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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Year ended DECEMBER 31, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
COMMISSION FILE NUMBER 0-25418
CENTRAL COAST BANCORP
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(Exact name of registrant as specified in its charter)
STATE OF CALIFORNIA 77-0367061
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
301 Main Street, Salinas, California 93901
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (408) 422-6642
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
Common Stock None
(no par value)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes __X__ No _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ].
The aggregate market value of the voting stock held by non-affiliates of the
registrant at February 28, 1997 was $65,163,000. As of February 28, 1997,
the registrant had 2,864,298 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference into this Form 10-K:
Part III, Items 10 through 13 from registrant's definitive proxy statement for
the 1997 annual meeting of shareholders.
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PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS.
Certain matters discussed or incorporated by reference in this Annual
Report on Form 10-K including, but not limited to, matters described in Item 7
- - "Management's Discussion and Analysis of Financial Condition and Results of
Operations," are forward-looking statements that are subject to risks and
uncertainties that could cause actual results to differ materially from those
projected. Changes to such risks and uncertainties, which could impact future
financial performance, include, among others, (1) competitive pressures in the
banking industry; (2) changes in the interest rate environment; (3) general
economic conditions, nationally, regionally and in operating market areas; (4)
changes in the regulatory environment; (5) changes in business conditions and
inflation; and (6) changes in securities markets. Therefore, the information
set forth therein should be carefully considered when evaluating the business
prospects of the Company and the Banks.
Central Coast Bancorp (the "Company") is a California corporation
organized in 1994 to act as the bank holding company of Bank of Salinas, a
state-chartered bank (the "Bank"), which has served individuals, merchants,
small and medium-sized businesses, professionals and agribusiness enterprises
located in and adjacent to Salinas, California since February 1, 1983.
On May 31, 1996, the Company aquired Cypress Coast Bank ("Cypress"),
whereby Cypress became a subsidiary of the Company and continues to operate
from its branches in Seaside and Marina, California. Under the terms of the
Agreement the shareholders of Cypress received 534,310 shares of common stock
of the Company in a tax-free exchange. At May 31, 1996, Cypress had unaudited
total assets of $46.9 million, including $29.8 million in loans and total
unaudited liabilities of $42.7 million, including $42.5 million in deposits.
The transaction has been accounted for as a pooling-of-interests. Subsequent
to the pooling, the name of Cypress Coast Bank was changed to Cypress Bank.
Cypress Bank is a state chartered bank engaged in the general
commercial banking business primarily serving businesses, professionals and
wage earners in the Seaside, Marina and adjoining communities.
Other than holding the shares of the subsidiary Banks, the Company
conducts no significant activities. Although it is authorized, with the prior
approval of the Board of Governors of the Federal Reserve System (the "Board of
Governors"), the Company's principal regulator, to engage in a variety of
activities which are deemed closely related to the business of banking.
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The Banks operate through their headquarter offices located in Salinas
and Seaside, California and through their branch offices located in King City
and Marina, California. The Banks offer a full range of commercial banking
services, including the acceptance of demand, savings and time deposits, and
the making of commercial, real estate (including residential mortgage), Small
Business Administration, personal, home improvement, automobile and other
installment and term loans. They also offer travelers' checks, safe deposit
boxes, notary public, customer courier and other customary bank services. The
Bank of Salinas King City and Salinas Offices and the Cypress Bank Seaside and
Marina Offices are open from 9:00 a.m. to 5:00 p.m., Monday through Thursday,
and 9:00 a.m. to 6:00 p.m. on Friday. The Bank of Salinas also operates a
limited service facility in a retirement home located in Salinas, California.
The facility is open from 10:00 a.m. to 12:00 p.m. on Wednesday of each week.
The Banks have automated teller machines (ATMs) located at the King City,
Marina and Seaside offices, the Monterey County Fairgrounds, the Soledad
Correctional Training Facility Credit Union, Salinas Valley Memorial Hospital
and Fort Hunter Liggett which is located in Jolon, California. The Banks are
insured under the Federal Deposit Insurance Act and each depositor's account is
insured up to the legal limits thereon. The Banks are chartered (licensed) by
the California State Superintendent of Banks ("Superintendent") and have chosen
not to become a member of the Federal Reserve System. The Banks have no
subsidiaries.
In October 1996, the Bank of Salinas entered into a definitive
agreement to purchase certain assets and assume certain liabilities of the
Gonzales and Castroville branch offices of Wells Fargo Bank outstanding as of
the close of business on February 21, 1997. As a result of the transaction the
Bank will assume deposit liabilities, receive cash, and acquire tangible assets.
This transaction will result in intangible assets, representing the excess of
the liabilities assumed over the fair value of the tangible assets acquired.
The Banks also currently offer personal and business Visa credit
cards. The Banks have arranged with a correspondent institution to offer trust
services to the Banks' customers on request. The Banks operate an on-site
computer system which provides independent processing of the Banks' deposits,
loans and financial accounting.
The three areas in which the Banks have directed virtually all of
their lending activities are: (i) commercial loans; (ii) consumer loans; and
(iii) real estate loans (including residential construction and mortgage
loans). As of December 31, 1996, these three categories accounted for
approximately 46 percent, 4 percent and 50 percent, respectively, of the
Banks' loan portfolio.
The Banks' deposits are attracted primarily from individuals,
merchants, small and medium-sized businesses, professionals and agribusiness
enterprises. The
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Banks' deposits are not received from a single depositor or group of affiliated
depositors the loss of any one of which would have a materially adverse effect
on the business of the Banks, nor is a material portion of the Banks' deposits
concentrated within a single industry or group of related industries.
As of December 31, 1996, the Banks served a total of 32 municipality
and governmental agency depositors totaling $28,412,000 in deposits. In
connection with the deposits of municipalities or other governmental agencies
or entities, the Banks are generally required to pledge securities to secure
such deposits, except for the first $100,000 of such deposits which are insured
by the Federal Deposit Insurance Corporation ("FDIC").
As of December 31, 1996, the Banks had total deposits of $338,663,000.
Of this total, $90,149,000 represented noninterest-bearing demand deposits,
$76,392,000 represented interest-bearing demand deposits, and $172,122,000
represented interest-bearing savings and time deposits.
The principal sources of the Banks' revenues are: (i) interest and
fees on loans; (ii) interest on Federal Funds sold (funds loaned on a
short-term basis to other banks) and short-term certificates of deposit at
other financial institutions; and (iii) interest on investments (principally
government securities). For the fiscal year ended December 31, 1996 these
sources comprised 76 percent, 17 percent, and 7 percent, respectively, of the
Banks' total interest income.
SUPERVISION AND REGULATION
The common stock of the Company is subject to the registration
requirements of the Securities Act of 1933, as amended, and the qualification
requirements of the California Corporate Securities Law of 1968, as amended.
The Banks' common stock, however, is exempt from such requirements. The
Company is also subject to the periodic reporting requirements of Section 15(d)
of the Securities Exchange Act of 1934, as amended, which include, but are not
limited to, annual, quarterly and other current reports with the Securities and
Exchange Commission.
The Banks are licensed by the California State Superintendent of Banks
("Superintendent"), their deposits are insured by the FDIC, and they have
chosen not to become members of the Federal Reserve System. The Banks have no
subsidiaries. Consequently, the Banks are subject to the supervision of, and
are regularly examined by, the Superintendent and the FDIC. Such supervision
and regulation include comprehensive reviews of all major aspects of the Banks'
business and condition, including their capital ratios, allowance for possible
loan losses and other factors. However, no inference should be drawn that such
authorities have approved any such factors. The Company and the Banks are
required to file reports with the Superintendent, the FDIC and the Board of
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Governors and provide such additional information as the Superintendent, FDIC
and the Board of Governors may require.
Effective July 1, 1997, all functions of the Superintendent will be
transferred to the Commissioner of Financial Institutions (the "Commissioner"),
a post newly created by the California legislature in 1996. The Commissioner
will be responsible to regulate and supervise, in addition to all California
state banks, California state savings and loan institutions previously
supervised by the California Savings and Loan Commissioner, and California
state credit unions and industrial loan companies previously supervised by the
California Commissioner of Corporations.
The Company is a bank holding company within the meaning of the Bank
Holding Company Act of 1956, as amended (the "Bank Holding Company Act"), and
is registered as such with, and subject to the supervision of, the Board of
Governors. The Company is required to obtain the approval of the Board of
Governors before it may acquire all or substantially all of the assets of any
bank, or ownership or control of the voting shares of any bank if, after giving
effect to such acquisition of shares, the Company would own or control more
than 5% of the voting shares of such bank. The Bank Holding Company Act
prohibits the Company from acquiring any voting shares of, or interest in, all
or substantially all of the assets of, a bank located outside the State of
California unless such an acquisition is specifically authorized by the laws of
the state in which such bank is located. Any such interstate acquisition is
also subject to the provisions of the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 discussed below.
The Company, and any subsidiaries which it may acquire or organize,
are deemed to be "affiliates" of the Banks within the meaning of that term as
defined in the Federal Reserve Act. This means, for example, that there are
limitations (a) on loans by the Banks to affiliates, and (b) on investments by
the Banks in affiliates' stock as collateral for loans to any borrower. The
Company and its subsidiary are also subject to certain restrictions with
respect to engaging in the underwriting, public sale and distribution of
securities.
In addition, regulations of the Board of Governors promulgated under
the Federal Reserve Act require that reserves be maintained by the Banks in
conjunction with any liability of the Company under any obligation (promissory
note, acknowledgement of advance, banker's acceptance or similar obligation)
with a weighted average maturity of less than seven (7) years to the extent
that the proceeds of such obligations are used for the purpose of supplying
funds to the Banks for use in its banking business, or to maintain the
availability of such funds.
The Board of Governors and the FDIC have adopted risk-based capital
guidelines for evaluating the capital adequacy of bank holding companies and
banks. The guidelines are designed to make capital requirements sensitive to
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differences in risk profiles among banking organizations, to take into account
off-balance sheet exposures and to aid in making the definition of bank capital
uniform internationally. Under the guidelines, the Company and the Banks are
required to maintain capital equal to at least 8.0% of its assets and
commitments to extend credit, weighted by risk, of which at least 4.0% must
consist primarily of common equity (including retained earnings) and the
remainder may consist of subordinated debt, cumulative preferred stock, or a
limited amount of loan loss reserves.
Assets, commitments to extend credit, and off-balance sheet items are
categorized according to risk and certain assets considered to present less
risk than others permit maintenance of capital at less than the 8% ratio. For
example, most home mortgage loans are placed in a 50% risk category and
therefore require maintenance of capital equal to 4% of such loans, while
commercial loans are placed in a 100% risk category and therefore require
maintenance of capital equal to 8% of such loans.
The guidelines establish two categories of qualifying capital: Tier 1
capital comprising core capital elements, and Tier 2 comprising supplementary
capital requirements. At least one-half of the required capital must be
maintained in the form of Tier 1 capital. Tier 1 capital includes common
shareholders' equity and qualifying perpetual preferred stock. However, no
more than 25% of the Company's total Tier 1 capital may consist of perpetual
preferred stock. The definition of Tier 1 capital for the Banks is the same,
except that perpetual preferred stock may be included only if it is
noncumulative. Tier 2 capital includes, among other items, limited life (and
in the case of banks, cumulative) preferred stock, mandatory convertible
securities, subordinated debt and a limited amount of reserve for credit
losses.
The Board of Governors and the FDIC also adopted minimum leverage
ratios for banking organizations as a supplement to the risk-weighted capital
guidelines. The leverage ratio is generally calculated using Tier 1 capital
(as defined under risk-based capital guidelines) divided by quarterly average
net total assets (excluding intangible assets and certain other adjustments).
The leverage ratio establishes a limit on the ability of banking organizations,
including the Company and the Banks, to increase assets and liabilities without
increasing capital proportionately.
The Board of Governors emphasized that the leverage ratio constitutes
a minimum requirement for well-run banking organizations having diversified
risk, including no undue interest rate risk exposure, excellent asset quality,
high liquidity, good earnings and a composite rating of 1 under the regulatory
rating system for banks and 1 under the regulatory rating system for bank
holding companies. Banking organizations experiencing or anticipating
significant growth, as well as those organizations which do not exhibit the
characteristics of a strong, well-run banking organization described above,
will be required to maintain minimum capital ranging generally from 100 to 200
basis points in excess of the
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leverage ratio. The FDIC adopted a substantially similar leverage ratio for
state non-member banks which established (i) a 3 percent Tier 1 minimum capital
leverage ratio for highly-rated banks (those with a composite regulatory rating
of 1 and not experiencing or anticipating significant growth); and (ii) a 4
percent Tier 1 minimum capital leverage ratio for all other banks, as a
supplement to the risk-based capital guidelines.
At December 31, 1996, the Banks and the Company are in compliance with
the risk-based capital and leverage ratios described above. See Item 7 below
for a listing of the Company's risk-based capital ratios at December 31, 1996
and 1995.
The Company's ability to pay cash dividends is subject to restrictions
set forth in the California General Corporation Law. Funds for payment of any
cash dividends by the Company would be obtained from its investments as well as
dividends and/or management fees from the Banks. The payment of cash dividends
and/or management fees by the Banks is subject to restrictions set forth in the
California Financial Code, as well as restrictions established by the FDIC.
See Item 5 below for further information regarding the payment of cash
dividends by the Company and the Banks.
COMPETITION
At December 31, 1996, there were 36 branches of commercial and savings
banks in the cities of Salinas, King City, Marina, Seaside and the Monterey
Peninsula. Additionally, the Banks compete with savings and loan associations
and, to a lesser extent, credit unions, finance companies and other financial
service providers for deposit and loan customers.
Larger banks may have a competitive advantage because of higher
lending limits and major advertising and marketing campaigns. They also
perform services, such as trust services, international banking, discount
brokerage and insurance services which the Banks are not authorized or prepared
to offer currently. The Banks have made arrangements with their correspondent
banks and with others to provide such services for its customers. For
borrowers requiring loans in excess of the Banks' legal lending limits, the
Banks have offered, and intend to offer in the future, such loans on a
participating basis with their correspondent banks and with other independent
banks, retaining the portion of such loans which is within their lending
limits. As of December 31, 1996, the Banks' aggregate legal lending limits to
a single borrower and such borrower's related parties were $5,329,000 on an
unsecured basis and $8,882,000 on a fully secured basis based on regulatory
capital of $35,529,000.
Each Bank's business is concentrated in its service area, which
primarily encompass Monterey County, including the Salinas Valley area and to a
lesser extent, the contiguous areas of San Benito County, Southern Santa Cruz
County,
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and Santa Clara County. The economy of the Bank of Salinas's service area is
primarily dependent upon the agricultural industry. Consequently, the Bank
competes with other financial institutions for deposits from and loans to
individuals and companies who are also dependent upon the agricultural
industry. The economy of Cypress Bank's service area is primarily dependent on
the tourist supported small business industry. Cypress Bank competes with
other financial institutions located in their own communities and in
surrounding communities.
Based upon data as of the most recent practicable date (June 30,
1996), there were 51 operating commercial and savings bank branches in Monterey
County with total deposits of $2,196,237,000. The Banks held a total of
$338,663,000 in deposits, representing approximately 15.4% of total commercial
and savings banks deposits in Monterey County as of June 30, 1996. Of the
Banks' competitors, three are independent banks headquartered in Monterey
County. The Banks also compete with savings and loans associations in Monterey
County.
In order to compete with the major financial institutions in their
primary service areas, the Banks use to the fullest extent possible the
flexibility which is accorded by their independent status. This includes an
emphasis on specialized services, local promotional activity, and personal
contacts by the Banks' officers, directors and employees. The Banks also seek
to provide special services and programs for individuals in their primary
service area who are employed in the agricultural, professional and business
fields, such as loans for equipment, furniture, tools of the trade or expansion
of practices or businesses. In the event there are customers whose loan
demands exceed the Banks' lending limits, the Banks seek to arrange for such
loans on a participation basis with other financial institutions. The Banks
also assist those customers requiring services not offered by the Banks to
obtain such services from correspondent banks.
Banking is a business which depends on interest rate differentials.
In general, the difference between the interest rate paid by the Banks to
obtain their deposits and their other borrowings and the interest rate received
by the Banks on loans extended to their customers and on securities held in the
Banks' portfolio comprise the major portion of the Banks' earnings.
Commercial banks compete with savings and loan associations, credit
unions, other financial institutions and other entities for funds. For
instance, yields on corporate and government debt securities and other
commercial paper affect the ability of commercial banks to attract and hold
deposits. Commercial banks also compete for loans with savings and loan
associations, credit unions, consumer finance companies, mortgage companies and
other lending institutions.
__________________________________
"Data Book Summary of Deposits in all FDIC Insured Commercial and Savings
Banks", June 30, 1996.
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The interest rate differentials of the Banks, and therefore their
earnings, are affected not only by general economic conditions, both domestic
and foreign, but also by the monetary and fiscal policies of the United States
as set by statutes and as implemented by federal agencies, particularly the
Federal Reserve Board. This agency can and does implement national monetary
policy, such as seeking to curb inflation and combat recession, by its open
market operations in United States government securities, adjustments in the
amount of interest free reserves that banks and other financial institutions
are required to maintain, and adjustments to the discount rates applicable to
borrowing by banks from the Federal Reserve Board. These activities influence
the growth of bank loans, investments and deposits and also affect interest
rates charged on loans and paid on deposits. The nature and timing of any
future changes in monetary policies and their impact on the Banks are not
predictable.
On December 19, 1991, President Bush signed the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA"). The FDICIA
substantially revises banking regulations, certain aspects of the Federal
Deposit Insurance Act and establishes a framework for determination of capital
adequacy of financial institutions, among other matters. Under the FDICIA,
financial institutions are placed into five capital adequacy categories as
follows: (1) well capitalized, (2) adequately capitalized, (3)
undercapitalized, (4) significantly undercapitalized, and (5) critically
undercapitalized. The FDICIA authorized the Board of Governors, the
Comptroller and FDIC to establish limits below which financial institutions
will be deemed critically undercapitalized, provided that such limits can not
be less than two percent (2%) of the ratio of tangible equity to total assets
or sixty-five percent (65%) of the minimum leverage ratio established by
regulation. Financial institutions classified as undercapitalized or below are
subject to limitations including restrictions related to (i) growth of assets,
(ii) payment of interest on subordinated indebtedness, (iii) capital
distributions, and (iv) payment of management fees to a parent holding company.
The FDICIA requires the Board of Governors and FDIC to initiate
corrective action regarding financial institutions which fail to meet minimum
capital requirements. Such action may result in orders to augment capital such
as through sale of voting stock, reduction in total assets, and restrictions
related to correspondent bank deposits. Critically undercapitalized financial
institutions may also be subject to appointment of a receiver or conservator
unless the financial institution submits an adequate capitalization plan.
In 1995 the FDIC, pursuant to Congressional mandate, reduced bank
deposit insurance assessment rates to a range from $0 to $0.27 per $100 of
deposits, dependent upon a bank's risk. The FDIC has continued these reduced
assessment rates through the first semiannual assessment period of 1997. Based
upon the above risk-based assessment rate schedule, the Banks' current capital
ratios, the Banks' current levels of deposits, and assuming no further change
in the assessment
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rate applicable to the Banks during 1997, the Bank estimates that its annual
noninterest expense attributed to assessments will increase during 1997 by
approximately $ 45,000.
The Board of Governors and FDIC adopted regulations effective December
19, 1992, implementing a system of prompt corrective action pursuant to Section
38 of the Federal Deposit Insurance Act and Section 131 of the FDICIA. The
regulations establish five capital categories with the following
characteristics: (1) "Well capitalized" - consisting of institutions with a
total risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital
ratio of 6% or greater and a leverage ratio of 5% or greater, and the
institution is not subject to an order, written agreement, capital directive or
prompt corrective action directive; (2) "Adequately capitalized" - consisting
of institutions with a total risk-based capital ratio of 8% or greater, a Tier
1 risk-based capital ratio of 4% or greater and a leverage ratio of 4% or
greater, and the institution does not meet the definition of a "well
capitalized" institution; (3) "Undercapitalized" - consisting of institutions
with a total risk-based capital ratio less than 8%, a Tier 1 risk-based capital
ratio of less than 4%, or a leverage ratio of less than 4%; (4) "Significantly
undercapitalized" - consisting of institutions with a total risk-based capital
ratio of less than 6%, a Tier 1 risk-based capital ratio of less than 3%, or a
leverage ratio of less than 3%; (5) "Critically undercapitalized" - consisting
of an institution with a ratio of tangible equity to total assets that is equal
to or less than 2%.
The regulations established procedures for classification of financial
institutions within the capital categories, filing and reviewing capital
restoration plans required under the regulations and procedures for issuance of
directives by the appropriate regulatory agency, among other matters. The
regulations impose restrictions upon all institutions to refrain from certain
actions which would cause an institution to be classified within any one of the
three "undercapitalized" categories, such as declaration of dividends or other
capital distributions or payment of management fees, if following the
distribution or payment the institution would be classified within one of the
"undercapitalized" categories. In addition, institutions which are classified
in one of the three "undercapitalized" categories are subject to certain
mandatory and discretionary supervisory actions. Mandatory supervisory actions
include (1) increased monitoring and review by the appropriate federal banking
agency; (2) implementation of a capital restoration plan; (3) total asset
growth restrictions; and (4) limitation upon acquisitions, branch expansion,
and new business activities without prior approval of the appropriate federal
banking agency. Discretionary supervisory actions may include (1) requirements
to augment capital; (2) restrictions upon affiliate transactions; (3)
restrictions upon deposit gathering activities and interest rates paid; (4)
replacement of senior executive officers and directors; (5) restrictions upon
activities of the institution and its affiliates; (6) requiring divestiture or
sale of the institution; and (7) any other supervisory action that the
appropriate federal banking agency determines is necessary to further the
purposes of the regulations. Further, the federal banking
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agencies may not accept a capital restoration plan without determining, among
other things, that the plan is based on realistic assumptions and is likely to
succeed in restoring the depository institution's capital. In addition, for a
capital restoration plan to be acceptable, the depository institution's parent
holding company must guarantee that the institution will comply with such
capital restoration plan. The aggregate liability of the parent holding
company under the guaranty is limited to the lesser of (i) an amount equal to 5
percent of the depository institution's total assets at the time it became
undercapitalized, and (ii) the amount that is necessary (or would have been
necessary) to bring the institution into compliance with all capital standards
applicable with respect to such institution as of the time it fails to comply
with the plan. If a depository institution fails to submit an acceptable plan,
it is treated as if it were "significantly undercapitalized." FDICIA also
restricts the solicitation and acceptance of and interest rates payable on
brokered deposits by insured depository institutions that are not "well
capitalized." An "undercapitalized" institution is not allowed to solicit
deposits by offering rates of interest that are significantly higher than the
prevailing rates of interest on insured deposits in the particular
institution's normal market areas or in the market areas in which such deposits
would otherwise be accepted.
Any financial institution which is classified as "critically
undercapitalized" must be placed in conservatorship or receivership within 90
days of such determination unless it is also determined that some other course
of action would better serve the purposes of the regulations. Critically
undercapitalized institutions are also prohibited from making (but not
accruing) any payment of principal or interest on subordinated debt without the
prior approval of the FDIC and the FDIC must prohibit a critically
undercapitalized institution from taking certain other actions without its
prior approval, including (1) entering into any material transaction other than
in the usual course of business, including investment expansion, acquisition,
sale of assets or other similar actions; (2) extending credit for any highly
leveraged transaction; (3) amending articles or bylaws unless required to do so
to comply with any law, regulation or order; (4) making any material change in
accounting methods; (5) engaging in certain affiliate transactions; (6) paying
excessive compensation or bonuses; and (7) paying interest on new or renewed
liabilities at rates which would increase the weighted average costs of funds
beyond prevailing rates in the institution's normal market areas.
The capital ratio requirements for the "adequately capitalized"
category generally are the same as the existing minimum risk-based capital
ratios applicable to the Company and the Banks. It is not possible to predict
what effect the prompt corrective action regulation will have upon the Company
and the Banks or the banking industry taken as a whole in the foreseeable
future.
Under the FDICIA, the federal financial institution agencies have
adopted regulations which require institutions to establish and maintain
comprehensive written real estate policies which address certain lending
considerations, including
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loan-to-value limits, loan administrative policies, portfolio diversification
standards, and documentation, approval and reporting requirements. FDICIA
further generally prohibits an insured state bank from engaging as a principal
in any activity that is impermissible for a national bank, absent FDIC
determination that the activity would not pose a significant risk to the Bank
Insurance Fund, and that the bank is, and will continue to be, within
applicable capital standards. Similar restrictions apply to subsidiaries of
insured state banks. The Company does not currently intend to engage in any
activities which would be restricted or prohibited under the FDICIA.
The federal banking agencies during 1996 issued a joint agency policy
statement regarding the management of interest-rate risk exposure (interest
rate risk is the risk that changes in market interest rates might adversely
affect a bank's financial condition) with the goal of ensuring that
institutions with high levels of interest-rate risk have sufficient capital to
cover their exposures. This policy statement reflected the agencies' decision
at that time not to promulgate a standardized measure and explicit capital
charge for interest rate risk, in the expectation that industry techniques for
measurement of such risk will evolve.
However, the Federal Financial Institution Examination Counsel
("FFIEC") on December 13, 1996, approved an updated Uniform Financial
Institutions Rating System ("UFIRS"). In addition to the five components
traditionally included in the so-called "CAMEL" rating system which has been
used by bank examiners for a number of years to classify and evaluate the
soundness of financial institutions (including capital adequacy, asset quality,
management, earnings and liquidity), UFIRS includes for all bank regulatory
examinations conducted on or after January 1, 1997, a new rating for a sixth
category identified as sensitivity to market risk. Ratings in this category
are intended to reflect the degree to which changes in interest rates, foreign
exchange rates, commodity prices or equity prices may adversely affect an
institution's earnings and capital. The rating system henceforth will be
identified as the "CAMELS" system.
The federal financial institution agencies have established safety and
soundness standards for insured financial institutions covering (1) internal
controls, information systems and internal audit systems; (2) loan
documentation; (3) credit underwriting; (4) interest rate exposure; (5) asset
growth; (6) compensation, fees and benefits; and (7) excessive compensation for
executive officers, directors or principal shareholders which could lead to
material financial loss. If an agency determines that an institution fails to
meet any standard, the agency may require the financial institution to submit
to the agency an acceptable plan to achieve compliance with the standard. If
the agency requires submission of a compliance plan and the institution fails
to timely submit an acceptable plan or to implement an accepted plan, the
agency must require the institution to correct the deficiency. Under the final
rule, an institution must file a compliance plan within 30 days of a request to
do so from the institution's primary federal regulatory agency. The
12
<PAGE> 13
agencies may elect to initiate enforcement action in certain cases rather than
rely on an existing plan particularly where failure to meet one or more of the
standards could threaten the safe and sound operation of the institution.
The Board of Governors issued final amendments to its risk-based
capital guidelines to be effective December 31, 1994, requiring that net
unrealized holding gains and losses on securities available for sale determined
in accordance with SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," are not to be included in the Tier 1 capital component
consisting of common stockholders' equity. Net unrealized losses on marketable
equity securities (equity securities with a readily determinable fair value),
however, will continue to be deducted from Tier 1 capital. This rule has the
general effect of valuing available for sale securities at amortized cost
(based on historical cost) rather than at fair value (generally at market
value) for purposes of calculating the risk-based and leverage capital ratios.
On December 13, 1994, the Board of Governors issued amendments to its
risk-based capital guidelines regarding concentration of credit risk and risks
of non-traditional activities, which were effective January 17, 1995. As
amended, the risk-based capital guidelines identify concentrations of credit
risk and evaluate an institution's ability to manage such risks and the risk
posed by non-traditional activities as important factors in assessing an
institution's overall capital adequacy.
Since 1986, California has permitted California banks and bank holding
companies to be acquired by banking organizations based in other states on a
"reciprocal" basis (i.e., provided the other state's laws permit California
banking organizations to acquire banking organizations in that state on
substantially the same terms and conditions applicable to local banking
organizations). Some increase in merger and acquisition activity among
California and out-of-state banking organizations has occurred as a result of
this law, as well as increased competition for loans and deposits.
Since October 2, 1995, California law implementing certain provisions
of prior federal law has (1) permitted interstate merger transactions; (2)
prohibited interstate branching through the acquisition of a branch business
unit located in California without acquisition of the whole business unit of
the California bank; and (3) prohibited interstate branching through de novo
establishment of California branch offices. Initial entry into California by
an out-of-state institution must be accomplished by acquisition of or merger
with an existing whole bank which has been in existence for at least five
years.
Community Reinvestment Act ("CRA") regulations effective as of July 1,
1995 evaluate banks' lending to low and moderate income individuals and
businesses across a four-point scale from "outstanding" to "substantial
noncompliance," and are a factor in regulatory review of applications to merge,
establish new branches or
13
<PAGE> 14
form bank holding companies. In addition, any bank rated in "substantial
noncompliance" with the CRA regulations may be subject to enforcement
proceedings.
The Banks have a current rating of "satisfactory" or better for CRA
compliance, and are scheduled for further examination for CRA compliance.
The United States Congress has periodically considered legislation
which could result in further deregulation of banks and other financial
institutions. Such legislation could result in further relaxation or
elimination of geographic restrictions on banks and bank holding companies and
increase the level of direct competition with other financial institutions,
including mutual funds, securities brokerage firms, investment banking firms
and other entities. The effect of such legislation on the Company and the
Banks cannot be determined at this time.
ITEM 2. PROPERTIES
The headquarters office and centralized operations of the Company are
located at 301 Main Street, Salinas, California.
Bank of Salinas is headquartered at 301 Main Street, Salinas,
California, with branch offices located at 301 Main Street, Salinas, California
and 532 Broadway, King City, California.
Cypress Bank is headquartered at 1676 Fremont Boulevard in Seaside,
California, with branch offices located at 228 Reservation Road, Marina,
California and 1658 Fremont Boulevard, Seaside, California. The Marina office
is leased from a joint venture that includes affiliates of Cypress Bank. In
addition to the monthly rental expense, the Bank paid to the joint venture
$18,000 for a security deposit and $12,000 for the January 1994 and last three
months rent.
The headquarters and branch office locations of the Company and
subsidiary Banks are operated under facilities leases which expire in June 1997
through December 1999, with options to extend for two to fifteen years. These
include facilities leased from a shareholder and from directors at terms and
conditions which management believes are consistent with the market. Rental
rates are adjusted annually for changes in certain economic indices. The
annual minimum lease commitments are set forth in Footnote 7 of Item 8 -
"Financial Statements and Supplementary Data" included in this report and
incorporated herein by reference. The forgoing description of the Lease
Agreements is qualified by reference to Exhibits listed in Part IV of this Form
10-K.
14
<PAGE> 15
ITEM 3. LEGAL PROCEEDINGS
There are no material proceedings adverse to the Company or the Banks
to which any director, officer, affiliate of the Company or 5% shareholder of
the Company or the Banks, or any associate of any such director, officer,
affiliate or 5% shareholder of the Company or Banks are a party, and none of
the above persons has a material interest adverse to the Company or the Banks.
Neither the Company nor the Banks are a party to any pending legal or
administrative proceedings (other than ordinary routine litigation incidental
to the Company's or the Bank's business) and no such proceedings are known to
be contemplated.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of 1996.
15
<PAGE> 16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information
There is limited trading in and no established public trading market
for the Company's common stock. The Company's common stock is not listed on
any exchange nor is it quoted by The Nasdaq Stock Market. Hoefer & Arnett,
Incorporated and Ryan Becker are registered as market makers in the Company's
stock. Dean Witter Reynolds, Smith Barney and Paine Webber also facilitate
trades in the Company's common stock. Based on information provided to the
Company from Dean Witter Reynolds and Smith Barney, the range of high and low
bids for the common stock for the two most recent fiscal years, restated to
reflect all stock dividends distributed by the Company and the 3-for-2
stock split declared in February, 1997, are presented below.
<TABLE>
<CAPTION>
Calendar Year Low High
-------------- ----- ------
<S> <C> <C>
1996
First Quarter . . . . . . . . . . . . . . . . $9.85 $10.61
Second Quarter . . . . . . . . . . . . . . . 10.30 11.51
Third Quarter . . . . . . . . . . . . . . . . 11.50 12.67
Fourth Quarter . . . . . . . . . . . . . . . 12.67 14.67
1995
First Quarter . . . . . . . . . . . . . . . . $7.88 $8.63
Second Quarter . . . . . . . . . . . . . . . 8.49 9.70
Third Quarter . . . . . . . . . . . . . . . . 9.70 9.70
Fourth Quarter . . . . . . . . . . . . . . . 9.55 10.00
</TABLE>
The bid price for the Company's common stock was $15.17 as of February
28, 1997.
(b) Holders
As of February 28, 1997, there were approximately 1,285 holders of the
common stock of the Company. There are no other classes of common equity
outstanding.
(c) Dividends
The Company's shareholders are entitled to receive dividends when and
as declared by its Board of Directors, out of funds legally available therefor,
subject to
16
<PAGE> 17
the restrictions set forth in the California General Corporation Law (the
"Corporation Law"). The Corporation Law provides that a corporation may make a
distribution to its shareholders if the corporation's retained earnings equal
at least the amount of the proposed distribution. The Corporation Law further
provides that, in the event that sufficient retained earnings are not available
for the proposed distribution, a corporation may nevertheless make a
distribution to its shareholders if it meets two conditions, which generally
stated are as follows: (1) the corporation's assets equal at least 1-1/4 times
its liabilities; and (2) the corporation's current assets equal at least its
current liabilities or, if the average of the corporation's earnings before
taxes on income and before interest expenses for the two preceding fiscal years
was less than the average of the corporation's interest expenses for such
fiscal years, then the corporation's current assets must equal at least 1-1/4
times its current liabilities. Funds for payment of any cash dividends by the
Company would be obtained from its investments as well as dividends and/or
management fees from the Banks.
The payment of cash dividends by the subsidiary Banks is subject to
restrictions set forth in the California Financial Code (the "Financial Code").
The Financial Code provides that a bank may not make a cash distribution to its
shareholders in excess of the lesser of (a) the bank's retained earnings; or
(b) the bank's net income for its last three fiscal years, less the amount of
any distributions made by the bank or by any majority-owned subsidiary of the
bank to the shareholders of the bank during such period. However, a bank may,
with the approval of the Superintendent, make a distribution to its
shareholders in an amount not exceeding the greater of (a) its retained
earnings; (b) its net income for its last fiscal year; or (c) its net income
for its current fiscal year. In the event that the Superintendent determines
that the shareholders' equity of a bank is inadequate or that the making of a
distribution by the bank would be unsafe or unsound, the Superintendent may
order the bank to refrain from making a proposed distribution.
The FDIC may also restrict the payment of dividends if such payment
would be deemed unsafe or unsound or if after the payment of such dividends,
the bank would be included in one of the "undercapitalized" categories for
capital adequacy purposes pursuant to the Federal Deposit Insurance Corporation
Improvement Act of 1991. Additionally, while the Board of Governors has no
general restriction with respect to the payment of cash dividends by an
adequately capitalized bank to its parent holding company, the Board of
Governors might, under certain circumstances, place restrictions on the ability
of a particular bank to pay dividends based upon peer group averages and the
performance and maturity of the particular bank, or object to management fees
on the basis that such fees cannot be supported by the value of the services
rendered or are not the result of an arm's length transaction.
Under these provisions and considering minimum regulatory capital
requirements, the amount available for distribution from the Banks to the
Company was approximately $10,484,000 as of December 31, 1996.
17
<PAGE> 18
To date, the Company has not paid a cash dividend and presently does
not intend to pay cash dividends in the foreseeable future. The Company has
distributed a ten percent stock dividend in 1996 and 1994 and a twelve percent
stock dividend in 1995. Payment of dividends in the future will be determined
by the Board of Directors after consideration of various factors including the
profitability and capital adequacy of the Company and the Banks.
18
<PAGE> 19
ITEM 6. SELECTED FINANCIAL DATA
The following table presents certain consolidated financial
information concerning the business of the Company and its subsidiary Banks.
This information should be read in conjunction with the Consolidated Financial
Statements, the notes thereto, and Management's Discussion and Analysis
included in this report.
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------------------------------
(Dollar amounts in thousands,
except per share data) 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
OPERATING RESULTS
Total Interest Income $29,301 $26,964 $21,646 $18,492 $18,148
Total Interest Expense 9,859 10,008 7,071 6,198 6,976
---------- ---------- ---------- ---------- ----------
Net Interest Income 19,442 16,956 14,575 12,294 11,172
Provision for Credit Losses 352 695 1,745 915 1,017
---------- ---------- ---------- ---------- ----------
Net Interest Income After
Provision for Credit Losses 19,090 16,261 12,830 11,379 10,155
Other Income 1,456 1,302 1,315 1,384 1,051
Other Expenses 11,115 10,263 9,170 8,546 7,615
---------- ---------- ---------- ---------- ----------
Income before Income Taxes 9,431 7,300 4,975 4,217 3,591
Income Taxes 3,571 2,975 2,046 1,760 1,557
---------- ---------- ---------- ---------- ----------
NET INCOME $5,860 $4,325 $2,929 $2,457 $2,034
- ----------------------------------------------------------------------------------------------------------------------
EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE $1.24 $0.94 $0.65 $0.57 $0.47
- ----------------------------------------------------------------------------------------------------------------------
FINANCIAL CONDITION AND
CAPITAL -- YEAR-END BALANCES
Net Loans $235,992 $191,000 $179,266 $181,250 $167,690
Total Assets 376,832 357,236 310,362 269,820 241,380
Deposits 338,663 326,089 283,823 247,112 221,343
Shareholders' Equity 36,332 29,916 25,547 21,932 19,307
- ----------------------------------------------------------------------------------------------------------------------
FINANCIAL CONDITION AND
CAPITAL -- AVERAGE BALANCES
Net Loans $203,117 $173,065 $179,514 $169,829 $163,725
Total Assets 355,386 329,502 290,166 265,935 230,914
Deposits 319,110 300,291 265,512 234,228 205,304
Shareholders' Equity 33,228 27,684 23,691 20,670 18,138
- ----------------------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL RATIOS
Rate of Return on:
Average Total Assets 1.65% 1.31% 1.01% 0.92% 0.88%
Average Shareholders Equity 17.64% 15.62% 12.36% 11.89% 11.22%
Ratio of Average Shareholders' Equity
to Total Average Assets 9.35% 8.40% 8.16% 7.77% 7.85%
</TABLE>
19
<PAGE> 20
(a) (1) Distribution of Assets, Liabilities and Equity; Interest Rates
and Interest Differential
Table I in Management's Discussion and Analysis included in this
report sets forth the Company's average balance sheets (based on daily averages)
and an analysis of interest rates and the interest rate differential for each of
the three years in the period ended December 31, 1996 and is hereby incorporated
by reference.
(2) Volume/Rate Analysis
Information as to the impact of changes in average rates and
average balances on interest earning assets and interest bearing liabilities is
shown in the table below. The variances attributed to simultaneous balance and
rate changes have been reflected as rate variances.
<TABLE>
<CAPTION>
VOLUME/RATE ANALYSIS
(in thousands) 1996 over 1995
Increase (decrease) due to change in: Net
Volume Rate Change
---------- ---------- ----------
<S> <C> <C> <C>
Interest-earning assets:
Net Loans (1)/(2)/(3) $ 3,426 $ (809) $ 2,617
Investment securities 222 194 416
Federal funds sold & other (474) (222) (696)
---------- ---------- ----------
Total 3,174 (837) 2,337
---------- ---------- ----------
Interest-bearing liabilities:
Demand deposits (90) (190) (280)
Savings deposits (392) (388) (780)
Time deposits 818 93 911
---------- ---------- ----------
Total 336 (485) (149)
---------- ---------- ----------
Interest differential $ 2,838 $ (352) 2,486
----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
(in thousands) 1995 over 1994
Increase (decrease) due to change in: Net
Volume Rate Change
---------- ---------- ----------
<S> <C> <C> <C>
Interest-earning assets:
Net Loans (1)/(2) $ (645) $ 2,428 $ 1,783
Investment securities 1,037 965 2,002
Federal funds sold & other 791 742 1,533
---------- ---------- ----------
Total 1,183 4,135 5,318
---------- ---------- ----------
Interest-bearing liabilities:
Demand deposits (289) (8) (297)
Savings deposits 1,500 866 2,366
Time deposits 147 721 868
---------- ---------- ----------
Total 1,358 1,579 2,937
---------- ---------- ----------
Interest differential $ (175) $ 2,556 $ 2,381
- -----------------------------------------------------------------------------------------------------
</TABLE>
(1) The average balance of non-accruing loans is immaterial as a percentage of
total loans and, as such, has been included in net loans.
(2) Loan fees of $901,000, $769,000 and $916,000 for 1996, 1995 and 1994,
respectively, have been included in the interest income computation.
(3) Rate variance includes impact of interest income recognized from payments
received on nonaccrual loans of $619,000 in 1996.
20
<PAGE> 21
(b) Investment Portfolio
(1) The book value of investment securities at December 31, 1996,
1995 and 1994 is set forth in Table III of Management's
Discussion and Analysis included in this report and
incorporated herein by reference.
(2) The book value, maturities and weighted average yields of
investment securities as of December 31, 1996 are set forth in
Table III of Management's Discussion and Analysis included in
this report and incorporated herein by reference.
(3) There were no issuers of securities for which the book value
was greater than 10% of shareholders' equity other than U.S.
Government and U.S. Government Agencies and Corporations.
(c) Loan Portfolio
(1) The composition of the loan portfolio is summarized in Table
IV of Management's Discussion and Analysis included in this
report and is incorporated herein by reference.
(2) The following table sets forth the maturity distribution of
the loan portfolio at December 31, 1996:
<TABLE>
<CAPTION>
One year
One year through Over
(in thousands) or less five years five years Total
--------- ------------ ------------ -------
<S> <C> <C> <C> <C>
Commercial,
Financial and
Agricultural $ 54,657,000 $33,464,000 $23,424,000 $111,545,000
Real estate -
construction 26,830,000 1,167,000 -- 27,997,000
Real estate -
other 45,688,000 27,972,000 19,581,000 93,241,000
Installment 3,860,000 4,264,000 106,000 8,230,000
-------------- -------------- -------------- --------------
Total $131,035,000 $66,867,000 $43,111,000 $241,013,000
============== ============== ============== ==============
</TABLE>
Loans shown above with maturities greater than one year
include $86,859,000 of floating interest rate loans and
$23,119,000 of fixed rate loans.
21
<PAGE> 22
(3) Nonperforming Loans
The Company's current policy is to cease accruing interest
when a loan becomes 90 days past due as to principal or
interest, when the full timely collection of interest or
principal becomes uncertain or when a portion of the principal
balance has been charged off, unless the loan is well secured
and in the process of collection. When a loan is placed on
nonaccrual status, the accrued and uncollected interest
receivable is reversed and the loan is accounted for on the
cash or cost recovery method thereafter, until qualifying for
return to accrual status. Generally, a loan may be returned
to accrual status when all delinquent interest and principal
become current in accordance with the terms of the loan
agreement or when the loan is both well secured and in process
of collection.
For further discussion of nonperforming loans, refer to Risk
Elements section of Management Discussion Analysis in this
report.
22
<PAGE> 23
(d) Summary of Loan Loss Experience
(1) An analysis of the allowance for loan losses follows:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended
(in thousands) 12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C>
Average Loans outstanding $ 207,556 $ 177,476 $ 182,812 $ 172,412 $ 165,933
----------- ----------- ----------- ----------- -----------
Allowance for possible credit
at beginning of period $ 4,446 $ 4,068 $ 2,840 $ 2,371 $ 2,166
Loans charged off:
Real estate (207) (52) (45) (46) (31)
Installment (22) (80) (125) (164) (296)
Commercial (391) (302) (413) (404) (556)
Recoveries of loans previously
charged off:
Real estate 11 - - - -
Installment 27 29 35 75 38
Commercial 156 88 31 93 33
----------- ----------- ----------- ----------- -----------
Net loans charged off (426) (317) (517) (446) (812)
Additions to allowance charged to
operating expenses 352 695 1,745 915 1,017
----------- ----------- ----------- ----------- -----------
Allowance for possible loan
at end of period $ 4,372 $ 4,446 $ 4,068 $ 2,840 $ 2,371
=========== =========== =========== =========== ===========
Ratio of net charge-offs to
loans outstanding 0.21% 0.18% 0.28% 0.26% 0.49%
</TABLE>
Factors used in determination of the allowance for loan losses
are discussed in greater detail in the "Risk Elements" section
of Management's Discussion and Analysis included in this
report and are incorporated herein by reference.
(2) In evaluating the adequacy of the allowance for loan losses,
the Company attempts to allocate the allowance for loan losses
to specific categories of loans. Management believes that any
breakdown or allocation of the allowance for possible loan
losses into loan categories lends an appearance of exactness
which does not exist in that the allowance is utilized as a
single unallocated allowance available for all loans.
Further, management believes that the breakdown of historical
losses in the preceding table is a reasonable representation
of
23
<PAGE> 24
management's expectation of potential losses in the next full
year of operation. However, the allowance for loan losses
should not be interpreted as an indication that charge-offs
will occur or as an indication of future charge-off trends.
(e) Deposits
(1) Table I in Management's Discussion and Analysis included in this
report sets forth the distribution of average deposits for the years
ended December 31, 1996, 1995 and 1994 and is incorporated herein by
reference.
(2) The maturities of time certificates of deposit of $100,000 or more at
December 31, 1996 are summarized as follows:
<TABLE>
<CAPTION>
Year Ended
12/31/96
-----------
<S> <C>
3 months or less . . . . . . . . . . . . . . . . $13,319,000
Over 3 months
Through 6 months . . . . . . . . . . . . . . . . 5,402,000
Over 6 months
Through 12 months . . . . . . . . . . . . . . . . 15,018,000
Over 12 months . . . . . . . . . . . . . . . . . 10,330,000
-----------
Total . . . . . . . . . . . . . . . . . . . . . . $44,069,000
===========
</TABLE>
3(f) Return on Equity and Assets
(1) The table at page 19 of this section sets forth the ratios of net
income to average assets and average shareholders' equity, and
average shareholders' equity to average assets. As the Company has
never paid a cash dividend, the dividend payout ratio is not
indicated.
24
<PAGE> 25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain matters discussed or incorporated by reference in this Annual Report on
Form 10-K are forward-looking statements that are subject to risks and
uncertainties that could cause actual results to differ materially from those
projected. Such risks and uncertainties include, but are not limited to,
matters described in Item 7 - "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Therefore, the information set forth
therein should be carefully considered when evaluating the business prospects of
the Company and the Banks.
BUSINESS ORGANIZATION
Central Coast Bancorp (the "Company") a California corporation organized in
1994 acts as the holding company for Bank of Salinas and Cypress Bank (the
"Banks"), state-chartered banks, headquartered in Salinas and Seaside,
California, respectively. As of December 31, 1996, the Banks operated four
full-service branches and one limited-service branch in Monterey County,
California. Other than its investment in the Banks, the Company currently
conducts no other significant business activities, although it is authorized to
engage in a variety of activities which are deemed closely related to the
business of banking upon prior approval of the Board of Governors, the
Company's principal regulator.
The Banks offer a full range of commercial banking services, offering a diverse
range of traditional banking products and services to individuals, merchants,
small and medium-sized businesses, professionals and agribusiness enterprises
located in the Salinas Valley and the Monterey Peninsula.
On May 31, 1996, the Company completed the acquisition of Cypress Coast Bank
("Cypress"), whereby Cypress became a subsidiary of the Company and continues
to operate from its full-service offices in Seaside and Marina, California.
Under the terms of the acquisition agreement the shareholders of Cypress
received common stock of the Company in a tax-free exchange. At May 31, 1996,
Cypress had unaudited total assets of $46.9 million, including $29.8 million in
net loans and total unaudited liabilities of $42.7 million, including $42.5
million in deposits. The transaction has been accounted for as a
pooling-of-interests.
The following analysis is designed to enhance the reader's understanding of the
Company's financial condition and the results of its operations as reported in
the Consolidated Financial Statements included in this Annual Report.
Reference should be made to those statements and the Selected Financial Data
presented elsewhere in this report for additional detailed information.
25
<PAGE> 26
OVERVIEW
The Company earned net income of $5,860,000 for the year ended December 31,
1996, representing an increase of $1,535,000 or 35% over 1995 net income of
$4,325,000. Net income reported for 1995 represented an increase of $1,396,000
or 48% over 1994 net income of $2,929,000. On a per common and common
equivalent share basis, net income for 1996 was $1.24 compared to $.94 and $.65
per share for the preceding two years. The improvement in net income in 1996
and 1995 was primarily due to growth in net interest income and noninterest
income that outpaced increases in operating expenses. Net income in 1996 and
1995 also benefited from lower provisions for loan losses compared with 1995
and 1994, respectively. Each of these factors is discussed in more detail
later in this analysis.
Common shareholders' equity increased by $6,416,000 during 1996 to $36,332,000
at December 31, 1996, through the retention of earnings and as the result of
exercises of stock options and warrants and related tax benefits. In 1995 and
1994, common shareholders' equity increased by $4,369,000 and $3,615,000
primarily through retention of earnings. It is the objective of management to
maintain adequate capital for future growth through retention of earnings. The
Company has never declared a cash dividend, however, it distributed a ten
percent stock dividend during 1996 and twelve and ten percent stock dividends,
respectively, in each of the years ended December 31, 1995 and 1994. Also, the
Company declared a 3-for-2 stock split in February 1997 (to be distributed
March 28, 1997 to shareholders of record as of March 14, 1997). Per share
earnings have been adjusted to reflect such stock split and stock dividends
and any dilutive effect of common stock equivalents (stock options and warrants
outstanding but not exercised) calculated using the treasury stock method.
EARNINGS SUMMARY
NET INTEREST INCOME - Net interest income refers to the difference between the
interest paid on deposits and borrowings, and the interest earned on loans and
investments. It is the primary component of the net earnings of a financial
institution. The primary factors to consider in analyzing net interest income
are the composition and volume of earning assets and interest bearing
liabilities, the amount of noninterest bearing liabilities and nonaccrual
loans, and changes in market interest rates.
Net interest income for 1996 was $19,442,000, or 6.0% of average earning
assets, representing an increase of $2,486,000 or 14.7% over $16,956,000 and
5.7% of average earning assets in 1995. Net interest income reported in 1995
represented an increase of $2,381,000 or 16.3% from $14,575,000 in 1994. The
increases in the net interest income in 1996 and 1995 primarily reflect
increases in average earning assets in each of those years.
26
<PAGE> 27
Interest income for 1996 was $29,301,000 compared to $26,964,000 and
$21,646,000 for 1995 and 1994, respectively. The increase in interest income
in 1996 and 1995 is primarily due to growth in average earning assets. Average
earning assets were $325,203,000 in 1996 representing an increase of 8.6% over
$299,417,000 in 1995. In addition, interest income in 1996 included
approximately $600,000 of previously foregone interest collected on two loans
that had been on nonaccrual status. Average earning assets in 1995 represented
an increase of 13.4% over $264,003,000 in 1994. Loan yields averaged 11.0% in
1996 compared to 11.4% and 10.0% in 1995 and 1994, respectively. The trend in
loan yields generally corresponds to fluctuatiions in market interest rates
during 1996 and 1995. A majority of the Company's loan yields float with the
prime rate. The average prime rate was 8.27%, 8.82% and 7.13% in 1996, 1995
and 1994, respectively.
Interest expense was $9,859,000 in 1996 representing a slight decrease of
$149,000 or 1.5% from $10,008,000 in 1995. The decrease in interest expense
resulted from a decrease in the average rate paid on average interest-bearing
deposits which offset an increase in the volume of such deposits. Average
interest-bearing liabilities of $249,233,000 in 1996 represented 78.1% of total
deposits compared to $246,382,000 or 82.0% of total deposits in 1995. Interest
expense for 1995 increased $2,937,000 or 41.5% over $7,071,000 in 1994. The
increase in interest expense in 1995 was primarily due to growth in interest
bearing core deposits and an increase in rates paid on such deposits.
The following table sets forth average balance sheet information, interest
income and expense, average yields and rates, and net interest income and
margin for the years ended December 31, 1996, 1995 and 1994.
27
<PAGE> 28
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
Avg Avg Avg Avg Avg Avg
Balance Interest Yield Balance Interest Yield Balance Interest Yield
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest Earnings:
Loans(1)(2) $203,117 $22,330 11.0% $173,065 $19,713 11.4% $179,514 $17,930 10.0%
Investment Securities 82,883 4,936 6.0% 78,980 4,520 5.7% 55,944 2,518 4.5%
Federal funds sold
& other 39,203 2,035 5.2% 47,372 2,731 5.8% 28,545 1,198 4.2%
-------- ------- -------- ------- -------- -------
Total Earning Assets 325,203 $29,301 9.0% 299,417 $26,964 9.0% 264,003 $21,646 8.2%
------- ------- -------
Cash & Due from banks 22,867 23,198 19,962
Bank premises & equipment 1,239 1,421 1,515
Other assets 6,077 5,466 4,686
-------- -------- --------
Total Assets $355,386 $329,502 $290,166
======== ======== ========
Liabilities &
Shareholders' Equity:
Interest bearing:
Demand deposits $ 75,295 $1,629 2.2% $ 79,065 $ 1,909 2.4% $ 91,103 $ 2,206 2.4%
Savings 102,819 4,303 4.2% 111,351 5,083 4.6% 71,886 2,717 3.8%
Time deposits 71,119 3,927 5.5% 55,966 3,016 5.4% 52,380 2,148 4.1%
-------- ------ -------- ------- -------- -------
Total Interest Bearing
Liabilities 249,233 $9,859 4.0% 246,382 $10,008 4.1% 215,369 $ 7,071 3.3%
------ ------- -------
Demand deposits 69,877 53,909 50,143
Other Liabilities 3,048 1,527 963
-------- -------- --------
Total Liabilities 322,158 301,818 266,475
Shareholders' Equity 33,228 27,684 23,691
-------- -------- --------
$355,386 $329,502 $290,166
======== ======== ========
Net Interest Income and
Margin (Net Yield)(3) $19,442 6.0% $16,956 5.7% $14,575 5.5%
======= === ======= === ======= ===
</TABLE>
(1) Loan interest includes loan fees of $901,000, $769,000 and $916,000 in 1996,
1995 and 1994, respectively and interest recognized from payments received
on nonaccrual loans of $619,000 and $92,000 in 1996 and 1994, respectively.
