditions, risk characteristics of various financial
instruments, and other factors. These estimates are subjective in nature and
involve uncertainties and matters of significant judgment and therefore cannot
be determined with precision. Changes in assumptions could significantly affect
the estimates. Since the fair value is estimated as of December 31, 1997 and
1996, the amounts that will actually be realized or paid at settlement or
maturity of the instruments could be significantly different.
F-17
<PAGE> 46
FP BANCORP, INC. AND SUBSIDIARY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The fair values of the Company's financial instruments as of December 31, 1997
and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------------------- ---------------------------------
FAIR VALUE Fair Value
CARRYING AMOUNT ESTIMATES Carrying Amount Estimates
-------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks $ 23,737,000 $ 23,737,000 $ 22,919,000 $ 22,919,000
Investment securities available-for-sale 59,366,000 59,366,000 47,405,000 47,405,000
Investment securities held-to-maturity 23,478,000 23,780,000 9,279,000 9,181,000
Loans, net 227,856,000 228,411,000 210,876,000 209,035,000
Financial liabilities:
Deposits 309,502,000 309,734,000 264,521,000 264,688,000
Federal funds purchased and
other borrowings 11,100,000 11,100,000 16,752,000 16,752,000
Convertible subordinated debentures 4,575,000 9,150,000 4,575,000 5,147,000
FAIR VALUE Fair Value
CONTRACT AMOUNT ESTIMATES Contract Amount Estimates
--------------- ------------ --------------- ------------
Off-balance sheet financial instruments:
Commitments to extend credit $44,968,000 $899,000 $51,310,000 $1,026,000
Standby letters of credit $3,759,000 $75,000 $3,269,000 $65,000
</TABLE>
11) INCOME TAXES
The components of income taxes for the year ended December 31, 1997, 1996 and
1995 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal $ 852,000 $ 145,000 $ 21,000
State 246,000 7,000 2,000
----------- ----------- -----------
Total current 1,098,000 152,000 23,000
----------- ----------- -----------
Deferred:
Federal 1,577,000 733,000 513,000
State 374,000 240,000 165,000
----------- ----------- -----------
Total deferred 1,951,000 973,000 678,000
----------- ----------- -----------
Change in valuation allowance (82,000) (2,293,000) (1,578,000)
Tax allocated to stockholders' equity 207,000 -- --
Tax credited to goodwill -- 246,000 49,000
----------- ----------- -----------
Income taxes (benefit) $ 3,174,000 $ (922,000) $ (828,000)
=========== =========== ===========
</TABLE>
F-18
<PAGE> 47
FP BANCORP, INC. AND SUBSIDIARY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(11) INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities as of December 31, 1997
and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Deferred tax assets:
Plant and equipment, principally due to
differences in depreciation $ 256,000 $ 352,000
Nonaccrual interest recognized as income for taxes
but not for books 52,000 46,000
OREO property, principally due to differences
in valuation of property 463,000 281,000
Net operating loss carryforwards 1,391,000 3,564,000
Alternative minimum and other tax credit carryforwards 355,000 355,000
Other 14,000 --
----------- -----------
Total gross deferred tax assets 2,531,000 4,598,000
Less: valuation allowance (1,851,000) (1,933,000)
----------- -----------
Net deferred tax assets $ 680,000 $ 2,665,000
----------- -----------
Deferred tax liabilities:
Allowance for loan losses, due to differences in
computation of loan debts $ (86,000) $ (151,000)
Deferred loan costs (243,000) (294,000)
Unrealized gain on investment securities
available-for-sale (207,000) --
----------- -----------
Net deferred tax liability $ (536,000) $ (445,000)
----------- -----------
</TABLE>
A reconciliation of total income taxes (benefit) for the years ended December
31, 1997, 1996 and 1995 to the amount computed by applying the applicable
statutory Federal income tax rate of 34% to earnings before income taxes
follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Computed expected income taxes $ 2,569,000 $ 1,117,000 $ 368,000
Tax exempt income (74,000) -- --
Decrease in valuation allowance (82,000) (2,293,000) (1,578,000)
Amortization of goodwill 95,000 87,000 27,000
State taxes, net of Federal benefit 410,000 163,000 110,000
Adjustment of prior year estimated liability -- -- 19,000
Recognition of acquired tax benefits
previously included in valuation allowance -- 246,000 49,000
Other 256,000 (242,000) 177,000
----------- ----------- -----------
Total income taxes (benefit) $ 3,174,000 $ (922,000) $ (828,000)
=========== =========== ===========
</TABLE>
Net deferred tax assets included in accrued interest and other assets in the
consolidated balance sheets were $144,000 and $2,220,000 as of December 31, 1997
and 1996, respectively. Current taxes payable included in accrued interest and
other liabilities in the consolidated balance sheets were $706,000 and $30,000
as of December 31, 1997 and 1996, respectively. As of December 31, 1997, the
Company has net operating loss carryforwards for Federal and state income tax
purposes of $3,679,000 and $2,424,000, respectively, which are available to
offset future taxable income of the acquired institutions, if any, through 2015
and 2000, respectively. In addition, the Company has alternative minimum and
other tax credit carryforwards of approximately $355,000 which are available to
reduce future Federal regular income taxes, if any, over an indefinite period.
The 1997 net change in the deferred tax asset valuation allowance was a decrease
of $82,000. The remaining valuation allowance of $1,851,000 as of December 31,
1997 relates to Federal and state tax carryforwards of acquired institutions,
which are limited as to their utilization. Management believes that the
realization of the recognized net deferred tax asset of $144,000 is more likely
than not, based on the expectation that the Company will generate the necessary
amount of taxable income in future periods.
F-19
<PAGE> 48
FP BANCORP, INC. AND SUBSIDIARY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12) STOCK OPTIONS
The Company has a stock option plan approved in 1988 (the "1988 Plan") which
provides for the granting of options for up to 90,090 shares of common stock to
employees for a price not less than the fair market value of the stock at the
date of grant (note 18). In November 1993, the Board of Directors approved an
increase in the number of shares available under the 1988 Plan to 250,000 shares
and in May 1994, the increase was approved by the stockholders. In March 1996,
the Board of Directors approved an increase in the number of shares available
under the 1988 Plan to 500,000 shares and in May 1996, the increase was approved
by the stockholders. The plan provides for nonqualified and incentive stock
options for employees and nonemployee directors. Shares under the employee
options become exercisable at a rate of 20% or 33 1/3% annually. Shares under
the nonemployee director options are exercisable immediately following the
effective date of the grant. The terms of the options range from five to ten
years from the date the options are granted. Options are granted at a price
equal to the fair market value of the shares as of the date of grant. Options to
purchase 204,763 shares were available for grant as of December 31, 1997.
The Company applies APB No. 25 in accounting for the 1988 Plan and, accordingly,
no compensation cost has been recognized for its stock options in the
consolidated financial statements. Had the Company determined compensation cost
based on the fair value at the grant date for its stock options under Statement
No. 123, the Company's net earnings would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net earnings, as reported $ 4,383,000 $ 4,208,000 $ 1,911,000
Pro forma net earnings $ 4,105,000 $ 3,914,000 $ 1,911,000
Basic earnings per share, as reported $ 1.62 $ 1.59 $ 0.78
Pro forma basic earnings per share $ 1.51 $ 1.48 $ 0.78
Diluted earnings per share, as reported $ 1.45 $ 1.41 $ 0.72
Pro forma diluted earnings per share $ 1.37 $ 1.34 $ 0.72
</TABLE>
The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions for 1997 and
1996: risk-free interest rates equal to comparable U.S. Treasury rates at each
grant date; dividend yield of zero; expected lives of seven years; and
volatility of 65.8%. The weighted average fair values of stock options granted
in 1997 and 1996 were $12.72 and $3.43, respectively. Pro forma net earnings
reflects only options granted in 1997, 1996 and 1995. Therefore, the full impact
of calculating compensation cost for stock options under Statement No. 123 is
not reflected in the pro forma net earnings amounts presented above because
compensation cost is reflected over the options' vesting period and compensation
cost for options granted prior to January 1, 1995 is not considered.
The following is a summary of transactions under the 1988 Stock Option Plan
which occurred during 1997, 1996, and 1995:
<TABLE>
<CAPTION>
Number of Weighted Average
Shares Exercise Price
------ -------------
<S> <C> <C>
Outstanding as of December 31, 1994 155,776 $ 5.15
Exercised (2,800) $ 5.15
-------- ---------
Outstanding as of December 31, 1995 152,976 $ 5.15
Granted 114,000 $ 8.74
Exercised (2,850) $ 5.15
-------- ---------
Outstanding as of December 31, 1996 264,126 $ 6.70
GRANTED 24,500 $ 18.21
EXERCISED (125,200) $ 5.22
-------- ---------
OUTSTANDING AS OF DECEMBER 31, 1997 163,426 $ 9.56
-------- ---------
Exercisable as of:
DECEMBER 31, 1997 127,925 $ 9.19
December 31, 1996 217,658 $ 6.33
December 31, 1995 104,628 $ 5.15
-------- ---------
</TABLE>
As of December 31, 1997, the range of exercise prices and weighted-average
remaining contractual life of outstanding options were $5.15 to $18.13 and 8.2
years, respectively.
F-20
<PAGE> 49
FP BANCORP, INC. AND SUBSIDIARY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13) EMPLOYEE STOCK OWNERSHIP PLAN
Prior to 1996, the Company sponsored the FP Bancorp Employee Stock Ownership
Plan (the "ESOP"). The amount of annual contributions to the ESOP were at the
discretion of the Company's Board of Directors. There were no contributions
under the ESOP in 1996. Contributions under the ESOP amounted to $143,000 in
1995.
The ESOP was designed to enable eligible employees, as defined in the plan
document, to participate in the growth and prosperity of the Company through
stock ownership. To fund the ESOP, the Company borrowed $500,000 and loaned the
proceeds to the ESOP. The ESOP used most of the proceeds to purchase 19,048
shares of newly issued stock of the Company. The Company's receivable from the
ESOP was $100,000 as of December 31, 1995. The receivable from ESOP was repaid
during 1996.
On January 23, 1996, the Board of Directors of the Company approved the
termination of the ESOP pending approval of the Internal Revenue Service, which
was received effective April 1, 1996. Upon termination of the ESOP, all
participants became fully vested in their assets. ESOP termination costs have
been paid by the Company.
14) 401(k) SAVINGS PLAN
Effective January 1, 1994, FPNB implemented the First Pacific National Bank
401(k) Savings Plan (the "Plan"). The Plan is a defined contribution plan
covering full-time and part-time employees who have completed six full months of
employment with FPNB. Temporary employees are excluded from Plan participation.
The Plan is subject to the provisions of the Employee Retirement Income Security
Act of 1974 ("ERISA").
The Trustee and Administrator of the Plan is Union Bank of California ("Union
Bank"). The Plan provides for participant-directed accounts which allow
participants to allocate their account balances to the following Union Bank
investment funds: Stepstone Stable Value Income Fund, Stepstone Balanced Fund
and Stepstone Value Momentum Fund. A fourth fund, Fidelity's Contrafund, is also
offered. The participants of the Plan may also allocate up to 50% of their
deferral to an investment in FP Bancorp common stock.
Participants' accounts are credited or debited with investment earnings or
losses at the end of each calendar quarter. FPNB contributed $126,000 and
$138,000 as discretionary contributions for the years ended December 31, 1997
and 1996, respectively. The contributions in 1997 and 1996 were a match based on
50% of a participant's first 6% of salary withholdings. The contribution in 1995
was a match based on 50% of a participant's first 4% of salary withholdings.
15) LEASE COMMITMENTS
The Company leases certain of its banking and administrative facilities from a
partnership whose partners include several members of the Company's Board of
Directors. As of December 31, 1997, minimum rental payments due primarily to
these related partnerships under operating leases having initial or remaining
noncancelable lease terms in excess of one year were as follows:
<TABLE>
<CAPTION>
Operating leases Other Total
with related parties operating leases Commitments
---------- ---------- ----------
<S> <C> <C> <C>
1998 $ 329,000 $ 222,000 $ 551,000
1999 317,000 228,000 545,000
2000 289,000 231,000 520,000
2001 273,000 175,000 448,000
2002 219,000 148,000 367,000
Thereafter 4,726,000 137,000 4,863,000
---------- ---------- ----------
Total minimum lease payments $6,153,000 $1,141,000 $7,294,000
========== ========== ==========
</TABLE>
During 1997, 1996 and 1995 rent expense totaled $533,000, $532,000 and $431,000,
respectively. There are no contingent rental payments applicable to any of the
leases. Most of the leases provide that the Company pay taxes, maintenance,
insurance and certain other operating expenses applicable to the leased premises
in addition to the monthly minimum payments. Management expects that in the
normal course of business, leases that expire will be renewed or replaced by
other leases.
F-21
<PAGE> 50
FP BANCORP, INC. AND SUBSIDIARY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16) COMMITMENTS AND CONTINGENCIES
The Company is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers. The
financial instruments include commitments to extend credit, standby letters of
credit and financial guarantees. Those instruments involve, to varying degrees,
elements of credit risk in excess of the amount recognized in the consolidated
balance sheets. The contract or notional amounts of those instruments reflect
the extent of involvement the Company has in particular classes of financial
instruments.
Commitments to extend credit amounting to $44,968,000 were outstanding as of
December 31, 1997. Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements.
Standby letters of credit and financial guarantees amounting to $3,759,000 were
outstanding as of December 31, 1997. Standby letters of credit and financial
guarantees are conditional commitments issued by FPNB to guarantee the
performance of a customer to a third party. Those guarantees are primarily
issued to support private borrowing arrangements. Most guarantees will expire
within one year.
The Company generally requires collateral or other security to support financial
instruments with credit risk. Management does not anticipate that any material
loss will result from the outstanding commitments to extend credit, standby
letters of credit and financial guarantees.
As of December 31, 1997, the Company had lines of credit in the amount of
$12,000,000 from correspondent banks, of which $3,100,000 was outstanding as of
December 31,1997. These lines are renewable annually. The Company also had a
credit line with the Federal Home Loan Bank ("FHLB"), which would allow the
Company to borrow up to $18,000,000. Borrowings of $8,000,000 were outstanding
on the FHLB line as of December 31, 1997. In addition, the Company had
arrangements for $40,000,000 in reverse repurchase agreements with investment
brokers that were unused as of December 31, 1997. The availability of the lines
of credit, as well as adjustments in deposit programs, provides for liquidity in
the event that the level of deposits should fall abnormally low. These sources
provide that funding thereof may be withdrawn depending upon the financial
strength of the Company.
The year 2000 ("Y2K") problem is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in major
system failure or miscalculations. All Y2K expenses will be expensed as
incurred. The Company does not anticipate that costs associated with resolving
the Y2K problem will materially effect the Company's net earnings or financial
position in the future.
Because of the nature of its activities, the Company is at all times subject to
pending and threatened legal actions which arise out of the normal course of its
business. In the opinion of management, based in part upon opinions of legal
counsel, the disposition of all litigation will not have a material effect on
the Company.
17) REGULATORY MATTERS
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") was
signed into law on December 19, 1991. The prompt corrective action regulations
define specific capital categories based on an institution's capital ratios. The
capital categories, in declining order, are "well-capitalized",
"adequately-capitalized", "undercapitalized", "significantly undercapitalized"
and "critically undercapitalized".
F-22
<PAGE> 51
FP BANCORP, INC. AND SUBSIDIARY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17) REGULATORY MATTERS (CONTINUED)
The prompt corrective action regulations define "well-capitalized" as having a
Risk-based Capital Ratio of 10% or greater, having a Tier 1 Risk-based Capital
Ratio of 6% or greater and having a leverage ratio of 5% or greater. Under these
guidelines, as of December 31, 1997, the Company and FPNB were considered
"well-capitalized."
<TABLE>
<CAPTION>
DECEMBER 31, 1997
FP BANCORP FPNB
---------- ----
TO BE WELL-CAPITALIZED TO BE WELL-CAPITALIZED
AMOUNT RATIO AMOUNT RATIO
------ ----- ------ -----
<S> <C> <C> <C> <C>
LEVERAGE RATIOS:
TIER 1 CAPITAL $21,965 6.29% $24,770 7.09%
MINIMUM REQUIRED 17,471 5.00% 17,465 5.00%
------- ----- ------- -----
EXCESS $ 4,494 1.29% $ 7,305 2.09%
======= ===== ======= =====
RISK-BASED CAPITAL RATIOS:
TIER 1 CAPITAL $21,965 9.10% $24,770 10.27%
MINIMUM REQUIRED 14,477 6.00% 14,469 6.00%
------- ----- ------- -----
EXCESS $ 7,488 3.10% $10,301 4.27%
======= ===== ======= =====
TOTAL CAPITAL $24,611 10.20% $27,416 11.37%
MINIMUM REQUIRED 24,129 10.00% 24,116 10.00%
------- ----- ------- -----
EXCESS $ 482 0.20% $ 3,300 1.37%
======= ===== ======= =====
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
FP Bancorp FPNB
---------- ----
To be Adequately-capitalized To be Well-capitalized
Amount Ratio Amount Ratio
------ ----- ------ -----
<S> <C> <C> <C> <C>
Leverage Ratios:
Tier 1 capital $16,965 5.54% $19,966 6.52%
Minimum required 12,249 4.00% 15,306 5.00%
------- ---- ------- -----
Excess $ 4,716 1.54% $ 4,660 1.52%
======= ==== ======= =====
Risk-based Capital Ratios:
Tier 1 capital $16,965 7.47% $19,966 8.79%
Minimum required 9,088 4.00% 13,636 6.00%
------- ---- ------- -----
Excess $ 7,877 3.47% $ 6,330 2.79%
------- ---- ------- -----
Total capital $19,808 8.72% $22,810 10.04%
Minimum required 18,175 8.00% 22,726 10.00%
------- ---- ------- -----
Excess $ 1,633 0.72% $ 84 0.04%
======= ==== ======= =====
</TABLE>
Under Federal banking law, dividends declared by FPNB in any calendar year may
not, without the approval of the Office of the Comptroller of the Currency (the
"OCC"), exceed its net profit, as defined, for that year combined with its
retained income from the preceding two years. However, in October 1991, the OCC
issued a bulletin to all national banks outlining new guidelines limiting the
circumstances under with national banks may pay dividends even if the banks are
otherwise statutorily authorized to pay dividends. The limitations impose a
requirement or in some cases suggest that prior approval of the OCC should be
obtained before a dividend is paid if a national bank is the subject of
administrative action or the payment could be viewed by the OCC as unsafe or
unsound.
F-23
<PAGE> 52
FP BANCORP, INC. AND SUBSIDIARY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18) SUBSEQUENT EVENTS
On January 17, 1998, in accordance with the original provisions of the 1988
Plan, the 1988 Plan was terminated.
On January 20, 1998, 100% of the Debenture holders elected conversion into
Company Common Stock. In accordance with the antidilutive provision included in
the terms of the Debentures, a conversion rate of 74.5226 shares of Company
Common Stock per $1,000 of principal was utilized. Accordingly, 340,895 shares
of Company Common Stock were issued on that date at a total price of $4,575,000,
less direct costs of issuance.
19) PARENT COMPANY CONDENSED FINANCIAL INFORMATION
FP Bancorp, Inc.
Condensed Balance Sheets
<TABLE>
<CAPTION>
December 31,
------------------------------
ASSETS 1997 1996
----------- -----------
<S> <C> <C>
Cash $ 1,655,000 $ 1,909,000
Investment in subsidiary 28,995,000 23,706,000
Other assets 130,000 160,000
----------- -----------
Total assets $30,780,000 $25,775,000
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued expenses and other liabilities $ 16,000 222,000
Convertible subordinated debentures 4,575,000 4,575,000
Stockholders' equity 26,189,000 20,978,000
----------- -----------
Total liabilities and stockholders' equity $30,780,000 $25,775,000
=========== ===========
</TABLE>
FP Bancorp, Inc.
Condensed Statements of Earnings
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Other income $ 78,000 $ 117,000 $ 109,000
Interest expense (489,000) (483,000) (483,000)
Operating expense (315,000) (291,000) (531,000)
----------- ----------- -----------
Loss before income taxes and equity in undistributed
net earnings of subsidiary (726,000) (657,000) (905,000)
Equity in undistributed net earnings of subsidiary 5,109,000 4,865,000 2,816,000
----------- ----------- -----------
Net earnings $ 4,383,000 $ 4,208,000 $ 1,911,000
=========== =========== ===========
</TABLE>
F-24
<PAGE> 53
FP BANCORP, INC. AND SUBSIDIARY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19) PARENT COMPANY CONDENSED FINANCIAL INFORMATION (CONTINUED)
FP Bancorp, Inc.
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 4,383,000 $ 4,208,000 $ 1,911,000
Adjustments to reconcile net earnings to net cash
used in operating activities:
Equity in undistributed net earnings of subsidiary (5,109,000) (4,865,000) (2,816,000)
Amortization of debenture issuance costs 72,000 72,000 72,000
Net (increase) decrease in other assets (42,000) 248,000 (155,000)
(Decrease) increase in accrued expenses and other liabilities (206,000) (89,000) 87,000
----------- ----------- -----------
Net cash used in operating activities (902,000) (426,000) (901,000)
----------- ----------- -----------
Cash flows from investing activities:
Decrease in receivable from ESOP -- 100,000 33,000
----------- ----------- -----------
Net cash provided by investing activities -- 100,000 33,000
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from exercise of stock options 648,000 15,000 15,000
----------- ----------- -----------
Net cash provided by financing activities 648,000 15,000 15,000
----------- ----------- -----------
Net decrease in cash (254,000) (311,000) (853,000)
Cash at beginning of year 1,909,000 2,220,000 3,073,000
----------- ----------- -----------
Cash at end of year $ 1,655,000 $ 1,909,000 $ 2,220,000
----------- ----------- -----------
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $ 618,000 $ 412,000 $ 412,000
Income taxes $ 21,000 $ 33,000 $ 1,000
----------- ----------- -----------
Supplemental disclosure of noncash investing
and financing activities:
Increase (decrease) in net unrealized gains
on investment securities available-for-sale $ 180,000 $ (178,000) $ 799,000
=========== =========== ===========
Common stock issued in merger $ -- $ -- $ 4,255,000
=========== =========== ===========
</TABLE>
20) QUARTERLY EARNINGS
The following is a summary of the Company's quarterly earnings:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------
1997 DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
- ------------------------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME $7,460,000 $7,196,000 $7,006,000 $6,741,000
INTEREST EXPENSE 2,248,000 2,146,000 2,008,000 2,060,000
NET INTEREST INCOME BEFORE
PROVISION FOR LOAN LOSSES 5,212,000 5,050,000 4,998,000 4,681,000
PROVISION FOR LOAN LOSSES 108,000 108,000 108,000 108,000
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 5,104,000 4,942,000 4,890,000 4,573,000
OTHER OPERATING INCOME 760,000 651,000 564,000 565,000
OTHER OPERATING EXPENSES 3,639,000 3,575,000 3,719,000 3,559,000
EARNINGS BEFORE INCOME TAXES 2,225,000 2,018,000 1,735,000 1,579,000
INCOME TAX EXPENSE 943,000 841,000 725,000 665,000
NET EARNINGS 1,282,000 1,177,000 1,010,000 914,000
BASIC EARNINGS PER SHARE $0.46 $0.43 $0.38 $0.34
DILUTED EARNINGS PER SHARE $0.42 $0.37 $0.33 $0.29
----------- ------------ ----------- -----------
</TABLE>
F-25
<PAGE> 54
FP BANCORP, INC. AND SUBSIDIARY - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
20) QUARTERLY EARNINGS (CONTINUED)
<TABLE>
<CAPTION>
Three months ended
-------------------------------------------------------
1996 December 31 September 30 June 30 March 31
- ------------------------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Interest income $6,315,000 $5,874,000 $5,631,000 $4,423,000
Interest expense 1,828,000 1,778,000 1,618,000 1,293,000
Net interest income before
provision for loan losses 4,487,000 4,096,000 4,013,000 3,130,000
Provision for loan losses 150,000 150,000 150,000 250,000
Net interest income after
provision for loan losses 4,337,000 3,946,000 3,863,000 2,880,000
Other operating income 806,000 483,000 347,000 376,000
Other operating expenses 3,796,000 3,465,000 3,680,000 2,811,000
Earnings before income taxes 1,347,000 964,000 530,000 445,000
Income tax expense (benefit) 340,000 (5,000) (978,000) (279,000)
Net earnings 1,007,000 969,000 1,508,000 724,000
Basic earnings per share $.38 $.37 $.57 $.27
Diluted earnings per share $.32 $.32 $.48 $.22
----------- ---------- ---------- ----------
</TABLE>
F-26
<PAGE> 55
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
CURRENT
POSITIONS HELD DIRECTOR OF THE TERM
NAME AGE WITH THE COMPANY COMPANY SINCE EXPIRES
---- --- ---------------- ------------- -------
<S> <C> <C> <C> <C>
Harvey L. Williamson 64 President, Chief 1988 1999
Executive Officer and
Director
Michael J. Perdue(1) 43 Executive Vice 1996 1999
President, Chief
Operating Officer and
Director
Gary W. Deems 51 Executive Vice 1996 1998
President, Chief
Administrative
Officer, Secretary and
Director
Mark N. Baker 51 Chairman and Director 1984 1998
Earle W. Frey, Jr. 72 Director 1984 1999
Robert W. Klemme 52 Director 1995 1999
Joseph J. Kuebler 55 Director 1993 1998
Randall C. Luce 38 Director 1995 1999
Larry R. Markham 47 Director 1993 1998
Richard W. McBride 62 Director 1992 1998
Richard S. Spanjian 70 Director 1993 1998
Robert M. Spanjian 72 Director 1988 1999
Richard B. Thomas 51 Director 1995 1998
Michael W. Wexler 51 Director 1984 1999
</TABLE>
- -------------------------
(1) Mr. Perdue also served as a director of the Company from August 1992 to
August 1993.
Harvey L. Williamson became President and Chief Executive Officer of the
Company and its wholly-owned subsidiary, First Pacific National Bank ("FPNB"),
on August 13, 1992. Prior to that time he served as a Senior Executive Vice
President of the Company beginning in 1990, was an Executive Vice President of
the Company from 1988 to 1990 and served as President and Chief Executive
Officer of San Marcos National Bank from 1983 until September 1992.
Michael J. Perdue has served as Executive Vice President and Chief Operating
Officer of the Company and FPNB since August 1993. He served as a director of
the Company from August 1992 to August 1993. He served as President and Chief
Executive Officer of Temecula Valley National Bank from July 1992 until August
1993. Immediately prior to coming to Temecula Valley National Bank, Mr. Perdue
served as Vice President and Chief Financial Officer of Ranpac, Inc., a real
estate development company headquartered in Temecula, California.
Gary W. Deems has served as Executive Vice President, Chief Administrative
Officer and Secretary of the Company and FPNB since July 1993. From 1990 to
1993, Mr. Deems oversaw 18 retail branches as a Vice President/District Manager
for Wells Fargo Bank.
Mark N. Baker is a partner in Baker Enterprises, a real estate venture
partnership, and has held such position since 1972. Mr. Baker is also Executive
Vice President of San Diego Wood Preserving Co. and has held that position since
1985. From 1982 through 1996, Mr. Baker also served as Executive Vice President
of Baker Electric, Inc., a local electrical contractor in business in Escondido,
California since 1937.
III-1
<PAGE> 56
Earle W. Frey, Jr. is President of Frey Nursery, Inc. a nursery containing
primarily avocado and citrus trees. Mr. Frey has held such position since 1975.
Robert W. Klemme is the President of Entrepreneurial Capital Corporation, a
diversified holding company, and has held such position since 1986. From 1993
until its acquisition by the Company in 1995 (the "Overland Merger"), Mr. Klemme
served as Chairman of Overland Bank. He served as a director of Cal-West
National Bank from 1986, and as Chairman of Cal-West National Bank, from 1987
until its merger with Overland Bank in 1993 (the "Cal-West Merger").
Joseph J. Kuebler is President of Kuebler, Thomas & Co., Certified Public
Accountants, which has offices in Temecula and Perris, California. Mr. Kuebler
has held such position since 1987.
Randall C. Luce is President of Entrepreneurial Investment Corporation
("EIC"), a capital investment company specializing in the real estate and
financial service industries. EIC is part of the Entrepreneurial Corporate
Group, a diversified group of companies owned by Duane R. Roberts. Since 1987,
Mr. Luce has served in various senior management positions with affiliates of
Entrepreneurial Capital Group, including serving as President of EIC and
Entrepreneurial Management Corporation. From 1993 until the Overland Merger in
1995, Mr. Luce served as Vice Chairman of Overland Bank, and Mr. Luce served as
President and Chief Executive Officer of Cal-West National Bank from 1991 until
the Cal-West Merger in 1993.
Larry R. Markham is the principal of Markham & Associates, a development
consulting firm that has been in business in Temecula since 1981.
Richard W. McBride is President of Southern Contracting Co., a regional
electrical contractor that has been in business since 1964.
Richard S. Spanjian is a retired businessman. During the period from 1945 to
1985, Mr. Spanjian was President of Spanjian Sportswear, Inc. Richard S.
Spanjian is the brother of Robert M. Spanjian, who also is a director.
Robert M. Spanjian is a retired businessman. During the period from 1945 to
1985, Mr. Spanjian was Chairman and Vice President of Spanjian Sportswear, Inc.
Robert M. Spanjian is the brother of Richard S. Spanjian, who also is a
director.
Richard B. Thomas is the President of Richard B. Thomas, a Professional
Accountancy Corporation, and has held such position since 1996. Prior to that,
he served as Senior Vice President and Chief Financial Officer of
Entrepreneurial Capital Corporation, a diversified holding company, and had held
such positions since 1989. From 1993 until the Overland Merger in 1995, Mr.
Thomas was a director of Overland Bank. From 1990 until the Cal-West Merger in
1993, he served as a director of Cal-West National Bank.
Michael W. Wexler is President of Pine Tree Lumber Company and has held such
position since 1992.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires that directors and executive officers of companies with shares
registered under the Exchange Act, such as the Company, and beneficial owners of
more than 10% of such shares (collectively such directors, officers, and
shareholders being referred to as "Insiders") make filings with the Securities
and Exchange Commission (the "SEC"), reporting their direct and indirect
ownership and acquisition and disposition of such shares. The SEC has adopted
rules implementing Section 16(a) (the "Reporting Rules") that are quite complex
and interpretive advice of the SEC concerning these rules is often sought by
registrants.
Effective May 1, 1991, the SEC adopted new Reporting Rules implementing
Section 16(a) and also adopted a rule requiring the registrant to disclose any
instances of noncompliance by any Insider. The SEC adopted this requirement
largely because of what it believed was a relatively high level of noncompliance
with the Reporting Rules previously in effect. Based solely on its review of
copies of Forms 3, 4, and 5 and amendments thereto furnished to the Company
pursuant to Rule 16a-3(e), and Forms 5 and amendments thereto furnished to the
III-2
<PAGE> 57
Company with respect to its most recent fiscal year, and written representations
from its Insiders, the Company believes that, during its last fiscal year, its
Insiders complied with all Section 16(a) filing requirements.
ITEM 10. EXECUTIVE COMPENSATION.
EXECUTIVE COMPENSATION
The following table and accompanying notes present the aggregate indicated
compensation paid by the Company and FPNB during 1997 and, to the extent
required by applicable rules, during the preceding two fiscal years to the Chief
Executive Officer and the two other executive officers of the Company as of
December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------- -------------
SECURITIES OTHER
UNDERLYING COMPENSATION
NAME AND SALARY BONUS OPTIONS (1)
PRINCIPAL POSITION YEAR ($) ($) (#) ($)
------------------ ---- -------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Harvey L. Williamson 1997 $176,136 $ 77,134(2) 0 $ 8,502
President and Chief 1996 171,000 45,772(3) 5,000 8,200(4)
Executive Officer 1995 167,907(5) 60,000(6) 0 6,700(7)
Michael J. Perdue 1997 $137,040 $ 77,134(8) 0 $ 9,397
Executive Vice 1996 133,000 45,772(3) 15,000 4,500
President and Chief 1995 125,000 60,000(6) 0 3,000
Operating Officer
Gary W. Deems 1997 $137,040 $ 77,134(9) 0 $ 9,397
Executive Vice 1996 133,000 45,772(3) 15,000 4,500
President, 1995 125,000 60,000(6) 0 3,000
Chief Administrative
Officer and Secretary
</TABLE>
- ----------
(1) Represents discretionary employer matching contributions to the First
Pacific National Bank 401(k) Savings Plan.
(2) Bonus earned in 1997; $69,000 paid in 1997 and $8,134 paid in 1998.
(3) Bonuses earned in 1996 but paid in 1997.
(4) $4,500 represents discretionary employer matching contributions to the First
Pacific National Bank 401(k) Savings Plan, and $3,700 represents the premium
paid by the Bank for a whole life insurance policy for the benefit of Mr.
Williamson.
(5) Includes $7,407 payment in lieu of accrued vacation.
(6) Bonuses earned in 1995 but paid in 1996.
(7) $3,000 represents discretionary employer matching contributions to the First
Pacific National Bank 401(k) Savings Plan, and $3,700 represents the premium
paid by the Bank for a whole life insurance policy for the benefit of Mr.
Williamson.
(8) Bonus earned in 1997 but paid in 1998.
(9) Bonus earned in 1997; $50,000 paid in 1997 and $27,134 paid in 1998.
Bonus Plans. For 1997, the 1997 Management Incentive Compensation Plan
(the "1997 Plan") was established which provided an incentive pool based on an
"Adjusted Return on Beginning Equity" ("AROE"), as defined in the 1996 Plan. The
1997 Plan resulted in a pool of 6% of "adjusted profit", as defined in the plan.
Messrs. Williamson, Perdue and Deems were each allocated 23% of the pool for
purposes of calculating their bonuses for 1997.
III-3
<PAGE> 58
For 1998, the 1998 Management Incentive Compensation Plan (the "1998 Plan")
was established to provide an incentive pool for senior management and other
FPNB employees. Like the 1997 Plan, the 1998 Plan is based on AROE and the
incentive pool may range from 0% to 6.5% of adjusted net income, depending on
FPNB's results of operations for 1998. The incentive pool total may not exceed
the 1997 pool amount of $308,538. Messrs. Williamson, Perdue and Deems are each
allocated 25% of the pool for purposes of calculating their bonuses for 1998. As
a result of the Merger, incentive payments will be made on a pro rata basis
based on each participant's termination date or June 30, 1998, whichever is
sooner.
Certain Noncash Compensation. The Company provides and intends to
continue to provide each of Messrs. Williamson, Perdue and Deems with an
automobile. The value of the automobile which relates to personal use is
reported as taxable personal income at the end of each year. Such noncash
compensation allocable to each executive officer does not exceed 10% of the cash
compensation of such executive officer and the aggregate of such compensation
does not exceed 10% of the aggregate cash compensation paid to executive
officers.
STOCK OPTION PLAN
The Amended and Restated 1988 Stock Option Plan (the "Option Plan") was
originally effective in 1988, was subsequently amended three times, and was
amended and restated in 1996 with the approval of the stockholders to authorize
an increase in the number of options available for purchase of Company shares of
Common Stock to 500,000. In accordance with its terms, the Plan terminated
January 17, 1998. Options issued pursuant to the Plan prior to its expiration
remain outstanding and are exercisable in accordance with their terms. As of
December 31, 1997, options to purchase 204,763 shares were available for grant.
As of December 31, 1997, and January 17, 1998, options to purchase 163,426
shares were outstanding.
Under the Option Plan, options may be granted to employees of the Company,
any parent or subsidiary, and directors of the Company, to purchase shares of
Common Stock. The Option Plan is designed to enable the Company and its
subsidiary to attract, retain and motivate eligible persons by providing for or
increasing proprietary interests of such persons in the Company. The Option Plan
provides for options which qualify as incentive stock options ("ISO's") under
Section 422 of the Internal Revenue Code of 1986, as amended, as well as
"nonqualified" stock options ("NQO's").
Administration of the Option Plan. The Option Plan is administered by
the Board. At its discretion, the Board may appoint a committee (the
"Committee") of not less than three members of the Board to administer the
Option Plan.
Eligibility. Key employees of the Company, a parent or subsidiary of the
Company, and directors of the Company, were eligible to receive options under
the Option Plan, as selected by the Board or the Committee. No options were to
be granted to an employee who owns stock, and possesses more than 10% of the
total combined voting power of all classes of stock of the Company.
There was no limit upon the number of shares that could be issued under
NQO's under the Option Plan to any one employee or director. However, the
aggregate fair market value of the stock subject to ISO's granted to any one
employee as to which ISO's were exercisable for the first time during any
calendar year could not exceed $100,000, with fair market value determined as of
the time each respective option was granted. For purposes of such determination,
all ISO's under the Option Plan and under all stock option plans of the Company,
its parents and subsidiaries, were included.
Shares Covered by the Option Plan. The number of shares of Common Stock
for which options remain exercisable is 163,426. The number and/or kind of
shares covered by the outstanding options is subject to proportionate adjustment
if the outstanding shares of Common Stock are changed in number or kind by
reason of stock splits, stock dividends, corporate reorganizations,
recapitalization or the like. Any such adjustment in outstanding options shall
be made without changing the aggregate exercise price applicable to the
unexercised portions of such options, but with a corresponding adjustment in the
exercise price per share.
Option Terms. The exercise price which must be paid for Common Stock
upon exercise of any option may not be less than 100% of the fair market value
of the stock on the date the grant of the option is approved by the Board or
Committee.
III-4
<PAGE> 59
All options are nontransferable other than upon the optionee's death by will
or the laws of descent and distribution, may not be pledged or hypothecated and
are exercisable during the optionee's lifetime only by the optionee.
No option granted under the Option Plan may be exercised in whole or in part
more than ten years after its date of grant. The exercise or vesting periods for
the options granted under the Option Plan are set forth in the individual option
agreements at the Board or Committee's discretion; provided, however, that
vesting is required to occur at the rate of at least 20% per year over a
five-year period. With respect to options that vest upon completion of whole
years of completed employment or service, the optionee is credited with a whole
year of continuous employment or a whole year of service with respect to an
optionee who is a director, only if employment or service during that year has
not been interrupted by any absence other than on duly granted leave or due to
sickness for a period of not more than 90 days. Vesting may be accelerated upon
the occurrence of certain events. See "Corporate Reorganization," below.
Subject to the limitations imposed by the Option Plan and applicable law,
the Board or Committee was authorized to determine the time or times and the
conditions under which each option is exercisable. Options granted under the
Option Plan may become exercisable in installments if specified in the
individual option agreements, and in that case, the installments are cumulative
so that each matured but unexercised installment remains exercisable until the
entire option expires or is terminated.
Upon exercise of an option under the Option Plan, the stock purchased must
be paid for in full. Payment for stock upon exercise of an option generally must
be in cash, but option agreements for NQO's under the Option Plan may allow the
optionee to pay for optioned shares upon exercise of options wholly or partially
in installments. All funds received or held by the Company under the Option Plan
will be included in the general funds of the Company free of any trust or other
restriction and may be used for any corporate purpose. No interest will be paid
to any participant or credited under the Option Plan.
Termination of Options. Each option may terminate no later than ten
years from its date of grant, provided that an option may terminate earlier, as
provided in "Corporate Reorganization," below, or as described in the following:
(i) Termination of Employment. If the optionee's employment with
the Company or any of its parents or subsidiaries or the optionee's service as a
director of the Company terminates for any reason other than death, then only
that portion of the option exercisable at the time of termination may be
exercised for a period not to exceed 30 days thereafter, but in no case after
its stated expiration date. If termination is by reason of the optionee's
retirement (with the Company's written consent), the period of exercise shall be
extended to three months, but in no case beyond its stated expiration date. If
termination is by reason of the optionee's permanent and total disability, the
period of exercise shall be extended to one year, but in no case beyond the
stated expiration date.
(ii) Death of Optionee. If the optionee dies during the term of
the option, the portion of the option exercisable at the time of the optionee's
death may be exercised for one year thereafter, but not after it expires by its
terms, by the optionee's legal representatives or by the person to whom the
optionee's rights under the option pass by will or the laws of descent and
distribution.
(iii) Extended Exercise. Notwithstanding the termination
provisions described above, the Board or Committee will be able to enter into
option agreements that extend the period of exercise through the expiration date
of an option.
Corporate Reorganization. In the event of a merger, reorganization or
consolidation and/or change or control, each outstanding option shall pertain to
and apply to the securities to which the holder of the number of shares subject
to the option would have been entitled, and shall continue in full force and
effect notwithstanding any such event. A "change of control" was defined in the
original Option Plan as the issuance or transfer of sufficient shares of stock,
or a merger, reorganization or consolidation which results in more than 50% of
the voting stock of FPNB or its successor being owned by other than the Company
or persons who own 75% or more of the voting stock of the Company prior to the
transaction; or a merger, reorganization or consolidation which
III-5
<PAGE> 60
results in more than 50% of the voting stock of the Company being owned by
persons who are not holders of voting stock of the Company prior to the
transaction or the acquisition by any person (as defined in Section 13(d)(3) of
the Securities Exchange Act of 1934) or entity of more than 50% of the voting
stock of the Company.
In addition, in the event of a "change of control," each option outstanding
under the Option Plan shall be automatically, without further action by any
party, fully vested and exercisable to the extent not previously vested or
exercisable. In the event that the optionee's employment or service as a
director with the Company or a subsidiary is terminated, other than by the
Company or subsidiary for cause, within one year after a change of control, the
option shall remain exercisable for a period of the longer of one year from the
date of termination or the period during which the option would otherwise remain
exercisable following such termination.
EMPLOYEE STOCK OWNERSHIP PLAN
The FP Bancorp Employee Stock Ownership Plan (the "ESOP") enabled eligible
employees, as defined in the ESOP, to participate in the growth and prosperity
of the Company through stock ownership achieved through employer contributions
to purchase stock of the Company. On January 23, 1996, the Board of Directors of
the Company approved the termination of the ESOP pending approval of the
Internal Revenue Service, which was received effective April 1, 1996. Upon
termination of the ESOP, all participants became fully vested in their assets.
ESOP termination costs have been paid by the Company.
