U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended September 30, 1996
Commission file number 2-76555
COMMERCE SECURITY BANCORP, INC.
(Exact name of small business issuer in its charter)
Delaware 33-0720548
(State or other jurisdiction of (I.R.S. Employer or
incorporation or organization) Identification No.)
7777 Center Avenue, Huntington Beach, California 92647-3067
(Address of principal executive offices) (Zip Code)
(714) 895-2929
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes
[X] No [ ]
Applicable only to corporate issuers:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.01 par value 9,759,098 shares outstanding on
November 10, 1996
<PAGE>
COMMERCE SECURITY BANCORP, INC.
U.S. SECURITIES AND EXCHANGE COMMISSION
FORM 10-QSB
INDEX
Page
Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Condition - 3
September 30, 1996 and December 31, 1995
Condensed Consolidated Statements of Operations 5
For the three months ended September 30, 1996 and 1995
Condensed Consolidated Statements of Operations 6
For the nine months ended September 30, 1996 and 1995
Condensed Consolidated Statements of Cash Flows - 7
For the nine months ended September 30, 1996 and 1995
Notes to the Condensed Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis or Plan of Operation 13
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 22
<PAGE>
Part I - Financial Information
Item 1. Financial Statements
<TABLE>
COMMERCE SECURITY BANCORP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Condition
September 30, 1996 and December 31, 1995
<CAPTION>
September 30, December 31,
1996 1995
(Unaudited)
----------------- -----------------
<S> <C> <C>
Assets
Cash and due from banks $30,313,000 $ 3,640,000
Federal funds sold 25,800,000 2,300,000
Reverse repurchase agreements 14,000,000 -
----------------- ----------------
Total cash and cash equivalents 70,113,000 5,940,000
Interest bearing deposits in other
financial institutions 1,234,000 989,000
Held-to-maturity investment securities at
amortized cost, approximate fair value
September 30, 1996 $22,797,801
December 31, 1995 $7,057,000 22,932,000 7,009,000
Available-for-sale investment securities 25,291,000 -
Mortgage loans held for sale 12,327,000 -
Loans and leases 241,414,000 38,977,000
Less allowance for loan loss 5,003,000 639,000
--------------------------------
Loans, net 248,738,000 38,338,000
Loan and servicing sale receivable 37,384,000 -
Premises and equipment, net 4,201,000 597,000
Real estate acquired through foreclosure, net 5,016,000 1,411,000
Goodwill and other intangibles 10,725,000 -
Accrued interest receivable and other assets 10,757,000 1,621,000
--------------------------------
Total assets $436,391,000 $55,905,000
============ ===========
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
COMMERCE SECURITY BANCORP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Condition (Continued)
September 30, 1996 and December 31, 1995
<CAPTION>
September 30, December 31,
1996 1995
(Unaudited)
----------------- -----------------
<S> <C> <C>
Liabilities and Shareholders' Equity
Deposits:
Demand:
Non-interest bearing $107,769,000 $13,445,000
Interest bearing 27,261,000 10,582,000
Savings:
Regular 61,530,000 4,714,000
Money market 29,533,000 8,558,000
Time:
Under $100,000 131,580,000 11,580,000
$100,000 or more 28,967,000 2,552,000
----------------- ----------------
Total deposits 386,640,000 51,431,000
Accrued expenses and other liabilities 10,090,000 396,000
Mandatory Convertible Debentures 537,000 537,000
--------------------------------
Total liabilities 397,267,000 52,364,000
Shareholders' equity:
Common stock, $.01 par value, 12,000,000
shares authorized 9,759,098 issued and
outstanding at September 30, 1996 98,000 9,000
Additional paid-in capital 42,637,000 7,593,000
Accumulated deficit (3,611,000) (4,061,000)
Unrealized gain on securities
available-for-sale - -
--------------------------------
Total shareholders' equity 39,123,000 3,541,000
--------------------------------
Total liabilities and shareholders' equity $436,391,000 $55,905,000
============ ===========
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
COMMERCE SECURITY BANCORP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
Three months ended September 30, 1996 and 1995
(Unaudited)
<CAPTION>
Three Months Ended September 30,
--------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
Interest Income:
Interest and fees on loans $4,231,000 $1,012,000
Lease financing 382,000 -
Interest on Federal funds sold 339,000 27,000
Interest on deposits with financial
institutions 19,000 13,000
Interest on investment securities,
substantially all taxable 576,000 71,000
-------------- --------------
Total interest income 5,547,000 1,123,000
Interest Expense:
Deposits 2,203,000 401,000
Other borrowed funds 25,000 55,000
-------------- --------------
Total interest expense 2,228,000 456,000
-------------- --------------
Net interest income 3,319,000 667,000
Provision for loan losses 91,000 145,000
-------------- --------------
Net interest income after
provision for loan losses 3,228,000 522,000
Non-interest income 1,471,000 154,000
Non-interest expense 4,383,000 1,361,000
-------------- --------------
Net income (loss) before taxes and
extraordinary item 316,000 (685,000)
Income tax ( 89,000) -
-------------- --------------
Net income before extraordinary item 227,000 (685,000)
Extraordinary item-extinguishment of debt - 1,068,000
-------------- --------------
Net income $227,000 $ 383,000
========== ===========
Income per common and common
equivalent share $ 0.04 $ 6.09
Average shares and common stock equivalents 6,054,203 62,890
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
COMMERCE SECURITY BANCORP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
Nine months ended September 30, 1996 and 1995
(Unaudited)
<CAPTION>
Nine Months Ended September 30,
----------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
Interest Income:
Interest and fees on loans $ 8,380,000 $3,119,000
Lease financing 382,000 -
Interest on Federal funds sold 556,000 74,000
Interest on deposits with financial
institutions 56,000 43,000
Interest on investment securities,
substantially all taxable 1,282,000 209,000
-------------- --------------
Total interest income 10,656,000 3,445,000
Interest Expense:
Deposits 4,226,000 1,227,000
Other borrowed funds 56,000 165,000
-------------- --------------
Total interest expense 4,282,000 1,392,000
-------------- --------------
Net interest income 6,374,000 2,053,000
Provision for loan losses 217,000 245,000
-------------- --------------
Net interest income after
provision for loan losses 6,157,000 1,808,000
Non-interest income 2,506,000 418,000
Non-interest expense 7,986,000 3,361,000
-------------- --------------
Net income (loss) before taxes and
extraordinary item 677,000 (1,135,000)
Income tax (227,000) -
-------------- --------------
Net income (loss) before extraordinary item 450,000 (1,135,000)
Extraordinary item-extinguishment of debt - 1,068,000
-------------- --------------
Net income (loss) $450,000 $ (67,000)
========= ===========
Income (loss) per common and common
equivalent share $ 0.12 $ (1.18)
Average shares and common stock equivalents 3,804,268 56,780
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Commerce Security BANCORP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 1996 and 1995
(Unaudited)
<CAPTION>
For nine months ended September 30,
------------------------------
1996 1995
----------------- --------------
<S> <C> <C>
Operating Activities:
Net income (loss) $ 450,000 $ (67,000)
Adjustments to reconcile net loss to net
cash used by operating activities:
Provision for loan losses and real estate
acquired through foreclosure 237,000 690,000
Loss (gain) on sale of real estate acquired
through foreclosure (70,000) -
Depreciation and amortization 306,000 146,000
Gain on extinguishment of debt - (1,068,000)
Decrease (increase) in other assets (956,000) 69,000
Increase (decrease) in other liabilities (1,302,000) (120,000)
----------------- --------------
Net cash used by operating activities 1,269,000 (350,000)
Investing Activities:
Decrease (increase) in interest bearing deposits
with other financial institutions 236,000 585,000
Purchases of investment securities (27,936,000) (1,500,000)
Proceeds from sales and maturities
of investment securities 39,067,000 1,610,000
Net decrease (increase) in loans (24,748,000) 4,847,000
Purchases of premises and equipment (746,000) (10,000)
Proceeds from the sale of premises and
equipment 48,000 -
Proceeds from sale of real estate acquired
through foreclosures 1,900,000 213,000
Capital expenditures for other real estate
owned (1,322,000) (1,052,000)
Purchase of Liberty National Bank, net
of cash received 7,283,000 -
Purchase of Commerce Security Bank, net
of cash received 52,758,000 -
----------------- -----------------
Net cash provided by investing activities 46,540,000 4,693,000
Financing Activities:
Net decrease in deposits (18,769,000) (2,851,000)
Repayment of notes payable - (656,000)
Issuance of common stock 35,133,000 4,509,000
--------------------------------
Net cash provided by financing activities 16,364,000 1,002,000
--------------------------------
Net Increase in cash and cash
equivalents 64,173,000 6,764,000
Cash and cash equivalents at beginning
of period 5,940,000 2,842,000
----------------- -------------
Cash and cash equivalents at end
of period $70,113,000 $9,606,000
=========== ==========
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
<S> <C> <C>
Noncash transactions-
Other real estate sold and financed
by the bank - $115,000
</TABLE>
[THE BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates. The
accompanying financial information for Commerce Security Bancorp, Inc.
("CSBI" or the "registrant") has been prepared in accordance with the
Securities and Exchange Commission rules and regulations for quarterly
reporting and therefore does not necessarily include all information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles. The interim
financial data is unaudited; however, in the opinion of management, the
interim data includes all adjustments, consisting only of normal recurring
adjustments, necessary for a fair statement of the results for the interim
periods.
The information contained in this report should be read in conjunction
with the Annual Report of SDN Bancorp, Inc. ("SDN") on Form 10-KSB
for the year ended December 31, 1995. SDN became a wholly-owned
subsidiary of CSBI effective August 31, 1996 as part of the 1996
Reorganization described elsewhere in this report. Management believes
CSBI should be regarded as a successor reporting company to SDN.
NOTE 2 - EARNINGS PER SHARE
Earnings per share is computed by dividing net income by the
weighted average number of common shares outstanding during the year and
dilutive common stock equivalents by using the treasury stock method. The
weighted average number of common shares used to compute earnings per
share were 6,054,203 and 3,804,268 for the three and nine months ended
September 30, 1996, respectively, and 62,890 and 56,780 for the three and
nine months ended September 30, 1995. All per share amounts for the nine
months ended September 30, 1995 have been restated to give effect to the
one for twenty-one reverse stock split and the 26,864 share common stock
dividend declared during September 1995.
The assumed conversion of the mandatory convertible debentures
("Debentures") is anti-dilutive for the periods ended September 30, 1996
and 1995. Therefore, primary income and loss per share and income and
loss per share assuming full dilution are the same for both periods.
<PAGE>
NOTE 3 - ACQUISITIONS AND 1996 REORGANIZATION
On March 31, 1996, the SDN completed its acquisition (the "Liberty
Acquisition") of Liberty National Bank ("Liberty") for approximately $15.1
million in cash, as contemplated by the October 26, 1995 Agreement and
Plan of Merger by and among the registrant, Liberty, and Dartmouth Capital
Group, L.P., a Delaware limited partnership (the "Partnership") and the
registrant's controlling shareholder. Liberty is headquartered in Huntington
Beach, California and had total assets of approximately $149 million as of
the Liberty Acquisition.
As of March 27, 1996, the Partnership invested approximately $13.4
million in SDN to fund the Liberty Acquisition. In exchange for that
investment, SDN issued a total of 3,392,405 additional shares of SDN
common stock at a price per share of $3.95, SDN's book value per share as
of December 31, 1995. At the Partnership's direction, SDN issued
1,764,000 of those shares of common stock, in the aggregate, to certain
limited partners of the Partnership (the "Direct Holders") and the remaining
1,628,405 shares of common stock directly to the Partnership. Giving effect
to the issuance of those shares to fund the Liberty Acquisition, the
Partnership owned 48.0% of the common stock and the Direct Holders
owned, in the aggregate, 50.75% of the common stock.
As of September 1, 1996, CSBI completed the plan of reorganization
(the "1996 Reorganization") contemplated by the Agreement and Plan of
Reorganization dated April 23, 1996 (the "Agreement") between SDN and
Commerce Security Bank, a California-chartered commercial bank
("Commerce"). As part of the 1996 Reorganization, SDN became a
subsidiary of CSBI, effective August 31, 1996, in a transaction in which
SDN shareholders received shares of CSBI common stock in exchange for
all of the outstanding shares of SDN common stock. As of September 1,
1996, CSBI completed the acquisition of Commerce (the "Commerce
Acquisition") in which CSBI acquired all of the outstanding shares of
Commerce. SDN and Commerce remain wholly-owned subsidiaries of
CSBI. Through SDN, CSBI controls Liberty and San Dieguito National
Bank ("San Dieguito"), SDN's wholly-owned subsidiaries.
Prior to August 31, 1996, the Partnership invested approximately
$14.5 million in SDN to fund the Commerce Acquisition. In exchange for
that investment, SDN issued a total of 3,664,776 additional shares of SDN
common stock at a price per share of $3.95 pursuant to a subscription
agreement entered into in March 1996. At the Partnership's direction, SDN
issued 1,080,000 of those shares of common stock, in the aggregate, to
certain limited Direct Holders and the remaining 2,584,776 shares of
common stock directly to the Partnership. In addition, at the same time
SDN issued a total of 81,800 shares of common stock to other accredited
investors for an aggregate purchase price of approximately $424,000.
Holders of SDN common stock were issued one share of CSBI
common stock for each share held in SDN. A total of 4,327,606 shares of
SDN common stock were outstanding at the time of the 1996
Reorganization. Holders of Commerce common stock were issued
1,527,540 shares of CSBI common stock and received cash of approximately
$14.1 million. An additional 58,212 shares of CSBI common stock and
cash of approximately $346,000 are held in escrow pending final resolution
of the SAIF recapitalization. In addition, as part of the Commerce
Acquisition, CSBI issued approximately 19,000 shares of CSBI common
stock to Commerce's investment bank as of the closing and expects to issue
approximately 9,000
<PAGE>
additional shares of CSBI common stock to such party upon the distribution
of the SAIF-related escrow. There were 9,759,098 total shares outstanding
after the 1996 Reorganization. Upon the completion of the 1996
Reorganization, the Partnership owned 48.0% of the common stock and the
Direct Holders owned, in the aggregate, 34.2% of CSBI common stock.
Both the Liberty Acquisition and Commerce Acquisition were
accounted for using the purchase method of accounting in accordance with
Accounting Principles Board Opinion No. 16, "Business Combinations".
Under this method of accounting, the purchase price was allocated to the
assets acquired and deposits and liabilities assumed based on their fair values
as of the acquisition date. The consolidated financial statements include the
operations of Liberty and Commerce from the date of acquisition. Goodwill
arising from the transactions totaled approximately $3.8 million in the
Liberty Acquisition and $7.2 million in the Commerce Acquisition and is
being amortized over ten years on a straight line basis.
The following table sets forth selected unaudited pro forma combined
financial information of SDN, Liberty and Commerce for nine months ended
September 30, 1996 and 1995. The pro forma operating data reflects the
effect of the Liberty Acquisition and the Commerce Acquisition as if each
was consummated at the beginning of each period presented. The pro forma
results are not necessarily indicative of the results that would have occurred
had such acquisitions actually occurred as of such dates, nor are they
necessarily indicative of the results of future operations.