(2) Average balances of loans include average allowance for loan losses of
$4,439,000, $4,411,000 and $3,298,000, and average deferred loan fees of
$613,000, $536,000 and $622,000 for the years ended December 31, 1996, 1995
and 1994, respectively.
(3) Net interest margin is computed by dividing net interest income by total
average earning assets.
OTHER INCOME - Other income growth is a key to improving overall profitability
in a deregulated competitive environment. Noninterest income provides stability
to the income stream and enhances overall profitability. Total noninterest
income was $1,456,000 for 1996, $1,302,000 for 1995 and $1,315,000 for 1994.
The Company's noninterest income is primarily derived from fees earned by the
Banks for deposit-related customer services. Income realized from service
charges on deposit accounts increased $59,000 or 8.7% to $735,000 in 1996 over
$676,000 in 1995. Service charge income for
28
<PAGE> 29
1995 represented an increase of $41,000 or 6.5% over $635,000 recognized in
1994. The increase in income from fees and service charges was largely the
result of growth in the total number of interest bearing and noninterest
bearing demand deposit accounts.
The Company also earns income from the sale and servicing of SBA loans. Income
from the sale and servicing of such loans was $161,000 in 1996 representing an
increase of $6,000 or 3.9% over $155,000 recognized in 1995. Sale and
servicing income in 1995 increased $10,000 or 6.9% over $145,000 in 1994. The
increases in income from the sale and servicing of SBA loans in 1996 and 1995
were primarily due to increases in the volume of loans sold.
Fees earned on merchant credit card transactions decreased $30,000 or 16.6% to
$151,000 in 1996 from $181,000 in 1995. In 1995, merchant card fees represented
an increase of $38,000 or 26.6% over $143,000 in 1994. Fluctuations in
merchant card fees are primarily due to fluctuations in merchant retail sales
volumes.
Mortgage origination fees increased $15,000 or 16.9% to $104,000 for 1996 from
$89,000 in 1995. The increase in 1996 was due to an increase in the volume of
mortgage applications processed as a response to lower market interest rates.
In 1995, mortgage origination fees decreased $62,000 or 40.8% from $151,000 in
1994 due to a decline in the volume of mortgage applications.
OTHER EXPENSE - Noninterest expense reflects the costs of products and
services, systems, facilities and personnel for the Company. The major
components of other expense stated as a percentage of average earning assets
are as follows:
<TABLE>
<CAPTION>
Table II Other Operating Expense to Average Earning Assets
- ---------------------------------------------------------------------------------------------------------------
In thousands 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Salaries and benefits 1.98% 1.81% 1.91%
Occupancy 0.22% 0.25% 0.27%
Furniture and equipment 0.26% 0.22% 0.26%
Professional fees 0.14% 0.22% 0.08%
Customer expenses 0.12% 0.07% 0.06%
Marketing 0.11% 0.09% 0.09%
Data processing 0.10% 0.09% 0.08%
Stationary and supplies 0.10% 0.08% 0.08%
Shareholder and director 0.09% 0.06% 0.06%
Insurance 0.05% 0.07% 0.07%
Dues and assessments 0.02% 0.16% 0.23%
Write-down of other real estate owned 0.00% 0.07% 0.00%
Other 0.23% 0.24% 0.28%
- ---------------------------------------------------------------------------------------------------------------
Total 3.42% 3.43% 3.47%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Noninterest expense increased to $11,115,000 in the year ended December 31,
1996 over $10,263,000 and $9,170,000 for the same periods in 1995 and 1994.
29
<PAGE> 30
As a percentage of average earning assets, noninterest expense decreased
slightly to 3.42% in 1996 compared to 3.43% in 1995. Noninterest expense as a
percentage of average earning assets for 1995 represented a decrease from 3.47%
in 1994.
Salaries and employee benefits expense for 1996 was $6,437,000, an increase of
18.8% over $5,419,000 in 1995, and represented approximately 1.98% of average
earning assets. Salaries and employee benefits in 1996 included approximately
$175,000 of nonrecurring charges for restructuring related to the acquisition
of Cypress and $250,000 for a salary continuation plan. The remaining increase
was due to increased headcount to accomodate growth and higher contributions to
the Company's profit sharing and employee retirement plans. Salaries and
employee benefits expense for 1995 represented an increase of $367,000 or 7.3%
over $5,052,000 in 1994. The increase in 1995 primarily reflects the impact of
increased headcount to accommodate growth in the Banks. As a percentage of
average earning assets, salaries and employee benefits expense was 1.81% in
1995 representing a decrease from 1.91% in 1994.
Occupancy expense decreased $18,000 or 2.4% to $728,000 in 1996 from $746,000
in 1995 and compares to an increase of $31,000 or 4.3% over $715,000 in 1994.
As a percentage of average earning assets, occupancy expense was .22%
representing a decrease from .25% in 1995 and .27% in 1994.
Furniture and equipment expenses of $837,000 in 1996 represented an increase of
$165,000 or 24.6% over $672,000 in 1996. The increase in 1996 was primarily
due to a one-time charge of approximately $192,000 from restructuring of
operations in connection with the acquisition of Cypress. Expense for 1995
represented a slight decrease of $21,000 or 3.0% from $693,000 in 1994. The
decrease in 1995 was primarily due to lower maintenance costs on equipment.
Furniture and equipment expenses represented .26%, .22% and .26% of average
earning assets in 1996, 1995 and 1994, respectively.
Other noninterest expenses were $3,113,000 in 1996 which represents a decrease
of $313,000 or 9.1% from 1995 expenses of $3,426,000. The decrease in 1996 is
primarily due to decreases in professional fees, deposit insurance premiums and
write-downs of other real estate owned. Other noninterest expenses for 1995
increased $716,000 or 26.4% over $2,710,000 in 1994. The increase in 1995 was
primarily related to professional fees incurred in connection with the
acquisition of Cypress and a write-down of other real estate owned to net
realizable value.
The Company's effective income tax rate was 37.9% for 1996 compared to 40.8%
for 1995 and 41.1% for 1994. Changes in the effective tax rate of the Company
are primarily due to changes in the valution allowance for the deferred tax
assets of Cypress and nondeductible costs related to the acquisition of Cypress
in 1996 and 1995 and organization of the holding company in 1994.
30
<PAGE> 31
BALANCE SHEET ANALYSIS
Total assets of Central Coast Bancorp at December 31, 1996 were $376,832,000
compared to $357,236,000 in 1995 and $310,362,000 in 1994, representing
increases of 5.5% and 15.1%, respectively. Based on average balances, total
assets of $355,386,000 in 1996 represent an increase of $25,884,000 or 7.9%
over $329,502,000 in 1995. Average total assets in 1995 represent an increase
of $39,366,000 or 13.6% over 1994.
EARNING ASSETS
INVESTMENT PORTFOLIO - The scheduled maturities and weighted average yields of
the Company's investment securities portfolio as of December 31, 1996, 1995 and
1994 are as follows:
<TABLE>
<CAPTION>
Table III Maturity and Yields of Investment Securities
Weighted
Book Unrealized Unrealized Market Average
In thousands Value Gain Losses Value Yield
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
December 31, 1996
U.S. Treasury and
agency securities
Maturing within 1 year $29,358 $ 46 $ 9 $29,395 5.72%
Maturing after 1 year
but within 5 years 37,460 71 96 37,435 5.80%
Maturing after 10 years 1,027 1 44 984 6.06%
Corporate Debt Securities
Maturing within 1 year 3,028 - 11 3,017 5.28%
Other 4 - - 4 -
- ------------------------------------------------------------------------------------------------------
Totals $70,877 $118 $ 160 $70,835 5.75%
- ------------------------------------------------------------------------------------------------------
December 31, 1995
U.S. Treasury and
agency securities
Maturing within 1 year $32,415 $234 $ 6 $32,643 5.37%
Maturing after 1 year
but within 5 years 45,942 259 - 46,201 5.70%
Maturing after 10 years 1,282 - 17 1,265 7.50%
Other 4 - - 4 -
- ------------------------------------------------------------------------------------------------------
Totals $79,643 $493 $ 23 $80,113 5.59%
- ------------------------------------------------------------------------------------------------------
December 31, 1994
U.S. Treasury and
agency securities
Maturing within 1 year $44,809 $ - $ 557 $44,252 4.33%
Maturing after 1 year
but within 5 years 23,560 - 479 23,081 5.85%
Maturing after 10 years 1,122 - 29 1,093 5.84%
Other 4 - - 4 -
- ------------------------------------------------------------------------------------------------------
Totals $69,495 $ - $1,065 $68,430 4.86%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE> 32
Investment securities designated as held-to-maturity at December 31, 1996 were
carried at an amortized cost of $70,877,000. The estimated market value of the
held-to-maturity portfolio on that date was $70,831,000 reflecting a net
unrealized loss of $46,000 or .07% of amortized cost. The book value of
investment securities at the end of 1996 compared to $79,643,000 and
$69,495,000 at December 31, 1995 and 1994, respectively. Fluctuations in the
investment portfolio reflect funding needs for anticipated and actual levels of
loan demand. In 1996, the Company experienced growth in loan balances that
outpaced growth in deposits resulting in generally higher loan to deposit
ratios and lower liquidity as compared to 1995. Conversely, in 1995 investment
balances increased as growth in deposits outpaced growth in the loan portfolio.
It is the Banks' policy to invest primarily in U.S. Treasury and U.S.
Government Agency securities. Further, it is management's intent to reduce the
market valuation risk of the investment portfolio by generally limiting the
average life of portfolio maturities to 3 years or less.
There were no sales of investment securities in 1996, 1995 or 1994.
LOAN PORTFOLIO - The following table summarizes the composition of the loan
portfolio for the past five years as of December 31:
Table IV Analysis of Loans Outstanding by Type
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
In thousands
- -----------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Commercial $ 111,545 $ 85,823 $ 78,627 $ 73,083 $ 67,255
Installment 8,230 5,677 6,445 7,384 8,846
Real Estate:
Construction 27,997 24,852 24,076 30,159 30,817
Other 93,241 79,644 74,769 74,075 63,706
- -----------------------------------------------------------------------------------------------------------
Total Loans 241,013 195,996 183,917 184,701 170,624
Allowance for
Credit Losses (4,372) (4,446) (4,068) (2,840) (2,371)
Deferred Loan Fees (649) (550) (583) (611) (554)
- -----------------------------------------------------------------------------------------------------------
Total $ 235,992 $ 191,000 $ 179,266 $ 181,250 $ 167,699
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Average net loans in 1996 were $203,117,000 representing an increase of
$30,052,000 or 17.4% over 1995. Average net loans of $173,065,000 in 1995
represented a decrease of $6,449,000 or 3.6% from $179,514,000 in 1994.
Average net loans comprised 62.5% of average earning assets in 1996 compared to
57.8% and 68.0% in 1995 and 1994, respectively.
Net loans outstanding at December 31, 1996 were $235,992,000, which represented
an increase of $44,992,000 or 23.6% over $191,000,000 on the same date one year
earlier. The overall composition of loan balances at December 31, 1996
compared to 1995 reflected increases in virtually all major categories with the
strongest growth coming from commercial
32
<PAGE> 33
loans. At December 31, 1995 net loans outstanding represented an increase of
$11,734,000 or 6.5% over $179,266,000 at December 31, 1994.
Commercial loans consist of credit lines for operating needs, loans for
equipment purchases and working capital, and various other business loan
products. At December 31, 1996, the Company had $111,545,000 in commercial
loans outstanding representing 46.3% of total gross loans compared to
$85,823,000 and 43.8% and $78,627,000 and 42.8% at December 31, 1995 and 1994,
respectively. Fluctuations in commercial loan balances in 1996 and 1995
primarily reflect cyclical changes in customer borrowing needs related to
changes in the agri-business sector of the local economy.
Installment loans include a range of traditional consumer loan products offered
by the Company such as home equity and personal lines of credit and loans to
finance purchases of autos, boats, recreational vehicles, mobile homes and
various other consumer items. At December 31, 1996, installment loans
outstanding were $8,230,000 representing 3.4% of total loans. This compares to
installment loans of $5,677,000 and $6,445,000 representing 2.9% and 3.5% at
December 31, 1995 and 1994, respectively.
The Company's construction loan portfolio increased $3,145,000 or 12.7% to
$27,997,000 at December 31, 1996 from $24,852,000 at December 31, 1995. This
compares to an increase of $776,000 or 3.2% in 1995 from $24,076,000 at
December 31, 1994. Construction loans expressed as a percentage of total loans
were 11.6%, 12.7% and 13.1% at December 31, 1996, 1995 and 1994, respectively.
The construction loans outstanding at December 31, 1996 are generally composed
of commitments to customers within the Company's service area for construction
of custom and semi- custom single family residences.
Other real estate loans consist primarily of loans to the Banks' depositors
secured by first trust deeds on commercial and residential properties typically
with short-term maturities and original loan to value ratios not exceeding 75%.
Other real estate loans increased $13,597,000 or 17.1% to $93,241,000 at
December 31, 1996 compared to $79,644,000 and $74,769,000 on December 31, 1995
and 1994, respectively. In general, except in the case of loans with SBA
guarantees, the Company does not make long-term mortgage loans; however, the
Company has informal arrangements in place with mortgage lenders to assist
customers in securing single-family mortgage financing.
RISK ELEMENTS - The Company assesses and manages credit risk on an ongoing
basis through stringent credit review and approval policies, extensive internal
monitoring and established formal lending policies. Additionally, the Company
contracts with an outside loan review consultant to periodically grade new
loans and to review the existing loan portfolio. Management believes its
ability to identify and assess risk and return characteristics of the Company's
loan portfolio is critical for profitability and growth. Management strives
to continue the historically low level of credit losses by continuing its
33
<PAGE> 34
emphasis on credit quality in the loan approval process, active credit
administration and regular monitoring. With this in mind, management has
designed and implemented a comprehensive loan review and grading system that
functions to continually assess the credit risk inherent in the loan portfolio.
Ultimately, credit quality may be influenced by underlying trends in the
economic and business cycles. The Company's business is concentrated in
Monterey County, California whose economy is highly dependent on the
agricultural industry. As a result, the Company lends money to individuals and
companies dependent upon the agricultural industry. In addition, the Company
has significant extensions of credit and commitments to extend credit which
are secured by real estate, totalling approximately $143.5 million at December
31, 1996. The ultimate recovery of these loans is generally dependent on the
successful operation, sale or refinancing of the real estate. The Company
monitors the effects of current and expected market conditions and other
factors on the collectibility of real estate loans. When, in management's
judgement, these loans are impaired, appropriate provision for losses is
recorded. The more significant assumptions management considers involve
estimates of the following: lease, absorption and sale rates; real estate
values and rates of return; operating expenses; inflation; and sufficiency of
collateral independent of the real estate including, in limited instances,
personal guarantees.
In extending credit and commitments to borrowers, the Company generally
requires collateral and/or guarantees as security. The repayment of such loans
is expected to come from cash flow or from proceeds from the sale of selected
assets of the borrowers. The Company's requirement for collateral and/or
guarantees is determined on a case-by-case basis in connection with
management's evaluation of the credit-worthiness of the borrower. Collateral
held varies but may include accounts receivable, inventory, property, plant and
equipment, income-producing properties, residences and other real property.
The Company secures its collateral by perfecting its interest in business
assets, obtaining deeds of trust, or outright possession among other means.
Credit losses from lending transactions related to real estate and agriculture
compare favorably with the Company's credit losses on its loan portfolio as a
whole.
In the period spanning the second half of 1993 and continuing through 1995,
California's economy began a gradual recovery from the recession that persisted
in first years of the decade. During 1993, real estate values firmed up
slightly as housing became more affordable due to the low levels of interest
rates, however, economic conditions in California continued to lag behind the
national trend toward recovery. During 1994 and 1995, economic conditions in
California continued to improve, however, the level of activity remained less
vigorous than the national trend. In the year ended 1996, California's
economic recovery gained momentum, growing at a rate that exceeded the national
average. Economic activity and job growth has been particularly strong in the
northern portion of the state. As a result, real estate values have firmed and
construction activity has increased. At December 31, 1996, construction loans
and other real estate secured loans comprised 11.6% and 38.7%, respectively, of
total loans outstanding.
34
<PAGE> 35
Management believes that its lending policies and underwriting standards will
tend to minimize losses in an economic downturn, however, there is no assurance
that losses will not occur under such circumstances. The Banks' loan policies
and underwriting standards include, but are not limited to, the following: 1)
maintaining a thorough understanding of the Banks' service area and limiting
investments outside of this area, 2) maintaining a thorough understanding of
borrowers' knowledge and capacity in their field of expertise, 3) basing real
estate construction loan approval not only on salability of the project, but
also on the borrowers' capacity to support the project financially in the event
it does not sell within the original projected time period, and 4) maintaining
conforming and prudent loan to value and loan to cost ratios based on
independent outside appraisals and ongoing inspection and analysis by the
Banks' construction lending officers. In addition, the Banks strive to
diversify the risk inherent in the construction portfolio by avoiding
concentrations to individual borrowers and on any one project.
NONACCRUAL LOANS, LOANS PAST DUE 90 DAYS AND OREO - Management generally places
loans on nonaccrual status when they become 90 days past due, unless the loan
is well secured and in the process of collection. Loans are charged off when,
in the opinion of management, collection appears unlikely. The following Table
sets forth nonaccrual loans and loans past due 90 days or more for December 31:
<TABLE>
<CAPTION>
Table V Non-Performing Loans
- --------------------------------------------------------------------------------------------------------------------
In thousands 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Past due 90 days or more
and still accruing:
Real estate $ 59 $ 71 $ - $ 42 $ 335
Commercial 60 35 - - 151
Installment and other 90 - 6 - 1
- --------------------------------------------------------------------------------------------------------------------
209 106 6 42 487
- --------------------------------------------------------------------------------------------------------------------
Nonaccrual:
Real estate 419 633 2,697 2,462 182
Commercial 184 194 99 454 129
Installment and other 1 24 33 43 64
- --------------------------------------------------------------------------------------------------------------------
604 851 2,829 2,959 375
- --------------------------------------------------------------------------------------------------------------------
Total nonperforming loans $ 813 $ 957 $ 2,835 $ 3,001 $ 862
====================================================================================================================
</TABLE>
Interest due but excluded from interest income on nonaccrual loans was
approximately $50,000 in 1996, $166,000 in 1995 and $306,000 in 1994. In 1996
and 1994, interest income recognized from payments received on nonaccrual loans
was $619,000 and $92,000, respectively. In 1995, no payments received on
nonaccrual loans were included in interest income.
35
<PAGE> 36
At December 31, 1996, the recorded investment in loans that are considered
impaired under SFAS No. 114 was $965,000 of which $541,000 are included as
nonaccrual loans above. Such impaired loans had a valuation allowance of
$446,000. The average recorded investment in impaired loans during 1996 was
$1,376,000. The Company recognized interest income on impaired loans of
$13,000.
There were no "troubled debt restructurings" as defined in SFAS No. 15 or loan
concentrations in excess of 10% of total loans not otherwise disclosed as a
category of loans as of December 31, 1996. Management is not aware of any
potential problem loans, which were accruing and current at December 31, 1996,
where serious doubt exists as to the ability of the borrower to comply with the
present repayment terms.
Other real estate owned was $348,000 and $506,000 at December 31, 1996 and
1995, respectively. At December 31, 1994, other real estate owned was
$318,000.
PROVISION AND ALLOWANCE FOR POSSIBLE CREDIT LOSSES - The provision for credit
losses is based upon management's evaluation of the adequacy of the existing
allowance for loans outstanding. This allowance is increased by provisions
charged to expense and reduced by loan charge-offs net of recoveries.
Management determines an appropriate provision based upon the interaction of
three primary factors: (1) the loan portfolio growth in the period, (2) a
comprehensive grading and review formula for total loans outstanding, and (3)
actual previous charge-offs.
The allowance for credit losses totaled $4,372,000 or 1.81% of total loans at
December 31, 1996 compared to $4,446,000 or 2.27% at December 31, 1995 and
$4,068,000 or 2.21% at December 31, 1994. The decrease in the allowance as a
percentage of total loans in 1996 is primarily due to the increase in loan
balances in a generally strong economic environment. Increases in the
allowance as a percentage of total loans in 1995 and 1994 were primarily a
response to adverse trends in the real estate market, the general condition of
the economy and higher net charge-offs experience. It is the policy of
management to maintain the allowance for credit losses at a level adequate for
known and future risks inherent in the loan portfolio. Based on information
currently available to analyze credit loss potential, including economic
factors, overall credit quality, historical delinquency and a history of actual
charge-offs, management believes that the credit loss provision and allowance
is prudent and adequate. However, no prediction of the ultimate level of loans
charged off in future years can be made with any certainty.
36
<PAGE> 37
FUNDING SOURCES - Deposits accepted by its subsidiary banks represent the
Company's principal source of funds for investment. Deposits are primarily
core deposits in that they are demand, savings and time deposits under $100,000
generated from local businesses and individuals. These sources are considered
to be relatively more stable, long-term deposit relationships thereby enhancing
steady growth of the deposit base without major fluctuations in overall deposit
balances. At December 31, 1996, such accounts comprise 87.0% of all deposit
balances compared to 91.4% and 91.5% at December 31, 1995 and 1994. Table VI
presents the composition of the deposit mix at December 31:
<TABLE>
<CAPTION>
Table VI Composition of Deposits
- -----------------------------------------------------------------------------------------------------------
In thousands 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Demand, non-interest $ 90,149 $ 68,541 $ 60,407 $ 47,822 $ 44,161
Demand, interest 76,392 74,079 70,911 87,588 68,579
Savings 89,650 121,050 100,484 62,188 54,369
Time 82,472 62,419 52,021 49,514 54,234
- -----------------------------------------------------------------------------------------------------------
Total $338,663 $326,089 $283,823 $247,112 $221,343
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The increase in 1996 year-end total deposits is attributable to increases in
noninterest-bearing and interest-bearing demand categories. Average total
deposits in 1996 of $319,110,000 represented an increase of $18,819,000 or 6.3%
over 1995 totals of $300,291,000 and reflects growth in noninterest-bearing
demand and time deposits which was partially offset by decreases in
interest-bearing demand and savings categories. Average noninterest bearing
demand deposits increased in 1996 to $69,877,000 from $53,909,000 in 1995
representing an increase of $15,968,000 or 29.6% as a result of the Company's
business development efforts which focuses on serving small and medium-size
businesses. Average time deposits were $71,119,000 in 1996 compared to
$55,966,000 in 1995 representing an increase of 15,153,000 or 27.1%. Growth
in time deposits was primarily due to migration of balances from savings and
interest-bearing demand accounts.
Average total deposits in 1995 represented an increase of $34,779,000 or 13.1%
over 1994 totals of $265,512,000 and primarily reflects growth in savings
balances. Changes in the composition of deposit funding in 1995 compared to
1994 reflected a shift away from time deposits toward the higher liquidity of
savings accounts as local economic activity increased. Average savings
balances of $111,351,000 represented an increase of $39,465,000 or 54.9% over
$71,886,000 in 1994.
LIQUIDITY AND INTEREST RATE SENSITIVITY
LIQUIDITY - Liquidity management refers to the Company's ability to provide
funds on an ongoing basis to meet fluctuations in deposit levels as well as the
credit needs and requirements of its clients. Both assets and liabilities
contribute to the Company's liquidity position. Federal funds lines,
short-term investments and securities, and loan repayments contribute to
liquidity, along with deposit increases, while loan funding and deposit
withdrawals decrease liquidity. The Banks assess the likelihood of projected
funding
37
<PAGE> 38
requirements by reviewing historical funding patterns, current and forecasted
economic conditions and individual client funding needs. Commitments to fund
loans and outstanding standby letters of credit at December 31, 1996, were
approximately $80,055,000 and $1,551,000, respectively. Such loans relate
primarily to revolving lines of credit and other commercial loans, and to real
estate construction loans.
The Company's sources of liquidity consist of its deposits with other banks,
overnight funds sold to correspondent banks, unpledged short-term, marketable
investments and loans held for sale. On December 31, 1996, consolidated liquid
assets totaled $85.1 million or 22.6% of total assets as compared to $121.4
million or 34.0% of total consolidated assets on December 31, 1995. In
addition to liquid assets, the subsidiary banks maintain lines of credit with
correspondent banks for up to $15,000,000 available on a short-term basis.
Informal agreements are also in place with various other banks to purchase
participations in loans, if necessary. The Company serves primarily a business
and professional customer base and, as such, its deposit base is susceptible to
economic fluctuations. Accordingly, management strives to maintain a balanced
position of liquid assets to volatile and cyclical deposits.
Liquidity is also affected by portfolio maturities and the effect of interest
rate fluctuations on the marketability of both assets and liabilities. In
addition, it has been the Banks' policy to restrict maturities in the
investment portfolio to not more than three years. The short-term nature of
the loan and investment portfolios, and loan agreements which generally require
monthly interest payments, provide the Banks with additional secondary sources
of liquidity. Another key liquidity ratio is the ratio of gross loans to total
deposits, which was 71.2% at December 31, 1996 and 60.1% at December 31, 1995.
INTEREST RATE SENSITIVITY - Interest rate sensitivity is a measure of the
exposure to fluctuations in the Banks' future earnings caused by fluctuations
in interest rates. Such fluctuations result from the mismatch in repricing
characteristics of assets and liabilities at a specific point in time. This
mismatch, or interest rate sensitivity gap, represents the potential mismatch
in the change in the rate of accrual of interest revenue and interest expense
from a change in market interest rates. Mismatches in interest rate repricing
among assets and liabilities arise primarily from the interaction of various
customer businesses (i.e., types of loans versus the types of deposits
maintained) and from management's discretionary investment and funds gathering
activities. The Company attempts to manage its exposure to interest rate
sensitivity, but due to its size and direct competition from the major banks,
it must offer products which are competitive in the market place, even if less
than optimum with respect to its interest rate exposure.
The Company's natural position is asset-sensitive (based upon the significant
amount of variable rate loans and the repricing characteristics of its deposit
accounts). This natural position provides a hedge against rising interest
rates, but has a detrimental effect during times of interest rate decreases.
38
<PAGE> 39
The following table quantifies the Company's interest rate exposure at December
31, 1996 based upon the known repricing dates of certain assets and liabilities
and the assumed repricing dates of others. This table displays a static view
of the Company's interest rate sensitivity position and does not consider the
dynamics of the balance sheet and interest rate movements.
Table VII Interest Rate Sensitivity
<TABLE>
<CAPTION>
In thousands
- --------------------------------------------------------------------------------------------------------------------------
Over three
Assets and Liabilities Next day months and Over one
which Mature or and within within and within Over
Reprice Immediately three months one year five years five years Total
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Federal funds sold $ 23,135 $ - $ - $ - $ - $ 23,135
Purchased CD's - 700 299 - - 999
Investment securities 4 2,495 29,892 37,459 1,027 70,877
Loans, excluding
nonaccrual loans
and overdrafts 189,725 12,903 9,545 17,747 9,058 238,978
- --------------------------------------------------------------------------------------------------------------------------
Total $ 212,864 $ 16,098 $ 39,736 $ 55,206 $ 10,085 $ 333,989
==========================================================================================================================
Interest bearing
liabilities:
Interest bearing demand $ 76,392 $ - $ - $ - $ - $ 76,392
Savings 89,650 - - - - 89,650
Time certificates - 21,255 43,081 18,136 - 82,472
- --------------------------------------------------------------------------------------------------------------------------
Total $ 166,042 $ 21,255 $ 43,081 $ 18,136 $ - $ 248,514
==========================================================================================================================
Interest rate
sensitivity gap $ 46,822 $ (5,857) $ (3,644) $ 37,070 $ 10,085
Cumulative interest
rate sensitivity gap $ 46,822 $ 40,965 $ 37,321 $ 74,391 $ 84,476
Ratios:
Interest rate
sensitibity gap 1.28 0.72 0.92 3.04
Cumulative interest
rate sensitivity gap 1.28 1.22 1.16 1.30 1.34
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
It is management's objective to maintain stability in the net interest margin
in times of fluctuating interest rates by maintaining an appropriate mix of
interest sensitive assets and liabilities. The Banks strive to achieve this
goal through the compostion and maturities of the investment portfolio and by
adjusting pricing of its interest bearing liabilities, however, as noted above,
the ability to manage its interest rate exposure may be constrained by
competitive pressures.
39
<PAGE> 40
CAPITAL RESOURCES
The Company's total shareholders' equity was $36,332,000 at December 31, 1996
compared to $29,916,000 as of December 31, 1995 and $25,547,000 as of December
31, 1994.
The Company and the Banks are subject to regulations issued by the Board of
Governors and the FDIC which require maintenance of a certain level of capital.
These regulations impose two capital standards: a risk-based capital standard
and a leverage capital standard.
Under the Board of Governor's risk-based capital guidelines, assets reported on
an institution's balance sheet and certain off-balance sheet items are assigned
to risk categories, each of which has an assigned risk weight. Capital ratios
are calculated by dividing the institution's qualifying capital by its
period-end risk-weighted assets. The guidelines establish two categories of
qualifying capital: Tier 1 Capital (defined to include common shareholders'
equity and noncumulative perpetual preferred stock) and Tier 2 capital defined
to include limited life (and in the case of banks, cumulative) preferred stock,
mandatory convertible securities, subordinated debt and a limited amount of
reserves for loan and lease losses. Each institution is required to maintain a
risk-based capital ratio (including Tier 1 and Tier 2 capital) of 8%, of which
at least half must be Tier 1 capital.
Under the Board of Governors' leverage capital standard an institution is
required to maintain a minimum ratio of Tier 1 capital to the sum of its
quarterly average total assets and quarterly average reserve for loan losses,
less intangibles not included in Tier 1 capital. Period-end assets may be used
in place of quarterly average total assets on a case-by-case basis. A minimum
leverage ratio of 3% is required for institutions which have been determined to
be in the highest of five categories used by regulators to rate financial
institutions and which are not experiencing or anticipating significant growth.
All other organizations are required to maintain leverage ratios of at least
100 to 200 basis points above the 3% minimum.
40
<PAGE> 41
The table below presents the capital and leverage ratios of the Company as of:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
RISK-BASED CAPITAL
RATIOS (Dollars in thousands) Amount Ratio Amount Ratio
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tier I Capital $ 36,332 14.1% $ 29,916 13.8%
--------- -------- --------- --------
Total Capital $ 39,562 15.4% $ 32,655 15.0%
--------- -------- --------- --------
Total risk-adjusted assets $257,305 $217,433
- -----------------------------------------------------------------------------------------------------------
LEVERAGE RATIO
(dollars in thousands)
Tier I Capital to average total assets $ 36,332 10.1% $ 29,916 9.1%
--------- -------- --------- --------
Quarterly average total assets $358,027 $325,502
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
substantially revises banking regulations and establishes a framework for
determination of capital adequacy of financial institutions. Under the FDICIA,
financial institutions are placed into one of five capital adequacy categories
as follows: (1) "well capitalized" consisting of institutions with a total
risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital ratio
of 6% or greater and a leverage ratio of 5% or greater, and the institution is
not subject to an order, written agreement, capital directive or prompt
corrective action directive; (2) "adequately capitalized" consisting of
institutions with a total risk-based capital ratio of 8% or greater, a Tier 1
risk-based capital ratio of 4% or greater and a leverage ratio of 4% or
greater, and the institution does not meet the definition of a "well
capitalized" institution; (3) "undercapitalized" consisting of institutions
with a total risk-based capital ratio less than 8%, a Tier 1 risk-based capital
ratio of less than 4%, or a leverage ratio of less than 4%; (4) "significantly
undercapitalized" consisting of institutions with a total risk-based capital
ratio of less than 6%, a Tier 1 risk-based capital ratio of less than 3%, or a
leverage ratio of less than 3%; and, (5) "critically undercapitalized"
consisting of an institution with a ratio of tangible equity to total assets
that is equal to or less than 2%.
Financial institutions classified as undercapitalized or below are subject to
various limitations including, among other matters, certain supervisory actions
by bank regulatory authorities and restrictions related to (i) growth of
assets, (ii) payment of interest on subordinated indebtedness, (iii) payment of
dividends or other capital distributions, and (iv) payment of management fees
to a parent holding company. The FDICIA requires the bank regulatory
authorities to initiate corrective action regarding financial institutions
which fail to meet minimum capital requirements. Such action may, among other
matters, require that the financial institution augment capital and reduce
total assets. Critically undercapitalized financial institutions may also be
subject to appointment of a receiver or conservator unless the financial
institution submits an adequate capitalization plan.
41
<PAGE> 42
INFLATION
The impact of inflation on a financial institution differs significantly from
that exerted on manufacturing, or other commercial concerns, primarily because
its assets and liabilities are largely monetary. In general, inflation
primarily affects the Company indirectly through its effect on market rates of
interest, and thus the ability of the Banks to attract loan customers.
Inflation affects the growth of total assets by increasing the level of loan
demand, and potentially adversely affects the Company's capital adequacy
because loan growth in inflationary periods can increase at rates higher than
the rate that capital grows through retention of earnings which the Company may
generate in the future. In addition to its effects on interest rates,
inflation directly affects the Company by increasing the Company's operating
expenses.
ACCOUNTING PRONOUNCEMENTS
In October, 1994, the FASB issued SFAS No. 119, "Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments." which requires
disclosures about derivative financial instruments----futures, forward, swap,
and option contracts, and other financial instruments with similar
characteristics. It requires disclosures about amounts, nature, and terms of
certain derivative financial instruments. The Company has no derivative
financial instruments that would be subject to such disclosures.
In May 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage Servicing
Rights" which requires that a mortgage banking enterprise recognize as separate
assets rights to service mortgage loans for others, however those servicing
rights are acquired. SFAS No. 122 also requires that a mortgage banking
enterprise assess its capitalized mortgage servicing rights for impairment
based on the fair value of those rights. As of December 31, 1996 the Company
has no servicing rights retained on mortgage loans.
In October, 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." which establishes accounting and disclosure requirements using a
fair value method of accounting for stock based employee compensation plans.
Under SFAS No. 123, the Company may either adopt the new fair value based
accounting method or continue the intrinsic value based method and provide
proforma disclosures of net income and earnings per share as if the accounting
provisions of SFAS No. 123 had been adopted. The provisions of SFAS 123 became
effective January 1, 1996. The Company has adopted only the disclosure
requirements of SFAS No. 123; therefore such adoption have had no effect on the
Company's consolidated net earnings or cash flows.
In June 1996, SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" was issued. The Statement
establishes standards for when transfers of financial assets, including those
with continuing involvement by the transferor, should be considered a sale.
SFAS No. 125 also establishes standards for when
42
<PAGE> 43
a liability shoud be considered extinguished. This statement is effective for
transfers of assets and extinguishments of liabilities after December 31, 1996.
In December 1996, the Financial Accounting Standards Board ("FASB")
reconsidered certain provisions of SFAS No. 125 and issued SFAS No. 127,
"Deferral of the Effective Date of Certain Provisions of FASB Statement No.
125" to defer for one year the effective date of implementation for
transactions related to repurchase agements, dollar-roll repurchase agreements,
securities lending and similar transactions. Earlier adoption or retroactive
application of this statement with respect to any of its provisions is not
permitted. Management believes that the effect of adoption on the Company's
financial statements will not be material.
43
<PAGE> 44
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
------
<S> <C>
Independent Auditors' Report 45
Consolidated Balance Sheets, December 31, 1996 and 1995 46
Consolidated Statements of Income for the years ended
December 31, 1996, 1995 and 1994 47
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 48
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1996, 1995 and 1994 49
Notes to Consolidated Financial Statements 50-67
</TABLE>
All schedules have been omitted since the required information is not present
in amounts sufficient to require submission of the schedule or because the
information required is included in the Consolidated Financial Statements or
notes thereto.
44
<PAGE> 45
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of Central Coast Bancorp:
We have audited the accompanying consolidated balance sheets of Central Coast
Bancorp and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. The consolidated financial statements give retroactive effect to the
merger of Central Coast Bancorp and Cypress Coast Bank, which has been accounted
for as a pooling of interests as described in Note 2 to the consolidated
financial statements. We did not audit the balance sheet of Cypress Coast Bank
as of December 31, 1995, or the related statements of income, shareholders'
equity and cash flows of Cypress Coast Bank for the years ended December 31,
1995 and 1994, which statements reflect total assets of $43,702,000 as of
December 31, 1995, net interest income of $1,999,000 and $1,708,000 and net
income of $437,000 and $169,000 for the years ended December 31, 1995 and 1994,
respectively. Those statements were audited by other auditors whose report has
been furnished to us, and our opinion, insofar as it relates to the amounts
included for Cypress Coast Bank for 1995 and 1994, is based solely on the report
of such other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Central Coast Bancorp and
subsidiaries at December 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Salinas, California
February 11, 1997
(March 28, 1997 as to the stock split information in Note 1)
45
<PAGE> 46
Consolidated Balance Sheets
Central Coast Bancorp and Subsidiaries
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
December 31, 1996 1995
- ------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 37,522,000 $ 27,915,000
Federal funds sold 23,135,000 46,764,000
- ------------------------------------------------------------------------------------
Total cash and equivalents 60,657,000 74,679,000
Interest-bearing deposits in other
financial institutions 999,000 4,492,000
Held-to-maturity securities (market
value: 1996, $70,835,000; 1995, $80,113,000) 70,877,000 79,643,000
Loans held for sale 447,000 540,000
Loans:
Commercial 111,545,000 85,823,000
Real estate-construction 27,997,000 24,852,000
Real estate-other 93,241,000 79,644,000
Installment 8,230,000 5,677,000
- ------------------------------------------------------------------------------------
Total loans 241,013,000 195,996,000
Allowance for credit losses (4,372,000) (4,446,000)
Deferred loan fees net (649,000) (550,000)
- ------------------------------------------------------------------------------------
Net Loans 235,992,000 191,000,000
- ------------------------------------------------------------------------------------
Premises and equipment, net 1,140,000 1,333,000
Accrued interest receivable and other assets 6,720,000 5,549,000
- ------------------------------------------------------------------------------------
Total assets $376,832,000 $357,236,000
====================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand, noninterest bearing $ 90,149,000 $ 68,541,000
Demand, interest bearing 76,392,000 74,079,000
Savings 89,650,000 121,050,000
Time 82,472,000 62,419,000
- ------------------------------------------------------------------------------------
Total Deposits 338,663,000 326,089,000
Accrued interest payable and other liabilities 1,837,000 1,231,000
- ------------------------------------------------------------------------------------
Total liabilities 340,500,000 327,320,000
- ------------------------------------------------------------------------------------
Commitments and contingencies
(Notes 7 and 13)
Shareholders' Equity
Preferred stock-no par value; authorized
1,000,000 shares; no shares issued
Common stock - no par value, authorized 30,000,000
shares; issued and outstanding: 4,273,227 shares
in 1996 and 3,807,681 shares in 1995 30,856,000 25,860,000
Retained earnings 5,476,000 4,056,000
- ------------------------------------------------------------------------------------
Shareholders' equity 36,332,000 29,916,000
- ------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $376,832,000 $357,236,000
====================================================================================
</TABLE>
See notes to Consolidated Financial Statements
46
<PAGE> 47
Consolidated Statements of Income
Central Coast Bancorp and Subsidiaries
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Years Ended December 31, 1996 1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Loans (including fees) $ 22,330,000 $ 19,713,000 $ 17,930,000
Held-to-maturity securities:
Taxable 4,936,000 4,520,000 2,511,000
Tax exempt -- -- 7,000
Other 2,035,000 2,731,000 1,198,000
- ---------------------------------------------------------------------------------------------
Total interest income 29,301,000 26,964,000 21,646,000
- ---------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 9,859,000 9,998,000 7,071,000
Other -- 10,000 --
- ---------------------------------------------------------------------------------------------
Total interest expense 9,859,000 10,008,000 7,071,000
- ---------------------------------------------------------------------------------------------
NET INTEREST INCOME 19,442,000 16,956,000 14,575,000
PROVISION FOR CREDIT LOSSES (352,000) (695,000) (1,745,000)
- ---------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES 19,090,000 16,261,000 12,830,000
- ---------------------------------------------------------------------------------------------
OTHER INCOME
Service charges on deposits 735,000 676,000 635,000
Other 721,000 626,000 680,000
- ---------------------------------------------------------------------------------------------
Total other income 1,456,000 1,302,000 1,315,000
- ---------------------------------------------------------------------------------------------
OTHER EXPENSES
Salaries and benefits 6,437,000 5,419,000 5,052,000
Occupancy 728,000 746,000 715,000
Furniture and equipment 837,000 672,000 693,000
Other 3,113,000 3,426,000 2,710,000
- ---------------------------------------------------------------------------------------------
Total other expenses 11,115,000 10,263,000 9,170,000
- ---------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 9,431,000 7,300,000 4,975,000
PROVISION FOR INCOME TAXES 3,571,000 2,975,000 2,046,000
- ---------------------------------------------------------------------------------------------
NET INCOME $ 5,860,000 $ 4,325,000 $ 2,929,000
- ---------------------------------------------------------------------------------------------
NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARE $ 1.24 $ 0.94 $ 0.65
- ---------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
47
<PAGE> 48
Consolidated Statements of Cash Flows
Central Coast Bancorp and Subsidiaries
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Years Ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATIONS:
Net income $ 5,860,000 $ 4,325,000 $ 2,929,000
Reconciliation of net income to net cash provided
by operating activities:
Provision for credit losses 352,000 695,000 1,745,000
Depreciation 557,000 469,000 470,000
Amortization and accretion (42,000) (292,000) 149,000
Loss on sale of equipment 52,000 -- 3,000
Deferred income taxes (300,000) (168,000) (877,000)
Write down (gain on sale) of other real estate owned (87,000) 215,000 24,000
Increase in accrued interest receivable
and other assets (787,000) (184,000) (311,000)
Increase in accrued interest payable
and other liabilities 606,000 251,000 217,000
Increase (decrease) in deferred loan fees 99,000 (32,000) (29,000)
- --------------------------------------------------------------------------------------------------------
Net cash provided by operations 6,310,000 5,279,000 4,320,000
- --------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in interest-bearing
deposits in financial institutions 3,493,000 (1,693,000) 807,000
Purchase of investment securities (48,161,000) (72,972,000) (39,142,000)
Proceeds from maturities
of investment securities 56,969,000 63,117,000 20,050,000
Net change in loans held for sale 93,000 195,000 (558,000)
Net increase in loans (45,485,000) (12,962,000) (327,000)
Proceeds from sale of other real estate owned 287,000 163,000 254,000
Proceeds from sale of equipment 1,000 -- 2,000
Capital expenditures (417,000) (317,000) (690,000)
- --------------------------------------------------------------------------------------------------------
Net cash used in investing activities (33,220,000) (24,469,000) (19,604,000)
- --------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposit accounts 12,574,000 42,265,000 36,711,000
Proceeds from sale of stock 319,000 32,000 639,000
Common stock repurchased (5,000) -- --
- --------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 12,888,000 42,297,000 37,350,000
- --------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and equivalents (14,022,000) 23,107,000 22,066,000
Cash and equivalents, beginning of year 74,679,000 51,572,000 29,506,000
- --------------------------------------------------------------------------------------------------------
Cash and equivalents, end of year $ 60,657,000 $ 74,679,000 $ 51,572,000
- --------------------------------------------------------------------------------------------------------
NONCASH INVESTING AND FINANCING ACTIVITIES:
In 1996, 1995 and 1994 the Company obtained $42,000, $566,000 and $353,000 respectively of real estate
(OREO) in connection with foreclosures of delinquent loans. In 1996, 1995 and 1994 the Company received
$242,000, $12,000 and $46,000, respectively in tax benefits from the exercise of stock options, which
were recorded as increases to common stock.
- --------------------------------------------------------------------------------------------------------
OTHER CASH FLOW INFORMATION:
Interest paid $ 9,852,000 $ 9,853,000 $ 6,939,000
Income taxes paid 4,063,000 3,219,000 3,081,000
- --------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
48
<PAGE> 49
<TABLE>
<CAPTION>
Consolidated Statements of Shareholders' Equity
Central Coast Bancorp and Subsidiaries
- -----------------------------------------------------------------------------------------------
Years Ended December 31, Common Stock Retained
1996, 1995 & 1994 Shares Amount Earnings Total
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balances, January 1, 1994 3,037,843 $ 19,523,000 $ 2,409,000 $ 21,932,000
10% stock dividend
(including fractional shares) 267,765 2,231,000 (2,231,000) -
Sale of stock less
offering costs 123,606 603,000 - 603,000
Stock options exercised 15,632 37,000 - 37,000
Tax benefit of stock options
exercised - 46,000 - 46,000
Net income - - 2,929,000 2,929,000
- -----------------------------------------------------------------------------------------------
Balances, December 31, 1994 3,444,846 22,440,000 3,107,000 25,547,000
12% stock dividend
(including fractional shares) 355,326 3,376,000 (3,376,000) -
Sale of stock less
offering costs 1,944 10,000 - 10,000
Stock options exercised 5,565 22,000 - 22,000
Tax benefit of stock options
exercised - 12,000 - 12,000
Net income - - 4,325,000 4,325,000
- -----------------------------------------------------------------------------------------------
Balances, December 31, 1995 3,807,681 25,860,000 4,056,000 29,916,000
10% stock dividend 380,768 4,440,000 (4,440,000) -
Stock repurchased (653) (5,000) - (5,000)
Stock options and
warrants exercised 85,431 319,000 - 319,000
Tax benefit of stock options
exercised - 242,000 - 242,000
Net income - - 5,860,000 5,860,000
- -----------------------------------------------------------------------------------------------
Balances, December 31, 1996 4,273,227 $ 30,856,000 $ 5,476,000 $ 36,332,000
- -----------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
49
<PAGE> 50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Central Coast Bancorp and Subsidiaries
Years ended December 31, 1996, 1995 and 1994
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES AND OPERATIONS. The consolidated
financial statements include Central Coast Bancorp (the "Company") and its
wholly-owned subsidiaries, Bank of Salinas and Cypress Bank (the "Banks"). All
material intercompany accounts and transactions are eliminated in consolidation.
The accounting and reporting policies of the Company and the Banks conform to
generally accepted accounting principles and prevailing practices within the
banking industry. In preparing such financial statements, management is required
to make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the balance sheet and revenues and expenses for
the period. Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant changes in
the near term relate to the determination of the allowance for credit losses and
the carrying value of other real estate owned. Management uses information
provided by an independent loan review service in connection with the
determination of the allowance for loan losses.
Bank of Salinas operates two branches in the Salinas Valley and Cypress Bank
operates two branches on the Monterey Peninsula, serving small and medium sized
business customers, as well as individuals. The Banks focus on business loans
and deposit services to customers throughout Monterey and San Benito counties.
INVESTMENT SECURITIES are classified at the time of purchase into one of three
categories: held-to-maturity, trading or available-for-sale. Investment
securities classified as held-to-maturity are measured at amortized cost based
on the Company's positive intent and ability to hold such securities to
maturity. Trading securities are bought and held principally for the purpose of
selling them in the near term and are carried at market value with a
corresponding recognition of unrecognized holding gain or loss in the results of
operations. The remaining investment securities are classified as
available-for-sale and are measured at market value with a corresponding
recognition of the unrealized holding gain or loss (net of tax effect) as a
separate component of shareholders' equity until realized. Accretion of
discounts and amortization of premiums arising at acquisition are included in
income using methods approximating the effective interest method. Gains and
losses on sales of investments, if any, are determined on a specific
identification basis.
In 1996 and 1995, the Company's investment securities were classified as
held-to-maturity.
LOANS are stated at the principal amount outstanding, reduced by any charge-offs
or specific valuation allowance. Loan origination fees and certain direct loan
50
<PAGE> 51
origination costs are deferred and the net amount is recognized using the
effective yield method, generally over the contractual life of the loan.
Interest income is accrued as earned. The accrual of interest on loans is
discontinued and any accrued and unpaid interest is reversed when principal or
interest is ninety days past due, when payment in full of principal or interest
is not expected or when a portion of the principal balance has been charged off.
Income on such loans is then recognized only to the extent that cash is received
and where the future collection of principal is probable. Senior management may
grant a waiver from nonaccrual status if a loan is well secured and in the
process of collection. When a loan is placed on nonaccrual status, the accrued
and unpaid interest receivable is reversed and the loan is accounted for on the
cash or cost recovery method thereafter, until qualifying for return to accrual
status. Generally, a loan may be returned to accrual status when all delinquent
interest and principal become current in accordance with the original terms of
the loan agreement or when the loan is both well secured and in process of
collection.
Loans held for sale are stated at the lower of cost or aggregate market value.
THE ALLOWANCE FOR CREDIT LOSSES is an amount that management believes will be
adequate to absorb losses inherent in existing loans and commitments to extend
credit, based on evaluations of collectibility and prior loss experience. The
allowance is established through a provision charged to expense. Loans are
charged against the allowance when management believes that the collectibility
of the principal is unlikely. In evaluating the adequacy of the reserve,
management considers numerous factors such as changes in the composition of the
portfolio, overall portfolio quality, loan concentrations, specific problem
loans, and current and anticipated local economic conditions that may affect the
borrowers' ability to pay.
A loan is impaired when, based on current information and events, it is probable
that the Company will be unable to collect all amounts due according to the
contractual terms of the loan agreement. Impaired loans are measured based on
the present value of expected future cash flows discounted at the loan's
effective interest rate or, as a practical expedient, at the loan's observable
market price or the fair value of the collateral if the loan is
collateral-dependent.
Real estate and other assets acquired in satisfaction of indebtedness are
recorded at the lower of estimated fair market value net of anticipated selling
costs or the recorded loan amount, and any difference between this and the loan
amount is treated as a loan loss. Costs of maintaining other real estate owned,
subsequent write downs and gains or losses on the subsequent sale are reflected
in current earnings.
51
<PAGE> 52
PREMISES AND EQUIPMENT are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed on a straight-line
basis over the lesser of the lease terms or estimated useful lives of the
assets, which are generally 3 to 30 years.
STOCK COMPENSATION. In October 1995, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation", which is effective in 1996. In accordance with
the provisions of SFAS No. 123 the Company applies APB Opinion 25 and
related interpretations in accounting for its stock option plans and,
accordingly, does not recognize compensation cost. Note 11 to the Consolidated
Financial Statements contains a summary of the pro forma effects to reported net
income and earnings per share for 1996 and 1995 if the Company had elected
to recognize compensation cost based on the fair value of the options granted at
grant date as prescribed by SFAS No. 123.
INCOME TAXES are provided using the asset and liability method. Under this
method, deferred tax assets and liabilities are recognized for the future tax
consequences of differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities arise principally from differences in reporting
provisions for credit losses, net operating loss carryforwards, interest on
nonaccrual loans, depreciation, state franchise taxes and accruals related to
the salary continuation plan. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE is calculated using the
weighted average shares outstanding plus the dilutive effect of shares issuable
under the stock option plans and outstanding stock purchase warrants, adjusted
retroactively for stock dividends of 10% in January 1994, 12% in January 1995
and 10% in July 1996. The number of shares used to compute net income per common
and common equivalent share amounts were approximately 4,710,000, 4,590,000,
4,540,000 in 1996, 1995 and 1994, respectively. The difference between primary
and fully-diluted earnings per share was not significant in any year.
STOCK SPLIT. On February 24, 1997 the Board of Directors declared a 3-for-2
stock split to be distributed on March 28, 1997, to shareholders as of record
as of March 14, 1997. All share and per share data including stock option and
warrant information have been retroactively adjusted to reflect the stock split.
RECLASSIFICATIONS. Certain prior year amounts have been reclassified to conform
to the financial statement presentation for the current year. The
reclassifications had no impact on results of operations or shareholders'
equity.
52
<PAGE> 53
NOTE 2. ACQUISITION OF CYPRESS COAST BANK
On May 31, 1996, the Company acquired Cypress Coast Bank ("Cypress"). As a
result Cypress became a subsidiary of the Company and continues to operate from
its offices in Seaside and Marina. Cypress shareholders received 534,310 shares
of common stock of the Company in a tax-free exchange. At May 31, 1996, Cypress
had unaudited total assets of $46.9 million, including $29.8 million in net
loans and total unaudited liabilities of $42.7 million, including $42.5 million
in deposits. The transaction has been accounted for as a pooling-of-interests.
Included in the consolidated statements of income for the year ended December
31, 1996 are the following results of the previously separate companies.
<TABLE>
<CAPTION>
January 1, 1996 through May 31, 1996 June 1, 1996 through
------------------------------------ December 31, 1996
Central Coast Cypress Coast --------------------
(In thousands) Bancorp Bank Combined Total
------------- ------------- -------- -------
<S> <C> <C> <C> <C>
Net interest
income $ 7,390 $ 832 $10,868 $19,090
Net income 2,727 249 2,884 5,860
</TABLE>
The following is a reconciliation of the results of operations previously
reported by Central Coast Bancorp for the years ended December 31, 1995 and 1994
with the combined amounts currently presented for those periods:
(In thousands)
<TABLE>
<CAPTION>
Year Ended Central Coast
December 31, Bancorp Cypress Coast
1995 (as previously reported) Bank Total
- ---- ------------------------ ------------- -----
<S> <C> <C> <C>
Net interest
income $ 14,957 $ 1,999 $ 16,956
Net income 3,888 437 4,325
Year Ended
December 31,
1994
- ----
Net interest
income $ 12,867 $ 1,708 $ 14,575
Net income 2,760 169 2,929
</TABLE>
53
<PAGE> 54
NOTE 3. PENDING BRANCH ACQUISITION. In October, the Bank of Salinas entered into
a definitive agreement to purchase certain assets and assume certain liabilities
of the Gonzales and Castroville branch offices of Wells Fargo Bank outstanding
as of the close of business on February 21, 1997 (including unaudited total
deposit liabilities of approximately $34 million). As a result of the
transaction the Bank will assume deposit liabilities, receive cash, and acquire
tangible assets. This transaction will result in intangible assets, representing
the excess of the liabilities assumed over the fair value of the tangible assets
acquired.
