FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 2-91196
NORTHERN EMPIRE BANCSHARES
(Exact name of registrant as specified in its charter)
California 94-2830529
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
801 Fourth Street, Santa Rosa, California 95404
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code 707-579-2265
NONE
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities and
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest
practicable date.
Title of class: Common Stock, no par value Outstanding shares as of
July 31, 1998: 1,651,452
Transitional Small Business Disclosure Format (check one): Yes No X
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NORTHERN EMPIRE BANCSHARES AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(dollars in thousands)
June 30, December 31,
1998 1997
ASSETS
Cash and equivalents:
Cash and due from banks $ 9,880 $ 7,412
Federal funds sold 26,438 8,770
------- -------
Total cash and equivalents 36,318 16,182
Investment securities
Held-to-maturity 0 1,500
Available-for-sale 3,493 3,951
Restricted 1,685 1,639
Loans receivable, net 234,149 204,408
Leasehold improvements and equipment, net 817 683
Accrued interest receivable and other assets 5,742 5,374
-------- --------
Total assets $282,204 $233,737
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits $261,000 $214,747
Accrued interest payable and
other liabilities 1,202 1,281
-------- --------
Total liabilities 262,202 216,028
-------- --------
Commitments and contingencies (Note 10).
Shareholders' equity:
Preferred stock, no par value;
authorized, 10,000,000 shares;
none issued or outstanding
Common stock, no par value;
authorized, 20,000,000 shares;
shares issued and outstanding,
1,651,452 in 1998 and
1,628,727 in 1997 12,345 9,778
Unrealized gain (loss) on available
for sale securities (3) 0
Retained earnings 7,660 7,931
-------- -------
Total shareholders' equity 20,002 17,709
-------- -------
Total liabilities and
shareholders' equity $282,204 $233,737
======== ========
See Notes to Consolidated Financial Statements
NORTHERN EMPIRE BANCSHARES AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
for the three and six months ended June 30, 1998 and 1997
(Unaudited) Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
(dollars in thousands,
except per share data)
Interest income:
Loans $5,724 $4,668 $11,087 $8,987
Federal funds sold and
investment securities 389 346 772 739
------ ------ ------ ------
Total interest income 6,113 5,014 11,859 9,726
Interest expense 2,683 2,237 5,238 4,371
------ ------ ------- ------
Net interest income before
provision for loan losses 3,430 2,777 6,621 5,355
Provision for loan losses 120 120 240 240
------ ------ ------- ------
Net interest income after
provision for loan losses 3,310 2,657 6,381 5,115
------ ------ ------- ------
Other income:
Service charges on deposits 87 91 176 180
Gain on sale of loans 134 130 332 130
Other 190 203 359 388
------ ------ ------- ------
Total other income 411 424 867 698
------ ------ ------- ------
Other expenses:
Salaries and
employee benefits 1,046 879 2,043 1,741
Occupancy 186 178 365 344
Equipment 115 84 228 167
Advertising 89 101 164 174
Outside customer services 59 63 123 123
Director and
shareholder expenses 80 71 131 122
Deposit and other insurance 48 44 94 86
Professional fees 32 38 79 78
Other 185 190 369 375
------ ------ ------- ------
Total other expenses 1,840 1,648 3,596 3,210
------ ------ ------ ------
Income before income taxes 1,881 1,433 3,652 2,603
Provision for income taxes 741 560 1,466 1,056
------ ------ ------- ------
Net income $1,140 $ 873 $ 2,186 $1,547
====== ====== ======= ======
Earnings per common share $ 0.69 $ 0.54 $ 1.32 $ 0.95
====== ======= ======= ======
Earnings per common share
assuming dilution $ 0.67 $ 0.52 $ 1.28 $ 0.92
====== ======= ======= ======
See notes to Consolidated Financial Statements
NORTHERN EMPIRE BANCSHARES AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the six months ended June 30, 1998 and 1997
(Unaudited)
1998 1997
(dollars in thousands)
Cash flows from operating activities:
Net income $ 2,186 1,547
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses and OREO losses 240 240
Depreciation, amortization and accretion 178 150
Net increase (decrease) in deferred
loan fees and discounts 173 (112)
Decrease (increase) in interest
receivable and other assets (368) 438
Increase (decrease) in accrued interest
payable and other liabilities (79) (443)
------- -------
Net cash provided by in
operating activities 2,330 1,820
------- -------
Cash flows from investing activities:
Purchase of:
Held to maturity securities 0 (9,843)
Available for sale securities (2,018) (7,015)
Restricted securities (45) (1,517)
Maturities of:
Held to maturity securities 1,500 10,000
Available for sale securities 2,474 7,696
Net decrease in deposits in other
financial institutions 0 2,873
Net decrease (increase) in loans receivable (30,154) (24,219)
Purchase of leasehold improvements
and equipment, net (313) (137)
------- -------
Net cash used in investing activities (28,556) (22,162)
------- -------
Cash flows from financing activities:
Net increase (decrease) in deposits 46,253 (1,685)
Payment of cash dividends (5) (2)
Stock options exercised 114 77
------- -------
Net cash provided by financing activities 46,362 (1,610)
------- -------
Net increase (decrease) in cash and
cash equivalents 20,136 (21,952)
Cash and cash equivalents at
beginning of year 16,182 33,790
------- -------
Cash and cash equivalents at end
of period $36,318 $11,838
======= =======
Other cash flow information
Interest paid $ 5,176 $ 4,389
======= =======
Income taxes paid $ 1,725 $ 944
======= =======
Additions to other real estate owned $ 0 $ 97
======= =======
See notes to Consolidated Financial Statements
Northern Empire Bancshares and Subsidiary
Notes to Consolidated Financial Statements
June 30, 1998
NOTE 1 - BASIS OF PRESENTATION
In the opinion of Management, the unaudited interim consolidated
financial statements contain all adjustments of a normal recurring
nature, which are necessary to present fairly the financial condition of
Northern Empire Bancshares (the "Corporation") and Subsidiary at June
30, 1998 and the results of operations for the three and six months then
ended.
Certain information and footnote disclosures presented in the
Corporation's annual consolidated financial statements are not included
in these interim financial statements. Accordingly, the accompanying
unaudited interim consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Corporation's 1997 Annual Report on Form 10-KSB. The
results of operations for the three and six months ended June 30, 1998
are not necessarily indicative of the operating results through December
31, 1998.
NOTE 2 - NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Earnings per share (EPS) are shown in accordance with SFAS No. 128
"Earnings per Share" which was effective for fiscal years ended after
December 31, 1997 and requires restatement of prior period EPS. Basic
EPS is computed by dividing income available to common shareholders by
the weighted average number of common shares outstanding during the
period. Diluted EPS is computed by dividing diluted income available
to shareholders by the weighted average number of common shares and
common equivalent shares outstanding which include dilutive stock
options. The computation of common stock equivalent shares is based on
the weighted average market price of the Bank's common stock throughout
the period.
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30, June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Weighted average number of common
shares outstanding - Basic 1,651,144 1,617,566 1,646,968 1,628,421
Effect of dilutive securities: Stock options 54,816 61,722 54,737 52,101
Weighted average number of common
shares outstanding - diluted 1,705,960 1,679,288 1,701,705 1,680,522
Net income $1,140,000 $873,000 $2,186,000 $1,547,000
Basic earnings per share $0.69 $0.54 $1.32 $0.95
Diluted earnings per share $0.67 $0.52 $1.28 $0.92
</TABLE>
NOTE 3 - NEW AMD PENDING ACCOUNTING STANDARDS
See the Corporation's 1997 Annual Report on Form 10-KSB for a discussion
of new and pending accounting standards.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
Northern Empire Bancshares is the bank holding company of Sonoma
National Bank (the "Bank"). Since the principal business of the
Corporation is the Bank, the following discussion pertains mainly to the
Bank.
This report contains "forward-looking statements" as defined in section
27A of the Securities Act of 1933, as amended, and section 21E of the
Securities Exchange Act of 1934, as amended, which includes statements
such as projections, plans and objectives and assumptions about the
future, and such forward looking statements are subject to the safe
harbor created by these sections. Many factors could cause the actual
results, amounts or events to differ materially from those the
Corporation expects to achieve or occur, such as changes in competition,
market interest rates, economic conditions and regulations. Although the
Corporation has based its plans and projections on certain assumptions,
there can be no assurances that its assumptions will be correct, or that
its plans and projections can be achieved.
Total consolidated assets equaled $282,204,000 at June 30, 1998 compared
to $233,737,000 at December 31, 1997. Cash and cash equivalents
increased $20.1 million since year end. Net loans increased $29.7
million since year end with $12.2 million occurring in the second
quarter. The growth in cash and cash equivalents and loans was funded by
new deposits.
Net income for the first six months of 1998 equaled $2,186,000 compared
to $1,547,000 for the comparable period last year, an increase of 41%.
The second quarter's net income of $1,140,000 increased 31% over the
second quarter of 1997 when net income equaled $873,000. The higher
profit resulted from increases in net interest income due to loan growth
(a larger volume of higher yielding earning assets).
Net Interest Income
Net interest income of $3,430,000 for the second quarter of 1998
increased 24% from $2,777,000 for the comparable period last year. This
increase in net interest income resulted from volume increases of $45.6
million in average earning assets for the second quarter of 1998
compared to the second quarter of 1997. $42.5 million of that increase
was in average loans outstanding, which have the highest yield of
interest earning assets. Average interest bearing deposits for the
second quarter increased $35.4 million over the same period last year.
The net interest margin equaled 5.31% during the second quarter of 1998
compared to an average margin for the year of 1997 of 5.22%. The yield
on average loans equaled 9.95% in the second quarter compared to
9.98% for the year of 1997, while the Bank's cost of funds was 4.98%
compared to 5.00% during the year of 1997.
Several factors impact the Bank's interest margin. The Bank's ratio of
loans to deposits increased from an average of 90.6% in 1997 to 93.4%
during the second quarter of 1998. The mix of loans influences the
overall yield on loans. During the second quarter of 1998, there was
significant growth in all loan categories: however, an increase of $12.9
in average construction loan balances had a positive effect since that
loan category has the highest loan yield. Net interest margin is also
affected by the level of loans relative to deposits.
The Bank is considered asset sensitive and benefits from rate increases,
since its assets reprice at a faster rate than deposits. The Prime
lending rate was 8.25% from December 31, 1996 through March 26, 1997
when it increased to 8.5%, where it has remained. Of the Bank's loan
portfolio totaling $238.9 million at June 30, 1998, $214.1 million or
90% of the loans are adjustable rate loans which have not reached a
floor or ceiling rate. Approximately $147.9 million are prime-based
loans, of which $26.0 million reprice immediately and $120.3 million
reprice on a quarterly basis. Approximately $80.8 million of the Bank's
loan portfolio is periodically adjustable (generally every six months)
based upon the Eleventh District's cost of funds index. This
index was 4.88% in June 1998 and equaled 4.86% in June 1997.
Interest expense increased from $2,237,000 in the second quarter of 1997
to $2,683,000 in 1998. The major factor was the increase of $35.4
million in average interest bearing deposits when comparing the second
quarter of 1997 to 1998. The average cost of interest bearing deposits
was 4.98% during the second quarter of 1998 compared to 4.97% in the
second quarter of 1997.
Other Income
Other income is derived primarily from service charges on deposit
accounts, discount brokerage income, earnings on life insurance, SBA
loan servicing, SBA loan sales and sales of other real estate owned.
Other income decreased to $411,000 from $424,000 when comparing the
second quarter of 1998 to the same period last year. This decline
resulted from less income from servicing SBA loan. SBA servicing fees,
which totaled $83,000 during the quarter, decreasing from $103,000 for
the same period of 1997. This change reflects the decrease in the pool
of loans serviced, on which the Bank receives a servicing fee. The
serviced portfolio equaled $30.9 at June 30, 1998 compared to $38.9
million at the end of the second quarter of 1997.
Service charges during the quarter decreased slightly to $87,000 from
$91,000 during the second quarter last year. This fluctuation is not
unusual since service charges vary depending on the services to customer
and earnings credits provided from balances maintained by analysis
customers.
There were $1,460,000 in sales of SBA loans during the second quarter of
1998, compared to sales of $1,454,000 for the second quarter of 1997.
The 1998 sales resulted in gains totaling $134,000 during the
second quarter of 1998 compared to $130,000 for the same period last
year. The Bank has been retaining the majority of the guaranteed
portion of SBA loans to realize the interest yield, rather than selling
the guaranteed portion for a one time gain and then servicing the loan
for a fee. Management considers the Bank's liquidity needs and the
estimated loans and deposit growth as a part of the decision to hold SBA
guaranteed loans versus selling them. There is an established market for
SBA guaranteed loans which the Bank can access to sell qualifying SBA
guaranteed loans.
There were no sales of other real estate owned (OREO) during the first
six months of 1998. During 1997, the Bank sold four OREO properties
realizing book gains totaling $23,000 ($9,000 in the second quarter).
Non-Interest Expenses
The Bank's non-interest expenses increased from $1,648,000 in the second
quarter of 1997 to $1,840,000 in the second quarter of 1998. This
increase was anticipated since the Bank has continued to grow at a rapid
rate with minimal increases in non-interest expenses for the last few
years.
The Bank's largest expense category is salaries and benefits which
increased 19% from $879,000 to $1,046,000. A new loan group
specializing in residential construction loans was added during the
second quarter of last year which added three new staff positions. The
Bank has also added Branch staff to handle the increased deposit
customer activity. The growth in the loan portfolio and deposits
resulted in higher incentive payments over the second quarter of 1997.
Personnel costs were also affected by annual salary increases and
changes in benefit costs.
Occupancy expenses increased 4.5% for the second quarter of 1998, which
resulted from increased rent charges. In June 1998, the lending and
loan administrative staff was relocated to a new building, which is
expected to improve work flow and provide space for future growth.
Equipment costs also increased in the second quarter of 1998 to $115,000
over $84,000 for the comparable quarter last year. As a part of the
move, a computer network was installed, which required upgrading
existing computer equipment and purchasing new equipment. Equipment
costs are expected to continue to increase during 1998 and 1999 as
additional networks are installed throughout the branches.
Deposit and other insurance of $48,000 increased $4,000 over the second
quarter of last year. Regulatory assessments and FDIC insurance cost
grew due to the increase in deposit assessment base for Financing
Corporation (FICO) assessment which became effective January 1, 1997.
There is no assurance that the current FDIC assessment will continue at
such a low level. Other insurance costs increased due to Bank
growth and additions to the Bank's insurance coverage which resulted in
higher premiums.
Advertising and business development costs decreased to $89,000 up from
$101,000 in the second quarter of 1997. Professional fees declined by
$6,000 from the second quarter of 1997 to $32,000. Both of these
expense categories vary significantly based on activity throughout the
year. Other expenses, which includes stationery & supplies, telephone,
postage, loan expenses, director fees, dues and subscriptions and
automobile costs, approximated the second quarter of 1997's expense
level.
Total non-interest expenses for the SBA lending department for the
second quarter was approximately $442,000 ($260,000 in personnel costs,
$59,000 in occupancy and equipment expenses, $26,000 in
marketing/business development) compared to $380,000 for the second
quarter of 1996. At June 30, 1998, the SBA loan portfolio (serviced
portion and Bank's portion) equaled $110.5 million, of which $30.9
million has been sold and is being serviced.
Income Taxes
The effective tax rate was 39.4% for the second quarter of 1998. The
provision for the second quarter of 1998 was $741,000 versus $560,000
for the same period last year. The increase resulted from the increase
in pre-tax income during the comparable quarters.
Liquidity and Investment Portfolio
Liquidity is a bank's ability to meet possible deposit withdrawals, to
meet loan commitments and increased loan demand, and to take advantage
of other investment opportunities as they arise. The Bank's liquidity
practices are defined in both the Asset and Liability Policy and the
Investment Policy. These policies define acceptable liquidity measures
in terms of ratios to total assets, deposits, liabilities and capital.