401(k) SAVINGS PLAN
Effective January 1, 1994, FPNB implemented the First Pacific National Bank
401(k) Savings Plan ("401(k) Plan"). The 401(k) Plan is a defined contribution
plan covering full-time and part-time employees who have completed six full
months of employment with FPNB. Temporary employees are excluded from 401(k)
Plan participation. The 401(k) Plan is subject to the provisions of the Employee
Retirement Income Security Act of 1974.
The Trustee and Administrator of the 401(k) Plan is Union Bank of California
("Union Bank"). The 401(k) Plan provides for participant-directed accounts which
allow participants to allocate their account balances to the following Union
Bank investment funds: Stepstone Stable Value Income Fund, Stepstone Balanced
Fund and Stepstone Value Momentum Fund. A fourth fund, Fidelity's Contrafund, is
also offered. The participants in the 401(k) Plan may also allocate up to 50% of
their deferral to an investment in Common Stock.
Participants' accounts are credited or debited with investment earnings or
losses at the end of each calendar quarter. FPNB contributed $126,000 and
$138,000 as discretionary contributions for the years ended December 31, 1997
and 1996, respectively. The contributions in 1997 and 1996 were matches based on
50% of the aggregate of the participants' first 6% of salary withholdings.
EMPLOYMENT ARRANGEMENTS
The executive officers of the Company, Harvey L. Williamson, Michael J.
Perdue and Gary W. Deems, have written employment agreements with the Company
and FPNB.
Williamson Employment Agreement. On August 1, 1997, Mr. Williamson
entered into a new Employment Agreement (the "CEO Employment Agreement") with
FPNB (replacing prior employment and change of control agreements with FPNB),
under which the Company has certain obligations. The CEO Employment Agreement
provides that upon a change of control (as defined therein), Mr. Williamson is
entitled to the following severance benefits: (i) a lump sum payment of an
amount equal to the salary that would otherwise be payable at the then current
salary rate through December 31, 1998, plus the pro rata portion of the bonus
that he would have earned with respect to the portion of the calendar year
elapsed through the date of termination under the most recently in force
executive bonus plan and (ii) continuation of life and health insurance benefits
and the use of an automobile provided by FPNB through December 31, 1998. These
severance benefits will be paid in the event that, as expected, Mr. Williamson's
employment is terminated in connection with the Merger.
Deems and Perdue Employment Agreements. In April 1997 Messrs. Deems and
Perdue (the "Executives") entered into employment agreements with FPNB and the
Company relating to their duties
III-6
<PAGE> 61
as executive officers of the Company and FPNB. These agreements were for the
period ending December 31, 1998. In August, 1997, in conjunction with the
finalization of the Salary Continuation Agreements (the "Salary Continuation
Agreements") (see below), the Executives entered into new Employment Agreements
(the "Executive Employment Agreements") with the Company and FPNB (replacing the
April 1997 employment agreements with the Company and FPNB and the January 1994
change of control agreements with FPNB). Each of the Executive Employment
Agreements is effective through December 31, 1998.
The Executive Employment Agreements provide certain benefits if within two
years after a definitive agreement is executed causing a later change of control
(as defined therein) the Executive is terminated, his salary is reduced, he is
required to be based more than 35 miles from the executive offices of FPNB or a
change of control occurs. In such an event, the Executive is entitled to the
following severance benefits: (i) a lump sum payment of an amount equal to the
lesser of (w) one (1) year's salary at the then current salary rate or (x) the
salary that would otherwise be payable through Executive's attainment of age 65
plus the pro rata portion of the bonus that the Executive would have earned with
respect to the portion of the calendar year elapsed through the date of
termination under the most recently in force executive bonus plan, if any,
proposed within the prior twelve (12) months, which payments shall be due within
one month after the later of the date of a change of control, termination or the
actual occurrence of a change of control; and (ii) continuation of life and
health insurance benefits and the use of an automobile provided by FPNB through
December 31, 1998. If, as expected, Mr. Deems is terminated in connection with
the Merger, he will be entitled to these benefits. Mr. Perdue has entered into
an Employment Agreement with an affiliate of Zions that would replace his
Executive Employment Agreement following the effective date of the Merger.
SALARY CONTINUATION AGREEMENTS
On August 1, 1997, Mr. Deems and Mr. Perdue finalized their Salary
Continuation Agreements with the Company and FPNB which had been approved by the
compensation committee in April, 1997 in conjunction with the Executive
Employment Agreements. The Salary Continuation Agreements permit the Executives
to defer compensation to fund a portion of an annual benefit to be paid under
schedules included in the Salary Continuation Agreements. FPNB is responsible
for funding other benefits which vest over a period of time, as described below.
Upon the retirement after age 65 or disability of the Executive, FPNB shall
pay to the Executive the annual sum of $120,000 if the Executive has made all of
the scheduled deferrals (15 in the case of Mr. Deems and 22 in the case of Mr.
Perdue), for a period of 180 months following the date of retirement or
disability. If not all of the scheduled deferrals have been made, FPNB shall pay
to the Executive a lesser amount based upon the actual deferrals made by the
Executive and a benefit schedule setting forth the amount of FPNB's
responsibility for annual payments. If the Executive dies while employed, FPNB
shall pay his beneficiary the annual sum of $120,000 for a period of 180 months.
If the Executive is terminated by FPNB for cause (using the same definitions
appearing in the Executive Employment Agreements) the Executive will be entitled
to receive only his vested benefit based on his deferrals, for a period of 180
months beginning at age 65. If the Executive is terminated by FPNB without cause
he will also be entitled to receive the vested benefit funded by FPNB, for a
period of 180 months beginning at age 65.
In the event of a Change of Control while the Executive is employed with
the Company or FPNB, FPNB will be obligated to provide the annual sum of at
least $60,000 for a period of 180 months beginning at age 65. In the context of
the Merger, if the Executive is terminated without cause after the Merger he
will be entitled to receive the amount vested based on his deferrals, plus
$60,000 per year, all for a period of 180 months, commencing at age 65. If the
Merger occurs in 1998, Mr. Deems would be entitled to a payment of approximately
$68,000 per year for 180 months beginning in the year 2011. Mr. Perdue has
agreed that he will give up his benefits under the Salary Continuation Agreement
if the Merger is completed. However, if the Merger occurs in 1998 and Mr. Perdue
does not waive his rights under the Salary Continuation Agreement, Mr. Perdue
would be entitled to a payment of approximately $63,000 per year for 180 months
beginning in the year 2019.
III-7
<PAGE> 62
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
SECURITIES OWNERSHIP OF OFFICERS, DIRECTORS AND OTHERS
Following is a table which indicates as of March 5, 1998 the amount and the
percent of beneficial ownership of FP Common Stock for each director, the Chief
Executive Officer and the two other executive officers, and all directors and
executive officers as a group.
<TABLE>
<CAPTION>
NAME OF
BENEFICIAL OWNER OR NO. OF SHARES
NO. OF PERSONS IN GROUP BENEFICIALLY OWNED(1)(2) % OF CLASS(3)
----------------------- ------------------------ -------------
<S> <C> <C>
Mark N. Baker..................... 81,350 (4) 2.51%
Gary W. Deems..................... 89,368 (5) 2.76%
Earle W. Frey, Jr................. 82,066 (6) 2.53%
Robert W. Klemme.................. 36,821 (7) 1.14%
Joseph J. Kuebler................. 28,356 (8) (19)
Randall C. Luce................... 24,029 (9) (19)
Larry R. Markham.................. 13,516(10) (19)
Richard W. McBride................ 73,881(11) 2.28%
Michael J. Perdue................. 86,263(12) 2.66%
Richard S. Spanjian............... 48,726(13) 1.50%
Robert M. Spanjian................ 35,452(14) 1.10%
Richard B. Thomas................. 17,114(15) (19)
Michael W. Wexler................. 67,641(16) 2.09%
Harvey L. Williamson.............. 74,706(17) 2.30%
All executive officers and
directors as a group (14) persons. 759,289(18) 22.99%(18)
</TABLE>
-------------
(1) Unless otherwise indicated, each person listed has sole voting and
investment power with respect to the shares listed.
(2) Includes all shares beneficially owned, whether directly or indirectly,
individually or together with associates. Includes any shares owned,
whether jointly or as community property with a spouse, or any stock of
which beneficial ownership may be acquired within 60 days of March 5, 1998
by the exercise of stock options.
(3) Any securities not outstanding which are subject to options, warrants,
rights or conversion privileges which may be exercised within 60 days
after March 5, 1998, shall be deemed to be outstanding for the purpose of
computing the percentage of outstanding securities of the class owned by
such person but shall not be deemed to be outstanding for the purpose of
computing the percentage of the class by any other person.
(4) Includes 21,414 shares held by Mark N. Baker as Trustee of the Trust dated
October 21, 1985; also includes 7,702 shares held by Mark N. Baker as
Custodian for the benefit of certain of his children under the California
Uniform Gift to Minors Act; also includes 104 shares held by Margaret A.
Baker as Custodian for the benefit of certain of her nieces under the
California Uniform Gift to Minors Act; also includes 40,592 shares held by
the Baker Electric Profit Sharing Plan and the Tri-Baker, Inc. Profit
Sharing Plan; also includes 1,657 shares held by Kent N. Baker, Mark N.
Baker and Gerald N. Baker as Trustees of the December 21, 1989 Baker
Trust; also includes 770 shares held in the name of Wedbush Morgan
Securities, Inc. for the benefit of Mark N. Baker under an individual
retirement account; also includes 8,000 shares which may be acquired by
the exercise of stock options within 60 days after March 5, 1998.
(5) Includes 49,735 shares held by MLPF&S as Custodian for the benefit of Gary
W. Deems under an individual retirement account; also includes 2,909
shares held in the First Pacific National Bank 401(k) Savings Plan; also
includes 5,000 shares which may be acquired by the exercise of stock
options within 60 days after March 5, 1998.
(6) Includes 3,009 shares held by Earle W. Frey, Jr., as Trustee under a Trust
dated February 14, 1977; also includes 152 shares held by Earle W. Frey,
Jr., as Trustee under a Trust dated October 30, 1969; also includes 66,153
shares held by Earle W. Frey, Jr., as Trustee under the Frey Family Trust;
also includes 4,471 shares held by MLPF&S as custodian for the benefit of
Earl W. Frey, Jr. under an individual
III-8
<PAGE> 63
retirement account; also includes 8,000 shares which may be acquired by
the exercise of stock options within 60 days after March 5, 1998.
(7) Includes 8,000 shares which may be acquired by the exercise of stock
options within 60 days after March 5, 1998.
(8) Includes 1,887 shares held by MLPF&S as Custodian for the benefit of
Krista Kuebler; also includes 20 shares held by Joseph J. Kuebler as
Custodian for the benefit of Amber Adams-Kuebler; also includes 1,859
shares held by MLPF&S as Custodian for the benefit of Sharon Kuebler under
an individual retirement account; also includes 6,890 shares held by
MLPF&S as Custodian for the benefit of Joseph J. Kuebler under an
individual retirement account; also includes 700 shares held by Wedbush
Morgan Securities, Inc. as Custodian for the benefit of Sharon Kuebler
under an individual retirement account; also includes 5,000 shares held by
Western Financial as Custodian for the benefit of Joseph J. Kuebler under
an individual retirement account; also includes 3,800 shares owned by
Kuebler Accounting Corporation; also includes 8,000 shares which may be
acquired by the exercise of stock options within 60 days after March 5,
1998.
(9) Includes 8,000 shares which may be acquired by the exercise of stock
options within 60 days after March 5, 1998.
(10) Includes 5,499 shares held by Dean Witter Reynolds Custodian for the
benefit of Larry Markham under an individual retirement account rollover;
also includes 8,000 shares which may be acquired by the exercise of stock
options within 60 days after March 5, 1998.
(11) Includes 409 shares held by Darlene Y. McBride; also includes 47,700
shares held by Richard W. McBride as Trustee of the McBride Family Trust;
also includes 15,649 shares held by the Southern Contracting Company Money
Purchase Pension Plan & Trust Rollover Account; also includes 8,000 shares
which may be acquired by the exercise of stock options within 60 days
after March 5, 1998.
(12) Includes 58,300 shares held by Michael J. Perdue, as Trustee of the Perdue
Family Trust; also includes 19,700 shares held by MLPF&S as Custodian for
the benefit of Michael J. Perdue under an individual retirement account;
also includes 5,000 shares which may be acquired by the exercise of stock
options within 60 days after March 5, 1998; also includes 3,163 shares
held in the First Pacific National Bank 401(k) Savings Plan.
(13) Includes 39,699 shares held by Richard S. Spanjian as Trustee of the
Richard S. Spanjian Family Trust; also includes 1,027 shares held by
Richard S. Spanjian as Trustee of the Elizabeth Spanjian Family Trust;
also includes 8,000 shares which may be acquired by the exercise of stock
options within 60 days after March 5, 1998.
(14) Includes 27,452 shares held by Robert M. Spanjian as Trustee of the Robert
M. Spanjian Family Trust; also includes 8,000 shares which may be acquired
by the exercise of stock options within 60 days after March 5, 1998.
(15) Includes 2,500 shares held by Richard B. Thomas Pension Plan; also
includes 1,500 shares held by Richard B. Thomas as Custodian for the
benefit of Scott Thomas; also includes 8,000 shares which may be acquired
by the exercise of stock options within 60 days after March 5, 1998.
(16) Includes 12,533 shares held by Michael W. Wexler as Custodian for the
benefit of certain of his children under the California Uniform Gift to
Minors Act; also includes 8,000 shares which may be acquired by the
exercise of stock options within 60 days after March 5, 1998.
(17) Includes 59,191 shares held by Harvey L. Williamson as Trustee of the
Williamson Family Trust; also includes 4,116 shares held by Wedbush Morgan
Securities, Inc. as Custodian for the benefit of Tolly A. Williamson under
an individual retirement account; also includes 3,752 shares held by
Wedbush Securities, Inc. as Custodian for the benefit of Harvey L.
Williamson under an individual retirement account; also includes 4,112
shares held by Transcorp Pension Services as Custodian for the benefit of
Harvey L. Williamson under an individual retirement account; also includes
3,535 shares held in the First Pacific National Bank 401(k) Savings Plan.
III-9
<PAGE> 64
(18) Includes 126,258 shares which may be acquired by the exercise of stock
options within 60 days after March 5, 1998.
(19) Immaterial percentage of ownership.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
LEASE AGREEMENT
There are no existing or proposed material interests or transactions between
the Company and any of its directors or officers outside the ordinary course of
the Company's business, except as indicated herein. FPNB entered into a lease
agreement for office space in a building in which the headquarters of FPNB and
the Company are located. Management of the Company believes the terms of such
lease agreement are fair and reasonable. The lessor is Grand Avenue Financial
Center Partnership, a California general partnership composed of the following
general partners: NB Partnership (a California general partnership in which Mark
N. Baker is a general partner), Earl W. Frey, Jr., as trustee, Wexler 638
Partnership (of which Michael W. Wexler is a general partner), and West Coast
Investment. Messrs. Baker, Frey and Wexler are directors of FPNB and the
Company.
The lease agreement and subsequent amendments currently cover approximately
16,642 square feet, including 6,643 square feet on the east side of the ground
floor. It is for a period of ten to thirty-five years (depending on the part of
the building leased), and commenced on or about July 1, 1984. Rent for the space
currently covered by the lease agreement is $300,000 per year.
LOANS TO DIRECTORS
Certain of the Company's directors are indebted to FPNB for loans which were
made in the ordinary course of business on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons and did not involve more than normal
risk of uncollectability or present unfavorable features. As of December 31,
1997, such loans represented approximately 8.79% of stockholders' equity and
0.99% of gross loans outstanding of the Company. The activity for loans made by
FPNB to directors, executive officers and their affiliates was as follows:
LOANS TO DIRECTORS, EXECUTIVE OFFICERS AND AFFILIATES
<TABLE>
<CAPTION>
December 31,
------------------------------
1997 1996
----------- -----------
<S> <C> <C>
Balance at beginning of year........... $5,648,000 $4,270,000
Additions.............................. 658,000 5,287,000
Collections and other decreases........ (4,003,000) (3,909,000)
---------- ----------
Balance at end of year................. $2,303,000 $5,648,000
========== ==========
</TABLE>
It is anticipated that the directors and executive officers of the Company
and the companies with which they are associated will continue to have banking
transactions with FPNB in the ordinary course of their business. It is the firm
intention of management of the Company that any loans and commitments to loan
included in such transactions be made in accordance with applicable law on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other person of similar
creditworthiness and on terms not involving more than the normal risk of
collectability or presenting other unfavorable features.
III-10
<PAGE> 65
ITEM 13. EXHIBITS LIST AND REPORTS ON FORM 8-K.
(a) Exhibits
2.1 Agreement and Plan of Merger, dated as of December 29, 1997,
between FP Bancorp, Inc. and Zions Bancorporation. The
following exhibits to the Agreement and Plan of Merger are
omitted as permitted by Item 601(b)(2) of Regulation S-B:
Exhibit A - Form of Affiliate Agreement
Exhibit B - Form of Stockholder's Agreement
2.2 First Amendment dated as of February 27, 1998, to the
Agreement and Plan of Merger, dated as of December 29, 1997,
between FP Bancorp, Inc. and Zions Bancorporation.
3.1 FP Bancorp, Inc. Certificate of Incorporation and Amendment
(incorporated by reference to Exhibit 3.1 to report of FP
Bancorp on Form 10-KSB for the year ended December 31, 1994,
File Number 0-17650)
3.2 FP Bancorp, Inc. By-laws (incorporated by reference to
Exhibit 3.2 to report of FP Bancorp on Form 10-KSB for the
year ended December 31, 1994, File Number 0-17650)
10.1 Escondido National Bank Plaza Lease dated January 4, 1984,
between Grand Avenue Financial Center Partnership and
Escondido National Bank, as Amended (current Principal
Offices of FP Bancorp, Inc. and First Pacific National Bank
located at 613 West Valley Parkway, Escondido, California
92025-4929) (incorporated by reference to Exhibit 10.1 to the
Registration Statement on Form S-4, File No. 33-87388)
10.2 Amendment to Escondido National Bank Plaza Lease
(incorporated by reference to Exhibit 10.2 to the Form 10-KSB
of the Company for the year ended December 31, 1995, File
Number 0-17650)
10.3 Lease Between Lake San Marcos Properties and San Marcos
National Bank dated August 9, 1988 (incorporated by reference
to Exhibit 10.9 to the Registration Statement on Form S-1,
File Number 33-33628)
10.4 Standard Multi-Tenant Lease between Overland Bank and E. E.
Espinas, M.D., trustee of the E. E. Espinas, M.D., Inc.,
Retirement Trust executed August 30, 1977 (incorporated by
reference to Exhibit 10.15 to the Registration Statement on
Form S-4, File No. 33-87388)
10.5 Office Building Lease between Overland Bank and AARK/Park
Joint Venture (incorporated by reference to Exhibit 10.14 to
the Registration Statement on Form S-4, File No. 33-87388)
III-11
<PAGE> 66
10.6 Lease between Palomar Village Properties, Inc., a California
corporation, and First Pacific National Bank dated February
29, 1996 (incorporated by reference to Exhibit 10.21 to the
Company's report on Form 10-KSB for year ended December 31,
1997, File No. 0-17650)
10.7* Amended and Restated 1988 Stock Option Plan of ENB Holding
Company as Amended (incorporated by reference to Exhibit A to
the Company's Proxy Statement for the Annual Meeting of
Stockholders held May 21, 1996)
10.8* Employment Agreement entered into as of August 1, 1997, by
and among Harvey L. Williamson, First Pacific National Bank,
and FP Bancorp, Inc.
10.9* Employment Agreement entered into as of August 1, 1997, by
and among Michael J. Perdue, First Pacific National Bank, and
FP Bancorp, Inc.
10.10* Salary Continuation Agreement entered into as of August 1,
1997, by and among Michael J. Perdue, First Pacific National
Bank, and FP Bancorp, Inc.
10.11* Employment Agreement entered into as of August 1, 1997, by
and among Gary W. Deems, First Pacific National Bank, and FP
Bancorp, Inc.
10.12* Salary Continuation Agreement entered into as of August 1,
1997, by and among Gary W. Deems, First Pacific National
Bank, and FP Bancorp, Inc.
10.13* 1996 Senior Management Incentive Compensation Plan
(incorporated by reference to Exhibit 10.21 to Registrant's
Annual Report on Form 10-KSB for its fiscal year ended
December 31, 1995)
10.14* ENB Holding Company Employee Stock Ownership Plan
(incorporated by reference to Exhibit 10.16 to the Form
10-KSB of ENB Holding Company for the year Ended December 31,
1990, File No. 0-17650)
10.15* 1997 Management Incentive Compensation Plan (incorporated by
reference to Exhibit 10.15 to the Company's report on Form
10-KSB for year ended December 31, 1997, File No. 0-17650)
10.16* 1998 Management Incentive Compensation Plan
10.17 Letter Agreement, dated October 16, 1997, between FP Bancorp,
Inc. and Sandler O'Neill & Partners, L.P.
21 FP Bancorp, Inc. Subsidiaries (incorporated by reference to
Exhibit 21 to the Form 10-KSB of FP Bancorp for the year
ended December 31, 1994, File Number 0-17650)
23 Consent of KPMG Peat Marwick LLP
III-12
<PAGE> 67
24 Power of Attorney (included in signature page)
27 Financial Data Schedule
*Denotes a management contract or compensatory arrangement.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the Registrant's
quarter ended December 31, 1997.
III-13
<PAGE> 68
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: March 13, 1998 FP BANCORP, INC.
(Registrant)
By: /s/ Harvey L. Williamson
---------------------------------------
Harvey L. Williamson,
President and Chief Executive Officer
Know all men by these presents, that each person whose signature appears below
constitutes and appoints Harvey L. Williamson and Michael J. Perdue, or either
of them, his attorney-in-fact, each with power of substitution for him in any
and all capacities, to sign any amendments to this Annual Report on Form 10-KSB
and to file the same, with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, and hereby ratifies and
confirms all that each said attorney-in-fact or his substitute or substitutes
may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Exchange Act, this report has been signed
below by the following persons on behalf of the Registrant and in the capacities
and on the dates indicated.
<TABLE>
<CAPTION>
NAME CAPACITY DATE
---- -------- ----
<S> <C> <C>
/s/ Mark N. Baker Director March 13, 1998
- -----------------------------
Mark N. Baker
/s/ Gary W. Deems Director, Chief March 13, 1998
- ----------------------------- Administrative Officer
Gary W. Deems and Executive Vice
President
/s/ Earle W. Frey, Jr. Director March 13, 1998
- -----------------------------
Earle W. Frey, Jr.
/s/ Robert W. Klemme Director March 13, 1998
- -----------------------------
Robert W. Klemme
/s/ Joseph J. Kuebler Director March 13, 1998
- -----------------------------
Joseph J. Kuebler
/s/ Randall C. Luce Director March 13, 1998
- -----------------------------
Randall C. Luce
/s/ Larry R. Markham Director March 13, 1998
- -----------------------------
Larry R. Markham
/s/ Richard W. McBride Director March 13, 1998
- -----------------------------
Richard W. McBride
/s/ Michael J. Perdue Director, Chief Financial March 13, 1998
- ----------------------------- Officer and Executive
Michael J. Perdue Vice President (Principal
Financial Officer and
Principal Accounting
Officer)
</TABLE>
III-14
<PAGE> 69
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Richard S. Spanjian Director March 13, 1998
- -----------------------------
Richard S. Spanjian
/s/ Robert M. Spanjian Director March 13, 1998
- -----------------------------
Robert M. Spanjian
/s/ Richard B. Thomas Director March 13, 1998
- -----------------------------
Richard B. Thomas
/s/ Michael W. Wexler Director March 13, 1998
- -----------------------------
Michael W. Wexler
/s/ Harvey L. Williamson Director, Chief Executive March 13, 1998
- ----------------------------- Officer (Principal
Harvey L. Williamson Executive Officer)
</TABLE>
III-15
<PAGE> 70
EXHIBIT LIST
PAGE
----
2.1 Agreement and Plan of Merger, dated as of December 29, 1997, between FP
Bancorp, Inc. and Zions Bancorporation. The following exhibits to the
Agreement and Plan of Merger are omitted as permitted by Item 601(b)(2)
of Regulation S-B:
Exhibit A - Form of Affiliate Agreement
Exhibit B - Form of Stockholder's Agreement
2.2 First Amendment dated as of February 27, 1998, to the Agreement and
Plan of Merger, dated as of December 29, 1997, between FP Bancorp, Inc.
and Zions Bancorporation.
3.1 FP Bancorp, Inc. Certificate of Incorporation and Amendment
(incorporated by reference to Exhibit 3.1 to report of FP Bancorp on
Form 10-KSB for the year ended December 31, 1994, File Number 0-17650)
3.2 FP Bancorp, Inc. By-laws (incorporated by reference to Exhibit 3.2 to
report of FP Bancorp on Form 10-KSB for the year ended December 31,
1994, File Number 0-17650)
10.1 Escondido National Bank Plaza Lease dated January 4, 1984, between
Grand Avenue Financial Center Partnership and Escondido National Bank,
as Amended (current Principal Offices of FP Bancorp, Inc. and First
Pacific National Bank located at 613 West Valley Parkway, Escondido,
California 92025-4929) (incorporated by reference to Exhibit 10.1 to
the Registration Statement on Form S-4, File No. 33-87388)
10.2 Amendment to Escondido National Bank Plaza Lease (incorporated by
reference to Exhibit 10.2 to the Form 10-KSB of the Company for the
year ended December 31, 1995, File Number 0-17650)
10.3 Lease Between Lake San Marcos Properties and San Marcos National Bank
dated August 9, 1988 (incorporated by reference to Exhibit 10.9 to the
Registration Statement on Form S-1, File Number 33-33628)
10.4 Standard Multi-Tenant Lease between Overland Bank and E. E. Espinas,
M.D., trustee of the E. E. Espinas, M.D., Inc., Retirement Trust
executed August 30, 1977 (incorporated by reference to Exhibit 10.15 to
the Registration Statement on Form S-4, File No. 33-87388)
10.5 Office Building Lease between Overland Bank and AARK/Park Joint Venture
(incorporated by reference to Exhibit 10.14 to the Registration
Statement on Form S-4, File No. 33-87388)
III-16
<PAGE> 71
10.6 Lease between Palomar Village Properties, Inc., a California
corporation, and First Pacific National Bank dated February 29, 1996
(incorporated by reference to Exhibit 10.21 to the Company's report on
Form 10-KSB for year ended December 31, 1997, File No. 0-17650)
10.7* Amended and Restated 1988 Stock Option Plan of ENB Holding Company as
Amended (incorporated by reference to Exhibit A to the Company's Proxy
Statement for the Annual Meeting of Stockholders held May 21, 1996)
10.8* Employment Agreement entered into as of August 1, 1997, by and among
Harvey L. Williamson, First Pacific National Bank, and FP Bancorp, Inc.
10.9* Employment Agreement entered into as of August 1, 1997, by and among
Michael J. Perdue, First Pacific National Bank, and FP Bancorp, Inc.
10.10* Salary Continuation Agreement entered into as of August 1, 1997, by and
among Michael J. Perdue, First Pacific National Bank, and FP Bancorp,
Inc.
10.11* Employment Agreement entered into as of August 1, 1997, by and among
Gary W. Deems, First Pacific National Bank, and FP Bancorp, Inc.
10.12* Salary Continuation Agreement entered into as of August 1, 1997, by and
among Gary W. Deems, First Pacific National Bank, and FP Bancorp, Inc.
10.13* 1996 Senior Management Incentive Compensation Plan (incorporated by
reference to Exhibit 10.21 to Registrant's Annual Report on Form 10-KSB
for its fiscal year ended December 31, 1995)
10.14* ENB Holding Company Employee Stock Ownership Plan (incorporated by
reference to Exhibit 10.16 to the Form 10-KSB of ENB Holding Company
for the year Ended December 31, 1990, File No. 0-17650)
10.15* 1997 Management Incentive Compensation Plan (incorporated by reference
to Exhibit 10.15 to the Company's report on Form 10-KSB for year ended
December 31, 1997, File No. 0-17650)
10.16* 1998 Management Incentive Compensation Plan
10.17 Letter Agreement, dated October 16, 1997, between FP Bancorp, Inc. and
Sandler O'Neill & Partners, L.P.
21 FP Bancorp, Inc. Subsidiaries (incorporated by reference to Exhibit 21
to the Form 10-KSB of FP Bancorp for the year ended December 31, 1994,
File Number 0-17650)
III-17
<PAGE> 72
23 Consent of KPMG Peat Marwick LLP
24 Power of Attorney (included in signature page)
27 Financial Data Schedule
*Denotes a management contract or compensatory arrangement.
III-18
<PAGE> 1
EXHIBIT 2.1
================================================================================
AGREEMENT AND PLAN OF MERGER
dated as of December 29, 1997
by and between
Zions Bancorporation
and
FP Bancorp, Inc.
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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<S> <C>
RECITALS................................................................................1
ARTICLE I
Certain Definitions
1.01 Certain Definitions...............................................................1
ARTICLE II
The Merger
2.01 The Merger........................................................................6
2.02 Effective Date and Effective Time.................................................7
2.03 Plan of Merger....................................................................7
ARTICLE III
Consideration; Exchange Procedures
3.01 Merger Consideration..............................................................7
3.02 Rights as Stockholders; Stock Transfers...........................................8
3.03 Fractional Shares.................................................................8
3.04 Exchange Procedures...............................................................8
3.05 Anti-Dilution Provisions.........................................................10
3.06 Options..........................................................................10
ARTICLE IV
Actions Pending Acquisition
4.01 Forebearances of Company.........................................................11
4.02 Company Debenture Conversion and Redemption......................................13
4.03 Forebearances of Zions...........................................................13
</TABLE>
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<TABLE>
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ARTICLE V
Representations and Warranties
5.01 Disclosure Schedules.............................................................14
5.02 Standard.........................................................................14
5.03 Representations and Warranties of Company........................................14
5.04 Representations and Warranties of Zions..........................................23
ARTICLE VI
Covenants
6.01 Reasonable Best Efforts..........................................................26
6.02 Stockholder Approval.............................................................27
6.03 Registration Statements..........................................................27
6.04 Press Releases...................................................................28
6.05 Access; Information..............................................................28
6.06 Acquisition Proposals............................................................29
6.07 Affiliate Agreements.............................................................30
6.08 Takeover Laws....................................................................30
6.09 Certain Policies.................................................................30
6.10 NASDAQ Listing...................................................................30
6.11 Regulatory Applications..........................................................30
6.12 Indemnification; Director and Officers' Insurance................................31
6.13 Benefit Plans....................................................................32
6.14 Accountants' Letters.............................................................33
6.15 Notification of Certain Matters..................................................33
6.16 Stockholder Agreements...........................................................33
6.17 Directors of Grossmont Bank......................................................33
ARTICLE VII
Conditions to Consummation of the Merger
7.01 Conditions to Each Party's Obligation to Effect the Merger.......................34
</TABLE>
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<TABLE>
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<S> <C>
7.02 Conditions to Obligation of Company..............................................34
7.03 Conditions to Obligation of Zions................................................36
ARTICLE VIII
Termination
8.01 Termination......................................................................36
8.02 Effect of Termination and Abandonment............................................38
ARTICLE IX
Miscellaneous
9.01 Survival.........................................................................38
9.02 Waiver; Amendment................................................................39
9.03 Counterparts.....................................................................39
9.04 Governing Law; Waiver of Jury Trial..............................................39
9.05 Expenses.........................................................................39
9.06 Notices..........................................................................39
9.07 Entire Understanding; No Third Party Beneficiaries...............................40
9.08 Interpretation; Effect...........................................................40
</TABLE>
EXHIBIT A Form of Affiliate Agreement
EXHIBIT B Form of Stockholder's Agreement
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<PAGE> 5
AGREEMENT AND PLAN OF MERGER, dated as of December 29, 1997 (this
"Agreement"), by and between FP Bancorp, Inc. ("Company") and Zions
Bancorporation ("Zions").
RECITALS
A. FP Bancorp, Inc. Company is a Delaware corporation, having its
principal place of business in Escondido, California.
B. Zions Bancorporation. Zions is a Utah corporation, having its
principal place of business in Salt Lake City, Utah.
C. Intentions of the Parties. It is the intention of the parties to this
Agreement that the business combination contemplated hereby be accounted for
under the "pooling-of-interests" accounting method and be treated as a
"reorganization" under Section 368 of the Internal Revenue Code of 1986 as
amended (the "Code").
D. Board Action. The respective Boards of Directors of each of Zions and
Company have determined that it is in the best interests of their respective
companies and their stockholders to consummate the strategic business
combination transaction provided for herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, representations, warranties and agreements contained herein, the
parties agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
1.01 Certain Definitions. The following terms are used in this Agreement
with the meanings set forth below:
"Acquisition Proposal" means any tender or exchange offer for 25% or
more of the Company Common Stock, proposal for a merger, consolidation or
other business combination involving Company or any of its Subsidiaries or
any proposal or offer to acquire 25% or more of the Company Common Stock, or
a substantial portion of the assets or deposits of, Company or any of its
Subsidiaries, other than the transactions contemplated by this Agreement.
"Agreement" means this Agreement, as amended or modified from time to
time in accordance with Section 9.02.
"Bank Merger" means the merger of Company Bank with and into Grossmont
Bank.
<PAGE> 6
"Benefit Plans" has the meaning set forth in Section 5.03(m).
"Business Combination" has the meaning set forth in Section 3.05.
"Code" has the meaning set forth in the recitals.
"Company" has the meaning set forth in the preamble to this Agreement.
"Company Affiliate" has the meaning set forth in Section 6.07(a).
"Company Bank" means First Pacific National Bank, a national banking
association and a wholly owned subsidiary of Company.
"Company Board" means the Board of Directors of Company.
"Company By-Laws" means the By-laws of Company.
"Company Certificate" means the Certificate of Incorporation of Company.
"Company Common Stock" means the common stock, par value $.001 per
share, of Company.
"Company Meeting" has the meaning set forth in Section 6.02.
"Company Stock Option" has the meaning set forth in Section 3.06.
"Company Stock Plan" means Company's Amended and Restated 1988 Stock
Option Plan.
"Costs" has the meaning set forth in Section 6.12(a).
"Debentures" has the meaning set forth in Section 4.02.
"Delaware Secretary" means the Delaware Secretary of State.
"Disclosure Schedule" has the meaning set forth in Section 5.01.
"DGCL" means the Delaware General Corporation Law.
"Effective Date" means the date on which the Effective Time occurs.
"Effective Time" means the effective time of the Merger, as provided for
in Section 2.02.
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"Employees" has the meaning set forth in Section 5.03(m).
"Environmental Law" has the meaning set forth in Section 5.03(p).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" has the meaning set forth in Section 5.03(m).
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder.
"Exchange Agent" has the meaning set forth in Section 3.04.
"Exchange Fund" has the meaning set forth in Section 3.04.
"Exchange Ratio" has the meaning set forth in Section 3.01.
"FDIC" means the Federal Deposit Insurance Corporation.
"Federal Reserve" means the Board of Governors of the Federal Reserve
System.
"Governmental Authority" means any court, administrative agency or
commission or other federal, state or local governmental authority or
instrumentality.
"Grossmont Bank" means a California state-chartered bank and a wholly
owned subsidiary of Zions.
"Hazardous Substance" has the meaning set forth in Section 5.03(p).
"Indemnified Party" has the meaning set forth in Section 6.12(a).
"Insurance Policy" has the meaning set forth in Section 5.03(t).
"Liens" means any charge, mortgage, pledge, security interest,
restriction, claim, lien or encumbrance.
"Material Adverse Effect" means, with respect to Zions or Company, any
effect that (i) is material and adverse to the financial position, results
of operations or business of Zions and its Subsidiaries taken as a whole or
Company and its Subsidiaries taken as a whole, respectively, or (ii) would
materially impair the ability of either Zions or Company to perform its
obligations under this Agreement or otherwise materially threaten or
materially impede the consummation of the Merger and the other transactions
contemplated by this
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<PAGE> 8
Agreement; provided, however, that Material Adverse Effect shall not be
deemed to include the impact of (a) changes in banking and similar laws of
general applicability or interpretations thereof by courts or governmental
authorities, (b) changes in generally accepted accounting principles or
regulatory accounting requirements applicable to banks and their holding
companies generally (c) any modifications or changes to valuation policies
and practices in connection with the Merger or restructuring charges taken
in connection with the Merger, in each case in accordance with generally
accepted accounting principles, (d) changes agreed to in writing by Zions
and Company and (e) changes resulting from general economic conditions
throughout the United States affecting banks and their holding companies.
"Maximum Amount" has the meaning set forth in Section 6.12(c).
"Merger" has the meaning set forth in Section 2.01.
"Merger Consideration" has the meaning set forth in Section 2.01.
"Multiemployer Plans" has the meaning set forth in Section 5.03(m).
"NASDAQ" means The Nasdaq Stock Market, Inc.'s National Market System.
"New Certificate" has the meaning set forth in Section 3.04.
"OCC" means the Office of the Comptroller of the Currency.
"Old Certificate" has the meaning set forth in Section 3.04.
"Person" means any individual, bank, corporation, partnership,
association, joint-stock company, business trust or unincorporated
organization.
"Pension Plan" has the meaning set forth in Section 5.03(m).
"Plans" has the meaning set forth in Section 5.03(m).
"Previously Disclosed" by a party shall mean information set forth in
its Disclosure Schedule.
"Proxy Statement" has the meaning set forth in Section 6.03.
"Registration Statement" has the meaning set forth in Section 6.03.
"Regulatory Authority" has the meaning set forth in Section 5.03(i).
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<PAGE> 9
"Regulatory Documents" means documents filed with the SEC, the Federal
Reserve or the OCC, as applicable, of the types referred to in Section
5.03(g) and Section 5.04(f).
"Replacement Option" has the meaning set forth in Section 3.06.
"Representatives" means, with respect to any Person, such Person's
directors, officers, employees, legal or financial advisors or any
representatives of such legal or financial advisors.
"Rights" means, with respect to any Person, securities or obligations
convertible into or exercisable or exchangeable for, or giving any person
any right to subscribe for or acquire, or any options, calls or commitments
relating to, or any stock appreciation right or other instrument the value
of which is determined in whole or in part by reference to the market price
or value of, shares of capital stock of such Person.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and rules
and regulations thereunder.
"Stockholder Agreements" has the meaning set forth in Section 6.16.
"Subsidiary" and "Significant Subsidiary" have the meanings ascribed to
them in Rule 1-02 of Regulation S-X of the SEC.
"Surviving Corporation" has the meaning set forth in Section 2.01.
"Tax" and "Taxes" means all federal, state, local or foreign taxes,
charges, fees, levies or other assessments, however denominated, including,
without limitation, all net income, gross income, gains, gross receipts,
sales, use, ad valorem, goods and services, capital, production, transfer,
franchise, windfall profits, license, withholding, payroll, employment,
disability, employer health, excise, estimated, severance, stamp,
occupation, property, environmental, unemployment or other taxes, custom
duties, fees, assessments or charges of any kind whatsoever, together with
any interest and any penalties, additions to tax or additional amounts
imposed by any taxing authority whether arising before, on or after the
Effective Date.
"Tax Returns" means any return, amended return or other report
(including elections, declarations, disclosures, schedules, estimates and
information returns) required to be filed with respect to any Tax.
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<PAGE> 10
"Treasury Stock" shall mean shares of Company Common Stock held by
Company or any of its Subsidiaries or by Zions or any of its Subsidiaries,
in each case other than in a fiduciary (including custodial or agency)
capacity or as a result of debts previously contracted in good faith.
"UBCA" means the Utah Business Corporation Act.
"Zions" has the meaning set forth in the preamble to this Agreement.
"Zions Board" means the Board of Directors of Zions.
"Zions Common Stock" means the common stock, no par value per share, of
Zions together with any rights attached thereto under or by virtue of the
Shareholder Protection Rights Agreement, dated September 27, 1996, between
Zions and Zions First National Bank, as rights agent.
"Zions Preferred Stock" means the preferred stock, no par value per
share, of Zions.
ARTICLE II
THE MERGER
2.01 The Merger. (a) At the Effective Time, Company shall merge with and
into Zions (the "Merger"), the separate corporate existence of Company shall
cease and Zions shall survive and continue to exist as a Utah corporation
(Zions, as the surviving corporation in the Merger, sometimes being referred to
herein as the "Surviving Corporation"). Zions may at any time prior to the
Effective Time change the method of effecting the combination with Company
(including, without limitation, the provisions of this Article II) if and to the
extent it deems such change to be necessary, appropriate or desirable; provided,
however, that no such change shall (i) alter or change the amount or kind of
consideration to be issued to holders of Company Common Stock as provided for in
this Agreement (the "Merger Consideration"), (ii) adversely affect the tax
treatment of Company's stockholders as a result of receiving the Merger
Consideration or (iii) materially impede or delay consummation of the
transactions contemplated by this Agreement.
(b) Subject to the satisfaction or waiver of the conditions set forth in
Article VII, the Merger shall become effective upon the occurrence of the
filing in the office of the Utah Division of Corporation and Commercial Code
(the "Corporation Division") of articles of merger in accordance with
Section 16-10a-1105 of the UBCA and the filing in the office of the Delaware
Secretary of a certificate of merger in accordance with Section 252 of the
DGCL or such later date and time as may be set forth in such articles and
such certificates. The Merger shall have the effects prescribed in the UBCA
and the DGCL.
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(c) Articles of Incorporation and By-Laws. The articles of incorporation
and by-laws of Zions immediately after the Merger shall be those of Zions as
in effect immediately prior to the Effective Time.
(d) Directors and Officers of the Surviving Corporation. The directors
and officers of Zions immediately after the Merger shall be the directors
and officers of Zions immediately prior to the Effective Time, until such
time as their successors shall be duly elected and qualified.