NOTE 4. CASH AND DUE FROM BANKS. The Company, through its bank subsidiaries, is
required to maintain reserves with the Federal Reserve Bank. Reserve
requirements are based on a percentage of deposits. At December 31, 1996 the
Company maintained reserves of approximately $4,252,000 in the form of vault
cash and balances at the Federal Reserve to satisfy regulatory requirements.
NOTE 5. SECURITIES. The scheduled maturities and weighted average yields of the
Company's held-to-maturity securities portfolio as of December 31, 1996 and 1995
are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Weighted
Carrying Unrealized Unrealized Market Average
In thousands Value Gain Losses Value Yield
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
December 31, 1996
U.S. Treasury and
agency securities
Maturing within 1 year $29,358 $ 46 $ 9 $29,395 5.72%
Maturing after 1 year
but within 5 years 37,460 71 96 37,435 5.80%
Maturing after 10 years 1,027 1 44 984 6.06%
Corporate Debt Securities
Maturing within 1 year 3,028 -- 11 3,017 5.28%
Other 4 -- -- 4 --
- ---------------------------------------------------------------------------------------------
Totals $70,877 $ 118 $ 160 $70,835 5.75%
- ---------------------------------------------------------------------------------------------
December 31, 1995
U.S. Treasury and
agency securities
Maturing within 1 year $32,415 $ 234 $ 6 $32,643 5.37%
Maturing after 1 year
but within 5 years 45,942 259 -- 46,201 5.70%
Maturing after 10 years 1,282 -- 17 1,265 7.50%
Other 4 -- -- 4 --
- ---------------------------------------------------------------------------------------------
Totals $79,643 $ 493 $ 23 $80,113 5.59%
- ---------------------------------------------------------------------------------------------
</TABLE>
54
<PAGE> 55
At December 31, 1996 and 1995, all securities were classified as
held-to-maturity and securities with a book value of $45,834,000 and $37,989,000
were pledged as collateral for deposits of public funds and other purposes as
required by law or contract.
There were no sales of securities in 1996, 1995 or 1994.
NOTE 6. LOANS AND ALLOWANCE FOR CREDIT LOSSES. The Company's business is
concentrated in Monterey County, California whose economy is highly dependent on
the agricultural industry. As a result, the Company lends money to individuals
and companies dependent upon the agricultural industry. In addition, the Company
has significant extensions of credit and commitments to extend credit which are
secured by real estate, the ultimate recovery of which is generally dependent on
the successful operation, sale or refinancing of the real estate, totaling
approximately $143.5 million. The Company monitors the effects of current and
expected market conditions and other factors on the collectibility of real
estate loans. When, in management's judgment, these loans are impaired,
appropriate provision for losses is recorded. The more significant assumptions
management considers involve estimates of the following: lease, absorption and
sale rates; real estate values and rates of return; operating expenses;
inflation; and sufficiency of collateral independent of the real estate
including, in limited instances, personal guarantees.
In extending credit and commitments to borrowers, the Company generally requires
collateral and/or guarantees as security. The repayment of such loans is
expected to come from cash flow or from proceeds from the sale of selected
assets of the borrowers. The Company's requirement for collateral and/or
guarantees is determined on a case-by-case basis in connection with management's
evaluation of the credit worthiness of the borrower. Collateral held varies but
may include accounts receivable, inventory, property, plant and equipment,
income-producing properties, residences and other real property. The Company
secures its collateral by perfecting its interest in business assets, obtaining
deeds of trust, or outright possession among other means. Credit losses from
lending transactions related to real estate and agriculture compare favorably
with the Company's credit losses on its loan portfolio as a whole.
The activity in the allowance for credit losses is summarized as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
In thousands 1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year $ 4,446 $ 4,068 $ 2,840
Provision charged to expense 352 695 1,745
Loans charged off (620) (434) (583)
Recoveries 194 117 66
- -------------------------------------------------------------------------------
Balance, end of year $ 4,372 $ 4,446 $ 4,068
- -------------------------------------------------------------------------------
</TABLE>
55
<PAGE> 56
In determining the provision for estimated losses related to specific major
loans, management evaluates its allowance on an individual loan basis, including
an analysis of the credit worthiness, cash flows and financial status of the
borrower, and the condition and the estimated value of the collateral. Specific
valuation allowance for secured loans are determined by the excess of recorded
investment in the loan over the fair market value or net realizable value where
appropriate, of the collateral. In determining overall general valuation
allowances to be maintained and the loan loss allowance ratio, management
evaluates many factors including prevailing and forecasted economic conditions,
regular reviews of the quality of loans, industry experience, historical loss
experience, composition and geographic concentrations of the loan portfolio, the
borrowers' ability to repay and repayment performance and estimated collateral
values.
Management believes that the allowance for credit losses at December 31, 1996 is
prudent and warranted, based on information currently available. However, no
prediction of the ultimate level of loans charged off in future years can be
made with any certainty.
Nonperforming loans at December 31 are summarized below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
In thousands 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Past due 90 days or more and still accruing
Real estate $ 59 $ 71
Commercial 60 35
Installment and other 90 --
- --------------------------------------------------------------------------------
209 106
- --------------------------------------------------------------------------------
Nonaccrual:
Real estate 419 633
Commercial 184 194
Installment and other 1 24
- --------------------------------------------------------------------------------
604 851
- --------------------------------------------------------------------------------
Total $813 $957
- --------------------------------------------------------------------------------
</TABLE>
Interest due but excluded from interest income on nonaccrual loans was
approximately $50,000 in 1996, $166,000 in 1995 and $306,000 in 1994. In 1996
and 1994, interest income recognized from payments received on nonaccrual loans
was $619,000 and $92,000, respectively. In 1995, no payments received on
nonaccrual loans were included in interest income
At December 31, 1996 and 1995, the recorded investment in loans that are
considered impaired was $965,000 and $1,099,000 of which $541,000 and $189,000
are included as nonaccrual loans above. Such impaired loans had a valuation
allowance of $446,000 and $535,000. The average recorded investment in impaired
loans during 1996 and 1995 was $1,376,000 and $973,000, respectively. The
Company recognized
56
<PAGE> 57
interest income on impaired loans of $13,000 and $103,000 in 1996 and 1995,
respectively.
Other real estate owned included in other assets was $348,000 and $506,000 (net
of a $185,000 and $215,000 valuation allowance) at December 31, 1996 and 1995,
respectively.
Note 7. Premises and equipment. Premises and equipment at December 31 are
summarized as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
In thousands 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Furniture and equipment $ 3,450 $ 2,502
Leasehold improvement 1,079 1,842
- --------------------------------------------------------------------------------
4,529 4,344
Accumulated depreciation and amortization (3,389) (3,011)
- --------------------------------------------------------------------------------
Premises and equipment, net 1,140 1,333
- --------------------------------------------------------------------------------
</TABLE>
The Company's facilities leases expire in June 1997 through December 1999 with
options to extend for two to fifteen years. These include four facilities leased
from shareholders at terms and conditions which management believes are
consistent with the market. Rental rates are adjusted annually for changes in
certain economic indices. Rental expense was approximately $406,000, $397,000
and $401,000, including lease expense to shareholders of $174,000, $170,000 and
$168,000 in 1996, 1995 and 1994, respectively. The minimum annual rental
commitments under these leases, including the remaining rental commitment under
the leases to shareholders, are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Operating
In thousands Leases
- --------------------------------------------------------------------------------
<S> <C>
1997 $ 390
1998 390
1999 301
- --------------------------------------------------------------------------------
Total $ 1,081
- --------------------------------------------------------------------------------
</TABLE>
57
<PAGE> 58
NOTE 8. INCOME TAXES. The provision for income taxes is as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
In thousands 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 2,830 $ 2,287 $ 2,136
State 1,041 856 787
- --------------------------------------------------------------------------------
Total 3,871 3,143 2,923
- --------------------------------------------------------------------------------
Deferred:
Federal (289) (125) (647)
State (11) (43) (230)
- --------------------------------------------------------------------------------
Total (300) (168) (877)
- --------------------------------------------------------------------------------
Total $ 3,571 $ 2,975 $ 2,046
- --------------------------------------------------------------------------------
</TABLE>
A reconciliation of the Federal income tax rate to the effective tax rate is as
follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory Federal income tax rate 35.0% 35.0% 35.0%
State income taxes (net of
Federal income tax benefit) 7.6% 7.8% 7.6%
Change in the valuation allowance
for deferred taxes (4.0%) (2.5%) (1.5%)
Other (0.7%) 0.5% 0.0%
- --------------------------------------------------------------------------------
Effective tax rate 37.9% 40.8% 41.1%
- --------------------------------------------------------------------------------
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1996 and
1995, respectively, are presented below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
In thousands 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets (liabilities):
Provision for credit losses $ 1,699 $ 1,743
Net operating loss 187 306
State income taxes 152 117
Salary continuation plan 113 --
Excess serving rights 97 88
OREO valuation reserve 97 98
Accrual to cash adjustments (51) (106)
Interest on nonaccrual loans 25 191
Depreciation 16 20
Other 33 6
- --------------------------------------------------------------------------------
Subtotal 2,368 2,463
Valuation allowance for deferred tax assets -- (381)
- --------------------------------------------------------------------------------
Net deferred tax asset $ 2,368 $ 2,082
- --------------------------------------------------------------------------------
</TABLE>
58
<PAGE> 59
NOTE 9. DETAIL OF OTHER EXPENSE. Other expense for the years ended December 31,
1996, 1995 and 1994 consists of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
In thousands 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Professional fees 454 644 224
Customer expenses 379 213 168
Marketing 345 253 226
Data processing 330 261 215
Stationary and supplies 319 247 208
Shareholder and director 284 187 167
Insurance 176 215 175
Dues and assessments 65 487 619
Write down of other real estate owned -- 215 24
Other 761 704 684
- --------------------------------------------------------------------------------
Total 3,113 3,426 2,710
- --------------------------------------------------------------------------------
</TABLE>
NOTE 10. STOCK PURCHASE WARRANTS. During 1995 and 1994, warrants were issued in
connection with the sale of the Company's common stock at a rate of one warrant
for every share of stock purchased. The warrants are exercisable at $5.75 and
expire on June 30, 1999. During 1996, 21,932 warrants were exercised (none in
1995 and 1994) and at December 31, 1996, 116,173 warrants were outstanding.
NOTE 11. EMPLOYEE BENEFIT PLANS. The Company has two stock option plans under
which incentive stock options or nonqualified stock options may be granted to
certain key employees or directors to purchase authorized, but unissued, common
stock. Shares may be purchased at a price not less than the fair market value of
such stock on the date of grant. Options vest over various periods not in excess
of ten years from date of grant and expire not more than ten years from date of
grant.
Activity under the stock option plans adjusted for stock dividends is as
follows:
<TABLE>
<CAPTION>
Weighted
Average
- ---------------------------------------------------------------------------------------------
Shares Price per share Price
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balances, January 1, 1994 534,171 $1.95-6.49 $ 3.29
Exercised (19,297) 1.95 1.95
Expired (8,946) 6.49 6.49
- ---------------------------------------------------------------------------------------------
Balances, December 31, 1994 505,928 1.95-6.49 3.28
Granted (wt. avg. fair value $2.66 per share) 188,858 4.79-9.70 8.11
Exercised (6,122) 1.95-6.49 3.60
Canceled (34,428) 3.35-8.49 5.92
- ---------------------------------------------------------------------------------------------
Balances, December 31, 1995 654,236 1.95-9.70 4.54
Granted (wt. avg. fair value $4.00 per share) 321,000 11.06-14.33 14.20
Exercised (63,500) 1.95-6.49 3.07
Expired (18,075) 1.95-8.49 4.57
- ---------------------------------------------------------------------------------------------
Balances, December 31, 1996 893,661 1.95-14.33 7.78
- ---------------------------------------------------------------------------------------------
</TABLE>
59
<PAGE> 60
Additional information regarding options outstanding as of December 31, 1996 is
as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
------------------------------- -----------------------------
Weighted Average
Remaining Weighted Weighted
Range of Number Contractual Average Number Average
Exercise Prices Outstanding Life (years) Exercise Price Exercisable Exercise Price
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$1.95-3.19 379,590 2.0 $ 3.12 267,054 $ 3.11
4.79-8.48 184,821 7.8 7.73 75,043 7.11
9.69-14.33 329,250 9.7 13.19 1,650 9.69
- --------------------------------------------------------------------------------------------------
$1.95-14.33 893,661 6.1 $ 7.78 343,747 $ 4.02
- --------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1996, 380,253 shares were available for additional grants.
401(K) SAVINGS PLAN
The Company has a 401(k) Savings Plan under which eligible employees may elect
to make tax deferred contributions from their annual salary, to a maximum
established annually by the IRS. The Company matches 20% of the employees'
contributions. The Company may make additional contributions to the plan at the
discretion of the Board of Directors. All employees meeting age and service
requirements are eligible to participate in the Plan. Company contributions vest
after 3 years of service. Company contributions during 1996, 1995 and 1994 which
are funded currently, totaled $46,000, $43,000 and $37,000, respectively.
SALARY CONTINUATION PLAN
In 1996 the Company established a salary continuation plan for five officers
which provides for retirement benefits upon reaching age 63. The Company accrues
such post-retirement benefits over the vesting periods (of five or ten years).
In the event of a change in control of the Company, the officers' benefits will
fully vest. The Company accrued $250,000 in 1996.
EMPLOYEE STOCK OWNERSHIP PLAN
Effective January 1, 1996, the Company established an employee stock ownership
plan. Under this plan, the Company intends to make contributions which will be
invested primarily in Company stock. All full time employees meeting the age and
service requirements are eligible to participate and will receive a share of
each company contribution either in proportion to their annual compensation
expense or in an equal amount for each eligible employee at the discretion of
the Company. Contributions vest to each employee based on their years of service
( three to seven years). Upon retirement, employees will receive the value of
the amounts which have been accumulated in their accounts in the form of Company
stock.
60
<PAGE> 61
Contributions to the plan are at the discretion of the Company. Company
contributions during 1996 totaled $50,000.
ADDITIONAL STOCK PLAN INFORMATION
As discussed in Note 1, the Company continues to account for its stock-based
awards using the intrinsic value method in accordance with Accounting Principles
Board No. 25, "Accounting for Stock Issued to Employees" and its related
interpretations. Accordingly, no compensation expense has been recognized in the
financial statements for employee stock arrangements.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", (SFAS 123) requires the disclosure of pro forma net income and
earnings per share had the Company adopted the fair value method as of the
beginning of fiscal 1995. Under SFAS 123, the fair value of stock-based awards
to employees is calculated through the use of option pricing models, even though
such models were developed to estimate the fair value of freely tradable, fully
transferable options without vesting restrictions, which significantly differ
from the Company's stock option awards. These models also require subjective
assumptions, including future stock price volatility and expected time to
exercise, which greatly affect the calculated values. The Company's calculations
were made using the Black-Scholes option pricing model with the following
weighted average assumptions: expected life, four years following vesting;
average stock volatility of 12%; average risk free interest rate of 5.79%; and
no dividends during the expected term. The Company's calculations are based on a
multiple option valuation approach and forfeitures are recognized as they occur.
If the computed fair values of the 1995 and 1996 awards had been amortized to
expense over the vesting period of the awards, pro forma net income would have
been $4,203,000 ($0.93 per share) in 1995 and $5,348,000 ($1.14 per share) in
1996. However, the impact of outstanding non-vested stock options granted prior
to 1995 has been excluded from the pro forma calculation; accordingly, the 1995
and 1996 pro forma adjustments are not indicative of future period pro forma
adjustments, when the calculation will apply to all applicable stock options.
NOTE 12. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS. The following
disclosure of the estimated fair value of financial instruments is made in
accordance with the requirements of SFAS No. 107, "Disclosures About Fair Value
of Financial Instruments". The estimated fair value amounts have been determined
by using available market information and appropriate valuation methodologies.
However, considerable judgment is required to interpret market data to develop
the estimates of fair value. Accordingly, the estimates presented are not
necessarily indicative of the amounts that could be realized in a current market
exchange. The use of different market assumptions and/or estimation techniques
may have a material effect on the estimated fair value amounts.
61
<PAGE> 62
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
December 31, 1996 December 31, 1995
- --------------------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
In thousands Amount Fair Value Amount Fair Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and cash equivalents $ 60,657 $ 60,657 $ 74,679 $ 74,679
Interest-bearing deposits in other
financial institutions 999 999 4,492 4,496
Securities 70,877 70,835 79,643 80,113
Loans held for sale 447 483 540 585
Loans, net 235,992 236,060 191,000 191,166
FINANCIAL LIABILITIES
Demand deposits 166,541 166,541 142,620 142,620
Time deposits 82,472 82,863 62,419 62,794
Savings 89,650 89,650 121,050 121,050
</TABLE>
The following estimates and assumptions were used to estimate the fair value of
the financial instruments.
CASH AND CASH EQUIVALENTS - The carrying amount is a reasonable estimate of fair
value.
INTEREST-BEARING DEPOSITS IN OTHER FINANCIAL INSTITUTIONS AND SECURITIES - Fair
values of interest-bearing deposits in other financial institutions and
securities are based on quoted market prices or dealer quotes. If a quoted
market price was not available, fair value was estimated using quoted market
prices for similar securities.
LOANS, NET - Fair values for certain commercial, construction, revolving
customer credit and other loans were estimated by discounting the future cash
flows using current rates at which similar loans would be made to borrowers with
similar credit ratings and similar maturities, adjusted for the allowance for
credit losses.
Certain adjustable rate loans have been valued at their carrying values, if no
significant changes in credit standing have occurred since origination and the
interest rate adjustment characteristics of the loan effectively adjust the
interest rate to maintain a market rate of return. For adjustable rate loans
which have had changes in credit quality, appropriate adjustments to the fair
value of the loans are made.
DEMAND DEPOSITS, TIME DEPOSITS AND SAVINGS - The fair value of
noninterest-bearing and adjustable rate deposits and savings is the amount
payable upon demand at the reporting date. The fair value of fixed-rate
interest-bearing deposits with fixed maturity dates was estimated by discounting
the cash flows using rates currently offered for deposits of similar remaining
maturities.
62
<PAGE> 63
OFF-BALANCE SHEET INSTRUMENTS - The fair value of commitments to extend credit
is estimated using the fees currently charged to enter into similar agreements,
taking into account the remaining terms of the agreements and the present
credit-worthiness of the counterparties. The fair values of standby and
commercial letters of credit are based on fees currently charged for similar
agreements or on the estimated cost to terminate them or otherwise settle the
obligations with the counterparties. The fair values of such off-balance sheet
instruments were not significant at December 31, 1996 and 1995 and, therefore,
have not been included in the table above.
NOTE 13. COMMITMENTS AND CONTINGENCIES. In the normal course of business there
are various commitments outstanding to extend credit which are not reflected in
the financial statements, including loan commitments of approximately
$80,055,000 and standby letters of credit and financial guarantees of $1,551,000
at December 31, 1996. The Bank does not anticipate any losses as a result of
these transactions.
Approximately $16,068,000 of loan commitments outstanding at December 31, 1996
relate to construction loans and are expected to fund within the next twelve
months. The remainder relate primarily to revolving lines of credit or other
commercial loans. Many of these loan commitments are expected to expire without
being drawn upon. Therefore the total commitments do not necessarily represent
future cash requirements.
Stand-by letters of credit are commitments written by the Bank to guarantee the
performance of a customer to a third party. These guarantees are issued
primarily relating to purchases of inventory by the Bank's commercial customers,
are typically short-term in nature and virtually all such commitments are
collateralized.
Most of the outstanding commitments to extend credit are at variable rates tied
to the Bank's reference rate of interest. The Company's exposure to credit loss
in the event of nonperformance by the other party to the financial instrument
for commitments to extend credit and standby letters of credit issued is the
contractual amount of those instruments. The Company uses the same credit
policies in making commitments and conditional obligations as it does for
on-balance-sheet instruments. The Company controls the credit risk of the
off-balance sheet financial instruments through the normal credit approval and
monitoring process.
63
<PAGE> 64
NOTE 14. RELATED PARTY LOANS. The Company makes loans to officers and directors
and their associates subject to loan committee approval and ratification by the
Board of Directors. These transactions are on substantially the same terms as
those prevailing at the time for comparable transactions with unaffiliated
parties and do not involve more than normal risk of collectibility. An analysis
of changes in related party loans for the year ended December 31, 1996 is as
follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Beginning balance Additions Repayments Ending balance
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
$7,170,000 $10,948,000 $ 8,372,000 $ 9,746,000
- ----------------------------------------------------------------------------------
</TABLE>
Committed lines of credit, undisbursed loans and standby letters of credit to
directors and officers at December 31, 1996 were approximately $1,746,000.
NOTE 15. REGULATORY MATTERS. The Company is subject to various regulatory
capital requirements administered by federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly,
additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Company's financial statements. Capital adequacy
guidelines and the regulatory framework for prompt corrective action require
that the Company meet specific capital adequacy guidelines that involve
quantitative measures of the Company's assets, liabilities and certain
off-balance sheet items as calculated under regulatory accounting practices. The
Company's capital amounts and classifications are also subject to qualitative
judgments by the regulators about components, risk weighting and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company to maintain minimum ratios of total and Tier 1 capital (as
defined in the regulations) to risk-weighted assets (as defined) and a minimum
leverage ratio of Tier 1 capital to average assets (as defined). Management
believes, as of December 31, 1996 that the Company meets all capital adequacy
requirements to which it is subject.
As of December 31, 1996 and 1995, the most recent notifications from the Federal
Deposit Insurance Corporation categorized the Banks as well capitalized under
the regulatory framework for prompt corrective action. To be categorized as well
capitalized the Banks must maintain minimum total risk-based, Tier 1 risk-based
and Tier 1 leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the
institution's category.
64
<PAGE> 65
The following table shows the Company's and the Banks' actual capital amounts
and ratios at December 31, as well as the minimum capital ratios to be
categorized as "well capitalized" under the regulatory framework:
<TABLE>
<CAPTION>
To Be Categorized
Well Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes: Action Provisions:
------------------ ------------------ --------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total Capital (to Risk Weighted Assets):
COMPANY 39,562,000 15.4% 20,584,000 8.0% N/A
Bank of Salinas 34,134,000 15.1% 18,043,000 8.0% 22,554,000 10.0%
Cypress Bank 4,700,000 15.1% 2,493,000 8.0% 3,117,000 10.0%
Tier 1 Capital (to Risk Weighted Assets):
COMPANY 36,332,000 14.1% 10,292,000 4.0% N/A
Bank of Salinas 31,302,000 13.9% 9,021,000 4.0% 13,532,000 6.0%
Cypress Bank 4,309,000 13.8% 1,247,000 4.0% 1,870,000 6.0%
Tier 1 Capital (to Average Assets)
COMPANY 36,332,000 10.1% 14,321,000 4.0% N/A
Bank of Salinas 31,302,000 10.1% 9,326,000 3.0% 15,543,000 5.0%
Cypress Bank 4,309,000 9.1% 1,887,000 4.0% 2,358,000 5.0%
As of December 31, 1995:
Total Capital (to Risk Weighted Assets):
COMPANY 32,655,000 15.0% 17,395,000 8.0% N/A
Bank of Salinas 28,117,000 15.1% 14,852,000 8.0% 18,565,000 10.0%
Cypress Bank 4,327,000 13.6% 2,536,000 8.0% 3,170,000 10.0%
Tier 1 Capital (to Risk Weighted Assets):
COMPANY 29,916,000 13.8% 8,697,000 4.0% N/A
Bank of Salinas 25,776,000 13.9% 7,426,000 4.0% 11,139,000 6.0%
Cypress Bank 3,930,000 12.4% 1,268,000 4.0% 1,902,000 6.0%
Tier 1 Capital (to Average Assets)
COMPANY 29,916,000 9.1% 13,180,000 4.0% N/A
Bank of Salinas 25,776,000 8.8% 11,662,000 4.0% 14,578,000 5.0%
Cypress Bank 3,930,000 10.4% 1,516,000 4.0% 1,895,000 5.0%
</TABLE>
The ability of the Company to pay cash dividends in the future will largely
depend upon the cash dividends paid to it by its subsidiary Banks. Under State
and Federal law regulating banks, cash dividends declared by a Bank in any
calendar year generally may not exceed its undistributed net income for the
preceding three fiscal years, less distributions to the Company, or its retained
earnings. Under these provisions, and considering minimum regulatory capital
requirements, the amount available for distribution from the Banks to the
Company was approximately $10,484,000 as of December 31, 1996.
The Banks are subject to certain restrictions under the Federal Reserve Act,
including restrictions on the extension of credit to affiliates. In particular,
the Banks are prohibited from lending to the Company unless the loans are
secured by
65
<PAGE> 66
specified types of collateral. Such secured loans and other advances
from the Banks are limited to 10% of Bank shareholders' equity, or a combined
maximum of $3,561,000 at December 31, 1996. No such advances were made during
1996 or 1995.
NOTE 16. CENTRAL COAST BANCORP (Parent Company Only)
The condensed financial statements of Central Coast Bancorp follow (in
thousands):
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31, 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Cash - interest bearing account with Bank $ 74 $ 315
Investment in Banks 35,611 29,706
Premises and equipment, net 68 --
Other assets 844 80
- --------------------------------------------------------------------------------
Total assets $36,597 $30,101
- --------------------------------------------------------------------------------
Liabilities and Shareholders' Equity:
Liabilities $ 265 $ 185
Common stock 30,856 25,860
Retained earnings 5,476 4,056
- --------------------------------------------------------------------------------
Total liabilities and shareholders' equity $36,597 $30,101
- --------------------------------------------------------------------------------
</TABLE>
CONDENSED INCOME STATEMENTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Years ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management fees $ 840
Cash dividends received from the Banks 500 $ 600
Operating expenses 1,737 437 $ 91
- --------------------------------------------------------------------------------------
Income (loss) before income taxes and equity in
undistributed net income of Banks (397) 163 (91)
Provision (credit) for income taxes (352) (66) (38)
Equity in undistributed
net income of Banks 5,905 4,096 -
- --------------------------------------------------------------------------------------
Net income (loss) $5,860 $4,325 $(53)
- --------------------------------------------------------------------------------------
</TABLE>
66
<PAGE> 67
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Years ended December 31, 1996 1995 1994
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Increase (decrease) in cash:
Operations:
Net income (loss) $ 5,860 $ 4,325 $ (53)
Adjustments to reconcile net
income (loss) to net cash provided
by operations:
Equity in undistributed
net income of Banks (5,905) (4,096) -
Depreciation 1 - -
(Increase) decrease in other assets (522) (34) (46)
Increase (decrease) in liabilities 80 194 3
- ----------------------------------------------------------------------------------------
Net cash provided (used) by operations (486) 389 (96)
- ----------------------------------------------------------------------------------------
Investing Activities -
Capital expenditures (69) - -
- ----------------------------------------------------------------------------------------
Financing Activities:
Short-term borrowings - (125) 125
Common stock issued - - 1
Common stock repurchased (5) - (1)
Stock options exercised 319 22 -
- ----------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 314 (103) 125
- ----------------------------------------------------------------------------------------
Net increase (decrease) in cash (241) 286 29
Cash balance beginning of year 315 29 -
- ----------------------------------------------------------------------------------------
Cash, balance end of year $ 74 $ 315 $ 29
- ----------------------------------------------------------------------------------------
</TABLE>
67
<PAGE> 68
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
68
<PAGE> 69
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by Item 10 of Form 10-K is incorporated by
reference to the information contained in the Company's Proxy Statement for the
1997 Annual Meeting of Shareholders which will be filed pursuant to Regulation
14A.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors, executive officers and ten percent or more shareholders of
the Company's equity securities, to file with the Securities and Exchange
Commission initial reports of ownership and reports of changes of ownership of
the Company's equity securities. Officers, directors and ten percent or more
shareholders are required by SEC regulation to furnish the Company with copies
of all Section 16(a) forms they file. To the Company's knowledge, based solely
on review of the copies of such reports furnished to the Company and written
representations that no other reports were required, during the fiscal year
ended December 31, 1996, except for Directors Souza and Glover, each of whom
failed to timely file one report on Form 3, all Section 16(a) filing
requirements applicable to its executive officers, directors and beneficial
owners of ten percent or more of the Company's equity securities appear to have
been met.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 of Form 10-K is incorporated by
reference to the information contained in the Company's Proxy Statement for the
1997 Annual Meeting of Shareholders which will be filed pursuant to Regulation
14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by Item 12 of Form 10-K is incorporated by
reference to the information contained in the Company's Proxy Statement for the
1997 Annual Meeting of Shareholders which will be filed pursuant to Regulation
14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 of Form 10-K is incorporated by
reference to the information contained in the Company's Proxy Statement for the
1997 Annual Meeting of Shareholders which will be filed pursuant to Regulation
14A.
69
<PAGE> 70
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
(a)(1) Financial Statements. Listed and included in Part
II, Item 8.
(2) Financial Statement Schedules. Not applicable.
(3) Exhibits.
(2.1) Agreement and Plan of Reorganization
and Merger by and between Central
Coast Bancorp, CCB Merger Company
and Cypress Coast Bank dated as of
December 5, 1995, incorporated by
reference from Exhibit 99.1 to Form
8-K filed with the Commission on
December 7, 1995.
(3.1) Articles of Incorporation
incorporated by reference from
Exhibit 4.8 to Registration Statement
on Form S-8 No. 33-89948 filed with
the Commission on March 3, 1995.
(3.2) Bylaws incorporated by reference from
Exhibit 4.9 to Registration Statement
on Form S-8 No. 33-89948 filed with
the Commission on March 3, 1995.
(4.1) Specimen form of Central Coast
Bancorp stock certificate
incorporated by reference from the
Company's 1994 Annual Report on Form
10K.
(10.1) Lease agreement dated December 12,
1994, related to 301 Main Street,
Salinas, California incorporated by
reference from the Company's 1994
Annual Report on Form 10K.
(10.2) King City Branch Lease incorporated
by reference from Exhibit 10.3 to
Registration Statement on Form S-4
No. 33-76972, filed with the
Commission on March 28, 1994.
(10.3) Amendment to King City Branch Lease
incorporated by reference from
Exhibit 10.4 to Registration
Statement on Form S-4 No. 33-76972,
filed with the Commission on March
28, 1994.
*(10.4) 1982 Stock Option Plan, as amended,
incorporated by reference from
Exhibit 4.2 to Registration
Statement on Form S-8 No. 33-89948,
filed with the Commission on
70
<PAGE> 71
March 3, 1995.
*(10.5) Form of Nonstatutory Stock Option
Agreement under the 1982 Stock
Option Plan incorporated by
reference from Exhibit 4.6 to
Registration Statement on Form S-8
No. 33-89948, filed with the
Commission on March 3, 1995.
*(10.6) Form of Incentive Stock Option
Agreement under the 1982 Stock
Option Plan incorporated by
reference from Exhibit 4.7 to
Registration Statement on Form S-8
No. 33-89948, filed with the
Commission on March 3, 1995.
*(10.7) 1994 Stock Option Plan incorporated
by reference from Exhibit 4.1 to
Registration Statement on Form S-8
No. 33-89948, filed with the
Commission on March 3, 1995.
*(10.8) Form of Nonstatutory Stock Option
Agreement under the 1994 Stock
Option Plan incorporated by
reference from Exhibit 4.3 to
Registration Statement on Form S-8
No. 33-89948, filed with Commission
on March 3, 1995.
*(10.9) Form of Incentive Stock Option
Agreement under the 1994 Stock
Option Plan incorporated by
reference from Exhibit 4.4 to
Registration Statement on Form S-8
No. 33-89948, filed with the
commission on March 3, 1995.
*(10.10) Form of Director Nonstatutory Stock
Option Agreement under the 1994
Stock Option Plan incorporated by
reference from Exhibit 4.5 to
Registration Statement on Form S-8
No. 33-89948, filed with the
commission on March 3, 1995.
*(10.11) Form of Bank of Salinas
Indemnification Agreement for
directors and executive officers
incorporated by reference from
Exhibit 10.9 to Amendment No. 1 to
Registration Statement on Form S-4
No. 33-76972, filed with the
commission on April 15, 1994.
*(10.12) 401(k) Pension and Profit Sharing
Plan Summary Plan Description
incorporated by reference from
Exhibit 10.8 to Registration
Statement on Form S-4 No. 33-76972,
71
<PAGE> 72
filed with the Commission on March
28, 1994.
*(10.13) Specimen form of Employment
Agreement.
*(10.14) Specimen form of Executive Salary
Continuation Agreement
*(10.15) 1994 Stock Option Plan, as amended,
incorporated by reference from
Exhibit A to the Proxy statement
filed with the Commission on
September 3, 1996 in connection with
Central Coast Bancorp's 1996 Annual
Shareholders' Meeting held on
September 23, 1996.
(10.16) Specimen for of Indemnification
Agreement, incorporated by reference
from Exhibit D to the Proxy
statement filed with the Commission
on September 3, 1996 in connection
with Central Coast Bancorp's 1996
Annual Shareholders' Meeting held on
September 23, 1996.
(10.17) Purchase and Assumption Agreement
for the Aquisistion of Wells Fargo
Bank Branches
*(10.18) Employee Stock Ownership Plan and
Trust Agreement
(21.1) The Registrant's only subsidiaries
are its wholly-owned subsidiaries,
Bank of Salinas and Cypress Bank.
(23.1) Independent auditors' consent.
(27) Financial Data Schedule
*Denotes management contracts, compensatory plans or
arrangements.
(b) Reports on Form 8-K. - none
An Annual Report for the fiscal year ended December 31, 1996, and Notice of
Annual Meeting and Proxy Statement for the Company's 1997 Annual Meeting will
be mailed to security holders subsequent to the date of filing this Report.
Copies of said materials will be furnished to the Commission in accordance with
the Commission's Rules and Regulations.
72
<PAGE> 73
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
CENTRAL COAST BANCORP
Date: March 24, 1997 By: /s/ Nick Ventimiglia
-------------------------------
Nick Ventimiglia, President and
Chief Executive Officer
(Principal Executive Officer)
Date: March 24, 1997 By: /s/ Thomas A. Sa
-------------------------------
Thomas A. Sa, Senior Vice
President and Chief Financial
Officer
(Principal Financial and
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934 this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
Signature Title Date
--------- ------- ----
/s/ Andrew E. Ausonio Director 3/24/97
- ----------------------------
(Andrew E. Ausonio)
/s/ C. Edward Boutonnet Director 3/24/97
- ----------------------------
(C. Edward Boutonnet)
Director 3/24/97
- ----------------------------
(Bradford G. Crandall)
Director 3/24/97
- ----------------------------
(Alfred P. Glover)
Director 3/24/97
- ----------------------------
(Richard C. Green)
/s/ Robert M. Mraule Director 3/24/97
- ----------------------------
(Robert M. Mraule)
/s/ Duncan L. McCarter Director 3/24/97
- ----------------------------
(Duncan L. McCarter)
Director 3/24/97
- ----------------------------
(Louis A. Souza)
Director 3/24/97
- ----------------------------
(Mose E. Thomas)
/s/ Nick Ventimiglia Chairman, President 3/24/97
- ---------------------------- and CEO
(Nick Ventimiglia)
73
<PAGE> 74
EXHIBIT INDEX
Exhibit Sequential
Number Description Page Number
- ------ ----------- -----------
10.13 Specimen form of Employment Agreement 75
10.14 Specimen form of Executive Salary
Continuation Agreement 85
10.17 Purchase and Assumption Agreement for
the Aquisition of Wells Fargo Bank Branches 101
10.18 Employee Stock Ownership Plan and
Trust Agreement 162
23.1 Independent auditors' consent. 242
27 Financial Data Schedule
74
<PAGE> 1
EXHIBIT 10.13
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of _________ , 1996
by and between BANK OF SALINAS, a California banking corporation ("Employer"),
and ("Employee").
RECITALS
WHEREAS, Employer and Employee desire to enter into an agreement for
the purposes of engaging the services of Employee by reason of his experience,
training and ability in the commercial banking industry;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, the Employer and Employee agree as follows:
AGREEMENT
1. Term of Employment. Employer employs Employee and Employee
hereby accepts employment with Employer, upon the terms and conditions
hereinafter set forth, for a period of three (3) years from the date hereof,
and on each anniversary date thereafter, the term of this Agreement shall be
deemed automatically extended for an additional one (1) year term, subject to
the termination provisions of paragraph 16.
2. Duties and Obligations of Employee. Employee shall serve as
the _______________________ of Employer and shall perform the customary duties
of such office in the commercial banking industry as may from time to time be
reasonably requested of him by the Board of Directors of Employer in addition
to the following:
(a) Participating in community affairs which are
beneficial to the Employer;
(b) Maintaining a good relationship with shareholders and
the Boards of Directors of Employer, its parent holding company and affiliates
thereof; and
(c) Maintaining a good relationship with regulatory
agencies and governmental authorities having jurisdiction over Employer, its
parent holding company and affiliates thereof.
3. Devotion to Employer's Business.
(a) Employee shall devote his full business time,
ability, and attention to the business of Employer during the term of this
Agreement and shall not during the term of this Agreement, without the prior
written consent of Employer's Board of Directors, engage in any other business
activities, duties, or pursuits whatsoever, or directly or indirectly render
any services of a business, commercial, or professional nature to any other
person or organization, whether for compensation or otherwise, which are in
conflict with Employer's business. However, the expenditure of reasonable
amounts of time for educational, charitable, or professional activities shall
not be deemed a breach of this Agreement if those activities do not
75
<PAGE> 2
materially interfere with the services required of Employee under this
Agreement. Nothing in this Agreement shall be interpreted to prohibit Employee
from making passive personal investments. However, Employee shall not directly
or indirectly acquire, hold, or retain any material interest in any business
competing with or similar in nature to the business of Employer.
(b) Employee agrees to conduct himself at all times with
due regard to public conventions and morals. Employee further agrees not to do
or commit any act that will reasonably tend to shock or offend the community,
or to prejudice Employer or the banking industry in general.
(c) Employee hereby represents and agrees that the
services to be performed under the terms of this Agreement are of a special,
unique, unusual, extraordinary, and intellectual character that gives them a
peculiar value, the loss of which cannot be reasonably or adequately
compensated in damages in an action at law. Employee therefore expressly agrees
that Employer, in addition to any other rights or remedies that Employer may
possess, shall be enticed to injunctive and other equitable relief to prevent
or remedy a breach of this Agreement by Employee.
4. Noncompetition by Employee. Employee shall not, during the
term of this Agreement, directly or indirectly, either as an employee,
employer, consultant, agent, principal, stockholder, officer, director, or in
any other individual or representative capacity, engage or participate in any
competitive banking or financial services business.
5. Indemnification for Negligence or Misconduct. Employee shall
indemnify and hold Employer harmless from all liability for loss, damage, or
injury to persons or property resulting from the gross negligence or
intentional misconduct of the Employee.
6. Disclosure of Information. Employee shall not, either before
or after termination of this Agreement, disclose to anyone any information
relating to Employer or any financial information, trade or business secrets,
customer lists, computer software or other information not otherwise publicly
available concerning the business or operations of Employer. Employee
recognizes and acknowledges that any financial information concerning any of
Employer's customers, as it may exist from time to time, is strictly
confidential and is a valuable, special and unique asset of Employer's
business. Employee shall not, either before or after termination of this
Agreement, disclose to anyone said financial information or any part thereof,
for any reason or purpose whatsoever. This paragraph 6 shall survive the
expiration or termination of this Agreement.
7. Written or Printed Material. All written or panted materials,
notebooks and records used by Employee in performing duties for Employer, other
than Employee's personal notes and diaries, are and shall remain the sole
property of Employer. Upon termination of employment, Employee shall promptly
return all such material (including all copies) to Employer. This paragraph 7
shall survive expiration or termination of this Agreement.
8. Surety Bond. Employee agrees that he will furnish all
information and take any other steps necessary from time to time to enable
Employer to obtain or maintain a fidelity bond conditional on the rendering of a
true account by Employee of all monies, goods, or other property which may come
into the custody, charge, or possession of Employee during the term of his
employment. The surety company issuing the bond and the amount of the bond must
be
76
<PAGE> 3
acceptable to Employer. All premiums on the bond shall be paid by Employer. If
Employee cannot qualify for a surety bond at any time during the term of this
Agreement, Employer shall have the option to terminate this Agreement
immediately without any obligation to pay severance benefits to Employee in
accordance with paragraph 16 (d) of this Agreement.
9. Base Salary. In consideration for the services to be performed
hereunder, Employee shall receive a salary at the rate of per annum, payable in
installments during the term of this Agreement of approximately on the last
and fifteenth days of each month, subject to applicable adjustments for
withholding taxes and prorations for any partial employment period. Employee
shall receive such annual adjustments in salary, if any, as may be determined
by Employer's Board of Directors, in its sole discretion, resulting from the
Board of Directors annual review of Employee's compensation on or about January
1 of each year during the term of this Agreement.
10. Salary Continuation During Disability. If Employee for any
reason (except as expressly provided below) becomes temporarily or permanently
disabled so that he is unable to perform the duties under this Agreement,
Employer agrees to pay Employee the base salary otherwise payable to Employee
pursuant to paragraph 9 of this Agreement, reduced by the amounts received by
Employee from state disability insurance, or worker's compensation or other
similar insurance benefits through policies provided by Employer, for a period
of six (6) months from the date of disability.
For purposes of this paragraph 10, "disability" shall be defined as
provided in Employer's disability insurance program. Notwithstanding anything
herein to the contrary, Employer shall have no obligation to make payments for
a disability resulting from the deliberate, intentional actions of Employee,
such as, but not limited to, attempted suicide or chemical dependence of
Employee.
11. Incentive Compensation. Employee shall be entitled to receive
incentive compensation in the sole discretion of the Board of Directors each
year during the term of this Agreement in connection with its review of
Employee's performance and Employer's results of operations. Except as may be
determined by the Board of Directors in its sole discretion, under no
circumstance shall a right to receive incentive compensation exist in favor of
or accrue to or for the benefit of Employee prior to actual receipt of such
incentive compensation.
12. Stock Options. Employer has previously granted stock options
to Employee evidenced by one or more stock option agreements attached hereto as
Exhibit B and incorporated herein by this reference. Employer may, but is not
obligated to, grant additional stock options to Employee in the future which
grants, if any, shall be within the sole discretion of the Board of Directors
of Employer and subject to the terms and provisions of Employer's stock option
plan pursuant to which such grants are effected. Any such grants shall be
evidenced by a stock option agreement entered into between Employer and
Employee pursuant to such stock option plan and a copy of each such stock
option agreement shall be attached to this Agreement as an exhibit.
Notwithstanding any provision of any such stock option plan or any such stock
option agreement to the contrary, no rights of employment shall be conferred
upon Employee or result from any such stock option plan or any stock option
agreement entered into between Employer and Employee. Any employment rights and
corresponding duties of Employee pursuant to his
77
<PAGE> 4
employment by Employer shall be limited to and interpreted solely in accordance
with the terms and provisions of this Agreement.
13. Other Benefits. Employee shall be entitled to those employee
benefits adopted by Employer for all employees of Employer, subject to
applicable qualification requirements and regulatory approval requirements, if
any. Employee shall be further entitled to the following additional benefits
which shall supplement or replace, to the extent duplicative of any part or all
of the general employee benefits, the benefits otherwise provided to Employee:
(a) Vacation. Employee shall be entitled to four
(4) weeks annual vacation leave at his then existing rate of base salary each
year during the term of this Agreement. Employee may be absent from his
employment for vacation as long as such leave is reasonable and does not
jeopardize his responsibilities and duties specified in this Agreement. The
length of vacation should not exceed two (2) weeks without the approval of
Employer's executive committee of the Board of Directors. Employee shall take
at least two (2) consecutive weeks of vacation as required by the California
Superintendent of Banks. Accrual of vacation time, if any, shall be determined
in accordance with Employer's personnel policies.
(b) Automobile and Insurance. Employer shall acquire
or otherwise make available to Employee for his business and incidental
personal use an automobile, suitable to his position, and (i) maintain it in
good condition and repair; and (ii) provide public liability insurance and
property damage insurance policies with insurer(s) acceptable to Employer and
with coverages in such amounts as may be acceptable to Employer from time to
time.
14. Annual Physical Examination. Employer shall pay or reimburse
Employee for the cost of an annual physical examination conducted by a
California licensed physician selected by Employee and reasonably acceptable to
Employer.
15. Business Expenses. Employee shall be reimbursed for all
ordinary and necessary expenses incurred by Employee in connection with his
employment. Employee shall also be reimbursed for reasonable expenses incurred
in activities associated with promoting the business of Employer, including
expenses for entertainment, travel, conventions, educational programs, club
memberships and similar items. Employer will pay for or will reimburse Employee
for such expenses upon presentation by Employee from time to time of receipts
or other appropriate evidence of such expenditures.
16. Termination of Agreement.
(a) Automatic Termination. This Agreement shall terminate automatically without
further act of the parties and immediately upon the occurrence of any one of
the following events, subject to either party's right, without any obligation
whatsoever, to waive an event reasonably susceptible of waiver, and the
obligation of Employer to pay the amounts which would otherwise be payable to
Employee under this Agreement through the end of the month in which the event
occurs, except that only in the event of termination based upon subparagraphs
(1), (4) or (12, to the extent of Employer's breach) below shall Employee be
entitled to receive severance payments based upon automatic termination
pursuant to paragraph 16 (d) of this Agreement:
(1) The occurrence of circumstances that make it
impossible or impractical for Employer to
conduct or continue its business.
78
<PAGE> 5
(2) The death of Employee.
(3) The loss by Employee of legal capacity.
(4) The loss by Employer of legal capacity to
contract.
(5) The willful, intentional and material breach
of duty by Employee in the course of his
employment.
(6) The habitual and continued neglect by
Employee of his employment duties and
obligations under this Agreement.
(7) The continuous mental or physical incapacity
of Employee, subject to Employee's rights
under paragraph 10 of this Agreement.
(8) Employee's willful and intentional violation
of any State of California or federal banking
laws, or of the Bylaws, rules, policies or
resolutions of Employer or its parent holding
company, or of the rules or regulations of
the California Superintendent of Banks or the
Federal Deposit Insurance Corporation, or
other regulatory agency or governmental
authority having jurisdiction over Employer
or its parent holding company.
(9) The determination by a state or federal
banking agency or governmental authority
having jurisdiction over Employer that
Employee is not suitable to act in the
capacity for which he is employed by
Employer.
(10) Employee is convicted of any felony or a
crime involving moral turpitude or commits a
fraudulent or dishonest act.
(11) Employee discloses without authority any
secret or confidential information concerning
Employer or takes any action which Employer's
Board of Directors determines, in its sole
discretion and subject to good faith, fair
dealing and reasonableness, constitutes
unfair competition with or induces any
customer to breach any contract with
Employer.
(12) Either party breaches the terms or provisions
of this Agreement.
(b) Termination by Employer. Employer may, at its election and in its sole
discretion, terminate this Agreement for any reason, or for no reason, by
giving not less than thirty (30) days' prior written notice of termination to
Employee, without prejudice to any other remedy to which Employer may be
entitled either at law, in equity or under this Agreement. Upon such
termination, Employee shall be entitled to receive any employment
79
<PAGE> 6
benefits which shall have accrued prior to such termination and the severance
pay specified in paragraph 16 (d) below.
(c) Termination by Employee. This Agreement may be terminated by Employee for
any reason, or no reason, by giving not less than thirty (30) days' prior
written notice of termination to Employer. Upon such termination, all rights
and obligations accruing to Employee under this Agreement shall cease, except
that such termination shall not prejudice Employee's rights regarding
employment benefits which shall have accrued prior to such termination and any
other remedy which Employee may have at law, in equity or under this Agreement,
which remedy accrued prior to such termination.
(d) Severance Pay - Termination by Employer. In the event of termination by
Employer pursuant to paragraph 16 (b) or automatic termination based upon
paragraph 16 (a) (1), (4) or (12, to the extent of Employer's breach) of this
Agreement, Employee shall be entitled to receive severance pay at Employee's
rate of salary immediately preceding such termination equal to six (6) months'
salary (in addition to incentive compensation or bonus payments due Employee,
if any), payable in substantially equal installments on the first and fifteenth
days of each month following termination. Notwithstanding the foregoing, in the
event of a "change in control. as defined in subparagraph (e) below, Employee
shall not be entitled to severance pay pursuant to this subparagraph (d) and
any rights of Employee to severance pay shall be limited to such rights as are
specified in subparagraph (e) below. Employee acknowledges and agrees that
severance pay pursuant to this subparagraph (d) is in lieu of all damages,
payments and liabilities on account of the early termination of this Agreement
and the sole and exclusive remedy for Employee terminated at the will of
Employer pursuant to paragraph 16(b) or pursuant to certain provisions of
paragraph 16 (a) described herein.
(e) Severance Pay - Change in Control. In the event of a "change in control" as
defined herein and within a period of one and one half (1 1/2) years following
consummation of such a change in control (i) Employee's employment is
terminated; or (ii) without Employee's consent there occurs (A) any adverse
change in the nature and scope of Employee's position, responsibilities,
duties, salary, benefits or location of employment, or (B) any event which
reasonably constitutes a demotion, significant diminution or constructive
termination (by resignation or otherwise) of Employee's employment, then
Employee shall be entitled to receive severance pay in addition to any bonus or
incentive compensation payments due Employee. Any such severance pay due
Employee shall be in an amount equal to one and one half (1 1/V times
Employee's average annual compensation for the five (5) years immediately
preceding the change in control. Employee's average annual compensation shall
be the average of the aggregate compensation paid by Employer to Employee which
was includable in Employee's gross income for federal income tax purposes for
the five (5) tax years ending immediately prior to the change in control
divided by the number five (5).
If all or any portion of the amounts payable to Employee pursuant to
this paragraph 16 (e) alone or together with other payments which Employee has
the right to receive from Employer, constitute "excess parachute payments"
within the meaning of Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code"), THAT ARE subject to the excise tax imposed by Section
4999 of the Code (or similar tax and/or assessment), such amounts payable
hereunder shall be reduced to the extent necessary, after first applying any
similar reduction in payments to be received from any other plan or program
sponsored by Employer from which Employee has a right to receive payments
subject to Sections 280G and 4999 of the Code,
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including without limitation any Salary Continuation Agreement made between
Employer and Employee, so as to cause a reduction of any excise tax pursuant to
Section 4999 of the Code to equal "zero".
Any such severance shall be payable in substantially equal installments on the
first and fifteenth days of each month following termination or an event
described in paragraph 16 (e) (ii) of this Agreement. Such severance payment,
if any, shall be in lieu of all damages, payments and liabilities on account of
the events described above for which such severance payment, if any, may be due
Employee and any severance payment rights of Employee under paragraph 16 (d) of
this Agreement. This subparagraph (e) shall be binding upon and inure to the
benefit of the parties and any successors or assigns or employer or any
"person" as defined herein.
Notwithstanding the foregoing, Employee shall not be entitled to
receive nor shall Employer, its successors, assigns or any "person" as defined
herein be obligated to pay severance payments pursuant to this subparagraph (e)
in the event of an occurrence described in paragraph 16, subparagraphs (5),
(6), (8), (10), (11) or (12, to the extent of an Employee breach), or in the
event of a determination pursuant to subparagraph (9) thereof, or in the event
Employee terminates employment in accordance with paragraph 16 (c) and the
termination is not a result of or based upon the occurrence of any event
described in paragraph 16 (e) (ii).
A "change in control. of Employer for purposes of this Agreement and
subparagraph (e) shall mean the occurrence of any of the following events with
respect to Employer (with the term "Employer" being defined for such a change
in control to include any parent holding company): (i) a change in control of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or in response to any other form or
report to the regulatory agencies or governmental authorities having
jurisdiction over Employer or any stock exchange on which Employer's shares are
listed which requires the reporting of a change in control; (ii) any merger,
consolidation or reorganization of Employer in which Employer does not survive;
(iii) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) of any assets of
Employer having an aggregate fair market value of fifty percent (50%) of the
total value of the assets of Employer, reflected in the most recent balance
sheet of Employer; (iv) a transaction whereby any "person" (as such term is
used in the Exchange Act or any individual, corporation, partnership, trust or
any other entity) is or becomes the beneficial owner, directly or indirectly,
of securities of Employer representing 25 % or more of the combined voting
power of Employer's then outstanding securities; (v) if in any one year period,
individuals who at the beginning of such period constitute the Board of
Directors of Employer cease for any reason to constitute at least a majority
thereof, unless the election, or the nomination for election by Employer's
shareholders, of each new director is approved by a vote of a least
three-quarters of the directors then still in office who were directors at the
beginning of the period; (iv) a majority of the members of the Board of
Directors of Employer in office prior to the happening of any event determines
in its sole discretion that as a result of such event there has been a change
in control.
17. Notices. Any notices to be given hereunder by either party to
the other shall be in writing and may be transmitted by personal delivery or by
U.S. mail, registered or certified, postage prepaid with return receipt
requested. Mailed notices shall be addressed to the parties at the addresses
listed as follows:
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Employer: Principal place of business
Employee: Principal place of business as shown in Employer's Personnel
Records and Employee's personal file.
Each party may change the address for receipt of notices by written notice in
accordance with this paragraph 17. Notices delivered personally shall be deemed
communicated as of the date of actual receipt; mailed notices shall be deemed
communicated as of three (3) days after the date of mailing.