Cash and due from banks, federal funds sold and certificates of deposit
totaled $36.3 million or 12.9% of total assets at June 30, 1998,
compared to $16.2 million or 6.9% of total assets at December 31, 1997.
Liquid assets were lower than normal at year end due to the rapid growth
in loans at the end of the year. During the first quarter of 1998 the
Bank offered special time deposits at slightly higher then market rates
to attract new deposits and sold loans in order to restore liquidity to
normal levels. At the end of the first quarter, total cash and
equivalents equaled $33 million or 12.3% of total assets.
The Bank has several ways of providing additional liquidity. Special
deposit campaigns, which offer slightly higher than market rates,
continue to attract new deposits to the Bank. The Bank also has the
option of selling SBA guaranteed loans to provide liquidity. As of June
30, 1998, the Bank held $54.2 million in SBA guaranteed loans which
could be sold if liquidity was needed.
At June 30, 1998, the Bank had unused federal funds lines of credit
totaling $9,000,000. The Bank also has a credit line with the Federal
Home Loan Bank which is based upon the value of collateral (investments
and loans). Management believes this amount of secondary liquidity is
adequate to meet any cash demands that may arise.
At present, the Corporation's primary sources of liquidity are from
interest on deposits, exercise of stock options and dividends from the
Bank. The Bank's ability to pay dividends to the Corporation is subject
to the restrictions of the national banking laws and, under certain
circumstances, the approval of the Comptroller of the Currency.
At June 30, 1998, the Corporation had non-interest and interest bearing
cash balances of $303,000, which management believes is adequate to meet
the Corporation's operational expenses.
The Corporation and the Bank do not engage in hedging transactions
(interest rate futures, caps, swap agreements, etc.).
Deposits
During the second quarter of 1998 total deposits increased $13.9 million
to $261 million at June 30, 1998.
Money market rate deposits grew from $64.8 million at year end to $75.1
million at June 30, 1998. This is a limited transaction account which
pays a floating rate equal to the 13 week treasury bill less a margin of
50 basis points. The rate offered on this account has been very
attractive and many of the Bank's customers have held their funds in
this deposit product rather than locking a specific maturity. New
customers continue to find this deposit account attractive due to the
immediate availability of the funds versus a time certificate bearing
a future maturity.
Certificates of deposits increased from $102.9 million at December 31,
1997 to $133.4 million as of June 30, 1998. The Bank has increased
certificates of deposit by offering attractive rates on certificates for
specific terms. The Bank has been successful in retaining the majority
of funds received through certificate campaigns.
As of June 30, 1998, non-interest bearing deposits equaled $36 million
compared to $30.1 million at December 31, 1997 and $26.7 million on June
30, 1997. The Bank's transaction accounts have significant changes in
daily balances, mainly due to deposits held by title companies. This
type of deposit account has greater balance fluctuations than other
types of deposits based upon their business activity; however, they
carry average daily balances in excess of $3 million.
The low interest rate environment over the past few years and the
increased competition from the financial services industry has made it
more difficult to attract new deposits at favorable rates. The Bank
continually monitors competitors' rates, strives to be competitive in
pricing deposits, and has offered attractive time deposit rates to raise
funds during periods of high loan growth.
Loans
Loans, net of discounts and reserves, equaled $234.1 million at June 30,
1998 compared to $189.8 million at December 31, 1997, increasing 23.3%.
The SBA department continues to experience strong loan demand with SBA
loans, net of sold loans, growing $9.5 million during the second quarter
to $87.5 million on June 30, 1998. The majority of the Bank's SBA
loans are secured by real estate; however, these loans are reported as
commercial loans. SBA loans have the same underwriting requirements as
the Bank's other loans, they are sometimes for longer terms (7 to 25
years) and have higher loan-to-value ratios than the Bank typically
accepts. The SBA loan program remains subject to budget considerations
at the Federal government level. Major changes to the program could
affect profitability and future SBA loan growth. The guaranteed portion
of SBA loans currently held by the Bank but which could be sold in the
secondary market increased 40% from $38.7 million to $54.2 million when
comparing June 30, 1997 to June 30, 1998.
The Bank continues to emphasize commercial and real estate lending. At
June 30, 1998, 48.0% of the loans held for investment were commercial
loans and 51.2% were real estate and construction loans, compared to
48.0% and 51.0% respectively at December 31, 1997. The Bank has
increased the commercial and commercial real estate portfolio through
its reputation, in Sonoma and Marin Counties, as an experienced
business and real estate lender that facilitates the successful
negotiation of complex commercial loans. The Bank maintains high credit
qualifications with most real estate loans having 60-70% loan to value
ratios. Management is aware of the risk factors in making commercial
and real estate loans and is continually monitoring the local market
place. A decline in real estate values and/or demand could potentially
have an adverse impact on the loan portfolio, and on the financial
condition of the Bank.
During the second quarter of 1997, the Bank added a residential
construction loan group. As a result, construction loan balances have
increased from $6.1 million at June 30, 1997 to $11.0 million at year
end to $17.8 million at June 30, 1998. The Bank offers residential
mortgages on a limited basis.
The Bank has a small portfolio of consumer loans which equaled 0.7% of
the total loan portfolio at June 30, 1998.
Allowance for Loan Losses
The allowance for loan losses equaled $2.8 million at June 30, 1998,
compared to $2.5 million at December 31, 1997. At June 30, 1998, the
allowance for loan losses equaled 1.6% of loans, net of the guaranteed
portion of SBA loans , which was unchanged from 1997 year end. The
allowance for loan losses is reviewed on a monthly basis, based upon an
allocation for each loan category, plus an allocation for any
outstanding loans which have been classified by regulators or internally
for the "Watch List". Each loan that has been classified is
individually analyzed for the risk involved with a specific reserve
allocation assigned according to the risk assessment.
At June 30, 1998, there was one loan on non-accrual for $26,000 which
was collateralized by real estate and $24,000 was guaranteed by the SBA.
There were no loans past due 90 days or more and still accruing interest
Loans past due 30 to 89 days totaled $1,324,000 of which $1,311,000 was
secured by real estate and $875,000 was guaranteed by the SBA. On
December 31, 1997, the Bank had $318,000 in non-accrual loans,
and $150,000 in loans past due 90 or more days and still accruing
interest.
There were no loans charged offs and no loan recoveries during 1998. The
Bank has experienced very low credit losses.
Capital Resources
Pursuant to regulations under the FDIC Improvement Act of 1991 (FDICIA),
five capital levels were prescribed as applicable for banks, ranging
from well-capitalized to critically under-capitalized. At June 30,
1998, the Bank was considered "well capitalized." The total risk-based
capital ratios were 10.7% for the Bank and 11.0% for the Corporation.
The Corporation declared a 5% stock dividend on March 31, 1998 with a
record date of May 1, 1998. The dividend was distributed on May 15,
1998. This report has been adjusted to reflect this dividend. During
1997 the Bank issued a 5% stock dividend to shareholders of record on
March 31, 1997.
On May 19, 1998, the shareholders of the Company approved the Northern
Empire Bancshares 1997 Stock Option Plan (the "Plan"). Among the
purposes of the Plan is to attract and retain the best available
personnel for positions of substantial responsibility and to attract and
retain the best available persons to serve as directors and to provide a
means whereby employees and directors may purchase shares of common
stock of the Company. Based on the current number of shares outstanding
and the number of shares currently covered by options still outstanding
under the prior stock option plan, the number of shares for which the
Board may initially grant options under the Plan is 406,957.
On July 21, 1998 the Board of Directors granted stock options for
352,000 shares of Northern Empire Bancshares under the Plan. The
President and the Chairman of Northern Empire Bancshares,Dennis Hunter
and James B. Keegan, Jr., each received options for 50,000 shares and
the six other directors of the Bank, Clement Carinalli, Patrick
Gallaher, William Gallaher, William Geary, Robert Pauley and Deborah
Meekins, received options for 42,000 shares. The exercise price for all
of the options equals the market value of the Company's stock on the
date of the grant, which was $29.375 per share, and each of the options
vests over five years from the date of grant.
SCHEDULES
LOANS HELD FOR INVESTMENT
(In thousands)
June 30, 1998 December 31, 1997
Commercial Loans $114,804 $100,283
Real Estate Loans-Construction 17,821 10,982
Real Estate Loans-Other 104,596 95,513
Installment Loans 1,722 2,012
--------- --------
Total $238,943 $208,790
========= ========
Of the total loans due in more than one year, $45.8 million were at
fixed interest rates or had reached the loan's floor or ceiling rates
and $158.5 million were at adjustable interest rates at June 30, 1998.
The loan portfolio has no foreign balances.
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
(In thousands)
Quarter Ended Six Months Ended
June 30, 1998 June 30, 1998
Balance - Beginning of Period $2,659 $2,539
Provision for Loan Losses 120 240
Charge Offs 0 0
Recoveries 0 0
------ ------
Balance - End of the Period $2,779 $2,779
====== ======
There was one loan on non-accrual at June 30, 1998, amounting to $26,000
which was secured by real estate collateral and $24,000 was guaranteed
by the U.S. Government. There were no loans past due 90 days or
more and still accruing interest.
GAP ANALYSIS
The following schedule represents interest rate sensitivity profile as
of June 30, 1998 of assets, liabilities and
shareholder's equity classified by earliest possible repricing
opportunity or maturity date.
<TABLE>
<CAPTION>
Over 3
months Over 1 year Non-rate
Balance Sheet Through 3 through through 5 Sensitive or
(in thousands) months 1 year Years Over 5 years Total
<S> <C> <C> <C> <C> <C>
Assets
Fed funds sold $26,438 $26,438
Investment securities $3,493 $1,685 5,178
Loans (net of discounts) 116,550 $64,359 21,314 34,704 236,927
Non-interest-earning assets
(net of allowance for loan losses) 13,661 13,661
------- ------- ------- ------ --------
$142,988 $64,359 $24,807 $50,050 $282,204
======== ======= ======= ======= ========
Liabilities & Shareholders Equity
Time Deposits $100,000 and over $6,537 $24,520 $6,202 $1,797 $39,056
All other interest-bearing deposits 108,849 62,154 14,927 185,930
Non-interest bearing deposits 36,013 36,013
Other Liabilities &
Shareholders' Equity 21,205 21,205
-------- ------- ------- ------ -------
$115,386 $86,674 $21,129 $59,015 $282,204
======== ======= ======= ======= ========
Interest Rate Sensitivity (1) $27,602 ($22,315) $3,678 ($8,965)
Cumulative Interest Rate Sensitivity $27,602 $5,287 $8,965 $0
</TABLE>
(1) Interest rate sensitivity is the difference between interest rate
sensitive assets and interest rate sensitive liabilities within
the above time frames.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None other than in the ordinary course of business.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of the Corporation was held
on May 19, 1998. The following candidates received the votes
indicated.
For Withheld Against
Clement C. Carinalli 1,390,091 1,514 0
Patrick R. Gallaher 1,390,091 1,514 0
William P. Gallaher 1,390,091 1,514 0
William E. Geary 1,390,091 1,514 0
James B. Keegan, Jr. 1,390,091 1,514 0
Dennis R. Hunter 1,390,091 1,514 0
Robert V. Pauley 1,389,591 1,514 500
All candidates were re-elected.
The shareholders approved the 1997 Stock Option Plan at the Annual
Meeting. 1,336,460 shares voted for the approval of the Plan,
38,091 shares voted against the Plan and 15,540 shares abstained
from voting.
No other matters were voted on at the meeting.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits:
(3) (a) Articles of Incorporation of the Corporation (filed as
Exhibit 3.1 to the Corporation's S-1 Registration
Statement, filed May 18, 1984 and incorporated herein by this
reference).
(b) Certificate of Amendment to Articles of Incorporation,
filed January 17, 1989 (filed as exhibit (3)(b)
to the Corporation's Annual Report on Form 10-K for the Fiscal
Year Ended December 31, 1988 and
incorporated herein by this reference).
(c) Bylaws of the Corporation, as amended (filed as Exhibit 3.2
to the Corporation's S-2 Registration
Statement, File No. 33-51906 filed September 11, 1992 and
incorporated herein by this reference).
(d) Amendment to the Bylaws of the Corporation and revised
Bylaws (filed as Exhibit (3)(d) to the
Corporation's Annual Report on Form 10-KSB for the Fiscal Year
Ended December 31, 1994 and
incorporated herein by this reference).
(10) (a) Indemnification Agreement between William P. Gallaher and
Northern Empire Bancshares.
(b) Indemnification Agreements between Clement C. Carinalli and
Sonoma National Bank and Northern Empire Bancshares.
(c) 1997 Stock Option Plan, as amended, and Stock Option
Agreement
(27) (a) Financial Data Schedule
(b.) Reports on Form 8-K - None
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant caused this report
to be signed on its behalf by the undersigned, thereunto duly
authorized.
NORTHERN EMPIRE BANCSHARES
Date: August 11, 1998
- -----------------------
/s/Dennis R. Hunter /s/Patrick R. Gallaher
- ------------------------ ----------------------
Dennis R. Hunter Patrick R. Gallaher
Chairman of the Board Director & Chief Accounting
Officer
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 9880
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 26438
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3493
<INVESTMENTS-CARRYING> 1685
<INVESTMENTS-MARKET> 5178
<LOANS> 236928
<ALLOWANCE> 2779
<TOTAL-ASSETS> 282204
<DEPOSITS> 261000
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1202
<LONG-TERM> 0
0
0
<COMMON> 12345
<OTHER-SE> 7657
<TOTAL-LIABILITIES-AND-EQUITY> 282204
<INTEREST-LOAN> 11087
<INTEREST-INVEST> 175
<INTEREST-OTHER> 597
<INTEREST-TOTAL> 11859
<INTEREST-DEPOSIT> 5238
<INTEREST-EXPENSE> 5238
<INTEREST-INCOME-NET> 6621
<LOAN-LOSSES> 240
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3596
<INCOME-PRETAX> 3652
<INCOME-PRE-EXTRAORDINARY> 3652
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2186
<EPS-PRIMARY> 1.32
<EPS-DILUTED> 1.28
<YIELD-ACTUAL> 9.46
<LOANS-NON> 26
<LOANS-PAST> 1324
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1350
<ALLOWANCE-OPEN> 2539
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 2779
<ALLOWANCE-DOMESTIC> 2779
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 685
</TABLE>
EXHIBIT 10 (a)
INDEMNIFICATION AGREEMENT
PREAMBLE
This Indemnification Agreement (this "Agreement") is made as
of this 21st day of June, 1994 , by and between Sonoma National Bank, a
national banking association (the "Association"), and William P.
Gallaher ("Indemnitee").
RECITALS
A. The Association and Indemnitee recognize the increasing
difficulty in obtaining directors', officers', and agents'
liability insurance, the significant increases in the cost of such
insurance, and the general reductions in the coverage of such
insurance.
B. The Association and Indemnitee further recognize the
substantial increase in corporate litigation in general, subjecting
directors, officers and agents to expensive litigation risks at the
same time as the availability and coverage of liability insurance
has been severely limited and may not be available to the
Association in the future.
C. Indemnitee does not regard the current protection
available as adequate under the present circumstances, and
Indemnitee and other directors, officers and agents of the
Association may not be willing to continue to serve as directors,
officers and agents without additional protection.
