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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SEC-NON 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from_____to_____
Commission file number 0-25034
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MID-PENINSULA BANCORP
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(Exact of registrant as specified in its charter)
State of California 94-2952485
- - ------------------------------ ----------------
(State or other jurisdiction of (I.R.S. Employee
incorporation or organization) Identification
No.)
420 Cowper Street, Palo Alto, California 94301
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (415) 323-5150
- - -----------------------------------------------------------------
Securities registered pursuant to Section 12(b) of the Act:
Title Of Each Class Name Of Each Exchange On Which Registered
- - ------------------- -----------------------------------------
Common Stock None
(no par value)
Securities registered pursuant to Section 12(g) of the Act:
Title Of Class
None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ].
The aggregate market value of the voting stock held by non-affiliates of the
registrant at March 15, 1996 was $22,465,548.
As of March 15, 1996, the registrant had 1,582,392 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference into this Form 10-K: (1)
Part III, Items 10 through 13 from registrant's definitive proxy statement for
the 1996 annual meeting of shareholders.
The Index to Exhibits is located at page 78. Page 1 of 226 Pages
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PART I
Item 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
Mid-Peninsula Bancorp is a California corporation organized in 1984
under the name San Mateo County Bancorp ("San Mateo") to act as the bank holding
company of San Mateo County National Bank which subsequently changed its name to
WestCal National Bank ("WestCal") in 1991. In 1995, WestCal was merged with and
into Mid-Peninsula Bank a California state licensed bank organized in 1987 (the
"Bank") in a transaction in which the Bank survived and became the wholly- owned
subsidiary of San Mateo, and San Mateo concurrently changed its name to Mid-
Peninsula Bancorp (the "Company").
The headquarters of the Company and the Bank is located in Palo Alto,
California and the Bank conducts its banking business through its offices in
Palo Alto, San Mateo and San Carlos, California. Other than holding the shares
of the Bank, the Company conducts no significant activities, although it is
authorized, with the prior approval of the Board of Governors of the Federal
Reserve System (the "Board of Governors"), the Company's principal regulator, to
engage in a variety of activities witch are deemed closely related to the
business of banking.
The Bank engages in general commercial banking emphasizing small and
medium-sized businesses, and professionals located in its market area in and
adjacent to the San Francisco Peninsula from Los Altos and Mountain View on the
South to Daly City on the North and offers a full range of commercial banking
services, including the acceptance of demand, savings and time deposits, and the
making of commercial loans, including short-term loans for businesses and
professionals, personal loans, and real estate secured loans, which generally do
not include long-term mortgage loans. The Bank offers traveler's checks, safe
deposit boxes, notary public, customer courier and other customary bank
services. The Bank is a member of the STAR System ATM network and, through this
system offers ATM access at numerous locations.
Regular bank hours are from 9:30 A.M. to 4:00 P.M., Monday through
Friday. The main offices of the Company and the Bank are located at 420 Cowper
Street, Palo Alto, California, telephone number (415) 323-5150. The Bank's
other offices are located at 100 South Ellsworth Avenue, San Mateo, California,
telephone number (415) 375-1555 and 1313 Laurel Street, San Carlos, California,
telephone number (415) 595-4445.
The Bank's commercial lending focus is to provide short-term loans and
lines of credit to professional service firms and local businesses. Commercial
clients include small businesses, light industry manufacturing companies and
various professional service firms. Emphasis is placed on the borrowers earnings
history, capitalization, secondary sources of repayment (such as accounts
receivable) and, in many instances, tertiary sources of repayment (such as
personal guarantees or personal assets). Through community involvement in
Chambers of Commerce, Rotary Clubs, civic organizations and redevelopment
activities, officers of the Bank stay in close contact with the leaders and
decision makers within the communities served by the Bank.
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In addition, the Bank offers interim construction loans, generally for
single-family residences and multi-unit projects. Real estate and construction
loans are typically secured by first deeds of trust and guarantees from
principals of the borrower where applicable. The economic viability of the
project and the borrower's credit-worthiness are primary considerations in the
loan underwriting decision. The Bank uses independent local appraisers,
conservative loan-to-value ratios (e.g., generally not to exceed 75% of the
appraised value of the property) and close monitoring of the projects during
the construction phase. In the absence of rapid declines in real estate values,
ultimate collectibility of these secured loans is considered by the Company's
management to be better than the average mix of commercial loans. The Bank
presently does not make long-term fixed or variable rate real estate loans and,
therefore, material sustained increases or decreases in general interest rate
levels have only a short-term effect on the Bank's net yield on real estate
loans.
As of December 31, 1995, commercial loans and lines of credit
represented approximately 74% of the Company's total loan portfolio, real estate
loans approximately 19% of the total loan portfolio, and real estate
construction loans approximately 7% of the loan portfolio.
The Bank's deposits are primarily obtained from individuals (including
corporate executives and entrepreneurs), small and medium-size businesses, and
professionals. The Bank's deposits are not received from a single depositor or
group of affiliated depositors the loss of any one of which would have a
material adverse effect on the business of the Bank, nor is a material portion
of the Bank's loans concentrated within a single industry or group of related
industries. As of December 31, 1995, the Bank had approximately $37,077,000 of
noninterest bearing demand deposits, with an average account balance of
approximately $24,000, approximately $11,926,000 in interest bearing demand
deposits with an average account balance of approximately $23,000, and
approximately $146,692,000 in interest bearing time and savings deposits with an
average account balance of approximately $86,000. The Bank's deposits are
insured by the Federal Deposit Insurance Corporation (the "FDIC") up to the
legal limit thereon, which is currently $100,000 per depositor.
The Bank had fifty-seven (57) full-time employees on December 31, 1995
and the Company had no employees other than unsalaried officers.
SUPERVISION AND REGULATION
The common stock of the Company is subject to the registration
requirements of the Securities Act of 1933, as amended, and the qualification
requirements of the California Corporate Securities Law of 1968, as amended. The
Bank's common stock, however, is exempt from such requirements. The Company is
also subject to the periodic reporting requirements of Section 15(d) of the
Securities Exchange Act of 1934, as amended, which include, but are not limited
to, annual, quarterly and other current reports with the Securities and Exchange
Commission.
The Bank is licensed under the banking laws of the State of California,
is a member of the Federal Reserve System, and its deposits are insured by the
FDIC. Consequently, the Bank is subject to the supervision of, and is regularly
examined by, the California Superintendent of State Banks (the "Superintendent")
and the Board of Governors. Such supervision and regulation include
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comprehensive reviews of all major aspects of the Bank's business and condition,
including its capital ratios, allowance for possible loan losses and other
factors. However, no inference should be drawn that such authorities have
approved any such factors. The Company and the Bank are required to file
reports with the Superintendent and the Board of Governors and provide such
additional information as the Superintendent and the Board of Governors may
require.
The Company is a bank holding company within the meaning of the Bank
Holding Company Act of 1956, as amended (the "Bank Holding Company Act"), and
is registered as such with, and subject to the supervision of, the Board of
Governors. The Company is required to obtain the approval of the Board of
Governors before it may acquire all or substantially all of the assets of any
bank, or ownership or control of the voting shares of any bank if, after giving
effect to such acquisition of shares, the Company would own or control more than
5% of the voting shares of such bank. The Bank Holding Company Act prohibits the
Company from acquiring any voting shares of, or interest in, all or
substantially all of the assets of, a bank located outside the State of
California unless such an acquisition is specifically authorized by the laws of
the state in which such bank is located. Any such interstate acquisition is
also subject to the provisions of the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1995 discussed below.
The Company, and any subsidiaries which it may acquire or organize, are
deemed to be "affiliates" of the Bank within the meaning of that term as defined
in the Federal Reserve Act. This means, for example, that there are limitations
(a) on loans by the Bank to affiliates, and (b) on investments by the Bank in
affiliates' stock as collateral for loans to any borrower. The Company and its
subsidiary are also subject to certain restrictions with respect to engaging in
the underwriting, public sale and distribution of securities.
In addition, regulations of the Board of Governors promulgated under the
Federal Reserve Act require that reserves be maintained by the Bank in
conjunction with any liability of the Company under any obligation (promissory
note, acknowledgment of advance, banker's acceptance or similar obligation) with
a weighted average maturity of less than seven (7) years to the extent that the
proceeds of such obligations are used for the purpose of supplying funds to the
Bank for use in its banking business, or to maintain the availability of such
funds.
The Company and the Bank are prohibited from engaging in certain tie-in
arrangements in connection with an extension of credit, sale or lease of
property or furnishing of services. Section 106(b) of the Bank Holding Company
Act Amendments of 1970 generally prohibits a bank from tying a product or
service to another product or service offered by the bank, or by any of its
affiliates. A prohibited tie-in arrangement would exist where a bank varies the
consideration for a product or service on the condition that a customer obtain
some additional product or service from the bank or from any of its affiliates,
or where as a condition for providing a customer a product or service, the bank
requires the customer to purchase another product or service from the bank or
from any of its affiliates. These anti-tying restrictions also apply to bank
holding companies and their non-bank subsidiaries as if they were banks.
Section 106 contains a "traditional bank product" exception permitting a bank
to tie a product to a traditional bank product offered by the bank itself, but
not by any affiliated bank or non-bank. For example, a bank may offer a discount
on a loan on the condition that a customer maintain a deposit account at that
bank, however, the bank may not offer a discount on
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a loan on the condition that a customer maintain a deposit account at an
affiliated bank. Effective September 2, 1995, the Board of Governors adopted a
rule permitting a bank or a bank holding company to offer a discount on a
traditional bank product, or on securities brokerage services to a customer on
condition that the customer obtain a traditional bank product from an affiliate.
Effective January 23, 1995, the Board of Governors adopted a rule permitting a
bank holding company or its non-bank subsidiary to offer a discount on its
product or service on condition that a customer obtain any other product or
service from that holding company or from any of its non-bank affiliates. The
rule permits bank holding companies and their non-bank subsidiaries to offer
discounts on packaged products when no affiliated bank is involved in the
arrangement (both the tying and tied products are offered by bank holding
companies or their non-bank subsidiaries only), and both the tying and tied
products are separately available for purchase at competitive prices.
The Board of Governors and the FDIC have adopted risk-based capital
guidelines for evaluating the capital adequacy of bank holding companies and
banks. The guidelines are designed to make capital requirements sensitive to
differences in risk profiles among banking organizations, to take into account
off-balance sheet exposures and to aid in making the definition of bank capital
uniform internationally. Under the guidelines, the Company and the Bank are
required to maintain capital equal to at least 8% of its assets and commitments
to extend credit, weighted by risk, of which at least 4% must consist primarily
of common equity (including retained earnings) and the remainder may consist of
subordinated debt, cumulative preferred stock, or a limited amount of loan loss
reserves.
Assets, commitments to extend credit, and off-balance sheet items are
categorized according to risk, and certain assets considered to present less
risk than others permit maintenance of capital at less than the 8% ratio. For
example, most home mortgage loans are placed in a 50% risk category and
therefore require maintenance of capital equal to 4% of such loans, while
commercial loans are placed in a 100% risk category and therefore require
maintenance of capital equal to 8% of such loans.
The guidelines establish two categories of qualifying capital: Tier 1
capital comprising core capital elements, and Tier 2 comprising supplementary
capital requirements. At least one-half of the required capital must be
maintained in the form of Tier 1 capital. Tier 1 capital includes common
shareholders' equity and quailing perpetual preferred stock. However, no more
than 25% of the Company's total Tier 1 capital may consist of perpetual
preferred stock. The definition of Tier 1 capital for the Bank is the same,
except that perpetual preferred stock may be included only if it is
noncumulative. Tier 2 capital includes, among other items, limited life (and in
the case of banks, cumulative) preferred stock, mandatory convertible
securities, subordinated debt and a limited amount of reserve for credit losses.
The Board of Governors also adopted a 3% minimum leverage ratio for
banking organizations as a supplement to the risk-weighted capital guidelines.
The leverage ratio is generally calculated using Tier 1 capital (as defined
under risk-based capital guidelines) divided by quarterly average net total
assets (excluding intangible assets and certain other adjustments). The
leverage ratio establishes a limit on the ability of banking organizations,
including the Company and the Bank, to increase assets and liabilities without
increasing capital proportionately.
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The Board of Governors emphasized that the leverage ratio constitutes a
minimum requirement for well-run banking organizations having diversified risk,
including no undue interest rate risk exposure, excellent asset quality, high
liquidity, good earnings and a composite rating of 1 under the regulatory rating
system for banks and 1 under the regulatory rating system for bank holding
companies. Banking organizations experiencing or anticipating significant
growth, as well as those organizations which do not exhibit the characteristics
of a strong, well-run banking organization described above, will be required to
maintain minimum capital ranging generally from 100 to 200 basis points in
excess of the leverage ratio. The FDIC adopted a substantially similar leverage
ratio for state non-member banks.
As of December 31, 1995, the Bank and the Company are in compliance with
the risk-based capital and leverage ratios noted above. See Item 7 below for a
listing of the Company's risk-based capital ratios for the years ended December
31, 1995 and 1994.
The Company's ability to pay cash dividends is subject to restrictions
set forth in the California General Corporation Law. Funds for payment of any
cash dividends by the Company would be obtained from its investments as well as
dividends and/or management fees from the Bank. The payment of cash dividends
and/or management fees by the Bank is subject to restrictions set forth in the
California Financial Code, as well as restrictions established by the Board of
Governors and the FDIC. See Item 5 for further information regarding the
payment of cash dividends by the Company and the Bank.
COMPETITION
At December 31, 1995, there were 48 branches of major California banks
and 23 regional bank branches in the cities of Palo Alto, San Mateo and San
Carlos and surrounding areas. Additionally, the Bank competes with savings and
loan associations and, to a lesser extent, credit unions, finance companies and
other financial services providers for deposit and loan customers.
Larger banks may have a competitive advantage because of higher lending
limits and major advertising and marketing campaigns. They also perform
services, such as trust services, international banking, discount brokerage and
insurance services which the Bank is not authorized or prepared to offer
currently. The Bank has made arrangements with its correspondent banks and with
others to provide such services for its customers. For borrowers requiring
loans in excess of the Bank's legal lending limits, the Bank has offered, and
intends to offer in the future, such loans on a participating basis with its
correspondent banks and with other independent banks, retaining the portion of
such loans which are within its lending limits. As of December 31, 1995, the
Bank's legal lending limits to a single borrower and such borrowers related
parties were $3,342,000 on an unsecured basis and $5,570,000 on a fully secured
basis based on regulatory capital of $22,280,000.
In order to compete with other financial institutions in its service
area, the Bank relies principally upon local advertising programs; direct
personal contact by officers, directors, employees, and shareholders; and
specialized services such as courier pick-up and delivery of non-cash banking
items. The Bank emphasizes to its customers the advantages of dealing with a
locally owned and
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community oriented institution, and when customer loan demands exceed the Bank's
legal lending limit, the Bank makes every effort to arrange such financing
through a participating loan program with a correspondent or other independent
bank.
Banking is a business which depends on interest rate differentials. In
general, the difference between the interest rate paid by the Bank to obtain its
deposits and its other borrowings and the interest rate received by the Bank on
loans extended to its customers and on securities held in the Bank's portfolio
comprise the major portion of the Bank's earnings.
Commercial banks compete with savings and loan associations, credit unions,
other financial institutions and other entities for funds. For instance, yields
on corporate and government debt securities and other commercial paper affect
the ability of commercial banks to attract and hold deposits. Commercial banks
also compete for loans with savings and loan associations, credit unions,
consumer finance companies, mortgage companies and other lending institutions.
The interest rate differentials of the Bank, and therefore its earnings, are
affected not only by general economic conditions, both domestic and foreign, but
also by the monetary and fiscal policies of the United States as set by statutes
and as implemented by federal agencies, particularly the Federal Reserve Board.
This agency can and does implement national monetary policy, such as seeking to
curb inflation and combat recession, by its open market operations in United
States government securities, adjustments in the amount of interest free
reserves that banks and other financial institutions are required to maintain,
and adjustments to the discount rates applicable to borrowing by banks from the
Federal Reserve Bank. These activities influence the growth of bank loans,
investments and deposits and also affect interest rates charged on loans and
paid on deposits. The nature and timing of any future changes in monetary
policies and their impact on the Bank are not predictable.
California law and regulations of the Superintendent authorize California
licensed banks, subject to applicable limitations and approvals of the
Superintendent to (1) provide real estate appraisal services, management
consulting and advisory services, and electronic data processing services; (2)
engage directly in real property investment or acquire and hold voting stock of
one or more corporations, the primary activities of which are engaging in real
property investment; (3) organize, sponsor, operate or render investment advice
to an investment company or to underwrite, distribute or sell securities in
California; and (4) invest in the capital stock, obligations or other securities
of corporations not acting as insurance companies, insurance agents or insurance
brokers. In November 1988, Proposition 103 was adopted by California voters.
The Superintendent has established certain procedures to be followed by banks
desiring to engage in insurance activities which include filing a report
describing (1) a proposed business plan and information regarding the types of
insurance products intended to be offered; (2) insurance companies with which
the banks intend to conduct business; (3) organization plans; (4) locations at
which activities will be conducted; and (5) proposed operational and compliance
procedures and policies. The California Department of Insurance regulates
application processing, licensing and supervision of insurance activities.
National banks (whether a holding company subsidiary or not) are limited under
applicable provisions of the National Bank Act to acting as an agent for fire,
life or other insurance only in locations with a population of 5,000 or less.
In recent years, banks and bank holding companies have increasingly sought
authorization to expand their product base to include insurance activities. The
Federal Deposit Insurance Corporation
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Improvement Act of 1991 discussed below, generally restricts an insured state
bank from engaging as a principal in any activity that is impermissible for a
national bank. On January 18, 1995, the United States Supreme Court unanimously
upheld a ruling by the Office of the Comptroller of the Currency (the
"Comptroller") that permitted sale of fixed and variable annuities by a national
bank and confirmed the authority of the Comptroller to interpret the powers of
national banks under the National Bank Act. The Comptroller determined that
annuities are not insurance products, but rather a type of investment instrument
and that the sale of annuities is incidental to the business of banking. It is
not certain what impact the decision will have upon the continuing effort of
banks and bank holding companies to engage in insurance related activities.
The Caldera, Weggeland and Killea California Interstate Banking and
Branching Act of 1995, effective October 2, 1995, amends the California
Financial Code to, among other matters, regulate the operations of state banks
to eliminate conflicts with and to implement the Riegle-Neal Interstate Banking
and Branching Efficiency Act of 1994 discussed below. The Caldera Act includes
(1) an election to permit early interstate merger transactions; (2) a
prohibition against interstate branching through the acquisition of a branch
business unit located in California without acquisition of the whole business
unit of the California bank; and (3) a prohibition against interstate branching
through de novo establishment of California branch offices. The Caldera Act
mandates that initial entry into California by an out-of-state institution be
accomplished by acquisition of or merger with an existing whole bank which has
been in existence for at least five years.
The State Bank Parity Act, effective January 1, 1996, eliminates certain
existing disparities between California state chartered banks and federally
chartered national banks by authorizing the Superintendent to address such
disparities through a streamlined rulemaking process. The Superintendent has
taken action pursuant to the Parity Act to, among other matters, authorize
previously impermissible share repurchases by state banks, subject to the prior
approval of the Superintendent.
The Competitive Equality Banking Act of 1987 (the "1987 Banking Act")
also has affected the balance of competition among banks and other non-bank
financial institutions. Among other things, the 1987 Banking Act has restricted
the growth and formation of so-called "limited service" or "non-bank" banks
(institutions which accept deposits or make commercial loans, but do not do
both). Other key provisions of the 1987 Banking Act included: (1) the expansion
of the FDIC's authority in arranging supervisory interstate acquisitions and
acquisitions of failing banks; (2) the renewal of emergency acquisition
authorities; (3) the exemption of assessment income of federal banking agencies
from budget restrictions imposed by the Office of Management and Budget and from
the budget balancing requirements of the Gramm-Rudman-Hollings Act; (4) a
moratorium (which ended on March 1, 1988), prohibiting commercial banks from
engaging in insurance or securities activities not approved prior to March 5,
1987; (5) the application of the Glass-Steagall Act to state-chartered banks,
prohibiting affiliations with companies principally engaged in securities
activities; and (6) new check hold schedules which were implemented on September
1, 1990.
On August 9, 1989, President Bush signed into law the Financial
Institutions Reform Recovery and Enforcement Act of 1989 ("FIRREA"). The FIRREA
contains provisions which among other things: (1) established two separate
financial industry insurance funds, both administered by the
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FDIC - the Bank Insurance Fund and the Savings Association Insurance Fund; (2)
abolished the Federal Home Loan Bank Board and the Federal Savings and Loan
Insurance Corporation and established the Office of Thrift Supervision as an
office of the Treasury Department, with responsibility for examination and
supervision of all savings and loan associations; (3) increased the premiums
paid by FDIC-insured institutions; (4) permitted bank holding companies to
acquire healthy savings and loan associations; (5) enhanced federal banking
agencies' enforcement authority over the operations of all insured depository
institutions and increased the civil and criminal penalties that may be imposed
in connection with violations of laws and regulations; (6) curtailed investments
and certain other activities of state-chartered savings and loan associations;
and (7) increased the capital requirements of savings and loan associations.
On December 19, 1991, President Bush signed the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA"). The FDICIA
substantially revises banking regulations, certain aspects of the Federal
Deposit Insurance Act and establishes a framework for determination of capital
adequacy of financial institutions, among other matters. Under the FDICIA,
financial institutions are placed into five capital adequacy categories as
follows: (1) well capitalized, (2) adequately capitalized, (3) undercapitalized,
(4) significantly undercapitalized, and (5) critically undercapitalized. The
FDICIA authorized the Board of Governors, the Comptroller and FDIC to establish
limits below which financial institutions will be deemed critically
undercapitalized, provided that such limits can not be less than two percent
(2%) of the ratio of tangible equity to total assets or sixty-five percent (65%)
of the minimum leverage ratio established by regulation. Financial institutions
classified as undercapitalized or below are subject to limitations including
restrictions related to (i) growth of assets, (ii) payment of interest on
subordinated indebtedness, (iii) capital distributions, and (iv) payment of
management fees to a parent holding company.
The FDICIA requires the Board of Governors and FDIC to initiate
corrective action regarding financial institutions which fail to meet minimum
capital requirements. Such action may result in orders to augment capital such
as through sale of voting stock, reduction in total assets, and restrictions
related to correspondent bank deposits. Critically undercapitalized financial
institutions may also be subject to appointment of a receiver or conservator
unless the financial institution submits an adequate capitalization plan.
The FDIC adopted a regulation pursuant to Section 302(a) of the FDICIA,
effective on November 2, 1992, amending its regulations on insurance assessments
to, among other matters, adopt a recapitalization schedule for the Bank
Insurance Fund and establish a transitional risk-based insurance assessment
system to replace the uniform assessment rate system previously applicable to
insured financial institution members of the Bank Insurance Fund. The
regulation requires that each insured institution be assigned to one of three
capital groups and one of three supervisory subgroups within each capital group,
based upon financial data reported by each institution in it's Report of Income
and Condition, as well as supervisory evaluations by the institution's primary
federal regulatory agency. The three capital groups have the following
characteristics: (1) "Well capitalized" - consisting of institutions having a
total risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital
ratio of 6% or greater, and a Tier 1 leverage ratio of 5% or greater; (2)
"Adequately capitalized" - consisting of institutions that are not "well
capitalized," but have a total risk-based capital ratio of 8% or greater, a Tier
1 risk-based capital ratio of 4% or greater, and a Tier 1 leverage ratio of 4%
or greater; and (3)
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"Undercapitalized" - consisting of institutions that do not qualify as either
"well capitalized" or "adequately capitalized". The three supervisory subgroups
have the following characteristics: (A) Subgroup "A" - consisting of financially
sound institutions with only a few minor weaknesses; (B) Subgroup "B" -
consisting of institutions that demonstrate deterioration of the institution and
increased risk of loss to the Bank Insurance Fund; and (C) Subgroup "C" -
consisting of institutions that pose a substantial probability of loss to the
Bank Insurance Fund unless effective corrective action is taken.
The annual assessment rate for each insured institution continued at the
rate of $0.23 per $100 of deposits through year-end December 31, 1992.
Commencing January 1, 1993, the assessment rate was based upon a risk assessment
schedule with rates ranging from $0.23 to $0.31 per $100 of deposits utilizing
the capital group and supervisory subgroup analysis. On June 25, 1993, the FDIC
adopted a permanent risk-based insurance assessment system which retained the
transitional system without substantial modification. In late 1994 and early
1995, the FDIC proposed two significant changes to the deposit insurance
assessment system to (1) redefine the deposit assessment base which has been
defined to equal an institution's total domestic deposits, plus or minus certain
adjustments, but without significantly impacting total industry-wide assessments
(although significant changes in assessments of individual institutions may
occur); and (2) establish a new assessment rate schedule, using the present
group and subgroup categories, but with assessment rates varying from $0.04 to
$0.31 per $100 of deposits, resulting in a spread between the minimum and
maximum rates of $0.27 rather than $0.08. On August 8, 1995, the FDIC voted to
reduce the deposit insurance assessment rates to a range from $0.04 to $0.31 per
$100 of deposits and subsequently, on November 14, 1995, the FDIC voted again to
further reduce the assessment rates to a range from $0 to $0.27 per 100 of
deposits, subject to a minimum $2,000.00 annual assessment for all institutions
regardless of classification within the capital groups and supervisory subgroups
as follows:
<TABLE>
<CAPTION>
Supervisory Subgroup
--------------------
Capital Group A B C
-------------
<S> <C> <C> <C>
1 $ 0 $ 0.03 $ 0.17
2 0.03 0.10 0.24
3 0.10 0.24 0.27
</TABLE>
The above assessment rates are effective for the first semiannual
assessment period of 1996. Based upon the above risk-based assessment rate
schedule, the Company's and Bank's current capital ratios, the Bank's current
level of deposits, and assuming no change in the assessment rate applicable to
the Bank during 1996, the Company estimates that its annual noninterest expense
attributed to assessments will decrease substantially.
The Board of Governors and FDIC adopted regulations effective
December 19, 1992, implementing a system of prompt corrective action pursuant
to Section 38 of the Federal Deposit Insurance Act and Section 131 of the
FDICIA. The regulations establish five capital categories with the following
characteristics: (1) "Well capitalized" - consisting of institutions with a
total risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital
ratio of 6% or greater and a leverage ratio of
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5% or greater, and the institution is not subject to an order, written
agreement, capital directive or prompt corrective action directive; (2)
"Adequately capitalized" - consisting of institutions with a total risk-based
capital ratio of 8% or greater, a Tier 1 risk-based capital ratio of 4% or
greater and a leverage ratio of 4% or greater, and the institution does not
meet the definition of a "well capitalized" institution; (3) "Undercapitalized"
- - - consisting of institutions with a total risk-based capital ratio less than 8%,
a Tier 1 risk-based capital ratio of less than 4%, or a leverage ratio of less
than 4%; (4) "Significantly undercapitalized" - consisting of institutions with
a total risk-based capital ratio of less than 6%, a Tier 1 risk-based capital
ratio of less than 3%, or a leverage ratio of less than 3%; (5) "Critically
undercapitalized" - consisting of an institution with a ratio of tangible
equity to total assets that is equal to or less than 2%.
The regulations established procedures for classification of financial
institutions within the capital categories, filing and reviewing capital
restoration plans required under the regulations and procedures for issuance of
directives by the appropriate regulatory agency, among other matters. The
regulations impose restrictions upon all institutions to refrain from certain
actions which would cause an institution to be classified within any one of the
three "undercapitalized" categories, such as declaration of dividends or other
capital distributions or payment of management fees, if following the
distribution or payment the institution would be classified within one of the
"undercapitalized" categories. In addition, institutions which are classified
in one of the three "undercapitalized" categories are subject to certain
mandatory and discretionary supervisory actions. Mandatory supervisory actions
include (1) increased monitoring and review by the appropriate federal banking
agency; (2) implementation of a capital restoration plan; (3) total asset growth
restrictions; and (4) limitation upon acquisitions, branch expansion, and new
business activities without prior approval of the appropriate federal banking
agency. Discretionary supervisory actions may include (1) requirements to
augment capital; (2) restrictions upon affiliate transactions; (3) restrictions
upon deposit gathering activities and interest rates paid; (4) replacement of
senior executive officers and directors; (5) restrictions upon activities of the
institution and its affiliates; (6) requiring divestiture or sale of the
institution; and (7) any other supervisory action that the appropriate federal
banking agency determines is necessary to further the purposes of the
regulations. Further, the federal banking agencies may not accept a capital
restoration plan without determining, among other things, that the plan is
based on realistic assumptions and is likely to succeed in restoring the
depository institution's capital. In addition, for a capital restoration plan
to be acceptable, the depository institution's parent holding company must
guarantee that the institution will comply with such capital restoration plan.
The aggregate liability of the parent holding company under the guaranty is
limited to the lesser of (i) an amount equal to 5 percent of the depository
institution's total assets at the time it became undercapitalized, and (ii) the
amount that is necessary (or would have been necessary) to bring the institution
into compliance with all capital standards applicable with respect to such
institution as of the time it fails to comply with the plan. If a depository
institution fails to submit an acceptable plan, it is treated as if it were
"significantly undercapitalized." The FDICIA also restricts the solicitation
and acceptance of and interest rates payable on brokered deposits by insured
depository institutions that are not "well capitalized." An "undercapitalized"
institution is not allowed to solicit deposits by offering rates of interest
that are significantly higher than the prevailing rates of interest on insured
deposits in the particular institution's normal market areas or in the market
areas in which such deposits would otherwise be accepted.
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<PAGE>
Any financial institution which is classified as "critically
undercapitalized" must be placed in conservatorship or receivership within 90
days of such determination unless it is also determined that some other course
of action would better serve the purposes of the regulations. Critically
undercapitalized institutions are also prohibited from making (but not accruing)
any payment of principal or interest on subordinated debt without the prior
approval of the FDIC and the FDIC must prohibit a critically undercapitalized
institution from taking certain other actions without its prior approval,
including (1) entering into any material transaction other than in the usual
course of business, including investment expansion, acquisition, sale of assets
or other similar actions; (2) extending credit for any highly leveraged
transaction; (3) amending articles or bylaws unless required to do so to comply
with any law, regulation or order; (4) making any material change in accounting
methods; (5) engaging in certain affiliate transactions; (6) paying excessive
compensation or bonuses; and (7) paying interest on new or renewed liabilities
at rates which would increase the weighted average costs of funds beyond
prevailing rates in the institution's normal market areas.
The capital ratio requirements for the "adequately capitalized" category
generally are the same as the existing minimum risk-based capital ratios
applicable to the Company and the Bank. It is not possible to predict what
effect the prompt corrective action regulation will have upon the Company and
the Bank or the banking industry taken as a whole in the foreseeable future.
Under the FDICIA, the federal banking agencies have adopted regulations
which require institutions to establish and maintain comprehensive written real
estate policies which address certain lending considerations, including
loan-to-value limits, loan administrative policies, portfolio diversification
standards, and documentation, approval and reporting requirements. The FDICIA
further generally prohibits an insured state bank from engaging as a principal
in any activity that is impermissible for a national bank, absent FDIC
determination that the activity would not pose a significant risk to the Bank
Insurance Fund, and that the bank is, and will continue to be, within
applicable capital standards. Similar restrictions apply to subsidiaries of
insured state banks. The Company does not currently intend to engage in any
activities which would be restricted or prohibited under the FDICIA.
As required by the FDICIA, the federal financial institution agencies
solicited comments in September 1993 on a method of incorporating an interest
rate risk component into the current risk-based capital guidelines, with the
goal of ensuring that institutions with high levels of interest rate risk have
sufficient capital to cover their exposures. Interest rate risk is the risk
that changes in market interest rates might adversely affect a bank's financial
condition. Under the proposal, interest rate risk exposures would be quantified
by weighting assets, liabilities and off-balance sheet items by risk factors
which approximate sensitivity to interest rate fluctuations. As proposed,
institutions identified as having an interest rate risk exposure greater than a
defined threshold would be required to allocate additional capital to support
this higher risk. Higher individual capital allocations could be required by
the bank regulators based on supervisory concerns. The agencies adopted a
final rule effective September 1, 1995 which is substantially similar to the
proposed rule, except that the final rule does not establish (1) a measurement
framework for assessing the level of a bank's interest rate exposure; nor (2) a
minimum level of exposure above which a bank will be required to hold additional
capital for interest rate risk if it has significant exposure or a weak
interest rate risk management process. The
12
<PAGE>
agencies also solicited comments on and are continuing their analysis of a
proposed policy statement which would establish a framework to measure and
monitor interest rate exposure.
The federal financial institution agencies published a final rule on
July 10, 1995 to be effective on August 9, 1995, implementing safety and
soundness standards. The FDICIA added a new Section 39 to the Federal Deposit
Insurance Act which required the agencies to establish safety and soundness
standards for insured financial institutions covering (1) internal controls,
information systems and internal audit systems; (2) loan documentation; (3)
credit underwriting; (4) interest rate exposure; (5) asset growth; (6)
compensation, fees and benefits; (7) asset quality, earnings and stock
valuation; and (8) excessive compensation for executive officers, directors or
principal shareholders which could lead to material financial loss. The
agencies issued the final rule in the form of guidelines only for operational,
managerial and compensation standards and reissued for comment proposed
standards related to asset quality and earnings which are less restrictive than
the earlier proposal in November 1993. Unlike the earlier proposal, the
guidelines under the final rule do not apply to depository institution holding
companies and the stock valuation standard was eliminated. If an agency
determines that an institution fails to meet any standard established by the
guidelines, the agency may require the financial institution to submit to the
agency an acceptable plan to achieve compliance with the standard.
If the agency requires submission of a compliance plan and the
institution fails to timely submit an acceptable plan or to implement an
accepted plan, the agency must require the institution to correct the
deficiency. Under the final rule, an institution must file a compliance plan
within 30 days of a request to do so from the institution's primary federal
regulatory agency. The agencies may elect to initiate enforcement action in
certain cases rather than rely on an existing plan particularly where failure
to meet one or more of the standards could threaten the safe and sound operation
of the institution.
The Board of Governors issued final amendments to its risk-based capital
guidelines to be effective December 31, 1995, requiring that net unrealized
holding gains and losses on securities available for sale determined in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," are not to
be included in the Tier I capital component consisting of common stockholders'
equity. Net unrealized losses on marketable equity securities (equity
securities with a readily determinable fair value), however, will continue to be
deducted from Tier I capital. This rule has the general effect of valuing
available-for-sale securities at amortized cost (based on historical cost)
rather than at fair value (generally at market value) for purposes of
calculating the risk-based and leverage capital ratios.
On December 13, 1995, the Board of Governors issued amendments to its
risk-based capital guidelines regarding concentration of credit risk and risks
of non-traditional activities, which were effective January 17, 1996. As
amended, the risk-based capital guidelines identify concentrations of credit
risk and evaluate an institution's ability to manage such risks and the risk
posed by non-traditional activities as important factors in assessing an
institution's overall capital adequacy.
Since 1986, California has permitted California banks and bank holding
companies to be acquired by banking organizations based in other states on a
"reciprocal" basis (i.e., provided the other state's laws permit California
banking organizations to acquire banking organizations in that state on
substantially the same terms and conditions applicable to local banking
organizations). Some increase
13
<PAGE>
in merger and acquisition activity among California and out-of-state banking
organizations has occurred as a result of this law, as well as increased
competition for loans and deposits.
President Clinton signed the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1995 (the "Interstate Banking Act") on September
29, 1995. The Interstate Banking Act authorizes the Board of Governors to
approve interstate acquisitions of banks or bank branch offices, generally
without regard to conflicting requirements of state law, by adequately
capitalized and managed bank holding companies, after September 29, 1995, and
authorizes the other federal banking agencies to approve similar acquisitions by
banks after June 1, 1997, unless prior to that date states enact laws
prohibiting such acquisitions. Such so-called "opt out" measures are pending
or have been passed in a number of states. States also may "opt in" to this
authority at an earlier date if they enact laws specifically permitting such
acquisitions. After March 29, 1996, the Interstate Banking Act authorizes the
appropriate federal agency to approve the consolidation of banks located in
different states but operated by the same bank holding company.
The Interstate Banking Act imposes several limitations on the Board of
Governors' general authority to approve such acquisitions including (1)
preservation of state laws requiring acquisition target banks to have been
chartered for minimum time periods not in excess of five years; (2) precluding
acquisitions which would result in a concentration of deposits greater than 10%
of total United States deposits, or 30% of total deposits in the state in which
the acquired bank or branch office is located, subject to a state's right to
either increase or decrease the 30% threshold and, in the absence of
legislation, the right of a state banking regulatory agency to approve a
transaction under certain circumstances; (3) Board of Governors' assessment of
compliance with antitrust and community reinvestment laws, including a separate
community reinvestment act analysis for each state in which a multi-state
banking operation approved under the Interstate Banking Act exists; and (4)
maintenance of state contingency laws requiring a bank acquisition target to
maintain assets available for call by state-sponsored housing entities
established under state law, provided (i) the state law does not discriminate
against out-of-state banks, holding companies or their subsidiaries, (ii) the
state law was in effect at the enactment date of the Interstate Banking Act,
(iii) the FDIC has not determined that compliance with the state law would
result in an unacceptable risk to the deposit insurance fund, and (iv)
compliance with the state law would not place the bank in an unsafe or unsound
condition.
The federal banking agencies are required to adopt regulations
effective June 1, 1997 which prohibit any out-of-state bank from using the
interstate branching authority primarily for the purpose of deposit production.
Such regulations will require the appropriate federal agency of an out-of-state
bank or bank holding company to review such bank's operations in the host state
in order to determine whether it is meeting the credit needs of the host state
communities in which it operates, whenever it determines that such bank's ratio
of loans to deposits in the host state is less than one-half the average of the
total loans to total deposits for banks domiciled in the host state. If the
agency reaches a negative conclusion, it is authorized to restrict the opening
of new branch offices and to order the closure of the host state branch offices
of the out-of-state bank. Before an agency may exercise authority to close such
a branch office or offices, the Interstate Banking Act requires that it notify
the bank and schedule a hearing. Banks which determine to close branches
located in low or moderate income areas acquired under the Interstate Banking
Act must notify their customers how to contact the appropriate federal agency
to complain about the closing. If the agency determines that any such
14
<PAGE>
complaint is not frivolous, it must convene a meeting of concerned organizations
and individuals to explore the feasibility of adequate alternative sources of
banking services for the affected communities.
In October 1994, the federal financial institution regulatory agencies
jointly proposed a comprehensive revision of their regulations implementing the
Community Reinvestment Act ("CRA"), enacted in 1977 to promote lending by
financial institutions to individuals and businesses located in low and moderate
income areas. In May 1995, the proposed CRA regulations were published in
final form effective as of July 1, 1995. The revised regulations included
transitional phase-in provisions which generally require mandatory compliance
not later than July 1, 1997, although earlier voluntary compliance is
permissible.
Under the former CRA regulations, compliance was evaluated by an
assessment of the institution's methods for determining, and efforts to meet,
the credit needs of such borrowers. This system was highly criticized by
depository institutions and their trade groups as subjective, inconsistent and
burdensome, and by consumer representatives for its alleged failure to
aggressively penalize poor CRA performance by financial institutions. The
revised CRA regulations emphasize an assessment of actual performance rather
than of the procedures followed by a bank, to evaluate compliance with the CRA.
Overall CRA compliance continues to be rated across a four-point scale from
"outstanding" to "substantial noncompliance," and continues to be a factor in
review of applications to merge, establish new branches or form bank holding
companies. In addition, any bank rated in "substantial non compliance" with the
revised CRA regulations may be subject to enforcement proceedings.
The regulations provide that "small banks," which are defined to
include any independent bank with total assets of less than $250 million, are
to be evaluated by means of a so-called "streamlined assessment method" unless
such a bank elects to be evaluated by one of the other methods provided in the
regulations. The differences between the evaluation methods may be summarized
as follows:
(1) The "streamlined assessment method" presumptively applicable to
small banks requires that a bank's CRA compliance be evaluated pursuant to five
"assessment criteria," including its (i) loan-to-deposit ratio (as adjusted for
seasonal variations and other lending-related activities, such as sales to the
secondary market or community development lending); (ii) percentage of loans
and other lending-related activities in the bank's service area(s); (iii)
distribution of loans and other lending-related activities among borrowers of
different income levels, given the demographic characteristics of its service
area(s); (iv) geographic distribution of loans and other lending-related
activities within its service area(s); and (v) record of response to written
complaints, if any, about its CRA performance.
(2) The "lending, investments and service tests method" is applicable
to all banks larger than $250 million which are not wholesale or limited purpose
banks and do not elect to be evaluated by the "strategic plan assessment
method." Central to this method is the requirement that such banks collect and
report to their primary federal banking regulators detailed information
regarding home mortgage, small business and farm and community development
loans which is then used to evaluate CRA compliance. At the bank's option,
data regarding consumer loans and any other loan distribution it may choose to
provide also may be collected and reported.
Using such data, a bank will be evaluated regarding its (i) lending
performance according to the geographic distribution of its loans, the
characteristics of its borrowers, the number and complexity of
15
<PAGE>
its community development loans, the innovativeness or flexibility of its
lending practices to meet low and moderate income credit needs and, at the
bank's election, lending by affiliates or through consortia or third-parties in
which the bank has an investment interest; (ii) investment performance by
measure of the bank's "qualified investments," that is, the extent to which the
bank's investments, deposits, membership shares in a credit union, or grants
primarily benefit low or moderate income individuals and small businesses and
farms, address affordable housing or other needs not met by the private
market, or assist any minority or women-owned depository institution by
donating, selling on favorable terms or providing on a rent-free basis any
branch of the bank located in a predominantly minority neighborhood; and (iii)
service performance by evaluating the demographic distribution of the bank's
branches and ATMs, its record of opening and closing them, the availability
of alternative retail delivery systems (such as telephone banking, banking by
mail or at work, and mobile facilities) in low and moderate income
geographies and to low and moderate income individuals, and (given the
characteristics of the bank's service areas and its capacity and constraints)
the extent to which the bank provides "community development services"
(services which primarily benefit low and moderate income individuals or
small farms and businesses or address affordable housing needs not met by the
private market) and their innovativeness and responsiveness.
(3) Wholesale or limited purpose banks which do not make home
mortgage, small farm or business or consumer loans to retail customers may
elect, subject to agency approval of their status, to be evaluated by the
"community development test method," which assesses the number and amount of the
bank's community development loans, qualified investments and community
development services and their innovativeness and complexity.
(4) Any bank may request to be evaluated by the "strategic plan
assessment method" by submitting a strategic plan for review and approval. Such
a plan must involve public participation in its preparation, and contain
measurable goals for meeting low and moderate income credit needs through
lending, investments and provision of services. Such plans generally would be
evaluated by the Board of Governors by measuring strategic plan goals against
standards similar to those which would be applied in evaluating a bank according
to the "lending, investments and service tests method."
The federal financial institution regulatory agencies jointly issued a
final rule effective as of January 1, 1996 to make certain technical corrections
to the revised CRA regulations. Among other matters, the rule clarifies the
transition from the former CRA regulations to the revised CRA regulations by
confirming that when an institution either voluntarily or mandatorily becomes
subject to the performance tests and standards of the revised regulations, the
institution must comply with all of the requirements of the revised regulations
and is no longer subject to the provisions of the former CRA regulations.
The Bank has a current rating of "outstanding" CRA compliance, and
believes that it would not have received any lower rating if the regulations
had been in effect when the Bank was last examined for CRA compliance on May 2,
1994.
The United States Congress has periodically considered legislation
which could result in further deregulation of banks and other financial
institutions. Such legislation could result in further relaxation or
elimination of geographic restrictions on banks and bank holding companies and
increase the level of
16
<PAGE>
direct competition with other financial institutions, including mutual funds,
securities brokerage firms, investment banking firms and other entities. The
effect of such legislation on the Company and the Bank cannot be determined at
this time.
17
<PAGE>
Item 2. PROPERTIES
The Company and the Bank have their headquarters located at 420 Cowper
Street, Palo Alto, California. The Bank leases its office at 420 Cowper Street,
Palo Alto, California, 94301, from MPB Associates, a tenant-in-common
arrangement, in which seven (7) directors of the Company hold an approximate 51%
interest. MPB Associates purchased Mid-Peninsula Bank's leased premises in
1990. The original terms of the lease were unchanged by that acquisition.
The lease, which originally expired in May, 1993, has been extended
through January, 2000. The lease covers a ground floor area of 8,817 net
rentable square feet and a second floor area of 9,217 net rentable square feet.
The lease was modified in September 1995 to include an additional 500 square
feet on the first floor.
The Bank pays an annual rental of $560,000 for the entire leased space.
Additionally, the Bank pays real property taxes, utilities, and building
insurance, to the extent they exceed, on an annual basis, $1.40, $1.60, and
$0.17 per rentable square foot, respectively. The rent is adjusted every
twelve months beginning June 1, 1997 in accordance with the change in the
immediately preceding year over 1992 in the Consumer Price Index for All Urban
Consumers, San Francisco/Oakland Metropolitan Area, All-Items (1967=100) as
published by the U.S. Department of Labor, Bureau of Labor Statistics.
The lease also contains a provision granting the Bank a right of first
refusal to purchase the building during the term of the lease upon the same
terms and conditions that the landlord is willing to accept from a third party.
The Bank subleases a portion of the leased space on the second floor
of the building which it does not currently utilize. Rental income for the year
ended December 31, 1995 was $398,000.
The foregoing description of the lease is qualified by reference to
the lease agreement dated March 11, 1987 attached as Exhibit 10.13 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1994, filed
with the Commission on March 30, 1995.
The Bank also conducts business in leased premises located at 100 South
Ellsworth Avenue, San Mateo, California, and at 1313 Laurel Street, San Carlos,
California.
The San Mateo lease expires on October 31, 1999, and has two renewal
options of five years each. The lease covers 7,859 square feet of rentable
space. The Bank currently pays an annual rental of $110,340 for the entire
leased space. The rent is adjusted upward effective November, 1997 to $125,424
annually. Under the lease, the Bank also pays monthly operating expenses. The
amount of this payment, currently $5,668, is adjusted upward every twelve
months by at least 4% and no more than 8% in accordance with the change in the
immediately preceding year over 1989 in the Consumer Price Index for Urban Wage
Earners and Clerical Workers (1982-84=100) for the San Francisco/Oakland/San
Jose Metropolitan Area as published by the U.S. Department of Labor, Bureau of
Labor Statistics.
18
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The foregoing description of the lease is qualified by reference to the
lease agreement dated April 24, 1989 attached as Exhibit 10.6 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1994, filed with the
Commission on March 30, 1995.
The San Carlos lease was extended in 1995 to a new expiration date of
October 31, 1998. The lease covers 2,120 square feet of rentable space. The
Bank currently pays an annual rental of $50,604 for the entire leased space.
The rent is adjusted upward every twelve months in accordance with the change in
the immediately preceding year over 1993 in the Consumer Price Index for All
Urban Consumers (1967=100) as published by the U.S. Department of Labor, Bureau
of Labor Statistics.
The foregoing description of the lease is qualified by reference to
the lease agreement dated November 26, 1993 attached as Exhibit 10.7 to the
Company's Annual Report on form 10-K for the year ended December 31, 1994, filed
with the Commission on March 30, 1995.
Item 3. LEGAL PROCEEDINGS
There are no material proceedings adverse to the Company or the Bank
to which any director, officer, affiliate of the Company or 5% shareholder of
the Company or the Bank, or any associate of any such director, officer,
affiliate or 5% shareholder of the Company or Bank is a party, and none of the
above persons has a material interest adverse to the Company or the Bank.
Neither the Company nor the Bank is a party to any pending legal or
administrative proceedings (other than ordinary routine litigation incidental to
the Company's or the Bank's business) and no such proceedings are known to be
contemplated.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of 1995.
19
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) MARKET INFORMATION
There was limited trading in and no established public trading market for
the Company's common stock. The Company's common stock was not listed on any
exchange nor was it quoted by The NASDAQ Stock Market. It is, however, listed
with the National Quotation Service and on the Over The Counter (OTC) Bulletin
Board. Hoefer & Arnett, Incorporated and Van Kasper & Company act as the
primary market makers and facilitate trades in the Company's common stock.
Based on information provided to the Company from Hoefer & Arnett, the range of
high and low bid quotations for the common stock for the two most recent fiscal
years, restated to reflect all stock splits and stock dividends distributed by
the Company are set forth below. The quotations for the Company reflect
quotations for San Mateo County Bancorp during the first three quarters of 1994.
The bid quotations for the fourth quarter of 1994 through 1995 reflect
quotations for the Company following its change of name to Mid-Peninsula
Bancorp.
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
MID-PENINSULA MID-PENINSULA SAN MATEO
BANCORP BANK COUNTY BANCORP
CALENDAR YEAR LOW HIGH LOW HIGH LOW HIGH
- - --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1994
First Quarter N/A N/A 14.00 15.50 6.00 7.00
Second Quarter N/A N/A 15.00 15.75 10.00 11.00
Third Quarter N/A N/A 14.50 15.25 8.00 11.00
Fourth Quarter 12.50 13.00 N/A N/A N/A N/A
1995
First Quarter 13.00 13.63 N/A N/A N/A N/A
Second Quarter 13.00 15.25 N/A N/A N/A N/A
Third Quarter 15.25 17.00 N/A N/A N/A N/A
Fourth Quarter 15.75 16.88 N/A N/A N/A N/A
- - --------------------------------------------------------------------------------
</TABLE>
Such quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not necessarily represent actual transactions.
The bid price for the Company's Common Stock was $18.00 as of March 15, 1996.
(b) HOLDERS
As of March 15, 1996, there were 571 holders of the Common Stock of the
Company. There are no other classes of common equity outstanding.
20
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(c) DIVIDENDS
The Company's shareholders are entitled to receive dividends when and as
declared by its Board of Directors, out of funds legally available therefor,
subject to the restrictions set forth in the California General Corporation Law
(the "Corporation Law"). The Corporation Law provides that a corporation may
make a distribution to its shareholders if the corporation's retained earnings
equal at least the amount of the proposed distribution. The Corporation Law
further provides that, in the event that sufficient retained earnings are not
available for the proposed distribution, a corporation may nevertheless make a
distribution to its shareholders if it meets two conditions, which generally
stated are as follows: (i) the corporation's assets equal at least 1- 1/4 times
its liabilities; and (H) the corporation's current assets equal at least its
current liabilities or, if the average of the corporation's earnings before
taxes on income and before interest expenses for the two preceding fiscal years
was less than the average of the corporation's interest expenses for such fiscal
years, then the corporation's current assets must equal at least 1- 1/4 times
its current liabilities. Funds for payment of any cash dividends by the Company
would be obtained from its investments as well as dividends and/or management
fees from the Bank. The payment of cash dividends by the Bank was subject to
restrictions set forth in the California Financial Code (the "Financial Code").
The Financial Code provides that a bank may not make a cash distribution to its
shareholders in excess of the lesser of (a) the bank's retained earnings; or (b)
the banks net income for its last three fiscal years, less the amount of any
distributions made by the bank or by any majority-owned subsidiary of the bank
to the shareholders of the bank during such period. However, a bank may, with
the approval of the Superintendent, make a distribution to its shareholders in
an amount not exceeding the greater of (a) its retained earnings; (b) its net
income for its last fiscal year; or (c) its net income for its current fiscal
year. In the event that the Superintendent determines that the shareholders'
equity of a bank was inadequate or that the making of a distribution by the bank
would be unsafe or unsound, the Superintendent may order the bank to refrain
from making a proposed distribution. In addition to the restrictions on payment
of dividends set forth in the Financial Code, federal law requires the Bank, as
a member of the Federal Reserve System, to obtain the prior approval of the
Board of Governors for the declaration and payment of dividends if the total of
all dividends declared by the Board of Directors of the Bank in any year will
exceed the total of (a) the Bank's net profits (as defined and interpreted by
regulation) for that year; plus (b) the retained net profits (as defined and
interpreted by regulation) for the preceding two years, less any required
transfers to surplus. In addition the Bank may only pay dividends to the extent
that retained net profits (including the portion transferred to surplus) exceed
bad debts (as defined by regulation). Dividends may also be restricted if such
payment would be deemed unsafe or unsound or if after such payment the Bank
would be included in one of the 'Undercapitalized" categories for capital
adequacy purposes pursuant to the FDICIA. Additionally, while the Board of
Governors has no general restriction with respect to the payment of cash
dividends by an adequately capitalized bank to its parent holding company, the
Board of Governors might, under certain circumstances, place restrictions on the
ability of a particular bank to pay dividends based upon peer group averages and
the performance and maturity of the particular bank, or object to management
fees on the basis that such fees cannot be supported by the value of the
services rendered or are not the result of an arm's length transaction.
Under these provisions and considering minimum regulatory capital
requirements, the amount available for distribution from the Bank to the Company
was approximately $4,300,000 as of December 31, 1995.
21
<PAGE>
The Company declared a cash dividend in the amount of $.10 per share of
its common stock payable to shareholders of record on December 31, 1995.
Previously the Company declared cash dividends of $0.10 per share of its
common stock payable to shareholders of record on March 31, June 30 and
September 30, 1995. Prior to consummation of the reorganization whereby the Bank
became a wholly-owned subsidiary of the Company, the Bank declared dividends of
$.075 per Bank common share payable to shareholders of record on March 31, June
30 and September 30, 1994, and December 31, 1994. The Company currently intends
to pay cash dividends in the future subject to the limitations described above
and other factors considered by the Board of Directors at the time including the
earnings of the Company and the Bank.
22
<PAGE>
Item 6. SELECTED FINANCIAL DATA
The following table presents certain consolidated financial information
concerning the business of the Company and the Bank. This information should be
read in conjunction with the Consolidated Financial Statements, the notes
thereto, and Management's Discussion and Analysis included in this report.
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------------------------
(In thousands, except percentages
and per share data) 1995 1994 1993 1992 1991
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
- - ------------------
Interest income $ 16,940 $ 12,440 $ 10,524 $ 10,310 $ 11,511
Interest expense 6,538 4,233 3,331 3,964 5,592
Net interest income 10,402 8,207 7,193 6,346 5,919
Provision for possible
loan losses 275 203 266 230 172
Non-interest income 404 216 424 463 287
Non-interest expense 5,996 5,787 4,936 4,511 4,271
Income before cumulative
effect of changes in
accounting principle 2,721 1,201 1,480 1,324 1,080
Net income 2,721 1,201 1,563 1,382 1,080
BALANCE SHEET (END OF PERIOD):
- - ------------------------------
Total assets $ 218,735 $ 178,470 $ 166,002 $ 152,642 $ 140,499
Net loans 123,886 107,128 100,324 99,586 90,844
Deposits 195,695 159,572 147,560 135,560 124,349
Shareholders' equity 21,440 18,003 17,840 16,445 15,280
FINANCIAL RATIOS:
- - -----------------
Allowance for possible loan
losses to total loans 1.37% 1.31% 1.38% 1.34% 1.23%
Return on average assets 1.33% 0.67% 0.99% 0.96% 0.85%
Return on average equity 13.80% 6.80% 9.22% 8.87% 7.45%
PER SHARE:
- - ----------
Income before cumulative
effect of changes in
accounting principle $ 1.70 $ 0.78 $ 0.99 $ 0.90 $ 0.73
Net income 1.70 0.78 1.04 0.94 0.73
Dividends declared .40 0.22 0.16 0.12 0.06
Book value 13.64 11.82 12.28 11.36 10.55
Average shares outstanding (000) 1,540 1,498 1,452 1,448 1,448
- - ----------------------------------------------------------------------------------------------------------------
</TABLE>
(a) (1) DISTRIBUTION OF ASSETS, LIABILITIES AND EQUITY. INTEREST RATES AND
INTEREST DIFFERENTIAL
Table I in Management's Discussion and Analysis included in this report
sets forth the Company's average balance sheets (based on daily
averages) and an analysis of interest rates and the interest rate
differential for each of the three years in the period ended
December 31, 1995 and is hereby incorporated by reference.