18. Arbitration. AU claims, disputes and other matters in question
arising out of or relating to this Agreement or the breach or interpretation
thereof, other than those matters which are to be determined by the Employer in
its sole and absolute discretion, shall be resolved by binding arbitration
before a representative member, selected by the mutual agreement of the
parties, of the Judicial Arbitration and Mediation Services, Inc. ("JAMS"),
presently located at 111 Pine Street, Suite 710, in San Francisco, California,
in accordance with the rules and procedures of JAMS then in effect. In the
event JAMS is unable or unwilling to conduct such arbitration, or has
discontinued its business, the parties agree that a representative member,
selected by the mutual agreement of the parties, of the American Arbitration
Association ("AAA"), presently located at 417 Montgomery Street, in San
Francisco, California, shall conduct such binding arbitration in accordance
with the rules and procedures of the AAA then in effect. Notice of the demand
for arbitration shall be filed in writing with the other party to this
Agreement and with JAMS (or AAA, if necessary). In no event shall the demand
for arbitration be made after the date when institution of legal or equitable
proceedings based on such claim, dispute or other matter in question would be
barred by the applicable statute of limitations. Any award rendered by JAMS or
AAA shall be final and binding upon the parties, and as applicable, their
respective heirs, beneficiaries, legal representatives, agents, successors and
assigns, and may be entered in any court having jurisdiction thereof. The
obligation of the parties to arbitrate pursuant to this clause shall be
specifically enforceable in accordance with, and shall be conducted
consistently with, the provisions of Title 9 of Part 3 of the California Code
of Civil Procedure. Any arbitration hereunder shall be conducted in Salinas,
California, unless otherwise agreed to by the parties.
19. Attorneys' Fees and Costs. In the event of litigation,
arbitration or any other action or proceeding between the parties to interpret
or enforce this Agreement or any part thereof or otherwise arising out of or
relating to this Agreement, the prevailing party shall be entitled to recover
its costs related to any such action or proceeding and its reasonable fees of
attorneys, accountants and expert witnesses incurred by such party in connection
with any such action or proceeding. The prevailing party shall be deemed to be
the party which obtains substantially the relief sought by final resolution,
compromise or settlement, or as may otherwise be determined by order of a court
of competent jurisdiction in the event of litigation, an award or decision of
one or more arbitrators in the event of arbitration, or a decision of a
comparable official in the event of any other action or proceeding. Every
obligation to indemnify under this Agreement includes the obligation to pay
reasonable fees of attorneys, accountants and expert witnesses incurred by the
indemnified party in connection with matters subject to indemnification.
20. Entire Agreement. This Agreement supersedes any and all other
agreements, either oral or in writing, between the parties with respect to
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the employment of Employee by Employer and contains all of the covenants and
agreements between the parties with respect to the employment of Employee by
Employer. Each party to this Agreement acknowledges that no other
representations, inducements, promises, or agreements, oral or otherwise, have
been made by any party, or anyone acting on behalf of any party, which are not
set forth herein, and that no other agreement, statement, or promise not
contained in this Agreement shall be valid or binding on either party.
21. Modifications. Any modification of this Agreement will be
effective only if it is in writing and signed by a party or its authorized
representative.
22. Waiver. The failure of either party to insist on strict
compliance with any of the terms, provisions, covenants, or conditions of this
Agreement by the other party shall not be deemed a waiver of any term,
provision, covenant, or condition, individually or in the aggregate, unless
such waiver is in writing, nor shall any waiver or relinquishment of any right
or power at any one time or times be deemed a waiver or relinquishment of that
right or power for all or any other times.
23. Partial Invalidity. If any provision in this Agreement is held
by a court of competent jurisdiction to be invalid, void, or unenforceable, the
remaining provisions shall nevertheless continue in full force and effect
without being impaired or invalidated in any way.
24. Interpretation. This Agreement shall be construed without
regard to the party responsible for the preparation of the Agreement and shall
be deemed to have been prepared jointly by the parties. Any ambiguity or
uncertainty existing in this Agreement shall not be interpreted against either
party, but according to the application of other rules of contract
interpretation, if an ambiguity or uncertainty exists.
25. Governing Law and Venue. The laws of the State of California,
other than those laws denominated choice of law rules, shall govern the
validity, construction and effect of this Agreement. Any action which in any
way involves the rights, duties and obligations of the parties hereunder shall
be brought in the courts of the State of California and venue for any action or
proceeding shall be in Monterey County or in the United States District Court
for the Northern District of California, and the parties hereby submit to the
personal jurisdiction of said courts.
26. Payments Due Deceased Employee. If Employee dies prior to the
expiration of the term of his employment, any payments that may be due Employee
from Employer under this Agreement as of the date of death shall be paid to
Employee's executors, administrators, heirs, personal representatives,
successors, or assigns.
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IN WITNESS WHEREOF, the parties have executed this Agreement consisting
of eleven pages in the City of Salinas, County of Monterey, State of California
as of the date set forth above.
EMPLOYER: EMPLOYEE:
BANK OF SALINAS
By:
[ADD NOTARIAL ACKNOWLEDGEMENT]
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EXHIBIT 10.14
EXECUTIVE SALARY CONTINUATION AGREEMENT
This Agreement is made and entered into effective as of the (1st) day
of January, 1996, by and between Bank of Salinas, a bank chartered under the
laws of the State of California (the "Employer"), and , an individual residing
in the State of California (hereinafter referred to as the "Executive").
RECITALS
WHEREAS, the Executive is an employee of the Employer and is
serving as its
WHEREAS, the Executive's experience and knowledge of the
affairs of the Employer and the banking industry are extensive and valuable;
WHEREAS, it is deemed to be in the best interests of the
Employer to provide the Executive with certain salary continuation benefits, on
the terms and conditions set forth herein, in order to reasonably induce the
Executive to remain in the Employer's employment; and
WHEREAS, the Executive and the Employer wish to specify in
writing the terms and conditions upon which this additional compensatory
incentive will be provided to the Executive, or to the Executive's spouse or
the Executive's designated beneficiaries, as the case may be;
NOW, THEREFORE, in consideration of the services to be
performed in the future, as well as the mutual promises and covenants contained
herein, the Executive and the Employer agree as follows:
AGREEMENT
1. Terms and Definitions.
1.1. Administrator. The Employer shall be the "Administrator"
and, solely for the purposes of ERISA, the "fiduciary" of this Agreement where
a fiduciary is required by ERISA.
1.2. Annual Benefit. The term "Annual Benefit" shall mean an
annual sum of _______ Thousand Dollars ($_,000.00) multiplied by the Applicable
Percentage
1.3 Applicable Percentage. The term "Applicable
Percentage" shall mean that percentage listed on Schedule "A" attached hereto
which is adjacent to the number of complete years (with a "year" being the
performance of personal services for or on behalf of Employer for a period of
365 days) which have elapsed starting from the Effective Date of this Agreement
and ending on the date payments are to first begin under the terms of this
Agreement. Notwithstanding the foregoing or the percentages set forth on
Schedule "A," but subject to all other terms and conditions set forth herein,
the "Applicable Percentage" shall be: (i) provided payments have not yet begun
hereunder, one hundred percent (100%) upon the occurrence of a "change of
control" as defined in subparagraph 1.5 below or upon Executive's death; and
(ii) notwithstanding subclause (i) of this Paragraph, zero percent (0%) in the
event Executive takes
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any action which prevents Employer from collecting the proceeds of any life
insurance policy which Employer may happen to own at the time of Executive's
death and of which Employer is the designated beneficiary. Furthermore,
notwithstanding anything contained herein to the contrary, in the event
Executive takes any action which prevents Employer from collecting the proceeds
of any life insurance policy which Employer may happen to own at the time of
Executive's death and of which Employer is the designated beneficiary,
Executive's estate or designated beneficiary shall no longer be entitled to
receive any of the amounts payable under the terms of this Agreement.
1.4 Beneficiary. The term "beneficiary" or "designated
beneficiary" shall mean the person or persons whom Executive shall designate in
a valid Beneficiary Designation, a copy of which is attached hereto as Exhibit
"C," to receive the benefits provided hereunder. A Beneficiary Designation
shall be valid only if it is in the form attached hereto and made a part hereof
and is received by the Administrator prior to Executive's death.
1.5 Change in Control. The term "Change in Control" shall
mean the occurrence of the any of the following events with respect to Employer
(with the term "Employer" being defined, when determining whether a "Change in
Control" has occurred, to include Bank of Salinas' current holding company,
Central Coast Bancorp, a California corporation, such that a "Change in
Control" of Central Coast Bancorp will be deemed to constitute a "Change in
Control" of Employer): (i) a change in control of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or m response to any other form or report to the regulatory
agencies or governmental authorities having jurisdiction over Employer or any
stock exchange on which Employer's shares are listed which requires the
reporting of a change in control; (ii) any merger, consolidation or
reorganization of Employer in which Employer does not survive; (iii) any sale,
lease, exchange, mortgage, pledge, transfer or other disposition (in one
transaction or a series of transactions) of any assets of Employer having an
aggregate fair market value of fifty percent (50%) of the total value of the
assets of Employer, reflected in the most recent balance sheet of Employer;
(iv) a transaction whereby any "person" (as such term is used in the Exchange
Act or any individual, corporation, partnership, trust or any other entity)
becomes the beneficial owner, directly or indirectly, of securities of Employer
representing twenty-five percent (25%) or more of the combined voting power of
Employer's then outstanding securities; or (v) a situation where, in any
one-year period, individuals who at the beginning of such period constitute the
Board of Directors of Employer cease for any reason to constitute at least a
majority thereof, unless the election, or the nomination for election by
Employer's shareholders, of each new director is approved by a vote of at least
three-quarters (3/4) of the directors then still in office who were directors
at the beginning of the period.
1.6 The Code. The "Code" shall mean the Internal Revenue
Code of 1986, as amended (the "Code").
1.7 Disability/Disabled. The term "Disability" or
"Disabled)' shall have the same meaning given such term in the principal
disability insurance policy covering Executive, which is incorporated herein by
reference to the limited extent thereof. In the event Executive is not covered
by a disability policy containing a definition of "Disability" or "Disabled,"
these terms shall mean an illness or incapacity which, having continued for a
period of one hundred and eighty (180) consecutive days, prevents Executive
from adequately performing the regular
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employment duties. The determination of whether Executive is Disabled shall be
made by an independent physician selected by mutual agreement of the parties.
1.8 Early Retirement Date. The term "Early Retirement
Date" shall mean the Retirement (as defined below) of Executive on a date which
occurs prior to Executive attaining sixty-three (63) years of age but after
Executive has attained fifty-nine (59) years of age.
1.9 Effective Date. The term "Effective Date" shall mean
the date upon which this Agreement was entered into by the parties, as first
written above.
1.10 ERISA. The term "ERISA" shall mean the Employee
Retirement Income Security Act of 1974, as amended
1.11 Plan Year. The term "Plan Year" shall mean Employer's
fiscal year.
1.12 Retirement. The term "Retirement" or "Retires" shall
refer to the date which Executive acknowledges in writing to Employer to be the
last day he will provide any significant personal services, whether as an
employee or independent consultant or contractor, to Employer or to, for, or on
behalf of, any other business entity conducting, performing or making available
to any person or entity banking or other financial services of any kind. For
purposes of this Agreement, the phrase "significant personal services" shall
mean more than ten (10) hours of personal services rendered to one or more
individuals or entities in any thirty (30) day period.
1.13 Schedule B Amount. The term "Schedule B Amount" shall
mean dollar amount set forth on Schedule B attached hereto corresponding to the
number of complete years (i.e., separate twelve [12] month periods) which have
elapsed between the Effective Date hereof and the date on which the event
triggering or fixing Executive's right to payments equal to the Schedule B
Amount. Notwithstanding the foregoing or anything contained herein to the
contrary, the Schedule B Amount shall be limited or reduced to the extent: (i)
required under the other provisions of this Agreement, including, but not
limited to, Paragraphs 5, 7 and 8 hereof; (ii) required by reason of the lawful
order of any regulatory agency or body having jurisdiction over Employer; and
(iii) required in order for Employer to ensure proper compliance with any and
all applicable state and federal laws, including, but not limited to, income,
employment and disability income tax laws (e.g., FICA, FUTA, SDI). Furthermore,
notwithstanding the foregoing, or anything contained herein to the contrary, in
the event Executive takes any action which prevents Employer from collecting
the proceeds of any life insurance policy which Employer may happen to own at
the time of Executive's death and of which Employer is the designated
beneficiary, Executive's estate or designated beneficiary shall no longer be
entitled to receive any payments hereunder.
1.14 Surviving Spouse. The term "Surviving Spouse" shall
mean the person, if any, who shall be legally married to Executive on the date
of Executive's death.
1.15 Termination for Cause. The term "Termination for
Cause" shall mean termination of the employment of Executive by reason of any
of the following:
(a) A termination "for cause" as this term may be
defined in any written employment agreement entered into by and between
Employer and Executive;
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(b) The willful breach of duty by Executive in
the course of his employment;
(c) The habitual neglect by Executive of his
employment responsibilities and duties;
(d) Executive's deliberate violation of any state
or federal banking or securities laws, or of the Bylaws, rules, policies or
resolutions of Employer, or of the rules or regulations of: (i) the Office of
the California Superintendent of Banks; (ii) the Federal Deposit Insurance
Corporation; or (iii) any other regulatory agency or governmental authority
having jurisdiction over Employer;
(e) The determination by a state or federal banking
agency or other governmental authority having jurisdiction over Employer that
Executive is not suitable to act in the capacity for which he is employed by
Employer;
(f) Executive is convicted of any felony or a
crime involving moral turpitude or a fraudulent or dishonest act; or
(g) Executive discloses without authority any
secret or confidential information not otherwise publicly available concerning
Employer or takes any action which Employer's Board of Directors determines, in
its sole discretion and subject to good faith, fair dealing and reasonableness,
constitutes unfair competition with or induces any customer to breach any
contract with Employer.
2. Scope. Purpose and Effect.
2.1 Not a Contract of Employment. Although this Agreement
is intended to provide Executive with an additional incentive to remain in the
employ of Employer, this Agreement is not, and shall not be deemed to
constitute, a contract of employment between Executive and Employer, nor shall
any provision of this Agreement restrict or expand the right of Employer to
terminate Executive's employment. This Agreement shall have no impact or effect
upon any separate written Employment Agreement which Executive may have with
Employer, it being the parties' intention and agreement that unless this
Agreement is specifically referenced in said Employment Agreement (or any
modification thereto), this Agreement (and the Employer's obligations
hereunder) shall stand separate and apart and shall have no effect upon, nor be
affected by, the terms and provisions of said Employment Agreement.
2.2 Fringe Benefit. The benefits provided by this
Agreement are granted by Employer as a fringe benefit to Executive and are not
a part of any salary reduction plan or any arrangement deferring a bonus or a
salary increase. Executive has no option to take any current payments or bonus
in lieu of the benefits provided by this Agreement.
3. Payments Upon or After Retirement.
3.1 Payments Upon Retirement. If Executive shall remain
in the continuous employment of Employer until attaining sixty-three (63) years
of age, and provided an event triggering payments under the terms of this
Agreement has not yet occurred, Executive shall be
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entitled to be paid the Annual Benefit, as defined above, in equal monthly
installments, for a period of fifteen (15) years (One Hundred Eighty (180)
months), with each installment to be paid on the first day of each month,
beginning with the month following the month in which Executive Retires or upon
such later date as may be mutually agreed upon by Executive and Employer in
advance of said Retirement date. At Employer's sole and absolute discretion,
Employer may increase the Annual Benefit as and when Employer determines the
same to be appropriate in order to reflect a substantial change m the cost of
living. Notwithstanding anything contained herein to the contrary, Employer
shall have no obligation hereunder to make any such cost-of-living adjustment.
3.2 Payments in the Event of Death After Retirement.
Employer agrees that if Executive Retires and begins to receive payments
pursuant to Paragraph 3.1 hereof, but shall die before receiving all of the One
Hundred Eighty (180) monthly payments to which he is entitled, Employer will
continue to make such monthly payments to the Executive's designated
beneficiary for the remaining period. If a valid Beneficiary Designation is not
in effect, then the remaining amounts due to Executive under the term of this
Agreement shall be paid to Executive's Surviving Spouse. If Executive leaves no
Surviving Spouse, the remaining amounts due to Executive under the terms of
this Agreement shall be paid to the duly qualified personal representative,
executor or administrator of Executive's estate.
4. Payments in the Event Death or Disability Occurs Prior to Retirement.
4.1 Payments in the Event of Death Prior to Retirement.
Provided an event triggering payments under the terms of this Agreement has not
yet occurred, and Executive dies while actively employed by Employer at any
time after the Effective Date of this Agreement, but prior to Retirement,
Employer agrees to pay the Annual Benefit to Executive's designated beneficiary
in equal monthly installments, for a period of fifteen (15) years (One Hundred
Eighty (180) months). If a valid Beneficiary Designation is not in effect, then
the remaining amounts due to Executive under the term of this Agreement shall
be paid to Executive's Surviving Spouse. If Executive leaves no Surviving
Spouse, the remaining amounts due to Executive under the terms of this
Agreement shall be paid to the duly qualified personal representative, executor
or administrator of Executive's estate. Each installment shall be paid on the
first day of each month, beginning with the month following the month in which
Executive's death occurs.
4.2 Payments in the Event of Disability Prior to
Retirement. In the event Executive becomes Disabled while actively employed by
Employer at any time after the date of this Agreement but prior to Retirement,
and provided an event triggering payments under the terms of this Agreement has
not yet occurred, Executive (or Executive's designated beneficiary, or
Executive's estate if no designated beneficiary has been selected, upon
Executive's death) shall be entitled to the Schedule B Amount, as defined
above, in equal monthly installments, for a period of fifteen (15) years (One
Hundred Eighty (180) months/installments), with payments thereunder to begin in
the month following the month in which Executive attains sixty-three (63) years
of age or, if earlier, the month following the month in which Executive dies.
5. Payments in the Event Employment Is Terminated Prior to Retirement. As
indicated in Paragraph 2 above, Employer reserves the right to terminate the
Executive's employment, with or without cause but subject to any written
employment agreement which may then exist, at any time prior to Executive's
Retirement. In the event that the employment of Executive shall be terminated,
other than by reason of Disability, death or Retirement, prior to
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Executive's attaining sixty-three (63) years of age, then this Agreement shall
terminate upon the date of such termination of employment; provided, however,
that Executive shall be entitled to the following benefits as may be applicable
depending upon the circumstances surrounding Executive's termination:
5.1 Termination Without Cause. If Executive's employment
is terminated by Employer without cause, and such termination is not subject to
the provisions of Paragraph 5.4 below, Executive (or Executive's designated
beneficiary, or Executive's estate if no designated beneficiary has been
selected, upon Executive's death) shall be entitled to be paid the Annual
Benefit, as defined above, in equal monthly installments, for a period of
fifteen (15) years (One Hundred Eighty (180) months), with each installment to
be paid on the first day of each month, beginning with the month following the
month in which Executive is terminated without cause or upon such later date as
may be mutually agreed upon by Executive and Employer in advance of the
effective date of Executive's termination.
5.2 Voluntary Termination by Executive. If Executive
voluntarily terminates his employment with Employer (other than by reason of
death, Disability or Retirement), and such termination is not subject to the
provisions of Paragraph 5.4 below, (i) Executive (or Executive's designated
beneficiary, or Executive's estate if no designated beneficiary has been
selected, upon Executive's death) shall have no right to be paid any of the
amounts which would otherwise be due or paid to Executive by Employer pursuant
to the terms of this Agreement, and (ii) Employer shall have no obligation to
make any of the payments described herein, and shall not be, and is not, in any
way legally bound, responsible or liable to Executive (or Executive's
designated beneficiary, or Executive's estate if no designated beneficiary has
been selected) with respect to the contingent benefits described in this
Agreement.
5.3 Termination for Cause. Executive agrees that if his
employment with Employer is terminated "for cause," as defined in subparagraph
1.15 of this Agreement, he shall have no right to be paid any of the amounts
which would otherwise be due or paid to Executive by Employer pursuant to the
terms of this Agreement, and (ii) Employer shall have no obligation to make any
of the payments described herein, and shall not be, and is not, in any way
legally bound, responsible or liable to Executive (or Executive's designated
beneficiary, or Executive's estate if no designated beneficiary has been
selected) with respect to the contingent benefits described in this Agreement.
5.4 Termination by Employer on Account of or After a
Change in Control. In the event: (i) Executive's employment with Employer is
terminated by the Employer in conjunction with, or by reason of, a "change in
control" (as defined in subparagraph 1.5 above); of or (ii) by reason of
Employer's actions a material change occurs in the scope of Executive's
position, title, responsibilities, duties, salary, benefits, or locations of
employment after a "change in control" (as defined in subparagraph 1.5) occurs;
or (iii) Employer causes an event to occur which reasonably constitutes or
results in a demotion, a significant diminution of responsibilities or
authority, or a constructive termination (by forcing a resignation or otherwise)
of Executive's employment after a "change in control" (as defined in
subparagraph 1.5) occurs, then Executive (or Executive's designated beneficiary,
or Executive's estate if no designated beneficiary has been selected, upon
Executive's death) shall be entitled to be paid the Annual Benefit, as defined
above, in equal monthly installments, for a period of fifteen (15) years (One
Hundred Eighty (180) months), with installments to be paid on the first day of
each month,
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beginning with the month following the month in which the Executive is
terminated or any one of the actions referred to above occurs.
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6. Payments in the Event Executive Elects Early Retirement. Executive
shall have the right to elect to begin receiving payments of the applicable
Schedule B Amount prior to attaining sixty-three (63) years of age if he elects
to Retire on a date which constitutes an Early Retirement Date as defined in
subparagraph 1.8 above. In the event Executive elects to Retire on a date which
constitutes an Early Retirement Date, Executive shall be entitled to be paid
the Schedule B Amount, as defined above, in equal monthly installments, for a
period of fifteen (15) years (One Hundred Eighty (180) months), with payments
thereunder to begin on the month following the month in which the Early
Retirement Date occurs.
7. Additional Limitations on the Amount of the Annual Benefit/Schedule B
Amount. Executive acknowledges and agrees that the parties have entered into
this Agreement based upon the certain financial and tax accounting assumptions.
Accordingly, with full knowledge of the potential consequences Executive agrees
that, notwithstanding anything contained herein to the contrary: (i) the amount
of the Annual Benefit or the Schedule B Amount, as the case may be, shall be
limited to that amount of the Annual Benefit or Schedule B Amount (determined
without regard to this Paragraph 7) which will be deductible by the Employer
under the Code in the year in which payment is to be made to Executive; (ii)
the Annual Benefit amount or the Schedule B Amount, as the case may be, shall
be deemed to be the last payment made to Executive and the first for which an
income tax deduction, if any, has been disallowed; and (iii) any compensatory
amounts for which a deduction is denied to Employer shall, at Employer's
election, serve to first reduce Employer's obligation to make the monthly
Annual Benefit/Schedule B Amount payments otherwise due and payable to
Executive under the terms of this Agreement Executive recognizes that, in this
regard, limitations on deductibility may be imposed under, but not limited to,
Code Section 280G. Consistent with the foregoing, and in the event that any
payment or benefit received or to be received by Executive, whether payable
pursuant to the terms of this Agreement or any other plan, arrangement or
agreement with Employer (together with the Annual Benefit or the Schedule B
Amount, the "Total Payments"), will not be deductible (in whole or in part) as
a result of Code Section 280G, the Annual Benefit or the Schedule B Amount
shall be reduced (unless sufficient benefits under Executive's Employment
Agreement, if any, are reduced by written agreement of the parties) until no
portion of the Total Payments is nondeductible as a result of Section 280G of
the Code (or the Annual Benefit/Schedule B Amount is reduced to zero (0)). For
purposes of this limitation:
(a) No portion of the Total Payments, the receipt
or enjoyment of which Executive shall have effectively waived in writing prior
to the date of payment of any future Annual Benefit or Schedule B Amount
payments, shall be taken into account;
(b) No portion of the Total Payments shall be
taken into account, which m the opinion of the tax counsel selected by Employer
and acceptable to Executive, does not constitute a "parachute payment" within
the meaning of Section 280G of the Code;
(c) Future Annual Benefit/Schedule B Amount
payments shall be reduced only to the extent necessary so that the Total
Payments (other than those referred to in clauses (a) or (b) above in their
entirety) constitute reasonable compensation for services actually rendered
within the meaning of Section 280G of the Code, in the opinion of tax counsel
referred to in clause (b) above; and
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<PAGE> 9
(d) The value of any non-cash benefit or any
deferred payment or benefit included in the Total Payments shall be determined
by Employer's independent auditors in accordance with the principles of Section
280G of the Code.
8. Right To Determine Financing Methods. Employer reserves the right to
determine, in its sole and absolute discretion, whether, to what extent and by
what method, if any, to provide for the payment of the amounts which may be
payable to Executive, Executive's spouse or Executive's beneficiaries under the
terms of this Agreement. In the event that Employer elects to finance this
Agreement, in whole or in part, through the use of life insurance or annuities,
or both, Employer shall determine the ownership and beneficial interests of any
such policy of life insurance or annuity. Employer further reserves the right,
in its sole and absolute discretion, to terminate any such policy, and any
other device used to finance its obligations under this Agreement, at any time,
in whole or in part. Consistent with Paragraph 10 below, neither Executive,
Executive's spouse nor Executive's beneficiaries shall have any right, title or
interest in or to any asset, financing source or amount utilized by Employer in
connection with this Agreement, and any such asset, financing source or amount
shall not constitute security for the performance of Employer's obligations
pursuant to this Agreement. In connection with the foregoing, Executive agrees
to execute such documents and undergo such medical examinations or tests which
Employer may request and which may be reasonably necessary to facilitate any
financing for this Agreement including, without limitation, Employer's
acquisition of any policy of insurance or annuity. Furthermore, a refusal by
Executive to consent to, participate in and undergo any such medical
examinations or tests shall result in the immediate termination of this
Agreement and the immediate forfeiture by Executive, Executive's spouse and
Executive's beneficiaries of any and all rights to payment hereunder.
9. Claims Procedure. Employer shall, but only to the extent necessary to
comply with ERISA, be designated as the named fiduciary under this Agreement
and shall have authority to control and manage the operation and administration
of this Agreement. Consistent therewith, Employer shall make all determinations
as to the rights to benefits under this Agreement. Any decision by Employer
denying a claim by Executive, Executive's spouse, or Executive's beneficiary
for benefits under this Agreement shall be stated in writing and delivered or
mailed, via registered or certified mail, to Executive, Executive's spouse or
Executive's beneficiary, as the case may be. Such decision shall set forth the
specific reasons for the denial of a claim. In addition, Employer shall provide
Executive, Executive's spouse or Executive's beneficiary with a reasonable
opportunity for a full and fair review of the decision denying such claim.
10. Status as an Unsecured General Creditor. Notwithstanding anything
contained herein to the contrary: (i) neither Executive, Executive's spouse or
Executive's designated beneficiaries shall have any legal or equitable rights,
interests or claims in or to any specific property or assets of Employer; (ii)
none of Employer's asset. shall be held in or under any trust for the benefit
of Executive, Executive's spouse or Executive's designated beneficiaries or
held in any way as security for the fulfillment of the obligations of Employer
under this Agreement; (iii) all of Employer's assets shall be and remain,
except as otherwise agreed to by Employer with respect to other persons, the
general unpledged and unrestricted assets of Employer; (iv) Employer's
obligation under this Agreement shall be that of an unfunded and unsecured
promise by Employer to pay money in the future; and (v) Executive, Executive's
spouse and Executive's designated beneficiaries shall be unsecured general
creditors with respect to any benefits which may be payable under the terms of
this Agreement.
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<PAGE> 10
11. Miscellaneous.
11.1 Opportunity To Consult With Independent Counsel.
Executive acknowledges that he has been afforded the opportunity to consult
with independent counsel of his choosing regarding both the benefits granted to
him under the terms of this Agreement and the terms and conditions which may
affect Executive's right to these benefits. Executive further acknowledges that
he has read, understands and consents to all of the terms and conditions of
this Agreement, and that he enters into this Agreement with a full
understanding of its terms and conditions.
11.2 Arbitration of Disputes. All claims, disputes and
other matters in question arising out of or relating to this Agreement or the
breach or interpretation thereof, other than those matters which are to be
determined by Employer in its sole and absolute discretion or those matters
subject to the provisions of Article 9 hereof, shall be resolved by binding
arbitration before a representative member, selected by the mutual agreement of
the parties, of the Judicial Arbitration and Mediation Services, Inc. ("JAMS"),
presently located at 111 Pine Street, Suite 710, in San Francisco, California.
In the event JAMS is unable or unwilling to conduct the arbitration provided for
under the terms of this Paragraph, or has discontinued its business, the parties
agree that a representative member, selected by the mutual agreement of the
parties, of the American Arbitration Association ("AAA"), presently located in
San Francisco, California, shall conduct the binding arbitration referred to in
this Paragraph. Notice of the demand for arbitration shall be filed in writing
with the other party to this Agreement and with JAMS (or AAA, if necessary). In
no event shall the demand for arbitration be made after the date when
institution of legal or equitable proceedings based on such claim, dispute or
other matter in question would be barred by the applicable statute of
limitations. The arbitration shall be subject to such rules of procedure used or
established by JAMS, or if there are none, the rules of procedure used or
established by AAA. Any award rendered by JAMS or AAA shall be final and binding
upon the parties, and as applicable, their respective heirs, beneficiaries,
legal representatives, agents, successors and assigns, and may be entered in any
court having jurisdiction thereof. The obligation of the parties to arbitrate
pursuant to this clause shall be specifically enforceable in accordance with,
and shall be conducted consistently with, the provisions of Title 9 of Part 3 of
the California Code of Civil Procedure. Any arbitration hereunder shall be
conducted in Salinas, California, unless otherwise agreed to by the parties.
11.3 Attorneys' Fees. In the event of any arbitration or
litigation concerning any controversy, claim or dispute between the parties
hereto, arising out of or relating to this Agreement or the breach hereof, or
the interpretation hereof, the prevailing party shall be entitled to recover
from the losing party reasonable expenses, attorneys' fees and costs incurred in
connection therewith or in the enforcement or collection of any judgment or
award rendered therein. The "prevailing party" means the party determined by
the arbitrator(s) or court, as the case may be, to have most nearly prevailed,
even if such party did not prevail in all matters, not necessarily the one in
whose favor a judgment is rendered.
11.4 Notice. Any notice required or permitted of either
Executive or Employer under this Agreement shall be deemed to have been duly
given, if by personal delivery, upon the date received by the party or its
authorized representative; if by facsimile, upon transmission to a telephone
number previously provided by the party to whom the facsimile is transmitted as
reflected in the records of the party transmitting the facsimile and upon
reasonable confirmation of such transmission; and if by
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<PAGE> 11
mail, on the third day after mailing via U.S. first class mail, registered or
certified, postage prepaid and return receipt requested, and addressed to the
party at the address given below for the receipt of notices, or such changed
address as may be requested in writing by a party.
If to Employer: Central Coast Bancorp
301 Main Street
Salinas, Ca 93901
Attn: Corporate Secretary
If to Executive:
11.5 Assignment. Neither Executive, Executive's spouse, nor
any other beneficiary under this Agreement shall have any power or right to
transfer, assign, anticipate, hypothecate, modify or otherwise encumber any
part or all of the amounts payable hereunder, nor, prior to payment in
accordance with the terms of this Agreement, shall any portion of such amounts
be: (i) subject to seizure by any creditor of any such beneficiary, by a
proceeding at law or in equity, for the payment of any debts, judgments,
alimony or separate maintenance obligations which may be owed by Executive,
Executive's spouse, or any designated beneficiary; or (ii) transferable by
operation of law in the event of bankruptcy, insolvency or otherwise. Any such
attempted assignment or transfer shall be void and shall terminate this
Agreement, and Employer shall thereupon have no further liability hereunder.
11.6 Binding Effect/Merger or Reorganization. This Agreement
shall be binding upon and inure to the benefit of Executive and Employer and,
as applicable, their respective heirs, beneficiaries, legal representatives,
agents, successors and assigns. Accordingly, Employer shall not merge or
consolidate into or with another corporation, or reorganize or sell
substantially all of its assets to another corporation, firm or person, unless
and until such succeeding or continuing corporation, firm or person agrees to
assume and discharge the obligations of Employer under this Agreement. Upon the
occurrence of such event, the term "Employer" as used in this Agreement shall
be deemed to refer to such surviving or successor firm, person, entity or
corporation.
11.7 Nonwaiver. The failure of either party to enforce at any
time or for any period of time any one or more of the terms or conditions of
this Agreement shall not be a waiver of such term(s) or condition(s) or of that
party's right thereafter to enforce each and every term and condition of this
Agreement.
11.8 Partial Invalidity. If any term, provision, covenant, or
condition of this Agreement is determined by an arbitrator or a court, as the
case may be, to be invalid, void, or unenforceable, such determination shall
not render any other term, provision, covenant or condition invalid, void or
unenforceable, and the Agreement shall remain in full force and effect
notwithstanding such partial invalidity.
11.9 Entire Agreement. This Agreement supersedes any and all
other agreements, either oral or in writing, between the parties with respect
to the subject matter of this Agreement and contains all of the covenants and
agreements between the parties with respect thereto. Each party to this
Agreement acknowledges that no other representations, inducements, promises, or
agreements, oral or otherwise, have been made by any party, or anyone acting on
behalf of any party, which are not set forth herein, and that no other
agreement, statement, or promise not contained in this Agreement shall be valid
or binding on either party.
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<PAGE> 12
11.10 Modifications. Any modification of this Agreement shall
be effective only if it is in writing and signed by each party or such party's
authorized representative.
11.11 Paragraph Headings. The paragraph headings used in this
Agreement are included solely for the convenience of the parties and shall not
affect or be used in connection with the interpretation of this Agreement.
11.12 No Strict Construction. The language used in this
Agreement shall be deemed to be the language chosen by the parties hereto to
express their mutual intent, and no rule of strict construction will be applied
against any person.
11.13 Governing Law. The laws of the State of California,
other than those laws denominated choice of law rules, and, where applicable,
the rules and regulations of the Office of the California Superintendent of
Banks and the Federal Deposit Insurance Corporation, shall govern the validity,
interpretation, construction and effect of this Agreement.
IN WITNESS WHEREOF, the Employer and the Executive have executed this
Agreement on the date first above-written in the City of Salinas, Monterey
County, California.
THE EMPLOYER: THE EXECUTIVE:
Bank of Salinas,
A California State Chartered Bank
By____________________________ ____________________________
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<PAGE> 13
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF COMPLETE
YEARS WHICH HAVE ELAPSED APPLICABLE PERCENTAGE
- ---------------------------------------------------------------------
<S> <C>
1 10.00%
2 20.00%
3 30.00%
4 40.00%
5 50.00%
6 60.00%
7 70.00%
8 80.00%
9 90.00%
10 100.00%
</TABLE>
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<PAGE> 14
SCHEDULE B
SCHEDULE B AMOUNT
For purposes of this Agreement, the parties agree that the Schedule B
Amount shall be equal to: (1) the Annual Benefit payable under the terms of the
Agreement as of the date of the event triggering a right to the installment
payments of the Schedule B amount, multiplied by (2) the percentage set forth
below which applies based on Executive's age at the time of the triggering
event:
A. If Executive is 59 or younger at time of triggering event: Twenty
Percent (20%);
B. If Executive is 60 at time of triggering event: Forty Percent
(40%);
C. If Executive is 61 at time of triggering event: Sixty Percent
(60%);
D. If Executive is 62 at time of triggering event: Eighty Percent
(80%); and
E. If Executive is 63 at time of triggering event: One Hundred Percent
(100%);
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<PAGE> 15
SCHEDULE C
BENEFICIARY DESIGNATION
To the Administrator of the Bank of Salinas Executive Salary
Continuation Agreement:
Pursuant to the Provisions of my Executive Salary Continuation
Agreement with Bank of Salinas, permitting the designation of a beneficiary or
beneficiaries by a participant, I hereby designate the following persons and
entities as primary and secondary beneficiaries of any benefit under said
Agreement payable by reason of my death:
PRIMARY BENEFICIARY:
_______________________________________________________________________________
Name Address Relationship
SECONDARY (CONTINGENT) BENEFICIARY:
_______________________________________________________________________________
Name Address Relationship
THE RIGHT TO REVOKE OR CHANGE ANY BENEFICIARY DESIGNATION IS HEREBY RESERVED.
ALL PRIOR DESIGNATIONS, IF ANY, OF PRIMARY BENEFICIARIES AND SECONDARY
BENEFICIARIES ARE HEREBY REVOKED.
The Administrator shall pay all sums payable under the Agreement by reason of
my death to the Primary Beneficiary, if he or she survives me, and if no
Primary Beneficiary shall survive me, then to the Secondary Beneficiary, and if
no named beneficiary survives me, then the Administrator shall pay all amounts
in accordance with the terms of my Executive Salary Continuation Agreement. In
the event that a named beneficiary survives me and dies prior to receiving the
entire benefit payable under said Agreement, then and in that event, the
remaining unpaid benefit payable according to the terms of my Executive Salary
Continuation Agreement shall be payable to the personal representatives of the
estate of said beneficiary who survived me but died prior to receiving the
total benefit provided by my Executive Salary Continuation Agreement.
THE EXECUTIVE:
Dated.______________, 199__ ________________________________
CONSENT OF THE EXECUTIVE'S SPOUSE
TO THE ABOVE BENEFICIARY DESIGNATION:
I, , being the spouse of , after being afforded the
opportunity to consult with independent counsel of my choosing, do hereby
acknowledge that I have read, agree and consent to the foregoing Beneficiary
Designation which relates to the Executive Salary Continuation Agreement
entered into by my spouse effective as of
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<PAGE> 16
, 1997 I understand that the above Beneficiary Designation may affect
certain rights which I may have in the benefits provided for under the terms of
the Executive Salary Continuation Agreement and in which I may have a marital
property interest.
Dated: ______________________, 1997.
____________________________________
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<PAGE> 1
EXHIBIT 10.17
_______________________________________________________________________________
PURCHASE AND ASSUMPTION AGREEMENT
dated as of
October 15, 1996
between
WELLS FARGO BANK, N.A.
and
BANK OF SALINAS
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<PAGE> 2
List of Schedules
-----------------
Schedule 1.1(a) Assumed Severance Obligations
Schedule 1.1(b) Branches/Real Properties
Schedule 3.6(a) Form of California Grant Deed
Schedule 3.6(b) Form of Bill of Sale
Schedule 3.6(c) Form of Assignment and Assumption Agreement
Schedule 3.6(d) Form of Assignment of Lease and Assumption
Schedule 3.6(e) Form of Landlord Consent
Schedule 3.6(g) Form of Certificate of Officer, Wells Fargo
Bank, National Association
Schedule 3.7(d) Form of Certificate of Officer [Purchaser]
Schedule 5.4 Tenant Leases
Schedule 5.6 Litigation and Undisclosed Liabilities
Schedule 5.16 Environmental Matters
Schedule 8.1 Outstanding Tax Liabilities
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<PAGE> 3
This PURCHASE AND ASSUMPTION AGREEMENT, dated as of this 15th day of
October, 1996 (this "Agreement"), is by and between Wells Fargo Bank, N.A.
("Seller") and Bank of Salinas ("Purchaser").
RECITALS
A. Seller. As of the date hereof, Seller is a national banking
association, organized under the laws of the United States, with its principal
office located in San Francisco, California.
B. Purchaser. Purchaser is a state-chartered bank, organized
under the laws of California, with its principal office located in Salinas,
California.
C. Purchaser desires to acquire from Seller, and Seller desires
to transfer to Purchaser, certain banking premises and certain deposits and
deposit related loans associated therewith, located in the State of California,
all in accordance with and subject to the terms and conditions of this
Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
promises and obligations set forth herein, the parties agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
1.1 Certain Definitions. The terms set forth below are used in
this Agreement with the following meanings:
"Accrued Interest" means, as of any date, (a) with respect to a
Deposit, interest which is accrued on such Deposit to but excluding such date
and not yet posted to the relevant deposit account and (b) with respect to a
Deposit Related Loan, interest which is accrued on such Deposit Related Loan to
but excluding such date and not yet paid.
"ACH Direct Deposit Cut-Off Date" has the meaning set forth in Section
4.3.
"Adjusted Payment Amount" has the meaning set forth in Section 3.3
"Adjustment Date" has the meaning set forth in Section 3.3.
"Affiliate" means, with respect to any person, any other person
directly or indirectly controlling, controlled by or under common control with
such person.
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<PAGE> 4
"Agreement" means this Purchase and Assumption Agreement, including
all schedules, exhibits and addenda, each as amended from time to time in
accordance with the terms hereof.
"Allocation Statement" has the meaning set forth in Section 3.4(a).
"Asbestos Hazard" means the presence of asbestos in a parcel of Owned
Real Property or the improvements thereon as of the date hereof which, under
applicable laws, must be immediately remediated in order to allow continuation
of the current operation of the Branch within such Owned Real Property using
the current improvements thereon and the cost of such remediation, as
reasonably determined by the Environmental Consultant, shall be more than One
Hundred Thousand Dollars ($100,000).
"Assets" has the meaning set forth in Section 2.1(a).
"Assignment and Assumption Agreement" has the meaning set forth in
Section 3.6(c).
"Assumed Severance Obligations" means those duties, responsibilities,
obligations and liabilities of Seller or of its Affiliates under the severance
and similar plans described in Schedule 1.1(a) to pay severance and provide
benefits to any Branch Employee or Transferred Employee.
"Branch Employees" means, the employees of the Seller working at the
Branches on the Closing Date (including, without limitation, those employees
who on the Closing Date are on family and medical leave, military leave or
personal or pregnancy leave and who are eligible to return to work under
Seller's policies), subject to any transfers permitted pursuant to Section 7.1
and replacement in the ordinary course of business of employees who may leave
Seller's employ between the date hereof and the Closing Date.
"Branch Leases" means the leases under which Seller leases land and/or
buildings used as Branches, including without limitation ground leases.
"Branches" means each of the branch banking offices of Seller at the
locations identified on Schedule 1.1(b) hereto.
"Burdensome Condition" has the meaning set forth in Section 9.1(a).
"Business Day" means a day on which banks are generally open for
business in California and which is not a Saturday or Sunday.
"Cash on Hand" means, as of any date, all petty cash, vault cash,
teller cash, ATM cash, prepaid postage and cash equivalents held at a Branch.
"Closing" and "Closing Date" refer to the closing of the P&A
Transaction, which is to be held at such time and date as provided in Article 3
hereof.
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<PAGE> 5
"Code" means the Internal Revenue Code of 1986, as amended.
"Deposit Related Loans" means the following loans and only the
following: (i) any consumer loan secured directly by a Deposit being sold (but
not including any credit card line of credit); and (ii) any overdraft loan
linked directly to a Deposit being sold (but not including any credit card
protection relationship). No other loans are being sold.
"Deposit(s)" means deposit liabilities with respect to deposit
accounts booked by Seller at the Branches, as of the close of business of the
day prior to the Closing Date, which constitute "deposits" for purposes of the
Federal Deposit Insurance Act. 12 U.S.C. Section 1813, including collected and
uncollected deposits and Accrued Interest, but excluding: (a) all Excluded
Deposits; (b) deposit liabilities with respect to accounts registered in the
name of a trust for which Seller serves as trustee (other than IRA and Keogh
Account deposit liabilities); (c) deposit liabilities with respect to accounts
booked by Seller at any Branch for which Seller serves as guardian or custodian
(other than IRA and Keogh Account deposit liabilities); and (d) Excluded
IRA/Keogh Account Deposits.
"Draft Closing Statement" means a draft closing statement, prepared by
Seller, as of the close of business of the third (3rd) business day preceding
the Closing Date setting forth an estimated calculation of both the Purchase
Price and the Estimated Payment Amount.
"Encumbrances" means all mortgages, claims, charges, liens,
encumbrances, easements, limitations, restrictions, commitments and security
interests, except for statutory liens securing tax and/or other payments not
yet due, liens incurred in the ordinary course of business, including without
limitation liens in favor of mechanics or materialmen, and such other liens,
charges, security interests or encumbrances as do not materially detract from
the value or materially and adversely affect the use of the properties or
assets subject thereto or affected thereby or which otherwise do not materially
impair the value of or business operations at such properties and except for
obligations pursuant to the California escheat and unclaimed property laws
relating to the Escheat Deposits.
Environmental Consultant has the meaning specified in Section 10.1(b).
"Environmental Hazard" means the presence of any Hazardous Substance
in violation of, and reasonably likely to require material remediation costs
under, applicable Environmental Laws; provided, however, that the definition of
Environmental Hazard shall not include asbestos and asbestos-containing
materials, unless, with respect to any single parcel of Owned Real Property,
the cost of remediation, as reasonably determined by the Environmental
Consultant, shall be more than One Hundred Thousand Dollars ($100,000). Any
such determination shall be based upon a "risk-based approach" of what would be
necessary to obtain the equivalent of a "no further action letter" from the
applicable regulatory agency or agencies with no deed restrictions which would
adversely affect the commercial use of the parcel of Owned Real Property.
"Environmental Law" means any Federal or state law, statute, rule,
regulation, code, order, judgment, decree, injunction or agreement with any
Federal or state governmental
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<PAGE> 6
authority, (x) relating to the protection, preservation or restoration of the
environment (including, without limitation, air, water vapor, surface water,
groundwater, drinking water supply, surface land, subsurface land, plant and
animal life or any other natural resource) or to human health or safety or (y)
the exposure to, or the use, storage, recycling, treatment, generation,
transportation, processing, handling, labeling, production, release or disposal
of hazardous substances, in each case as amended and now in effect.
Environmental Laws include, without limitation, the Clean Air Act (42 USC
Section 7401 et seq.); the Comprehensive Environmental Response Compensation
and Liability Act (42 USC Section Section 9601 et seq.); the Resource
Conservation and Recovery Act (42 USC Section 96901 et seq.); the Federal Water
Pollution Control Act (33 USC Section Section 1251 et seq.); the Occupational
Safety and Health Act (29 USC Section 651 et seq.); the California Porter-
Cologne Act (Cal. Water Code Section 13000 et seq.) and the California
Carpenter-Presley-Tanner Hazardous Substance Account Act (Cal. Health & Safety
Code Section Section 25300 et seq.); provided, however, that the definition of
"Environmental Law" shall not include any Federal or state law, statute, rule,
regulation, code, order, judgment, decree, injunction or agreement with any
governmental authority relating to asbestos or asbestos-containing materials.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escheat Deposits" means, as of any date, Deposits and safe deposit
box contents, in each case held on such date at the Branches which become
subject to escheat, in the calendar year in which the Closing occurs, to the
State of California pursuant to applicable escheat and unclaimed property laws.
"Estimated Payment Amount" has the meaning set forth in Section
3.2(a).
"Estimated Purchase Price" means the Purchase Price as set forth on the
Draft Closing Statement.
"Excluded IRA/Keogh Account Deposits" has the meaning set forth in
Section 2.4(c).
"Excluded Deposits" means: (i) all wholesale commercial deposits
(i.e., with account analysis or cash management services); and (ii) certain
business related deposit liabilities excluded by Seller. All Excluded Deposits
have been previously removed from deposit lists provided to Purchaser.
"FDIA" means the Federal Deposit Insurance Act, as amended.
"FDIC" means the Federal Deposit Insurance Corporation.
"Federal Funds Rate" on any day means the per annum rate of interest
(rounded upward to the nearest 1/100 of 1%) which is the weighted average of
the rates on overnight federal funds transactions arranged on such day or, if
such day is not a Business Day, the previous Business Day, by federal funds
brokers computed and released by the Federal Reserve Bank of New York (or any
successor) in substantially the same manner as such Federal Reserve Bank
currently
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<PAGE> 7
computes and releases the weighted average it refers to as the "Federal Funds
Effective Rate" at the date of this Agreement.
"Federal Reserve Board" means the Board of Governors of the Federal
Reserve System.
"FedWire Direct Deposit Cut-off Date" has the meaning set forth in
Section 4.3.
"Final Closing Statement" means a final closing statement, prepared by
Seller, as of the ninetieth (90th) day following the Closing Date setting forth
both the Purchase Price and the Adjusted Payment Amount.
"Grant Deeds" has the meaning set forth in Section 3.6(a).
"Hazardous Substance" means any substance, whether liquid, solid or
gas (a) listed, identified or designated as hazardous or toxic to a level which
requires remediation under any Environmental Law; (b) which, applying criteria
specified in any Environmental Law, is hazardous or toxic; or (c) the use or
disposal of which is regulated under Environmental Law.
"IRA" means an "individual retirement account" or similar account
created by a trust for the exclusive benefit of an individual or his
beneficiaries in accordance with the provisions of Section 408 of the Code.
"IRS" means the Internal Revenue Service.
"Keogh Account" means an account created by a trust for the benefit of
employees (some or all of whom are owner-employees) and that complies with the
provisions of Section 401 of the Code.
"Landlord Consents" has the meaning set forth in Section 3.6(e).
"Lease Agreement" means a lease entered into pursuant to Section
10.1(c) upon such specific terms and conditions as contemplated by such Section
and such other commercially reasonable terms and conditions as are customary in
a "triple net" lease of a bank branch facility in the State of California.
"Lease Assignment" has the meaning set forth in Section 3.6(d).
"Liabilities" has the meaning set forth in Section 2.2.
"Loans" means Deposit Related Loans only. No other loans are being
sold.
"Loan Documents" means all documents included in Seller's files with
respect to a Deposit Related Loan, including, without limitation, notes
security agreements, loan agreements, guaranties, and all modifications,
waivers and consents relating to any of the foregoing.
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"Loan Value" means with respect to a Deposit Related Loan and as of a
date, the unpaid principal balance of any such Loan plus Accrued Interest
thereon.
"Loss" means the amount of losses, liabilities, damages (including
forgiveness or cancellation of obligations) and expenses (including reasonable
expenses of investigation and reasonable attorneys' fees and expenses in
connection with any action, suit or proceeding) incurred or suffered by the
indemnified party or its Affiliates in connection with the matters described in
Section 12.1, less the amount of the economic benefit (if any) to the
indemnified party or its Affiliates occurring or reasonably anticipated to
occur in connection with any such damage, loss, liability or expense (including
Tax benefits obtainable under applicable law, amounts recovered under insurance
policies net of deductibles, recovery by setoffs or counterclaims, and other
economic benefits).
"Material Adverse Effect" means (a) with respect to Seller, a material
adverse effect on the business or direct economic results of operations of the
Branches, taken as a whole, or on the ability of Seller timely to consummate
the P&A Transaction as contemplated by this Agreement, and (b) with respect to
Purchaser, a material adverse effect on the ability of Purchaser to perform any
of its financial or other obligations under this Agreement, including the
ability of Purchaser timely to consummate the P&A Transaction contemplated by
this Agreement. In determining whether there has occurred a Material Adverse
Effect there shall be excluded the effect of any change in Federal or state
banking laws or regulations, any change in GAAP or regulatory accounting
principles, any adverse change in general economic conditions, including
without limitation the interest rate environment, or in the California
depository institution industry generally.
"OCC" means the Office of the Comptroller of the Currency.
"Order" has the meaning set forth in Section 9.1(b).
"Owned Real Property" means Real Property where Seller owns both the
real property and improvements thereon that are used for Branches.
"P&A Transaction" means the purchase and sale of Assets and the
assumption of Liabilities described in Sections 2.1 and 2.2.
"Personal Property" means all of the personal property of Seller,
located in the Branches, which is defined on the personal property and fixed
assets list previously provided to Purchaser; provided, no teller terminals or
Wells Fargo signs are being sold. If, prior to the Closing Date, an item of
Personal Property is stolen, destroyed or otherwise lost, such item shall be
excluded form the P&A Transaction, and the term "Personal Property" as used
herein shall exclude such item. If, prior to the Closing Date, an item of
Personal Property is damaged by fire or other casualty, such item, if
reasonably repairable, shall be sold to Purchaser (in accordance with the
provisions hereof) and the insurance proceeds relating to such item shall be
assigned to Purchaser, it being understood that if such item is not reasonably
repairable or is underinsured or uninsured, it shall be excluded from the P&A
Transaction. Personal Property, for purposes of
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what is being sold hereunder, does not include any personal property of Seller
located in the Real Property which is not in the branch banking office and is
not necessary to the operation of the branch banking office (e.g., personal
property associated with non-branch banking offices of Seller which may be
located in the Real Property).
"Personal Property Leases" means the leases under which Seller leases
certain Personal Property in the Branch. Seller shall cancel all such Personal
Property Leases as of the Closing.
"Purchase Price" has the meaning set forth in Section 2.3.
"Real Property" means the parcels of real property on which the
Branches listed on Schedule 1.1(b) are located, including any improvements and
tenant improvements and trade fixtures thereon, which Schedule indicates
whether or not such real property is Owned Real Property.
"Records" means all paper records and original documents, or where
reasonable and appropriate copies thereof, in Seller's possession that pertain
to and are utilized by Seller to administer, reflect, monitor, evidence or
record information respecting the business or conduct of the Branches
(including transaction tickets through the Closing Date and all records for
closed accounts located in Branches and excluding any other transaction tickets
and records for closed accounts) and all such records and original documents,
or where reasonable and appropriate copies thereof, regarding the Assets, or
the Deposits, or to comply with applicable laws and governmental regulations to
which the Deposits are subject, including but not limited to the California
unclaimed property and escheat laws. Notwithstanding the above, Seller may
provide copies of all Records, except notes and other Loan Documents. Seller
is not required to deliver any data processing or electronic/image type records
commingled with other records of Seller unrelated to the Branches and Seller is
not required to deliver any account history which is prior to forty-five (45)
days prior to Closing. In addition, Seller is not required to deliver any
risk-management information regarding customers, including without limitation
credit-scoring formulas, daylight over draft limits, stop payment or overdraft
history more than forty-five (45) days prior to Closing.
"Regulatory Approvals" means all approvals, authorizations, waivers or
consents of or notices to any governmental agencies or authorities required for
or in connection with consummation of the P&A Transaction.
"Safe Deposit Agreements" means the agreements relating to safe
deposit boxes located in the Branches.
"Seller's knowledge" or other similar phrases means information that
is actually known to any officer of Seller who holds the title of Senior Vice
President or above and has responsibility with respect to management of
operations conducted at the Branches.
"Tax Returns" means any return or other report required to be filed
with respect to any Tax, including declaration of estimated tax and information
returns.