D. The Association desires to attract and retain the services
of highly qualified individuals, such as Indemnitee, to serve as
directors, officers and agents of the Association and to indemnify
its directors, officers and agents so as to provide them with the
maximum protection permitted by law.<PAGE>
AGREEMENT
Based upon the facts and premises contained in the above
Recitals and in consideration of the mutual promises below, the
Association and Indemnitee hereby agree as follows:
1. INDEMNIFICATION AND EXPENSE ADVANCEMENT.
(a) Action, Etc., Other than by Right of the Association. The
Association shall indemnify Indemnitee if Indemnitee was or is a
party or is threatened to be made a party to any proceeding (other
than an action by or in the right of the Association to procure a
judgment in its favor) by reason of the fact that Indemnitee is or
was an Agent of the Association, against expenses, judgments,
fines, settlements and other amounts actually and reasonably
incurred in connection with such proceeding if Indemnitee acted in
good faith and in a manner Indemnitee reasonably believed to be in
the best interests of the Association and, in the case of a
criminal proceeding, has no reasonable cause to believe the conduct
of Indemnitee was unlawful. The termination of any proceeding by
judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent shall not, of itself, create a
presumption that Indemnitee did not act in good faith and in a
manner which Indemnitee reasonably believed to be in the best
interests of the Association or that Indemnitee had reasonable
cause to believe that Indemnitee's conduct was unlawful.
(b) Action, Etc., By or in the Right of the Association. The
Association shall indemnify Indemnitee if Indemnitee was or is a
party or is threatened to be made a party to any threatened,
pending or completed action by or in the right of the Association
to procure a judgment in its favor by reason of the fact that
Indemnitee is or was an Agent of the Association, against expenses
actually and reasonably incurred by Indemnitee in connection with
the defense or settlement of such action if Indemnitee acted in
good faith, in a manner Indemnitee believed to be in the best
interests of the Association and its shareholders; except that no
indemnification shall be made under this subparagraph (b) for any
of the following:
(i) In respect of any claim, issue or matter as to which
Indemnitee shall have been adjudged to be liable to
the Association in the performance of Indemnitee's
duty to the Association and its shareholders, unless
and only to the extent that the court in which such
proceeding is or was pending shall determine upon
application that, in view of all the circumstances
of the case, Indemnitee is fairly and reasonably
entitled to indemnity for the expenses which such
court shall determine;
(ii) Of amounts paid in settling or otherwise disposing
of a pending action without court approval; or
(iii) Of expenses incurred in defending a pending action
which is settled or otherwise disposed of without
court approval.
(c) Determination of Right of Indemnification. Any
indemnification under subparagraphs (a) and (b) shall be made by
the Association only if authorized in the specific case, upon a
determination that indemnification of Indemnitee is proper in the
circumstances because Indemnitee has met the applicable standard of
conduct set forth above in subparagraphs (a) and (b) by any of the
following:
(i) A majority vote of a quorum consisting of directors
who are not parties to such proceeding;
(ii) If such a quorum of directors is not obtainable, by
independent legal counsel in a written opinion;
(iii) Approval of the shareholders by the affirmative vote
of a majority of the shares entitled to vote
represented at a duly held meeting at which a quorum
is present or by the written consent of shareholders
as provided in the Bylaws, with the shares owned by
the person to be indemnified not being entitled to
vote thereon; or
(iv) The court in which such proceeding is or was pending
upon application made by the Association or its
Agent or attorney or other person rendering services
in connection with the defense, whether or not such
application by the Agent, attorney or other person
is opposed by the Association.
(d) Advances of Expenses. Expenses (including attorneys' fees)
costs, and charges incurred in defending any proceeding shall be
advanced by the Association prior to the final disposition of such
proceeding upon receipt of an undertaking by or on behalf of
Indemnitee to repay such amount unless it shall be determined
ultimately that Indemnitee is entitled to be indemnified as
authorized in this Paragraph 1.
(e) Indemnification Against Expenses of successful Party.
Notwithstanding the other provisions of this paragraph 1, to the
extent that Indemnitee has been successful on the merits in a
defense of any proceeding, claim, issue or matter referred to in
subparagraphs (a) and (b), Indemnitee shall be indemnified against
all expenses actually and reasonably incurred by Indemnitee in
connection therewith.
(f) Right of Indemnitee to Indemnification Upon Application;
Procedure Upon Application. Any indemnification provided for in
subparagraphs (a), (b) or (e) shall be made no later than ninety
(90) days after the Association is given notice of request by
Indemnitee, provided that such request is made after final
adjudication, dismissal, or settlement unless an appeal is filed,
in which case the request is made after the appeal is resolved
(hereafter referred to as "Final Disposition"). Upon such notice,
if a quorum of directors who were not parties to the action, suit,
or proceeding giving rise to indemnification is obtainable, the
Association shall within two (2) weeks call a Board of Directors
meeting to be held within four (4) weeks of such notice, to make a
determination as to whether Indemnitee has met the applicable
standard of conduct. Otherwise, if a quorum consisting of directors
who were not parties in the relevant action, suit, or proceeding is
not obtainable, the Association shall retain (at the Association's
expense) independent legal counsel chosen either jointly by the
Association and Indemnitee or else by Association counsel within
two (2) weeks to make such determination. If (1) at such directors
meeting such a quorum is not obtained or, if obtained, refuses to
make such determination or (2) if such legal counsel is not so
retained or, if retained, does not make such determination within
four (4) weeks, then the Board of Directors shall cause a
shareholders meeting to be held within four (4) weeks to make such
a determination.
If notice of a request for payment of a claim under any
statute, under this Agreement, or under the Association's Articles
of Association or Bylaws providing for indemnification or advance
of expenses has been given to the Association by Indemnitee, and
such claim is not paid in full by the Association within ninety
(90) days of the later occurring of the giving of such notice and
Final Disposition in case of indemnification and twenty (20) days
of the giving of such notice in case of advance of expenses,
Indemnitee may, but need not, at any time thereafter bring an
action against the Association to receive the unpaid amount of the
claim or the expense advance and, if successful, Indemnitee shall
also be paid for the expenses (including attorneys' fees) of
bringing such action. It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses
incurred in connection with any action, suit, or proceeding in
advance of its Final Disposition) that Indemnitee has not met the
standards of conduct which make it permissible under applicable law
for the Association to indemnify Indemnitee for the amount claimed,
and Indemnitee shall be entitled to receive interim payment of
expenses pursuant to Subparagraph (d) unless and until such defense
may be finally adjudicated by court order or judgment from which no
further right of appeal exists. Neither the failure of the
Association (including its Board of Directors, independent legal
counsel, or its shareholders) to have made a determination that
indemnification of Indemnitee is proper in the circumstances
because Indemnitee has met the applicable standard of conduct
required by applicable law, nor an actual determination by the
Association (including its Board of Directors, independent legal
counsel, or its shareholders) that Indemnitee has not met such
applicable standard of conduct, shall create a presumption that
Indemnitee has or has not met the applicable standard of conduct.
(g) Other Rights and Remedies. The indemnification provided by
this Paragraph 1 shall not be deemed exclusive of, and shall not
affect, any other rights to which an Indemnitee may be entitled
under any law, the Association's Articles of Association, Bylaws,
agreement, vote of shareholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as
to action in another capacity while holding such office, and shall
continue after Indemnitee has ceased holding such office or acting
in such official capacity and shall inure to the benefit of the
heirs, executors, and administrators of Indemnitee.
(h) Insurance. The Association may purchase and maintain
insurance on behalf of any person who is or was an Agent against
any liability asserted against such person and incurred by him or
her in any such capacity, or arising out of his or her status as
such, whether or not the Association would have the power to
indemnify such person against such liability under the provisions
of this Paragraph 1.
(i) Optional Means of Assuring Payment. Upon request by an
Indemnitee certifying that Indemnitee has reasonable grounds to
believe Indemnitee may be made a party to a proceeding for which
Indemnitee may be entitled to be indemnified under this Paragraph
1, the Association may, but is not required to, create a trust
fund, grant a security interest or use other means (including,
without limitation, a letter of credit) to ensure the payment of
such sums as may become necessary to effect indemnification as
provided herein.
(j) Savings Clause. If this Paragraph 1 or any portion thereof
shall be invalidated on any ground by any court of competent
jurisdiction, then the Association shall nevertheless indemnify
Indemnitee as to expenses (including attorneys' fees), judgments,
fines, and amounts paid in settlement with respect to any action,
suit, proceeding, or investigation, whether civil, criminal or
administrative, and whether internal or external, including a grand
jury proceeding and an action or suit brought by or in the right of
the Association, to the full extent permitted by any applicable
portion of this Paragraph 1 that shall not have been invalidated,
or by any other applicable law.
(k) Definition of Agent. For the purposes of this Paragraph 1,
"Agent" means any person who is or was a director, officer,
employee or other agent of the Association, or is or was serving at
the request of the Association as a director, officer, employee or
agent of another foreign or domestic corporation, partnership,
joint venture, trust or other enterprise, or was a director,
officer, employee or agent of a foreign or domestic corporation
which was a predecessor corporation of the corporation or of
another enterprise at the request of such predecessor corporation;
"proceeding" means any threatened, pending or completed action or
proceeding, whether civil, criminal, administrative or
investigative; and "expenses" includes without limitation
attorneys' fees and any expenses of establishing a right to
indemnification.
(1) Indemnification under Section 204(a) (11) of the
California Corporations Code. Subject to the provisions of
California Corporations Code Section 204 (a) (11) and any other
applicable law, notwithstanding any other provisions of these
Paragraph 1, the following shall apply to the indemnification of
Indemnitee:
(i) The Association shall indemnify Indemnitee pursuant
to this Subparagraph (l) if the Association would be
required to indemnify Indemnitee pursuant to
Subparagraphs (a) or (b) if in Subparagraphs (a) or
(b) the phrase "in a manner Indemnitee reasonably
believed to be in the best interests of the
Association" is replaced with the phrase "in a
manner Indemnitee did not believe to be contrary to
the best interests of the Association". If pursuant
to Subparagraphs (c) and (f) the person making the
Subparagraph (a) and/or (b) conduct standard
determination determines that such standard has not
been satisfied, such person shall also determine
whether this subparagraph (1) (i) conduct standard
has been satisfied;
(ii) There shall be a presumption that Indemnitee met the
applicable standard of conduct required to be met in
subparagraph (c) for indemnification, rebuttable by
clear and convincing evidence to the contrary;
(iii) The Association shall have the burden of proving
that Indemnitee did not meet the applicable standard
of conduct in subparagraph (c);
(iv) In addition to the methods provided for in
Subparagraph (C), a determination that
indemnification is proper in the circumstances
because that Indemnitee met the applicable standard
of conduct may also be made by the arbitrator in any
arbitration proceeding in which such matter is or
was pending;
(v) Unless otherwise agreed to in writing between an
Indemnitee and the Association in any specific case,
indemnification may be made under Subparagraph (b)
for amounts paid in settling or otherwise disposing
of a pending action without court approval.
2. CHANGES.
In the event of any change, after the date of this Agreement,
in any applicable law, statute, or rule which expands the right of
a California corporation to indemnify a member of its board of
directors or an officer, such changes shall be automatically,
without further action of the parties, within the purview of
Indemnitee's rights and Association's obligations, under this
Agreement. In the event of any change in any applicable law,
statute or rule which narrows the right to indemnify a member of
its board of directors or an officer, such changes, to the extent
not otherwise required by such law, statute or rule to be applied
to this Agreement, shall have no effect on this Agreement or the
parties' rights and obligations hereunder. In the event of an
amendment to the Association's Bylaws which expands the right to
indemnify a member of its board of directors or an officer, such
change shall be automatically, without further action of the
parties, within Indemnitee's rights and Association's obligations
under this Agreement. In the event of any amendment to the
Association's Bylaws which narrows such right of a California
Corporation to indemnify a member of its board of directors or an
officer, such change shall only apply to the indemnification of
Indemnitee for acts committed, or lack of action, by Indemnitee
after such amendment. The Association agrees to give Indemnitee
prompt notice of amendments to the Association's Bylaws which
concern indemnification.
3. NONEXCLUSIVITY.
The indemnification provided by this Agreement shall not be
deemed exclusive of any rights to which Indemnitee may be entitled
under the Bank's Articles of Association, its Bylaws, any
agreement, any vote of shareholders or disinterested Directors, the
California Corporations Code, or otherwise, both as to action in
Indemnitee's official capacity and as to action in any other
capacity while holding such office (an "Indemnified Capacity"). The
indemnification provided under this Agreement shall continue as to
Indemnitee for any action taken or not taken while serving in an
Indemnified Capacity even though he may have ceased to serve in an
Indemnified Capacity at the time of any action, suit or other
covered proceeding.
4. PARTIAL INDEMNIFICATION.
If Indemnitee is entitled under any provision of this
Agreement to indemnification by the Association for some or a
portion of the expenses, judgment, fines or penalties actually or
reasonably incurred by him in the investigation, defense, appeal or
settlement of any civil or criminal action, suit or proceeding, but
not, however, for the total amount thereof, the Association shall
nevertheless indemnify Indemnitee for the portion of such expenses,
judgments, fines or penalties to which Indemnitee is entitled.
5. MUTUAL ACKNOWLEDGEMENT.
Both the Association and Indemnitee acknowledge that in
certain instances, Federal law or public policy may override
applicable law and prohibit the Association from indemnifying its
directors and officers under this Agreement or otherwise. For
example, the Association and Indemnitee acknowledge that the
Securities and Exchange Commission (the "SEC") has taken the
position that indemnification is not permissible for liabilities
arising under certain federal securities laws, and federal
legislation prohibits indemnification for certain ERISA violations.
Indemnitee understands and acknowledges that the Association has
undertaken or may be required in the future to undertake with the
SEC to submit questions of indemnification to a court in certain
circumstances for a determination of the Association's right under
public policy to indemnify Indemnitee. Furthermore, Indemnitee and
Association acknowledge that the extent of indemnification
permissible under Section 204(a)(11) of the California Corporations
Code has not been judicially determined; therefore, the
enforceability of Indemnitee's rights under Subparagraph (1) is
uncertain.
6. SEVERABILITY.
Nothing in this Agreement is intended to require or shall be
construed as requiring the Association to do or fail to do any act
in violation of applicable law. The Association's inability,
pursuant to court order, to perform its obligations under this
Agreement shall not constitute a breach of the Agreement. If the
application of any provision or provisions of the Agreement to any
particular facts or circumstances shall be held to be invalid or
unenforceable by any court of competent jurisdiction, then (i) the
validity and enforceability of such provision or provisions as
applied to any other particular facts or circumstances and the
validity of other provisions of this Agreement shall not in any way
be affected or impaired thereby and (ii) such provision(s) shall be
reformed without further action by the parties to make such
provision(s) valid and enforceable when applied to such facts and
circumstances with a view toward requiring Association to indemnify
Indemnitee to the fullest extent permissible by law.
7. EXCEPTIONS.
Any other provision herein to the contrary notwithstanding,
the Association shall not be obligated pursuant to the terms of
this Agreement:
(a) Regulatory Agency Proceedings. To indemnify Indemnitee for
expenses, penalties or other payments incurred in an administrative
proceeding or action instituted by a bank regulatory agency, which
proceeding or action results in a final order assessing civil money
penalties or requiring affirmative action by the Indemnitee in the
form of payments to the Association.
(b) Claims Initiated By Indemnitee. To indemnify or advance
expenses to Indemnitee with respect to proceedings or claims
(except counter-claims or cross-claims) initiated or brought
voluntarily by Indemnitee and not by way of defense, except with
respect to proceedings brought to establish or enforce a right to
indemnification under this Agreement or any other statute or law or
otherwise as required by the California Corporations Code, but such
indemnification or advancement of expenses may by provided by the
Association in specific cases if the Board of Directors finds it to
by appropriate; or
(c) Lack of Good Faith. To indemnify Indemnitee for any
expenses incurred by Indemnitee with respect to any proceeding
instituted by Indemnitee to enforce or interpret this Agreement, if
a court of competent jurisdiction determines that each of the
material assertions made by Indemnitee in such proceeding was not
made in good faith or was frivolous; or
(d) Insured Claims. To indemnify Indemnitee for expenses or
liabilities of any type whatsoever (including, but not limited to,
judgments, fines, ERISA excise taxes or penalties, and amounts paid
in settlement) which have been paid directly to Indemnitee by an
insurance carrier under a policy of officers' and directors'
liability insurance maintained by the Association; or
(e) Claims under section 16(b). To indemnify Indemnitee for
expenses or the payment of profits arising from the purchase and
sale by Indemnitee of securities in violation of section 16(b) of
the Securities Exchange Act of 1934, as amended, or any similar
successor statute.