23
<PAGE>
(2) VOLUME/RATE ANALYSIS
Table II in Managements Discussion and Analysis included in this
report sets forth information as to the impact of changes in
average rates and average balances on interest- earning assets
and interest-bearing liabilities for the period from December 31,
1994 to December 31, 1995 and December 31, 1993 to December 31,
1994 and was hereby incorporated by reference.
(b) INVESTMENT PORTFOLIO
(1) The book value of investments as of December 31, 1995 and 1994 is
contained in footnote 4 of the financial statements and December 31,
1993 was set forth as follows:
<TABLE>
<CAPTION>
BOOK VALUE OF INVESTMENTS
December 31, 1993 Amortized Cost
- - --------------------------------------------------------------------------------
<S> <C>
U.S. Government and agency obligations $ 11,050,000
State and political subdivision (tax exempt) 5,466,000
U.S. Government and agency mutual funds 21,588,000
Federal Reserve Bank stock 394,000
- - --------------------------------------------------------------------------------
Total investments $ 38,498,000
</TABLE>
(2) The book value, maturities and weighted average yields of
investment securities as of December 31, 1995 was set forth as follows:
<TABLE>
<CAPTION>
BOOK VALUE OF INVESTMENTS, MATURITIES AND WEIGHTED AVERAGE YIELDS
Amortized Weighted
December 31, 1995 Cost Average Yield
- - --------------------------------------------------------------------------------
<S> <C> <C>
Due in 1 year $ 9,487,000 6.153%
Due after 1 year through 5 years 17,724,000 6.625
Due After 5 years through 10 years 8,944,000 7.913
Due after 1O years 3,058,000 -
- - --------------------------------------------------------------------------------
Total Investments $39,312,000 6.535%
</TABLE>
(3) As of December 31, 1995, the Company held an investment in the
Overland Express Variable Rate Government Fund, having an aggregate
book value and market value of $13,589,000. This mutual fund is
invested in U.S. government guaranteed adjustable rate residential
mortgages.
(c) LOAN PORTFOLIO
(1) Table IV in Management Discussion and Analysis included in this report
sets forth the composition of the loan portfolio at December 31, 1995,
1994, 1993, 1992 and 1991.
24
<PAGE>
(2) The following table sets forth the maturity distribution of the loan
portfolio as of December 31, 1995.
<TABLE>
<CAPTION>
MATURITY DISTRIBUTION OF LOAN PORTFOLIO
- - --------------------------------------------------------------------------------
Over one Over
One year year through five
(In thousands) or less five years years Total
- - --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $ 71,666 $ 3,139 $ 316 $ 75,121
Real Estate - construction 6,976 - - 6,976
Real Estate - other 41,605 1,043 374 43,022
- - --------------------------------------------------------------------------------
Total loans $ 120,247 $ 4,182 $ 690 $ 125,119
- - --------------------------------------------------------------------------------
</TABLE>
Loans maturing beyond one year include approximately $4,872,000 in fixed-rate
loans.
(3) NONPERFORMING LOANS
The Company's current policy was to cease accruing interest when a
loan becomes 90 days past due as to principal or interest, when the
full timely collection of interest or principal becomes uncertain, or
when a portion of the principal balance has been charged off, unless
the loan is well secured and in the process of collection. When a
loan was placed on nonaccrual status, the accrued and uncollected
interest receivable is reversed and the loan is accounted for on the
cash or cost recovery method thereafter, until qualifying for return to
accrual status. Generally, a loan may be returned to accrual status
when all delinquent interest and principal become current in
accordance with the terms of the loan agreement or when the loan is
both well secured and in process of collection and the borrower has
performed in accordance with the contract terms for a reasonable
period of time.
Management was not aware of any loans, which were accruing and current
as of December 31, 1995, where serious doubt exists as to the ability
of the borrower to comply with the present repayment terms. There were
no restructured loans or restructured debt as defined by SFAS 115 at
year end. There are no concentration of loans other than those set
forth in Table IV of Managements Discussion and Analysis.
25
<PAGE>
(d) SUMMARY OF LOAN LOSS EXPERIENCE
(1) An analysis of the allowance for possible loan losses follows:
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------------------------------------
(In thousands, except percentages) 1995 1994 1993 1992 1991
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, beginning of year $ 1,426 $ 1,410 $ 1,351 $ 1,135 $ 1,035
- - ----------------------------------------------------------------------------------------------------------------
Loans charged-off:
Commercial 0 (50) (195) (19) 0
Real estate-other (7) (185) (50) 0 0
- - ----------------------------------------------------------------------------------------------------------------
Total (7) (235) (245) (19) 0
- - ----------------------------------------------------------------------------------------------------------------
Loan recoveries:
Commercial 22 0 28 (5) 0
Real estate-other 0 48 10 0 0
- - ----------------------------------------------------------------------------------------------------------------
Total 22 48 38 5 0
- - ----------------------------------------------------------------------------------------------------------------
Net loans charged-off (15) 187 207 14 0
Provision for possible loan losses 275 203 266 230 100
Balance, end of year $ 1,716 $ 1,426 1,410 1,351 1,135
- - ----------------------------------------------------------------------------------------------------------------
Average loans outstanding $ 113,985 $ 102,862 $ 99,174 $ 93,198 $ 99,492
Ratio of net loans charged off to
average loans outstanding 0.01% 0.18% .21% .02% .00%
- - ----------------------------------------------------------------------------------------------------------------
</TABLE>
Factors used in determination of the allowance for possible loan losses are
discussed in greater detail in the "Risk Elements" section of Management's
Discussion and Analysis included in this report.
(2) In evaluating the adequacy of the allowance for possible loan losses,
the Company attempts to allocate the allowance to specific categories
of loans. Management believes that any breakdown or allocation of the
allowance for possible loan losses into loan categories lends an
appearance of exactness which does not exist in that the allowance was
utilized as a single unallocated allowance available for all loans.
Further, management believes that the breakdown of historical losses
in the preceding table was a reasonable representation of management's
expectation of potential losses in the next full year of operation.
However, the allowance for loan losses should not be interpreted as an
indication that charge-offs will occur or as an indication of future
charge-off trends.
(e) DEPOSITS
(1) Table I in Management's Discussion and Analysis included in this
report sets forth the distribution of average deposits for the years
ended December 31, 1995, 1994 and 1993, and was hereby incorporated by
reference.
26
<PAGE>
(2) The maturities of time certificates of deposit of $100,000 or more at
December 31, 1995 are summarized as follows:
<TABLE>
<CAPTION>
MATURITIES OF TIME CERTIFICATES, $100,000 AND OVER
- - --------------------------------------------------------------------------------
Year Ended
(In thousands) December 31. 1995
-----------------
<S> <C>
3 months or less $ 26,411
Over 3 months through 6 months 6,566
Over 6 months through 12 months 2,338
Over 12 months 1,367
- - --------------------------------------------------------------------------------
Total $ 36,682
- - --------------------------------------------------------------------------------
</TABLE>
(f) RETURN ON EQUITY AND ASSETS
(1) The following table sets forth the ratios of net income to average
assets and average shareholders' equity, and average shareholders'
equity to average assets. Also indicated was the Company's dividend
payout ratio.
<TABLE>
<CAPTION>
RETURN ON EQUITY AND ASSETS
- - ------------------------------------------------------------------------------------------------
Year Ended December 31
----------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Return on average assets 1.33% 0.67% 0.99%
Return on average shareholders' equity 13.80% 6.80% 9.22%
Average shareholders' equity to average assets 9.63% 9.89% 10.73%
Dividend payout ratio 23.00% 27.89% 14.59%
</TABLE>
27
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
BUSINESS ORGANIZATION
Mid-Peninsula Bancorp was a California corporation organized in 1984 under the
name San Mateo County Bancorp ("San Mateo") to act as the bank holding company
of San Mateo County National Bank which subsequently changed its name to WestCal
National Bank ("WestCal") in 1991. In 1994, WestCal was merged with and into
Mid-Peninsula Bank, a California state licensed bank organized in 1987 (the
"Bank") in a transaction in which the Bank survived and became the wholly-owned
subsidiary of San Mateo and San Mateo concurrently changed its name to
Mid-Peninsula Bancorp (the "Company"). The transaction was accounted for on a
pooling of interests basis. Other than holding the shares of the Bank, the
Company conducts no other significant business activities, although it was
authorized, with the prior approval of the Board of Governors of the Federal
Reserve System (the "Board of Governors"), the Company's principal regulator, to
engage in a variety of activities which are deemed closely related to the
business of banking.
The Bank engages in general commercial banking in northern Santa Clara County
and in San Mateo County, offering traditional commercial banking services to the
business and professional communities, with emphasis on private banking clients,
small and mid-size businesses and professionals. To the extent possible, loans
are written on a variable rate basis. Commercial, real estate and personal loans
are offered and are tailored to the individual needs of the borrower. The Bank's
marketing efforts focus on the local communities served for both loan and
deposit generation. The Bank accepts noninterest-bearing and interest-bearing
demand accounts, as well as traditional savings accounts and time certificates
of deposit with competitively priced interest rates.
The following analysis was designed to enhance the readers understanding of
the Company's financial condition and the results of its operations as reported
in the Consolidated Financial Statements included in the 1995 Annual Report to
Shareholders. Reference should be made to those statements and the Selected
Financial Data presented elsewhere in this report for additional detailed
information.
OVERVIEW
The Company reported net income of $2,721,000 for the year ended December 31,
1995, representing an increase of $1,520,000 or 127% from 1994 net income of
$1,201,000. Net income reported for 1994 represented a decrease of $362,000 or
23% from 1993 net income of $1,563,000. On a per common and common equivalent
share basis, net income for 1995 was $1.70 compared to $.78 and $1.04 per share
for the preceding two years. The increase in net income in 1995 was primarily
due to a general increase in business matched by stringent cost controls. Net
interest income increased significantly in 1995 over 1994 and in 1994 over 1993.
Non-interest expenses, other than merger-related expenses in 1994, increased
only moderately. Each of these factors was discussed in more detail later in
this analysis.
28
<PAGE>
Common Shareholders' equity increased $3,437,000 during 1995 to $21,440,000.
The Company reported a decrease of $694,000 in unrealized losses on securities
available-for-sale, which was a component of shareholders' equity. The Company
raised $640,000 in common equity as a result of stock options exercised and
related tax benefits and paid $618,000 in cash dividends in 1995. Per share
earnings have been adjusted to reflect the dilutive effect of common stock
equivalents (stock options outstanding but not exercised) calculated on the
treasury stock method.
EARNINGS SUMMARY
NET INTEREST INCOME
Net interest income refers to the difference between the interest paid on
deposits and borrowings and the interest earned on loans and investments. It was
the largest component of the net earnings of a financial institution. The
primary factors to consider in analyzing net interest income are the composition
and volume of earning assets and interest-bearing liabilities, the amount of
noninterest-bearing liabilities and nonaccrual loans, and changes in market
interest rates.
Table I on the following page sets forth average balance sheet information,
interest income and expense, average yields and rates, and the net interest
income and interest margin for the years ended December 31, 1995, 1994 and 1993.
Net interest income for 1995 was $10,402,000, an increase of 27% over net
interest income of $8,207,000 in 1994. The increase in net interest income in
1995 primarily reflects an increase in both the volume of average earning assets
and the rates earned on earning assets. Net interest income reported in 1994
represented an increase of $1,014,000 or 14% over $7,193,000 in 1993.
Total interest income in 1995 was $16,940,000 compared to $12,440,000 and
$10,524,000 in 1994 and 1993, respectively. The increase in 1995 reflects the
general increase in business in 1995 vs. 1994. A majority of the Bank's loans
float with the Bank's base rate which was, on average, 8.83%, 7.14% and 6.00% in
1995, 1994 and 1993, respectively. The increase in total interest income of
$4,500,000 in 1995 over 1994 and $1,916,000 in 1994 over 1993 was also
attributable to an increase in the volume of earning assets and higher,
relatively stable rates in both periods. Average earning assets increased
$26,696,000 or 16% in 1995 and increased $19,387,000 or 13% in 1994.
The increase in interest income was offset by an increase in interest expense
of $2,305,000 or 54% in 1995 over 1994. Interest expense increased $902,000 or
27% in 1994 over 1993. During 1995, the average rate paid on interest-bearing
deposits was 4.20% compared to 3.13% in 1994 and 2.77% in 1993.
29
<PAGE>
TABLE I-COMPONENTS OF NET INTEREST INCOME
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
------------------------------- ------------------------------- ---------------------------------
(in thousands, Average Average Average Average Average Average
except percentages) Balance Interest Rate Balance Interest Rate Balance Interest Rate
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest earning:
Loans (1) $113,985 $12,239 10.74% $102,862 $ 9,504 9.24% $ 99,174 $ 8,492 8.56%
Investment
securities:
Taxable 44,335 2,667 6.02 38,800 1,824 4.70 25,142 1,234 4.91
Non-taxable (2) 7,397 688 9.30 5,522 480 8.69 4,760 431 9.05
Federal funds sold
and other 27,320 1,580 5.78 19,157 795 4.15 17,878 514 2.88
- - ----------------------------------------------------------------------------------------------------------------------------------
Total earning
assets 193,037 17,174 8.90% 166,341 12,603 7.58% 146,954 10,671 7.26%
- - ----------------------------------------------------------------------------------------------------------------------------------
Cash and due
from banks 7,938 9,923 9,402
Premises and
equipment, net 930 773 809
Other assets 2,940 1,602 869
- - ----------------------------------------------------------------------------------------------------------------------------------
Total assets $204,845 $178,639 $158,034
- - ----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest-bearing:
Demand $ 10,668 $ 205 1.92% $ 10,583 $ 214 2.02% $ 8,492 $ 164 1.93%
Savings and
money market 100,570 4,132 4.11 90,688 2,828 3.12 79,310 2,129 2.68
Time deposits
more than 100M 36,798 1,823 4.95 26,510 915 3.45 23,967 770 3.21
Timed deposits
less than l00M 7,457 378 5.07 7,273 276 3.79 8,315 268 3.22
- - ----------------------------------------------------------------------------------------------------------------------------------
Total interest-
bearing liabilities 155,493 6,538 4.20% 135,054 4,233 3.13% 120,084 3,331 2.77
- - ----------------------------------------------------------------------------------------------------------------------------------
Non-interest
bearing demand 28,438 24,816 20,380
Other liabilities 1,192 1,105 612
Shareholders' equity 19,722 17,664 16,958
- - ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders'
equity $204,845 $178,639 $158,034
- - ----------------------------------------------------------------------------------------------------------------------------------
Net interest spread 4.70% 4.44% 4.49%
Net interest income
and interest margin (3) $10,636 5.51% $ 8,370 5.03% $ 7,340 4.99%
- - ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1. Loan interest includes loan fees of $541,000, $566,000 and $670,000 in
1995, 1994 and 1993, respectively.
2. Tax exempt interest income includes $234,000, $163,000 and $147,000 in
1995, 1994 and 1993, respectively, to adjust to a fully taxable equivalent
basis using the Federal statutory rate of 34%.
3. Net interest margin is computed by dividing net interest income by total
average earning assets as adjusted for any non accrual loans.
30
<PAGE>
Table II below sets forth an analysis of changes in net interest income due
to changes in volume and rate. The variances attributed to simultaneous balance
and rate changes have been reflected as rate variances.
TABLE II - ANALYSIS OF CHANGES IN NET INTEREST INCOME ATTRIBUTABLE TO VOLUME
AND RATE CHANGE
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 - 1994 1994 - 1993
---------------------------- ------------------------------
(in thousands) Volume Rate Total Volume Rate Total
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN INTEREST INCOME:
Loans (1)/(2) $1,028 $1,707 $2,735 $ 316 $ 696 $1,012
Taxable investments 260 583 843 670 (82) 588
Non-taxable investments (3) 163 45 208 69 (20) 49
Federal funds sold and other 339 446 785 37 246 283
- - ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in interest
income 1,790 2,781 4,571 1,092 840 1,932
INCREASE (DECREASE) IN INTEREST EXPENSE:
Interest bearing demand 2 (11) (9) 40 10 50
Savings and money markets 308 996 1,304 305 394 699
Time certificates, $100,000 and over 355 553 908 82 63 145
Other time deposits 7 95 102 (34) 42 8
- - ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in interest
expense 672 1,633 2,305 393 509 902
- - ----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net interest
income $1,118 $1,148 $2,266 $ 699 $ 331 $1,030
- - ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Average balance of nonaccruing loans is immaterial as a percentage of
total loans and, as such, has been included in loans.
(2) Loan fees of $541,000, $566,000 and $670,000 for 1995, 1994 and
1993, respectively, have been included in the interest income
computation.
(3) Tax exempt interest income includes $234,000, $163,000 and
$147,000 in 1995, 1994 and 1993, respectively, to adjust to a fully
taxable equivalent basis using the Federal statutory rate of 34%.
NON-INTEREST INCOME
The Company's non-interest income is primarily derived from fees
earned by the Bank for deposit-related services, letters of credit and escrow
fees, safe-deposit box rentals and other miscellaneous fees. Service charges
and other fees declined $52,000 or 12% to $380,000 in 1995 over 1994. Such fees
were $432,000 in 1994 and $338,000 in 1993. The decrease in 1995 was primarily
due to a reduction in the number of accounts serviced. Correspondingly,
non-service charge income was $137,000 in 1995, over $50,000 in 1994 and
$14,000 in 1993. This component of non-interest income includes the income
derived from the insurance policies purchased for the executive officer salary
continuation program. Such income was $94,000 in 1995 and was not in place in
1994 or 1993.
31
<PAGE>
The Bank had investment losses of $113,000 on the sale of
available-for-sale securities in 1995. In 1994, these losses were $266,000,
while in 1993 there was a gain of $72,000 on the sale of investments held for
sale.
The Company adopted Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards ("SFAS") No. 115 "Accounting for
Certain Investments in Debt and Equity Securities" in 1994. San Mateo and
WestCal adopted the statement in 1993. This statement requires the Company to
classify debt and equity securities, which include substantially all of the
Company's investment portfolio, into one of three categories: held-to-maturity,
trading or available-for-sale. Investments in debt securities are classified
as held-to-maturity and measured at amortized cost only if the Company has the
positive intent and ability to hold such securities to maturity. All other
investments may be classified as either trading securities, which are bought and
held principally for the purpose of selling them in the near term and are
carried at market value with a corresponding recognition of the unrealized
holding gain or loss in results of operations, or as available-for-sale
securities, which are all other securities and are carried at market value with
a corresponding recognition of the unrealized holding gain or loss as a net
amount in a separate component of shareholders' equity until realized. As of
December 31, 1995, the Company held investments with a book and market value of
$58,533,000 as available-for-sale securities. The Company held investments with
a carrying value of $857,000 and a market value of $838,000 in the
held-to-maturity portfolio. The Company does not have a trading portfolio.
NON-INTEREST EXPENSE
Non-interest expense reflects the costs of personnel, occupancy,
systems, regulatory expenses, products and services for the Company. The major
components of non-interest expense stated in dollars and as a percent of average
earning assets are as set forth below.
TABLE III - NON-INTEREST EXPENSE
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(In thousands, except percentages) 1995 1994 1993
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Salaries and employee benefits $ 3,442 1.78% $ 2,781 1.67% $ 2,570 1.75%
Occupancy and equipment 992 .51 866 0.52 912 0.62
Merger-related expense - - 608 0.37 - -
Regulatory expense 207 .11 373 0.22 335 0.23
Professional services 287 .15 265 0.16 221 0.15
Data processing expense 118 .06 245 0.15 165 0.11
Marketing 318 .16 178 0.11 185 0.13
Other expense 632 .33 471 0.28 548 0.37
- - ----------------------------------------------------------------------------------------------------------------------------------
Total $ 5,996 3.11% $ 5,787 3.48% $ 4,936 3.36%
- - ----------------------------------------------------------------------------------------------------------------------------------
Average earning assets $193,037 $166,341 $146,954
- - ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
32
<PAGE>
Non-interest expense increased $209,000 or 4% to $5,996,000 in 1995
over 1994 and increased $851,000 or 17% to $5,787,000 in 1994 over 1993. As a
percentage of average earning assets, non-interest expense was 3.11% in 1995
compared to 3.48% in 1994 and 3.36% in 1993.
The $209,000 increase in expenses in 1995 was primarily due to the
increase in staff required by the growth of the Company. The $851,000 increase
in expenses in 1994 was due, in large part, to merger-related costs of
$608,000. These costs were primarily comprised of legal, accounting and
investment banking fees incurred by WestCal and legal and accounting fees
incurred by the Bank in completing the merger.
Salaries and employee benefits increased $661,000 or 24% to $3,442,000
in 1995 over 1994 and increased $211,000 or 8% to $2,781,000 in 1994 over 1993.
The increase in 1995 and 1994 was primarily due to the increase in staff
required to service the growth in earning assets. As a percent of average
earning assets, salaries and benefits were 1.78% in 1995, 1.67% in 1994 and
1.75% in 1993.
Occupancy and equipment expenses increased $126,000 in 1995 compared to
a decrease of $46,000 in 1994. The decrease in 1994 is attributable to an
increase in rental income received on space held for expansion in the Palo Alto
office. The 1995 increase in cost was due to a decrease in rental income as the
Bank grew into the space acquired in 1992.
Regulatory expenses decreased $166,000 in 1995 and increased $38,000 in
1994. These expenses are primarily assessment costs for FDIC insurance and the
decrease in 1995 was a result of a reduction in assessment rates, while the
increase 1994 was attributable to an increase in deposit balances that are the
basis for the assessment.
Professional service fees increased $22,000 in 1995 over 1994 and
increased $44,000 in 1994 over 1993. The increase in 1995 was a result of the
growth in the Company while the increase in 1994 was primarily due to increases
in legal and accounting fees attendant to the merger.
Data processing expenses decreased $127,000 in 1995 to $118,000 compared
to an $80,000 increase in 1994. The reduction in expense is due to the
elimination of outside processor expense related to the WestCal National Bank
operation.
Marketing expense increased $140,000 to $318,000 in 1995 compared to a
modest decline of $7,000 in the previous year. The additional expense is due to
advertising and marketing in a larger service area following the merger.
Other expenses, including the expenses of O.R.E.O., increased $161,000
in 1995 over 1994 and decreased $77,000 in 1994 over 1993. The 1995 increase
was due to the expansion of business and related market penetration while the
decline in 1994 was attributable to a reduction in expenses related to carrying
other real estate owned.
The Company's effective income tax rate was 40.00% in 1995, 50.60% in
1994 and 38.70% in 1993. The higher effective tax rate of the Company in 1994
was due to non-deductible merger expenses and an investment loss on securities
which was not deductible for income tax purposes.
33
<PAGE>
BALANCE SHEET ANALYSIS
Total assets of the Company as of December 31, 1995 were $218,735,000
compared to $178,470,000 in 1994 and $166,002,000 in 1993, representing
increases of 23% and 8%, respectively. Based on average balances, total assets
of $204,845,000 in 1995 represent an increase of 15% over 1994. Average total
assets of $178,639,000 in 1994 represent an increase of 13% over 1993 average
total assets of $158,034,000.
EARNING ASSETS
LOAN PORTFOLIO - The following table summarizes the composition of the loan
portfolio for the past five years.
TABLE IV - ANALYSIS OF LOANS OUTSTANDING BY TYPE
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993 1992 1991
- - ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial $ 92,971 $ 76,528 $ 67,974 $ 57,038 $ 54,094
Real estate:
Construction 8,783 4,608 4,652 10,266 13,438
Other 24,296 27,835 29,554 33,959 24,735
- - ----------------------------------------------------------------------------------------------------
Total Loans 126,050 108,971 102,180 101,263 92,267
Deferred loan fees (448) (417) (446) (326) (288)
Allowance for possible
loan losses (1,716) (1,426) (1,410) (1,351) (1,135)
- - ----------------------------------------------------------------------------------------------------
Net Loans $123,886 $107,128 $100,324 $ 99,586 $ 90,844
- - ----------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------
</TABLE>
Average net loans of $113,985,000 in 1995 increased 11% over the 1994
average of $102,862,000. Average net loans in 1994 represented an increase of
4% from $99,174,000 in 1993. Average net loans comprised 59% of average
earning assets in 1995 compared to 62% and 67% in 1994 and 1993, respectively.
Net loans outstanding as of December 31, 1995 were $123,886,000,
representing an increase over 1994 of $16,758,000 or 16%. The increase in loan
balances as of December 31, 1995 compared to 1994 was primarily an increase in
both commercial loans and construction real estate loans offset by a decline in
other real estate loans. As of December 31, 1994, net loans outstanding were
$107,128,000, an increase of 7% over $100,324,000 at December 31, 1993.
During 1995, the Bank experienced growth in commercial loans to
businesses and professionals. Such loans consist of credit facilities for
operating needs, loans for equipment purchases and working capital and various
other business purposes. Real estate loans declined during the year, reflecting
the continued softness in the real estate markets in Santa Clara and San Mateo
counties.
34
<PAGE>
RISK ELEMENTS
The Company assesses and manages credit risk on an ongoing basis
through stringent credit review and approval policies, extensive internal
monitoring and established formal lending policies. Management believes its
ability to identify and assess risk and return characteristics of the Company's
loan portfolio is critical for profitability and growth. Management strives to
continue the historically low level of credit losses by continuing its emphasis
on credit quality in the loan approval process, active credit administration and
regular monitoring. With this in mind, management has designed and implemented
a comprehensive loan review and grading system that functions to continually
assess the credit risk inherent in the loan portfolio. Additionally,
management believes its ability to manage portfolio credit risk is enhanced by
lending personnel's knowledge of the Bank's service area. Each Bank office is
staffed with employees who live in the communities served by the office, and
virtually all of the directors of the Company are active members of the
communities served by the Bank. Further, senior management and the Board of
Directors of the Company and the Bank have experienced minimal turnover since
inception of the Company and the Bank in 1984.
Management believes that its lending policies and underwriting
standards will tend to minimize losses in an economic downturn, however, there
is no assurance that losses will not occur under such circumstances. The Bank's
loan policies and underwriting standards include, but are not limited to, the
following: 1) maintaining a thorough understanding of the Bank's service area
and limiting investments outside of this area; 2) maintaining a thorough
understanding of borrowers' knowledge and capacity in their fields of
expertise; 3) basing real estate construction loan approvals not only on
salability of the project, but also on the borrowers' capacity to support the
project financially in the event it does not sell within the original projected
time period and 4) maintaining conforming and prudent loan to value and loan to
cost ratios based on independent outside appraisals and ongoing inspection and
analysis by Bank construction lending officers.
NONACCRUAL LOANS, LOANS PAST DUE 90 DAYS AND OREO
Management generally places loans on nonaccrual status when they become
90 days past due, unless the loan is well secured and in the process of
collection. Loans are charged off when, in the opinion of management,
collection appears unlikely. As of December 31, 1995, the Company and Bank had
no nonaccrual loans compared to $424,000 or 0.4% and $182,000 or 0.2% of total
loans as of December 31, 1994 and December 31, 1993, respectively.
There were no loans past due 90 days and still accruing interest as of
December 31, 1995, 1994 or 1993.
There was no other real estate owned as of December 31, 1995, 1994 or
1993.
PROVISION AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses is based upon management's
evaluation of the adequacy of the existing allowance for possible loan losses.
This allowance is increased by provisions charged to
35
<PAGE>
expense and reduced by loan charge-offs, net of recoveries. Management
determines an appropriate provision based upon the interaction of three primary
factors: (1) the loan portfolio growth in the period, (2) a comprehensive
grading and review formula for total loans outstanding, and (3) actual previous
charge-offs. The allowance for possible loan losses totaled $1,716,000 or
1.37% of total loans as of December 31, 1995, compared to $1,426,000 or 1.31%
as of December 31, 1994 and $1,410,000 or 1.39% as of December 31, 1993. It is
the policy of management to maintain the allowance for possible loan losses at a
level adequate for known and future risks inherent in the loan portfolio. Based
on information currently available to analyze loan loss potential, including
economic factors, overall credit quality, historical delinquency and a history
of actual charge-offs, management believes that the loan loss provision and
allowance are adequate; however, no prediction of the ultimate level of loans
charged-off in future years can be made with any certainty. An analysis of the
activity in the Bank's allowance for loan losses is presented in Item 6,
Selected Financial Data.
FUNDING SOURCES
Deposits represent the Bank's principal source of funds for investment.
Deposits are primarily core deposits in that they are demand, savings and time
deposits generated from local businesses and individuals. These sources are
considered to be relatively more stable, long-term deposit relationships thereby
enhancing steady growth of our deposit base without major fluctuations in
overall deposit balances. The Bank has never purchased funds through deposit
brokers. Table V presents the composition of the deposit mix for the five years
ended December 31, 1995.
TABLE V - COMPOSITION OF DEPOSITS (in thousands)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1995 1994 1993 1992 1991
- - ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Demand, noninterest-bearing $ 37,077 $ 27,137 $ 25,146 $ 21,034 $ 13,937
Demand, interest-bearing 11,926 10,023 9,878 7,714 7,055
Savings and other time 110,010 93,478 88,667 82,699 71,712
Time certificates, $100M and over 36,682 28,934 23,869 24,113 31,745
- - ----------------------------------------------------------------------------------------------------
Total deposits $195,695 $159,572 $147,560 $135,560 $124,349
- - ----------------------------------------------------------------------------------------------------
</TABLE>
Deposits increased $36,123,000 or 23% to $195,695,000 as of December
31, 1995 compared to an increase of $12,012,000 or 8% as of December 31, 1994
over 1993. Average total deposits in 1995 of $183,931,000 showed an increase
of $24,061,000 or 15% over 1994. Interest-bearing demand and savings and other
time deposits increased 10%, on average, and time deposits over $100,000
increased 31% during 1995. This change in the composition of deposit funding
reflects a shift toward the higher rate certificate of deposit accounts, as
interest rates declined in the second half of 1995.
Average non-interest bearing demand deposits increased 15% to
$28,438,000 in 1995 compared to an increase of 22% to $24,816,000 in 1994 over
1993.
36
<PAGE>
LIQUIDITY AND INTEREST RATE SENSITIVITY
LIQUIDITY
Liquidity management refers to the Bank's ability to provide funds on an
ongoing basis to meet fluctuations in deposit levels as well as the credit needs
and requirements of its clients. Both assets and liabilities contribute to the
Bank's liquidity position. Federal funds lines, short-term investments and
securities, and loan repayments contribute to liquidity, along with deposit
increases, while loan funding and deposit withdrawals decrease liquidity. The
Bank assesses the likelihood of projected funding requirements by reviewing
historical funding patterns, current and forecasted economic conditions and
individual client funding needs. The Bank maintains lines of credit with its
correspondent banks for up to $19,000,000 available on a short-term basis.
Commitments to fund loans and outstanding standby letters of credit as
of December 31, 1995 were approximately $48,831,000 and $6,816,000,
respectively. Such loans relate primarily to revolving lines of credit and
other commercial loans, and to real estate construction loans. Since some of
the commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements.
The Bank manages its liquidity by maintaining a majority of its
investment portfolio in federal funds sold and other liquid investments.
Liquidity is measured by various ratios, the most common being the liquidity
ratio of cash, federal funds sold, and available-for-sale unpledged investment
securities, compared to total deposits. As of December 31, 1995, this ratio was
40.90% compared to 32.70% as of December 31, 1994. Another key liquidity ratio
is the ratio of loans to deposits, which was 64.18% as of December 31, 1995 and
68.03% as of December 31, 1994.
INTEREST RATE SENSITIVITY
The Company defines interest rate sensitivity as the measure of the
relationship between market interest rates and net interest income due to
repricing characteristics of assets, liabilities and off-balance sheet
instruments. Generally, if assets and liabilities do not reprice at the same
time and in equal volumes, the potential for exposure to interest rate
fluctuations exists. In order to maximize the net yield on earning assets and
maintain the interest rate spread during periods of fluctuating interest rates,
management monitors the repricing period of interest earning assets as compared
with interest bearing liabilities. The difference between the amount of assets
and liabilities that reprice in any given time period is referred to as the
interest rate sensitivity gap. While the Company attempts to manage its
exposure to interest rate sensitivity, due to its size and direct competition
from the major banks, it must offer products which are competitive in the market
place, even if they are less than optimum with respect to the Bank's interest
rate exposure.
The following table sets forth the distribution of repricing
opportunities of the Bank's earning assets and interest-bearing liabilities as
of December 31, 1995, the interest rate sensitivity gap (i.e., interest rate
sensitive assets less interest rate sensitive liabilities), the cumulative
interest rate gap, the
37
<PAGE>
interest rate gap ratio (i.e., interest rate sensitive assets divided by
interest rate sensitive liabilities) and the cumulative interest rate gap ratio.
The table sets forth the time periods during which earning assets and
interest-bearing liabilities will mature or may reprice in accordance with
their contractual terms. However, the table does not necessarily indicate the
impact of general interest rate movements on the net interest margin since the
repricing of various categories of assets and liabilities indicated as repricing
within the same period may in fact reprice at different times within such
periods and at different rates.
TABLE VI - INTEREST RATE SENSITIVITY (in the thousands, except ratios)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Next day After three
through months One year After
Assets and liabilities three through through five
which mature or reprice Immediately months one year five years years Total
- - ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Federal funds sold $ 15,700 - - - - $ 15,700
Investment securities 0 $ 17,527 $ 7,522 $22,021 $12,750 59,820
Loans 112,999 1,705 5,542 4,182 691 125,119
- - ---------------------------------------------------------------------------------------------------------
Total earning assets 128,699 19,232 13,064 26,203 13,441 200,639
- - ---------------------------------------------------------------------------------------------------------
Demand, money market
and savings 115,001 - - - - 115,001
Time deposits - 30,550 12,703 1,315 - 44,568
- - ---------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 115,001 30,550 12,703 1,315 - 159,569
- - ---------------------------------------------------------------------------------------------------------
Interest rate gap $ 13,698 $(11,318) $ 361 $24,888 $13,441 $ 41,070
- - ---------------------------------------------------------------------------------------------------------
Cumulative interest rate
gap $ 13,698 $ 2,380 $ 2,741 $27,629 $41,070
- - ---------------------------------------------------------------------------------------------------------
Interest rate gap ratio 1.12x (0.63)x 1.03x 19.93x -
- - ---------------------------------------------------------------------------------------------------------
Cumulative interest
rate gap ratio 1.12x 1.02x 1.02x 1.17x 1.26x
- - ---------------------------------------------------------------------------------------------------------
</TABLE>
As of December 31, 1995, the Company was considered to be mildly asset
sensitive; measured at the one year mark, that is, its assets reprice more
quickly than do its liabilities, primarily as a result of the significant amount
of variable rate loans and the repricing characteristics of its deposit
accounts. Management has historically maintained a cumulative positive
interest rate sensitivity gap. This historical position provides a hedge
against rising interest rates, but has a detrimental effect during times of
interest rate declines.
CAPITAL RESOURCES
The Company's total shareholders' equity was $21,440,000 as of December
31, 1995 compared to $18,003,000 as of December 31, 1994 and $17,840,000 as of
December 31, 1993.
38
<PAGE>
The Company is subject to regulations issued by the Board of Governors
which require that it maintain a certain level of capital. These regulations
impose two capital standards: a risk-based capital standard and a leverage
capital standard. See Item 1, "Supervision and Regulation."
Under the Board of Governors' risk-based capital guidelines, assets
reported on an institution's balance sheet and certain off-balance sheet items
are assigned to risk categories, each of which has an assigned risk weight.
Capital ratios are calculated by dividing the institution's qualifying capital
by its period-end risk-weighted assets. The applicable regulations establish
two categories of qualifying capital: Tier 1 capital (defined to include common
shareholders' equity and noncumulative perpetual preferred stock) and Tier 2
capital (defined to include limited life (and in the case of banks, cumulative)
preferred stock, mandatory convertible securities, subordinated debt and a
limited amount of reserves for loan and lease losses). Each institution is
required to maintain a risk-based capital ratio (including Tier 1 and Tier 2
capital) of 8%, of which at least half must be Tier 1 capital.
Under the Board of Governors' leverage capital standard an institution
is required to maintain a minimum ratio of Tier 1 capital to the sum of its
quarterly average total assets and quarterly average reserve for loan losses,
less intangibles not included in Tier 1 capital. Period-end assets may be used
in place of quarterly average total assets on a case-by-case basis. A minimum
leverage ratio of 3% is required for institutions which have been determined to
be in the highest of five categories used by regulators to rate financial
institutions and which are not experiencing or anticipating significant growth.
All other organizations are required to maintain leverage ratios of at least 100
to 200 basis points above the 3% minimum.
The table below summarizes the various capital ratios for the Company as
of December 31,1995 and 1994.
39
<PAGE>
TABLE VII - RISK-BASED CAPITAL (in thousands, except ratios)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
----------------------- -----------------------
RATIOS Amount Ratio Amount Ratio
- - --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tier 1 Capital $ 21,440 14.36% $ 18,003 15.20%
Tier 1 Capital minimum
requirement $ 5,971 4.00% $ 4,786 4.00%
- - --------------------------------------------------------------------------------
Total Capital $ 23,156 15.51% $ 19,429 16.40%
Total Capital minimum
requirement $ 11,944 8.00% $ 9,477 8.00%
- - --------------------------------------------------------------------------------
Total risk-adjusted
assets $149,296 $119,644
- - --------------------------------------------------------------------------------
LEVERAGE RATIO
Tier 1 Capital to
adjusted total assets $ 21,440 9.76% $ 18,003 10.51%
- - --------------------------------------------------------------------------------
Quarterly average
total assets $219,783 $171,267
- - --------------------------------------------------------------------------------
</TABLE>
The capital adequacy of the Company depends on a variety of factors,
including interest rates, liquidity, market and operational risks. If, based on
these factors, the Board of Governors determines that the capital of the Company
is not adequate, the Board of Governors may require it to maintain capital in
excess of the levels described above.
ACCOUNTING PRONOUNCEMENT
In October, 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 establishes accounting and disclosure requirements
using a fair value method of accounting for stock based employee compensation
plans. Under SFAS No. 123, the Company may either adopt the new fair value
based accounting method or continue the intrinsic value based method and provide
proforma disclosures of net income and earnings per share as if the accounting
provisions of SFAS No. 123 had been adopted. The Company adopted only the
disclosure requirements of SFAS No. 123 and such adoption had no effect on the
Company's consolidated net earnings or cash flows. The provisions of SFAS No.
123 became effective January 1, 1996.
INFLATION
The impact of inflation on a financial institution differs significantly
from that exerted on manufacturing, or other commercial concerns, primarily
because a financial institution's assets and liabilities are largely monetary.
In general, inflation primarily affects the Company indirectly through its
effect on the ability of its customers to repay loans, or its impact on market
rates of interest, and thus the ability of the Company to attract loan
customers. Inflation affects the growth of total assets by increasing the level
of loan demand, and potentially adversely affects capital adequacy because loan
growth in inflationary periods can increase at rates higher than the rate that
capital grows through
40
<PAGE>
retention of earnings. Interest rates in particular are significantly affected
by inflation, but neither the timing nor the magnitude of the changes coincides
with changes in the Consumer Price Index, which is one of the indicators used to
measure the rate of inflation. Adjustments in interest rates may be delayed
because of the possible imposition of regulatory restraints. In addition to its
effects on interest rates, inflation directly affects the Company by increasing
its operating expenses. Inflation has not had a material impact on the Company
for the three years ended December 31, 1995, 1994 and 1993.
41
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Reports 44
Consolidated Balance Sheets, December 31, 1995 and 1994 45
Consolidated Statements of Operations for the three years
ended December 31, 1995, 1994 and 1993 46
Consolidated Statements of Changes in Shareholders' Equity for
the three years ended December 31, 1995, 1994 and 1993 47
Consolidated Statements of Cash Flows for the three years
ended December 31, 1995, 1994 and 1993 48
Notes to Consolidated Financial Statements 49
All schedules have been omitted since the required information is not present in
amounts sufficient to require submission of the schedule or because the
information required is included in the Consolidated Financial Statements or
notes thereto.
</TABLE>
42
<PAGE>
MID-PENINSULA BANCORP AND SUBSIDIARY
Consolidated Financial Statements
December 31, 1995, 1994, and 1993
(With Independent Auditors' Report Thereon)
43
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Mid-Peninsula Bancorp:
We have audited the accompanying consolidated balance sheets of Mid-Peninsula
Bancorp and subsidiary (the Company) as of December 31, 1995 and 1994, and the
related consolidated statements of operations, changes in shareholders' equity,
and cash flows for each of the years in the three-year period ended December 31,
1995. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We did not audit the
1993 consolidated financial statements of San Mateo County Bancorp, a company
acquired by the Company in a business combination accounted for as a pooling of
interests as described in Note 2 to the consolidated financial statements, which
statements reflect total interest income constituting 23% in the year ended
December 31, 1993, of the related consolidated total. Those statements were
audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to the amounts included for San Mateo County
Bancorp, is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits and the report of the other auditors
provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Mid-Peninsula Bancorp and
subsidiary as of December 31, 1995 and 1994, and the results of their operations
and their cash flows for each of the years in the three-year period ended
December 31, 1995, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, San Mateo
County Bancorp adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 109, ACCOUNTING FOR INCOME TAXES, in 1993. As discussed in
Notes 1 and 3 to the consolidated financial statements, the Company and San
Mateo County Bancorp also adopted the provisions of SFAS No. 115, ACCOUNTING FOR
CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES, in 1994 and 1993,
respectively.
KPMG Peat Marwick LLP
San Francisco, California
January 22, 1996
44
<PAGE>
MID-PENINSULA BANCORP AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1995 and 1994
<TABLE>
<CAPTION>
Assets 1995 1994
------ ---- ----
<S> <C> <C>
Cash and due from banks (Note 3) $ 13,304,000 6,996,000
Federal funds sold 15,700,000 28,200,000
------------ -----------
Cash and cash equivalents 29,004,000 35,196,000
Investment securities (Note 4):
Available for sale, at fair value 58,533,000 16,953,000
Held to maturity, at amortized cost (fair value of
$838,000 and $15,078,000 as of December 31,
1995 and 1994, respectively) 857,000 15,710,000
Federal Reserve Bank stock 430,000 430,000
Loans (Notes 5 and 13) 125,602,000 108,554,000
Allowance for possible loan losses (Note 5) (1,716,000) (1,426,000)
------------ -----------
Loans, net 123,886,000 107,128,000
Premises and equipment, net (Note 6) 995,000 989,000
Accrued interest receivable and other assets (Notes 9 and 12) 5,030,000 2,064,000
------------ -----------
$ 218,735,000 178,470,000
------------ -----------
------------ -----------
Liabilities and Shareholders' Equity
------------------------------------
Deposits (Note 7) $ 195,695,000 159,572,000
Accrued expenses and other liabilities (Notes 9 and 12) 1,600,000 895,000
------------ -----------
Total liabilities 197,295,000 160,467,000
------------ -----------
Shareholders' equity (Notes 4, 12, and 14):
Preferred stock, no par value; 4,000,000 shares
authorized and unissued - -
Common stock, no par value; 6,000,000 shares
authorized; 1,571,757 and 1,523,432 shares issued
and outstanding in 1995 and 1994, respectively 15,425,000 14,785,000
Unrealized losses on securities available-for-sale, net (626,000) (1,320,000)
Retained earnings 6,641,000 4,538,000
------------ -----------
Total shareholders' equity 21,440,000 18,003,000
------------ -----------
Commitments and contingencies (Notes 10 and 12)
$ 218,735,000 178,470,000
------------ -----------
------------ -----------
</TABLE>
See accompanying notes to consolidated financial statements.
45
<PAGE>
MID-PENINSULA BANCORP AND SUBSIDIARY
Consolidated Statements of Operations
Years ended December 31, 1995, 1994, and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Interest income:
Loans (including fees) $ 12,239,000 9,504,000 8,492,000
Investments (Note 4) 4,701,000 2,936,000 2,032,000
----------- ----------- -----------
Total interest income 16,940,000 12,440,000 10,524,000
----------- ----------- -----------
Interest expense:
Savings and other deposits 4,715,000 3,318,000 2,561,000
Time certificates, $100,000 and over 1,823,000 915,000 770,000
----------- ----------- -----------
Total interest expense 6,538,000 4,233,000 3,331,000
----------- ----------- -----------
Net interest income 10,402,000 8,207,000 7,193,000
Provision for possible loan losses (Note 5) (275,000) (203,000) (266,000)
----------- ----------- -----------
Net interest income after provision for
possible loan losses 10,127,000 8,004,000 6,927,000
----------- ----------- -----------
Noninterest income:
Service charges and other fees 380,000 432,000 338,000
Investment (losses) gains (113,000) (266,000) 72,000
Other income 137,000 50,000 14,000
----------- ----------- -----------
Total noninterest income 404,000 216,000 424,000
----------- ----------- -----------
Noninterest expense:
Salaries and employee benefits (Note 12) 3,442,000 2,781,000 2,570,000
Occupancy and equipment (Note 6) 992,000 866,000 912,000
Merger-related expenses (Note 12) - 608,000 -
Expenses for other real estate owned 27,000 64,000 125,000
Other (Note 8) 1,535,000 1,468,000 1,329,000
----------- ----------- -----------
Total noninterest expense 5,996,000 5,787,000 4,936,000
----------- ----------- -----------
Income before income taxes and cumulative
effect of changes in accounting principle 4,535,000 2,433,000 2,415,000
Income taxes (Note 9) 1,814,000 1,232,000 935,000
----------- ----------- -----------
Income before cumulative effect of changes
in accounting principle 2,721,000 1,201,000 1,480,000
Cumulative effect of changes in accounting principle - - 83,000
----------- ----------- -----------
Net income $ 2,721,000 1,201,000 1,563,000
----------- ----------- -----------
----------- ----------- -----------
Earnings per share from:
Income before cumulative effect of changes in
accounting principle per share $ 1.70 .78 .99
Cumulative effect of changes in accounting
principle per share - - .05
------ ----- -----
Net income per common share $ 1.70 .78 1.04
------ ----- -----
------ ----- -----
</TABLE>
See accompanying notes to consolidated financial statements.
46
<PAGE>
MID-PENINSULA BANCORP AND SUBSIDIARY
Consolidated Statements of Changes in Shareholders' Equity
Years ended December 31, 1995, 1994, and 1993
<TABLE>
<CAPTION>
Unrealized
Unrealized on losses
Common stock loss on securities Total
------------ marketable available- Retained shareholders'
Shares Amount securities for-sale earnings equity
------ ------- ----------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balances as of December 31, 1992 1,401,650 $ 13,525,000 (48,000) - 2,968,000 16,445,000
Options exercised 7,023 60,000 - - - 60,000
Stock dividends declared 46,992 631,000 - - (631,000) -
Cash dividends declared ($0.16 per share) - - - - (228,000) (228,000)
Net income - - - - 1,563,000 1,563,000
Adoption of SFAS No. 115 - - 48,000 (48,000) - -
--------- ----------- ------- --------- --------- ----------
Balances as of December 31, 1993 1,455,665 14,216,000 - (48,000) 3,672,000 17,840,000
Options exercised 67,937 571,000 - - - 571,000
Cash dividends declared ($0.22 per share) - - - - (335,000) (335,000)
Adoption of SFAS No. 115 - - - (1,272,000) - (1,272,000)
Payment for fractional shares (170) (2,000) - - - (2,000)
Net income - - - - 1,201,000 1,201,000
--------- ----------- ------- --------- --------- ----------
Balances as of December 31, 1994 1,523,432 14,785,000 - (1,320,000) 4,538,000 18,003,000
Tax effect of stock exercises - 157,000 - - - 157,000
Options exercised, net of 13,636 shares
retired in connection with cashless
exercises 48,325 483,000 - - - 483,000
Cash dividends declared ($0.40 per share) - - - - (618,000) (618,000)
Change in unrealized losses on securities
available-for-sale, net - - - 694,000 - 694,000
Net income - - - - 2,721,000 2,721,000
--------- ------------ ------- --------- --------- ----------
Balances as of December 31, 1995 1,571,757 $ 15,425,000 - (626,000) 6,641,000 21,440,000
--------- ------------ ------- --------- --------- ----------
--------- ------------ ------- --------- --------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
MID-PENINSULA BANCORP AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31, 1995, 1994, and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,721,000 1,201,000 1,563,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Loss (gain) realized on investment
securities (Note 4) 113,000 266,000 (72,000)
Provision for possible loan losses 275,000 203,000 266,000
Depreciation and amortization 319,000 287,000 315,000
Cumulative effect of accounting changes - - (83,000)
Decrease (increase) in interest receivable
and other assets 132,000 (1,887,000) (208,000)
Increase (decrease) in deferred loan fees 31,000 (29,000) 120,000
Increase in deferred tax benefit (190,000) (53,000) (136,000)
Increase (decrease) in interest payable and
other liabilities 705,000 293,000 (38,000)
----------- ----------- -----------
Net cash provided by operating
activities 4,106,000 281,000 1,727,000
----------- ----------- -----------
Cash flows from investing activities:
Net increase in short-term investments (Note 4) - - (4,340,000)
Net decrease in interest earning deposits in other
financial institutions - 99,000 670,000
Net (increase) decrease in loans (17,064,000) (6,306,000) 806,000
Purchases of investment securities (Note 4) (40,321,000) (4,454,000) (19,655,000)
Sales of investment securities (Note 4) - 6,734,000 11,685,000
Maturities of investment securities (Note 4) 13,481,000 1,575,000 1,634,000
Additional investment in other real estate owned (476,000) (485,000) (1,534,000)
Proceeds from sale of other real estate owned 679,000 1,157,000 467,000
Purchase of Federal Reserve Bank stock - (36,000) (18,000)
Purchase of life insurance policies (2,260,000) - -
Capital expenditures (325,000) (484,000) (132,000)
----------- ----------- -----------
Net cash used in investing activities (46,286,000) (2,200,000) (10,417,000)
----------- ----------- -----------
Cash flows from financing activities:
Net increase in deposits 36,123,000 12,012,000 12,000,000
Dividends paid (618,000) (335,000) (228,000)
Stock options exercised 483,000 571,000 60,000
Cash paid for fractional shares - (2,000) -
----------- ----------- -----------
Net cash provided by financing
activities 35,988,000 12,246,000 11,832,000
----------- ----------- -----------
Net (decrease) increase in cash and cash equivalents (6,192,000) 10,327,000 3,142,000
Cash and cash equivalents at beginning of year 35,196,000 24,869,000 21,727,000
----------- ----------- -----------
Cash and cash equivalents at end of year $ 29,004,000 35,196,000 24,869,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
48
<PAGE>
MID-PENINSULA BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1995, 1994, and 1993
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Mid-Peninsula Bancorp (the Company) is a California corporation and bank
holding company that was incorporated on November 14, 1984, as San Mateo
County Bancorp. The name was changed to Mid-Peninsula Bancorp on October 7,
1994, as a result of the merger between Mid-Peninsula Bank and San Mateo
County Bancorp and its wholly owned subsidiary, WestCal National Bank (Note
2). Mid-Peninsula Bank (the Bank), a wholly owned subsidiary of the
Company, commenced operations on October 9, 1987. The Bank is a state
charted bank providing a full range of commercial and personal banking
services to individuals and the business/professional community in the
Santa Clara and San Mateo counties in Northern California.
BASIS OF PRESENTATION
The accounting and reporting policies of the Company conform to generally
accepted accounting principles and to prevailing practices within the
banking industry.
CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary, Mid-Peninsula Bank. All
material intercompany accounts and transactions have been eliminated in
consolidation.
INVESTMENT SECURITIES
Investment securities as of December 31, 1995, consisted of U.S. Treasury
and U.S. government agency obligations, mortgage-backed securities, and
U.S. government and agency mutual funds. The Company adopted the provisions
of Statement of Financial Accounting Standards (SFAS) No. 115, ACCOUNTING
FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES, as of January 1,
1994. San Mateo County Bancorp adopted SFAS No. 115 as of December 31, 1993.
The effect of each adoption was not material. At the time of purchase, under
the provisions of SFAS No. 115, the Company designates securities as "held-
to-maturity" or "available-for-sale," based on its investment objectives,
operational needs, and intent. The Company does not engage in trading
activity.
Held-to-maturity securities are recorded at amortized cost, adjusted for
amortization or accretion of premiums or discounts. Available-for-sale
securities are recorded at fair value with unrealized holding gains and
losses, net of the related tax effect, reported as a separate component of
shareholders' equity until realized.
A decline in the market value of any available-for-sale or held-to-maturity
security below cost that is deemed other than temporary results in a charge
to earnings and the corresponding establishment of a new cost basis for the
security.
(Continued)
49
<PAGE>
2
MID-PENINSULA BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
Premiums and discounts are amortized or accreted over the life of the
related security as an adjustment to yield using the effective interest
method. Dividend and interest income are recognized when earned. Realized
gains and losses for securities classified as available-for-sale and
held-to-maturity are included in earnings and are derived using the
specific identification method for determining the cost of securities sold.
The Company's required investment of 3% in Federal Reserve Bank stock is
carried at cost.
LOANS
Loans are stated at the principal amount outstanding. The majority of the
loans have variable interest rates and mature within one year. Interest on
loans is credited to income on a simple interest basis.
Nonrefundable loan fees and direct origination costs are deferred and
recognized over the expected life of the related loans as an adjustment to
yield.
Generally, a loan is classified as nonaccrual, the accrual of interest is
discontinued, any accrued and unpaid interest is reversed, and the
amortization of deferred loan fees and costs is discontinued when the
payment of principal or interest is 90 days past due, unless the amount is
well secured and in the process of collection. A loan is categorized as
restructured if the original interest rate on such loan, repayment terms,
or both, were restructured due to a deterioration in the financial condition
of the borrower. Nonaccrual and restructured loans are generally not
returned to performing status until the obligation is brought current, has
performed in accordance with the contract terms for a reasonable period of
time, and the ultimate collectibility of the total contractual principal
and interest is no longer in doubt.
The Company adopted SFAS No. 114, ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF
A LOAN, as amended by SFAS No. 118 (collectively referred to as SFAS No.
114) on January 1, 1995. SFAS No. 114 requires entities to measure certain
impaired loans based on the present value of future cash flows discounted
at the loan's effective interest rate, or at the loan's market value or the
fair value of collateral if the loan is secured. A loan is considered
impaired when, based on current information and events, it is probable that
the Company will be unable to collect all amounts due according to the
contractual terms of the loan agreement, including scheduled interest
payments. If the measurement of the impaired loan is less than the recorded
investment in the loan, impairment is recognized by creating or adjusting
an existing allocation of the allowance for loan losses. The adoption of
SFAS No. 114 did not have a material effect on the Company's financial
position as there were no loans that met the definition of impaired.
(Continued)
50
<PAGE>
3
MID-PENINSULA BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for possible loan losses is an amount that management
believes will be adequate to absorb losses inherent in existing loans,
based on evaluations of collectibility. These evaluations take into
consideration such factors as the composition of the portfolio, overall
portfolio quality, loan concentrations, specific problem loans, and current
and anticipated local economic conditions that may affect the borrowers'
ability to repay. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review the Company's
allowance for possible losses on loans. Such agencies may require the
Company to recognize additions to the allowance based on their judgment of
information available to them at the time of their examination. The
allowance for possible loan losses is established through a provision
charged to expense. Loans are charged against the allowance when management
believes that the collectibility of the principal is doubtful.
OTHER REAL ESTATE OWNED
Other real estate owned is comprised of property acquired through a
foreclosure proceeding or acceptance of a deed-in-lieu of foreclosure.