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"Taxes" means any federal, state, local, or foreign taxes, including
but not limited to taxes on or measured by income, estimated income, franchise,
capital stock, employee's withholding, non-resident alien withholding, backup
withholding, social security, occupation, unemployment, disability, value added
taxes, taxes on services, real property, personal property, sales, use, excise,
transfer, gross receipts, inventory and merchandise, business privilege, and
other taxes or governmental fees or charges or amounts required to be withheld
and paid over to any government in respect of any tax or governmental fee or
charge, including any interest, penalties, or additions to tax on the foregoing
whether or not disputed.
"Tenant Leases" means leases or subleases between Seller and tenants,
if any, listed on Schedule 5.4.
"Title Company" has the meaning set forth in Section 3.10(a).
"Title Policy" has the meaning set forth in Section 3.10(b).
"Title Reports" has the meaning set forth in Section 3.10(a).
"Transaction Account" means any account at a Branch in respect of
which deposits therein are withdrawable in practice upon demand or upon which
third party drafts may be drawn by the depositor, including checking account,
negotiable order of withdrawal accounts and money market deposit accounts.
"Transferred Employees" means Branch Employees employed by Purchaser
on and after the Closing Date.
1.2 Accounting Terms. All accounting terms not otherwise defined
herein shall have the respective meanings assigned to them in accordance with
consistently applied generally accepted accounting principles as in effect from
time to time in the United States of America ("GAAP").
1.3 Interpretation. The captions or headings in this Agreement
are for convenience of reference only and in no way define, limit or describe
the scope or intent of any provisions or Sections of this Agreement. All
references in this Agreement to particular Articles or Sections are references
to the Articles or Sections of this Agreement, unless some other reference is
clearly indicated. In this Agreement, unless the context otherwise requires,
(i) words describing the singular number shall include the plural and vice
versa, (ii) words denoting any gender shall include all genders and (iii) the
word "including" shall mean "including without limitation." The rule of
construction against the draftsman shall not be applied in interpreting and
construing this Agreement.
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ARTICLE 2
THE P&A TRANSACTION
2.1 Purchase and Sale of Assets. (a) Subject to the terms and
conditions set forth in this Agreement, at the Closing, Seller shall grant,
sell, convey, assign, transfer and deliver to Purchaser, and Purchaser shall
purchase and accept from Seller, all of Seller's right, title and interest, as
of the Closing Date, in and to the following (collectively, the "Assets"):
(i) Cash on Hand;
(ii) the Owned Real Property;
(iii) the Personal Property; provided, however, no Personal
Property Leases are being sold.
(iv) the Deposit Related Loans, and the servicing rights
related thereto pursuant to Section 2.5.
(v) the Branch Leases and Tenant Leases;
(vi) the Safe Deposit Agreements; and
(vii) the Records
(b) Purchaser understands and agrees that it is purchasing only
the Assets (and assuming only the Liabilities) specified in this Agreement and,
except as may be expressly provided for in this Agreement, Purchaser has no
interest in or right to any other business relationship which Seller may have
with any customer of the Branches, including without limitation: (i) any
deposit account or other service of Seller at any other office of Seller which
may be linked to the Deposits; (ii) any money market account which sweeps from
the Branch to a third party; (iii) any merchant card banking relationship;
and/or (iv) any cash management service (e.g., sweep accounts, cash
concentrator accounts, controlled disbursement accounts) which Seller may
provide to any customer of the Branches. No credit card relationships are
being sold. No right to the use of any trade name, trademark or service mark,
if any, of Seller, Wells Fargo & Company (parent of Seller) or any of their
respective Affiliates is being sold.
2.2 Assumption of Liabilities. (a) Subject to the terms and
conditions set forth in this Agreement, at the Closing, Purchaser shall assume,
pay, perform and discharge all duties, responsibilities, obligations or
liabilities of Seller (whether accrued, contingent or otherwise) to be
discharged, performed, satisfied or paid on or after the Closing Date, with
respect to the following (collectively, the "Liabilities"):
(i) the Deposits, including the IRA and Keogh Accounts to
the extent contemplated by Section 2.4;
(ii) the Branch Leases, Tenant Leases and Personal
Property Leases;
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(iii) the Safe Deposit Agreements; and
(iv) the Assumed Severance Obligations.
(b) Notwithstanding anything to the contrary in this Agreement,
Purchaser shall not assume or be bound by any duties, responsibilities,
obligations or liabilities of Seller, or of any of Seller's Affiliates, of any
kind or nature, known, unknown, contingent or otherwise, other than the
Liabilities.
2.3 Purchase Price. The purchase price ("Purchase Price") for the
Assets shall be the sum of:
(a) An amount equal to 6.09805% of the average daily balance
(including Accrued Interest) of the Deposits for the period commencing thirty
(30) days prior to and inclusive of the day prior to the Closing Date and
ending on the day prior to the Closing Date;
(b) The aggregate amount of Cash on Hand as of the Closing Date;
(c) The aggregate net book value of all the Assets, other than
Cash on Hand and Deposit Related Loans, as reflected on the books of Seller as
of the close of business of the month-end day most recently preceding the
Closing Date.
(d) The aggregate Loan Value of the Deposit Related Loans as of
the close of business of the day prior to the Closing Date.
Purchaser has, concurrently with Seller's execution of this Agreement, made a
good faith deposit to Seller, as consideration for entering into this
Agreement, in the amount of Seventy-Five Thousand Dollars ($75,000) per branch
for each Branch which is the subject of this Agreement. Such good faith
deposit shall be applied against the Purchase Price upon Closing. Such good
faith deposit shall be returned to Purchaser if this Agreement is terminated
for a reason other than the default of Purchaser. If the Closing does not
timely occur due to the default of Purchaser, Seller shall retain such deposit.
Such good faith deposit is consideration for entering into this Agreement, is
not intended as liquidated damages and shall not in any way limit Seller's
remedies for a default by Purchaser hereunder. No interest shall be paid on
such good-faith deposit.
2.4 Assumption of IRA and Keogh Account Deposits. (a) With
respect to Deposits in IRAs, Seller will use reasonable efforts and will
cooperate with Purchaser in taking any action reasonably necessary to
accomplish either the appointment of Purchaser as successor custodian or the
delegation to Purchaser (or an Affiliate of Purchaser) of Seller's authority
and responsibility as custodian of all such IRA deposits except self-directed
IRA deposits, including, but not limited to, sending to the depositors thereof
appropriate notices, cooperating with Purchaser (or such Affiliate) in
soliciting consents from such depositors, and filing any appropriate
applications with applicable regulatory authorities. If any such delegation is
made to
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Purchaser (or such Affiliates), Purchaser (or such Affiliate) will perform all
of the duties so delegated and comply with the terms of Seller's agreement with
the depositor of the IRA deposits affected thereby.
(b) With respect to Deposits in Keogh Accounts, Seller shall
cooperate with Purchaser to invite depositors thereof to direct a transfer of
each such depositor's Keogh Account and the related Deposits to Purchaser (or
an Affiliate of Purchaser), as trustee thereof, and to adopt Purchaser's (or
such Affiliate's) form of Keogh Master Plan as a successor to that of Seller.
Purchaser (or such Affiliate) will assume no Keogh Accounts unless Purchaser
(or such Affiliate) has received the documents necessary for such assumption at
or before the Closing. With respect to any owner of a Keogh Account who does
not adopt Purchaser's (or such Affiliate's) form of Keogh Master Plan, Seller
will use reasonable efforts in order to enable Purchaser (or such Affiliate) to
retain such Keogh Accounts at the Branches.
(c) If, notwithstanding the foregoing, as of the Closing Date,
Purchaser shall be unable to retain deposit liabilities in respect of an IRA or
Keogh Account, such deposit liabilities shall be excluded from Deposits for
purposes of this Agreement and shall constitute "Excluded IRA/Keogh Account
Deposits."
2.5 Sale and Transfer of Servicing and Escrows. The Deposit
Related Loans shall be sold on a servicing released basis. As of the Closing
Date, all rights, obligations, liabilities and responsibilities with respect to
the servicing of such Loans on and after the Closing Date will be assumed by
Purchaser. Seller shall be discharged and indemnified by Purchaser from all
liability with respect to servicing of the Deposit Related Loans on and after
the Closing Date and Purchaser shall be discharged and indemnified by Seller
from all liability with respect to servicing of the Deposit Related Loans prior
to the Closing Date.
ARTICLE 3
CLOSING PROCEDURE; ADJUSTMENTS
3.1 Closing. (a) The Closing will be held at the offices of
Seller at 420 Montgomery Street, San Francisco or such place as may be agreed
to by the parties.
(b) The Closing Date shall be at a date and time as soon as
practicable, which shall be no later than thirty (30) Business Days after
receipt of all Regulatory Approvals unless otherwise agreed to by the parties;
provided, however, in no event shall the closing be later than March 31, 1997.
3.2 Payment at Closing. (a) At Closing, Seller shall pay to
Purchaser the amount by which the aggregate balance (including Accrued
Interest) of the Deposits exceeds the Estimated Purchase Price (the "Estimated
Payment Amount") or, Purchaser shall pay to Seller the amount by which the
Estimated Purchase Price exceeds the aggregate balance (including Accrued
Interest) of the Deposits, each as set forth on the Draft Closing Statement as
agreed upon between Seller and Purchaser.
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(b) All payments to be made hereunder by one party to the other
shall be made by wire transfer of immediately available funds (in all cases to
an account specified in writing by Seller or Purchaser, as the case may be, to
the other not later than the third (3rd) Business Day prior to the Closing
Date) on or before 11:00 A.M. local time on the date of payment. If any
payment to be made hereunder on the Closing Date (or any other date) shall not
be made on or before 11:00 A.M. local time on such date, and the amount thereof
shall have been agreed to in writing by the parties at the Closing Date (or
such other payment date), the party responsible therefor may make such payment
on or before 11:00 A.M. local time on the next Business Day together with
interest thereon at the Federal Funds Rate applicable from the Closing Date (or
such other payment date) to the date such payment is actually made, which in no
event shall be later than the fifth (5th) business day after such payment was
due.
(c) If any instrument of transfer contemplated herein shall be
recorded in any public record before the Closing and thereafter the Closing is
not completed, then at the request of such transferring party the other party
will deliver (or execute and deliver) such instruments and take such other
action as such transferring party shall reasonably request to revoke such
purported transfer.
3.3 Adjustment of Purchase Price. (a) On or before 12:00 noon on
the sixtieth (60th) day following the Closing Date (the "Adjustment Date"),
Seller shall deliver to Purchaser the Final Closing Statement and shall make
available such work papers, schedules and other supporting data as may be
reasonably requested by Purchaser to enable it to verify the amounts set forth
in the Final Closing Statement. The Final Closing Statement shall also set
forth the amount (the "Adjusted Payment Amount") by which the aggregate amount
of Deposits (including Accrued Interest) shown on the Final Closing Statement
differs from the Estimated Purchase Price.
(b) The determination of the Adjusted Payment Amount shall be
final and binding on the parties hereto unless within thirty (30) days after
receipt by Purchaser of the Final Closing Statement, Purchaser shall notify the
Seller in writing of its disagreement with any amount included therein or
omitted therefrom, in which case, if the parties are unable to resolve the
disputed items within ten (10) Business Days of the receipt by Seller of notice
of such disagreement, such items shall be determined by an independent
accounting firm selected by mutual agreement between Seller and Purchaser;
provided, however, that in the event the fees of such firm as estimated by such
firm would exceed fifty percent (50%) of the net amount in dispute, the parties
agree that such firm will not be engaged by either party and that such net
amount in dispute will be equally apportioned between Seller and Purchaser.
Such accounting firm shall be instructed to resolve the disputed items within
ten (10) Business Days of engagement, to the extent reasonably practicable.
The determination of such accounting firm shall be final and binding on the
parties hereto. The fees of any such accounting firm shall be divided equally
between Seller and Purchaser.
(c) On or before 12:00 Noon on the tenth (10th) Business Day after
the Adjustment Date or, in the case of a dispute, the date of the resolution of
the dispute pursuant to subsection
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3.3(b) above, Seller shall pay to Purchaser an amount equal to the amount by
which the Adjusted Payment Amount exceeds the Estimated Payment Amount, plus
interest on such excess amount from the Closing Date to but excluding the
payment date, at the Federal Funds Rate or, if the Estimated Payment Amount
exceeds the Adjusted Payment Amount, Purchaser shall pay to Seller an amount
equal to such excess, plus interest from the Closing Date to but excluding the
payment date, at the Federal Funds Rate. Any payments required by Section 3.5
shall be made contemporaneously with the foregoing payment.
3.4 Allocation of Purchase Price. (a) Purchaser and Seller agree
that upon final determination of the Purchase Price, the Purchase Price shall
be allocated in a manner as determined by Purchaser subject to Seller's consent
(which consent shall not be unreasonably withheld or delayed), after taking
into account any applicable Treasury Regulations and the fair market value of
such items and to be set forth in a statement, dated the Adjustment Date (the
"Allocation Statement") prepared by Purchaser.
(b) Purchaser and Seller shall report the transaction contemplated
by this Agreement (including income tax reporting requirements imposed pursuant
to Section 1060 of the Code) in accordance with the allocation specified in the
Allocation Statement. In the event any party hereto receives notice of an
audit in respect of the allocation of the Purchase Price specified herein, such
party shall immediately notify the other party in writing as to the date and
subject of such audit.
(c) If any Tax Return filed by Purchaser or Seller relating to the
transactions contemplated hereby is challenged by the taxing authority with
which such Tax Return was filed on the basis of the allocation set forth in the
Allocation Statement, as finally adjusted, the filing party shall assert and
maintain in good faith the validity and correctness of such allocation during
the audit thereof until the issuance by the taxing authority of a "30 Day
Letter", or a determination of liability equivalent thereto, to such party;
provided, however, that at any time such party shall, in its sole discretion,
have the right to pay, compromise, settle, dispute or otherwise deal with its
alleged tax liability. If such a Tax Return is challenged as herein described,
the party filing such Tax Return shall keep the other party apprised of its
decisions and the current status and progress of all administrative and
judicial proceedings, if any, that are undertaken at the election of such
party.
3.5 Proration; Other Closing Date Adjustments. (a) Except as
otherwise specifically provided in this Agreement, it is the intention of the
parties that Seller will operate the Branches for its own account until 11:59
P.M., California time, the day prior to the Closing Date, and that Purchaser
shall operate the Branches, hold the Assets and assume the Liabilities for its
own account on and after the Closing Date. Thus, except as otherwise
specifically provided in this Agreement, items of income and expense, as
defined herein, shall be prorated as of 11:59 P.M., California time, the day
prior to the Closing Date, and settled between Seller and Purchaser on the
Closing Date, whether or not such adjustment would normally be made as of such
time. Items of proration will be handled at Closing as an adjustment to the
Purchase Price unless otherwise agreed by the parties hereto.
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(b) For purposes of this Agreement, items of proration and other
adjustments shall include, without limitation: (i) rental payments and
security deposits under the Branch Leases and the Tenant Leases; (ii) sales
and use taxes and personal and real property taxes and assessments; (iii) FDIC
deposit insurance assessments; (iv) wages, salaries and employee benefits and
expenses; (v) trustee or custodian fees on IRA and Keogh Accounts; (vi)
adjustments reflecting exclusions from the Personal Property as provided for in
the definition thereof; and (vii) other prepaid expenses and items and accrued
but unpaid liabilities, as of the close of business on the day prior to the
Closing Date. Safe deposit rental payments previously received by Seller shall
not be prorated.
3.6 Seller Deliveries. At the Closing, Seller shall deliver to
Purchaser:
(a) Grant deeds, in substantially the form of Schedule 3.6(a),
pursuant to which the Owned Real Property shall be transferred to Purchaser "AS
IS", "WHERE IS" and with all faults (the "Grant Deeds");
(b) A bill of sale, in substantially the form of Schedule 3.6(b),
pursuant to which the Personal Property shall be transferred to Purchaser "AS
IS", "WHERE IS" and with all faults;
(c) An assignment and assumption agreement, in substantially the
form of Schedule 3.6(c), with respect to the Liabilities (the "Assignment and
Assumption Agreement");
(d) Lease assignment and assumption agreements in substantially
the form of Schedule 3.6(d), with respect to each of the Branch Leases (the
"Lease Assignments");
(e) Subject to the provisions of Section 7.4, such consents of
landlords under the Branch Leases, as shall be required pursuant to the terms
of such Branch Leases, to the assignment of the Branch Leases to Purchaser in
substantially the form of Schedule 3.6(e) (the "Landlord Consents");
(f) Subject to the provisions of Section 7.4, such consents as
shall be required pursuant to the terms of the Tenant Leases and the Personal
Property Leases in connection with the assignments thereof to Purchaser;
(g) An Officer's Certificate in substantially the form of Schedule
3.6(g);
(h) An opinion of Seller's counsel, dated the Closing Date, in
form and substance reasonably satisfactory to Purchaser substantially to the
effect that:
(i) Seller is a national banking association, duly
organized and validly existing under the laws of the United States,
with all requisite corporate power and authority to execute, deliver
and perform this Agreement;
(ii) all Regulatory Approvals required to have been
obtained by Seller or its Affiliates have been obtained and are in
full force and effect; and
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(iii) this Agreement has been duly authorized, executed and
delivered by Seller and (assuming due authorization, execution and
delivery by Purchaser) is a valid and legally binding obligation of
Seller enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfers, reorganization,
moratorium and similar laws of general applicability relating to or
affecting creditors' rights and to general equity principles;
(i) The Draft Closing Statement;
(j) Seller's resignation as trustee or custodian, as applicable,
with respect to each IRA or Keogh Account included in the Deposits and
designation of Purchaser as successor trustee or custodian with respect thereto
as contemplated by Section 2.4;
(k) All documentation required to exempt Seller from the
withholding requirement of Section 1445 of the Code, consisting of an affidavit
from Seller to Purchaser under penalty of perjury that Seller is not a foreign
person and providing Seller's U.S. taxpayer identification number; and
(l) Such other documents as the parties determine are reasonably
necessary to consummate the P&A Transaction as contemplated hereby.
3.7 Purchaser Deliveries. At the Closing, Purchaser shall deliver
to Seller:
(a) The Assignment and Assumption Agreement;
(b) Purchaser's acceptance of its appointment as successor trustee
or custodian, as applicable, of the IRA and Keogh Accounts included in the
Deposits and assumption of the fiduciary obligations of the trustee or
custodian with respect thereto, as contemplated by Section 2.4;
(c) The Lease Assignments and, as contemplated by Section 7.4,
such other instruments and documents as any landlord under a Branch Lease may
reasonably require as necessary or desirable for providing for the assumption
by Purchaser of a Branch Lease, each such instrument and document in the form
and substance reasonably satisfactory to the parties and dated as of the
Closing Date;
(d) An Officer's Certificate in the form of Schedule 3.7(d)
attached hereto;
(e) An opinion of Purchaser's counsel, dated the Closing Date, in
form and substance reasonably satisfactory to Seller, substantially to the
effect that:
(i) Purchaser is a state-chartered bank, duly organized
and validly existing under the laws of California, with all requisite
corporate power and authority to execute, deliver and perform this
Agreement;
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(ii) all Regulatory Approvals required to have been
obtained by Purchaser or its Affiliates have been obtained and are in
full force and effect; and
(iii) this Agreement has been duly authorized, executed and
delivered by Purchaser and (assuming due authorization, execution and
delivery by Seller) is a valid and legally binding obligation of
Purchaser enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or
affecting creditors' rights and to general equity principles; and
(f) Such other documents as the parties determine are reasonably
necessary to consummate the P&A Transaction as contemplated hereby.
3.8 Delivery of the Loan Documents. (a) In connection with the
sale hereunder, as soon as is reasonably practicable after the Closing Date,
Seller shall deliver to Purchaser or its designee the Loan Documents actually
in the possession of Seller. Seller makes no representation or warranty to
Purchaser regarding the condition of the Loan Documents or any single document
included therein, or Seller's interest in any collateral securing any Deposit
Related Loan, except as specifically set forth herein. Seller shall have no
responsibility or liability for the Loan Documents from and after the time such
files are delivered by Seller to an independent third party for shipment to
Purchaser, the cost of which shall be the sole responsibility of Purchaser.
(b) Promptly upon the execution of this Agreement, Purchaser shall
provide Seller the exact name to which the Deposit Related Loans are to be
endorsed, or whether any Deposit Related Loans should be endorsed in blank.
Seller will use its best efforts to complete such endorsements and deliver the
Loan Documents within ninety (90) days after Closing; provided, however, with
respect to specific Loan Documents, Seller may require additional time to
effectively transfer title thereto and Purchaser shall not hold Seller liable
for any reasonable delays in the delivery of such Loan Documents. Purchaser
further acknowledges and agrees that Seller may execute or endorse any Loan
Document by way of facsimile signature.
3.9 Owned Real Property Filings. On or prior to the Closing Date,
Seller shall file or record, or cause to be filed or recorded, any and all
documents (including, without limitation, deeds) necessary in order that the
legal and equitable title to Owned Real Property shall be duly vested in
Purchaser as of the Closing Date. Any expenses or documentary transfer taxes
with respect to such filings shall be borne by Seller or Purchaser in
accordance with the escrow agent's determination of the local custom in the
county in which the filing is being made; provided, however, that if it is
determined that (i) the custom is to split such expenses or documentary
transfer taxes or (ii) there is no discernible custom, any such expenses or
documentary transfer taxes shall be split evenly between Seller and Purchaser.
3.10 Title Policies. (a) Purchaser has previously been provided by
Seller, at its own expense, a preliminary title report (the "Title Reports")
for all the Owned Real Property issued by Chicago Title Company (the "Title
Company"), Purchaser has had an opportunity to review
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such Title Reports and Purchaser hereby approves the condition of title with
respect to all the Owned Real Property being purchased hereunder.
(b) Purchaser shall, at its own expense, obtain as of the Closing
Date a CLTA title insurance policy from the Title Company (a "Title Policy")
with respect to all the Owned Real Property. Seller will cooperate with
Purchaser in assisting Purchaser to obtain (at Purchaser's expense) such Title
Policies, including without limitation only such endorsements as may be
reasonably necessary to insure that such Owned Real Property is free and clear
of any Encumbrance not shown on the Title Reports which would materially and
adversely affect the value or marketability of title thereto.
ARTICLE 4
TRANSITIONAL MATTERS
4.1 Transitional Arrangements. Seller and Purchaser agree to
cooperate and to proceed as follows to effect the transfer of account record
responsibility for the Branches:
(a) Not later than thirty (30) days after the signing of this
Agreement, Seller will meet with Purchaser to investigate, confirm and agree
upon mutually acceptable transaction settlement procedures and specifications,
files, procedures and schedules, for the transfer of account record
responsibility; provided, however it being understood and agreed that Seller is
not obligated under this Agreement to provide Purchaser any system conversion
files regarding the Assets and Liabilities other than a standard format
conversion tape (i.e., not one which is specifically formatted for Purchaser's
systems specifications); and provided, further, that Seller is not obligated to
provide Purchaser with any information regarding Seller's relationship with the
customers outside of the Branch (e.g., other customer products, house-holding
information).
(b) Not later than sixty (60) days after the date of this
Agreement, Seller shall provide Purchaser with a hard copy listing of all
applicable Check/Savings/Signatures that Seller has for the Deposits and
related special instructions.
4.2 Customers. (a) Not later than thirty (30) days prior to the
Closing Date (unless earlier required by law),
(i) Seller will notify the holders of Deposits to be
transferred on the Closing Date that, subject to the terms and
conditions of this Agreement, Purchaser will be assuming liability for
such Deposits;
(ii) each of Seller and Purchaser shall provide, or join
in providing where appropriate, all notices to customers of the
Branches and other persons that Seller or Purchaser, as the case may
be, is required to give under applicable law or the terms of any other
agreement between Seller and any customer in connection with the
transactions contemplated hereby; and
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(iii) following or concurrently with the notice referred to
in clause (i) above, Purchaser may communicate with and deliver
information, brochures, bulletins and other communications to
depositors and other customers of the Branches concerning the P&A
Transaction and the business of Purchaser. A party proposing to send
or publish any notice or communication pursuant to any paragraph of
this Section 4.2 shall furnish to the other party a copy of the
proposed form of such notice or communication at least five (5) days
in advance of the proposed date of the first mailing, posting, or
other dissemination thereof to customers, and shall not unreasonably
refuse to amend such notice to incorporate any changes that the other
such party proposes as necessary to comply with applicable law. All
costs and expenses of any notice or communication sent or published by
Purchaser or Seller shall be the responsibility of the party sending
such notice or communication and all costs and expenses of any joint
notice or communication shall be shared equally by Seller and
Purchaser. As soon as reasonably practicable and in any event within
fourteen (14) days of the date hereof, Seller shall provide to
Purchaser a report of the names and addresses of the owners of the
Deposits and the lessees of the safe deposit boxes in connection with
the mailing of such materials, which report shall be current as of the
date hereof.
(b) Following the giving of any notice described in paragraph (a)
above, Purchaser and Seller shall deliver to each new customer at any of the
Branches such notice or notices as may be reasonably necessary to notify such
new customers of Purchaser's pending assumption of liability for the Deposits
and to comply with applicable law. The cost of such notices shall be paid by
Purchaser. At any time after the receipt of all Regulatory Approvals (except
for the expiration of statutory waiting periods), within five (5) Business Days
following any request by Purchaser, Seller will provide Purchaser with account
information, including complete mailing addresses for each of the depositors of
the Deposits as of a recent date, and upon reasonable request shall provide an
updated version of such records; provided, however, that Seller shall not be
obligated to provide such updated records more than twice.
(c) Notwithstanding the provisions of Section 7.6, neither
Purchaser nor Seller shall object to the use, by depositors of the Deposits, of
payment orders issued to or ordered by such depositors on or prior to the
Closing Date, which payment orders bear the name, or any logo, trademark,
service mark, trade name or the proprietary mark of Wells Fargo Bank or any of
its Affiliates.
4.3 Direct Deposits. Seller will use all reasonable efforts to
transfer to Purchaser on the Closing Date all of those automated clearing house
and FedWire direct deposit arrangements related (by agreement or other standing
arrangement) to Deposits. As soon as practicable after the receipt of all
Regulatory Approvals (except for the expiration of statutory waiting periods),
Seller will deliver to Purchaser a listing in a format mutually agreed upon by
the parties of all such direct deposit records which Seller, in the exercise of
all reasonable efforts, is able to identify. On each Business Day for a period
of four (4) months following the Closing, in the case of automated clearing
house direct deposits to accounts containing Deposits (the final Business Day
of such period being the "ACH Direct Deposit Cut-Off Date"), Seller shall, as
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soon as practicable, but in any event no less than twice daily and no later
than 4:00 A.M., California time, of each Business Day for same day settlement,
and no later than 6:00 P.M., California time, of each Business Day for
settlement on the following Business Day, remit and transfer to Purchaser all
ACH direct deposits intended for accounts constituting Deposits. On each
Business Day, for a period of thirty (30) days following the Closing Date, in
the case of feeder direct deposits to accounts constituting Deposits (the final
Business Day of such period being the "FedWire Direct Deposit Cut-Off Date"),
Seller shall, as soon practicable, but in any event, no later then 12:00 noon,
California time, of each Business Day following the date of receipt thereof,
remit and transfer to Purchaser all FedWire direct deposits intended for
accounts constituting Deposits. Compensation for ACH direct deposits or
FedWire direct deposits not forwarded to Purchaser on the same Business Day as
that on which Seller has received such deposits will be handled in accordance
with the rules established by the United States Council on International
Banking. After the applicable Direct Deposit Cut-Off Date, Seller may
discontinue accepting and forwarding automated clearing house and FedWire
entries and funds and return such direct deposits to the originators marked
"Account Closed." Seller shall not be liable for any overdrafts that may
thereby be created. Purchaser and Seller shall agree on a reasonable period of
time prior to the Closing during which Seller will no longer be obligated to
accept new direct deposit arrangements related to the Branches. At the time of
each Direct Deposit Cut-off Date, Purchaser will provide automated clearing
housing originators with account numbers relating to Deposits.
4.4 Direct Debit. As soon as practicable after the receipt of all
Regulatory Approvals (except for the expiration of statutory waiting periods),
and after the notice provided in Section 4.2(a), Purchaser will send
appropriate notice to all customers having accounts constituting Deposits the
terms of which provide for direct debit of such accounts by third parties,
instructing such customers concerning transfer of customer direct debit
authorizations from Seller to Purchaser. Seller shall cooperate in soliciting
the transfer of such authorizations. Such notice shall be in a form agreed to
by the parties. For a period of four (4) months following the Closing Date,
Seller shall as soon as practicable, but in any event, no less than twice daily
and no later than 4:00 A.M., California time, of each Business Day for same day
settlement, and no later than 6:00 P.M., California time, of each Business Day
for settlement on the following Business Day, forward to Purchaser all direct
debits on accounts constituting Deposits. Thereafter, Seller may discontinue
forwarding such entries and return them to the originators marked "Account
Closed." Purchaser and Seller shall agree on a reasonable period of time prior
to the Closing during which Seller will not longer be obligated to accept new
direct debit arrangements related to the Branches. On the Closing Date,
Purchaser will provide automated clearing house originators of such direct
debits with account numbers.
4.5 Escheat Deposits. As soon as practicable after the Closing
Date, Seller will deliver to Purchaser a data processing record identifying all
Escheat Deposits that have been transferred to Purchaser. Thereafter,
Purchaser shall be solely responsible for the proper reporting and transmission
to the State of California of such Escheat Deposits.
4.6 Maintenance of Records. Through the Closing Date, Seller will
maintain the Records relating to the Assets and Liabilities in the same manner
and with the same care that the
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Records have been maintained prior to the execution of this Agreement.
Purchaser may, at its own expense, make such copies of and excerpts from the
Records as it may deem desirable. All Records, whether held by Purchaser or
Seller, shall be maintained for such periods as are required by law, unless the
parties shall, applicable law permitting, agree in writing to a different
period. From and after the Closing Date, each of the parties shall permit the
other reasonable access to any applicable Records in its possession relating to
matters arising on or before the Closing Date and reasonably necessary in
connection with any claim, action, litigation or other proceeding involving the
party requesting access to such Records or in connection with any legal
obligation owed by such party to any present or former depositor or other
customer.
4.7 Interest Reporting and Withholding. (a) Unless otherwise
agreed to by the parties, Seller will report to applicable taxing authorities
and holders of Deposits, with respect to the period from January 1 of the year
in which the Closing occurs through the Closing Date, all interest (including
for purposes hereof dividends and other distributions with respect to money
market accounts) credited to, withheld from and any early withdrawal penalties
imposed upon the Deposits. Purchaser will report to the applicable taxing
authorities and holders of Deposits, with respect to all periods from the day
after the Closing Date, all such interest credited to, withheld from and early
withdrawal penalties imposed upon such Deposits. Any amounts required by any
governmental agencies to be withheld from any of the Deposits through the
Closing Date will be withheld by Seller in accordance with applicable law or
appropriate notice from any governmental agency and will be remitted by Seller
to the appropriate agency on or prior to the applicable due date. Any such
withholding required to be made subsequent to the Closing Date shall be
withheld by Purchaser in accordance with applicable law or the appropriate
notice from any governmental agency and will be remitted by Purchaser to the
appropriate agency on or prior to the applicable due date. Promptly after the
Closing Date, but in no event later than the date Purchaser is obligated to
remit such amounts to the applicable governmental agency, Seller will pay to
Purchaser that portion of any sums theretofore withheld by Seller from any
Deposits which are required to be remitted by Purchaser pursuant to the
foregoing and shall directly remit to the applicable governmental agency that
portion of any such sums which are required to be remitted by Seller.
(b) Unless otherwise agreed by the parties, Seller shall be
responsible for delivering to payees all IRS notices with respect to
information reporting and tax identification numbers required to be delivered
through the Closing Date with respect to the Deposits, and Purchaser shall be
responsible for delivering to payees all such notices required to be delivered
following the Closing Date with respect to the Deposits. Purchaser and Seller
shall, prior to the Closing Date, consult and Seller shall take reasonable
actions as are necessary to permit Purchaser timely to deliver such IRS notices
required to be delivered following the Closing Date.
(c) Unless otherwise agreed by the parties, Seller will make all
required reports to applicable Tax authorities and to obligors on the Deposit
Related Loans purchased on the Closing Date, with respect to the period from
January 1 of the year in which the Closing occurs through the Closing Date,
concerning all interest and points received by the Seller. Purchaser will make
all required reports to applicable Tax authorities and to obligors on the
Deposit
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Related Loans purchased on the Closing Date, with respect to all periods from
the day after the Closing Date, concerning all such interest and points
received.
4.8 Negotiable Instruments. Seller will remove any supply of
Seller's money orders, official checks, gift checks, travelers' checks or any
other negotiable instruments located at each of the Branches on the Closing
Date.
4.9 ATM/Debit Cards. Seller will provide Purchaser with a list of
ATM access/debit cards issued by Seller to depositors of any Deposits, and a
record thereof in a format reasonably agreed to by the parties containing all
addresses therefor, as soon as practicable after the receipt of all Regulatory
Approvals (except for the expiration of any statutory waiting periods). At or
promptly after the Closing, Seller will provide Purchaser with a revised record
through the Closing. In instances where a depositor of a Deposit made an
assertion of error regarding an account constituting Deposits pursuant to the
Electronic Funds Transfer Act and Federal Reserve Board Regulation E, and
Seller, prior to the Closing, recredited the disputed amount to the relevant
account during the conduct of the error investigation, Purchaser agrees to
comply with a written request from Seller to debit such account in a stated
amount and remit such amount to Seller, to the extent of the balance of funds
available in the accounts. Seller agrees to indemnify Purchaser for any claims
or losses that Purchaser may incur as a result of complying with such request
from Seller. Seller will not be required to disclose to Purchaser customers'
PINs or algorithms or logic used to generate PINs. Purchaser shall reissue ATM
access/debit cards to depositors of any Deposits prior to the Closing Date,
which cards shall be effective as of the Closing Date. Seller agrees to settle
any and all ATM transactions effected on or before the Closing Date, but
processed after the Closing Date, as soon as practicable. Purchaser and Seller
agree to remit the total net balance of such transactions to Seller or
Purchaser, as the case may be, on the same date the transactions are settled.
4.10 Leasing of Personal Property. Seller shall cancel or
terminate any Personal Property Leases as of the Closing Date.
4.11 Handling of Certain Items. (a) As soon as practicable after
the Closing Date, Purchaser shall mail to each depositor in respect of a
Transaction Account (i) a letter approved by Seller requesting that such
depositor promptly cease writing Seller's drafts against such Transaction
Account and (ii) new drafts which such depositor may draw upon Purchaser for
the purpose of effecting transactions with respect to such Transaction
Accounts. The parties hereto shall use their best efforts to develop
procedures which cause Seller's drafts against Transaction Accounts which are
received after the Closing Date to be cleared through Purchaser's then-current
clearing procedures. During the ninety (90) day period after the Closing Date,
if it is not possible to clear Transaction Account drafts through Purchaser's
then- current clearing procedures, Seller shall forward to Purchaser as soon as
practicable but in no event more than three (3) Business Days after receipt all
Transaction Account drafts drawn against Transaction Accounts. Seller shall
have no obligation to pay such forwarded Transaction Account drafts. Upon the
expiration of such ninety (90) day period, Seller shall cease forwarding drafts
against Transaction Accounts. Purchaser and Seller will agree upon a
reasonable market rate
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compensation to be paid to Seller for its processing of the drafts during the
ninety (90) day period following the Closing Date.
(b) Any items that were credited for deposit to or cashed against
a Deposit prior to the Closing and are returned unpaid on or within sixty (60)
days after the Closing Date ("Returned Items") will be handled as set forth
herein. If Seller's bank account is charged for the Returned Item, Seller
shall forward such Returned Item to Purchaser. If upon Purchaser's receipt of
such Returned Item there are sufficient funds in the Deposit to which such
Returned Item was credited or any other Deposit transferred at the Closing
standing in the name of the party liable for such Returned Item, Purchaser will
debit any or all of such Deposits an amount equal in the aggregate to the
Returned Item, and shall repay that amount to Seller. If there are not
sufficient funds in the Deposit because of Purchaser's failure to honor holds
placed on such Deposit, Purchaser shall repay the amount of the Returned Item
to Seller. Any items that were credited for deposit to or cashed against an
account at the Branches to be transferred at the Closing prior to the Closing
and are returned unpaid more than sixty (60) days after the Closing will be the
responsibility of Purchaser, except that for a period of eighteen (18) months
after the Closing checks drawn on the United States Treasury, checks issued by
state governments and municipalities and checks returned for endorsement
irregularities will be the responsibility of Seller.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Purchaser as follows:
5.1 Corporate Organization and Authority. As of the date hereof,
Seller is a national banking association, duly organized and validly existing
in good standing under the laws of the United States of America and has the
requisite power and authority to conduct the business now being conducted at
the Branches. Seller has the requisite corporate power and authority and has
taken all corporate action necessary in order to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. This
Agreement is a valid and binding agreement of Seller enforceable in accordance
with its terms subject, as to enforcement, to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general equity
principles.
5.2 No Conflicts. The execution, delivery and performance of this
Agreement by Seller does not, and will not, (i) violate any provision of its
charter or by-laws or (ii) violate or constitute a breach of, or default under,
any law, rule, regulation, judgment, decree, ruling or order of any court,
government or governmental agency to which Seller is subject or under any
agreement or instrument of Seller, or to which Seller is subject or by which
Seller is otherwise bound, which violation, breach, contravention or default
referred to in this clause (ii), individually or in the aggregate, would have a
Material Adverse Effect (assuming the receipt of any required consents of
lessors under the Branch Leases and Personal Property Leases). Seller has all
material licenses, franchises, permits, certificates of public convenience,
orders and other authorizations of all federal, state and local governments and
governmental authorities necessary
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for the lawful conduct of its business at each of the Branches as now conducted
and all such licenses, franchises, permits, certificates of public convenience,
orders and other authorizations, are valid and in good standing and, to
Sellers' knowledge, are not subject to any suspension, modification or
revocation or proceedings related thereto.
5.3 Approvals and Consents. Other than the Regulatory Approvals
or as otherwise disclosed in writing to Purchaser by Seller prior to the date
hereof, no notices, reports or other filings are required to be made by Seller
with, nor are any consents, registrations, approvals, permits or authorizations
required to be obtained by Seller from, any governmental or regulatory
authorities of the United States or the several States in connection with the
execution and delivery of this Agreement by Seller and the consummation of the
transactions contemplated hereby by Seller, the failure to make or obtain any
or all of which, individually or in the aggregate, would have a Material
Adverse Effect.
5.4 Tenants. Except for the tenants listed on Schedule 5.4
attached hereto, there are no tenants or other occupants of the Real Property.
5.5 Leases. Each Branch Lease and each Personal Property Lease is
the valid and binding obligation of Seller and, to Seller's knowledge, of each
other party thereto; and there does not exist with respect to Seller's
obligations thereunder, or, to Seller's knowledge, with respect to the
obligations of the lessor thereof, any material default, or event or condition
which constitutes or, after notice or passage of time or both, would constitute
a material default on the part of Seller or the lessor under any such Branch
Lease or Personal Property Lease. As used in the immediately preceding
sentence, the term "lessor" includes any sub-lessor of the property to Seller.
Each Branch Lease and each material Personal Property Lease is current and all
rents, expenses and charges payable by Seller thereunder have been paid or
accrued pursuant to the terms thereof (except for any payments not yet
delinquent or as to which the obligation to make such payment is being
contested in good faith). Accurate copies of each Branch Lease and each
material Personal Property Lease have heretofore been made available to
Purchaser.
5.6 Litigation and Undisclosed Liabilities. Except as set forth
in Schedule 5.6, there are no actions, suits or proceedings that have a
reasonable likelihood of an adverse determination pending or, to Seller's
knowledge, threatened against Seller or any of the Branches, or obligations or
liabilities (whether or not accrued, contingent or otherwise) or to Seller's
knowledge, facts or circumstances that could reasonably be expected to result
in any claims against or obligations or liabilities of Seller that,
individually or in the aggregate, would have a Material Adverse Effect.
5.7 Regulatory Matters. (a) Except as previously disclosed in
writing to Purchaser, there are no pending, or to Seller's knowledge
threatened, disputes or controversies between Seller and any federal, state or
local governmental agency or authority that, individually or in the aggregate,
would have a Material Adverse Effect.
(b) Seller is not a party to any written order, decree, agreement
or memorandum or understanding with, or commitment letter or similar submission
to, any federal or state
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governmental agency or authority charged with the supervision or regulation of
depository institutions, nor has Seller been advised by any such agency or
authority that it is contemplating issuing or requesting (or is considering the
appropriateness of issuing or requesting) any such order, decree, agreement,
memorandum of understanding, commitment letter of submission, in each case
which, individually or in the aggregate, would have a Material Adverse Effect.
5.9 Compliance With Laws. The banking business of the Branches
has been conducted in compliance with all federal, state and local laws,
regulations and ordinances applicable thereto, except for any failures to
comply that would not, individually or in the aggregate, result in a Material
Adverse Effect.
5.10 Loans. (a) An accurate list of the Deposit Related Loans has
previously been delivered to Purchaser. Such list will be updated to include
an accurate list of such Loans as of the Closing Date. With respect to each
such Deposit Related Loan:
(i) Such Loan was solicited and originated in material
compliance with all applicable requirements of federal, state, and
local laws and regulations in effect at the time of such solicitation
and origination; and there was no fraud on the part of the Seller with
respect to the origination of any Loan;
(ii) Each note evidencing a Loan and any related security
instrument constitutes a valid and legally binding obligation of the
obligor thereunder enforceable in accordance with its terms, subject
to bankruptcy, insolvency, fraudulent transfers, reorganization,
moratorium and similar laws of general applicability relating to or
affecting creditors' rights and to general equity principles;
(iii) To Seller's knowledge, no claims or defenses to the
enforcement of such Loan have been asserted and Seller is aware of no
acts or omissions that would give rise to any claim or right of
rescission, setoff, counterclaim or defense by a borrower, obligor,
guarantor or any other person obligated to perform under any related
Loan Documents;
(iv) The security interest in any Deposit account securing
any Loan is a legal, valid and binding obligation enforceable against
the obligor subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity
principles.
(v) All information provided hereunder pertaining to such
Loan is a true and correct reflection of Seller's records regarding
such Loan in all material respects;
(vi) Each Loan was made in compliance with all applicable
usury laws; and
(vii) The terms of the notes have not been altered,
modified or waived in any material respect, except by a written
instrument contained in the Loan Documents.
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5.11 Financial and Deposit Data. To Seller's knowledge, all
written financial and Deposit information regarding the Assets and Liabilities
provided to Purchaser by Seller was accurate in all material respects as of the
date thereof.
5.12 Records. The Records respecting the operations of the
Branches and the Assets and Liabilities accurately reflect in all material
respects the net book value of the Assets and Liabilities being transferred to
Purchaser hereunder. The Records include all information reasonably necessary
to service the Deposits and the Deposit Related Loans on an ongoing basis.
5.13 Title to Assets. Subject to the terms and conditions of this
Agreement, on the Closing Date Purchaser will acquire, good and marketable
title to all of the material Assets, free and clear of any Encumbrances;
provided, however, that this representation does not cover Owned Real Property
(with respect to which Seller has provided a Title Report and Purchaser is to
obtain its own Title Policy pursuant to Section 3.10), Branch Leases or Tenant
Leases.
5.14 Branch Leases. The Branch Leases give Seller the right to
occupy the building and land comprising the related Branch. Accurate copies of
all Branch Leases and all attachments, amendments and addenda thereto have
heretofore been made available to Purchaser. To Seller's knowledge, the Branch
Leases constitute valid and legally binding leasehold interests of Seller.
Except as described on Schedule 5.4, there are no leases, subleases,
occupancies, tenancies or rights of first refusal relating to any Branch
created or suffered to exist by Seller or, to Seller's knowledge, created or
suffered to exist by any other person.
5.15 Deposits. All of the Deposit accounts have been administered
and, to Seller's knowledge, originated, in compliance with the documents
governing the relevant type of Deposit account and all applicable laws. The
Deposit accounts are insured by the Bank Insurance Fund of the FDIC up to the
current applicable maximum limits, and no action is pending or, to Seller's
knowledge, threatened by the FDIC with respect to the termination of such
insurance.
5.16 Environmental Laws; Hazardous Substances. To Seller's
knowledge, except as disclosed on Schedule 5.16, or as would not, individually
or in the aggregate, have a Material Adverse Effect, each parcel of Real
Property:
(a) has been operated by Seller in compliance with all applicable
Environmental Laws;
(b) is not the subject of any pending written notice from any
governmental authority alleging the violation of any applicable Environmental
Laws;
(c) is not currently subject to any court order, administrative
order or decree arising under any Environmental Law;
(d) has not been used during the period of Seller's ownership or
occupancy of such Real Property for the disposal of Hazardous Substances and is
not contaminated with any Hazardous Substances requiring remediation under any
applicable Environmental Law; and
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(e) has not, during the period of Seller's ownership or occupancy
of such Real Property, had any release of Hazardous Substances except as
permitted under applicable Environmental Laws.
For purposes of this Section 5.16, with respect to the parcels which
are subject to Branch Leases and Tenant Leases, "Seller's knowledge" shall mean
that an officer of Seller who holds the title of Senior Vice President or above
and has responsibility with respect to management of operations conducted at
the Branches on such parcels has received actual written notice from the
landlord that any one of the representations in (a) through (e) above is not
correct.
5.17 Broker's Fees. Except for Montgomery Securities, no broker
has been employed by or on behalf of Seller in connection with the transactions
contemplated by this Agreement. Seller will pay the fees of Montgomery
Securities.
5.18 Limitations on Representations and Warranties.
Notwithstanding anything to the contrary contained herein Seller makes no
representations or warranties to Purchaser in this Agreement or in any
agreement, instrument or other document executed in connection with any of the
transactions contemplated hereby or provided or prepared pursuant hereto or in
connection with any of the transactions contemplated hereby:
(a) As to title to Owned Real Property or as to the physical
condition (including, without limitation, ability to withstand seismic events)
of the Branches or Personal Property, all of which are being sold "AS IS",
"WHERE IS" and with all faults at the Closing Date; or
(b) As to whether, or the length of time during which, any
accounts will be maintained by the depositors at the Branches after the Closing
Date.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Seller as follows:
6.1 Corporate Organization and Authority. Purchaser is a
state-chartered bank duly organized and validly existing under the laws of
California and has the requisite power and authority to conduct the business
conducted at the Branches substantially as currently conducted by Seller.
Purchaser has the requisite corporate power and authority and has taken all
corporate action necessary in order to execute and deliver this Agreement and
to consummate the transactions contemplated hereby. This Agreement is a valid
and binding agreement of Purchaser enforceable in accordance with its terms
subject, as to enforcement, to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating
to or affecting creditors' rights and to general equity principles.
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6.2 No Conflicts. The execution, delivery and performance of this
Agreement by Purchaser does not, and will not, (i) violate any provision of its
charter or by-laws or (ii) violate or constitute a breach of, or default under,
any law, rule, regulation, judgment, decree, ruling or order of any court,
government or governmental agency to which Purchaser is subject or under any
agreement or instrument of Purchaser, or to which Purchaser is subject or by
which Purchaser is otherwise bound, which violation, breach, contravention or
default referred to in this clause (ii), individually or in the aggregate,
would have a Material Adverse Effect.
6.3 Approvals and Consents. Other than the Regulatory Approvals
or as otherwise disclosed in writing to Seller by Purchaser prior to the date
hereof, no notices, reports or other filings are required to be made by
Purchaser with, nor are any consents, registrations, approvals, permits or
authorizations required to be obtained by Purchaser from any governmental or
regulatory authorities of the United States, the several States or any foreign
jurisdictions in connection with the execution and delivery of this Agreement
by Purchaser and the consummation of the transactions contemplated hereby by
Purchaser, the failure to make or obtain any or all of which, individually or
in the aggregate, would have a Material Adverse Effect.
6.4 Regulatory Matters. (a) Except as previously disclosed in
writing to Seller, there are no pending, or to Purchaser's knowledge
threatened, disputes or controversies between Purchaser and any federal, state
or local governmental agency or authority that, individually or in the
aggregate, would have a Material Adverse Effect.
(b) Purchaser is not a party to any written order, decree,
agreement or memorandum of understanding with, or commitment letter or similar
submission to, any federal or state governmental agency or authority charged
with the supervision or regulation of depository institutions, nor has
Purchaser been advised by any such agency or authority that it is contemplating
issuing or requesting (or is considering the appropriateness of issuing or
requesting) any such order, decree, agreement, memorandum of understanding,
commitment letter or submission, in each case which, individually or in the
aggregate, would have a Material Adverse Effect.
(c) Purchaser is, and on a pro forma basis giving effect to the
P&A Transaction will be, (i) at least "adequately capitalized", as defined for
purposes of the FDIA, and (ii) in compliance with all capital requirements,
standards and ratios required by each state or federal bank regulator with
jurisdiction over Purchaser, including, without limitation, any such higher
requirements, standard or ratio as shall apply to institutions engaging in the
acquisition of insured institution deposits, assets or branches, and no such
regulator is likely to, or has indicated that it will, condition any of the
Regulatory Approvals upon an increase in Purchaser's capital or compliance with
any capital requirements, standard or ratio.
(d) Purchaser has no knowledge that it will be required to divest
deposit liabilities, branches, loans or any business or line of business as a
condition to the receipt of any of the Regulatory Approvals.
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(e) Each of the subsidiaries or Affiliates of Purchaser that is an
insured depository institution was rated "Satisfactory" or "Outstanding"
following its most recent Community Reinvestment Act examination by the
regulatory agency responsible for its supervision. Purchaser has received no
notice of and has no knowledge of any planned or threatened objection by any
community group to the transactions contemplated hereby.
6.5 Litigation and Undisclosed Liabilities. There are no actions,
suits or proceedings that have a reasonable likelihood of an adverse
determination pending or, to Purchaser's knowledge, threatened against
Purchaser, or obligations or liabilities (whether or not accrued, contingent or
otherwise) or, to Purchaser's knowledge, facts or circumstances that could
reasonably be expected to result in any claims against or obligations or
liabilities of Purchaser that, individually or in the aggregate, would have a
Material Adverse Effect.
6.6 Financing Available. Not later than the Closing Date,
Purchaser will have available sufficient cash or other liquid assets or
financing pursuant to binding agreements or commitments which may be used to
fund the P&A Transaction; and Purchaser's ability to consummate the
transactions contemplated by this Agreement is not contingent on raising any
equity capital, obtaining specific financing thereof, consent of any lender or
any other matter.
6.7 Broker's Fees. Purchaser has not employed any broker or
finder or incurred any liability for any brokerage fees, commissions or
finder's fees in connection with the transactions contemplated by this
Agreement.
ARTICLE 7
COVENANTS OF THE PARTIES
7.1 Activity in the Ordinary Course. Until the Closing Date, (a)
Seller shall conduct the business of the Branches (including, without
limitation, filling open positions at the Branches and job-posting in the
Branches for open positions at other offices of Seller) in the ordinary and
usual course of business consistent with past practice and giving effect to the
fact that Seller is engaged in certain systems conversions and office closings
arising out of its recent merger with First Interstate Bank, and (b) Seller
shall not, without the prior written consent of Purchaser:
(i) Increase or agree to increase the salary, remuneration or
compensation of any Branch Employee (or make any material increase or decrease
in the number of such persons, or transfer such persons to or from any Branch)
other than in accordance with Seller's existing customary policies generally
applicable to employees having similar rank or duties, or pay or agree to pay
any uncommitted bonus to any Branch Employee other than regular bonuses granted
in the ordinary course of Seller's business (which bonuses, in any event, shall
be the responsibility of Seller); or, except at the request of such Branch
Employee, transfer any Branch Employee to another branch or office, of Seller
or any of its Affiliates;
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(ii) Offer interest rates or terms on any category of deposits at a
Branch except as determined in a manner consistent with Seller's practice with
respect to its branches which are not being sold;
(iii) Transfer to or from any Branch to or from any of Seller's
other operations or branches any material Assets or any Deposits, except (A) in
the ordinary course of business or as contemplated in this Agreement, or (B)
upon the unsolicited request of a depositor or customer;
(iv) Sell, transfer, assign, encumber or otherwise dispose of or
enter into any contract, agreement or understanding to sell, transfer, assign,
encumber or dispose of any of the Assets existing on the date hereof, except in
the ordinary course of business and in an immaterial aggregate amount;
provided, however, that in any event, Seller shall not knowingly take any
action that would create any Encumbrance on any of the Real Property or the
Branch Leases;
(v) Make or agree to make any material improvements to the Owned
Real Property, except with respect to commitments for such made on or before
the date of this Agreement (and heretofore disclosed in writing to Purchaser)
and normal maintenance, repair or refurbishing purchased or made in the
ordinary course of business;
(vi) File any application or give any notice to relocate or close
any Branch or relocate or close any Branch;
(vii) Amend, terminate or extend in any material respect any Branch
Lease, Tenant Lease or Personal Property Lease; provided, however, Seller may
extend any Branch Lease, Tenant Lease or Personal Property Lease, in its
reasonable business judgment (including without limitation pursuant to the
terms and conditions of any contractual option to extend in any Branch Lease,
Tenant Lease or Personal Property Lease) if Seller determines such extension is
necessary to deliver the Branch on the Closing Date as a fully operative branch
banking operation.
7.2 Access and Confidentiality. (a) Until the Closing Date,
Seller shall afford to Purchaser and its officers and authorized agents and
representatives reasonable access to the properties, books, records, contracts,
documents, files and other information of or relating to the Assets and
Liabilities. Purchaser and Seller each will identify to the other, within ten
(10) days after the date hereof, a selected group of their respective salaried
personnel that shall constitute a "transition group" who will be available to
Seller and Purchaser, respectively, at reasonable times (limited to normal
operating hours) to provide information and assistance in connection with
Purchaser's investigation of matters relating to the Assets and Liabilities.