8. COUNTERPARTS.
This Agreement may by executed in one or more counterparts,
each of which shall constitute an original.
9. SUCCESSORS AND ASSIGNS.
This Agreement shall by binding upon the Association and its
successors and assigns, and shall inure to the benefit of
Indemnitee and Indemnitee's estate, heirs, and legal
representatives and permitted assigns. Indemnitee may not assign
this Agreement without the prior written consent of the
Association.
10. ATTORNEYS' FEES.
In the event that any action is instituted by Indemnitee under
this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and
expenses, including reasonable attorneys' fees, incurred by
Indemnitee with respect to such action, unless as a part of such
action, the court of competent jurisdiction determines that each of
the material assertions made by Indemnitee as a basis for such
action were not made in good faith or were frivolous. In the event
of an action instituted by or in the name of the Association under
this Agreement or to enforce or interpret any of the terms of this
Agreement, Indemnitee shall be entitled to be paid all court costs
and expenses, including attorneys' fees, incurred by Indemnitee in
defense of such action (including with respect to Indemnitee's
counterclaims and cross-claims made in such action), unless as a
part of such action the court determines that each of Indemnitee's
material defenses to such action were made in bad faith or were
frivolous.
11. NOTICE.
All notices, requests, demands and other communications under
this Agreement shall by in writing and shall by deemed duly given
(i) if delivered by hand and receipted for by the party addressee,
on the date of such receipt, or (ii) if mailed by certified or
registered mail with postage prepaid, on the third business day
after the date postmarked. Addresses for notice to either party are
as shown under Authorized signatures at the end of this Agreement,
or as subsequently modified by written notice.
12. PARAGRAPH HEADINGS.
The Paragraph and subparagraph headings in this Agreement are
solely for convenience and shall not by considered in its
interpretation.
13. WAIVER.
A waiver by either party of any term or condition of the
agreement or any breach thereof, in any one instance, shall not by
deemed or construed to by a waiver of such term or condition or of
any subsequent breach thereof.
14. ENTIRE AGREEMENT; AMENDMENT.
This instrument contains the entire integrated Agreement
between the parties hereto and supersedes all prior negotiations,
representations or agreements, whether written or oral except for
the Association's Articles of Association and Bylaws. It may by
amended only by a written instrument signed by a duly authorized
officer of Association and by Indemnitee.
15. CHOICE OF LAW AND FORUM.
Except for that body of law governing choice of law, this
Agreement shall be governed by, and construed in accordance with
internal laws of the State of California which govern transactions
between California residents. The parties agree that any suit or
proceeding in connection with, arising out of or relating to this
Agreement shall by instituted only in a state court located in
Sonoma County in the State of California to the fullest extent
permissible or in a federal court located in San Francisco County
in the State of California, and the parties, for the purpose of any
such suit or proceeding, irrevocably agree and submit to the
personal and subject matter jurisdiction and venue of any such
court in any such suit or proceeding and agree that service of
process may by effected in the same manner notice is given
pursuant to section 11 above.
16. CONSIDERATION.
Part of the consideration the Association is receiving from
Indemnitee to enter into this Agreement is Indemnitee's agreement
to serve or to continue to serve, as applicable, for the present
as an Agent of the Association. Nothing in this Agreement shall
preclude Indemnitee from resigning as an Agent of the Association
nor the Association, by action of its shareholders, board of
directors, or officers, as the case may by, from terminating
Indemnitee's services as an Agent, as the case may by, with or
without cause.
AUTHORIZED SIGNATURES
In order to bind the parties to this Indemnification
Agreement, their duly authorized representations have signed their
names below on the dates indicated.
Sonoma National Bank
By_______________________________
James B. Keegan, Chairman of the Board
801 Fourth 5treet
Santa Rosa, CA 95404
(address)
Date Executed:
AGREED TO AND ACCEPTED:
INDEMNITEE:
________________________________
Signature of William P. Gallaher
5055 Montecito Avenue
5anta Rosa, CA 95404
(address)
Date Executed:__________________
EXHIBIT 10 (a)
INDEMNIFICATION AGREEMENT
PREAMBLE
This Indemnification Agreement (this "Agreement") is made as
of this 14th day of May, 1996, by and between Sonoma National Bank, a
national banking association (the "Association"), and Clement C.
Carinalli ("Indemnitee").
RECITALS
A. The Association and Indemnitee recognize the increasing
difficulty in obtaining directors', officers', and agents'
liability insurance, the significant increases in the cost of such
insurance, and the general reductions in the coverage of such
insurance.
B. The Association and Indemnitee further recognize the
substantial increase in corporate litigation in general, subjecting
directors, officers and agents to expensive litigation risks at the
same time as the availability and coverage of liability insurance
has been severely limited and may not be available to the
Association in the future.
C. Indemnitee does not regard the current protection
available as adequate under the present circumstances, and
Indemnitee and other directors, officers and agents of the
Association may not be willing to continue to serve as directors,
officers and agents without additional protection.
D. The Association desires to attract and retain the services
of highly qualified individuals, such as Indemnitee, to serve as
directors, officers and agents of the Association and to indemnify
its directors, officers and agents so as to provide them with the
maximum protection permitted by law.<PAGE>
Agreement
Based upon the facts and premises contained in the above
Recitals and in consideration of the mutual promises below, the
Association and Indemnitee hereby agree as follows:
1. INDEMNIFICATION AND EXPENSE ADVANCEMENT.
(a) Action, Etc., Other than by Right of the Association. The
Association shall indemnify Indemnitee if Indemnitee was or is a
party or is threatened to be made a party to any proceeding (other
than an action by or in the right of the Association to procure a
judgment in its favor) by reason of the fact that Indemnitee is or
was an Agent of the Association, against expenses, judgments,
fines, settlements and other amounts actually and reasonably
incurred in connection with such proceeding if Indemnitee acted in
good faith and in a manner Indemnitee reasonably believed to be in
the best interests of the Association and, in the case of a
criminal proceeding, has no reasonable cause to believe the conduct
of Indemnitee was unlawful. The termination of any proceeding by
judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent shall not, of itself, create a
presumption that Indemnitee did not act in good faith and in a
manner which Indemnitee reasonably believed to be in the best
interests of the Association or that Indemnitee had reasonable
cause to believe that Indemnitee's conduct was unlawful.
(b) Action, Etc., By or in the Right of the Association. The
Association shall indemnify Indemnitee if Indemnitee was or is a
party or is threatened to be made a party to any threatened,
pending or completed action by or in the right of the Association
to procure a judgment in its favor by reason of the fact that
Indemnitee is or was an Agent of the Association, against expenses
actually and reasonably incurred by Indemnitee in connection with
the defense or settlement of such action if Indemnitee acted in
good faith, in a manner Indemnitee believed to be in the best
interests of the Association and its shareholders; except that no
indemnification shall be made under this subparagraph (b) for any
of the following:
(i) In respect of any claim, issue or matter as to which
Indemnitee shall have been adjudged to be liable to
the Association in the performance of Indemnitee's
duty to the Association and its shareholders, unless
and only to the extent that the court in which such
proceeding is or was pending shall determine upon
application that, in view of all the circumstances
of the case, Indemnitee is fairly and reasonably
entitled to indemnity for the expenses which such
court shall determine;
(ii) Of amounts paid in settling or otherwise disposing
of a pending action without court approval; or
(iii) Of expenses incurred in defending a pending action
which is settled or otherwise disposed of without
court approval.
(c) Determination of Right of Indemnification. Any
indemnification under subparagraphs (a) and (b) shall be made by
the Association only if authorized in the specific case, upon a
determination that indemnification of Indemnitee is proper in the
circumstances because Indemnitee has met the applicable standard of
conduct set forth above in subparagraphs (a) and (b) by any of the
following:
(i) A majority vote of a quorum consisting of directors
who are not parties to such proceeding;
(ii) If such a quorum of directors is not obtainable, by
independent legal counsel in a written opinion;
(iii) Approval of the shareholders by the affirmative vote
of a majority of the shares entitled to vote
represented at a duly held meeting at which a quorum
is present or by the written consent of shareholders
as provided in the Bylaws, with the shares owned by
the person to be indemnified not being entitled to
vote thereon; or
(iv) The court in which such proceeding is or was pending
upon application made by the Association or its
Agent or attorney or other person rendering services
in connection with the defense, whether or not such
application by the Agent, attorney or other person
is opposed by the Association.
(d) Advances of Expenses. Expenses (including attorneys' fees)
costs, and charges incurred in defending any proceeding shall be
advanced by the Association prior to the final disposition of such
proceeding upon receipt of an undertaking by or on behalf of
Indemnitee to repay such amount unless it shall be determined
ultimately that Indemnitee is entitled to be indemnified as
authorized in this Paragraph 1.
(e) Indemnification Against Expenses of successful Party.
Notwithstanding the other provisions of this paragraph 1, to the
extent that Indemnitee has been successful on the merits in a
defense of any proceeding, claim, issue or matter referred to in
subparagraphs (a) and (b), Indemnitee shall be indemnified against
all expenses actually and reasonably incurred by Indemnitee in
connection therewith.
(f) Right of Indemnitee to Indemnification Upon Application;
Procedure Upon Application. Any indemnification provided for in
subparagraphs (a), (b) or (e) shall be made no later than ninety
(90) days after the Association is given notice of request by
Indemnitee, provided that such request is made after final
adjudication, dismissal, or settlement unless an appeal is filed,
in which case the request is made after the appeal is resolved
(hereafter referred to as "Final Disposition"). Upon such notice,
if a quorum of directors who were not parties to the action, suit,
or proceeding giving rise to indemnification is obtainable, the
Association shall within two (2) weeks call a Board of Directors
meeting to be held within four (4) weeks of such notice, to make a
determination as to whether Indemnitee has met the applicable
standard of conduct. Otherwise, if a quorum consisting of directors
who were not parties in the relevant action, suit, or proceeding is
not obtainable, the Association shall retain (at the Association's
expense) independent legal counsel chosen either jointly by the
Association and Indemnitee or else by Association counsel within
two (2) weeks to make such determination. If (1) at such directors
meeting such a quorum is not obtained or, if obtained, refuses to
make such determination or (2) if such legal counsel is not so
retained or, if retained, does not make such determination within
four (4) weeks, then the Board of Directors shall cause a
shareholders meeting to be held within four (4) weeks to make such
a determination.
If notice of a request for payment of a claim under any
statute, under this Agreement, or under the Association's Articles
of Association or Bylaws providing for indemnification or advance
of expenses has been given to the Association by Indemnitee, and
such claim is not paid in full by the Association within ninety
(90) days of the later occurring of the giving of such notice and
Final Disposition in case of indemnification and twenty (20) days
of the giving of such notice in case of advance of expenses,
Indemnitee may, but need not, at any time thereafter bring an
action against the Association to receive the unpaid amount of the
claim or the expense advance and, if successful, Indemnitee shall
also be paid for the expenses (including attorneys' fees) of
bringing such action. It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses
incurred in connection with any action, suit, or proceeding in
advance of its Final Disposition) that Indemnitee has not met the
standards of conduct which make it permissible under applicable law
for the Association to indemnify Indemnitee for the amount claimed,
and Indemnitee shall be entitled to receive interim payment of
expenses pursuant to Subparagraph (d) unless and until such defense
may be finally adjudicated by court order or judgment from which no
further right of appeal exists. Neither the failure of the
Association (including its Board of Directors, independent legal
counsel, or its shareholders) to have made a determination that
indemnification of Indemnitee is proper in the circumstances
because Indemnitee has met the applicable standard of conduct
required by applicable law, nor an actual determination by the
Association (including its Board of Directors, independent legal
counsel, or its shareholders) that Indemnitee has not met such
applicable standard of conduct, shall create a presumption that
Indemnitee has or has not met the applicable standard of conduct.
(g) Other Rights and Remedies. The indemnification provided by
this Paragraph 1 shall not be deemed exclusive of, and shall not
affect, any other rights to which an Indemnitee may be entitled
under any law, the Association's Articles of Association, Bylaws,
agreement, vote of shareholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as
to action in another capacity while holding such office, and shall
continue after Indemnitee has ceased holding such office or acting
in such official capacity and shall inure to the benefit of the
heirs, executors, and administrators of Indemnitee.
(h) Insurance. The Association may purchase and maintain
insurance on behalf of any person who is or was an Agent against
any liability asserted against such person and incurred by him or
her in any such capacity, or arising out of his or her status as
such, whether or not the Association would have the power to
indemnify such person against such liability under the provisions
of this Paragraph 1.
(i) Optional Means of Assuring Payment. Upon request by an
Indemnitee certifying that Indemnitee has reasonable grounds to
believe Indemnitee may be made a party to a proceeding for which
Indemnitee may be entitled to be indemnified under this Paragraph
1, the Association may, but is not required to, create a trust
fund, grant a security interest or use other means (including,
without limitation, a letter of credit) to ensure the payment of
such sums as may become necessary to effect indemnification as
provided herein.
(j) Savings Clause. If this Paragraph 1 or any portion thereof
shall be invalidated on any ground by any court of competent
jurisdiction, then the Association shall nevertheless indemnify
Indemnitee as to expenses (including attorneys' fees), judgments,
fines, and amounts paid in settlement with respect to any action,
suit, proceeding, or investigation, whether civil, criminal or
administrative, and whether internal or external, including a grand
jury proceeding and an action or suit brought by or in the right of
the Association, to the full extent permitted by any applicable
portion of this Paragraph 1 that shall not have been invalidated,
or by any other applicable law.
(k) Definition of Agent. For the purposes of this Paragraph 1,
"Agent" means any person who is or was a director, officer,
employee or other agent of the Association, or is or was serving at
the request of the Association as a director, officer, employee or
agent of another foreign or domestic corporation, partnership,
joint venture, trust or other enterprise, or was a director,
officer, employee or agent of a foreign or domestic corporation
which was a predecessor corporation of the corporation or of
another enterprise at the request of such predecessor corporation;
"proceeding" means any threatened, pending or completed action or
proceeding, whether civil, criminal, administrative or
investigative; and "expenses" includes without limitation
attorneys' fees and any expenses of establishing a right to
indemnification.
(1) Indemnification under Section 204(a) (11) of the
California Corporations Code. Subject to the provisions of
California Corporations Code Section 204 (a) (11) and any other
applicable law, notwithstanding any other provisions of these
Paragraph 1, the following shall apply to the indemnification of
Indemnitee:
(i) The Association shall indemnify Indemnitee pursuant
to this Subparagraph (l) if the Association would be
required to indemnify Indemnitee pursuant to
Subparagraphs (a) or (b) if in Subparagraphs (a) or
(b) the phrase "in a manner Indemnitee reasonably
believed to be in the best interests of the
Association" is replaced with the phrase "in a
manner Indemnitee did not believe to be contrary to
the best interests of the Association". If pursuant
to Subparagraphs (c) and (f) the person making the
Subparagraph (a) and/or (b) conduct standard
determination determines that such standard has not
been satisfied, such person shall also determine
whether this subparagraph (1) (i) conduct standard
has been satisfied;
(ii) There shall be a presumption that Indemnitee met the
applicable standard of conduct required to be met in
subparagraph (c) for indemnification, rebuttable by
clear and convincing evidence to the contrary;
(iii) The Association shall have the burden of proving
that Indemnitee did not meet the applicable standard
of conduct in subparagraph (c);
(iv) In addition to the methods provided for in
Subparagraph (C), a determination that
indemnification is proper in the circumstances
because that Indemnitee met the applicable standard
of conduct may also be made by the arbitrator in any
arbitration proceeding in which such matter is or
was pending;
(v) Unless otherwise agreed to in writing between an
Indemnitee and the Association in any specific case,
indemnification may be made under Subparagraph (b)
for amounts paid in settling or otherwise disposing
of a pending action without court approval.