Other real estate owned is recorded at the lower of the related loan
balance or fair value of the collateral less estimated disposition costs at
the date acquired. Subsequently, other real estate owned is valued at the
lower of the amount recorded at the date acquired or the then current fair
value less estimated disposition costs. Any gains or losses realized upon
disposition of the property are reflected in income. Fair value is based
upon current appraisals reduced by estimated costs to sell. As of December
31, 1995 and 1994, there was no other real estate owned.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed on a straight-line
basis over the lesser of the lease terms or estimated useful lives of the
assets, which are generally 3 to 10 years.
INCOME TAXES
The Company accounts for income taxes under SFAS No. 109. San Mateo County
Bancorp adopted the provisions of SFAS No. 109, ACCOUNTING FOR INCOME TAXES,
as of January 1, 1993. SFAS No. 109 requires accounting for income taxes
under the asset and liability method. Under the asset and liability method,
deferred tax assets and liabilities are recognized for the estimated future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. The cumulative effect of adopting SFAS No. 109 to
January 1, 1993 for San Mateo County Bancorp has been shown as a separate
item in the accompanying consolidated statements of operations for the year
ended December 31, 1993.
Under SFAS No. 109, deferred tax assets are recognized and measured based
on the likelihood of realization of a tax benefit in future years. Deferred
tax assets are recognized for deductible temporary differences and
operating loss and tax credit carryforwards, and then a valuation allowance
is established to reduce that deferred tax asset if it is "more likely than
not" that the related tax benefits will not be realized.
(Continued)
51
<PAGE>
4
MID-PENINSULA BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
Management has evaluated the deferred tax asset recognized under SFAS No.
109 and determined that it is "more likely than not" that the related tax
benefits will be realized and, accordingly, has concluded that a valuation
allowance was not required as of December 31, 1995 and 1994.
Deferred income taxes are provided in recognition of temporary differences
between financial statement income and taxable income. The principal
differences result from the depreciation of premises and equipment, the
timing for deduction of state franchise taxes, the use of the cash basis
method of accounting for tax purposes in prior years, and the differences
in the provision for credit losses.
PER SHARE DATA
Earnings per common share are calculated by dividing net income by the
weighted average shares of common stock outstanding during the year plus
the effect when dilutive of stock options. All years presented include the
effect of stock dividends declared in 1993. The weighted average shares
outstanding for 1995, 1994, and 1993 were 1,539,784, 1,498,153, and
1,451,979 shares, respectively. Weighted average shares outstanding and all
per share amounts included in the consolidated financial statements and
notes thereto are based upon the increased number of shares giving
retroactive effect to the merger with San Mateo County Bancorp at a 1.0617
conversion ratio. Cash dividends declared per share are calculated using
dividends declared divided by weighted average shares outstanding.
USE OF ESTIMATES
The Company's management of has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent asset and liabilities to prepare these consolidated financial
statements in conformity with generally accepted accounting principles.
Actual results could differ from those estimates.
LONG-LIVED ASSETS
In 1995, the Company adopted SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT
OF LONG-TERM ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. SFAS No.
121 requires that long-lived assets and certain identifiable intangibles to
be held and used by an entity be reviewed for impairment whenever events or
changes indicate that the carrying amount of an asset may not be
recoverable. Upon adoption, the Company identified no long-lived assets or
identifiable intangibles which were impaired.
STATEMENTS OF CASH FLOWS
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks, and federal funds sold. Generally,
federal funds are purchased and sold for one-day periods.
(Continued)
52
<PAGE>
5
MID-PENINSULA BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
Noncash activities for the years ended December 31, 1995, 1994, and
1993, were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Real estate acquired through foreclosure $ 130,000 672,000 -
--------- ---------- ----------
--------- ---------- ----------
Loans to facilitate the sale of other real
estate owned $ - - 1,500,000
--------- ---------- ----------
--------- ---------- ----------
Loans charged off (recovered), net $ (15,000) 187,000 207,000
--------- ---------- ----------
--------- ---------- ----------
Change in unrealized losses on securities
available-for-sale, net $ (694,000) 1,272,000 -
--------- ---------- ----------
--------- ---------- ----------
Tax effect of stock option exercises $ 157,000 - -
--------- ---------- ----------
--------- ---------- ----------
Cash payments during the years ended December 31, 1995, 1994, and 1993, included the following:
1995 1994 1993
---- ---- ----
Interest paid $6,459,000 4,130,000 3,343,000
--------- --------- ---------
--------- --------- ---------
Income taxes paid $1,895,000 1,282,000 1,058,000
--------- --------- ---------
--------- --------- ---------
</TABLE>
RECLASSIFICATIONS
Certain amounts in the accompanying 1994 and 1993 consolidated financial
statements have been reclassified to conform with the presentation of the
1995 consolidated financial statements.
(2) MERGER
On October 7, 1994, San Mateo County Bancorp's wholly owned subsidiary,
WestCal National Bank, was merged with and into the Bank, and San Mateo
County Bancorp became Mid-Peninsula Bancorp. The merger was accounted for
as a pooling of interests. All periods have been restated to reflect the
results of the combination. The accompanying consolidated financial
statements reflect the issuance of 1,058,063 shares of the Company's common
stock in exchange for 996,735 shares of the Bank's common stock outstanding
as of October 7, 1994, based upon the exchange ratio of 1.0617 shares of
the Company's common stock for each share of the Bank's common stock.
The total interest income and provision for possible loan losses previously
reported by San Mateo County Bancorp included in the accompanying 1993
consolidated financial statements were $1,673,000 and $52,000,
respectively. The net income reported by San Mateo County Bancorp for 1993
was $225,000.
(3) CASH AND DUE FROM BANKS
Cash and due from banks as of December 31, 1995 and 1994, included
approximately $1,028,000 and $750,000, respectively, restricted to meet
required reserve balances.
(Continued)
53
<PAGE>
6
MID-PENINSULA BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
(4) INVESTMENT SECURITIES
The amortized cost and estimated market value of investment securities as
of December 31, 1995 were as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
---- ----- ------ -----
<S> <C> <C> <C> <C>
Available-for-sale:
U.S. government and agency
mutual funds $ 16,458,000 - (929,000) 15,529,000
U.S. government and agency
obligations 23,705,000 112,000 (22,000) 23,795,000
Mortgage-backed securities 4,131,000 22,000 (58,000) 4,095,000
States and political subdivisions
(tax exempt) 11,662,000 462,000 (20,000) 12,104,000
Corporate securities 2,990,000 20,000 - 3,010,000
----------- -------- ----------- -----------
58,946,000 616,000 (1,029,000) 58,533,000
Held-to-maturity:
U.S. government and agency
obligations 857,000 - (19,000) 838,000
----------- -------- ----------- -----------
$ 59,803,000 616,000 (1,048,000) 59,371,000
----------- -------- ----------- -----------
----------- -------- ----------- -----------
</TABLE>
The amortized cost and estimated market value of investment securities as
of December 31, 1994 were as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
---- ----- ------ -----
<S> <C> <C> <C> <C>
Available-for-sale:
U.S. government and agency
mutual funds $ 16,588,000 - (1,321,000) 15,267,000
U.S. government and agency
obligations 1,500,000 1,000 (1,000) 1,500,000
Mortgaged-backed securities 183,000 3,000 - 186,000
----------- -------- ----------- -----------
18,271,000 4,000 (1,322,000) 16,953,000
----------- -------- ----------- -----------
Held-to-maturity:
U.S. government and agency
obligations 6,143,000 10,000 (246,000) 5,907,000
States and political subdivisions
(tax exempt) 5,558,000 59,000 (102,000) 5,515,000
Mortgaged-backed securities 4,009,000 - (353,000) 3,656,000
----------- -------- ----------- -----------
15,710,000 69,000 (701,000) 15,078,000
----------- -------- ----------- -----------
$ 33,981,000 73,000 (2,023,000) 32,031,000
----------- -------- ----------- -----------
----------- -------- ----------- -----------
</TABLE>
(Continued)
54
<PAGE>
7
MID-PENINSULA BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
In November 1995, the Financial Accounting Standards Board (FASB) issued a
special report, A GUIDE TO IMPLEMENTATION OF STATEMENT NO. 115, ON
ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES - QUESTIONS
AND ANSWERS, (the Special Report). The Special Report allowed companies to
reassess the appropriateness of the classifications of all securities held
and account for any resulting reclassifications at fair value.
Reclassifications from this one-time reassessment will not call into
question the intent of an enterprise to hold other debt securities to
maturity in the future, provided that reclassification was performed by
December 31, 1995.
The Company adopted the reclassification provision in the Special Report
prior to December 31, 1995 and transferred $36,400,000 of held-to-maturity
securities into available-for-sale. The unrealized pretax gain upon
transfer was $512,000 as of December 31, 1995.
The amortized cost and estimated market value of debt obligations in the
investment portfolio as of December 31, 1995 by contractual maturity are
shown below:
<TABLE>
<CAPTION>
Estimated
Amortized market
cost value
---- -----
<S> <C> <C>
Available-for-sale:
Due in 1 year $ 8,630,000 8,661,000
Due after 1 year through 5 years 17,724,000 17,926,000
Due after 5 years through 10 years 8,944,000 9,180,000
Due after 10 years 3,058,000 3,142,000
----------- ----------
$ 38,356,000 38,909,000
----------- ----------
----------- ----------
Held-to-maturity:
Due in 1 year $ 857,000 838,000
----------- ----------
----------- ----------
</TABLE>
In addition, available-for-sale mortgage-backed securities of approximately
$4,131,000 ($4,095,000 market value) mature incrementally through 2001, and
mutual funds with no stated maturity are $16,459,000 ($15,529,000 market
value).
Investment securities having a carrying value of $7,529,000 and $3,023,000
as of December 31, 1995 and 1994, respectively, were pledged for purposes
required or permitted by law.
(Continued)
55
<PAGE>
8
MID-PENINSULA BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
Investment income for the years ended December 31, 1995, 1994, and 1993,
was as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Federal funds sold $1,580,000 795,000 514,000
Short-term investments - - 58,000
Interest bearing deposits in other banks - 1,000 13,000
Available-for-sale securities:
Taxable 2,572,000 1,268,000 76,000
Tax exempt 454,000 - -
Investments held for sale - - 354,000
Held-to-maturity securities:
Taxable 50,000 529,000 710,000
Tax exempt - 317,000 284,000
Federal Reserve Bank stock 45,000 26,000 23,000
---------- --------- ---------
$4,701,000 2,936,000 2,032,000
--------- --------- ---------
--------- --------- ---------
</TABLE>
A summary of cash flows from investment securities for the years ended
December 31, 1995, 1994, and 1993, is presented below:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net increase in short-term
investments $ - - (4,340,000)
----------- ---------- ------------
Purchases of investment securities:
Available-for-sale securities (4,864,000) (2,000,000) -
Held-to-maturity securities (35,457,000) (2,454,000) -
Investments held for sale - - (6,551,000)
Investment securities - - (13,104,000)
----------- ---------- -----------
(40,321,000) (4,454,000) (19,655,000)
----------- ---------- -----------
Sales of investment securities:
Available-for-sale securities - 6,734,000 -
Investments held for sale - - 11,685,000
----------- ---------- -----------
- 6,734,000 11,685,000
----------- ---------- -----------
Maturities of investment securities:
Available-for-sale securities 3,040,000 1,510,000 -
Held-to-maturity securities 10,441,000 65,000 -
Investment securities - - 1,634,000
----------- ---------- -----------
13,481,000 1,575,000 1,634,000
----------- ---------- -----------
Net cash provided by (used in)
investment securities $ 26,840,000 3,855,000 (10,676,000)
----------- ---------- -----------
----------- ---------- -----------
</TABLE>
(Continued)
56
<PAGE>
9
MID-PENINSULA BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
Realized losses and gains on sale of investment securities for the years
ended December 31, 1995, 1994, and 1993, are presented below:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Available-for-sale securities - losses $ (130,000) (266,000) -
Investments held for sale - gains - - 72,000
Held-to-maturity securities - gains 17,000 - -
---------- -------- ------
Investment (losses) gains, net $ (113,000) (266,000) 72,000
---------- -------- ------
---------- -------- ------
</TABLE>
(5) LOANS
Loans as of December 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Commercial $ 92,971,000 76,528,000
Real estate - construction 8,783,000 4,608,000
Real estate - other 24,296,000 27,835,000
Deferred loan fees (448,000) (417,000)
------------ -----------
125,602,000 108,554,000
Allowance for possible loan losses (1,716,000) (1,426,000)
------------ -----------
Loans, net $ 123,886,000 107,128,000
------------ -----------
------------ -----------
</TABLE>
The following is a summary of the activity in the allowance for possible
loan losses during the years ended December 31, 1995, 1994, and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year $ 1,426,000 1,410,000 1,351,000
Provision for possible loan losses 275,000 203,000 266,000
Loans charged off (7,000) (235,000) (245,000)
Recoveries 22,000 48,000 38,000
------------ --------- ---------
Balance, end of year $ 1,716,000 1,426,000 1,410,000
------------ --------- ---------
------------ --------- ---------
</TABLE>
There were no restructured loans as of December 31, 1995 and 1994. The
Company had no loans on nonaccrual as of December 31, 1995 and $424,000 in
1994. The Company had no impaired loans as of December 31, 1995.
As of December 31, 1994, there were no commitments to lend additional funds
to borrowers whose loans were on nonaccrual status. Foregone interest on
nonaccrual and restructured loans for the years ended December 31, 1995 and
1994, was not material.
As of December 31, 1995, virtually all borrowers of the above loans and the
assets collateralizing the Company's loans were located in Northern
California.
(Continued)
57
<PAGE>
10
MID-PENINSULA BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
The Company makes loans to directors and their affiliates in the ordinary
course of business. An analysis of activity with respect to such loans Is
as follows
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Balance, beginning of year $ 4,801,000 6,197,000
New loan committments 1,414,000 382,000
Repayments of loans (779,000) (1,778,000)
----------- ----------
Balance, end of year $ 5,436,000 4,801,000
----------- ----------
----------- ----------
Undistributed commitments, end of year $ 432,000 579,000
----------- ----------
----------- ----------
</TABLE>
(6) PREMISES AND EQUIPMENT
The following represents premises and equipment as of December 31:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Leasehold improvements $ 760,000 739,000
Furniture and equipment 1,914,000 1,832,000
---------- ---------
2,674,000 2,571,000
Accumulated depreciation and amortization (1,679,000) (1,582,000)
---------- ----------
Premises and equipment, net $ 995,000 989,000
---------- ----------
---------- ----------
</TABLE>
Depreciation and amortization of premises and equipment amounted to
$319,000, $287,000, and $315,000 for the years ended December 31, 1995,
1994, and 1993, respectively, and have been included in occupancy and
equipment expense in the accompanying consolidated statements of
operations.
(7) DEPOSITS
Deposits as of December 31, 1995 and 1994, were as follows:
<TABLE>
<CAPTION>
1995 1994
------------------------ ---------------------
Interest Interest
Amount rates Amount rates
------ ----- ------ -----
<S> <C> <C> <C> <C>
Demand, noninterest
bearing $ 37,077,000 - 27,137,000 -
Demand, interest
bearing 11,926,000 2.00% - 2.75% 10,023,000 2.0% - 2.7%
Savings and other time 110,010,000 2.00% - 5.85% 93,478,000 2.0% - 5.25%
Time certificates,
$100,000 and over 36,682,000 2.80% - 5.90% 28,934,000 2.4% - 5.5%
------------- -----------
Total deposits $ 195,695,000 159,572,000
------------- -----------
------------- -----------
</TABLE>
(Continued)
58
<PAGE>
11
MID-PENINSULA BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
Time certificates, $100,000 and over, and their remaining maturities as of
December 31, 1995 and 1994, were as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
3 months or less $26,411,000 21,305,000
3 through 6 months 6,566,000 4,220,000
6 through 12 months 2,338,000 2,109,000
Over 12 months 1,367,000 1,300,000
----------- ----------
$36,682,000 28,934,000
----------- ----------
----------- ----------
</TABLE>
(8) Noninterest Expense
Other noninterest expense for the years ended December 31, 1995, 1994, and
1993 was comprised of the following:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Regulatory fees $ 207,000 373,000 335,000
Professional services 287,000 265,000 221,000
Data processing 118,000 245,000 165,000
Marketing 318,000 178,000 185,000
Other 605,000 407,000 423,000
---------- --------- ---------
$1,535,000 1,468,000 1,329,000
---------- --------- ---------
---------- --------- ---------
</TABLE>
(9) Income Taxes
The components of income tax expense (benefit) for the years ended December
31, 1995, 1994 and 1993, were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $1,441,000 907,000 761,000
State 563,000 378,000 310,000
---------- --------- ---------
2,004,000 1,285,000 1,071,000
---------- --------- ---------
Deferred:
Federal (152,000) (54,000) (95,000)
State (38,000) 1,000 (41,000)
---------- --------- ---------
(190,000) (53,000) (136,000)
---------- --------- ---------
$1,814,000 1,232,000 935,000
---------- --------- ---------
---------- --------- ---------
</TABLE>
59
(Continued)
<PAGE>
12
MID-PENINSULA BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
Tax effects of temporary differences that give rise to significant components
of the net deferred tax asset as of December 31, 1995 and 1994, were
as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Deferred tax asset:
Depreciation and amortization claimed for financial
statement purposes in excess of tax depreciation
and amortization $ 72,000 106,000
Book allowance for loan losses and other real estate
owned losses in excess of tax allowance 673,000 577,000
State income taxes 191,000 111,000
Book/tax basis difference in life insurance policies
and deferred compensation not deducted for tax 20,000 -
Other 13,000 1,000
-------- -------
Total deferred tax asset 969,000 795,000
-------- -------
Deferred tax liability:
Cash to accrual adjustment (32,000) (48,000)
Tax effect of unrealized gains on available-for-sale
securities (214,000) (2,000)
-------- -------
Total deferred tax liability (246,000) (50,000)
-------- -------
Net deferred tax asset $723,000 745,000
-------- -------
-------- -------
</TABLE>
The net deferred tax asset represents recoverable taxes and is included
in other assets in the accompanying consolidated balance sheets.
The effective income tax rate, as a percentage of income before income taxes,
differed from the statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF PRE TAX INCOME
----------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Federal taxes at statutory rate 34.0% 34.0% 34.0%
State taxes, net of federal income tax benefit 7.6 10.3 7.3
Nondeductible merger expenses - 8.5 -
Nontaxable municipal interest (3.0) (4.1) (3.7)
Investment loss on securities 1.0 3.7 -
Other .4 (1.8) 1.1
---- ---- ----
40.0% 50.6% 38.7%
---- ---- ----
---- ---- ----
</TABLE>
60
(Continued)
<PAGE>
MID-PENINSULA BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
(10) LEASES
The Company has entered into various noncancelable operating lease
arrangements for bank premises. The Company leases its main
headquarters in Palo Alto from a group of investors, which
includes seven of the Company's directors. Future minimum lease
commitments as of December 31, 1995, are as follows:
<TABLE>
<CAPTION>
Year ending
December 31,
------------
<S> <C>
1996 $ 721,000
1997 724,000
1998 728,000
1999 665,000
2000 47,000
---------
$2,885,000
---------
---------
</TABLE>
The Company subleases that portion of the available space that is not
utilized. Sublease rental income for the years ended December 31, 1995,
1994, and 1993 was $398,000, $447,000, and $383,000, respectively. Gross
rental expense for the years ended December 31, 1995, 1994, and 1993
was $704,000, $673,000, and $640,000, respectively.
(11) FAIR VALUE OF FINANCIAL INSTRUMENTS
In 1995, the Company adopted SFAS No. 107, DISCLOSURES ABOUT FAIR VALUE OF
FINANCIAL INSTRUMENTS, which requires that the Company disclose estimated
fair value for its financial instruments. Fair value estimates, methods,
and assumptions are set forth below for the Company's financial
instruments.
The carrying amounts and estimated fair values of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
Carrying Estimated
amounts fair value
------- ----------
<S> <C> <C>
Assets:
Cash and cash equivalents $ 29,004,000 29,004,000
Investment securities 58,820,000 59,801,000
Net loans 123,886,000 125,236,000
Liabilities:
Demand deposits, noninterest bearing $ 37,077,000 37,077,000
Demand deposits, interest bearing 11,926,000 11,926,000
Savings and money market 110,010,000 110,010,000
Time certificates 36,682,000 36,938,000
</TABLE>
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate that value.
61
(Continued)
<PAGE>
14
MID-PENINSULA BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
CASH AND CASH EQUIVALENTS
The carrying amount approximates fair value because of the short maturities of
these instruments.
INVESTMENT SECURITIES
The carrying amounts for short-term investments approximate fair value because
they mature in 90 days or less and do not present unanticipated credit concerns.
The fair value of longer term investments, except certain state and municipal
securities, is estimated based on bid prices published in financial newspapers
or bid quotations received from securities dealers. The fair value of certain
state and municipal securities is not readily available through market
sources other than dealer quotations, so fair value estimates are based on
quoted market prices of similar instruments, adjusted for differences between
the quoted instruments and the instruments being valued.
LOANS
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type such as commercial, commercial
real estate, residential mortgage, and consumer. Each loan category is further
segmented into fixed and adjustable rate interest terms.
The fair value of performing fixed rate loans is calculated by discounting
scheduled cash flows through the estimated maturity using estimated market
discount rates that reflect the credit and interest rate risk inherent in the
loan. The estimate of maturity is based on the Company's historical experience
with repayments for each loan classifications, modified, as required, by an
estimate of the effect of current economic and lending conditions. The fair
value of performing variable rate loans is judged to approximate book value for
those loans whose rates reprice in less than 90 days. Rate floors and rate
ceilings are not considered for fair value purposes as the number of loans with
such limitations is not significant.
Fair value for significant non performing loans is based on recent external
appraisals. If appraisals are not available, estimated cash flows are
discounted using a rate commensurate with the risk associated with the estimated
cash flows. Assumptions regarding credit risk, cash flows, and discount rates
are judgmentally determined using available market information and specific
borrower information.
62
(Continued)
<PAGE>
15
MID-PENINSULA BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
DEPOSIT LIABILITIES
The fair value of deposits with no stated maturity, such as noninterest
bearing demand deposits, savings, money market, and checking accounts,
approximates the amount payable on demand. The fair value of certificates of
deposit is judged to approximate book value for those certificates whose
remaining maturities are less than 90 days. For all other certificates,
estimated cash flows are discounted using rates currently offered for deposits
of similar remaining maturities.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT
The majority of the Company's commitments to extend credit carry current market
interest rates if converted to loans. Because these commitments are generally
unassignable by either the Company or the borrower, they only have value to the
Company and the borrower. The estimated fair value approximates the recorded
deferred fee amounts and is excluded from the table.
LIMITATIONS
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from offering
for sale, at one time, the Company's entire holdings of a particular financial
instrument. Fair value estimates are based on judgments regarding future
expected loss experience, current economic conditions, risk characteristics of
various financial instruments, and other factors. These estimates are subjective
in nature and involve uncertainties and matters of significant judgment and
therefore cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
Fair value estimates are based on existing on- and off-balance sheet financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. In addition, the tax ramifications related to the
realization of the unrealized gains and losses can have a significant effect on
fair value estimates and have not been considered in many of the estimates.
63
(Continued)
<PAGE>
16
MID-PENINSULA BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
(12) EMPLOYEE BENEFITS
STOCK OPTION PLAN
The Bank's employee stock option plan (the Bank Plan) was approved by the
Bank's Board of Directors in July 1987. Under the Bank Plan, 185,230
shares (as adjusted to reflect the effects of stock dividends) were
reserved for the granting to key employees of incentive stock options
and nonqualified stock options as defined under current tax laws. One
quarter of the options granted became exercisable in each of the four
years succeeding the year in which the options were originally granted.
The options were exercisable for periods of up to six years from the
date of grant. Effective October 7, 1994, in conjunction with the merger,
the Bank Plan and the San Mateo County Bancorp (SMCB) Plans terminated
and the shareholders approved the Mid-Peninsula Bancorp 1994 Stock Option
Plan (the New Company Plan). Under the New Company Plan, 236,072 shares
have been reserved for the granting to key employees and nonemployee
directors, incentive stock options, and nonqualified stock options
as defined under current tax laws. Options issued under the New
Company Plan may become exercisable immediately or in cumulative
increments over a period of years up to 5 years from the date of
grant. The options may be exercised for periods of up to 10 years from the
date of grant. As of October 7, 1994, 70,935 options had been exercised.
All options outstanding October 7, 1994, under the Bank Plan were assumed
by the New Company Plan and are exercisable for 89,428 shares of the
Company's stock, based upon the exchange ratio of 1.0617 shares of the
Company's common stock for each share of the Bank's common stock, at
exercise prices ranging from $8.14 to $13.42 per option. Each assumed
option is vested to the same extent it was under the Bank Plan. All
options outstanding on October 7, 1994 under the SMCB Plans were assumed
by the New Company Plan and are exercisable under the same terms as the
SMCB Plans. Transactions involving stock options are summarized as
follows:
<TABLE>
Number Price range
of options per option
---------- ----------
<S> <C> <C>
Outstanding as of December 31,1992 160,162 $8.64 - 12.96
Granted in 1993 13,650 11.91
Exercised in 1993 (6,946) 8.64
-------
Outstanding as of December 31,1993 166,866 8.64 - 12.96
Granted in 1994 11,418 14.25
Expired in 1994 (30,064) 8.64-9.94
Exercised in 1994 (63,989) 8.64-10.43
-------
Outstanding as of October 7,1994 84,231 8.64 - 14.25
-------
-------
</TABLE>
64
(Continued)
<PAGE>
17
MID-PENINSULA BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Price
Number of range
options per option
------- ----------
<S> <C> <C>
Outstanding as of October 7,1994 - $ -
Assumed from the Bank Plan 89,428 8.14 - 13.42
Assumed from the SMCB Plans 131,530 10.00
Granted in 1994 36,000 12.75
-------
Outstanding as of December 31,1994 256,958 8.14 - 13.42
Granted in 1995 73,000 12.75 - 16.50
Exercised in 1995 (61,961) 10.00 - 12.21
-------
Outstanding as of December 31,1995 267,997 8.14 - 16.50
-------
-------
</TABLE>
As of December 31, 1995, under the New Company Plan, 127,079 shares were
available for grant and 147,567 shares were exercisable.
DEFINED CONTRIBUTION PLAN
During 1989, the Company introduced a 401(k) Savings Plan. All salaried
employees are eligible to contribute up to 15% of their pretax compensation to
the plan through salary deductions under Section 401(k) of the Internal Revenue
Code. The Company makes matching contributions of $0.75 per dollar of employee
contribution up to a maximum of 8% of an employee's pretax compensation. The
related expense charged for the years ended December 31, 1995, 1994, 1993 was
$117,000, $81,000, and $63,000, respectively.
SALARY CONTINUATION PLAN
In May 1995, the Company implemented a salary continuation plan (the Plan)
for a select group of officers. The officers become eligible for benefits
under the Plan if they reach normal retirement age while working for the
Company. The costs of these benefits are accrued over the remaining expected
service lives of the officers covered using the present value method of
accounting. Salary continuation expense was approximately $83,000 in 1995.
The Company has elected to fund its obligations under the plans described above
with life insurance contracts. The Company acquired single premium life
insurance policies with a cash surrender value totaling $2,295,000, which is
included in other assets as of December 31, 1995. The policy is also expected
to cover plan expenses.
65
<PAGE>
18
MID-PENINSULA BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
(13) COMMITMENTS AND CONTINGENT LIABILITIES
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company is a party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend
credit and standby letters of credit. Those instruments involve, to
varying degrees, elements of credit and interest rate risk, in excess of
the amounts recognized in the balance sheet. The contract or notional
amounts of those instruments reflect the extent of involvement the Company
has in particular classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance of
the other party to the financial instrument for commitments to extend
credit and standby letters of credit is represented by the contractual
notional amount of those instruments. The Company uses the same credit
policies in making commitments and conditional obligations as it does for
on-balance sheet instruments. The Company controls the credit risk of
these transactions through credit approvals, limits, and monitoring
procedures. Management does not anticipate any significant losses as a
result of these transactions.
The following table summarizes these financial instruments as of December
31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Financial instruments whose credit risk
is represented by contract amounts:
Commitments to extend credit $ 48,831,000 35,451,000
Standby letters of credit 6,816,000 1,677,000
------------ ----------
$ 55,647,000 37,128,000
------------ ----------
------------ ----------
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses. Since some of the commitments are expected to expire without
being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Company upon extension of
credit, is based on management's credit evaluation of the counterparty.
Collateral held varies but may include cash, marketable securities,
accounts receivable, inventory, property, plant and equipment,
income-producing commercial properties, and residential properties.
Standby letters of credit are written commitments issued by the Company to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers.
66
(Continued)
<PAGE>
19
MID-PENINSULA BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
CONCENTRATION OF CREDIT RISK
The Company's lends primarily to borrowers located in the mid-peninsula region
of the San Francisco Bay Area. Although the portfolio is diversified, the
ability of the Company's borrowers to honor their commitments is dependent upon
the economic sector of the region, including the real estate markets of the
mid-peninsula.
The Company adopted SFAS No. 119, DISCLOSURES ABOUT DERIVATIVE FINANCIAL
INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS, on December 31, 1994.
Under certain circumstances and as required by law, the Bank will structure
variable rate loans to include embedded interest rate floors and ceilings. Such
floors and ceilings subject the Company to market risk when interest rates
change.
67
(Continued)
<PAGE>
20
MID-PENINSULA BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
(14) MID-PENINSULA BANCORP (PARENT COMPANY ONLY)
Following are the financial statements of Mid-Peninsula Bancorp (parent
company only) for the years ended December 31, 1995 and 1994:
Balance sheets
December 31,1995 and 1994
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Assets:
Cash $ 950,000 365,000
Investment in subsidiary 20,564,000 17,770,000
Other assets 83,000 -
------------ ----------
$ 21,597,000 18,135,000
------------ ----------
------------ ----------
Liabilities and shareholders' equity:
Liabilities $ 157,000 132,000
Common stock 15,425,000 14,785,000
Unrealized losses on securities
available-for-sale,net (626,000) (1,320,000)
Retained earnings 6,641,000 4,538,000
------------ -----------
$21,597,000 18,135,000
------------ -----------
------------ -----------
</TABLE>
Statements of Operations
Years ended December 31, 1995, 1994, and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Income:
Equity in undistributed net
income of subsidiary $ 2,100,000 902,000 1,344,000
Dividend from subsidiary 621,000 935,000 228,000
Interest income 27,000 7,000 8,000
---------- --------- ---------
Total income 2,748,000 1,844,000 1,580,000
---------- --------- ---------
Expenses:
Merger-related expenses - 608,000 -
Other operating expenses 27,000 35,000 17,000
---------- --------- ---------
Total expenses 27,000 643,000 17,000
---------- --------- ---------
Net income $ 2,721,000 1,201,000 1,563,000
---------- --------- ---------
---------- --------- ---------
</TABLE>
68
(Continued)
<PAGE>
21
MID-PENINSULA BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
Statements of Cash Flows
Years ended December 31, 1995, 1994, and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $2,721,000 1,201,000 1,563,000
Adjustment to reconcile net income to
net cash provided by operating
activities:
Equity in undistributed net
income of subsidiary (2,100,000) (902,000) (1,344,000)
Increase in accounts payable 25,000 132,000 -
---------- --------- ---------
Net cash provided by
operating activities 646,000 431,000 219,000
---------- --------- ---------
Cash flows used in investing activities:
Investment in subsidiary 74,000 (571,000) (84,000)
---------- --------- ---------
Cash flows from financing activities:
Proceeds from options exercised 483,000 571,000 60,000
Dividends paid (618,000) (335,000) (228,000)
Payment for fractional shares - (2,000) -
---------- --------- ---------
Net cash (used in)
provided by
financing activities (135,000) 234,000 (168,000)
---------- --------- ---------
Net increase (decrease) in cash 585,000 94,000 (33,000)
Cash at beginning of year 365,000 271,000 304,000
---------- --------- ---------
Cash at end of year $950,000 365,000 271,000
---------- --------- ---------
---------- --------- ---------
Noncash financing activities:
Stock dividends declared - - 631,000
---------- --------- ---------
---------- --------- ---------
Dividends from subsidiary $621,000 935,000 228,000
---------- --------- ---------
---------- --------- ---------
</TABLE>
The ability of the Company to pay dividends will largely depend upon the
dividends paid to it by the Bank. There are legal limitations on the ability of
the Bank to provide funds to the Company in the form of loans, advances, or
dividends.
(Continued)
69
<PAGE>
22
MID-PENINSULA BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
(15) REGULATORY MATTERS
The Board of Governors of the Federal Reserve System and the Federal
Deposit Insurance Corporation (FDIC) have adopted risk based capital
guidelines for member banks. The minimum guidelines are 8% total
capital to risk-weighted assets and 3% Tier 1 capital to quarterly
average assets. As of December 31, 1995, the Bank exceeded the
minimum capital ratios required by regulatory agencies.
Additionally, banking regulations limit the amount of dividends that
may be paid without prior approval of the Bank's regulatory agencies.
Such dividends are limited to the lesser of the Bank's retained
earnings or the net income of the previous two years combined with the
current year net income. Retained earnings against which dividends
may be paid without prior approval of the banking regulators were
approximately $4,300,000 as of December 31, 1995, subject to the
minimum capital ratio requirements.
(16) PROSPECTIVE ACCOUNTING PRONOUNCEMENT
In October 1995, the FASB issued SFAS No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION. SFAS No. 123 applies to all transactions in
which an entity acquires goods or services by issuing equity
instruments such as common stock, except for employee stock ownership
plans. SFAS No. 123 establishes a new method of accounting for
stock-based compensation arrangements with employees which is fair
value based. SFAS No. 123 encourages (but does not require) employers
to adopt the new method in place of the provisions of Accounting
Principles Board Opinion (APB) No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES. Companies may continue to apply the accounting provisions
of APB No. 25 in determining net income; however, they must apply the
disclosure requirements of SFAS No. 123. If the Company adopts the
fair value based method of SFAS No. 123, a higher compensation cost
would result for fixed stock option plans and a different compensation
cost will result for the Company's contingent or variable stock option
plans. The recognition provisions and disclosure requirements of SFAS
No. 123 are effective January 1, 1996, but may be applied immediately.
The Company has elected to continue to use current practice under APB
No. 25, but is unable to determine the impact of the required
disclosures as it is still reviewing the requirements of SFAS No. 123.
70
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On October 19, 1994, the Company's Board of Directors approved the
dismissal of the firm of Coopers and Lybrand, which had been the independent
accountants for the Company's predecessor, San Mateo County Bancorp, since 1991,
and approved the engagement of KPMG Peat Marwick LLP as the Company's
independent accountants. The dismissal of Coopers and Lybrand was recommended
and approved by the Company's Board of Directors based solely on the fact that
KPMG Peat Marwick LLP represented the Company's wholly-owned subsidiary,
Mid-Peninsula Bank, since 1987, and following the merger of WestCal National
Bank, the wholly-owned subsidiary of San Mateo County Bancorp, with and into
Mid-Peninsula Bank and the change in name of San Mateo County Bancorp to
Mid-Peninsula Bancorp, which merger was effective on October 7, 1994, the
Company's Board of Directors determined that it was in the best interests of the
Company to engage KPMG Peat Marwick LLP based on their experience and knowledge
of the operations and activities of Mid-Peninsula Bank. The reports of Coopers
and Lybrand on the financial statements of the Company's predecessor, San Mateo
County Bancorp, did not contain any adverse opinion or disclaimer of opinion or
any qualification as to an uncertainty, audit scope, or accounting principle.
There were no disagreements between San Mateo County Bancorp or the Company and
Coopers and Lybrand on any matter of accounting principle or practice, financial
statement disclosure, or auditing scope or procedure which, if not resolved to
the satisfaction of Coopers and Lybrand, would have caused them to make a
reference to the subject matter of the disagreement in their report. No
reportable event as described in Item 304 of Regulation S-K occurred during San
Mateo County Bancorp's two most recent fiscal years and subsequent interim
period or subsequent interim period of the Company as of the date hereof. The
Company reported the foregoing change in its accountants on a Form 8-K dated
October 19, 1994, filed with the Securities and Exchange Commission on October
25, 1994. The Form 8-K included a letter from Coopers and Lybrand as an exhibit
thereto in which Coopers and Lybrand agreed with the above description of the
change in accountants.
71
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 of Form 10-K is incorporated by
reference to the information contained in the Company's Proxy Statement for the
1996 Annual Meeting of Shareholders which will be filed pursuant to Regulation
14A.
Item 11. EXECUTIVE COMPENSATION
The information required by Item 11 of Form 10-K is incorporated by
reference to the information contained in the Company's Proxy Statement for the
1996 Annual Meeting of Shareholders which will be filed pursuant to Regulation
14A.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by Item 12 of Form 10-K is incorporated by
reference to the information contained in the Company's Proxy Statement for the
1996 Annual Meeting of Shareholders which will be filed pursuant to Regulation
14A.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 of Form 10-K is incorporated by
reference to the information contained in the Company's Proxy Statement for the
1996 Annual Meeting of Shareholders which will be filed pursuant to Regulation
14A.
72
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) (1) FINANCIAL STATEMENTS. Listed and included in Part II, Item 8.
(2) FINANCIAL STATEMENT SCHEDULES. Not Applicable.
(3) EXHIBITS.
(2.1) Reorganization Agreement and Plan of Merger dated March
31, 1994, by and between San Mateo County Bancorp,
WestCal National Bank and Mid-Peninsula Bank,
incorporated by reference from exhibit 2.1 of
registration statement number 33-79798 on Form S-4,
filed with the Commission on June 6, 1994.
(3.1) Articles of Incorporation, as amended, incorporated by
reference from exhibit 3.1 of registrant's Annual
Report on Form 10-K for the year ended December 31,
1994, filed with the Commission on March 30, 1995.
(3.2) Bylaws, as amended, incorporated by reference from
exhibit 3.2 to registration statement number 33-79798
on Form S-4, filed with the Commission on June 6, 1994.
(4.1) Specimen form of Mid-Peninsula Bancorp stock
certificate incorporated by reference from registrant's
Annual Report on Form 10-K for the year ended December
31, 1994, filed with the Commission on March 30, 1995.
*(10.1) Form of incentive stock option agreement under
Mid-Peninsula Bancorp 1994 Stock Option Plan
incorporated by reference from exhibit 4.2 to amendment
no. 1 to registration statement number 33-79798 on Form
S4, filed with the Commission on July 15, 1994.
*(10.2) Form of non-qualified stock option agreement under
Mid-Peninsula Bancorp 1994 Stock Option Plan
incorporated by reference from exhibit 4.3 to amendment
no. 1 to registration statement number 33-79798 on
Form S4, filed with the Commission on July 15, 1994.
*(10.3) San Mateo County Bancorp Directors' Stock Option Plan
incorporated by reference from exhibit 10.1 to
registration statement number 33-79798 on Form S4,
filed with the Commission on June 6, 1994.
*(10.4) San Mateo County Bancorp Employee Stock Option Plan
incorporated by reference from exhibit 10.2 to
registration statement number 33-79798 on Form S4,
filed with the Commission on June 6, 1994.
*(10.5) Mid-Peninsula Bancorp 1994 Stock Option Plan
incorporated by reference from exhibit 10.3 to
registration statement number 33-79798 on Form S-4,
filed with the Commission on June 6, 1994.
73
<PAGE>
*(10.6) Form of director stock option agreement under San Mateo
County Bancorp Directors' Stock Option Plan
incorporated by reference from exhibit 10.4 to
registration statement number 33-79798 on Form S-4,
filed with the Commission on June 6, 1994.
*(10.7) Form of employee incentive stock option agreement under
San Mateo County Bancorp Employee Stock Option Plan
incorporated by reference from exhibit 10.5 to
registration statement number 33-79798 on Form S-4,
filed with the Commission on June 6, 1994.
(10.8) WestCal Agreement of Lease dated April 24, 1989 related
to premises located at 100 South Ellsworth Avenue, San
Mateo, California, incorporated by reference from
exhibit 10.6 to registration statement number 33-79798
on Form S-4, filed with the Commission on June 6, 1994.
(10.9) WestCal Commercial Lease and Deposit Receipt dated
November 26, 1993 related to premises located at 1313
Laurel Street, San Carlos, California, incorporated by
reference from exhibit 10.7 to registration statement
number 33-79798 on Form S-4, filed with the Commission
on June 6, 1994.
*(10.10) Separation and Release Agreement for William B. Mayer
incorporated by reference from exhibit 10.9 to
registration statement number 33-79798 on Form S-4,
filed with the Commission on June 6, 1994.
*(10.11) Separation and Release Agreement for Stanley M. Shaw
incorporated by reference from exhibit 10.10 to
registration statement number 33-79798 on Form S-4,
filed with the Commission on June 6, 1994.
*(10.12) Separation and Release Agreement for Leo D. Taylor
incorporated by reference from exhibit 10.11 to
registration statement number 33-79798 on Form S-4,
filed with the Commission on June 6, 1994.
(10.13) Mid-Peninsula Bank lease agreement dated March 11, 1987
and associated documents related to premises located at
420 Cowper Street, Palo Alto, California, incorporated
by reference from exhibit 10.13 to registrant's Annual
Report on Form 10-K for the year ended December 31,
1994, filed with the Commission on March 30, 1995.
*(10.14) Mid-Peninsula Bank Profit Sharing and Savings Plan
dated January 1, 1993, incorporated by reference from
registrant's Annual Report on Form 10-K for the year
ended December 31, 1994, filed with the Commission on
March 30, 1995.
*(10.15) David L. Kalkbrenner employment agreement, dated March
3, 1992, incorporated by reference from registrant's
Annual Report on Form 10-K for the year ended December
31, 1994, filed with the Commission on March 30, 1995.
*(10.16) Form of Mid-Peninsula Bank Indemnification Agreement for
directors and executive officers, incorporated by
reference from registrant's Annual Report on Form 10-K
for the year ended December 31, 1994, filed with the
Commission on March 30, 1995.
74
<PAGE>
(10.17) Form of nonstatutory stock option agreement for outside
directors under Mid-Peninsula Bancorp 1994 Stock Option
Plan incorporated by reference from exhibit 4.6 to
registration statement number 33-91076 on Form S-8,
filed with the Commission on April 11, 1995.
(10.18) Addendum to lease agreement dated March 11, 1987 for
premises located at 420 Cowper Street, Palo Alto,
California.
(10.19) Addendum to lease agreement dated November 26, 1993 for
premises located at 1313 Laurel Street, San Carlos,
California.
*(10.20) Salary continuation agreement entered into with David
L. Kalkbrenner dated April 26, 1995.
*(10.21) Salary continuation agreement entered into with Murray
B. Dey dated April 26, 1995.
*(10.22) Salary continuation agreement entered into with Carol
H. Rowland dated April 26, 1995.
(10.23) Non-management officer salary continuation agreement
entered into with Susan K. Black dated April 26, 1995.
(10.24) Non-management officer salary continuation agreement
entered into with Kimberly S. Burgess dated April 26,
1995.
(10.25) Non-management officer salary continuation agreement
entered into with Jonas H. Stafford dated April 26,
1995.
(10.26) Non-management officer salary continuation agreement
entered into with Charles P. Banovac dated March 21,
1996.
(21.1) The registrant's only subsidiary is its wholly-owned
subsidiary, Mid-Peninsula Bank.
(23.1) Independent Auditors Consent.
(27.1) Financial Data Schedule.
*Denotes management contracts, compensatory plans or
arrangements.
(b) REPORTS ON FORM 8-K. No reports on Form 8-K were filed in 1995.
An Annual Report for the fiscal year ended December 31, 1995, and Notice of
Annual Meeting and Proxy Statement for the Company's 1996 Annual Meeting will be
mailed to security holders subsequent to the date of filing of this Report.
Copies of said materials will be furnished to the Commission in accordance with
the Commission's Rules and Regulations.
75
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MID-PENINSULA BANCORP
Date: March 20, 1996 By: /s/David L. Kalkbrenner
--------------------------------
David L. Kalkbrenner, President and
Chief Executive Officer (Principal
Executive Officer)
Date: March 20, 1996 By: /s/Carol H. Rowland
--------------------------------
Carol H. Rowland, First Vice
President and Chief Financial Officer
(Principal Financial and
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
/s/David L. Kalkbrenner President, Chief Executive March 20, 1996
------------------------ Officer and Director
David L. Kalkbrenner (Principal Executive Officer)
/s/Murray B. Dey Executive Vice President and March 20, 1996
------------------------ Director
Murray B. Dey
------------------------ Director March __, 1996
Lawrence A. Aufmuth
/s/John F. Blokker Director March 20, 1996
------------------------
John F. Blokker
/s/Allan F. Brown Director March 20, 1996
------------------------
Allan F. Brown
76
<PAGE>
/s/Owen D. Conley Director March 20, 1996
------------------------
Owen D. Conley
/s/Donald L. Hammond Director March 20, 1996
------------------------
Donald L. Hammond
/s/R. Hewlett Lee, M.D. Director March 20, 1996
------------------------
R. Hewlett Lee, M.D.
/s/Helen C. Leong Director March 20, 1996
------------------------
Helen C. Leong
/s/George M. Marcus Director March 20, 1996
------------------------
George M. Marcus
/s/Duncan L. Matteson Chairman of the Board March 20, 1996
------------------------ and Director
Duncan L. Matteson
/s/Donald H. Seiler Director March 20, 1996
------------------------
Donald H. Seiler
/s/Warren R. Thoits Director March 20, 1996
------------------------
Warren R. Thoits
/s/Bruce E. Van Alstyne Director March 20, 1996
------------------------
Bruce E. Van Alstyne
/s/Edwin E. van Bronkhorst Director March 20, 1996
------------------------
Edwin E. van Bronkhorst
77
<PAGE>
EXHIBIT INDEX
Exhibit Sequential
Number Description Page Number
------- ----------- -----------
10.17 Form of nonstatutory stock option agreement for outside
directors under Mid-Peninsula Bancorp 1994 Stock Option
Plan incorporated by reference from exhibit 4.6 to registration
statement number 33-91076 on Form S-8, filed with the
Commission on April 11, 1995.
10.18 Addendum to lease agreement dated March 11, 1987 for
premises located at 420 Cowper Street, Palo Alto, California.
10.19 Addendum to lease agreement dated November 26, 1993 for
premises located at 1313 Laurel Street, San Carlos, California.
*10.20 Salary continuation agreement entered into with David L.
Kalkbrenner dated April 26, 1995.
*10.21 Salary continuation agreement entered into with Murray B. Dey
dated April 26, 1995.
*10.22 Salary continuation agreement entered into with Carol H. Rowland
dated April 26, 1995.
10.23 Non-management officer salary continuation agreement entered into
with Susan K. Black dated April 26, 1995.
10.24 Non-management officer salary continuation agreement entered
into with Kimberly S. Burgess dated April 26, 1995.
10.25 Non-management officer salary continuation agreement entered into
with Jonas H. Stafford dated April 26, 1995.
10.26 Non-management officer salary continuation agreement entered into
with Charles P. Banovac dated March 21, 1996.
23.1 Independent Auditors Consent.
27.1 Financial Data Schedule.
* Denotes management contracts, compensatory plans or arrangements
78
<PAGE>
EXHIBIT 10.17
MID-PENINSULA BANCORP
NONSTATUTORY STOCK OPTION AGREEMENT
FOR OUTSIDE DIRECTORS
Pursuant to the automatic nondiscretionary terms of Section 5 of the
Mid-Peninsula Bancorp 1994 Stock Option Plan (the "Plan"), Mid-Peninsula
Bancorp, a California corporation (the "Company"), hereby grants
to_____________________, (the "Optionee"), an option (the "Option") to purchase
a total of_____________ shares of Common Stock, at the price determined as
provided herein, and in all respects subject to the terms, definitions and
provisions of the Plan. The terms defined in the Plan shall have the same
defined meanings herein.
1. NATURE OF THE OPTION. This Option is intended by the Company and
the Optionee to be a nonstatutory stock option and does not qualify for any
special tax benefits to the Optionee. This option is NOT an Incentive Stock
Option within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended.
2. EXERCISE PRICE. The exercise price is $_______ for each share of
Common Stock, which price is not less than the fair market value per share of
the Common Stock on the date of grant.
3. EXERCISE OF OPTION. This Option shall become vested for exercise
in annual increments of twenty five percent (25%) of the Shares subject to the
option with the first increment vesting on the first anniversary of the date of
grant in accordance with Section 5(c) of the Plan. This Option may not be
exercised for less than ten shares nor for a fraction of a share. In the event
of Optionee's death, disability or other termination of his status as an Outside
Director, the exercisability of the Option is governed by Sections 6, 7 and 8
below.
4. METHOD OF EXERCISE. This Option shall be exercisable by written
notice which shall state the election to exercise the Option and the number of
shares in respect of which the Option is being exercised. Such written notice
shall be signed by the Optionee and shall be delivered in person or by certified
mail to the Secretary of the Company.
No shares will be issued pursuant to the exercise of an Option unless
such issuance and such exercise shall comply with all relevant provisions of law
and the requirements of any stock exchange or inter-dealer quotation system upon
which the Shares may then be listed or quoted. Assuming such compliance, the
shares shall be considered transferred to the Optionee on the date on which the
Option is exercised with respect to such shares. An Optionee shall have no
rights as a shareholder of the Company with respect to any shares until the
issuance of a stock certificate to the Optionee for such shares.
1
<PAGE>
5. METHOD OF PAYMENT. Payment of the exercise price shall be by
cash, certified check, official bank check, or by the delivery of previously
owned shares of the Company's Common Stock held for the requisite period to
avoid a charge to the Company's reported earnings and with a fair market value
on the date of surrender equal to the exercise price. In addition, the Optionee
may exercise the Option by delivering to the Company, together with the exercise
notice, (i) a copy of irrevocable written instructions provided by the Optionee
to a designated brokerage firm to effect the immediate sale of the purchased
Shares and remit to the Company, out of the sale proceeds available on the
settlement date, sufficient funds to cover the aggregate exercise price payable
for the purchased Shares plus all applicable federal, state and local income and
employment taxes required to be withheld by the Company by reason of such
purchase and (ii) written instructions to the Company to deliver the
certificates for the purchased Shares directly to such brokerage firm in order
to complete the sale transaction.
6. TERMINATION OF STATUS AS AN OUTSIDE DIRECTOR FOR ANY REASON OTHER
THAN DEATH OR DISABILITY. If an Optionee ceases to serve as an Outside
Director, he may, but only within three months after the date he ceases to be
an Outside Director, exercise this Option to the extent that the Option was
vested as of the date of such termination; provided that in no event is the
date of exercise beyond expiration of the Option. To the extent that Optionee
does not exercise this Option within the time specified herein, the Option
shall terminate.
7. DISABILITY OF OPTIONEE. Notwithstanding the provisions of
Section 6 above, if Optionee is unable to continue his service as an Outside
Director as a result of his disability, he may, within 12 months from the date
of termination of such service exercise this Option to the extent the Option was
vested as of the date of such termination; provided that in no event is the date
of exercise beyond expiration of the Option. To the extent that Optionee does
not exercise this Option within the time specified herein, the Option shall
terminate.
8. DEATH OF OPTIONEE. In the event of the death of Optionee while
Optionee is an Outside Director, the Option may be exercised, at any time within
12 months following the date of death by Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only to
the extent that the Option was vested as of the date of death; provided that in
no event is the date of exercise beyond expiration of the Option. To the extent
that this Option is not exercised within the time specified herein, the Option
shall terminate.
9. NON-TRANSFERABILITY OF OPTION. This Option may not be
transferred in any manner otherwise than by will or by the laws of descent or
distribution and may be exercised during the lifetime of Optionee only by him.
The terms of this Option shall be binding upon the executors, administrators,
heirs, successors and assigns of the Optionee.
2
<PAGE>
10. TERM OF OPTION. Subject to earlier termination as provided in
the Plan, this Option shall terminate ten years from the date of grant of this
Option, and may be exercised during such term only in accordance with the Plan
and the terms of this Option.
Date of Grant:
MID-PENINSULA BANCORP
By:
-----------------------------------
Duncan L. Matteson
Chairman of the Board
DULY AUTHORIZED ON BEHALF OF
MID-PENINSULA BANCORP
Optionee hereby agrees to accept as binding, conclusive and final all
decisions or interpretations of the Board of Directors or the Committee upon any
questions arising under the Plan.
- - ----------------------------------- --------------------------------------
Date (Name)
3
<PAGE>
EXHIBIT 10.18
[LOGO] MATTESON INVESTMENT CORPORATION
Menlo Park Office Center
1000 El Camino Real, Suite 300
Menlo Park, CA 94025-4327
(415) 327-3030 / Telecopier: (415) 322-3741
December 20, 1993
Mid-Peninsula Bank
420 Cowper Street
Palo Alto, CA 94301
Attention: Mr. David L. Kalkbrenner
President
Re: LEASE FOR 420/430 COWPER STREET
Dear Dave:
Mid-Peninsula Bank (the "Bank") currently leases 420/430 Cowper Street,
Palo Alto, California from MPB Associates under an office lease originally
entered into as of March 11, 1987 with PacTel Properties as landlord (the
"Lease"). In November, 1991, the Bank exercised its option to lease the
second floor (430 Cowper Street) for a five-year term, expiring May 31, 1997.
In December, 1992, the Bank exercised its option to extend the lease
term on the ground floor (420 Cowper Street) for an additional four years, also
expiring May 31, 1997.
The owners' existing loan on the property with Citibank, N.A. matures on
January 31, 1994. As a condition to an extension of this financing, Citibank
has required a minimum extension of the Lease for a period of two years, eight
months, to January 31, 2000 (the "Extension Term".) In consideration of the
Bank's agreement to extend the Lease term for both 420 and 430 Cowper to such
date, the owners of the building will commit to the following:
(i) Rent adjustment will be limited to the increase in the Consumer
Price Index (as defined in the Lease) from June, 1992 to commencement of the
Extension Term and once annually thereafter on the anniversary date (June 1).
(ii) Landlord will provide a tenant improvement allowance for paint,
carpet or other interior use of $19,000, estimated as one-half cost for
painting, and recarpeting/new vinyl for the ground floor premises. If the Bank
later extends Lease for at least the balance of a five-year term (two years and
four months or more), an additional $19,000 will be made available to tenant
for reimbursement of monies expended or for additional work at that time. As you
are aware, the terms of your existing lease for the second floor which commenced
in June of 1992 provided you with a $92,000 tenant improvement allowance for
those premises, so no further allowance is required for that area.
<PAGE>
Mr. David L. Kalkbrenner
December 20, 1993
Page Two
David, the terms of this extension are EXTREMELY FAVORABLE to the Bank,
and under the above scenario, the Bank can be assured that the premises will
remain available for your use until AT LEAST January, 2000, without market rent
increases as the downtown Palo Alto prime rental market continues to tighten. An
informal survey of the current downtown Palo Alto office market by Howard
("Howie") Dallmar at Cornish & Carey Commercial shows full service lease rates
for comparable premises under recently executed leases ranging from $3.24/sq.
ft. to $3.43/sq. ft. (details attached). Your current rate is $2.86/sq. ft. on
a full service basis, when your rent and building expense payments are
considered. Given the level of improvements, excellent location, and convenient
parking which the Bank enjoys, I believe the terms of our proposed arrangement
are extremely competitive.
David, we have really bent over backward to make our proposal a "win/win"
for both of us. With this lease extension, the owners will be able to secure
desirable mortgage financing that makes their continuing commitment to the Bank
equally worthwhile. If this proposal is acceptable to the Bank, please so
indicate by returning a counter-signed copy of this letter to me.
Very truly yours,
MPB ASSOCIATES
By: /s/Duncan L. Matteson
----------------------
Duncan L. Matteson
Owners' Representative
ACCEPTED AND AGREED:
MID-PENINSULA BANK
By: /s/David L. Kalkbrenner
------------------------
David L. Kalkbrenner
President
<PAGE>
Palo Alto
Central Business District
Lease Comparables
12/20/93
1. PUTNAM, HAYES & BARTLETT
LEASE SIGNED: 7/30/93
BUILDING: 100 Hamilton Avenue
PREMISES: 9,098 sq. ft.