2.02 Effective Date and Effective Time. On such date as Zions selects
(and promptly provides notice thereof to Company), which shall be within ten
days after the last to occur of the expiration of all applicable waiting periods
in connection with approvals of Governmental Authorities and the receipt of all
approvals of Governmental Authorities and all conditions to the consummation of
the Merger are satisfied or waived (or, at the election of Zions, on the last
business day of the month in which such tenth day occurs or, if such tenth day
occurs on one of the last five business days of such month, on the last business
day of the succeeding month), or on such earlier or later date as may be agreed
in writing by the parties, articles of merger shall be executed in accordance
with all appropriate legal requirements and shall be filed as required by law,
and the Merger provided for herein shall become effective upon such filing or on
such date as may be specified in such articles of merger. The date of such
filing or such later effective date is herein called the "Effective Date". The
"Effective Time" of the Merger shall be the time of such filing or as set forth
in such articles of merger.
2.03 Plan of Merger. At the request of Zions, Zions and Company shall
enter into a separate plan of merger or articles of merger reflecting the terms
hereof for purposes of any filing requirement of the DGCL or the UBCA.
ARTICLE III
CONSIDERATION; EXCHANGE PROCEDURES
3.01 Merger Consideration. Subject to the provisions of this Agreement,
at the Effective Time, automatically by virtue of the Merger and without any
action on the part of any Person:
(a) Outstanding Company Common Stock. Each share, excluding Treasury
Stock, of Company Common Stock issued and outstanding immediately prior to
the Effective Time shall become and be converted into 0.627 of a share of
Zions Common Stock (the "Exchange Ratio"). The Exchange Ratio shall be
subject to adjustment as set forth in Section 3.05.
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<PAGE> 12
(b) Outstanding Zions Common Stock. Each share of Zions Common Stock
issued and outstanding immediately prior to the Effective Time shall remain
issued and outstanding and unaffected by the Merger.
(c) Treasury Shares. Each share of Company Common Stock held as Treasury
Stock immediately prior to the Effective Time shall be canceled and retired
at the Effective Time and no consideration shall be issued in exchange
therefor.
3.02 Rights as Stockholders; Stock Transfers. At the Effective Time,
holders of Company Common Stock shall cease to be, and shall have no rights as,
stockholders of Company, other than to receive any dividend or other
distribution with respect to such Company Common Stock with a record date
occurring prior to the Effective Time and the consideration provided under this
Article III. After the Effective Time, there shall be no transfers on the stock
transfer books of Company or the Surviving Corporation of shares of Company
Common Stock.
3.03 Fractional Shares. Notwithstanding any other provision hereof, no
fractional shares of Zions Common Stock and no certificates or scrip therefor,
or other evidence of ownership thereof, will be issued in the Merger; instead,
Zions shall pay to each holder of Company Common Stock who would otherwise be
entitled to a fractional share of Zions Common Stock (after taking into account
all Old Certificates delivered by such holder) an amount in cash (without
interest) determined by multiplying such fraction by the average of the closing
prices of Zions Common Stock, as reported on NASDAQ (as reported in The Wall
Street Journal or, if not reported therein, in another authoritative source),
for the five NASDAQ trading days immediately preceding the Effective Date.
3.04 Exchange Procedures. (a) At or prior to the Effective Time, Zions
shall deposit, or shall cause to be deposited, with such bank or trust company
as Zions shall elect, subject (except in the case of a Zions' Subsidiary) to the
approval of Company, which approval may not be unreasonably withheld, (which may
include a Subsidiary of Zions) (in such capacity, the "Exchange Agent"), for the
benefit of the holders of certificates formerly representing shares of Company
Common Stock ("Old Certificates"), for exchange in accordance with this Article
III, certificates representing the shares of Zions Common Stock ("New
Certificates") and an estimated amount of cash (such cash and New Certificates,
together with any dividends or distributions with a record date occurring after
the Effective Date with respect thereto (without any interest on any such cash,
dividends or distributions), being hereinafter referred to as the "Exchange
Fund") to be paid pursuant to this Article III in exchange for outstanding
shares of Company Common Stock.
(b) As soon as practicable after the Effective Date, and in any event no
later than 10 days after the Effective Date, Zions shall send or cause to be
sent to each former holder of record of shares of Company Common Stock
immediately prior to the Effective Time transmittal materials for use in
exchanging such stockholder's Old Certificates for the
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<PAGE> 13
consideration set forth in this Article III. Zions shall cause the New
Certificates into which shares of a stockholder's Company Common Stock are
converted on the Effective Date and/or any check in respect of any
fractional share interests or dividends or distributions which such person
shall be entitled to receive to be delivered to such stockholder upon
delivery to the Exchange Agent of Old Certificates representing such shares
of Company Common Stock (or an affidavit of lost certificate and, if
required by the Exchange Agent, indemnity reasonably satisfactory to Zions
and the Exchange Agent, if any of such certificates are lost, stolen or
destroyed) owned by such stockholder. No interest will be paid on any such
cash to be paid in lieu of fractional share interests or in respect of
dividends or distributions which any such person shall be entitled to
receive pursuant to this Article III upon such delivery. In the event of a
transfer of ownership of any shares of Company Common Stock not registered
in the transfer records of Company, the exchange described in this Section
3.04(b) may nonetheless be effected and a check for the cash to be paid in
lieu of fractional shares may be issued to the transferee if the Old
Certificate representing such Company Common Stock is presented to the
Exchange Agent, accompanied by documents sufficient, in the discretion of
Zions and the Exchange Agent, (i) to evidence and effect such transfer but
for the provisions of Section 3.02 hereof and (ii) to evidence that all
applicable stock transfer taxes have been paid.
(c) If Old Certificates are not surrendered or the consideration
therefor is not claimed prior to the date on which such consideration would
otherwise escheat to or become the property of any governmental unit or
agency, the unclaimed consideration shall, to the extent permitted by
abandoned property and any other applicable law, become the property of the
Surviving Corporation (and to the extent not in its possession shall be paid
over to the Surviving Corporation), free and clear of all claims or interest
of any person previously entitled to such claims. Notwithstanding the
foregoing, neither the Exchange Agent nor any party hereto shall be liable
to any former holder of Company Common Stock for any amount properly
delivered to a public official pursuant to applicable abandoned property,
escheat or similar laws.
(d) At the election of Zions, no dividends or other distributions with
respect to Zions Common Stock with a record date occurring after the
Effective Time shall be paid to the holder of any unsurrendered Old
Certificate representing shares of Company Common Stock converted in the
Merger into the right to receive shares of such Zions Common Stock until the
holder thereof shall be entitled to receive New Certificates in exchange
therefor in accordance with the procedures set forth in this Section 3.04,
and no such shares of Company Common Stock shall be eligible to vote until
the holder of Old Certificates is entitled to receive New Certificates in
accordance with the procedures set forth in this Section 3.04. After
becoming so entitled in accordance with this Section 3.04, the record holder
thereof also shall be entitled to receive any such dividends or other
distributions, without any interest thereon, which theretofore had become
payable with respect to shares of Zions Common Stock such holder had the
right to receive upon surrender of the Old Certificate.
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<PAGE> 14
(e) Any portion of the Exchange Fund that remains unclaimed by the
stockholders of Company for six months after the Effective Time shall be
returned by the Exchange Agent to Zions. Any stockholders of Company who
have not theretofore complied with this Article III shall thereafter look
only to Zions for payment of the shares of Zions Common Stock, cash in lieu
of any fractional shares and unpaid dividends and distributions on Zions
Common Stock deliverable in respect of each share of Company Common Stock
such stockholder holds as determined pursuant to this Agreement, in each
case, without any interest thereon.
3.05 Anti-Dilution Provisions. In the event Zions changes (or
establishes a record date for changing) the number of shares of Zions Common
Stock issued and outstanding prior to the Effective Date as a result of a stock
split, stock dividend, recapitalization or similar transaction with respect to
the outstanding Zions Common Stock and the record date therefor shall be prior
to the Effective Date, the Exchange Ratio shall be proportionately adjusted.
Subject to Section 2.01(a), if, between the date hereof and the Effective Time,
Zions shall consolidate with or into any other corporation (a "Business
Combination") and the terms thereof shall provide that Zions Common Stock shall
be converted into or exchanged for the shares of any other corporation or
entity, then provision shall be made as part of the terms of such Business
Combination so that (i) stockholders of Company who would be entitled to receive
shares of Zions Common Stock pursuant to this Agreement shall be entitled to
receive, in lieu of each share of Zions Common Stock issuable to such
stockholders as provided herein, the same kind and amount of securities or
assets as shall be distributable upon such Business Combination with respect to
one share of Zions Common Stock.
3.06 Options. At the Effective Time, each outstanding option to purchase
shares of Company Common Stock under the Company Common Stock Plan (each, a
"Company Stock Option"), whether vested or unvested, shall be converted into an
option to acquire, on the same terms and conditions as were applicable under
such Company Stock Option, the number of shares of Zions Common Stock equal to
(a) the number of shares of Company Common Stock subject to the Company Stock
Option, multiplied by (b) the Exchange Ratio (such product rounded down to the
nearest whole number) (a "Replacement Option"), at an exercise price per share
(rounded up to the nearest whole cent) equal to (y) the aggregate exercise price
for the shares of Company Common Stock which were purchasable pursuant to such
Company Stock Option divided by (z) the number of full shares of Zions Common
Stock subject to such Replacement Option in accordance with the foregoing.
Notwithstanding the foregoing, each Company Stock Option which is intended to be
an "incentive stock option" (as defined in Section 422 of the Code) shall be
adjusted in accordance with the requirements of Section 424 of the Code. At or
prior to the Effective Time, Company shall take all action, if any, necessary
with respect to the Company Stock Plan to permit the replacement of the
outstanding Company Stock Options by Zions pursuant to this Section. At the
Effective Time, Zions shall assume the Company Stock Plan; provided, that such
assumption shall be only in respect of the Replacement Options and that Zions
shall have no obligation with respect to any awards under the Company
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<PAGE> 15
Stock Plan other than the Replacement Options and shall have no obligation to
make any additional grants or awards under such assumed Company Stock Plan.
ARTICLE IV
ACTIONS PENDING ACQUISITION
4.01 Forebearances of Company. From the date hereof until the Effective
Time, except as expressly contemplated by this Agreement, without the prior
written consent of Zions, Company will not, and will cause each of its
Subsidiaries not to:
(a) Ordinary Course. Conduct the business of Zions and its Subsidiaries
other than in the ordinary and usual course or fail to use reasonable best
efforts to preserve intact their business organizations and assets and
maintain their rights, franchises and existing relations with customers,
suppliers, employees and business associates, take any action that would
adversely affect or delay the ability of Company, Zions or any of their
Subsidiaries to perform any of their obligations on a timely basis under
this Agreement, or take any action that is reasonably likely to have a
Material Adverse Effect on Company and its Subsidiaries, taken as a whole.
(b) Capital Stock. Other than pursuant to the Debentures and Rights
Previously Disclosed and outstanding on the date hereof, (i) issue, sell or
otherwise permit to become outstanding, or authorize the creation of, any
additional shares of Company Common Stock or any Rights, (ii) enter into any
agreement with respect to the foregoing or (iii) permit any additional
shares of Company Common Stock to become subject to new grants of employee
or director stock options, other Rights or similar stock-based employee
rights.
(c) Dividends, Etc. (a) Make, declare, pay or set aside for payment any
dividend on or in respect of, or declare or make any distribution on any
shares of Company Common Stock or (b) directly or indirectly adjust, split,
combine, redeem, reclassify, purchase or otherwise acquire, any shares of
its capital stock.
(d) Compensation; Employment Agreements; Etc. Enter into or amend or
renew any employment, consulting, severance or similar agreements or
arrangements with any director, officer or employee of Company or its
Subsidiaries, or grant any salary or wage increase or increase any employee
benefit (including incentive or bonus payments), except (i) for normal
individual increases in compensation to employees in the ordinary course of
business consistent with past practice (including increases in the annual
bonus pool and reallocations pursuant thereto; provided that for 1998 such
pool shall not exceed the 1997 pool, prorated through the Effective Date),
(ii) for other changes that are required by applicable law, (iii) to
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satisfy Previously Disclosed contractual obligations existing as of the date
hereof or (iv) for grants of awards to newly hired employees consistent with
past practice.
(e) Benefit Plans. Enter into, establish, adopt or amend (except (i) as
may be required by applicable law or (ii) to satisfy Previously Disclosed
contractual obligations existing as of the date hereof) any pension,
retirement, stock option, stock purchase, savings, profit sharing, deferred
compensation, consulting, bonus, group insurance or other employee benefit,
incentive or welfare contract, plan or arrangement, or any trust agreement
(or similar arrangement) related thereto, in respect of any director,
officer or employee of Company or its Subsidiaries, or take any action to
accelerate the vesting or exercisability of stock options, restricted stock
or other compensation or benefits payable thereunder.
(f) Dispositions. Except as Previously Disclosed, sell, transfer,
mortgage, encumber or otherwise dispose of or discontinue any of its assets,
deposits, business or properties except in the ordinary course of business
and in a transaction that is not material to it and its Subsidiaries taken
as a whole.
(g) Acquisitions. Except as Previously Disclosed, acquire (other than by
way of foreclosures or acquisitions of control in a bona fide fiduciary
capacity or in satisfaction of debts previously contracted in good faith, in
each case in the ordinary and usual course of business consistent with past
practice) all or any portion of, the assets, business, deposits or
properties of any other entity except in the ordinary course of business
consistent with past practice and in a transaction that is not material to
Company and its Subsidiaries, taken as a whole.
(h) Capital Expenditures. Except as Previously Disclosed, make any
capital expenditures other than capital expenditures in the ordinary course
of business consistent with past practice in amounts not exceeding $50,000
individually or $150,000 in the aggregate.
(i) Governing Documents. Amend the Company Certificate, Company By-Laws
or the certificate of incorporation or by-laws (or similar governing
documents) of any of Company's Subsidiaries.
(j) Accounting Methods. Implement or adopt any change in its accounting
principles, practices or methods, other than as may be required by generally
accepted accounting principles.
(k) Contracts. Except in the ordinary course of business consistent with
past practice or to reasonably comply with or ameliorate the Company's
obligations pursuant to the Debentures, enter into or terminate any material
contract (as defined in Section 5.03(k)) or amend or modify in any material
respect any of its existing material contracts.
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(l) Claims. Except in the ordinary course of business consistent with
past practice, settle any claim, action or proceeding, except for any claim,
action or proceeding involving solely money damages in an amount,
individually or in the aggregate for all such settlements, that is not
material to Company and its Subsidiaries, taken as a whole.
(m) Adverse Actions. (a) Take any action while knowing that such action
would, or is reasonably likely to, prevent or impede the Merger from
qualifying (i) for "pooling of interests" accounting treatment or (ii) as a
reorganization within the meaning of Section 368 of the Code; or (b)
knowingly take any action that is intended or is reasonably likely to result
in (i) any of its representations and warranties set forth in this Agreement
being or becoming untrue in any material respect at any time at or prior to
the Effective Time, (ii) any of the conditions to the Merger set forth in
Article VII not being satisfied or (iii) a material violation of any
provision of this Agreement except, in each case, as may be required by
applicable law or regulation.
(n) Risk Management. Except as required by applicable law or regulation,
(i) implement or adopt any material change in its interest rate and other
risk management policies, procedures or practices; (ii) fail to follow its
existing policies or practices with respect to managing its exposure to
interest rate and other risk; or (iii) fail to use commercially reasonable
means to avoid any material increase in its aggregate exposure to interest
rate risk.
(o) Indebtedness. Incur any indebtedness for borrowed money other than
in the ordinary course of business consistent with past practice.
(p) Commitments. Agree or commit to do any of the foregoing.
4.02 Company Debenture Conversion and Redemption. Notwithstanding
anything to the contrary in Section 4.01, Company shall not be deemed to be in
breach of the provisions of Section 4.01 by taking appropriate actions to redeem
and/or convert its outstanding 9% Convertible Subordinated Debentures (the
"Debentures") due December 31, 1997. The parties understand and agree that such
redemption and/or conversion may be delayed as a result of the timing of and
pendency of the transactions contemplated by this Agreement and consent to
reasonable actions by Company to meet its obligations under the Debentures.
4.03 Forebearances of Zions. From the date hereof until the Effective
Time, except as expressly contemplated by this Agreement, without the prior
written consent of Company, Zions will not, and will cause each of its
Subsidiaries not to:
(a) Ordinary Course. Take any action that would adversely affect or
delay the ability of Company or Zions to perform any of their obligations on
a timely basis under this
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<PAGE> 18
Agreement, or take any action that is reasonably likely to have a Material
Adverse Effect on Zions or its Subsidiaries, taken as a whole.
(b) Adverse Actions. (a) Take any action while knowing that such action
would, or is reasonably likely to, prevent or impede the Merger from
qualifying (i) for "pooling of interests" accounting treatment or (ii) as a
reorganization within the meaning of Section 368 of the Code; or (b)
knowingly take any action that is intended or is reasonably likely to result
in (i) any of its representations and warranties set forth in this Agreement
being or becoming untrue in any material respect at any time at or prior to
the Effective Time, (ii) any of the conditions to the Merger set forth in
Article VII not being satisfied or (iii) a material violation of any
provision of this Agreement except, in each case, as may be required by
applicable law or regulation.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.01 Disclosure Schedules. On or prior to the date hereof, Company has
delivered to Zions a schedule (the "Disclosure Schedule") setting forth, among
other things, items the disclosure of which is necessary or appropriate either
in response to an express disclosure requirement contained in a provision hereof
or as an exception to one or more representations or warranties contained in
Section 5.03; provided, that (a) no such item is required to be set forth in a
Disclosure Schedule as an exception to a representation or warranty if its
absence would not be reasonably likely to result in the related representation
or warranty being deemed untrue or incorrect under the standard established by
Section 5.02, and (b) the mere inclusion of an item in a Disclosure Schedule as
an exception to a representation or warranty shall not be deemed an admission by
a party that such item represents a material exception or fact, event or
circumstance or that such item is reasonably likely to result in a Material
Adverse Effect.
5.02 Standard. No representation or warranty of Company or Zions
contained in Section 5.03 or 5.04 shall be deemed untrue or incorrect, and no
party hereto shall be deemed to have breached a representation or warranty, as a
consequence of the existence of any fact, event or circumstance unless such
fact, circumstance or event, individually or taken together with all other
facts, events or circumstances inconsistent with any representation or warranty
contained in Section 5.03 or 5.04 has had or is reasonably likely to have a
Material Adverse Effect on the party making such representation or warranty.
5.03 Representations and Warranties of Company. Subject to Sections 5.01
and 5.02 and except as Previously Disclosed in a paragraph of its Disclosure
Schedule corresponding to the relevant paragraph below, Company hereby
represents and warrants to Zions:
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<PAGE> 19
(a) Organization, Standing and Authority. Company is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware. Company is duly qualified to do business and is in good
standing in the states of the United States and any foreign jurisdictions
where its ownership or leasing of property or assets or the conduct of its
business requires it to be so qualified.
(b) Company Common Stock. As of the date hereof, the authorized capital
stock of Company consists solely of 4,000,000 shares of Company Common
Stock, of which no more than 2,778,823 shares were outstanding as of the
date hereof. As of the date hereof, no shares of Company Common Stock were
held in treasury by Company or otherwise owned by Company or its
Subsidiaries. The outstanding shares of Company Common Stock have been duly
authorized and are validly issued and outstanding, fully paid and
nonassessable, and subject to no preemptive rights (and were not issued in
violation of any preemptive rights). As of the date hereof, there are no
shares of Company Common Stock authorized and reserved for issuance, Company
does not have any Rights issued or outstanding with respect to Company
Common Stock, and Company does not have any commitment to authorize, issue
or sell any Company Common Stock or Rights, except pursuant to this
Agreement, the Debentures, any Company Stock Option and the Company Stock
Plan. The number of shares of Company Common Stock which are issuable and
reserved for issuance upon exercise of Company Stock Options as of the date
hereof are Previously Disclosed in Company's Disclosure Schedule.
(c) Subsidiaries. (i)(A) Company has Previously Disclosed a list of all
of its Subsidiaries together with the jurisdiction of organization of each
such Subsidiary, (B) Company owns, directly or indirectly, all the issued
and outstanding equity securities of each of its Subsidiaries, (C) no equity
securities of any of its Subsidiaries are or may become required to be
issued (other than to it or its wholly owned Subsidiaries) by reason of any
Right or otherwise, (D) there are no contracts, commitments, understandings
or arrangements by which any of such Subsidiaries is or may be bound to sell
or otherwise transfer any equity securities of any such Subsidiaries (other
than to it or its wholly-owned Subsidiaries), (E) there are no contracts,
commitments, understandings, or arrangements relating to its rights to vote
or to dispose of such securities and (F) all the equity securities of each
Subsidiary held by Company or its Subsidiaries are fully paid and
nonassessable and are owned by Company or its Subsidiaries free and clear of
any Liens.
(ii) Company does not own beneficially, directly or indirectly, any
equity securities or similar interests of any Person, or any interest in a
partnership or joint venture of any kind, other than its Subsidiaries.
(iii) Each of Company's Subsidiaries has been duly organized and is
validly existing in good standing under the laws of the jurisdiction of its
organization, and is duly qualified to
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<PAGE> 20
do business and in good standing in the jurisdictions where its ownership or
leasing of property or the conduct of its business requires it to be so
qualified.
(d) Corporate Power. Company and each of its Subsidiaries has the
corporate power and authority to carry on its business as it is now being
conducted and to own all its properties and assets; and Company has the
corporate power and authority to execute, deliver and perform its
obligations under this Agreement and to consummate the transactions
contemplated hereby and thereby.
(e) Corporate Authority. Subject in the case of this Agreement to
receipt of the requisite approval of the agreement of merger set forth in
this Agreement by the holders of a majority of the outstanding shares of
Company Common Stock entitled to vote thereon (which is the only stockholder
vote required thereon), this Agreement and the transactions contemplated
hereby have been authorized by all necessary corporate action of Company and
the Company Board on or prior to the date hereof. This Agreement is a valid
and legally binding obligation of Company, enforceable in accordance with
its terms (except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer and similar laws
of general applicability relating to or affecting creditors' rights or by
general equity principles). The Company Board has received the written
opinion of Sandler O'Neill & Partners, LP to the effect that as of the date
hereof the Exchange Ratio to be received by the holders of Company Common
Stock in the Merger is fair to the holders of Company Common Stock from a
financial point of view.
(f) Regulatory Approvals; No Defaults. (i) No consents or approvals of,
or filings or registrations with, any Governmental Authority or with any
third party are required to be made or obtained by Company or any of its
Subsidiaries in connection with the execution, delivery or performance by
Company of this Agreement or to consummate the Merger except for (A) filings
of applications or notices with federal banking authorities, (B) filings
with the SEC and state securities authorities and the approval of this
Agreement by the stockholders of Company, and (C) the filing of articles of
merger with the Corporation Division pursuant to the UBCA and a certificate
of merger with the Delaware Secretary pursuant to the DGCL. As of the date
hereof, Company is not aware of any reason why the approvals set forth in
Section 7.01(b) will not be received without the imposition of a condition,
restriction or requirement of the type described in Section 7.01(b).
(ii) Subject to receipt of the regulatory approvals referred to in the
preceding paragraph, and the expiration of related waiting periods, and
required filings under federal and state securities laws, the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby and thereby do not and will not (A)
constitute a breach or violation of, or a default under, or give rise to any
Lien, any acceleration of remedies or any right of termination under, any
law, rule or regulation or any judgment, decree, order, governmental permit
or license, or agreement, indenture or
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<PAGE> 21
instrument of Company or of any of its Subsidiaries or to which Company or
any of its Subsidiaries or properties is subject or bound, (B) constitute a
breach or violation of, or a default under, the Company Certificate or the
Company By-Laws, or (C) require any consent or approval under any such law,
rule, regulation, judgment, decree, order, governmental permit or license,
agreement, indenture or instrument.
(g) Financial Reports and Regulatory Documents. (i) Company's (or its
predecessors') Annual Reports on Form 10-KSB for the fiscal years ended
December 31, 1994, 1995 and 1996, and all other reports, registration
statements, definitive proxy statements or information statements filed or
to be filed by it or any of its Subsidiaries subsequent to December 31, 1994
under the Securities Act, or under Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act or under the securities regulations of the OCC, in the form
filed or to be filed (collectively, the Company "Regulatory Documents") with
the SEC or the OCC, as applicable, as of the date filed, (A) complied or
will comply in all material respects as to form with the applicable
requirements under the Securities Act, the Exchange Act or the securities
regulations of the OCC, as the case may be, and (B) did not and will not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and each of the balance sheets contained in or incorporated by
reference into any such Regulatory Document (including the related notes and
schedules thereto) fairly presents, or will fairly present, in all material
respects, the financial position of Company and its Subsidiaries as of its
date, and each of the statements of income and changes in stockholders'
equity and cash flows or equivalent statements in such Regulatory Documents
(including any related notes and schedules thereto) fairly presents, or will
fairly present, in all material respects, the results of operations, changes
in stockholders' equity and changes in cash flows, as the case may be, of
Company and its Subsidiaries for the periods to which they relate, in each
case in accordance with generally accepted accounting principles
consistently applied during the periods involved, except in each case as may
be noted therein, subject to normal year-end audit adjustments in the case
of unaudited statements.
(ii) Since December 31, 1996, Company and its Subsidiaries have not
incurred any liability other than in the ordinary course of business
consistent with past practice.
(iii) Since December 31, 1996, (A) Company and its Subsidiaries have
conducted their respective businesses in the ordinary and usual course
consistent with past practice (excluding the incurrence of expenses related
to this Agreement and the transactions contemplated hereby) and (B) no event
has occurred or circumstance arisen that, individually or taken together
with all other facts, circumstances and events (described in any paragraph
of Section 5.03 or otherwise), is reasonably likely to have a Material
Adverse Effect with respect to Company.
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<PAGE> 22
(h) Litigation. No litigation, claim or other proceeding before any
court or governmental agency is pending against Company or any of its
Subsidiaries and, to Company's knowledge, no such litigation, claim or other
proceeding has been threatened.
(i) Regulatory Matters. (i) Neither Company nor any of its Subsidiaries
or any of their properties is a party to or is subject to any order, decree,
agreement, memorandum of understanding or similar arrangement with, or a
commitment letter or similar submission to, or extraordinary supervisory
letter from, any federal or state governmental agency or authority charged
with the supervision or regulation of financial institutions or issuers of
securities or engaged in the insurance of deposits (including, without
limitation, the OCC, the Federal Reserve and the FDIC) or the supervision or
regulation of it or any of its Subsidiaries (collectively, the "Regulatory
Authorities").
(ii) Neither Company nor any of its Subsidiaries has been advised by any
Regulatory Authority that such Regulatory Authority is contemplating issuing
or requesting (or is considering the appropriateness of issuing or
requesting) any such order, decree, agreement, memorandum of understanding,
commitment letter, supervisory letter or similar submission.
(j) Compliance with Laws. Company and each of its Subsidiaries:
(i) is in compliance with all applicable federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders or
decrees applicable thereto or to the employees conducting such businesses,
including, without limitation, the Equal Credit Opportunity Act, the Fair
Housing Act, the Community Reinvestment Act, the Home Mortgage Disclosure
Act and all other applicable fair lending laws and other laws relating to
discriminatory business practices;
(ii) has all permits, licenses, authorizations, orders and approvals of,
and has made all filings, applications and registrations with, all
Governmental Authorities that are required in order to permit them to own or
lease their properties and to conduct their businesses as presently
conducted; all such permits, licenses, certificates of authority, orders and
approvals are in full force and effect and, to Company's knowledge, no
suspension or cancellation of any of them is threatened; and
(iii) has received, since December 31, 1996, no notification or
communication from any Governmental Authority (A) asserting that Company or
any of its Subsidiaries is not in compliance with any of the statutes,
regulations or ordinances which such Governmental Authority enforces or (B)
threatening to revoke any license, franchise, permit or governmental
authorization (nor, to Company's knowledge, do any grounds for any of the
foregoing exist).
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<PAGE> 23
(k) Material Contracts; Defaults. Except for those agreements and other
documents filed as exhibits to its Regulatory Documents, neither it nor any
of its Subsidiaries is a party to, bound by or subject to any agreement,
contract, arrangement, commitment or understanding (whether written or oral)
(i) that is a "material contract" within the meaning of Item 601(b)(10) of
the SEC's Regulation S-K or (ii) that materially restricts the conduct of
business by it or any of its Subsidiaries. Neither Company nor any of its
Subsidiaries is in default under any material contract, agreement,
commitment, arrangement, lease, insurance policy or other instrument to
which it is a party, by which its respective assets, business, or operations
may be bound or affected, or under which it or its respective assets,
business, or operations receives benefits, and there has not occurred any
event that, with the lapse of time or the giving of notice or both, would
constitute such a default.
(l) No Brokers. No action has been taken by Company that would give rise
to any valid claim against any party hereto for a brokerage commission,
finder's fee or other like payment with respect to the transactions
contemplated by this Agreement, excluding a Previously Disclosed fee to be
paid to Sandler O'Neill & Partners, LP.
(m) Employee Benefit Plans.
(i) All benefit and compensation plans, contracts, policies or
arrangements covering current employees or former employees of Company and
its subsidiaries (the "Employees") and current or former directors of
Company, including, but not limited to, "employee benefit plans" within the
meaning of Section 3(3) of ERISA, and deferred compensation, stock option,
stock purchase, stock appreciation rights, stock based, incentive and bonus
plans (the "Benefit Plans"), are Previously Disclosed in the Disclosure
Letter. True and complete copies of all Benefit Plans, including, but not
limited to, any trust instruments and insurance contracts forming a part of
any Benefit Plans, and all amendments thereto have been provided or made
available to Zions.
(ii) All employee benefit plans, other than "multiemployer plans" within
the meaning of Section 3(37) of ERISA, covering Employees (the "Plans"), to
the extent subject to ERISA, are in substantial compliance with ERISA.
Company is not a party to any "employee pension benefit plan" within the
meaning of Section 3(2) of ERISA ("Pension Plan") and which is intended to
be qualified under Section 401(a) of the Code. There is no material pending
or threatened litigation relating to the Plans. Neither Company nor any of
its Subsidiaries has engaged in a transaction with respect to any Plan that,
assuming the taxable period of such transaction expired as of the date
hereof, could subject Company or any Subsidiary to a tax or penalty imposed
by either Section 4975 of the Code or Section 502(i) of ERISA in an amount
which would be material.
(iii) No liability under Subtitle C or D of Title IV of ERISA has been
or is expected to be incurred by Company or any of its Subsidiaries with
respect to any ongoing, frozen or
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<PAGE> 24
terminated "single-employer plan", within the meaning of Section 4001(a)(15)
of ERISA, currently or formerly maintained by any of them, or the
single-employer plan of any entity which is considered one employer with
Company under Section 4001 of ERISA or Section 414 of the Code (an "ERISA
Affiliate"). Neither Company, any of its Subsidiaries nor an ERISA Affiliate
has contributed to a "multiemployer plan", within the meaning of Section
3(37) of ERISA, at any time on or after September 26, 1980. No notice of a
"reportable event", within the meaning of Section 4043 of ERISA for which
the 30-day reporting requirement has not been waived, has been required to
be filed for any Pension Plan or by any ERISA Affiliate within the 12-month
period ending on the date hereof or will be required to be filed in
connection with the transactions contemplated by this Plan.
(iv) All contributions required to be made under the terms of any Plan
have been timely made or have been reflected on the consolidated financial
statements of Company included in the Regulatory Documents. Neither any
Pension Plan nor any single-employer plan of an ERISA Affiliate has an
"accumulated funding deficiency" (whether or not waived) within the meaning
of Section 412 of the Code or Section 302 of ERISA and no ERISA Affiliate
has an outstanding funding waiver. Neither Company nor any of its
Subsidiaries has provided, or is required to provide, security to any
Pension Plan or to any single-employer plan of an ERISA Affiliate pursuant
to Section 401(a)(29) of the Code.
(v) Under each Pension Plan which is a single-employer plan, as of the
last day of the most recent plan year ended prior to the date hereof, the
actuarially determined present value of all "benefit liabilities", within
the meaning of Section 4001(a)(16) of ERISA (as determined on the basis of
the actuarial assumptions contained in the Plan's most recent actuarial
valuation), did not exceed the then current value of the assets of such
Plan, and there has been no material change in the financial condition of
such Plan since the last day of the most recent plan year.
(vi) Neither Company nor any of its Subsidiaries has any obligations for
retiree health and life benefits under any Benefit Plan. Company or its
Subsidiaries may amend or terminate any such Benefit Plan at any time
without incurring any liability thereunder.
(vii) The consummation of the transactions contemplated by this
Agreement will not (x) entitle any employees of Company or any of its
Subsidiaries to severance pay, (y) accelerate the time of payment or vesting
or trigger any payment of compensation or benefits under, increase the
amount payable or trigger any other material obligation pursuant to, any of
the Benefit Plans or (z) result in any breach or violation of, or a default
under, any of the Benefit Plans. Without limiting the foregoing, as a result
of the consummation of the transactions contemplated by this Agreement, none
of Zions, Company, or any of its Subsidiaries will be obligated to make a
payment to an individual that would be a "parachute payment" to a
disqualified individual" as those terms are defined in Section 280G of the
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Code, without regard to whether such payment is reasonable compensation for
personal services performed or to be performed in the future.
(n) Labor Matters. Neither Company nor any of its Subsidiaries is a
party to or is bound by any collective bargaining agreement, contract or
other agreement or understanding with a labor union or labor organization,
nor is Company or any of its Subsidiaries the subject of a proceeding
asserting that it or any such Subsidiary has committed an unfair labor
practice (within the meaning of the National Labor Relations Act) or seeking
to compel Company or any such Subsidiary to bargain with any labor
organization as to wages or conditions of employment, nor is there any
strike or other labor dispute involving it or any of its Subsidiaries
pending or, to Company's knowledge, threatened, nor is Company aware of any
activity involving its or any of its Subsidiaries' employees seeking to
certify a collective bargaining unit or engaging in other organizational
activity.
(o) Appraisal Rights. The holders of Company Common Stock do not have
appraisal rights in connection with the Merger pursuant to DGCL ss.
262(b)(1), assuming that the consideration to be received by such holders
satisfies the requirements of DGCL ss. 262(b)(2).
(p) Environmental Matters. To the best knowledge of Company, neither the
conduct nor operation of Company or its Subsidiaries nor any condition of
any property presently or previously owned, leased or operated by any of
them (including, without limitation, in a fiduciary or agency capacity),
violates or violated Environmental Laws and no condition has existed or
event has occurred with respect to any of them or any such property that,
with notice or the passage of time, or both, is reasonably likely to result
in liability under Environmental Laws. To the knowledge of Company's
executive officers, no property on which Company or any of its Subsidiaries
holds a Lien, violates or violated Environmental Laws and no condition has
existed or event has occurred with respect to any such property that, with
notice or the passage of time, or both, is reasonably likely to result in
liability under Environmental Laws. Neither Company nor any of its
Subsidiaries has received any notice from any person or entity that Company
or its Subsidiaries or the operation or condition of any property ever
owned, leased, operated, or held as collateral or in a fiduciary capacity by
any of them are or were in violation of or otherwise are alleged to have
liability under any Environmental Law, including, but not limited to,
responsibility (or potential responsibility) for the cleanup or other
remediation of any pollutants, contaminants, or hazardous or toxic wastes,
substances or materials at, on, beneath, or originating from, any such
property.
As used herein, the term "Environmental Law" means any federal, state or
local law, regulation, order, decree, permit, authorization, opinion, common
law or agency requirement relating to: (A) the protection or restoration of
the environment, health, safety, or natural resources, (B) the handling,
use, presence, disposal, release or threatened release of any Hazardous
Substance or (C) noise, odor, wetlands, indoor air, pollution, contamination
or any injury or threat of injury to persons or property in connection with
any Hazardous Substance
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and the term "Hazardous Substance" means any substance in any concentration
that is: (A) listed, classified or regulated pursuant to any Environmental
Law; (B) any petroleum product or by-product, asbestos-containing material,
lead-containing paint or plumbing, polychlorinated biphenyls, radioactive
materials or radon; or (C) any other substance which is or may be the
subject of regulatory action by any Governmental Authority in connection
with any Environmental Law.
(q) Tax Matters. (i) (A) All Tax Returns that are required to be filed
(taking into account any extensions of time within which to file) by or with
respect to Company and its Subsidiaries have been duly filed, (B) all Taxes
shown to be due on the Tax Returns referred to in clause (A) have been paid
in full, (C) the Tax Returns referred to in clause (A) have been examined by
the Internal Revenue Service or the appropriate Tax authority or the period
for assessment of the Taxes in respect of which such Tax Returns were
required to be filed has expired, (D) all deficiencies asserted or
assessments made as a result of such examinations have been paid in full,
(E) no issues that have been raised by the relevant taxing authority in
connection with the examination of any of the Tax Returns referred to in
clause (A) are currently pending, and (F) no waivers of statutes of
limitation have been given by or requested with respect to any Taxes of
Company or its Subsidiaries. Company has made available to Zions true and
correct copies of the United States federal income Tax Returns filed by
Company and its Subsidiaries for each of the three most recent fiscal years
ended on or before December 31, 1996. Neither Company nor any of its
Subsidiaries has any liability with respect to income, franchise or similar
Taxes that accrued on or before the end of the most recent period covered by
Company's Regulatory Documents filed prior to the date hereof in excess of
the amounts accrued with respect thereto that are reflected in the financial
statements included in Company's Regulatory Documents filed on or prior to
the date hereof. Neither Company nor any of its Subsidiaries is a party to
any Tax allocation or sharing agreement, is or has been a member of an
affiliated group filing consolidated or combined Tax returns (other than a
group the common parent of which is or was Company) or otherwise has any
liability for the Taxes of any person (other than Company and its
Subsidiaries). As of the date hereof, neither Company nor any of its
Subsidiaries has any reason to believe that any conditions exist that might
prevent or impede the Merger from qualifying as a reorganization within the
meaning of Section 368 of the Code.
(ii) No Tax is required to be withheld pursuant to Section 1445 of the
Code as a result of the transfer contemplated by this Agreement.
(r) Risk Management Instruments. All interest rate swaps, caps, floors,
option agreements, futures and forward contracts and other similar risk
management arrangements, whether entered into for Company's own account, or
for the account of one or more of Company's Subsidiaries or their customers
(all of which are listed on Company's Disclosure Schedule), if any, were
entered into (i) in accordance with prudent business practices and all
applicable laws, rules, regulations and regulatory policies and (ii) with
counterparties
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believed to be financially responsible at the time; and each of them
constitutes the valid and legally binding obligation of Company or one of
its Subsidiaries, enforceable in accordance with its terms (except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar laws of general
applicability relating to or affecting creditors' rights or by general
equity principles), and are in full force and effect. Neither Company nor
its Subsidiaries, nor to Company's knowledge, any other party thereto, is in
breach of any of its obligations under any such agreement or arrangement.
(s) Books and Records. The books and records of Company and its
Subsidiaries have been fully, properly and accurately maintained in all
material respects, and there are no material inaccuracies or discrepancies
of any kind contained or reflected therein, and they fairly present the
financial position of Company and its Subsidiaries.
(t) Insurance. Company has Previously Disclosed all of the insurance
policies, binders, or bonds maintained by Company or its Subsidiaries
("Insurance Policies"). Company and its Subsidiaries are insured with
reputable insurers against such risks and in such amounts as the management
of Company reasonably has determined to be prudent in accordance with
industry practices. All the Insurance Policies are in full force and effect;
Company and its Subsidiaries are not in material default thereunder; and all
claims thereunder have been filed in due and timely fashion.
(u) Accounting Treatment. As of the date hereof, Company is not aware of
any reason why the Merger will fail to qualify for "pooling of interests"
accounting treatment.
5.04 Representations and Warranties of Zions. Subject to Section 5.02,
Zions hereby represents and warrants to Company as follows:
(a) Organization, Standing and Authority. Zions is duly organized,
validly existing and in good standing under the laws of the State of Utah.
Zions is duly qualified to do business and is in good standing in the states
of the United States and foreign jurisdictions where its ownership or
leasing of property or assets or the conduct of its business requires it to
be so qualified. Zions has in effect all federal, state, local, and foreign
governmental authorizations necessary for it to own or lease its properties
and assets and to carry on its business as it is now conducted.
(b) Zions Capital Stock. As of the date hereof, the authorized capital
stock of Zions consists solely of 100,000,000 shares of Zions Common Stock,
of which no more than 65,000,000 shares were outstanding as of the date
hereof and 3,000,000 shares of Zions Preferred Stock, of which no shares
were outstanding as of the date hereof.
(c) Corporate Power. Zions and each of its Significant Subsidiaries has
the corporate power and authority to carry on its business as it is now
being conducted and to own all its
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properties and assets; and Zions has the corporate power and authority to
execute, deliver and perform its obligations under this Agreement and to
consummate the transactions contemplated hereby.
(d) Corporate Authority. This Agreement and the transactions
contemplated hereby have been authorized by all necessary corporate action
of Zions and the Zions Board. This Agreement is a valid and legally binding
agreement of Zions enforceable in accordance with its terms (except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar laws of general
applicability relating to or affecting creditors' rights or by general
equity principles).
(e) Regulatory Approvals; No Defaults. (i) No consents or approvals of,
or filings or registrations with, any court, administrative agency or
commission or other governmental authority or instrumentality or with any
third party are required to be made or obtained by Zions or any of its
Subsidiaries in connection with the execution, delivery or performance by
Zions of this Agreement or to consummate the Merger except for (A) the
filing of applications and notices, as applicable, with the federal and
state banking authorities; (B) approval of the listing on the NASDAQ of
Zions Common Stock to be issued in the Merger; (C) the filing and
declaration of effectiveness of the Registration Statement; (D) the filing
of articles of merger with the Corporation Division pursuant to the UBCA and
a certificate of merger with the Delaware Secretary pursuant to the DGCL;
(E) such filings as are required to be made or approvals as are required to
be obtained under the securities or "Blue Sky" laws of various states in
connection with the issuance of Zions Common Stock in the Merger; and (F)
receipt of the approvals set forth in Section 7.01(b). As of the date
hereof, Zions is not aware of any reason why the approvals set forth in
Section 7.01(b) will not be received without the imposition of a condition,
restriction or requirement of the type described in Section 7.01(b).