<TABLE>
<CAPTION>
Pro Forma Combined for
Nine Months Ended September 30,
--------------------------------
1996 1995
(Unaudited) (Unaudited)
--------------- --------------
<S> <C> <C>
Interest Income $25,283,000 $22,226,000
Interest Expense 10,297,000 9,482,000
--------------- --------------
Net interest income 14,986,000 12,744,000
Provision for loan losses 690,000 903,000
--------------- --------------
Net interest income after
provision for loan losses 14,296,000 11,841,000
Non-interest income 6,778,000 13,900,000
Non-interest expense 27,690,000 23,783,000
--------------- --------------
Net income before taxes (6,617,000) 1,958,000
Income tax 2,567,000 (1,507,000)
Extraordinary item-extinguishment of debt - 1,068,000
--------------- --------------
Net income (loss) $(4,050,000) $1,519,000
============ ===========
</TABLE>
<PAGE>
NOTE 4 - LONG LIVED ASSETS
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard (FAS) No. 121 "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of", which SDN adopted as required on January 1, 1996.
Pursuant to this Statement, companies are required to investigate potential
impairments of long-lived assets, certain identifiable intangibles, and
associated goodwill, on an exception basis, when there is evidence that
events or changes in circumstances have made recovery of an asset's
carrying value unlikely. An impairment loss would be recognized when the
sum of the expected future net cash flows is less than the carrying amount of
the asset. The adoption of FAS 121 did not have a significant impact on
SDN's financial position or results of operations.
[THE BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operations
This information should be read in conjunction with the consolidated
financial statements and the notes thereto of Commerce Security Bancorp,
Inc. ("CSBI" or the "registrant") included in Item 1 of this Quarterly Report
and the audited consolidated financial statements and notes thereto and
Management Discussion and Analysis of Financial Condition and Results of
Operations for the year ended December 31, 1995 contained in the 1995
Annual Report of SDN Bancorp, Inc. ("SDN") on Form 10-K. SDN
became a wholly-owned subsidiary of CSBI effective August 31, 1996 as
part of the 1996 Reorganization described elsewhere in this report.
Management believes CSBI should be regarded as a successor reporting
company to SDN.
Except for the historical information contained herein, the following
discussion contains forward looking statements that involve risks and
uncertainties. CSBI's actual results could differ materially from those
discussed here. Factors that could cause or contribute to such differences
include, but are not specifically limited to, changes in regulatory climate,
shifts in interest rate environment, change in economic conditions of various
markets CSBI serves, as well as the other risks detailed in this section, and
in the sections entitled Results of Operations and Liquidity and Capital
Resources, and those discussed in SDN's Form 10-K for the year ended
December 31, 1995.
Summary
As a result of the 1996 Reorganization, described in the footnotes to
the accompanying consolidated condensed financial statements, since
September 1, 1996, the registrant has owned 100% of Commerce and SDN.
SDN owns 100% of San Dieguito National Bank ("SDNB") and, as of
March 31, 1996, SDN completed the Liberty Acquisition as described in the
footnotes to the accompanying consolidated condensed financial statements.
The Liberty Acquisition and Commerce Acquisition were accounted for
using the purchase method of accounting for business combinations.
Accordingly, the following discussion relates to the operating results of
SDNB for the nine months ended September 30, 1996, the operating results
of Liberty for the six months ended September 30, 1996 and the operating
results of Commerce for the one month ended September 10, 1996 and the
financial condition of SDNB, Liberty and Commerce combined (collectively
the "Banks").
Financial Condition
Total assets of CSBI at September 30, 1996 were $436.4 million
compared to total assets of $55.9 million at December 31, 1995. The
increase in total assets since December 31, 1995 is attributed primarily to the
assets of Liberty, acquired on March 31, 1996, and Commerce acquired on
September 1, 1996, that had total assets of $140.5 million and $240.9
million at September 30, 1996, respectively. Total earning assets of CSBI at
September 30, 1996 were $343.0 million compared to total earning assets of
$49.3 million at December 31, 1995. Earning assets increased primarily due
to the Liberty Acquisition and Commerce Acquisition. Liberty and
Commerce had total earning assets of $126.8 million and $171.1 at
September 30, 1996, respectively.
Total loans and leases of CSBI at September 30, 1996 were $253.7
million, including
<PAGE>
$12.3 million of mortgage loans held for sale, compared to $39.0 million at
December 31, 1995. Loans acquired in the Liberty Acquisition and
Commerce Acquisition account for the increase in total loans. Loans at
Liberty and Commerce at September 30, 1996 were $89.9 million and
$125.9 million, respectively. Additionally, CSBI had $31.0 million in
mortgage loan sale receivables.
The Banks hold loans and leases in their portfolio that at September
30, 1996 represented 83.8% and 16.2% of total loans and leases,
respectively. The four largest lending categories are: (i) commercial real
estate loans; (ii) other loans secured by real estate; (iii) commercial loans
and (iv) loans to individuals. At September 30, 1996, these categories
accounted for approximately 37.1%, 34.4%, 20.4% and 8.1% of total loans,
respectively. Leases are made to finance small equipment for businesses.
Included among the Banks' portfolio of loans are SBA loans made by
the Banks guaranteed by the United States Government to the extent of 75%
to 90% of the principal and interest due on such loans. Liberty and SDNB
are active in originating this type of loan. Liberty generally sells the
government guaranteed portion of these loans to participants in the secondary
market and retains servicing responsibilities and the unguaranteed portion of
the loans while SDNB generally retains the entire loan for its own portfolio.
The government guaranteed portion of the SBA loans are sold at a
premium, a portion of which is immediately recognized as income. The
remaining premium, representing estimated normal servicing fees or a yield
adjustment on the portion of the SBA loan retained by the Banks, is deferred
and recognized as income over the estimated life of the loan. Deferred SBA
servicing fees for Liberty were approximately $1.7 million at September 30,
1996. The total SBA loan portfolio serviced by Liberty at September 30,
1996 was approximately $144.3 million and included in this amount was
approximately $35.5 million representing the portion of the SBA loans
retained by Liberty. The total SBA loan portfolio serviced by SDNB at
September 30, 1996 was approximately $4.6 million and included in this
amount was approximately $4.2 million representing the portion of the SBA
loans retained by SDNB.
Total investments of CSBI at September 30, 1996 were $89.3 million
compared to $10.3 million at December 31, 1995. Investment securities
increased largely due to the Liberty Acquisition and Commerce Acquisition.
Investments at Liberty and Commerce at September 30, 1996 were $37.0
million and $45.2 million, respectively. The investment portfolio primarily
consists of U.S. government and municipal securities, Federal funds sold,
reverse repurchase agreements and certificates of deposits held at other
depository institutions. U.S. government and municipal securities were
$48.2 million, or 54.0% of the total portfolio, of which $22.9 million are
categorized as held to maturity and $25.3 million are categorized as available
for sale. Federal funds sold, reverse repurchase agreements and certificates
of deposit were $25.8 million, $14.0 million and $1.2 million, respectively,
or 29.0%, 15.7% and 1.3% of the total portfolio, respectively.
Total deposits were $386.7 million at September 30, 1996 compared to
$51.4 million at December 31, 1995. The increase in total deposits since
December 31, 1995 is attributed to the addition of Liberty's and
Commerce's deposits that at September 30, 1996 were $126.5 million and
$212.3 million, respectively. Non-interest bearing demand accounts were
$107.8
<PAGE>
million, or 27.9% of total deposits, at September 30,1996. Interest bearing
deposits are comprised of interest bearing demand accounts, regular savings
accounts, money market accounts, time deposits of under $100,000 and time
deposits of $100,000 or more which were $27.3 million, $61.5 million,
$29.5 million, $131.6 million and $29.0 million, respectively, or 7.1%,
15.9%, 7.6%, 34.0% and 7.5% of total deposits, respectively.
Results of Operations - Three Months Ended September 30, 1996
For the three months ended September 30, 1996, CSBI had net income
of $227,000 compared to net income of $383,000 for the same period in
1995. During the third quarter of 1995, SDN had an extraordinary item of
$1.1 million related to the extinguishment of debt in conjunction with the
recapitalization, prior to which the net loss was $685,000. The
improvement in 1996 earnings prior to the extraordinary item over the same
period in 1995 is partly attributable to the Liberty Acquisition, for which the
results of operations for the three months ended September 30, 1996 are
included in the CSBI results of operations for the three months ended
September 30, 1996. The improvement in earnings is partially offset by a
loss of $47,000 incurred by Commerce whose results of operations for the
one month ended September 30, 1996 are included in the CSBI results of
operations for the three months ended September 30, 1996. Compared to
the prior year results, the improvements stem from a combination of
increased net interest income of approximately $2.7 million and non-interest
income of approximately $1.3 million and lower loan loss provision of
$54,000, partially offset by increased non-interest expense of approximately
$3.0 million and provision for taxes of $89,000.
Net Interest Income and Net Interest Margin
Net interest income was approximately $2.7 million for the three
months ended September 30, 1996, an increase of $2.1 million over the
same period in 1995. An increase in interest and fee income of
approximately $3.4 million partially offset by increased interest expense of
$1.3 million contributed to this earnings improvement.
Loans, the largest component of earning assets, increased to an
average balance of $170.9 million for the three months ended September 30,
1996 from $40.4 million for the three months ended September 30, 1995,
with an average yield of 10.7% and 9.9%, respectively. Investments in
securities and Federal funds sold rose to an average of $65.2 million for the
three months ended September 30, 1996 from an average of $6.5 million
for the three months ended September 30, 1995, with an average yield of
5.6% and 6.0%, respectively. The yield on earning assets declined to 9.3%
for the three months ended September 30, 1996 from 9.4% for the same
period in 1995. The decline in yield on earning assets can largely be
attributed to a shift in the mix of loans as a percent of earning assets where
the percent of average loans to average earning assets during the three
months ended September 30, 1996 declined to 71.9% from the 84.8% for
the same period in 1995. Additionally, the average prime rate (the rate to
which the majority of rates the Banks' loans are indexed) during the three
months ended September 30, 1996 was 8.25% compared to 8.86% for the
same period in 1995.
Average interest-bearing deposits increased to $187.7 million for the
three months ended September 30, 1996 from $42.4 million for the same
period in 1995. Additionally, the
<PAGE>
average rate paid on these deposits increased to 4.7% during the three
months ended September 30, 1996 compared to 3.8% during the same
period in 1995. Further, as a result of the recapitalization of SDN that
occurred in September 1995, other borrowing declined to $537,000 with an
average rate of 11.5% from $2.2 million at an average rate of 10.0%. The
average rate paid on interest-bearing liabilities was 4.7% for the three
months ended September 30, 1996 compared to 3.4% for the same period in
1995. This increase represents an overall increase in rates paid on interest
bearing deposit liabilities partially offset by a change in the mix of interest
bearing liabilities.
As a result of these forgoing factors, the average yield on earning
assets decreased to 5.5% for the three months ended September 30, 1996
compared to 5.6% for the same period in 1995.
Allowance and Provision for Loan Losses
The allowance for loan and lease losses represents the amounts which
have been set aside for the specific purpose of absorbing losses which may
occur in the Banks' loan portfolio. The provision for loan and lease losses is
an expense charged against operating income and added to the allowance for
loan and lease losses. Management of the Banks continue to carefully
monitor the allowance for loan and lease losses in relation to the size of the
Banks' loan portfolio and known risks or problem loans and leases.
The allowance for loan and lease losses at CSBI was approximately
$5.0 million at September 30, 1996 compared to approximately $639,000 at
SDN at December 31, 1995. The increase in the allowance for loan and
lease losses is primarily attributable to the Liberty Acquisition and
Commerce Acquisition. The allowance at Liberty and Commerce at
September 30, 1996 was approximately $1.7 million and $2.6 million,
respectively. During the three months ended September 30, 1996, the
provision for loan and lease losses was $91,000, loan and lease charge-offs
were $314,000 and recoveries were $70,000. The allowance for loan and
lease losses for CSBI represented 2.1% of net loans, excluding those loans
held for sale, at September 30, 1996 and 1.6% at December 31, 1995.
Non-Interest Income
Non-interest income for the three months ended September 30, 1996
was $1.5 million compared to $154,000 for the same period in 1995. Non-interest
income from Liberty and Commerce for the quarter of approximately $594,000 and
$705,000, respectively, is primarily responsible for this improvement in
non-interest income. The majority of the non-interest income at Liberty is
derived from its SBA servicing activity while Commerce's non-interest income
is largely derived from its mortgage banking activity.
Non-Interest Expenses
Non-interest expense for the three months ended September 30, 1996
was approximately $4.4 million, an increase of $3.0 million from $1.4
million for the same period in 1995. Non-interest expense at Liberty and
Commerce for the three months ended September 30, 1996 was
approximately $1.9 million and $1.6 million, respectively, that was partially
offset by improvements in non-interest expense at San Dieguito. The
majority of this
<PAGE>
improvement at San Dieguito occurred in the area of other expenses of
approximately $423,000 related primarily to write downs of, foreclosure
costs and the operating costs associated with foreclosed properties.
Additionally, San Dieguito had reduced costs for salaries and benefits due to
staffing reductions of approximately $97,000 compared to the same period in
1995.
Provision for Income Taxes
As a result of the earnings for the three months ended September 30,
1996, a $89,000 provision for income taxes was made. There was no
provision for income tax made for the same period in 1995.
Results of Operations - Nine months Ended September 30, 1996
For the nine months ended September 30, 1996, CSBI had net income
of $450,000 compared to a net loss of $67,000 for the same period in 1995.
During the third quarter of 1995, SDN had an extraordinary item of $1.1
million related to the extinguishment of debt in conjunction with the
recapitalization, prior to which the net loss was $1.1 million. The
improvement in 1996 earnings over the same period in 1995 is primarily
attributable to the acquisition of Liberty, for which the results of operations
for the six months ended September 30, 1996 are included in the CSBI
results of operations for the nine months ended September 30, 1996. The
improvement in earnings is partially offset by the loss of $47,000 incurred
by Commerce whose results of operations for the one month ended
September 30, 1996 are included in the CSBI results of operations for the
nine months ended September 30, 1996. Compared to the prior year results
the improvements stem from a combination of increased net interest income
of approximately $4.3 million, non-interest income of approximately $2.1
million and lower loan loss provision of $28,000, partially offset by
increased non-interest expense of approximately $4.6 million and provision
for taxes of $227,000.
Net Interest Income and Net Interest Margin
Net interest income was approximately $6.4 million for the nine
months ended September 30, 1996, an increase of $4.3 million over the $2.1
million for the same period in 1995. An increase in interest and fee income
of approximately $7.2 million partially offset by increased interest expense
of $2.9 million contributed to this earnings improvement.
Loans, the largest component of earning assets, increased to an
average balance of $138.8 million for the first nine months of 1996 from
$43.2 million for the first nine months of 1995, with an average yield of
8.4% and 9.7% respectively. Investments in securities and Federal funds
sold rose to an average of $59.0 million for the first nine months of 1996
from an average of $6.3 million for the first nine months of 1995, with an
average yield of 4.2% and 6.09% respectively. The yield on earning assets
declined to 7.1% for the first nine months of 1996 from 9.1% for the same
period in 1995. The decline in yield on earning assets can largely be
attributed to the declining yield on loans combined with a shift in the mix of
loans as a percent of earning assets where the percent of average loans to
average earning assets during the first nine months of 1996 declined to
87.5% from 88.4% for the same period in 1995. Additionally, the average
prime rate (the rate to which the rates on a majority the Banks' loans are
indexed) during the nine months ended September 30, 1996 was 8.28%
<PAGE>
compared to 8.87% for the same period in 1995, which is reflective of the
overall rate environment.