LEASE TERM: 4 years
EFFECTIVE RATE: $3.24/sq. ft. Full Service
TENANT IMPROVEMENTS: $5.00/sq. ft.
2. A G EDWARDS
LEASE SIGNED: 8/l/93
BUILDING: 379 Lytton Avenue
PREMISES: 5,490 sq. ft.
LEASE TERM: 8 years
EFFECTIVE RATE: $3.35/sq. ft. Full Service
TENANT IMPROVEMENTS: $15.00/sq. ft.
3. WARE & FRIEDENRICH
LEASE SIGNED: 1/20/93
BUILDING: 300 Hamilton Avenue
PREMISES: 6,096 sq. ft.
LEASE TERM: 2 years
EFFECTIVE RATE: $3.43/sq. ft. Full Service
TENANT IMPROVEMENTS: None.
<PAGE>
AMENDMENT TO OFFICE LEASE
THIS AMENDMENT TO OFFICE LEASE (this "Amendment") is entered into as of
the FIRST day of SEPTEMBER, 1995, by MPB ASSOCIATES as "Landlord" and MID-
PENINSULA BANK as "Tenant," with reference to the following:
A. Landlord and Tenant are parties to a certain Office Lease dated
March 11, 1987, originally entered into by Pactel Properties as landlord and
Duncan L. Matteson and Warren Thoits, incorporators of Mid-Peninsula Bank, as
tenant, and amended by letter agreement dated December 20, 1993 (as amended, the
"Lease"). Capitalized terms herein, not otherwise defined, shall have the same
meaning as in the Lease.
B. Landlord and Tenant now desire to further amend the Lease to
incorporate into the Premises certain additional space and to account for
changes to the Building HVAC system, all as more fully set forth hereinbelow.
NOW, THEREFORE, for good and valuable consideration, Landlord and Tenant
hereby agree as follows:
1. Effective as of the date hereof, the Premises shall be deemed to
include an additional portion of ground floor area in the Building, which
formerly served as the boiler/mechanical room for the heating system, and which
is located adjacent to the employee kitchen (the "Additional Space"). Landlord
and Tenant have agreed that the Additional Space comprises five hundred (500)
rentable square feet of area and shall be leased to Tenant for a monthly rental
rate of $1.50 per rentable square foot ($750 per month).
2. Tenant has inspected the current condition of the Additional Space
and accepts the same in its current "as-is" condition, without any further
obligation on the part of Landlord to improve the same.
3. Except with respect to the initial rental rate set forth
hereinabove, and the calculation of property tax, insurance and utility cost
"pass-throughs" as described in this Paragraph 3, the Additional Space shall be
leased to Tenant on all the same terms and conditions as the balance of the
Premises. The rentable area of the Additional Space shall not be added to the
rentable area of the existing Premises for the purpose of calculating property
tax, insurance and utility cost pass-throughs.
4. On or about the date hereof, Landlord will have completed a
substantial replacement and upgrade to the Building heating, ventilating and air
conditioning system, at a total expense to Landlord, including related Building
work, of approximately $200,000 (the "HVAC Upgrade"). As a result of the HVAC
Upgrade, the utility-related operating expense
1
<PAGE>
incurred by the Building is anticipated to significantly decrease from previous
levels. In consideration of Landlord's agreement to perform the HVAC Upgrade at
its sole cost and expense, Tenant has agreed to modify the basis of calculating
the utility cost reimbursement to Landlord set forth in Section 6.01(e) of the
Lease as follows: The gas and electric expense for the Building for the calendar
year 1994 (12/3/93 - 12/5/94) was $26,974, without benefit of any savings from
the HVAC Upgrade. This amount shall be deemed to be the minimum annual gas and
electric expense (the "Minimum Gas and Electric Expense") incurred for each year
of the Lease term hereafter, for purposes of calculating the overall utility
expense reimbursement amount due from Tenant to Landlord under the Lease (which
also includes water, sewer and trash disposal charges). Commencing with the
payment due for the calendar year 1995, the Minimum Gas and Electric Expense
shall be increased by the percentage increase, if any, in the municipal utility
rates for gas and electricity for the calendar year 1995 over the calendar year
1994. Such increased amount shall then be deemed the Minimum Gas and Electric
Expense portion of the total utility charges used to calculate the expense
reimbursement for the succeeding year, subject to increase, if any, calculated
in the same manner as described above. In the event municipal utility rates for
gas and/or electric service should decrease at any time during the Lease term,
the Minimum Gas and Electric Expense shall be adjusted accordingly. This
provision specifically supersedes Section 6.01(e) of the Lease as the basis for
calculating the utility cost reimbursement set forth therein, to the extent
inconsistent herewith.
5. Except as specifically amended hereby, the Lease shall remain in
full force and effect.
IN WITNESS WHEREOF, the undersigned have executed the Amendment to Office
Lease as of the day and year first above written.
LANDLORD: TENANT:
MPB ASSOCIATES MID-PENINSULA BANK
a tenancy in common a California banking
corporation
By: /s/Duncan L. Matteson By: /s/David L. Kalkbrenner
---------------------- --------------------
Its: Owners' Representative Its: President
---------------------- --------------------
2
<PAGE>
EXHIBIT 10.19
[LOGO]
September 5, 1995
Kathy Simon, Manager
Mid-Peninsula Bank
1313 Laurel Street
San Carlos, Ca. 94070
REF: Lease Adjustment
Dear Kathy,
In accordance with the terms and conditions of the Lease Agreement dated
November 30, 1993, the monthly rent shall be adjusted as follows:
$4,118.10 Current Rent
70.00 CPI @ 1.7% increase
29.00 Taxes @ 22.26% of $1,563.60
(per 94-95 tax bill)
---------
$4,217.10 New Monthly Rent
Commencing October 1, 1995, your new monthly rent shall be $4,217.10. Please
have your accounting office note their records accordingly.
Thank you,
/s/ Sia Bakhtiari
Sia Bakhtiari
President
<PAGE>
EXHIBIT 10.20
EXECUTIVE SALARY CONTINUATION AGREEMENT
This Agreement is made and entered into effective as of the Twenty-sixth
(26) day of April, 1995, by and between Mid-Peninsula Bank, a bank chartered
under the laws of the State of California (the "Employer"), and David L.
Kalkbrenner, an individual residing in the State of California (hereinafter
referred to as the "Executive").
RECITALS
WHEREAS, the Executive is an employee of the Employer and is
serving as its President and Chief Executive Officer;
WHEREAS, the Executive's experience and knowledge of the affairs
of the Employer and the banking industry are extensive and valuable;
WHEREAS, it is deemed to be in the best interests of the
Employer to provide the Executive with certain salary continuation benefits, on
the terms and conditions set forth herein, in order to reasonably induce the
Executive to remain in the Employer's employment; and
WHEREAS, the Executive and the Employer wish to specify in
writing the terms and conditions upon which this additional compensatory
incentive will be provided to the Executive, or to the Executive's spouse or the
Executive's designated beneficiaries, as the case may be;
NOW, THEREFORE, in consideration of the services to be performed
in the future, as well as the mutual promises and covenants contained herein,
the Executive and the Employer agree as follows:
AGREEMENT
1. TERMS AND DEFINITIONS.
1.1. ADMINISTRATOR. The Employer shall be the
"Administrator" and, solely for the purposes of ERISA, the "fiduciary" of this
Agreement where a fiduciary is required by ERISA.
1.2. ANNUAL BENEFIT. The term "Annual Benefit" shall
mean an annual sum of Eighty-Five Thousand Dollars ($85,000.00) multiplied by
the Applicable Percentage (defined below) and then reduced to the extent: (i)
required under the other Provisions of this Agreement, including, but not
limited to, Paragraphs 5, 7 and 8 hereof;
1
<PAGE>
(ii) required by reason of the lawful order of any regulatory agency or body
having jurisdiction over the Employer; and (iii) required in order for the
Employer to properly comply with any and all applicable state and federal laws,
including, but not limited to, income, employment and disability income tax laws
(e.g., FICA, FUTA, SDI).
1.3. APPLICABLE PERCENTAGE. The term "Applicable
Percentage" shall mean that percentage listed on Schedule "A" attached hereto
which is adjacent to the number of complete years (with a "year" being the
performance of personal services for or on behalf of the Employer for a period
of 365 days) which have elapsed starting from the Effective Date of this
Agreement and ending on the date payments are to first begin under the terms of
this Agreement. Notwithstanding the foregoing or the percentages set forth on
Schedule "A," but subject to all other terms and conditions set forth herein,
the "Applicable Percentage" shall be: (i) provided payments have not yet begun
hereunder, one hundred percent (100%) upon the occurrence of a "change of
control" as defined in subparagraph 1.5 below or upon the Executive's death; and
(ii) notwithstanding subclause (i) of this Paragraph, zero percent (0%) in the
event the Executive takes any action which prevents the Employer from collecting
the proceeds of any life insurance policy which the Employer may happen to own
at the time of the Executive's death and of which the Employer is the designated
beneficiary. Furthermore, notwithstanding the foregoing, or anything contained
herein to the contrary, in the event the Executive takes any action which
prevents the Employer from collecting the proceeds of any life insurance policy
which the Employer may happen to own at the time of the Executive's death and of
which the Employer is the designated beneficiary: (1) the Executive's estate or
designated beneficiary shall no longer be entitled to receive any of the amounts
payable under the terms of this Agreement, and (2) the Bank shall have the right
to recover from Executive's estate all of the amounts paid to the Executive's
estate (with respect to amounts paid prior to Executive's death or paid to
Executive's estate) or designated beneficiary (with respect to amounts paid to
the designated beneficiary) pursuant to the terms of this Agreement prior to and
after Executive's death.
1.4. BENEFICIARY. The term "beneficiary" or "designated
beneficiary" shall mean the person or persons whom the Executive shall designate
in a valid Beneficiary Designation, a copy of which is attached hereto as
Exhibit "C," to receive the benefits provided hereunder. A Beneficiary
Designation shall be valid only if it is in the form attached hereto and made a
part hereof and is received by the Administrator prior to the Executive's death.
1.5. CHANGE IN CONTROL. The term "Change in Control"
shall mean the occurrence of the any of the following events with respect to
Employer (with the term "Employer" being defined, when determining whether a
"Change in Control" has occurred, to include Mid-Peninsula Bank's current
holding company, Mid-Peninsula Bancorp, a California corporation, such that a
"Change in Control" of Mid-Peninsula Bancorp will be deemed to constitute a
"Change in Control" of the Employer): (i) a change in control of a
2
<PAGE>
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or in response to any other form or
report to the regulatory agencies or governmental authorities having
jurisdiction over the Employer or any stock exchange on which the Employer's
shares are listed which requires the reporting of a change in control; (ii) any
merger, consolidation or reorganization of the Employer in which the Employer
does not survive; (iii) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions) of any assets
of the Employer having an aggregate fair market value of fifty percent (50%) of
the total value of the assets of the Employer, reflected in the most recent
balance sheet of the Employer; (iv) a transaction whereby any "person" (as such
term is used in the Exchange Act or any individual, corporation, partnership,
trust or any other entity) becomes the beneficial owner, directly or indirectly,
of securities of the Employer representing twenty-five percent (25%) or more of
the combined voting power of the Employer's then outstanding securities; or (v)
a situation where, in any one-year period, individuals who at the beginning of
such period constitute the Board of Directors of the Employer cease for any
reason to constitute at least a majority thereof, unless the election, or the
nomination for election by the Employer's shareholders, of each new director is
approved by a vote of at least three-quarters (3/4) of the directors then still
in office who were directors at the beginning of the period.
1.6. THE CODE. The "Code" shall mean the Internal
Revenue Code of 1986, as amended (the "Code").
1.7. DISABILITY/DISABLED. The term "Disability" or
"Disabled" shall have the same meaning given such term in the principal
disability insurance policy covering the Executive, which is incorporated herein
by reference to the limited extent thereof. In the event the Executive is not
covered by a disability policy containing a definition of "Disability" or
"Disabled," these terms shall mean an illness or incapacity which, having
continued for a period of one hundred and eighty (180) consecutive days,
prevents the Executive from adequately performing the Executive's regular
employment duties. The determination of whether the Executive is Disabled shall
be made by an independent physician selected by mutual agreement of the parties.
1.8. EARLY RETIREMENT DATE. The term "Early Retirement
Date" shall mean the Retirement (as defined below) of the Executive on a date
which occurs prior to the Executive attaining sixty-five (65) years of age but
after the Executive has attained sixty-two (62) years of age.
1.9. EFFECTIVE DATE. The term "Effective Date" shall
mean the date upon which this Agreement was entered into by the parties, as
first written above.
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1.10. ERISA. The term "ERISA" shall mean the Employee
Retirement Income Security Act of 1974, as amended.
1.11. PLAN YEAR. The term "Plan Year" shall mean the
Employer's fiscal year.
1.12. RETIREMENT. The term "Retirement" or "Retires"
shall refer to the date which the Executive acknowledges in writing to Employer
to be the last day he will provide any significant personal services, whether as
an employee or independent consultant or contractor, to Employer or to, for, or
on behalf of, any other business entity conducting, performing or making
available to any person or entity banking or other financial services of any
kind. For purposes of this Agreement, the phrase "significant personal
services" shall mean more than ten (10) hours of personal services rendered to
one or more individuals or entities in any thirty (30) day period.
1.13. SCHEDULE B ANNUITY. The term "Schedule B Annuity"
shall mean an "Annuity," as defined in this Paragraph 1.13, purchased by the
Bank within one month of the date the first payment is to be paid to the
Executive under the terms of this Agreement with that sum of money which equals:
(a) the amount set forth on Schedule B attached hereto which corresponds to the
number of complete years (i.e., twelve [12] month periods) which have elapsed
between the Effective Date hereof and the date on which the event triggering or
fixing an Executive's right to a Schedule B Annuity occurs; plus (b) an amount
equal to the amount of interest which would have been earned on the amount
described in the foregoing clause (a) of this Paragraph if said amount had been
invested in successive six month United States Treasury Bills starting from the
date on which the event triggering or fixing an Executive's right to a Schedule
B Annuity occurs and ending on the date the first payment to be made by the Bank
to the Executive under the terms of this Agreement is to occur (i.e., using the
six month T-Bill rate as the applicable rate for determining the "deemed
interest" to be credited). For purposes of this Agreement, the term "Annuity"
shall mean a commercially available, standard form annuity contract: (i) with an
insurance company having the highest available rating from Standard & Poor's;
and (ii) providing equal monthly payments over a period of fifteen years (one
hundred and eighty [180] months) (with the amount of each monthly payment to be
determined by reference to the Schedule B monetary amount which is to be
invested, as described above, and to begin as described below with respect to
the particular event which triggers the right to receive the Schedule B
Annuity). Notwithstanding the foregoing, or anything contained herein to the
contrary, the amount of the Annuity shall be limited (determined at the time of
its acquisition) to the extent: (i) required under the other provisions of this
Agreement, including, but not limited to, Paragraphs 5, 7 and 8 hereof; (ii)
required by reason of the lawful order of any regulatory agency or body having
jurisdiction over the Employer; and (iii) required in order for the Employer to
ensure proper compliance with any and all applicable state and federal laws,
including, but not limited to, income, employment and
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disability income tax laws (e.g., FICA, FUTA, SDI). Furthermore,
notwithstanding the foregoing, or anything contained herein to the contrary, in
the event the Executive takes any action which prevents the Employer from
collecting the proceeds of any life insurance policy which the Employer may
happen to own at the time of the Executive's death and of which the Employer is
the designated beneficiary: (1) the Executive's estate or designated beneficiary
shall no longer be entitled to receive any of the amounts payable under the
terms of the Annuity, and (2) all amounts paid prior to or after Executive's
death under the terms of the Annuity shall be recoverable in full by the Bank
from Executive's estate [with respect to amounts paid prior to Executive's death
or paid to Executive's estate] or designated beneficiary [with respect to
amounts paid to the designated beneficiary]). The selection of the company
which is to provide the Annuity and the terms of such Annuity shall, except as
provided or limited above, be made by the Bank as it determines to be
appropriate, said determinations to be made by the Bank in its sole and absolute
discretion.
1.14. SURVIVING SPOUSE. The term "Surviving Spouse"
shall mean the person, if any, who shall be legally married to the Executive on
the date of the Executive's death.
1.15. TERMINATION FOR CAUSE. The term "Termination for
Cause" shall mean termination of the employment of the Executive by reason of
any of the following:
(a) A termination "for cause" as this term may be defined
in any written employment agreement entered into by and between the Employer and
the Executive;
(b) The willful breach of duty by the Executive in the
course of his employment;
(c) The habitual neglect by the Executive of his
employment responsibilities and duties;
(d) The Executive's deliberate violation of any state or
federal banking or securities laws, or of the Bylaws, rules, policies or
resolutions of the Employer, or of the rules or regulations of: (i) the Office
of the California Superintendent of Banks; (ii) the Federal Deposit Insurance
Corporation; or (iii) any other regulatory agency or governmental authority
having jurisdiction over the Employer;
(e) The determination by a state or federal banking agency
or other governmental authority having jurisdiction over the Employer that the
Executive is not suitable to act in the capacity for which he is employed by the
Employer;
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(f) The Executive is convicted of any felony or a crime
involving moral turpitude or a fraudulent or dishonest act; or
(g) The Executive discloses without authority any secret or
confidential information not otherwise publicly available concerning the
Employer or takes any action which the Employer's Board of Directors determines,
in its sole discretion and subject to good faith, fair dealing and
reasonableness, constitutes unfair competition with or induces any customer to
breach any contract with the Employer.
2. SCOPE, PURPOSE AND EFFECT.
2.1. CONTRACT OF EMPLOYMENT. Although this Agreement
is intended to provide the Executive with an additional incentive to remain in
the employ of the Employer, this Agreement shall not be deemed to constitute a
contract of employment between the Executive and the Employer nor shall any
provision of this Agreement restrict or expand the right of the Employer to
terminate the Executive's employment. This Agreement shall have no impact or
effect upon any separate written Employment Agreement which the Executive may
have with the Employer, it being the parties' intention and agreement that
unless this Agreement is specifically referenced in said Employment Agreement
(or any modification thereto), this Agreement (and the Employer's obligations
hereunder) shall stand separate and apart and shall have no effect upon, nor be
affected by, the terms and provisions of said Employment Agreement.
2.2. FRINGE BENEFIT. The benefits provided by this
Agreement are granted by the Employer as a fringe benefit to the Executive and
are not a part of any salary reduction plan or any arrangement deferring a bonus
or a salary increase. The Executive has no option to take any current payments
or bonus in lieu of the benefits provided by this Agreement.
3. PAYMENTS UPON OR AFTER RETIREMENT.
3.1. PAYMENTS UPON RETIREMENT. If the Executive shall
remain in the continuous employment of the Employer until attaining sixty-five
(65) years of age, and provided an event triggering Schedule B Annuity payments
has not yet occurred, the Executive shall be entitled to be paid the Annual
Benefit, as defined above, in equal monthly installments, for a period of
fifteen (15) years (One Hundred Eighty (180) months), with each installment to
be paid on the first day of each month, beginning with the month following the
month in which the Executive Retires or upon such later date as may be mutually
agreed upon by the Executive and the Employer in advance of said Retirement
date. At the Employer's sole and absolute discretion, the Employer may increase
the Annual Benefit as and when the Employer determines the same to be
appropriate in order to reflect a substantial change in the cost of living.
Notwithstanding anything contained herein to the
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contrary, the Employer shall have no obligation hereunder to make any such cost-
of-living adjustment.
3.2. PAYMENTS IN THE EVENT OF DEATH AFTER RETIREMENT.
The Employer agrees that if the Executive Retires and begins to receive payments
pursuant to Paragraph 3.1 hereof, but shall die before receiving all of the One
Hundred Eighty (180) monthly payments to which he is entitled, the Employer will
continue to make such monthly payments to the Executive's designated beneficiary
for the remaining period. If a valid Beneficiary Designation is not in effect,
then the remaining amounts due to the Executive under the ten-n of this
Agreement shall be paid to the Executive's Surviving Spouse. If the Executive
leaves no Surviving Spouse, the remaining amounts due to the Executive under the
terms of this Agreement shall be paid to the duly qualified personal
representative, executor or administrator of the Executive's estate.
4. PAYMENTS IN THE EVENT DEATH OR DISABILITY OCCURS PRIOR TO
RETIREMENT.
4.1. PAYMENTS IN THE EVENT OF DEATH PRIOR TO
RETIREMENT. Provided an event triggering Schedule B Annuity payments has not
yet occurred, and the Executive dies while actively employed by the Employer at
any time after the Effective Date of this Agreement, but prior to Retirement,
the Employer agrees to pay the Annual Benefit to the Executive's designated
beneficiary in equal monthly installments, for a period of fifteen (15) years
(One Hundred Eighty (180) months). If a valid Beneficiary Designation is not in
effect, then the remaining amounts due to the Executive under the term of this
Agreement shall be paid to the Executive's Surviving Spouse. If the Executive
leaves no Surviving Spouse, the remaining amounts due to the Executive under the
terms of this Agreement shall be paid to the duly qualified personal
representative, executor or administrator of the Executive's estate. Each
installment shall be paid on the first day of each month, beginning with the
month following the month in which the Executive's death occurs.
4.2. PAYMENTS IN THE EVENT OF DISABILITY PRIOR TO
RETIREMENT. In the event the Executive becomes Disabled while actively employed
by the Employer at any time after the date of this Agreement but prior to
Retirement, and provided an event triggering Schedule B Annuity payments has not
yet occurred, the Executive (or the Executive's designated beneficiary, or the
Executive's estate if no designated beneficiary has been selected, upon the
Executive's death) shall be entitled to the Schedule B Annuity, as defined
above, with payments thereunder to begin in the month following the month in
which the Executive attains sixty-five (65) years of age or, if earlier, the
month following the month in which the Executive dies.
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5. PAYMENTS IN THE EVENT EMPLOYMENT IS TERMINATED PRIOR TO
RETIREMENT. As indicated in Paragraph 2 above, the Employer reserves the right
to terminate the Executive's employment, with or without cause but subject to
any written employment agreement which may then exist, at any time prior to the
Executive's Retirement. In the event that the employment of the Executive shall
be terminated, other than by reason of Disability, death or Retirement, prior to
the Executive's attaining sixty-five (65) years of age, then this Agreement
shall terminate upon the date of such termination of employment; provided,
however, that the Executive shall be entitled to the following benefits as may
be applicable depending upon the circumstances surrounding the Executive's
termination:
5.1. TERMINATION WITHOUT CAUSE. If the Executive's
employment is terminated by the Employer without cause, and such termination is
not subject to the provisions of Paragraph 5.4 below, the Executive (or the
Executive's designated beneficiary, or the Executive's estate if no designated
beneficiary has been selected, upon the Executive's death) shall be entitled to
be paid the Annual Benefit, as defined above, in equal monthly installments, for
A period of fifteen (15) years (One Hundred Eighty (180) months), with each
installment to be paid on the first day of each month, beginning with the month
following the month in which the Executive is terminated without cause or upon
such later date as may be mutually agreed upon by the Executive and the Employer
in advance of the effective date of the Executive's termination.
5.2. VOLUNTARY TERMINATION BY THE EXECUTIVE. If
the Executive voluntarily terminates his employment with the Employer (other
than by reason of death, Disability or Retirement), and such termination is not
subject to the provisions of Paragraph 5.4 below, the Executive (or the
Executive's designated beneficiary, or the Executive's estate if no designated
beneficiary has been selected, upon the Executive's death) shall be entitled to
be paid the Schedule B Annuity, as defined above, with payments to begin with
the month following the month in which the Executive's employment is terminated
without cause or upon such later date as may be mutually agreed upon by the
Executive and the Employer in advance of the effective date of the Executive's
termination.
5.3. TERMINATION FOR CAUSE. The Executive agrees that
if his employment with the Employer is terminated "for cause," as defined in
subparagraph 1. 15 of this Agreement, he shall forfeit any and all rights and
benefits he may have under the terms of this Agreement and shall have no right
to be paid any of the amounts which would otherwise be due or paid to the
Executive by the Employer pursuant to the terms of this Agreement.
5.4. TERMINATION BY THE EMPLOYER ON ACCOUNT OF OR AFTER
A CHANGE IN CONTROL. In the event: (i) the Executive's employment with the
Employer is terminated by the Employer in conjunction with, or by reason of, a
"change in control" (as defined in subparagraph 1.5 above); or (ii) by reason of
the Employer's actions a material
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change occurs in the scope of the Executive's position, title, responsibilities,
duties, benefits, or locations of employment after a "change in control" (as
defined in subparagraph 1.5) occurs; or (iii) the Employer causes an event to
occur which reasonably constitutes or results in a demotion, a significant
diminution of responsibilities or authority, or a constructive termination (by
forcing a resignation or otherwise) of the Executive's employment after a
"change in control" (as defined in subparagraph 1.5) occurs, then the Executive
(or the Executive's designated beneficiary, or the Executive's estate if no
designated beneficiary has been selected, upon the Executive's death) shall be
entitled to be paid the Annual Benefit, as defined above, in equal monthly
installments, for a period of fifteen (15) years (One Hundred Eighty (180)
months), with installments to be paid on the first day of each month, beginning
with the month following the month in which the Executive is terminated or any
one of the actions referred to above occurs.
6. PAYMENTS IN THE EVENT THE EXECUTIVE ELECTS EARLY RETIREMENT. The
Executive shall have the right to elect to receive the Schedule B Annuity prior
to attaining sixty-five (65) years of age if he elects to Retire on a date which
constitutes an Early Retirement Date as defined in subparagraph 1.8 above. In
the event the Executive elects to Retire on a date which constitutes an Early
Retirement Date, the Executive shall be entitled to be paid the Schedule B
Annuity, as defined above, with payments thereunder to begin on the month
following the month in which the Early Retirement Date occurs.
7. ADDITIONAL LIMITATIONS ON THE AMOUNT OF THE ANNUAL
BENEFIT/SCHEDULE B ANNUITY. The Executive acknowledges and agrees that the
parties have entered into this Agreement based upon the certain financial and
tax accounting assumptions. Accordingly, with full knowledge of the potential
consequences the Executive agrees that, notwithstanding anything contained
herein to the contrary: (i) the amount of the Annual Benefit or the Schedule B
Annuity, as the case may be, shall be limited to that amount of the Annual
Benefit or Schedule B Annuity (determined without regard to this Paragraph 7)
which will be deductible by the Employer under the Code in the year in which
payment is to be made to the Executive; (ii) the Annual Benefit amount or the
Schedule B Annuity, as the case may be, shall be deemed to be the last payment
made to the Executive and the first for which an income tax deduction, if any,
has been disallowed; and (iii) any compensatory amounts for which a deduction is
denied to the Employer shall, at the Employer's election, serve to first reduce
the Employer's obligation to make the monthly Annual Benefit payments otherwise
due and payable to the Executive under the terms of this Agreement. The
Executive recognizes that, in this regard, limitations on deductibility may be
imposed under, but not limited to, Code Section 280G. Consistent with the
foregoing, and in the event that any payment or benefit received or to be
received by the Executive, whether payable pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the Employer
(together with the Annual Benefit or the Schedule B Annuity, the "Total
Payments"), win not be deductible (in whole or in part) as a result of Code
Section 280G, the Annual Benefit or the Schedule B Annuity, shall be reduced
until no portion of the Total Payments is
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nondeductible as a result of Section 280G of the Code (or the Annual
Benefit/Schedule B Annuity is reduced to zero (0)). For purposes of this
limitation:
(a) No portion of the Total Payments, the receipt or
enjoyment of which the Executive shall have effectively waived in writing prior
to the date of payment of any future Annual Benefit or Schedule B Annuity
payments, shall be taken into account;
(b) No portion of the Total Payments shall be taken into
account, which in the opinion of the tax counsel selected by the Employer and
acceptable to the Executive, does not constitute a "parachute payment" within
the meaning of Section 280G of the Code;
(c) Future Annual Benefit/Schedule B Annuity payments shall
be reduced only to the extent necessary so that the Total Payments (other than
those referred to in clauses (a) or (b) above in their entirety) constitute
reasonable compensation for services actually rendered within the meaning of
Section 280G of the Code, in the opinion of tax counsel referred to in clause
(b) above; and
(d) The value of any non-cash benefit or any deferred
payment or benefit included in the Total Payments shall be determined by the
Employer's independent auditors in accordance with the principles of Section
280G of the Code.
8. RIGHT TO DETERMINE FINANCING METHODS. The Employer reserves the
right to determine, in its sole and absolute discretion, whether, to what extent
and by what method, if any, to provide for the payment of the amounts which may
be payable to the Executive, the Executive's spouse or the Executive's
beneficiaries under the terms of this Agreement. In the event that the Employer
elects to finance this Agreement, in whole or in part, through the use of life
insurance or annuities, or both, the Employer shall determine the ownership and
beneficial interests of any such policy of life insurance or annuity. The
Employer further reserves the right, in its sole and absolute discretion, to
terminate any such policy, and any other device used to finance its obligations
under this Agreement, at any time, in whole or in part. Consistent with
Paragraph 10 below, neither the Executive, the Executive's spouse nor the
Executive's beneficiaries shall have any right, title or interest in or to any
financing source or amount utilized by the Employer pursuant to this Agreement,
and any such financing source or amount shall not constitute security for the
performance of the Employer's obligations pursuant to this Agreement. In
connection with the foregoing, the Executive agrees to execute such documents
and undergo such medical examinations or tests which the Employer may request
and which may be reasonably necessary to facilitate any financing for this
Agreement including, without limitation, the Employer's acquisition of any
policy of insurance or annuity. Furthermore, a refusal by the Executive to
consent to, participate in and undergo any such medical examinations or tests
shall result in the immediate termination of this Agreement and the immediate
forfeiture by the Executive, the
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Executive's spouse and the Executive's beneficiaries of any and all rights to
payment hereunder.
9. CLAIMS PROCEDURE. The Employer shall, but only to the extent
necessary to comply with ERISA, be designated as the named fiduciary under this
Agreement and shall have authority to control and manage the operation and
administration of this Agreement. Consistent therewith, the Employer shall make
all determinations as to the rights to benefits under this Agreement. Any
decision by the Employer denying a claim by the Executive, the Executive's
spouse, or the Executive's beneficiary for benefits under this Agreement shall
be stated in writing and delivered or mailed, via registered or certified mail,
to the Executive, the Executive's spouse or the Executive's beneficiary, as the
case may be. Such decision shall set forth the specific reasons for the denial
of a claim. In addition, the Employer shall provide the Executive, the
Executive's spouse or the Executive's beneficiary with a reasonable opportunity
for a full and fair review of the decision denying such claim.
10. STATUS AS AN UNSECURED GENERAL CREDITOR. Notwithstanding
anything contained herein to the contrary: (i) neither the Executive, the
Executive's spouse or the Executive's designated beneficiaries shall have any
legal or equitable rights, interests or claims in or to any specific property or
assets of the Employer; (ii) none of the Employer's assets shall be held in or
under any trust for the benefit of the Executive, the Executive's spouse or the
Executive's designated beneficiaries or held in any way as security for the
fulfillment of the obligations of the Employer under this Agreement; (iii) all
of the Employer's assets shall be and remain the general unpledged and
unrestricted assets of the Employer; (iv) the Employer's obligation under this
Agreement shall be that of an unfunded and unsecured promise by the Employer to
pay money in the future; and (v) the Executive, the Executive's spouse and the
Executive's designated beneficiaries shall be unsecured general creditors with
respect to any benefits which may be payable under the terms of this Agreement.
11. DISCRETION OF BOARD TO ACCELERATE PAYOUT. Notwithstanding any of
the other provisions of this Agreement, the Board of Directors of the Bank may,
if determined in its sole and absolute discretion to be appropriate, accelerate
the payment of the amounts due under the terms of this Agreement, provided that
Executive (or Executive's spouse or designated beneficiaries): (i) consents to
the revised payout terms determined appropriate by the Bank's Board of
Directors; and (ii) does not negotiate or in anyway influence the terms of
proposed altered/accelerated payout (said decision to be made solely by the
Bank's Board of Directors and offered to the Executive [or Executive's spouse or
designated beneficiaries] on a "take it or leave it basis").
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12.1 MISCELLANEOUS.
12.1. OPPORTUNITY TO CONSULT WITH INDEPENDENT COUNSEL.
The Executive acknowledges that he has been afforded the opportunity to consult
with independent counsel of his choosing regarding both the benefits granted to
him under the terms of this Agreement and the terms and conditions which may
affect the Executive's right to these benefits. The Executive further
acknowledges that he has read, understands and consents to all of the terms and
conditions of this Agreement, and that he enters into this Agreement with a full
understanding of its terms and conditions.
12.2. ARBITRATION OF DISPUTES. All claims, disputes and
other matters in question arising out of or relating to this Agreement or the
breach or interpretation thereof, other than those matters which are to be
determined by the Employer in its sole and absolute discretion or those matters
subject to the provisions of Article 9 hereof, shall be resolved by binding
arbitration before a representative member, selected by the mutual agreement of
the parties, of the Judicial Arbitration and Mediation Services, Inc. ("JAMS"),
presently located at 111 Pine Street, Suite 710, in San Francisco, California.
In the event JAMS is unable or unwilling to conduct the arbitration provided for
under the terms of this Paragraph, or has discontinued its business, the parties
agree that a representative member, selected by the mutual agreement of the
parties, of the American Arbitration Association ("AAA"), presently located in
San Francisco, California, shall conduct the binding arbitration referred to in
this Paragraph. Notice of the demand for arbitration shall be filed in writing
with the other party to this Agreement and with JAMS (or AAA, if necessary). In
no event shall the demand for arbitration be made after the date when
institution of legal or equitable proceedings based on such claim, dispute or
other matter in question would be barred by the applicable statute of
limitations. The arbitration shall be subject to such rules of procedure used
or established by JAMS, or if there are none, the rules of procedure used or
established by AAA. Any award rendered by JAMS or AAA shall be final and
binding upon the parties, and as applicable, their respective heirs,
beneficiaries, legal representatives, agents, successors and assigns, and may be
entered in any court having jurisdiction thereof. The obligation of the parties
to arbitrate pursuant to this clause shall be specifically enforceable in
accordance with, and shall be conducted consistently with, the provisions of
Title 9 of Part 3 of the California Code of Civil Procedure. Any arbitration
hereunder shall be conducted in San Francisco, California, unless otherwise
agreed to by the parties.
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12.3. ATTORNEY'S FEES. In the event of any arbitration
or litigation concerning any controversy, claim or dispute between the parties
hereto, arising out of or relating to this Agreement or the breach hereof, or
the interpretation hereof, the prevailing party shall be entitled to recover
from the losing party reasonable expenses, attorneys' fees and costs incurred in
connection therewith or in the enforcement or collection of any judgment or
award rendered therein. The "prevailing party" means the party determined by
the arbitrator(s) or court, as the case may be, to have most nearly prevailed,
even if such party did not prevail in all matters, not necessarily the one in
whose favor a judgment is rendered.
12.4. NOTICE. Any notice required or permitted of
either the Executive or the Employer under this Agreement @ be deemed to have
been duly given, if by personal delivery, upon the date received by the party or
its authorized representative; if by facsimile, upon transmission to a telephone
number previously provided by the party to whom the facsimile is transmitted as
reflected in the records of the party transmitting the facsimile and upon
reasonable confirmation of such transmission; and if by mail, on the third day
after mailing via U.S. first class mail, registered or certified, postage
prepaid and return receipt requested, and addressed to the party at the address
given below for the receipt of notices, or such changed address as may be
requested in writing by a party.
If to the Employer: Mid-Peninsula Bank
420 Cowper Street
Palo Alto, CA 94301
Attn: Chairman of the Board
If to the Executive: Mr. David L. Kalkbrenner
2031 Byron Street
Palo Alto, CA 94301
12.5. ASSIGNMENT. Neither the Executive, the
Executive's spouse, nor any other beneficiary under this Agreement shall have
any power or right to transfer, assign, anticipate, hypothecate, modify or
otherwise encumber any part or all of the amounts payable hereunder, nor, prior
to payment in accordance with the terms of this Agreement, shall any portion of
such amounts be: (i) subject to seizure by any creditor of any such beneficiary,
by a proceeding at law or in equity, for the payment of any debts, judgments,
alimony or separate maintenance obligations which may be owed by the Executive,
the Executive's spouse, or any designated beneficiary; or (ii) transferable by
operation of law in the event of bankruptcy, insolvency or otherwise. Any such
attempted assignment or transfer shall be void and shall terminate this
Agreement, and the Employer shall thereupon have no further liability hereunder.
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12.6. BINDING EFFECT/MERGER OR REORGANIZATION. This
Agreement shall be binding upon and inure to the benefit of the Executive and
the Employer and, as applicable, their respective heirs, beneficiaries, legal
representatives, agents, successors and assigns. Accordingly, the Employer
shall not merge or consolidate into or with another corporation, or reorganize
or sell substantially all of its assets to another corporation, firm or person,
unless and until such succeeding or continuing corporation, firm or person
agrees to assume and discharge the obligations of the Employer under this
Agreement. Upon the occurrence of such event, the term "Employer" as used in
this Agreement shall be deemed to refer to such surviving or successor firm,
person, entity or corporation.
12.7. NONWAIVER. The failure of either party to enforce
at any time or for any period of time any one or more of the terms or conditions
of this Agreement shall not be a waiver of such term(s) or condition(s) or of
that party's right thereafter to enforce each and every term and condition of
this Agreement.
12.8. PARTIAL INVALIDITY. If any term, provision,
covenant, or condition of this Agreement is determined by an arbitrator or a
court, as the case may be, to be invalid, void, or unenforceable, such
determination shall not render any other term, provision, covenant or condition
invalid, void OR unenforceable, and the Agreement shall remain in full force and
effect notwithstanding such partial invalidity.
12.9. ENTIRE AGREEMENT. This Agreement supersedes any
and all other agreements, either oral or in writing, between the parties with
respect to the subject matter of this Agreement and contains all of the
covenants and agreements between the parties with respect thereto. Each party
to this Agreement acknowledges that no other representations, inducements,
promises, or agreements, oral or otherwise, have been made by any party, or
anyone acting on behalf of any party, which are not set forth herein, and that
no other agreement, statement, or promise not contained in this Agreement shall
be valid or binding on either party.
12.10. MODIFICATIONS. Any modification of this Agreement
shall be effective only if it is in writing and signed by each party or such
party's authorized representative.
12.11. PARAGRAPH HEADINGS. The paragraph headings used in
this Agreement are included solely for the convenience of the parties and shall
not affect or be used in connection with the interpretation of this Agreement.
12.12. NO STRICT CONSTRUCTION. The language used in this
Agreement shall be deemed to be the language chosen by the parties hereto to
express their mutual intent, and no rule of strict construction will be applied
against any person.
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12.13. GOVERNING LAW. The laws of the State of
California, other than those laws denominated choice of law rules, and, where
applicable, the rules and regulations of the Office of the California
Superintendent of Banks and the Federal Deposit Insurance Corporation, shall
govern the validity, interpretation, construction and effect of this Agreement.
IN WITNESS WHEREOF, the Employer and the Executive have executed this
Agreement on the date first above-written in the City of Palo Alto, Santa Clara
County, California.
THE EMPLOYER: THE EXECUTIVE
Mid-Peninsula Bank,
A California State Chartered Bank
By: /S/Duncan L. Matteson /s/David L. Kalkbrenner
---------------------------- -----------------------
Duncan L. Matteson, Chairman David L. Kalkbrenner
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SCHEDULE A
NUMBER OF COMPLETE
YEARS WHICH HAVE ELAPSED APPLICABLE PERCENTAGE
- - ------------------------ ---------------------
1................................................... 55.00%
2................................................... 60.00%
3................................................... 65.00%
4................................................... 70.00%
5................................................... 75.00%
6................................................... 80.00%
7................................................... 85.00%
8................................................... 90.00%
9................................................... 95.00%
10..................................................100.00%
16
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SCHEDULE B
SCHEDULE B ANNUITY AMOUNT
1. $ 47,710
2. $ 99,637
3. $ 156,154
4. $ 217,666
5. $ 284,616
6. $ 357,483
7. $ 436,792
8. $ 523,110
9. $ 617,058
10. $ 719,310
17
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SCHEDULE C
BENEFICIARY DESIGNATION
To the Administrator of the Mid-Peninsula Bank Executive Salary
Continuation Agreement:
Pursuant to the Provisions of my Executive Salary Continuation Agreement
with Mid-Peninsula Bank, permitting the designation of a beneficiary or
beneficiaries by a participant, I hereby designate the following persons and
entities as primary and secondary beneficiaries of any benefit under said
Agreement payable by reason of my death:
PRIMARY BENEFICIARY:
Nancy L. Kalkbrenner 2031 Byron St., Palo Alto, CA 94301 Spouse
- - -------------------- ------------------------------------ ------------
NAME ADDRESS RELATIONSHIP
SECONDARY (CONTINGENT) BENEFICIARY:
Jennifer L. Kalkbrenner 50% 2031 Byron St., Palo Alto, CA
94301 Daughter
Eric D. Kalkbrenner 50% 2031 Byron St., Palo Alto, CA
94301 Son
- - -------------------- ------------------------------------ ------------
NAME ADDRESS RELATIONSHIP
THE RIGHT TO REVOKE OR CHANGE ANY BENEFICIARY DESIGNATION IS HEREBY RESERVED.
ALL PRIOR DESIGNATIONS, IF ANY, OF PRIMARY BENEFICIARIES AND SECONDARY
BENEFICIARIES ARE HEREBY REVOKED.
The Administrator shall pay all sums payable under the Agreement by reason of my
death to the Primary Beneficiary, if he or she survives me, and if no Primary
Beneficiary shall survive me, then to the Secondary Beneficiary, and if no named
beneficiary survives me, then the Administrator shall pay all amounts in
accordance with the terms of my Executive Salary Continuation Agreement. In the
event that a named beneficiary survives me and dies prior to receiving the
entire benefit payable under said Agreement, then and in that event, the
18
<PAGE>
remaining unpaid benefit payable according to the terms of my Executive Salary
Continuation Agreement shall be payable to the personal representatives of the
estate of said beneficiary who survived me but died prior to receiving the total
benefit provided by my Executive Salary Continuation Agreement.
THE EXECUTIVE
DATED: May 22, 199 /s/David L. Kalkbrenner
------------- -----------------------
David L. Kalkbrenner
CONSENT OF THE EXECUTIVE'S SPOUSE
TO THE ABOVE BENEFICIARY DESIGNATION:
I, Nancy Kalkbrenner, being the spouse of David L. Kalkbrenner, after being
afforded the opportunity to consult with independent counsel of my choosing, do
hereby acknowledge that I have read, agree and consent to the foregoing
Beneficiary Designation which relates to the Executive Salary Continuation
Agreement entered into by my spouse effective as of April 26, 1995. I
understand that the above Beneficiary Designation may affect certain rights
which I may have in the benefits provided for under the terms of the Executive
Salary Continuation Agreement and in which I may have a marital property
interest.
DATED: May 24, 1995.
-------------
/s/Nancy Kalkbrenner
--------------------
Nancy Kalkbrenner
19
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CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT
- - --------------------------------------------------------------------------------
State of California
-------------------
County of Santa Clara
-------------------
On May 22, 1995 before me, Judy L. Hovgaard, personally appeared David L.
Kalkbrenner, [x] personally known to me - OR - [ ] proved to me on the basis
of satisfactory evidence to be the person whose name is subscribed to the within
instrument and acknowledged to me that he executed the same in his authorized
capacity, and that by his signature on the instrument the person, or the entity
upon behalf of which the person acted, executed the instrument.
[SEAL]
WITNESS my hand and official seal.
/s/Judy L. Hovgaard
----------------------------------
Signature of Notary Public
- - ------------------------------------OPTIONAL------------------------------------
Though the information below is not required by law, it may prove valuable
to persons relying on the document and could prevent fraudulent removal
and reattachment of this form to another document.
DESCRIPTION OF ATTACHED DOCUMENT
Title or Type of Document: Beneficiary Designation
-----------------------------------------------
Document Date: APRIL 26, 1995 Number of Pages:
----------------------------------- ------
Signer(s) Other Than Named Above: Nancy Kalkbrenner
----------------------------------------
CAPACITY(IES) CLAIMED BY SIGNER(S)
Signer's Name: Signer's Name:
------------------------ -----------------------
[x] Individual [ ] Individual
[ ] Corporate Officer [ ] Corporate Officer
Title(s): Title(s):
----------------------- ----------------------
[ ] Partner - [ ] Limited [ ] General [ ] Partner - [ ] Limited [ ] General
[ ] Attorney-in-Fact [ ] Attorney-in-Fact
[ ] Trustee RIGHT THUMBPRINT [ ] Trustee RIGHT THUMBPRINT
[ ] Guardian or Conservator OF SIGNER [ ] Guardian or Conservator OF SIGNER
[ ] Other: Top of thumb here [ ] Other: Top of thumb here
---------- ----------
---------------- ----------------
Signer Is Representing: Signer Is Representing:
- - -------------------------------------- ---------------------------------
- - -------------------------------------- ---------------------------------
- - --------------------------------------------------------------------------------
<PAGE>
CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT
- - --------------------------------------------------------------------------------
State of California
-------------------
County of Santa Clara
-------------------
On May 22, 1995 before me, Lorna K. Roach, Notary Public, personally appeared
Nancy Kalkbrenner ,
[ ] personally known to me - OR - [X] proved to me on the basis of satisfactory
evidence to be the person whose name is subscribed to the within instrument and
acknowledged to me that she executed the same in her authorized capacity, and
that by her signature on the instrument the person, or the entity upon behalf of
which the person acted, executed the instrument.
[SEAL]
WITNESS my hand and official seal.
/s/Lorna K. Roach
----------------------------------
Signature of Notary Public
- - ------------------------------------OPTIONAL------------------------------------
Though the information below is not required by law, it may prove valuable
to persons relying on the document and could prevent fraudulent removal
and reattachment of this form to another document.
DESCRIPTION OF ATTACHED DOCUMENT
Title or Type of Document: Beneficiary Designation - Spousal Consent
-----------------------------------------------
Document Date: None Number of Pages: 2
----------------------------------- ------
Signer(s) Other Than Named Above: David L. Kalkbrenner
----------------------------------------
CAPACITY(IES) CLAIMED BY SIGNER(S)
Signer's Name: Signer's Name:
------------------------ -----------------------
[x] Individual [ ] Individual
[ ] Corporate Officer [ ] Corporate Officer
Title(s): Title(s):
----------------------- ----------------------
[ ] Partner - [ ] Limited [ ] General [ ] Partner - [ ] Limited [ ] General
[ ] Attorney-in-Fact [ ] Attorney-in-Fact
[ ] Trustee RIGHT THUMBPRINT [ ] Trustee RIGHT THUMBPRINT
[ ] Guardian or Conservator OF SIGNER [ ] Guardian or Conservator OF SIGNER
[ ] Other: Top of thumb here [ ] Other: Top of thumb here
---------- ----------
---------------- ----------------
Signer Is Representing: Signer Is Representing:
- - -------------------------------------- ---------------------------------
- - -------------------------------------- ---------------------------------
- - --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 10.21
EXECUTIVE SALARY CONTINUATION AGREEMENT
This Agreement is made and entered into effective as of the Twenty-sixth
------------
(26) day of April, 1995, by and between Mid-Peninsula Bank, a bank chartered
-- -----
under the laws of the State of California (the "Employer"), and Murray B. Dey,
an individual residing in the State of California (hereinafter referred to as
the "Executive").
RECITALS
WHEREAS, the Executive is an employee of the Employer and is serving
as its Executive Vice President;
WHEREAS, the Executive's experience and knowledge of the affairs of
the Employer and the banking industry are extensive and valuable;
WHEREAS, it is deemed to be in the best interests of the Employer to
provide the Executive with certain salary continuation benefits, on the terms
and conditions set forth herein, in order to reasonably induce the Executive to
remain in the Employer's employment; and
WHEREAS, the Executive and the Employer wish to specify in writing the
terms and conditions upon which this additional compensatory incentive will be
provided to the Executive, or to the Executive's spouse or the Executive's
designated beneficiaries, as the case may be;
NOW, THEREFORE, in consideration of the services to be performed in
the future, as well as the mutual promises and covenants contained herein, the
Executive and the Employer agree as follows:
AGREEMENT
1. TERMS AND DEFINITIONS.
1.1. ADMINISTRATOR. The Employer shall be the "Administrator"
and, solely for the purposes of ERISA, the "fiduciary" of this Agreement where a
fiduciary is required by ERISA.
1.2. ANNUAL BENEFIT. The term "Annual Benefit" shall mean an
annual sum of Sixty Thousand Dollars ($60,000.00) multiplied by the Applicable
Percentage (defined below) and then reduced to the extent: (i) required under
the other provisions of this Agreement, including, but not limited to,
Paragraphs 5, 7 and 8 hereof; (ii) required by
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reason of the lawful order of any regulatory agency or body having jurisdiction
over the Employer; and (iii) required in order for the Employer to properly
comply with any and all applicable state and federal laws, including, but not
limited to, income, employment and disability income tax laws (e.g., FICA, FUTA,
SDI).
1.3. APPLICABLE PERCENTAGE. The term "Applicable Percentage"
shall mean that percentage listed on Schedule "A" attached hereto which is
adjacent to the number of complete years (with a "year" being the performance of
personal services for or on behalf of the Employer for a period of 365 days)
which have elapsed starting from the Effective Date of this Agreement and ending
on the date payments are to first begin under the terms of this Agreement.
Notwithstanding the foregoing or the percentages set forth on Schedule "A," but
subject to all other terms and conditions set forth herein, the "Applicable
Percentage" shall be: (i) provided payments have not yet begun hereunder, one
hundred percent (100%) upon the occurrence of a "change of control" as defined
in subparagraph 1.5 below or upon the Executive's death; and (ii)
notwithstanding subclause (i) of this Paragraph, zero percent (O%) in the event
the Executive takes any action which prevents the Employer from collecting the
proceeds of any life insurance policy which the Employer may happen to own at
the time of the Executive's death and of which the Employer is the designated
beneficiary. Furthermore, notwithstanding the foregoing, or anything contained
herein to the contrary, in the event the Executive takes any action which
prevents the Employer from collecting the proceeds of any life insurance policy
which the Employer may happen to own at the time of the Executive's death and of
which the Employer is the designated beneficiary: (1) the Executive's estate or
designated beneficiary shall no longer be entitled to receive any of the amounts
payable under the terms of this Agreement, and (2) the Bank shall have the
right to recover from Executive's estate all of the amounts paid to the
Executive's estate (with respect to amounts paid prior to Executive's death or
paid to Executive's estate) or designated beneficiary (with respect to amounts
paid to the designated beneficiary) pursuant to the terms of this Agreement
prior to and after Executive's death.
1.4. BENEFICIARY. The term "beneficiary" or "designated
beneficiary" shall mean the person or persons whom the Executive shall designate
in a valid Beneficiary Designation, a copy of which is attached hereto as
Exhibit "C," to receive the benefits provided hereunder. A Beneficiary
Designation shall be valid only if it is in the form attached hereto and made a
part hereof and is received by the Administrator prior to the Executive's death.
1.5. CHANGE IN CONTROL. The term "Change in Control" shall mean
the occurrence of the any of the following events with respect to Employer (with
the term "Employer" being defined, when determining whether a "Change in
Control" has occurred, to include Mid-Peninsula Bank's current holding company,
Mid-Peninsula Bancorp, a California corporation, such that a "Change in Control"
of Mid-Peninsula Bancorp will be deemed to constitute a "Change in Control" of
the Employer): (i) a change in control of a
2
<PAGE>
nature that would be required to be reported in response to item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or in response to any other form or
report to the regulatory agencies or governmental authorities having
jurisdiction over the Employer or any stock exchange on which the Employer's
shares are listed which requires the reporting of a change in control; (ii) any
merger, consolidation or reorganization of the Employer in which the Employer
does not survive; (iii) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions) of any assets
of the Employer having an aggregate fair market value of fifty percent (50%) of
the total value of the assets of the Employer, reflected in the most recent
balance sheet of the Employer; (iv) a transaction whereby any "person" (as such
term is used in the Exchange Act or any individual, corporation, partnership,
trust or any other entity) becomes the beneficial owner, directly or indirectly,
of securities of the Employer representing twenty-five percent (25 %) or more of
the combined voting power of the Employer's then outstanding securities; or (v)
a situation where, in any one-year period, individuals who at the beginning of
such period constitute the Board of Directors of the Employer cease for any
reason to constitute at least a majority thereof, unless the election, or the
nomination for election by the Employer's shareholders, of each new director is
approved by a vote of at least three-quarters (3/4) of the directors then still
in office who were directors at the beginning of the period.
1.6. THE CODE. The "Code" shall mean the Internal Revenue Code
of 1986, as amended (the "Code").
1.7. DISABILITY/DISABLED. The term "Disability" or "Disabled"
shall have the same meaning given such term in the principal disability
insurance policy covering the Executive, which is incorporated herein by
reference to the limited extent thereof. In the event the Executive is not
covered by a disability policy containing a definition of "Disability" or
"Disabled," these terms shall mean an illness or incapacity which, having
continued for a period of one hundred and eighty (180) consecutive days,
prevents the Executive from adequately performing the Executive's regular
employment duties. The determination of whether the Executive is Disabled shall
be made by an independent physician selected by mutual agreement of the parties.
1.8. EARLY RETIREMENT DATE. The term "Early Retirement Date"
shall mean the Retirement (as defined below) of the Executive on a date which
occurs prior to the Executive attaining sixty-five (65) years of age but after
the Executive has attained sixty-two (62) years of age.
1.9. EFFECTIVE DATE. The term "Effective Date" shall mean the
date upon which this Agreement was entered into by the parties, as first written
above.
3
<PAGE>
1.10. ERISA. The term "ERISA" shall mean the Employee Retirement
Income Security Act of 1974, as amended.
1.11. PLAN YEAR. The term "Plan Year" shall mean the Employer's
fiscal year.
1.12. RETIREMENT. The term "Retirement" or "Retires" shall refer
to the date which the Executive acknowledges in writing to Employer to be the
last day he will provide any significant personal services, whether as an
employee or independent consultant or contractor, to Employer or to, for, or on
behalf of, any other business entity conducting, performing or making available
to any person or entity banking or other financial services of any kind. For
purposes of this Agreement, the phrase "significant personal services" shall
mean more than ten (10) hours of personal services rendered to one or more
individuals or entities in any thirty (30) day period.