(ii) Subject to receipt of the regulatory approvals referred to in the
preceding paragraph and expiration of the related waiting periods, and
required filings under federal and state securities laws, the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby do not and will not (A) constitute a breach
or violation of, or a default under, or give rise to any Lien, any
acceleration of remedies or any right of termination under, any law, rule or
regulation or any judgment, decree, order, governmental permit or license,
or agreement, indenture or instrument of Zions or of any of its Subsidiaries
or to which Zions or any of its Subsidiaries or properties is subject or
bound, (B) constitute a breach or violation of, or a default under, the
certificate of incorporation or by-laws (or similar governing documents) of
Zions or any of its Subsidiaries, or (C) require any consent or approval
under any such law, rule, regulation, judgment, decree, order, governmental
permit or license, agreement, indenture or instrument.
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(f) Financial Reports and Regulatory Documents; Material Adverse Effect.
(i) Zions' Regulatory Documents, as of the date filed, (A) complied or will
comply in all material respects as to form with the applicable requirements
under the Securities Act or the Exchange Act, as the case may be, and (B)
did not and will not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they
were made, not misleading; and each of the balance sheets contained in or
incorporated by reference into any such Regulatory Document (including the
related notes and schedules thereto) fairly presents, or will fairly
present, the financial position of Zions and its Subsidiaries as of its
date, and each of the statements of income and changes in stockholders'
equity and cash flows or equivalent statements in such Regulatory Documents
(including any related notes and schedules thereto) fairly presents, or will
fairly present, the results of operations, changes in stockholders' equity
and changes in cash flows, as the case may be, of Zions and its Subsidiaries
for the periods to which they relate, in each case in accordance with
generally accepted accounting principles consistently applied during the
periods involved, except in each case as may be noted therein, subject to
normal year-end audit adjustments in the case of unaudited statements.
(ii) Since December 31, 1996, no event has occurred or circumstance
arisen that, individually or taken together with all other facts,
circumstances and events (described in any paragraph of Section 5.04 or
otherwise), is reasonably likely to have a Material Adverse Effect with
respect to it.
(g) No Brokers. No action has been taken by Zions that would give rise
to any valid claim against any party hereto for a brokerage commission,
finder's fee or other like payment with respect to the transactions
contemplated by this Agreement.
(h) Accounting Treatment; Tax Matters. As of the date hereof, it is
aware of no reason why the Merger will fail to qualify for "pooling of
interests" accounting treatment. As of the date hereof, neither Zions nor
any of its Subsidiaries has any reason to believe that any conditions exist
that might prevent or impede the Merger from qualifying as a reorganization
within the meaning of Section 368 of the Code.
(i) Regulatory Matters. (i) Neither Zions nor any of its Subsidiaries or
any of their properties is a party to or is subject to any order, decree,
agreement, memorandum of understanding or similar arrangement with, or a
commitment letter or similar submission to, or extraordinary supervisory
letter from, any Regulatory Authority, which individually or in the
aggregate would have a Material Adverse Effect on Zions.
(ii) Neither Zions nor any of its Subsidiaries has been advised by any
Regulatory Authority that such Regulatory Authority is contemplating issuing
or requesting (or is
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considering the appropriateness of issuing or requesting) any such order,
decree, agreement, memorandum of understanding, commitment letter,
supervisory letter or similar submission.
(j) Compliance with Laws. Zions and each of its Subsidiaries:
(i) is in compliance with all applicable federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders or
decrees applicable thereto or to the employees conducting such businesses,
including, without limitation, the Equal Credit Opportunity Act, the Fair
Housing Act, the Community Reinvestment Act, the Home Mortgage Disclosure
Act and all other applicable fair lending laws and other laws relating to
discriminatory business practices;
(ii) has all permits, licenses, authorizations, orders and approvals of,
and has made all filings, applications and registrations with, all
Governmental Authorities that are required to permit them to own or lease
their properties and to conduct their businesses as presently conducted; all
such permits, licenses, certificates of authority, orders and approvals are
in full force and effect and, to Zions' knowledge, no suspension or
cancellation of any of them is threatened; and
(iii) has received, since December 31, 1996, no notification or
communication from any Governmental Authority (A) asserting that Zions or
any of its Subsidiaries is not in compliance with any of the statutes,
regulations or ordinances which such Governmental Authority enforces or (B)
threatening to revoke any license, franchise, permit or governmental
authorization (nor, to Zions' knowledge, do any grounds for any of the
foregoing exist).
(k) Appraisal Rights. The consideration to be received by holders of
Company Common Stock in connection with the Merger satisfies the requirements of
DGCL ss. 262(b)(2).
ARTICLE VI
COVENANTS
6.01 Reasonable Best Efforts. Subject to the terms and conditions of
this Agreement, each of Company and Zions agrees to use its reasonable best
efforts in good faith to take, or cause to be taken, all actions, and to do, or
cause to be done, all things necessary, proper or desirable, or advisable under
applicable laws, so as to permit consummation of each of the Merger and the Bank
Merger as promptly as practicable and otherwise to enable consummation of the
transactions contemplated hereby and shall cooperate fully with the other party
hereto to that end.
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6.02 Stockholder Approval. Company agrees to take, in accordance with
applicable law and the Company Certificate and the Company By-Laws, all action
necessary to convene an appropriate meeting of its stockholders to consider and
vote upon the approval and adoption of this Agreement and any other matters
required to be approved by Company's stockholders for consummation of the Merger
(including any adjournment or postponement, the "Company Meeting"), in each case
as promptly as practicable after the Registration Statement is declared
effective. Except to the extent the Company Board reasonably determines
otherwise in the exercise of its fiduciary duties following receipt of advice of
Company's legal counsel, the Company Board shall recommend at the Company
Meeting that all such matters be approved by its stockholders, shall not cancel
the Company Meeting and Company shall take all reasonable, lawful action to
solicit such approval by its stockholders.
6.03 Registration Statements. (a) Zions agrees to prepare a registration
statement on Form S-4 or other applicable form (the "Registration Statement") to
be filed by Zions with the SEC in connection with the issuance of Zions Common
Stock in the Merger (including the proxy statement and prospectus and other
proxy solicitation materials of Company constituting a part thereof (the "Proxy
Statement") and all related documents). Company agrees to cooperate, and to
cause its Subsidiaries to cooperate, with Zions, its counsel and its
accountants, in preparation of the Registration Statement and the Proxy
Statement. Company agrees to file the Proxy Statement in preliminary form with
the SEC as soon as reasonably practicable, and Zions agrees to file the
Registration Statement with the SEC as soon as reasonably practicable after any
SEC comments with respect to the preliminary Proxy Statement are resolved. Each
of Company and Zions agrees to use all reasonable efforts to cause the
Registration Statement to be declared effective under the Securities Act as
promptly as reasonably practicable after filing thereof. Zions also agrees to
use all reasonable efforts to obtain all necessary state securities law or "Blue
Sky" permits and approvals required to carry out the transactions contemplated
by this Agreement. Company agrees to furnish to Zions all information concerning
Company, its Subsidiaries, officers, directors and stockholders as may be
reasonably requested in connection with the foregoing.
(b) Each of Company and Zions agrees, as to itself and its Subsidiaries,
that none of the information supplied or to be supplied by it for inclusion
or incorporation by reference in (i) the Registration Statement will, at the
time the Registration Statement and each amendment or supplement thereto, if
any, becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein not
misleading, and (ii) the Proxy Statement and any amendment or supplement
thereto will, at the date of mailing to stockholders and at the time of the
Company Meeting, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make
the statements therein not misleading or any statement which, in the light
of the circumstances under which such statement is made, will be false or
misleading with respect to any material fact, or which will omit to state
any material fact necessary in order to make
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the statements therein not false or misleading or necessary to correct any
statement in any earlier statement in the Proxy Statement or any amendment
or supplement thereto. Each of Company and Zions further agrees that if it
shall become aware prior to the Effective Date of any information furnished
by it that would cause any of the statements in the Proxy Statement to be
false or misleading with respect to any material fact, or to omit to state
any material fact necessary to make the statements therein not false or
misleading, promptly to inform the other party thereof and to take the
necessary steps to correct the Proxy Statement.
(c) Zions agrees to advise Company, promptly after Zions receives notice
thereof, of the time when the Registration Statement has become effective or
any supplement or amendment has been filed, of the issuance of any stop
order or the suspension of the qualification of Zions Common Stock for
offering or sale in any jurisdiction, of the initiation or threat of any
proceeding for any such purpose, or of any request by the SEC for the
amendment or supplement of the Registration Statement or for additional
information.
(d) Zions agrees to provide such reasonable cooperation as is required
to facilitate the filing and effectiveness of Company's registration
statement on Form S-3 with regard to the offering by Company of shares of
Company Common Stock upon conversion of the Debentures. The parties
understand that such cooperation is expected to take the form of review and
approval of language regarding Zions and the plan to be included in such
filing. Zions agrees to take other actions reasonably necessary in
cooperation with Company to cause the record date for stockholders entitled
to vote at the Company Meeting to occur after the date of conversion of the
Debentures.
6.04 Press Releases. Each of Company and Zions agrees that it will not,
without the prior approval of the other party, issue any press release or
written statement for general circulation relating to the transactions
contemplated hereby, except as otherwise required by applicable law or
regulation or NASDAQ rules (provided that the issuing party shall nevertheless
provide the other party with notice of, and the opportunity to review, any such
press release or written statement).
6.05 Access; Information. (a) Each of Company and Zions agrees that upon
reasonable notice and subject to applicable laws relating to the exchange of
information, each party shall afford the other party and the other party's
officers, employees, counsel, accountants and other authorized representatives,
such access during normal business hours throughout the period prior to the
Effective Time to the books, records (including, without limitation, tax returns
and work papers of independent auditors), properties, personnel and to such
other information as the requesting party may reasonably request and, during
such period, the providing party shall furnish promptly to the requesting party
(i) a copy of each material report, schedule and other document filed by it
pursuant to the requirements of federal or state securities or banking laws, and
(ii) all other information concerning the business, properties and personnel of
it as the requesting party may reasonably request.
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(b) Each party agrees that it will not, and will cause its
representatives not to, use any information obtained pursuant to this
Section 6.05 (as well as any other information obtained prior to the date
hereof in connection with the entering into of this Agreement) for any
purpose unrelated to the consummation of the transactions contemplated by
this Agreement. Subject to the requirements of law, each party will keep
confidential, and will cause its representatives to keep confidential, all
information and documents obtained pursuant to this Section 6.05 (as well as
any other information obtained prior to the date hereof in connection with
the entering into of this Agreement) unless such information (i) was already
known to such party, (ii) becomes available to such party from other sources
not known by such party to be bound by a confidentiality obligation, (iii)
is disclosed with the prior written approval of the providing party or (iv)
is or becomes readily ascertainable from published information or trade
sources. In the event that this Agreement is terminated or the transactions
contemplated by this Agreement shall otherwise fail to be consummated, each
party shall promptly cause all copies of documents or extracts thereof
containing information and data as to the other party to be returned to the
other party. No investigation by either party of the business and affairs of
the other party shall affect or be deemed to modify or waive any
representation, warranty, covenant or agreement in this Agreement, or the
conditions to either party's obligation to consummate the transactions
contemplated by this Agreement.
6.06 Acquisition Proposals. Company agrees that it shall not, and shall
cause its Subsidiaries and its and its Subsidiaries' officers, directors,
agents, advisors and affiliates not to, solicit or encourage inquiries or
proposals with respect to, or engage in any negotiations concerning, or provide
any confidential information to, or have any discussions with, any person
relating to, any Acquisition Proposal; provided, however, that nothing in this
Agreement shall (x) require the Company Board to recommend stockholder approval
of the Merger following an Acquisition Proposal or (y) prevent Company or the
Company Board from (i) engaging in any discussions or negotiations with, or
providing any information to, any Person in response to an unsolicited bona fide
written Acquisition Proposal by any such Person, (ii) recommending such an
unsolicited bona fide written Acquisition Proposal to the holders of Company
Common Stock or (iii) responding to a tender offer in compliance with applicable
law if and only if, with respect to the actions described in clause (x) or (y),
as applicable, (A) the Company Board concludes in good faith that the
Acquisition Proposal, if consummated, would result in a transaction more
favorable to holders of Company Common Stock than the transaction contemplated
by this Agreement; (B) the Company Board determines in good faith based upon the
advice of outside counsel that such action is legally necessary for it to act in
a manner consistent with its fiduciary duties under applicable law; and (C)
prior to providing any information or data to any person or entering into
discussions or negotiations with any Person, the Company Board notifies Zions
immediately of such inquiries, proposals or offers received by, any such
information requested from, or any such discussions or negotiations sought to be
initiated or continued with Company or any Subsidiary thereof. Company shall
immediately cease and cause to be terminated any activities, discussions or
negotiations conducted prior to the date of this Agreement with any parties
other than with respect to any of the foregoing and shall use its reasonable
best efforts to
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enforce any confidentiality or similar agreement relating to an Acquisition
Proposal. Company shall promptly (within 24 hours) advise Zions following the
receipt by Company of any Acquisition Proposal and the substance thereof
(including the identity of the person making such Acquisition Proposal and the
terms, conditions and status thereof), and advise Zions of any developments with
respect to such Acquisition Proposal immediately upon the occurrence thereof.
6.07 Affiliate Agreements. (a) Not later than the 15th day prior to the
mailing of the Proxy Statement, Company shall deliver to Zions a schedule of
each person that, to the best of its knowledge, is or is reasonably likely to
be, as of the date of the Company Meeting, deemed to be an "affiliate" of
Company (each, a "Company Affiliate") as that term is used in Rule 145 under the
Securities Act or SEC Accounting Series Releases 130 and 135.
(b) Company shall use its reasonable best efforts to cause each person
who may be deemed to be a Company Affiliate to execute and deliver to Zions
on or before the date of mailing of the Proxy Statement an agreement in the
form attached hereto as Exhibit A.
6.08 Takeover Laws. No party hereto shall take any action that would
cause the transactions contemplated by this Agreement to be subject to
requirements imposed by any Takeover Law and each of them shall take all
necessary steps within its control to exempt (or ensure the continued exemption
of) the transactions contemplated by this Agreement from, or if necessary
challenge the validity or applicability of, any applicable Takeover Law, as now
or hereafter in effect.
6.09 Certain Policies. Prior to the Effective Date, Company shall,
consistent with generally accepted accounting principles and on a basis mutually
satisfactory to it and Zions, modify and change its loan, litigation and real
estate valuation policies and practices (including loan classifications and
levels of reserves) so as to be applied on a basis that is consistent with that
of Zions.
6.10 NASDAQ Listing. Zions agrees to use its reasonable best efforts to
list, prior to the Effective Date, on the NASDAQ, subject to official notice of
issuance, the shares of Zions Common Stock to be issued to the holders of
Company Common Stock in the Merger.
6.11 Regulatory Applications. (a) Zions and Company and their respective
Subsidiaries shall cooperate and use their respective reasonable best efforts to
prepare all documentation, to effect all filings and to obtain all permits,
consents, approvals and authorizations of all third parties and Governmental
Authorities necessary to consummate the transactions contemplated by this
Agreement. Zions and Company shall use their reasonable best efforts to make all
required bank regulatory filings, including the appropriate filing with the
Federal Reserve, within 30 days after the date hereof. Each of Zions and Company
shall have the right to review in advance, and to the extent practicable each
will consult with the other, in each case subject to applicable laws
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relating to the exchange of information, with respect to all material written
information submitted to any third party or any Governmental Authority in
connection with the transactions contemplated by this Agreement. In exercising
the foregoing right, each of the parties hereto agrees to act reasonably and as
promptly as practicable. Each party hereto agrees that it will consult with the
other party hereto with respect to the obtaining of all material permits,
consents, approvals and authorizations of all third parties and Governmental
Authorities necessary or advisable to consummate the transactions contemplated
by this Agreement and each party will keep the other party appraised of the
status of material matters relating to completion of the transactions
contemplated hereby.
(b) Each party agrees, upon request, to furnish the other party with all
information concerning itself, its Subsidiaries, directors, officers and
stockholders and such other matters as may be reasonably necessary or
advisable in connection with any filing, notice or application made by or on
behalf of such other party or any of its Subsidiaries to any third party or
Governmental Authority.
6.12 Indemnification; Director and Officers' Insurance. (a) From and
after the Effective Time through the fourth anniversary of the Effective Date,
Zions agrees to indemnify and hold harmless each present and former director and
officer of Company or any Subsidiary of Company determined as of the Effective
Time (the "Indemnified Parties"), against any costs or expenses (including
reasonable attorneys' fees), judgments, fines, losses, claims, damages or
liabilities (collectively, "Costs") incurred in connection with any claim,
action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of matters existing or occurring at
or prior to the Effective Time (including with respect to this Agreement or any
of the transactions contemplated hereby) (but excluding any Costs arising out of
any violation or alleged violation of the Exchange Act or the rules and
regulations thereunder with respect to insider trading), whether asserted,
claimed or arising prior to, at or after the Effective Time, to the extent to
which such Indemnified Parties were entitled under Delaware law and the Company
Certificate or the Company By-Laws in effect on the date hereof, and Zions shall
also advance expenses as incurred to the extent permitted under Delaware law and
the Company Certificate and the Company By-Laws.
(b) Any Indemnified Party wishing to claim indemnification under Section
6.12(a), upon learning of any such claim, action, suit, proceeding or
investigation, shall as promptly as possible notify Zions thereof, but the
failure to so notify shall not relieve Zions of any liability it may have to
such Indemnified Party if such failure does not materially prejudice Zions.
In the event of any such claim, action, suit, proceeding or investigation
(whether arising before or after the Effective Time), (i) Zions shall have
the right to assume the defense thereof and Zions shall not be liable to
such Indemnified Parties for any legal expenses of other counsel or any
other expenses subsequently incurred by such Indemnified Parties in
connection with the defense thereof, except that if Zions elects not to
assume such defense or counsel for the Indemnified Parties advises in
writing that there are issues which
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raise conflicts of interest between Zions and the Indemnified Parties, the
Indemnified Parties may retain counsel satisfactory to them, and Zions shall
pay the reasonable fees and expenses of one such counsel for the Indemnified
Parties in any jurisdiction promptly as statements thereof are received,
(ii) the Indemnified Parties will cooperate in the defense of any such
matter and (iii) Zions shall not be liable for any settlement effected
without its prior written consent (which consent shall not be unreasonably
withheld); and provided, further, that Zions shall not have any obligation
hereunder to any Indemnified Party when and if a court of competent
jurisdiction shall ultimately determine, and such determination shall have
become final and nonappealable, that the indemnification of such Indemnified
Party in the manner contemplated hereby is not permitted or is prohibited by
applicable law.
(c) For a period of three years after the Effective Time, Zions shall
use its reasonable best efforts to cause to be maintained in effect the
current policies of directors' and officers' liability insurance maintained
by Company (provided that Zions may substitute therefor policies of
comparable coverage with respect to claims arising from facts or events
which occurred before the Effective Time); provided, however, that in no
event shall Zions be obligated to expend, in order to maintain or provide
insurance coverage pursuant to this Section 6.12(c), any amount per annum in
excess of 150% of the amount of the annual premiums paid as of the date
hereof by Company for such insurance (the "Maximum Amount"). If the amount
of the annual premiums necessary to maintain or procure such insurance
coverage exceeds the Maximum Amount, Zions shall use all reasonable efforts
to maintain the most advantageous policies of directors' and officers'
insurance obtainable for an annual premium equal to the Maximum Amount.
Notwithstanding the foregoing, prior to the Effective Time, Zions may
request Company to, and Company shall, purchase insurance coverage, on such
terms and conditions as shall be acceptable to Zions, extending for a period
of three years Company's directors' and officers' liability insurance
coverage in effect as of the date hereof (covering past or future claims
with respect to periods before the Effective Time) and such coverage shall
satisfy Zions' obligations under this Subsection (c).
(d) If Zions or any of its successors or assigns (i) shall consolidate
with or merge into any other corporation or entity and shall not be the
continuing or surviving corporation or entity of such consolidation or
merger or (ii) shall transfer all or substantially all of its properties and
assets to any individual, corporation or other entity, then and in each such
case, proper provision shall be made so that the successors and assigns of
Zions shall assume the obligations set forth in this Section 6.12.
6.13 Benefit Plans. Zions shall, from and after the Effective Time, (i)
honor in accordance with their terms all employment or severance agreements
entered into prior to the date hereof and Previously Disclosed and (ii) provide
former employees of Company who remain as employees of Zions with employee
benefit plans no less favorable in the aggregate than those provided to
similarly situated employees of Zions (including the medical and health benefits
available to other similarly situated employees of Zions and coverage of any
pre-existing health
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or medical conditions covered by Company benefit plans), subject, with respect
to any executive officer of Company, to the terms of any agreement(s) entered
into by or among that executive officer and Zions and/or Grossmont Bank on the
date of this Agreement or otherwise prior to the Effective Time, specifically
modifying, replacing or relinquishing some or all of his agreements, benefits or
plans. If any employee of Company or any Subsidiary of Company becomes a
participant in any employment benefit plan, practice or policy of the Surviving
Corporation, such employee shall be given credit under such plan, practice or
policy for all service prior to the Effective Date with Company or such
Subsidiary of Company for purposes of eligibility and vesting, but not for
benefit accrual purposes, for which such service is taken into account or
recognized, provided that there be no duplication of such benefits as are
provided under any employee benefit plans, practices, or policies of Company or
any Subsidiary of Company that continue in effect following the Effective Time.
In addition, Zions shall roll Company's existing 401(k) plan into Zions' 401(k)
plan.
6.14 Accountants' Letters. Each of Company and Zions shall use its
reasonable best efforts to cause to be delivered to the other party, and to
Zions' directors and officers who sign the Registration Statement, a letter of
their respective independent auditors, dated (i) the date on which the
Registration Statement shall become effective and (ii) a date shortly prior to
the Effective Date, and addressed to such other party, and such directors and
officers, in form and substance customary for "comfort" letters delivered by
independent accountants in accordance with Statement of Accounting Standards No.
72.
6.15 Notification of Certain Matters. Each of Company and Zions shall
give prompt notice to the other of any fact, event or circumstance known to it
that (i) is reasonably likely, individually or taken together with all other
facts, events and circumstances known to it, to result in any Material Adverse
Effect with respect to it or (ii) would cause or constitute a material breach of
any of its representations, warranties, covenants or agreements contained
herein.
6.16 Stockholder Agreements. The directors and certain officers and
stockholders of Company, in their capacities as stockholders, in exchange for
good and valuable consideration, have executed and delivered to Zions
stockholder agreements substantially in the form of Exhibit B hereto (the
"Stockholder Agreements"), committing such persons, among other things, (i) to
vote their shares of Company Common Stock in favor of the Agreement at the
Company Meeting, (ii) to certain representations concerning the ownership of
Company Common Stock and Zions Common Stock to be received in the Merger and
(iii) certain other matters.
6.17 Directors of Grossmont Bank. Zions agrees to cause Grossmont Bank
to add to the board of directors of Grossmont Bank three individuals from the
Company Board who are reasonably acceptable to Zions.
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ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER
7.01 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each of Zions and Company to consummate the Merger is
subject to the fulfillment or written waiver by Zions and Company prior to the
Effective Time of each of the following conditions:
(a) Stockholder Approvals. This Agreement and the Merger shall have been
duly adopted by the requisite vote of the stockholders of Company.
(b) Regulatory Approvals. All regulatory approvals required to
consummate the Merger, the Bank Merger and the other transactions
contemplated hereby shall have been obtained and shall remain in full force
and effect and all statutory waiting periods in respect thereof shall have
expired and no such approvals shall contain any conditions, restrictions or
requirements which the Zions Board reasonably determines would (i) following
the Effective Time, have a Material Adverse Effect on the Surviving
Corporation and its Subsidiaries taken as a whole or (ii) reduce the
benefits of the transactions contemplated hereby to such a degree that Zions
would not have entered into this Agreement had such conditions, restrictions
or requirements been known at the date hereof.
(c) No Injunction. No Governmental Authority of competent jurisdiction
shall have enacted, issued, promulgated, enforced or entered any statute,
rule, regulation, judgment, decree, injunction or other order (whether
temporary, preliminary or permanent) which is in effect and prohibits
consummation of the transactions contemplated by this Agreement.
(d) Registration Statement. The Registration Statement shall have become
effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the
SEC.
(e) Blue Sky Approvals. All permits and other authorizations under state
securities laws necessary to consummate the transactions contemplated hereby
and to issue the shares of Zions Common Stock to be issued in the Merger
shall have been received and be in full force and effect.
7.02 Conditions to Obligation of Company. The obligation of Company to
consummate the Merger is also subject to the fulfillment or written waiver by
Company prior to the Effective Time of each of the following conditions:
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(a) Representations and Warranties. The representations and warranties
of Zions set forth in this Agreement (subject to the standard set forth in
Section 5.02) shall be true and correct as of the date of this Agreement and
as of the Effective Date as though made on and as of the Effective Date
(except that representations and warranties that by their terms speak only
as of the date of this Agreement or some other date shall be true and
correct as of such date), and Company shall have received a certificate,
dated the Effective Date, signed on behalf of Zions by the Chief Executive
Officer and the Chief Financial Officer of Zions to such effect.
(b) Performance of Obligations of Zions. Zions shall have performed in
all material respects all obligations required to be performed by it under
this Agreement at or prior to the Effective Time, and Company shall have
received a certificate, dated the Effective Date, signed on behalf of Zions
by the Chief Executive Officer and the Chief Financial Officer of Zions to
such effect.
(c) Opinion of Company's Accountants. Company shall have received an
opinion of KPMG Peat Marwick LLP, dated the Effective Date, to the effect
that, on the basis of facts, representations and assumptions set forth in
such opinion, (i) the Merger constitutes a "reorganization" within the
meaning of Section 368 of the Code and (ii) no gain or loss will be
recognized by stockholders of Company who receive shares of Zions Common
Stock in exchange for shares of Company Common Stock, except with respect to
cash received in lieu of fractional share interests. In rendering its
opinion, KPMG Peat Marwick LLP may require and rely upon representations
contained in letters from Company, Zions and stockholders of Company.
(d) Accountants' Letters. Company shall have received the letters
referred to in Section 6.14 from Zions' independent auditors.
(e) Rights Plan. No Stock Acquisition Date (as such term is defined in
the Shareholder Protection Rights Plan) shall have occurred under the
Shareholder Protection Rights Plan prior to the Effective Time.
(f) Accounting Treatment. Company shall have received from its
independent auditors, letters, dated the date of or shortly prior to each of
the mailing date of the Proxy Statement and the Effective Date, stating its
opinion that the Merger shall qualify for pooling-of-interests accounting
treatment.
(g) Listing. The shares of Zions Common Stock to be issued in the Merger
shall have been approved for listing on the NASDAQ, subject to official
notice of issuance.
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7.03 Conditions to Obligation of Zions. The obligation of Zions to
consummate the Merger is also subject to the fulfillment or written waiver by
Zions prior to the Effective Time of each of the following conditions:
(a) Representations and Warranties. The representations and warranties
of Company set forth in this Agreement (subject to the standard set forth in
Section 5.02) shall be true and correct as of the date of this Agreement and
as of the Effective Date as though made on and as of the Effective Date
(except that representations and warranties that by their terms speak only
as of the date of this Agreement or some other date shall be true and
correct as of such date) and Zions shall have received a certificate, dated
the Effective Date, signed on behalf of Company by the Chief Executive
Officer and the Chief Financial Officer of Company to such effect.
(b) Performance of Obligations of Company. Company shall have performed
in all material respects all obligations required to be performed by it
under this Agreement at or prior to the Effective Time, and Zions shall have
received a certificate, dated the Effective Date, signed on behalf of
Company by the Chief Executive Officer and the Chief Financial Officer of
Company to such effect.
(c) Opinion of Zions' Counsel. Zions shall have received an opinion of
Sullivan & Cromwell, special counsel to Zions, dated the Effective Date, to
the effect that, on the basis of facts, representations and assumptions set
forth in such opinion, the Merger constitutes a reorganization under Section
368 of the Code. In rendering its opinion, Sullivan & Cromwell may require
and rely upon representations contained in letters from Company, Zions and
stockholders of Company.
(d) Accountants' Letters. Zions shall have received the letters referred
to in Section 6.14 from Company's independent auditors.
(e) Accounting Treatment. Zions shall have received from KPMG Peat
Marwick LLP, Zions' independent auditors, letters, dated the date of or
shortly prior to each of the mailing date of the Proxy Statement and the
Effective Date, stating its opinion that the Merger shall qualify for
pooling-of-interests accounting treatment.
ARTICLE VIII
TERMINATION
8.01 Termination. This Agreement may be terminated, and the Acquisition
may be abandoned:
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(a) Mutual Consent. At any time prior to the Effective Time, by the
mutual consent of Zions and Company, if the Board of Directors of each so
determines by vote of a majority of the members of its entire Board.
(b) Breach. At any time prior to the Effective Time, by Zions or
Company, if its Board of Directors so determines by vote of a majority of
the members of its entire Board, in the event of either: (i) a breach by the
other party of any representation or warranty contained herein (subject to
the standard set forth in Section 5.02), which breach cannot be or has not
been cured within 30 days after the giving of written notice to the
breaching party of such breach; or (ii) a breach by the other party of any
of the covenants or agreements contained herein, which breach cannot be or
has not been cured within 30 days after the giving of written notice to the
breaching party of such breach, provided that such breach (whether under (i)
or (ii)) would be reasonably likely, individually or in the aggregate with
other breaches, to result in a Material Adverse Effect.
(c) Delay. At any time prior to the Effective Time, by Zions or Company,
if its Board of Directors so determines by vote of a majority of the members
of its entire Board, in the event that the Merger is not consummated by
August 31, 1998, except to the extent that the failure of the Merger then to
be consummated arises out of or results from the knowing action or inaction
of the party seeking to terminate pursuant to this Section 8.01(c).
(d) No Approval. By Company or Zions, if its Board of Directors so
determines by a vote of a majority of the members of its entire Board, in
the event (i) the approval of any Governmental Authority required for
consummation of the Merger and the other transactions contemplated by this
Agreement shall have been denied by final nonappealable action of such
Governmental Authority or (ii) the stockholder approval required by Section
7.01(a) herein is not obtained at the Company Meeting.
(e) Failure to Recommend, Etc. At any time prior to the Company Meeting,
by Zions if the Company Board shall have failed to make its recommendation
referred to in Section 6.02, withdrawn such recommendation or modified or
changed such recommendation in a manner adverse in any respect to the
interests of Zions.
(f) By Zions. By Zions, by written notice to Company, if Company takes,
causes to be taken or allows to be taken any action that would be prohibited
under Section 6.06 hereof; or
(g) By Company. By Company, by written notice to Zions prior to the
approval by the stockholders of Company of the principal terms of this
Agreement, if Company receives an Acquisition Proposal on terms and
conditions which the Company Board determines, after receiving the advice of
its outside counsel, (i) that to proceed with the Merger will violate the
fiduciary duties of the Company Board to Company's shareholders and (ii) to
accept such proposal; provided, however, that Company shall not be entitled
to terminate this Agreement
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<PAGE> 42
pursuant to this clause (g) unless it shall have provided Zions with written
notice of such a possible determination (which written notice will inform
Zions of the Material terms and conditions of the proposal, including the
identity of the proponent) two business days prior to such determination.
8.02 Effect of Termination and Abandonment. (a) In the event of
termination of this Agreement and the abandonment of the Merger pursuant to this
Article VIII, subject to the provisions of Section 8.02(b) and Section 8.02(c),
no party to this Agreement shall have any liability or further obligation to any
other party hereunder except (i) as set forth in Section 9.01 and (ii) that
termination will not relieve a breaching party from liability for any willful
breach of this Agreement giving rise to such termination.
(b) If this Agreement shall be terminated (i) by Zions pursuant to
Section 8.01(b), Section 8.01(e) or Section 8.01(f) and, at the time of the
occurrence of the circumstance permitting termination pursuant to such
Section, there shall exist an Acquisition Proposal with respect to Company
or any of its Subsidiaries, or (ii) by Company pursuant to Section
8.01(d)(ii) or Section 8.01(g) and, at the time of the occurrence of the
circumstance permitting termination pursuant to such Section, there shall
exist an Acquisition Proposal with respect to Company or any of its
Subsidiaries, then Company shall promptly pay to Zions a termination fee
equal to $1.8 million, which (except in the case of termination pursuant to
Section 8.01(f), in which case such amount shall offset any damages to Zions
to the extent of payment) the parties agree shall represent liquidated and
exclusive damages recoverable by Zions relating to the actions resulting in
termination.
(c) Company and Zions agree that the agreements contained in paragraph
(b) above are an integral part of the transactions contemplated by this
Agreement, that without such agreements Zions would not have entered into
this Agreement, and that such amount constitute reasonable liquidated
damages and reasonable compensation to Zions for the loss sustained thereby
and not a penalty. If Company fails to pay Zions the amount due under
paragraph (b) within three business days of such termination, Company shall
pay the costs and expenses (including legal fees and expenses) incurred by
Zions in connection with any action, including the filing of any lawsuit,
taken to collect payment of such amount, together with interest on the
amount of any such unpaid amount at the publicly announced prime rate of
Zions First National Bank from the date of such termination.
ARTICLE IX
MISCELLANEOUS
9.01 Survival. No representations, warranties, agreements and covenants
contained in this Agreement shall survive the Effective Time (other than
Sections 6.12 and 6.13 and this
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Article IX which shall survive the Effective Time) or the termination of this
Agreement if this Agreement is terminated prior to the Effective Time (other
than Sections 6.03(b), 6.05(b), 8.02, and this Article IX which shall survive
such termination).
9.02 Waiver; Amendment. Prior to the Effective Time, any provision of
this Agreement may be (i) waived by the party benefitted by the provision, or
(ii) amended or modified at any time, by an agreement in writing between the
parties hereto executed in the same manner as this Agreement, except that after
the Company Meeting, this Agreement may not be amended if it would violate the
DGCL or reduce the consideration to be received by Company stockholders in the
Merger.
9.03 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to constitute an original.
9.04 Governing Law; Waiver of Jury Trial. This Agreement shall be
governed by, and interpreted in accordance with, the laws of the State of
Delaware applicable to contracts made and to be performed entirely within such
State (except to the extent that mandatory provisions of Federal law or of the
UBCA are applicable). Each of the parties hereto hereby irrevocably waives any
and all right to trial by jury in any legal proceeding arising out of or related
to this Agreement or the transactions contemplated hereby. Venue for any action
between the parties to this Agreement shall be a court of competent jurisdiction
in the City of San Diego, California.
9.05 Expenses. Each party hereto will bear all expenses incurred by it
in connection with this Agreement and the transactions contemplated hereby.
9.06 Notices. All notices, requests and other communications hereunder
to a party shall be in writing and shall be deemed given if personally
delivered, telecopied (with confirmation) or mailed by registered or certified
mail (return receipt requested) to such party at its address set forth below or
such other address as such party may specify by notice to the parties hereto.
If to Company, to:
Tri-Baker Enterprises
613 West Valley Parkway, Suite 315
Escondido, California 92025
Attention: Mark N. Baker
Facsimile: (760) 747-4574
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With a copy to:
Higgs, Fletcher & Mack LLP
401 West A Street, Suite 2000
San Diego, California 92101
Attention: Kurt L. Kicklighter, Esq.
Facsimile: (619) 696-1410
If to Zions, to:
Zions Bancorporation
One South Main, Suite 1380
Salt Lake City, Utah 84111
Attention: Dale M. Gibbons
Facsimile: (801) 524-2129
With a copy to:
Sullivan & Cromwell
444 South Flower Street
Los Angeles, California 90071
Attention: Stanley F. Farrar
Facsimile: (213) 683-0457
9.07 Entire Understanding; No Third Party Beneficiaries. This Agreement
represents the entire understanding of the parties hereto with reference to the
transactions contemplated hereby and thereby and this Agreement supersedes any
and all other oral or written agreements heretofore made. Nothing in this
Agreement expressed or implied, is intended to confer upon any person, other
than the parties hereto or their respective successors, any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
9.08 Interpretation; Effect. When a reference is made in this Agreement
to Sections, Exhibits or Schedules, such reference shall be to a Section of, or
Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and are not part of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation." No provision of this Agreement shall
be construed to require Company, Zions or any of their respective Subsidiaries,
affiliates or directors to take any action which would violate applicable law
(whether statutory or common law), rule or regulation.
* * *
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<PAGE> 45
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in counterparts by their duly authorized officers, all as of the day
and year first above written.
FP BANCORP, INC.
By: /s/ Mark N. Baker
-------------------------------
Name: Mark N. Baker
Title: Chairman
ZIONS BANCORPORATION
By: /s/ Dale M. Gibbons
-------------------------------
Name:Dale M. Gibbons
Title Chief Financial Officer
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<PAGE> 1
EXHIBIT 2.2
FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER
First Amendment, dated as of February 27, 1998, to the Agreement and
Plan of Merger, dated as of December 29, 1997 (the "Merger Agreement"), between
FP Bancorp, Inc. ("Company") and Zions Bancorporation ("Zions").
WHEREAS, Company and Zions have agreed to amend the Merger Agreement to
make certain modifications to certain provisions governing employee benefit
matters;
NOW, THEREFORE, the parties hereto agree as follows:
1. Amendment to the Merger Agreement. The last sentence of Section 6.13
of the Merger Agreement, which currently reads "In addition, Zions shall roll
Company's existing 401(k) plan into Zions' 401(k) plan", is hereby amended to
read "In addition, prior to the Effective Time, Company shall terminate its
401(k) plan, but former employees of Company who remain as employees of Zions
shall be eligible to participate in Zions' 401(k) plan and may roll over their
Company Common Stock and cash distributions resulting from the termination of
Company's 401(k) plan into Zions' 401(k) plan."
2. Miscellaneous. Except as expressly amended and modified hereby, the
Merger Agreement is reaffirmed and remains in full force and effect. This
Amendment may be executed in several counterparts, each of which shall be deemed
an original and all of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, each of the parties hereto have executed this
Amendment on the date first above written.
FP BANCORP, INC.
By: /s/ Harvey Williamson
-------------------------------
Name: Harvey Williamson
Title: President
ZIONS BANCORPORATION
By: /s/ Dale Gibbons
-------------------------------
Dale Gibbons
Chief Financial Officer
<PAGE> 1
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and entered into as
of August 1, 1997, by and among Harvey L. Williamson (the "Executive"), First
Pacific National Bank, a national banking association (the "Bank") and FP
Bancorp, Inc., a Delaware corporation (the "Company"), with regard to the
following:
A. The Executive has made and is expected to make a major contribution
to the profitability, growth and financial strength of the Bank and the Company.
The Executive is an officer and an employee of both the Bank and the Company and
receives compensation for his services from both.
B. The Bank and the Company consider the continued availability of the
Executive's services, managerial skills and business experience to be in the
best interests of the Bank and the Company and the shareholders of the Company
and desire to assure the continued services of the Executive on behalf of the
Bank and the Company.
C. The Executive is willing to remain in the employ of the Bank and the
Company upon the understanding that the Bank will provide him with income
security and benefits if his employment with the Bank is terminated, upon
certain terms and conditions.
D. The Executive and the Bank entered into a Change of Control Agreement
dated January 20, 1994, as amended by an Amendment to Change of Control
Agreement dated January 11, 1995 (the "Change of Control Agreement"). The
Executive and the Bank and the Company entered into an Employment Agreement
dated March 1, 1993, as amended by an Amendment to Employment Agreement dated
December 30, 1994 (the "Prior Employment Agreement"). By execution and delivery
of this Agreement the Bank and the Executive intend to terminate the Change of
Control Agreement and the Prior Employment Agreement effective as of the date of
this Agreement because the matters covered by the Change of Control Agreement
and the Prior Employment Agreement are addressed in this Agreement.
E. The Bank and the Executive desire to enter into a formal agreement
outlining the Executive's general duties as Chief Executive Officer and
President of the Bank and the Company, and setting his compensation for services
in those capacities.
NOW, THEREFORE, for valuable consideration the receipt and sufficiency
of which are hereby acknowledged, the parties agree as follows:
1. Definitions.
"Bank" means First Pacific National Bank, a national banking
association, its successors and permitted assigns.
"Bank Board" means the Board of Directors of the Bank.
<PAGE> 2
"Beneficiary" means the person or entity to receive rights or
benefits under this Agreement, as set forth in this Agreement, in the event of
the death of the Executive. Unless otherwise specified in a written notice to
the Bank, the Beneficiary shall be the spouse of the Executive, if any, and if
there is none, the estate of the Executive or, in the discretion of the Bank,
any trust as to which the Executive both was a settlor and at the date of his
death held a power of revocation.
"Change of Control" means (i) the issuance or transfer of
sufficient shares of stock, or the merger, reorganization or consolidation of
the Bank or the Company, which results in more than fifty percent (50%) of the
voting stock of the Bank being owned by other than the Company or persons who
owned seventy-five percent (75%) or more of the voting stock of the Company
immediately prior to the closing of the transaction; or, (ii) a merger,
reorganization or consolidation of the Company, which results in more than fifty
percent (50%) of the voting stock of the Company being owned by persons who are
not holders of voting stock of the Company immediately prior to the closing of
the transaction, or the acquisition by any person (as defined in Section
13(d)(3) of the Securities Exchange Act of 1934) or entity of more than fifty
percent (50%) of the voting stock of the Company.
"Company" means FP Bancorp, Inc., a Delaware corporation, its
successors and permitted assigns.
"Company Board" means the Board of Directors of the Company.
"Disability" means an inability to perform the substantial and
material duties regularly performed by the Executive as an officer and employee
of the Bank, the Company or wholly-owned subsidiary of either of them. Such
disability may result from sickness, injury, or a mental condition not directly
attributable to either sickness or injury. For purposes of this Agreement the
determination of the Executive's disability shall be made by the Board of
Directors of the appropriate entity with participation by the Executive or his
legally authorized representative. The Board of Directors shall make the final
and conclusive determination of disability, based upon all the evidence
presented to it and after due consideration of the information presented by the
Executive or his legally authorized representative.
"Executive" means Harvey L. Williamson.
"Retirement" means, if the Executive continues to be employed by
the Bank or the Company at the age of 65, termination of employment with the
Bank and the Company at any date after age 65.