Average interest-bearing deposits increased to $161.1 million for the
nine months ended September 30, 1996 from $44.1 million for the same
period in 1995. Additionally, the average rate paid on these deposits
decreased to 3.5% during the first nine months in 1996 compared to 3.7%
during the first nine months in 1995. Further, as a result of the
recapitalization of SDN that occurred in September 1995, other borrowing
declined to $537,000 with an average rate of 11.4% from $1.9 million at an
average rate of 11.6%. The average rate paid on interest-bearing liabilities
was 3.5% for the first nine months of 1996 compared to 4.0% for the same
period in 1995. This decrease represents an overall decrease in rates paid on
deposit liabilities offset by a change in the mix of interest bearing
liabilities.
As a result of these forgoing factors, the average yield on earning
assets decreased to 4.3% for the first nine months of 1995 from 5.4% for
the same period in 1995.
Allowance and Provision for Loan Losses
The allowance for loan and lease losses represents the amounts which
have been set aside for the specific purpose of absorbing losses which may
occur in the Banks' loan and lease portfolio. The provision for loan and
lease losses is an expense charged against operating income and added to the
allowance for loan and lease losses. Management of the Banks continue to
carefully monitor the allowance for loan and lease losses in relation to the
size of the Banks' loan and lease portfolio and known risks or problem loans
and leases.
The allowance for loan and lease losses at CSBI was approximately
$5.0 million at September 30, 1996 compared to approximately $639,000 at
SDN at December 31, 1995. The increase in the allowance for loan and
lease losses is primarily attributable to the Liberty Acquisition and
Commerce Acquisition. Liberty's and Commerce's allowance at September
30, 1996 was approximately $1.7 million and $2.6 million, respectively.
During the first nine months of 1996, the provision for loan and lease losses
was $218,000, loan and lease charge-offs were $383,000 and recoveries
were $161,000. The allowance for loan and lease losses for CSBI
represented 2.1% of net loans, excluding those loans held for sale, at
September 30, 1996 and 1.6% at December 31, 1995.
Non-Interest Income
Non-interest income for the nine months ended September 30, 1996
was $2.5 million compared to $418,000 for the same period in 1995. Non-interest
income at Liberty and Commerce since the respective acquisitions,
of approximately $1.3 million and $705,000, respectively, and an insurance
settlement of approximately $70,000 received during the quarter by San
Dieguito, are primarily attributable to this improvement in non-interest
income. Additionally, increases in various deposit related income and other
non-interest income account for the balance of this improvement.
<PAGE>
Non-Interest Expenses
Non-interest expense for the nine months ended September 30, 1996
was approximately $8.0 million, an increase of $4.6 million from $3.4
million for the same period in 1995. Non-interest expense at Liberty and
Commerce since acquisition of approximately $3.7 million and 1.6 million,
respectively, is responsible for most of the increase that was partially offset
by improvements in non-interest expense at San Dieguito. The majority of
this improvement at San Dieguito occurred in the area of other expenses of
approximately $489,000 related primarily to write downs of, and foreclosure
costs and operating costs associated with, foreclosed properties.
Additionally, San Dieguito had reduced costs for salaries and benefits due to
staffing reductions of approximately $238,000 partially offset by an increase
in premises expense of approximately $46,000 associated with a one time
mark-to-market adjustment of $61,000 made in conjunction with the sub-leasing of
space in San Dieguito's Encinitas office.
Provision for Income Taxes
As a result of the earnings for the first nine months of 1996, a
$227,000 provision for income taxes was made. There where there was no
provision for income tax made in the first nine months of 1995.
Capital Resources
As of March 27, 1996, the Partnership invested approximately $13.4
million in the registrant to fund the Liberty Acquisition. In exchange for
that investment, SDN issued a total of 3,392,405 additional shares of
common stock at a price per share of $3.95, SDN's book value per share as
of December 31, 1995. At the Partnership's direction, SDN issued
1,764,000 of those shares of common stock, in the aggregate, to certain
limited partners of the Partnership (the "Direct Holders") and the remaining
1,628,405 shares of common stock directly to the Partnership. Giving effect
to the issuance of those shares to fund the Liberty Acquisition, the
Partnership owned 48.0% of the common stock and the Direct Holders
owned, in the aggregate, 50.75% of the common stock.
Prior to August 31, 1996, the Partnership invested approximately
$14.5 million in SDN to fund the Commerce Acquisition. In exchange for
that investment, SDN issued a total of 3,664,776 additional shares of SDN
common stock at a price per share of $3.95 pursuant to a subscription
agreement entered into in March 1996. At the Partnership's direction, SDN
issued 1,080,000 of those shares of common stock, in the aggregate, to
certain limited Direct Holders and the remaining 2,584,776 shares of
common stock directly to the Partnership. In addition, at the same time
SDN issued a total of 81,800 shares of common stock to other accredited
investors for an aggregate purchase price of approximately $424,000.
As part of the 1996 Recapitalization, holders of SDN common stock
were issued one share of CSBI common stock for each share of SDN stock
held by them. A total of 4,327,606 shares of SDN common stock were
outstanding at the time of the 1996 Recapitalization. Holders of Commerce
common stock were issued 1,527,540 shares of CSBI common stock and
received cash of approximately $14.1 million. An additional 58,212 shares
of CSBI common stock and cash of approximately $346,000 are held in
escrow pending resolution of
<PAGE>
the SAIF recapitalization. In addition, as part of the Commerce Acquisition,
CSBI issued approximately 19,000 shares of CSBI common stock to
Commerce's investment bank as of the closing and expects to issue
approximately 9,000 additional shares of CSBI common stock to such party
upon the distribution of the SAIF-related escrow. There were 9,759,098
total shares outstanding after the 1996 Reorganization. Upon the completion
of the 1996 Reorganization, the Partnership owned 48.0% of the common
stock and the Direct Holders owned, in the aggregate, 34.2% of CSBI
common stock.
Current risk-based regulatory capital standards generally require banks
and holding companies to maintain a ratio of "core" or "Tier 1" capital
(consisting principally of common equity) to risk-weighted assets of at least
4%, a ratio of Tier 1 capital to adjusted total assets (leverage ratio) of at
least 3% and a ratio of total capital (which includes Tier 1 capital plus
certain forms of subordinated debt, a portion of the allowance for loan losses
and preferred stock) to risk-weighted assets of at least 8%. Risk-weighted
assets are calculated by multiplying the balance in each category of assets
according to a risk factor which ranges from zero for cash assets and certain
government obligations to 100% for some types of loans, and adding the
products together.
CSBI, Commerce, Liberty and San Dieguito were well capitalized as
of September 30, 1996 for federal regulatory purposes. As of September
30, 1996, CSBI had a combined leverage ratio was 6.7%, a Tier 1
risk-weighted capital ratio was 10.3%, and a total risk-weighted capital ratio
was 11.6%. Commerce's, Liberty's and San Dieguito's leverage ratio, Tier
1 risk-weighted capital ratio, and total risk-weighted capital ratios are set
forth in the following table:
Liberty Commerce San Dieguito
Leverage ratio 6.4% 6.1% 8.1%
Tier 1 risk-weighted capital ratio 9.0% 9.2% 11.0%
Total risk-weighted capital ratio 10.3% 10.4% 12.2%
Liquidity
The asset-liability management process determines the size and
composition of the balance sheet and focuses on the management of liquidity
and interest rate risk. The purpose of liquidity and balance sheet
management is to ensure that funds are available to meet customer needs,
meet the financial commitments of the Banks, and to reduce the Banks'
exposure to changing interest rates.
The Banks manage liquidity from both sides of the balance sheet
through the coordination of the relative maturities of its assets and
liabilities. The Banks enhance their liquidity through the ability to raise
additional funds in money markets through Federal funds lines, repurchase
agreements and selling of a specified portion of its securities (securities
available for sale). The Banks maintain a level of liquidity that is considered
adequate to meet current needs. Liquid assets include cash and due from banks,
Federal funds sold, and securities available for sale. At September 30, 1996,
liquid assets totaled approximately $95.4 million, or 21.9% of total assets,
which compares to $5.9 million, or 10.6% of total assets, at December 31, 1995.
<PAGE>
At September 30, 1996 the Banks had net repriceable liabilities (a
"negative gap") as measured at one year of approximately $21.9 million or
5.0% of total assets. The Banks had net repriceable assets (a "positive gap")
as measured at a 90-day time horizon of approximately $32.1 million, or
7.4% of total assets. With a positive gap, a bank would anticipate higher net
yields over the near term in a rising rate environment and lower net yields in
a declining rate environment. Conversely, with a negative gap, a bank
would anticipate lower net yields over the near term in a rising rate
environment and higher net yields in a declining rate environment.
<PAGE>
Part II - Other Information
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Prior to the completion of the 1996 Reorganization, the Partnership and
certain of the Direct Holders acted by written consent to approve an
amendment to SDN's Certificate of Incorporation which increased the
number of shares of common stock that SDN is authorized to issue. Such
amendment is reflected in CSBI's Certificate of Incorporation, which is in all
relevant respects identical to SDN's Certificate of Incorporation in effect
immediately prior to the 1996 Recapitalization.
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
3.1 By-laws of Commerce Security Bancorp, Inc.
3.2 Certificate of Incorporation for Commerce Security Bancorp,
Inc.
10.1 Employment Agreement between Robert P. Keller and SDN
Bancorp, Inc. Dated as of October 1, 1995
(b) Reports on Form 8-K:
1) Merger completed with SDN Bancorp, Inc. and Commerce
Security Bank September 1, 1996 (amended November 14,
1996)
<PAGE>
COMMERCE SECURITY BANCORP, INC. AND SUBSIDIARIES
U.S. SECURITIES AND EXCHANGE COMMISSION FORM 10-QSB
SIGNATURES
Pursuant to the requirements of the U.S. Securities Exchange Act of 1934,
CSBI has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMMERCE SECURITY BANCORP, INC.
DATE: November 26, 1996 /s/ Robert P. Keller
------------------------------------------
Robert P. Keller
President and Chief Executive Officer
DATE: November 26, 1996 /s/ Curt A. Christianssen
-----------------------------------------
Curt A. Christianssen
Senior Vice President and Chief Financial Officer
BY-LAWS
OF
COMMERCE SECURITY BANCORP, INC.
ARTICLE I
Stockholders
Section 1. Annual Meeting. An annual meeting of the stockholders
of the corporation, for the election of the Directors to succeed those whose
terms expire and for the transaction of such other business as may properly
come before the meeting, shall be held on the first Wednesday in April of each
year (or if that be a legal holiday in the place where the meeting is to be
held, on the next succeeding full business day) at the hour stated in the
notice of the meeting. If the annual meeting of the stockholders is not held
on such date, the Directors shall cause the meeting to be held as soon
thereafter as convenient.
Section 2. Special Meetings. Special meetings of the stockholders
may be called by the President or by order of the Board of Directors, and shall
be called by the Secretary (or in the case of the death, absence, incapacity or
refusal of the Secretary, by any other officer) upon written application by one
or more stockholders owning shares of the capital stock of the corporation
which represent at least 10 percent of the votes entitled to be cast at the
meeting.
Section 3. Place and Hour of Meetings. All meetings of stockholders
shall be held at the principal office of the corporation at 10:00 a.m. local
time unless a different place or hour is fixed by the person or persons calling
the meeting and stated in the notice of the meeting.
Section 4. Notices of Meetings and Adjourned Meetings. A written
notice of each annual or special meeting of the stockholders stating the place,
date, and hour thereof, shall be given by the Secretary (or the person or
persons calling the meeting), not less than 10 nor more than 60 days before the
date of the meeting, to each stockholder entitled to vote thereat, by leaving
such notice with such stockholder or at his or her residence or usual place of
business, or by depositing it postage prepaid in the United States mail,
directed to each stockholder at his or her address as it appears on the records
of the corporation. The notice of a special meeting of the stockholders shall
state the purpose or purposes for which the meeting is called. An affidavit of
the Secretary, Assistant Secretary, or transfer agent of the corporation that
the notice has been given shall, in the absence of fraud, be prima facie
evidence of the facts stated therein. No notice need be given to any person
with whom communication is unlawful or to any person who has
<PAGE>
waived such notice (a) in writing (which writing need not specify the business
to be transacted at, or the purpose of, the meeting) signed by such person
before or after the time of the meeting or (b) by attending the meeting except
for the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. No notice need be given to any person to whom (a) notice of two
consecutive annual meetings, and all notices of meetings or of a taking of
action by written consent without a meeting to such person during the period
between such two consecutive annual meetings, or (b) all, and at least two,
payments (if sent by first class mail) of dividends or interest on securities
during a 12 month period, have been mailed addressed to such person at his or
her address as shown on the records of the corporation, have been returned
undeliverable. If any such person shall deliver to the corporation a written
notice setting forth his or her then current address, the requirement that
notice be given to such person in accordance with this Section 4 shall be
reinstated. When a meeting is adjourned to another time and place, notice need
not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken except that, if
the adjournment is for more than 30 days or if, after the adjournment, a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given in the manner provided in this Section 4.
Section 5. Quorum. At any meeting of the stockholders, a quorum for
the transaction of business shall consist of one or more individuals appearing
in person or represented by proxy and owning or representing a majority of the
shares of the corporation then outstanding and entitled to vote, provided that
less than such quorum shall have power to adjourn the meeting from time to
time.
Section 6. Voting. Unless otherwise provided in the Certificate of
Incorporation and subject to the provisions of Section 10 of this Article I,
each stockholder shall have one vote for each share of capital stock entitled to
vote held by such stockholder according to the records of the corporation.
Persons holding stock in a fiduciary capacity shall be entitled to vote the
shares so held. Persons whose stock is pledged shall be entitled to vote unless
in the transfer by the pledgor on the books of the corporation the pledgor has
expressly empowered the pledgee to vote the pledged shares, in which case only
the pledgee or the pledgee's proxy shall be entitled to vote.
Section 7. Proxies. Each stockholder entitled to vote at a meeting
of stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him or
her by proxy, but no such proxy shall be voted or acted upon after eleven
months from its date, unless the proxy provides for a longer period.
Section 8. Action at Meeting. When a quorum is present at any
meeting, action of the stockholders on any matter properly brought before such
meeting shall require, and may be effected by, the affirmative vote of the
holders of shares of capital stock present in person or represented by proxy,
which shares represent a majority of the votes cast on any matter, except
<PAGE>
where a different vote is required by law, the Certificate of Incorporation or
these By-laws. If the Certificate of Incorporation so provides, no ballot shall
be required for any election unless requested by a stockholder present or
represented at the meeting and entitled to vote in the election.
Section 9. Stockholder Lists. The officer who has charge of the
stock ledger of the corporation shall prepare and make, at least 10 days before
every meeting of stockholders, a complete list of stockholders entitled to vote
at the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a
period of at least 10 days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place of
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present. The stock ledger shall be the only evidence as to
who are the stockholders entitled to examine the stock ledger, the list required
by this section or the books of the corporation, or to vote in person or by
proxy at any meeting of stockholders.
Section 10. Record Date.
(a) In order that the corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, or to express consent to corporate action in writing without a meeting,
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date, which shall
not be more than 60 nor less than 10 days before the date of such meeting, nor
more than 60 days prior to any other action.
(b) If no record date is fixed:
(1) The record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or,
if notice is waived, at the close of business on the day next preceding the
day on which the meeting is held.
(2) The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when no
prior action by the Board of Directors is necessary, shall be the day on
which the first such written consent is expressed.
<PAGE>
(3) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board
of Directors adopts the resolution relating thereto.