1.13. SCHEDULE B ANNUITY. The term "Schedule B Annuity" shall
mean an "Annuity," as defined in this Paragraph 1.13, purchased by the Bank
within one month of the date the first payment is to be paid to the Executive
under the terms of this Agreement with that sum of money which equals: (a) the
amount set forth on Schedule B attached hereto which corresponds to the number
of complete years (i.e., twelve [12] month periods) which have elapsed between
the Effective Date hereof and the date on which the event triggering or fixing
an Executive's right to a Schedule B Annuity occurs; plus (b) an amount equal to
the amount of interest which would have been earned on the amount described in
the foregoing clause (a) of this Paragraph if said amount had been invested in
successive six month United States Treasury Bills starting from the date on
which the event triggering or fixing an Executive's right to a Schedule B
Annuity occurs and ending on the date the first payment to be made by the Bank
to the Executive under the terms of this Agreement is to occur (i.e., using the
six month T-Bill rate as the applicable rate for determining the "deemed
interest" to be credited). For purposes of this Agreement, the term "Annuity"
shall mean a commercially available, standard form annuity contract: (i) with an
insurance company having the highest available rating from Standard & Poor's;
and (ii) providing equal monthly payments over a period of fifteen years (one
hundred and eighty [180] months) (with the amount of each monthly payment to be
determined by reference to the Schedule B monetary amount which is to be
invested, as described above, and to begin as described below with respect to
the particular event which triggers the right to receive the Schedule B
Annuity). Notwithstanding the foregoing, or anything contained herein to the
contrary, the amount of the Annuity shall be limited (determined at the time of
its acquisition) to the extent: (i) required under the other provisions of this
Agreement, including, but not limited to, Paragraphs 5, 7 and 8 hereof; (ii)
required by reason of the lawful order of any regulatory agency or body having
jurisdiction over the Employer; and (iii) required in order for the Employer to
ensure proper compliance with any and all applicable state and federal laws,
including, but not limited to, income, employment and
4
<PAGE>
disability income tax laws (e.g., FICA, FUTA, SDI). Furthermore,
notwithstanding the foregoing, or anything contained herein to the contrary, in
the event the Executive takes any action which prevents the Employer from
collecting the proceeds of any life insurance policy which the Employer may
happen to own at the time of the Executive's death and of which the Employer is
the designated beneficiary: (1) the Executive's estate or designated beneficiary
shall no longer be entitled to receive any of the amounts payable under the
terms of the Annuity, and (2) all amounts paid prior to or after Executive's
death under the terms of the Annuity shall be recoverable in full by the Bank
from Executive's estate (with respect to amounts paid prior to Executive's death
or paid to Executive's estate] or designated beneficiary [with respect to
amounts paid to the designated beneficiary]). The selection of the company
which is to provide the Annuity and the terms of such Annuity shall, except as
provided or limited above, be made by the Bank as it determines to be
appropriate, said determinations to be made by the Bank in its sole and absolute
discretion.
1.14. SURVIVING SPOUSE. The term "Surviving Spouse" shall mean
the person, if any, who shall be legally married to the Executive on the date of
the Executive's death.
1.15. TERMINATION FOR CAUSE. The term "Termination for Cause"
shall mean termination of the employment of the Executive by reason of any of
the following:
(a) A termination "for cause" as this term may be defined in any
written employment agreement entered into by and between the Employer and the
Executive;
(b) The willful breach of duty by the Executive in the course of
his employment;
(c) The habitual neglect by the Executive of his employment
responsibilities and duties;
(d) The Executive's deliberate violation of any state or federal
banking or securities laws, or of the Bylaws, rules, policies or resolutions of
the Employer, or of the rules or regulations of: (i) the office of the
California Superintendent of Banks; (ii) the Federal Deposit Insurance
Corporation; or (iii) any other regulatory agency or governmental authority
having jurisdiction over the Employer;
(e) The determination by a state or federal banking agency or
other governmental authority having jurisdiction over the Employer that the
Executive is not suitable to act in the capacity for which he is employed by the
Employer;
5
<PAGE>
(f) The Executive is convicted of any felony or a crime
involving moral turpitude or a fraudulent or dishonest act; or
(g) The Executive discloses without authority any secret or
confidential information not otherwise publicly available concerning the
Employer or takes any action which the Employer's Board of Directors determines,
in its sole discretion and subject to good faith, fair dealing and
reasonableness, constitutes unfair competition with or induces any customer to
breach any contract with the Employer.
2. SCOPE, PURPOSE AND EFFECT.
2.1. CONTRACT OF EMPLOYMENT. Although this Agreement is intended
to provide the Executive with an additional incentive to remain in the employ of
the Employer, this Agreement shall not be deemed to constitute a contract of
employment between the Executive and the Employer nor shall any provision of
this Agreement restrict or expand the right of the Employer to terminate the
Executive's employment. This Agreement shall have no impact or effect upon any
separate written Employment Agreement which the Executive may have with the
Employer, it being the parties' intention and agreement that unless this
Agreement is specifically referenced in said Employment Agreement (or any
modification thereto), this Agreement (and the Employer's obligations hereunder)
shall stand separate and apart and shall have no effect upon, nor be affected
by, the terms and provisions of said Employment Agreement.
2.2. FRINGE BENEFIT. The benefits provided by this Agreement are
granted by the Employer as a fringe benefit to the Executive and are not a part
of any salary reduction plan or any arrangement deferring a bonus or a salary
increase. The Executive has no option to take any current payments or bonus in
lieu of the benefits provided by this Agreement.
3. PAYMENTS UPON OR AFTER RETIREMENT.
3.1. PAYMENTS UPON RETIREMENT. If the Executive shall remain in
the continuous employment of the Employer until attaining sixty-five (65) years
of age, and provided an event triggering Schedule B Annuity payments has not yet
occurred, the Executive shall be entitled to be paid the Annual Benefit, as
defined above, in equal monthly installments, for a period of fifteen (15) years
(One Hundred Eighty (180) months), with each installment to be paid on the first
day of each month, beginning with the month following the month in which the
Executive Retires or upon such later date as may be mutually agreed upon by the
Executive and the Employer in advance of said Retirement date. At the
Employer's sole and absolute discretion, the Employer may increase the Annual
Benefit as and when the Employer determines the same to be appropriate in order
to reflect a substantial change in the cost of living. Notwithstanding anything
contained herein to the
6
<PAGE>
contrary, the Employer shall have no obligation hereunder to make any such cost-
of-living adjustment.
3.2. PAYMENTS IN THE EVENT OF DEATH AFTER RETIREMENT. The
Employer agrees that if the Executive Retires and begins to receive payments
pursuant to Paragraph 3.1 hereof, but shall die before receiving all of the One
Hundred Eighty (180) monthly payments to which he is entitled, the Employer will
continue to make such monthly payments to the Executive's designated beneficiary
for the remaining period. If a valid Beneficiary Designation is not in effect,
then the remaining amounts due to the Executive under the term of this Agreement
shall be paid to the Executive's Surviving Spouse. If the Executive leaves no
Surviving Spouse, the remaining amounts due to the Executive under the terms of
this Agreement shall be paid to the duly qualified personal representative,
executor or administrator of the Executive's estate.
4. PAYMENTS IN THE EVENT DEATH OR DISABILITY OCCURS PRIOR TO RETIREMENT.
4.1. PAYMENTS IN THE EVENT OF DEATH PRIOR TO RETIREMENT.
Provided an event triggering Schedule B Annuity payments has not yet occurred,
and the Executive dies while actively employed by the Employer at any time after
the Effective Date of this Agreement, but prior to Retirement, the Employer
agrees to pay the Annual Benefit to the Executive's designated beneficiary in
equal monthly installments, for a period of fifteen (15) years (One Hundred
Eighty (180) months). If a valid Beneficiary Designation is not in effect, then
the remaining amounts due to the Executive under the term of this Agreement
shall be paid to the Executive's Surviving Spouse. If the Executive leaves no
Surviving Spouse, the remaining amounts due to the Executive under the terms of
this Agreement shall be paid to the duly qualified personal representative,
executor or administrator of the Executive's estate. Each installment shall be
paid on the first day of each month, beginning with the month following the
month in which the Executive's death occurs.
4.2. PAYMENTS IN THE EVENT OF DISABILITY PRIOR TO RETIREMENT. In
the event the Executive becomes Disabled while actively employed by the Employer
at any time after the date of this Agreement but prior to Retirement, and
provided an event triggering Schedule B Annuity payments has not yet occurred,
the Executive (or the Executive's designated beneficiary, or the Executive's
estate if no designated beneficiary has been selected, upon the Executive's
death) shall be entitled to the Schedule B Annuity, as defined above, with
payments thereunder to begin in the month following the month in which the
Executive attains sixty-five (65) years of age or, if earlier, the month
following the month in which the Executive dies.
7
<PAGE>
5. PAYMENTS IN THE EVENT EMPLOYMENT IS TERMINATED PRIOR TO RETIREMENT. As
indicated in Paragraph 2 above, the Employer reserves the right to terminate the
Executive's employment, with or without cause but subject to any written
employment agreement which may then exist, at any time prior to the Executive's
Retirement. In the event that the employment of the Executive shall be
terminated, other than by reason of Disability, death or Retirement, prior to
the Executive's attaining sixty-five (65) years of age, then this Agreement
shall terminate upon the date of such termination of employment; provided,
however, that the Executive shall be entitled to the following benefits as may
be applicable depending upon the circumstances surrounding the Executive's
termination:
5.1. TERMINATION WITHOUT CAUSE. If the Executive's employment is
terminated by the Employer without cause, and such termination is not subject to
the provisions of Paragraph 5.4 below, the Executive (or the Executive's
designated beneficiary, or the Executive's estate if no designated beneficiary
has been selected, upon the Executive's death) shall be entitled to be paid the
Annual Benefit, as defined above, with payments to begin with the month
following the month in which the Executive is terminated without cause or upon
such later date as may be mutually agreed upon by the Executive and the Employer
in advance of the effective date of the Executive's termination.
5.2. VOLUNTARY TERMINATION BY THE EXECUTIVE. If the Executive
voluntarily terminates his employment with the Employer (other than by reason of
death, Disability or Retirement), and such termination is not subject to the
provisions of Paragraph 5.4 below, the Executive (or the Executive's designated
beneficiary, or the Executive's estate if no designated beneficiary has been
selected, upon the Executive's death) shall be entitled to be paid the Schedule
B Annuity, as defined above, with payments to begin with the month following the
month in which the Executive's employment is terminated without cause or upon
such later date as may be mutually agreed upon by the Executive and the Employer
in advance of the effective date of the Executive's termination.
5.3. TERMINATION FOR CAUSE. The Executive agrees that if his
employment with the Employer is terminated "for cause," as defined in
subparagraph 1.15 of this Agreement, he shall forfeit any and all rights and
benefits he may have under the terms of this Agreement and shall have no right
to be paid any of the amounts which would otherwise be due or paid to the
Executive by the Employer pursuant to the terms of this Agreement.
5.4. TERMINATION BY THE EMPLOYER ON ACCOUNT OF OR AFTER A CHANGE
IN CONTROL. In the event: (i) the Executive's employment with the Employer is
terminated by the Employer in conjunction with, or by reason of, a "change in
control" (as defined in subparagraph 1.5 above); or (ii) by reason of the
Employer's actions A material change occurs in the scope of the Executive's
position, title, responsibilities, duties, salary, benefits, or locations of
employment after A "change in control" (as defined in subparagraph
8
<PAGE>
1.5) occurs; or (iii) the Employer causes an event to occur which reasonably
constitutes or results in a demotion, a significant diminution of
responsibilities or authority, or a constructive termination (by forcing a
resignation or otherwise) of the Executive's employment after a "change in
control" (as defined in subparagraph 1.5) occurs, then the Executive (or the
Executive's designated beneficiary, or the Executive's estate if no designated
beneficiary has been selected, upon the Executive's death) shall be entitled to
be paid the Annual Benefit, as defined above, in equal monthly installments, for
a period of fifteen (15) years (One Hundred Eighty (180) months), with
installments to be paid on the first day of each month, beginning with the month
following the month in which the Executive is terminated or any one of the
actions referred to above occurs.
6. PAYMENTS IN THE EVENT THE EXECUTIVE ELECTS EARLY RETIREMENT. The
Executive shall have the right to elect to receive the Schedule B Annuity prior
to attaining sixty-five (65) years of age if he elects to Retire on a date which
constitutes an Early Retirement Date as defined in subparagraph 1.8 above. In
the event the Executive elects to Retire on a date which constitutes an Early
Retirement Date, the Executive shall be entitled to be paid the Schedule B
Annuity, as defined above, with payments thereunder to begin on the month
following the month in which the Early Retirement Date occurs.
7. ADDITIONAL LIMITATIONS ON THE AMOUNT OF THE ANNUAL BENEFIT/SCHEDULE B
ANNUITY. The Executive acknowledges and agrees that the parties have entered
into this Agreement based upon the certain financial and tax accounting
assumptions. Accordingly, with full knowledge of the potential consequences the
Executive agrees that, notwithstanding anything contained herein to the
contrary: (i) the amount of the Annual Benefit or the Schedule B Annuity, as the
case may be, shall be limited to that amount of the Annual Benefit or Schedule B
Annuity (determined without regard to this Paragraph 7) which will be deductible
by the Employer under the Code in the year in which payment is to be made to the
Executive; (ii) the Annual Benefit amount or the Schedule B Annuity, as the case
may be, shall be deemed to be the last payment made to the Executive and the
first for which an income tax deduction, if any, has been disallowed; and (iii)
any compensatory amounts for which a deduction is denied to the Employer shall,
at the Employer's election, serve to first reduce the Employer's obligation to
make the monthly Annual Benefit payments otherwise due and payable to the
Executive under the terms of this Agreement. The Executive recognizes that, in
this regard, limitations on deductibility may be imposed under, but not limited
to, Code Section 280G. Consistent with the foregoing, and in the event that any
payment or benefit received or to be received by the Executive, whether payable
pursuant to the terms of this Agreement or any other plan, arrangement or
agreement with the Employer (together with the Annual Benefit or the Schedule B
Annuity, the "Total Payments"), win not be deductible (in whole or in part) as a
result of Code Section 280G. the Annual Benefit or the Schedule B Annuity, shall
be reduced until no portion of the Total Payments is nondeductible as a result
of Section 280G of the Code (or the Annual Benefit/Schedule B Annuity is reduced
to zero (0)). For purposes of this limitation:
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<PAGE>
(a) No portion of the Total Payments, the receipt or enjoyment
of which the Executive shall have effectively waived in writing prior to the
date of payment of any future Annual Benefit or Schedule B Annuity payments,
shall be taken into account;
(b) No portion of the Total Payments shall be taken into
account, which in the opinion of the tax counsel selected by the Employer and
acceptable to the Executive, does not constitute a "parachute payment" within
the meaning of Section 280G of the Code;
(c) Future Annual Benefit/Schedule B Annuity payments shall be
reduced only to the extent necessary so that the Total Payments (other than
those referred to in clauses (a) or (b) above in their entirety) constitute
reasonable compensation for services actually rendered within the meaning of
Section 280G of the Code, in the opinion of tax counsel referred to in clause
(b) above; and
(d) The value of any non-cash benefit or any deferred payment or
benefit included in the Total Payments shall be determined by the Employer's
independent auditors in accordance with the principles of Section 280G of the
Code.
8. RIGHT TO DETERMINE FINANCING METHODS. The Employer reserves the right
to determine, in its sole and absolute discretion, whether, to what extent and
by what method, if any, to provide for the payment of the amounts which may be
payable to the Executive, the Executive's spouse or the Executive's
beneficiaries under the terms of this Agreement. In the event that the Employer
elects to finance this Agreement, in whole or in part, through the use of life
insurance or annuities, or both, the Employer shall determine the ownership and
beneficial interests of any such policy of life insurance or annuity. The
Employer further reserves the right, in its sole and absolute discretion, to
terminate any such policy, and any other device used to finance its obligations
under this Agreement, at any time, in whole or in part. Consistent with
Paragraph 10 below, neither the Executive, the Executive's spouse nor the
Executive's beneficiaries shall have any right, title or interest in or to any
financing source or amount utilized by the Employer pursuant to this Agreement,
and any such financing source or amount shall not constitute security for the
performance of the Employer's obligations pursuant to this Agreement. In
connection with the foregoing, the Executive agrees to execute such documents
and undergo such medical examinations or tests which the Employer may request
and which may be reasonably necessary to facilitate any financing for this
Agreement including, without limitation, the Employer's acquisition of any
policy of insurance or annuity. Furthermore, a refusal by the Executive to
consent to, participate in and undergo any such medical examinations or tests
shall result in the immediate termination of this Agreement and the immediate
forfeiture by the Executive, the Executive's spouse and the Executive's
beneficiaries of any and all rights to payment hereunder.
10
<PAGE>
9. CLAIMS PROCEDURE. The Employer shall, but only to the extent
necessary to comply with ERISA, be designated as the named fiduciary under this
Agreement and shall have authority to control and manage the operation and
administration of this Agreement. Consistent therewith, the Employer shall make
all determinations as to the rights to benefits under this Agreement. Any
decision by the Employer denying a claim by the Executive, the Executive's
spouse, or the Executive's beneficiary for benefits under this Agreement shall
be stated in writing and delivered or mailed, via registered or certified mail,
to the Executive, the Executive's spouse or the Executive's beneficiary, as the
case may be. Such decision shall set forth the specific reasons for the denial
of a claim. In addition, the Employer shall provide the Executive, the
Executive's spouse or the Executive's beneficiary with a reasonable opportunity
for a full and fair review of the decision denying such claim.
10. STATUS AS AN UNSECURED GENERAL CREDITOR. Notwithstanding anything
contained herein to the contrary: (i) neither the Executive, the Executive's
spouse or the Executive's designated beneficiaries shall have any legal or
equitable rights, interests or claims in or to any specific property or assets
of the Employer; (ii) none of the Employer's assets shall be held in or under
any trust for the benefit of the Executive, the Executive's spouse or the
Executive's designated beneficiaries or held in any way as security for the
fulfillment of the obligations of the Employer under this Agreement; (iii) all
of the Employer's assets shall be and remain the general unpledged and
unrestricted assets of the Employer; (iv) the Employer's obligation under this
Agreement shall be that of an unfunded and unsecured promise by the Employer to
pay money in the future; and (v) the Executive, the Executive's spouse and the
Executive's designated beneficiaries shall be unsecured general creditors with
respect to any benefits which may be payable under the terms of this Agreement.
11. DISCRETION OF BOARD TO ACCELERATE PAYOUT. Notwithstanding any of the
other provisions of this Agreement, the Board of Directors of the Bank may, if
determined in its sole and absolute discretion to be appropriate, accelerate the
payment of the amounts due under the terms of this Agreement, provided that
Executive (or Executive's spouse or designated beneficiaries): (i) consents to
the revised payout terms determined appropriate by the Bank's Board of
Directors; and (ii) does not negotiate or in anyway influence the terms of
proposed altered/accelerated payout (said decision to be made solely by the
Bank's Board of Directors and offered to the Executive [or Executive's spouse or
designated beneficiaries] on a "take it or leave it basis").
12. MISCELLANEOUS.
12.1. OPPORTUNITY TO CONSULT WITH INDEPENDENT COUNSEL. The
Executive acknowledges that he has been afforded the opportunity to consult with
independent counsel of his choosing regarding both the benefits granted to him
under the terms of this Agreement and the terms and conditions which may affect
the Executive's right
11
<PAGE>
to these benefits. The Executive further acknowledges that he has read,
understands and consents to all of the terms and conditions of this Agreement,
and that he enters into this Agreement with a full understanding of its terms
and conditions.
12.2. ARBITRATION OF DISPUTES. All claims, disputes and other
matters in question arising out of or relating to this Agreement or the breach
or interpretation thereof, other than those matters which are to be determined
by the Employer in its sole and absolute discretion or those matters subject to
the provisions of Article 9 hereof, shall be resolved by binding arbitration
before a representative member, selected by the mutual agreement of the parties,
of the Judicial Arbitration and Mediation Services, Inc. ("JAMS',), presently
located at II I Pine Street, Suite 710, in San Francisco, California. In the
event JAMS is unable or unwilling to conduct the arbitration provided for under
the terms of this Paragraph, or has discontinued its business, the parties agree
that a representative member, selected by the mutual agreement of the parties,
of the American Arbitration Association ("AAA"), presently located in San
Francisco, California, shall conduct the binding arbitration referred to in this
Paragraph. Notice of the demand for arbitration shall be filed in writing with
the other party to this Agreement and with JAMS (or AAA, if necessary). In no
event shall the demand for arbitration be made after the date when institution
of legal or equitable proceedings based on such claim, dispute or other matter
in question would be barred by the applicable statute of limitations. The
arbitration shall be subject to such rules of procedure used or established by
JAMS, or if there are none, the rules of procedure used or established by AAA.
Any award rendered by JAMS or AAA shall be final and binding upon the parties,
and as applicable, their respective heirs, beneficiaries, legal representatives,
agents, successors and assigns, and may be entered in any court having
jurisdiction thereof. The obligation of the parties to arbitrate pursuant to
this clause shall be specifically enforceable in accordance with, and shall be
conducted consistently with, the provisions of Title 9 of Part 3 of the
California Code of Civil Procedure. Any arbitration hereunder shall be
conducted in San Francisco, California, unless otherwise agreed to by the
parties.
12.3. ATTORNEYS' FEES. In the event of any arbitration or
litigation concerning any controversy, claim or dispute between the parties
hereto, arising out of or relating to this Agreement or the breach hereof, or
the interpretation hereof, the prevailing party shall be entitled to recover
from the losing party reasonable expenses, attorneys' fees and costs incurred in
connection therewith or in the enforcement or collection of any judgment or
award rendered therein. The "prevailing party" means the party determined by
the arbitrator(s) or court, as the case may be, to have most nearly prevailed,
even if such party did not prevail in all matters, not necessarily the one in
whose favor a judgment is rendered.
12.4. NOTICE. Any notice required or permitted of either the
Executive or the Employer under this Agreement shall be deemed to have been duly
given, if by personal delivery, upon the date received by the party or its
authorized representative; if
12
<PAGE>
by facsimile, upon transmission to a telephone number previously provided by the
party to whom the facsimile is transmitted as reflected in the records of the
party transmitting the facsimile and upon reasonable confirmation of such
transmission; and if by mail, on the third day after mailing via U.S. first
class mail, registered or certified, postage prepaid and return receipt
requested, and addressed to the party at the address given below for the receipt
of notices, or such changed address as may be requested in writing by a party.
If to the Employer: Mid-Peninsula Bank
420 Cowper Street
Palo Alto, CA 94301
Attn: Chairman of the Board
If to the Executive: Mr. Murray B. Dey
549 W. Crescent Drive
Palo Alto, CA 94301
12.5. ASSIGNMENT. Neither the Executive, the Executive's spouse,
nor any other beneficiary under this Agreement shall have any power or right to
transfer, assign, anticipate, hypothecate, modify or otherwise encumber any part
or all of the amounts payable hereunder, nor, prior to payment in accordance
with the terms of this Agreement, shall any portion of such amounts be: (i)
subject to seizure by any creditor of any such beneficiary, by a proceeding at
law or in equity, for the payment of any debts, judgments, alimony or separate
maintenance obligations which may be owed by the Executive, the Executive's
spouse, or any designated beneficiary; or (ii) transferable by operation of law
in the event of bankruptcy, insolvency or otherwise. Any such attempted
assignment or transfer shall be void and shall terminate this Agreement, and the
Employer shall thereupon have no further liability hereunder.
12.6. BINDING EFFECT/MERGER OR REORGANIZATION. This Agreement
shall be binding upon and inure to the benefit of the Executive and the Employer
and, as applicable, their respective heirs, beneficiaries, legal
representatives, agents, successors and assigns. Accordingly, the Employer
shall not merge or consolidate into or with another corporation, or reorganize
or sell substantially all of its assets to another corporation, FIRM or person,
unless and until such succeeding or continuing corporation, firm or person
agrees to assume and discharge the obligations of the Employer under this
Agreement. Upon the occurrence of such event, the term "Employer" as used in
this Agreement shall be deemed to refer to such surviving or successor firm,
person, entity or corporation.
12.7. NONWAIVER. The failure of either party to enforce at any
time or for any period of time any one or more of the terms or conditions of
this Agreement shall
13
<PAGE>
not be a waiver of such term(s) or condition(s) or of that party's right
thereafter to enforce each and every term and condition of this Agreement.
12.8. PARTIAL INVALIDITY. If any term, provision, covenant, or
condition of this Agreement is determined by an arbitrator or a court, as the
case may be, to be invalid, void, or unenforceable, such determination shall not
render any other term, provision, covenant or condition invalid, void or
unenforceable, and the Agreement shall remain in full force and effect
notwithstanding such partial invalidity.
12.9. ENTIRE AGREEMENT. This Agreement supersedes any and all
other agreements, either oral or in writing, between the parties with respect to
the subject matter of this Agreement and contains all of the covenants and
agreements between the parties with respect thereto. Each party to this
Agreement acknowledges that no other representations, inducements, promises, or
agreements, oral or otherwise, have been made by any party, or anyone acting on
behalf of any party, which are not set forth herein, and that no other
agreement, statement, or promise not contained in this Agreement shall be valid
or binding on either party.
12.10. MODIFICATIONS. Any modification of this Agreement shall be
effective only if it is in writing and signed by each party or such party's
authorized representative.
12.11. PARAGRAPH HEADINGS. The paragraph headings used in this
Agreement are included solely for the convenience of the parties and shall not
affect or be used in connection with the interpretation of this Agreement.
12.12. NO STRICT CONSTRUCTION. The language used in this Agreement
shall be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction will be applied against any
person.
12.13. GOVERNING LAW. The laws of the State of California, other
than those laws denominated choice of law rules, and, where applicable, the
rules and regulations of the Office of the California Superintendent of Banks
and the Federal Deposit Insurance Corporation, shall govern the validity,
interpretation, construction and effect of this Agreement.
14
<PAGE>
IN WITNESS WHEREOF, the Employer and the Executive have executed this
Agreement on the date first above-written in the City of Palo Alto, Santa Clara
County, California.
THE EMPLOYER: THE EXECUTIVE:
Mid-Peninsula Bank
A California State Chartered Bank
By: /s/Duncan L. Matteson /s/Murray B. Dey
--------------------- ----------------
Duncan L. Matteson, Chairman Murray B. Dey
15
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF COMPLETE
YEARS WHICH HAVE ELAPSED APPLICABLE PERCENTAGE
------------------------ ---------------------
<S> <C>
1. . . . . . . . . . . . . . . . . . 10.00%
2. . . . . . . . . . . . . . . . . . 20.00%
3. . . . . . . . . . . . . . . . . . 30.00%
4. . . . . . . . . . . . . . . . . . 40.00%
5. . . . . . . . . . . . . . . . . . 50.00%
6. . . . . . . . . . . . . . . . . . 60.00%
7. . . . . . . . . . . . . . . . . . 70.00%
8. . . . . . . . . . . . . . . . . . 80.00%
9. . . . . . . . . . . . . . . . . . 90.00%
10. . . . . . . . . . . . . . . . . . 100.00%
</TABLE>
16
<PAGE>
SCHEDULE B
SCHEDULE B ANNUITY AMOUNT
1. $ 22,356
2. $ 46,689
3. $ 73,172
4. $ 101,997
5. $ 133,369
6. $ 167,514
7. $ 204,677
8. $ 245,125
9. $ 289,148
10. $ 337,063
11. $ 389,213
12. $ 445,972
13. $ 507,748
17
<PAGE>
SCHEDULE C
BENEFICIARY DESIGNATION
To the Administrator of the Mid-Peninsula Bank Executive Salary
Continuation Agreement:
Pursuant to the Provisions of my Executive Salary Continuation Agreement
with Mid-Peninsula Bank, permitting the designation of a beneficiary or
beneficiaries by a participant, I hereby designate the following persons and
entities as primary and secondary beneficiaries of any benefit under said
Agreement payable by reason of my death:
PRIMARY BENEFICIARY:
The Murray Brookman Dey & Wendy Hewett Dey
TRust UTA dtd 4-23-1984
549 W. Crescent Dr.
PALO ALTO, CA. 94301
- - ------------------ ----------------------- ----------------
Name Address Relationship
SECONDARY (CONTINGENT) BENEFICIARY:
- - ------------------ ----------------------- ----------------
Name Address Relationship
THE RIGHT TO REVOKE OR CHANGE ANY BENEFICIARY DESIGNATION IS HEREBY RESERVED.
ALL PRIOR DESIGNATIONS, IF ANY, OF PRIMARY BENEFICIARIES AND SECONDARY
BENEFICIARIES ARE HEREBY REVOKED.
The Administrator shall pay all sums payable under the Agreement by reason of my
death to the Primary Beneficiary, if he or she survives me, and if no Primary
Beneficiary shall survive me, then to the Secondary Beneficiary, and if no named
beneficiary survives me, then the Administrator shall pay all amounts in
accordance with the terms of my Executive Salary Continuation Agreement. In the
event that a named beneficiary survives me and dies prior to receiving the
entire benefit payable under said Agreement, then and in that event, the
18
<PAGE>
remaining unpaid benefit payable according to the terms of my Executive Salary
Continuation Agreement shall be payable to the personal representatives of the
estate of said beneficiary who survived me but died prior to receiving the total
benefit provided by my Executive Salary Continuation Agreement.
THE EXECUTIVE:
Dated: 5-26, 1995 /s/ Murrary B. Dey
---- - --------------------------
MURRAY B. DEY
CONSENT OF THE EXECUTIVE'S SPOUSE
TO THE ABOVE BENEFICIARY DESIGNATION:
I, Wendy Dey, being the spouse of Murray B. Dey, after being afforded the
opportunity to consult with independent counsel of my choosing, do hereby
acknowledge that I have read, agree and consent to the foregoing Beneficiary
Designation which relates to the Executive Salary Continuation Agreement entered
into by my spouse effective as of 4-26, 1995. I understand that the above
----
Beneficiary Designation may affect certain rights which I may have in the
benefits provided for under the terms of the Executive Salary Continuation
Agreement and in which I may have a marital property interest.
Dated: 5-26, 1995.
----
/s/ Wendy Dey
-----------------
Wendy Dey
19
<PAGE>
CERTIFICATE OF ACKNOWLEDGMENT
OF NOTARY PUBLIC
State of California ) [NOTARY PUBLIC STAMP]
) SS.
County of Santa Clara )
On May 26, 1995, before me, Judy L. Hovgaard, Notary Public, State of
------ ----------------
California, personally appeared Murray B. Dey and Wendy Dey,
[xxx] personally known to me - OR
[ ] proved to me on the basis of satisfactory evidence
to be the person(s) whose name(s) are subscribed to the within instrument and
acknowledged to me that they executed the same in their authorized
capacity(ies), and that by their signature(s) on the instrument the person(s),
or the entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
/s/Judy L. Hovgaard
---------------------------
Notary Public,
State of California
(Seal)
Capacity Claimed by Signer:
- - --------------------------
[xx] Individual(s) Signing for Oneself
[xx] Corporate Officer(S) Executive Vice President Mid-Peninsula Bank
------------------------- ------------------
Title Company
------------------------- ------------------
Title Company
[ ] Partner(s)
--------------------------------------------------------------
Partnership
[ ] El Trustees(s)
----------------------------------------------------------
Trust
[ ] Attorney-in-Fact
------------------------- -------------------------
Principal Principal
[ ] Other
------------------------------ -------------------------------
Entity(ies) Represented Entity(ies) Represented
Title or Type of Document: Executive Salary Continuation Agreement Date of
-----------------------------------------
Document: 5/26/95
-------
Number of Pages: Signer(s) Other Than Named Above:
--------- --------------------
<PAGE>
EXHIBIT 10.22
EXECUTIVE SALARY CONTINUATION AGREEMENT
This Agreement is made and entered into effective as of the Twenty-sixth
(26) day of April, 1995, by and between Mid-Peninsula Bank, a bank chartered
under the laws of the State of California (the "Employer"), and Carol H.
Rowland, an individual residing in the State of California (hereinafter referred
to as the "Executive").
RECITALS
WHEREAS, the Executive is an employee of the Employer and is
serving as its First Vice President and Chief Financial Officer;
WHEREAS, the Executive's experience and knowledge of the affairs
of the Employer and the banking industry are extensive and valuable;
WHEREAS, it is deemed to be in the best interests of the Employer
to provide the Executive with certain salary continuation benefits, on the terms
and conditions set forth herein, in order to reasonably induce the Executive to
remain in the Employer's employment; and
WHEREAS, the Executive and the Employer wish to specify in
writing the terms and conditions upon which this additional compensatory
incentive will be provided to the Executive, or to the Executive's spouse or the
Executive's designated beneficiaries, as the case may be;
NOW, THEREFORE, in consideration of the services to be performed
in the future, as well as the mutual promises and covenants contained herein,
the Executive and the Employer agree as follows:
AGREEMENT
1. TERMS AND DEFINITIONS.
1.1. ADMINISTRATOR. The Employer shall be the
"Administrator" and, solely for the purposes of ERISA, the "fiduciary" of this
Agreement where a fiduciary is required by ERISA.
1.2. ANNUAL BENEFIT. The term "Annual Benefit" shall
mean an annual sum of Forty-Five Thousand Dollars ($45,000.00) multiplied by the
Applicable Percentage (defined below) and then reduced to the extent: (i)
required under the other provisions of this Agreement, including, but not
limited to, Paragraphs 5, 7 and 8 hereof;
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<PAGE>
(ii) required by reason of the lawful order of any regulatory agency or body
having jurisdiction over the Employer; and (iii) required in order for the
Employer to properly comply with any and all applicable state and federal laws,
including, but not limited to, income, employment and disability income tax laws
(e.g., FICA, FUTA, SDI).
1.3. APPLICABLE PERCENTAGE. The term "Applicable
Percentage" shall mean that percentage fixed on Schedule "A" attached hereto
which is adjacent to the number of complete years (with a "year" being the
performance of personal services for or on behalf of the Employer for a period
of 365 days) which have elapsed starting from the Effective Date of this
Agreement and ending on the date payments are to first begin under the terms of
this Agreement. Notwithstanding the foregoing or the percentages set forth on
Schedule "A," but subject to all other terms and conditions set forth herein,
the "Applicable Percentage" shall be: (i) provided payments have not yet begun
hereunder, one hundred percent (100%) upon the Executive's death; and (ii)
notwithstanding subclause (i) of this Paragraph, zero percent (O%) in the event
the Executive takes any action which prevents the Employer from collecting the
proceeds of any life insurance policy which the Employer may happen to own at
the time of the Executive's death and of which the Employer is the designated
beneficiary. Furthermore, notwithstanding the foregoing, or anything contained
herein to the contrary, in the event the Executive takes any action which
prevents the Employer from collecting the proceeds of any life insurance policy
which the Employer may happen to own at the time of the Executive's death and of
which the Employer is the designated beneficiary: (1) the Executive's estate or
designated beneficiary shall no longer be entitled to receive any of the amounts
payable under the terms of this Agreement, and (2) the Bank shall have the right
to recover from Executive's estate all of the amounts paid to the Executive's
estate (with respect to amounts paid prior to Executive's death or paid to
Executive's estate) or designated beneficiary (with respect to amounts paid to
the designated beneficiary) pursuant to the terms of this Agreement prior to and
after Executive's death.
1.4. BENEFICIARY. The term "beneficiary" or
"designated beneficiary" shall mean the person or persons whom the Executive
shall designate in a valid Beneficiary Designation, a copy of which is attached
hereto as Exhibit "C," to receive the benefits provided hereunder. A
Beneficiary Designation shall be valid only if it is in the form attached hereto
and made a part hereof and is received by the Administrator prior to the
Executive's death.
1.5. CHANGE IN CONTROL. The term "Change in Control"
shall mean the occurrence of the any of the following events with respect to
Employer (with the term "Employer" being defined, when determining whether a
"Change in Control" has occurred, to include Mid-Peninsula Bank's current
holding company, Mid-Peninsula Bancorp, a California corporation, such that a
"Change in Control" of Mid-Peninsula Bancorp will be deemed to constitute a
"Change in Control" of the Employer): (i) a change in control of a nature that
would be required to be reported in response to Item 6(e) of Schedule 14A of
2
<PAGE>
Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), or in response to any other form or report to the
regulatory agencies or governmental authorities having jurisdiction over the
Employer or any stock exchange on which the Employer's shares are listed which
requires the reporting of a change in control; (ii) any merger, consolidation or
reorganization of the Employer in which the Employer does not survive; (iii) any
sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one
transaction or a series of transactions) of any assets of the Employer having an
aggregate fair market value of fifty percent (50%) of the total value of the
assets of the Employer, reflected in the most recent balance sheet of the
Employer; (iv) a transaction whereby any "person" (as such term is used in the
Exchange Act or any individual, corporation, partnership, trust or any other
entity) becomes the beneficial owner, directly or indirectly, of securities of
the Employer representing twenty-five percent (25 %) or more of the combined
voting power of the Employer's then outstanding securities; or (v) a situation
where, in any one-year period, individuals who at the beginning of such period
constitute the Board of Directors of the Employer cease for any reason to
constitute at least a majority thereof, unless the election, or the nomination
for election by the Employer's shareholders, of each new director is approved by
a vote of at least three-quarters (3/4) of the directors then still in office
who were directors at the beginning of the period.
1.6. THE CODE. The "Code" shall mean the Internal
Revenue Code of 1986, as amended (the "Code").
1.7. DISABILITY/DISABLED. The term "Disability" or
"Disabled" shall have the same meaning given such term in the principal
disability insurance policy covering the Executive, which is incorporated herein
by reference to the limited extent thereof. In the event the Executive is not
covered by a disability policy containing a definition of "Disability" or
"Disabled," these terms shall mean an illness or incapacity which, having
continued for a period of one hundred and eighty (180) consecutive days,
prevents the Executive from adequately performing the Executive's regular
employment duties. The determination of whether the Executive is Disabled shall
be made by an independent physician selected by mutual agreement of the parties.
1.8. EARLY RETIREMENT DATE. The term "Early
Retirement Date" shall mean the Retirement (as defined below) of the Executive
on a date which occurs prior to the Executive attaining sixty-five (65) years of
age but after the Executive has attained sixty-two (62) years of age.
1.9. EFFECTIVE DATE. The term "Effective Date" shall
mean the date upon which this Agreement was entered into by the parties, as
first written above.
1.10. ERISA. The term "ERISA" shall mean the Employee
Retirement Income Security Act of 1974, as amended.
3
<PAGE>
1.11 PLAN YEAR. The term "Plan Year" shall mean the
Employer's fiscal year.
1.12. RETIREMENT. The term "Retirement" or "Retires"
shall refer to the date which the Executive acknowledges in writing to Employer
to be the last day she will provide any significant personal services, whether
as an employee or independent consultant or contractor, to Employer or to, for,
or on behalf of, any other business entity conducting, performing or making
available to any person or entity banking or other financial services of any
kind. For purposes of this Agreement, the phrase "significant personal
services" shall mean more than ten (10) hours of personal services rendered to
one or more individuals or entities in any thirty (30) day period.
1.13. SCHEDULE B ANNUITY. The term "Schedule B Annuity"
shall mean an "Annuity," as defined in this Paragraph 1.13, purchased by the
Bank within one month of the date the first payment is to be paid to the
Executive under the terms of this Agreement with that sum of money which equals:
(a) the amount set forth on Schedule B attached hereto which corresponds to the
number of complete years (i.e., twelve [12] month periods) which have elapsed
between the Effective Date hereof and the date on which the event triggering or
fixing an Executive's right to a Schedule B Annuity occurs; plus (b) an amount
equal to the amount of interest which would have been earned on the amount
described in the foregoing clause (a) of this Paragraph if said amount had been
invested in successive six month United States Treasury Bills starting from the
date on which the event triggering or fixing an Executive's right to a Schedule
B Annuity occurs and ending on the date the first payment to be made by the Bank
to the Executive under the terms of this Agreement is to occur (i.e., using the
six month T-Bill rate as the applicable rate for determining the "deemed
interest" to be credited). For purposes of this Agreement, the term "Annuity"
shall mean a commercially available, standard form annuity contract: (i) with an
insurance company having the highest available rating from Standard & Poor's;
and (ii) providing equal monthly payments over a period of ten years (one
hundred and twenty [120] months) (with the amount of each monthly payment to be
determined by reference to the Schedule B monetary amount which is to be
invested, as described above, and to begin as described below with respect to
the particular event which triggers the light to receive the Schedule B
Annuity). Notwithstanding the foregoing, or anything contained herein to the
contrary, the amount of the Annuity shall be limited (determined at the time of
its acquisition) to the extent: (i) required under the other provisions of this
Agreement, including, but not limited to, Paragraphs 5, 7 and 8 hereof, (ii)
required by reason of the lawful order of any regulatory agency or body having
jurisdiction over the Employer; and (iii) required in order for the Employer to
ensure proper compliance with any and all applicable state and federal laws,
including, but not limited to, income, employment and disability income tax laws
(e.g., FICA, FUTA, SDI). Furthermore, notwithstanding the foregoing, or
anything contained herein to the contrary, in the event the Executive takes any
action which prevents the Employer from collecting the proceeds of any life
insurance policy
4
<PAGE>
which the Employer may happen to own at the time of the Executive's death and of
which the Employer is the designated beneficiary: (1) the Executive's estate or
designated beneficiary shall no longer be entitled to receive any of the amounts
payable under the terms of the Annuity, and (2) all amounts paid prior to or
after Executive's death under the terms of the Annuity shall be recoverable in
full by the Bank from Executive's estate [with respect to amounts paid prior to
Executive's death or paid to Executive's estate] or designated beneficiary [with
respect to amounts paid to the designated beneficiary]). The selection of the
company which is to provide the Annuity and the terms of such Annuity shall,
except as provided or limited above, be made by the Bank as it determines to be
appropriate, said determinations to be made by the Bank in its sole and absolute
discretion.
1.14. SURVIVING SPOUSE. The term "Surviving Spouse"
shall mean the person, if any, who shall be legally married to the Executive on
the date of the Executive's death.
1.15. TERMINATION FOR CAUSE. The term "Termination for
Cause" shall mean termination of the employment of the Executive by reason of
any of the following:
(a) A termination "for cause" as this term may be
defined in any written employment agreement entered into by and between the
Employer and the Executive;
(b) The willful breach of duty by the Executive in
the course of her employment;
(c) The habitual neglect by the Executive of her
employment responsibilities and duties;
(d) The Executive's deliberate violation of any
state or federal banking or securities laws, or of the Bylaws, rules, policies
or resolutions of the Employer, or of the rules or regulations of: (i) the
Office of the California Superintendent of Banks; (ii) the Federal Deposit
Insurance Corporation; or (iii) any other regulatory agency or governmental
authority having jurisdiction over the Employer;
(e) The determination by a state or federal
banking agency or other governmental authority having jurisdiction over the
Employer that the Executive is not suitable to act in the capacity for which
she is employed by the Employer;
(f) The Executive is convicted of any felony or a
crime involving moral turpitude or a fraudulent or dishonest act; or
5
<PAGE>
(g) The Executive discloses without authority any
secret or confidential information not otherwise publicly available concerning
the Employer or takes any action which the Employer's Board of Directors
determines, in its sole discretion and subject to good faith, fair dealing and
reasonableness, constitutes unfair competition with or induces any customer to
breach any contract with the Employer.
1.16. VARIABLE AMOUNT. For purposes of this Agreement,
the parties agree that the "Variable Amount" shall be an amount which begins
with a zero dollar value ($0.00) and which is increased by eight hundred thirty-
three dollars and thirty-three cents ($833.33) at the end of each calendar month
during: (a) the thirty-six (36) month period beginning on the Effective Date of
this Agreement; or, if earlier, (b) the period beginning on the Effective Date
hereof and ending on the date a payout of the Variable Amount is required under
the terms of this Agreement, as then further increased by that amount which
would have been earned as interest on the foregoing monthly amounts if each said
monthly amount had been invested, from the date of its being credited as part of
the Variable Amount until the date of its payment to the Executive (or the
Executive's designated beneficiary, or the Executive's estate if no designated
beneficiary has been selected, upon the Executive's death), in an account
bearing interest at a monthly rate equal to the rate payable on three month
United States Treasury Bills (measured as of the first day of each month after
said amount is credited).
2. SCOPE, PURPOSE AND EFFECT.
2.1. CONTRACT OF EMPLOYMENT. Although this Agreement is
intended to provide the Executive with an additional incentive to remain in the
employ of the Employer, this Agreement shall not be deemed to constitute a
contract of employment between the Executive and the Employer nor shall any
provision of this Agreement restrict or expand the right of the Employer to
terminate the Executive's employment. This Agreement shall have no impact or
effect upon any separate written Employment Agreement which the Executive may
have with the Employer, it being the parties' intention and agreement that
unless this Agreement is specifically referenced in said Employment Agreement
(or any modification thereto), this Agreement (and the Employer's obligations
hereunder) shall stand separate and apart and shall have no effect upon, nor be
affected by, the terms and provisions of said Employment Agreement.
2.2. FRINGE BENEFIT. The benefits provided by this
Agreement are granted by the Employer as a fringe benefit to the Executive and
are not a part of any salary reduction plan or any arrangement deferring a bonus
or a salary increase. The Executive has no option to take any current payments
or bonus in lieu of the benefits provided by this Agreement.
6
<PAGE>
3. PAYMENTS UPON OR AFTER RETIREMENT.
3.1. PAYMENTS UPON RETIREMENT. If the Executive shall
remain in the continuous employment of the Employer until attaining sixty-five
(65) years of age, and provided an event triggering Schedule B Annuity payments
has not yet occurred, the Executive shall be entitled to be paid the Annual
Benefit, as defined above, in equal monthly installments, for a period of ten
(10) years (One Hundred Twenty (120) months), with each installment to be paid
on the first day of each month, beginning with the month following the month in
which the Executive Retires or upon such later date as may be mutually agreed
upon by the Executive and the Employer in advance of said Retirement date. At
the Employer's sole and absolute discretion, the Employer may increase the
Annual Benefit as and when the Employer determines the same to be appropriate in
order to reflect a substantial change in the cost of living. Notwithstanding
anything contained herein to the contrary, the Employer shall have no obligation
hereunder to make any such cost-of-living adjustment.
3.2. PAYMENTS IN THE EVENT OF DEATH AFTER RETIREMENT.
The Employer agrees that if the Executive Retires and begins to receive payments
pursuant to Paragraph 3.1 hereof, but shall die before receiving all of the One
Hundred Twenty (120) monthly payments to which she is entitled, the Employer
will continue to make such monthly payments to the Executive's designated
beneficiary for the remaining period. If a valid Beneficiary Designation is not
in effect, then the remaining amounts due to the Executive under the term of
this Agreement shall be paid to the Executive's Surviving Spouse. If the
Executive leaves no Surviving Spouse, the remaining amounts due to the Executive
under the terms of this Agreement shall be paid to the duly qualified personal
representative, executor or administrator of the Executive's estate.
4. PAYMENTS IN THE EVENT DEATH OR DISABILITY OCCURS PRIOR TO
RETIREMENT.
4.1. PAYMENTS IN THE EVENT OF DEATH PRIOR TO
RETIREMENT. Provided an event triggering Schedule B Annuity payments has not
yet occurred, and the Executive dies while actively employed by the Employer at
any time after the Effective Date of this Agreement, but prior to Retirement,
the Employer agrees to pay the Annual Benefit to the Executive's designated
beneficiary in equal monthly installments, for a period of ten (10) years (One
Hundred Twenty (120) months). If a valid Beneficiary Designation is not in
effect, then the remaining amounts due to the Executive under the term of this
Agreement shall be paid to the Executive's Surviving Spouse. If the Executive
leaves no Surviving Spouse, the remaining amounts due to the Executive under the
terms of this Agreement shall be paid to the duly qualified personal
representative, executor or administrator of the Executive's estate. Each
installment shall be paid on the first day of each month, beginning with the
month following the month in which the Executive's death occurs.
7
<PAGE>
4.2. PAYMENTS IN THE EVENT OF DISABILITY PRIOR TO
RETIREMENT. In the event the Executive becomes Disabled while actively employed
by the Employer at any time after the date of this Agreement but prior to
Retirement, and provided an event triggering Schedule B Annuity payments has not
yet occurred, the Executive (or the Executive's designated beneficiary, or the
Executive's estate if no designated beneficiary has been selected, upon the
Executive's death) shall be entitled to the Schedule B Annuity, as defined
above, with payments thereunder to begin in the month following the month in
which the Executive attains sixty-five (65) years of age or, if earlier, the
month following the month in which the Executive dies.
5. PAYMENTS IN THE EVENT EMPLOYMENT IS TERMINATED PRIOR TO
RETIREMENT. As indicated in Paragraph 2 above, the Employer reserves the right
to terminate the Executive's employment, with or without cause but subject to
any written employment agreement which may then exist, at any time prior to the
Executive's Retirement. In the event that the employment of the Executive shall
be terminated, other than by reason of Disability, death or Retirement, prior to
the Executive's a@g sixty-five (65) years of age, then this Agreement shall
terminate upon the date of such termination of employment; provided, however,
that the Executive shall be entitled to the following benefits as may be
applicable depending upon the circumstances surrounding the Executive's
termination:
5.1. TERMINATION WITHOUT CAUSE. If the Executive's
employment is terminated by the Employer without cause, and such
termination is not subject to the provisions of Paragraph 5.4 below, the
Executive (or the Executive's designated beneficiary, or the Executive's estate
if no designated beneficiary has been selected, upon the Executive's death)
shall be entitled to be paid the Schedule B Annuity, as defined above, with
payments to begin with the month following the month in which the Executive is
terminated without cause or upon such later date as may be mutually agreed upon
by the Executive and the Employer in advance of the effective date of the
Executive's termination.
5.2. VOLUNTARY TERMINATION BY THE EXECUTIVE. If the
Executive voluntarily terminates her employment with the Employer (other than by
reason of death, Disability or Retirement), and such termination is not subject
to the provisions of Paragraph 5.4 below, the Executive (or the Executive's
designated beneficiary, or the Executive's estate if no designated beneficiary
has been selected, upon the Executive's death) shall be entitled to be paid the
Schedule B Annuity, as defined above, with payments to begin with the month
following the month in which the Executive's employment is terminated without
cause or upon such later date as may be mutually agreed upon by the Executive
and the Employer in advance of the effective date of the Executive's
termination.
5.3. TERMINATION FOR CAUSE. The Executive agrees that
if her employment with the Employer is terminated "for cause," as defined in
subparagraph 1. 15 of this Agreement, she shall be entitled to receive only the
Variable Amount, as defined in
8
<PAGE>
Paragraph 1.16 hereof, said amount to be paid to her within sixty (60) days of
the date of her termination for cause.
5.4. TERMINATION BY THE EMPLOYER ON ACCOUNT OF OR AFTER
A CHANGE IN CONTROL. In the event: (i) the Executive's employment with the
Employer is terminated by the Employer in conjunction with, or by reason of, a
"change in control" (as defined in subparagraph 1.5 above); or (ii) by reason of
the Employer's actions a material change occurs in the scope of the Executive's
position, title, responsibilities, duties, salary, benefits, or locations of
employment after a "change in control" (as defined in subparagraph 1.5) occurs;
or (iii) the Employer causes an event to occur which reasonably constitutes or
results in a demotion, a significant diminution of responsibilities or
authority, or a constructive termination (by forcing a resignation or otherwise)
of the Executive's employment after a "change in control" (as defined in
subparagraph 1.5) occurs, then the Executive (or the Executive's designated
beneficiary, or the Executive's estate if no designated beneficiary has been
selected, upon the Executive's death) shall be entitled to be paid the Annual
Benefit, as defined above, in equal monthly installments, for a period of ten
(10) years (One Hundred Twenty (120) months), with installments to be paid on
the first day of each month, beginning with the month following the month in
which the Executive is terminated or any one of the actions referred to above
occurs.
6. PAYMENTS IN THE EVENT THE EXECUTIVE ELECTS EARLY RETIREMENT. The
Executive shall have the right to elect to receive the Schedule B Annuity prior
to attaining sixty-five (65) years of age if she elects to Retire on a date
which constitutes an Early Retirement Date as defined in subparagraph 1.8 above.
In the event the Executive elects to Retire on a date which constitutes an Early
Retirement Date, the Executive shall be entitled to be paid the Schedule B
Annuity, as defined above, with payments thereunder to begin on the month
following the month in which the Early Retirement Date occurs.
7. ADDITIONAL LIMITATIONS ON THE AMOUNT OF THE ANNUAL
BENEFIT/SCHEDULE B ANNUITY. The Executive acknowledges and agrees that the
parties have entered into this Agreement based upon the certain financial and
tax accounting assumptions. Accordingly, with full knowledge of the potential
consequences the Executive agrees that, notwithstanding anything contained
herein to the contrary: (i) the amount of the Annual Benefit or the Schedule B
Annuity, as the case may be, shall be limited to that amount of the Annual
Benefit or Schedule B Annuity (determined without regard to this Paragraph 7)
which will be deductible by the Employer under the Code in the year in which
payment is to be made to the Executive; (ii) the Annual Benefit amount or the
Schedule B Annuity, as the case may be, shall be deemed to be the last payment
made to the Executive and the first for which an income tax deduction, if any,
has been disallowed; and (iii) any compensatory amounts for which a deduction is
denied to the Employer shall, at the Employer's election, serve to first reduce
the Employer's obligation to make the monthly Annual Benefit payments otherwise
due and payable to the Executive under the terms of this Agreement. The
Executive
9
<PAGE>
recognizes that, in this regard, limitations on deductibility may be imposed
under, but not limited to, Code Section 280G. Consistent with the foregoing,
and in the event that any payment or benefit received or to be received by the
Executive, whether payable pursuant to the terms of this Agreement or any other
plan, arrangement or agreement with the Employer (together with the Annual
Benefit or the Schedule B Annuity, the "Total Payments"), will not be deductible
(in whole or in part) as a result of Code Section 280G, the Annual Benefit or
the Schedule B Annuity, shall be reduced until no portion of the Total Payments
is nondeductible as a result of Section 280G of the Code (or the Annual
Benefit/Schedule B Annuity is reduced to zero (0)). For purposes of this
limitation:
(a) No portion of the Total Payments, the receipt or
enjoyment of which the Executive shall have effectively waived in writing prior
to the date of payment of any future Annual Benefit or Schedule B Annuity
payments, shall be taken into account;
(b) No portion of the Total Payments shall be taken
into account, which in the opinion of the tax counsel selected by the Employer
and acceptable to the Executive, does not constitute a "parachute payment"
within the meaning of Section 280G of the Code;
(c) Future Annual Benefit/Schedule B Annuity payments
shall be reduced only to the extent necessary so that the Total Payments (other
than those referred to in clauses (a) or (b) above in their entirety) constitute
reasonable compensation for services actually rendered within the meaning of
Section 280G of the Code, in the opinion of tax counsel referred to in clause
(b) above; and
(d) The value of any non-cash benefit or any deferred
payment or benefit included in the Total Payments shall be determined by the
Employer's independent auditors in accordance with the principles of Section
280G of the Code.
8. RIGHT TO DETERMINE FINANCING METHODS. The Employer
reserves the right to determine, in its sole and absolute discretion,
whether, to what extent and by what method, if any, to provide for the
payment of the amounts which may be payable to the Executive, the Executive's
spouse or the Executive's beneficiaries under the terms of this Agreement.
In the event that the Employer elects to finance this Agreement, in whole or
in part, through the use of life insurance or annuities, or both, the
Employer shall determine the ownership and beneficial interests of any such
policy of life insurance or annuity. The Employer further reserves the
right, in its sole and absolute discretion, to terminate any such policy, and
any other device used to finance its obligations under this Agreement, at any
time, in whole or in part. Consistent with Paragraph 10 below, neither the
Executive, the Executive's spouse nor the Executive's beneficiaries shall
have any right, title or interest in or to any financing source or amount
utilized by the Employer pursuant to this Agreement, and any such financing
source or amount shall not constitute security for the performance of the
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<PAGE>
Employer's obligations pursuant to this Agreement. In connection with the
foregoing, the Executive agrees to execute such documents and undergo such
medical examinations or tests which the Employer may request and which may be
reasonably necessary to facilitate any financing for this Agreement including,
without limitation, the Employer's acquisition of any policy of insurance or
annuity. Furthermore, a refusal by the Executive to consent to, participate in
and undergo any such medical examinations or tests shall result in the immediate
termination of this Agreement and the immediate forfeiture by the Executive, the
Executive's spouse and the Executive's beneficiaries of any and all rights to
payment hereunder.
9. CLAIMS PROCEDURE. The Employer shall, but only to the extent
necessary to comply with ERISA, be designated as the named fiduciary under this
Agreement and shall have authority to control and manage the operation and
administration of this Agreement. Consistent therewith, the Employer shall make
all determinations as to the rights to benefits under this Agreement. Any
decision by the Employer denying a claim by the Executive, the Executive's
spouse, or the Executive's beneficiary for benefits under this Agreement shall
be stated in writing and delivered or mailed, via registered or certified mail,
to the Executive, the Executive's spouse or the Executive's beneficiary, as the
case may be. Such decision shall set forth the specific reasons for the denial
of a claim. In addition, the Employer shall provide the Executive, the
Executive's spouse or the Executive's beneficiary with a reasonable opportunity
for a full and fair review of the decision denying such claim.