2. Employment. The Bank and the Company hereby each employ the
Executive as its Chief Executive Officer and President, and the Executive
accepts the duties described herein, and agrees to discharge the same
faithfully and in the best of his ability. The Executive shall perform such
other duties as shall be from time to time prescribed by the Bank Board and the
Company
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<PAGE> 3
Board. The Executive shall devote his full business time and attention to the
business and affairs of the Bank and the Company.
3. Term. The Bank and the Company hereby employ the Executive and
the Executive hereby accepts employment with the Bank and the Company from the
date hereof through and including December 31, 1998, subject to the terms of
this Agreement. The parties may by mutual agreement extend the term of this
Agreement beyond such date, but at no time shall the remaining term of this
Agreement exceed two (2) years.
4. Compensation and Benefits. In consideration for the services to
be rendered by the Executive to the Bank, the Bank agrees to pay the Executive
the following compensation and benefits:
4.1. Salary. The Bank shall pay the Executive a minimum salary at
the rate of One Hundred and Seventy-Six Thousand and Forty Dollars ($176,040.00)
per year, due and payable biweekly, or otherwise in accordance with the Bank's
policy for the scheduling of salary payments to employees as in effect from time
to time. Salary increases, if any, shall only be as approved by the Bank Board
and the Company Board.
4.2. Withholding and Deductions. The Bank shall withhold and/or
deduct from any and all salary or other payments, all taxes which may be
required to be deducted or withheld under any provision of law (including, but
not limited to, social security payments and income tax withholding) now in
effect or which may become effective any time during the term of this Agreement.
4.3. Executive Incentive Compensation. In general, the Bank and
the Company believe that superior performance of the Executive should be
rewarded and encouraged by incentive compensation. At least once a year, the
Bank Board and the Company Board will determine whether the Executive has
rendered and continues to render superior performance, and whether in light of
the Bank's and the Company's management policies, growth, earnings and expected
performance, economic conditions, and any other factors deemed relevant, such
compensation should be granted and whether previously granted incentives should
be retracted. Incentive compensation which has been earned or paid or both, may
not be withdrawn and the Executive shall not be liable for repayment of any such
compensation. Bonus compensation shall be deemed earned at the date declared by
the Bank Board or the Company Board and not before. However, neither the Bank
nor the Company shall be required to provide any compensation to the Executive
other than the salary and benefits required by this Agreement. The Bank Board
and the Company Board have full and complete discretion in determining what
incentive compensation, if any, should be provided to the Executive, and the
Executive shall have no particular right to incentive compensation. The
Executive shall be entitled to participate in any executive incentive
compensation plan that benefits or includes all of the other executives of the
Bank, that is, persons holding offices higher than vice president. For purposes
of this Agreement, "incentive compensation" shall generally mean any
compensation not otherwise required to be paid to the Executive under the terms
of this Agreement.
3
<PAGE> 4
4.4. Stock Options. The Executive shall be entitled to
participate in any incentive stock option or similar plan adopted by either the
Bank or the Company and approved by the stockholders, if required by law,
regulation or exchange rule, on such terms as are established by the Bank Board
and/or the Company Board in their complete discretion, and to the extent
determined by the Bank Board and/or the Company Board in their complete
discretion.
4.5. Automobile. The Bank shall furnish to the Executive a
Cadillac Seville STS or comparable luxury automobile for his use in the
performance of his duties hereunder. All costs of such automobile, including
operation, maintenance, and insurance, shall be borne by the Bank. The Bank
shall replace the automobile after three (3) years of use, and before four (4)
years of use by the Executive. At the date hereof, the parties acknowledge that
the Executive has been furnished a 1994 Cadillac Seville STS automobile and that
it must be replaced by the Bank after December 1997. The Executive agrees to
maintain and provide the Bank with adequate records of expenses incurred in the
operation and maintenance of each automobile furnished to him under this
Paragraph. Provided the Executive is then employed by the Bank, in November
1998, the Executive shall have the right to purchase the automobile with which
he is then furnished at the lower of low blue book value or the depreciated
value on the financial statements of the Bank.
4.6. Expense Reimbursement. The Bank agrees to reimburse the
Executive for all ordinary and necessary expenses incurred by the Executive on
behalf of the Bank, including entertainment, meals, and travel expenses. Any
costs incurred by the Executive for conventions, meetings, seminars, club dues
and special social entertainment expenses, shall be reimbursed provided the Bank
Board approves such.
4.7. Insurance. The Bank shall provide at least the following
insurance benefits to the Executive:
4.7.1. Group life insurance with a life insurance benefit
equal to the lower of two times the annual salary of the Executive or the
maximum amount permitted under the Bank's then applicable group life insurance
plan.
4.7.2. Basic medical-dental and major medical with
long-term disability income benefit insurance to the same extent provided to all
employees of the Bank. Provision of this insurance is subject to the Executive's
passing the necessary physical examinations for qualification and other
qualifications, if any.
4.7.3 Life insurance in the amount of $150,000 under a
whole life insurance policy that would become the property of the Executive upon
termination of employment with the Bank and the Company.
4.8. Vacation. The Executive shall be entitled to twenty-two (22)
days of vacation each full calendar year, with at least ten (10) days to be
taken in a consecutive period. Vacation days shall be accrued, subject to
carryover from year to year, and otherwise accounted for and administered in
compliance with the Bank's employee policies as in effect from time to
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<PAGE> 5
time. The parties agree that the current Bank vacation policy requires, among
other things, that (i) all vacation days be used during the calendar year
earned, to the extent practical, (ii) permission for any carryover must be
requested in writing to the Chief Executive Officer of the Bank by the first of
December in the year the vacation was earned, (iii) any carryover vacation must
be taken in the first quarter of the year following the year in which it was
earned and if not, further accruals will cease until the carryover vacation is
used, and (iv) the Executive's vacation schedule is subject to the prior
approval of the Chief Executive Officer of the Bank.
5. Termination.
5.1. Employer Right to Terminate Employment. The Bank Board has
the right to terminate the employment of the Executive with the Bank, and the
Company Board has the right to terminate the employment of the Executive with
the Company, at will with or without cause upon delivery of written notice to
the Executive (except in the case of death of the Executive, in which event
termination shall automatically occur at the date of death), and for any of the
following grounds:
5.1.1. Willful breach or habitual neglect or inability
(except where such inability is due to Disability or death) to perform the
Executive's duties hereunder, including without limitation failure to cooperate
with the Bank Board or Company Board in the structuring, documentation or
negotiation of a transaction that might result in a Change of Control;
5.1.2. Malfeasance or misfeasance in the performance of
the Executive's duties hereunder;
5.1.3. Immoral or illegal conduct;
5.1.4. Disability or death;
5.1.5. Determination in the complete discretion of the
Bank Board or the Company Board, as appropriate, that the employment of the
Executive should be terminated, without reference to the grounds set forth in
Paragraphs 5.1.1, 5.1.2, 5.1.3 or 5.1.4, prior to the date the Executive's
employment would otherwise terminate hereunder, and specification in the notice
described above of the termination date.
5.2. Termination by the Executive. The Executive may terminate
his employment hereunder prior to the date it would otherwise terminate under
this Agreement by delivering written notice to the Bank three (3) months in
advance of the date such termination is to take effect.
6. Post-Termination Payments and Benefits. The following are the
post-termination payments and benefits to which the Executive is entitled upon
termination of employment in all positions with the Bank, the Company and any
wholly-owned subsidiary of either of them. These payments and benefits may be
paid or provided by the Bank, the Company and/or any wholly-owned subsidiary of
the Bank or the Company, as the Bank, the Company and any such subsidiary
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shall determine. Termination by any such entity under Paragraph 6.1 shall be
deemed to be termination by all such entities. In the event that the Executive
is compensated by a wholly-owned subsidiary of the Bank or the Company and is
determined to be the entity to pay or provide any of the payments of benefits
under this Paragraph 6, the parties agree that any such entity shall be deemed a
party to this Agreement for the purposes of this Paragraph 6.
6.1 Termination Resulting from Breach. In the event the
employment of the Executive is terminated under Paragraphs 5.1.1, 5.1.2 or
5.1.3, the Bank shall provide the Executive only the following:
6.1.1 the salary due him at the end of the month in which
such termination occurs; plus
6.1.2 any pay in lieu of vacation accrued or carried
forward to, but not taken as of the date of termination;
6.1.3 the insurance benefits described in Paragraph 4.7.2
shall be extended at the Bank's sole cost for a period of thirty (30) days
following the date of termination; and
6.1.4 the annual sum of Sixty Thousand Dollars
($60,000.00), payable monthly on the first day of each month following such
termination for a period of one hundred eighty (180) months.
6.2 Retirement. Upon the Retirement of the Executive, the Company
shall pay to the Executive the annual sum of Sixty Thousand Dollars
($60,000.00), payable monthly on the first day of each month following the date
of Retirement, for a period of one hundred eighty (180) months; subject to the
terms hereof.
6.3. Termination Resulting from Disability. In the event the
employment of the Executive is terminated under Paragraph 5.1.4 due to
Disability, the Bank shall provide the Executive only the following:
6.3.1 the salary due him at the end of the month in which
such termination occurs; plus
6.3.2 any pay in lieu of vacation accrued or carried
forward to, but not taken as of the date of termination;
6.3.3 the insurance benefits described in Paragraph 4.7.2
shall be extended at the Bank's sole cost for a period of thirty (30) days
following the date of termination; and
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6.3.4 the annual sum of Sixty Thousand Dollars
($60,000.00), payable monthly on the first day of each month following the date
of Disability, for a period of one hundred eighty (180) months, subject to the
terms hereof.
6.4 Termination Resulting from Death. In the event the employment
of the Executive is terminated under Paragraph 5.1.4 due to death, the Bank
shall provide only the following:
6.4.1. to the Beneficiary, the salary due the Executive at
the end of the month in which such termination occurs and continued salary for a
period of three (3) months from the date of termination; plus
6.4.2 to the Beneficiary, any pay in lieu of vacation
accrued or carried forward to, but not taken as of the date of termination;
6.4.3 to the persons other than the Executive covered by
medical-dental and major medical insurance coverage benefits described in
Paragraph 4.7.2 at the date of termination shall continue to receive such
coverage at the Bank's sole cost for a period of ninety (90) days following the
date of termination;
6.4.4 to the Beneficiary, if the Executive dies while
actively employed by the Bank or the Company prior to attaining the age of
sixty-five (65) years, the annual sum of Sixty Thousand Dollars ($60,000.00) in
equal monthly installments for a period of one hundred eighty (180) months, such
payments beginning on the first day of the month following the month of the
death of the Executive; and
6.4.5 to the Beneficiary, if the Executive dies while the
Bank is obligated to make payments under Paragraphs 6.2, 6.3, 6.4 or 6.5, the
monthly payments required by those Paragraphs for the remainder of the time
required by those Paragraphs.
6.5 Termination by Notice from the Bank. In the event the
employment of the Executive is terminated under Paragraph 5.1.5., the Bank shall
provide the Executive only the following:
6.5.1 continued salary and the benefits described in
Paragraphs 4.1, 4.2, 4.5, and 4.6 to the date of termination, but in any event
for a period of at least twelve (12) months from the date notice of the
termination is delivered to the Executive;
6.5.2 the Bank shall pay the Executive in lieu of
vacation for all vacation accrued or carried forward under Paragraph 4.8, but
not taken as of the date of termination;
6.5.3 the Bank shall extend the insurance benefits
described in Paragraph 4.7.2, except for long-term disability, at the Bank's
sole cost for twelve (12) months following the date of termination; and
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6.5.4 the annual sum of Sixty Thousand Dollars
($60,000.00), payable monthly on the first day of each month following such
termination for a period of one hundred eighty (180) months.
6.6. Change of Control.
6.6.1 Payment Following Certain Terminations Related to
Change of Control. "Change of Control Severance Benefits," as defined below,
shall be paid to the Executive by the Bank in respect of any "Change of Control
Termination," as defined below, taking place after the earlier to occur of (i)
the Bank or the Company entering into a definitive agreement expected to result
in a Change of Control, provided that such Change of Control actually occurs, or
(ii) a Change of Control. Change of Control Severance Benefits shall not be
payable with respect to a Change of Control Termination occurring more than two
years after the date of a Change of Control. In the event that a definitive
agreement expected to result in a Change of Control is entered into, but the
transaction is not consummated, the Change of Control Severance Benefits would
cease to be available at such time with respect to that transaction. For
example, in the event a definitive agreement for acquisition of the Bank is
entered into on December 31, 1997, the availability of Change of Control
Severance Benefits would be triggered in the event of a termination other than
for Cause; however, if the definitive agreement terminates on June 1, 1998, the
Change of Control Severance Benefits would cease to be available.
6.6.2 Change of Control Severance Benefits. "Change of
Control Severance Benefits" means: (i) a lump sum payment of an amount equal to
the salary that would otherwise be payable at the then current salary rate,
through December 31, 1998, including any increases, under Paragraph 4.1 of this
Agreement; plus the pro rata portion of the bonus (calculated on a daily basis)
that the Executive would have earned with respect to the portion of the calendar
year elapsed through the date of termination under the most recently proposed
executive bonus plan, if any, proposed within the prior twelve (12) months, due
within one month after the later of the date of a Change of Control Termination
or the actual occurrence of a Change of Control; and (ii) continuation of
benefits set forth in Paragraphs 4.5 and 4.7 for a period of the lesser of one
(1) year or the time until December 31, 1998, or substitute equivalent benefits
in the event that the particular benefits (for instance, insurance coverage) are
not carried by the Bank under its programs following the Change of Control
Termination, beginning after the later of the date of a Change of Control
Termination or the actual occurrence of a Change of Control.
6.6.3 Change of Control Termination. "Change of Control
Termination" means the termination of employment of the Executive (i) by the
Bank other than under Paragraphs 5.1.1, 5.1.2 or 5.1.3; (ii) by the Executive
after the effective date of a reduction in base salary below that set forth in
Paragraph 4.1, or after the Bank requires the Executive to be based at a
location more than thirty-five (35) miles from the Bank headquarters or
executive offices on the date hereof (other than required travel on Bank
business); or (iii) within two years after the earlier to occur of (y) the Bank
or the Company entering into a definitive agreement expected to result in a
Change of Control, provided that such Change of Control actually occurs, or (z)
a Change of Control.
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6.6.4 Offset. The obligations of the Bank under this
Paragraph 6.6 are not subject to offset for satisfaction of any other
obligations of the Bank under this Agreement, except that to the extent and for
the period of time during which any of the benefits provided by Paragraphs 4.5
and 4.7 are provided to the Executive these shall not be duplicated under this
Paragraph 6.6.
6.7 Termination Following Expiration of this Agreement. In the
event that the Executive is terminated following expiration of this Agreement,
notwithstanding the expiration of this Agreement, the Bank shall provide the
Executive the annual sum of Sixty Thousand Dollars ($60,000.00), payable monthly
on the first day of each month following such termination for a period of one
hundred eighty (180) months.
6.8 Death Following Termination. In the event that the Executive
dies while receiving any payments under this Paragraph 6, these shall be
continued for the benefit of the Beneficiary, as would otherwise be required
under this Paragraph 6, but benefits provided with reference to Paragraphs 4.5,
4.6 and 4.7.2 shall not be continued.
6.9. Nonassignability. Neither the Executive nor any other person
or entity shall have any power or right to transfer, assign, anticipate,
hypothecate, mortgage, commute, modify, or otherwise encumber in advance any of
the rights or benefits of the Executive under this Paragraph 6, nor shall any of
said rights or benefits be subject to seizure for the payment of any debts,
judgments, alimony or separate maintenance, owed by the Executive or any other
person or entity, or be transferable by operation of law in the event of
bankruptcy, insolvency or otherwise. The terms of this Paragraph 6.7 shall not
affect the interpretation of any provision of this Agreement.
6.10. Claims Procedure. The Bank Board shall make all
determinations as to rights to benefits under this Paragraph 6.
6.11. Obligations of the Bank and the Company. The Company shall
not be liable under any circumstance for the obligations of the Bank set forth
in this Paragraph 6 or otherwise set forth in this Agreement.
6.12. Regulatory Restrictions. The parties understand and agree
that at the time any payment would otherwise be made or benefit provided under
this Paragraph 6 or Paragraph 7.3, depending on the facts and circumstances
existing at such time, the satisfaction of such obligations by the Bank may be
deemed by a regulatory authority to be illegal, an unsafe and unsound practice,
or for some other reason not properly due or payable by the Bank. Among other
things, the regulations at 12 C.F.R. Part 30, Appendix A promulgated pursuant to
Section 39(a) of the Federal Deposit Insurance Act, and at 12 C.F.R. Part 359,
or similar regulations or regulatory action following similar principles may
apply at such time. The Bank agrees that to the extent reasonably feasible, it
will in good faith seek to determine the position of the appropriate regulatory
authority in advance of each payment or benefit otherwise due under this
Paragraph 6 or Paragraph 7.3, including seeking the approval or acquiescence of
the appropriate regulatory
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authorities, if required. The parties understand, acknowledge and agree that,
notwithstanding any other provision of this Agreement, the Bank shall not be
obligated to make any payment or provide any benefit under this Paragraph 6 or
Paragraph 7.3 where (i) an appropriate regulatory authority does not approve or
acquiesce as required or (ii) the Bank or the Company has been informed either
orally or in writing by a representative of the appropriate regulatory authority
that it is the position of such regulatory authority that making such payment or
providing such benefit would constitute an unsafe and unsound practice, violate
a written agreement with the regulatory authority, violate an applicable rule or
regulation, or would cause the representative of the regulatory authority to
recommend enforcement action against the Bank or the Company.
6.13. Right of Offset. Any and all of the benefits that would
otherwise be payable under this Paragraph 6 set forth hereinabove are subject to
the Bank's offset for any liability of Executive to the Bank or the Company to
the extent the Bank Board determines that such liability exists. Any claim of
offset available to either the Bank or the Company may be utilized by the Bank
as if and to the same extent as if the Bank and the Company were the same
entity.
6.14 Overlapping Benefits and Payments. In the event that the
Executive receives payments and/or benefits under one of Paragraphs 6.1 through
6.5 or 6.7, the Executive may not receive payments and/or benefits under one of
the other of such Paragraphs, and the first such applicable of those Paragraphs
shall apply.
7. Additional Covenants.
7.1. Keyman Life Insurance. The Bank shall have the right to
obtain and hold a "keyman" life insurance policy an the life of the Executive
with the Bank as beneficiary of the policy. The Executive agrees to provide any
information required for the issuance of such policy and submit himself to any
physical examination required for such policy.
7.2. Unsecured General Creditor. Neither the Executive nor any
other person or entity shall have any legal right or equitable rights interests
or claims in or to any property or assets of the Bank or the Company under the
provisions of this Agreement. No assets of the Bank or the Company shall be held
under any trust for the benefit of the Executive or any other person or entity
or held in any way as security for the fulfilling of the obligations of the Bank
or the Company under this Agreement. All of the Bank's and the Company's
respective assets shall be and remain the general, unpledged, unrestricted
assets of the Bank and the Company respectively. The Bank's and the Company's
respective obligations under this Agreement are unfunded and unsecured promises,
and to the extent such promises involve the payment of money, they are promises
to pay money in the future. The Executive and any person or entity claiming
through him shall be unsecured general creditors with respect to any rights or
benefits hereunder.
7.3. Indemnification. To the extent permitted by law, the Bank
shall indemnify the Executive in the event he was or is a party or is threatened
to be made a party in any action brought by a third party against the Executive
(whether or not the Bank is joined as a party defendant) against expenses,
judgments, fines, settlement, and other amounts actually and
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reasonably incurred in connection with said action if the Executive acted in
good faith and in a manner the Executive reasonably believed to be in the best
interests of the Bank, all providing the alleged conduct of the Executive arose
out of and was within the course and scope of his employment as an officer or
employee of the Bank. This Paragraph 7.3 shall not limit any other rights to
indemnification that the Executive may now or hereafter have by law or under the
articles, bylaws or resolutions of either of the Bank or the Company or
otherwise.
7.4. Dispute Resolution.
7.4.1 The parties agree that if a dispute arises
concerning any provision of this Agreement or the rights and duties of any
person or entity hereunder, the parties agree first to try in good faith to
settle the dispute. In the event that the parties cannot settle the dispute, any
party shall have the right to submit the dispute, other than any dispute related
to Paragraph 6.6 as to which only the Executive shall have the right to submit
the dispute, to binding arbitration. Such arbitration shall be held before a
single arbitrator agreed upon by the parties to the dispute, and if they cannot
agree, any party may petition a California Superior Court in San Diego County
for appointment of an arbitrator. The arbitration shall be conducted in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association, subject to any contrary and/or additional terms of this Paragraph
7.4 and Paragraph 9.10.
7.4.2 The rules of evidence shall not apply to any
arbitration under this Paragraph 7.4. However, in all other respects, the
arbitrator shall follow applicable law.
7.4.3 Subject to Paragraph 9.10, each party shall bear
one-half of the costs and expenses of arbitration, and for purposes of this
provision, the Company and the Bank shall be considered to be one party.
7.4.4 The decision of the arbitrator or panel of
arbitrators shall be binding, enforceable, and non-appealable, and may be
entered in any court having jurisdiction thereof.
7.4.5 Payment of any and all amounts granted by an
arbitrator or panel or arbitrators hereunder shall be made within fifteen (15)
days following the date of the decision, and thereafter, shall bear interest at
the then current maximum legal rate per month until paid in full.
7.4.6 The arbitrator shall not have the power to award
damages to the Executive for emotional distress or pain and suffering or to
award consequential damages, but shall be empowered to award the Executive only
damages in the amount found by the arbitrator to be owed and unpaid under the
terms of the Agreement.
7.4.7 Any arbitration conducted under this Paragraph 7.4
shall be conducted in a confidential private proceeding and the fact of the
proceeding and the substance of the matters addressed in the proceeding shall be
kept confidential by the parties, provided that disclosure may be made by any
party to the arbitration upon notice to the other party or parties in the event
that such disclosure is required by applicable law or regulation or legal
process, or, in
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the case of the Bank or the Company in the event that the Bank or the Company is
advised by counsel that such disclosure is required or advisable.
Notwithstanding the foregoing, the parties agree that any regulatory authority
with jurisdiction over the Bank or the Company may be informed at any time of
all facts regarding the arbitration, and that the Bank and the Company each have
the right to file regulatory notices and/or reports referencing the arbitration
and its subject matter.
7.4.8 The parties to an arbitration shall cause the
arbitration to be heard and completed within six (6) months after the submission
of a dispute to arbitration. To assure such goal is attained, the parties shall
cause their counsel and affiliated or employed witnesses to be available at such
times as are necessary to complete the arbitration within this time and shall
require at the time of selection of arbitrators that potential arbitrators
confirm their availability and ability to complete the arbitration within this
time.
7.5. Return of Documents. The Executive expressly agrees that all
manuals, document, files, reports, studies, customer lists, business plans, loan
and deposit program plans and outlines, customer solicitation and follow-up
techniques and plans, marketing plans, investment banker and financial advisor
relationships and arrangements, employee policies, incentive compensation
arrangements, instruments, software, and other materials used and/or developed
by the Executive during the Term, whether in paper, computer readable, computer
coded, magnetic, compact disk or other tangible or electronic form are solely
the property of the Bank or the Company, and the Executive has no right, title
or interest therein. The Executive hereby further acknowledges that all such
items constitute confidential trade secrets, the wrongful use or disclosure of
which to the public or competitors of the Bank or the Company would materially
adversely affect the business and prospects of the Bank or the Company. Upon
termination of employment of the Executive, the Executive or the Executive's
representatives shall promptly deliver possession of all said property, in
whatever form, to the Bank and the Company in good condition.
7.6 Resignations. The Executive agrees that upon termination of
employment, for whatever reason, he will submit his resignations from all
offices and directorships with the Company and the Bank.
8. Other Agreements. The parties agree that all rights and benefits
under the Change of Control Agreement and the Prior Employment Agreement, are
hereby terminated and that no obligations or rights are owed or held by any
party to those agreements. The parties further agree that to the extent of any
inconsistency between this Agreement and any employee manual or policy of the
Company or the Bank, that the terms of this Agreement shall supersede the terms
of such employee manual or policy.
9. General Provisions.
9.1. Notices. Unless otherwise specifically permitted by this
Agreement, all notices or other communications required or permitted under this
Agreement shall be in writing, and shall be personally delivered or sent by
registered or certified mail, postage prepaid return
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receipt requested, or sent by telecopy, provided that the telecopy cover sheet
contain a notation of the date and time of transmission, and shall be deemed
received: (i) if personally delivered, upon the date of delivery to the address
of the person to receive such notice, (ii) if mailed in accordance with the
provisions of this paragraph, two (2) business days after the date placed in the
United States mail, (iii) if mailed other than in accordance with the provisions
of this paragraph or mailed from outside the United States, upon the date of
delivery to the address of the person to receive such notice, or (iv) if given
by telecopy, when sent. Notices shall be given at the following addresses:
If to the Bank or to the Company:
First Pacific National Bank
or FP Bancorp, Inc.
613 West Valley Parkway
Escondido, California 92025
Attention: Mark N. Baker
With a copy to:
Higgs, Fletcher & Mack LLP
401 West "A" Street, Suite 2000
San Diego, California 92101
Attention: Kurt L. Kicklighter
Telecopier: (619) 696-1410
If to the Executive:
Harvey L. Williamson
1355 Sugarbush Drive
Vista, California 92084
The address for delivery of notices may be changed by the relevant party by
giving notice of such change in accordance with this paragraph.
9.2. Complete Agreement; Modifications. This Agreement and
written agreements, if any, entered into concurrently herewith (i) constitute
the parties' entire agreement, including all terms, conditions, definitions,
warranties, representations, and covenants, with respect to the subject matter
hereof, (ii) merge all prior discussions and negotiations between or among any
or all of them as to the subject matter hereof, and (iii) supersede and replace
all terms, conditions, definitions, warranties, representations, covenants,
agreements, promises and understandings, whether oral or written, with respect
to the subject matter hereof. This Agreement may not be amended, altered or
modified except by a writing signed by the party to be bound. With regard to
such amendments, alterations, or modifications, telecopied signatures shall be
effective as original signatures. Any amendment, alteration, or modification
requiring the signature of more than one party may be signed in counterparts.
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9.3. Further Actions. Each party agrees to perform any further
acts and execute and deliver any further documents reasonably necessary to carry
out the provisions of this Agreement.
9.4. Assignment. No party may assign its rights under this
Agreement without the prior written consent of the other parties hereto.
9.5. Successors and Assigns. Except as explicitly provided herein
to the contrary, this Agreement shall be binding upon and inure to the benefit
of the parties, their respective successors and permitted assigns.
9.6. Severability. If any portion of this Agreement shall be held
by a court of competent jurisdiction to be invalid, void, or otherwise
unenforceable, the remaining provisions shall remain enforceable to the fullest
extent permitted by law if enforcement would not frustrate the overall intent of
the parties (as such intent is manifested by all provisions of the Agreement
including such invalid, void, or otherwise unenforceable portion).
9.7. Extension Not a Waiver. No delay or omission in the exercise
of any power, remedy, or right herein provided or otherwise available to any
party shall impair or affect the right of such party thereafter to exercise the
same. Any extension of time or other indulgence granted to a party hereunder
shall not otherwise alter or affect any power, remedy or right of any other
party, or the obligations of the party to whom such extension or indulgence is
granted except as specifically waived.
9.8. Time of Essence. Time is of the essence of each and every
term, condition, obligation and provision hereof.
9.9. No Third Party Beneficiaries. This Agreement and each and
every provision hereof is for the exclusive benefit of the parties hereto and
not for the benefit of any third party.
9.10. Attorneys' Fees. Should any litigation (including any
proceedings in a bankruptcy court) or arbitration be commenced between the
parties hereto or their representatives concerning any provision of this
Agreement or the rights and duties of any person or entity hereunder, the party
or parties prevailing in such litigation or arbitration shall be entitled, in
addition to such other relief as may be granted, to the attorneys' fees and
court or arbitration costs incurred by reason of such litigation or arbitration,
including attorneys' and experts' fees incurred in preparation for or
investigation of any matter relating to such litigation or arbitration up to a
maximum of $25,000. Should an arbitrator determine that no party is clearly or
completely the "prevailing" party, the arbitrator shall be entitled to apportion
fees and costs or to deny any award of fees and costs.
9.11. Headings. The headings in this Agreement are inserted only
as a matter of convenience, and in no way define, limit, or extend or interpret
the scope of this Agreement or of any particular provision hereof.
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9.12. References. A reference to a particular paragraph of this
Agreement shall be deemed to include references to all subordinate paragraphs,
if any.
9.13. Counterparts. This Agreement may be signed in multiple
counterparts with the same force and effect as if all original signatures
appeared on one copy; and in the event this Agreement is signed in counterparts,
each counterpart shall be deemed an original and all of the counterparts shall
be deemed to be one agreement.
9.14. Applicable Law. This Agreement shall be construed in
accordance with, and governed by, the laws of the State of California.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.
/s/ HARVEY L. WILLIAMSON
------------------------------------
Harvey L. Williamson
FIRST PACIFIC NATIONAL BANK, a national
banking association
By: /S/ MARK N. BAKER
-----------------------------
Its: CHAIRMAN
-----------------------------
FP BANCORP, INC., a Delaware corporation
By: /S/ MARK N. BAKER
-----------------------------
Its: CHAIRMAN
-----------------------------
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EXHIBIT 10.9
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and entered into as
of August 1, 1997, by and among Michael J. Perdue (the "Executive"), First
Pacific National Bank, a national banking association (the "Bank") and FP
Bancorp, Inc., a Delaware corporation (the "Company"), with regard to the
following:
A. The Executive has made and is expected to make a major contribution
to the profitability, growth and financial strength of the Bank and the Company.
The Executive is an officer and an employee of both the Bank and the Company and
receives compensation for his services from both.
B. The Bank and the Company consider the continued availability of the
Executive's services, managerial skills and business experience to be in the
best interests of the Bank and the Company and the shareholders of the Company
and desire to assure the continued services of the Executive on behalf of the
Bank and the Company.
C. The Executive is willing to remain in the employ of the Bank and the
Company upon the understanding that the Bank will provide him with income
security and benefits if his employment with the Bank is terminated, upon
certain terms and conditions.
D. The Executive and the Bank entered into a Change of Control Agreement
dated January 20, 1994, as amended by an Amendment to Change of Control
Agreement dated January 11, 1995 (the "Change of Control Agreement"). By
execution and delivery of this Agreement the Bank and the Executive intend to
terminate the Change of Control Agreement effective as of the date of this
Agreement because the matters covered by the Change of Control Agreement are
addressed in this Agreement.
E. The Bank and the Executive desire to enter into a formal agreement
outlining the Executive's general duties as Chief Operating Officer and
Executive Vice President of the Bank and the Company, and setting his
compensation for services in those capacities.
NOW, THEREFORE, for valuable consideration the receipt and sufficiency
of which are hereby acknowledged, the parties agree as follows:
1. Definitions.
"Bank" means First Pacific National Bank, a national banking
association, its successors and permitted assigns.
"Bank Board" means the Board of Directors of the Bank.
"Beneficiary" means the person or entity to receive rights or
benefits under this Agreement, as set forth in this Agreement, in the event of
the death of the Executive. Unless
<PAGE> 2
otherwise specified in a written notice to the Bank, the Beneficiary shall be
the spouse of the Executive, if any, and if there is none, the estate of the
Executive or, in the discretion of the Bank, any trust as to which the Executive
both was a settlor and at the date of his death held a power of revocation.
"Change of Control" means (i) the issuance or transfer of
sufficient shares of stock, or the merger, reorganization or consolidation of
the Bank or the Company, which results in more than fifty percent (50%) of the
voting stock of the Bank being owned by other than the Company or persons who
owned seventy-five percent (75%) or more of the voting stock of the Company
immediately prior to the closing of the transaction; or, (ii) a merger,
reorganization or consolidation of the Company, which results in more than fifty
percent (50%) of the voting stock of the Company being owned by persons who are
not holders of voting stock of the Company immediately prior to the closing of
the transaction, or the acquisition by any person (as defined in Section
13(d)(3) of the Securities Exchange Act of 1934) or entity of more than fifty
percent (50%) of the voting stock of the Company.
"Company" means FP Bancorp, Inc., a Delaware corporation, its
successors and permitted assigns.
"Company Board" means the Board of Directors of the Company.
"Disability" means an inability to perform the substantial and
material duties regularly performed by the Executive as an officer and employee
of the Bank, the Company or a wholly-owned subsidiary of either of them. Such
disability may result from sickness, injury, or a mental condition not directly
attributable to either sickness or injury. For purposes of this Agreement the
determination of the Executive's disability shall be made by the Board of
Directors of the appropriate entity with participation by the Executive or his
legally authorized representative. The Board of Directors shall make the final
and conclusive determination of disability, based upon all the evidence
presented to it and after due consideration of the information presented by the
Executive or his legally authorized representative.
"Executive" means Michael J. Perdue.
2. Employment. The Bank and the Company hereby each employ the
Executive as its Executive Vice President and Chief Operating Officer, and the
Executive accepts the duties described herein, and agrees to discharge the same
faithfully and in the best of his ability. The Executive shall perform such
other duties as shall be from time to time prescribed by the Bank Board, Company
Board, the Chief Executive Officer of the Bank and the Chief Executive Officer
of the Company. The Executive shall devote his full business time and attention
to the business and affairs of the Bank and the Company.
3. Term. The Bank and the Company hereby employ the Executive and
the Executive hereby accepts employment with the Bank and the Company from the
date hereof through and including December 31, 1998, subject to the terms of
this Agreement. The parties
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may by mutual agreement extend the term of this Agreement beyond such date, but
at no time shall the remaining term of this Agreement exceed two (2) years.
4. Compensation and Benefits. In consideration for the services to
be rendered by the Executive to the Bank, the Bank agrees to pay the Executive
the following compensation and benefits:
4.1. Salary. The Bank shall pay the Executive a minimum salary at
the rate of One Hundred and Thirty-Seven Thousand and Forty Dollars
($137,040.00) per year, due and payable biweekly, or otherwise in accordance
with the Bank's policy for the scheduling of salary payments to employees as in
effect from time to time. Salary increases, if any, shall only be as approved by
the Bank Board and the Company Board.
4.2. Withholding and Deductions. The Bank shall withhold and/or
deduct from any and all salary or other payments, all taxes which may be
required to be deducted or withheld under any provision of law (including, but
not limited to, social security payments and income tax withholding) now in
effect or which may become effective any time during the term of this Agreement.
4.3. Executive Incentive Compensation. In general, the Bank and
the Company believe that superior performance of the Executive should be
rewarded and encouraged by incentive compensation. At least once a year, the
Bank Board and the Company Board will determine whether the Executive has
rendered and continues to render superior performance, and whether in light of
the Bank's and the Company's management policies, growth, earnings and expected
performance, economic conditions, and any other factors deemed relevant, such
compensation should be granted and whether previously granted incentives should
be retracted. Incentive compensation which has been earned or paid or both, may
not be withdrawn and the Executive shall not be liable for repayment of any such
compensation. Bonus compensation shall be deemed earned at the date declared by
the Bank Board or the Company Board and not before. However, neither the Bank
nor the Company shall be required to provide any compensation to the Executive
other than the salary and benefits required by this Agreement. The Bank Board
and the Company Board have full and complete discretion in determining what
incentive compensation, if any, should be provided to the Executive, and the
Executive shall have no particular right to incentive compensation. The
Executive shall be entitled to participate in any executive incentive
compensation plan that benefits or includes all of the other executives of the
Bank, that is, persons holding offices higher than vice president. For purposes
of this Agreement, "incentive compensation" shall generally mean any
compensation not otherwise required to be paid to the Executive under the terms
of this Agreement.
4.4. Stock Options. The Executive shall be entitled to
participate in any incentive stock option or similar plan adopted by either the
Bank or the Company and approved by the stockholders, if required by law,
regulation or exchange rule, on such terms as are established by the Bank Board
and/or the Company Board in their complete discretion, and to the extent
determined by the Bank Board and/or the Company Board in their complete
discretion.
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4.5. Automobile. The Bank shall furnish to the Executive an Acura
Legend or comparable luxury automobile for his use in the performance of his
duties hereunder. All costs of such automobile, including operation,
maintenance, and insurance, shall be borne by the Bank. The Bank shall replace
the automobile after three (3) years of use, and before four (4) years of use by
the Executive. At the date hereof, the parties acknowledge that the Executive
has been furnished a 1995 Acura Legend automobile and that it must be replaced
by the Bank after November 1997. The Executive agrees to maintain and provide
the Bank with adequate records of expenses incurred in the operation and
maintenance of each automobile furnished to him under this Paragraph.
4.6. Expense Reimbursement. The Bank agrees to reimburse the
Executive for all ordinary and necessary expenses incurred by the Executive on
behalf of the Bank, including entertainment, meals, and travel expenses. Any
costs incurred by the Executive for conventions, meetings, seminars, club dues
and special social entertainment expenses, shall be reimbursed provided the
Chief Executive Officer of the Bank approves such.
4.7. Insurance. The Bank shall provide at least the following
insurance benefits to the Executive:
4.7.1. Group life insurance with a life insurance benefit
equal to the lower of two times the annual salary of the Executive or the
maximum amount permitted under the Bank's then applicable group life insurance
plan.
4.7.2. Basic medical-dental and major medical with
long-term disability income benefit insurance to the same extent provided to all
employees of the Bank. Provision of this insurance is subject to the Executive's
passing the necessary physical examinations for qualification and other
qualifications, if any.
4.8. Vacation. The Executive shall be entitled to twenty-two (22)
days of vacation each full calendar year, with at least ten (10) days to be
taken in a consecutive period. Vacation days shall be accrued, subject to
carryover from year to year, and otherwise accounted for and administered in
compliance with the Bank's employee policies as in effect from time to time. The
parties agree that the current Bank vacation policy requires, among other
things, that (i) all vacation days be used during the calendar year earned, to
the extent practical, (ii) permission for any carryover must be requested in
writing to the Chief Executive Officer of the Bank by the first of December in
the year the vacation was earned, (iii) any carryover vacation must be taken in
the first quarter of the year following the year in which it was earned and if
not, further accruals will cease until the carryover vacation is used, and (iv)
the Executive's vacation schedule is subject to the prior approval of the Chief
Executive Officer of the Bank.
5. Termination.
5.1. Employer Right to Terminate Employment. The Bank Board has
the right to terminate the employment of the Executive with the Bank, and the
Company Board has the right to terminate the employment of the Executive with
the Company, at will with or without
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cause upon delivery of written notice to the Executive (except in the case of
death of the Executive, in which event termination shall automatically occur at
the date of death), and for any of the following grounds:
5.1.1. Willful breach or habitual neglect or inability
(except where such inability is due to Disability or death) to perform the
Executive's duties hereunder, including without limitation failure to cooperate
with the Bank Board or Company Board in the structuring, documentation or
negotiation of a transaction that might result in a Change of Control;
5.1.2. Malfeasance or misfeasance in the performance of
the Executive's duties hereunder;
5.1.3. Immoral or illegal conduct;
5.1.4. Disability or death;
5.1.5. Determination in the complete discretion of the
Bank Board or the Company Board, as appropriate, that the employment of the
Executive should be terminated, without reference to the grounds set forth in
Paragraphs 5.1.1, 5.1.2, 5.1.3 or 5.1.4, prior to the date the Executive's
employment would otherwise terminate hereunder, and specification in the notice
described above of the termination date.
5.2. Termination by the Executive. The Executive may terminate
his employment hereunder prior to the date it would otherwise terminate under
this Agreement by delivering written notice to the Bank three (3) months in
advance of the date such termination is to take effect.
6. Post-Termination Payments and Benefits. The following are the
post-termination payments and benefits to which the Executive is entitled upon
termination of employment in all positions with the Bank, the Company and any
wholly-owned subsidiary of either of them. These payments and benefits may be
paid or provided by the Bank, the Company and/or any wholly-owned subsidiary of
the Bank or the Company, as the Bank, the Company and any such subsidiary shall
determine. Termination by any such entity under Paragraph 6.1 shall be deemed to
be termination by all such entities. In the event that the Executive is
compensated by a wholly-owned subsidiary of the Bank or the Company and is
determined to be the entity to pay or provide any of the payments of benefits
under this Paragraph 6, the parties agree that any such entity shall be deemed a
party to this Agreement for the purposes of this Paragraph 6.
6.1 Termination Resulting from Breach. In the event the
employment of the Executive is terminated under Paragraphs 5.1.1, 5.1.2 or
5.1.3, the Bank shall provide the Executive only the following:
6.1.1 the salary due him at the end of the month in which
such termination occurs; plus
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6.1.2 any pay in lieu of vacation accrued or carried
forward to, but not taken as of the date of termination; and
6.1.3 the insurance benefits described in Paragraph 4.7.2
shall be extended at the Bank's sole cost for a period of thirty (30) days
following the date of termination.
6.2. Termination Resulting from Disability. In the event the
employment of the Executive is terminated under Paragraph 5.1.4 due to
disability, the Bank shall provide the Executive only the following:
6.1.1 the salary due him at the end of the month in which
such termination occurs; plus
6.2.2 any pay in lieu of vacation accrued or carried
forward to, but not taken as of the date of termination; and
6.2.3 the insurance benefits described in Paragraph 4.7.2
shall be extended at the Bank's sole cost for a period of thirty (30) days
following the date of termination.
6.3 Termination Resulting from Death. In the event the employment
of the Executive is terminated under Paragraph 5.1.4 due to death, the Bank
shall provide only the following:
6.3.1. to the Beneficiary, the salary due the Executive at
the end of the month in which such termination occurs and continued salary for a
period of three (3) months from the date of termination; plus
6.3.2 any pay in lieu of vacation accrued or carried
forward to, but not taken as of the date of termination; and
6.3.3 the persons other than the Executive covered by
medical-dental and major medical insurance coverage benefits described in
Paragraph 4.7.2 at the date of termination shall continue to receive such
coverage at the Bank's sole cost for a period of ninety (90) days following the
date of termination.