Seller shall cause other personnel to be reasonably available during normal
business hours, to an extent not disruptive of ongoing operations, for the same
purposes. Any investigation pursuant to this Section 7.2 shall be conducted in
such manner as not to interfere unreasonably with the conduct of the Seller's
business. Notwithstanding the foregoing, Seller shall not be required to
provide access to or disclose information where such access or disclosure would
impose an unreasonable burden on Seller, or any employee of Seller or would
violate or prejudice the rights of customers, jeopardize any attorney-client
privilege or contravene any law, rule, regulation, order, judgment, decree,
fiduciary duty or binding agreement entered into prior to the date of this
Agreement. The
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parties hereto shall make appropriate substitute disclosure arrangements under
circumstances in which the restrictions of the preceding sentence apply.
(b) EACH PARTY TO THIS AGREEMENT SHALL HOLD, AND SHALL CAUSE ITS
RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, CONSULTANTS AND ADVISORS TO
HOLD, IN STRICT CONFIDENCE, UNLESS DISCLOSURE TO A BANK REGULATORY AUTHORITY IS
NECESSARY OR DESIRABLE IN CONNECTION WITH ANY REGULATORY APPROVAL OR UNLESS
COMPELLED TO DISCLOSE BY JUDICIAL OR ADMINISTRATIVE PROCESS OR, IN THE WRITTEN
OPINION OF ITS COUNSEL, BY OTHER REQUIREMENTS OF LAW OR THE APPLICABLE
REQUIREMENTS OF ANY REGULATORY AGENCY OR RELEVANT STOCK EXCHANGE, ALL
NON-PUBLIC RECORDS, BOOKS, CONTRACTS, INSTRUMENTS, COMPUTER DATA AND OTHER DATA
AND INFORMATION (COLLECTIVELY, "INFORMATION") CONCERNING THE OTHER PARTY (OR,
IF REQUIRED UNDER A CONTRACT WITH A THIRD PARTY, SUCH THIRD PARTY) FURNISHED IT
BY SUCH OTHER PARTY OR ITS REPRESENTATIVES PURSUANT TO THIS AGREEMENT (EXCEPT
TO THE EXTENT THAT SUCH INFORMATION CAN BE SHOWN TO HAVE BEEN (i) PREVIOUSLY
KNOWN BY SUCH PARTY ON A NON-CONFIDENTIAL BASIS, (ii) IN THE PUBLIC DOMAIN
THROUGH NO FAULT OF SUCH PARTY OR (iii) LATER LAWFULLY ACQUIRED FROM OTHER
SOURCES BY THE PARTY TO WHICH IT WAS FURNISHED), AND NEITHER PARTY SHALL
RELEASE OR DISCLOSE SUCH INFORMATION TO ANY OTHER PERSON, EXCEPT ITS AUDITORS,
ATTORNEYS, FINANCIAL ADVISORS, BANKERS, OTHER CONSULTANTS AND ADVISORS AND, TO
THE EXTENT PERMITTED ABOVE, TO BANK REGULATORY AUTHORITIES.
7.3 Regulatory Approvals. As soon as practicable after the date
of this Agreement, Purchaser shall prepare and file any applications, notices
and filings required in order to obtain the Regulatory Approvals. Purchaser
shall use all reasonable efforts to obtain each such approval as promptly as
reasonably practicable and, to the extent possible, in order to permit the
Closing to occur not later than March 31, 1997. Seller will cooperate in
connection therewith (including the furnishing of any information and any
reasonable undertaking or commitments which may be required to obtain the
Regulatory Approvals). Each party will provide the other with copies of any
applications and all correspondence relating thereto prior to filing, other
than material filed in connection therewith under a claim of confidentiality.
7.4 Consents. Seller agrees to use reasonable commercial efforts
(such efforts not to include making payments to third parties) to obtain from
lessors and any other parties to any Branch Leases or Personal Property Leases
any required consents to the assignment of the Branch Leases and Personal
Property Leases to Purchaser on the Closing Date; provided, however, the Seller
shall not be obligated to incur any monetary obligations or expenditures to the
parties whose consent is required in connection with the utilization of its
reasonable efforts to obtain any such required consents. If any such required
consent cannot be obtained, notwithstanding any other provision hereof, the
Assets and Liabilities associated with the subject Branch, other than any such
Branch Lease or any Personal Property Lease or as to which consent cannot be
obtained, shall nevertheless be transferred to Purchaser at the Closing and the
parties
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shall negotiate in good faith and Seller and Purchaser shall use reasonable
efforts (such efforts not to include making payments to third parties) to make
alternative arrangements reasonably satisfactory to Seller and Purchaser. In
the event Seller does not obtain consent from the lessors and any other parties
to any Branch Lease or Personal Property Lease, Seller shall not be obligated
to deliver physical possession of the subject Branch or the personal property
subject to such Personal Property Lease to Purchaser at the Closing.
7.5 Efforts to Consummate; Further Assurances. (a) Purchaser and
Seller agree to use all reasonable efforts to satisfy or cause to be satisfied
as soon as practicable their respective obligations hereunder and the
conditions precedent to the Closing.
(b) Seller will duly execute and deliver such assignments, bills
of sale, deeds, acknowledgments and other instruments of conveyance and
transfer as shall at any time be necessary or appropriate to vest in Purchaser
the full legal and equitable title to the Assets.
(c) On and after the Closing Date, each party will promptly
deliver to the other all mail and other communications properly addressable or
deliverable to the other as a consequence of the P&A Transaction; and without
limitation of the foregoing, on and after the Closing Date, Seller shall
promptly forward any mail, communications or other material relating to the
Deposits or the Assets transferred on the Closing Date, including, but not
limited to, that portion of any IRS "B" tapes that relates to such Deposits, to
such employees of Purchaser at such addresses as may from time to time be
specified by Purchaser in writing.
(d) The costs incurred by a party in performing its obligations to
the other (x) under Sections 7.5(a) and (c) shall be borne by the initial
recipient and (y) otherwise under this Section 7.5 shall be borne by Purchaser.
Seller will cooperate with Purchaser to minimize the costs referred to in
clause (y).
7.6 Solicitation. (a) Until the Closing Date and for an
additional six (6) months following the Closing Date, Seller agrees that it
will not solicit deposits (but may solicit loans or other business) from or to
persons or entities who were depositors at the Branches on the date hereof by
personal contact, by telephone, by facsimile, by mail or other similar
solicitation, or in any other way except for general solicitations and
solicitations that are not directed primarily to persons or entities who were
depositors of the Branches on the date hereof; provided, however, that Seller
may solicit depositors who as of the date of this Agreement have existing
accounts originating at branches or other offices of Seller or its Affiliates
other than the Branches pursuant to solicitations which arise from their status
as a customer at such other branches or offices; and provided, further, that
Seller may solicit major or statewide depositors (such as, for example, a
company with more than one location or the state government or any agency or
instrumentality thereof) without restriction hereunder.
(b) Prior to the Closing Date, Purchaser agrees that it will not
attempt to solicit Branch customers through advertising nor transact its
business in a way which would induce such Branch customers to close any account
and open accounts directly with Purchaser or would otherwise result in a
transfer of all or a portion of an existing account from Seller to Purchaser or
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to any other financial institution. Notwithstanding the foregoing sentence,
Purchaser and its Affiliates shall be permitted to: (i) engage in advertising,
solicitations or marketing campaigns not primarily directed to or targeted at
such Branch customers; (ii) engage in lending, deposit, safe deposit, trust or
other financial services relationships existing as of the date hereof which
such Branch customers through other branch offices of Purchaser; (iii) respond
to unsolicited inquiries by such Branch customers with respect to banking or
other financial services; and (iv) provide notices or communications relating
to the transactions contemplated hereby in accordance with the provisions
hereof.
7.7 Insurance. Seller will maintain in effect until the Closing
Date all casualty and public liabilities policies relating to the Branches and
maintained by Seller on the date hereof or procure comparable replacement
policies and maintain such replacement policies in effect until the Closing
Date.
7.8 No Servicing and Maintenance Contracts. Except for the
Personal Property Leases, no existing contracts of Seller with respect to the
service, maintenance and physical operation of the Branches will be assumed at
the Closing by Purchaser. All such service and maintenance shall be provided
by Purchaser, subsequent to the Closing, pursuant to its own contracts.
ARTICLE 8
TAXES AND EMPLOYEE BENEFITS
8.1 Tax Representations. Seller represents and warrants to
Purchaser as follows:
(a) Except as set forth in Schedule 8.1, all Tax Returns with
respect to the Assets or income therefrom, the Liabilities or payments in
respect thereof or the operation of the Branches, that are required to be filed
(taking into account any extension of time within which to file) before the
Closing Date, have been or will be duly filed, and all Taxes shown to be due on
such Tax Returns have been or will be paid in full.
(b) With respect to the Deposits, Seller is in compliance with the
Code and regulations thereunder relative to obtaining form depositors of the
Deposits executed IRS Forms W-8 and W-9. With respect to the Deposits opened
after December 31, 1983, Seller has either obtained a properly completed Form
W-8 or W-9 (or a substitute form meeting applicable requirements) or is back-up
withholding on such account.
8.2 Proration of Taxes. Except as otherwise agreed to by the
parties, whenever it is necessary to determine the liability for Taxes for a
portion of a taxable year or period that begins before and ends on or after the
Closing Date, the determination of the Taxes for the portion of the year or
period ending on, and the portion of the year or period beginning on or after,
the Closing Date shall be determined by assuming that the taxable year or
period ended at 11:59 P.M. California time on the day prior to the Closing
Date.
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8.3 Sales and Transfer Taxes. Except as set forth in Section 3.9,
all excise, sales, use and transfer taxes that are payable or that arise as a
result of the consummation of the purchase and sale contemplated by this
Agreement shall be paid by Purchaser and Purchaser shall indemnify and hold
Seller harmless from and against any such taxes.
8.4 Information Returns. At the Closing or as soon thereafter as
is practicable, Seller shall provide Purchaser with a list of all Deposits for
which Seller has not received a properly completed Form W-8 and W-9 (or a
substitute form meeting applicable requirements) or on which Seller is back-up
withholding as of the Closing Date. Seller agrees to indemnify Purchaser in an
amount equal to any penalty and interest imposed upon Purchaser by the IRS
which Purchaser is thereafter required to, and does, pay to the IRS where such
penalty and interest arises out of actions taken or omitted to be taken by
Purchaser in reasonable reliance upon information provided under this Section
8.4 and such penalty and interest does not result from an act or omission of
Purchaser not made in reasonable reliance upon such information. The term
"interest" for purposes of this Section 8.4 means interest accrued prior to the
receipt by Purchaser of a notice of Penalty from the IRS regarding Forms W-8 or
W-9 for the Deposits. Purchaser shall timely notify Seller of such penalty
notice prior to Purchaser's payment of any penalty or interest. Seller has the
right, at its own expense, to protest such penalty and interest. Purchaser
shall cooperate fully with respect to Seller's protest, including furnishing
all relevant information, records, and documents.
8.5 Payment of Amount Due Under Article 8. Any payment by Seller
to Purchaser, or to Seller from Purchaser, under this Article 8 (other than
payments required by Section 8.3) to the extent due at the Closing may be
offset against any payment due the other party at the Closing. All subsequent
payments under this Article 8 shall be made as soon as determinable and shall
be made and bear interest from the date due to the date of payment as provided
in Section 3.2(b).
8.6 Assistance and Cooperation. After the Closing Date, each of
Seller and Purchaser shall:
(a) Make available to the other and to any taxing authority as
reasonably requested all relevant information, records, and documents relating
to Taxes with respect to the Assets or income therefrom, the Liabilities or
payments in respect thereof, or the operation of the Branches;
(b) Provide timely notice to the other in writing of any pending
or proposed Tax audits (with copies of all relevant correspondence received
from any Taxing authority in connection with any Tax audit or information
request) or Tax assessments with respect to the Assets or the income therefrom,
the Liabilities or payments in respect thereof, or the operation of the
Branches for taxable periods for which the other may have a liability under
this Article 8; and
(c) The party requesting assistance or cooperation shall bear the
other party's out-of-pocket expenses in complying with such request to the
extent that those expenses are attributable to fees and other costs of
unaffiliated third party service providers.
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8.7 Employees. (a) As soon as reasonably practicable and in any
event within thirty (30) days of the date hereof, Seller shall deliver to
Purchaser a true and complete list of all Branch Employees by name, date of
hire and position, as of the date hereof, together with their most recent
performance evaluations, current salaries and other compensation arrangements;
provided, however, that Seller shall not release a performance evaluation
without having first obtained the written consent of the respective Branch
Employee. Purchaser may, at its discretion, interview any and all Branch
Employees. Purchaser shall make employment available to all Branch Employees
on the Closing Date upon the terms and conditions described below. Seller
shall promptly inform Purchaser of any Branch Employee who resigns prior to the
Closing Date. On and after the Closing Date, Branch Employees employed by
Purchaser shall be defined as Transferred Employees for all purposes hereof.
Subject to the provisions of this Section 8.7, Transferred Employees shall be
subject to the employment terms, conditions and rules applicable to other
employees of Purchaser. Nothing contained in this Agreement shall be construed
as an employment contract between Purchaser and any Branch Employee or
Transferred Employee.
(b) Purchaser may interview Branch Employees during normal working
hours. Purchaser shall be solely responsible for any activity in connection
with interviewing Branch Employees. Purchaser indemnifies and holds Seller
harmless from and against any claim, liability, losses, costs or expenses,
including reasonable attorneys' fees, resulting or arising from Purchaser's
acts or omissions in connection with said interviews.
(c) Purchaser shall be responsible for the Assumed Severance
Obligations with respect to all Branch Employees.
(d) Each Transferred Employee shall be provided employment subject
to the following terms and conditions:
(i) Base salary rate shall be at least equivalent to the
rate of base salary paid by Seller to such Transferred Employee as of
the close of business on the day prior to the Closing Date.
(ii) Except as specifically provided herein, Transferred
Employees shall be provided employee benefits that are no less
favorable in the aggregate than those provided to similarly situated
employees of Purchaser. Purchaser shall provide such Transferred
Employee with credit for the Transferred Employee's period of service
with Seller (including any service credited from First Interstate Bank
as a predecessor entity to Seller) towards the calculation of
eligibility for such purposes as vacation, severance and other
benefits and participation and vesting in Purchaser's qualified
pension or profit sharing plan, as such plans may exist (but, except
as set forth in (v) below and for vacation, not for purpose of benefit
accruals, including without limitation, funding of accrued pension or
profit sharing plans for such Transferred Employee with respect to any
period prior to the Closing Date).
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(iii) Each Transferred Employee shall be eligible to
participate in the medical, dental or other welfare plans of
Purchaser, as such plans may exist, effective as of the Closing Date
and any pre-existing conditions provisions of such plans shall be
waived with respect to such Transferred Employee; provided, however,
that if Purchaser's relevant health or disability insurance policy or
plan has a pre-existing condition limitation and a Transferred
Employee's condition is being excluded (as a pre-existing condition)
under Seller's plan as of the Closing Date, Purchaser may treat such
condition as a pre-existing condition for the period such condition
would have been treated as a pre-existing condition under Seller's
plan under which such Transferred Employee would have been covered.
(iv) With respect to any Transferred Employee on a
short-term disability or temporary leave of absence, upon conclusion
of his or her short-term disability or temporary leave of absence,
subject to the terms and conditions of the Purchaser's plans and
policies and applicable law, each Transferred Employee on such leave
shall receive the salary and vacation benefits in effect when he or
she went on leave, shall otherwise be treated as a Transferred
Employee and, to the extent practicable, shall be offered by Purchaser
the same or a substantially equivalent position to his or her position
with Seller prior to having gone on leave.
(v) Until April 1, 1998, each Transferred Employee shall
be eligible for benefits under the severance and similar plans
referred to in Schedule 1.1(a) (the "Assumed Severance Obligations").
After April 1, 1998, each Transferred Employee, who is continuously
employed by Purchaser as of the Closing Date, shall be eligible for
benefits under any severance or similar plans maintained by Purchaser
with credit for the period of years of credited service with Seller
towards the calculation of benefits.
(e) Except as provided herein, Seller shall pay, discharge and be
responsible for (i) all salary and wages, arising out of or relating to the
employment of the Branch Employees before the Closing Date and (ii) any
employee benefits (including, but not limited to, accrued vacation) arising
under Seller's employee benefit plans and employee programs prior to the
Closing Date (but not including any future retiree medical benefits), including
benefits with respect to claims incurred prior to the Closing Date but reported
after the Closing Date. From and after the Closing Date, Purchaser shall pay,
discharge and be responsible for all salary, wages and benefits arising out of
or relating to the employment of the Transferred Employees by Purchaser on and
after the Closing Date, including, without limitation, all claims for welfare
benefit plans incurred on or after the Closing Date. Claims are incurred as of
the date services are provided or disability payments are accrued,
notwithstanding when the injury or illness may have occurred.
(f) To the extent permitted under Purchaser's 401(k) plan, Seller
and Purchaser shall cooperate in arranging for the transfer to Purchaser's
401(k) plan, as soon as practicable after the Closing Date and in a manner that
satisfies sections 414(l) and 411(d)(6) of the Code, of those accounts held
under Seller's 401(k) plan on behalf of Transferred Employees.
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(g) For a period of twelve (12) months following the Closing Date,
Seller shall not solicit any Transferred Employee hired by Purchaser as of the
Closing Date to again become an employee of Seller or any of its Affiliates;
provided, however, that Seller shall not be prohibited from hiring a
Transferred Employee if such Transferred Employee contacts Seller to seek such
hiring or retention, whether in response to general advertising or otherwise.
For purposes of this Section 8.7, the term "Seller" shall include Wells Fargo &
Company, a Delaware corporation and their Affiliates.
8.8 Branch Employee Representations. (a) Seller represents and
warrants to Purchaser, to Seller's knowledge, as follows:
(i) none of the Branch Employees is a member of any labor
union;
(ii) Seller is not a party to any individual contract,
written or oral, express or implied, for the employment of any Branch
Employee, and Seller is not subject to any collective bargaining
arrangement with respect to any Branch Employee;
(iii) Seller's 401(k) Plan is in compliance in all
material respects with applicable law;
(iv) no liabilities exist or are reasonably expected to
exist under any employee benefit plan of Seller that, individually or
in the aggregate, would have a Material Adverse Effect; and
(v) Seller has not entered into any individual agreement
or otherwise made any individual commitment to any Branch Employee
with respect to continued employment by Purchaser.
(b) Seller shall indemnify and hold Purchaser harmless from and
against any claims, losses, damages or expenses (including attorney's fee)
suffered as a result of any failure to give any notice to its Branch Employees
required by the Worker Adjustment and Retraining Notification Act (the "WARN
Act"), provided such notice is required as a result of action by Seller prior
to the Closing Date.
ARTICLE 9
CONDITIONS TO CLOSING
9.1 Conditions to Obligations of Purchaser. Unless waived in
writing by Purchaser, the obligation of Purchaser to consummate the P&A
Transaction is conditioned upon satisfaction of each of the following
conditions:
(a) Regulatory Approvals. All consents, approvals and
authorizations required to be obtained prior to the Closing from governmental
and regulatory authorities in connection with the execution and delivery of
this Agreement and the consummation of the transactions
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contemplated hereby to be consummated at the Closing, including the Regulatory
Approvals, shall have been made or obtained, and shall remain in full force and
effect, and all waiting periods applicable to the consummation of the P&A
Transaction shall have expired or been terminated; provided, however, that no
Regulatory Approval shall have imposed any condition or requirement (a
"Burdensome Condition") that would (i) result in any Material Adverse Effect or
(ii) require Purchaser to effect any divestiture that would constitute a
substantial portion of the business or properties of the Branches, taken as a
whole.
(b) Orders. No court or governmental authority of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
statute, rule, regulation, judgment, decree, injunction or other order (whether
temporary, preliminary or permanent) (any of the foregoing, an "Order") which
is in effect and prohibits or makes illegal the consummation of the P&A
Transaction or would otherwise result in a Material Adverse Effect.
(c) Representations and Warranties; Covenants. Each of the
representations and warranties of Seller contained in this Agreement shall be
true in all material respects when made and as of the Closing Date, with the
same effect as though such representations and warranties had been made on and
as of the Closing Date (except that representations and warranties relating to
Assets and Liabilities transferred at the Closing Date shall only be made, and
need only be true in all material respects, on and as of the Closing Date).
Purchaser shall have received at Closing a certificate to that effect dated as
of such Closing Date and executed by the President or any Executive Vice
President of Seller. Each of the covenants and agreements of Seller to be
performed on or prior to the Closing Date shall have been duly performed in all
material respects. Purchaser shall have received at Closing a certificate to
that effect dated as of such Closing Date and executed by the President or any
Executive Vice President of Seller.
Notwithstanding any other provision of this Agreement, if there shall
be a failure of any condition specified in this Section 9.1 to the obligations
of Purchaser in respect of the acquisition of any specific Branch or Branches
the aggregate Deposits of which as of the date hereof shall constitute less
than 25% of the Deposits in all of the Branches subject to this Agreement as of
the date hereof, Purchaser nevertheless shall be obligated to consummate the
P&A Transaction but may, upon written notice to Seller, exclude from the
transaction the Branch or Branches in respect of which the failure of condition
shall exist, in which case, appropriate adjustment shall be made in the
schedules hereto and the other documents to be delivered pursuant hereto so as
to duly reflect the deletion of such Branch or Branches from the transactions
contemplated hereby (and, consequently, to the calculation of the Estimated
Purchase Price, Estimated Payment Amount, Purchase Price and Adjusted Payment
Amount). If any Branch is excluded from this Agreement or if Purchaser
nevertheless elects to purchase any Branch which would otherwise be so excluded
and such Branch is transferred to Purchaser at the Closing (subject to
Purchaser's rights under Section 12.1(a)), any event that would otherwise
constitute a breach of warranty or failure of condition in respect of such
Branch arising solely from or relating to the operation of this paragraph shall
not constitute a breach of warranty or failure of condition.
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9.2 Conditions to Obligations of Seller. Unless waived in writing
by Seller, the obligation of Seller to consummate the P&A Transaction is
conditioned upon satisfaction of each of the following conditions:
(a) Regulatory Approvals. All consents, approvals and
authorizations required to be obtained prior to the Closing from governmental
and regulatory authorities in connection with the execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby to
be consummated at the Closing, including the Regulatory Approvals, shall have
been made or obtained, and shall remain in full force and effect, and all
statutory waiting periods applicable to the consummation of the P&A Transaction
shall have expired or been terminated.
(b) Orders. No Order shall be in effect that prohibits or makes
illegal the consummation of the P&A Transaction.
(c) Representations and Warranties; Covenants. Each of the
representations and warranties of Purchaser contained in this Agreement shall
be true in all material respects when made and as of the Closing Date, with the
same effect as though such representations and warranties had been made on and
as of the Closing Date (except that representations and warranties that are
made as of a specific date need be true in all material respects only as of
such date). Seller shall have received at Closing a certificate to that effect
dated as of such Closing Date and executed by the President or any Executive
Vice President of Purchaser. Each of the covenants and agreements of Purchaser
to be performed on or prior to the Closing Date shall have been duly performed
in all material respects. Seller shall have received at Closing a certificate
to that effect dated as of such Closing Date and executed by the President or
any Executive Vice President of Purchaser.
ARTICLE 10
ENVIRONMENTAL MATTERS
10.1 Environmental Matters. (a) Seller has provided to Purchaser
and Purchaser hereby acknowledges receipt of copies of Phase I environmental
site assessments for all Owned Real Property and asbestos reports with respect
to all the Real Property, except for Real Property where the improvements have
been completed after December 31, 1978. Such Phase I environmental site
assessments for all Owned Real Property have been dated (or supplemented) on or
after January 1, 1996.
(b) If such Phase I site assessments and asbestos reports
reasonably indicate the necessity or desirability of further investigation to
determine whether or not an Environmental Hazard or an Asbestos Hazard exists
at such Real Property, Purchaser may elect, not later than thirty (30) days
after the signing of this Agreement, to have Clayton Environmental, Building
Analytics, or another similarly qualified environmental engineer or consultant
mutually acceptable to Purchaser and Seller (the "Environmental Consultant"),
to the extent reasonable and appropriate, conduct Phase II environmental site
assessments and additional asbestos
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investigations, the cost of which shall be shared equally by the parties. Any
such further investigation or testing shall be conducted in such a manner so as
not to interfere with the normal operation of the Branch(s) involved. All such
Phase II environmental site assessments and additional asbestos reports shall
be treated as information subject to Section 7.2(b) and shall be completed not
less than ninety (90) days after the signing of this Agreement.
(c) In the event that the Environmental Consultant has discovered
an Environmental Hazard, and/or Asbestos Hazard, during any such Phase II
environmental site assessment at any single parcel of Owned Real Property, the
remediation of which, in the reasonable judgment of the Environmental
Consultant, is or would be the responsibility of Seller, or Purchaser should it
acquire such Owned Real Property, and will cost $100,000 or more for such
single parcel of Owned Real Property, Purchaser shall lease from Seller such
single parcel of Owned Real Property pursuant to a Lease Agreement that shall
provide as follows:
(i) Such Lease Agreement shall be for a term of two (2)
years, with no obligation or right to renew (it being the intention of
Seller that Purchaser locate an alternative branch site during such
two years), at a rental equal to a fair market rental value;
(ii) Seller may sell such Owned Real Property to any
person, subject to such Lease Agreement, for any price;
(iii) During the term of such Lease Agreement, in the event
that Seller shall deliver to Purchaser a report of a qualified
environmental engineer or consultant certifying that the Environmental
Hazard, and/or Asbestos Hazard, at or on any such leased parcel of
Owned Real Property has been remediated to the extent required under
applicable Environmental Laws, Purchaser shall be required to purchase
such parcel of Owned Real Property at the net book value as of the
close of business of the month-end day most recently preceding the
Closing Date; and
(iv) Other terms and conditions of the Lease Agreement
shall be typical to such branch leases in the market as negotiated
between Seller and Purchaser.
If the remediation cost is less than $100,000 for any single parcel of
Owned Real Property, Purchaser shall acquire such parcel and such cost shall be
borne by Purchaser without indemnity under this Agreement.
(d) Purchaser agrees that it and its Environmental Consultant
shall conduct any Phase II environmental site assessments or other
investigations pursuant to this Section with reasonable care and subject to
customary practices among environmental consultants and engineers, including,
without limitation, following completion thereof, the restoration of any site
to the extent practicable to its condition prior to such site assessment or
investigation and the removal of all monitoring wells.
(e) Any lease of a parcel of Owned Real Property under Section
10.1(c) shall in no way affect the transfer of any Assets or Liabilities, other
than such parcel of Owned Real Property, to the Purchaser at the Closing.
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THIS PAGE PURPOSELY LEFT BLANK
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ARTICLE 11
TERMINATION
11.1 Termination. This Agreement may be terminated at any time
prior to the Closing Date:
(a) By the mutual written agreement of Purchaser and Seller;
(b) By Seller or Purchaser, in the event of a material breach by
the other of any representation, warranty or agreement contained herein which
is not cured or cannot be cured within thirty (30) days after written notice of
such termination has been delivered to the breaching party; provided, however,
that termination pursuant to this Section 11.1(b) shall not relieve the
breaching party of liability arising out of or related to such breach;
(c) By Seller or Purchaser, in the event that the Closing has not
occurred by March 31, 1997 unless the failure to so consummate by such time is
due to a breach of this Agreement by the party seeking to terminate;
(d) By Seller or Purchaser at any time after the denial or
revocation of any Regulatory Approval or by Purchaser if any such approval has
been obtained which contains a Burdensome Condition; or
(e) By Seller if, at any time prior to the Closing Date, an
appropriate official of any governmental agency or authority whose consent,
approval or authorization is required in order for Purchaser to consummate the
transactions contemplated hereby shall have advised that such authority will
not grant such consent, approval or authorization or will grant the same only
subject to a Burdensome Condition (unless Purchaser shall have waived the
condition provided for in the proviso to Section 9.1(a)), or where there shall
be in effect any Order, or if there shall exist any proceeding which, in
Seller's reasonable judgment, would result in an Order; provided, however, that
Purchaser shall have fifteen (15) days following receipt of notice from Seller
to remedy any such situation or to provide assurances reasonably acceptable to
Seller that such situation will be remedied by the Closing Date.
11.2 Effect of Termination. In the event of termination of this
Agreement and abandonment of the transactions contemplated hereby pursuant to
Section 11.1, no party hereto (or any of its directors, officers, employees,
agents or Affiliates) shall have any liability or further obligation to any
other party, except as provided in Section 7.2(b) and except that nothing
herein will relieve any party from liability for any breach of this Agreement.
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ARTICLE 12
INDEMNIFICATION AND OTHER REMEDIES
12.1 Indemnification. (a) Subject to Section 13.1, Seller shall
indemnify and hold harmless Purchaser and any person directly or indirectly
controlling Purchaser from and against any and all Losses which Purchaser may
suffer, incur or sustain arising out of or attributable to (i) any breach of
any representation or warranty made by Seller in this Agreement, (ii) any
material breach of any covenant or agreement to be performed by Seller pursuant
to this Agreement, (iii) any claim, penalty asserted, legal action or
administrative proceeding based upon any action taken or omitted to be taken by
Seller or conditions existing prior to the Closing Date, relating in any such
case to the operation of the Branches, the Assets or the Liabilities; or (iv)
any liability, obligation or duty of Seller that is not a Liability.
(b) Subject to Section 13.1, Purchaser shall indemnify and hold
harmless Seller and any person directly or indirectly controlling Seller from
and against any and all Losses which Seller may suffer, incur or sustain
arising out of (i) any breach of any representation or warranty made by
Purchaser in this Agreement, (ii) any material breach of any covenant or
agreement to be performed by Purchaser pursuant to this Agreement, including,
without limitation, the covenants contained in Section 10.2 above, or (iii) any
claim, penalty asserted, legal action or administrative proceeding based upon
any action taken or omitted to be taken by Purchaser on or after the Closing
Date, relating in any such case to the operation of the Branches or the Assets,
or (iv) the Liabilities.
(c) To exercise its indemnification rights under this Section 12.1
as a result of the assertion against it of any claim or potential liability for
which indemnification is provided, the indemnified party shall promptly notify
the indemnifying party of the assertion of such claim, discovery of any such
potential liability or the commencement of any action or proceeding in respect
of which indemnity may be sought hereunder; PROVIDED, HOWEVER, in no event
shall notice of original claim for indemnification under this Agreement be
given later than the expiration of one (1) year from the Closing Date
(excluding only claims related to the covenants in Section 10.2 above). The
indemnified party shall advise the indemnifying party of all facts relating to
such assertion within the knowledge of the indemnified party, and shall afford
the indemnifying party the opportunity, at the indemnifying party's sole cost
and expense, to defend against such claims for liability. In any such action
or proceeding, the indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at its own expense
unless (i) the indemnifying party and the indemnified party mutually agree to
the retention of such counsel or (ii) the named parties to any such suit,
action, or proceeding (including any impleaded parties) include both the
indemnifying party and the indemnified party, and in the reasonable judgment of
the indemnified party, representation of the indemnifying party and the
indemnified party by the same counsel would be inadvisable due to actual or
potential differing defenses or conflicts of interests between them.
(d) The indemnified party shall have the right to settle or
compromise any claim or liability subject to indemnification under this
Section, and to be indemnified from and against all Losses resulting therefrom,
unless the indemnifying party, within sixty (60) calendar days after
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receiving written notice of the claim or liability in accordance with Section
12.1(c) above, notifies the indemnified party that it intends to defend against
such claim or liability and undertakes such defense, or, if required in a
shorter time than sixty (60) calendar days, the indemnifying party makes the
requisite response to such claim or liability asserted.
(e) Notwithstanding anything to the contrary contained in this
Agreement, an indemnifying party shall not be liable under this Section 12.1
for any Losses sustained by the indemnified party unless and until the
aggregate amount of all indemnifiable Losses sustained by the indemnified party
shall exceed Twenty-Five Thousand Dollars ($25,000) times the number of
Branches being purchased hereunder, in which event the indemnifying party shall
provide indemnification hereunder in respect of all such indemnifiable Losses
in excess of Twenty-Five Thousand Dollars ($25,000) times the number of
Branches being purchased hereunder, provided, however, that the aggregate
amount of indemnification payments payable pursuant to this Section 12.1, shall
in no event exceed the amount of the Purchase Price. An indemnifying party
shall not be liable under this Section 12.1 for any settlement effected,
without its consent, of any claim or liability or proceeding for which
indemnity may be sought hereunder except in the case of a settlement in an
amount which does not exceed Twenty-Five Thousand Dollars ($25,000) times the
number of Branches being purchased hereunder; provided, however, the provisions
of this Section 12.1(e) shall not apply to Purchaser's obligation to indemnify
Seller for a breach of Purchaser's covenants contained in Section 10.2 above.
In no event shall either party hereto be entitled to consequential or punitive
damages or damages for lost profits in any action relating to the subject
matter of this Agreement.
12.2 Purchase Price Adjustment. Any amount paid by Seller or
Purchaser under this Article 12 will be treated as an adjustment to the
Purchase Price unless and to the extent that a "determination" (as defined in
Section 1313(a) of the Code) causes any such amount not to constitute an
adjustment to the Purchase Price for federal Tax purposes.
12.3 Exclusivity. After the Closing, Article 12 will provide the
exclusive remedy for any misrepresentation, breach of warranty, covenant or
other agreement or other claim arising out of this Agreement or the
transactions contemplated hereby.
12.4 AS-IS Sale; Waiver of Warranties. Except as otherwise
expressly set forth in this Agreement, Purchaser acknowledges that the Assets
and Liabilities are being sold and accepted on an "AS-IS-WHERE-IS" basis, and
are being accepted without any representation or warranty. As part of
Purchaser's agreement to purchase and accept the Assets and Liabilities
AS-IS-WHERE-IS, and not as a limitation on such agreement, TO THE FULLEST
EXTENT PERMITTED BY LAW, SELLER HEREBY DISCLAIMS AND PURCHASER HEREBY
UNCONDITIONALLY AND IRREVOCABLY WAIVES AND RELEASES ANY AND ALL ACTUAL OR
POTENTIAL RIGHTS PURCHASER MIGHT HAVE AGAINST SELLER OR ANY PERSON DIRECTLY OR
INDIRECTLY CONTROLLING SELLER REGARDING ANY FORM OF WARRANTY, EXPRESS OR
IMPLIED, OF ANY KIND OR TYPE, RELATING TO THE ASSETS AND LIABILITIES INCLUDING,
BUT NOT LIMITED TO, THE LOANS AND/OR THE COLLATERAL THEREFOR EXCEPT THOSE SET
FORTH IN ARTICLE 5 AND SECTIONS 8.1 AND 8.8. SUCH WAIVER AND RELEASE IS, TO
THE
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<PAGE> 46
FULLEST EXTENT PERMITTED BY LAW, ABSOLUTE, COMPLETE, TOTAL AND UNLIMITED IN
EVERY WAY. SUCH WAIVER AND RELEASE INCLUDES TO THE FULLEST EXTENT PERMITTED BY
LAW, BUT IS NOT LIMITED TO, A WAIVER AND RELEASE OF EXPRESS WARRANTIES (EXCEPT
THOSE SET FORTH IN ARTICLE 5 AND SECTIONS 8.1 AND 8.8), IMPLIED WARRANTIES,
WARRANTIES OF FITNESS FOR A PARTICULAR USE, WARRANTIES OF MERCHANTABILITY,
WARRANTIES OF HABITABILITY, STRICT LIABILITY RIGHTS AND CLAIMS OF EVERY KIND
AND TYPE, INCLUDING BUT NOT LIMITED TO CLAIMS REGARDING DEFECTS WHICH WERE NOT
OR ARE NOT DISCOVERABLE, ALL OTHER EXTANT OR LATER CREATED OR CONCEIVED OF
STRICT LIABILITY OR STRICT LIABILITY TYPE CLAIMS AND RIGHTS.
ARTICLE 13
MISCELLANEOUS
13.1 Survival. (a) The parties' respective representations and
warranties contained in this Agreement shall survive until the first
anniversary of the Closing Date, and thereafter neither party may claim any
Loss in relation to a breach thereof. The agreements and covenants contained
in this Agreement shall not survive the Closing except to the extent expressly
set forth herein.
(b) No claim based on any breach of any representation or warranty
shall be valid or made unless written notice with respect thereto is given to
Seller in accordance with this Agreement on or before the date specified in
Section 12.1(c); provided, however, that the provisions of this Section shall
not apply to claims based on Purchaser's breach of Section 10.2 above.
13.2 Assignment. Neither this Agreement nor any of the rights,
interests or obligations of either party may be assigned by either of the
parties hereto without the prior written consent of the other party, and any
purported assignment in contravention of this Section 13.2 shall be void.
13.3 Binding Effect. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns.
13.4 Public Notice. Prior to the Closing Date, neither Purchaser
nor Seller shall directly or indirectly make or cause to be made any press
release for general circulation, public announcement or disclosure or issue any
notice or general communication to employees with respect to any of the
transactions contemplated hereby without the prior written consent of the other
party (which consent shall not be unreasonably withheld or delayed). Purchaser
agrees that, without Seller's prior written consent, it shall not release or
disclose any of the terms or conditions of the transactions contemplated herein
to any other person. Notwithstanding the foregoing, each party may make such
public disclosure as, in the opinion of its counsel, may be required by law or
as necessary to obtain the Regulatory Approvals.
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13.5 Notices. All notices, requests, demands, consents and other
communications given or required to be given under this Agreement and under the
related documents shall be in writing and delivered to the applicable party at
the address indicated below:
If to Seller, to: Wells Fargo Bank, National Association
420 Montgomery Street
San Francisco, CA 94104
Attention: Guy Rounsaville, Jr., Esq.
Executive Vice President,
Chief Counsel & Secretary
Fax: (415) 975-7151
If to Purchaser, to: Bank of Salinas
301 Main Street, Fourth Floor
Salinas, CA 93901
Attention: Thomas A. Sa
Fax: (408) 422-0924
or, as to each party at such other address as shall be designated by such party
in a written notice to the other party complying as to delivery with the terms
of this Section. Any notices shall be in writing, including telegraphic or
facsimile communication, and may be sent by registered or certified mail,
return receipt requested, postage prepaid, or by fax, or by overnight delivery
service. Notice shall be effective upon actual receipt thereof.
13.6 Expenses. Except as expressly provided otherwise in this
Agreement, each party shall bear any and all costs and expenses which it
incurs, or which may be incurred on its behalf, in connection with the
preparation of this Agreement and consummation of the transactions described
herein, and the expenses, fees, and costs necessary for any approvals of the
appropriate regulatory authorities.
13.7 Governing Law. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of California applicable
to contracts made and to be performed entirely within such State.
13.8 Entire Agreement; Amendments. (a) This Agreement contains
the entire understanding of and all agreements between the parties hereto with
respect to the subject matter hereof and supersedes any prior or
contemporaneous agreement or understanding, oral or written, pertaining to any
such matters which agreements or understandings shall be of no force or effect
for any purpose; provided, however, that the terms of any confidentiality
agreement between the parties hereto previously entered into, to the extent not
inconsistent with any provisions of this Agreement, shall continue to apply.
(b) This Agreement may not be amended or supplemented in any
manner except by mutual agreement of the parties and as set forth in a writing
signed by the parties hereto or their respective successors in interest. The
waiver of any breach of any provision under this
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Agreement by any party shall not be deemed to be a waiver of any preceding or
subsequent breach under this Agreement. No such waiver shall be effective
unless in writing.
13.9 Third Party Beneficiaries. This Agreement shall not benefit
or create any right or cause of action in or on behalf of any person other than
Seller and Purchaser.
13.10 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
13.11 Headings. The headings used in this Agreement are inserted
for purposes of convenience of reference only and shall not limit or define the
meaning of any provisions of this Agreement.
13.12 Consent to Jurisdiction; Waiver of Jury Trial. (a) EACH
PARTY HERETO HEREBY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF
CALIFORNIA AND THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF
CALIFORNIA, AS WELL AS TO THE JURISDICTION OF ALL COURTS FROM WHICH AN APPEAL
MAY BE TAKEN OR OTHER REVIEW SOUGHT FROM THE AFORESAID COURTS, FOR THE PURPOSE
OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF SUCH PARTY'S OBLIGATIONS
UNDER OR WITH RESPECT TO THIS AGREEMENT OR ANY OF THE AGREEMENTS, INSTRUMENTS
OR DOCUMENTS CONTEMPLATED HEREBY, AND, TO THE EXTENT IT LAWFULLY MAY DO SO,
EXPRESSLY WAIVES ANY AND ALL OBJECTIONS IT MAY HAVE AS TO VENUE IN ANY OF SUCH
COURTS.
(b) EACH PARTY HERETO HEREBY WAIVES ALL RIGHT TO TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN ANY WAY CONCERNED
WITH THIS AGREEMENT OR ANY OF THE AGREEMENTS, INSTRUMENTS OR DOCUMENTS
CONTEMPLATED HEREBY. NO PARTY HERETO, NOR ANY ASSIGNEE OR SUCCESSOR OF A PARTY
HERETO, SHALL SEEK A JURY TRIAL IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM OR ANY
OTHER LITIGATION PROCEDURE BASED UPON, OR ARISING OUT OF, THIS AGREEMENT OR ANY
OF THE AGREEMENTS, INSTRUMENTS OR DOCUMENTS CONTEMPLATED HEREBY. NO PARTY WILL
SEEK TO CONSOLIDATE ANY SUCH ACTION IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH
ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THE
PROVISIONS OR THIS SECTION HAVE BEEN FULLY CONSIDERED BY THE PARTIES HERETO,
AND THE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS. NO PARTY HAS IN ANY WAY
AGREED WITH OR REPRESENTED TO ANY OTHER PARTY THAT THE PROVISIONS OF THIS
SECTION WILL NOT BE FULLY ENFORCED IN ALL INSTANCES.
13.13 Severability. If any provision of this Agreement, as applied
to any party or circumstance, shall be judged by a court of competent
jurisdiction to be void, invalid or
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unenforceable, the same shall in no way effect any other provision of this
Agreement, the application of any such provision and any other circumstances or
the validity or enforceability of the other provisions of this Agreement.
13.14 Legal Action. If either Seller or Purchaser shall institute
any legal action to enforce this Agreement or any provision hereof, it is
agreed that the prevailing party shall be entitled to collect reasonable
attorneys fees and costs incurred in connection therewith.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized officers as of the date and year first
above written.
WELLS FARGO BANK,
NATIONAL ASSOCIATION
By:___________________________________
Name:_________________________________
Title:________________________________
By:___________________________________
Name:_________________________________
Title:________________________________
PURCHASER
By:___________________________________
Name:_________________________________
Title:________________________________
By:___________________________________
Name:_________________________________
Title:________________________________
SCHEDULE 1.1(a)
Assumed Severance Obligations
1. First Interstate Bancorp Broad-Based Change in Control Severance
Pay Plan.
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2. First Interstate Bancorp Middle Management Change in Control
Severance Pay Plan.
3. Wells Fargo & Company Separation Pay Plan.
SCHEDULE 1.1(b)
Branches/Real Properties
<TABLE>
<CAPTION>
BRANCH NAME BRANCH ADDRESS CITY LEASE/OWN
----------- -------------- ---- ---------
<S> <C> <C> <C>
Gonzales 346 Alta St. Gonzales Owned
Castroville 10601 Merritt St. Castroville Owned
</TABLE>
SCHEDULE 1.1(c)
(DELETED)
SCHEDULE 1.1(d)
(DELETED)
SCHEDULE 3.6(a)
FORM OF CALIFORNIA GRANT DEED
Recording Requested by:
When Recorded Mail to:
DOCUMENTARY TRANSFER TAX $ ________________
( ) COMPUTED ON FULL VALUE OF PROPERTY CONVEYED, OR ( ) COMPUTED ON FULL VALUE
LESS LIENS AND ENCUMBRANCES REMAINING THEREON AT TIME OF SALE.
Signature of declarant or agent determining tax - Firm Name
( ) Unincorporated Area ( ) City of ________________
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<PAGE> 51
Assessor's parcel No. ________________
WELLS FARGO BANK, NATIONAL ASSOCIATION with its principal
office located in San Francisco, California, the undersigned grantor, for a
valuable consideration, receipt of which is hereby acknowledged, does hereby
remise, release and forever grant to [NAME OF GRANTEE(S)] a _________________,
with its principal office located in __________________, all of the real
property in the City of ____________________, County of ____________________,
State of California, described in Attachment A hereto.
Date: ___________________ WELLS FARGO BANK, NATIONAL ASSOCIATION
By: __________________________________
Name:
Title:
MAIL TAX STATEMENTS TO GRANTEE
AT ADDRESS ABOVE
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Attachment A
Property
SCHEDULE 3.6(b)
FORM OF BILL OF SALE
BILL OF SALE, dated as of _________________, 1996 by WELLS FARGO BANK,
NATIONAL ASSOCIATION, with its principal office located in San Francisco,
California ("Seller"), to _______________________________________________, with
its principal office located in ___________________________________________,
California ("Purchaser"). Capitalized terms not otherwise defined herein shall
have the same meanings as set forth in the Purchase and Assumption Agreement,
dated as of __________________, 1996 (the "P&A Agreement"), between Seller and
Purchaser, unless the context herein otherwise requires.
W I T N E S S E T H:
WHEREAS, subject to the terms and conditions set forth in the P&A
Agreement, Seller has agreed to transfer to Purchaser the Assets;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Seller does hereby convey, grant,
bargain, sell, transfer, set over, assign, alienate, remise, release, deliver
and confirm unto Purchaser, its successors and assigns, forever, all of
Seller's right, title, interest and claim in and to the Personal Property
(including without limitation, the items described in Attachment A hereto), as
of 11:59 P.M., California time, the day prior to the date hereof.
TO HAVE AND TO HOLD all and singular of the foregoing (the
"Transferred Properties") unto Purchaser, its successors and assigns, to its
and their own use and enjoyment forever.
SELLER FURTHER COVENANTS AND AGREES AS FOLLOWS:
1. This instrument shall not constitute an assignment of any
covenant, obligation, liability, contract, agreement, license, lease or
commitment pertaining to the Transferred Properties if an attempted assignment
thereof without the consent of any other party thereto or with an interest
therein would constitute a breach thereof or would materially and adversely
affect the rights of Seller thereunder. If any such consent is not obtained
with respect to any such covenant, obligation, liability, contract, agreement,
license, lease or commitment, or if an attempted assignment with respect
thereto would be ineffective or would impair the rights of Seller thereunder so
that Purchaser would not in fact receive the benefit of all such rights, then
Seller, its successors and assigns, shall act as Purchaser's agent in order to
obtain for Purchaser,
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its successors and assigns, the benefits thereunder, and Seller will cooperate
with Purchaser in any other reasonable arrangement designed to provide such
benefits for Purchaser.
2. The Transferred Properties are being delivered "AS IS", "WHERE
IS" and with all faults.
3. From time to time, Seller, its successor and assigns, shall
execute and deliver all such further bills of sale, assignments or other
instruments of conveyance and transfer as Purchaser, its successors or assigns,
may reasonably request more effectively to transfer to and vest in Purchaser
all of Seller's interest in the Transferred Properties.
4. This Bill of Sale is made pursuant to the provisions of the
P&A Agreement, and, except as herein otherwise provided, the transfer of
property hereunder is made subject to the terms and provisions of the P&A
Agreement.
5. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of California applicable to contracts
made and to be performed entirely within such State.
IN WITNESS WHEREOF, Seller has duly executed and delivered this Bill
of Sale as of the day and year first above written.
WELLS FARGO BANK, NATIONAL ASSOCIATION
By:_______________________________________
Name:
Title:
PURCHASER:
By:_______________________________________
Name:
Title:
Attachment A
Personal Property
[To be provided]
SCHEDULE 3.6(c)
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FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT
ASSIGNMENT AND ASSUMPTION AGREEMENT, dated as of __________, 1996
(this "Agreement"), between WELLS FARGO BANK, NATIONAL ASSOCIATION, organized
under the laws of the United States, with its principal office located in San
Francisco, California ("Seller"), and _____________________________, with its
principal office located in ________________________________ ("Purchaser").
Capitalized terms not otherwise defined herein shall have the meanings set
forth in the Purchase and Assumption Agreement, dated as of
_____________________, (the "P&A Agreement"), between Seller and Purchaser,
unless the context herein otherwise requires.
W I T N E S S E T H:
WHEREAS, subject to the terms and conditions set forth in the P&A
Agreement, Seller has agreed to assign, and Purchaser has agreed to assume, the
Liabilities;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Seller hereby sells, assigns, conveys, transfers and delivers,
and Purchaser assumes, without warranty or representation, express or implied,
or recourse to, Seller, except as expressly provided in the P&A Agreement, the
Liabilities, other than the Branch Leases, as set forth in the P&A Agreement.
2. Seller hereby (a) resigns as the trustee or custodian of each
Deposit in an IRA or Keogh Account of which it is the trustee or custodian, and
(b) the extent permitted by the documentation governing such IRA or Keogh
Account, appoints Purchaser as successor trustee or custodian of each such IRA
or Keogh Account, and Purchaser hereby accepts each such trusteeship or
custodianship and assumes all fiduciary obligations with respect thereto.
3. This Agreement shall not constitute an assignment or
assumption of any covenant, fiduciary or other obligation, liability, contract,
agreement, license, lease or commitment pertaining to any Liability if an
attempted assignment or assumption thereof without the consent of any other
party thereto or with an interest therein would constitute a breach thereof or
would materially and adversely affect the rights of Seller thereunder. If any
such consent is not obtained with respect to any such covenant, fiduciary or
other obligation, liability, contract, agreement, license, lease or commitment,
or if an attempted assignment or assumption of any covenant, fiduciary or other
obligation, liability, contract, agreement, license, lease or commitment
pertaining to any Liability would be ineffective or would impair the rights of
Seller thereunder so that Purchaser would not in fact receive the benefit of
all such rights, then Seller, its successors and assigns shall act as
Purchaser's agent in order to obtain for Purchaser, its
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successors and assigns, the benefits thereunder, and Seller will cooperate with
Purchaser in any other reasonable arrangement designed to provide such benefits
for Purchaser.
4. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their
respective permitted successors and permitted assigns; provided, that neither
this Agreement nor any of the rights, interests or obligations of either party
may be assigned by either party hereto without the prior written consent of the
other party, and any purported assignment in contradiction of this Section 4
shall be void.
5. This Agreement is made pursuant to the provisions of the P&A
Agreement and, except as herein otherwise provided, the assignment and
assumption of any other Liabilities hereunder are made subject to the terms and
provisions of the P&A Agreement.
6. Except as otherwise provided herein, all of the transactions
provided for herein shall be effective as of 11:59 p.m., California time, the
day prior to the date hereof.
7. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of California applicable to contracts
made and to be performed entirely within such State.
IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Agreement as of the day and year first above written.
WELLS FARGO BANK, NATIONAL ASSOCIATION
By:______________________________________
Name:
Title:
[PURCHASER]:
By:______________________________________
Name:
Title:
SCHEDULE 3.6(d)
FORM OF ASSIGNMENT OF LEASE AND ASSUMPTION
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KNOW THAT WELLS FARGO BANK, NATIONAL ASSOCIATION, a national bank,
organized under the laws of the United States, having its principal office in
San Francisco, California ("Assignor"), in consideration of One Dollar ($1.00)
and other good and valuable consideration paid by
_____________________________________, with its principal office located in
_________________, California ("Assignee"), hereby assigns unto the Assignee
all of Assignor's right, title and interest as tenant under a certain lease
more particularly described on Attachment A hereto, covering premises described
on such attachment and in such Lease (the "Lease").
TO HAVE AND TO HOLD the same unto Assignee, its successors and assigns
from and after 11:59 P.M., California time, the day prior to the date hereof
(the "Effective Time"), subject to the terms, covenants, conditions and
provisions set forth in the Lease.
ASSIGNEE hereby assumes, effective as of the Effective Time, the
performance of all terms, covenants and obligations of the Lease on the part of
Assignor to be performed under the Lease.
IN WITNESS WHEREOF, Assignor and Assignee have executed this Agreement
as of the ____ day of ______________, 1996.
WELLS FARGO BANK, NATIONAL ASSOCIATION
By:___________________________________
Name:
Title:
[ASSIGNEE]:
By:___________________________________
Name:
Title:
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<PAGE> 57
Attachment A
Lease
SCHEDULE 3.6(e)
FORM OF LANDLORD CONSENT
CONSENT, dated as of ________________, 1996, of __________________,
with its principal office located in _______________________ ("Landlord"), in
favor of WELLS FARGO BANK, NATIONAL ASSOCIATION organized under the laws of the
United States, with its principal office located in San Francisco, California
("Seller").
W I T N E S S E T H:
WHEREAS, Landlord is the owner of certain premises and a party to a
certain lease, each described on Attachment A hereto (the "Lease"); and
WHEREAS, Seller desires to assign its entire interest (including,
without limitation, renewal rights, if any) in the Lease to
_____________________________, with its principal office located in
__________________, California ("Purchaser"); and
WHEREAS, Seller has requested Landlord's consent to said assignment
and to Purchaser's use of said premises as a banking office and for all other
purposes authorized under the Lease for the balance of the term of the Lease
and Landlord desires to consent to the same for all purposes required under the
Lease.
NOW, THEREFORE,
1. Subject to the limitations set forth below, Landlord hereby
consents to the assignment of the Lease by Seller to Purchaser and to
Purchaser's use of said premises as a banking office and for all other purposes
authorized under the Lease for the balance of the term of the Lease; provided
that Purchaser shall agree to assume all of the obligations of Seller arising
under the Lease from and after the effective date of the assignment.
2. Except for the aforementioned assignment by Seller to
Purchaser, nothing contained herein shall constitute a waiver of the
obligation, if any, of the holder of the leasehold interest created under the
Lease to obtain Landlord's consent to future assignments of the Lease or a
sublease of the premises demised thereunder.