(c) A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for
the adjourned meeting.
Section 11. Action by Written Consent. Any action required by law
to be taken at any annual or special meeting of stockholders of the corporation,
or any action which may be taken at any annual or special meeting of such
stockholders, may be taken without a meeting, without prior notice and without
a vote, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of corporate action without a meeting by less than
unanimous written consent shall be given to those stockholders who have not
consented in writing; such consent shall be effective as of the date stated
therein and shall be filed with the minutes of the meeting of the stockholders.
ARTICLE II
Directors
Section 1. Powers. The business and affairs of the corporation
shall be managed by or under the direction of the Board of Directors.
Section 2. Number of Directors. The Board of Directors shall
consist of not less than 6 nor more than 11 persons. The number of Directors is
initially fixed at 7, and may be increased or decreased by the Board of
Directors at any time.
Section 3. Election and Tenure. Each Director shall be elected by
plurality vote of the stockholders at the annual meeting of stockholders or as
provided in Section 5 of this Article II. In the event of a failure to elect
Directors at an annual meeting of the stockholders, the Directors may be elected
at any regular or special meeting of the stockholders entitled to vote for
election of Directors, provided that notice of such meeting shall contain
mention of such purpose. Each Director shall serve until the date fixed in
these By-laws for the next annual meeting of stockholders after such Director's
election and thereafter until his or her successor is elected and qualified, or
until his or her earlier
resignation or removal.
Section 4. Qualification. No Director need be a stockholder.
<PAGE>
Section 5. Vacancies and Newly Created Directorships. Vacancies
and newly created Directorships resulting from any increase in the authorized
number of Directors may be filled by a majority of the Directors then in office,
although less than a quorum, or by a sole remaining Director. When one or
more Directors shall resign from the Board, effective at a future date, a
majority of Directors then in office, including those who have so resigned,
shall have power to fill such vacancy or vacancies by vote to take effect when
such resignation or resignations shall become effective.
Section 6. Removal. Any Director or the entire Board of Directors
may be removed, with or without cause, at any time upon the affirmative vote
by the holders of a majority the shares then entitled to vote at an election of
the Directors. Any vacancy in the Board caused by any such removal may (but
need not be) filled in the manner provided in Section 5 of Article II.
Section 7. Resignation. Any Director of the corporation may resign
at any time by giving written notice to the Board of Directors, to the Chairman
of the Board, if any, to the President, or to the Secretary, and any member of
a committee may resign therefrom at any time by giving notice as aforesaid or
to the chairman or secretary of such committee. Any such resignation shall
take effect at the time specified therein, or, if the time be not specified,
upon receipt thereof; and unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
Section 8. Annual Meeting. Immediately after each annual meeting
of stockholders and at the place thereof, if a quorum of the Directors is
present, there shall be a meeting of the Directors without notice.
Section 9. Regular Meetings. Regular meetings of the Directors may
be held at such times and places as shall from time to time be fixed by
resolution of the Board, and no notice need be given of regular meetings held
at times and places so fixed, provided, however, that any resolution relating to
the holding of regular meetings shall remain in force only until the next annual
meeting of stockholders and that, if at any meeting of Directors at which a
resolution is adopted fixing the times or place or places for any regular
meetings any Director is absent, no meeting shall be held pursuant to such
resolution without notice to or waiver by such absent Director pursuant to
Section 11 of this Article II.
Section 10. Special Meetings. Special meetings of the Directors may
be called by the Chairman of the Board (if any), the President, or by any two
Directors, and shall be held at the place and on the date and hour designated in
the call thereof.
<PAGE>
Section 11. Notices. Notices of any special meeting of the Directors
shall be given by the Secretary or an Assistant Secretary to each Director, by
mailing to him, postage prepaid, and addressed to such Director at his or her
address as registered on the books of the corporation, or if not so registered
at his or her last known home or business address, a written notice of such
meeting at least four days before the meeting, or by sending notice of such
meeting to him by prepaid telegram addressed to him at such address, or by
actual delivery of such notice to him personally or by telephone, facsimile,
telex or cable at least 48 hours before the meeting. In the absence of all such
officers, such notice may be given by the officer or one of the Directors
calling the meeting. Notice need not be given to any Director who has waived
notice (a) in writing executed by him before or after the meeting and filed with
the records of the meeting, or (b) by attending the meeting except for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. A notice or waiver of notice of a meeting of the Directors need not
specify the business to be transacted at or the purpose of the meeting.
Section 12. Quorum. At any meeting of the Directors a majority of
the total number of Directors fixed pursuant to Section 2 of Article II shall
constitute a quorum for the transaction of business; provided always that any
number of Directors (whether one or more and whether or not constituting a
quorum) present at any meeting or at any adjourned meeting may adjourn such
meeting, provided that all absent Directors receive or waive notice pursuant to
Section 11 of Article II of any such adjournment that exceeds four business
days.
Section 13. Action at Meeting. At any meeting of the Directors at
which a quorum is present, the action of the Directors on any matter brought
before the meeting shall be decided by vote of a majority of those present,
unless a different vote is required by law, the Certificate of Incorporation, or
these By-laws.
Section 14. Action by Written Consent. Any action required or
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting if all members of the Board
or committee, as the case may be, consent thereto in writing, and the writing
or writings are filed with the minutes of proceedings of the Board or
committee.
Section 15. Telephone Meetings. Members of the Board of Directors,
or any committee thereof, may participate in a meeting of such Board or
committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this Section 15 shall
constitute presence in person at such meeting.
Section 16. Place of Meetings. The Board of Directors may hold its
meetings, and have an office or offices, within or without the State of
Delaware.
<PAGE>
Section 17. Compensation. The Board of Directors shall have the
authority to fix the compensation of Directors.
Section 18. Committees.
(a) The Board of Directors may, by resolution passed by a majority of
the whole Board, designate one or more committees, each committee to consist
of one or more of the Directors of the corporation. The Board may designate
one or more Directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of a committee, the member or
members thereof present at any meeting and not disqualified from voting,
whether or not he, she or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. Any such committee, to the extent
provided in the resolution of the Board of Directors, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation, and may authorize
the seal of the corporation to be affixed to all papers which may require it;
but no such committee shall have the power or authority in reference to amending
the Certificate of Incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property or assets, recommending
to the stockholders a dissolution of the corporation or a revocation of a
dissolution, or amending the By-laws of the corporation. Such a committee
may, to the extent expressly provided in the resolution of the Board of
Directors, have the power or authority to declare a dividend or to authorize the
issuance of stock.
(b) At any meeting of any committee, a majority of the whole
committee shall constitute a quorum and, except as otherwise provided by
statute, by the Certificate of Incorporation, or by these By-laws, the
affirmative vote of at least a majority of the members present at a meeting at
which there is a quorum shall be the act of the committee.
(c) Each committee, except as otherwise provided by resolution of the
Board of Directors, shall fix the time and place of its meetings within or
without the State of Delaware, shall adopt its own rules and procedures, and
shall keep a record of its acts and proceedings and report the same from time
to time to the Board of Directors.
ARTICLE III
Officers
Section 1. Officers and Their Election. The officers of the
corporation shall be a President, a Secretary, a Treasurer and such Vice
Presidents, Assistant Secretaries, Assistant
<PAGE>
Treasurers and other officers as the Board of Directors may from time to time
determine and elect or appoint. The Board of Directors may appoint one of its
members to the office of Chairman of the Board and another of its members to
the office of Vice-Chairman of the Board and from time to time define the
powers and duties of these offices notwithstanding any other provisions of these
By-laws. The President, the Secretary and the Treasurer shall be elected by the
Board of Directors at its annual meeting or at the first meeting of the Board
after the date fixed by these By-laws therefor and may, but need not, be
members of the Board of Directors. Two or more offices may be held by the
same person.
Section 2. Term of Office. The President, the Treasurer and the
Secretary shall, unless sooner removed under the provisions of these By-laws,
hold office until the next annual election of officers and thereafter until
their respective successors are elected and qualified or until their earlier
resignation or removal. All other officers shall hold office for such term as
shall be determined from time to time by the Board of Directors.
Section 3. Vacancies. Any vacancy at any time existing in any
office may be filled by the Directors.
Section 4. President. The President shall be the chief executive
officer of the corporation except as the Board of Directors may otherwise
provide. It shall be the President's duty and he or she shall have the power
to see that all orders and resolutions of the Board of Directors are carried
into effect. He or she shall from time to time report to the Board of Directors
all matters within his or her knowledge which the interests of the corporation
may require to be brought to its notice. The President, when present, shall
preside at all meetings of the stockholders and of the Board of Directors,
unless otherwise provided by the Board of Directors. The President shall
perform such duties and have such powers additional to the foregoing as the
Board of Directors shall designate.
Section 5. Chairman of the Board. The Chairman of the Board, if
any, shall have the powers and duties expressly designated in these By-laws and
shall perform such duties and have such powers additional thereto as the Board
of Directors shall designate.
Section 6. Vice Presidents. In the absence or disability of the
President, the President's powers and duties shall be performed by the Vice
President, if only one, or, if more than one, by the one designated for the
purpose by the Board of Directors. Each Vice President shall perform such
duties and have such powers additional to the foregoing as the Board of
Directors shall designate.
Section 7. Treasurer. The Treasurer shall keep full and accurate
accounts of receipts and disbursements in books belonging to the corporation
and shall deposit all monies and other valuable effects in the name and to the
credit of the corporation in such depositories as shall be
<PAGE>
designated by the Board of Directors or in the absence of such designation in
such depositories as he or she shall from time to time deem proper. The
Treasurer shall disburse the funds of the corporation as shall be ordered by the
Board of Directors, taking proper vouchers for such disbursements. The
Treasurer shall promptly render to the President and to the Board of Directors
such statements of his or her transactions and accounts as the President and
Board of Directors respectively may from time to time require. The Treasurer
shall perform such duties and have such powers additional to the foregoing as
the Board of Directors may designate.
Section 8. Assistant Treasurers. In the absence or disability of
the Treasurer, the Treasurer's powers and duties shall be performed by the
Assistant Treasurer, if only one, or if more than one, by the one designated for
the purpose by the Board of Directors. Each Assistant Treasurer shall perform
such duties and have such powers additional to the foregoing as the Board of
Directors shall designate.
Section 9. Secretary. The Secretary shall issue notices of all
meetings of stockholders, of the Board of Directors and of committees thereof
where notices of such meetings are required by law or these By-laws. The
Secretary shall record the proceedings of the meetings of the stockholders and
of the Board of Directors and shall be responsible for the custody thereof in a
book to be kept for that purpose. The Secretary shall also record the
proceedings of the committees of the Board of Directors unless such committees
appoint their own respective secretaries. Unless the Board of Directors shall
appoint a transfer agent and/or registrar, the Secretary shall be charged with
the duty of keeping, or causing to be kept, accurate records of all stock
outstanding, stock certificates issued and stock transfers. The Secretary shall
sign such instruments as require his or her signature. The Secretary shall have
custody of the corporate seal and shall affix and attest such seal on all
documents whose execution under seal is duly authorized. In the Secretary's
absence at any meeting, an Assistant Secretary or the Secretary pro tempore
shall perform his or her duties thereat. The Secretary shall perform such
duties and have such powers additional to the foregoing as the Board of
Directors shall designate.
Section 10. Assistant Secretaries. In the absence or disability of
the Secretary, the Secretary's powers and duties shall be performed by the
Assistant Secretary, if only one, or, if more than one, by the one designated
for the purpose by the Board of Directors. Each Assistant Secretary shall
perform such duties and have such powers additional to the foregoing as the
Board of Directors shall designate.
Section 11. Salaries. The salaries and other compensation of
officers, agents and employees shall be fixed from time to time by or under
authority from the Board of Directors. No officer shall be prevented from
receiving a salary or other compensation by reason of the fact that such Officer
is also a Director of the corporation.
<PAGE>
Section 12. Removal. The Board of Directors may remove any officer,
either with or without cause, at any time.
Section 13. Bond. The corporation may secure the fidelity of any or
all of its officers or agents by bond or otherwise.
Section 14. Resignations. Any officer, agent or employee of the
corporation may resign at any time by giving written notice to the Board of
Directors, to the Chairman of the Board, if any, to the President or to the
Secretary of the corporation. Any such resignation shall take effect at the
time specified therein, or, if the time be not specified, upon receipt thereof;
and unless otherwise specified therein, the acceptance of such resignation shall
not be necessary to make it effective.
ARTICLE IV
Capital Stock
Section 1. Stock Certificates and Uncertificated Shares. The
shares of the corporation shall be represented by certificates, unless the Board
of Directors of the corporation provides by resolution or resolutions that some
or all of any or all classes or series of its stock shall be uncertificated
shares. Any such resolution shall not apply to shares represented by a
certificate until such certificate is surrendered to the corporation.
Notwithstanding the adoption of such resolution by the Board of Directors, every
holder of stock represented by certificates and upon request every holder of
uncertificated shares shall be entitled to have a certificate signed by, or in
the name of the corporation by the Chairman or Vice Chairman of the Board of
Directors, or the President or Vice President, and by the Treasurer and/or
Assistant Treasurer, or the Secretary or an Assistant Secretary of the
corporation representing the number of shares registered in certificate form.
Any or all of the signatures on the certificate may be a facsimile. In case
any officer, transfer agent, or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it
may be issued by the corporation with the same effect as if he or
she were such officer, transfer agent or registrar at the date of issue.
Section 2. Classes of Stock. If the corporation shall be
authorized to issue more than one class of stock or more than one series of any
class, the face or back of each certificate issued by the corporation to
represent such class or series shall either (a) set forth in full or
summarize the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions thereof, or (b) contain a
statement that the corporation will furnish a statement of the same without
charge to each stockholder who so requests.
<PAGE>
Section 3. Transfer of Stock. Shares of stock shall be transferable
on the books of the corporation pursuant to applicable law and such rules and
regulations as the Board of Directors shall from time to time prescribe. The
Board of Directors may at any time or from time to time appoint a transfer
agent or agents or a registrar or registrars for the transfer or registration of
shares of stock.
Section 4. Holders of Record. Prior to due presentment for
registration of transfer the corporation may treat the holder of record of a
share of its stock as the complete owner thereof exclusively entitled to vote,
to receive notifications and otherwise entitled to all the rights and powers of
a complete owner thereof, notwithstanding notice to the contrary.
Section 5. Lost, Stolen, or Destroyed Stock Certificates. The Board
of Directors may direct a new stock certificate or certificates or
uncertificated shares to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen, or
destroyed upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates or his or
her legal representative, to give the corporation a bond sufficient to indemnify
it against any claim that may be made against the corporation on account of the
alleged loss, theft, or destruction, of such certificates or the issuance of
such new certificate or uncertificated shares.