6.4 Termination by Notice from the Bank. In the event the
employment of the Executive is terminated under Paragraph 5.1.5., the Bank shall
provide the Executive only the following:
6.4.1 continued salary and the benefits described in
Paragraphs 4.1, 4.2, 4.5, and 4.6 to the date of termination, but in any event
for a period of at least twelve (12) months from the date notice of the
termination is delivered to the Executive; and
6.4.2 the Bank shall pay the Executive in lieu of vacation
for all vacation accrued or carried forward under Paragraph 4.8, but not taken
as of the date of termination; and
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6.4.3 the Bank shall extend the insurance benefits
described in Paragraph 4.7.2, except for long-term disability, at the Bank's
sole cost for twelve (12) months following the date of termination.
6.5 Death Following Termination. In the event that the Executive
dies while receiving any payments under this Paragraph 6, these shall be
continued for the benefit of the Beneficiary, as would otherwise be required
under this Paragraph 6, but benefits provided with reference to Paragraphs 4.5,
4.6 and 4.7.2 shall not be continued.
6.6 Change of Control.
6.6.1 Payment Following Certain Terminations Related to
Change of Control. "Change of Control Severance Benefits," as defined below,
shall be paid to the Executive by the Bank in respect of any "Change of Control
Termination," as defined below, taking place after the earlier to occur of (i)
the Bank or the Company entering into a definitive agreement expected to result
in a Change of Control, provided that such Change of Control actually occurs, or
(ii) a Change of Control. Change of Control Severance Benefits shall not be
payable with respect to a Change of Control Termination occurring more than two
years after the date of a Change of Control. In the event that a definitive
agreement expected to result in a Change of Control is entered into, but the
transaction is not consummated, the Change of Control Severance Benefits would
cease to be available at such time with respect to that transaction. For
example, in the event a definitive agreement for acquisition of the Bank is
entered into on December 31, 1997, the availability of Change of Control
Severance Benefits would be triggered in the event of a termination other than
for Cause; however, if the definitive agreement terminates on June 1, 1998, the
Change of Control Severance Benefits would cease to be available.
6.6.2 Change of Control Severance Benefits. "Change of
Control Severance Benefits" means: (i) a lump sum payment of an amount equal to
the lesser of (w) one (1) year's salary at the then current salary rate,
including any increases, under Paragraph 4.1 of this Agreement, or (x) the
salary that would otherwise be payable at the then current salary rate, through
the Executive's attainment of age 65, including any increases, under Paragraph
4.1 of this Agreement; plus the pro rata portion of the bonus (calculated on a
daily basis) that the Executive would have earned with respect to the portion of
the calendar year elapsed through the date of termination under the most
recently proposed executive bonus plan, if any, proposed within the prior twelve
(12) months, due within one month after the later of the date of a Change of
Control Termination or the actual occurrence of a Change of Control; and (ii)
continuation of benefits set forth in Paragraphs 4.5 and 4.7 for a period of the
lesser of one (1) year or the time until the Executive attains the age of 65, or
substitute equivalent benefits in the event that the particular benefits (for
instance, insurance coverage) are not carried by the Bank under its programs
following the Change of Control Termination, beginning after the later of the
date of a Change of Control Termination or the actual occurrence of a Change of
Control.
6.6.3 Change of Control Termination. "Change of Control
Termination" means the termination of employment of the Executive (i) by the
Bank other than under
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Paragraphs 5.1.1, 5.1.2 or 5.1.3; (ii) by the Executive after the effective date
of a reduction in base salary below that set forth in Paragraph 4.1, or after
the Bank requires the Executive to be based at a location more than thirty-five
(35) miles from the Bank headquarters or executive offices on the date hereof
(other than required travel on Bank business); or (iii) within two years after
the earlier to occur of (y) the Bank or the Company entering into a definitive
agreement expected to result in a Change of Control, provided that such Change
of Control actually occurs, or (z) a Change of Control.
6.6.4 Offset. The obligations of the Bank under this
Paragraph 6.6 are not subject to offset for satisfaction of any other
obligations of the Bank under this Agreement, except that to the extent and for
the period of time during which any of the benefits provided by Paragraphs 4.5
and 4.7 are provided to the Executive these shall not be duplicated under this
Paragraph 6.6.
6.7. Nonassignability. Neither the Executive nor any other person
or entity shall have any power or right to transfer, assign, anticipate,
hypothecate, mortgage, commute, modify, or otherwise encumber in advance any of
the rights or benefits of the Executive under this Paragraph 6, nor shall any of
said rights or benefits be subject to seizure for the payment of any debts,
judgments, alimony or separate maintenance, owed by the Executive or any other
person or entity, or be transferable by operation of law in the event of
bankruptcy, insolvency or otherwise. The terms of this Paragraph 6.7 shall not
affect the interpretation of any provision of this Agreement.
6.8. Claims Procedure. The Bank Board shall make all
determinations as to rights to benefits under this Paragraph 6.
6.9. Obligations of the Bank and the Company. The Company shall
not be liable under any circumstance for the obligations of the Bank set forth
in this Paragraph 6 or otherwise set forth in this Agreement.
6.10. Regulatory Restrictions. The parties understand and agree
that at the time any payment would otherwise be made or benefit provided under
this Paragraph 6 or Paragraph 7.3, depending on the facts and circumstances
existing at such time, the satisfaction of such obligations by the Bank may be
deemed by a regulatory authority to be illegal, an unsafe and unsound practice,
or for some other reason not properly due or payable by the Bank. Among other
things, the regulations at 12 C.F.R. Part 30, Appendix A promulgated pursuant to
Section 39(a) of the Federal Deposit Insurance Act, and at 12 C.F.R. Part 359,
or similar regulations or regulatory action following similar principles may
apply at such time. The Bank agrees that to the extent reasonably feasible, it
will in good faith seek to determine the position of the appropriate regulatory
authority in advance of each payment or benefit otherwise due under this
Paragraph 6 or Paragraph 7.3, including seeking the approval or acquiescence of
the appropriate regulatory authorities, if required. The parties understand,
acknowledge and agree that, notwithstanding any other provision of this
Agreement, the Bank shall not be obligated to make any payment or provide any
benefit under this Paragraph 6 or Paragraph 7.3 where (i) an appropriate
regulatory authority does not approve or acquiesce as required or (ii) the Bank
or the Company has been
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informed either orally or in writing by a representative of the appropriate
regulatory authority that it is the position of such regulatory authority that
making such payment or providing such benefit would constitute an unsafe and
unsound practice, violate a written agreement with the regulatory authority,
violate an applicable rule or regulation, or would cause the representative of
the regulatory authority to recommend enforcement action against the Bank or the
Company.
6.11. Right of Offset. Any and all of the benefits that would
otherwise be payable under this Paragraph 6 set forth hereinabove are subject to
the Bank's offset for any liability of Executive to the Bank or the Company to
the extent the Bank Board determines that such liability exists. Any claim of
offset available to either the Bank or the Company may be utilized by the Bank
as if and to the same extent as if the Bank and the Company were the same
entity.
6.12 Overlapping Benefits and Payments. In the event that the
Executive receives payments and/or benefits under one of Paragraphs 6.1 through
6.5 or under a Salary Continuation Agreement or other agreement to the extent it
specifically references this Paragraph 6.12, the Executive may not receive
payments and/or benefits under one of the other of such Paragraphs or such
agreement, and the first such applicable of those Paragraphs or such other
agreement shall apply.
7. Additional Covenants.
7.1. Keyman Life Insurance. The Bank shall have the right to
obtain and hold a "keyman" life insurance policy an the life of the Executive
with the Bank as beneficiary of the policy. The Executive agrees to provide any
information required for the issuance of such policy and submit himself to any
physical examination required for such policy.
7.2. Unsecured General Creditor. Neither the Executive nor any
other person or entity shall have any legal right or equitable rights interests
or claims in or to any property or assets of the Bank or the Company under the
provisions of this Agreement. No assets of the Bank or the Company shall be held
under any trust for the benefit of the Executive or any other person or entity
or held in any way as security for the fulfilling of the obligations of the Bank
or the Company under this Agreement. All of the Bank's and the Company's
respective assets shall be and remain the general, unpledged, unrestricted
assets of the Bank and the Company respectively. The Bank's and the Company's
respective obligations under this Agreement are unfunded and unsecured promises,
and to the extent such promises involve the payment of money, they are promises
to pay money in the future. The Executive and any person or entity claiming
through him shall be unsecured general creditors with respect to any rights or
benefits hereunder.
7.3. Indemnification. To the extent permitted by law, the Bank
shall indemnify the Executive in the event he was or is a party or is threatened
to be made a party in any action brought by a third party against the Executive
(whether or not the Bank is joined as a party defendant) against expenses,
judgments, fines, settlement, and other amounts actually and reasonably incurred
in connection with said action if the Executive acted in good faith and in a
manner the Executive reasonably believed to be in the best interests of the
Bank, all providing the
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alleged conduct of the Executive arose out of and was within the course and
scope of his employment as an officer or employee of the Bank. This Paragraph
7.3 shall not limit any other rights to indemnification that the Executive may
now or hereafter have by law or under the articles, bylaws or resolutions of
either of the Bank or the Company or otherwise.
7.4. Dispute Resolution.
7.4.1 The parties agree that if a dispute arises
concerning any provision of this Agreement or the rights and duties of any
person or entity hereunder, the parties agree first to try in good faith to
settle the dispute. In the event that the parties cannot settle the dispute, any
party shall have the right to submit the dispute, other than any dispute related
to Paragraph 6.6 as to which only the Executive shall have the right to submit
the dispute, to binding arbitration. Such arbitration shall be held before a
single arbitrator agreed upon by the parties to the dispute, and if they cannot
agree, any party may petition a California Superior Court in San Diego County
for appointment of an arbitrator. The arbitration shall be conducted in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association, subject to any contrary and/or additional terms of this Paragraph
7.4 and Paragraph 9.10.
7.4.2 The rules of evidence shall not apply to any
arbitration under this Paragraph 7.4. However, in all other respects, the
arbitrator shall follow applicable law.
7.4.3 Subject to Paragraph 9.10, each party shall bear
one-half of the costs and expenses of arbitration, and for purposes of this
provision, the Company and the Bank shall be considered to be one party.
7.4.4 The decision of the arbitrator or panel of
arbitrators shall be binding, enforceable, and non-appealable, and may be
entered in any court having jurisdiction thereof.
7.4.5 Payment of any and all amounts granted by an
arbitrator or panel or arbitrators hereunder shall be made within fifteen (15)
days following the date of the decision, and thereafter, shall bear interest at
the then current maximum legal rate per month until paid in full.
7.4.6 The arbitrator shall not have the power to award
damages to the Executive for emotional distress or pain and suffering or to
award consequential damages, but shall be empowered to award the Executive only
damages in the amount found by the arbitrator to be owed and unpaid under the
terms of the Agreement.
7.4.7 Any arbitration conducted under this Paragraph 7.4
shall be conducted in a confidential private proceeding and the fact of the
proceeding and the substance of the matters addressed in the proceeding shall be
kept confidential by the parties, provided that disclosure may be made by any
party to the arbitration upon notice to the other party or parties in the event
that such disclosure is required by applicable law or regulation or legal
process, or, in the case of the Bank or the Company in the event that the Bank
or the Company is advised by counsel that such disclosure is required or
advisable. Notwithstanding the foregoing, the parties
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agree that any regulatory authority with jurisdiction over the Bank or the
Company may be informed at any time of all facts regarding the arbitration, and
that the Bank and the Company each have the right to file regulatory notices
and/or reports referencing the arbitration and its subject matter.
7.4.8 The parties to an arbitration shall cause the
arbitration to be heard and completed within six (6) months after the submission
of a dispute to arbitration. To assure such goal is attained, the parties shall
cause their counsel and affiliated or employed witnesses to be available at such
times as are necessary to complete the arbitration within this time and shall
require at the time of selection of arbitrators that potential arbitrators
confirm their availability and ability to complete the arbitration within this
time.
7.5. Return of Documents. The Executive expressly agrees that all
manuals, document, files, reports, studies, customer lists, business plans, loan
and deposit program plans and outlines, customer solicitation and follow-up
techniques and plans, marketing plans, investment banker and financial advisor
relationships and arrangements, employee policies, incentive compensation
arrangements, instruments, software, and other materials used and/or developed
by the Executive during the Term, whether in paper, computer readable, computer
coded, magnetic, compact disk or other tangible or electronic form are solely
the property of the Bank or the Company, and the Executive has no right, title
or interest therein. The Executive hereby further acknowledges that all such
items constitute confidential trade secrets, the wrongful use or disclosure of
which to the public or competitors of the Bank or the Company would materially
adversely affect the business and prospects of the Bank or the Company. Upon
termination of employment of the Executive, the Executive or the Executive's
representatives shall promptly deliver possession of all said property, in
whatever form, to the Bank and the Company in good condition.
7.6 Resignations. The Executive agrees that upon termination of
employment, for whatever reason, he will submit his resignations from all
offices and directorships with the Company, the Bank and all subsidiaries of
either of them.
8. Other Agreements. The parties agree that all rights and benefits
under the Change of Control Agreement, are hereby terminated and that no
obligations or rights are owed or held by any party to those agreements. The
parties further agree that to the extent of any inconsistency between this
Agreement and any employee manual or policy of the Company or the Bank, that the
terms of this Agreement shall supersede the terms of such employee manual or
policy.
9. General Provisions.
9.1. Notices. Unless otherwise specifically permitted by this
Agreement, all notices or other communications required or permitted under this
Agreement shall be in writing, and shall be personally delivered or sent by
registered or certified mail, postage prepaid return receipt requested, or sent
by telecopy, provided that the telecopy cover sheet contain a notation of the
date and time of transmission, and shall be deemed received: (i) if personally
delivered, upon the date of delivery to the address of the person to receive
such notice, (ii) if mailed in accordance
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with the provisions of this paragraph, two (2) business days after the date
placed in the United States mail, (iii) if mailed other than in accordance with
the provisions of this paragraph or mailed from outside the United States, upon
the date of delivery to the address of the person to receive such notice, or
(iv) if given by telecopy, when sent. Notices shall be given at the following
addresses:
If to the Bank or to the Company:
First Pacific National Bank
or FP Bancorp, Inc.
613 West Valley Parkway
Escondido, California 92025
Attention: Mark N. Baker
With a copy to:
Higgs, Fletcher & Mack LLP
401 West "A" Street, Suite 2000
San Diego, California 92101
Attention: Kurt L. Kicklighter
Telecopier: (619) 696-1410
If to the Executive:
Michael J. Perdue
The address for delivery of notices may be changed by the relevant party by
giving notice of such change in accordance with this paragraph.
9.2. Complete Agreement; Modifications. This Agreement and
written agreements, if any, entered into concurrently herewith (i) constitute
the parties' entire agreement, including all terms, conditions, definitions,
warranties, representations, and covenants, with respect to the subject matter
hereof, (ii) merge all prior discussions and negotiations between or among any
or all of them as to the subject matter hereof, and (iii) supersede and replace
all terms, conditions, definitions, warranties, representations, covenants,
agreements, promises and understandings, whether oral or written, with respect
to the subject matter hereof. This Agreement may not be amended, altered or
modified except by a writing signed by the party to be bound. With regard to
such amendments, alterations, or modifications, telecopied signatures shall be
effective as original signatures. Any amendment, alteration, or modification
requiring the signature of more than one party may be signed in counterparts.
9.3. Further Actions. Each party agrees to perform any further
acts and execute and deliver any further documents reasonably necessary to carry
out the provisions of this Agreement.
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9.4. Assignment. No party may assign its rights under this
Agreement without the prior written consent of the other parties hereto.
9.5. Successors and Assigns. Except as explicitly provided herein
to the contrary, this Agreement shall be binding upon and inure to the benefit
of the parties, their respective successors and permitted assigns.
9.6. Severability. If any portion of this Agreement shall be held
by a court of competent jurisdiction to be invalid, void, or otherwise
unenforceable, the remaining provisions shall remain enforceable to the fullest
extent permitted by law if enforcement would not frustrate the overall intent of
the parties (as such intent is manifested by all provisions of the Agreement
including such invalid, void, or otherwise unenforceable portion).
9.7. Extension Not a Waiver. No delay or omission in the exercise
of any power, remedy, or right herein provided or otherwise available to any
party shall impair or affect the right of such party thereafter to exercise the
same. Any extension of time or other indulgence granted to a party hereunder
shall not otherwise alter or affect any power, remedy or right of any other
party, or the obligations of the party to whom such extension or indulgence is
granted except as specifically waived.
9.8. Time of Essence. Time is of the essence of each and every
term, condition, obligation and provision hereof.
9.9. No Third Party Beneficiaries. This Agreement and each and
every provision hereof is for the exclusive benefit of the parties hereto and
not for the benefit of any third party.
9.10. Attorneys' Fees. Should any litigation (including any
proceedings in a bankruptcy court) or arbitration be commenced between the
parties hereto or their representatives concerning any provision of this
Agreement or the rights and duties of any person or entity hereunder, the party
or parties prevailing in such litigation or arbitration shall be entitled, in
addition to such other relief as may be granted, to the attorneys' fees and
court or arbitration costs incurred by reason of such litigation or arbitration,
including attorneys' and experts' fees incurred in preparation for or
investigation of any matter relating to such litigation or arbitration up to a
maximum of $25,000. Should an arbitrator determine that no party is clearly or
completely the "prevailing" party, the arbitrator shall be entitled to apportion
fees and costs or to deny any award of fees and costs.
9.11. Headings. The headings in this Agreement are inserted only
as a matter of convenience, and in no way define, limit, or extend or interpret
the scope of this Agreement or of any particular provision hereof.
9.12. References. A reference to a particular paragraph of this
Agreement shall be deemed to include references to all subordinate paragraphs,
if any.
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9.13. Counterparts. This Agreement may be signed in multiple
counterparts with the same force and effect as if all original signatures
appeared on one copy; and in the event this Agreement is signed in counterparts,
each counterpart shall be deemed an original and all of the counterparts shall
be deemed to be one agreement.
9.14. Applicable Law. This Agreement shall be construed in
accordance with, and governed by, the laws of the State of California.
9.15 Replacement of Prior Agreement. The parties agree that this
Agreement replaces the Employment Agreement previously executed by them dated
"April __, 1997." That prior agreement is of no force and effect as of the date
of this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.
/s/ MICHAEL J. PERDUE
----------------------------
Michael J. Perdue
FIRST PACIFIC NATIONAL BANK, a
national banking association
By: /s/ Mark N. Baker
--------------------------------
Its: Chairman
--------------------------------
FP BANCORP, INC., a Delaware
corporation
By: /s/ Mark N. Baker
--------------------------------
Its: Chairman
--------------------------------
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EXHIBIT 10.10
SALARY CONTINUATION AGREEMENT
This Salary Continuation Agreement (the "Agreement") is made and entered
into as of August 1, 1997, by and among Michael J. Perdue (the "Executive"),
First Pacific National Bank, a national banking association (the "Bank") and FP
Bancorp, Inc., a Delaware corporation (the "Company"), with regard to the
following:
A. The Executive has made and is expected to make a major contribution
to the profitability, growth and financial strength of the Bank and the Company
and is employed by the Bank and the Company under an Employment Agreement dated
as of August 1, 1997 (the "Employment Agreement").
B. As an additional incentive to the Executive to provide long term
service to the Bank and the Company and to protect the Executive in the event of
certain changes in ownership of the Bank or the Company, the Bank is willing to
extend certain salary continuation benefits to the Executive under the
conditions described in this Agreement.
C. Any benefits provided under this Agreement will be paid from the
general assets of the Bank according to the terms of this Agreement.
NOW, THEREFORE, for valuable consideration the receipt and sufficiency
of which are hereby acknowledged, the parties agree as follows:
1. Definitions.
"Bank" means First Pacific National Bank, a national banking
association, its successors and permitted assigns.
"Bank Board" means the Board of Directors of the Bank.
"Bank Funded Annual Benefit" means the annual amount, payable
monthly for a period of 15 years following the commencement to the right to
payment under this Agreement, set forth in the attached Schedule B-1.
"Bank-Related Entities" means the Bank, the Company or any
wholly-owned subsidiary of the Company or the Bank.
"Beneficiary" means the person or entity to receive rights or
benefits under this Agreement, as set forth in this Agreement, in the event of
the death of the Executive. Unless otherwise specified in a written notice to
the Bank, the Beneficiary shall be the spouse of the Executive, if any, and if
there is none, the estate of the Executive or, in the discretion of the Bank,
any trust as to which the Executive both was a settlor and at the date of his
death held a power of revocation.
<PAGE> 2
"Change of Control" means (i) the issuance or transfer of
sufficient shares of stock, or the merger, reorganization or consolidation of
the Bank or the Company, which results in more than fifty percent (50%) of the
voting stock of the Bank being owned by other than the Company or persons who
owned seventy-five percent (75%) or more of the voting stock of the Company
immediately prior to the closing of the transaction; or, (ii) a merger,
reorganization or consolidation of the Company, which results in more than fifty
percent (50%) of the voting stock of the Company being owned by persons who are
not holders of voting stock of the Company immediately prior to the closing of
the transaction, or the acquisition by any person (as defined in Section
13(d)(3) of the Securities Exchange Act of 1934) or entity of more than fifty
percent (50%) of the voting stock of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means FP Bancorp, Inc., a Delaware corporation, its
successors and permitted assigns.
"Company Board" means the Board of Directors of the Company.
"Deferral Account" shall have the meaning set forth in Paragraph
3.2.
"Disability" means an inability to perform the substantial and
material duties regularly performed by the Executive as an officer and employee
of any of the Bank-Related Entities of which he is an officer and employee. Such
disability may result from sickness, injury, or a mental condition not directly
attributable to either sickness or injury. For purposes of this Agreement the
determination of the Executive's disability shall be made by the Board of
Directors of the appropriate entity with participation by the Executive or his
legally authorized representative. The Board of Directors of the entity shall
make the final and conclusive determination of disability, based upon all the
evidence presented to it and after due consideration of the information
presented by the Executive or his legally authorized representative.
"Election" shall have the meaning set forth in Paragraph 3.1.1.
"Election Form" means the form in Exhibit 1 attached hereto.
"Employee Deferrals" means the amount of compensation which the
Executive elects to defer according to this Agreement.
"Executive" means Michael J. Perdue.
"Plan Year" means a calendar year beginning with 1997 (described
in schedules to this Agreement as "Plan Year 1"), except that the Plan Year 1997
shall be the remainder of the calendar year after the date of execution of this
Agreement.
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<PAGE> 3
"Personal Funded Annual Benefit" means the annual amount, payable
monthly for a period of 15 years following the commencement to the right to
payment under this Agreement, set forth in the fourth column of the attached
Schedule B.
"Retirement" means, if the Executive continues to be employed by
the Bank or any other of the Bank-Related Entities at the age of sixty-five
(65), termination of employment with the last of the Bank-Related Entities at
any date after age sixty-five (65).
2. Termination.
2.1 Employer Terminations. Any of the Bank-Related Entities
employing the Executive, without limiting any rights any of them may have, or
affecting any rights or obligations relating to termination outside this
Agreement, may terminate the Executive's employment, at will with or without
cause upon delivery of written notice to the Executive (except in the case of
death of the Executive, in which event termination shall automatically occur at
the date of death), and for any of the following grounds:
2.1.1 Willful breach or habitual neglect or inability
(except where such inability is due to Disability or death) to perform the
Executive's duties under the Employment Agreement or otherwise, including
without limitation failure to cooperate with the Bank Board or Company Board in
the structuring, documentation or negotiation of a transaction that might result
in a Change of Control;
2.1.2 Malfeasance or misfeasance in the performance of
the Executive's duties under the Employment Agreement or otherwise;
2.1.3 Immoral or illegal conduct;
2.1.4 Disability or death;
2.1.5 Determination in the complete discretion of the
Board of Directors of one of the Bank-Related Entities, as appropriate, that the
employment of the Executive should be terminated, without reference to the
grounds set forth in Paragraphs 2.1.1, 2.1.2, 2.1.3 or 2.1.4, prior to the date
the Executive's employment would otherwise terminate under the Employment
Agreement or otherwise, and specification in the notice described above of the
termination date.
3. Salary Continuation Benefits.
3.1 Executive Deferrals.
3.1.1 Election. The Executive shall, prior to each Plan
Year, elect to defer compensation in the amounts shown on the attached Schedule
A for the appropriate Plan Year by completing the Election Form attached as
Exhibit 1 (the "Election") and delivering it to the Chairman of the Bank. Such
deferrals shall be made (i) first from the bonus or bonuses
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<PAGE> 4
payable in the year following the Plan Year by any or all of the Bank-Related
Entities with respect to the Plan Year, if any, and if such bonuses are actually
calculated and otherwise payable on or before March 31 of such year, and (ii)
second from salary payable in the year following the Plan Year in equal parts
during the pay periods between April 1 and September 30 of that year, or as the
parties may otherwise agree in writing. An Election with respect to a Plan Year
shall be deemed to include both an election to make one or both types of
deferrals even though the payments from which the deferrals would be made would
not otherwise be made until the year following the Plan Year.
3.1.2 Non-Election. In the event that the Executive
fails to make the Election as to any Plan Year or the deferral required is not
actually made in full, (i) the Executive shall not have the right to make any
further Elections as to any subsequent Plan Year and (ii) the Executive's
Personal Funded Annual Benefit shall be limited to the amounts shown on the
attached Schedule B vested as of the last Plan Year as to which an Election was
made and the full deferral elected was made.
3.1.3 Tax Consequences. The Executive shall be solely
responsible for all income and other taxes which are or may become due with
regard to amounts deferred under this Paragraph 3 or the benefits otherwise
payable to the Executive under this Agreement. The Executive shall hold all of
the Bank-Related Entities harmless from and against any tax liabilities relating
to any deferral, payment or other benefit provided under this Agreement.
3.2 Deferral Account.
3.2.1 Establishing and Crediting. The Bank shall
establish a Deferral Account on its books for the Executive to which all
deferrals properly elected by the Executive shall be deemed deposited, and all
payments of Personal Funded Annual Benefits shall be deemed withdrawn.
3.2.2 Statement of Accounts. The Bank shall provide to
the Executive, within one hundred twenty (120) days after the end of each
calendar year, a statement setting forth the Deferral Account balance until the
balance is zero.
3.2.3 Accounting Device Only. The Deferral Account is
solely a device for measuring amounts to be paid under this Agreement. The
Deferral Account is not a trust fund, bank account or insured deposit account of
any kind.
3.2.4 Interest. Interest on the Deferral Account shall
be credited at the lesser of 5% per annum or the average of the Wall Street
Journal Prime Rate on the first business day of the preceding October, November
and December, minus 3%, adjusted annually on each January 1. In no event shall
interest be credited at a rate of less than 4% per annum.
3.3 Retirement. Upon the Retirement of the Executive, the Bank
shall pay to the Executive the annual sum of One Hundred and Twenty Thousand
Dollars ($120,000), provided that the Executive has made all twenty-two (22)
Personal Annual Contributions under
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<PAGE> 5
Schedule A, payable monthly on the first day of each month following the date of
Retirement, for a period of one hundred eighty (180) months. If the Executive
has not made all twenty-two (22) Personal Annual Contributions, the Bank shall
pay the annual sum vested under Paragraph 3.1.2, and the annual sum vested
according to the attached Schedule B-1, for a period of one hundred eighty (180)
months; subject to the terms hereof.
3.4 Disability. Upon the Disability of the Executive, the Bank
shall pay to the Executive the annual sum of One Hundred and Twenty Thousand
Dollars ($120,000), if the Executive has made all twenty-two (22) Personal
Annual Contributions under Schedule A, payable monthly on the first day of each
month following the date of Disability, for a period of one hundred eighty (180)
months. If the Executive has not made all twenty-two (22) Personal Annual
Contributions, the Bank shall pay the annual sum vested under Paragraph 3.1.2,
and the annual sum vested according to Schedule B-1, for a period of one hundred
eighty (180) months; subject to the terms hereof.
3.5 Change of Control. In the event of a Change of Control while
the Executive is employed with any of the Bank-Related Entities, the Bank Funded
Annual Benefit under Schedule B-1 shall be deemed fully vested at the date of
Change of Control notwithstanding any other provision of this Agreement. The
circumstances under which payment of any Bank Funded Annual Benefit shall be
made shall not be deemed to be altered by this Paragraph 3.5.
3.6 Certain Terminations by Employer. In the event the
Executive's employment with any of the Bank-Related Entities is terminated
pursuant to Paragraphs 2.1.1, 2.1.2, 2.1.3, or 2.1.5, the Bank shall pay to the
Executive (i) the annual sum of the Executive's Personal Funded Annual Benefit
vested under Schedule B at the date of such termination and (ii) with respect to
a termination under Paragraph 2.1.5 only, the annual sum of the Executive's Bank
Funded Annual Benefit vested under Schedule B-1. The annual sums will be payable
monthly on the first day of each month following the later of the date of such
termination or the Executive's attaining age sixty-five (65), for a period of
one hundred eighty (180) months; subject to the terms hereof.
3.7 Early Termination by the Executive. The Executive may
terminate his employment with any of the Bank-Related Entities prior to the date
it would otherwise terminate under the Employment Agreement or otherwise by
delivering written notice to the employer three (3) months in advance of the
date such termination is to take effect. In the event of any voluntary
termination by the Executive of employment with any of the Bank-Related Entities
that occurs within five (5) years from the date of this Agreement, the Bank
shall pay to the Executive only the annual sum of the Executive's Personal
Funded Annual Benefit vested under Paragraph 3.1.2 at the date of such
termination. In the event of any voluntary termination by the Executive of
employment with any of the Bank-Related Entities that occurs after five (5)
years from the date of this Agreement, the Bank shall pay to the Executive (i)
the annual sum of the Executive's Personal Funded Annual Benefit vested under
Paragraph 3.1.2 at the date of such termination. and (ii) the annual sum of the
Executive's Bank Funded Annual Benefit vested under Schedule B-1. The annual
sums will be payable monthly on the first day of each month following the later
of the date
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<PAGE> 6
of such termination or the Executive's attaining age sixty-five (65), for a
period of one hundred eighty (180) months; subject to the terms hereof.
3.8 Death.
3.8.1 Prior to Other Events. If the Executive dies while
actively employed by one of the Bank-Related Entities at any time after the date
of this Agreement, the Bank shall pay the annual sum of $120,000 to the
Executive's designated Beneficiary, payable monthly on the first day of each
month following the month of the death of the Executive for a period of one
hundred eighty (180) months.
3.8.2 After Other Events. The Bank agrees that in the
event it is obligated to make payments under Paragraphs 3.3, 3.4, 3.5, 3.6 or
3.7, if the Executive shall die before receiving the full amount of the monthly
payments to which he is entitled hereunder, the Bank will make or continue to
make such monthly payments to the Executive's designated Beneficiary for the
remaining period at the times the Executive would have been entitled to payment
if he had not died.
3.9 Impact of Deferral Account. If at the date of the last
payment of the Personal Funded Annual Benefit due under this Agreement, if less
than the full annual sum of $60,000 was vested as a Personal Funded Annual
Benefit (Schedule B), and if the amount remaining in the Deferral Account would
exceed the amount of such payment, such payment shall be increased to the amount
remaining in the Deferral Account.
3.10 Nonassignability. Neither the Executive nor any other person
or entity shall have any power or right to transfer, assign, anticipate,
hypothecate, mortgage, commute, modify, or otherwise encumber in advance any of
the rights or benefits of the Executive under this Paragraph 3, nor shall any of
said rights or benefits be subject to seizure for the payment of any debts,
judgments, alimony or separate maintenance, owed by the Executive or any other
person or entity, or be transferable by operation of law in the event of
bankruptcy, insolvency or otherwise.
3.11 Claims Procedure. The Bank Board shall make all
determinations as to rights and benefits under this Paragraph 3.
3.12 Obligations of the Bank and the Company. The Company shall
not be liable under any circumstance for the obligations of the Bank set forth
in this Paragraph 3 or otherwise set forth in this Agreement.
3.13 Regulatory Restrictions. The parties understand and agree
that at the time any payment would otherwise be made or benefit provided under
this Paragraph 3 or Paragraph 4.2, depending on the facts and circumstances
existing at such time, the satisfaction of such obligations by the Bank may be
deemed by a regulatory authority to be illegal, an unsafe and unsound practice,
or for some other reason not properly due or payable by the Bank. Among other
things, the regulations at 12 C.F.R. Part 30, Appendix A promulgated pursuant to
Section 39(a) of the Federal Deposit Insurance Act, and at 12 C.F.R. Part 359,
or similar regulations or
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<PAGE> 7
regulatory action following similar principles may apply at such time. The Bank
agrees that to the extent reasonably feasible, it will in good faith seek to
determine the position of the appropriate regulatory authority in advance of
each payment or benefit otherwise due under this Agreement, including seeking
the approval or acquiescence of the appropriate regulatory authorities, if
required. The parties understand, acknowledge and agree that, notwithstanding
any other provision of this Agreement, the Bank shall not be obligated to make
any payment or provide any benefit under this Agreement where (i) an appropriate
regulatory authority does not approve or acquiesce as required or (ii) the Bank
or the Company has been informed either orally or in writing by a representative
of the appropriate regulatory authority that it is the position of such
regulatory authority that making such payment or providing such benefit would
constitute an unsafe and unsound practice, violate a written agreement with the
regulatory authority, violate an applicable rule or regulation, or would cause
the representative of the regulatory authority to recommend enforcement action
against the Bank or the Company.
3.14 No Dual Benefits. Notwithstanding any provision of this
Agreement that may be read to the contrary, the Executive shall not be entitled
to more than one Bank Funded Annual Benefit or more than one Personal Funded
Annual Benefit, and the first calculation of each that is applicable under this
Agreement shall be the governing calculation.
4. Additional Covenants.
4.1 Unsecured General Creditor. Neither the Executive nor any
other person or entity shall have any legal right or equitable rights interests
or claims in or to any property or assets of the Bank under the provisions of
this Agreement. No assets of the Bank shall be held under any trust for the
benefit of the Executive or any other person or entity or held in any way as
security for the fulfilling of the obligations of the Bank under this Agreement.
All of the Bank's assets shall be and remain the general, unpledged,
unrestricted assets of the Bank. The Bank's obligations under this Agreement are
unfunded and unsecured promises, and to the extent such promises involve the
payment of money, they are promises to pay money in the future. The Executive
and any person or entity claiming through him shall be unsecured general
creditors with respect to any rights or benefits hereunder. It is the intention
of the parties that the arrangements created under this Agreement be unfunded
for tax purposes and for purposes of Title I of ERISA. The Executive's rights to
benefit payments under this Agreement are not subject in any manner to
anticipation, alienation, sale, transfer, assignment pledge, encumbrance,
attachment, or garnishment by creditors of the Executive or the Beneficiary.
4.2 Dispute Resolution.
4.2.1 The parties agree that if a dispute arises
concerning any provision of this Agreement or the rights and duties of any
person or entity hereunder, the parties agree first to try in good faith to
settle the dispute. In the event that the parties cannot settle the dispute, any
party shall have the right to submit the dispute, to binding arbitration. Such
arbitration shall be held before a single arbitrator agreed upon by the parties
to the dispute, and if they cannot agree, any party may petition a California
Superior Court in San Diego County for appointment of an arbitrator. The
arbitration shall be conducted in accordance with the Commercial Arbitration
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Rules of the American Arbitration Association, subject to any contrary and/or
additional terms of this Paragraph 4.2 and Paragraph 5.10.
4.2.2 The rules of evidence shall not apply to any
arbitration under this Paragraph 4.2. However, in all other respects, the
arbitrator shall follow applicable law.
4.2.3 Subject to Paragraph 5.10, each party shall bear
one-half of the costs and expenses of arbitration, and for purposes of this
provision, all Bank-Related Entities shall be considered to be one party.
4.2.4 The decision of the arbitrator or panel of
arbitrators shall be binding, enforceable, and non-appealable, and may be
entered in any court having jurisdiction thereof.
4.2.5 Payment of any and all amounts granted by an
arbitrator or panel or arbitrators hereunder shall be made within fifteen (15)
days following the date of the decision, and thereafter, shall bear interest at
the then current maximum legal rate per month until paid in full.
4.2.6 The arbitrator shall not have the power to award
damages to the Executive for emotional distress or pain and suffering or to
award consequential damages, but shall be empowered to award the Executive only
damages in the amount found by the arbitrator to be owed and unpaid under the
terms of the Agreement.
4.2.7 Any arbitration conducted under this Paragraph 4.2
shall be conducted in a confidential private proceeding and the fact of the
proceeding and the substance of the matters addressed in the proceeding shall be
kept confidential by the parties, provided that disclosure may be made by any
party to the arbitration upon notice to the other party or parties in the event
that such disclosure is required by applicable law or regulation or legal
process, or, in the case of the Bank or the Company in the event that the Bank
or the Company is advised by counsel that such disclosure is required or
advisable. Notwithstanding the foregoing, the parties agree that any regulatory
authority with jurisdiction over the Bank or the Company may be informed at any
time of all facts regarding the arbitration, and that the Bank and the Company
each have the right to file regulatory notices and/or reports referencing the
arbitration and its subject matter.
4.2.8 The parties to an arbitration shall cause the
arbitration to be heard and completed within six (6) months after the submission
of a dispute to arbitration. To assure such goal is attained, the parties shall
cause their counsel and affiliated or employed witnesses to be available at such
times as are necessary to complete the arbitration within this time and shall
require at the time of selection of arbitrators that potential arbitrators
confirm their availability and ability to complete the arbitration within this
time.
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5. General Provisions.
5.1. Notices. Unless otherwise specifically permitted by this
Agreement, all notices or other communications required or permitted under this
Agreement shall be in writing, and shall be personally delivered or sent by
registered or certified mail, postage prepaid return receipt requested, or sent
by telecopy, provided that the telecopy cover sheet contain a notation of the
date and time of transmission, and shall be deemed received: (i) if personally
delivered, upon the date of delivery to the address of the person to receive
such notice, (ii) if mailed in accordance with the provisions of this paragraph,
two (2) business days after the date placed in the United States mail, (iii) if
mailed other than in accordance with the provisions of this paragraph or mailed
from outside the United States, upon the date of delivery to the address of the
person to receive such notice, or (iv) if given by telecopy, when sent. Notices
shall be given at the following addresses:
If to the Bank or to the Company:
First Pacific National Bank
or FP Bancorp, Inc.
613 West Valley Parkway
Escondido, California 92025
Attention: Mark N. Baker
With a copy to:
Higgs, Fletcher & Mack LLP
401 West "A" Street, Suite 2000
San Diego, California 92101
Attention: Kurt L. Kicklighter
Telecopier: (619) 696-1410
If to the Executive:
Michael J. Perdue
The address for delivery of notices may be changed by the relevant party by
giving notice of such change in accordance with this paragraph.
5.2 Complete Agreement; Modifications. This Agreement and written
agreements, if any, entered into concurrently herewith (i) constitute the
parties' entire agreement, including all terms, conditions, definitions,
warranties, representations, and covenants, with respect to the subject matter
hereof, (ii) merge all prior discussions and negotiations between or among any
or all of them as to the subject matter hereof, and (iii) supersede and replace
all terms, conditions, definitions, warranties, representations, covenants,
agreements, promises and understandings, whether oral or written, with respect
to the subject matter hereof. This Agreement may not be amended, altered or
modified except by a writing signed by the party to be
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bound. With regard to such amendments, alterations, or modifications, telecopied
signatures shall be effective as original signatures. Any amendment, alteration,
or modification requiring the signature of more than one party may be signed in
counterparts.
5.3 Further Actions. Each party agrees to perform any further
acts and execute and deliver any further documents reasonably necessary to carry
out the provisions of this Agreement.
5.4 Assignment. No party may assign its rights under this
Agreement.
5.5 Successors and Assigns. Except as explicitly provided herein
to the contrary, this Agreement shall be binding upon and inure to the benefit
of the parties, their respective successors and permitted assigns.
5.6 Severability. If any portion of this Agreement shall be held
by a court of competent jurisdiction to be invalid, void, or otherwise
unenforceable, the remaining provisions shall remain enforceable to the fullest
extent permitted by law if enforcement would not frustrate the overall intent of
the parties (as such intent is manifested by all provisions of the Agreement
including such invalid, void, or otherwise unenforceable portion).
5.7 Extension Not a Waiver. No delay or omission in the exercise
of any power, remedy, or right herein provided or otherwise available to any
party shall impair or affect the right of such party thereafter to exercise the
same. Any extension of time or other indulgence granted to a party hereunder
shall not otherwise alter or affect any power, remedy or right of any other
party, or the obligations of the party to whom such extension or indulgence is
granted except as specifically waived.
5.8 Time of Essence. Time is of the essence of each and every
term, condition, obligation and provision hereof.
5.9 No Third Party Beneficiaries. This Agreement and each and
every provision hereof is for the exclusive benefit of the parties hereto and
not for the benefit of any third party.
5.10 Attorneys' Fees. Should any litigation (including any
proceedings in a bankruptcy court) or arbitration be commenced between the
parties hereto or their representatives concerning any provision of this
Agreement or the rights and duties of any person or entity hereunder, the party
or parties prevailing in such litigation or arbitration shall be entitled, in
addition to such other relief as may be granted, to the attorneys' fees and
court or arbitration costs incurred by reason of such litigation or arbitration,
including attorneys' and experts' fees incurred in preparation for or
investigation of any matter relating to such litigation or arbitration up to a
maximum of $25,000. Should an arbitrator determine that no party is clearly or
completely the "prevailing" party, the arbitrator shall be entitled to apportion
fees and costs or to deny any award of fees and costs.
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5.11 Headings. The headings in this Agreement are inserted only
as a matter of convenience, and in no way define, limit, or extend or interpret
the scope of this Agreement or of any particular provision hereof.
5.12 References. A reference to a particular paragraph of this
Agreement shall be deemed to include references to all subordinate paragraphs,
if any.
5.13 Counterparts. This Agreement may be signed in multiple
counterparts with the same force and effect as if all original signatures
appeared on one copy; and in the event this Agreement is signed in counterparts,
each counterpart shall be deemed an original and all of the counterparts shall
be deemed to be one agreement.
5.14 Applicable Law. This Agreement shall be construed in
accordance with, and governed by, the laws of the State of California.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.