10. STATUS AS AN UNSECURED GENERAL CREDITOR. Notwithstanding
anything contained herein to the contrary: (i) neither the Executive, the
Executive's spouse or the Executive's designated beneficiaries shall have any
legal or equitable rights, interests or claims in or to any specific property or
assets of the Employer; (ii) none of the Employer's assets shall be held in or
under any trust for the benefit of the Executive, the Executive's spouse or the
Executive's designated beneficiaries or held in any way as security for the
fulfillment of the obligations of the Employer under this Agreement; (iii) all
of the Employer's assets shall be and remain the general unpledged and
unrestricted assets of the Employer; (iv) the Employer's obligation under this
Agreement shall be that of an unfunded and unsecured promise by the Employer to
pay money in the future; and (v) the Executive, the Executive's spouse and the
Executive's designated beneficiaries shall be unsecured general creditors with
respect to any benefits which may be payable under the terms of this Agreement.
11
<PAGE>
11. DISCRETION OF BOARD TO ACCELERATE PAYOUT. Notwithstanding any of
the other provisions of this Agreement, the Board of Directors of the Bank may,
if determined in its sole and absolute discretion to be appropriate, accelerate
the payment of the amounts due under the terms of this Agreement, provided that
Executive (or Executive's spouse or designated beneficiaries): (i) consents to
the revised payout terms determined appropriate by the Bank's Board of
Directors; and (ii) does not negotiate or in anyway influence the terms of
proposed altered/accelerated payout (said decision to be made solely by the
Bank's Board of Directors and offered to the Executive [or Executive's spouse or
designated beneficiaries] on a "take it or leave it basis").
12. MISCELLANEOUS.
12.1. OPPORTUNITY TO CONSULT WITH INDEPENDENT COUNSEL.
The Executive acknowledges that she has been afforded the opportunity to consult
with independent counsel of her choosing regarding both the benefits granted to
him under the terms of this Agreement and the terms and conditions which may
affect the Executive's right to these benefits. The Executive further
acknowledges that she has read, understands and consents to all of the terms and
conditions of this Agreement, and that she enters into this Agreement with a
full understanding of its terms and conditions.
12.2. ARBITRATION OF DISPUTES. All claims, disputes and
other matters in question arising out of or relating to this Agreement or the
breach or interpretation thereof, other than those matters which are to be
determined by the Employer in its sole and absolute discretion or those matters
subject to the provisions of Article 9 hereof, shall be resolved by binding
arbitration before a representative member, selected by the mutual agreement of
the parties, of the Judicial Arbitration and Mediation Services, Inc. ("JAMS"),
presently located at 111 Pine Street, Suite 710, in San Francisco, California.
In the event JAMS is unable or unwilling to conduct the arbitration provided for
under the terms of this Paragraph, or has discontinued its business, the parties
agree that a representative member, selected by the mutual agreement of the
parties, of the American Arbitration Association ("AAA"), presently located in
San Francisco, California, shall conduct the binding arbitration referred to in
this Paragraph. Notice of the demand for arbitration shall be filed in writing
with the other party to this Agreement and with JAMS (or AAA, if necessary). In
no event shall the demand for arbitration be made after the date when
institution of legal or equitable proceedings based on such claim, dispute or
other matter in question would be barred by the applicable statute of
limitations. The arbitration shall be subject to such rules of procedure used
or established by JAMS, or if there are none, the rules of procedure used or
established by AAA. Any award rendered by JAMS or AAA shall be final and
binding upon the parties, and as applicable, their respective heirs,
beneficiaries, legal representatives, agents, successors and assigns, and may be
entered in any court having jurisdiction thereof. The obligation of the parties
to arbitrate pursuant to this clause shall be specifically enforceable in
accordance with, and shall be conducted consistently with, the provisions of
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Title 9 of Part 3 of the California Code of Civil Procedure. Any arbitration
hereunder shall be conducted in San Francisco, California, unless otherwise
agreed to by the parties.
12.3. ATTORNEYS' FEES. In the event of any arbitration
or litigation concerning any controversy, claim or dispute between the parties
hereto, arising out of or relating to this Agreement or the breach hereof, or
the interpretation hereof, the prevailing party shall be entitled to recover
from the losing party reasonable expenses, attorneys' fees and costs incurred in
connection therewith or in the enforcement or collection of any judgment or
award rendered therein. The "prevailing party" means the party determined by
the arbitrator(s) or court, as the case may be, to have most nearly prevailed,
even if such party did not prevail in all matters, not necessarily the one in
whose favor a judgment is rendered.
12.4. NOTICE. Any notice required or permitted of
either the Executive or the Employer under this Agreement shall be deemed to
have been duly given, if by personal delivery, upon the date received by the
party or its authorized representative; if by facsimile, upon transmission to a
telephone number previously provided by the party to whom the facsimile is
transmitted as reflected in the records of the party transmitting the facsimile
and upon reasonable confirmation of such transmission; and if by mail, on the
third day after mailing via U.S. first class mail, registered or certified,
postage prepaid and return receipt requested, and addressed to the party at the
address given below for the receipt of notices, or such changed address as may
be requested in writing by a party.
If to the Employer: Mid-Peninsula Bank
420 Cowper Street
Palo Alto, CA 94301
Attn: Chairman of the Board
If to the Executive: Ms. Carol H. Rowland
14 Estates Court
San Carlos, CA 94070
12.5. ASSIGNMENT. Neither the Executive, the Executive's
spouse, nor any other beneficiary under this Agreement shall have any power or
right to transfer, assign, anticipate, hypothecate, modify or otherwise encumber
any part or all of the amounts payable hereunder, nor, prior to payment in
accordance with the terms of this Agreement, shall any portion of such amounts
be: (i) subject to seizure by any creditor of any such beneficiary, by a
proceeding at law or in equity, for the payment of any debts, judgments, alimony
or separate maintenance obligations which may be owed by the Executive, the
Executive's spouse, or any designated beneficiary; or (ii) transferable by
operation of law in the event of bankruptcy, insolvency or otherwise. Any such
attempted assignment or transfer
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shall be void and shall terminate this Agreement, and the Employer shall
thereupon have no further liability hereunder.
12.6. BINDING EFFECT/MERGER OR REORGANIZATION. This
Agreement shall be binding upon and inure to the benefit of the Executive and
the Employer and, as applicable, their respective heirs, beneficiaries, legal
representatives, agents, successors and assigns. Accordingly, the Employer
shall not merge or consolidate into or with another corporation, or reorganize
or sell substantially all of its assets to another corporation, firm or person,
unless and until such succeeding or continuant corporation, firm or person
agrees to assume and discharge the obligations of the Employer under this
Agreement. Upon the occurrence of such event, the term 'Employer' as used in
this Agreement shall be deemed to refer to such surviving or successor firm,
person, entity or corporation.
12.7. NONWAIVER. The failure of either party to enforce
at any time or for any period of time any one or more of the terms or conditions
of this Agreement shall not be a waiver of such term(s) or condition(s) or of
that party's right thereafter to enforce each and every term and condition of
this Agreement.
12.8. PARTIAL INVALIDITY. If any term, provision,
covenant, or condition of this Agreement is determined by an arbitrator or a
court, as the case may be, to be invalid, void, or unenforceable, such
determination shall not render any other term, provision, covenant or condition
invalid, void or unenforceable, and the Agreement shall remain in full force and
effect notwithstanding such partial invalidity.
12.9. ENTIRE AGREEMENT. This Agreement supersedes any
and all other agreements, either oral or in writing, between the parties with
respect to the subject matter of this Agreement and contains all of the
covenants and agreements between the parties with respect thereto. Each party
to this Agreement acknowledges that no other representations, inducements,
promises, or agreements, oral or otherwise, have been made by any party, or
anyone acting on behalf of any party, which are not set forth herein, and that
no other agreement, statement, or promise not contained in this Agreement shall
be valid or binding on either party.
12.10. MODIFICATIONS. Any modification of this Agreement
shall be effective only if it is in writing and signed by each party or such
party's authorized representative.
12.11. PARAGRAPH HEADINGS. The paragraph headings used in
this Agreement are included solely for the convenience of the parties and shall
not affect or be used in connection with the interpretation of this Agreement.
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12.12. NO STRICT CONSTRUCTION. The language used in this
Agreement shall be deemed to be the language chosen by the parties hereto to
express their mutual intent, and no rule of strict construction will be applied
against any person.
12.13. GOVERNING LAW. The laws of the State of
California, other than those laws denominated choice of law rules, and, where
applicable, the rules and regulations of the Office of the California
Superintendent of Banks and the Federal Deposit Insurance Corporation, shall
govern the validity, interpretation, construction and effect of this Agreement.
IN WITNESS WHEREOF, the Employer and the Executive have executed this
Agreement on the date first above-written in the City of Palo Alto, Santa Clara
County, California.
THE EMPLOYER: THE EXECUTIVE:
Mid-Peninsula Bank,
A California State Chartered Bank
By: /s/Duncan L. Matteson /s/Carol H. Rowland
--------------------------- -------------------
Duncan L Matteson, Chairman Carol H. Rowland
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SCHEDULE A
NUMBER OF COMPLETE
YEARS WHICH HAVE ELAPSED APPLICABLE PERCENTAGE
------------------------ ---------------------
1................................... 40.00%
2................................... 50.00%
3................................... 60.00%
4................................... 70.00%
5................................... 80.00%
6................................... 90.00%
7................................... 100.00%
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SCHEDULE B
----------
SCHEDULE B ANNUITY AMOUNT
-------------------------
1. $ 33,037
2. $ 68,993
3. $ 108,128
4. $ 150,722
5. $ 197,081
6. $ 247,538
7. $ 302,454
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SCHEDULE C
----------
BENEFICIARY DESIGNATION
------------------------
To the Administrator of the Mid-Peninsula Bank Executive Salary
Continuation Agreement:
Pursuant to the Provisions of my Executive Salary Continuation Agreement
with Mid-Peninsula Bank, permitting the designation of a beneficiary or
beneficiaries by a participant, I hereby designate the following persons and
entities as primary and secondary beneficiaries of any benefit under said
Agreement payable by reason of my death:
PRIMARY BENEFICIARY:
- - -------------------
14 ESTATES COURT
DEAN T. McCALL SAN CARLOS, CA, 94070 HUSBAND
- - ---------------------- -------------------------------------- -------------
Name Address Relationship
SECONDARY (CONTINGENT) BENEFICIARY:
- - ---------------------------------
AUNAKE BRECKENRIDGE 1701 SAN CARLOS, AVE SISTER
SAN CARLOS, CA
6287 JEAN DRIVE
BYRON MICHAEL HAAS RAVENNA, OHIO BROTHER
- - ------------------------- ------------------------------- ------------
Name Address Relationship
THE RIGHT TO REVOKE OR CHANGE ANY BENEFICIARY DESIGNATION IS HEREBY RESERVED.
ALL PRIOR DESIGNATIONS, IF ANY, OR PRIMARY BENEFICIARIES AND SECONDARY
BENEFICIARIES ARE HEREBY REVOKED.
The Administrator shall pay all sums payable under the Agreement by reason of my
death to the Primary Beneficiary, if he or she survives me, and if no Primary
Beneficiary shall survive me, then to the Secondary Beneficiary, and if no named
beneficiary survives me, then the Administrator shall pay all amounts in
accordance with the terms of my Executive Salary Continuation Agreement. In the
event that a named beneficiary survives me and dies prior to receiving the
entire benefit payable under said Agreement, then and in that event, the
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remaining unpaid benefit payable according to the terms of my Executive Salary
Continuation Agreement shall be payable to the personal representatives of the
estate of said beneficiary who survived me but died prior to receiving the total
benefit provided by my Executive Salary Continuation Agreement.
THE EXECUTIVE:
Dated: May 11, 1995 /s/ Carol Rowland
----------------------------
CAROL H. ROWLAND
CONSENT OF THE EXECUTIVE'S SPOUSE
TO THE ABOVE BENEFICIARY DESIGNATION:
I, Dean T. McCall, being the spouse of Carol Rowland, after being afforded
the opportunity to consult with independent counsel of my choosing, do hereby
acknowledge that I have read, agree and consent to the foregoing Beneficiary
Designation which relates to the Executive Salary Continuation Agreement entered
into by my spouse effective as of APRIL 26, 1995. I understand that the above
Beneficiary Designation may affect certain rights which I may have in the
benefits provided for under the terms of the Executive Salary Continuation
Agreement and in which I may have a marital property interest.
Dated: May 11, 1995.
/s/Dean T. McCall
-----------------------------
Dean T. McCall
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CERTIFICATE OF ACKNOWLEDGMENT
OF NOTARY PUBLIC
State of California )
)ss.
County of San Mateo )
On May 11, 1995, before me, Barbara A. Billings, Notary Public, State of
California, personally appeared Carol H. Rowland and Dean T. McCall,
/X/ personally known to me - OR
/ / proved to me on the basis of satisfactory evidence
to be the person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature (s) on the
instrument the person (s) , or the entity upon behalf of which the person(s)
acted, executed the instrument.
WITNESS my hand and official seal.
[SEAL] /s/Barbara A. Billings
Barbara A. Billings -----------------------
Notary Public,
State of California
(Seal)
CAPACITY CLAIMED BY SIGNER:
/X/ Individual(s) Signing for Oneself/Themselves
/ / Corporate Officer(s) ------------------ -------------------
Title Company
------------------ -------------------
Title Company
/ / Partner(s)
-------------------------------------------------------------
Partnership
/ / Trustees(s)
--------------------------------------------------------------
Trust
/ / Attorney-in-Fact
------------------------------ ------------------
Principal Principal
/ / Other
--------------------------------- --------------------------
Entity(ies) Represented Entity(ies) Represented
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
TITLE OR TYPE of DOCUMENT: Beneficiary Designation Date of Document: 5-11-95
Number of PAGES: 2 SIGNER(S) Other Than Named Above: none
<PAGE>
EXHIBIT 10.23
EXECUTIVE SALARY CONTINUATION AGREEMENT
This Agreement is made and entered into effective as of the Twenty-
sixth (26) day of April, 1995, by and between Mid-Peninsula Bank, a bank
chartered under the laws of the State of California (the "Employer"), and Susan
K. Black, an individual residing in the State of California (hereinafter
referred to as the "Executive").
R E C I T A L S
WHEREAS, the Executive is an employee of the Employer and is
serving as its Senior Vice President;
WHEREAS, the Executive's experience and knowledge of the affairs
of the Employer and the banking industry are extensive and valuable;
WHEREAS, it is deemed to be in the best interests of the
Employer to provide the Executive with certain salary continuation benefits,
on the terms and conditions set forth herein, in order to reasonably
induce the Executive to remain in the Employer's employment; and
WHEREAS, the Executive and the Employer wish to specify in
writing the terms and conditions upon which this additional compensatory
incentive will be provided to the Executive, or to the Executive's spouse or the
Executive's designated beneficiaries, as the case may be;
NOW, THEREFORE, in consideration of the services to be performed
in the future, as well as the mutual promises and covenants contained herein,
the Executive and the Employer agree as follows:
A G R E E M E N T
1. TERMS AND DEFINITIONS.
1.1. ADMINISTRATOR. The Employer shall be the
"Administrator" and, solely for the purposes of ERISA, the "fiduciary" of this
Agreement where a fiduciary is required by ERISA.
1.2. ANNUAL BENEFIT. The term "Annual Benefit" shall
mean an annual sum of Thirty-Six Thousand Dollars ($36,000.00) multiplied by the
Applicable Percentage (defined below) and then reduced to the extent: (i)
required under the other provisions of this Agreement, including, but not
limited to, Paragraphs 5, 6 and 7 hereof;
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(ii) required by reason of the lawful order of any regulatory agency or body
having jurisdiction over the Employer; and (iii) required in order for the
Employer to properly comply with any and all applicable state and federal laws,
including, but not limited to, income, employment and disability income tax laws
(e.g., FICA, FUTA, SDI).
1.3. APPLICABLE PERCENTAGE. The term "Applicable
Percentage" shall mean that percentage listed on Schedule "A" attached hereto
which is adjacent to the number of complete years (with a "year" being the
performance of personal services for or on behalf of the Employer for a period
of 365 days) which have elapsed starting from the Effective Date of this
Agreement and ending on the date payments are to first begin under the terms of
this Agreement. Notwithstanding the foregoing or the percentages set forth on
Schedule "A," but subject to all other terms and conditions set forth herein,
the "Applicable Percentage" shall be: (i) provided payments have not yet begun
hereunder, one hundred percent (100%) upon the Executive's death; and (ii)
notwithstanding subclause (i) of this Paragraph, zero percent (O%) in the event
the Executive takes any action which prevents the Employer from collecting the
proceeds of any life insurance policy which the Employer may happen to own at
the time of the Executive's death and of which the Employer is the designated
beneficiary. Furthermore, notwithstanding the foregoing, or anything contained
herein to the contrary, in the event the Executive takes any action which
prevents the Employer from collecting the proceeds of any life insurance policy
which the Employer may happen to own at the time of the Executive's death and of
which the Employer is the designated beneficiary: (1) the Executive's estate or
designated beneficiary shall no longer be entitled to receive any of the amounts
payable under the terms of this Agreement, and (2) the Bank shall have the right
to recover from Executive's estate all of the amounts paid to the Executive's
estate (with respect to amounts paid prior to Executive's death or paid to
Executive's estate) or designated beneficiary (with respect to amounts paid to
the designated beneficiary) pursuant to the terms of this Agreement prior to and
after Executive's death.
1.4. BENEFICIARY. The term "beneficiary" or "designated
beneficiary" shall mean the person or persons whom the Executive shall designate
in a valid Beneficiary Designation, a copy of which is attached hereto as
Exhibit "C," to receive the benefits provided hereunder. A Beneficiary
Designation shall be valid only if it is in the form attached hereto and made a
part hereof and is received by the Administrator prior to the Executive's death.
1.5. CHANGE IN CONTROL. The term "Change in Control"
shall mean the occurrence of the any of the following events with respect to
Employer (with the term "Employer" being defined, when determining whether a
"Change in Control" has occurred, to include Mid-Peninsula Bank's current
holding company, Mid-Peninsula Bancorp, a California corporation, such that a
"Change in Control" of Mid-Peninsula Bancorp will be deemed to constitute a
"Change in Control" of the Employer): (i) a change in control of a nature that
would be required to be reported in response to Item 6(e) of Schedule 14A of
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Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), or in response to any other form or report to the
regulatory agencies or governmental authorities having jurisdiction over the
Employer or any stock exchange on which the Employer's shares are listed which
requires the reporting of a change in control; (ii) any merger, consolidation or
reorganization of the Employer in which the Employer does not survive; (iii) any
sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one
transaction or a series of transactions) of any assets of the Employer having an
aggregate fair market value of fifty percent (50%) of the total value of the
assets of the Employer, reflected in the most recent balance sheet of the
Employer; (iv) a transaction whereby any "person" (as such term is used in the
Exchange Act or any individual, corporation, partnership, trust or any other
entity) becomes the beneficial owner, directly or indirectly, of securities of
the Employer representing twenty-five percent (25%) or more of the combined
voting power of the Employer's then outstanding securities; or (v) a situation
where, in any one-year period, individuals who at the beginning of such period
constitute the Board of Directors of the Employer cease for any reason to
constitute at least a majority thereof, unless the election, or the nomination
for election by the Employer's shareholders, of each new director is approved by
a vote of at least three-quarters (3/4) of the directors then still in office
who were directors at the beginning of the period.
1.6. THE CODE. The "Code" shall mean the Internal
Revenue Code of 1986, as amended (the "Code").
1.7. DISABILITY/DISABLED. The term "Disability" or
"Disabled" shall have the same meaning given such term in the principal
disability insurance policy covering the Executive, which is incorporated herein
by reference to the limited extent thereof. In the event the Executive is not
covered by a disability policy containing a definition of "Disability" or
"Disabled," these terms shall mean an illness or incapacity which, having
continued for a period of one hundred and eighty (180) consecutive days,
prevents the Executive from adequately performing the Executive's regular
employment duties. The determination of whether the Executive is Disabled shall
be made by an independent physician selected by mutual agreement of the parties.
1.8. EFFECTIVE DATE. The term "Effective Date" shall
mean the date upon which this Agreement was entered into by the parties, as
first written above.
1.9. ERISA. The term "ERISA" shall mean the Employee
Retirement Income Security Act of 1974, as amended.
1.10. PLAN YEAR. The term "Plan Year" shall mean the
Employer's fiscal year.
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<PAGE>
1.11. RETIREMENT. The term "Retirement" or "Retires"
shall refer to the date which the Executive acknowledges in writing to Employer
to be the last day she will provide any significant personal services, whether
as an employee or independent consultant or contractor, to Employer or to, for,
or on behalf of, any other business entity conducting, performing or making
available to any person or entity banking or other financial services of any
kind. For purposes of this Agreement, the phrase "significant personal
services" shall mean more than ten (10) hours of personal services rendered to
one or more individuals or entities in any thirty (30) day period.
1.12. SCHEDULE B ANNUITY. The term "Schedule B Annuity"
shall mean an "Annuity," as defined in this Paragraph 1.12, purchased by the
Bank within one month of the date the first payment is to be paid to the
Executive under the terms of this Agreement with that sum of money which equals:
(a) the amount set forth on Schedule B attached hereto which corresponds to the
number of complete years (i.e., twelve [12] month periods) which have elapsed
between the Effective Date hereof and the date on which the event triggering or
fixing an Executive's right to a Schedule B Annuity occurs; plus (b) an amount
equal to the amount of interest which would have been earned on the amount
described in the foregoing clause (a) of this Paragraph if said amount had been
invested in successive six month United States Treasury Bills starting from the
date on which the event triggering or fixing an Executive's right to a Schedule
B Annuity occurs and ending on the date the first payment to be made by the Bank
to the Executive under the terms of this Agreement is to occur (i.e., using the
six month T-Bill rate as the applicable rate for determining the "deemed
interest" to be credited). For purposes of this Agreement, the term "Annuity"
shall mean a commercially available, standard form annuity contract: (i) with an
insurance company having the highest available rating from Standard & Poor's;
and (ii) providing equal monthly payments over a period of fifteen years (one
hundred and eighty [180] months) (with the amount of each monthly payment to be
determined by reference to the Schedule B monetary amount which is to be
invested, as described above, and to begin as described below with respect to
the particular event which triggers the right to receive the Schedule B
Annuity). Notwithstanding the foregoing, or anything contained herein to the
contrary, the amount of the Annuity shall be limited (determined at the time of
its acquisition) to the extent: (i) required under the other provisions of this
Agreement, including, but not limited to, Paragraphs 5, 6 and 7 hereof; (ii)
required by reason of the lawful order of any regulatory agency or body having
jurisdiction over the Employer; and (iii) required in order for the Employer to
ensure proper compliance with any and all applicable state and federal laws,
including, but not limited to, income, employment and disability income tax laws
(e.g., FICA, FUTA, SDI). Furthermore, notwithstanding the foregoing, or
anything contained herein to the contrary, in the event the Executive takes any
action which prevents the Employer from collecting the proceeds of any life
insurance policy which the Employer may happen to own at the time of the
Executive's death and of which the Employer is the designated beneficiary: (1)
the Executive's estate or designated beneficiary shall no longer be entitled to
receive any of the amounts payable under the terms
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of the Annuity, and (2) all amounts paid prior to or after Executive's death
under the terms of the Annuity shall be recoverable in full by the Bank from
Executive's estate [with respect to amounts paid prior to Executive's death or
paid to Executive's estate] or designated beneficiary [with respect to amounts
paid to the designated beneficiary]). The selection of the company which is to
provide the Annuity and the terms of such Annuity shall, except as provided or
limited above, be made by the Bank as it determines to be appropriate, said
determinations to be made by the Bank in its sole and absolute discretion.
1.13. SURVIVING SPOUSE. The term "Surviving Spouse"
shall mean the person, if any, who shall be legally married to the Executive on
the date of the Executive's death.
1.14. TERMINATION FOR CAUSE. The term "Termination for
Cause" shall mean termination of the employment of the Executive by reason of
any of the following:
(a) A termination "for cause" as this term may be
defined in any written employment agreement entered into by and between the
Employer and the Executive;
(b) The willful breach of duty by the Executive in the
course of her employment;
(c) The habitual neglect by the Executive of her
employment responsibilities and duties;
(d) The Executive's deliberate violation of any state
or federal banking or securities laws, or of the Bylaws, rules, policies or
resolutions of the Employer, or of the rules or regulations of: (i) the Office
of the California Superintendent of Banks; (ii) the Federal Deposit Insurance
Corporation; or (iii) any other regulatory agency or governmental authority
having jurisdiction over the Employer;
(e) The determination by a state or federal banking
agency or other governmental authority having jurisdiction over the Employer
that the Executive is not suitable to act in the capacity for which she is
employed by the Employer;
(f) The Executive is convicted of any felony or a
crime involving moral turpitude or a fraudulent or dishonest act; or
(g) The Executive discloses without authority any
secret or confidential information not otherwise publicly available concerning
the Employer or takes any action which the Employer's Board of Directors
determines, in its sole discretion and
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subject to good faith, fair dealing and reasonableness, constitutes unfair
competition with or induces any customer to breach any contract with the
Employer.
2. SCOPE, PURPOSE AND EFFECT.
2.1. CONTRACT OF EMPLOYMENT. Although this Agreement
is intended to provide the Executive with an additional incentive to remain in
the employ of the Employer, this Agreement shall not be deemed to constitute a
contract of employment between the Executive and the Employer nor shall any
provision of this Agreement restrict or expand the right of the Employer to
terminate the Executive's employment. This Agreement shall have no impact or
effect upon any separate written Employment Agreement which the Executive may
have with the Employer, it being the parties' intention and agreement that
unless this Agreement is specifically referenced in said Employment Agreement
(or any modification thereto), this Agreement (and the Employer's obligations
hereunder) shall stand separate and apart and shall have no effect upon, nor be
affected by, the terms and provisions of said Employment Agreement.
2.2. FRINGE BENEFIT. The benefits provided by this
Agreement are granted by the Employer as a fringe benefit to the Executive and
are not a part of any salary reduction plan or any arrangement deferring a bonus
or a salary increase. The Executive has no option to take any current payments
or bonus in lieu of the benefits provided by this Agreement.
3. PAYMENTS UPON OR AFTER RETIREMENT.
3.1. PAYMENTS UPON RETIREMENT. If the Executive shall
remain in the continuous employment of the Employer until attaining sixty-five
(65) years of age, and provided an event triggering Schedule B Annuity payments
has not yet occurred, the Executive shall be entitled to be paid the Annual
Benefit, as defined above, in equal monthly installments, for a period of
fifteen (15) years (One Hundred Eighty (180) months), with each installment to
be paid on the first day of each month, beginning with the month following the
month in which the Executive Retires or upon such later date as may be mutually
agreed upon by the Executive and the Employer in advance of said Retirement
date. At the Employer's sole and absolute discretion, the Employer may increase
the Annual Benefit as and when the Employer determines the same to be
appropriate in order to reflect a substantial change in the cost of living.
Notwithstanding anything contained herein to the contrary, the Employer shall
have no obligation hereunder to make any such cost-of-living adjustment.
3.2. PAYMENTS IN THE EVENT OF DEATH AFTER RETIREMENT.
The Employer agrees that if the Executive Retires and begins to receive payments
pursuant to Paragraph 3.1 hereof, but shall die before receiving all of the One
Hundred Eighty (180)
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monthly payments to which she is entitled, the Employer will continue to make
such monthly payments to the Executive's designated beneficiary for the
remaining period. If a valid Beneficiary Designation is not in effect, then the
remaining amounts due to the Executive under the term of this Agreement shall be
paid to the Executive's Surviving Spouse. If the Executive leaves no Surviving
Spouse, the remaining amounts due to the Executive under the terms of this
Agreement shall be paid to the duly qualified personal representative, executor
or administrator of the Executive's estate.
4. PAYMENTS IN THE EVENT DEATH OR DISABILITY OCCURS PRIOR TO
RETIREMENT.
4.1. PAYMENTS IN THE EVENT OF DEATH PRIOR TO
RETIREMENT. Provided an event triggering Schedule B Annuity payments has not yet
occurred, and the Executive dies while actively employed by the Employer at any
time after the Effective Date of this Agreement, but prior to Retirement, the
Employer agrees to pay the Annual Benefit to the Executive's designated
beneficiary in equal monthly installments, for a period of fifteen (15) years
(One Hundred Eighty (180) months). If a valid Beneficiary Designation is not in
effect, then the remaining amounts due to the Executive under the term of this
Agreement shall be paid to the Executive's Surviving Spouse. If the Executive
leaves no Surviving Spouse, the remaining amounts due to the Executive under the
terms of this Agreement shall be paid to the duly qualified personal
representative, executor or administrator of the Executive's estate. Each
installment shall be paid on the first day of each month, beginning with the
month following the month in which the Executive's death occurs.
4.2. PAYMENTS IN THE EVENT OF DISABILITY PRIOR TO
RETIREMENT. In the event the Executive becomes Disabled while actively employed
by the Employer at any time after the date of this Agreement but prior to
Retirement, and provided an event triggering Schedule B Annuity payments has not
yet occurred, the Executive (or the Executive's designated beneficiary, or the
Executive's estate if no designated beneficiary has been selected, upon the
Executive's death) shall be entitled to the Schedule B Annuity, as defined
above, with payments thereunder to begin in the month following the month in
which the Executive attains sixty-five (65) years of age or, if earlier, the
month following the month in which the Executive dies.
5. PAYMENTS IN THE EVENT EMPLOYMENT IS TERMINATED PRIOR TO
RETIREMENT. As indicated in Paragraph 2 above, the Employer reserves the right
to terminate the Executive's employment, with or without cause but subject to
any written employment agreement which may then exist, at any time prior to the
Executive's Retirement. In the event that the employment of the Executive shall
be terminated, other than by reason of Disability, death or Retirement, prior to
the Executive's attaining sixty-five (65) years of age, then this Agreement
shall terminate upon the date of such termination of employment; provided,
however, that the Executive shall be entitled to the following benefits as may
be applicable depending upon the circumstances surrounding the Executive's
termination:
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5.1. TERMINATION WITHOUT CAUSE. If the Executive's
employment is terminated by the Employer without cause, and such termination is
not subject to the provisions of Paragraph 5.4 below, the Executive (or the
Executive's designated beneficiary, or the Executive's estate if no designated
beneficiary has been selected, upon the Executive's death) shall be entitled to
be paid the Schedule B Annuity, as defined above, with payments to begin with
the month following the month in which the Executive is terminated without cause
or upon such later date as may be mutually agreed upon by the Executive and the
Employer in advance of the effective date of the Executive's termination.
5.2. VOLUNTARY TERMINATION BY THE EXECUTIVE. It is
acknowledged and agreed by the Executive that the purpose of this Agreement is
to ensure the Executive's continued employment with the Employer and that if the
Executive voluntarily terminates her employment with the Employer (other than by
reason of death, Disability or Retirement), then the Executive shall have
willingly forfeited any and all rights and benefits she may have under the terms
of this Agreement and that, furthermore, no amounts shall be due or paid to the
Executive by the Employer pursuant to the terms of this Agreement.
5.3. TERMINATION FOR CAUSE. The Executive agrees that
if her employment with the Employer is terminated "for cause," as defined in
subparagraph 1. 14 of this Agreement, she shall forfeit any and all rights and
benefits she may have under the terms of this Agreement and shall have no right
to be paid any of the amounts which would otherwise be due or paid to the
Executive by the Employer pursuant to the terms of this Agreement.
5.4. TERMINATION BY THE EMPLOYER ON ACCOUNT OF OR AFTER
A CHANGE IN CONTROL. In the event: (i) the Executive's employment with the
Employer is terminated by the Employer in conjunction with, or by reason of, a
"change in control" (as defined in subparagraph 1.5 above); or (ii) by reason of
the Employer's actions a material change occurs in the scope of the Executive's
position, title, responsibilities, duties, salary, benefits, or locations of
employment after a "change in control" (as defined in subparagraph 1.5) occurs;
or (iii) the Employer causes an event to occur which reasonably constitutes or
results in a demotion, a significant diminution of responsibilities or
authority, or a constructive termination (by forcing a resignation or otherwise)
of the Executive's employment after a "change in control" (as defined in
subparagraph 1.5) occurs, then the Executive (or the Executive's designated
beneficiary, or the Executive's estate if no designated beneficiary has been
selected, upon the Executive's death) shall be entitled to be paid the Annual
Benefit, as defined above, in equal monthly installments, for a period of
fifteen (15) years (One Hundred Eighty (180) months), with installments to be
paid on the first day of each month, beginning with the month following the
month in which the Executive is terminated or any one of the actions referred to
above occurs.
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6. ADDITIONAL LIMITATIONS ON THE AMOUNT OF THE ANNUAL
BENEFIT/SCHEDULE B ANNUITY. The Executive acknowledges and agrees that the
parties have entered into this Agreement based upon the certain financial and
tax accounting assumptions. Accordingly, with full knowledge of the potential
consequences the Executive agrees that, notwithstanding anything contained
herein to the contrary: (i) the amount of the Annual Benefit or the Schedule B
Annuity, as the case may be, shall be limited to that amount of the Annual
Benefit or Schedule B Annuity (determined without regard to this Paragraph 6)
which will be deductible by the Employer under the Code in the year in which
payment is to be made to the Executive; (ii) the Annual Benefit amount or the
Schedule B Annuity, as the case may be, shall be deemed to be the last payment
made to the Executive and the first for which an income tax deduction, if any,
has been disallowed; and (iii) any compensatory amounts for which a deduction is
denied to the Employer shall, at the Employer's election, serve to first reduce
the Employer's obligation to make the monthly Annual Benefit payments otherwise
due and payable to the Executive under the terms of this Agreement. The
Executive recognizes that, in this regard, limitations on deductibility may be
imposed under, but not limited to, Code Section 280G. Consistent with the
foregoing, and in the event that any payment or benefit received or to be
received by the Executive, whether payable pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the Employer
(together with the Annual Benefit or the Schedule B Annuity, the "Total
Payments"), will not be deductible (in whole or in part) as a result of Code
Section 280G, the Annual Benefit or the Schedule B Annuity, shall be reduced
until no portion of the Total Payments is nondeductible as a result of Section
280G of the Code (or the Annual Benefit/Schedule B Annuity is reduced to zero
(0)). For purposes of this limitation:
(a) No portion of the Total Payments, the receipt or
enjoyment of which the Executive shall have effectively waived in writing prior
to the date of payment of any future Annual Benefit or Schedule B Annuity
payments, shall be taken into account;
(b) No portion of the Total Payments shall be taken
into account, which in the opinion of the tax counsel selected by the Employer
and acceptable to the Executive, does not constitute a "parachute payment"
within the meaning of Section 280G of the Code;
(c) Future Annual Benefit/Schedule B Annuity payments
shall be reduced only to the extent necessary so that the Total Payments (other
than those referred to in clauses (a) or (b) above in their entirety) constitute
reasonable compensation for services actually rendered within the meaning of
Section 280G of the Code, in the opinion of tax counsel referred to in clause
(b) above; and
(d) The value of any non-cash benefit or any deferred
payment or benefit included in the Total Payments shall be determined by the
Employer's independent auditors in accordance with the principles of Section
280G of the Code.
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7. RIGHT TO DETERMINE FINANCING METHODS. The Employer reserves the
right to determine, in its sole and absolute discretion, whether, to what extent
and by what method, if any, to provide for the payment of the amounts which may
be payable to the Executive, the Executive's spouse or the Executive's
beneficiaries under the terms of this Agreement. In the event that the Employer
elects to finance this Agreement, in whole or in part, through the use of life
insurance or annuities, or both, the Employer shall determine the ownership and
beneficial interests of any such policy of life insurance or annuity. The
Employer further reserves the right, in its sole and absolute discretion, to
terminate any such policy, and any other device used to finance its obligations
under this Agreement, at any time, in whole or in part. Consistent with
Paragraph 9 below, neither the Executive, the Executive's spouse nor the
Executive's beneficiaries shall have any right, title or interest in or to any
financing source or amount utilized by the Employer pursuant to this Agreement,
and any such financing source or amount shall not constitute security for the
performance of the Employer's obligations pursuant to this Agreement. In
connection with the foregoing, the Executive agrees to execute such documents
and undergo such medical examinations or tests which the Employer may request
and which may be reasonably necessary to facilitate any financing for this
Agreement including, without limitation, the Employer's acquisition of any
policy of insurance or annuity. Furthermore, a refusal by the Executive to
consent to, participate in and undergo any such medical examinations or tests
shall result in the immediate termination of this Agreement and the immediate
forfeiture by the Executive, the Executive's spouse and the Executive's
beneficiaries of any and all rights to payment hereunder.
8. CLAIMS PROCEDURE. The Employer shall, but only to the extent
necessary to comply with ERISA, be designated as the named fiduciary under this
Agreement and shall have authority to control and manage the operation and
administration of this Agreement. Consistent therewith, the Employer shall make
all determinations as to the rights to benefits under this Agreement. Any
decision by the Employer denying a claim by the Executive, the Executive's
spouse, or the Executive's beneficiary for benefits under this Agreement shall
be stated in writing and delivered or mailed, via registered or certified mail,
to the Executive, the Executive's spouse or the Executive's beneficiary, as the
case may be. Such decision shall set forth the specific reasons for the denial
of a claim. In addition, the Employer shall provide the Executive, the
Executive's spouse or the Executive's beneficiary with a reasonable opportunity
for a full and fair review of the decision denying such claim.
9. STATUS AS AN UNSECURED GENERAL CREDITOR. Notwithstanding
anything contained herein to the contrary: (i) neither the Executive, the
Executive's spouse or the Executive's designated beneficiaries shall have any
legal or equitable rights, interests or claims in or to any specific property or
assets of the Employer; (ii) none of the Employer's assets shall be held in or
under any trust for the benefit of the Executive, the Executive's spouse or the
Executive's designated beneficiaries or held in any way as security for the
fulfillment of the obligations of the Employer under this Agreement; (iii) all
of the
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Employer's assets shall be and remain the general unpledged and unrestricted
assets of the Employer; (iv) the Employer's obligation under this Agreement
shall be that of an unfunded and unsecured promise by the Employer to pay money
in the future; and (v) the Executive, the Executive's spouse and the Executive's
designated beneficiaries shall be unsecured general creditors with respect to
any benefits which may be payable under the terms of this Agreement.
10. DISCRETION OF BOARD TO ACCELERATE PAYOUT. Notwithstanding any of
the other provisions of this Agreement, the Board of Directors of the Bank may,
if determined in its sole and absolute discretion to be appropriate, accelerate
the payment of the amounts due under the terms of this Agreement, provided that
Executive (or Executive's spouse or designated beneficiaries): (i) consents to
the revised payout terms determined appropriate by the Bank's Board of
Directors; and (ii) does not negotiate or in anyway influence the terms of
proposed altered/accelerated payout (said decision to be made solely by the
Bank's Board of Directors and offered to the Executive [or Executive's spouse or
designated beneficiaries] on a "take it or leave it basis").
11. MISCELLANEOUS.
11.1. OPPORTUNITY TO CONSULT WITH INDEPENDENT COUNSEL.
The Executive acknowledges that she has been afforded the opportunity to consult
with independent counsel of her choosing regarding both the benefits granted to
him under the terms of this Agreement and the terms and conditions which may
affect the Executive's right to these benefits. The Executive further
acknowledges that she has read, understands and consents to all of the terms and
conditions of this Agreement, and that she enters into this Agreement with a
full understanding of its terms and conditions.
11.2. ARBITRATION OF DISPUTES. All claims, disputes and
other matters in question arising out of or relating to this Agreement or the
breach or interpretation thereof, other than those matters which are to be
determined by the Employer in its sole and absolute discretion or those matters
subject to the provisions of Article 8 hereof, shall be resolved by binding
arbitration before a representative member, selected by the mutual agreement of
the parties, of the Judicial Arbitration and Mediation Services, Inc. ("JAMS"),
presently located at 111 Pine Street, Suite 710, in San Francisco, California.
In the event JAMS is unable or unwilling to conduct the arbitration provided for
under the terms of this Paragraph, or has discontinued its business, the parties
agree that a representative member, selected by the mutual agreement of the
parties, of the American Arbitration Association ("AAA"), presently located in
San Francisco, California, shall conduct the binding arbitration referred to in
this Paragraph. Notice of the demand for arbitration shall be filed in writing
with the other party to this Agreement and with JAMS (or AAA, if necessary). In
no event shall the demand for arbitration be made after the date when
institution of legal or equitable proceedings based on such claim, dispute or
other matter in question would be barred by the
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applicable statute of limitations. The arbitration shall be subject to such
rules of procedure used or established by JAMS, or if there are none, the rules
of procedure used or established by AAA. Any award rendered by JAMS or AAA
shall be final and binding upon the parties, and as applicable, their respective
heirs, beneficiaries, legal representatives, agents, successors and assigns, and
may be entered in any court having jurisdiction thereof. The obligation of the
parties to arbitrate pursuant to this clause shall be specifically enforceable
in accordance with, and shall be conducted consistently with, the provisions of
Title 9 of Part 3 of the California Code of Civil Procedure. Any arbitration
hereunder shall be conducted in San Francisco, California, unless otherwise
agreed to by the parties.
11.3. ATTORNEYS' FEES. In the event of any arbitration
or litigation concerning any controversy, claim or dispute between the parties
hereto, arising out of or relating to this Agreement or the breach hereof, or
the interpretation hereof, the prevailing party shall be entitled to recover
from the losing party reasonable expenses, attorneys' fees and costs incurred in
connection therewith or in the enforcement or collection of any judgment or
award rendered therein. The "prevailing party" means the party determined by
the arbitrator(s) or court, as the case may be, to have most nearly prevailed,
even if such party did not prevail in all matters, not necessarily the one in
whose favor a judgment is rendered.
11.4. NOTICE. Any notice required or permitted of
either the Executive or the Employer under this Agreement shall be deemed to
have been duly given, if by personal delivery, upon the date received by the
party or its authorized representative; if by facsimile, upon transmission to a
telephone number previously provided by the party to whom the facsimile is
transmitted as reflected in the records of the party transmitting the facsimile
and upon reasonable confirmation of such transmission; and if by mail, on the
third day after mailing via U.S. first class mail, registered or certified,
postage prepaid and return receipt requested, and addressed to the party at the
address given below for the receipt of notices, or such changed address as may
be requested in writing by a party.
If to the Employer: Mid-Peninsula Bank
420 Cowper Street
Palo Alto, CA 94301
Attn: Chairman of the Board
If to the Executive: Ms. Susan K. Black
2027 Fallen Leaf Lane
Los Altos, CA 94025
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11.5. ASSIGNMENT. Neither the Executive, the Executive's
spouse, nor any other beneficiary under this Agreement shall have any power or
right to transfer, assign, anticipate, hypothecate, modify or otherwise encumber
any part or all of the amounts payable hereunder, nor, prior to payment in
accordance with the terms of this Agreement, shall any portion of such amounts
be: (i) subject to seizure by any creditor of any such beneficiary, by a
proceeding at law or in equity, for the payment of any debts, judgments, alimony
or separate maintenance obligations which may be owed by the Executive, the
Executive's spouse, or any designated beneficiary; or (ii) transferable by
operation of law in the event of bankruptcy, insolvency or otherwise. Any such
attempted assignment or transfer shall be void and shall terminate this
Agreement, and the Employer shall thereupon have no further liability hereunder.
11.6. BINDING EFFECT/MERGER OR REORGANIZATION. This
Agreement shall be binding upon and inure to the benefit of the Executive and
the Employer and, as applicable, their respective heirs, beneficiaries, legal
representatives, agents, successors and assigns. Accordingly, the Employer
shall not merge or consolidate into or with another corporation, or reorganize
or sell substantially all of its assets to another corporation, firm or person,
unless and until such succeeding or continuing corporation, firm or person
agrees to assume and discharge the obligations of the Employer under this
Agreement. Upon the occurrence of such event, the term "Employer" as used in
this Agreement shall be deemed to refer to such surviving or successor firm,
person, entity or corporation.
11.7. NONWAIVER. The failure of either party to enforce
at any time or for any period of time any one or more of the terms or conditions
of this Agreement shall not be a waiver of such term(s) or condition(s) or of
that party's right thereafter to enforce each and every term and condition of
this Agreement.
11.8. PARTIAL INVALIDITY. If any term, provision,
covenant, or condition of this Agreement is determined by an arbitrator or a
court, as the case may be, to be invalid, void, or unenforceable, such
determination shall not render any other term, provision, covenant or condition
invalid, void or unenforceable, and the Agreement shall remain in full force and
effect notwithstanding such partial invalidity.
11.9. ENTIRE AGREEMENT. This Agreement supersedes any
and all other agreements, either oral or in writing, between the parties with
respect to the subject matter of this Agreement and contains all of the
covenants and agreements between the parties with respect thereto. Each party
to this Agreement acknowledges that no other representations, inducements,
promises, or agreements, oral or otherwise, have been made by any party, or
anyone acting on behalf of any party, which are not set forth herein, and that
no other agreement, statement, or promise not contained in this Agreement shall
be valid or binding on either party.
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11.10. MODIFICATIONS. Any modification of this Agreement
shall be effective only if it is in writing and signed by each party or such
party's authorized representative.
11.11. PARAGRAPH HEADINGS. The paragraph headings used in
this Agreement are included solely for the convenience of the parties and shall
not affect or be used in connection with the interpretation of this Agreement.
11.12. NO STRICT CONSTRUCTION. The language used in this
Agreement shall be deemed to be the language chosen by the parties hereto to
express their mutual intent, and no rule of strict construction will be applied
against any person.
11.13. GOVERNING LAW. The laws of the State of
California, other than those laws denominated choice of law rules, and, where
applicable, the rules and regulations of the Office of the California
Superintendent of Banks and the Federal Deposit Insurance Corporation, shall
govern the validity, interpretation, construction and effect of this Agreement.
IN WITNESS WHEREOF, the Employer and the Executive have executed this
Agreement on the date first above-written in the City of Palo Alto, Santa Clara
County, California.
THE EMPLOYER: THE EXECUTIVE:
Mid-Peninsula Bank,
A California State Chartered Bank
By: /s/ Duncan L. Matteson /s/ Susan K. Black
----------------------------------- --------------------------------
Duncan L. Matteson, Chairman Susan K. Black
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SCHEDULE A
NUMBER OF COMPLETE
YEARS WHICH HAVE ELAPSED APPLICABLE PERCENTAGE
- - ------------------------ ---------------------
1. . . . . . . . . . . . . . . . . . . . . 10.00%
2. . . . . . . . . . . . . . . . . . . . . 20.00%
3. . . . . . . . . . . . . . . . . . . . . 30.00%
4. . . . . . . . . . . . . . . . . . . . . 40.00%
5. . . . . . . . . . . . . . . . . . . . . 50.00%
6. . . . . . . . . . . . . . . . . . . . . 60.00%
7. . . . . . . . . . . . . . . . . . . . . 70.00%
8. . . . . . . . . . . . . . . . . . . . . 80.00%
9. . . . . . . . . . . . . . . . . . . . . 90.00%
10 . . . . . . . . . . . . . . . . . . . . 100.00%
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SCHEDULE B
SCHEDULE B ANNUITY AMOUNT
1. $ 6,063
2. $ 12,662
3. $ 19,845
4. $ 27,662
5. $ 36,170
6. $ 45,431
7. $ 55,510
8. $ 66,479
9. $ 78,419
10. $ 91,414
11. $ 105,557
12. $ 120,950
13. $ 137,704
14. $ 155,940
15. $ 175,786
16. $ 197,388
17. $ 220,898
18. $ 246,487
19. $ 274,337
20. $ 304,649
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SCHEDULE C
BENEFICIARY DESIGNATION
To the Administrator of the Mid-Peninsula Bank Executive Salary
Continuation Agreement:
Pursuant to the Provisions of my Executive Salary Continuation Agreement
with Mid-Peninsula Bank, permitting the designation of a beneficiary or
beneficiaries by a participant, I hereby designate the following persons and
entities as primary and secondary beneficiaries of any benefit under said
Agreement payable by reason of my death:
PRIMARY BENEFICIARY:
2027 Fallen Leaf Lane
/s/ Aris Angelopoulos Los Altos, CA 94024 Spouse
- - ---------------------------- ---------------------- -----------------
Name Address Relationship
SECONDARY (CONTINGENT) BENEFICIARY:
856 S. 15th
/s/ Doris Borenner Sturgeon Bay, WI 54235 Sister
- - ---------------------------- ---------------------- -----------------
Name Address Relationship
THE RIGHT TO REVOKE OR CHANGE ANY BENEFICIARY DESIGNATION IS HEREBY RESERVED.
ALL PRIOR DESIGNATIONS, IF ANY, OF PRIMARY BENEFICIARIES AND SECONDARY
BENEFICIARIES ARE HEREBY REVOKED.
The Administrator shall pay all sums payable under the Agreement by reason of my
death to the Primary Beneficiary, if he or she survives me, and if no Primary
Beneficiary shall survive me, then to the Secondary Beneficiary, and if no named
beneficiary survives me, then the Administrator shall pay all amounts in
accordance with the terms of my Executive Salary Continuation Agreement. In the
event that a named beneficiary survives me and dies prior to receiving the
entire benefit payable under said Agreement, then and in that event, the
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remaining unpaid benefit payable according to the terms of my Executive Salary
Continuation Agreement shall be payable to the personal representatives of the
estate of said beneficiary who survived me but died prior to receiving the total
benefit provided by my Executive Salary Continuation Agreement.
THE EXECUTIVE:
Dated: May 15, 1995 /s/ Susan K. Black
--------------- --------------------------------------------------
SUSAN K. BLACK
CONSENT OF THE EXECUTIVE'S SPOUSE
TO THE ABOVE BENEFICIARY DESIGNATION:
I, Aris L. Angelopoulos, being the spouse of Susan K. Black, after being
afforded the opportunity to consult with independent counsel of my choosing, do
hereby acknowledge that I have read, agree and consent to the foregoing
Beneficiary Designation which relates to the Executive Salary Continuation
Agreement entered into by my spouse effective as of May 15, 1995. I understand
that the above Beneficiary Designation may affect certain rights which I may
have in the benefits provided for under the terms of the Executive Salary
Continuation Agreement and in which I may have a marital property interest.
Dated: May 15, 1995.
----------------
/s/ Aris L. Angelopoulos
------------------------------------------
----------------------------------
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CERTIFICATE OF ACKNOWLEDGMENT
OF NOTARY PUBLIC
State of California )
) SS.
County of Santa Clara )
On May 15, 1995, before me, Marcia Frank, Notary Public, State of
California, personally appeared Susan K. Black, and Aris C. Angelopoulos
[X] personally known to me - OR
[ ] proved to me on the basis of satisfactory evidence
to be the person(s) whose name(s) are subscribed to the within instrument and
acknowledged to me that they executed the same in their authorized capacities,
and that by their signature(s) on the instrument the person(s), or the entity
upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
/s/ Marcia S. Frank
-----------------------------------------
[SEAL] Notary Public,
State of California
CAPACITY CLAIMED BY SIGNER:
[X] Individual(s) Signing for Themselves
[ ] Corporate Officer(s)
------------------------ --------------------------
Title Company
------------------------ --------------------------
Title Company
[ ] Partner(s)
---------------------------------------------------------------
Partnership
[ ] Trustees(s)
--------------------------------------------------------------
Trust
[ ] Attorney-in-Fact
----------------------------- --------------------------
Principal Principal
[ ] Other
--------------------------------- ----------------------------------
Entity(ies) Represented Entity(ies) Represented
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
Title or Type of Document: Date of Document:
----------------------------- -----
Number of Pages: Signer(s) Other than Named Above:
---- -----------------------
<PAGE>
EXHIBIT 10.24
EXECUTIVE SALARY CONTINUATION AGREEMENT
This Agreement is made and entered into effective as of the twenty-sixth
(26) day of April, 1995, by and between Mid-Peninsula Bank, a bank chartered
under the laws of the State of California (the "Employer"), and Kimberly S.
Burgess, an individual residing in the State of California (hereinafter referred
to as the "Executive").
RECITALS
WHEREAS, the Executive is an employee of the Employer and is serving
as its Senior Vice President;
WHEREAS, the Executive's experience and knowledge of the affairs of
the Employer and the banking industry are extensive and valuable;
WHEREAS, it is deemed to be in the best interests of the Employer to
provide the Executive with certain salary continuation benefits, on the terms
and conditions set forth herein, in order to reasonably induce the Executive to
remain in the Employer's employment; and
WHEREAS, the Executive and the Employer wish to specify in writing the
terms and conditions upon which this additional compensatory incentive will be
provided to the Executive, or to the Executive's spouse or the Executive's
designated beneficiaries, as the case may be;
NOW, THEREFORE, in consideration of the services to be performed in
the future, as well as the mutual promises and covenants contained herein, the
Executive and the Employer agree as follows:
AGREEMENT
1. TERMS AND DEFINITIONS.
1.1. ADMINISTRATOR. The Employer shall be the "Administrator"
and, solely for the purposes of ERISA, the "fiduciary" of this Agreement where a
fiduciary is required by ERISA.
1.2. ANNUAL BENEFIT. The term "Annual Benefit" shall mean an
annual sum of Thirty-Six Thousand Dollars ($36,000.00) multiplied by the
Applicable Percentage (defined below) and then reduced to the extent: (i)
required under the other provisions of this Agreement, including, but not
limited to, Paragraphs 5, 6 and 7 hereof;
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(ii) required by reason of the lawful order of any regulatory agency or body
having jurisdiction over the Employer; and (iii) required in order for the
Employer to properly comply with any and all applicable state and federal laws,
including, but not limited to, income, employment and disability income tax laws
(e.g., FICA, FUTA, SDI).
1.3. APPLICABLE PERCENTAGE. The term "Applicable Percentage"
shall mean that percentage listed on Schedule "A" attached hereto which is
adjacent to the number of complete years (with a "year" being the performance of
personal services for or on behalf of the Employer for a period of 365 days)
which have elapsed starting from the Effective Date of this Agreement and ending
on the date payments are to first begin under the terms of this Agreement.
Notwithstanding the foregoing or the percentages set forth on Schedule "A," but
subject to all other terms and conditions set forth herein, the "Applicable
Percentage" shall be: (i) provided payments have not yet begun hereunder, one
hundred percent (100%) upon the Executive's death; and (ii) notwithstanding
subclause (i) of this Paragraph, zero percent (O%) in the event the Executive
takes any action which prevents the Employer from collecting the proceeds of any
life insurance policy which the Employer may happen to own at the time of the
Executive's death and of which the Employer is the designated beneficiary.
Furthermore, notwithstanding the foregoing, or anything contained herein to the
contrary, in the event the Executive takes any action which prevents the
Employer from collecting the proceeds of any life insurance policy which the
Employer may happen to own at the time of the Executive's death and of which the
Employer is the designated beneficiary: (1) the Executive's estate or designated
beneficiary shall no longer be entitled to receive any of the amounts payable
under the terms of this Agreement, and (2) the Bank shall have the right to
recover from Executive's estate all of the amounts paid to the Executive's
estate (with respect to amounts paid prior to Executive's death or paid to
Executive's estate) or designated beneficiary (with respect to amounts paid to
the designated beneficiary) pursuant to the terms of this Agreement prior to and
after Executive's death.
1.4. BENEFICIARY. The term "beneficiary" or "designated
beneficiary" shall mean the person or persons whom the Executive shall designate
in a valid Beneficiary Designation, a copy of which is attached hereto as
Exhibit "C," to receive the benefits provided hereunder. A Beneficiary
Designation shall be valid only if it is in the form attached hereto and made a
part hereof and is received by the Administrator prior to the Executive's death.