2. CHANGES.
In the event of any change, after the date of this Agreement,
in any applicable law, statute, or rule which expands the right of
a California corporation to indemnify a member of its board of
directors or an officer, such changes shall be automatically,
without further action of the parties, within the purview of
Indemnitee's rights and Association's obligations, under this
Agreement. In the event of any change in any applicable law,
statute or rule which narrows the right to indemnify a member of
its board of directors or an officer, such changes, to the extent
not otherwise required by such law, statute or rule to be applied
to this Agreement, shall have no effect on this Agreement or the
parties' rights and obligations hereunder. In the event of an
amendment to the Association's Bylaws which expands the right to
indemnify a member of its board of directors or an officer, such
change shall be automatically, without further action of the
parties, within Indemnitee's rights and Association's obligations
under this Agreement. In the event of any amendment to the
Association's Bylaws which narrows such right of a California
Corporation to indemnify a member of its board of directors or an
officer, such change shall only apply to the indemnification of
Indemnitee for acts committed, or lack of action, by Indemnitee
after such amendment. The Association agrees to give Indemnitee
prompt notice of amendments to the Association's Bylaws which
concern indemnification.
3. NONEXCLUSIVITY.
The indemnification provided by this Agreement shall not be
deemed exclusive of any rights to which Indemnitee may be entitled
under the Bank's Articles of Association, its Bylaws, any
agreement, any vote of shareholders or disinterested Directors, the
California Corporations Code, or otherwise, both as to action in
Indemnitee's official capacity and as to action in any other
capacity while holding such office (an "Indemnified Capacity"). The
indemnification provided under this Agreement shall continue as to
Indemnitee for any action taken or not taken while serving in an
Indemnified Capacity even though he may have ceased to serve in an
Indemnified Capacity at the time of any action, suit or other
covered proceeding.
4. PARTIAL INDEMNIFICATION.
If Indemnitee is entitled under any provision of this
Agreement to indemnification by the Association for some or a
portion of the expenses, judgment, fines or penalties actually or
reasonably incurred by him in the investigation, defense, appeal or
settlement of any civil or criminal action, suit or proceeding, but
not, however, for the total amount thereof, the Association shall
nevertheless indemnify Indemnitee for the portion of such expenses,
judgments, fines or penalties to which Indemnitee is entitled.
5. MUTUAL ACKNOWLEDGEMENT.
Both the Association and Indemnitee acknowledge that in
certain instances, Federal law or public policy may override
applicable law and prohibit the Association from indemnifying its
directors and officers under this Agreement or otherwise. For
example, the Association and Indemnitee acknowledge that the
Securities and Exchange Commission (the "SEC") has taken the
position that indemnification is not permissible for liabilities
arising under certain federal securities laws, and federal
legislation prohibits indemnification for certain ERISA violations.
Indemnitee understands and acknowledges that the Association has
undertaken or may be required in the future to undertake with the
SEC to submit questions of indemnification to a court in certain
circumstances for a determination of the Association's right under
public policy to indemnify Indemnitee. Furthermore, Indemnitee and
Association acknowledge that the extent of indemnification
permissible under Section 204(a)(11) of the California Corporations
Code has not been judicially determined; therefore, the
enforceability of Indemnitee's rights under Subparagraph (1) is
uncertain.
6. SEVERABILITY.
Nothing in this Agreement is intended to require or shall be
construed as requiring the Association to do or fail to do any act
in violation of applicable law. The Association's inability,
pursuant to court order, to perform its obligations under this
Agreement shall not constitute a breach of the Agreement. If the
application of any provision or provisions of the Agreement to any
particular facts or circumstances shall be held to be invalid or
unenforceable by any court of competent jurisdiction, then (i) the
validity and enforceability of such provision or provisions as
applied to any other particular facts or circumstances and the
validity of other provisions of this Agreement shall not in any way
be affected or impaired thereby and (ii) such provision(s) shall be
reformed without further action by the parties to make such
provision(s) valid and enforceable when applied to such facts and
circumstances with a view toward requiring Association to indemnify
Indemnitee to the fullest extent permissible by law.
7. EXCEPTIONS.
Any other provision herein to the contrary notwithstanding,
the Association shall not be obligated pursuant to the terms of
this Agreement:
(a) Regulatory Agency Proceedings. To indemnify Indemnitee for
expenses, penalties or other payments incurred in an administrative
proceeding or action instituted by a bank regulatory agency, which
proceeding or action results in a final order assessing civil money
penalties or requiring affirmative action by the Indemnitee in the
form of payments to the Association.
(b) Claims Initiated By Indemnitee. To indemnify or advance
expenses to Indemnitee with respect to proceedings or claims
(except counter-claims or cross-claims) initiated or brought
voluntarily by Indemnitee and not by way of defense, except with
respect to proceedings brought to establish or enforce a right to
indemnification under this Agreement or any other statute or law or
otherwise as required by the California Corporations Code, but such
indemnification or advancement of expenses may by provided by the
Association in specific cases if the Board of Directors finds it to
by appropriate; or
(c) Lack of Good Faith. To indemnify Indemnitee for any
expenses incurred by Indemnitee with respect to any proceeding
instituted by Indemnitee to enforce or interpret this Agreement, if
a court of competent jurisdiction determines that each of the
material assertions made by Indemnitee in such proceeding was not
made in good faith or was frivolous; or
(d) Insured Claims. To indemnify Indemnitee for expenses or
liabilities of any type whatsoever (including, but not limited to,
judgments, fines, ERISA excise taxes or penalties, and amounts paid
in settlement) which have been paid directly to Indemnitee by an
insurance carrier under a policy of officers' and directors'
liability insurance maintained by the Association; or
(e) Claims under section 16(b). To indemnify Indemnitee for
expenses or the payment of profits arising from the purchase and
sale by Indemnitee of securities in violation of section 16(b) of
the Securities Exchange Act of 1934, as amended, or any similar
successor statute.
8. COUNTERPARTS.
This Agreement may by executed in one or more counterparts,
each of which shall constitute an original.
9. SUCCESSORS AND ASSIGNS.
This Agreement shall by binding upon the Association and its
successors and assigns, and shall inure to the benefit of
Indemnitee and Indemnitee's estate, heirs, and legal
representatives and permitted assigns. Indemnitee may not assign
this Agreement without the prior written consent of the
Association.
10. ATTORNEYS' FEES.
In the event that any action is instituted by Indemnitee under
this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and
expenses, including reasonable attorneys' fees, incurred by
Indemnitee with respect to such action, unless as a part of such
action, the court of competent jurisdiction determines that each of
the material assertions made by Indemnitee as a basis for such
action were not made in good faith or were frivolous. In the event
of an action instituted by or in the name of the Association under
this Agreement or to enforce or interpret any of the terms of this
Agreement, Indemnitee shall be entitled to be paid all court costs
and expenses, including attorneys' fees, incurred by Indemnitee in
defense of such action (including with respect to Indemnitee's
counterclaims and cross-claims made in such action), unless as a
part of such action the court determines that each of Indemnitee's
material defenses to such action were made in bad faith or were
frivolous.
11. NOTICE.
All notices, requests, demands and other communications under
this Agreement shall by in writing and shall by deemed duly given
(i) if delivered by hand and receipted for by the party addressee,
on the date of such receipt, or (ii) if mailed by certified or
registered mail with postage prepaid, on the third business day
after the date postmarked. Addresses for notice to either party are
as shown under Authorized signatures at the end of this Agreement,
or as subsequently modified by written notice.
12. PARAGRAPH HEADINGS.
The Paragraph and subparagraph headings in this Agreement are
solely for convenience and shall not by considered in its
interpretation.
13. WAIVER.
A waiver by either party of any term or condition of the
agreement or any breach thereof, in any one instance, shall not by
deemed or construed to by a waiver of such term or condition or of
any subsequent breach thereof.
14. ENTIRE AGREEMENT; AMENDMENT.
This instrument contains the entire integrated Agreement
between the parties hereto and supersedes all prior negotiations,
representations or agreements, whether written or oral except for
the Association's Articles of Association and Bylaws. It may by
amended only by a written instrument signed by a duly authorized
officer of Association and by Indemnitee.
15. CHOICE OF LAW AND FORUM.
Except for that body of law governing choice of law, this
Agreement shall be governed by, and construed in accordance with
internal laws of the State of California which govern transactions
between California residents. The parties agree that any suit or
proceeding in connection with, arising out of or relating to this
Agreement shall by instituted only in a state court located in
Sonoma County in the State of California to the fullest extent
permissible or in a federal court located in San Francisco County
in the State of California, and the parties, for the purpose of any
such suit or proceeding, irrevocably agree and submit to the
personal and subject matter jurisdiction and venue of any such
court in any such suit or proceeding and agree that service of
process may by effected in the same manner notice is given
pursuant to section 11 above.
16. CONSIDERATION.
Part of the consideration the Association is receiving from
Indemnitee to enter into this Agreement is Indemnitee's agreement
to serve or to continue to serve, as applicable, for the present
as an Agent of the Association. Nothing in this Agreement shall
preclude Indemnitee from resigning as an Agent of the Association
nor the Association, by action of its shareholders, board of
directors, or officers, as the case may by, from terminating
Indemnitee's services as an Agent, as the case may by, with or
without cause.
AUTHORIZED SIGNATURES
In order to bind the parties to this Indemnification
Agreement, their duly authorized representations have signed their
names below on the dates indicated.
Sonoma National Bank
By__________________________________
James B. Keegan, Chairman of the Board
801 Fourth 5treet
Santa Rosa, CA 95404
(address)
Date Executed:___________________
AGREED TO AND ACCEPTED:
INDEMNITEE:
Signature of Clement C. Carinalli
3990 Wallace Road
5anta Rosa, CA 95404
(address)
Date Executed:
EXHIBIT 10 (b)
INDEMNIFICATION AGREEMENT
PREAMBLE
This Indemnification Agreement (this "Agreement") is made as
of this 14th day of May, 1996 , by and between Northern Empire
Bancshares, a California corporationtion (the "Company"), and Clement
C. Carinalli ("Indemnitee").
RECITALS
A. The Company and Indemnitee recognize the increasing
difficulty in obtaining directors', officers', and agents'
liability insurance, the significant increases in the cost of such
insurance, and the general reductions in the coverage of such
insurance.
B. The Company and Indemnitee further recognize the
substantial increase in corporate litigation in general, subjecting
directors, officers and agents to expensive litigation risks at the
same time as the availability and coverage of liability insurance
has been severely limited and may not be available to the Company
in the future.
C. Indemnitee does not regard the current protection
available as adequate under the present circumstances, and
Indemnitee and other directors, officers and agents of the Company
may not be willing to continue to serve as directors, officers and
agents without additional protection.
D. The Company desires to attract and retain the services of
highly qualified individuals, such as Indemnitee, to serve as
directors, officers and agents of the Company and to indemnify its
directors, officers and agents so as to provide them with the
maximum protection permitted by law.<PAGE>
Agreement
Based upon the facts and premises contained in the above
Recitals and in consideration of the mutual promises below, the
Company and Indemnitee hereby agree as follows:
1. INDEMNIFICATION AND EXPENSE ADVANCEMENT.
(a) Action, Etc., Other than by Right of the Company. The
Company shall indemnify Indemnitee if Indemnitee was or is a party
or is threatened to be made a party to any proceeding (other than
an action by or in the right of the Company to procure a judgment
in its favor) by reason of the fact that Indemnitee is or was an
Agent of the Company, against expenses, judgments, fines,
settlements and other amounts actually and reasonably incurred in
connection with such proceeding if Indemnitee acted in good faith
and in a manner Indemnitee reasonably believed to be in the best
interests of the Company and, in the case of a criminal proceeding,
has no reasonable cause to believe the conduct of Indemnitee was
unlawful. The termination of any proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its
equivalent shall not, of itself, create a presumption that
Indemnitee did not act in good faith and in a manner which
Indemnitee reasonably believed to be in the best interests of the
Company or that Indemnitee had reasonable cause to believe that
Indemnitee's conduct was unlawful.
(b) Action, Etc., By or in the Right of the Company. The
Company shall indemnify Indemnitee if Indemnitee was or is a party
or is threatened to be made a party to any threatened, pending or
completed action by or in the right of the Company to procure a
judgment in its favor by reason of the fact that Indemnitee is or
was an Agent of the Company, against expenses actually and
reasonably incurred by Indemnitee in connection with the defense or
settlement of such action if Indemnitee acted in good faith, in a
manner Indemnitee believed to be in the best interests of the
Company and its shareholders; except that no indemnification shall
be made under this subparagraph (b) for any of the following:
(i) In respect of any claim, issue or matter as to which
Indemnitee shall have been adjudged to be liable to
the Company in the performance of Indemnitee's duty
to the Company and its shareholders, unless and only
to the extent that the court in which such
proceeding is or was pending shall determine upon
application that, in view of all the circumstances
of the case, Indemnitee is fairly and reasonably
entitled to indemnity for the expenses which such
court shall determine;
(ii) Of amounts paid in settling or otherwise disposing
of a pending action without court approval; or
(iii) Of expenses incurred in defending a pending action
which is settled or otherwise disposed of without
court approval.
(c) Determination of Right of Indemnification. Any
indemnification under subparagraphs (a) and (b) shall be made by
the Company only if authorized in the specific case, upon a
determination that indemnification of Indemnitee is proper in the
circumstances because Indemnitee has met the applicable standard of
conduct set forth above in subparagraphs (a) and (b) by any of the
following:
(i) A majority vote of a quorum consisting of directors
who are not parties to such proceeding;
(ii) If such a quorum of directors is not obtainable, by
independent legal counsel in a written opinion;
(iii) Approval of the shareholders by the affirmative vote
of a majority of the shares entitled to vote
represented at a duly held meeting at which a quorum
is present or by the written consent of shareholders
as provided in the Bylaws, with the shares owned by
the person to be indemnified not being entitled to
vote thereon; or
(iv) The court in which such proceeding is or was pending
upon application made by the Company or its Agent or
attorney or other person rendering services in
connection with the defense, whether or not such
application by the Agent, attorney or other person
is opposed by the Company.
(d) Advances of Expenses. Expenses (including attorneys' fees)
costs, and charges incurred in defending any proceeding shall be
advanced by the Company prior to the final disposition of such
proceeding upon receipt of an undertaking by or on behalf of
Indemnitee to repay such amount unless it shall be determined
ultimately that Indemnitee is entitled to be indemnified as
authorized in this Paragraph 1.
(e) Indemnification Against Expenses of successful Party.
Notwithstanding the other provisions of this paragraph 1, to the
extent that Indemnitee has been successful on the merits in a
defense of any proceeding, claim, issue or matter referred to in
subparagraphs (a) and (b), Indemnitee shall be indemnified against
all expenses actually and reasonably incurred by Indemnitee in
connection therewith.