3. Nothing contained herein shall be construed to obligate Seller
to assign the Lease to Purchaser, it being understood and acknowledged by
Landlord that the execution and delivery of this Consent is in anticipation of
said assignment, which may or may not be effected. If said
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<PAGE> 58
assignment shall be effected, Seller or Purchaser shall promptly provide to
Landlord a fully executed counterpart of said assignment and notify Landlord of
the effective date thereof.
4. Landlord acknowledges and certifies that, except for the
conditions contained herein, all conditions set forth in the Lease, if any, to
the effectiveness of the aforementioned assignment or to the consent of
Landlord contained herein have been either waived by Landlord or satisfied.
IN WITNESS WHEREOF, the undersigned has duly executed and delivered
this instrument as of the day and year first above written.
[LANDLORD]
By:_____________________________
Name:
Title:
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<PAGE> 59
Attachment A
Lease
SCHEDULE 3.6(g)
FORM OF CERTIFICATE OF OFFICER
WELLS FARGO BANK, NATIONAL ASSOCIATION
The undersigned, the [title of officer] of WELLS FARGO BANK, NATIONAL
ASSOCIATION, a bank, organized under the laws of the United States of America,
with its principal office located in San Francisco, California ("Seller"),
hereby certifies, to the best of [his] [her] knowledge after reasonable
inquiry, as follows:
1. Each of the representations and warranties made by Seller in
the Purchase and Assumption Agreement, dated as of _____________, 1996, (the
"P&A Agreement"), between Seller and _________________________________, with
its principal office located in __________________, California, are true in all
material respects, as of the date hereof.
2. Each of the covenants and agreements of Seller to be performed
on or prior to the date hereof have been duly performed in all material
respects.
3. Attached hereto are true and correct copies of the resolutions
of the Seller's Board of Directors, dated as of _____________, 1996,
authorizing the execution, delivery and performance of the transactions
contemplated by the P&A Agreement, which resolutions were duly adopted and, as
of the date hereof, remain in full force and effect without amendment or
modification.
IN WITNESS WHEREOF, I have hereunto subscribed my name this ____ day
of ________________, 1996.
WELLS FARGO BANK, NATIONAL ASSOCIATION
By:___________________________________
Name:
Title:
SCHEDULE 3.7(d)
FORM OF CERTIFICATE OF OFFICER
159
<PAGE> 60
The undersigned, the [title of officer] of
_________________________________, with its principal office located in
____________________, California ("Purchaser"), hereby certifies, to the best
of [his] [her] knowledge after reasonable inquiry, as follows:
1. Each of the representations and warranties made by Purchaser
in the Purchase and Assumption Agreement, dated as of ____________, 1996 (the
"P&A Agreement"), between Purchaser and Wells Fargo Bank, National Association,
organized under the laws of the United States, with its principal office
located in Los Angeles, California, are true in all material respects, as of
the date hereof (except for representations and warranties that are made as of
a specific date).
2. Each of the covenants and agreements of Purchaser to be
performed on or prior to the date hereof have been duly performed in all
material respects.
3. Attached hereto are true and correct copies of the resolutions
of the Purchaser's Board of Directors, dated as of _________________, 1996,
authorizing the execution, delivery and performance of the transactions
contemplated by the P&A Agreement, which resolutions were duly adopted and, as
of the date hereof, remain in full force and effect without amendment or
modification.
IN WITNESS WHEREOF, I have hereunto subscribed my name this ____ day
of ______________, 1996.
[PURCHASER]:
By:____________________________________
Name:
Title:
SCHEDULE 5.4
Tenant Leases
PROP. # PROPERTY NAME SUB-TENANT NAME SQ. LEASE
FT. EXPIRES
None.
SCHEDULE 5.6
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Litigation and Undisclosed Liabilities
None.
SCHEDULE 5.10(a)(ix)
(DELETED)
SCHEDULE 5.10(f)(i)
(DELETED)
SCHEDULE 5.16
Environmental Matters
See asbestos reports and Phase I Reports (as updated) previously provided to
Purchaser.
SCHEDULE 8.1
Outstanding Tax Liabilities
None.
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<PAGE> 1
EXHIBIT 10.18
CENTRAL COAST BANCORP
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
AND ALL SUPPORTING FORMS HAVE BEEN PRODUCED FOR
SHEARN & ASSOCIATES, INC.
Copyright 1995 Corbel
All Rights Reserved
162
<PAGE> 2
CENTRAL COAST BANCORP
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
163
<PAGE> 3
164
<PAGE> 4
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
ARTICLE II
TOP HEAVY AND ADMINISTRATION
<TABLE>
<S> <C> <C>
2.1 TOP HEAVY PLAN REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.2 DETERMINATION OF TOP HEAVY STATUS . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.3 POWERS AND RESPONSIBILITIES OF THE EMPLOYER . . . . . . . . . . . . . . . . . . . . . 18
2.4 DESIGNATION OF ADMINISTRATIVE AUTHORITY . . . . . . . . . . . . . . . . . . . . . . . 19
2.5 ALLOCATION AND DELEGATION OF RESPONSIBILITIES . . . . . . . . . . . . . . . . . . . . 19
2.6 POWERS AND DUTIES OF THE ADMINISTRATOR . . . . . . . . . . . . . . . . . . . . . . . . 19
2.7 RECORDS AND REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.8 APPOINTMENT OF ADVISERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.9 INFORMATION FROM EMPLOYER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.10 PAYMENT OF EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.11 MAJORITY ACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.12 CLAIMS PROCEDURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.13 CLAIMS REVIEW PROCEDURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE III
ELIGIBILITY
</TABLE>
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<TABLE>
<S> <C> <C>
3.1 CONDITIONS OF ELIGIBILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.2 APPLICATION FOR PARTICIPATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.3 EFFECTIVE DATE OF PARTICIPATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.4 DETERMINATION OF ELIGIBILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.5 TERMINATION OF ELIGIBILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.6 OMISSION OF ELIGIBLE EMPLOYEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.7 INCLUSION OF INELIGIBLE EMPLOYEE . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.8 ELECTION NOT TO PARTICIPATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE IV
CONTRIBUTION AND ALLOCATION
4.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION . . . . . . . . . . . . . . . . . . . 24
4.2 TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION . . . . . . . . . . . . . . . . . . . . . . 25
4.3 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS . . . . . . . . . . . . . . . . . 25
4.4 MAXIMUM ANNUAL ADDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
4.5 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS . . . . . . . . . . . . . . . . . . . . . . 33
4.6 TRANSFERS FROM QUALIFIED PLANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.7 DIRECTED INVESTMENT ACCOUNT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE V
FUNDING AND INVESTMENT POLICY
5.1 INVESTMENT POLICY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.2 APPLICATION OF CASH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
</TABLE>
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<PAGE> 6
<TABLE>
<S> <C> <C>
5.3 TRANSACTIONS INVOLVING COMPANY STOCK . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.4 LOANS TO THE TRUST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE VI
VALUATIONS
6.1 VALUATION OF THE TRUST FUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.2 METHOD OF VALUATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE VII
DETERMINATION AND DISTRIBUTION OF BENEFITS
7.1 DETERMINATION OF BENEFITS UPON RETIREMENT . . . . . . . . . . . . . . . . . . . . . . 40
7.2 DETERMINATION OF BENEFITS UPON DEATH . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY . . . . . . . . . . . . . . . . . . . 41
7.4 DETERMINATION OF BENEFITS UPON TERMINATION . . . . . . . . . . . . . . . . . . . . . . 42
7.5 DISTRIBUTION OF BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
7.6 HOW PLAN BENEFIT WILL BE DISTRIBUTED . . . . . . . . . . . . . . . . . . . . . . . . . 50
7.7 DISTRIBUTION FOR MINOR BENEFICIARY . . . . . . . . . . . . . . . . . . . . . . . . . . 51
7.8 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN . . . . . . . . . . . . . . . . . . . . 51
7.9 RIGHT OF FIRST REFUSALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
7.10 STOCK CERTIFICATE LEGEND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
7.11 NONTERMINABLE PROTECTIONS AND RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . 53
7.12 PRE-RETIREMENT DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
7.13 QUALIFIED DOMESTIC RELATIONS ORDER DISTRIBUTION . . . . . . . . . . . . . . . . . . . 53
ARTICLE VIII
</TABLE>
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<PAGE> 7
<TABLE>
<S> <C> <C>
TRUSTEE
8.1 BASIC RESPONSIBILITIES OF THE TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . 53
8.2 INVESTMENT POWERS AND DUTIES OF THE TRUSTEE . . . . . . . . . . . . . . . . . . . . . 54
8.3 OTHER POWERS OF THE TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
8.4 VOTING COMPANY STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
8.5 DUTIES OF THE TRUSTEE REGARDING PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . 58
8.6 TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES . . . . . . . . . . . . . . . . . . . . 59
8.7 ANNUAL REPORT OF THE TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
8.8 AUDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
8.9 RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE . . . . . . . . . . . . . . . . . . . . 60
8.10 TRANSFER OF INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
8.11 DIRECT ROLLOVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
ARTICLE IX
AMENDMENT, TERMINATION AND MERGERS
9.1 AMENDMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
9.2 TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
9.3 MERGER OR CONSOLIDATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
ARTICLE X
MISCELLANEOUS
10.1 PARTICIPANT'S RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
10.2 ALIENATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
10.3 CONSTRUCTION OF PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
</TABLE>
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<PAGE> 8
<TABLE>
<S> <C> <C>
10.4 GENDER AND NUMBER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
10.5 LEGAL ACTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
10.6 PROHIBITION AGAINST DIVERSION OF FUNDS . . . . . . . . . . . . . . . . . . . . . . . . 65
10.7 BONDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
10.8 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE . . . . . . . . . . . . . . . . . . . . . . 66
10.9 INSURER'S PROTECTIVE CLAUSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
10.10 RECEIPT AND RELEASE FOR PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
10.11 ACTION BY THE EMPLOYER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
10.12 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY . . . . . . . . . . . . . . . . . . 67
10.13 HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
10.14 APPROVAL BY INTERNAL REVENUE SERVICE . . . . . . . . . . . . . . . . . . . . . . . . . 67
10.15 UNIFORMITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
10.16 SECURITIES AND EXCHANGE COMMISSION APPROVAL . . . . . . . . . . . . . . . . . . . . . 68
ARTICLE XI
PARTICIPATING EMPLOYERS
11.1 ADOPTION BY OTHER EMPLOYERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
11.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS . . . . . . . . . . . . . . . . . . . . . . . 68
11.3 DESIGNATION OF AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
11.4 EMPLOYEE TRANSFERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
11.5 PARTICIPATING EMPLOYER'S CONTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . 70
11.6 AMENDMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
11.7 DISCONTINUANCE OF PARTICIPATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
11.8 ADMINISTRATOR'S AUTHORITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
</TABLE>
169
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170
<PAGE> 10
171
<PAGE> 11
CENTRAL COAST BANCORP EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
THIS AGREEMENT, hereby made and entered into this __________
day of _________________________, 19____, by and between Central Coast Bancorp
(herein referred to as the "Employer") and Central Coast Bancorp Board of
Directors (herein referred to as the "Trustee").
W I T N E S S E T H:
WHEREAS, the Employer desires an Employee Stock Ownership
Plan so as to enable its eligible employees to acquire a proprietary interest
in capital stock of the Employer; and
WHEREAS, the Employer desires to recognize the contribution
made to its successful operation by its employees and to reward such
contribution by means of an Employee Stock Ownership Plan for those employees
who shall qualify as Participants hereunder; and
WHEREAS, contributions to the Plan will be made by the
Employer and such contributions made to the trust will be invested primarily in
the capital stock of the Employer;
NOW, THEREFORE, effective January 1, 1996 (hereinafter
called the "Effective Date"), the Employer hereby establishes an Employee Stock
Ownership Plan (ESOP) and creates this trust (which plan and trust are
hereinafter called the "Plan") for the exclusive benefit of the Participants
and their Beneficiaries, which is intended to qualify as an "ESOP", and the
Trustee hereby accepts the Plan on the following terms:
ARTICLE I
DEFINITIONS
I.1 "Act" means the Employee Retirement Income Security Act of 1974, as it
may be amended from time to time.
I.2 "Administrator" means the person or entity designated by the Employer
pursuant to Section 2.4 to administer the Plan on behalf of the Employer.
I.3 "Affiliated Employer" means any corporation which is a member of a
controlled group of corporations (as defined in Code Section 414(b)) which
includes the Employer; any trade or business (whether or not incorporated)
which is under common control (as defined in Code Section 414(c)) with the
Employer; any organization (whether or not incorporated) which is a member of
an affiliated service group (as defined in Code Section 414(m)) which includes
the Employer; and any other entity required to be aggregated with the Employer
pursuant to Regulations under Code Section 414(o).
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I.4 "Aggregate Account" means, with respect to each Participant, the value
of all accounts maintained on behalf of a Participant, whether attributable to
Employer or Employee contributions, subject to the provisions of Section 2.2.
I.5 "Anniversary Date" means December 31st.
I.6 "Beneficiary" means the person to whom the share of a deceased
Participant's total account is payable, subject to the restrictions of Sections
7.2 and 7.5.
I.7 "Code" means the Internal Revenue Code of 1986, as amended or replaced
from time to time.
I.8 "Company Stock" means common stock issued by the Employer (or by a
corporation which is a member of the controlled group of corporations of which
the Employer is a member) which is readily tradeable on an established
securities market. If there is no common stock which meets the foregoing
requirement, the term "Company Stock" means common stock issued by the Employer
(or by a corporation which is a member of the same controlled group) having a
combination of voting power and dividend rights equal to or in excess of: (A)
that class of common stock of the Employer (or of any other such corporation)
having the greatest voting power, and (B) that class of common stock of the
Employer (or of any other such corporation) having the greatest dividend
rights. Noncallable preferred stock shall be deemed to be "Company Stock" if
such stock is convertible at any time into stock which constitutes "Company
Stock" hereunder and if such conversion is at a conversion price which (as of
the date of the acquisition by the Trust) is reasonable. For purposes of the
preceding sentence, pursuant to Regulations, preferred stock shall be treated
as noncallable if after the call there will be a reasonable opportunity for a
conversion which meets the requirements of the preceding sentence.
I.9 "Company Stock Account" means the account of a Participant which is
credited with the shares of Company Stock purchased and paid for by the Trust
Fund or contributed to the Trust Fund.
I.10 "Compensation" with respect to any Participant means such
Participant's wages, salaries, fees for professional services and other amounts
received (without regard to whether or not an amount is paid in cash) for
personal services actually rendered in the course of employment with the
Employer maintaining the Plan to the extent that the amounts are includible in
gross income (including, but not limited to, commissions paid salesmen,
compensation for services on the basis of a percentage of profits, commissions
on insurance premiums, tips, bonuses, fringe benefits, and reimbursements or
other expense allowances under a nonaccountable plan (as described in
Regulation 1.62-2(c)) for a Plan Year.
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Compensation shall exclude (a)(1) contributions made by the
Employer to a plan of deferred compensation to the extent that, the
contributions are not includible in the gross income of the Participant for the
taxable year in which contributed, (2) Employer contributions made on behalf of
an Employee to a simplified employee pension plan described in Code Section
408(k) to the extent such contributions are excludable from the Employee's
gross income, (3) any distributions from a plan of deferred compensation; (b)
amounts realized from the exercise of a non-qualified stock option, or when
restricted stock (or property) held by an Employee either becomes freely
transferable or is no longer subject to a substantial risk of forfeiture; (c)
amounts realized from the sale, exchange or other disposition of stock acquired
under a qualified stock option; and (d) other amounts which receive special tax
benefits, or contributions made by the Employer (whether or not under a salary
reduction agreement) towards the purchase of any annuity contract described in
Code Section 403(b) (whether or not the contributions are actually excludable
from the gross income of the Employee).
For purposes of this Section, the determination of
Compensation shall be made by:
(a) including amounts which are contributed by the Employer pursuant to a
salary reduction agreement and which are not includible in the gross income of
the Participant under Code Sections 125, 402(e)(3), 402(h)(1)(B), 403(b) or
457, and Employee contributions described in Code Section 414(h)(2) that are
treated as Employer contributions.
For a Participant's initial year of participation,
Compensation shall be recognized for the entire Plan Year.
Compensation in excess of $200,000 shall be disregarded. Such
amount shall be adjusted at the same time and in such manner as permitted under
Code Section 415(d), except that the dollar increase in effect on January 1 of
any calendar year shall be effective for the Plan Year beginning with or within
such calendar year and the first adjustment to the $200,000 limitation shall be
effective on January 1, 1990. For any short Plan Year the Compensation limit
shall be an amount equal to the Compensation limit for the calendar year in
which the Plan Year begins multiplied by the ratio obtained by dividing the
number of full months in the short Plan Year by twelve (12). In applying this
limitation, the family group of a Highly Compensated Participant who is subject
to the Family Member aggregation rules of Code Section 414(q)(6) because such
Participant is either a "five percent owner" of the Employer or one of the ten
(10) Highly Compensated Employees paid the greatest "415 Compensation" during
the year, shall be treated as a single Participant, except that for this
purpose Family Members shall include only the affected Participant's spouse and
any lineal descendants who have not attained age nineteen (19) before the close
of the year. If, as a result of the application of such rules the adjusted
$200,000 limitation is exceeded, then the limitation shall be prorated among
the affected Family Members in proportion to each such Family Member's
Compensation prior to the application of this limitation, or the limitation
shall be adjusted in accordance with any other method permitted by Regulation.
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In addition to other applicable limitations set forth in the
Plan, and notwithstanding any other provision of the Plan to the contrary, for
Plan Years beginning on or after January 1, 1994, the annual Compensation of
each Employee taken into account under the Plan shall not exceed the OBRA '93
annual compensation limit. The OBRA '93 annual compensation limit is $150,000,
as adjusted by the Commissioner for increases in the cost of living in
accordance with Code Section 401(a)(17)(B). The cost of living adjustment in
effect for a calendar year applies to any period, not exceeding 12 months, over
which Compensation is determined (determination period) beginning in such
calendar year. If a determination period consists of fewer than 12 months, the
OBRA '93 annual compensation limit will be multiplied by a fraction, the
numerator of which is the number of months in the determination period, and the
denominator of which is 12.
For Plan Years beginning on or after January 1, 1994, any
reference in this Plan to the limitation under Code Section 401(a)(17) shall
mean the OBRA '93 annual compensation limit set forth in this provision.
If Compensation for any prior determination period is taken
into account in determining an Employee's benefits accruing in the current Plan
Year, the Compensation for that prior determination period is subject to the
OBRA '93 annual compensation limit in effect for that prior determination
period. For this purpose, for determination periods beginning before the first
day of the first Plan Year beginning on or after January 1, 1994, the OBRA '93
annual compensation limit is $150,000.
If, as a result of such rules, the maximum "annual addition"
limit of Section 4.4(a) would be exceeded for one or more of the affected
Family Members, the prorated Compensation of all affected Family Members shall
be adjusted to avoid or reduce any excess. The prorated Compensation of any
affected Family Member whose allocation would exceed the limit shall be
adjusted downward to the level needed to provide an allocation equal to such
limit. The prorated Compensation of affected Family Members not affected by
such limit shall then be adjusted upward on a pro rata basis not to exceed each
such affected Family Member's Compensation as determined prior to application
of the Family Member rule. The resulting allocation shall not exceed such
individual's maximum "annual addition" limit. If, after these adjustments, an
"excess amount" still results, such "excess amount" shall be disposed of in the
manner described in Section 4.5(a) pro rata among all affected Family Members.
For purposes of this Section, if the Plan is a plan described
in Code Section 413(c) or 414(f) (a plan maintained by more than one Employer),
the $200,000 limitation applies separately with respect to the Compensation of
any Participant from each Employer maintaining the Plan.
I.11 "Contract" or "Policy" means any life insurance policy, retirement
income or annuity policy, or annuity contract (group or individual) issued
pursuant to the terms of the Plan.
I.12 "Current Obligations" means Trust obligations arising from extension
of credit to the Trust and payable in cash within (1) year from the date an
Employer contribution is due.
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I.13 "Early Retirement Date" means the first day of the month (prior to the
Normal Retirement Date) coinciding with or following the date on which a
Participant or Former Participant attains age 55 and has completed at least 7
Years of Service with the Employer (Early Retirement Age). A Participant shall
become fully Vested upon satisfying this requirement if still employed at his
Early Retirement Age.
A Former Participant who terminates employment after
satisfying the service requirement for Early Retirement and who thereafter
reaches the age requirement contained herein shall be entitled to receive his
benefits under this Plan.
I.14 "Eligible Employee" means any Employee.
Employees whose employment is governed by the terms of a
collective bargaining agreement between Employee representatives (within the
meaning of Code Section 7701(a)(46)) and the Employer under which retirement
benefits were the subject of good faith bargaining between the parties will not
be eligible to participate in this Plan unless such agreement expressly
provides for coverage in this Plan or two percent or more of the Employees of
the Employer who are covered pursuant to that agreement are professionals as
defined in Regulation 1.410(b)-9.
Part-time "on call" Employees shall not be eligible to
participate in this Plan.
Temporary Employees shall not be eligible to participate in
this Plan.
Employees of Affiliated Employers shall not be eligible to
participate in this Plan unless such Affiliated Employers have specifically
adopted this Plan in writing.
I.15 "Employee" means any person who is employed by the Employer or
Affiliated Employer, but excludes any person who is an independent contractor.
Employee shall include Leased Employees within the meaning of Code Sections
414(n)(2) and 414(o)(2) unless such Leased Employees are covered by a plan
described in Code Section 414(n)(5) and such Leased Employees do not constitute
more than 20% of the recipient's non-highly compensated work force.
I.16 "Employer" means Central Coast Bancorp and any Participating Employer
(as defined in Section 11.1) which shall adopt this Plan; any successor which
shall maintain this Plan; and any predecessor which has maintained this Plan.
The Employer is a corporation with principal offices in the State of
California.
I.17 "ESOP" means an employee stock ownership plan that meets the
requirements of Code Section 4975(e)(7) and Regulation 54.4975-11.
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I.18 "Exempt Loan" means a loan made to the Plan by a disqualified person
or a loan to the Plan which is guaranteed by a disqualified person and which
satisfies the requirements of Section 2550.408b-3 of the Department of Labor
Regulations, Section 54.4975-7(b) of the Treasury Regulations and Section 5.4
hereof.
I.19 "Family Member" means, with respect to an affected Participant, such
Participant's spouse and such Participant's lineal descendants and ascendants
and their spouses, all as described in Code Section 414(q)(6)(B).
I.20 "Fiduciary" means any person who (a) exercises any discretionary
authority or discretionary control respecting management of the Plan or
exercises any authority or control respecting management or disposition of its
assets, (b) renders investment advice for a fee or other compensation, direct
or indirect, with respect to any monies or other property of the Plan or has
any authority or responsibility to do so, or (c) has any discretionary
authority or discretionary responsibility in the administration of the Plan,
including, but not limited to, the Trustee, the Employer and its representative
body, and the Administrator.
I.21 "Fiscal Year" means the Employer's accounting year of 12 months
commencing on January 1st of each year and ending the following December 31st.
I.22 "Forfeiture" means that portion of a Participant's Account that is not
Vested, and occurs on the earlier of:
(a) the distribution of the entire Vested portion
of a Terminated Participant's Account, or
(b) the last day of the Plan Year in which the
Participant incurs five (5) consecutive 1-Year Breaks in Service.
Furthermore, for purposes of paragraph (a) above, in the case
of a Terminated Participant whose Vested benefit is zero, such Terminated
Participant shall be deemed to have received a distribution of his Vested
benefit upon his termination of employment. Restoration of such amounts shall
occur pursuant to Section 7.4(f)(2). In addition, the term Forfeiture shall
also include amounts deemed to be Forfeitures pursuant to any other provision
of this Plan.
I.23 "Former Participant" means a person who has been a Participant, but
who has ceased to be a Participant for any reason.
I.24 "415 Compensation" with respect to any Participant means such
Participant's wages, salaries, fees for professional services and other amounts
received (without regard to whether or not an amount is paid in cash) for
personal services actually rendered in the course
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of employment with the Employer maintaining the Plan to the extent that the
amounts are includible in gross income (including, but not limited to,
commissions paid salesmen, compensation for services on the basis of a
percentage of profits, commissions on insurance premiums, tips, bonuses, fringe
benefits, and reimbursements or other expense allowances under a nonaccountable
plan (as described in Regulation 1.62-2(c)) for a Plan Year.
"415 Compensation" shall exclude (a)(1) contributions made by
the Employer to a plan of deferred compensation to the extent that, the
contributions are not includible in the gross income of the Participant for the
taxable year in which contributed, (2) Employer contributions made on behalf of
an Employee to a simplified employee pension plan described in Code Section
408(k) to the extent such contributions are excludable from the Employee's
gross income, (3) any distributions from a plan of deferred compensation; (b)
amounts realized from the exercise of a non-qualified stock option, or when
restricted stock (or property) held by an Employee either becomes freely
transferable or is no longer subject to a substantial risk of forfeiture; (c)
amounts realized from the sale, exchange or other disposition of stock acquired
under a qualified stock option; and (d) other amounts which receive special tax
benefits, or contributions made by the Employer (whether or not under a salary
reduction agreement) towards the purchase of any annuity contract described in
Code Section 403(b) (whether or not the contributions are actually excludable
from the gross income of the Employee).
I.25 "Highly Compensated Employee" means an Employee described in Code
Section 414(q) and the Regulations thereunder, and generally means an Employee
who performed services for the Employer during the "determination year" and is
in one or more of the following groups:
(a) Employees who at any time during the
"determination year" or "look-back year" were "five percent owners" as defined
in Section 1.30(c).
(b) Employees who received "415 Compensation"
during the "look-back year" from the Employer in excess of $75,000.
(c) Employees who received "415 Compensation"
during the "look-back year" from the Employer in excess of $50,000 and were in
the Top Paid Group of Employees for the Plan Year.
(d) Employees who during the "look-back year"
were officers of the Employer (as that term is defined within the meaning of
the Regulations under Code Section 416) and received "415 Compensation" during
the "look-back year" from the Employer greater than 50 percent of the limit in
effect under Code Section 415(b)(1)(A) for any such Plan Year. The number of
officers shall be limited to the lesser of (i) 50 employees; or (ii) the
greater of 3 employees or 10 percent of all employees. For the purpose of
determining the number of officers, Employees described in Section 1.50(a),
(b), (c) and (d) shall be excluded, but such Employees shall still be
considered for the purpose of identifying the particular Employees who are
officers. If the Employer does not have at least one officer whose annual "415
Compensation" is in excess of 50 percent of the Code Section 415(b)(1)(A)
limit, then the highest paid officer of the Employer will be treated as a
Highly Compensated Employee.
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(e) Employees who are in the group consisting of
the 100 Employees paid the greatest "415 Compensation" during the
"determination year" and are also described in (b), (c) or (d) above when these
paragraphs are modified to substitute "determination year" for "look-back
year."
The "determination year" shall be the Plan Year for which
testing is being performed, and the "look-back year" shall be the immediately
preceding twelve-month period.
For purposes of this Section, the determination of "415
Compensation" shall be made by including amounts which are contributed by the
Employer pursuant to a salary reduction agreement and which are not includible
in the gross income of the Participant under Code Sections 125, 402(e)(3),
402(h)(1)(B), 403(b) or 457, and Employee contributions described in Code
Section 414(h)(2) that are treated as Employer contributions. Additionally, the
dollar threshold amounts specified in (b) and (c) above shall be adjusted at
such time and in such manner as is provided in Regulations. In the case of such
an adjustment, the dollar limits which shall be applied are those for the
calendar year in which the "determination year" or "look-back year" begins.
In determining who is a Highly Compensated Employee, Employees
who are non-resident aliens and who received no earned income (within the
meaning of Code Section 911(d)(2)) from the Employer constituting United States
source income within the meaning of Code Section 861(a)(3) shall not be treated
as Employees. Additionally, all Affiliated Employers shall be taken into
account as a single employer and Leased Employees within the meaning of Code
Sections 414(n)(2) and 414(o)(2) shall be considered Employees unless such
Leased Employees are covered by a plan described in Code Section 414(n)(5) and
are not covered in any qualified plan maintained by the Employer. The exclusion
of Leased Employees for this purpose shall be applied on a uniform and
consistent basis for all of the Employer's retirement plans. Highly Compensated
Former Employees shall be treated as Highly Compensated Employees without
regard to whether they performed services during the "determination year."
I.26 "Highly Compensated Former Employee" means a former Employee who had a
separation year prior to the "determination year" and was a Highly Compensated
Employee in the year of separation from service or in any "determination year"
after attaining age 55. Notwithstanding the foregoing, an Employee who
separated from service prior to 1987 will be treated as a Highly Compensated
Former Employee only if during the separation year (or year preceding the
separation year) or any year after the Employee attains age 55 (or the last
year ending before the Employee's 55th birthday), the Employee either received
"415 Compensation" in excess of $50,000 or was a "five percent owner." For
purposes of this Section, "determination year," "415 Compensation" and "five
percent owner" shall be determined in accordance with Section 1.25. Highly
Compensated Former Employees shall be treated as Highly Compensated Employees.
The method set forth in this Section for determining who is a "Highly
Compensated Former Employee" shall be applied on a uniform and consistent basis
for all purposes for which the Code Section 414(q) definition is applicable.
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I.27 "Highly Compensated Participant" means any Highly Compensated Employee
who is eligible to participate in the Plan.
I.28 "Hour of Service" means (1) each hour for which an Employee is
directly or indirectly compensated or entitled to compensation by the Employer
for the performance of duties during the applicable computation period; (2)
each hour for which an Employee is directly or indirectly compensated or
entitled to compensation by the Employer (irrespective of whether the
employment relationship has terminated) for reasons other than performance of
duties (such as vacation, holidays, sickness, jury duty, disability, lay-off,
military duty or leave of absence) during the applicable computation period;
(3) each hour for which back pay is awarded or agreed to by the Employer
without regard to mitigation of damages. These hours will be credited to the
Employee for the computation period or periods to which the award or agreement
pertains rather than the computation period in which the award, agreement or
payment is made. The same Hours of Service shall not be credited both under (1)
or (2), as the case may be, and under (3).
Notwithstanding the above, (i) no more than 501 Hours of
Service are required to be credited to an Employee on account of any single
continuous period during which the Employee performs no duties (whether or not
such period occurs in a single computation period); (ii) an hour for which an
Employee is directly or indirectly paid, or entitled to payment, on account of
a period during which no duties are performed is not required to be credited to
the Employee if such payment is made or due under a plan maintained solely for
the purpose of complying with applicable worker's compensation, or unemployment
compensation or disability insurance laws; and (iii) Hours of Service are not
required to be credited for a payment which solely reimburses an Employee for
medical or medically related expenses incurred by the Employee.
For purposes of this Section, a payment shall be deemed to be
made by or due from the Employer regardless of whether such payment is made by
or due from the Employer directly, or indirectly through, among others, a trust
fund, or insurer, to which the Employer contributes or pays premiums and
regardless of whether contributions made or due to the trust fund, insurer, or
other entity are for the benefit of particular Employees or are on behalf of a
group of Employees in the aggregate.
An Hour of Service must be counted for the purpose of
determining a Year of Service, a year of participation for purposes of accrued
benefits, a 1-Year Break in Service, and employment commencement date (or
reemployment commencement date). In addition, Hours of Service will be credited
for employment with other Affiliated Employers. The provisions of Department of
Labor regulations 2530.200b-2(b) and (c) are incorporated herein by reference.
I.29 "Investment Manager" means an entity that (a) has the power to manage,
acquire, or dispose of Plan assets and (b) acknowledges fiduciary
responsibility to the Plan in writing. Such entity must be a person, firm, or
corporation registered as an investment adviser under the Investment Advisers
Act of 1940, a bank, or an insurance company.
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I.30 "Key Employee" means an Employee as defined in Code Section 416(i) and
the Regulations thereunder. Generally, any Employee or former Employee (as well
as each of his Beneficiaries) is considered a Key Employee if he, at any time
during the Plan Year that contains the "Determination Date" or any of the
preceding four (4) Plan Years, has been included in one of the following
categories:
(a) an officer of the Employer (as that term is defined within the meaning
of the Regulations under Code Section 416) having annual "415 Compensation"
greater than 50 percent of the amount in effect under Code Section 415(b)(1)(A)
for any such Plan Year.
(b) one of the ten employees having annual "415 Compensation" from the
Employer for a Plan Year greater than the dollar limitation in effect under
Code Section 415(c)(1)(A) for the calendar year in which such Plan Year ends
and owning (or considered as owning within the meaning of Code Section 318)
both more than one-half percent interest and the largest interests in the
Employer.
(c) a "five percent owner" of the Employer. "Five percent owner" means any
person who owns (or is considered as owning within the meaning of Code Section
318) more than five percent (5%) of the outstanding stock of the Employer or
stock possessing more than five percent (5%) of the total combined voting power
of all stock of the Employer or, in the case of an unincorporated business, any
person who owns more than five percent (5%) of the capital or profits interest
in the Employer. In determining percentage ownership hereunder, employers that
would otherwise be aggregated under Code Sections 414(b), (c), (m) and (o)
shall be treated as separate employers.
(d) a "one percent owner" of the Employer having
an annual "415 Compensation" from the Employer of more than $150,000. "One
percent owner" means any person who owns (or is considered as owning within the
meaning of Code Section 318) more than one percent (1%) of the outstanding
stock of the Employer or stock possessing more than one percent (1%) of the
total combined voting power of all stock of the Employer or, in the case of an
unincorporated business, any person who owns more than one percent (1%) of the
capital or profits interest in the Employer. In determining percentage
ownership hereunder, employers that would otherwise be aggregated under Code
Sections 414(b), (c), (m) and (o) shall be treated as separate employers.
However, in determining whether an individual has "415 Compensation" of more
than $150,000, "415 Compensation" from each employer required to be aggregated
under Code Sections 414(b), (c), (m) and (o) shall be taken into account.
For purposes of this Section, the determination of "415
Compensation" shall be made by including amounts which are contributed by the
Employer pursuant to a salary reduction agreement and which are not includible
in the gross income of the Participant under Code Sections 125, 402(e)(3),
402(h)(1)(B), 403(b) or 457, and Employee contributions described in Code
Section 414(h)(2) that are treated as Employer contributions.
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I.31 "Late Retirement Date" means the first day of the month coinciding
with or next following a Participant's actual Retirement Date after having
reached his Normal Retirement Date.
I.32 "Leased Employee" means any person (other than an Employee of the
recipient) who pursuant to an agreement between the recipient and any other
person ("leasing organization") has performed services for the recipient (or
for the recipient and related persons determined in accordance with Code
Section 414(n)(6)) on a substantially full time basis for a period of at least
one year, and such services are of a type historically performed by employees
in the business field of the recipient employer. Contributions or benefits
provided a Leased Employee by the leasing organization which are attributable
to services performed for the recipient employer shall be treated as provided
by the recipient employer. A Leased Employee shall not be considered an
Employee of the recipient:
(a) if such employee is covered by a money
purchase pension plan providing:
(1) a non-integrated employer contribution rate
of at least 10% of compensation, as defined in Code Section 415(c)(3), but
including amounts which are contributed by the Employer pursuant to a salary
reduction agreement and which are not includible in the gross income of the
Participant under Code Sections 125, 402(e)(3), 402(h)(1)(B), 403(b) or 457,
and Employee contributions described in Code Section 414(h)(2) that are treated
as Employer contributions.
(2) immediate participation; and
(3) full and immediate vesting; and
(b) if Leased Employees do not constitute more
than 20% of the recipient's non-highly compensated work force.
I.33 "Non-Highly Compensated Participant" means any Participant who is
neither a Highly Compensated Employee nor a Family Member.
I.34 "Non-Key Employee" means any Employee or former Employee (and his
Beneficiaries) who is not a Key Employee.
I.35 "Normal Retirement Age" means the Participant's 65th birthday, or his
5th anniversary of joining the Plan, if later. A Participant shall become fully
Vested in his Participant's Account upon attaining his Normal Retirement Age.
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I.36 "Normal Retirement Date" means the first day of the month coinciding
with or next following the Participant's Normal Retirement Age.
I.37 "1-Year Break in Service" means the applicable computation period
during which an Employee has not completed more than 500 Hours of Service with
the Employer. Further, solely for the purpose of determining whether a
Participant has incurred a 1-Year Break in Service, Hours of Service shall be
recognized for "authorized leaves of absence" and "maternity and paternity
leaves of absence." Years of Service and 1-Year Breaks in Service shall be
measured on the same computation period.
"Authorized leave of absence" means an unpaid, temporary
cessation from active employment with the Employer pursuant to an established
nondiscriminatory policy, whether occasioned by illness, military service, or
any other reason.
A "maternity or paternity leave of absence" means, for Plan
Years beginning after December 31, 1984, an absence from work for any period by
reason of the Employee's pregnancy, birth of the Employee's child, placement of
a child with the Employee in connection with the adoption of such child, or any
absence for the purpose of caring for such child for a period immediately
following such birth or placement. For this purpose, Hours of Service shall be
credited for the computation period in which the absence from work begins, only
if credit therefore is necessary to prevent the Employee from incurring a
1-Year Break in Service, or, in any other case, in the immediately following
computation period. The Hours of Service credited for a "maternity or paternity
leave of absence" shall be those which would normally have been credited but
for such absence, or, in any case in which the Administrator is unable to
determine such hours normally credited, eight (8) Hours of Service per day. The
total Hours of Service required to be credited for a "maternity or paternity
leave of absence" shall not exceed 501.
I.38 "Other Investments Account" means the account of a Participant which
is credited with his share of the net gain (or loss) of the Plan, Forfeitures
and Employer contributions in other than Company Stock and which is debited
with payments made to pay for Company Stock.
I.39 "Participant" means any Eligible Employee who participates in the Plan
as provided in Sections 3.2 and 3.3, and has not for any reason become
ineligible to participate further in the Plan.
I.40 "Participant's Account" means the account established and maintained
by the Administrator for each Participant with respect to his total interest in
the Plan and Trust resulting from the Employer's contributions.
I.41 "Plan" means this instrument, including all amendments thereto.
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I.42 "Plan Year" means the Plan's accounting year of twelve (12) months
commencing on January 1st of each year and ending the following December 31st.
I.43 "Regulation" means the Income Tax Regulations as promulgated by the
Secretary of the Treasury or his delegate, and as amended from time to time.
I.44 "Retired Participant" means a person who has been a Participant, but
who has become entitled to retirement benefits under the Plan.
I.45 "Retirement Date" means the date as of which a Participant retires for
reasons other than Total and Permanent Disability, whether such retirement
occurs on a Participant's Normal Retirement Date, Early or Late Retirement Date
(see Section 7.1).
I.46 "Super Top Heavy Plan" means a plan described in Section 2.2(b).
I.47 "Terminated Participant" means a person who has been a Participant,
but whose employment has been terminated other than by death, Total and
Permanent Disability or retirement.
I.48 "Top Heavy Plan" means a plan described in Section 2.2(a).
I.49 "Top Heavy Plan Year" means a Plan Year during which the Plan is a Top
Heavy Plan.
I.50 "Top Paid Group" means the top 20 percent of Employees who performed
services for the Employer during the applicable year, ranked according to the
amount of "415 Compensation" (determined for this purpose in accordance with
Section 1.25) received from the Employer during such year. All Affiliated
Employers shall be taken into account as a single employer, and Leased
Employees within the meaning of Code Sections 414(n)(2) and 414(o)(2) shall be
considered Employees unless such Leased Employees are covered by a plan
described in Code Section 414(n)(5) and are not covered in any qualified plan
maintained by the Employer. Employees who are non-resident aliens and who
received no earned income (within the meaning of Code Section 911(d)(2)) from
the Employer constituting United States source income within the meaning of
Code Section 861(a)(3) shall not be treated as Employees. Additionally, for the
purpose of determining the number of active Employees in any year, the
following additional Employees shall also be excluded; however, such Employees
shall still be considered for the purpose of identifying the particular
Employees in the Top Paid Group:
(a) Employees with less than six (6) months of
service;
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(b) Employees who normally work less than 17 1/2
hours per week;
(c) Employees who normally work less than six (6)
months during a year; and
(d) Employees who have not yet attained age 21.
In addition, if 90 percent or more of the Employees of the
Employer are covered under agreements the Secretary of Labor finds to be
collective bargaining agreements between Employee representatives and the
Employer, and the Plan covers only Employees who are not covered under such
agreements, then Employees covered by such agreements shall be excluded from
both the total number of active Employees as well as from the identification of
particular Employees in the Top Paid Group.
The foregoing exclusions set forth in this Section shall be
applied on a uniform and consistent basis for all purposes for which the Code
Section 414(q) definition is applicable.
I.51 "Total and Permanent Disability" means a physical or mental condition
of a Participant resulting from bodily injury, disease, or mental disorder
which renders him incapable of continuing his usual and customary employment
with the Employer. The disability of a Participant shall be determined by a
licensed physician chosen by the Administrator. The determination shall be
applied uniformly to all Participants.
I.52 "Trustee" means the person or entity named as trustee herein or in any
separate trust forming a part of this Plan, and any successors.
I.53 "Trust Fund" means the assets of the Plan and Trust as the same shall
exist from time to time.
I.54 "Unallocated Company Stock Suspense Account" means an account
containing Company Stock acquired with the proceeds of an Exempt Loan and which
has not been released from such account and allocated to the Participants'
Company Stock Accounts.
I.55 "Vested" means the nonforfeitable portion of any account maintained on
behalf of a Participant.
I.56 "Year of Service" means the computation period of twelve (12)
consecutive months, herein set forth, during which an Employee has at least
1000 Hours of Service.
For purposes of eligibility for participation, the initial
computation period shall begin with the date on which the Employee first
performs an Hour of Service. The participation computation period beginning
after a 1-Year Break in Service shall be measured from the date on
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which an Employee again performs an Hour of Service. The participation
computation period shall shift to the Plan Year which includes the anniversary
of the date on which the Employee first performed an Hour of Service. An
Employee who is credited with the required Hours of Service in both the initial
computation period (or the computation period beginning after a 1-Year Break in
Service) and the Plan Year which includes the anniversary of the date on which
the Employee first performed an Hour of Service, shall be credited with two (2)
Years of Service for purposes of eligibility to participate.
For vesting purposes, the computation period shall be the Plan
Year.
For all other purposes, the computation period shall be the
Plan Year.
Notwithstanding the foregoing, for any short Plan Year, the
determination of whether an Employee has completed a Year of Service shall be
made in accordance with Department of Labor regulation 2530.203-2(c). However,
in determining whether an Employee has completed a Year of Service for benefit
accrual purposes in the short Plan Year, the number of the Hours of Service
required shall be proportionately reduced based on the number of full months in
the short Plan Year.
Years of Service with Cypress Coast Bank and Bank of Salinas shall be
recognized.
Years of Service with any Affiliated Employer shall be
recognized.
ARTICLE II
TOP HEAVY AND ADMINISTRATION
II.1 TOP HEAVY PLAN REQUIREMENTS
For any Top Heavy Plan Year, the Plan shall provide the
special vesting requirements of Code Section 416(b) pursuant to Section 7.4 of
the Plan and the special minimum allocation requirements of Code Section 416(c)
pursuant to Section 4.3 of the Plan.
II.2 DETERMINATION OF TOP HEAVY STATUS
(a) This Plan shall be a Top Heavy Plan for any
Plan Year in which, as of the Determination Date, (1) the Present Value of
Accrued Benefits of Key Employees and (2) the sum of the Aggregate Accounts of
Key Employees under this Plan and all plans of an Aggregation Group, exceeds
sixty percent (60%) of the Present Value of Accrued Benefits and the Aggregate
Accounts of all Key and Non-Key Employees under this Plan and all plans of an
Aggregation Group.
If any Participant is a Non-Key Employee for
any Plan Year, but such Participant was a Key Employee for any
prior Plan Year, such Participant's Present Value of Accrued
Benefit and/or Aggregate Account balance shall not be taken
into account for purposes of determining whether this Plan is
a Top
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Heavy or Super Top Heavy Plan (or whether any Aggregation
Group which includes this Plan is a Top Heavy Group). In
addition, if a Participant or Former Participant has not
performed any services for any Employer maintaining the Plan
at any time during the five year period ending on the
Determination Date, any accrued benefit for such Participant
or Former Participant shall not be taken into account for the
purposes of determining whether this Plan is a Top Heavy or
Super Top Heavy Plan.
(b) This Plan shall be a Super Top Heavy Plan
for any Plan Year in which, as of the Determination Date, (1) the Present Value
of Accrued Benefits of Key Employees and (2) the sum of the Aggregate Accounts
of Key Employees under this Plan and all plans of an Aggregation Group, exceeds
ninety percent (90%) of the Present Value of Accrued Benefits and the Aggregate
Accounts of all Key and Non-Key Employees under this Plan and all plans of an
Aggregation Group.
(c) Aggregate Account: A Participant's Aggregate
Account as of the Determination Date is the sum of:
(1) his Participant's Account balance as of the
most recent valuation occurring within a twelve (12) month period ending on the
Determination Date;
(2) an adjustment for any contributions due as
of the Determination Date. Such adjustment shall be the amount of any
contributions actually made after the valuation date but due on or before the
Determination Date, except for the first Plan Year when such adjustment shall
also reflect the amount of any contributions made after the Determination Date
that are allocated as of a date in that first Plan Year.
(3) any Plan distributions made within the Plan
Year that includes the Determination Date or within the four (4) preceding Plan
Years. However, in the case of distributions made after the valuation date and
prior to the Determination Date, such distributions are not included as
distributions for top heavy purposes to the extent that such distributions are
already included in the Participant's Aggregate Account balance as of the
valuation date. Notwithstanding anything herein to the contrary, all
distributions, including distributions made prior to January 1, 1984, and
distributions under a terminated plan which if it had not been terminated would
have been required to be included in an Aggregation Group, will be counted.
Further, distributions from the Plan (including the cash value of life
insurance policies) of a Participant's account balance because of death shall
be treated as a distribution for the purposes of this paragraph.
(4) any Employee contributions, whether
voluntary or mandatory. However, amounts attributable to tax deductible
qualified voluntary employee contributions shall not be considered to be a part
of the Participant's Aggregate Account balance.
(5) with respect to unrelated rollovers and
plan-to-plan transfers (ones which are both initiated by the Employee and made
from a plan maintained by one employer to a plan maintained by another
employer), if this Plan provides the rollovers or plan-to-plan transfers, it
shall always consider such rollovers or plan-to-plan transfers as a
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distribution for the purposes of this Section. If this Plan is the plan
accepting such rollovers or plan-to-plan transfers, it shall not consider such
rollovers or plan-to-plan transfers as part of the Participant's Aggregate
Account balance.
(6) with respect to related rollovers and
plan-to-plan transfers (ones either not initiated by the Employee or made to a
plan maintained by the same employer), if this Plan provides the rollover or
plan-to-plan transfer, it shall not be counted as a distribution for purposes
of this Section. If this Plan is the plan accepting such rollover or
plan-to-plan transfer, it shall consider such rollover or plan-to-plan transfer
as part of the Participant's Aggregate Account balance, irrespective of the
date on which such rollover or plan-to-plan transfer is accepted.
(7) For the purposes of determining whether two
employers are to be treated as the same employer in (5) and (6) above, all
employers aggregated under Code Section 414(b), (c), (m) and (o) are treated as
the same employer.
(d) "Aggregation Group" means either a Required
Aggregation Group or a Permissive Aggregation Group as hereinafter determined.
(1) Required Aggregation Group: In determining a Required Aggregation
Group hereunder, each plan of the Employer in which a Key Employee is a
participant in the Plan Year containing the Determination Date or any of the
four preceding Plan Years, and each other plan of the Employer which enables
any plan in which a Key Employee participates to meet the requirements of Code
Sections 401(a)(4) or 410, will be required to be aggregated. Such group shall
be known as a Required Aggregation Group.
In the case of a Required Aggregation Group, each
plan in the group will be considered a Top Heavy
Plan if the Required Aggregation Group is a Top
Heavy Group. No plan in the Required Aggregation
Group will be considered a Top Heavy Plan if the
Required Aggregation Group is not a Top Heavy Group.
(2) Permissive Aggregation Group: The Employer
may also include any other plan not required to be included in the Required
Aggregation Group, provided the resulting group, taken as a whole, would
continue to satisfy the provisions of Code Sections 401(a)(4) and 410. Such
group shall be known as a Permissive Aggregation Group.
In the case of a Permissive Aggregation Group, only
a plan that is part of the Required Aggregation
Group will be considered a Top Heavy Plan if the
Permissive Aggregation Group is a Top Heavy Group.
No plan in the Permissive Aggregation Group will be
considered a Top Heavy Plan if the Permissive
Aggregation Group is not a Top Heavy Group.
(3) Only those plans of the Employer in which
the Determination Dates fall within the same calendar year shall be aggregated
in order to determine whether such plans are Top Heavy Plans.
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(4) An Aggregation Group shall include any
terminated plan of the Employer if it was maintained within the last five (5)
years ending on the Determination Date.
(e) "Determination Date" means (a) the last day
of the preceding Plan Year, or (b) in the case of the first Plan Year, the last
day of such Plan Year.
(f) Present Value of Accrued Benefit: In the
case of a defined benefit plan, the Present Value of Accrued Benefit for a
Participant other than a Key Employee, shall be as determined using the single
accrual method used for all plans of the Employer and Affiliated Employers, or
if no such single method exists, using a method which results in benefits
accruing not more rapidly than the slowest accrual rate permitted under Code
Section 411(b)(1)(C). The determination of the Present Value of Accrued Benefit
shall be determined as of the most recent valuation date that falls within or
ends with the 12-month period ending on the Determination Date except as
provided in Code Section 416 and the Regulations thereunder for the first and
second plan years of a defined benefit plan.
(g) "Top Heavy Group" means an Aggregation Group in which, as of the
Determination Date, the sum of:
(1) the Present Value of Accrued Benefits of
Key Employees under all defined benefit plans included in the group, and
(2) the Aggregate Accounts of Key Employees under all defined contribution
plans included in the group,
exceeds sixty percent (60%) of a similar sum determined for all Participants.
II.3 POWERS AND RESPONSIBILITIES OF THE EMPLOYER
(a) The Employer shall be empowered to appoint and remove the Trustee and
the Administrator from time to time as it deems necessary for the proper
administration of the Plan to assure that the Plan is being operated for the
exclusive benefit of the Participants and their Beneficiaries in accordance
with the terms of the Plan, the Code, and the Act.
(b) The Employer shall establish a "funding policy and method," i.e., it
shall determine whether the Plan has a short run need for liquidity (e.g., to
pay benefits) or whether liquidity is a long run goal and investment growth
(and stability of same) is a more current need, or shall appoint a qualified
person to do so. The Employer or its delegate shall communicate such needs and
goals to the Trustee, who shall coordinate such Plan needs with its investment
policy. The communication of such a "funding policy and method" shall not,
however, constitute a directive to the Trustee as to investment of the Trust
Funds. Such "funding policy and method" shall be consistent with the objectives
of this Plan and with the requirements of Title I of the Act.
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(c) The Employer shall periodically review the performance of any
Fiduciary or other person to whom duties have been delegated or allocated by it
under the provisions of this Plan or pursuant to procedures established
hereunder. This requirement may be satisfied by formal periodic review by the
Employer or by a qualified person specifically designated by the Employer,
through day-to-day conduct and evaluation, or through other appropriate ways.
(d) The Employer will furnish Plan Fiduciaries and Participants with
notices and information statements when voting rights must be exercised
pursuant to Section 8.4.
II.4 DESIGNATION OF ADMINISTRATIVE AUTHORITY
The Employer shall appoint one or more Administrators. Any
person, including, but not limited to, the Employees of the Employer, shall be
eligible to serve as an Administrator. Any person so appointed shall signify
his acceptance by filing written acceptance with the Employer. An Administrator
may resign by delivering his written resignation to the Employer or be removed
by the Employer by delivery of written notice of removal, to take effect at a
date specified therein, or upon delivery to the Administrator if no date is
specified.
The Employer, upon the resignation or removal of an
Administrator, shall promptly designate in writing a successor to this
position. If the Employer does not appoint an Administrator, the Employer will
function as the Administrator.
II.5 ALLOCATION AND DELEGATION OF RESPONSIBILITIES
If more than one person is appointed as Administrator, the
responsibilities of each Administrator may be specified by the Employer and
accepted in writing by each Administrator. In the event that no such delegation
is made by the Employer, the Administrators may allocate the responsibilities
among themselves, in which event the Administrators shall notify the Employer
and the Trustee in writing of such action and specify the responsibilities of
each Administrator. The Trustee thereafter shall accept and rely upon any
documents executed by the appropriate Administrator until such time as the
Employer or the Administrators file with the Trustee a written revocation of
such designation.
II.6 POWERS AND DUTIES OF THE ADMINISTRATOR
The primary responsibility of the Administrator is to
administer the Plan for the exclusive benefit of the Participants and their
Beneficiaries, subject to the specific terms of the Plan. The Administrator
shall administer the Plan in accordance with its terms and shall have the power
and discretion to construe the terms of the Plan and to determine all questions
arising in connection with the administration, interpretation, and application
of the Plan. Any such determination by the Administrator shall be conclusive
and binding upon all persons. The Administrator may establish procedures,
correct any defect, supply any information, or reconcile any inconsistency in
such manner and to such extent as shall be deemed necessary or advisable to
carry out the purpose of the Plan; provided, however, that any procedure,
discretionary act, interpretation or construction shall be done in a
nondiscriminatory manner based upon uniform principles consistently applied and
shall be consistent with the intent that the Plan shall continue
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to be deemed a qualified plan under the terms of Code Section 401(a), and shall
comply with the terms of the Act and all regulations issued pursuant thereto.
The Administrator shall have all powers necessary or appropriate to accomplish
his duties under this Plan.