1.5. CHANGE IN CONTROL. The term "Change in Control" shall mean
the occurrence of the any of the following events with respect to Employer (with
the term "Employer" being defined, when determining whether a "Change in
Control" has occurred, to include Mid-Peninsula Bank's current holding company,
Mid-Peninsula Bancorp, a California corporation, such that a "Change in Control"
of Mid-Peninsula Bancorp will be deemed to constitute a "Change in Control" of
the Employer): (i) a change in control of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of
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Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), or in response to any other form or report to the
regulatory agencies or governmental authorities having jurisdiction over the
Employer or any stock exchange on which the Employer's shares are listed which
requires the reporting of a change in control; (ii) any merger, consolidation or
reorganization of the Employer in which the Employer does not survive; (iii) any
sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one
transaction or a series of transactions) of any assets of the Employer having an
aggregate fair market value of fifty percent (50%) of the total value of the
assets of the Employer, reflected in the most recent balance sheet of the
Employer; (iv) a transaction whereby any "person" (as such term is used in the
Exchange Act or any individual, corporation, partnership, trust or any other
entity) becomes the beneficial owner, directly or indirectly, of securities of
the Employer representing twenty-five percent (25%) or more of the combined
voting power of the Employer's then outstanding securities; or (v) a situation
where, in any one-year period, individuals who at the beginning of such period
constitute the Board of Directors of the Employer cease for any reason to
constitute at least a majority thereof, unless the election, or the nomination
for election by the Employer's shareholders, of each new director is approved by
a vote of at least three-quarters (3/4) of the directors then still in office
who were directors at the beginning of the period.
1.6. THE CODE. The "Code" shall mean the Internal Revenue Code
of 1986, as amended (the "Code").
1.7. DISABILITY/DISABLED. The term "Disability" or
"Disabled" shall have the same meaning given such term in the principal
disability insurance policy covering the Executive, which is incorporated herein
by reference to the limited extent thereof. In the event the Executive is not
covered by a disability policy containing a definition of "Disability" or
"Disabled," these terms shall mean an illness or incapacity which, having
continued for a period of one hundred and eighty (180) consecutive days,
prevents the Executive from adequately performing the Executive's regular
employment duties. The determination of whether the Executive is Disabled shall
be made by an independent physician selected by mutual agreement of the parties.
1.8. EFFECTIVE DATE. The term "Effective Date" shall mean the
date upon which this Agreement was entered into by the parties, as first written
above.
1.9. ERISA. The term "ERISA" shall mean the Employee Retirement
Income Security Act of 1974, as amended.
1.10. PLAN YEAR. The term "Plan Year" shall mean the
Employer's fiscal year.
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1.11. RETIREMENT. The term "Retirement" or "Retires" shall
refer to the date which the Executive acknowledges in writing to Employer to be
the last day she will provide any significant personal services, whether as an
employee or independent consultant or contractor, to Employer or to, for, or on
behalf of, any other business entity conducting, performing or making available
to any person or entity banking or other financial services of any kind. For
purposes of this Agreement, the phrase "significant personal services" shall
mean more than ten (10) hours of personal services rendered to one or more
individuals or entities in any thirty (30) day period.
1.12. SCHEDULE B ANNUITY. The term "Schedule B Annuity"
shall mean an "Annuity," as defined in this Paragraph 1.12, purchased by the
Bank within one month of the date the first payment is to be paid to the
Executive under the terms of this Agreement with that sum of money which equals:
(a) the amount set forth on Schedule B attached hereto which corresponds to the
number of complete years (i.e., twelve [12] month periods) which have elapsed
between the Effective Date hereof and the date on which the event triggering or
fixing an Executive's right to a Schedule B Annuity occurs; plus (b) an amount
equal to the amount of interest which would have been earned on the amount
described in the foregoing clause (a) of this Paragraph if said amount had been
invested in successive six month United States Treasury Bills starting from the
date on which the event triggering or fixing an Executive's right to a Schedule
B Annuity occurs and ending on the date the first payment to be made by the Bank
to the Executive under the terms of this Agreement is to occur (i.e., using the
six month T-Bill rate as the applicable rate for determining the "deemed
interest" to be credited). For purposes of this Agreement, the term "Annuity"
shall mean a commercially available, standard form annuity contract: (i) with an
insurance company having the highest available rating from Standard & Poor's;
and (ii) providing equal monthly payments over a period of fifteen years (one
hundred and eighty [180] months) (with the amount of each monthly payment to be
determined by reference to the Schedule B monetary amount which is to be
invested, as described above, and to begin as described below with respect to
the particular event which triggers the right to receive the Schedule B
Annuity). Notwithstanding the foregoing, or anything contained herein to the
contrary, the amount of the Annuity shall be limited (determined at the time of
its acquisition) to the extent: (i) required under the other provisions of this
Agreement, including, but not limited to, Paragraphs 5, 6 and 7 hereof; (ii)
required by reason of the lawful order of any regulatory agency or body having
jurisdiction over the Employer; and (iii) required in order for the Employer to
ensure proper compliance with any and all applicable state and federal laws,
including, but not limited to, income, employment and disability income tax laws
(e.g., FICA, FUTA, SDI). Furthermore, notwithstanding the foregoing, or
anything contained herein to the contrary, in the event the Executive takes any
action which prevents the Employer from collecting the proceeds of any life
insurance policy which the Employer may happen to own at the time of the
Executive's death and of which the Employer is the designated beneficiary: (1)
the Executive's estate or designated beneficiary shall no longer be entitled
to receive any of the amounts payable under the terms
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of the Annuity, and (2) all amounts paid prior to or after Executive's death
under the terms of the Annuity shall be recoverable in full by the Bank from
Executive's estate [with respect to amounts paid prior to Executive's death or
paid to Executive's estate] or designated beneficiary [with respect to amounts
paid to the designated beneficiary]). The selection of the company which is to
provide the Annuity and the terms of such Annuity shall, except as provided or
limited above, be made by the Bank as it determines to be appropriate, said
determinations to be made by the Bank in its sole and absolute discretion.
1.13. SURVIVING SPOUSE. The term "Surviving Spouse" shall
mean the person, if any, who shall be legally married to the Executive on the
date of the Executive's death.
1.14. TERMINATION FOR CAUSE. The term "Termination for
Cause" shall mean termination of the employment of the Executive by reason of
any of the following:
(a) A termination "for cause" as this term may be defined in any
written employment agreement entered into by and between the Employer and the
Executive;
(b) The willful breach of duty by the Executive in the course of
her employment;
(c) The habitual neglect by the Executive of her employment
responsibilities and duties;
(d) The Executive's deliberate violation of any state or federal
banking or securities laws, or of the Bylaws, rules, policies or resolutions of
the Employer, or of the rules or regulations of: (i) the Office of the
California Superintendent of Banks; (ii) the Federal Deposit Insurance
Corporation; or (iii) any other regulatory agency or governmental authority
having jurisdiction over the Employer;
(e) The determination by a state or federal banking agency
or other governmental authority having jurisdiction over the Employer that the
Executive is not suitable to act in the capacity for which she is employed by
the Employer;
(f) The Executive is convicted of any felony or a crime
involving moral turpitude or a fraudulent or dishonest act; or
(g) The Executive discloses without authority any secret or
confidential information not otherwise publicly available concerning the
Employer or takes any action which the Employer's Board of Directors determines,
in its sole discretion and
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subject to good faith, fair dealing and reasonableness, constitutes unfair
competition with or induces any customer to breach any contract with the
Employer.
2. SCOPE, PURPOSE AND EFFECT.
2.1. CONTRACT OF EMPLOYMENT. Although this Agreement is
intended to provide the Executive with an additional incentive to remain in the
employ of the Employer, this Agreement shall not be deemed to constitute a
contract of employment between the Executive and the Employer nor shall any
provision of this Agreement restrict or expand the right of the Employer to
terminate the Executive's employment. This Agreement shall have no impact or
effect upon any separate written Employment Agreement which the Executive may
have with the Employer, it being the parties' intention and agreement that
unless this Agreement is specifically referenced in said Employment Agreement
(or any modification thereto), this Agreement (and the Employer's obligations
hereunder) shall stand separate and apart and shall have no effect upon, nor be
affected by, the terms and provisions of said Employment Agreement.
2.2. FRINGE BENEFIT. The benefits provided by this Agreement
are granted by the Employer as a fringe benefit to the Executive and are not a
part of any salary reduction plan or any arrangement deferring a bonus or a
salary increase. The Executive has no option to take any current payments or
bonus in lieu of the benefits provided by this Agreement.
3. PAYMENTS UPON OR AFTER RETIREMENT.
3.1. PAYMENTS UPON RETIREMENT. If the Executive shall remain
in the continuous employment of the Employer until attaining sixty-five (65)
years of age, and provided an event triggering Schedule B Annuity payments has
not yet occurred, the Executive shall be entitled to be paid the Annual Benefit,
as defined above, in equal monthly installments, for a period of fifteen (15)
years (One Hundred Eighty (180) months), with each installment to be paid on
the first day of each month, beginning with the month following the month in
which the Executive Retires or upon such later date as may be mutually agreed
upon by the Executive and the Employer in advance of said Retirement date. At
the Employer's sole and absolute discretion, the Employer may increase the
Annual Benefit as and when the Employer determines the same to be appropriate in
order to reflect a substantial change in the cost of living. Notwithstanding
anything contained herein to the contrary, the Employer shall have no obligation
hereunder to make any such cost-of-living adjustment.
3.2. PAYMENTS IN THE EVENT OF DEATH AFTER RETIREMENT. The
Employer agrees that if the Executive Retires and begins to receive payments
pursuant to Paragraph 3.1 hereof, but shall die before receiving all of the One
Hundred Eighty (180)
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monthly payments to which she is entitled, the Employer will continue to make
such monthly payments to the Executive's designated beneficiary for the
remaining period. If a valid Beneficiary Designation is not in effect, then the
remaining amounts due to the Executive under the term of this Agreement shall be
paid to the Executive's Surviving Spouse. If the Executive leaves no Surviving
Spouse, the remaining amounts due to the Executive under the terms of this
Agreement shall be paid to the duly qualified personal representative, executor
or administrator of the Executive's estate.
4. PAYMENTS IN THE EVENT DEATH OR DISABILITY OCCURS PRIOR TO
RETIREMENT.
4.1. PAYMENTS IN THE EVENT OF DEATH PRIOR TO RETIREMENT.
Provided an event triggering Schedule B Annuity payments has not yet occurred,
and the Executive dies while actively employed by the Employer at any time after
the Effective Date of this Agreement, but prior to Retirement, the Employer
agrees to pay the Annual Benefit to the Executive's designated beneficiary in
equal monthly installments, for a period of fifteen (15) years (One Hundred
Eighty (180) months). If a valid Beneficiary Designation is not in effect, then
the remaining amounts due to the Executive under the term of this Agreement
shall be paid to the Executive's Surviving Spouse. If the Executive leaves no
Surviving Spouse, the remaining amounts due to the Executive under the terms of
this Agreement shall be paid to the duly qualified personal representative,
executor or administrator of the Executive's estate. Each installment shall be
paid on the first day of each month, beginning with the month following the
month in which the Executive's death occurs.
4.2. PAYMENTS IN THE EVENT OF DISABILITY PRIOR TO
RETIREMENT. In the event the Executive becomes Disabled while actively employed
by the Employer at any time after the date of this Agreement but prior to
Retirement, and provided an event triggering Schedule B Annuity payments has not
yet occurred, the Executive (or the Executive's designated beneficiary, or the
Executive's estate if no designated beneficiary has been selected, upon the
Executive's death) shall be entitled to the Schedule B Annuity, as defined
above, with payments thereunder to begin in the month following the month in
which the Executive attains sixty-five (65) years of age or, if earlier, the
month following the month in which the Executive dies.
5. PAYMENTS IN THE EVENT EMPLOYMENT IS TERMINATED PRIOR TO RETIREMENT.
As indicated in Paragraph 2 above, the Employer reserves the right to terminate
the Executive's employment, with or without cause but subject to any written
employment agreement which may then exist, at any time prior to the Executive's
Retirement. In the event that the employment of the Executive shall be
terminated, other than by reason of Disability, death or Retirement, prior to
the Executive's attaining sixty-five (65) years of age, then this Agreement
shall terminate upon the date of such termination of employment; provided,
however, that the Executive shall be entitled to the following benefits as may
be applicable depending upon the circumstances surrounding the Executive's
termination:
7
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5.1. TERMINATION WITHOUT CAUSE. If the Executive's
employment is terminated by the Employer without cause, and such termination is
not subject to the provisions of Paragraph 5.4 below, the Executive (or the
Executive's designated beneficiary, or the Executive's estate if no designated
beneficiary has been selected, upon the Executive's death) shall be entitled to
be paid the Schedule B Annuity, as defined above, with payments to begin with
the month following the month in which the Executive is terminated without
cause or upon such later date as may be mutually agreed upon by the Executive
and the Employer in advance of the effective date of the Executive's
termination.
5.2. VOLUNTARY TERMINATION BY THE EXECUTIVE. It is
acknowledged and agreed by the Executive that the purpose of this Agreement
is to ensure the Executive's continued employment with the Employer and that
if the Executive voluntarily terminates her employment with the Employer
(other than by reason of death, Disability or Retirement), then the Executive
shall have willingly forfeited any and all rights and benefits she may have
under the terms of this Agreement and that, furthermore, no amounts shall be
due or paid to the Executive by the Employer pursuant to the terms of this
Agreement.
5.3. TERMINATION FOR CAUSE. The Executive agrees that
if her employment with the Employer is terminated "for cause," as defined in
subparagraph 1.14 of this Agreement, she shall forfeit any and all rights and
benefits she may have under the terms of this Agreement and shall have no right
to be paid any of the amounts which would otherwise be due or paid to the
Executive by the Employer pursuant to the terms of this Agreement.
5.4. TERMINATION BY THE EMPLOYER ON ACCOUNT OF OR AFTER A
CHANGE IN CONTROL. In the event: (i) the Executive's employment with the
Employer is terminated by the Employer in conjunction with, or by reason
of, a "change in control" (as defined in subparagraph 1.5 above); or (ii) by
reason of the Employer's actions a material change occurs in the scope of the
Executive's position, title, responsibilities, duties, salary, benefits, or
locations of employment after a "change in control" (as defined in
subparagraph 1.5) occurs; or (iii) the Employer causes an event to occur
which reasonably constitutes or results in a demotion, a significant
diminution of responsibilities or authority, or a constructive termination
(by forcing a resignation or otherwise) of the Executive's employment after a
"change in control" (as defined in subparagraph 1.5) occurs, then the
Executive (or the Executive's designated beneficiary, or the Executive's
estate if no designated beneficiary has been selected, upon the Executive's
death) shall be entitled to be paid the Annual Benefit, as defined above, in
equal monthly installments, for a period of fifteen (15) years (One Hundred
Eighty (180) months), with installments to be paid on the first day of each
month, beginning with the month following the month in which the Executive is
terminated or any one of the actions referred to above occurs.
8
<PAGE>
6. ADDITIONAL LIMITATIONS ON THE AMOUNT OF THE ANNUAL BENEFIT/SCHEDULE B
ANNUITY. The Executive acknowledges and agrees that the parties have entered
into this Agreement based upon the certain financial and tax accounting
assumptions. Accordingly, with full knowledge of the potential consequences the
Executive agrees that, notwithstanding anything contained herein to the
contrary: (i) the amount of the Annual Benefit or the Schedule B Annuity, as the
case may be, shall be limited to that amount of the Annual Benefit or Schedule B
Annuity (determined without regard to this Paragraph 6) which will be deductible
by the Employer under the Code in the year in which payment is to be made to the
Executive; (ii) the Annual Benefit amount or the Schedule B Annuity, as the case
may be, shall be deemed to be the last payment made to the Executive and the
first for which an income tax deduction, if any, has been disallowed; and (iii)
any compensatory amounts for which a deduction is denied to the Employer shall,
at the Employer's election, serve to first reduce the Employer's obligation to
make the monthly Annual Benefit payments otherwise due and payable to the
Executive under the terms of this Agreement. The Executive recognizes that, in
this regard, limitations on deductibility may be imposed under, but not limited
to, Code Section 280G. Consistent with the foregoing, and in the event that any
payment or benefit received or to be received by the Executive, whether payable
pursuant to the terms of this Agreement or any other plan, arrangement or
agreement with the Employer (together with the Annual Benefit or the Schedule B
Annuity, the "Total Payments"), will not be deductible (in whole or in part) as
a result of Code Section 280G, the Annual Benefit or the Schedule B Annuity,
shall be reduced until no portion of the Total Payments is nondeductible as a
result of Section 280G of the Code (or the Annual Benefit/Schedule B Annuity is
reduced to zero (0)). For purposes of this limitation:
(a) No portion of the Total Payments, the receipt or enjoyment
of which the Executive shall have effectively waived in writing prior to the
date of payment of any future Annual Benefit or Schedule B Annuity payments,
shall be taken into account;
(b) No portion of the Total Payments shall be taken into
account, which in the opinion of the tax counsel selected by the Employer and
acceptable to the Executive, does not constitute a "parachute payment" within
the meaning of Section 280G of the Code;
(c) Future Annual Benefit/Schedule B Annuity payments shall be
reduced only to the extent necessary so that the Total Payments (other than
those referred to in clauses (a) or (b) above in their entirety) constitute
reasonable compensation for services actually rendered within the meaning of
Section 280G of the Code, in the opinion of tax counsel referred to in clause
(b) above; and
(d) The value of any non-cash benefit or any deferred payment or
benefit included in the Total Payments shall be determined by the Employer's
independent auditors in accordance with the principles of Section 280G of the
Code.
9
<PAGE>
7. RIGHT TO DETERMINE FINANCING METHODS. The Employer reserves the right
to determine, in its sole and absolute discretion, whether, to what extent and
by what method, if any, to provide for the payment of the amounts which may be
payable to the Executive, the Executive's spouse or the Executive's
beneficiaries under the terms of this Agreement. In the event that the Employer
elects to finance this Agreement, in whole or in part, through the use of life
insurance or annuities, or both, the Employer shall determine the ownership and
beneficial interests of any such policy of life insurance or annuity. The
Employer further reserves the right, in its sole and absolute discretion, to
terminate any such policy, and any other device used to finance its obligations
under this Agreement, at any time, in whole or in part. Consistent with
Paragraph 9 below, neither the Executive, the Executive's spouse nor the
Executive's beneficiaries shall have any right, title or interest in or to any
financing source or amount utilized by the Employer pursuant to this Agreement,
and any such financing source or amount shall not constitute security for the
performance of the Employer's obligations pursuant to this Agreement. In
connection with the foregoing, the Executive agrees to execute such documents
and undergo such medical examinations or tests which the Employer may request
and which may be reasonably necessary to facilitate any financing for this
Agreement including, without limitation, the Employer's acquisition of any
policy of insurance or annuity. Furthermore, a refusal by the Executive to
consent to, participate in and undergo any such medical examinations or tests
shall result in the immediate termination of this Agreement and the immediate
forfeiture by the Executive, the Executive's spouse and the Executive's
beneficiaries of any and all rights to payment hereunder.
8. CLAIMS PROCEDURE. The Employer shall, but only to the extent necessary
to comply with ERISA, be designated as the named fiduciary under this Agreement
and shall have authority to control and manage the operation and administration
of this Agreement. Consistent therewith, the Employer shall make all
determinations as to the rights to benefits under this Agreement. Any decision
by the Employer denying a claim by the Executive, the Executive's spouse, or the
Executive's beneficiary for benefits under this Agreement shall be stated in
writing and delivered or mailed, via registered or certified mail, to the
Executive, the Executive's spouse or the Executive's beneficiary, as the case
may be. Such decision shall set forth the specific reasons for the denial of a
claim. In addition, the Employer shall provide the Executive, the Executive's
spouse or the Executive's beneficiary with a reasonable opportunity for a full
and fair review of the decision denying such claim.
9. STATUS AS AN UNSECURED GENERAL CREDITOR. Notwithstanding anything
contained herein to the contrary: (i) neither the Executive, the Executive's
spouse or the Executive's designated beneficiaries shall have any legal or
equitable rights, interests or claims in or to any specific property or assets
of the Employer; (ii) none of the Employer's assets shall be held in or under
any trust for the benefit of the Executive, the Executive's spouse or the
Executive's designated beneficiaries or held in any way as security for the
fulfillment of the obligations of the Employer under this Agreement; (iii) all
of the
10
<PAGE>
Employer's assets shall be and remain the general unpledged and unrestricted
assets of the Employer; (iv) the Employer's obligation under this Agreement
shall be that of an unfunded and unsecured promise by the Employer to pay money
in the future; and (v) the Executive, the Executive's spouse and the Executive's
designated beneficiaries shall be unsecured general creditors with respect to
any benefits which may be payable under the terms of this Agreement.
10. DISCRETION OF BOARD TO ACCELERATE PAYOUT. Notwithstanding any of the
other provisions of this Agreement, the Board of Directors of the Bank may, if
determined in its sole and absolute discretion to be appropriate, accelerate the
payment of the amounts due under the terms of this Agreement, provided that
Executive (or Executive's spouse or designated beneficiaries): (i) consents to
the revised payout terms determined appropriate by the Bank's Board of
Directors; and (ii) does not negotiate or in anyway influence the terms of
proposed altered/accelerated payout (said decision to be made solely by the
Bank's Board of Directors and offered to the Executive [or Executive's spouse or
designated beneficiaries] on a "take it or leave it basis").
11. MISCELLANEOUS.
11.1. OPPORTUNITY TO CONSULT WITH INDEPENDENT COUNSEL. The
Executive acknowledges that she has been afforded the opportunity to consult
with independent counsel of her choosing regarding both the benefits granted to
him under the terms of this Agreement and the terms and conditions which may
affect the Executive's right to these benefits. The Executive further
acknowledges that she has read, understands and consents to all of the terms and
conditions of this Agreement, and that she enters into this Agreement with a
full understanding of its terms and conditions.
11.2. ARBITRATION OF DISPUTES. All claims, disputes and other
matters in question arising out of or relating to this Agreement or the breach
or interpretation thereof, other than those matters which are to be determined
by the Employer in its sole and absolute discretion or those matters subject to
the provisions of Article 8 hereof, shall be resolved by binding arbitration
before a representative member, selected by the mutual agreement of the parties,
of the Judicial Arbitration and Mediation Services, Inc. ("JAMS"), presently
located at 111 Pine Street, Suite 710, in San Francisco, California. In the
event JAMS is unable or unwilling to conduct the arbitration provided for under
the terms of this Paragraph, or has discontinued its business, the parties agree
that a representative member, selected by the mutual agreement of the parties,
of the American Arbitration Association ("AAA"), presently located in San
Francisco, California, shall conduct the binding arbitration referred to in this
Paragraph. Notice of the demand for arbitration shall be filed in writing with
the other party to this Agreement and with JAMS (or AAA, if necessary). In no
event shall the demand for arbitration be made after the date when institution
of legal or equitable proceedings based on such claim, dispute or other matter
in question would be barred by the
11
<PAGE>
applicable statute of limitations. The arbitration shall be subject to such
rules of procedure used or established by JAMS, or if there are none, the rules
of procedure used or established by AAA. Any award rendered by JAMS or AAA
shall be final and binding upon the parties, and as applicable, their respective
heirs, beneficiaries, legal representatives, agents, successors and assigns, and
may be entered in any court having jurisdiction thereof. The obligation of the
parties to arbitrate pursuant to this clause shall be specifically enforceable
in accordance with, and shall be conducted consistently with, the provisions of
Title 9 of Part 3 of the California Code of Civil Procedure. Any arbitration
hereunder shall be conducted in San Francisco, California, unless otherwise
agreed to by the parties.
11.3. ATTORNEYS' FEES. In the event of any arbitration or
litigation concerning any controversy, claim or dispute between the parties
hereto, arising out of or relating to this Agreement or the breach hereof, or
the interpretation hereof, the prevailing party shall be entitled to recover
from the losing party reasonable expenses, attorneys' fees and costs incurred in
connection therewith or in the enforcement or collection of any judgment or
award rendered therein. The "prevailing party" means the party determined by
the arbitrator(s) or court, as the case may be, to have most nearly prevailed,
even if such party did not prevail in all matters, not necessarily the one in
whose favor a judgment is rendered.
11.4. NOTICE. Any notice required or permitted of either the
Executive or the Employer under this Agreement shall be deemed to have been duly
given, if by personal delivery, upon the date received by the party or its
authorized representative; if by facsimile, upon transmission to a telephone
number previously provided by the party to whom the facsimile is transmitted as
reflected in the records of the party transmitting the facsimile and upon
reasonable confirmation of such transmission; and if by mail, on the third day
after mailing via U.S. first class mail, registered or certified, postage
prepaid and return receipt requested, and addressed to the party at the address
given below for the receipt of notices, or such changed address as may be
requested in writing by a party.
If to the Employer: Mid-Peninsula Bank
420 Cowper Street
Palo Alto, CA 94301
Attn: Chairman of the Board
If to the Executive: Ms. Kimberly S. Burgess
460 Sausalito Avenue
Sausalito, CA 94965
12
<PAGE>
11.5. ASSIGNMENT. Neither the Executive, the Executive's
spouse, nor any other beneficiary under this Agreement shall have any power or
right to transfer, assign, anticipate, hypothecate, modify or otherwise encumber
any part or all of the amounts payable hereunder, nor, prior to payment in
accordance with the terms of this Agreement, shall any portion of such amounts
be: (i) subject to seizure by any creditor of any such beneficiary, by a
proceeding at law or in equity, for the payment of any debts, judgments, alimony
or separate maintenance obligations which may be owed by the Executive, the
Executive's spouse, or any designated beneficiary; or (ii) transferable by
operation of law in the event of bankruptcy, insolvency or otherwise. Any such
attempted assignment or transfer shall be void and shall terminate this
Agreement, and the Employer shall thereupon have no further liability hereunder.
11.6. BINDING EFFECT/MERGER OR REORGANIZATION. This Agreement
shall be binding upon and inure to the benefit of the Executive and the Employer
and, as applicable, their respective heirs, beneficiaries, legal
representatives, agents, successors and assigns. Accordingly, the Employer
shall not merge or consolidate into or with another corporation, or reorganize
or sell substantially all of its assets to another corporation, firm or person,
unless and until such succeeding or continuing corporation, firm or person
agrees to assume and discharge the obligations of the Employer under this
Agreement. Upon the occurrence of such event, the term "Employer" as used in
this Agreement shall be deemed to refer to such surviving or successor firm,
person, entity or corporation.
11.7. NONWAIVER. The failure of either party to enforce at
any time or for any period of time any one or more of the terms or conditions of
this Agreement shall not be a waiver of such term(s) or condition(s) or of that
party's right thereafter to enforce each and every term and condition of this
Agreement.
11.8. PARTIAL INVALIDITY. If any term, provision, covenant,
or condition of this Agreement is determined by an arbitrator or a court, as the
case may be, to be invalid, void, or unenforceable, such determination shall not
render any other term, provision, covenant or condition invalid, void or
unenforceable, and the Agreement shall remain in full force and effect
notwithstanding such partial invalidity.
11.9. ENTIRE AGREEMENT. This Agreement supersedes any and all
other agreements, either oral or in writing, between the parties with respect to
the subject matter of this Agreement and contains all of the covenants and
agreements between the parties with respect thereto. Each party to this
Agreement acknowledges that no other representations, inducements, promises, or
agreements, oral or otherwise, have been made by any party, or anyone acting on
behalf of any party, which are not set forth herein, and that no other
agreement, statement, or promise not contained in this Agreement shall be valid
or binding on either party.
13
<PAGE>
11.10. MODIFICATIONS. Any modification of this Agreement shall
be effective only if it is in writing and signed by each party or such party's
authorized representative.
11.11. PARAGRAPH HEADINGS. The paragraph headings used in this
Agreement are included solely for the convenience of the parties and shall not
affect or be used in connection with the interpretation of this Agreement.
11.12. NO STRICT CONSTRUCTION. The language used in this
Agreement shall be deemed to be the language chosen by the parties hereto to
express their mutual intent, and no rule of strict construction will be applied
against any person.
11.13. GOVERNING LAW. The laws of the State of California,
other than those laws denominated choice of law rules, and, where applicable,
the rules and regulations of the Office of the California Superintendent of
Banks and the Federal Deposit Insurance Corporation, shall govern the validity,
interpretation, construction and effect of this Agreement.
IN WITNESS WHEREOF, the Employer and the Executive have executed this
Agreement on the date first above-written in the City of Palo Alto, Santa
Clara County, California.
THE EMPLOYER: THE EXECUTIVE:
Mid-Peninsula Bank,
A California State Chartered Bank
By: /s/Duncan L. Matteson /s/Kimberly S. Burgess
---------------------------------- ------------------------------
Duncan L. Matteson, Chairman Kimberly S. Burgess
14
<PAGE>
SCHEDULE A
NUMBER OF COMPLETE
YEARS WHICH HAVE ELAPSED APPLICABLE PERCENTAGE
- - ------------------------ ---------------------
1............................................... 10.00%
2............................................... 20.00%
3............................................... 30.00%
4............................................... 40.00%
5............................................... 50.00%
6............................................... 60.00%
7............................................... 70.00%
8............................................... 80.00%
9............................................... 90.00%
10..............................................100.00%
15
<PAGE>
SCHEDULE B
SCHEDULE B ANNUITY AMOUNT
1. $ 5,471
2. $ 11,425
3. $ 17,906
4. $ 24,959
5. $ 32,636
6. $ 40,992
7. $ 50,086
8. $ 59,984
9. $ 70,756
10. $ 82,481
11. $ 95,243
12. $ 109,132
13. $ 124,249
14. $ 140,702
15. $ 158,610
16. $ 178,100
17. $ 199,314
18. $ 222,402
19. $ 247,531
20. $ 274,881
21. $ 304,649
16
<PAGE>
SCHEDULE C
BENEFICIARY DESIGNATION
To the Administrator of the Mid-Peninsula Bank Executive Salary
Continuation Agreement:
Pursuant to the Provisions of my Executive Salary Continuation Agreement
with Mid-Peninsula Bank, permitting the designation of a beneficiary or
beneficiaries by a participant, I hereby designate the following persons and
entities as primary and secondary beneficiaries of any benefit under said
Agreement payable by reason of my death:
PRIMARY BENEFICIARY:
460 Sausalito Blvd.
Victor W. Dahir Sausalito, CA 94965 Fiancee
- - ------------------ -------------------- ----------------
Name Address Relationship
SECONDARY (CONTINGENT) BENEFICIARY:
Walter E. Burgess 1146-B Fontmore Road
Bettie L. Burgess Colo. Spgs., CO 80904 Parents
- - --------------------- ----------------------- ---------------
Name Address Relationship
THE RIGHT TO REVOKE OR CHANGE ANY BENEFICIARY DESIGNATION IS HEREBY RESERVED.
ALL PRIOR DESIGNATIONS, IF ANY, OF PRIMARY BENEFICIARIES AND SECONDARY
BENEFICIARIES ARE HEREBY REVOKED.
The Administrator shall pay all sums payable under the Agreement by reason of my
death to the Primary Beneficiary, if he or she survives me, and if no Primary
Beneficiary shall survive me, then to the Secondary Beneficiary, and if no named
beneficiary survives me, then the Administrator shall pay all amounts in
accordance with the terms of my Executive Salary Continuation Agreement. In the
event that a named beneficiary survives me and dies prior to receiving the
entire benefit payable under said Agreement, then and in that event, the
17
<PAGE>
remaining unpaid benefit payable according to the terms of my Executive Salary
Continuation Agreement shall be payable to the personal representatives of the
estate of said beneficiary who survived me but died prior to receiving the total
benefit provided by my Executive Salary Continuation Agreement.
THE EXECUTIVE:
Dated: May 12, 1995 /s/Kimberly S. Burgess
---------------------- ---------------------------------------------
KIMBERLY S. BURGESS
CONSENT OF THE EXECUTIVE'S SPOUSE
TO THE ABOVE BENEFICIARY DESIGNATION:
I,_____________________, being the spouse of Kimberly S. Burgess, after
being afforded the opportunity to consult with independent counsel of my
choosing, do hereby acknowledge that I have read, agree and consent to the
foregoing Beneficiary Designation which relates to the Executive Salary
Continuation Agreement entered into by my spouse effective as of _______,
1995. I understand that the above Beneficiary Designation may affect certain
rights which I may have in the benefits provided for under the terms of the
Executive Salary Continuation Agreement and in which I may have a marital
property interest.
Dated: ____________________________,199___.
______________________________________________
_________________________________
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CERTIFICATE OF ACKNOWLEDGMENT
OF NOTARY PUBLIC
State of California )
) SS.
County of Santa Clara )
On May 17, l995, before me, Irene C. O'Donnell, Notary Public, State of
California, personally appeared Kimberly S. Burgess,
[X] personally known to me - OR
[ ] proved to me on the basis of satisfactory evidence
to be the person whose name is subscribed to the within instrument and
acknowledged to me that she executed the same in her authorized capacity, and
that by her signature on the instrument the person, or the entity upon behalf of
which the person acted, executed the instrument.
WITNESS my hand and official seal.
/s/Irene C. O'Donnell
----------------------------------------
[SEAL] Notary Public,
State of California
Capacity Claimed by Signer:
[X] Individual(s) Signing for Oneself/Themselves
[ ] Corporate Officer(s)
---------------------- ----------------------------
Title Company
---------------------- ----------------------------
Title Company
[ ] Partner(s)
----------------------------------------------------------------
Partnership
[ ] Trustees(s)
---------------------------------------------------------------
Trust
[ ] Attorney-in-Fact
------------------------------ -------------------------
Principal Principal
[ ] Other
--------------------------------------- ----------------------------
Entity(ies) Represented Entity(ies) Represented
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
Title or Type of Document: Beneficiary Designation Date of Document: 5-17-96
Number of Pages: 2 Signer(s) Other Than Named Above: None
<PAGE>
EXHIBIT 10.25
EXECUTIVE SALARY CONTINUATION AGREEMENT
This Agreement is made and entered into effective as of the Twenty-sixth
(26) day of April, 1995, by and between Mid-Peninsula Bank, a bank chartered
under the laws of the State of California (the "Employer"), and Jonas H.
Stafford, an individual residing in the State of California (hereinafter
referred to as the "Executive").
RECITALS
WHEREAS, the Executive is an employee of the Employer and is
serving as its Senior Vice President;
WHEREAS, the Executive's experience and knowledge of the affairs
of the Employer and the banking industry are extensive and valuable;
WHEREAS, it is deemed to be in the best interests of the Employer
to provide the Executive with certain salary continuation benefits, on the terms
and conditions set forth herein, in order to reasonably induce the Executive to
remain in the Employer's employment; and
WHEREAS, the Executive and the Employer wish to specify in
writing the terms and conditions upon which this additional compensatory
incentive will be provided to the Executive, or to the Executive's spouse or the
Executive's designated beneficiaries, as the case may be;
NOW, THEREFORE, in consideration of the services to be performed
in the future, as well as the mutual promises and covenants contained herein,
the Executive and the Employer agree as follows:
AGREEMENT
1. TERMS AND DEFINITIONS.
1.1. ADMINISTRATOR. The Employer shall be the "Administrator"
and, solely for the purposes of ERISA, the "fiduciary" of this Agreement where a
fiduciary is required by ERISA.
1.2. ANNUAL BENEFIT. The term "Annual Benefit" shall mean an
annual sum of Thirty-Six Thousand Dollars ($36,000.00) multiplied by the
Applicable Percentage (defined below) and then reduced to the extent: (i)
required under the other provisions of this Agreement, including, but not
limited to, Paragraphs 5, 6 and 7 hereof;
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(ii) required by reason of the lawful order of any regulatory agency or body
having jurisdiction over the Employer; and (iii) required in order for the
Employer to properly comply with any and all applicable state and federal laws,
including, but not limited to, income, employment and disability income tax laws
(e.g., FICA, FUTA, SDI).
1.3. APPLICABLE PERCENTAGE. The term "Applicable Percentage"
shall mean that percentage listed on Schedule "A" attached hereto which is
adjacent to the number of complete years (with a "year" being the performance
of personal services for or on behalf of the Employer for a period of 365 days)
which have elapsed starting from the Effective Date of this Agreement and ending
on the date payments are to first begin under the terms of this Agreement.
Notwithstanding the foregoing or the percentages set forth on Schedule "A," but
subject to all other terms and conditions set forth herein, the "Applicable
Percentage" shall be: (i) provided payments have not yet begun hereunder, one
hundred percent (100%) upon the Executive's death; and (ii) notwithstanding
subclause (i) of this Paragraph, zero percent (O%) in the event the Executive
takes any action which prevents the Employer from collecting the proceeds of any
life insurance policy which the Employer may happen to own at the time of the
Executive's death and of which the Employer is the designated beneficiary.
Furthermore, notwithstanding the foregoing, or anything contained herein to the
contrary, in the event the Executive takes any action which prevents the
Employer from collecting the proceeds of any life insurance policy which the
Employer may happen to own at the time of the Executive's death and of which the
Employer is the designated beneficiary: (1) the Executive's estate or designated
beneficiary shall no longer be entitled to receive any of the amounts payable
under the terms of this Agreement, and (2) the Bank shall have the right to
recover from Executive's estate all of the amounts paid to the Executive's
estate (with respect to amounts paid prior to Executive's death or paid to
Executive's estate) or designated beneficiary (with respect to amounts paid to
the designated beneficiary) pursuant to the terms of this Agreement prior to and
after Executive's death.
1.4. BENEFICIARY. The term "beneficiary" or "designated
beneficiary" shall mean the person or persons whom the Executive shall designate
in a valid Beneficiary Designation, a copy of which is attached hereto as
Exhibit "C," to receive the benefits provided hereunder. A Beneficiary
Designation shall be valid only if it is in the form attached hereto and made a
part hereof and is received by the Administrator prior to the Executive's death.
1.5. CHANGE IN CONTROL. The term "Change in Control" shall mean
the occurrence of the any of the following events with respect to Employer (with
the term "Employer" being defined, when determining whether a "Change in
Control" has occurred, to include Mid-Peninsula Bank's current holding company,
Mid-Peninsula Bancorp, a California corporation, such that a "Change in Control"
of Mid-Peninsula Bancorp will be deemed to constitute a "Change in Control" of
the Employer): (i) a change in control of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of
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Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), or in response to any other form or report to the
regulatory agencies or governmental authorities having jurisdiction over the
Employer or any stock exchange on which the Employer's shares are listed which
requires the reporting of a change in control; (ii) any merger, consolidation or
reorganization of the Employer in which the Employer does not survive; (iii) any
sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one
transaction or a series of transactions) of any assets of the Employer having an
aggregate fair market value of fifty percent (50%) of the total value of the
assets of the Employer, reflected in the most recent balance sheet of the
Employer; (iv) a transaction whereby any "person" (as such term is used in the
Exchange Act or any individual, corporation, partnership, trust or any other
entity) becomes the beneficial owner, directly or indirectly, of securities of
the Employer representing twenty-five percent (25%) or more of the combined
voting power of the Employer's then outstanding securities; or (v) a situation
where, in any one-year period, individuals who at the beginning of such period
constitute the Board of Directors of the Employer cease for any reason to
constitute at least a majority thereof, unless the election, or the nomination
for election by the Employer's shareholders, of each new director is approved by
a vote of at least three-quarters (3/4) of the directors then still in office
who were directors at the beginning of the period.
1.6. THE CODE. The "Code" shall mean the Internal Revenue Code
of 1986, as amended (the "Code").
1.7. DISABILITY/DISABLED. The term "Disability" or "Disabled"
shall have the same meaning given such term in the principal disability
insurance policy covering the Executive, which is incorporated herein by
reference to the limited extent thereof. In the event the Executive is not
covered by a disability policy containing a definition of "Disability" or
"Disabled," these terms shall mean an illness or incapacity which, having
continued for a period of one hundred and eighty (180) consecutive days,
prevents the Executive from adequately performing the Executive's regular
employment duties. The determination of whether the Executive is Disabled shall
be made by an independent physician selected by mutual agreement of the parties.
1.8. EFFECTIVE DATE. The term "Effective Date" shall mean the
date upon which this Agreement was entered into by the parties, as first written
above.
1.9. ERISA. The term "ERISA" shall mean the Employee Retirement
Income Security Act of 1974, as amended.
1.10. PLAN YEAR. The term "Plan Year" shall mean the Employer's
fiscal year.
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1.11. RETIREMENT. The term "Retirement" or "Retires" shall refer
to the date which the Executive acknowledges in writing to Employer to be the
last day he will provide any significant personal services, whether as an
employee or independent consultant or contractor, to Employer or to, for, or on
behalf of, any other business entity conducting, performing or making available
to any person or entity banking or other financial services of any kind. For
purposes of this Agreement, the phrase "significant personal services" shall
mean more than ten (10) hours of personal services rendered to one or more
individuals or entities in any thirty (30) day period.
1.12. SCHEDULE B ANNUITY. The term "Schedule B Annuity" shall mean
an "Annuity," as defined in this Paragraph 1.12, purchased by the Bank within
one month of the date the first payment is to be paid to the Executive under the
terms of this Agreement with that sum of money which equals: (a) the amount set
forth on Schedule B attached hereto which corresponds to the number of complete
years (i.e., twelve [12] month periods) which have elapsed between the Effective
Date hereof and the date on which the event triggering or fixing an Executive's
right to a Schedule B Annuity occurs; plus (b) an amount equal to the amount of
interest which would have been earned on the amount described in the foregoing
clause (a) of this Paragraph if said amount had been invested in successive six
month United States Treasury Bills starting from the date on which the event
triggering or fixing an Executive's right to a Schedule B Annuity occurs and
ending on the date the first payment to be made by the Bank to the Executive
under the terms of this Agreement is to occur (i.e., using the six month T-Bill
rate as the applicable rate for determining the "deemed interest" to be
credited). For purposes of this Agreement, the term "Annuity" shall mean a
commercially available, standard form annuity contract: (i) with an insurance
company having the highest available rating from Standard & Poor's; and (ii)
providing equal monthly payments over a period of fifteen years (one hundred and
eighty [180] months) (with the amount of each monthly payment to be determined
by reference to the Schedule B monetary amount which is to be invested, as
described above, and to begin as described below with respect to the particular
event which triggers the right to receive the Schedule B Annuity).
Notwithstanding the foregoing, or anything contained herein to the contrary, the
amount of the Annuity shall be limited (determined at the time of its
acquisition) to the extent: (i) required under the other provisions of this
Agreement, including, but not limited to, Paragraphs 5, 6 and 7 hereof; (ii)
required by reason of the lawful order of any regulatory agency or body having
jurisdiction over the Employer; and (iii) required in order for the Employer to
ensure proper compliance with any and all applicable state and federal laws,
including, but not limited to, income, employment and disability income tax laws
(e.g., FICA, FUTA, SDI). Furthermore, notwithstanding the foregoing, or
anything contained herein to the contrary, in the event the Executive takes any
action which prevents the Employer from collecting the proceeds of any life
insurance policy which the Employer may happen to own at the time of the
Executive's death and of which the Employer is the designated beneficiary: (1)
the Executive's estate or designated beneficiary shall no longer be entitled to
receive any of the amounts payable under the terms
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of the Annuity, and (2) all amounts paid prior to or after Executive's death
under the terms of the Annuity shall be recoverable in full by the Bank from
Executive's estate [with respect to amounts paid prior to Executive's death or
paid to Executive's estate] or designated beneficiary [with respect to amounts
paid to the designated beneficiary]). The selection of the company which is to
provide the Annuity and the terms of such Annuity shall, except as provided or
limited above, be made by the Bank as it determines to be appropriate, said
determinations to be made by the Bank in its sole and absolute discretion.
1.13. SURVIVING SPOUSE. The term "Surviving Spouse" shall mean
the person, if any, who shall be legally married to the Executive on the date of
the Executive's death.
1.14. TERMINATION FOR CAUSE. The term "Termination for Cause"
shall mean termination of the employment of the Executive by reason of any of
the following:
(a) A termination "for cause" as this term may be defined in
any written employment agreement entered into by and between the Employer and
the Executive;
(b) The willful breach of duty by the Executive in the
course of his employment;
(c) The habitual neglect by the Executive of his employment
responsibilities and duties;
(d) The Executive's deliberate violation of any state or
federal banking or securities laws, or of the Bylaws, rules, policies or
resolutions of the Employer, or of the rules or regulations of: (i) the Office
of the California Superintendent of Banks; (ii) the Federal Deposit Insurance
Corporation; or (iii) any other regulatory agency or governmental authority
having jurisdiction over the Employer;
(e) The determination by a state or federal banking agency
or other governmental authority having jurisdiction over the Employer that the
Executive is not suitable to act in the capacity for which he is employed by the
Employer;
(f) The Executive is convicted of any felony or a crime
involving moral turpitude or a fraudulent or dishonest act; or
(g) The Executive discloses without authority any secret or
confidential information not otherwise publicly available concerning the
Employer or takes any action which the Employer's Board of Directors determines,
in its sole discretion and
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subject to good faith, fair dealing and reasonableness, constitutes unfair
competition with or induces any customer to breach any contract with the
Employer.
2. SCOPE, PURPOSE AND EFFECT.
2.1. CONTRACT OF EMPLOYMENT. Although this Agreement is
intended to provide the Executive with an additional incentive to remain in the
employ of the Employer, this Agreement shall not be deemed to constitute a
contract of employment between the Executive and the Employer nor shall any
provision of this Agreement restrict or expand the right of the Employer to
terminate the Executive's employment. This Agreement shall have no impact or
effect upon any separate written Employment Agreement which the Executive may
have with the Employer, it being the parties' intention and agreement that
unless this Agreement is specifically referenced in said Employment Agreement
(or any modification thereto), this Agreement (and the Employer's obligations
hereunder) shall stand separate and apart and shall have no effect upon, nor be
affected by, the terms and provisions of said Employment Agreement.
2.2. FRINGE BENEFIT. The benefits provided by this Agreement are
granted by the Employer as a fringe benefit to the Executive and are not a part
of any salary reduction plan or any arrangement deferring a bonus or a salary
increase. The Executive has no option to take any current payments or bonus in
lieu of the benefits provided by this Agreement.
3. PAYMENTS UPON OR AFTER RETIREMENT.
3.1. PAYMENTS UPON RETIREMENT. If the Executive shall remain in
the continuous employment of the Employer until attaining sixty-five (65) years
of age, and provided an event triggering Schedule B Annuity payments has not yet
occurred, the Executive shall be entitled to be paid the Annual Benefit, as
defined above, in equal monthly installments, for a period of fifteen (15) years
(One Hundred Eighty (180) months), with each installment to be paid on the first
day of each month, beginning with the month following the month in which the
Executive Retires or upon such later date as may be mutually agreed upon by the
Executive and the Employer in advance of said Retirement date. At the
Employer's sole and absolute discretion, the Employer may increase the Annual
Benefit as and when the Employer determines the same to be appropriate in order
to reflect a substantial change in the cost of living. Notwithstanding anything
contained herein to the contrary, the Employer shall have no obligation
hereunder to make any such cost-of-living adjustment.
3.2. PAYMENTS IN THE EVENT OF DEATH AFTER RETIREMENT. The
Employer agrees that if the Executive Retires and begins to receive payments
pursuant to Paragraph 3.1 hereof, but shall die before receiving all of the One
Hundred Eighty (180)
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monthly payments to which he is entitled, the Employer will continue to make
such monthly payments to the Executive's designated beneficiary for the
remaining period. If a valid Beneficiary Designation is not in effect, then the
remaining amounts due to the Executive under the term of this Agreement shall be
paid to the Executive's Surviving Spouse. If the Executive leaves no Surviving
Spouse, the remaining amounts due to the Executive under the terms of this
Agreement shall be paid to the duly qualified personal representative, executor
or administrator of the Executive's estate.
4. PAYMENTS IN THE EVENT DEATH OR DISABILITY OCCURS PRIOR TO
RETIREMENT.
4.1. PAYMENTS IN THE EVENT OF DEATH PRIOR TO RETIREMENT.
Provided an event triggering Schedule B Annuity payments has not yet occurred,
and the Executive dies while actively employed by the Employer at any time after
the Effective Date of this Agreement, but prior to Retirement, the Employer
agrees to pay the Annual Benefit to the Executive's designated beneficiary in
equal monthly installments, for a period of fifteen (15) years (One Hundred
Eighty (180) months). If a valid Beneficiary Designation is not in effect, then
the remaining amounts due to the Executive under the term of this Agreement
shall be paid to the Executive's Surviving Spouse. If the Executive leaves no
Surviving Spouse, the remaining amounts due to the Executive under the terms of
this Agreement shall be paid to the duly qualified personal representative,
executor or administrator of the Executive's estate. Each installment shall be
paid on the first day of each month, beginning with the month following the
month in which the Executive's death occurs.
4.2. PAYMENTS IN THE EVENT OF DISABILITY PRIOR TO RETIREMENT. In
the event the Executive becomes Disabled while actively employed by the Employer
at any time after the date of this Agreement but prior to Retirement, and
provided an event triggering Schedule B Annuity payments has not yet occurred,
the Executive (or the Executive's designated beneficiary, or the Executive's
estate if no designated beneficiary has been selected, upon the Executive's
death) shall be entitled to the Schedule B Annuity, as defined above, with
payments thereunder to begin in the month following the month in which the
Executive attains sixty-five (65) years of age or, if earlier, the month
following the month in which the Executive dies.
5. PAYMENTS IN THE EVENT EMPLOYMENT IS TERMINATED PRIOR TO RETIREMENT.
As indicated in Paragraph 2 above, the Employer reserves the right to terminate
the Executive's employment, with or without cause but subject to any written
employment agreement which may then exist, at any time prior to the Executive's
Retirement. In the event that the employment of the Executive shall be
terminated, other than by reason of Disability, death or Retirement, prior to
the Executive's attaining sixty-five (65) years of age, then this Agreement
shall terminate upon the date of such termination of employment; provided,
however, that the Executive shall be entitled to the following benefits as may
be applicable depending upon the circumstances surrounding the Executive's
termination:
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5.1. TERMINATION WITHOUT CAUSE. If the Executive's employment is
terminated by the Employer without cause, and such termination is not subject to
the provisions of Paragraph 5.4 below, the Executive (or the Executive's
designated beneficiary, or the Executive's estate if no designated beneficiary
has been selected, upon the Executive's death) shall be entitled to be paid the
Schedule B Annuity, as defined above, with payments to begin with the month
following the month in which the Executive is terminated without cause or upon
such later date as may be mutually agreed upon by the Executive and the Employer
in advance of the effective date of the Executive's termination.
5.2. VOLUNTARY TERMINATION BY THE EXECUTIVE. It is acknowledged
and agreed by the Executive that the purpose of this Agreement is to ensure the
Executive's continued employment with the Employer and that if the Executive
voluntarily terminates his employment with the Employer (other than by reason of
death, Disability or Retirement), then the Executive shall have willingly
forfeited any and all rights and benefits he may have under the terms of this
Agreement and that, furthermore, no amounts shall be due or paid to the
Executive by the Employer pursuant to the terms of this Agreement.
5.3. TERMINATION FOR CAUSE. The Executive agrees that if his
employment with the Employer is terminated "for cause," as defined in
subparagraph 1.14 of this Agreement, he shall forfeit any and all rights and
benefits he may have under the terms of this Agreement and shall have no right
to be paid any of the amounts which would otherwise be due or paid to the
Executive by the Employer pursuant to the terms of this Agreement.
5.4. TERMINATION BY THE EMPLOYER ON ACCOUNT OF OR AFTER A
CHANGE IN CONTROL. In the event: (i) the Executive's employment with the
Employer is terminated by the Employer in conjunction with, or by reason of, a
"change in control" (as defined in subparagraph 1.5 above); or (ii) by reason of
the Employer's actions a material change occurs in the scope of the Executive's
position, title, responsibilities, duties, salary, benefits, or locations of
employment after a "change in control" (as defined in subparagraph 1.5) occurs;
or (iii) the Employer causes an event to occur which reasonably constitutes or
results in a demotion, a significant diminution of responsibilities or
authority, or a constructive termination (by forcing a resignation or otherwise)
of the Executive's employment after a "change in control" (as defined in
subparagraph 1.5) occurs, then the Executive (or the Executive's designated
beneficiary, or the Executive's estate if no designated beneficiary has been
selected, upon the Executive's death) shall be entitled to be paid the Annual
Benefit, as defined above, in equal monthly installments, for a period of
fifteen (15) years (One Hundred Eighty (180) months), with installments to be
paid on the first day of each month, beginning with the month following the
month in which the Executive is terminated or any one of the actions referred to
above occurs.
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6. ADDITIONAL LIMITATIONS ON THE AMOUNT OF THE ANNUAL BENEFIT/SCHEDULE B
ANNUITY. The Executive acknowledges and agrees that the parties have entered
into this Agreement based upon the certain financial and tax accounting
assumptions. Accordingly, with full knowledge of the potential consequences the
Executive agrees that, notwithstanding anything contained herein to the
contrary: (i) the amount of the Annual Benefit or the Schedule B Annuity, as the
case may be, shall be limited to that amount of the Annual Benefit or Schedule B
Annuity (determined without regard to this Paragraph 6) which will be deductible
by the Employer under the Code in the year in which payment is to be made to the
Executive; (ii) the Annual Benefit amount or the Schedule B Annuity, as the case
may be, shall be deemed to be the last payment made to the Executive and the
first for which an income tax deduction, if any, has been disallowed; and (iii)
any compensatory amounts for which a deduction is denied to the Employer shall,
at the Employer's election, serve to first reduce the Employer's obligation to
make the monthly Annual Benefit payments otherwise due and payable to the
Executive under the terms of this Agreement. The Executive recognizes that, in
this regard, limitations on deductibility may be imposed under, but not limited
to, Code Section 280G. Consistent with the foregoing, and in the event that any
payment or benefit received or to be received by the Executive, whether payable
pursuant to the terms of this Agreement or any other plan, arrangement or
agreement with the Employer (together with the Annual Benefit or the Schedule B
Annuity, the "Total Payments"), will not be deductible (in whole or in part) as
a result of Code Section 280G, the Annual Benefit or the Schedule B Annuity,
shall be reduced until no portion of the Total Payments is nondeductible as a
result of Section 280G of the Code (or the Annual Benefit/Schedule B Annuity is
reduced to zero (0)). For purposes of this limitation:
(a) No portion of the Total Payments, the receipt or
enjoyment of which the Executive shall have effectively waived in writing prior
to the date of payment of any future Annual Benefit or Schedule B Annuity
payments, shall be taken into account;
(b) No portion of the Total Payments shall be taken into
account, which in the opinion of the tax counsel selected by the Employer and
acceptable to the Executive, does not constitute a "parachute payment" within
the meaning of Section 280G of the Code;
(c) Future Annual Benefit/Schedule B Annuity payments shall
be reduced only to the extent necessary so that the Total Payments (other than
those referred to in clauses (a) or (b) above in their entirety) constitute
reasonable compensation for services actually rendered within the meaning of
Section 280G of the Code, in the opinion of tax counsel referred to in clause
(b) above; and
(d) The value of any non-cash benefit or any deferred
payment or benefit included in the Total Payments shall be determined by the
Employer's independent auditors in accordance with the principles of Section
280G of the Code.