(f) Right of Indemnitee to Indemnification Upon Application;
Procedure Upon Application. Any indemnification provided for in
subparagraphs (a), (b) or (e) shall be made no later than ninety
(90) days after the Company is given notice of request by
Indemnitee, provided that such request is made after final
adjudication, dismissal, or settlement unless an appeal is filed,
in which case the request is made after the appeal is resolved
(hereafter referred to as "Final Disposition"). Upon such notice,
if a quorum of directors who were not parties to the action, suit,
or proceeding giving rise to indemnification is obtainable, the
Company shall within two (2) weeks call a Board of Directors
meeting to be held within four (4) weeks of such notice, to make a
determination as to whether Indemnitee has met the applicable
standard of conduct. Otherwise, if a quorum consisting of directors
who were not parties in the relevant action, suit, or proceeding is
not obtainable, the Company shall retain (at the Company's expense)
independent legal counsel chosen either jointly by the Company and
Indemnitee or else by Company counsel within two (2) weeks to make
such determination. If (1) at such directors meeting such a quorum
is not obtained or, if obtained, refuses to make such determination
or (2) if such legal counsel is not so retained or, if retained,
does not make such determination within four (4) weeks, then the
Board of Directors shall cause a shareholders meeting to be held
within four (4) weeks to make such a determination.
If notice of a request for payment of a claim under any
statute, under this Agreement, or under the Company's Articles of
Company or Bylaws providing for indemnification or advance of
expenses has been given to the Company by Indemnitee, and such
claim is not paid in full by the Company within ninety (90) days of
the later occurring of the giving of such notice and Final
Disposition in case of indemnification and twenty (20) days of the
giving of such notice in case of advance of expenses, Indemnitee
may, but need not, at any time thereafter bring an action against
the Company to receive the unpaid amount of the claim or the
expense advance and, if successful, Indemnitee shall also be paid
for the expenses (including attorneys' fees) of bringing such
action. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in
connection with any action, suit, or proceeding in advance of its
Final Disposition) that Indemnitee has not met the standards of
conduct which make it permissible under applicable law for the
Company to indemnify Indemnitee for the amount claimed, and
Indemnitee shall be entitled to receive interim payment of expenses
pursuant to Subparagraph (d) unless and until such defense may be
finally adjudicated by court order or judgment from which no
further right of appeal exists. Neither the failure of the Company
(including its Board of Directors, independent legal counsel, or
its shareholders) to have made a determination that indemnification
of Indemnitee is proper in the circumstances because Indemnitee has
met the applicable standard of conduct required by applicable law,
nor an actual determination by the Company (including its Board of
Directors, independent legal counsel, or its shareholders) that
Indemnitee has not met such applicable standard of conduct, shall
create a presumption that Indemnitee has or has not met the
applicable standard of conduct.
(g) Other Rights and Remedies. The indemnification provided by
this Paragraph 1 shall not be deemed exclusive of, and shall not
affect, any other rights to which an Indemnitee may be entitled
under any law, the Company's Articles of Incorporation, Bylaws,
agreement, vote of shareholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as
to action in another capacity while holding such office, and shall
continue after Indemnitee has ceased holding such office or acting
in such official capacity and shall inure to the benefit of the
heirs, executors, and administrators of Indemnitee.
(h) Insurance. The Company may purchase and maintain insurance
on behalf of any person who is or was an Agent against any
liability asserted against such person and incurred by him or her
in any such capacity, or arising out of his or her status as such,
whether or not the Company would have the power to indemnify such
person against such liability under the provisions of this
Paragraph 1.
(i) Optional Means of Assuring Payment. Upon request by an
Indemnitee certifying that Indemnitee has reasonable grounds to
believe Indemnitee may be made a party to a proceeding for which
Indemnitee may be entitled to be indemnified under this Paragraph
1, the Company may, but is not required to, create a trust fund,
grant a security interest or use other means (including, without
limitation, a letter of credit) to ensure the payment of such sums
as may become necessary to effect indemnification as provided
herein.
(j) Savings Clause. If this Paragraph 1 or any portion thereof
shall be invalidated on any ground by any court of competent
jurisdiction, then the Company shall nevertheless indemnify
Indemnitee as to expenses (including attorneys' fees), judgments,
fines, and amounts paid in settlement with respect to any action,
suit, proceeding, or investigation, whether civil, criminal or
administrative, and whether internal or external, including a grand
jury proceeding and an action or suit brought by or in the right of
the Company, to the full extent permitted by any applicable portion
of this Paragraph 1 that shall not have been invalidated, or by any
other applicable law.
(k) Definition of Agent. For the purposes of this Paragraph 1,
"Agent" means any person who is or was a director, officer,
employee or other agent of the Company, or is or was serving at the
request of the Company as a director, officer, employee or agent of
another foreign or domestic corporation, partnership, joint
venture, trust or other enterprise, or was a director, officer,
employee or agent of a foreign or domestic corporation which was a
predecessor corporation of the corporation or of another enterprise
at the request of such predecessor corporation; "proceeding" means
any threatened, pending or completed action or proceeding, whether
civil, criminal, administrative or investigative; and "expenses"
includes without limitation attorneys' fees and any expenses of
establishing a right to indemnification.
(1) Indemnification under Section 204(a) (11) of the
California Corporations Code. Subject to the provisions of
California Corporations Code Section 204 (a) (11) and any other
applicable law, notwithstanding any other provisions of these
Paragraph 1, the following shall apply to the indemnification of
Indemnitee:
(i) The Company shall indemnify Indemnitee pursuant to
this Subparagraph (l) if the Company would be
required to indemnify Indemnitee pursuant to
Subparagraphs (a) or (b) if in Subparagraphs (a) or
(b) the phrase "in a manner Indemnitee reasonably
believed to be in the best interests of the Company"
is replaced with the phrase "in a manner Indemnitee
did not believe to be contrary to the best interests
of the Company". If pursuant to Subparagraphs (c)
and (f) the person making the Subparagraph (a)
and/or (b) conduct standard determination determines
that such standard has not been satisfied, such
person shall also determine whether this
subparagraph (1) (i) conduct standard has been
satisfied;
(ii) There shall be a presumption that Indemnitee met the
applicable standard of conduct required to be met in
subparagraph (c) for indemnification, rebuttable by
clear and convincing evidence to the contrary;
(iii) The Company shall have the burden of proving that
Indemnitee did not meet the applicable standard of
conduct in subparagraph (c);
(iv) In addition to the methods provided for in
Subparagraph (C), a determination that
indemnification is proper in the circumstances
because that Indemnitee met the applicable standard
of conduct may also be made by the arbitrator in any
arbitration proceeding in which such matter is or
was pending;
(v) Unless otherwise agreed to in writing between an
Indemnitee and the Company in any specific case,
indemnification may be made under Subparagraph (b)
for amounts paid in settling or otherwise disposing
of a pending action without court approval.
2. CHANGES.
In the event of any change, after the date of this Agreement,
in any applicable law, statute, or rule which expands the right of
a California corporation to indemnify a member of its board of
directors or an officer, such changes shall be automatically,
without further action of the parties, within the purview of
Indemnitee's rights and Company's obligations, under this
Agreement. In the event of any change in any applicable law,
statute or rule which narrows the right to indemnify a member of
its board of directors or an officer, such changes, to the extent
not otherwise required by such law, statute or rule to be applied
to this Agreement, shall have no effect on this Agreement or the
parties' rights and obligations hereunder. In the event of an
amendment to the Company's Bylaws which expands the right to
indemnify a member of its board of directors or an officer, such
change shall be automatically, without further action of the
parties, within Indemnitee's rights and Company's obligations under
this Agreement. In the event of any amendment to the Company's
Bylaws which narrows such right of a California Corporation to
indemnify a member of its board of directors or an officer, such
change shall only apply to the indemnification of Indemnitee for
acts committed, or lack of action, by Indemnitee after such
amendment. The Company agrees to give Indemnitee prompt notice of
amendments to the Company's Bylaws which concern indemnification.
3. NONEXCLUSIVITY.
The indemnification provided by this Agreement shall not be
deemed exclusive of any rights to which Indemnitee may be entitled
under the Corporation's Articles of Incorporation, its Bylaws, any
agreement, any vote of shareholders or disinterested Directors, the
California Corporations Code, or otherwise, both as to action in
Indemnitee's official capacity and as to action in any other
capacity while holding such office (an "Indemnified Capacity"). The
indemnification provided under this Agreement shall continue as to
Indemnitee for any action taken or not taken while serving in an
Indemnified Capacity even though he may have ceased to serve in an
Indemnified Capacity at the time of any action, suit or other
covered proceeding.
4. PARTIAL INDEMNIFICATION.
If Indemnitee is entitled under any provision of this
Agreement to indemnification by the Company for some or a portion
of the expenses, judgment, fines or penalties actually or
reasonably incurred by him in the investigation, defense, appeal or
settlement of any civil or criminal action, suit or proceeding, but
not, however, for the total amount thereof, the Company shall
nevertheless indemnify Indemnitee for the portion of such expenses,
judgments, fines or penalties to which Indemnitee is entitled.
5. MUTUAL ACKNOWLEDGEMENT.
Both the Company and Indemnitee acknowledge that in
certain instances, Federal law or public policy may override
applicable law and prohibit the Company from indemnifying its
directors and officers under this Agreement or otherwise. For
example, the Company and Indemnitee acknowledge that the Securities
and Exchange Commission (the "SEC") has taken the position that
indemnification is not permissible for liabilities arising under
certain federal securities laws, and federal legislation prohibits
indemnification for certain ERISA violations. Indemnitee
understands and acknowledges that the Company has undertaken or may
be required in the future to undertake with the SEC to submit
questions of indemnification to a court in certain circumstances
for a determination of the Company's right under public policy to
indemnify Indemnitee. Furthermore, Indemnitee and Company
acknowledge that the extent of indemnification permissible under
Section 204(a)(11) of the California Corporations Code has not been
judicially determined; therefore, the enforceability of
Indemnitee's rights under Subparagraph (1) is uncertain.
6. SEVERABILTIY.
Nothing in this Agreement is intended to require or shall be
construed as requiring the Company to do or fail to do any act in
violation of applicable law. The Company's inability, pursuant to
court order, to perform its obligations under this Agreement shall
not constitute a breach of the Agreement. If the application of any
provision or provisions of the Agreement to any particular facts or
circumstances shall be held to be invalid or unenforceable by any
court of competent jurisdiction, then (i) the validity and
enforceability of such provision or provisions as applied to any
other particular facts or circumstances and the validity of other
provisions of this Agreement shall not in any way be affected or
impaired thereby and (ii) such provision(s) shall be reformed
without further action by the parties to make such provision(s)
valid and enforceable when applied to such facts and circumstances
with a view toward requiring Company to indemnify Indemnitee to the
fullest extent permissible by law.
7. EXCEPTIONS.
Any other provision herein to the contrary notwithstanding,
the Company shall not be obligated pursuant to the terms of this
Agreement:
(a) Regulatory Agency Proceedings. To indemnify Indemnitee for
expenses, penalties or other payments incurred in an administrative
proceeding or action instituted by a bank regulatory agency, which
proceeding or action results in a final order assessing civil money
penalties or requiring affirmative action by the Indemnitee in the
form of payments to the Company.
(b) Claims Initiated By Indemnitee. To indemnify or advance
expenses to Indemnitee with respect to proceedings or claims
(except counter-claims or cross-claims) initiated or brought
voluntarily by Indemnitee and not by way of defense, except with
respect to proceedings brought to establish or enforce a right to
indemnification under this Agreement or any other statute or law or
otherwise as required by the California Corporations Code, but such
indemnification or advancement of expenses may by provided by the
Company in specific cases if the Board of Directors finds it to by
appropriate; or
(c) Lack of Good Faith. To indemnify Indemnitee for any
expenses incurred by Indemnitee with respect to any proceeding
instituted by Indemnitee to enforce or interpret this Agreement, if
a court of competent jurisdiction determines that each of the
material assertions made by Indemnitee in such proceeding was not
made in good faith or was frivolous; or
(d) Insured Claims. To indemnify Indemnitee for expenses or
liabilities of any type whatsoever (including, but not limited to,
judgments, fines, ERISA excise taxes or penalties, and amounts paid
in settlement) which have been paid directly to Indemnitee by an
insurance carrier under a policy of officers' and directors'
liability insurance maintained by the Company; or
(e) Claims under section 16(b). To indemnify Indemnitee for
expenses or the payment of profits arising from the purchase and
sale by Indemnitee of securities in violation of section 16(b) of
the Securities Exchange Act of 1934, as amended, or any similar
successor statute.
8. COUNTERPARTS.
This Agreement may by executed in one or more counterparts,
each of which shall constitute an original.
9. SUCCESSORS AND ASSIGNS.
This Agreement shall by binding upon the Company and its
successors and assigns, and shall inure to the benefit of
Indemnitee and Indemnitee's estate, heirs, and legal
representatives and permitted assigns. Indemnitee may not assign
this Agreement without the prior written consent of the Company.
10. ATTORNEYS' FEES.
In the event that any action is instituted by Indemnitee under
this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and
expenses, including reasonable attorneys' fees, incurred by
Indemnitee with respect to such action, unless as a part of such
action, the court of competent jurisdiction determines that each of
the material assertions made by Indemnitee as a basis for such
action were not made in good faith or were frivolous. In the event
of an action instituted by or in the name of the Company under this
Agreement or to enforce or interpret any of the terms of this
Agreement, Indemnitee shall be entitled to be paid all court costs
and expenses, including attorneys' fees, incurred by Indemnitee in
defense of such action (including with respect to Indemnitee's
counterclaims and cross-claims made in such action), unless as a
part of such action the court determines that each of Indemnitee's
material defenses to such action were made in bad faith or were
frivolous.
11. NOTICE.
All notices, requests, demands and other communications under
this Agreement shall by in writing and shall by deemed duly given
(i) if delivered by hand and receipted for by the party addressee,
on the date of such receipt, or (ii) if mailed by certified or
registered mail with postage prepaid, on the third business day
after the date postmarked. Addresses for notice to either party are
as shown under Authorized signatures at the end of this Agreement,
or as subsequently modified by written notice.
12. PARAGRAPH HEADINGS.
The Paragraph and subparagraph headings in this Agreement are
solely for convenience and shall not by considered in its
interpretation.
13. WAIVER.
A waiver by either party of any term or condition of the
agreement or any breach thereof, in any one instance, shall not by
deemed or construed to by a waiver of such term or condition or of
any subsequent breach thereof.
14. ENTIRE AGREEMENT; AMENDMENT.
This instrument contains the entire integrated Agreement
between the parties hereto and supersedes all prior negotiations,
representations or agreements, whether written or oral except for
the Company's Articles of Incorporation and Bylaws. It may by
amended only by a written instrument signed by a duly authorized
officer of Company and by Indemnitee.
15. CHOICE OF LAW AND FORUM.
Except for that body of law governing choice of law, this
Agreement shall be governed by, and construed in accordance with
internal laws of the State of California which govern transactions
between California residents. The parties agree that any suit or
proceeding in connection with, arising out of or relating to this
Agreement shall by instituted only in a state court located in
Sonoma County in the State of California to the fullest extent
permissible or in a federal court located in San Francisco County
in the State of California, and the parties, for the purpose of any
such suit or proceeding, irrevocably agree and submit to the
personal and subject matter jurisdiction and venue of any such
court in any such suit or proceeding and agree that service of
process may by effected in the same manner notice is given
pursuant to section 11 above.
16. CONSIDERATION.
Part of the consideration the Company is receiving from
Indemnitee to enter into this Agreement is Indemnitee's agreement
to serve or to continue to serve, as applicable, for the present
as an Agent of the Company. Nothing in this Agreement shall
preclude Indemnitee from resigning as an Agent of the Company nor
the Company, by action of its shareholders, board of directors, or
officers, as the case may by, from terminating Indemnitee's
services as an Agent, as the case may by, with or without cause.
AUTHORIZED SIGNATURES
In order to bind the parties to this Indemnification
Agreement, their duly authorized representations have signed their
names below on the dates indicated.