ARTICLE V
Indemnification of Directors, Officers and Others
Section 1. Indemnification of Directors and Officers. The corporation
shall indemnify, to the fullest extent permitted by the General Corporation Law
of the State of Delaware as presently in effect or as hereafter amended:
(a) Subject to the provisions of Section 9 of this Article V, any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative and whether external or
internal to the corporation (other than by action by or in the right of the
corporation) by reason of the fact that he is or was a Director or officer
of the corporation, or is or was serving at the request of the corporation
as a Director or officer of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such suit, action or
proceeding if he acted in good faith and in a manner which he reasonably
believed to be in or not
<PAGE>
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful. The termination of any action, suit or proceeding
by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption
that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
(b) Any person who was or is a party or is threatened to be made
a party to any threatened, pending or completed action or suit by or in the
right of the corporation to procure a judgment in its favor by reason of
the fact that he is or was a Director or officer of the corporation, or is
or was serving at the request of the corporation as a Director or officer
of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees) and amounts paid
in settlement actually and reasonably incurred by him in connection with
the defense or settlement of such action or suit if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the corporation unless and only
to the extent that the Court of Chancery of the State of Delaware or the
court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
Section 2. Indemnification of Employees and Others. The Board of
Directors, in its discretion, may authorize the corporation to indemnify to the
fullest extent permitted by the General Corporation Law of the State of
Delaware (as presently in effect or as hereafter amended):
(a) Subject to the provisions of Section 9 of this Article V, any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by
or in the right of the corporation) by reason of the fact that he is or was
an employee or agent of the corporation, or is or was serving at the
request of the corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with
such suit, action or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interest of the
corporation, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful. The termination
of any action, suit or proceeding by judgment, order,
<PAGE>
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be
in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
(b) Any person who was or is a party or is threatened to be made
a party to any threatened, pending or completed action or suit by or in the
right of the corporation to procure a judgment in its favor by reason of
the fact that he is or was an employee or agent of the corporation, or is
or was serving at the request of the corporation as an employee or agent
of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees) and amounts paid
in settlement actually and reasonably incurred by him in connection with
the defense or settlement of such action or suit if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the corporation unless and only
to the extent that the Court of Chancery of the State of Delaware or the
court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
Section 3. Determination to Indemnify. Any indemnification under this
Article V (unless required by law or ordered by a court) shall be made by the
corporation only as authorized in the specific case upon a determination that
indemnification of the Director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth
in Sections l and 2 of this Article V. Such determination shall be made (i) by
the Board of Directors by a majority vote of a quorum consisting of Directors
who were not parties to such action, suit or proceeding, or (ii) if such a
quorum is not obtainable, or, even if obtainable a quorum of disinterested
Directors so directs, by independent legal counsel in a written opinion, or
(iii) by the stockholders of the corporation.
Section 4. Advances of Expenses. Expenses incurred by a Director or
officer in defending a civil or criminal action, suit or proceeding shall be
paid by the corporation in advance of the final disposition of such action,
suit or proceeding upon receipt of an undertaking by or on behalf of the
Director or officer to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by the corporation as authorized in
this Article V. Any advance under this Section 4 shall be made promptly, and in
any event within ninety days, upon the written request of the person seeking the
advance.
<PAGE>
Section 5. Non-Exclusive Right; Contractual Nature. The
indemnification and advancement of expenses provided by, or granted pursuant
to, the other Sections of this Article V shall not be deemed exclusive of any
other rights to which any person, whether or not entitled to be indemnified
under this Article V, may be entitled under any statute, by-law, agreement, vote
of stockholders or disinterested Directors or otherwise, both as to action in
his official capacity and as to action in another capacity while holding such
office. Each person who is or becomes a Director or officer as described in
Section 1 of this Article V shall be deemed to have served or to have continued
to serve in such capacity in reliance upon the indemnity provided for in this
Article V. All rights to indemnification under this Article V shall be deemed to
be provided by a contract between the corporation and the person who serves as
a Director or officer of the corporation at any time while these by-laws and
other relevant provisions of the General Corporation Law of the State of
Delaware and other applicable law, if any, are in effect. Any repeal or
modification thereof shall not affect any rights or obligations then existing.
Section 6. Insurance. The Board of Directors may at any time and from
time to time cause the corporation to purchase and maintain insurance on behalf
of any person who is or was a Director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
Director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under the provisions of the General Corporation Law of the
State of Delaware (as presently in effect or hereafter amended), the Certificate
of Incorporation of the corporation or these By-laws.
Section 7. One Recovery. The corporation's indemnification under
Sections 1 and 2 of this Article V of any person who is or was a Director,
officer, employee or agent of the corporation, or is or was serving, at the
request of the corporation as a Director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall be
reduced by any amounts such person receives as indemnification (i) under any
policy of insurance purchased and maintained on his behalf by the corporation,
(ii) from such other corporation, partnership, joint venture, trust or other
enterprise, or (iii) under any other applicable indemnification provision.
Section 8. Certain Presumptions. In addition to and without limiting
the foregoing provisions of this Article V and except to the extent otherwise
required by law, any person seeking indemnification under or pursuant to
Section 1 of this Article V shall be deemed and presumed to have met the
applicable standard of conduct set forth in Section l unless the contrary shall
be established.
<PAGE>
Section 9. Claims Procedure.
(a) In addition to and without limiting the foregoing provisions
of this Article V and except to the extent otherwise required by law, (a)
it shall be a condition of the corporation's obligation to indemnify under
Sections l(a) and 2(a) of this Article V (in addition to any other
condition in these By-laws or by law provided or imposed) that the person
asserting, or proposing to assert, the right to be indemnified, promptly
after receipt of notice of commencement of any action, suit or proceeding
in respect of which a claim for indemnification is or is to be made against
the corporation, notify the corporation of the commencement of such
action, suit or proceeding, including therewith a copy of all papers served
and the name of counsel retained or to be retained by such person in
connection with such action, suit or proceeding, and thereafter to keep the
corporation timely and fully apprised of all developments and proceedings
in connection with such action, suit or proceeding or as the corporation
shall request, and (b) the fees and expenses of any counsel retained by a
person asserting, or proposing to assert, the right to be indemnified under
Section l(a) or 2(a) of this Article V shall be at the expense of such
person unless the counsel retained shall have been approved by the
corporation in writing.
(b) If a claim for indemnification or advancement of expenses
under this Article V is not paid in full by the corporation within 90 days
after a written claim therefor has been received by the corporation, the
claimant may at any time thereafter bring suit against the corporation to
recover the unpaid amount of the claim and, if successful in whole or in
part, the claimant shall be entitled to be paid also the expenses of
prosecuting such claim.
Section 10. Rules of Interpretation. For purposes of this Article V,
references to "other enterprises" shall include employee benefit plans;
references to "fines" shall include any excise taxes assessed on a person with
respect to any employee benefit plan; and references to "serving at the request
of the corporation" shall include any service by a Director or officer of the
corporation which imposes duties on, or involves services by, such person with
respect to any employee benefit plan, its participants, or beneficiaries; and a
person who acted in good faith and in a manner he reasonably believed to be in
the interest of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best interests of
the corporation" as referred to in this Article V.
Section 11. Expenses. To the extent that a Director, officer, agent or
employee of the corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in Section 1 or in
Section 2, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
<PAGE>
Section 12. Continuing Benefit. The indemnification and advancement
of expenses provided by, or granted pursuant to, this Article V shall continue
as to a person who has ceased to be a Director, officer, employee or agent and
shall inure to the benefit of the heirs, executors and administrators of such a
person.
Section 13. Severability. If any term or provision of this Article V or
the application thereof to any person, property or circumstance shall to any
extent be invalid or unenforceable, the remainder of this Article V or the
application of such term or provision to persons, property or circumstances
other than those as to which it is invalid or unenforceable shall not be
affected thereby, and each term and provision of this Article V shall be valid
and enforced to the fullest extent permitted by law.
ARTICLE VI
Miscellaneous Provisions
Section 1. Interested Directors and Officers.
(a) No contract or transaction between the corporation and one
or more of its Directors or officers, or between the corporation and any
other corporation, partnership, association, or other organization in which
one or more of its Directors or officers are Directors or officers, or have
a financial interest, shall be void or voidable solely for this reason, or
solely because the Director or officer is present at or participates in the
meeting of the Board or committee thereof which authorizes the contract
or transaction, or solely because his, her or their votes are counted for
such purpose, if:
(1) The material facts as to his or her relationship or
interest and as to the contract or transaction are disclosed or are
known to the Board of Directors or the committee, and the Board
or committee in good faith authorizes the contract or transaction by
the affirmative vote of a majority of the disinterested Directors,
even though the disinterested Directors be less than a quorum; or
(2) The material facts as to his or her relationship or
interest and as to the contract or transaction are disclosed or are
known to the shareholders entitled to vote thereon, and the contract
or transaction is specifically approved in good faith by vote of the
shareholders; or
(3) The contract or transaction is fair as to the corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof, or the shareholders.
<PAGE>
(b) Common or interested Directors may be counted in
determining the presence of a quorum at a meeting of the Board of
Directors or of a committee which authorizes the contract or transaction.
Section 2. Stock in Other Corporations. Subject to any limitations
that may be imposed by the Board of Directors, the President or any person or
persons authorized by the Board of Directors may, in the name and on behalf
of the corporation, (a) call meetings of the holders of stock or other
securities of any corporation or other organization, stock or other securities
of which are held by this corporation, (b) act, or appoint any other person or
persons (with or without powers of substitution) to act in the name and on
behalf of the corporation, or (c) express consent or dissent, as a holder of
such securities, to corporate or other action by such other corporation or
organization.
Section 3. Checks, Notes, Drafts and Other Instruments. Checks, notes,
drafts and other instruments for the payment of money drawn or endorsed in
the name of the corporation may be signed by any officer or officers or person
or persons authorized by the Board of Directors to sign the same, which
authorization may be general or may be confined to one or more specific
instances. No officer or person shall sign any such instrument as aforesaid
unless authorized by the Board of Directors to do so.
Section 4. Corporate Seal. The seal of the corporation shall be
circular in form, bearing the name of the corporation, the word "Delaware", and
the year of incorporation, and the same may be used by causing it or a facsimile
thereof to be impressed or affixed or in any other manner reproduced.
Section 5. Fiscal Year. The fiscal year of the corporation shall be
the year ending with December 31.
Section 6. Books and Records. The books, accounts and records of
the corporation, except as may be otherwise required by the laws of the State
of Delaware, may be kept outside of the State of Delaware, at such place or
places as the Board of Directors may from time to time appoint. Except as may
otherwise be provided by law, the Board of Directors shall determine whether
and to what extent the books, accounts, records and documents of the
corporation, or any of them, shall be open to the inspection of the
stockholders.
Section 7. Separability. If any term or provision of the By-laws, or
the application thereof to any person or circumstances or period of time, shall
to any extent be invalid or unenforceable, the remainder of the By-laws shall
be valid and enforced to the fullest extent permitted by law.
<PAGE>
Section 8. Amendments. The By-laws may be amended or repealed by
the stockholders or, if such power is conferred by the Certificate of
Incorporation, by the Board of Directors, except that any By-law added or
amended by the stockholders may be altered or repealed only by the
stockholders if such By-law expressly so provides.
Composite
Certificate of Incorporation
of
Commerce Security Bancorp, Inc.
(through November 14, 1996)
1. Name. The name of the corporation is Commerce Security
Bancorp, Inc.
2. Registered Office and Agent. The address of the registered
office of the corporation in the State of Delaware is Corporation Trust Center,
1209 Orange Street, Wilmington, in the County of New Castle. The registered
agent at such address is The Corporation Trust Company.
3. Purpose. The purpose of the corporation is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of Delaware.
4. Capitalization. The corporation shall be authorized to
issue the following capital stock:
Number
Class Par Value Authorized
Common Stock $.01 12,000,000
Preferred Stock $.01 1,000,000
5. Preferred Stock. The Board of Directors is expressly
authorized to provide for the issuance of all or any shares of the Preferred
Stock, in one or more series, and to fix for each such series such number of
shares of stock thereof and such voting powers, full or limited, or no voting
powers, and such designations, preferences and relative, participating, optional
or other special rights and such qualifications, limitations or restrictions
thereof, as shall be set forth in the resolution or resolutions adopted by the
Board of Directors providing for the issue of such series and as may be
permitted by the General Corporation Law of the State of Delaware.
6. Incorporator. The name and mailing address of the incorpora
tor is:
David Shea
Nutter, McClennen & Fish, LLP
One International Place
Boston, MA 02110-2699
7. Compromises or Arrangements. Whenever a compromise or
arrangement is proposed between this corporation and its creditors or any class
of them and/or between this corporation and its stockholders or any class of
them, any court of equitable jurisdiction within the State of Delaware may, on
the application in a summary way of this corporation or of any creditor or
stockholder thereof or on the application of any receiver or receivers appointed
for this
<PAGE>
corporation under the provisions of section 291 of Title 8 of the Delaware Code
or on the application of trustees in dissolution or of any receiver or receivers
appointed for this corporation under the provisions of section 279 of Title 8 of
the Delaware Code, order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this corporation, as the
case may be, to be summoned in such manner as the said court directs. If a
majority in number representing three-fourths in value of the creditors or class
of creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and
to any reorganization of this corporation as a consequence of such compromise
or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of this corporation, as the case
may be, and also on this corporation.
8. Business Combinations with Interested Stockholders. The
corporation expressly elects not to be governed by Section 203 of the Delaware
General Corporation Law.
9. By-Laws. The Board of Directors may adopt, amend or repeal
the By-laws of the corporation, except that any By-law adopted by the
stockholders may be altered or repealed only by the stockholders if such By-law
so provides.
10. Elections. The election of directors by the stockholders
need not be by written ballot unless the By-laws of the corporation provide
otherwise.
11. Personal Liability of Directors. No director shall be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except to the extent that such
exculpation from liability is not permitted under the Delaware General
Corporation Law as the same exists or may be hereafter amended. This provision
shall not eliminate the liability of a director for any act or omission
occurring prior to the date upon which this provision becomes effective. No
amendment to or repeal of this provision shall apply to or have any effect on
the liability or alleged liability of any director for or with respect to any
acts or omissions of such director occurring prior to such amendment or repeal.
IN WITNESS WHEREOF, the undersigned has executed this instrument
on May 10, 1996.
David Shea
Incorporator
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of the 1st day of
October, 1995 by and between SDN Bancorp, Inc., a Delaware bank holding
company, having its executive office in Encinitas, California (the "Company"),
and Robert P. Keller of Gilford, New Hampshire ("Employee").
WHEREAS, the Company desires to employ Employee, and Employee
desires to be employed by the Company; and
WHEREAS, the employment of Employee upon the terms and conditions
set forth herein is an integral element of the Company's business plan:
NOW, THEREFORE, the Company and Employee hereby agree as
follows:
1. Term. The Company hereby employs Employee, and Employee
hereby accepts employment, on the terms and conditions hereinafter provided
for a period of three (3) years beginning on October 1, 1995 and ending on
September 30, 1998 (the "Initial Term"). This Agreement shall be deemed to
be extended automatically for successive one (1) year periods following the
expiration of the Initial Term unless either the Company or Employee, by
written notice to the other given at least one (1) year prior to the expiration
of the Initial Term or any extension thereof, as the case may be, notifies the
other party of its intent not to extend this Agreement.
2. Capacity
(a) General. At all times during the term hereof, the Company
shall employ Employee as its senior most executive officer. Employee shall be
subject to the supervision of, and report directly to, the Board of Directors of
the Company. The Company shall employ Employee on a full-time basis, and
Employee shall devote his best professional efforts to the performance of his
duties hereunder. It is the intention of the parties hereto that, subject to
the direction and supervision of the Board of Directors of the Company and, as
applicable, the respective Board of Directors of the Company's subsidiaries,
Employee shall have full discretionary authority to control the day-to-day
operations of the Company and its subsidiaries and to incur such obligations on
behalf of the Company and its subsidiaries as may be required in the ordinary
course of their businesses. With the exception of the following, Employee shall
<PAGE>
obtain approval of the Company's Board of Directors prior to joining any
Board of Directors, venture capital fund, independent consultant, or other
entity:
1) Dartmouth Capital Group, Inc.