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7. RIGHT TO DETERMINE FINANCING METHODS. The Employer reserves the right
to determine, in its sole and absolute discretion, whether, to what extent and
by what method, if any, to provide for the payment of the amounts which may be
payable to the Executive, the Executive's spouse or the Executive's
beneficiaries under the terms of this Agreement. In the event that the Employer
elects to finance this Agreement, in whole or in part, through the use of life
insurance or annuities, or both, the Employer shall determine the ownership and
beneficial interests of any such policy of life insurance or annuity. The
Employer further reserves the right, in its sole and absolute discretion, to
terminate any such policy, and any other device used to finance its obligations
under this Agreement, at any time, in whole or in part. Consistent with
Paragraph 9 below, neither the Executive, the Executive's spouse nor the
Executive's beneficiaries shall have any right, title or interest in or to any
financing source or amount utilized by the Employer pursuant to this Agreement,
and any such financing source or amount shall not constitute security for the
performance of the Employer's obligations pursuant to this Agreement. In
connection with the foregoing, the Executive agrees to execute such documents
and undergo such medical examinations or tests which the Employer may request
and which may be reasonably necessary to facilitate any financing for this
Agreement including, without limitation, the Employer's acquisition of any
policy of insurance or annuity. Furthermore, a refusal by the Executive to
consent to, participate in and undergo any such medical examinations or tests
shall result in the immediate termination of this Agreement and the immediate
forfeiture by the Executive, the Executive's spouse and the Executive's
beneficiaries of any and all rights to payment hereunder.
8. CLAIMS PROCEDURE. The Employer shall, but only to the extent
necessary to comply with ERISA, be designated as the named fiduciary under this
Agreement and shall have authority to control and manage the operation and
administration of this Agreement. Consistent therewith, the Employer shall make
all determinations as to the rights to benefits under this Agreement. Any
decision by the Employer denying a claim by the Executive, the Executive's
spouse, or the Executive's beneficiary for benefits under this Agreement shall
be stated in writing and delivered or mailed, via registered or certified mail,
to the Executive, the Executive's spouse or the Executive's beneficiary, as the
case may be. Such decision shall set forth the specific reasons for the denial
of a claim. In addition, the Employer shall provide the Executive, the
Executive's spouse or the Executive's beneficiary with a reasonable opportunity
for a full and fair review of the decision denying such claim.
9. STATUS AS AN UNSECURED GENERAL CREDITOR. Notwithstanding anything
contained herein to the contrary: (i) neither the Executive, the Executive's
spouse or the Executive's designated beneficiaries shall have any legal or
equitable rights, interests or claims in or to any specific property or assets
of the Employer; (ii) none of the Employer's assets shall be held in or under
any trust for the benefit of the Executive, the Executive's spouse or the
Executive's designated beneficiaries or held in any way as security for the
fulfillment of the obligations of the Employer under this Agreement; (iii) all
of the
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Employer's assets shall be and remain the general unpledged and unrestricted
assets of the Employer; (iv) the Employer's obligation under this Agreement
shall be that of an unfunded and unsecured promise by the Employer to pay money
in the future; and (v) the Executive, the Executive's spouse and the Executive's
designated beneficiaries shall be unsecured general creditors with respect to
any benefits which may be payable under the terms of this Agreement.
10. DISCRETION OF BOARD TO ACCELERATE PAYOUT. Notwithstanding any of the
other provisions of this Agreement, the Board of Directors of the Bank may, if
determined in its sole and absolute discretion to be appropriate, accelerate the
payment of the amounts due under the terms of this Agreement, provided that
Executive (or Executive's spouse or designated beneficiaries): (i) consents to
the revised payout terms determined appropriate by the Bank's Board of
Directors; and (ii) does not negotiate or in anyway influence the terms of
proposed altered/accelerated payout (said decision to be made solely by the
Bank's Board of Directors and offered to the Executive [or Executive's spouse or
designated beneficiaries] on a "take it or leave it basis").
11. MISCELLANEOUS.
11.1. OPPORTUNITY TO CONSULT WITH INDEPENDENT COUNSEL. The
Executive acknowledges that he has been afforded the opportunity to consult with
independent counsel of his choosing regarding both the benefits granted to him
under the terms of this Agreement and the terms and conditions which may affect
the Executive's right to these benefits. The Executive further acknowledges
that he has read, understands and consents to all of the terms and conditions of
this Agreement, and that he enters into this Agreement with a full understanding
of its terms and conditions.
11.2. ARBITRATION OF DISPUTES. All claims, disputes and other
matters in question arising out of or relating to this Agreement or the breach
or interpretation thereof, other than those matters which are to be determined
by the Employer in its sole and absolute discretion or those matters subject to
the provisions of Article 8 hereof, shall be resolved by binding arbitration
before a representative member, selected by the mutual agreement of the parties,
of the Judicial Arbitration and Mediation Services, Inc. ("JAMS"), presently
located at 111 Pine Street, Suite 710, in San Francisco, California. In the
event JAMS is unable or unwilling to conduct the arbitration provided for under
the terms of this Paragraph, or has discontinued its business, the parties agree
that a representative member, selected by the mutual agreement of the parties,
of the American Arbitration Association ("AAA"), presently located in San
Francisco, California, shall conduct the binding arbitration referred to in this
Paragraph. Notice of the demand for arbitration shall be filed in writing with
the other party to this Agreement and with JAMS (or AAA, if necessary). In no
event shall the demand for arbitration be made after the date when institution
of legal or equitable proceedings based on such claim, dispute or other matter
in question would be barred by the
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applicable statute of limitations. The arbitration shall be subject to such
rules of procedure used or established by JAMS, or if there are none, the rules
of procedure used or established by AAA. Any award rendered by JAMS or AAA
shall be final and binding upon the parties, and as applicable, their respective
heirs, beneficiaries, legal representatives, agents, successors and assigns, and
may be entered in any court having jurisdiction thereof. The obligation of the
parties to arbitrate pursuant to this clause shall be specifically enforceable
in accordance with, and shall be conducted consistently with, the provisions of
Title 9 of Part 3 of the California Code of Civil Procedure. Any arbitration
hereunder shall be conducted in San Francisco, California, unless otherwise
agreed to by the parties.
11.3. ATTORNEYS' FEES. In the event of any arbitration or
litigation concerning any controversy, claim or dispute between the parties
hereto, arising out of or relating to this Agreement or the breach hereof, or
the interpretation hereof, the prevailing party shall be entitled to recover
from the losing party reasonable expenses, attorneys' fees and costs incurred in
connection therewith or in the enforcement or collection of any judgment or
award rendered therein. The "prevailing party" means the party determined by
the arbitrator(s) or court, as the case may be, to have most nearly prevailed,
even if such party did not prevail in all matters, not necessarily the one in
whose favor a judgment is rendered.
11.4. NOTICE. Any notice required or permitted of either the
Executive or the Employer under this Agreement shall be deemed to have been duly
given, if by personal delivery, upon the date received by the party or its
authorized representative; if by facsimile, upon transmission to a telephone
number previously provided by the party to whom the facsimile is transmitted as
reflected in the records of the party transmitting the facsimile and upon
reasonable confirmation of such transmission; and if by mail, on the third day
after mailing via U.S. first class mail, registered or certified, postage
prepaid and return receipt requested, and addressed to the party at the address
given below for the receipt of notices, or such changed address as may be
requested in writing by a party.
If to the Employer: Mid-Peninsula Bank
420 Cowper Street
Palo Alto, CA 94301
Attn: Chairman of the Board
If to the Executive: Mr. Jonas H. Stafford
625 Matadero Avenue
Palo Alto, CA 94306
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11.5. ASSIGNMENT. Neither the Executive, the Executive's spouse,
nor any other beneficiary under this Agreement shall have any power or right to
transfer, assign, anticipate, hypothecate, modify or otherwise encumber any part
or all of the amounts payable hereunder, nor, prior to payment in accordance
with the terms of this Agreement, shall any portion of such amounts be: (i)
subject to seizure by any creditor of any such beneficiary, by a proceeding at
law or in equity, for the payment of any debts, judgments, alimony or separate
maintenance obligations which may be owed by the Executive, the Executive's
spouse, or any designated beneficiary; or (ii) transferable by operation of law
in the event of bankruptcy, insolvency or otherwise. Any such attempted
assignment or transfer shall be void and shall terminate this Agreement, and the
Employer shall thereupon have no further liability hereunder.
11.6. BINDING EFFECT/MERGER OR REORGANIZATION. This Agreement
shall be binding upon and inure to the benefit of the Executive and the Employer
and, as applicable, their respective heirs, beneficiaries, legal
representatives, agents, successors and assigns. Accordingly, the Employer
shall not merge or consolidate into or with another corporation, or reorganize
or sell substantially all of its assets to another corporation, firm or person,
unless and until such succeeding or continuing corporation, firm or person
agrees to assume and discharge the obligations of the Employer under this
Agreement. Upon the occurrence of such event, the term "Employer" as used in
this Agreement shall be deemed to refer to such surviving or successor firm,
person, entity or corporation.
11.7. NONWAIVER. The failure of either party to enforce at any
time or for any period of time any one or more of the terms or conditions of
this Agreement shall not be a waiver of such term(s) or condition(s) or of that
party's right thereafter to enforce each and every term and condition of this
Agreement.
11.8. PARTIAL INVALIDITY. If any term, provision, covenant, or
condition of this Agreement is determined by an arbitrator or a court, as the
case may be, to be invalid, void, or unenforceable, such determination shall not
render any other term, provision, covenant or condition invalid, void or
unenforceable, and the Agreement shall remain in full force and effect
notwithstanding such partial invalidity.
11.9. ENTIRE AGREEMENT. This Agreement supersedes any and all
other agreements, either oral or in writing, between the parties with respect to
the subject matter of this Agreement and contains all of the covenants and
agreements between the parties with respect thereto. Each party to this
Agreement acknowledges that no other representations, inducements, promises, or
agreements, oral or otherwise, have been made by any party, or anyone acting on
behalf of any party, which are not set forth herein, and that no other
agreement, statement, or promise not contained in this Agreement shall be valid
or binding on either party.
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11.10. MODIFICATIONS. Any modification of this Agreement shall be
effective only if it is in writing and signed by each party or such party's
authorized representative.
11.11. PARAGRAPH HEADINGS. The paragraph headings used in this
Agreement are included solely for the convenience of the parties and shall not
affect or be used in connection with the interpretation of this Agreement.
11.12. NO STRICT CONSTRUCTION. The language used in this Agreement
shall be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction will be applied against any
person.
11.13. GOVERNING LAW. The laws of the State of California, other
than those laws denominated choice of law rules, and, where applicable, the
rules and regulations of the Office of the California Superintendent of Banks
and the Federal Deposit Insurance Corporation, shall govern the validity,
interpretation, construction and effect of this Agreement.
IN WITNESS WHEREOF, the Employer and the Executive have executed this
Agreement on the date first above-written in the City of Palo Alto, Santa Clara
County, California.
THE EMPLOYER: THE EXECUTIVE:
Mid-Peninsula Bank,
A California State Chartered Bank
By: /s/Duncan L. Matteson /s/Jonas H. Stafford
--------------------------------- ----------------------------------
Duncan L. Matteson, Chairman Jonas H. Stafford
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SCHEDULE A
NUMBER OF COMPLETE
YEARS WHICH HAVE ELAPSED APPLICABLE PERCENTAGE
------------------------ ---------------------
1....................................... 10.00%
2....................................... 20.00%
3....................................... 30.00%
4....................................... 40.00%
5....................................... 50.00%
6....................................... 60.00%
7....................................... 70.00%
8....................................... 80.00%
9....................................... 90.00%
10...................................... 100.00%
15
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SCHEDULE B
SCHEDULE B ANNUITY AMOUNT
-------------------------
1. $ 10,508
2. $ 21,945
3. $ 34,392
4. $ 47,940
5. $ 62,686
6. $ 78,734
7. $ 96,202
8. $ 115,213
9. $ 135,905
10. $ 158,426
11. $ 182,937
12. $ 209,615
13. $ 238,651
14. $ 270,253
15. $ 304,649
16
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SCHEDULE C
BENEFICIARY DESIGNATION
To the Administrator of the Mid-Peninsula Bank Executive Salary
Continuation Agreement:
Pursuant to the Provisions of my Executive Salary Continuation Agreement
with Mid-Peninsula Bank, permitting the designation of a beneficiary or
beneficiaries by a participant, I hereby designate the following persons and
entities as primary and secondary beneficiaries of any benefit under said
Agreement payable by reason of my death:
PRIMARY BENEFICIARY:
625 Matadero Ave
Chris Stafford Palo Alto, CA 94306 Wife
- - ---------------------- -------------------------------- ----------------
Name Address Relationship
SECONDARY (CONTINGENT) BENEFICIARY:
In equal (1/3) shares to children:
Kellie Stafford Daughter
Jeremy Stafford 625 Matadoro Ave Son
Scott Stafford Palo Alto, CA 94306 Son
- - ---------------------- -------------------------------- ----------------
Name Address Relationship
THE RIGHT TO REVOKE OR CHANGE ANY BENEFICIARY DESIGNATION IS HEREBY RESERVED.
ALL PRIOR DESIGNATIONS, IF ANY, OF PRIOR BENEFICIARY AND SECONDARY BENEFICIARIES
ARE HEREBY REVOKED.
The Administrator shall pay all sums payable under the Agreement by reason of my
death to the Primary Beneficiary, if he or she survives me, and if no Primary
Beneficiary shall survive me, then to the Secondary Beneficiary, and if no named
beneficiary survives me, then the Administrator shall pay all amounts in
accordance with the terms of my Executive Salary Continuation Agreement. In the
event that a named beneficiary survives me and dies prior to receiving the
entire benefit payable under said Agreement, then and in that event, the
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<PAGE>
remaining unpaid benefit payable according to the terms of my Executive Salary
Continuation Agreement shall be payable to the personal representatives of the
estate of said beneficiary who survived me but died prior to receiving the total
benefit provided by my Executive Salary Continuation Agreement.
THE EXECUTIVE:
Dated: May 17, 1995 /s/Jonas H. Stafford
-------------------------------------------
JONAS H. STAFFORD
CONSENT OF THE EXECUTIVE'S SPOUSE
TO THE ABOVE BENEFICIARY DESIGNATION:
I, Chris Stafford, being the spouse of Jonas H. Stafford, after being
afforded the opportunity to consult with independent counsel of my choosing, do
hereby acknowledge that I have read, agree and consent to the foregoing
Beneficiary Designation which relates to the Executive Salary Continuation
Agreement entered into by my spouse effective as of 5/17, 1995. I understand
that the above Beneficiary Designation may affect certain rights which I may
have in the benefits provided for under the terms of the Executive Salary
Continuation Agreement and in which I may have a marital property interest.
Dated: 5/17 , 1995.
/s/Chris Stafford
---------------------------------------
Chris Stafford
18
<PAGE>
CERTIFICATE OF ACKNOWLEDGMENT
OF NOTARY PUBLIC
State of California )
) ss.
County of Santa Clara )
On May 17, 1995, before me, Marcia Frank, Notary Public, State of
California, personally appeared Jonas H. Stafford and Chris Stafford,
[X] personally known to me - OR
[ ] proved to me on the basis of satisfactory evidence
to be the person(s) whose name(s) are subscribed to the within instrument and
acknowledged to me that they executed the same in their authorized capacities,
and that by their signature(s) on the instrument the person(s), or the entity
upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal. /s/ Marcia S. Frank
Official Seal ---------------------------------------
MARCIA S. FRANK Notary Public
/SEAL/ Notary Public-California State of California
San Mateo County
My commission expires
October 14, 1995
(Seal)
Capacity Claimed by Signer:
- - --------------------------
[X] Individual(s) Signing for Oneself/Themselves
[ ] Corporate Officer(s) --------------------- ---------------------
Title Company
--------------------- ---------------------
Title Company
[ ] Partner(s)
-----------------------------------------------------------
Partnership
[ ] Trustees(s)
----------------------------------------------------------
Trust
[ ] Attorney-in-Fact
-------------------------- ------------------------
Principal Principal
[ ] Other
----------------------------- -----------------------------
Entity(ies) Represented Entity(ies) Represented
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
Title or Type of Document: Date of Document:
--------------- ---------------
Number of Pages: Signer(s) Other Than Named Above:
------------ -----------
<PAGE>
EXHIBIT 10.26
EXECUTIVE SALARY CONTINUATION AGREEMENT
This Agreement is made and entered into effective as of the twenty-first
(21st) day of March, 1996, by and between Mid-Peninsula Bank, a bank chartered
under the laws of the State of California (the "Employer"), and Charles P.
Banovac, an individual residing in the State of California (hereinafter referred
to as the "Executive").
RECITALS
WHEREAS, serving as its Senior Vice President;
WHEREAS, of the Employer and the banking industry are extensive
and valuable;
WHEREAS, it is deemed to be in the best interests of the
Employer to provide the Executive with certain salary continuation benefits, on
the terms and conditions set forth herein, in order to reasonably induce the
Executive to remain in the Employer's employment; and
WHEREAS, the Executive and the Employer wish to specify in
writing the terms and conditions upon which this additional compensatory
incentive will be provided to the Executive, or to the Executive's spouse or the
Executive's designated beneficiaries, as the case may be;
NOW, THEREFORE, in consideration of the services to be performed
in the future, as well as the mutual promises and covenants contained herein,
the Executive and the Employer agree as follows:
AGREEMENT
1. TERMS AND DEFINITIONS.
1.1. ADMINISTRATOR. The Employer shall be the
"Administrator" and, solely for the purposes of ERISA, the "fiduciary" of this
Agreement where a fiduciary is required by ERISA.
1.2. ANNUAL BENEFIT. The term "Annual BENEFIT" shall
mean an annual sum of Thirty-Six Thousand Dollars ($36,000.00) multiplied by the
Applicable Percentage (defined below) and then reduced to the extent: (i)
required under the other provisions of this Agreement, including, but not
limited to, Paragraphs 5, 6 and 7 hereof;
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(ii) required by reason of the lawful order of any regulatory agency or body
having jurisdiction over the Employer; and (iii) required in order for the
Employer to properly comply with any and all applicable state and federal laws,
including, but not limited to, income, employment and disability income tax laws
(e.g., FICA, FUTA, SDI).
1.3. APPLICABLE PERCENTAGE. The term "Applicable
Percentage" shall mean that percentage listed on Schedule "A" attached hereto
which is adjacent to the number of complete years (with a "year" being the
performance of personal services for or on behalf of the Employer for a period
of 365 days) which have elapsed starting from the Effective Date of this
Agreement and ending on the date payments are to first begin under the terms of
this Agreement. Notwithstanding the foregoing or the percentages set forth on
Schedule "A," but subject to all other terms and conditions set forth herein,
the "Applicable Percentage" shall be: (i) provided payments have not yet begun
hereunder, one hundred percent (100%) upon the Executive's death; and (ii)
notwithstanding subclause (i) of this Paragraph, zero percent (O%) in the event
the Executive takes any action which prevents the Employer from collecting the
proceeds of any life insurance policy which the Employer may happen to own at
the time of the Executive's death and of which the Employer is the designated
beneficiary. Furthermore, notwithstanding the foregoing, or anything contained
herein to the contrary, in the event the Executive takes any action which
prevents the Employer from collecting the proceeds of any life insurance policy
which the Employer may happen to own at the time of the Executive's death and of
which the Employer is the designated beneficiary: (1) the Executive's estate or
designated beneficiary shall no longer be entitled to receive any of the amounts
payable under the terms of this Agreement, and (2) the Bank shall have the right
to recover from Executive's estate all of the amounts paid to the Executive's
estate (with respect to amounts paid prior to Executive's death or paid to
Executive's estate) or designated beneficiary (with respect to amounts paid to
the designated beneficiary) pursuant to the terms of this Agreement prior to and
after Executive's death.
1.4. BENEFICIARY. The term "beneficiary" or
"designated beneficiary" shall mean the person or persons whom the Executive
shall designate in a valid Beneficiary Designation, a copy of which is attached
hereto as Exhibit "C," to receive the benefits provided hereunder. A
Beneficiary Designation shall be valid only if it is in the form attached hereto
and made a part hereof and is received by the Administrator prior to the
Executive's death.
1.5. CHANGE IN CONTROL. The term "Change in Control"
shall mean the occurrence of the any of the following events with respect to
Employer (with the term "Employer" being defined, when determining whether a
"Change in Control" has occurred, to include Mid-Peninsula Bank's current
holding company, Mid-Peninsula Bancorp, a California corporation, such that a
"Change in Control" of Mid-Peninsula Bancorp will be deemed to constitute a
"Change in Control" of the Employer): (i) a change in control of a nature that
would be required to be reported in response to Item 6(e) of Schedule 14A of
2
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Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), or in response to any other form or report to the
regulatory agencies or governmental authorities having jurisdiction over the
Employer or any stock exchange on which the Employer's shares are listed which
requires the reporting of a change in control; (ii) any merger, consolidation or
reorganization of the Employer in which the Employer does not survive; (iii) any
sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one
transaction or a series of transactions) of any assets of the Employer having an
aggregate fair market value of fifty percent (50%) of the total value of the
assets of the Employer, reflected in the most recent balance sheet of the
Employer; (iv) a transaction whereby any "person" (as such term is used in the
Exchange Act or any individual, corporation, partnership, trust or any other
entity) becomes the beneficial owner, directly or ,indirectly, of securities of
the Employer representing twenty-five percent (25%) or more of the combined
voting power of the Employer's then outstanding securities; or (v) a situation
where, in any one-year period, individuals who at the beginning of such period
constitute the Board of Directors of the Employer cease for any reason to
constitute at least a majority thereof, unless the election, or the nomination
for election by the Employer's shareholders, of each new director is approved by
a vote of at least three-quarters (3/4) of the directors then still in office
who were directors at the beginning of the period.
1.6. THE CODE. The "Code" shall mean the Internal
Revenue Code of 1986, as amended (the "Code").
1.7. DISABILITY/DISABLED. The term "Disability" or
"Disabled" shall have the same meaning given such term in the principal
disability insurance policy covering the Executive, which is incorporated herein
by reference to the limited extent thereof. In the event the Executive is not
covered by a disability policy containing a definition of "Disability" or
"Disabled," these terms shall mean an illness or incapacity which, having
continued for a period of one hundred and eighty (180) consecutive days,
prevents the Executive from adequately performing the Executive's regular
employment duties. The determination of whether the Executive is Disabled shall
be made by an independent physician selected by mutual agreement of the parties.
1.8. EFFECTIVE DATE. The term "Effective Date" shall
mean the date upon which this Agreement was entered into by the parties, as
first written above.
1.9. ERISA. The term "ERISA" shall mean the Employee
Retirement Income Security Act of 1974, as amended.
1.10. PLAN YEAR. The term "Plan Year" shall mean the
Employer's fiscal year.
3
<PAGE>
1.11. RETIREMENT. The term "Retirement" or "Retires"
shall refer to the date which the Executive acknowledges in writing to Employer
to be the last day he will provide any significant personal services, whether as
an employee or independent consultant or contractor, to Employer or to, for, or
on behalf of, any other business entity conducting, performing or making
available to any person or entity banking or other financial services of any
kind. For purposes of this Agreement, the phrase "significant personal
services" shall mean more than ten (10) hours of personal services rendered to
one or more individuals or entities in any thirty (30) day period.
1.12. SCHEDULE B ANNUITY. The term "Schedule B Annuity"
shall mean an "Annuity," as defined in this Paragraph 1.12, purchased by the
Bank within one month of the date the first payment is to be paid to the
Executive under the terms of this Agreement with that sum of money which equals:
(a) the amount set forth on Schedule B attached hereto which corresponds to the
number of complete years (i.e., twelve [12] month periods) which have elapsed
between the Effective Date hereof and the date on which the event triggering or
fixing an Executive's right to a Schedule B Annuity occurs; plus (b) an amount
equal to the amount of interest which would have been earned on the amount
described in the foregoing clause (a) of this Paragraph if said amount had been
invested in successive six month United States Treasury Bills starting from the
date on which the event triggering or fixing an Executive's right to a Schedule
B Annuity occurs and ending on the date the first payment to be made by the Bank
to the Executive under the terms of this Agreement is to occur (i.e., using the
six month T-Bill rate as the applicable rate for determining the "deemed
interest" to be credited). For purposes of this Agreement, the term "Annuity"
shall mean a commercially available, standard form annuity contract: (i) with an
insurance company having the highest available rating from Standard & Poor's;
and (ii) providing equal monthly payments over a period of fifteen years (one
hundred and eighty [180] months) (with the amount of each monthly payment to be
determined by reference to the Schedule B monetary amount which is to be
invested, as described above, and to begin as described below with respect to
the particular event which triggers the right to receive the Schedule B
Annuity). Notwithstanding the foregoing, or anything contained herein to the
contrary, the amount of the Annuity shall be limited (determined at the time of
its acquisition) to the extent: (i) required under the other provisions of this
Agreement, including, but not limited to, Paragraphs 5, 6 and 7 hereof; (ii)
required by reason of the lawful order of any regulatory agency or body having
jurisdiction over the Employer; and (iii) required in order for the Employer to
ensure proper compliance with any and all applicable state and federal laws,
including, but not limited to, income, employment and disability income tax laws
(e.g., FICA, FUTA, SDI). Furthermore, notwithstanding the foregoing, or
anything contained herein to the contrary, in the event the Executive takes any
action which prevents the Employer from collecting the proceeds of any life
insurance policy which the Employer may happen to own at the time of the
Executive's death and of which the Employer is the designated beneficiary: (1)
the Executive's estate or designated beneficiary shall no longer be entitled to
receive any of the amounts payable under the terms
4
<PAGE>
of the Annuity, and (2) all amounts paid prior to or after Executive's death
under the terms of the Annuity shall be recoverable in full by the Bank from
Executive's estate (with respect to amounts paid prior to Executive's death or
paid to Executive's estate) or designated beneficiary (with respect to amounts
paid to the designated beneficiary). The selection of the company which is to
provide the Annuity and the terms of such Annuity shall, except as provided or
limited above, be made by the Bank as it determines to be appropriate, said
determinations to be made by the Bank in its sole and absolute discretion.
1.13. SURVIVING SPOUSE. The term "Surviving Spouse"
shall mean the person, if any, who shall be legally married to the Executive on
the date of the Executive's death.
1.14. TERMINATION FOR CAUSE. The term "Termination for
Cause" shall mean termination of the employment of the Executive by reason of
any of the following:
(a) A termination "for cause" as this term may be
defined in any written employment agreement entered into by and between the
Employer and the Executive;
(b) The willful breach of duty by the Executive in the
course of his employment;
(c) The habitual neglect by the Executive of his
employment responsibilities and duties;
(d) The Executive's deliberate violation of any state
or federal banking or securities laws, or of the Bylaws, rules, policies or
resolutions of the Employer (or Employer's holding company parent corporation,
Mid-Peninsula Bancorp), or of the rules or regulations of: (i) the California
Superintendent of Banks; (ii) the Federal Deposit Insurance Corporation; or
(iii) any other regulatory agency or governmental authority having jurisdiction
over the Employer;
(e) The determination by a state or federal banking
agency or other governmental authority having jurisdiction over the Employer
that the Executive is not suitable to act in the capacity for which he is
employed by the Employer;
(f) The Executive is convicted of any felony or a
crime involving moral turpitude or a fraudulent or dishonest act; or
(g) The Executive discloses without authority any
secret or confidential information not otherwise publicly available concerning
the Employer or takes any action which the Employer's Board of Directors
determines, in its sole discretion and
5
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subject to good faith, fair dealing and reasonableness, constitutes unfair
competition with or induces any customer to breach any contract with the
Employer.
2. SCOPE, PURPOSE AND EFFECT.
2.1. CONTRACT OF EMPLOYMENT. Although this Agreement
is intended to provide the Executive with an additional incentive to remain in
the employ of the Employer, this Agreement shall not be deemed to constitute a
contract of employment between the Executive and the Employer nor shall any
provision of this Agreement restrict or expand the right of the Employer to
terminate the Executive's employment. This Agreement shall have no impact or
effect upon any separate written Employment Agreement which the Executive may
have with the Employer, it being the parties' intention and agreement that
unless this Agreement is specifically referenced in said Employment Agreement
(or any modification thereto), this Agreement (and the Employer's obligations
hereunder) shall stand separate and apart and shall have no effect upon, nor be
affected by, the terms and provisions of said Employment Agreement.
2.2. FRINGE BENEFIT. The benefits provided by this
Agreement are granted by the Employer as a fringe benefit to the Executive and
are not a part of any salary reduction plan or any arrangement deferring a bonus
or a salary increase. The Executive has no option to take any current payments
or bonus in lieu of the benefits provided by this Agreement.
3. PAYMENTS UPON OR AFTER RETIREMENT.
3.1. PAYMENTS UPON RETIREMENT. If the Executive shall
remain in the continuous employment of the Employer until attaining sixty-five
(65) years of age, and provided an event triggering Schedule B Annuity payments
has not yet occurred, the Executive shall be entitled to be paid the Annual
Benefit, as defined above, in equal monthly installments, for a period of
fifteen (15) years (One Hundred Eighty (180) months), with each installment to
be paid on the first day of each month, beginning with the month following the
month in which the Executive Retires or upon such later date as may be mutually
agreed upon by the Executive and the Employer in advance of said Retirement
date. At the Employer's sole and absolute discretion, the Employer may increase
the Annual Benefit as and when the Employer determines the same to be
appropriate in order to reflect a substantial change in the cost of living.
Notwithstanding anything contained herein to the contrary, the Employer shall
have no obligation hereunder to make any such cost-of-living adjustment.
3.2. PAYMENTS IN THE EVENT OF DEATH AFTER RETIREMENT.
The Employer agrees that if the Executive Retires and begins to receive payments
pursuant to Paragraph 3.1 hereof, but shall die before receiving all of the One
Hundred Eighty (180)
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<PAGE>
monthly payments to which he is entitled, the Employer will continue to make
such monthly payments to the Executive's designated beneficiary for the
remaining period. If a valid Beneficiary Designation is not in effect, then the
remaining amounts due to the Executive under the term of this Agreement shall be
paid to the Executive's Surviving Spouse. If the Executive leaves no Surviving
Spouse, the remaining amounts due to the Executive under the terms of this
Agreement shall be paid to the duly qualified personal representative, executor
or administrator of the Executive's estate.
4. PAYMENTS IN THE EVENT DEATH OR DISABILITY OCCURS PRIOR TO
RETIREMENT.
4.1. PAYMENTS IN THE EVENT OF DEATH OR DISABILITY PRIOR
TO RETIREMENT. Provided an event triggering Schedule B Annuity payments has not
yet occurred, and the Executive dies while actively employed by the Employer at
any time after the Effective Date of this Agreement, but prior to Retirement,
the Employer agrees to pay the Annual Benefit to the Executive's designated
beneficiary in equal monthly installments, for a period of fifteen (15) years
(One Hundred Eighty (180) months). If a valid Beneficiary Designation is not
in effect, then the remaining amounts due to the Executive under the term of
this Agreement shall be paid to the Executive's Surviving Spouse. If the
Executive leaves no Surviving Spouse, the remaining amounts due to the
Executive under the terms of this Agreement shall be paid to the duly qualified
personal representative, executor or administrator of the Executive's estate.
Each installment shall be paid on the FIRST day of each month, beginning with
the month following the month in which the Executive's death occurs.
4.2. PAYMENTS IN THE EVENT OF DISABILITY PRIOR TO
RETIREMENT. In the event the Executive becomes Disabled while actively employed
by the Employer at any time after the date of this Agreement but prior to
Retirement, and provided an event triggering Schedule B Annuity payments has not
yet occurred, the Executive (or the Executive's designated beneficiary, or the
Executive's estate if no designated beneficiary has been selected, upon the
Executive's death) shall be entitled to the Schedule B Annuity, as defined
above, with payments thereunder to begin in the month following the month in
which the Executive attains sixty-five (65) years of age or, if earlier, the
month following the month in which the Executive dies.
5. PAYMENTS IN THE EVENT EMPLOYMENT IS TERMINATED PRIOR TO
RETIREMENT. As indicated in Paragraph 2 above, the Employer reserves the right
to terminate the Executive's employment, with or without cause but subject to
any written employment agreement which may then exist, at any time prior to the
Executive's Retirement. In the event that the employment of the Executive shall
be terminated, other than by reason of Disability, death or Retirement, prior to
the Executive's attaining sixty-five (65) years of age, then this Agreement
shall terminate upon the date of such termination of employment; provided,
however, that the Executive shall be entitled to the following benefits as may
be applicable depending upon the circumstances surrounding the Executive's
termination:
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5.1. TERMINATION WITHOUT CAUSE. If the Executive's
employment is terminated by the Employer without cause, and such termination is
not subject to the provisions of Paragraph 5.4 below, the Executive (or the
Executive's designated beneficiary, or the Executive's estate if no designated
beneficiary has been selected, upon the Executive's death) shall be entitled to
be paid the Schedule B Annuity, as defined above, with payments to begin with
the month following the month in which the Executive is terminated without cause
or upon such later date as may be mutually agreed upon by the Executive and the
Employer in advance of the effective date of the Executive's termination.
5.2. VOLUNTARY TERMINATION BY THE EXECUTIVE. It is
acknowledged and agreed by the Executive that the purpose of this Agreement is
to ensure the Executive's continued employment with the Employer and that if the
Executive voluntarily terminates his employment with the Employer (other than by
reason of death, Disability or Retirement), then the Executive shall have
willingly forfeited any and all rights and benefits he may have under the terms
of this Agreement and that, furthermore, no amounts shall be due or paid to the
Executive by the Employer pursuant to the terms of this Agreement.
5.3. TERMINATION FOR CAUSE. The Executive agrees that
if his employment with the Employer is terminated "for cause," as defined in
subparagraph 1. 14 of this Agreement, he shall forfeit any and all rights and
benefits he may have under the terms of this Agreement and shall have no right
to be paid any of the amounts which would otherwise be due or paid to the
Executive by the Employer pursuant to the terms of this Agreement.
5.4. TERMINATION BY THE EMPLOYER ON ACCOUNT OF OR AFTER
A CHANGE IN CONTROL. In the event: (i) the Executive's employment with the
Employer is terminated by the Employer in conjunction with, or by reason of, a
"change in control" (as defined in subparagraph 1.5 above); or (ii) by reason of
the Employer's actions a material change occurs in the scope of the Executive's
position, title, responsibilities, duties, salary, benefits, or locations of
employment after a "change in control" (as defined in subparagraph 1.5) occurs;
or (iii) the Employer causes an event to occur which reasonably constitutes or
results in a demotion, a significant diminution of responsibilities or
authority, or a constructive termination (by forcing a resignation or otherwise)
of the Executive's employment after a "change in control" (as defined in
subparagraph 1.5) occurs, then the Executive (or the Executive's designated
beneficiary, or the Executive's estate if no designated beneficiary has been
selected, upon the Executive's death) shall be entitled to be paid the Annual
Benefit, as defined above, in equal monthly installments, for a period of
fifteen (15) years (One Hundred Eighty (180) months), with installments to be
paid on the first day of each month, beginning with the month following the
month in which the Executive is terminated or any one of the actions referred to
above occurs.
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6. ADDITIONAL LIMITATIONS ON THE AMOUNT OF THE ANNUAL
BENEFIT/SCHEDULE B ANNUITY. The Executive acknowledges and agrees that the
parties have entered into this Agreement based upon the certain financial and
tax accounting assumptions. Accordingly, with full knowledge of the potential
consequences the Executive agrees that, notwithstanding anything contained
herein to the contrary: (i) the amount of the Annual Benefit or the Schedule B
Annuity, as the case may be, shall be limited to that amount of the Annual
Benefit or Schedule B Annuity (determined without regard to this Paragraph 6)
which will be deductible by the Employer under the Code in the year in which
payment is to be made to the Executive; (ii) the Annual Benefit amount or the
Schedule B Annuity, as the case may be, shall be deemed to be the last payment
made to the Executive and the first for which an income tax deduction, if any,
has been disallowed; and (iii) any compensatory amounts for which a deduction is
denied to the Employer shall, at the Employer's election, serve to first reduce
the Employer's obligation to make the monthly Annual Benefit payments otherwise
due and payable to the Executive under the terms of this Agreement. The
Executive recognizes that, in this regard, limitations on deductibility may be
imposed under, but not limited to, Code Section 280G. Consistent with the
foregoing, and in the event that any payment or benefit received or to be
received by the Executive, whether payable pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the Employer
(together with the Annual Benefit or the Schedule B Annuity, the "Total
Payments"), will not be deductible (in whole or in part) as a result of Code
Section 280G, the Annual Benefit or the Schedule B Annuity, shall be reduced
until no portion of the Total Payments is nondeductible as a result of Section
280G of the Code (or the Annual Benefit/Schedule B Annuity is reduced to zero
(0)). For purposes of this limitation:
(a) No portion of the Total Payments, the receipt or
enjoyment of which the Executive shall have effectively waived in writing prior
to the date of payment of any future Annual Benefit or Schedule B Annuity
payments, shall be taken into account;
(b) No portion of the Total Payments shall be taken
into account, which in the opinion of the tax counsel selected by the Employer
and acceptable to the Executive, does not constitute a "parachute payment"
within the meaning of Section 280G of the Code;
(c) Future Annual Benefit/Schedule B Annuity payments
shall be reduced only to the extent necessary so that the Total Payments (other
than those referred to in clauses (a) or (b) above in their entirety) constitute
reasonable compensation for services actually rendered within the meaning of
Section 280G of the Code, in the opinion of tax counsel referred to in clause
(b) above; and
(d) The value of any non-cash benefit or any deferred
payment or benefit included in the Total Payments shall be determined by the
Employer's independent auditors in accordance with the principles of Section
280G of the Code.
9
<PAGE>
7. RIGHT TO DETERMINE FINANCING METHODS. The Employer reserves the
right to determine, in its sole and absolute discretion, whether, to what extent
and by what method, if any, to provide for the payment of the amounts which may
be payable to the Executive, the Executive's spouse or the Executive's
beneficiaries under the terms of this Agreement. In the event that the Employer
elects to finance this Agreement, in whole or in part, through the use of life
insurance or annuities, or both, the Employer shall determine the ownership and
beneficial interests of any such policy of life insurance or annuity. The
Employer further reserves the right, in its sole and absolute discretion, to
terminate any such policy, and any other device used to finance its obligations
under this Agreement, at any time, in whole or in part. Consistent with
Paragraph 9 below, neither the Executive, the Executive's spouse nor the
Executive's beneficiaries shall have any right, title or interest in or to any
financing source or amount utilized by the Employer pursuant to this Agreement,
and any such financing source or amount shall not constitute security for the
performance of the Employer's obligations pursuant to this Agreement. In
connection with the foregoing, the Executive agrees to execute such documents
and undergo such medical examinations or tests which the Employer may request
and which may be reasonably necessary to facilitate any financing for this
Agreement including, without limitation, the Employer's acquisition of any
policy of insurance or annuity. Furthermore, a refusal by the Executive to
consent to, participate in and undergo any such medical examinations or tests
shall result in the immediate termination of this Agreement and the immediate
forfeiture by the Executive, the Executive's spouse and the Executive's
beneficiaries of any and all rights to payment hereunder.
8. CLAIMS PROCEDURE. The Employer shall, but only to the extent
necessary to comply with ERISA, be designated as the named fiduciary under this
Agreement and shall have authority to control and manage the operation and
administration of this Agreement. Consistent therewith, the Employer shall make
all determinations as to the rights to benefits under this Agreement. Any
decision by the Employer denying a claim by the Executive, the Executive's
spouse, or the Executive's beneficiary for benefits under this Agreement shall
be stated in writing and delivered or mailed, via registered or certified mail,
to the Executive, the Executive's spouse or the Executive's beneficiary, as the
case may be. Such decision shall set forth the specific reasons for the denial
of a claim. In addition, the Employer shall provide the Executive, the
Executive's spouse or the Executive's beneficiary with a reasonable opportunity
for a full and fair review of the decision denying such claim, as provided for
in Section 11.2 below.
9. STATUS AS AN UNSECURED GENERAL CREDITOR. Notwithstanding
anything contained herein to the contrary: (i) neither the Executive, the
Executive's spouse or the Executive's designated beneficiaries shall have any
legal or equitable rights, interests or claims in or to any specific property or
assets of the Employer; (ii) none of the Employer's assets shall be held in or
under any trust for the benefit of the Executive, the Executive's spouse or the
Executive's designated beneficiaries or held in any way as security for the
10
<PAGE>
fulfillment of the obligations of the Employer under this Agreement; (iii) all
of the Employer's assets shall be and remain the general unpledged and
unrestricted assets of the Employer; (iv) the Employer's obligation under this
Agreement shall be that of an unfunded and unsecured promise by the Employer to
pay money in the future; and (v) the Executive, the Executive's spouse and the
Executive's designated beneficiaries shall be unsecured general creditors with
respect to any benefits which may be payable under the terms of this Agreement.
10. DISCRETION OF BOARD TO ACCELERATE PAYOUT. Notwithstanding any
of the other provisions of this Agreement, the Board of Directors of Employer
may, if determined in its sole and absolute discretion to be appropriate,
accelerate the payment of the amounts due under the terms of this Agreement,
provided that Executive (or Executive's spouse or designated beneficiaries): (i)
consents to the revised payout terms determined appropriate by Employer's Board
of Directors; and (ii) does not negotiate or in anyway influence the terms of
proposed altered/accelerated payout (said decision to be made solely by the
Employer's Board of Directors and offered to the Executive (or Executive's
spouse or designated beneficiaries] on a "take it or leave it basis").
11. MISCELLANEOUS.
11.1. OPPORTUNITY TO CONSULT WITH INDEPENDENT COUNSEL.
The Executive acknowledges that he has been afforded the opportunity to consult
with independent counsel of his choosing regarding both the benefits granted to
him under the terms of this Agreement and the terms and conditions which may
affect the Executive's right to these benefits. The Executive further
acknowledges that he has read, understands and consents to all of the terms and
conditions of this Agreement, and that he enters into this Agreement with a full
understanding of its terms and conditions.
11.2. ARBITRATION OF DISPUTES. All claims, disputes and
other matters in question arising out of or relating to this Agreement or the
breach or interpretation thereof, other than those matters which are to be
determined by the Employer in its sole and absolute discretion or those matters
subject to the provisions of Article 8 hereof, shall be resolved by binding
arbitration before a representative member, selected by the mutual agreement of
the parties, of the Judicial Arbitration and Mediation Services, Inc. ("JAMS"),
presently located at 111 Pine Street, Suite 710, in San Francisco, California.
In the event JAMS is unable or unwilling to conduct the arbitration provided for
under the terms of this Paragraph, or has discontinued its business, the parties
agree that a representative member, selected by the mutual agreement of the
parties, of the American Arbitration Association ("AAA"), presently located in
San Francisco, California, shall conduct the binding arbitration referred to in
this Paragraph. Notice of the demand for arbitration shall be filed in writing
with the other party to this Agreement and with JAMS (or AAA, if necessary). In
no event shall the demand for arbitration be made after the date when
institution of legal or equitable
11
<PAGE>
proceedings based on such claim, dispute or other matter in question would be
barred by the applicable statute of limitations. The arbitration shall be
subject to such rules of procedure used or established by JAMS, or if there are
none, the rules of procedure used or established by AAA. Any award rendered by
JAMS or AAA shall be final and binding upon the parties, and as applicable,
their respective heirs, beneficiaries, legal representatives, agents, successors
and assigns, and may be entered in any court having jurisdiction thereof. The
obligation of the parties to arbitrate pursuant to this clause shall be
specifically enforceable in accordance with, and shall be conducted consistently
with, the provisions of Title 9 of Part 3 of the California Code of Civil
Procedure. Any arbitration hereunder shall be conducted in San Francisco,
California, unless otherwise agreed to by the parties.
11.3. ATTORNEYS' FEES. In the event of any arbitration
or litigation concerning any controversy, claim or dispute between the parties
hereto, arising out of or relating to this Agreement or the breach hereof, or
the interpretation hereof, the prevailing party shall be entitled to recover
from the losing party reasonable expenses, attorneys' fees and costs incurred in
connection therewith or in the enforcement or collection of any judgment or
award rendered therein. The "prevailing party" means the party determined by
the arbitrator(s) or court, as the case may be, to have most nearly prevailed,
even if such party did not prevail in all matters, not necessarily the one in
whose favor a judgment is rendered.
11.4. NOTICE. Any notice required or permitted of
either the Executive or the Employer under this Agreement shall be deemed to
have been duly given, if by personal delivery, upon the date received by the
party or its authorized representative; if by facsimile, upon transmission to a
telephone number previously provided by the party to whom the facsimile is
transmitted as reflected in the records of the party transmitting the facsimile
and upon reasonable confirmation of such transmission; and if by mail, on the
third day after mailing via U.S. first class mail, registered or certified,
postage prepaid and return receipt requested, and addressed to the party at the
address given below for the receipt of notices, or such changed address as may
be requested in writing by a party.
If to the Employer: Mid-Peninsula Bank
420 Cowper Street
Palo Alto, CA 94301
Attn: Chairman of the Board
If to the Executive: Mr. Charles P. Banovac
1214 Gronwall Lane
Los Altos, CA 94024
12
<PAGE>
11.5. ASSIGNMENT. Neither the Executive, the
Executive's spouse, nor any other beneficiary under this Agreement shall have
any power or right to transfer, assign, anticipate, hypothecate, modify or
otherwise encumber any part or all of the amounts payable hereunder, nor, prior
to payment in accordance with the terms of this Agreement, shall any portion of
such amounts be: (i) subject to seizure by any creditor of any such beneficiary,
by a proceeding at law or in equity, for the payment of any debts, judgments,
alimony or. separate maintenance obligations which may be owed by the Executive,
the Executive's spouse, or any designated beneficiary; or (ii) transferable by
operation of law in the event of bankruptcy, insolvency or otherwise. Any such
attempted assignment or transfer shall be void and shall terminate this
Agreement, and the Employer shall thereupon have no further liability hereunder.
11.6. BINDING EFFECT/MERGER OR REORGANIZATION. This
Agreement shall be binding upon and inure to the benefit of the Executive and
the Employer and, as applicable, their respective heirs, beneficiaries, legal
representatives, agents, successors and assigns. Accordingly, the Employer
shall not merge or consolidate into or with another corporation, or reorganize
or sell substantially all of its assets to another corporation, firm or person,
unless and until such succeeding or continuing corporation, firm or person
agrees to assume and discharge the obligations of the Employer under this
Agreement. Upon the occurrence of such event, the term "Employer" as used in
this Agreement shall be deemed to refer to such surviving or successor firm,
person, entity or corporation.
11.7. NONWAIVER. The failure of either party to enforce
at any time or for any period of time any one or more of the terms or conditions
of this Agreement shall not be a waiver of such term(s) or condition(s) or of
that party's right thereafter to enforce each and every term and condition of
this Agreement.
11.8. PARTIAL INVALIDITY. If any term, provision,
covenant, or condition of this Agreement is determined by an arbitrator or a
court, as the case may be, to be invalid, void, or unenforceable, such
determination shall not render any other term, provision, covenant or condition
invalid, void or unenforceable, and the Agreement shall remain in full force and
effect notwithstanding such partial invalidity.
11.9. ENTIRE AGREEMENT. This Agreement supersedes any
and all other agreements, either oral or in writing, between the parties with
respect to the subject matter of this Agreement and contains all of the
covenants and agreements between the parties with respect thereto. Each party
to this Agreement acknowledges that no other representations, inducements,
promises, or agreements, oral or otherwise, have been made by any party, or
anyone acting on behalf of any party, which are not set forth herein, and that
no other agreement, statement, or promise not contained in this Agreement shall
be valid or binding on either party.
13
<PAGE>
11.10. MODIFICATIONS. Any modification of this Agreement
shall be effective only if it is in writing and signed by each party or such
party's authorized representative.
11.11. PARAGRAPH HEADINGS. The paragraph headings used
in this Agreement are included solely for the convenience of the parties and
shall not affect or be used in connection with the interpretation of this
Agreement.
11.12. NO STRICT CONSTRUCTION. The language used in this
Agreement shall be deemed to be the language chosen by the parties hereto to
express their mutual intent, and no rule of strict construction will be applied
against any person.
11.13. GOVERNING LAW. The laws of the State of
California, other than those laws denominated choice of law rules, and, where
applicable, the rules and regulations of the California Superintendent of Banks
and the Federal Deposit Insurance Corporation, shall govern the validity,
interpretation, construction and effect of this Agreement.
IN WITNESS WHEREOF, the Employer and the Executive have executed this
Agreement on the date first above-written in the City of Palo Alto, Santa Clara
County, California.
THE EMPLOYER: THE EXECUTIVE:
Mid-Peninsula Bank,
A California State Chartered, Bank
By: /s/ Duncan L. Matteson, Chairman /s/ Charles P. Banovac
----------------------------------- ---------------------------------
Duncan L. Matteson, Chairman Charles P. Banovac
14
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF COMPLETE
YEARS WHICH HAVE ELAPSED APPLICABLE PERCENTAGE
- - ------------------------ ---------------------
<S> <C>
1. . . . . . . . . . . . . . . . . . . . . . . 10.00%
2. . . . . . . . . . . . . . . . . . . . . . . 20.00%
3. . . . . . . . . . . . . . . . . . . . . . . 30.00%
4. . . . . . . . . . . . . . . . . . . . . . . 40.00%
5. . . . . . . . . . . . . . . . . . . . . . . 50.00%
6. . . . . . . . . . . . . . . . . . . . . . . 60.00%
7. . . . . . . . . . . . . . . . . . . . . . . 70.00%
8. . . . . . . . . . . . . . . . . . . . . . . 80.00%
9. . . . . . . . . . . . . . . . . . . . . . . 90.00%
10 . . . . . . . . . . . . . . . . . . . . . . 100.00%
</TABLE>
15
<PAGE>
SCHEDULE B
SCHEDULE B ANNUITY AMOUNT
<TABLE>
<S> <C>
1. $ 9,358
2. $ 19,543
3. $ 30,629
4. $ 42,694
5. $ 55,826
6. $ 70,118
7. $ 85,674
8. $102,605
9. $121,032
10. $141,088
11. $162,917
12. $186,676
13. $212,534
14. $240,678
15. $271,310
16. $304,649
</TABLE>
16
<PAGE>
SCHEDULE C
BENEFICIARY DESIGNATION
To the Administrator of the Mid-Peninsula Bank Executive Salary
Continuation Agreement:
Pursuant to the Provisions of my Executive Salary Continuation Agreement
with Mid-Peninsula Bank, permitting the designation of a beneficiary or
beneficiaries by a participant, I hereby designate the following persons and
entities as primary and secondary beneficiaries of any benefit under said
Agreement payable by reason of my death:
PRIMARY BENEFICIARY:
1214 Gronwall Ln.
/s/ Janet Banovac Los Altos, CA 94024 Wife
- - ------------------------- -------------------- ---------------
Name Address Relationship
SECONDARY (CONTINGENT) BENEFICIARY:
Children Born or Adopted
of This Marriage
- - ------------------------- -------------------- ---------------
Name Address Relationship
TERTIARY (THIRD) BENEFICIARY & SEPARATELY; CONTINGENT IF NO SECONDARY
BENEFICIARY
My Estate
- - -------------------------
THE RIGHT TO REVOKE OR CHANGE ANY BENEFICIARY DESIGNATION IS HEREBY RESERVED.
ALL PRIOR DESIGNATIONS, IF ANY, OF PRIMARY BENEFICIARIES AND SECONDARY
BENEFICIARIES ARE HEREBY REVOKED.
The Administrator shall pay all sums payable under the Agreement by reason of my
death to the Primary Beneficiary, if he or she survives me, and if no Primary
Beneficiary shall survive me, then to the Secondary Beneficiary, and if no named
beneficiary survives me, then the Administrator shall pay all amounts in
accordance with the terms of my Executive Salary Continuation Agreement. In the
event that a named beneficiary survives me and dies prior to receiving the
entire benefit payable under said Agreement, then and in that event, the
17
<PAGE>
remaining unpaid benefit payable according to the terms of my Executive Salary
Continuation Agreement shall be payable to the personal representatives of the
estate of said beneficiary who survived me but died prior to receiving the total
benefit provided by my Executive Salary Continuation Agreement.
THE EXECUTIVE:
Dated: March 21, 1996 /s/ Charles P. Banovac
------------------------------------------------
CHARLES P. BANOVAC
CONSENT OF THE EXECUTIVE'S SPOUSE
TO THE ABOVE BENEFICIARY DESIGNATION:
I, Janet Banovac, being the spouse of Charles P. Banovac, after being
afforded the opportunity to consult with independent counsel of my choosing, do
hereby acknowledge that I have read, agree and consent to the foregoing
Beneficiary Designation which relates to the Executive Salary Continuation
Agreement entered into by my spouse effective as of March 21, 1996. I
understand that the above Beneficiary Designation may affect certain rights
which I may have in the benefits provided for under the terms of the Executive
Salary Continuation Agreement and in which I may have a marital property
interest.
Dated: March 21, 1996.
/s/ Janet Banovac
---------------------------------
Janet Banovac
18
<PAGE>
CERTIFICATE OF ACKNOWLEDGMENT
OF NOTARY PUBLIC
State of California )
County of Santa Clara ) SS.
)
On March 21, 1996, before me, Anthony L. Metten Notary Public, State of
California, personally appeared Charles P. Banovac and Janet Banovac,
[ ] personally known to me - OR
[X] proved to me on the basis of satisfactory evidence to be the person(s)
whose name(s) are subscribed to the within instrument and acknowledged to me
that they executed the same in their authorized capacity, and that by their
signature(s) on the instrument the person(s), or the entity upon behalf of which
the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
/s/ Anthony L. Metten
---------------------------------
Notary Public,
State of California
[SEAL]
(Seal)
Capacity Claimed by Signer:
- - ---------------------------
[X] Individual(s) Signing for Oneself/Themselves
[ ] Corporate Officer(s)
------------------ ----------------------------
Title Company
------------------ ----------------------------
Title Company
[ ] Partner(s)
-------------------------------------------------------------
Partnership
[ ] Trustees(s)
------------------------------------------------------------
Trust
[ ] Attorney-in-Fact
--------------------------- -----------------------
Principal Principal
[ ] Other
--------------------------------- ----------------------------
Entity(ies) Represented Entity(ies) Represented
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
Title or Type of Document: Date of Document:
---------------------- -----
Number of Pages: Signer(s) Other Than Named Above:
----------- --------------
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Mid-Peninsula Bancorp:
We consent to the incorporation by reference in the Registration Statement (No.
33-91076) on Form S-8 of Mid-Peninsula Bancorp of our report dated January 22,
1996, relating to the consolidated balance sheets of Mid-Peninsula Bancorp and
subsidiary as of December 31, 1995 and 1994, and the related consolidated
statements of operations, changes in shareholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1995, which report
is incorporated by reference in the December 31, 1995 annual report on Form 10-K
of Mid-Peninsula Bancorp.
KPMG Peat Marwick LLP
San Francisco, California
March 22, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 13,304
<INT-BEARING-DEPOSITS> 158,618
<FED-FUNDS-SOLD> 15,700
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 58,533
<INVESTMENTS-CARRYING> 857
<INVESTMENTS-MARKET> 857
<LOANS> 125,602
<ALLOWANCE> 1,716
<TOTAL-ASSETS> 218,735
<DEPOSITS> 195,695
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,600
<LONG-TERM> 0
0
0
<COMMON> 15,425
<OTHER-SE> 6,015
<TOTAL-LIABILITIES-AND-EQUITY> 21,440
<INTEREST-LOAN> 12,239
<INTEREST-INVEST> 3,121
<INTEREST-OTHER> 1,580
<INTEREST-TOTAL> 16,940
<INTEREST-DEPOSIT> 6,538
<INTEREST-EXPENSE> 6,538
<INTEREST-INCOME-NET> 10,402
<LOAN-LOSSES> 275
<SECURITIES-GAINS> (113)
<EXPENSE-OTHER> 5,996
<INCOME-PRETAX> 4,535
<INCOME-PRE-EXTRAORDINARY> 4,535
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,721
<EPS-PRIMARY> 1.70
<EPS-DILUTED> 1.70
<YIELD-ACTUAL> 8.90
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,426
<CHARGE-OFFS> 7
<RECOVERIES> (22)
<ALLOWANCE-CLOSE> 1,716
<ALLOWANCE-DOMESTIC> 1,716
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