Northern Empire Bancshares
By_________________________________
Dennis R. Hunter, Chairman of the Board
801 Fourth 5treet
Santa Rosa, CA 95404
(address)
Date Executed:______________________
AGREED TO AND ACCEPTED:
INDEMNITEE:
_________________________________
Signature of Clement C. Carinalli
3990 Wallace Road
5anta Rosa, CA 95404
(address)
Date Executed:____________________
EXHIBIT 10 (c)
NORTHERN EMPIRE BANCSHARES
1997 STOCK OPTION PLAN
1. PURPOSES OF THE PLAN. The purposes of this Stock Option
Plan are:
(a) to attract and retain the best available personnel for
positions of substantial responsibility and to attract and retain the
best available persons to serve as directors at Northern Empire
Bancshares (the "Company") and its Subsidiaries, as defined below,
(b) to provide additional incentive to Employees and Directors,
as defined below,
(c) to provide a means whereby Employees and Directors may
purchase shares of Common Stock of the Company, and
(d) to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the
time of grant.
2. Definitions. As used herein, the following definitions
shall apply:
(a) "Administrator" means the Board or any of its Committees as
shall be administering the Plan, in accordance with Section 4 of this
Plan.
(b) "Applicable Laws" means the legal requirements relating to
the administration of stock option plans under state corporate and
securities laws and the Code, as defined below.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means a Committee appointed by the Board in
accordance with Section 4 of the Plan.
(f) "Common Stock" means the Common Stock of the Company.
(g) "Company" means Northern Empire Bancshares, a California
corporation.
(h) "Continuous Status as an Employee or Director" means that
the employment relationship with the Company, any Parent or Subsidiary
or service as a director of the Company, any Parent or Subsidiary is not
interrupted or terminated. Continuous Status as an Employee or Director
shall not be considered interrupted in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of
the Company or between the Company, its Parent, any Subsidiary, or any
successors. A leave of absence approved by the Company shall include
sick leave, military leave, or any other personal leave. For purposes
of Incentive Stock Options, no such leave may exceed 90 days, unless
reemployment upon expiration of such leave is guaranteed by statute or
contract, including Company policies. If reemployment upon expiration
of a leave of absence approved by the Company is not so guaranteed, on
the 91st day of such leave any Incentive Stock Option held by the
Optionee shall cease to be treated as an Incentive Stock Option and
shall be treated for tax purposes as a Nonstatutory Stock Option.
(i) "Director" means a member of the Board or a member of the
board of directors of any Subsidiary.
(j) "Disability" means total and permanent disability as defined
in Section 22(e)(3) of the Code.
(k) "Employee" means any person, including Officers and
Directors, employed by the Company or any Parent or Subsidiary of the
Company. Neither service as a director nor payment of a director's fee
shall be sufficient to constitute "employment".
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(m) "Fair Market Value" means, as of any date, the fair market
value as determined in good faith by the Administrator. The fair market
value of the common stock may be established by the Administrator by use
of any reasonable valuation method, taking into consideration prices at
which shares have recently traded, the number of shares traded and other
relevant factors.
(n) "Incentive Stock Option" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the
Code and the regulations promulgated thereunder.
(o) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(p) "Notice of Grant" means a written notice evidencing certain
terms and conditions of an individual Option grant. The Notice of Grant
is part of the Option Agreement.
(q) "Officer" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the regulations
promulgated thereunder.
(r) "Option" means a stock option granted pursuant to the Plan.
(s) "Option Agreement" means a written agreement between the
Company and an Optionee, evidencing the terms and conditions of an
individual Option grant. The Option Agreement is subject to the terms
and conditions of the Plan.
(t) "Optioned Stock" means the Common Stock subject to an
outstanding Option.
(u) "Optionee" means an Employee or Director to whom an Option
is granted.
(v) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(w) "Plan" means this Northern Empire Bancshares 1997 Stock
Option and Stock Appreciation Right Plan.
(x) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised
with respect to the Plan.
(y) "Share" means a share of Common Stock, as adjusted in
accordance with Section 13 of the Plan.
(z) "Subsidiary" means a "subsidiary corporation" whether now
or hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 13
of the Plan, the maximum aggregate number of Shares which may be
optioned and sold under the Plan is 600,000 Shares; provided, however,
that at no time shall the total number of shares issuable upon exercise
of all outstanding options, plus the total number of shares provided for
under any compensation plans of the Corporation pursuant to which shares
of stock may be issued to participants, exceed 30% of the then
outstanding shares of the Corporation. If an Option expires without
having been exercised in full, the unpurchased Shares which were subject
thereto shall become available for future grant or sale under the Plan
(unless the Plan has terminated); provided, however, that Shares that
have actually been issued under the Plan upon exercise of an Option
shall not be returned to the Plan and shall not become available for
future distribution under the Plan. Only the net shares issued
(including the shares, if any, withheld for tax withholding
requirements) shall be counted when shares of Common Stock are used as
full or partial payment for shares issued upon exercise of an Option.
(as amended in Amendment No. 1)
4. ADMINISTRATION OF THE PLAN.
(a) The Plan shall be administered by either (i) the Board, or
(ii) a Committee, which committee shall be constituted to satisfy
Applicable Laws. If the Company is subject to Section 16 of the
Exchange Act, the Plan shall be administered in compliance with Rule
16b-3 with respect to Directors and Officers subject to Section 16 of
the Exchange Act.
(b) Subject to the provisions of the Plan, and in the case of a
Committee subject to the specific duties delegated by the Board to such
Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value of the Common Stock;
(ii) to select the Employees and Directors to whom Options
may be granted hereunder;
(iii) to determine whether and to what extent Options are
granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each Option granted hereunder;
(v) to approve the form of agreements for use under the
Plan;
(vi) to determine the other terms and conditions, not
inconsistent with the terms of the Plan, of any award granted hereunder.
Such terms and conditions include, but are not limited to, the exercise
price, the time or times when Options may be exercised (which may be
based on performance criteria), any vesting acceleration or waiver of
forfeiture restrictions, and any restriction or limitation regarding any
Option or the shares of Common Stock relating thereto, based in each
case on such factors as the Administrator, in its sole discretion, shall
determine;
(vii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock
covered by the Option shall have declined since the date the Option was
granted;
(viii) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan;
(x) to modify or amend each Option (subject to Section
16(c) of the Plan), including the discretionary authority to extend the
post-termination exercisability period of Options longer than is
otherwise provided for in the Plan;
(xi) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or the
amendment of an option previously granted by the Administrator;
(xii) to determine the terms and restrictions applicable to
Options;
(xiii) to allow Optionees to satisfy withholding tax
obligations by electing to have the Company withhold from the Shares to
be issued upon exercise of an Option that number of Shares having a Fair
Market Value equal to the amount required to be withheld. The Fair
Market Value of the Shares to be withheld shall be determined on
the date that the amount of tax to be withheld is to be determined. All
elections by an Optionee to have Shares withheld for this purpose shall
be make in such form and under such conditions as the Administrator may
deem necessary or advisable; and
(xiv) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) The Administrator's decisions, determinations and
interpretations shall be final and binding on all Optionees and any
other holders of Options.
5. AWARDS UNDER THE PLAN.
(a) Types of Awards. Awards under the Plan shall be in the form
of Options, which may be designated as Incentive Stock Options or as
Nonstatutory Stock Options, as may be determined by the Administrator.
(b) Eligibility. Options may be granted to Employees and
Directors. Incentive Stock Options may be granted only to Employees.
If otherwise eligible, an Employee or Director who have been granted an
Option may be granted additional Options.
6. LIMINATIONS.
(a) Each Option shall be designated in the Notice of Grant as
either an Incentive Stock Option or a Nonstatutory Stock Option.
However, notwithstanding such designations, to the extent that the
aggregate Fair Market Value:
(i) of Shares subject to an Optionee's Incentive Stock
Options granted by the Company, any Parent or Subsidiary, which
(ii) become exercisable for the first time during any
calendar year (under all plans of the Company or any Parent or
Subsidiary)
exceeds $100,000, such excess Options shall be treated as Nonstatutory
Stock Options. For purposes of this Section 6(a), Incentive Stock
Options shall be taken into account in the order in which they were
granted, and the Fair Market Value of the Shares shall be determined at
the time of grant.
(b) Neither the Plan nor any Option shall confer upon any
Optionee any right with respect to continuing the Optionee's employment
relationship or service as a director with the Company, nor shall they
interfere in any way with the Optionee's right or the Company's right to
terminate such employment or service as a director, at any time, with
or without cause.
(c) If the Company is subject to Rule 16b-3, Options granted to
individuals subject to Rule 16b-3 ("Insiders") must comply with the
applicable provisions of Rule 16b-3 and shall contain such additional
conditions or restrictions as may be required thereunder to qualify for
the maximum exemption from Section 16 of the Exchange Act with respect
to Plan transactions.
7. TERM OF PLAN. The Plan shall become effective upon the earlier of
its adoption by the Board or its approval by the shareholders of the
Company as described in Section 20. It shall continue in effect for a
term of ten (10) years unless terminated earlier under Section 16 of the
Plan.
8. TERM OF OPTION. The term of each Option shall be stated in the
Notice of Grant; provided, however, that in each case, the term shall
not exceed ten (10) years from the date of grant. Moreover, in the case
of an Incentive Stock Option granted to an Optionee who, at the time
the Incentive Stock Option is granted, owns stock representing
more than ten percent (10%) of the voting power of all classes of stock
of the Company or any Parent or Subsidiary, the term of the Incentive
Stock Option shall not exceed five (5) years from the date of grant.
9. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) Exercise Price. The per share exercise price for the Shares
to be issued pursuant to exercise of an Option shall be determined by
the Administrator, subject to the following;
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the
Incentive Stock Option is granted, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company
or any Parent or Subsidiary, the per Share exercise price shall be no
less than 110% of the Fair Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee
described in paragraph (A) immediately above, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(iii) In the case of a Nonstatutory Stock Option
(A) granted to an Employee or Director who, at the
time the Nonstatutory Stock Option is granted, owns stock representing
more than ten percent (10%) of the voting power of all classes of stock
of the Company or any Parent or Subsidiary, the per Share exercise price
shall be no less than 110% of the Fair Market Value per Share on the
date of grant.
(B) granted to any Employee or Director other than an
Employee or Director described in paragraph (A) immediately above, the
per Share exercise price shall be no less than 85% of the Fair Market
Value per Share on the date of grant.
(b) Waiting Period and Exercise Dates. At the time an Option is
granted, the Administrator shall fix the period within which the Option
may be exercised and shall determine any conditions which must be
satisfied before the Option may be exercised. In so doing, the
Administrator may specify that an Option may not be exercised until the
completion of a service period. Notwithstanding the foregoing, each
Option shall be exercisable at the rate of at least 20% per year over
five (5) years from the date the Option is granted. Installments shall
be cumulative.
(c) Form of Consideration. The Administrator shall determine
the acceptable form of consideration for exercising an Option, including
the method of payment. In the case of an Incentive Stock Option, the
Administrator shall determine the acceptable form of consideration at
the time of grant. Such consideration may consist of: (i) cash; (ii)
check; (iii) promissory note; (iv) other Shares, which (A) in the case
of Shares acquired upon the exercise of an option, have been owned by
the Optionee for more than six (6) months on the date of surrender, and
(B) have a Fair Market Value on the date of surrender equal to the
aggregate exercise price of the Shares as to which said Option is to
be exercised; (v) delivery of a properly executed exercise notice
together with such other documentation as the Administrator and the
broker, if applicable, shall require to effect an exercise of the Option
and delivery to the Company of the sale or loan proceeds required to pay
the exercise price; (vi) any combination of the foregoing methods of
payment; or (vii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. EXERCISE OF OPTION.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable according to the terms of the
Plan and at such times and under such conditions as determined by the
Administrator as set forth in the Option Agreement. An Option may not
be exercised for a fraction of a Share. An Option shall be deemed
exercised when the Company receives: (i) written notice of exercise (in
accordance with the Option Agreement) from the person entitled to
exercise the Option, stating the name or names in which the certificate
for such Shares shall be issued and stating the date on which the
exercise is to be effective (which shall be no more than fifteen (15)
days after the Notice of Exercise), and (ii) full payment for the Shares
with respect to which the Option is exercised. If payment is not
received by the date specified in the Notice for exercise, the right to
exercise the Option as to the Shares specified in the Notice shall
terminate. Until the stock certificate evidencing such Shares is issued
(as evidence by the appropriate entry on the books of the Company or of
a duly authorized transfer agent of the Company), no right to vote or
receive dividends or any other rights as a shareholder shall exist with
respect to the Optioned Stock, notwithstanding the exercise of the
Option. Subject to Section 17 hereof, the Company shall issue (or cause
to be issued) such stock certificate promptly after the Option is
exercised. No adjustment will be made for a dividend or other right for
which the record date is prior to the date the stock certificate is
issued, except as provided in Section 13 of the Plan.
(b) Termination of Employment or Service as a Director.
(i) Upon termination of an Optionee's Continuous Status as
an Employee or Director, other than upon the Optionee's death or
Disability, the Optionee may exercise his or her Option, but only within
such period of time as is specified in the Notice of Grant, and only to
the extent that the Optionee was entitled to exercise it at the
date of termination (and in no event later than the expiration of the
term of such Option as set forth in the Notice of Grant). The time
specified in the Notice of Grant for exercise after termination of
employment shall be at least thirty (30) days from the date of
termination. In the case of an Incentive Stock Option, such period of
time shall not exceed ninety (90) days from the date of termination. In
the absence of a specified time in the Notice of Grant, the Option shall
remain exercisable for ninety (90) days following the Optionee's
termination of Continuous Status as an Employee or Director.
(ii) If, at the date of termination, the Optionee is not
entitled to exercise his or her entire Option, the Shares covered by the
unexercisable portion of the Option shall revert to the Plan. If, after
termination, the Optionee does not exercise his or her Option within the
time specified by the Administrator, the Option shall terminate, and
the Shares covered by such Option shall revert to the Plan.
(c) Disability of Optionee. In the event that an Optionee's
Continuous Status as an Employee or Director terminates as a result of
the Optionee's Disability, the Optionee may exercise his or her Option
for the period of time specified in the Notice of Grant, which period of
time (i) shall be at least twelve (12) months from the date of
termination of Optionee's Continuous Status as an Employee or Director,
but (ii) shall not exceed the later of (A) the expiration of the term of
such Option as set forth in the Notice of Grant or (B) twelve months
from the date of termination of Optionee's Continuous Status as an
Employee or Director; provided, however, that in no event may
an Option be exercised more than 10 years from the date it is granted.
If, at the date of termination, the Optionee is not entitled to exercise
his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall revert to the Plan, unless the Optionee was
an officer or director of the Company and the Option agreement provides
that the Option will vest in full upon the Disability of the Optionee.
If, after termination, the Optionee does not exercise his or her Option
within the time specified herein, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan. (as amended in
Amendment No. 1)
(d) Death of Optionee. In the event of the death of an
Optionee, the Option may be exercised by the Optionee's estate or by a
person who acquired the right to exercise the Option by bequest or
inheritance for the period of time specified in the Notice of Grant,
which period of time (i) shall be at least twelve (12) months following
the date of death, but (ii) shall not exceed the later of (A) the
expiration of the term of such Option as set forth in the Notice of
Grant or (B) twelve months from the date of death; provided, however,
that in no event may an Option be exercised more than 10 years from the
date it is granted. If, at the time of death, the Optionee was not
entitled to exercise his or her entire Option, the Shares covered by the
unexercisable portion of the Option shall immediately revert to the
Plan, unless the Optionee was an officer or director of the Company and
the Option agreement provides that the Option will vest in full upon
the death of the Optionee. If, after death, the Optionee's estate or a
person who acquired the right to exercise the Option by bequest or
inheritance does not exercise the Option within the time specified
herein, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan. (as amended in Amendment No. 1)
11. TRANSFERABILITY OF OPTIONS. An Incentive Stock Option may not be
sold, pledged, assigned, hypothecated, transferred, or disposed of in
any manner other than by will or by the laws of descent or distribution
and may be exercised, during the lifetime of the Optionee, only by the
Optionee. A Nonstatutory Stock Option may be transferred by the
Optionee only to a member of his or her immediate family ("Family
Member"), and may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any other manner by the Optionee or by a
Family Member to whom such Option has been transferred, other than by
will or by the laws of descent or distribution. A Nonstatutory
Stock Option may be exercised, during the lifetime of the holder of the
Option, only by the Optionee or a Family Member who has received the
Option by a permitted transfer from the Optionee.