/s/ MICHAEL J. PERDUE
------------------------------------
Michael J. Perdue
FIRST PACIFIC NATIONAL BANK, a national
banking association
By: /S/ MARK N. BAKER
-----------------------------
Its: CHAIRMAN
-----------------------------
FP BANCORP, INC., a Delaware corporation
By: /S/ MARK N. BAKER
-----------------------------
Its: CHAIRMAN
-----------------------------
<PAGE> 12
EXHIBIT 1
SALARY CONTINUATION AGREEMENT
DEFERRAL ELECTION FORM
I, ____________________, hereby elect to defer the amount set forth on
Schedule B, attached, for Plan Year __ (199_)(20__) (the "Plan Year"). I
understand that such deferral will be made in accordance with my Salary
Continuation Agreement with First Pacific National Bank and FP Bancorp, Inc.,
dated as of ___________, 1997. Such deferral shall be made first from any bonus
payable to me from any of the Bank-Related Entities (as defined in the Salary
Continuation Agreement) in the year following the Plan Year, and then from
salary otherwise payable to me between April 1 and September 30 in the year
following the Plan Year. I acknowledge that I have delivered this executed
Salary Continuation Agreement Deferral Election Form to First Pacific National
Bank prior to the beginning of the Plan Year.
Date: _____________________
Executive: _____________________
RECEIVED
Date: _____________________
First Pacific National Bank
By:
------------------------------------
Its:
-----------------------------------
<PAGE> 13
Schedule "A"
Mike Perdue - Personal Annual Contributions
<TABLE>
<CAPTION>
Personal Cumulative
Plan Annual Annual
Year Contribution Contributions
---- ------------ ------------
<S> <C> <C>
1 $ 9,088 $ 9,088
2 $ 9,841 $ 18,929
3 $ 10,659 $ 29,588
4 $ 11,543 $ 41,131
5 $ 12,502 $ 53,633
6 $ 13,539 $ 67,172
7 $ 14,663 $ 81,835
8 $ 15,879 $ 97,714
9 $ 17,198 $ 114,912
10 $ 18,625 $ 133,537
11 $ 20,171 $ 153,708
12 $ 21,846 $ 175,554
13 $ 23,658 $ 199,212
14 $ 25,622 $ 224,834
15 $ 27,749 $ 252,583
16 $ 30,051 $ 282,634
17 $ 32,546 $ 315,180
18 $ 35,248 $ 350,428
19 $ 38,173 $ 388,601
20 $ 41,341 $ 429,942
21 $ 44,772 $ 474,714
22 $ 48,489 $ 523,203
</TABLE>
<PAGE> 14
Schedule "B"
Mike Perdue - Personal Funded Annual Benefit Vesting
<TABLE>
<CAPTION>
Personal
Plan Personal Funded Annual
Year Vested Benefit Vested
---- -------- --------------
<S> <C> <C>
1 4.55% $ 2,727
2 9.09% $ 5,455
3 13.64% $ 8,182
4 18.18% $ 10,909
5 22.73% $ 13,636
6 27.27% $ 16,364
7 31.82% $ 19,091
8 36.36% $ 21,818
9 40.91% $ 24,545
10 45.45% $ 27,273
11 50.00% $ 30,000
12 54.55% $ 32,727
13 59.09% $ 35,455
14 63.64% $ 38,182
15 68.18% $ 40,909
16 72.73% $ 43,636
17 77.27% $ 46,364
18 81.82% $ 49,091
19 86.36% $ 51,818
20 90.91% $ 54,545
21 95.45% $ 57,273
22 100.00% $ 60,000
</TABLE>
<PAGE> 15
Schedule "B-1"
Mike Perdue - Bank Funded Annual Benefit Vesting
<TABLE>
<CAPTION>
Bank Funded
Plan Bank Annual
Year Vested Benefit Vested
---- ------ --------------
<S> <C> <C>
1 50.00% $ 30,000
2 55.00% $ 33,000
3 60.00% $ 36,000
4 65.00% $ 39,000
5 70.00% $ 42,000
6 75.00% $ 45,000
7 80.00% $ 48,000
8 85.00% $ 51,000
9 90.00% $ 54,000
10 95.00% $ 57,000
11 100.00% $ 60,000
12 100.00% $ 60,000
13 100.00% $ 60,000
14 100.00% $ 60,000
15 100.00% $ 60,000
16 100.00% $ 60,000
17 100.00% $ 60,000
18 100.00% $ 60,000
19 100.00% $ 60,000
20 100.00% $ 60,000
21 100.00% $ 60,000
22 100.00% $ 60,000
</TABLE>
<PAGE> 1
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and entered into as
of August 1, 1997, by and among Gary W. Deems (the "Executive"), First Pacific
National Bank, a national banking association (the "Bank") and FP Bancorp, Inc.,
a Delaware corporation (the "Company"), with regard to the following:
A. The Executive has made and is expected to make a major contribution
to the profitability, growth and financial strength of the Bank and the Company.
The Executive is an officer and an employee of both the Bank and the Company and
receives compensation for his services from both.
B. The Bank and the Company consider the continued availability of the
Executive's services, managerial skills and business experience to be in the
best interests of the Bank and the Company and the shareholders of the Company
and desire to assure the continued services of the Executive on behalf of the
Bank and the Company.
C. The Executive is willing to remain in the employ of the Bank and the
Company upon the understanding that the Bank will provide him with income
security and benefits if his employment with the Bank is terminated, upon
certain terms and conditions.
D. The Executive and the Bank entered into a Change of Control Agreement
dated January 20, 1994, as amended by an Amendment to Change of Control
Agreement dated January 11, 1995 (the "Change of Control Agreement"). By
execution and delivery of this Agreement the Bank and the Executive intend to
terminate the Change of Control Agreement effective as of the date of this
Agreement because the matters covered by the Change of Control Agreement are
addressed in this Agreement.
E. The Bank and the Executive desire to enter into a formal agreement
outlining the Executive's general duties as Chief Administrative Officer and
Executive Vice President of the Bank and the Company, and setting his
compensation for services in those capacities.
NOW, THEREFORE, for valuable consideration the receipt and sufficiency
of which are hereby acknowledged, the parties agree as follows:
1. Definitions.
"Bank" means First Pacific National Bank, a national banking
association, its successors and permitted assigns.
"Bank Board" means the Board of Directors of the Bank.
"Beneficiary" means the person or entity to receive rights or
benefits under this Agreement, as set forth in this Agreement, in the event of
the death of the Executive. Unless
<PAGE> 2
otherwise specified in a written notice to the Bank, the Beneficiary shall be
the spouse of the Executive, if any, and if there is none, the estate of the
Executive or, in the discretion of the Bank, any trust as to which the Executive
both was a settlor and at the date of his death held a power of revocation.
"Change of Control" means (i) the issuance or transfer of
sufficient shares of stock, or the merger, reorganization or consolidation of
the Bank or the Company, which results in more than fifty percent (50%) of the
voting stock of the Bank being owned by other than the Company or persons who
owned seventy-five percent (75%) or more of the voting stock of the Company
immediately prior to the closing of the transaction; or, (ii) a merger,
reorganization or consolidation of the Company, which results in more than fifty
percent (50%) of the voting stock of the Company being owned by persons who are
not holders of voting stock of the Company immediately prior to the closing of
the transaction, or the acquisition by any person (as defined in Section
13(d)(3) of the Securities Exchange Act of 1934) or entity of more than fifty
percent (50%) of the voting stock of the Company.
"Company" means FP Bancorp, Inc., a Delaware corporation, its
successors and permitted assigns.
"Company Board" means the Board of Directors of the Company.
"Disability" means an inability to perform the substantial and
material duties regularly performed by the Executive as an officer and employee
of the Bank, the Company or a wholly-owned subsidiary of either of them. Such
disability may result from sickness, injury, or a mental condition not directly
attributable to either sickness or injury. For purposes of this Agreement the
determination of the Executive's disability shall be made by the Board of
Directors of the appropriate entity with participation by the Executive or his
legally authorized representative. The Board of Directors shall make the final
and conclusive determination of disability, based upon all the evidence
presented to it and after due consideration of the information presented by the
Executive or his legally authorized representative.
"Executive" means Gary W. Deems.
2. Employment. The Bank and the Company hereby each employ
the Executive as its Executive Vice President and Chief Administrative Officer,
and the Executive accepts the duties described herein, and agrees to discharge
the same faithfully and in the best of his ability. The Executive shall perform
such other duties as shall be from time to time prescribed by the Bank Board,
Company Board, the Chief Executive Officer of the Bank and the Chief Executive
Officer of the Company. The Executive shall devote his full business time and
attention to the business and affairs of the Bank and the Company.
3. Term. The Bank and the Company hereby employ the
Executive and the Executive hereby accepts employment with the Bank and the
Company from the date hereof through and including December 31, 1998, subject to
the terms of this Agreement. The parties
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may by mutual agreement extend the term of this Agreement beyond such date, but
at no time shall the remaining term of this Agreement exceed two (2) years.
4. Compensation and Benefits. In consideration for the services to
be rendered by the Executive to the Bank, the Bank agrees to pay the Executive
the following compensation and benefits:
4.1. Salary. The Bank shall pay the Executive a minimum salary at
the rate of One Hundred and Thirty-Seven Thousand and Forty Dollars
($137,040.00) per year, due and payable biweekly, or otherwise in accordance
with the Bank's policy for the scheduling of salary payments to employees as in
effect from time to time. Salary increases, if any, shall only be as approved by
the Bank Board and the Company Board.
4.2. Withholding and Deductions. The Bank shall withhold and/or
deduct from any and all salary or other payments, all taxes which may be
required to be deducted or withheld under any provision of law (including, but
not limited to, social security payments and income tax withholding) now in
effect or which may become effective any time during the term of this Agreement.
4.3. Executive Incentive Compensation. In general, the Bank and
the Company believe that superior performance of the Executive should be
rewarded and encouraged by incentive compensation. At least once a year, the
Bank Board and the Company Board will determine whether the Executive has
rendered and continues to render superior performance, and whether in light of
the Bank's and the Company's management policies, growth, earnings and expected
performance, economic conditions, and any other factors deemed relevant, such
compensation should be granted and whether previously granted incentives should
be retracted. Incentive compensation which has been earned or paid or both, may
not be withdrawn and the Executive shall not be liable for repayment of any such
compensation. Bonus compensation shall be deemed earned at the date declared by
the Bank Board or the Company Board and not before. However, neither the Bank
nor the Company shall be required to provide any compensation to the Executive
other than the salary and benefits required by this Agreement. The Bank Board
and the Company Board have full and complete discretion in determining what
incentive compensation, if any, should be provided to the Executive, and the
Executive shall have no particular right to incentive compensation. The
Executive shall be entitled to participate in any executive incentive
compensation plan that benefits or includes all of the other executives of the
Bank, that is, persons holding offices higher than vice president. For purposes
of this Agreement, "incentive compensation" shall generally mean any
compensation not otherwise required to be paid to the Executive under the terms
of this Agreement.
4.4. Stock Options. The Executive shall be entitled to
participate in any incentive stock option or similar plan adopted by either the
Bank or the Company and approved by the stockholders, if required by law,
regulation or exchange rule, on such terms as are established by the Bank Board
and/or the Company Board in their complete discretion, and to the extent
determined by the Bank Board and/or the Company Board in their complete
discretion.
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<PAGE> 4
4.5. Automobile. The Bank shall furnish to the Executive a
Lincoln Mark VIII or comparable luxury automobile for his use in the performance
of his duties hereunder. All costs of such automobile, including operation,
maintenance, and insurance, shall be borne by the Bank. The Bank shall replace
the automobile after three (3) years of use, and before four (4) years of use by
the Executive. At the date hereof, the parties acknowledge that the Executive
has been furnished a 1995 Lincoln Mark VIII automobile and that it must be
replaced by the Bank after December 1997. The Executive agrees to maintain and
provide the Bank with adequate records of expenses incurred in the operation and
maintenance of each automobile furnished to him under this Paragraph.
4.6. Expense Reimbursement. The Bank agrees to reimburse the
Executive for all ordinary and necessary expenses incurred by the Executive on
behalf of the Bank, including entertainment, meals, and travel expenses. Any
costs incurred by the Executive for conventions, meetings, seminars, club dues
and special social entertainment expenses, shall be reimbursed provided the
Chief Executive Officer of the Bank approves such.
4.7. Insurance. The Bank shall provide at least the following
insurance benefits to the Executive:
4.7.1. Group life insurance with a life insurance benefit
equal to the lower of two times the annual salary of the Executive or the
maximum amount permitted under the Bank's then applicable group life insurance
plan.
4.7.2. Basic medical-dental and major medical with long-term
disability income benefit insurance to the same extent provided to all employees
of the Bank. Provision of this insurance is subject to the Executive's passing
the necessary physical examinations for qualification and other qualifications,
if any.
4.8. Vacation. The Executive shall be entitled to twenty-two (22)
days of vacation each full calendar year, with at least ten (10) days to be
taken in a consecutive period. Vacation days shall be accrued, subject to
carryover from year to year, and otherwise accounted for and administered in
compliance with the Bank's employee policies as in effect from time to time. The
parties agree that the current Bank vacation policy requires, among other
things, that (i) all vacation days be used during the calendar year earned, to
the extent practical, (ii) permission for any carryover must be requested in
writing to the Chief Executive Officer of the Bank by the first of December in
the year the vacation was earned, (iii) any carryover vacation must be taken in
the first quarter of the year following the year in which it was earned and if
not, further accruals will cease until the carryover vacation is used, and (iv)
the Executive's vacation schedule is subject to the prior approval of the Chief
Executive Officer of the Bank.
5. Termination.
5.1. Employer Right to Terminate Employment. The Bank Board has
the right to terminate the employment of the Executive with the Bank, and the
Company Board has the right to terminate the employment of the Executive with
the Company, at will with or without
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<PAGE> 5
cause upon delivery of written notice to the Executive (except in the case of
death of the Executive, in which event termination shall automatically occur at
the date of death), and for any of the following grounds:
5.1.1. Willful breach or habitual neglect or inability
(except where such inability is due to Disability or death) to perform the
Executive's duties hereunder, including without limitation failure to cooperate
with the Bank Board or Company Board in the structuring, documentation or
negotiation of a transaction that might result in a Change of Control;
5.1.2. Malfeasance or misfeasance in the performance of the
Executive's duties hereunder;
5.1.3. Immoral or illegal conduct;
5.1.4. Disability or death;
5.1.5. Determination in the complete discretion of the Bank
Board or the Company Board, as appropriate, that the employment of the Executive
should be terminated, without reference to the grounds set forth in Paragraphs
5.1.1, 5.1.2, 5.1.3 or 5.1.4, prior to the date the Executive's employment would
otherwise terminate hereunder, and specification in the notice described above
of the termination date.
5.2. Termination by the Executive. The Executive may terminate
his employment hereunder prior to the date it would otherwise terminate under
this Agreement by delivering written notice to the Bank three (3) months in
advance of the date such termination is to take effect.
6. Post-Termination Payments and Benefits. The following are the
post-termination payments and benefits to which the Executive is entitled upon
termination of employment in all positions with the Bank, the Company and any
wholly-owned subsidiary of either of them. These payments and benefits may be
paid or provided by the Bank, the Company and/or any wholly-owned subsidiary of
the Bank or the Company, as the Bank, the Company and any such subsidiary shall
determine. Termination by any such entity under Paragraph 6.1 shall be deemed to
be termination by all such entities. In the event that the Executive is
compensated by a wholly-owned subsidiary of the Bank or the Company and is
determined to be the entity to pay or provide any of the payments of benefits
under this Paragraph 6, the parties agree that any such entity shall be deemed a
party to this Agreement for the purposes of this Paragraph 6.
6.1 Termination Resulting from Breach. In the event the
employment of the Executive is terminated under Paragraphs 5.1.1, 5.1.2 or
5.1.3, the Bank shall provide the Executive only the following:
6.1.1 the salary due him at the end of the month in which
such termination occurs; plus
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<PAGE> 6
6.1.2 any pay in lieu of vacation accrued or carried forward
to, but not taken as of the date of termination; and
6.1.3 the insurance benefits described in Paragraph 4.7.2
shall be extended at the Bank's sole cost for a period of thirty (30) days
following the date of termination.
6.2. Termination Resulting from Disability. In the event the
employment of the Executive is terminated under Paragraph 5.1.4 due to
disability, the Bank shall provide the Executive only the following:
6.1.1 the salary due him at the end of the month in which
such termination occurs; plus
6.2.2 any pay in lieu of vacation accrued or carried forward
to, but not taken as of the date of termination; and
6.2.3 the insurance benefits described in Paragraph 4.7.2
shall be extended at the Bank's sole cost for a period of thirty (30) days
following the date of termination.
6.3 Termination Resulting from Death. In the event the employment
of the Executive is terminated under Paragraph 5.1.4 due to death, the Bank
shall provide only the following:
6.3.1. to the Beneficiary, the salary due the Executive at
the end of the month in which such termination occurs and continued salary for a
period of three (3) months from the date of termination; plus
6.3.2 any pay in lieu of vacation accrued or carried forward
to, but not taken as of the date of termination; and
6.3.3 the persons other than the Executive covered by
medical-dental and major medical insurance coverage benefits described in
Paragraph 4.7.2 at the date of termination shall continue to receive such
coverage at the Bank's sole cost for a period of ninety (90) days following the
date of termination.
6.4 Termination by Notice from the Bank. In the event the
employment of the Executive is terminated under Paragraph 5.1.5., the Bank shall
provide the Executive only the following:
6.4.1 continued salary and the benefits described in
Paragraphs 4.1, 4.2, 4.5, and 4.6 to the date of termination, but in any event
for a period of at least twelve (12) months from the date notice of the
termination is delivered to the Executive; and
6.4.2 the Bank shall pay the Executive in lieu of vacation
for all vacation accrued or carried forward under Paragraph 4.8, but not taken
as of the date of termination; and
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<PAGE> 7
6.4.3 the Bank shall extend the insurance benefits described
in Paragraph 4.7.2, except for long-term disability, at the Bank's sole cost for
twelve (12) months following the date of termination.
6.5 Death Following Termination. In the event that the Executive
dies while receiving any payments under this Paragraph 6, these shall be
continued for the benefit of the Beneficiary, as would otherwise be required
under this Paragraph 6, but benefits provided with reference to Paragraphs 4.5,
4.6 and 4.7.2 shall not be continued.
6.6 Change of Control.
6.6.1 Payment Following Certain Terminations Related to
Change of Control. "Change of Control Severance Benefits," as defined below,
shall be paid to the Executive by the Bank in respect of any "Change of Control
Termination," as defined below, taking place after the earlier to occur of (i)
the Bank or the Company entering into a definitive agreement expected to result
in a Change of Control, provided that such Change of Control actually occurs, or
(ii) a Change of Control. Change of Control Severance Benefits shall not be
payable with respect to a Change of Control Termination occurring more than two
years after the date of a Change of Control. In the event that a definitive
agreement expected to result in a Change of Control is entered into, but the
transaction is not consummated, the Change of Control Severance Benefits would
cease to be available at such time with respect to that transaction. For
example, in the event a definitive agreement for acquisition of the Bank is
entered into on December 31, 1997, the availability of Change of Control
Severance Benefits would be triggered in the event of a termination other than
for Cause; however, if the definitive agreement terminates on June 1, 1998, the
Change of Control Severance Benefits would cease to be available.
6.6.2 Change of Control Severance Benefits. "Change of
Control Severance Benefits" means: (i) a lump sum payment of an amount equal to
the lesser of (w) one (1) year's salary at the then current salary rate,
including any increases, under Paragraph 4.1 of this Agreement, or (x) the
salary that would otherwise be payable at the then current salary rate, through
the Executive's attainment of age 65, including any increases, under Paragraph
4.1 of this Agreement; plus the pro rata portion of the bonus (calculated on a
daily basis) that the Executive would have earned with respect to the portion of
the calendar year elapsed through the date of termination under the most
recently proposed executive bonus plan, if any, proposed within the prior twelve
(12) months, due within one month after the later of the date of a Change of
Control Termination or the actual occurrence of a Change of Control; and (ii)
continuation of benefits set forth in Paragraphs 4.5 and 4.7 for a period of the
lesser of one (1) year or the time until the Executive attains the age of 65, or
substitute equivalent benefits in the event that the particular benefits (for
instance, insurance coverage) are not carried by the Bank under its programs
following the Change of Control Termination, beginning after the later of the
date of a Change of Control Termination or the actual occurrence of a Change of
Control.
6.6.3 Change of Control Termination. "Change of Control
Termination" means the termination of employment of the Executive (i) by the
Bank other than under
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Paragraphs 5.1.1, 5.1.2 or 5.1.3; (ii) by the Executive after the effective date
of a reduction in base salary below that set forth in Paragraph 4.1, or after
the Bank requires the Executive to be based at a location more than thirty-five
(35) miles from the Bank headquarters or executive offices on the date hereof
(other than required travel on Bank business); or (iii) within two years after
the earlier to occur of (y) the Bank or the Company entering into a definitive
agreement expected to result in a Change of Control, provided that such Change
of Control actually occurs, or (z) a Change of Control.
6.6.4 Offset. The obligations of the Bank under this
Paragraph 6.6 are not subject to offset for satisfaction of any other
obligations of the Bank under this Agreement, except that to the extent and for
the period of time during which any of the benefits provided by Paragraphs 4.5
and 4.7 are provided to the Executive these shall not be duplicated under this
Paragraph 6.6.
6.7. Nonassignability. Neither the Executive nor any other person
or entity shall have any power or right to transfer, assign, anticipate,
hypothecate, mortgage, commute, modify, or otherwise encumber in advance any of
the rights or benefits of the Executive under this Paragraph 6, nor shall any of
said rights or benefits be subject to seizure for the payment of any debts,
judgments, alimony or separate maintenance, owed by the Executive or any other
person or entity, or be transferable by operation of law in the event of
bankruptcy, insolvency or otherwise. The terms of this Paragraph 6.7 shall not
affect the interpretation of any provision of this Agreement.
6.8. Claims Procedure. The Bank Board shall make all
determinations as to rights to benefits under this Paragraph 6.
6.9. Obligations of the Bank and the Company. The Company shall
not be liable under any circumstance for the obligations of the Bank set forth
in this Paragraph 6 or otherwise set forth in this Agreement.
6.10. Regulatory Restrictions. The parties understand and agree
that at the time any payment would otherwise be made or benefit provided under
this Paragraph 6 or Paragraph 7.3, depending on the facts and circumstances
existing at such time, the satisfaction of such obligations by the Bank may be
deemed by a regulatory authority to be illegal, an unsafe and unsound practice,
or for some other reason not properly due or payable by the Bank. Among other
things, the regulations at 12 C.F.R. Part 30, Appendix A promulgated pursuant to
Section 39(a) of the Federal Deposit Insurance Act, and at 12 C.F.R. Part 359,
or similar regulations or regulatory action following similar principles may
apply at such time. The Bank agrees that to the extent reasonably feasible, it
will in good faith seek to determine the position of the appropriate regulatory
authority in advance of each payment or benefit otherwise due under this
Paragraph 6 or Paragraph 7.3, including seeking the approval or acquiescence of
the appropriate regulatory authorities, if required. The parties understand,
acknowledge and agree that, notwithstanding any other provision of this
Agreement, the Bank shall not be obligated to make any payment or provide any
benefit under this Paragraph 6 or Paragraph 7.3 where (i) an appropriate
regulatory authority does not approve or acquiesce as required or (ii) the Bank
or the Company has been
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<PAGE> 9
informed either orally or in writing by a representative of the appropriate
regulatory authority that it is the position of such regulatory authority that
making such payment or providing such benefit would constitute an unsafe and
unsound practice, violate a written agreement with the regulatory authority,
violate an applicable rule or regulation, or would cause the representative of
the regulatory authority to recommend enforcement action against the Bank or the
Company.
6.11. Right of Offset. Any and all of the benefits that would
otherwise be payable under this Paragraph 6 set forth hereinabove are subject to
the Bank's offset for any liability of Executive to the Bank or the Company to
the extent the Bank Board determines that such liability exists. Any claim of
offset available to either the Bank or the Company may be utilized by the Bank
as if and to the same extent as if the Bank and the Company were the same
entity.
6.12 Overlapping Benefits and Payments. In the event that the
Executive receives payments and/or benefits under one of Paragraphs 6.1 through
6.5 or under a Salary Continuation Agreement or other agreement to the extent it
specifically references this Paragraph 6.12, the Executive may not receive
payments and/or benefits under one of the other of such Paragraphs or such
agreement, and the first such applicable of those Paragraphs or such other
agreement shall apply.
7. Additional Covenants.
7.1. Keyman Life Insurance. The Bank shall have the right to
obtain and hold a "keyman" life insurance policy an the life of the Executive
with the Bank as beneficiary of the policy. The Executive agrees to provide any
information required for the issuance of such policy and submit himself to any
physical examination required for such policy.
7.2. Unsecured General Creditor. Neither the Executive nor any
other person or entity shall have any legal right or equitable rights interests
or claims in or to any property or assets of the Bank or the Company under the
provisions of this Agreement. No assets of the Bank or the Company shall be held
under any trust for the benefit of the Executive or any other person or entity
or held in any way as security for the fulfilling of the obligations of the Bank
or the Company under this Agreement. All of the Bank's and the Company's
respective assets shall be and remain the general, unpledged, unrestricted
assets of the Bank and the Company respectively. The Bank's and the Company's
respective obligations under this Agreement are unfunded and unsecured promises,
and to the extent such promises involve the payment of money, they are promises
to pay money in the future. The Executive and any person or entity claiming
through him shall be unsecured general creditors with respect to any rights or
benefits hereunder.
7.3. Indemnification. To the extent permitted by law, the Bank
shall indemnify the Executive in the event he was or is a party or is threatened
to be made a party in any action brought by a third party against the Executive
(whether or not the Bank is joined as a party defendant) against expenses,
judgments, fines, settlement, and other amounts actually and reasonably incurred
in connection with said action if the Executive acted in good faith and in a
manner the Executive reasonably believed to be in the best interests of the
Bank, all providing the
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<PAGE> 10
alleged conduct of the Executive arose out of and was within the course and
scope of his employment as an officer or employee of the Bank. This Paragraph
7.3 shall not limit any other rights to indemnification that the Executive may
now or hereafter have by law or under the articles, bylaws or resolutions of
either of the Bank or the Company or otherwise.
7.4. Dispute Resolution.
7.4.1 The parties agree that if a dispute arises concerning
any provision of this Agreement or the rights and duties of any person or entity
hereunder, the parties agree first to try in good faith to settle the dispute.
In the event that the parties cannot settle the dispute, any party shall have
the right to submit the dispute, other than any dispute related to Paragraph 6.6
as to which only the Executive shall have the right to submit the dispute, to
binding arbitration. Such arbitration shall be held before a single arbitrator
agreed upon by the parties to the dispute, and if they cannot agree, any party
may petition a California Superior Court in San Diego County for appointment of
an arbitrator. The arbitration shall be conducted in accordance with the
Commercial Arbitration Rules of the American Arbitration Association, subject to
any contrary and/or additional terms of this Paragraph 7.4 and Paragraph 9.10.
7.4.2 The rules of evidence shall not apply to any
arbitration under this Paragraph 7.4. However, in all other respects, the
arbitrator shall follow applicable law.
7.4.3 Subject to Paragraph 9.10, each party shall bear
one-half of the costs and expenses of arbitration, and for purposes of this
provision, the Company and the Bank shall be considered to be one party.
7.4.4 The decision of the arbitrator or panel of arbitrators
shall be binding, enforceable, and non-appealable, and may be entered in any
court having jurisdiction thereof.
7.4.5 Payment of any and all amounts granted by an
arbitrator or panel or arbitrators hereunder shall be made within fifteen (15)
days following the date of the decision, and thereafter, shall bear interest at
the then current maximum legal rate per month until paid in full.
7.4.6 The arbitrator shall not have the power to award
damages to the Executive for emotional distress or pain and suffering or to
award consequential damages, but shall be empowered to award the Executive only
damages in the amount found by the arbitrator to be owed and unpaid under the
terms of the Agreement.
7.4.7 Any arbitration conducted under this Paragraph 7.4
shall be conducted in a confidential private proceeding and the fact of the
proceeding and the substance of the matters addressed in the proceeding shall be
kept confidential by the parties, provided that disclosure may be made by any
party to the arbitration upon notice to the other party or parties in the event
that such disclosure is required by applicable law or regulation or legal
process, or, in the case of the Bank or the Company in the event that the Bank
or the Company is advised by counsel that such disclosure is required or
advisable. Notwithstanding the foregoing, the parties
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agree that any regulatory authority with jurisdiction over the Bank or the
Company may be informed at any time of all facts regarding the arbitration, and
that the Bank and the Company each have the right to file regulatory notices
and/or reports referencing the arbitration and its subject matter.
7.4.8 The parties to an arbitration shall cause the
arbitration to be heard and completed within six (6) months after the submission
of a dispute to arbitration. To assure such goal is attained, the parties shall
cause their counsel and affiliated or employed witnesses to be available at such
times as are necessary to complete the arbitration within this time and shall
require at the time of selection of arbitrators that potential arbitrators
confirm their availability and ability to complete the arbitration within this
time.
7.5. Return of Documents. The Executive expressly agrees that all
manuals, document, files, reports, studies, customer lists, business plans, loan
and deposit program plans and outlines, customer solicitation and follow-up
techniques and plans, marketing plans, investment banker and financial advisor
relationships and arrangements, employee policies, incentive compensation
arrangements, instruments, software, and other materials used and/or developed
by the Executive during the Term, whether in paper, computer readable, computer
coded, magnetic, compact disk or other tangible or electronic form are solely
the property of the Bank or the Company, and the Executive has no right, title
or interest therein. The Executive hereby further acknowledges that all such
items constitute confidential trade secrets, the wrongful use or disclosure of
which to the public or competitors of the Bank or the Company would materially
adversely affect the business and prospects of the Bank or the Company. Upon
termination of employment of the Executive, the Executive or the Executive's
representatives shall promptly deliver possession of all said property, in
whatever form, to the Bank and the Company in good condition.
7.6 Resignations. The Executive agrees that upon termination of
employment, for whatever reason, he will submit his resignations from all
offices and directorships with the Company, the Bank and all subsidiaries of
either of them.
8. Other Agreements. The parties agree that all rights and benefits
under the Change of Control Agreement, are hereby terminated and that no
obligations or rights are owed or held by any party to those agreements. The
parties further agree that to the extent of any inconsistency between this
Agreement and any employee manual or policy of the Company or the Bank, that the
terms of this Agreement shall supersede the terms of such employee manual or
policy.
9. General Provisions.
9.1. Notices. Unless otherwise specifically permitted by this
Agreement, all notices or other communications required or permitted under this
Agreement shall be in writing, and shall be personally delivered or sent by
registered or certified mail, postage prepaid return receipt requested, or sent
by telecopy, provided that the telecopy cover sheet contain a notation of the
date and time of transmission, and shall be deemed received: (i) if personally
delivered, upon the date of delivery to the address of the person to receive
such notice, (ii) if mailed in accordance
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with the provisions of this paragraph, two (2) business days after the date
placed in the United States mail, (iii) if mailed other than in accordance with
the provisions of this paragraph or mailed from outside the United States, upon
the date of delivery to the address of the person to receive such notice, or
(iv) if given by telecopy, when sent. Notices shall be given at the following
addresses:
If to the Bank or to the Company:
First Pacific National Bank
or FP Bancorp, Inc.
613 West Valley Parkway
Escondido, California 92025
Attention: Mark N. Baker
With a copy to:
Higgs, Fletcher & Mack LLP
401 West "A" Street, Suite 2000
San Diego, California 92101
Attention: Kurt L. Kicklighter
Telecopier: (619) 696-1410
If to the Executive:
Gary W. Deems
The address for delivery of notices may be changed by the relevant party by
giving notice of such change in accordance with this paragraph.
9.2. Complete Agreement; Modifications. This Agreement and
written agreements, if any, entered into concurrently herewith (i) constitute
the parties' entire agreement, including all terms, conditions, definitions,
warranties, representations, and covenants, with respect to the subject matter
hereof, (ii) merge all prior discussions and negotiations between or among any
or all of them as to the subject matter hereof, and (iii) supersede and replace
all terms, conditions, definitions, warranties, representations, covenants,
agreements, promises and understandings, whether oral or written, with respect
to the subject matter hereof. This Agreement may not be amended, altered or
modified except by a writing signed by the party to be bound. With regard to
such amendments, alterations, or modifications, telecopied signatures shall be
effective as original signatures. Any amendment, alteration, or modification
requiring the signature of more than one party may be signed in counterparts.
9.3. Further Actions. Each party agrees to perform any further
acts and execute and deliver any further documents reasonably necessary to carry
out the provisions of this Agreement.
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9.4. Assignment. No party may assign its rights under this
Agreement without the prior written consent of the other parties hereto.
9.5. Successors and Assigns. Except as explicitly provided herein
to the contrary, this Agreement shall be binding upon and inure to the benefit
of the parties, their respective successors and permitted assigns.
9.6. Severability. If any portion of this Agreement shall be held
by a court of competent jurisdiction to be invalid, void, or otherwise
unenforceable, the remaining provisions shall remain enforceable to the fullest
extent permitted by law if enforcement would not frustrate the overall intent of
the parties (as such intent is manifested by all provisions of the Agreement
including such invalid, void, or otherwise unenforceable portion).
9.7. Extension Not a Waiver. No delay or omission in the exercise
of any power, remedy, or right herein provided or otherwise available to any
party shall impair or affect the right of such party thereafter to exercise the
same. Any extension of time or other indulgence granted to a party hereunder
shall not otherwise alter or affect any power, remedy or right of any other
party, or the obligations of the party to whom such extension or indulgence is
granted except as specifically waived.
9.8. Time of Essence. Time is of the essence of each and every
term, condition, obligation and provision hereof.
9.9. No Third Party Beneficiaries. This Agreement and each and
every provision hereof is for the exclusive benefit of the parties hereto and
not for the benefit of any third party.
9.10. Attorneys' Fees. Should any litigation (including any
proceedings in a bankruptcy court) or arbitration be commenced between the
parties hereto or their representatives concerning any provision of this
Agreement or the rights and duties of any person or entity hereunder, the party
or parties prevailing in such litigation or arbitration shall be entitled, in
addition to such other relief as may be granted, to the attorneys' fees and
court or arbitration costs incurred by reason of such litigation or arbitration,
including attorneys' and experts' fees incurred in preparation for or
investigation of any matter relating to such litigation or arbitration up to a
maximum of $25,000. Should an arbitrator determine that no party is clearly or
completely the "prevailing" party, the arbitrator shall be entitled to apportion
fees and costs or to deny any award of fees and costs.
9.11. Headings. The headings in this Agreement are inserted only
as a matter of convenience, and in no way define, limit, or extend or interpret
the scope of this Agreement or of any particular provision hereof.
9.12. References. A reference to a particular paragraph of this
Agreement shall be deemed to include references to all subordinate paragraphs,
if any.
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9.13. Counterparts. This Agreement may be signed in multiple
counterparts with the same force and effect as if all original signatures
appeared on one copy; and in the event this Agreement is signed in counterparts,
each counterpart shall be deemed an original and all of the counterparts shall
be deemed to be one agreement.
9.14. Applicable Law. This Agreement shall be construed in
accordance with, and governed by, the laws of the State of California.
9.15 Replacement of Prior Agreement. The parties agree that this
Agreement replaces the Employment Agreement previously executed by them dated
"April __, 1997." That prior agreement is of no force and effect as of the date
of this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.
/s/ GARY W. DEEMS
-----------------------------------------
Gary W. Deems
FIRST PACIFIC NATIONAL BANK, a national
banking association
By: /s/ MARK N. BAKER
-------------------------------------
Its: CHAIRMAN
-------------------------------------
FP BANCORP, INC., a Delaware corporation
By: /s/ MARK N. BAKER
-------------------------------------
Its: CHAIRMAN
-------------------------------------
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EXHIBIT 10.12
SALARY CONTINUATION AGREEMENT
This Salary Continuation Agreement (the "Agreement") is made and entered
into as of August 1, 1997, by and among Gary W. Deems (the "Executive"), First
Pacific National Bank, a national banking association (the "Bank") and FP
Bancorp, Inc., a Delaware corporation (the "Company"), with regard to the
following:
A. The Executive has made and is expected to make a major contribution
to the profitability, growth and financial strength of the Bank and the Company
and is employed by the Bank and the Company under an Employment Agreement dated
as of August 1, 1997 (the "Employment Agreement").
B. As an additional incentive to the Executive to provide long term
service to the Bank and the Company and to protect the Executive in the event of
certain changes in ownership of the Bank or the Company, the Bank is willing to
extend certain salary continuation benefits to the Executive under the
conditions described in this Agreement.
C. Any benefits provided under this Agreement will be paid from the
general assets of the Bank according to the terms of this Agreement.
NOW, THEREFORE, for valuable consideration the receipt and sufficiency
of which are hereby acknowledged, the parties agree as follows:
1. Definitions.
"Bank" means First Pacific National Bank, a national banking
association, its successors and permitted assigns.
"Bank Board" means the Board of Directors of the Bank.
"Bank Funded Annual Benefit" means the annual amount, payable
monthly for a period of 15 years following the commencement to the right to
payment under this Agreement, set forth in the attached Schedule B-1.
"Bank-Related Entities" means the Bank, the Company or any
wholly-owned subsidiary of the Company or the Bank.
"Beneficiary" means the person or entity to receive rights or
benefits under this Agreement, as set forth in this Agreement, in the event of
the death of the Executive. Unless otherwise specified in a written notice to
the Bank, the Beneficiary shall be the spouse of the Executive, if any, and if
there is none, the estate of the Executive or, in the discretion of the Bank,
any trust as to which the Executive both was a settlor and at the date of his
death held a power of revocation.
<PAGE> 2
"Change of Control" means (i) the issuance or transfer of
sufficient shares of stock, or the merger, reorganization or consolidation of
the Bank or the Company, which results in more than fifty percent (50%) of the
voting stock of the Bank being owned by other than the Company or persons who
owned seventy-five percent (75%) or more of the voting stock of the Company
immediately prior to the closing of the transaction; or, (ii) a merger,
reorganization or consolidation of the Company, which results in more than fifty
percent (50%) of the voting stock of the Company being owned by persons who are
not holders of voting stock of the Company immediately prior to the closing of
the transaction, or the acquisition by any person (as defined in Section
13(d)(3) of the Securities Exchange Act of 1934) or entity of more than fifty
percent (50%) of the voting stock of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means FP Bancorp, Inc., a Delaware corporation, its
successors and permitted assigns.
"Company Board" means the Board of Directors of the Company.
"Deferral Account" shall have the meaning set forth in Paragraph
3.2.
"Disability" means an inability to perform the substantial and
material duties regularly performed by the Executive as an officer and employee
of any of the Bank-Related Entities of which he is an officer and employee. Such
disability may result from sickness, injury, or a mental condition not directly
attributable to either sickness or injury. For purposes of this Agreement the
determination of the Executive's disability shall be made by the Board of
Directors of the appropriate entity with participation by the Executive or his
legally authorized representative. The Board of Directors of the entity shall
make the final and conclusive determination of disability, based upon all the
evidence presented to it and after due consideration of the information
presented by the Executive or his legally authorized representative.
"Election" shall have the meaning set forth in Paragraph 3.1.1.
"Election Form" means the form in Exhibit 1 attached hereto.
"Employee Deferrals" means the amount of compensation which the
Executive elects to defer according to this Agreement.
"Executive" means Gary W. Deems.
"Plan Year" means a calendar year beginning with 1997 (described
in schedules to this Agreement as "Plan Year 1"), except that the Plan Year 1997
shall be the remainder of the calendar year after the date of execution of this
Agreement.
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"Personal Funded Annual Benefit" means the annual amount, payable
monthly for a period of 15 years following the commencement to the right to
payment under this Agreement, set forth in the fourth column of the attached
Schedule B.
"Retirement" means, if the Executive continues to be employed by
the Bank or any other of the Bank-Related Entities at the age of sixty-five
(65), termination of employment with the last of the Bank-Related Entities at
any date after age sixty-five (65).
2. Termination.
2.1 Employer Terminations. Any of the Bank-Related Entities
employing the Executive, without limiting any rights any of them may have, or
affecting any rights or obligations relating to termination outside this
Agreement, may terminate the Executive's employment, at will with or without
cause upon delivery of written notice to the Executive (except in the case of
death of the Executive, in which event termination shall automatically occur at
the date of death), and for any of the following grounds:
2.1.1 Willful breach or habitual neglect or inability
(except where such inability is due to Disability or death) to perform the
Executive's duties under the Employment Agreement or otherwise, including
without limitation failure to cooperate with the Bank Board or Company Board in
the structuring, documentation or negotiation of a transaction that might result
in a Change of Control;
2.1.2 Malfeasance or misfeasance in the performance of the
Executive's duties under the Employment Agreement or otherwise;
2.1.3 Immoral or illegal conduct;
2.1.4 Disability or death;
2.1.5 Determination in the complete discretion of the
Board of Directors of one of the Bank-Related Entities, as appropriate, that the
employment of the Executive should be terminated, without reference to the
grounds set forth in Paragraphs 2.1.1, 2.1.2, 2.1.3 or 2.1.4, prior to the date
the Executive's employment would otherwise terminate under the Employment
Agreement or otherwise, and specification in the notice described above of the
termination date.
3. Salary Continuation Benefits.
3.1 Executive Deferrals.
3.1.1 Election. The Executive shall, prior to each Plan
Year, elect to defer compensation in the amounts shown on the attached Schedule
A for the appropriate Plan Year by completing the Election Form attached as
Exhibit 1 (the "Election") and delivering it to the Chairman of the Bank. Such
deferrals shall be made (i) first from the bonus or bonuses
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<PAGE> 4
payable in the year following the Plan Year by any or all of the Bank-Related
Entities with respect to the Plan Year, if any, and if such bonuses are actually
calculated and otherwise payable on or before March 31 of such year, and (ii)
second from salary payable in the year following the Plan Year in equal parts
during the pay periods between April 1 and September 30 of that year, or as the
parties may otherwise agree in writing. An Election with respect to a Plan Year
shall be deemed to include both an election to make one or both types of
deferrals even though the payments from which the deferrals would be made would
not otherwise be made until the year following the Plan Year.