2) Triumphant Venture Capital Fund
3) Freedom Energy Company
4) Source One Mortgage Servicing Corporation
5) White Mountain Holdings, Inc.
6) Pennichuck Corporation
7) Centricut, Inc.
(b) Director of the Company. The Company shall propose to
its stockholders at each annual meeting of stockholders during the term hereof
the reelection of Employee as a director of the Company and shall cause Employee
to be elected as a director of each of the Company's subsidiaries that is a
depository institution or a "significant subsidiary" of the Company within the
meaning of Rule 1-02(w) of Regulation S-X promulgated by the Securities and
Exchange Commission ("SEC") (17 C.F.R. Sec. 210-1-02(w)), provided in each
case Employee is otherwise eligible for such reelection. If elected to the
Board of Directors of the Company or any of its subsidiaries, Employee agrees to
serve thereon and shall not receive any compensation in addition to that
provided for in this Agreement.
3. Compensation and Benefits
(a) Base Salary. The Company shall pay Employee, in
installments paid not less frequently than monthly which are as nearly equal as
possible, an annual salary in the amount of One Hundred Fifty Thousand
Dollars ($150,000.00). Such amount shall be automatically adjusted upward
based on the consolidated assets of the Company and its subsidiaries, as
follows:
Asset Size Annual Salary
(In millions)
$ 0 to $150 $150,000
> 150 to 400 200,000
> 400 to 800 250,000
> 800 to 1,200 300,000
> 1,200 350,000
For purposes of the immediately preceding sentence, the Company's
consolidated assets shall be calculated as of the end of each of the Company's
fiscal quarters and shall be equal to the Company's average consolidated assets
for the six-month period then ended calculated on a daily basis in accordance
with generally accepted accounting principles ("Average Consolidated
<PAGE>
Assets"); provided, however, that if the Company's total consolidated assets as
of the end of a
fiscal quarter vary by more than twenty percent (20%) from the Average
Consolidated Assets for the six-month period ended as of that date, the
Company's total consolidated assets as of that date shall be used for purposes
of determining any adjustment to Employee's salary. If, subsequent to an
increase in Employee's salary pursuant to this Section 3(a), the Company's
Average Consolidated Assets as of the end of any fiscal quarter are less than
the most recently applied consolidated asset threshold for determining
Employee's salary, Employee's salary shall be decreased, effective as of the
beginning of the quarter next following the measurement date, to a level
determined in accordance with the table set forth in this subsection (a). If
the Company's Average Consolidated Assets exceed $1.8 billion, Employee may
request that the Compensation Committee of the Company's Board of Directors (the
"Committee") consider, in its sole discretion, and make a recommendation to
the Company's Board of Directors whether it is appropriate to increase such
salary. In determining whether to recommend such an adjustment, the
Committee may consider, among other factors, changes in cost of living, net
profits of the Company and its subsidiaries and affiliates and Employee's
performance of his duties. Employee's annual salary, as so determined, is
hereinafter referred to as the "Base Salary."
(b) Restricted Stock
(i) Terms of Issuance. Whenever during the term of this
Agreement the Company shall issue Common Stock or a Common Stock
Equivalent (each as hereinafter defined), other than Common Stock or a
Common Stock Equivalent sold to Dartmouth Capital Group, L.P. or
director qualifying shares sold to any director of a subsidiary of the
Company, the Company shall issue to Employee, at no cost, a number of
shares of Common Stock (the "Restricted Stock") calculated as follows:
where
X = the number of shares of Restricted Stock to be
issued to Employee at that time; and
Y = the number of shares of Common Stock then
issued by the Company, or in the case of the
issuance of a Common Stock Equivalent, the
number of shares of Common Stock into which
such Common Stock Equivalent may be
converted.
<PAGE>
Subject only to the restrictions on transferability and forfeiture
conditions described elsewhere in this subsection (b), Employee shall have
all the rights of a shareholder with respect to any shares of Restricted
Stock issued pursuant to this subsection (b), including,
without limitation, the right to vote the Restricted Stock and to receive
any dividend or other distribution with respect thereto. Shares of
Restricted Stock, if any, shall be evidenced by one or more stock
certificates registered in Employee's name and, unless otherwise
determined by the Committee, shall be deposited by Employee, together
with a stock power endorsed in blank, with the Secretary of the
Company. At the expiration of the Restricted Period (as hereinafter
defined), the Company shall promptly deliver such certificates and stock
powers to Employee.
(ii) Restrictions on Transfer. During the Restricted
Period, Employee may not sell, assign, transfer, pledge, hypothecate or
otherwise encumber or transfer the Restricted Stock, except as permitted
by the Committee.
(iii) Forfeiture. If Employee's employment hereunder is
terminated for cause pursuant to Section 5(b) of this Agreement or if
Employee resigns from the Company during the Restricted Period
without the consent of the Board of Directors of the Company, any shares
of Restricted Stock then outstanding shall be forfeited to the Company
without any payment to Employee.
(iv) Restricted Period. Except as otherwise provided in
clause (v) below, for purposes of this Agreement the term "Restricted
Period" shall mean the period commencing upon the issuance of the
Restricted Stock and terminating upon the earliest to occur of the
following events:
(A) a Change in Control (as hereinafter defined);
(B) Employee's retirement from the Company after
attaining age 62;
(C) the effective date of Employee's resignation from
the Company with the consent of the Board of Directors;
(D) the effective date of the expiration of this
Agreement pursuant to notice of non-renewal given by the
Company as provided by Section 1 hereof;
(E) the effective date of Employee's termination of
this Agreement for cause pursuant to Section 5(c) hereof;
<PAGE>
(F) the effective date of the termination of
Employee's employment by the Company due to a "disability" as
defined in this Agreement; or
(G) Employee's death.
(v) Special Provisions for Restricted Stock Awarded Upon
Issuance of a Common Stock Equivalent. Notwithstanding the provisions
of the immediately preceding clause (iv), the Restricted Period for any
share of Restricted Stock that is issued to Employee pursuant to this
subsection (b) as a consequence of the Company's issuance of a Common
Stock Equivalent shall terminate on the later of (X) the date on which
such Common Stock Equivalent first becomes convertible into or
exchangeable for shares of Common Stock and (Y) the earliest to occur
of the events specified in the immediately preceding clause (iv). If any
Common Stock Equivalent is redeemed in whole or in part by the
Company prior to the date such Common Stock Equivalent is convertible
into or exchangeable for shares of Common Stock, upon such redemption
there shall be forfeited to the Company, without any payment to
Employee, a pro rata portion of the shares of Restricted Stock issued
pursuant to this subsection (b) as a consequence of the Company's sale
of such Common Stock Equivalent.
(vi) Certain Definitions
(A) "Change in Control" means the first to occur of
the following:
(I) the Company's Board of Directors authorizes
the Company to enter into a definitive agreement providing
for the reorganization, merger, or consolidation of the
Company, or sale or other disposition of all or substantially
all of the assets of the Company (each a "Business
Combination"), in each case unless immediately following
the consummation of such Business Combination all of the
following conditions are satisfied: (X) Persons, who,
immediately prior to such Business Combination, were the
beneficial owners of the voting securities entitled to vote
generally in the election of directors of the Company (the
"Outstanding Voting Securities"), beneficially own (within
the meaning of Rule 13d-3 promulgated under the
Exchange Act (as hereinafter defined)), directly or
indirectly, more than one-third (33 %) of, respectively,
the then outstanding shares of common stock and the
combined voting power of the then Outstanding Voting
Securities entitled to vote generally in the election of
directors, as the case may be, of the entity (the "Resulting
Entity") resulting from such Business Combination
(including, without limitation, an entity which as a result of
such
<PAGE>
transaction owns the Company or all or substantially all of
the Company's assets either directly or through one or more
subsidiaries); (Y) no Person (other than any member of the
Dartmouth Capital Group (as hereinafter defined) or any
employee benefit plan (or related trust) of the Company or
the Resulting Entity) beneficially owns (within the meaning
of Rule 13d-3), directly or indirectly, more than twenty
percent (20.0%) of, respectively, the then outstanding
shares of common stock of the Resulting Entity or the
combined voting power of the then Outstanding Voting
Securities of the Resulting Entity, except to the extent that
such Person's beneficial ownership of the Company
immediately prior to the Business Combination exceeded
such threshold; and (Z) at least one-half of the members of
the board of directors of the Resulting Entity were members
of the Board of Directors of the Company at the time the
Company's Board of Directors authorizes the Company to
enter into the definitive agreement providing for such
Business Combination; or
(II) the acquisition by any Person (other than a
member of the Dartmouth Capital Group) of beneficial
ownership (within the meaning of Rule 13d-3) of more than
twenty percent (20.0%) of the combined voting power
(calculated as provided in Rule 13d-3 in the case of rights
to acquire securities) of the then Outstanding Voting
Securities of the Company; provided, however, that for
purposes of this clause (II), the following acquisitions shall
not constitute a Change in Control: (X) any acquisition
directly from the Company, (Y) any acquisition by the
Company and (Z) any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by the
Company or any entity controlled by the Company; or
(III) the shareholders of the Company approve any
plan or proposal for the liquidation or dissolution of the
Company.
(B) "Common Stock" means the common stock, $.01
par value per share, of the Company.
(C) "Common Stock Equivalent" means a security of
the Company convertible into or exchangeable for shares of
Common Stock, other than options, warrants or other securities
issued to employees of the Company in connection with their
employment, such as, without limitation, any option issued under
the Option Plan (as hereinafter defined).
(D) "Dartmouth Capital Group" means Dartmouth
Capital Group, L. P., a Delaware Partnership (the "Partnership"),
Dartmouth Capital
<PAGE>
Group, Inc., a Delaware corporation and a general partner of the
Partnership (the "General Partner"), and any Person who as of
June 30, 1996 is a limited partner of the Partnership or a
shareholder of the General Partner.
(E) "Person" shall have the meaning ascribed to such
term in Section 3(a)(9) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), which definition shall include a
"person" within the meaning of Section 13(d)(3) of the Exchange
Act.
(c) Stock Options
(i) Establishment of Option Plan. Within one year after the
date of this Agreement, the Board of Directors of the Company shall
adopt a stock option plan (together with any successor plan, the "Option
Plan") pursuant to which the Board of Directors or the Committee may
grant stock options to Employee and other officers of the Company or
any of its subsidiaries. The Company and Employee expect that options
granted under the Option Plan will not qualify as incentive stock options
("Incentive Stock Options") within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), although the
Company may in its sole discretion choose to grant Incentive Stock
Options. The number of shares of Common Stock reserved for issuance
under the Option Plan shall not be less than six percent (6.0%) of the sum
of (X) the number of shares of Common Stock that the Board of
Directors estimates in good faith will be outstanding on December 31,
1996, taking into account any acquisition, Business Combination or
proposed issuance of securities then pending, and (Y) the shares reserved
for issuance under the Option Plan. The number of shares reserved for
issuance pursuant to the Option Plan, as that number may be increased
from time to time, is hereinafter referred to as the Option Pool.
(ii) Number of Shares Subject to Options to be Granted to
Employee. Promptly following the adoption of the Option Plan, the
Company shall grant to Employee an option exercisable for a number of
shares of Common Stock equal to fifty percent (50.0%) of the shares in
the Option Pool, rounded to the nearest whole share. If the Company
thereafter increases the number of shares in the Option Pool, the
Company shall promptly grant to Employee an option exercisable for a
number of shares of Common Stock equal to fifty percent (50.0%) of the
amount by which the Company increases the Option Pool, rounded to the
nearest whole share.
(iii) Other Terms of Stock Option to be Granted to Employee.
The exercise price, vesting schedule and other terms of any stock option
granted to Employee under the Option Plan shall be substantially similar
to the terms of any other contemporaneously granted stock option under
the Option Plan, provided, however, that any stock option granted to
Employee shall
<PAGE>
(A) not have an exercise price less than the fair
market value of the Common Stock at the time of grant;
(B) to the extent the stock option has an escalating
exercise price or a fixed exercise price in excess of the then fair
market value of the Common Stock, reflect an annual percentage
increase of not greater than the then current yield to maturity of the
most recently auctioned 5-year U.S. Treasury Notes, as reported
in the Wall Street Journal on the business day immediately
preceding the date of grant;
(C) vest over a period of not more than four years
from the date of grant;
(D) provide that if Employee's employment is
terminated by the Company other than for cause (as defined in
Section 5 of this Agreement), the stock option will continue to be
exercisable until such date as the stock option would have expired
if Employee had continued to be employed by the Company;
(E) provide that upon a Change in Control (as defined
in subsection (b) of this Section 4), any stock option then
outstanding shall become fully exercisable; and
(F) provide that if Employee's employment is
terminated by the Company for cause (as defined in Section 5 of
this Agreement), the stock option will terminate, to the extent not
previously exercised, as of the effective date of the termination of
Employee's employment.
(d) Registration of Common Stock. At any time during the
term of this Agreement after the Company becomes eligible to file with the SEC
under the Securities Act of 1933, as amended (the "Securities Act"), a
registration statement on Form S-8 (or any successor form applicable to stock
issued to employees) , the Company shall use all reasonable efforts to register
any subsequent issuance of shares of Restricted Stock and shares of Common
Stock ("Option Shares") that may be issued upon Employee's exercise of an
option granted under the Option Plan. With respect to any shares of Restricted
Stock and Option Shares issued by the Company without registration under the
Securities Act, at any time during the term of this Agreement after the
Company becomes eligible to file with the SEC under the Securities Act a
registration statement on Form S-3 (or any successor form applicable to
secondary offerings) Employee may request the Company, in writing, to effect
the registration of such Restricted Stock and Option Shares. Thereupon, the
Company shall use all reasonable efforts to effect the registration, as
expeditiously as possible, on Form S-3, or such successor form, of all shares
which the Company has been requested to register. The provisions of this
subsection (d) shall not apply to any shares of Common Stock which may be
sold by Employee to the public immediately
<PAGE>
without registration, including shares of Common Stock which may be sold
within a period of 90 days under Rule 144 (or any successor regulation thereto)
promulgated under the Securities Act.
(e) Other Fringe Benefits. At all times during the term of this
Agreement, Employee shall be entitled to the fringe benefits set forth on
Exhibit A to this Agreement, together with such other benefits as may from time
to time be provided generally to executive officers of the Company.
4. Certain Covenants of Employee
(a) Confidential Information. Employee agrees that all
information pertaining to the prior, current or contemplated businesses of the
Company and its subsidiaries and affiliates (excluding (i) publicly available
information in substantially the form in which it is publicly available, unless
such information becomes publicly available through unauthorized disclosure
by Employee, and (ii) information of a general nature not pertaining exclusively
to the Company which would be generally acquired in similar employment with
another company) constitutes a valuable and confidential asset of the Company
and is the exclusive property of the Company. Such information includes,
without limitation, information related to trade secrets, business strategies,
customer lists, loan portfolios, financing techniques, financing sources and
financial statements of the Company or any affiliate or subsidiary. Employee
shall hold all such information in trust and confidence for the Company and
shall not, except as required by applicable law, use or disclose any such
information other than for the Company's business, either during his term of
employment or thereafter, without the prior written consent of the Company.