12. To the extent that Options are granted hereunder as "incentive
stock options," the Plan shall be administered so as to qualify such
options as incentive stock options, as defined in Section 422 and other
applicable sections of the Internal Revenue Code of 1986, as now in
force or hereafter amended (the "Code"), and the regulations
promulgated thereunder. (as added by Amendment No. 1)
13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER OR
ASSET SALE.
(a) Changes in Capitalization. Subject to any required action
by the stockholders of the Company, the number of shares of Common Stock
covered by each outstanding Option and the number of shares of Common
Stock which have been authorized for issuance under the Plan but as to
which no Options have yet been granted or which have been returned to
the Plan upon cancellation or expiration of an Option, as well as the
price per share of Common Stock covered by each such outstanding Option,
shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a stock split,
reverse stock split, stock dividend, combination or reclassification of
the Common Stock, or any other increase or decrease in the number of
issued shares of Common Stock effected without receipt of consideration
by the Company; provided, however, that conversion of any convertible
securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the
Administrator, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be make with respect to, the number
or price of shares of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall
notify each Optionee as soon as practicable prior to the effective date
of such proposed transaction. The Administrator in its discretion may
provide for an Optionee to have the right to exercise his or her Option
until ten (10) days prior to such transaction as to all of the Optioned
Stock covered thereby, including Shares as to which the Option would not
otherwise be exercisable. To the extent it has not been previously
exercised, an Option will terminate immediately prior to the
consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the
Company with or into another corporation where the Company is not the
successor corporation, or the sale of substantially all of the assets of
the Company, each outstanding Option shall be assumed or an equivalent
option or right substituted by the successor corporation or a
Parent or Subsidiary of the successor corporation. In the event that
the successor corporation refuses to assume or substitute for the
Option, the Optionee shall fully vest in and have the right to exercise
the Option as to all of the Optioned Stock, including Shares
as to which it would not otherwise be vested or exercisable. If an
Option becomes fully vested and exercisable under the terms of the
preceding sentence, the Administrator shall notify the Optionee in
writing that the Option shall be fully vested and exercisable for a
period of fifteen (15) days from the date of such notice, and the Option
shall terminate upon the expiration of such period. For the purposes of
this paragraph, the Option shall be considered assumed if, following the
merger or sale of assets, the Option confers on the Optionee the right
to purchase or receive, for each Share of Optioned Stock, the
consideration (whether stock, cash, or other securities or property)
received in the merger or sale of assets by holders of Common Stock for
each Share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration chosen
by the holders of a majority of the outstanding Shares); provided,
however, that if such consideration received in the merger or sale of
assets is not solely common stock of the successor corporation or its
Parent, the Administrator may, with the consent of the successor
corporation, provide for the consideration to be received upon
the exercise of the Option, for each Share of Optioned Stock to be
solely common stock of the successor corporation or its Parent equal in
fair market value to the per share consideration received by holders of
Common Stock in the merger or sale of assets.
14. CHANGE IN CONTROL. In the event of a change in control of the
Company, which is defined for this purpose as the acquisition by one
person or group of persons, acting together, of the ownership or voting
control of more than 50% of the voting securities of the Company, by
either a transaction or a series of transactions, then the vesting of
each outstanding Option shall be accelerated and immediately
exercisable.
15. DATE OF GRANT. The date of grant of an Option shall be, for all
purposes, the date on which the Administrator makes the determination
granting such Option, or such later date as determined by the
Administrator. Notice of the determination shall be provided to each
Optionee within a reasonable time after the date of such grant.
16. AMENDMENT AND TERMINATION OF PLAN.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to
comply with Rule 16b-3 or with Section 422 of the Code (or any successor
rule or statute) or other Applicable Law, rule or regulation, including
the requirements of any exchange or quotation system on which the Common
Stock is listed or quoted. Such shareholder approval, if required,
shall be obtained in such a manner and to such a degree as is required
by the applicable law, rule or regulation.
(c) Effect of Amendment or Termination. No amendment,
alternation, suspension or termination of the Plan shall impair the
rights of any Optionee, unless mutually agreed otherwise between the
Optionee and the Administrator, which agreement must be in writing and
signed by the Optionee and the Company.
17. CONDITIONS UPON ISSUANCE OF SHARES.
(a) Legal Compliance. Shares shall not be issued pursuant to
the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares shall comply with all relevant
provisions of law, including, without limitation, the California
Corporate Securities Law of 1968; the Securities Act of 1933, as
amended; the Exchange Act; the rules and regulations promulgated
thereunder; Applicable Laws; and the requirements of any stock exchange
or quotation system upon which the Shares may then be listed or quoted,
and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise
of an Option, the Company may require the person exercising such Option
to represent and warrant at the time of any such exercise that the
Shares are being purchased only for investment and without any present
intention to sell or distribute such Shares, if, in the opinion of
counsel for the Company, such representation is required.
18. LIABILITY OF COMPANY.
(a) Inability to Obtain Authority. The inability of the Company
to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the
lawful issuance and sale of any Shares hereunder, shall relieve the
Company of any liability in respect to the failure to issue or
sell such Shares as to which such requisite authority shall not have
been obtained.
(b) Grants Exceeding Allotted Shares. If the Optioned Stock
covered by an Option exceeds, as of the date of the grant, the number of
Shares which may be issued under the Plan without additional shareholder
approval, such Option shall be void with respect to such excess Optioned
Stock, unless shareholder approval of an amendment sufficiently
increasing the number of Shares subject to the Plan is timely obtained
in accordance with Section 14(b) of the Plan.
19. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan.
20. EFFECTIVE DATE OF PLAN; TERM OF PLAN. The Plan shall become
effective, and Options may be granted hereunder, upon approval of the
Board of Directors of the Corporation, and options may be exercised
hereunder upon the approval of the Plan and related matters by the
approval of the Plan by the shareholders of the Corporation in
accordance with Applicable Law. The Plan shall terminate on December
17, 2007, and no further options may then be granted under the Plan.
Termination of the Plan shall not, without the written consent of
Optionees, alter or impair any of the rights or obligations under any
Option theretofore granted under the Plan.
EXHIBIT 10 (c)
NORTHERN EMPIRE BANCSHARES
1997 STOCK OPTION PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan
shall have the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
[name of optionee]
You have been granted an option to purchase Common Stock of
Northern Empire Bancshares (the "Company"), subject to the terms and
conditions of the Plan and this Option Agreement, as follows:
Grant Number
Date of Grant
Vesting Commencement Date
Exercise Price Per Share
Total Number of Shares
Covered by Option
Total Exercise Price
Type of Option _____ Incentive Stock Option
_____ Nonstatutory Stock Option
Term/Expiration Date
Vesting Schedule
Acceleration of Vesting on Death or Disability
Subject to the Optionee continuing to be an Employee or Director on such
dates, this Option shall vest and become exercisable in accordance with
the following schedule:
Termination Period Upon
Termination of Relationship
Other than on Death or Disability
Termination Period Upon Death
or Disability
II. AGREEMENT
1. Grant of Option. The Plan Administrator of the Company hereby
grants to the Optionee named in the Notice of Grant attached as Part I
of this Agreement (the "Optionee"), an option (the "Option") to purchase
the number of Shares, as set forth in the Notice of Grant, at the
exercise price per share set forth in the Notice of Grant (the "Exercise
Price"), subject to the terms and conditions of this Agreement and the
terms and conditions of the Plan, which is incorporated herein by
reference. In the event of a conflict between the terms and conditions
of the Plan and the terms and conditions of this Option Agreement, the
terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option
under Section 422 of the Code. However, if this Option is intended to be
an Incentive Stock Option, to the extent that it exceeds the $100,000
limitation of Code Section 422, it shall be treated as a Nonstatutory
Stock Option.
2. Exercise of Option.
(a) Right to Exercise. This Option is exercisable during its
term in accordance with the Vesting Schedule set out in the
Notice of Grant and the applicable provisions of the Plan and
this Option Agreement. In the event of Optionee's death,
Disability or other termination of Optionee's employment or
service as a director, the exercisability of the Option is
governed by the applicable provision of the Plan and this Option
Agreement.
(b) Method of Exercise. This Option is exercisable by delivery
of an exercise notice, in the form attached hereto as Exhibit A
(the "Exercise Notice"), which shall state the election to
exercise the Option, the number of Shares in respect of
which the Option is being exercised (the "Exercised Shares"), and
such other representations and agreements as may be required by
the Company pursuant to the provisions of the Plan. The Exercise
Notice shall be signed by the Optionee and shall be delivered in
person or by certified mail to the Secretary of the Company. The
Exercise Notice shall be accompanied, or followed within 15 days
by payment of the aggregate Exercise Price as to all Exercised
Shares. This Option shall be deemed to be exercised upon receipt
by the Company of such fully exercised Exercise Notice
accompanied by such aggregate Exercise Price.
No shares shall be issued pursuant to the exercise of this Option
unless such issuance and exercise complies with Applicable Laws.
3. Method of Payment. Payment must be made by the fifteenth (15th)
day after the notice of exercise. Payment of the aggregate Exercise
Price shall be by any of the following, or a combination thereof, at the
election of the Optionee:
(a) cash; or
(b) check; or
(c) a properly executed promissory note (the "Note") and
security agreement securing payment of the Note, in the forms
attached hereto as Exhibit B and C, respectively, with the Note
in the amount of the aggregate Exercise Price of the Exercised
Shares and bearing interest at a rate no less than the applicable
federal rate prescribed under the Code and its regulations for
the month of the exercise most recently announced by the Internal
Revenue Service; or
(d) other Shares, which (A) in the case of Shares acquired upon
the exercise of an option, have been owned by the Optionee for
more than six (6) months on the date of surrender, and (B) have a
Fair Market Value on the date of surrender equal to the aggregate
exercise price of the Shares as to which said Option is to be
exercised; or
(e) delivery of a properly executed exercise notice together
with such other documentation as the Administrator and the
broker, if applicable, shall require to effect an exercise of the
Option and delivery to the Company of the sale or loan
proceeds required to pay the exercise price.
4. Limitation on Transferability of Option. Except as set forth in
this Section, this Option may not be sold, pledged, assigned,
hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised,
during the lifetime of the Optionee, only by the Optionee. If this
Option is not an ISO, this Option may be transferred by the Optionee
only to a member of his or her immediate family ("Family Member"), and
may not be sold, pledged, assigned, hypothecated, transferred, or
disposed of in any other manner by the Optionee or by a Family Member to
whom such Option has been transferred, other than by will or by the
laws of descent or distribution and may be exercised, during the
lifetime of the Optionee or Family Member, only by the Optionee or such
Family Member.
5. Term of Option. Subject to the terms of the Plan with respect to
the exercise this Option in the event of the disability or death of the
Optionee, this Option may be exercised only within the term set forth in
the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option Agreement.
6. No Guarantee of Continued Service. Optionee acknowledges and
agrees that this agreement, the transactions contemplated hereunder and
the vesting schedule set forth herein do not constitute an express or
implied promise of continued engagement as a employee or director, for
any period or at all, and shall not interfere with Optionee's right
or the Company's right to terminate Optionee's relationship as an
employee or director at any time, with or without cause.
7. Entire Agreement, Governing Law. The Plan is incorporated herein
by reference. The Plan and this Option Agreement constitute the entire
agreement of the parties with respect to the subject matter hereof and
superseded in their entirety all prior undertakings and agreements of
the Company and Optionee with respect to the subject matter hereof,
and may not be modified adversely to the Optionee's interest except by
means of a writing signed by the Company and the Optionee. This
agreement is governed by California law except for that body of laws
pertaining to conflict of laws.
By signing below, you and the Company agree that this Option is
granted under and governed by the terms and conditions of the Plan and
this Option Agreement. Optionee has reviewed the Plan and this Option
Agreement in their entirety, has had an opportunity to obtain the advice
of counsel prior to executing this Option Agreement and fully
understands all provisions of the Plan and Option Agreement. Optionee
hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions relating to
the Plan and Option Agreement. Optionee further agrees to notify the
Company upon any change in the residence address indicated below.
OPTIONEE: NORTHERN EMPIRE BANCSHARES, INC.
________________________ by: _______________________
(signature) _______________________
_______________________
________________________ (name and title)
________________________ (residence address)
CONSENT OF SPOUSE
The undersigned spouse of Optionee has read and hereby approves
the terms and conditions of the Plan and this Option Agreement. In
consideration of the Company's granting his or her spouse the rights to
purchase Shares as set forth in the Plan and this Option Agreement, the
undersigned hereby agrees to be irrevocably bound by the terms
and conditions of the Plan and this Option Agreement and further agrees
that any community property interest shall be similarly bound. The
undersigned hereby appoints the undersigned's spouse as attorney-in-fact
for the undersigned with respect to any amendment or exercise of rights
under the Plan or this Option agreement.
__________________________________
Spouse of Optionee
EXHIBIT A
1997 STOCK OPTION PLAN
EXERCISE NOTICE
Northern Empire Bancshares
801 Fourth Street
Santa Rosa, Ca 95404
Attention: _____________
1. Exercise of Option. Effective as of __________, 199__, (which
date must be within fifteen (15) days of the date of this Notice) the
undersigned ("Purchaser") hereby elects to purchase ______________
shares (the "Shares") of the Common Stock of Northern Empire Bancshares
(the "Company") under and pursuant to the 1997 Stock Option Plan (the
"Plan") and the Stock Option Agreement dated ________________
(the "Option Agreement"). The purchase price for the shares shall be
$____, as required by the Option Agreement.
2. Delivery of Payment. Purchaser herewith delivers to the Company
the full purchase price for the Shares.
3. Representations of Purchaser. Purchaser acknowledges that
Purchaser has received, read and understood the Plan and the Option
Agreement and agrees to abide by and be bound by their terms and
conditions.
4. Rights as Shareholder. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized
transfer agent of the company) of the stock certificate evidencing such
Shares, no right to vote or receive dividends or any other rights as a
shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. A share certificate for the
number of Shares so acquired shall be issued to the Optionee as soon as
practicable after exercise of the Option. No adjustment will be made
for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in
Section 12 of the Plan.
5. Tax Consultation. Purchaser understands that Purchaser may suffer
adverse tax consequences as a result of Purchaser's purchase or
disposition of the Shares. Purchase represents that Purchaser has
consulted with any tax consultants Purchaser deems advisable in
connection with the purchase or disposition of the Shares and that
Purchaser is not relying on the Company for any tax advice.
6. Entire Agreement; Governing Law. The Plan and Option Agreement
are incorporated herein by reference. This Agreement, the Plan and the
Option Agreement constitute the entire agreement of the parties with
respect to the subject matter hereof and supersede in their entirety all
prior undertakings and agreements of the Company and Purchaser with
respect to the subject matter hereof, and may not be modified
adversely to the Purchaser's interest except by means of a writing
signed by the Company and Purchaser. This agreement is governed by
California law except for that body of law pertaining to conflict of
laws.
Submitted by: Accepted by:
PURCHASER: NORTHERN EMPIRE BANCSHARES
___________________________ By_____________________________
Signature
___________________________ Its_____________________________
Print Name
Address Address
_________________________ 801 Fourth Street
_________________________ Santa Rosa, CA 95404