3.1.2 Non-Election. In the event that the Executive fails
to make the Election as to any Plan Year or the deferral required is not
actually made in full, (i) the Executive shall not have the right to make any
further Elections as to any subsequent Plan Year and (ii) the Executive's
Personal Funded Annual Benefit shall be limited to the amounts shown on the
attached Schedule B vested as of the last Plan Year as to which an Election was
made and the full deferral elected was made.
3.1.3 Tax Consequences. The Executive shall be solely
responsible for all income and other taxes which are or may become due with
regard to amounts deferred under this Paragraph 3 or the benefits otherwise
payable to the Executive under this Agreement. The Executive shall hold all of
the Bank-Related Entities harmless from and against any tax liabilities relating
to any deferral, payment or other benefit provided under this Agreement.
3.2 Deferral Account.
3.2.1 Establishing and Crediting. The Bank shall establish
a Deferral Account on its books for the Executive to which all deferrals
properly elected by the Executive shall be deemed deposited, and all payments of
Personal Funded Annual Benefits shall be deemed withdrawn.
3.2.2 Statement of Accounts. The Bank shall provide to the
Executive, within one hundred twenty (120) days after the end of each calendar
year, a statement setting forth the Deferral Account balance until the balance
is zero.
3.2.3 Accounting Device Only. The Deferral Account is
solely a device for measuring amounts to be paid under this Agreement. The
Deferral Account is not a trust fund, bank account or insured deposit account of
any kind.
3.2.4 Interest. Interest on the Deferral Account shall be
credited at the lesser of 5% per annum or the average of the Wall Street Journal
Prime Rate on the first business day of the preceding October, November and
December, minus 3%, adjusted annually on each January 1. In no event shall
interest be credited at a rate of less than 4% per annum.
3.3 Retirement. Upon the Retirement of the Executive, the
Bank shall pay to the Executive the annual sum of One Hundred and Twenty
Thousand Dollars ($120,000), provided that the Executive has made all fifteen
(15) Personal Annual Contributions under
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<PAGE> 5
Schedule A, payable monthly on the first day of each month following the date of
Retirement, for a period of one hundred eighty (180) months. If the Executive
has not made all fifteen (15) Personal Annual Contributions, the Bank shall pay
the annual sum vested under Paragraph 3.1.2, and the annual sum vested according
to the attached Schedule B-1, for a period of one hundred eighty (180) months;
subject to the terms hereof.
3.4 Disability. Upon the Disability of the Executive, the
Bank shall pay to the Executive the annual sum of One Hundred and Twenty
Thousand Dollars ($120,000), if the Executive has made all fifteen (15) Personal
Annual Contributions under Schedule A, payable monthly on the first day of each
month following the date of Disability, for a period of one hundred eighty (180)
months. If the Executive has not made all fifteen (15) Personal Annual
Contributions, the Bank shall pay the annual sum vested under Paragraph 3.1.2,
and the annual sum vested according to Schedule B-1, for a period of one hundred
eighty (180) months; subject to the terms hereof.
3.5 Change of Control. In the event of a Change of Control
while the Executive is employed with any of the Bank-Related Entities, the Bank
Funded Annual Benefit under Schedule B-1 shall be deemed fully vested at the
date of Change of Control notwithstanding any other provision of this Agreement.
The circumstances under which payment of any Bank Funded Annual Benefit shall be
made shall not be deemed to be altered by this Paragraph 3.5.
3.6 Certain Terminations by Employer. In the event the
Executive's employment with any of the Bank-Related Entities is terminated
pursuant to Paragraphs 2.1.1, 2.1.2, 2.1.3, or 2.1.5, the Bank shall pay to the
Executive (i) the annual sum of the Executive's Personal Funded Annual Benefit
vested under Schedule B at the date of such termination and (ii) with respect to
a termination under Paragraph 2.1.5 only, the annual sum of the Executive's Bank
Funded Annual Benefit vested under Schedule B-1. The annual sums will be payable
monthly on the first day of each month following the later of the date of such
termination or the Executive's attaining age sixty-five (65), for a period of
one hundred eighty (180) months; subject to the terms hereof.
3.7 Early Termination by the Executive. The Executive may
terminate his employment with any of the Bank-Related Entities prior to the date
it would otherwise terminate under the Employment Agreement or otherwise by
delivering written notice to the employer three (3) months in advance of the
date such termination is to take effect. In the event of any voluntary
termination by the Executive of employment with any of the Bank-Related Entities
that occurs within five (5) years from the date of this Agreement, the Bank
shall pay to the Executive only the annual sum of the Executive's Personal
Funded Annual Benefit vested under Paragraph 3.1.2 at the date of such
termination. In the event of any voluntary termination by the Executive of
employment with any of the Bank-Related Entities that occurs after five (5)
years from the date of this Agreement, the Bank shall pay to the Executive (i)
the annual sum of the Executive's Personal Funded Annual Benefit vested under
Paragraph 3.1.2 at the date of such termination. and (ii) the annual sum of the
Executive's Bank Funded Annual Benefit vested under Schedule B-1. The annual
sums will be payable monthly on the first day of each month following the later
of the date
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of such termination or the Executive's attaining age sixty-five (65), for a
period of one hundred eighty (180) months; subject to the terms hereof.
3.8 Death.
3.8.1 Prior to Other Events. If the Executive dies while
actively employed by one of the Bank-Related Entities at any time after the date
of this Agreement, the Bank shall pay the annual sum of $120,000 to the
Executive's designated Beneficiary, payable monthly on the first day of each
month following the month of the death of the Executive for a period of one
hundred eighty (180) months.
3.8.2 After Other Events. The Bank agrees that in the
event it is obligated to make payments under Paragraphs 3.3, 3.4, 3.5, 3.6 or
3.7, if the Executive shall die before receiving the full amount of the monthly
payments to which he is entitled hereunder, the Bank will make or continue to
make such monthly payments to the Executive's designated Beneficiary for the
remaining period at the times the Executive would have been entitled to payment
if he had not died.
3.9 Impact of Deferral Account. If at the date of the last
payment of the Personal Funded Annual Benefit due under this Agreement, if less
than the full annual sum of $60,000 was vested as a Personal Funded Annual
Benefit (Schedule B), and if the amount remaining in the Deferral Account would
exceed the amount of such payment, such payment shall be increased to the amount
remaining in the Deferral Account.
3.10 Nonassignability. Neither the Executive nor any other
person or entity shall have any power or right to transfer, assign, anticipate,
hypothecate, mortgage, commute, modify, or otherwise encumber in advance any of
the rights or benefits of the Executive under this Paragraph 3, nor shall any of
said rights or benefits be subject to seizure for the payment of any debts,
judgments, alimony or separate maintenance, owed by the Executive or any other
person or entity, or be transferable by operation of law in the event of
bankruptcy, insolvency or otherwise.
3.11 Claims Procedure. The Bank Board shall make all
determinations as to rights and benefits under this Paragraph 3.
3.12 Obligations of the Bank and the Company. The Company
shall not be liable under any circumstance for the obligations of the Bank set
forth in this Paragraph 3 or otherwise set forth in this Agreement.
3.13 Regulatory Restrictions. The parties understand and agree
that at the time any payment would otherwise be made or benefit provided under
this Paragraph 3 or Paragraph 4.2, depending on the facts and circumstances
existing at such time, the satisfaction of such obligations by the Bank may be
deemed by a regulatory authority to be illegal, an unsafe and unsound practice,
or for some other reason not properly due or payable by the Bank. Among other
things, the regulations at 12 C.F.R. Part 30, Appendix A promulgated pursuant to
Section 39(a) of the Federal Deposit Insurance Act, and at 12 C.F.R. Part 359,
or similar regulations or
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regulatory action following similar principles may apply at such time. The Bank
agrees that to the extent reasonably feasible, it will in good faith seek to
determine the position of the appropriate regulatory authority in advance of
each payment or benefit otherwise due under this Agreement, including seeking
the approval or acquiescence of the appropriate regulatory authorities, if
required. The parties understand, acknowledge and agree that, notwithstanding
any other provision of this Agreement, the Bank shall not be obligated to make
any payment or provide any benefit under this Agreement where (i) an appropriate
regulatory authority does not approve or acquiesce as required or (ii) the Bank
or the Company has been informed either orally or in writing by a representative
of the appropriate regulatory authority that it is the position of such
regulatory authority that making such payment or providing such benefit would
constitute an unsafe and unsound practice, violate a written agreement with the
regulatory authority, violate an applicable rule or regulation, or would cause
the representative of the regulatory authority to recommend enforcement action
against the Bank or the Company.
3.14 No Dual Benefits. Notwithstanding any provision of this
Agreement that may be read to the contrary, the Executive shall not be entitled
to more than one Bank Funded Annual Benefit or more than one Personal Funded
Annual Benefit, and the first calculation of each that is applicable under this
Agreement shall be the governing calculation.
4. Additional Covenants.
4.1 Unsecured General Creditor. Neither the Executive nor any
other person or entity shall have any legal right or equitable rights interests
or claims in or to any property or assets of the Bank under the provisions of
this Agreement. No assets of the Bank shall be held under any trust for the
benefit of the Executive or any other person or entity or held in any way as
security for the fulfilling of the obligations of the Bank under this Agreement.
All of the Bank's assets shall be and remain the general, unpledged,
unrestricted assets of the Bank. The Bank's obligations under this Agreement are
unfunded and unsecured promises, and to the extent such promises involve the
payment of money, they are promises to pay money in the future. The Executive
and any person or entity claiming through him shall be unsecured general
creditors with respect to any rights or benefits hereunder. It is the intention
of the parties that the arrangements created under this Agreement be unfunded
for tax purposes and for purposes of Title I of ERISA. The Executive's rights to
benefit payments under this Agreement are not subject in any manner to
anticipation, alienation, sale, transfer, assignment pledge, encumbrance,
attachment, or garnishment by creditors of the Executive or the Beneficiary.
4.2 Dispute Resolution.
4.2.1 The parties agree that if a dispute arises
concerning any provision of this Agreement or the rights and duties of any
person or entity hereunder, the parties agree first to try in good faith to
settle the dispute. In the event that the parties cannot settle the dispute, any
party shall have the right to submit the dispute, to binding arbitration. Such
arbitration shall be held before a single arbitrator agreed upon by the parties
to the dispute, and if they cannot agree, any party may petition a California
Superior Court in San Diego County for appointment of an arbitrator. The
arbitration shall be conducted in accordance with the Commercial Arbitration
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Rules of the American Arbitration Association, subject to any contrary and/or
additional terms of this Paragraph 4.2 and Paragraph 5.10.
4.2.2 The rules of evidence shall not apply to any
arbitration under this Paragraph 4.2. However, in all other respects, the
arbitrator shall follow applicable law.
4.2.3 Subject to Paragraph 5.10, each party shall bear
one-half of the costs and expenses of arbitration, and for purposes of this
provision, all Bank-Related Entities shall be considered to be one party.
4.2.4 The decision of the arbitrator or panel of
arbitrators shall be binding, enforceable, and non-appealable, and may be
entered in any court having jurisdiction thereof.
4.2.5 Payment of any and all amounts granted by an
arbitrator or panel or arbitrators hereunder shall be made within fifteen (15)
days following the date of the decision, and thereafter, shall bear interest at
the then current maximum legal rate per month until paid in full.
4.2.6 The arbitrator shall not have the power to award
damages to the Executive for emotional distress or pain and suffering or to
award consequential damages, but shall be empowered to award the Executive only
damages in the amount found by the arbitrator to be owed and unpaid under the
terms of the Agreement.
4.2.7 Any arbitration conducted under this Paragraph 4.2
shall be conducted in a confidential private proceeding and the fact of the
proceeding and the substance of the matters addressed in the proceeding shall be
kept confidential by the parties, provided that disclosure may be made by any
party to the arbitration upon notice to the other party or parties in the event
that such disclosure is required by applicable law or regulation or legal
process, or, in the case of the Bank or the Company in the event that the Bank
or the Company is advised by counsel that such disclosure is required or
advisable. Notwithstanding the foregoing, the parties agree that any regulatory
authority with jurisdiction over the Bank or the Company may be informed at any
time of all facts regarding the arbitration, and that the Bank and the Company
each have the right to file regulatory notices and/or reports referencing the
arbitration and its subject matter.
4.2.8 The parties to an arbitration shall cause the
arbitration to be heard and completed within six (6) months after the submission
of a dispute to arbitration. To assure such goal is attained, the parties shall
cause their counsel and affiliated or employed witnesses to be available at such
times as are necessary to complete the arbitration within this time and shall
require at the time of selection of arbitrators that potential arbitrators
confirm their availability and ability to complete the arbitration within this
time.
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5. General Provisions.
5.1. Notices. Unless otherwise specifically permitted by this
Agreement, all notices or other communications required or permitted under this
Agreement shall be in writing, and shall be personally delivered or sent by
registered or certified mail, postage prepaid return receipt requested, or sent
by telecopy, provided that the telecopy cover sheet contain a notation of the
date and time of transmission, and shall be deemed received: (i) if personally
delivered, upon the date of delivery to the address of the person to receive
such notice, (ii) if mailed in accordance with the provisions of this paragraph,
two (2) business days after the date placed in the United States mail, (iii) if
mailed other than in accordance with the provisions of this paragraph or mailed
from outside the United States, upon the date of delivery to the address of the
person to receive such notice, or (iv) if given by telecopy, when sent. Notices
shall be given at the following addresses:
If to the Bank or to the Company:
First Pacific National Bank
or FP Bancorp, Inc.
613 West Valley Parkway
Escondido, California 92025
Attention: Mark N. Baker
With a copy to:
Higgs, Fletcher & Mack LLP
401 West "A" Street, Suite 2000
San Diego, California 92101
Attention: Kurt L. Kicklighter
Telecopier: (619) 696-1410
If to the Executive:
Gary W. Deems
The address for delivery of notices may be changed by the relevant party by
giving notice of such change in accordance with this paragraph.
5.2 Complete Agreement; Modifications. This Agreement and written
agreements, if any, entered into concurrently herewith (i) constitute the
parties' entire agreement, including all terms, conditions, definitions,
warranties, representations, and covenants, with respect to the subject matter
hereof, (ii) merge all prior discussions and negotiations between or among any
or all of them as to the subject matter hereof, and (iii) supersede and replace
all terms, conditions, definitions, warranties, representations, covenants,
agreements, promises and understandings, whether oral or written, with respect
to the subject matter hereof. This Agreement may not be amended, altered or
modified except by a writing signed by the party to be
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bound. With regard to such amendments, alterations, or modifications, telecopied
signatures shall be effective as original signatures. Any amendment, alteration,
or modification requiring the signature of more than one party may be signed in
counterparts.
5.3 Further Actions. Each party agrees to perform any further
acts and execute and deliver any further documents reasonably necessary to carry
out the provisions of this Agreement.
5.4 Assignment. No party may assign its rights under this
Agreement.
5.5 Successors and Assigns. Except as explicitly provided herein
to the contrary, this Agreement shall be binding upon and inure to the benefit
of the parties, their respective successors and permitted assigns.
5.6 Severability. If any portion of this Agreement shall be held
by a court of competent jurisdiction to be invalid, void, or otherwise
unenforceable, the remaining provisions shall remain enforceable to the fullest
extent permitted by law if enforcement would not frustrate the overall intent of
the parties (as such intent is manifested by all provisions of the Agreement
including such invalid, void, or otherwise unenforceable portion).
5.7 Extension Not a Waiver. No delay or omission in the exercise
of any power, remedy, or right herein provided or otherwise available to any
party shall impair or affect the right of such party thereafter to exercise the
same. Any extension of time or other indulgence granted to a party hereunder
shall not otherwise alter or affect any power, remedy or right of any other
party, or the obligations of the party to whom such extension or indulgence is
granted except as specifically waived.
5.8 Time of Essence. Time is of the essence of each and every
term, condition, obligation and provision hereof.
5.9 No Third Party Beneficiaries. This Agreement and each and
every provision hereof is for the exclusive benefit of the parties hereto and
not for the benefit of any third party.
5.10 Attorneys' Fees. Should any litigation (including any
proceedings in a bankruptcy court) or arbitration be commenced between the
parties hereto or their representatives concerning any provision of this
Agreement or the rights and duties of any person or entity hereunder, the party
or parties prevailing in such litigation or arbitration shall be entitled, in
addition to such other relief as may be granted, to the attorneys' fees and
court or arbitration costs incurred by reason of such litigation or arbitration,
including attorneys' and experts' fees incurred in preparation for or
investigation of any matter relating to such litigation or arbitration up to a
maximum of $25,000. Should an arbitrator determine that no party is clearly or
completely the "prevailing" party, the arbitrator shall be entitled to apportion
fees and costs or to deny any award of fees and costs.
10
<PAGE> 11
5.11 Headings. The headings in this Agreement are inserted only
as a matter of convenience, and in no way define, limit, or extend or interpret
the scope of this Agreement or of any particular provision hereof.
5.12 References. A reference to a particular paragraph of this
Agreement shall be deemed to include references to all subordinate paragraphs,
if any.
5.13 Counterparts. This Agreement may be signed in multiple
counterparts with the same force and effect as if all original signatures
appeared on one copy; and in the event this Agreement is signed in counterparts,
each counterpart shall be deemed an original and all of the counterparts shall
be deemed to be one agreement.
5.14 Applicable Law. This Agreement shall be construed in
accordance with, and governed by, the laws of the State of California.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.
/S/ GARY W. DEEMS
------------------------------------
Gary W. Deems
FIRST PACIFIC NATIONAL BANK, a national
banking association
By: /S/ MARK N. BAKER
------------------------------------
Its: CHAIRMAN
-----------------------------------
FP BANCORP, INC., a Delaware corporation
By: /S/ MARK N. BAKER
------------------------------------
Its: CHAIRMAN
-----------------------------------
11
<PAGE> 12
EXHIBIT 1
SALARY CONTINUATION AGREEMENT
DEFERRAL ELECTION FORM
I, ____________________, hereby elect to defer the amount set forth on
Schedule B, attached, for Plan Year __ (199_)(20__) (the "Plan Year"). I
understand that such deferral will be made in accordance with my Salary
Continuation Agreement with First Pacific National Bank and FP Bancorp, Inc.,
dated as of ___________, 1997. Such deferral shall be made first from any bonus
payable to me from any of the Bank-Related Entities (as defined in the Salary
Continuation Agreement) in the year following the Plan Year, and then from
salary otherwise payable to me between April 1 and September 30 in the year
following the Plan Year. I acknowledge that I have delivered this executed
Salary Continuation Agreement Deferral Election Form to First Pacific National
Bank prior to the beginning of the Plan Year.
Date: _____________________
Executive: _____________________
RECEIVED
Date: _____________________
First Pacific National Bank
By:
------------------------------------
Its:
-----------------------------------
<PAGE> 13
Schedule "A"
Gary Deems - Personal Annual Contributions
<TABLE>
<CAPTION>
Personal Cumulative
Plan Annual Annual
Year Contribution Contributions
---- ------------ -------------
<S> <C> <C>
1 $ 18,824 $ 18,824
2 $ 20,386 $ 39,210
3 $ 22,079 $ 61,289
4 $ 23,911 $ 85,200
5 $ 25,896 $ 111,096
6 $ 28,044 $ 139,140
7 $ 30,373 $ 169,513
8 $ 32,894 $ 202,407
9 $ 35,623 $ 238,030
10 $ 38,581 $ 276,611
11 $ 41,782 $ 318,393
12 $ 45,251 $ 363,644
13 $ 49,006 $ 412,650
14 $ 53,074 $ 465,724
15 $ 57,479 $ 523,203
</TABLE>
<PAGE> 14
Schedule "B"
Gary Deems - Personal Funded Annual Benefit Vesting
<TABLE>
<CAPTION>
Personal
Plan Personal Funded Annual
Year Vested Benefit Vested
---- -------- --------------
<S> <C> <C>
1 6.67% $ 4,002
2 13.34% $ 8,004
3 20.00% $ 12,000
4 26.67% $ 16,002
5 33.34% $ 20,004
6 40.00% $ 24,000
7 46.67% $ 28,002
8 53.34% $ 32,004
9 60.00% $ 36,000
10 66.67% $ 40,002
11 73.34% $ 44,004
12 80.00% $ 48,000
13 86.67% $ 52,002
14 93.34% $ 56,004
15 100.00% $ 60,000
</TABLE>
<PAGE> 15
Schedule "B-1"
Gary Deems - Bank Funded Annual Benefit Vesting
<TABLE>
<CAPTION>
Bank Funded
Plan Bank Annual
Year Vested Benefit Vested
---- ------ --------------
<S> <C> <C>
1 50.00% $ 30,000
2 55.00% $ 33,000
3 60.00% $ 36,000
4 65.00% $ 39,000
5 70.00% $ 42,000
6 75.00% $ 45,000
7 80.00% $ 48,000
8 85.00% $ 51,000
9 90.00% $ 54,000
10 95.00% $ 57,000
11 100.00% $ 60,000
12 100.00% $ 60,000
13 100.00% $ 60,000
14 100.00% $ 60,000
15 100.00% $ 60,000
</TABLE>
<PAGE> 1
EXHIBIT 10.16
1998 MANAGEMENT INCENTIVE COMPENSATION PLAN
I. OBJECTIVE
The objective of this plan is to provide incentives to those senior
executives of FP Bancorp and First Pacific National Bank who can most
directly impact the profitability, return to shareholders and other
performance criteria of the corporation. The plan is designed to reward
these individuals for attaining and sustaining high levels of
performance and profitability, and for meeting and exceeding the short
and long term goals of the corporation. The Board believes that this
plan is desirable and necessary in order to attract, retain and motivate
high quality executives to manage the corporation.
II. DURATION
This is an annual performance plan. Although it is the company's
intention to offer this plan, or a similar one, on an ongoing basis,
there is no guarantee that it will be extended beyond the current year.
All participants will be notified of any extension, change or
termination prior to the end of the first quarter of the calendar year.
III. PLAN DESCRIPTION
The plan is designed to reward participants based upon the company's
performance versus financial goals established as part of the annual
budget and Strategic Plan.
In order to protect shareholder interests, the plan requires a minimum
return on assets and equity before any incentive award can be paid. As
the returns rise above the minimum thresholds, incentives also rise
accordingly. The award levels will be spelled out in a separate document
prior to the end of the first quarter of the calendar year.
The plan will also identify key benchmark operating ratios that must be
met in order for the plan to pay out in full. These benchmarks may
include the CAMEL rating, efficiency ratio, ratio of non-performing
assets to total assets, ratio of loan loss reserve to non-performing
loans and the delinquency ratio. Failure to achieve any of the
benchmarks may result in the elimination or lowering of the plan award
at the discretion of the Compensation Committee.
IV. PLAN ADMINISTRATION
The Compensation Committee of the Board of Directors has the
responsibility for designing and administering the plan. Before the
beginning of each year, the Committee will review and revise the plan,
and establish specific goals and award thresholds. The Committee may
adjust the plan and/or payouts accordingly for extraordinary events
during the year which could affect the plan either positively or
negatively.
<PAGE> 2
V. PLAN PARTICIPANTS
Key executives of FP Bancorp and First Pacific National Bank who are
responsible for directing significant management functions within the
company are eligible for participation. Before the beginning of each
year, the Compensation Committee shall review the recommendations of the
company's executive management for participants and award levels.
Participants may be added during the plan year at the discretion of the
Compensation Committee, with their incentive awards prorated
accordingly.
VI. PAYMENT SCHEDULE
The company will pay out the incentive awards as soon as practical after
the end of the calendar year and after the company's outside auditors
have reviewed the earnings and award calculations. All participants must
be employed by the company on the final day of the plan year to be
included in the incentive plan payout. Participants leaving the bank
voluntarily or for cause prior to year end will be ineligible for any
awards under this plan.
VII. IMPACT OF MERGERS
In the event the company becomes involved in a merger or acquisition,
the Compensation Committee may, at its discretion, adjust and continue
the plan accordingly.
2
<PAGE> 3
- --------------------------------------------------------------------------------
FP BANCORP, INC.
1998 SENIOR MANAGEMENT INCENTIVE COMPENSATION PLAN
BENCHMARKS FOR 1998 BONUS POOL
<TABLE>
<CAPTION>
------------------------------------------------
PLAN FP
BENCHMARK PLAN*
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
1) a) Safety and Soundness CAMEL Rating (at FPNB) "2" or better 2
b) CRA Rating (at FPNB) "Satisfactory" or better Satisfactory
c) Compliance Rating (at FPNB) "Satisfactory" or better Satisfactory
d) FRB Overall Rating (at FP Bancorp) "Satisfactory" or better Satisfactory
2) Efficiency Ratio (average prior to closing) 60% or less 59.00%
3) Nonperforming assets/Total assets 1.00% or less 0.67%
4) Delinquency ratio 1.75% or less 1.75%
-----------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
*FP plan at March 31, 1998.
Budget includes $1.26 million of OREO, $650,000 of nonaccrual and
$500,000 of > 90 day accruing.
<PAGE> 4
FP BANCORP, INC.
BONUS POOL CALCULATION - 1998 PLAN
<TABLE>
<CAPTION>
FINDLAY
SUPER PREMIER FP BUDGET
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net income (after tax)* $ 3,500,000 $ 4,000,000 $ 4,500,000 $ 5,000,000 $ 5,425,700
add: incentive pool $ 0 $ 267,000 $ 293,500 $ 320,000 $ 300,000
add: provision for loan $ 1,078,300 $ 1,078,300 $ 1,078,300 $ 1,078,300 $ 1,078,300
losses
ADJUSTED PROFIT $ 4,578,300 $ 5,345,300 $ 5,871,800 $ 6,398,300 $ 6,804,000
- --------------------------------------------------------------------------------------------------------------------------
ROA** 0.92% 1.05% 1.18% 1.31% 1.42%
AROA** 1.20% 1.40% 1.54% 1.68% 1.79%
ROE*** 13.36% 15.27% 17.18% 19.09% 20.72%
AROE *** 17.48% 20.41% 22.42% 24.43% 25.98%
Bonus % 0.0% 5.0% 5.0% 5.0% 5.0%
- --------------------------------------------------------------------------------------------------------------------------
BONUS AMOUNT $ 0 $ 267,265 $ 293,590 $ 319,915 $ 340,200
==========================================================================================================================
****
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (after tax)* $ 6,500,000 $ 7,000,000 $ 7,500,000
add: incentive pool $ 399,000 $ 425,000 $ 452,000
add: provision for loan $ 1,078,300 $ 1,078,300 $ 1,078,300
losses
ADJUSTED PROFIT $ 7,977,300 $ 8,503,300 $ 9,030,300
- --------------------------------------------------------------------------------------
ROA** 1.71% 1.84% 1.97%
AROA** 2.09% 2.23% 2.37%
ROE*** 24.82% 26.73% 28.64%
AROE *** 30.46% 32.47% 34.48%
Bonus % 5.0% 5.0% 5.0%
- --------------------------------------------------------------------------------------
BONUS AMOUNT $ 398,865 $ 425,165 $ 451,515
======================================================================================
</TABLE>
* Actual income to be annualized based on number of days in operating
period.
** Based on average assets of $380,800,000.
*** Based on beginning equity of $26,189,000 (unaudited 12/31/97).
**** Per Definitive Agreement, not to exceed $308,000 - payout to be pro
rated by number of days in operating period.
Note: Findlay Super Premier Performing Banks have an ROE of 17.50% or
greater (when leverage ratio is 8% or less) and are in the top
5-8% of all California Banks.
<PAGE> 1
EXHIBIT 10.17
October 16, 1997
Board of Directors
FP Bancorp, Inc.
613 West Valley Parkway
Escondido, CA 92025-4929
Attention: Mr. Harvey Williamson
President and Chief Executive Officer
Ladies and Gentlemen:
Sandler O'Neill & Partners, L.P. ("Sandler O'Neill") is pleased
to act as an independent financial advisor to the Board of Directors and senior
management of FP Bancorp, Inc. and its subsidiaries (together, the "Company") in
connection with certain business combinations involving the Company and a second
party (whether an individual, partnership, company or other entity, and together
with its affiliates, the "Second Party") ("Specific Advisory Services"). This
letter is to confirm the terms and conditions of our engagement.
SPECIFIC ADVISORY SERVICES
In connection with Sandler O'Neill's Specific Advisory Services,
Sandler O'Neill will assist the Company in analyzing, structuring, negotiating
and effecting Business Combinations or other strategic alternatives which may
involve one or more Second Parties. In this regard, we anticipate that our
activities would include, as appropriate, the following:
1. Performing financial analyses of the Company and a Second
Party in the context of a possible Business Combination;
2. Assisting the Company in its determination of appropriate
and desirable values to be exchanged in a Business
Combination;
<PAGE> 2
Board of Directors
FP Bancorp, Inc.
October 16, 1997
Page 2
3. Advising the Company as to the structure and form of any
proposed Business Combination;
4. Advising and assisting the Company's Mergers and
Acquisitions Committee and management in making
presentations to the Company's Board of Directors about
any proposed Business Combination;
5. Counseling and participating with the Company's Mergers and
Acquisitions Committee and management in any approaches to,
or discussions or negotiations with, a Second Party;
6. Assuming an agreement in principle is reached for a
Business Combination, assisting the Company's Mergers and
Acquisitions Committee and management in negotiating a
definitive agreement;
7. Assisting the Company in any proceedings relating to
regulatory approvals required for a Business Combination;
8. If requested by the Company, rendering an opinion to the
Board (the "Opinion") as to whether the consideration to be
exchanged in a proposed Business Combination with the
Second Party is fair, from a financial point of view, to
the Company's shareholders; and
9. Rendering such other financial advisory and investment
banking services as may from time to time be agreed upon by
Sandler O'Neill and the Company.
The Company hereby acknowledges and agrees that the financial models and
presentations used by Sandler O'Neill in performing its services hereunder have
been developed by and are proprietary to Sandler O'Neill and are protected under
applicable copyright laws. The Company agrees that it will not reproduce or
distribute all or any portion of such models or presentations without the prior
written consent of Sandler O'Neill.
<PAGE> 3
Board of Directors
FP Bancorp, Inc.
October 16, 1997
Page 3
TRANSACTION RELATED FEES
In connection with the Specific Advisory Services referred to
above, the Company agrees to pay Sandler O'Neill transaction related fees as set
forth below:
1. If during the period Sandler O'Neill is retained by the
Company or within 12 months thereafter (a) a Business
Combination is consummated with a Second Party (i) as to
which Sandler O'Neill provided the Company with material
financial advice as to a proposed or actual Business
Combination or (ii) with which Sandler O'Neill had
substantive discussions with the prior consent of the
Company regarding a Business Combination, in each case
during the term of Sandler O'Neill's engagement hereunder;
or (b) the Company enters into a definitive agreement with
any such Second Party to engage in a Business Combination,
transaction fees shall be paid as follows: the sum of (i)
if the Per Share Transaction Value is less than or equal to
$26.50, an amount equal to 0.60% of the Aggregate
Transaction Value, plus (ii) if the Per Share Transaction
Value is greater than $26.50, an amount equal to 5.0% of
the amount by which the actual Aggregate Transaction Value
exceeds the Base Value Aggregate Transaction Value. Such
transaction fee shall become due and payable in cash as
follows: (x) $100,000 upon the public announcement by the
Company of the signing of the definitive agreement to
effect the Business Combination, (y) $100,000 upon the
receipt by the Company of the approval of the Company's
shareholders to effect the Business Combination, and (z)
the balance on the day of closing of the Business
Combination. For purposes of determining any transaction
fees payable pursuant to this paragraph, the Base Per Share
Transaction Value shall be $26.50 and the Base Value
Aggregate Transaction Value shall be calculated as if the
Per Share Transaction Value were equal to the Base Per
Share Transaction Value.
2. If Sandler O'Neill is asked by the Company to render an
opinion to the Board as to whether the consideration to be
exchanged in a proposed Business Combination with a Second
Party is fair, from a financial point of view, to the
Company's shareholders, the Company agrees to pay Sandler
O'Neill a fee of $50,000, payable in cash at the time such
Opinion is rendered. Any fee paid pursuant to this
paragraph 2 shall be credited against any fee that becomes
due and payable under clauses (y) and (z) of paragraph 1
above.
<PAGE> 4
Board of Directors
FP Bancorp, Inc.
October 16, 1997
Page 4
Sandler O'Neill also acknowledges that a decision on whether to accept
any offers is strictly reserved to the Company's Board of Directors, and
recognizes that the Board of Directors may choose to reject all proposals
regardless of the price offered. In such situations, Sandler O'Neill will be
entitled only to receive those fees and expenses provided for herein.
EXPENSE REIMBURSEMENT
In addition to any fees that may be payable to Sandler O'Neill
under this letter, the Company agrees to reimburse Sandler O'Neill, upon request
made from time to time, for its reasonable out-of-pocket expenses incurred in
connection with Sandler O'Neill's activities under this letter, including the
reasonable fees and disbursements of its legal counsel.
FAIRNESS OPINIONS
It is understood that any Opinion will be dated as of a date
reasonably proximate to the date of any proxy statement or any offer to purchase
to be mailed to the shareholders of the Company in connection with the Business
Combination. It is further understood that, if the Opinion is included in any
such proxy statement or offer to purchase, the Opinion will be reproduced in
such proxy statement or offer to purchase in full, and any description of or
reference to Sandler O'Neill or the analyses performed by Sandler O'Neill or any
summary of the Opinion in such proxy statement or offer to purchase will be in a
form acceptable to Sandler O'Neill and its counsel in the exercise of their
reasonable judgment. If no proxy statement or offer to purchase is to be mailed
to the Company's shareholders in connection with the Business Combination, the
Opinion will be dated as of a date reasonably proximate to the date of its
delivery to the Company's Board of Directors. Except as provided in this letter
or as required by law, neither the Opinion nor any other advice delivered to the
Board of Directors or senior management of the Company by Sandler O'Neill may be
reproduced, summarized, described or referred to without Sandler O'Neill's prior
written consent.
CONFIDENTIAL INFORMATION
The Company will furnish Sandler O'Neill (and will request that
the Second Party furnish Sandler O'Neill) with such information as Sandler
O'Neill reasonably believes appropriate to its assignment (all such information
so furnished being the "Information"). The Company recognizes and confirms that
Sandler O'Neill (a) will use and rely primarily on the Information and on
information available from generally recognized public sources in performing the
services contemplated by this letter and in rendering the Opinion without
<PAGE> 5
Board of Directors
FP Bancorp, Inc.
October 16, 1997
Page 5
having independently verified the same, (b) does not assume responsibility for
the accuracy or completeness of the Information and such other information and
(c) will not make an appraisal of any assets, collateral securing assets or
liabilities of the Company or the Second Party. Sandler O'Neill agrees to use
its best efforts to keep confidential Information confidential and to abide by
any confidentiality agreements signed by the Company and a Second Party.
INDEMNIFICATION
The Company agrees to indemnify and hold Sandler O'Neill and its
affiliates and their respective partners, directors, officers, employees, agents
and controlling persons (Sandler O'Neill and each such person being an
"Indemnified Party") harmless from and against any and all losses, claims,
damages and liabilities, joint or several, to which such Indemnified Party may
become subject under applicable federal or state law, or otherwise, related to
or arising out of any actual or proposed Business Combination or alternative
transaction or the engagement of Sandler O'Neill pursuant to, and the
performance by Sandler O'Neill of the services contemplated by, this letter, and
will reimburse any Indemnified Party for all expenses (including reasonable
counsel fees and expenses) as they are incurred, including expenses incurred in
connection with the investigation of, preparation for or defense of any pending
or threatened claim or any action or proceeding arising therefrom, whether or
not such Indemnified Party is a party. The Company will not be liable under the
foregoing indemnification provision to the extent that any loss, claim, damage,
liability or expense is found in a final judgment by a court of competent
jurisdiction to have resulted primarily from Sandler O'Neill's bad faith or
negligence. The foregoing shall not apply to any suits or proceedings brought
against Sandler O'Neill by the Company (including its affiliated entities and
its officers, directors, agents, employees or controlling persons).
In the event Sandler O'Neill appears as a witness in any action
brought against the Company in which an Indemnified Party is not named as a
defendant, the Company agrees to reimburse Sandler O'Neill for all reasonable
expenses incurred and time expended by it in connection with its appearing as a
witness.
The Company agrees to notify Sandler O'Neill promptly of the
assertion against it or any other person of any claim or the commencement of any
action or proceeding relating to any transaction contemplated by this agreement.
<PAGE> 6
Board of Directors
FP Bancorp, Inc.
October 16, 1997
Page 6
CERTAIN DEFINITIONS
As used in this letter, the term:
1. "Business Combination" means (a) any merger, consolidation,
reorganization or other business combination pursuant to
which the business of the Company is combined with or comes
under common control with that of the Second Party, or (b)
the acquisition, directly or indirectly, by the Second
Party of more than 50.1% of the capital stock, or all or a
substantial portion of the assets, of the Company, by way
of tender or exchange offer, negotiated purchase or
otherwise, whether effected, in any such case, in one
transaction or a series of transactions.
2. "Per Share Transaction Value" means the consideration
agreed to be paid or exchanged for each share of common
stock of the Company.
3. "Aggregate Transaction Value" means an amount equal to the
sum of (a) the product of (1) the consideration agreed to
be paid or exchanged for each share of each class of stock
of the Company, and (2) the number of such shares agreed to
be acquired or exchanged and acquired or exchanged by the
Company, plus (b) the product of (1) the number of options,
warrants or other rights, all as outstanding on or after
the date of an agreement to effect a Business Combination,
and, without duplication, that are cashed out or exchanged,
as the case may be, as part of the Business Combination and
(2) the consideration to be paid with respect to such
options, warrants or other rights. For the purpose of
clause (a)(2) of the foregoing sentence, all shares of any
class of stock shall be deemed to have been acquired if
more than 75% of the outstanding shares of that class,
including in the total of shares acquired shares that were
acquired by the Second Party, prior to or as an integral
part of, the Business Combination, are acquired. The fair
market value of any such securities will be the value as
the parties hereto shall mutually agree on the day prior to
(1) the consummation of such transaction or (2) the date on
which a partial transaction fee becomes due and payable;
provided, however, that if such securities consist of
securities with an existing public trading market, the
value thereof shall be determined by the average of the
last sales prices for such securities on the five trading
days ending five days prior to the relevant date. In the
event a particular
<PAGE> 7
Board of Directors
FP Bancorp, Inc.
October 16, 1997
Page 7
transaction structure makes the calculation of the
Aggregate Transaction Value as set forth above impractical,
the parties hereto shall use their best efforts to
determine an Aggregate Transaction Value that would
approximate the Aggregate Transaction Value had the
relevant Business Combination been structured as a share
purchase.
TERMINATION OF ENGAGEMENT
Sandler O'Neill's engagement hereunder may be terminated by the
Company or by Sandler O'Neill at any time upon 30 days written notice to that
effect, it being understood that the provisions relating to the payment of fees
and expenses, confidential information and indemnification will survive any such
termination.
<PAGE> 8
Board of Directors
FP Bancorp, Inc.
October 16, 1997
Page 8
Please confirm that the foregoing correctly sets forth our
agreement by signing and returning to Sandler O'Neill the duplicate copy of this
letter enclosed herewith.
Very truly yours,
Sandler O'Neill & Partners, L.P.
By: Sandler O'Neill & Partners Corp.,
the sole general partner.
By:/s/ PAUL R. HAKLISCH
_______________________________
Paul R. Haklisch
Vice President
Accepted and agreed to as
of the date first written above:
FP Bancorp, Inc.
By: /S/ MARK N. BAKER
_______________________________
Its: CHAIRMAN
_______________________________
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
FP Bancorp, Inc.:
We consent to incorporation by reference in the registration statement (No.
33-32788) on Form S-8 of FP Bancorp, Inc. of our report dated January 20, 1998,
relating to the consolidated balance sheets of FP Bancorp, Inc. and subsidiary
as of December 31, 1997, and 1996, and the related consolidated statements of
earnings, stockholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1997, which report appears in the December
31, 1997 annual report on Form 10-KSB of FP Bancorp, Inc.
KPMG Peat Marwick LLP
San Diego, California
March 10, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 23,737,000
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 59,366,000
<INVESTMENTS-CARRYING> 23,478,000
<INVESTMENTS-MARKET> 23,780,000
<LOANS> 230,502,000
<ALLOWANCE> 2,646,000
<TOTAL-ASSETS> 353,204,000
<DEPOSITS> 309,502,000
<SHORT-TERM> 15,675,000
<LIABILITIES-OTHER> 1,838,000
<LONG-TERM> 0
<COMMON> 3,000
0
0
<OTHER-SE> 26,186,000
<TOTAL-LIABILITIES-AND-EQUITY> 353,204,000
<INTEREST-LOAN> 23,577,000
<INTEREST-INVEST> 4,694,000
<INTEREST-OTHER> 132,000
<INTEREST-TOTAL> 28,403,000
<INTEREST-DEPOSIT> 7,495,000
<INTEREST-EXPENSE> 8,462,000
<INTEREST-INCOME-NET> 19,941,000
<LOAN-LOSSES> 432,000
<SECURITIES-GAINS> 89,000
<EXPENSE-OTHER> 14,492,000
<INCOME-PRETAX> 7,557,000
<INCOME-PRE-EXTRAORDINARY> 7,557,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,383,000
<EPS-PRIMARY> 1.62
<EPS-DILUTED> 1.45
<YIELD-ACTUAL> 6.76
<LOANS-NON> 614,000
<LOANS-PAST> 41,000
<LOANS-TROUBLED> 525,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,121,000
<CHARGE-OFFS> 1,438,000
<RECOVERIES> 247,000
<ALLOWANCE-CLOSE> 2,646,000
<ALLOWANCE-DOMESTIC> 2,646,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
IN ADDITION TO CHARGE OFFS AND RECOVERIES, AN ADDITIONAL PURCHASE ACCOUNTING
ADJUSTMENT OF $284,000 WAS MADE TO THE ALLOWANCE FOR LOAN LOSSES DURING 1997.
</FN>
</TABLE>