(b) Nonsolicitation of Employees. Except as otherwise
provided in this subsection (b), at all times during the term of this Agreement
and for a period of eighteen (18) months thereafter, Employee shall not,
directly or indirectly, employ, attempt to employ, recruit or otherwise solicit,
induce, aid or influence any management employee of the Company or any of
its subsidiaries or affiliates, having a position of senior vice president or
any more senior position, to terminate his or her employment with the Company or
any of its subsidiaries or affiliates. During the period that this subsection
(b) applies, Employee shall inform any prospective employer of Employee's
covenants and obligations under this subsection (b). If (i) Employee
terminates his employment hereunder for cause or (ii) the Company terminates
Employee's employment hereunder without cause, this subsection (b) shall apply
for the period during which payments are made under Section 6(d) or 6(e) of this
Agreement, as the case may be. In the event that this Agreement expires
without renewal pursuant to notice of non-renewal given by the Company, this
subsection (b) shall apply for the period during which payments are made under
Section 6(f) of this Agreement.
(c) Non-Competition. Except as otherwise provided in this
subsection (c), at all times during the term of this Agreement and for a period
of eighteen (18) months thereafter, Employee shall not, directly or indirectly,
<PAGE>
(i) as an individual proprietor, partner, stockholder, director,
officer, employee, joint venturer, agent, consultant, lender or in any
other capacity whatsoever (other than as a holder of less than two (2)
percent of any class of publicly traded equity securities) participate in
or engage in any business comparable to the business of the Company or any
of its subsidiaries, which endeavor derives a majority of its revenue from
its business within the state of California; or
(ii) solicit, aid or encourage any person or entity who was a
customer or potential customer of the Company or any of its subsidiaries,
and about whom Employee gained a significant understanding during the
period of his employment hereunder, to terminate such customer's
relationship with the Company or any of its subsidiaries or to
conduct with any other person or entity any business or
activity which such customer then conducts or could
conduct with the Company or any of its subsidiaries.
During the period that this subsection (c) applies, Employee shall inform any
prospective employer of Employee's covenants and obligations under this
subsection (c). If (i) Employee terminates his employment hereunder for cause
or (ii) the Company terminates Employee's employment hereunder without
cause, this subsection (c) shall apply only for the period during which payments
are made under Section 6(d) or 6(e) of this Agreement, as the case may be. In
the event that this Agreement expires without renewal pursuant to notice of
non-renewal given by the Company, this subsection (c) shall apply only for the
period during which payments are made under Section 6(f) of this Agreement.
5. Termination of Employment. Notwithstanding the provisions of
Section 1 hereof, Employee's employment hereunder shall terminate under the
following circumstances:
(a) Disability. The Company may, upon not less than ten (10)
days notice, terminate Employee's employment if Employee is disabled (as
hereinafter defined). For purposes of this Agreement, Employee shall be
deemed to be disabled if, as a result of any illness, injury, accident or
condition of either a physical or psychological nature, Employee has been unable
to perform, in all material respects, all of his duties and responsibilities
hereunder for thirteen (13) weeks out of six (6) consecutive months and such
disability thereafter can reasonably be expected to continue to render Employee
unable to perform, in all material respects, all of his duties and
responsibilities hereunder indefinitely. The determination of whether Employee
is disabled shall be made in good faith by the Board of Directors of the Company
based upon medical examinations by a physician or physicians reasonably
acceptable to the Company and Employee. Employee agrees to submit to medical
examinations to determine whether he is disabled pursuant to reasonable
requests the Company may make from time to time.
(b) Termination by the Company for Cause. The Company
may terminate Employee's employment hereunder for cause (as hereinafter
defined), effective immediately, upon a vote of the Board of Directors of the
Company taken after ten (10) days notice to Employee
<PAGE>
setting forth in reasonable detail the nature of such cause. A vote of not less
than two-thirds of all the members of the Board of Directors shall be required
in the event of a termination for cause as specified in clause (v) of this
subsection (b); in all other cases under this subsection (b), a vote of a
majority of all of the members of the Board of Directors shall be required.
Only the following shall constitute "cause" for termination under this
subsection (b):
(i) The conviction of Employee by a court of competent
jurisdiction of any criminal offense involving dishonesty, breach of trust
or misappropriation, or the entering of a plea by Employee of nolo
contendere to such an offense;
(ii) The commission by Employee of an act of fraud,
embezzlement, theft, or the like;
(iii) A willful violation of any law, rule or regulation
governing the operation of the Company or any of its subsidiaries or
affiliates or the insurance of deposits held by a subsidiary of the
Company (A) which is a felony or misdemeanor, or (B) which the Board
of Directors of the Company determines in good faith will likely have or
has had a material harmful effect on the Company and its subsidiaries
taken as a whole;
(iv) A material breach by Employee of this Agreement or a
willful refusal to perform the duties reasonably assigned to him by the
Board of Directors of the Company in accordance with the custom and
practices of the Company, which breach or refusal continues for more
than ten (10) days after notice given to Employee pursuant to a vote of
the Board of Directors of the Company, such notice and vote to set forth
in reasonable detail the nature of such breach or refusal;
(v) A failure by Employee to perform the duties reasonably
assigned to him by the Board of Directors of the Company in accordance
with the custom and practice of the Company at a level of performance
reasonably satisfactory to the Board of Directors of the Company (such
level of performance to be determined in good faith by such Board of
Directors taking into account standards prevailing in comparable banking
institutions based in California), which failure continues for more than
sixty (60) days after notice given to Employee pursuant to a vote of not
less than two-thirds of all members of the Board of Directors of the
Company, such notice and vote to set forth in reasonable detail the nature
of such failure; or
(vi) The willful and unauthorized disclosure of material
confidential information in breach of Section 4 of this Agreement, which
disclosure the Board of Directors of the Company determines in good
faith will likely have or has had a material harmful effect on the Company
or any of its subsidiaries or affiliates.
<PAGE>
In the event of a vote by the Board of Directors of the Company pursuant to
this Section 5(b), including any vote to give notice pursuant to Section
5(b)(iv) or (v), Employee shall not be entitled to vote, and in determining
whether the requisite percentage of the Board of Directors has voted for
purposes of this Agreement, Employee's membership on such Board shall not be
counted.
(c) Termination by Employee for Cause. Employee may
terminate his employment hereunder for cause upon not less than ten (10) days
notice to the Company setting forth in reasonable detail the nature of such
cause, provided, however, that if (X) before the expiration of such ten (10) day
period the Company shall begin to cure such cause and shall notify Employee
of its intent to cure, and (Y) the Company does in fact cure such cause within
twenty(20) days after its receipt of the original notice from Employee, no cause
shall be deemed to have existed. Only the following shall constitute "cause"
for termination under this subsection (c):
(i) The failure of the Company to continue to employ
Employee as its senior most executive officer during the term of this
Agreement, or the completion of a transaction or series of transactions
which result in the Company becoming a majority-owned subsidiary of
another company, if, within thirty (30) days thereafter, the ultimate
parent company of which the Company is a direct or indirect majority-owned
subsidiary has not assumed the Company's obligations under this
Agreement and elected Employee to serve as its senior most executive
officer;
(ii) A material change by the Company, without Employee's
prior consent, in the nature or scope of Employee's responsibilities,
title, authorities, powers, functions or duties from the responsibilities,
title, authorities, powers, functions or duties normally exercised by an
executive in the positions of President and Chief Executive Officer of a
company generally comparable to the Company (including, without
limitation, the failure to be reelected as a director of the Company or of
any subsidiary which is a depository institution or a "significant
subsidiary" of the Company (as defined in Section 2(b) hereof), provided
Employee is otherwise eligible) or a change, without Employee's prior
consent, in the place of Employee's principal office to a location outside
of California or, within the Company's principal office, to a location
intended to separate Employee significantly from other executive officers
of the Company; and
(iii) A material breach by the Company of this Agreement.
6. Payments Upon Termination of Employment
(a) Death. If Employee dies during the term of this
Agreement, in addition to all other benefits to which he or his personal
representative(s) may be entitled, the Company shall pay to his designated
beneficiary or, if no such beneficiary exists, to his estate, that portion of
his Base Salary that is accrued and unpaid through and including the date of
death.
<PAGE>
(b) Disability. If during the term of this Agreement the
Company terminates Employee's employment because Employee is disabled
within the meaning of Section 5(a) hereof, upon such termination Employee
shall receive that portion of his Base Salary and any benefits that are accrued
and unpaid through and including the date of termination of employment. In
the absence of a long-term disability benefit plan under which Employee is
eligible for coverage, the Company shall pay to Employee benefits at the rate
of sixty percent (60%) per annum of his then Base Salary (payable as provided
in Section 3(a) hereof), commencing upon termination of Employee's
employment pursuant to Section 5(a) hereof and continuing until Employee
reaches age sixty-five (65); provided, however, that, except as provided in the
next following sentence, any disability benefits payable under this Section 6(b)
shall be subject to any cap on benefits then applicable under any long-term
disability plan in effect covering executive officers of the Company generally
as of the date of such termination or, if no such plan is then in effect, under
the plan that was most recently in effect, if any. Notwithstanding the
immediately preceding sentence, in no event shall the applicable rate for
long-term disability payments be less than fifty percent (50%) per annum of
Employee's then Base Salary. In addition, all warrants and options to purchase
common stock of the Company theretofore granted to Employee shall immediately
become fully vested and exercisable, notwithstanding any existing or
hereafter-enacted provision to the contrary in any warrant or option plan under
which the same were granted.
(c) Termination by the Company for Cause. If during the term
of this Agreement, the Company terminates Employee's employment for cause,
Employee shall be entitled to receive from the Company that portion of his Base
Salary that is accrued and unpaid through and including the date of such
termination, and the Company shall have no further obligation to Employee
hereunder, except any obligation under any benefit plan in which Employee is
then a participant.
(d) Termination by Employee for Cause. If during the term of
this Agreement Employee terminates his employment for cause, Employee shall
have no further obligation to the Company except his obligations under Section
4 hereof and shall be entitled to all of the payments and benefits to the extent
specified in Section 6(e) hereof.
(e) Termination by the Company without Cause. Subject to the
foregoing provisions of this Section 6, if during the term of this Agreement the
Company terminates Employee's employment without cause, then in such case:
(i) The Company shall continue to pay to Employee, or to
Employee's personal representative(s) in the case of his subsequent death,
Employee's Base Salary for a period equal to the greater of (A) the
remainder of the Initial Term or (B) eighteen (18) months, less the
number of days elapsed from the notice of non-renewal, if any, given by
the Company or Employee, which payments shall be made in installments
as provided in Section 3(a) hereof;
<PAGE>
(ii) All warrants and options to purchase common stock of the
Company theretofore granted to Employee, including, without limitation,
any stock option granted under the Option Plan, shall immediately
become fully vested and exercisable, notwithstanding any existing or
hereafter-enacted provision to the contrary in any warrant or option plan
under which the same were granted;
(iii) The Company shall, during the period it is obligated to
continue payments under paragraph (i) of this subsection (e), maintain in
effect for Employee, to the extent described below, all group insurance
(including life, health, accident and disability insurance) and all other
employee benefit plans, programs or arrangements (but excluding
qualified retirement plans) in which Employee was participating
immediately preceding such termination, with the cost of the same paid
or shared to the same extent as paid or shared from time to time with
respect to other senior executive officers of the Company; provided,
however, that in the event that prior to the expiration of such period
Employee accepts similar employment elsewhere with substantially
similar benefits, Employee shall be entitled to such benefits only through
the date of such new employment;
(iv) All insurance or other provisions for indemnification and
defense of officers or directors of the Company which are in effect on the
date of termination of Employee's employment hereunder shall continue
for the benefit of Employee with respect to all of his acts or omissions
while an officer or director, as fully and completely as if such
termination had not occurred, until the final expiration or running of all
periods of limitation for actions which may be applicable to such acts or
omissions;
(v) Without further action by the Company, Employee shall
receive, beginning at age sixty-five (65), payments from the Company
equal to the excess, if any, of (A) the monthly amount to which
Employee would have been entitled, had Employee been employed by the
Company for three (3) years, as a supplemental retirement benefit under
any supplemental retirement benefit arrangement in effect for Employee,
over (B) any amounts actually payable to Employee under such
arrangement, which payments by the Company shall be made at the same
times, for the same duration and in the same manner as any benefits
payable under any such arrangement.
In the event that Employee's participation in any of the foregoing plans,
programs or arrangements contemplated by this subsection (e) is discontinued
or the benefits thereunder are materially reduced during such period, the
Company shall provide Employee with benefits substantially similar to those to
which Employee was entitled immediately prior to the date of his termination
of employment, to the extent and for the periods specified in this subsection
(e). Upon expiration of the period of coverage provided hereunder, Employee
shall be provided with the opportunity to have assigned to him at no cost and
with no apportionment of prepaid premiums any assignable insurance owned by the
Company or any of its subsidiaries and relating specifically to Employee.
<PAGE>
(f) Expiration of Term Without Renewal. If this Agreement
expires without renewal pursuant to notice of non-renewal given by the
Company as provided by Section 1 hereof, (i) the Company shall pay to
Employee, together with any compensation and benefits then accrued but
remaining unpaid (whether with respect to vacation benefits or otherwise), an
amount equal to six (6) months of the Base Salary (payable in installments as
provided in Section 3(a) hereof commencing on the date of expiration), and (ii)
all benefits to which Employee was entitled as of the termination of his
employment shall continue in effect, with the cost of the same paid or shared
to the same extent as paid or shared from time to time with respect to other
senior executive officers of the Company, for six (6) months following such
expiration. If any such benefit plan, program or arrangement is discontinued
or the benefits thereunder are materially reduced during the period set forth in
Clause (ii), the Company shall provide Employee with benefits substantially
similar to those to which Employee was entitled immediately prior to the date
of his termination of employment, to the extent and for the periods specified in
this subsection (f).
(g) Mitigation. If Employee provides services for pay
(including as an independent consultant or independent contractor, but not
including board membership approved by the Board of Directors under Section
2(a) hereof prior to Employee's termination of employment) to anyone other
than the Company during any period in which Employee is receiving payments
from the Company pursuant to subsection 6(b), (d), (e) or (f) hereof, payments
to Employee by the Company shall be reduced by the amounts earned by
Employee during such period as a result of his performing such other services.
Employee agrees promptly to notify the Company of any arrangement during
a period in which he is receiving the aforementioned payments from the
Company and to cooperate fully with the Company in determining the amount
of any such reduction and to repay to the Company any amounts previously
paid to Employee if required by the terms of the previous sentence. Employee
shall have no duty to mitigate the amount of any payments to which he is
entitled pursuant to subsections (b), (d), (e) or (f) of this Section 6 by
seeking employment or otherwise.
(h) Section 280G Reduction
(i) General. Notwithstanding any other provision of
this Section 6, this subsection (h) shall govern the amount of Agreement
Payments (as hereinafter defined), if any, to which Employee shall be
entitled and which are contingent upon a change in ownership or control
of the Company for purposes of Section 280G and Section 4999 of the
Code.
(ii) Certain Definitions. For purposes of this subsection (h),
(A) "Payment" shall mean any payment, distribution
or other benefit in the nature of compensation to or for the benefit
of Employee, whether paid or payable pursuant to this Agreement,
the Option Plan or otherwise;
<PAGE>
(B) "Agreement Payment" shall mean any payment,
distribution or other benefit in the nature of compensation to or for
the benefit of Employee paid or payable pursuant to this
Agreement, including, without limitation, the acceleration of
vesting of shares of Restricted Stock or stock options granted
pursuant to the Option Plan;
(C) "Present Value" shall mean such value
determined in accordance with Section 280G(d)(4) of the Code;
(D) "Net After Tax Receipt" shall mean the Present
Value of all Payments net of all taxes imposed on Employee with
respect thereto under Sections 1 and 4999 of the Code determined
by applying the highest marginal rate, which in the opinion of
Accounting Firm (as hereinafter defined), is most likely to apply to
such Payment; and
(E) "Reduced Amount" shall mean the amount of
Payments which contains the smallest aggregate amount of
Agreement Payments and which amount (X) is less than the sum of
all Payments and (Y) results in aggregate Net After Tax Receipts
which are equal to or greater than the Net After Tax Receipts
which would result if the aggregate Payments were any other
amount less than the sum of all Payments.
(iii) Determination of Net After Tax Receipts. Promptly
following the termination of the employment of Employee, Company
shall engage an internationally recognized certified public accounting firm
mutually acceptable to the Company and Employee ("Accounting Firm")
to determine whether the receipt of all Payments would subject Employee
to tax under Section 4999 of the Code, and if so, whether some lesser
amount of Payments would meet the definition of a "Reduced Amount."
If Accounting Firm determines that there is a Reduced Amount, the
aggregate Agreement Payments shall be reduced so the total Payments
equal such Reduced Amount. Agreement Payments shall be eliminated
or reduced in the inverse order in which they are to be made, with any
reduction first being applied to Agreement Payments which Employee is
entitled to receive last following the effective date of the termination of
his employment. All determinations made by Accounting Firm under this
Agreement shall be made within ninety (90) days after the termination of
the employment of Employee and shall be binding upon the Company and
Employee.
(iv) Composition and Payment of Reduced Amount. If
Accounting Firm determines that the aggregate Agreement Payment(s)
should be reduced to the Reduced Amount, the Company shall promptly
give Employee notice to that effect and a copy of the detailed calculation
thereof, and Employee may then elect, in his sole discretion, consistent
with the requirements of clause (iii) of this subsection (h), the nature
(but not
<PAGE>
the timing) of the Agreement Payments to be eliminated or reduced (as
long as after such election, the Present Value of the aggregate Payments
equals the Reduced Amount), and shall advise the Company in writing of
his election within ten (10) days after his receipt of notice. If no such
election is made by Employee within such period, the Company may
elect, consistent with the requirements of clause (iii) of this subsection
(h), which of the Agreement Payments shall be eliminated or reduced (as
long as after such election the Present Value of the aggregate Payments
equals the Reduced Amount) and shall notify Employee promptly of such
election. As promptly as practicable following such determination, the
Company shall pay to or distribute for the benefit of Employee such
Payments as are then due to Employee and shall promptly pay to or
distribute for the benefit of Employee in the future such Payments as
become due to Employee, in each case to the extent the Agreement
Payments are reduced by this subsection (h).
(v) Adjustments. While it is the intention of the Company
and Employee to reduce the Agreement Payments payable or distributable
to Employee only if the aggregate Net After Tax Receipts to Employee
would thereby be increased, because of the uncertainty in the application
of Section 280G and Section 4999 of the Code at the time of the initial
determination by Accounting Firm hereunder, it is possible that amounts
will have been paid or distributed by the Company to or for the benefit
of Employee which, because of the terms of this subsection (h), should
not have been so paid or distributed (an "Overpayment"), or that
additional amounts, which will have not been paid or distributed by the
Company to or for the benefit of Employee because of the terms of this
subsection (h), could have been so paid or distributed (an
"Underpayment"), in each case, consistent with the calculation of the
Reduced Amount hereunder. If Accounting Firm, based either upon the
assertion of a deficiency by the Internal Revenue Service against the
Company or Employee, which assertion Accounting Firm believes has a
high probability of success, or controlling precedent or other substantial
authority, determines that an Overpayment has been made, any such
Overpayment paid or distributed by the Company to or for the benefit of
Employee shall be treated for all purposes as a loan ab initio to Employee
which Employee shall repay to the Company in not more than six
approximately equal semi-annual installments, together with interest at the
applicable federal rate provided for in Section 7872(f)(2) of the Code;
provided, however, that no such loan shall be deemed to have been made
and no amount shall be payable by Employee to the Company if and to
the extent such deemed loan and payment would not either reduce the
amount on which Employee is subject to tax under Section 1 and
Section 4999 of the Code or generate a refund of such taxes. If
Accounting Firm, based upon controlling precedent or other substantial
authority, determines that an Underpayment has occurred, any such
Underpayment shall be promptly paid by the Company to or for the
benefit of Employee together with interest at the applicable federal rate
provided for in Section 7872(f)(2) of the Code.
<PAGE>
7. Miscellaneous
(a) Notices. Any notice, request, demand or other
communication provided for by this Agreement shall be in writing and may be
delivered in person or sent, postage paid, by registered or certified mail, or
by a recognized overnight courier or by facsimile (with a confirmation copy sent
by a recognized overnight delivery service) to Employee at the last address
Employee has filed in writing with the Company or, in the case of the
Company, to the Chairman of the Committee. All such communications shall
be deemed given upon receipt. Any party may by written notice to the other
party change the address to which notices to it or him are to be addressed
hereunder.
(b) Indemnification. The Company agrees to indemnify
Employee against all liabilities and expenses, including amounts paid in
satisfaction of judgments, in compromise or as fines and penalties, and counsel
fees, reasonably incurred by him in connection with the defense or disposition
of any action, suit or other proceeding, whether civil or criminal, in which he
may be involved or with which he may be threatened, during his employment
by the Company or its successors or thereafter by reason of serving or having
served as an officer or director of the Company or any of its subsidiaries or
affiliates, or at its request as a director or officer of any organization in
which the Company directly or indirectly owns shares or of which it is directly
or indirectly a creditor, or at the request of the Company or any of its
subsidiaries in any capacity with respect to any employment plan, all to the
maximum extent permitted under applicable law.
(c) No Restrictions. Employee hereby represents and warrants
that he is not subject to any agreement, restriction, lien or encumbrance of any
type limiting in any way his ability to perform his obligations under this
Agreement or in any way inconsistent with this Agreement.
(d) Withholding. The Company shall have the right to deduct
and withhold from all payments made to Employee or any beneficiary
hereunder any taxes required by law to be withheld with respect to such
payments. In the case of any FICA or Medicare taxes that may be due prior to
the payment of any amount hereunder, the Company shall have the right to
deduct or withhold the same from other compensation payable to Employee, or
if there is no such compensation, by reducing other payments due to Employee
by the amount of such FICA or Medicare taxes and any income tax withholding
required in connection with such reduction.
(e) Assignment; Successors. This Agreement is personal in
nature and none of the parties hereto shall, without the consent of the others,
assign or transfer this Agreement or any rights or obligations hereunder except
as otherwise expressly permitted by this Section 7(e). This Agreement shall be
binding upon the Company's successors, permitted assigns and administrators.
Prior to the completion of the "SDN Merger," as such term is defined in the
Agreement and Plan of Reorganization dated as of April 23, 1996 (the
"Reorganization Agreement") between the Company and Commerce Security
Bank, the Company shall cause
<PAGE>
Holdco (as defined in the Reorganization Agreement) to ratify and assume this
Agreement effective as of the Effective Time (as defined in the "Reorganization
Agreement"), whereupon references in this Agreement to "the Company" and
"Common Stock" shall be deemed to refer to Holdco and Holdco common
stock, respectively. If after the Effective Time, Holdco merges into or becomes
a subsidiary of any other company (or if the SDN Merger is not consummated
and the Company merges into or becomes a subsidiary of any other company),
the Company shall use its best efforts to cause the Company's obligations with
respect to the issuance of the Restricted Stock and stock options under the
Option Plan, as set forth in Section 4 of this Agreement, to be assumed by the
parent company that owns, directly or indirectly through one or more
intermediates, more than fifty percent (50.0%) of the outstanding voting
securities of the Company or in the case of a merger of the Company into
another entity, the surviving company, and upon such assumption, all
references in this Agreement to "Common Stock" shall be deemed to mean the
common stock of such parent company.
(f) Survival. Except as otherwise provided in this Agreement,
upon the termination of this Agreement, the obligations of the Company and
Employee contained in Sections 4 and 6 and subsection (b) of this Section 7
shall continue in effect in accordance with their terms, such Sections and
subsections containing independent agreements and obligations.
(g) Enforcement. The agreements of Employee contained in
Section 4 hereof are of a special, unique and extraordinary character, and the
obligations of Employee set forth therein shall therefore be enforceable both at
law and in equity, by injunction or otherwise. The rights and remedies of the
parties hereunder shall be cumulative and not alternative and shall not be
exhausted by any one or more uses thereof.
(h) Severability. The provisions of this Agreement shall be
deemed severable. If any provision of this Agreement is unenforceable or
illegal in any respect, the remainder shall remain in full force and effect.
If any one or more of the provisions contained in this Agreement shall for any
reason be held to be excessively broad as to duration, geographical scope,
activity or subject, such provision shall be construed by limiting and reducing
it so as to be enforceable to the maximum extent compatible with applicable law.
(i) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.
(j) Entire Agreement. This Agreement constitutes the entire
Agreement between the parties as to the subject matter contained herein and
may not be changed except by a writing duly executed and delivered by the
parties hereto.
[Remainder of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the date first above written.
CORPORATE SDN BANCORP, INC.
SEAL
Attest:
By
Michael K. Krebs K. Thomas Kemp
Secretary Chairman, Compensation Committee
Witness:
Robert P. Keller, Employee
<PAGE>
Exhibit A to Employment Agreement
By and Between SDN Bancorp, Inc.
and Robert P. Keller
Dated as of October 1, 1995
1. Vacation. Employee shall be entitled to at least four weeks paid
vacation in each calendar year during the term of the Agreement. Up to two
weeks of unused vacation time may be carried over for one year, but (i) any
time so carried over shall expire at the end of the year subsequent to the year
in which the time was earned, and (ii) Employee may not take more than five
weeks vacation during any calendar year without the specific approval of the
Board of Directors of the Company. Employee shall also be entitled to all paid
holidays recognized by the Company.
2. General Reimbursement. Employee shall be entitled to
reimbursement for any expenses which are reasonable and necessary to the
conduct of the Company's business incurred by him as a result of or in
connection with his employment by the Company and which are properly
deductible by the Company under the Code. Reimbursement of such expenses
shall be subject to periodic review by the Company's Audit Committee.
Employee shall maintain adequate records of all reimbursable expenses
necessary to satisfy any reporting requirements of the Code and applicable
Treasury regulations.
3. Insurance and Other Benefit Plans. Employee shall be entitled to
participate in the Company's hospitalization, medical, dental, group-term life,
travel accident, short- and long-term disability and other similar insurance
plans generally available to the Company's senior management from time to time,
the expense of the same to be paid by the Company to the same extent it is paid
on behalf of other senior management employees. The Company shall use its best
efforts to maintain in full force and effect during the term of the Agreement
long-term disability insurance coverage with respect to Employee providing for
benefit payments in the event Employee becomes totally disabled at a rate not
less than fifty percent (50%) per annum of Employee's then current Base
Salary.
4. Retirement Benefits. The Company shall provide to Employee, at
the Company's sole expense, a supplemental retirement program providing for
annual retirement benefits through a non-qualified, unfunded arrangement,
calculated, subject to the provisions of Section 6(e)(v) of this Agreement, as
follows: (i) after completion of one year of service during the term of this
Agreement, Employee shall be entitled to receive annual retirement payments
under this Agreement equal to five percent (5.0%) of Employee's Average Base
Salary (as hereinafter defined); and (ii) for each additional year of service
during the term of this Agreement, the applicable percentage shall increase by
an additional five hundred (500) basis points up to a maximum of thirty-five
percent (35.0%) of Employee's Average Base Salary after seven years. The
supplemental retirement benefit will accrue and vest annually. The term
"Average Base
<PAGE>
Salary" means the average of the two highest Base Salaries received by
Employee under this Agreement. The supplemental retirement benefit shall be
paid monthly in arrears for ten (10) years commencing upon the earlier to occur
of (i) Employee's attainment of age sixty-five (65) or retirement from the
Company, whichever is later, and (ii) Employee's death. The monthly
supplemental retirement benefit will be reduced by the monthly amount of
benefits which would be received by Employee on the basis of a ten-year
certain payment from any contributions made by the Company to a qualified
retirement plan on behalf of Employee. For example, after completing three
(3) years of service with the Company, Employee will be entitled to receive an
annual supplemental retirement payment, payable monthly commencing at the
time specified above, equal to fifteen percent (15.0%) of Employee's then
Average Base Salary, less the monthly payments that would be received from
a ten-year certain annuity purchased at the time of commencement of the annual
supplemental retirement payment with the qualified retirement plan
contributions made by the Company on behalf of Employee. If Employee dies
before retirement, such monthly payments shall be made to Employee's
designated beneficiary. Similarly, any such payments remaining at Employee's
death shall be paid to his designated beneficiary. A lump sum payment of the
present value of future payments under the supplemental retirement program
may be made upon Employee's retirement or death with the mutual consent of
the Company and Employee or his designated beneficiary.
The supplemental retirement program incorporated herein constitutes a
mere promise by the Company to make payments in the future, and the rights
of Employee hereunder shall be those of a general unsecured creditor of the
Company. The supplemental retirement benefit provided hereby is granted by
the Company as a fringe benefit to Employee and is not part of any salary
reduction plan or any arrangement deferring a bonus or a salary increase, and
Employee has no option to take any current payment or bonus in lieu of the
supplemental retirement benefit. No amount payable with respect to the
supplemental retirement benefit shall be considered compensation of Employee
for purposes of any other benefit plan or program of the Company. No rights
of Employee to payment of the supplemental retirement benefit may be subject
in any way to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, attachment or garnishment by creditors of Employee or any
beneficiary.
Nothing contained herein shall be construed to create a trust of any kind
or to render the Company a fiduciary with respect to Employee. The Company
shall not be required to maintain any fund or segregate any amount, purchase
any insurance contract or in any other way currently fund the future payment
of any supplemental retirement benefit, and nothing contained herein shall be
construed to give Employee or any other person any right to any specific assets
of the Company or of any other person. The supplemental retirement benefit
provided hereunder shall be paid solely from the general assets of the
Company.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 30313
<INT-BEARING-DEPOSITS> 1234
<FED-FUNDS-SOLD> 25800
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 25291
<INVESTMENTS-CARRYING> 22932
<INVESTMENTS-MARKET> 22798
<LOANS> 253741
<ALLOWANCE> 5003
<TOTAL-ASSETS> 436391
<DEPOSITS> 386640
<SHORT-TERM> 0
<LIABILITIES-OTHER> 10090
<LONG-TERM> 537
0
0
<COMMON> 98
<OTHER-SE> 39026
<TOTAL-LIABILITIES-AND-EQUITY> 436391
<INTEREST-LOAN> 8762
<INTEREST-INVEST> 1894
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<INTEREST-TOTAL> 10656
<INTEREST-DEPOSIT> 4226
<INTEREST-EXPENSE> 4282
<INTEREST-INCOME-NET> 6374
<LOAN-LOSSES> 217
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 7986
<INCOME-PRETAX> 677
<INCOME-PRE-EXTRAORDINARY> 677
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 450
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
<YIELD-ACTUAL> 4.26
<LOANS-NON> 7671
<LOANS-PAST> 658
<LOANS-TROUBLED> 1861
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2531
<CHARGE-OFFS> 383
<RECOVERIES> 161
<ALLOWANCE-CLOSE> 5003
<ALLOWANCE-DOMESTIC> 5003
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