The Administrator shall be charged with the duties of the
general administration of the Plan, including, but not limited to, the
following:
(a) the discretion to determine all questions relating to the eligibility
of Employees to participate or remain a Participant hereunder and to receive
benefits under the Plan;
(b) to compute, certify, and direct the Trustee with respect to the amount
and the kind of benefits to which any Participant shall be entitled hereunder;
(c) to authorize and direct the Trustee with respect to all
nondiscretionary or otherwise directed disbursements from the Trust;
(d) to maintain all necessary records for the administration of the Plan;
(e) to interpret the provisions of the Plan and to make and publish such
rules for regulation of the Plan as are consistent with the terms hereof;
(f) to determine the size and type of any Contract to be purchased from
any insurer, and to designate the insurer from which such Contract shall be
purchased;
(g) to compute and certify to the Employer and to the Trustee from time to
time the sums of money necessary or desirable to be contributed to the Plan;
(h) to consult with the Employer and the Trustee regarding the short and
long-term liquidity needs of the Plan in order that the Trustee can exercise
any investment discretion in a manner designed to accomplish specific
objectives;
(i) to establish and communicate to Participants a procedure for allowing
each Participant to direct the Trustee as to the distribution of his Company
Stock Account pursuant to Section 4.7;
(j) to establish and communicate to Participants a procedure and method to
insure that each Participant will vote Company Stock allocated to such
Participant's Company Stock Account pursuant to Section 8.4;
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(k) to assist any Participant regarding his rights, benefits, or elections
available under the Plan.
II.7 RECORDS AND REPORTS
The Administrator shall keep a record of all actions taken
and shall keep all other books of account, records, and other data that may be
necessary for proper administration of the Plan and shall be responsible for
supplying all information and reports to the Internal Revenue Service,
Department of Labor, Participants, Beneficiaries and others as required by law.
II.8 APPOINTMENT OF ADVISERS
The Administrator, or the Trustee with the consent of the
Administrator, may appoint counsel, specialists, advisers, and other persons as
the Administrator or the Trustee deems necessary or desirable in connection
with the administration of this Plan.
II.9 INFORMATION FROM EMPLOYER
To enable the Administrator to perform his functions, the
Employer shall supply full and timely information to the Administrator on all
matters relating to the Compensation of all Participants, their Hours of
Service, their Years of Service, their retirement, death, disability, or
termination of employment, and such other pertinent facts as the Administrator
may require; and the Administrator shall advise the Trustee of such of the
foregoing facts as may be pertinent to the Trustee's duties under the Plan. The
Administrator may rely upon such information as is supplied by the Employer and
shall have no duty or responsibility to verify such information.
II.10 PAYMENT OF EXPENSES
All expenses of administration may be paid out of the Trust
Fund unless paid by the Employer. Such expenses shall include any expenses
incident to the functioning of the Administrator, including, but not limited
to, fees of accountants, counsel, and other specialists and their agents, and
other costs of administering the Plan. Until paid, the expenses shall
constitute a liability of the Trust Fund.
II.11 MAJORITY ACTIONS
Except where there has been an allocation and delegation of
administrative authority pursuant to Section 2.5, if there shall be more than
one Administrator, they shall act by a majority of their number, but may
authorize one or more of them to sign all papers on their behalf.
II.12 CLAIMS PROCEDURE
Claims for benefits under the Plan may be filed in writing
with the Administrator. Written notice of the disposition of a claim shall be
furnished to the claimant within 90 days after the application is filed. In the
event the claim is denied, the reasons for the
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denial shall be specifically set forth in the notice in language calculated to
be understood by the claimant, pertinent provisions of the Plan shall be cited,
and, where appropriate, an explanation as to how the claimant can perfect the
claim will be provided. In addition, the claimant shall be furnished with an
explanation of the Plan's claims review procedure.
II.13 CLAIMS REVIEW PROCEDURE
Any Employee, former Employee, or Beneficiary of either, who
has been denied a benefit by a decision of the Administrator pursuant to
Section 2.12 shall be entitled to request the Administrator to give further
consideration to his claim by filing with the Administrator (on a form which
may be obtained from the Administrator) a request for a hearing. Such request,
together with a written statement of the reasons why the claimant believes his
claim should be allowed, shall be filed with the Administrator no later than 60
days after receipt of the written notification provided for in Section 2.12.
The Administrator shall then conduct a hearing within the next 60 days, at
which the claimant may be represented by an attorney or any other
representative of his choosing and at which the claimant shall have an
opportunity to submit written and oral evidence and arguments in support of his
claim. At the hearing (or prior thereto upon 5 business days written notice to
the Administrator) the claimant or his representative shall have an opportunity
to review all documents in the possession of the Administrator which are
pertinent to the claim at issue and its disallowance. Either the claimant or
the Administrator may cause a court reporter to attend the hearing and record
the proceedings. In such event, a complete written transcript of the
proceedings shall be furnished to both parties by the court reporter. The full
expense of any such court reporter and such transcripts shall be borne by the
party causing the court reporter to attend the hearing. A final decision as to
the allowance of the claim shall be made by the Administrator within 60 days of
receipt of the appeal (unless there has been an extension of 60 days due to
special circumstances, provided the delay and the special circumstances
occasioning it are communicated to the claimant within the 60 day period). Such
communication shall be written in a manner calculated to be understood by the
claimant and shall include specific reasons for the decision and specific
references to the pertinent Plan provisions on which the decision is based.
ARTICLE III
ELIGIBILITY
III.1 CONDITIONS OF ELIGIBILITY
Any Eligible Employee who has completed six (6) Months of
Service and has attained age 21 shall be eligible to participate hereunder as
of the date he has satisfied such requirements. The Employer shall give each
prospective Eligible Employee written notice of his eligibility to participate
in the Plan prior to the close of the Plan Year in which he first becomes an
Eligible Employee.
For purposes of this Section, an Eligible Employee will be
deemed to have completed six (6) Months of Service if he is in the employ of
the Employer at any time six (6) months after his employment commencement date.
Employment commencement date shall be the first day that he is entitled to be
credited with an Hour of Service for the performance of duty.
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III.2 APPLICATION FOR PARTICIPATION
In order to become a Participant hereunder, each Eligible
Employee shall make application to the Employer for participation in the Plan
and agree to the terms hereof. Upon the acceptance of any benefits under this
Plan, such Employee shall automatically be deemed to have made application and
shall be bound by the terms and conditions of the Plan and all amendments
hereto.
III.3 EFFECTIVE DATE OF PARTICIPATION
An Eligible Employee shall become a Participant effective as
of the earlier of the first day of the Plan Year or the first day of the
seventh month of such Plan Year coinciding with or next following the date such
Employee met the eligibility requirements of Section 3.1, provided said
Employee was still employed as of such date (or if not employed on such date,
as of the date of rehire if a 1-Year Break in Service has not occurred).
In the event an Employee who is not a member of an eligible
class of Employees becomes a member of an eligible class, such Employee will
participate immediately if such Employee has satisfied the minimum age and
service requirements and would have otherwise previously become a Participant.
III.4 DETERMINATION OF ELIGIBILITY
The Administrator shall determine the eligibility of each
Employee for participation in the Plan based upon information furnished by the
Employer. Such determination shall be conclusive and binding upon all persons,
as long as the same is made pursuant to the Plan and the Act. Such
determination shall be subject to review per Section 2.13.
III.5 TERMINATION OF ELIGIBILITY
(a) In the event a Participant shall go from a
classification of an Eligible Employee to an ineligible Employee, such Former
Participant shall continue to vest in his interest in the Plan for each Year of
Service completed while a noneligible Employee, until such time as his
Participant's Account shall be forfeited or distributed pursuant to the terms
of the Plan. Additionally, his interest in the Plan shall continue to share in
the earnings of the Trust Fund.
(b) In the event a Participant is no longer a
member of an eligible class of Employees and becomes ineligible to participate
but has not incurred a 1-Year Break in Service, such Employee will participate
immediately upon returning to an eligible class of Employees. If such
Participant incurs a 1-Year Break in Service, eligibility will be determined
under the break in service rules of the Plan.
III.6 OMISSION OF ELIGIBLE EMPLOYEE
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If, in any Plan Year, any Employee who should be included as
a Participant in the Plan is erroneously omitted and discovery of such omission
is not made until after a contribution by his Employer for the year has been
made, the Employer shall make a subsequent contribution with respect to the
omitted Employee in the amount which the said Employer would have contributed
with respect to him had he not been omitted. Such contribution shall be made
regardless of whether or not it is deductible in whole or in part in any
taxable year under applicable provisions of the Code.
III.7 INCLUSION OF INELIGIBLE EMPLOYEE
If, in any Plan Year, any person who should not have been
included as a Participant in the Plan is erroneously included and discovery of
such incorrect inclusion is not made until after a contribution for the year
has been made, the Employer shall not be entitled to recover the contribution
made with respect to the ineligible person regardless of whether or not a
deduction is allowable with respect to such contribution. In such event, the
amount contributed with respect to the ineligible person shall constitute a
Forfeiture for the Plan Year in which the discovery is made.
III.8 ELECTION NOT TO PARTICIPATE
An Employee may, subject to the approval of the Employer,
elect voluntarily not to participate in the Plan. The election not to
participate must be communicated to the Employer, in writing, at least thirty
(30) days before the beginning of a Plan Year.
ARTICLE IV
CONTRIBUTION AND ALLOCATION
IV.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION
(a) For each Plan Year, the Employer shall
contribute to the Plan such amount as shall be determined by the Employer.
(b) Notwithstanding the foregoing, however, the
Employer's contributions for any Plan Year shall not exceed the maximum amount
allowable as a deduction to the Employer under the provisions of Code Section
404. All contributions by the Employer shall be made in cash, Company Stock or
in such property as is acceptable to the Trustee.
(c) Except, however, to the extent necessary to
provide the top heavy minimum allocations, the Employer shall make a
contribution even if it exceeds the amount which is deductible under Code
Section 404.
IV.2 TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION
Employer contributions will be paid in cash, Company Stock
or other property as the Employer may from time to time determine. Company
Stock and other property will be valued at their then fair market value. The
Employer shall pay to the Trustee its contribution to
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the Plan for each Plan Year within the time prescribed by law, including
extensions of time, for the filing of the Employer's federal income tax return
for the Fiscal Year.
IV.3 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS
(a) The Administrator shall establish and
maintain an account in the name of each Participant to which the Administrator
shall credit as of each Anniversary Date all amounts allocated to each such
Participant as set forth herein.
(b) The Employer shall provide the
Administrator with all information required by the Administrator to make a
proper allocation of the Employer's contributions for each Plan Year. Within a
reasonable period of time after the date of receipt by the Administrator of
such information, the Administrator shall allocate such contribution to each
Participant's Account in the same proportion that each such Participant's
Compensation for the year bears to the total Compensation of all Participants
for such year.
Only Participants who have completed a Year of
Service during the Plan Year and are actively employed on
the last day of the Plan Year shall be eligible to share in
the discretionary contribution for the year.
(c) The Company Stock Account of each
Participant shall be credited as of each Anniversary Date with Forfeitures of
Company Stock and his allocable share of Company Stock (including fractional
shares) purchased and paid for by the Plan or contributed in kind by the
Employer. Stock dividends on Company Stock held in his Company Stock Account
shall be credited to his Company Stock Account when paid. Cash dividends on
Company Stock held in his Company Stock Account shall, in the sole discretion
of the Administrator, either be credited to his Other Investments Account when
paid or be used to repay an Exempt Loan; provided, however, that when cash
dividends are used to repay an Exempt Loan, Company Stock shall be released
from the Unallocated Company Stock Suspense Account and allocated to the
Participant's Company Stock Account pursuant to Section 4.3(e) and, provided
further, that Company Stock allocated to the Participant's Company Stock
Account shall have a fair market value not less than the amount of cash
dividends which would have been allocated to such Participant's Other
Investments Account for the year.
Company Stock acquired by the Plan with the proceeds
of an Exempt Loan shall only be allocated to each
Participant's Company Stock Account upon release from the
Unallocated Company Stock Suspense Account as provided in
Section 4.3(e) herein. Company Stock acquired with the
proceeds of an Exempt Loan shall be an asset of the Trust
Fund and maintained in the Unallocated Company Stock Suspense
Account.
(d) As of each Anniversary Date or other
valuation date, before allocation of one-half of the Employer contributions for
the entire Plan Year and after allocation of Forfeitures, any earnings or
losses (net appreciation or net depreciation) of the Trust Fund shall be
allocated in the same proportion that each Participant's and Former
Participant's nonsegregated accounts (other than each Participant's Company
Stock Account) bear to the total
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of all Participants' and Former Participants' nonsegregated accounts (other
than Participants' Company Stock Accounts) as of such date.
Earnings or losses do not include the
interest paid under any installment contract for the
purchase of Company Stock by the Trust Fund or on any loan
used by the Trust Fund to purchase Company Stock, nor does
it include income received by the Trust Fund with respect to
Company Stock acquired with the proceeds of an Exempt Loan;
all income received by the Trust Fund from Company Stock
acquired with the proceeds of an Exempt Loan may, at the
discretion of the Administrator, be used to repay such loan.
Participants' transfers from other
qualified plans deposited in the general Trust Fund shall
share in any earnings and losses (net appreciation or net
depreciation) of the Trust Fund in the same manner provided
above. Each segregated account maintained on behalf of a
Participant shall be credited or charged with its separate
earnings and losses.
(e) All Company Stock acquired by the Plan with
the proceeds of an Exempt Loan must be added to and maintained in the
Unallocated Company Stock Suspense Account. Such Company Stock shall be
released and withdrawn from that account as if all Company Stock in that
account were encumbered. For each Plan Year during the duration of the loan,
the number of shares of Company Stock released shall equal the number of
encumbered shares held immediately before release for the current Plan Year
multiplied by a fraction, the numerator of which is the amount of principal and
interest paid for the Plan Year and the denominator of which is the sum of the
numerator plus the principal and interest to be paid for all future Plan Years.
As of each Anniversary Date, the Plan must consistently allocate to each
Participant's Account, in the same manner as Employer discretionary
contributions pursuant to Section 4.1(a) are allocated, non-monetary units
(shares and fractional shares of Company Stock) representing each Participant's
interest in Company Stock withdrawn from the Unallocated Company Stock Suspense
Account. However, Company Stock released from the Unallocated Company Stock
Suspense Account with cash dividends pursuant to Section 4.3(c) shall be
allocated to each Participant's Company Stock Account in the same proportion
that each such Participant's number of shares of Company Stock sharing in such
cash dividends bears to the total number of shares of all Participants' Company
Stock sharing in such cash dividends. Income earned with respect to Company
Stock in the Unallocated Company Stock Suspense Account shall be used, at the
discretion of the Administrator, to repay the Exempt Loan used to purchase such
Company Stock. Company Stock released from the Unallocated Company Stock
Suspense Account with such income, and any income which is not so used, shall
be allocated as of each Anniversary Date or other valuation date in the same
proportion that each Participant's and Former Participant's nonsegregated
accounts after the allocation of any earnings or losses pursuant to Section
4.3(d) bear to the total of all Participants' and Former Participants'
nonsegregated accounts after the allocation of any earnings or losses pursuant
to Section 4.3(d).
(f) As of each Anniversary Date any amounts
which became Forfeitures since the last Anniversary Date shall first be made
available to reinstate previously forfeited account balances of Former
Participants, if any, in accordance with Section 7.4(f)(2). The remaining
Forfeitures, if any, shall be added to the Employer's discretionary
contribution
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pursuant to Section 4.1(a) and for the Plan Year in which such Forfeitures
occur allocated among the Participants' Accounts in the same manner as the
Employer's discretionary contribution for the current year.
Provided, however, that in the event
the allocation of Forfeitures provided herein shall cause
the "annual addition" (as defined in Section 4.4) to any
Participant's Account to exceed the amount allowable by the
Code, the excess shall be reallocated in accordance with
Section 4.5.
(g) For any Top Heavy Plan Year, Employees not
otherwise eligible to share in the allocation of contributions and Forfeitures
as provided above, shall receive the minimum allocation provided for in Section
4.3(i) if eligible pursuant to the provisions of Section 4.3(k).
(h) Participants who are not actively employed
on the last day of the Plan Year due to Retirement (Early, Normal or Late),
Total and Permanent Disability or death shall share in the allocation of
contributions and Forfeitures for that Plan Year only if otherwise eligible in
accordance with this Section.
(i) Minimum Allocations Required for Top Heavy
Plan Years: Notwithstanding the foregoing, for any Top Heavy Plan Year, the sum
of the Employer's contributions and Forfeitures allocated to the Participant's
Account of each Employee shall be equal to at least three percent (3%) of such
Employee's "415 Compensation" (reduced by contributions and forfeitures, if
any, allocated to each Employee in any defined contribution plan included with
this plan in a Required Aggregation Group). However, if (1) the sum of the
Employer's contributions and Forfeitures allocated to the Participant's Account
of each Key Employee for such Top Heavy Plan Year is less than three percent
(3%) of each Key Employee's "415 Compensation" and (2) this Plan is not
required to be included in an Aggregation Group to enable a defined benefit
plan to meet the requirements of Code Section 401(a)(4) or 410, the sum of the
Employer's contributions and Forfeitures allocated to the Participant's Account
of each Employee shall be equal to the largest percentage allocated to the
Participant's Account of any Key Employee.
However, no such minimum allocation
shall be required in this Plan for any Employee who
participates in another defined contribution plan subject to
Code Section 412 providing such benefits included with this
Plan in a Required Aggregation Group.
(j) For purposes of the minimum allocations set
forth above, the percentage allocated to the Participant's Account of any Key
Employee shall be equal to the ratio of the sum of the Employer's contributions
and Forfeitures allocated on behalf of such Key Employee divided by the "415
Compensation" for such Key Employee.
(k) For any Top Heavy Plan Year, the minimum
allocations set forth above shall be allocated to the Participant's Account of
all Employees who are Participants and who are employed by the Employer on the
last day of the Plan Year, including Employees who
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have (1) failed to complete a Year of Service; and (2) declined to make
mandatory contributions (if required) to the Plan.
(l) For the purposes of this Section, "415
Compensation" shall be limited to $200,000. Such amount shall be adjusted at
the same time and in the same manner as permitted under Code Section 415(d),
except that the dollar increase in effect on January 1 of any calendar year
shall be effective for the Plan Year beginning with or within such calendar
year and the first adjustment to the $200,000 limitation shall be effective on
January 1, 1990. For any short Plan Year the "415 Compensation" limit shall be
an amount equal to the "415 Compensation" limit for the calendar year in which
the Plan Year begins multiplied by the ratio obtained by dividing the number of
full months in the short Plan Year by twelve (12).
In addition to other applicable
limitations set forth in the Plan, and notwithstanding any
other provision of the Plan to the contrary, for Plan Years
beginning on or after January 1, 1994, the annual
Compensation of each Employee taken into account under the
Plan shall not exceed the OBRA '93 annual compensation
limit. The OBRA '93 annual compensation limit is $150,000,
as adjusted by the Commissioner for increases in the cost of
living in accordance with Code Section 401(a)(17)(B). The
cost of living adjustment in effect for a calendar year
applies to any period, not exceeding 12 months, over which
Compensation is determined (determination period) beginning
in such calendar year. If a determination period consists of
fewer than 12 months, the OBRA '93 annual compensation limit
will be multiplied by a fraction, the numerator of which is
the number of months in the determination period, and the
denominator of which is 12.
For Plan Years beginning on or after
January 1, 1994, any reference in this Plan to the
limitation under Code Section 401(a)(17) shall mean the OBRA
'93 annual compensation limit set forth in this provision.
If Compensation for any prior
determination period is taken into account in determining an
Employee's benefits accruing in the current Plan Year, the
Compensation for that prior determination period is subject
to the OBRA '93 annual compensation limit in effect for that
prior determination period. For this purpose, for
determination periods beginning before the first day of the
first Plan Year beginning on or after January 1, 1994, the
OBRA '93 annual compensation limit is $150,000.
(m) If a Former Participant is reemployed after
five (5) consecutive 1-Year Breaks in Service, then separate accounts shall be
maintained as follows:
(1) one account for nonforfeitable benefits
attributable to pre-break service; and
(2) one account representing his status in the
Plan attributable to post-break service.
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IV.4 MAXIMUM ANNUAL ADDITIONS
(a) Notwithstanding the foregoing, the maximum
"annual additions" credited to a Participant's accounts for any "limitation
year" shall equal the lesser of: (1) $30,000 adjusted annually as provided in
Code Section 415(d) pursuant to the Regulations, or (2) twenty-five percent
(25%) of the Participant's "415 Compensation" for such "limitation year." For
any short "limitation year," the dollar limitation in (1) above shall be
reduced by a fraction, the numerator of which is the number of full months in
the short "limitation year" and the denominator of which is twelve (12).
(b) For purposes of applying the limitations of
Code Section 415, "annual additions" means the sum credited to a Participant's
accounts for any "limitation year" of (1) Employer contributions, (2) Employee
contributions, (3) forfeitures, (4) amounts allocated, after March 31, 1984, to
an individual medical account, as defined in Code Section 415(l)(2) which is
part of a pension or annuity plan maintained by the Employer and (5) amounts
derived from contributions paid or accrued after December 31, 1985, in taxable
years ending after such date, which are attributable to post-retirement medical
benefits allocated to the separate account of a key employee (as defined in
Code Section 419A(d)(3)) under a welfare benefit plan (as defined in Code
Section 419(e)) maintained by the Employer. Except, however, the "415
Compensation" percentage limitation referred to in paragraph (a)(2) above shall
not apply to: (1) any contribution for medical benefits (within the meaning of
Code Section 419A(f)(2)) after separation from service which is otherwise
treated as an "annual addition," or (2) any amount otherwise treated as an
"annual addition" under Code Section 415(l)(1).
(c) For purposes of applying the limitations of
Code Section 415, the following are not "annual additions": (1) the transfer of
funds from one qualified plan to another and (2) provided no more than
one-third of the Employer contributions for the year are allocated to Highly
Compensated Participants, Forfeitures of Company Stock purchased with the
proceeds of an Exempt Loan and Employer contributions applied to the payment of
interest on an Exempt Loan. In addition, the following are not Employee
contributions for the purposes of Section 4.4(b)(2): (1) rollover contributions
(as defined in Code Sections 402(a)(5), 403(a)(4), 403(b)(8) and 408(d)(3));
(2) repayments of loans made to a Participant from the Plan; (3) repayments of
distributions received by an Employee pursuant to Code Section 411(a)(7)(B)
(cash-outs); (4) repayments of distributions received by an Employee pursuant
to Code Section 411(a)(3)(D) (mandatory contributions); and (5) Employee
contributions to a simplified employee pension excludable from gross income
under Code Section 408(k)(6).
(d) For purposes of applying the limitations of
Code Section 415, the "limitation year" shall be the Plan Year.
(e) For the purpose of this Section, all
qualified defined benefit plans (whether terminated or not) ever maintained by
the Employer shall be treated as one defined benefit plan, and all qualified
defined contribution plans (whether terminated or not) ever maintained by the
Employer shall be treated as one defined contribution plan.
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(f) For the purpose of this Section, if the
Employer is a member of a controlled group of corporations, trades or
businesses under common control (as defined by Code Section 1563(a) or Code
Section 414(b) and (c) as modified by Code Section 415(h)), is a member of an
affiliated service group (as defined by Code Section 414(m)), or is a member of
a group of entities required to be aggregated pursuant to Regulations under
Code Section 414(o), all Employees of such Employers shall be considered to be
employed by a single Employer.
(g) For the purpose of this Section, if this
Plan is a Code Section 413(c) plan, all Employers of a Participant who maintain
this Plan will be considered to be a single Employer.
(h)(1) If a Participant participates in more than one defined contribution
plan maintained by the Employer which have different Anniversary Dates, the
maximum "annual additions" under this Plan shall equal the maximum "annual
additions" for the "limitation year" minus any "annual additions" previously
credited to such Participant's accounts during the "limitation year."
(2) If a Participant participates in both a
defined contribution plan subject to Code Section 412 and a defined
contribution plan not subject to Code Section 412 maintained by the Employer
which have the same Anniversary Date, "annual additions" will be credited to
the Participant's accounts under the defined contribution plan subject to Code
Section 412 prior to crediting "annual additions" to the Participant's accounts
under the defined contribution plan not subject to Code Section 412.
(3) If a Participant participates in more than
one defined contribution plan not subject to Code Section 412 maintained by the
Employer which have the same Anniversary Date, the maximum "annual additions"
under this Plan shall equal the product of (A) the maximum "annual additions"
for the "limitation year" minus any "annual additions" previously credited
under subparagraphs (1) or (2) above, multiplied by (B) a fraction (i) the
numerator of which is the "annual additions" which would be credited to such
Participant's accounts under this Plan without regard to the limitations of
Code Section 415 and (ii) the denominator of which is such "annual additions"
for all plans described in this subparagraph.
(i) If an Employee is (or has been) a
Participant in one or more defined benefit plans and one or more defined
contribution plans maintained by the Employer, the sum of the defined benefit
plan fraction and the defined contribution plan fraction for any "limitation
year" may not exceed 1.0.
(j) The defined benefit plan fraction for any
"limitation year" is a fraction, the numerator of which is the sum of the
Participant's projected annual benefits under all the defined benefit plans
(whether or not terminated) maintained by the Employer, and the denominator of
which is the lesser of 125 percent of the dollar limitation determined for the
"limitation year" under Code Sections 415(b) and (d) or 140 percent of the
highest average compensation, including any adjustments under Code Section
415(b).
Notwithstanding the above, if the
Participant was a Participant as of the first day of the
first "limitation year" beginning after December 31, 1986,
in one or more defined benefit plans maintained by the
Employer which were
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in existence on May 6, 1986, the denominator of this
fraction will not be less than 125 percent of the sum of the
annual benefits under such plans which the Participant had
accrued as of the close of the last "limitation year"
beginning before January 1, 1987, disregarding any changes
in the terms and conditions of the plan after May 5, 1986.
The preceding sentence applies only if the defined benefit
plans individually and in the aggregate satisfied the
requirements of Code Section 415 for all "limitation years"
beginning before January 1, 1987.
(k) The defined contribution plan fraction for
any "limitation year" is a fraction, the numerator of which is the sum of the
annual additions to the Participant's Account under all the defined
contribution plans (whether or not terminated) maintained by the Employer for
the current and all prior "limitation years" (including the annual additions
attributable to the Participant's nondeductible Employee contributions to all
defined benefit plans, whether or not terminated, maintained by the Employer,
and the annual additions attributable to all welfare benefit funds, as defined
in Code Section 419(e), and individual medical accounts, as defined in Code
Section 415(l)(2), maintained by the Employer), and the denominator of which is
the sum of the maximum aggregate amounts for the current and all prior
"limitation years" of service with the Employer (regardless of whether a
defined contribution plan was maintained by the Employer). The maximum
aggregate amount in any "limitation year" is the lesser of 125 percent of the
dollar limitation determined under Code Sections 415(b) and (d) in effect under
Code Section 415(c)(1)(A) or 35 percent of the Participant's Compensation for
such year.
If the Employee was a Participant as of
the end of the first day of the first "limitation year"
beginning after December 31, 1986, in one or more defined
contribution plans maintained by the Employer which were in
existence on May 6, 1986, the numerator of this fraction
will be adjusted if the sum of this fraction and the defined
benefit fraction would otherwise exceed 1.0 under the terms
of this Plan. Under the adjustment, an amount equal to the
product of (1) the excess of the sum of the fractions over
1.0 times (2) the denominator of this fraction, will be
permanently subtracted from the numerator of this fraction.
The adjustment is calculated using the fractions as they
would be computed as of the end of the last "limitation
year" beginning before January 1, 1987, and disregarding any
changes in the terms and conditions of the Plan made after
May 5, 1986, but using the Code Section 415 limitation
applicable to the first "limitation year" beginning on or
after January 1, 1987. The annual addition for any
"limitation year" beginning before January 1, 1987 shall not
be recomputed to treat all Employee contributions as annual
additions.
(l) Notwithstanding the foregoing, for any
"limitation year" in which the Plan is a Top Heavy Plan, 100 percent shall be
substituted for 125 percent in Sections 4.4(k) and 4.4(l) unless the extra
minimum allocation is being provided pursuant to Section 4.3. However, for any
"limitation year" in which the Plan is a Super Top Heavy Plan, 100 percent
shall be substituted for 125 percent in any event.
(m) Notwithstanding anything contained in this
Section to the contrary, the limitations, adjustments and other requirements
prescribed in this Section shall at
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all times comply with the provisions of Code Section 415 and the Regulations
thereunder, the terms of which are specifically incorporated herein by
reference.
IV.5 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS
(a) If, as a result of the allocation of
Forfeitures, a reasonable error in estimating a Participant's Compensation, a
reasonable error in determining the amount of elective deferrals (within the
meaning of Code Section 402(g)(3)) that may be made with respect to any
Participant under the limits of Section 4.4 or other facts and circumstances to
which Regulation 1.415-6(b)(6) shall be applicable, the "annual additions"
under this Plan would cause the maximum "annual additions" to be exceeded for
any Participant, the Administrator shall (1) distribute any elective deferrals
(within the meaning of Code Section 402(g)(3)) or return any voluntary Employee
contributions credited for the "limitation year" to the extent that the return
would reduce the "excess amount" in the Participant's accounts (2) hold any
"excess amount" remaining after the return of any elective deferrals or
voluntary Employee contributions in a "Section 415 suspense account" (3)
allocate and reallocate the "Section 415 suspense account" in the next
"limitation year" (and succeeding "limitation years" if necessary) to all
Participants in the Plan before any Employer or Employee contributions which
would constitute "annual additions" are made to the Plan for such "limitation
year" (4) reduce Employer contributions to the Plan for such "limitation year"
by the amount of the "Section 415 suspense account" allocated and reallocated
during such "limitation year."
(b) For purposes of this Article, "excess amount" for any Participant for
a "limitation year" shall mean the excess, if any, of (1) the "annual
additions" which would be credited to his account under the terms of the Plan
without regard to the limitations of Code Section 415 over (2) the maximum
"annual additions" determined pursuant to Section 4.4.
(c) For purposes of this Section, "Section 415 suspense account" shall
mean an unallocated account equal to the sum of "excess amounts" for all
Participants in the Plan during the "limitation year." The "Section 415
suspense account" shall not share in any earnings or losses of the Trust Fund.
(d) The Plan may not distribute "excess amounts," other than voluntary
Employee contributions, to Participants or Former Participants.
IV.6 TRANSFERS FROM QUALIFIED PLANS
(a) With the consent of the Administrator, amounts may be transferred from
other qualified plans by Participants, provided that the trust from which such
funds are transferred permits the transfer to be made and the transfer will not
jeopardize the tax exempt status of the Plan or Trust or create adverse tax
consequences for the Employer. The amounts transferred shall be set up in a
separate account herein referred to as a "Participant's Rollover Account." Such
account shall be fully Vested at all times and shall not be subject to
Forfeiture for any reason.
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(b) Amounts in a Participant's Rollover Account shall be held by the
Trustee pursuant to the provisions of this Plan and may not be withdrawn by, or
distributed to the Participant, in whole or in part, except as provided in
paragraphs (c) and (d) of this Section.
(c) Except as permitted by Regulations (including Regulation 1.411(d)-4),
amounts attributable to elective contributions (as defined in Regulation
1.401(k)-1(g)(3)), including amounts treated as elective contributions, which
are transferred from another qualified plan in a plan-to-plan transfer shall be
subject to the distribution limitations provided for in Regulation
1.401(k)-1(d).
(d) At Normal Retirement Date, or such other date when the Participant or
his Beneficiary shall be entitled to receive benefits, the fair market value of
the Participant's Rollover Account shall be used to provide additional benefits
to the Participant or his Beneficiary. Any distributions of amounts held in a
Participant's Rollover Account shall be made in a manner which is consistent
with and satisfies the provisions of Section 7.5, including, but not limited
to, all notice and consent requirements of Code Section 411(a)(11) and the
Regulations thereunder. Furthermore, such amounts shall be considered as part
of a Participant's benefit in determining whether an involuntary cash-out of
benefits without Participant consent may be made.
(e) The Administrator may direct that employee transfers made after a
valuation date be segregated into a separate account for each Participant in a
federally insured savings account, certificate of deposit in a bank or savings
and loan association, money market certificate, or other short term debt
security acceptable to the Trustee until such time as the allocations pursuant
to this Plan have been made, at which time they may remain segregated or be
invested as part of the general Trust Fund, to be determined by the
Administrator.
(f) For purposes of this Section, the term "qualified plan" shall mean any
tax qualified plan under Code Section 401(a). The term "amounts transferred
from other qualified plans" shall mean: (i) amounts transferred to this Plan
directly from another qualified plan; (ii) distributions from another qualified
plan which are eligible rollover distributions and which are either transferred
by the Employee to this Plan within sixty (60) days following his receipt
thereof or are transferred pursuant to a direct rollover; (iii) amounts
transferred to this Plan from a conduit individual retirement account provided
that the conduit individual retirement account has no assets other than assets
which (A) were previously distributed to the Employee by another qualified plan
as a lump-sum distribution (B) were eligible for tax-free rollover to a
qualified plan and (C) were deposited in such conduit individual retirement
account within sixty (60) days of receipt thereof and other than earnings on
said assets; and (iv) amounts distributed to the Employee from a conduit
individual retirement account meeting the requirements of clause (iii) above,
and transferred by the Employee to this Plan within sixty (60) days of his
receipt thereof from such conduit individual retirement account.
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(g) Prior to accepting any transfers to which this Section applies, the
Administrator may require the Employee to establish that the amounts to be
transferred to this Plan meet the requirements of this Section and may also
require the Employee to provide an opinion of counsel satisfactory to the
Employer that the amounts to be transferred meet the requirements of this
Section.
(h) This Plan shall not accept any direct or indirect transfers (as that
term is defined and interpreted under Code Section 401(a)(11) and the
Regulations thereunder) from a defined benefit plan, money purchase plan
(including a target benefit plan), stock bonus or profit sharing plan which
would otherwise have provided for a life annuity form of payment to the
Participant.
(i) Notwithstanding anything herein to the contrary, a transfer directly
to this Plan from another qualified plan (or a transaction having the effect of
such a transfer) shall only be permitted if it will not result in the
elimination or reduction of any "Section 411(d)(6) protected benefit" as
described in Section 9.1.
IV.7 DIRECTED INVESTMENT ACCOUNT
(a) Each "Qualified Participant" may elect within ninety (90) days after
the close of each Plan Year during the "Qualified Election Period" to direct
the Trustee in writing as to the distribution in cash of 25 percent of the
total number of shares of Company Stock acquired by or contributed to the Plan
that have ever been allocated to such "Qualified Participant's" Company Stock
Account (reduced by the number of shares of Company Stock previously
distributed in cash pursuant to a prior election). In the case of the election
year in which the Participant can make his last election, the preceding
sentence shall be applied by substituting "50 percent" for "25 percent". If the
"Qualified Participant" elects to direct the Trustee as to the distribution of
his Company Stock Account, such direction shall be effective no later than 180
days after the close of the Plan Year to which such direction applies.
Notwithstanding the above, if the fair
market value (determined pursuant to Section 6.1 at the Plan
valuation date immediately preceding the first day on which
a "Qualified Participant" is eligible to make an election)
of Company Stock acquired by or contributed to the Plan and
allocated to a "Qualified Participant's" Company Stock
Account is $500 or less, then such Company Stock shall not
be subject to this paragraph. For purposes of determining
whether the fair market value exceeds $500, Company Stock
held in accounts of all employee stock ownership plans (as
defined in Code Section 4975(e)(7)) and tax credit employee
stock ownership plans (as defined in Code Section 409(a))
maintained by the Employer or any Affiliated Employer shall
be considered as held by the Plan.
(b) For the purposes of this Section the following definitions shall
apply:
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(1) "Qualified Participant" means any Participant or Former Participant
who has completed ten (10) Plan Years of Service as a Participant and has
attained age 55.
(2) "Qualified Election Period" means the six (6) Plan Year period
beginning with the later of (i) the first Plan Year in which the Participant
first became a "Qualified Participant", or (ii) the first Plan Year beginning
after December 31, 1986.
ARTICLE V
FUNDING AND INVESTMENT POLICY
V.1 INVESTMENT POLICY
(a) The Plan is designed to invest primarily in Company Stock.
(b) With due regard to subparagraph (a) above, the Administrator may also
direct the Trustee to invest funds under the Plan in other property described
in the Trust or in life insurance policies to the extent permitted by
subparagraph (c) below, or the Trustee may hold such funds in cash or cash
equivalents.
(c) With due regard to subparagraph (a) above, the Administrator may also
direct the Trustee to invest funds under the Plan in insurance policies on the
life of any "keyman" Employee. The proceeds of a "keyman" insurance policy may
not be used for the repayment of any indebtedness owed by the Plan which is
secured by Company Stock. In the event any "keyman" insurance is purchased by
the Trustee, the premiums paid thereon during any Plan Year, net of any policy
dividends and increases in cash surrender values, shall be treated as the cost
of Plan investment and any death benefit or cash surrender value received shall
be treated as proceeds from an investment of the Plan.
(d) The Plan may not obligate itself to acquire Company Stock from a
particular holder thereof at an indefinite time determined upon the happening
of an event such as the death of the holder.
(e) The Plan may not obligate itself to acquire Company Stock under a put
option binding upon the Plan. However, at the time a put option is exercised,
the Plan may be given an option to assume the rights and obligations of the
Employer under a put option binding upon the Employer.
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(f) All purchases of Company Stock shall be made at a price which, in the
judgment of the Administrator, does not exceed the fair market value thereof.
All sales of Company Stock shall be made at a price which, in the judgment of
the Administrator, is not less than the fair market value thereof. The
valuation rules set forth in Article VI shall be applicable.
V.2 APPLICATION OF CASH
Employer contributions in cash and other cash received by
the Trust Fund shall first be applied to pay any Current Obligations of the
Trust Fund.
V.3 TRANSACTIONS INVOLVING COMPANY STOCK
(a) No portion of the Trust Fund attributable to (or allocable in lieu of)
Company Stock acquired by the Plan in a sale to which Code Section 1042 applies
may accrue or be allocated directly or indirectly under any plan maintained by
the Employer meeting the requirements of Code Section 401(a):
(1) during the "Nonallocation Period", for the benefit of
(i) any taxpayer who makes an election under Code Section 1042(a) with
respect to Company Stock,
(ii) any individual who is related to the taxpayer (within the meaning of
Code Section 267(b)), or
(2) for the benefit of any other person who owns (after application of
Code Section 318(a) applied without regard to the employee trust exception in
Code Section 318(a)(2)(B)(i)) more than 25 percent of
(i) any class of outstanding stock of the Employer or Affiliated Employer
which issued such Company Stock, or
(ii) the total value of any class of outstanding stock of the Employer or
Affiliated Employer.
(b) Except, however, subparagraph (a)(1)(ii) above shall not apply to
lineal descendants of the taxpayer, provided that the aggregate amount
allocated to the benefit of all such lineal descendants during the
"Nonallocation Period" does not exceed more than five (5) percent of the
Company Stock (or amounts allocated in lieu thereof) held by the Plan which are
attributable to a sale to the Plan by any person related to such descendants
(within the meaning of Code Section 267(c)(4)) in a transaction to which Code
Section 1042 is applied.
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(c) A person shall be treated as failing to meet the stock ownership
limitation under paragraph (a)(2) above if such person fails such limitation:
(1) at any time during the one (1) year period ending on the date of sale
of Company Stock to the Plan, or
(2) on the date as of which Company Stock is allocated to Participants in
the Plan.
(d) For purposes of this Section, "Nonallocation Period" means the period
beginning on the date of the sale of the Company Stock and ending on the later
of:
(1) the date which is ten (10) years after the date of sale, or
(2) the date of the Plan allocation attributable to the final payment of
the Exempt Loan incurred in connection with such sale.
V.4 LOANS TO THE TRUST
(a) The Plan may borrow money for any lawful purpose, provided the
proceeds of an Exempt Loan are used within a reasonable time after receipt only
for any or all of the following purposes:
(1) To acquire Company Stock.
(2) To repay such loan.
(3) To repay a prior Exempt Loan.
(b) All loans to the Trust which are made or guaranteed by a disqualified
person must satisfy all requirements applicable to Exempt Loans including but
not limited to the following:
(1) The loan must be at a reasonable rate of interest;
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(2) Any collateral pledged to the creditor by the Plan shall consist only
of the Company Stock purchased with the borrowed funds;
(3) Under the terms of the loan, any pledge of Company Stock shall provide
for the release of shares so pledged on a pro-rata basis pursuant to Section
4.3(e);
(4) Under the terms of the loan, the creditor shall have no recourse
against the Plan except with respect to such collateral, earnings attributable
to such collateral, Employer contributions (other than contributions of Company
Stock) that are made to meet Current Obligations and earnings attributable to
such contributions;
(5) The loan must be for a specific term and may not be payable at the
demand of any person, except in the case of default;
(6) In the event of default upon an Exempt Loan, the value of the Trust
Fund transferred in satisfaction of the Exempt Loan shall not exceed the amount
of default. If the lender is a disqualified person, an Exempt Loan shall
provide for a transfer of Trust Funds upon default only upon and to the extent
of the failure of the Plan to meet the payment schedule of the Exempt Loan;
(7) Exempt Loan payments during a Plan Year must not exceed an amount
equal to: (A) the sum, over all Plan Years, of all contributions and cash
dividends paid by the Employer to the Plan with respect to such Exempt Loan and
earnings on such Employer contributions and cash dividends, less (B) the sum of
the Exempt Loan payments in all preceding Plan Years. A separate accounting
shall be maintained for such Employer contributions, cash dividends and
earnings until the Exempt Loan is repaid.
(c) For purposes of this Section, the term "disqualified person" means a
person who is a Fiduciary, a person providing services to the Plan, an Employer
any of whose Employees are covered by the Plan, an employee organization any of
whose members are covered by the Plan, an owner, direct or indirect, of 50% or
more of the total combined voting power of all classes of voting stock or of
the total value of all classes of the stock, or an officer, director, 10% or
more shareholder, or a highly compensated Employee.
ARTICLE VI
VALUATIONS
VI.1 VALUATION OF THE TRUST FUND
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The Administrator shall direct the Trustee, as of each
Anniversary Date, and at such other date or dates deemed necessary by the
Administrator, herein called "valuation date," to determine the net worth of
the assets comprising the Trust Fund as it exists on the "valuation date." In
determining such net worth, the Trustee shall value the assets comprising the
Trust Fund at their fair market value as of the "valuation date" and shall
deduct all expenses for which the Trustee has not yet obtained reimbursement
from the Employer or the Trust Fund.
VI.2 METHOD OF VALUATION
Valuations must be made in good faith and based on all
relevant factors for determining the fair market value of securities. In the
case of a transaction between a Plan and a disqualified person, value must be
determined as of the date of the transaction. For all other Plan purposes,
value must be determined as of the most recent "valuation date" under the Plan.
An independent appraisal will not in itself be a good faith determination of
value in the case of a transaction between the Plan and a disqualified person.
However, in other cases, a determination of fair market value based on at least
an annual appraisal independently arrived at by a person who customarily makes
such appraisals and who is independent of any party to the transaction will be
deemed to be a good faith determination of value. Company Stock not readily
tradeable on an established securities market shall be valued by an independent
appraiser meeting requirements similar to the requirements of the Regulations
prescribed under Code Section 170(a)(1).
ARTICLE VII
DETERMINATION AND DISTRIBUTION OF BENEFITS
VII.1 DETERMINATION OF BENEFITS UPON RETIREMENT
Every Participant may terminate his employment with the
Employer and retire for the purposes hereof on his Normal Retirement Date or
Early Retirement Date. However, a Participant may postpone the termination of
his employment with the Employer to a later date, in which event the
participation of such Participant in the Plan, including the right to receive
allocations pursuant to Section 4.3, shall continue until his Late Retirement
Date. Upon a Participant's Retirement Date or attainment of his Normal
Retirement Date without termination of employment with the Employer, or as soon
thereafter as is practicable, the Trustee shall distribute all amounts credited
to such Participant's Account in accordance with Sections 7.5 and 7.6.
VII.2 DETERMINATION OF BENEFITS UPON DEATH
(a) Upon the death of a Participant before his Retirement Date or other
termination of his employment, all amounts credited to such Participant's
Account shall become fully Vested. If elected, distribution of the
Participant's Account shall commence not later than one (1) year after the
close of the Plan Year in which such Participant's death occurs. The
Administrator shall direct the Trustee, in accordance with the provisions of
Sections 7.5 and 7.6, to distribute the value of the deceased Participant's
accounts to the Participant's Beneficiary.
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(b) Upon the death of a Former Participant, the Administrator shall direct
the Trustee, in accordance with the provisions of Sections 7.5 and 7.6, to
distribute any remaining Vested amounts credited to the accounts of a deceased
Former Participant to such Former Participant's Beneficiary.
(c) The Administrator may require such proper proof of death and such
evidence of the right of any person to receive payment of the value of the
account of a deceased Participant or Former Participant as the Administrator
may deem desirable. The Administrator's determination of death and of the right
of any person to receive payment shall be conclusive.
(d) The Beneficiary of the death benefit payable pursuant to this Section
shall be the Participant's spouse. Except, however, the Participant may
designate a Beneficiary other than his spouse if:
(1) the spouse has waived the right to be the Participant's Beneficiary,
or
(2) the Participant is legally separated or has been abandoned (within the
meaning of local law) and the Participant has a court order to such effect (and
there is no "qualified domestic relations order" as defined in Code Section
414(p) which provides otherwise), or
(3) the Participant has no spouse, or
(4) the spouse cannot be located.
In such event, the designation of a
Beneficiary shall be made on a form satisfactory to the
Administrator. A Participant may at any time revoke his
designation of a Beneficiary or change his Beneficiary by
filing written notice of such revocation or change with the
Administrator. However, the Participant's spouse must again
consent in writing to any change in Beneficiary unless the
original consent acknowledged that the spouse had the right
to limit consent only to a specific Beneficiary and that the
spouse voluntarily elected to relinquish such right. In the
event no valid designation of Beneficiary exists at the time
of the Participant's death, the death benefit shall be
payable to his estate.
(e) Any consent by the Participant's spouse to waive any rights to the
death benefit must be in writing, must acknowledge the effect of such waiver,
and be witnessed by a Plan
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representative or a notary public. Further, the spouse's consent must be
irrevocable and must acknowledge the specific nonspouse Beneficiary.
VII.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY
In the event of a Participant's Total and Permanent
Disability prior to his Retirement Date or other termination of his employment,
all amounts credited to such Participant's Account shall become fully Vested.
In the event of a Participant's Total and Permanent Disability, the Trustee, in
accordance with the provisions of Sections 7.5 and 7.6, shall distribute to
such Participant all amounts credited to such Participant's Account as though
he had retired. If such Participant elects, distribution shall commence not
later than one (1) year after the close of the Plan Year in which Total and
Permanent Disability occurs.
VII.4 DETERMINATION OF BENEFITS UPON TERMINATION
(a) On or before the Anniversary Date coinciding with or subsequent to the
termination of a Participant's employment for any reason other than death,
Total and Permanent Disability or retirement, the Administrator may direct the
Trustee to segregate the amount of the Vested portion of such Terminated
Participant's Account and invest the aggregate amount thereof in a separate,
federally insured savings account, certificate of deposit, common or collective
trust fund of a bank or a deferred annuity. In the event the Vested portion of
a Participant's Account is not segregated, the amount shall remain in a
separate account for the Terminated Participant and share in allocations
pursuant to Section 4.3 until such time as a distribution is made to the
Terminated Participant.
If a portion of a Participant's Account is
forfeited, Company Stock allocated to the Participant's
Company Stock Account must be forfeited only after the
Participant's Other Investments Account has been depleted.
If interest in more than one class of Company Stock has been
allocated to a Participant's Account, the Participant must
be treated as forfeiting the same proportion of each such
class.
Distribution of the funds due to a
Terminated Participant shall be made on the occurrence of an
event which would result in the distribution had the
Terminated Participant remained in the employ of the
Employer (upon the Participant's death, Total and Permanent
Disability, Early or Normal Retirement). However, at the
election of the Participant, the Administrator shall direct
the Trustee to cause the entire Vested portion of the
Terminated Participant's Account to be payable to such
Terminated Participant after a 1-Year Break in Service.
Distribution to a Participant shall not include any Company
Stock acquired with the proceeds of an Exempt Loan until the
close of the Plan Year in which such loan is repaid in full.
Any distribution under this paragraph shall be made in a
manner which is consistent with and satisfies the provisions
of Sections 7.5 and 7.6, including, but not limited to, all
notice and consent requirements of Code Section 411(a)(11)
and the Regulations thereunder.
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If the value of a Terminated
Participant's Vested benefit derived from Employer and
Employee contributions does not exceed $3,500 and has never
exceeded $3,500 at the time of any prior distribution, the
Administrator shall direct the Trustee to cause the entire
Vested benefit to be paid to such Participant in a single
lump sum.
For purposes of this Section 7.4, if
the value of a Terminated Participant's Vested benefit is
zero, the Terminated Participant shall be deemed to have
received a distribution of such Vested benefit.
(b) The Vested portion of any Participant's Account shall be a percentage
of the total amount credited to his Participant's Account determined on the
basis of the Participant's number of Years of Service according to the
following schedule:
<TABLE>
<CAPTION>
Vesting Schedule
Years of Service Percentage
<S> <C>
Less than 3 0 %
3 20 %
4 40 %
5 60 %
6 80 %
7 100 %
</TABLE>
(c) Notwithstanding the vesting schedule provided for in paragraph (b)
above, for any Top Heavy Plan Year, the Vested portion of the Participant's
Account of any Participant who has an Hour of Service after the Plan becomes
top heavy shall be a percentage of the total amount credited to his
Participant's Account determined on the basis of the Participant's number of
Years of Service according to the following schedule:
<TABLE>
<CAPTION>
Vesting Schedule
Years of Service Percentage
<S> <C>
Less than 2 0 %
2 20 %
3 40 %
4 60 %
5 80 %
6 100 %
</TABLE>
If in any subsequent Plan Year, the Plan ceases to
be a Top Heavy Plan, the Administrator shall revert to the vesting schedule in
effect before this Plan became a Top Heavy Plan. Any such reversion shall be
treated as a Plan amendment pursuant to the terms of the Plan.
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(d) Notwithstanding the vesting schedule above, upon the complete
discontinuance of the Employer's contributions to the Plan or upon any full or
partial termination of the Plan, all amounts credited to the account of any
affected Participant shall become 100% Vested and shall not thereafter be
subject to Forfeiture.
(e) The computation of a Participant's nonforfeitable percentage of his
interest in the Plan shall not be reduced as the result of any direct or
indirect amendment to this Plan. For this purpose, the Plan shall be treated as
having been amended if the Plan provides for an automatic change in vesting due
to a change in top heavy status. In the event that the Plan is amended to
change or modify any vesting schedule, a Participant with at least three (3)
Years of Service as of the expiration date of the election period may elect to
have his nonforfeitable percentage computed under the Plan without regard to
such amendment. If a Participant fails to make such election, then such
Participant shall be subject to the new vesting schedule. The Participant's
election period shall commence on the adoption date of the amendment and shall
end 60 days after the latest of:
(1) the adoption date of the amendment,
(2) the effective date of the amendment, or
(3) the date the Participant receives written notice of the amendment from
the Employer or Administrator.
(f)(1) If any Former Participant shall be reemployed by the Employer before a
1-Year Break in Service occurs, he shall continue to participate in the Plan in
the same manner as if such termination had not occurred.
(2) If any Former Participant shall be reemployed by the Employer before
five (5) consecutive 1-Year Breaks in Service, and such Former Participant had
received, or was deemed to have received, a distribution of his entire Vested
interest prior to his reemployment, his forfeited account shall be reinstated
only if he repays the full amount distributed to him before the earlier of five
(5) years after the first date on which the Participant is subsequently
reemployed by the Employer or the close of the first period of five (5)
consecutive 1-Year Breaks in Service commencing after the distribution, or in
the event of a deemed distribution, upon the reemployment of such Former
Participant. In the event the Former Participant does repay the full amount
distributed to him, or in the event of a deemed distribution, the undistributed
portion of the Participant's Account must be restored in full, unadjusted by
any gains or losses occurring subsequent to the Anniversary Date or other
valuation date coinciding with or preceding his
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termination. The source for such reinstatement shall first be any Forfeitures
occurring during the year. If such source is insufficient, then the Employer
shall contribute an amount which is sufficient to restore any such forfeited
Accounts provided, however, that if a discretionary contribution is made for
such year, such contribution shall first be applied to restore any such
Accounts and the remainder shall be allocated in accordance with Section 4.3.
(3) If any Former Participant is reemployed after a 1-Year Break in
Service has occurred, Years of Service shall include Years of Service prior to
his 1-Year Break in Service subject to the following rules:
(i) If a Former Participant has a 1-Year Break in Service, his pre-break
and post-break service shall be used for computing Years of Service for
eligibility and for vesting purposes only after he has been employed for one
(1) Year of Service following the date of his reemployment with the Employer;
(ii) Any Former Participant who under the Plan does not have a
nonforfeitable right to any interest in the Plan resulting from Employer
contributions shall lose credits otherwise allowable under (i) above if his
consecutive 1-Year Breaks in Service equal or exceed the greater of (A) five
(5) or (B) the aggregate number of his pre-break Years of Service;
(iii) After five (5) consecutive 1-Year Breaks in Service, a Former
Participant's Vested Account balance attributable to pre-break service shall
not be increased as a result of post-break service;
(iv) If a Former Participant who has not had his Years of Service before a
1-Year Break in Service disregarded pursuant to (ii) above completes one (1)
Year of Service for eligibility purposes following his reemployment with the
Employer, he shall participate in the Plan retroactively from his date of
reemployment;
(v) If a Former Participant who has not had his Years of Service before a
1-Year Break in Service disregarded pursuant to (ii) above completes a Year of
Service (a 1-Year Break in Service previously occurred, but employment had not
terminated), he shall participate in the Plan retroactively from the first day
of the Plan Year during which he completes one (1) Year of Service.
(g) In determining Years of Service for purposes of vesting under the
Plan, Years of Service prior to the Effective Date of the Plan shall be
excluded.
VII.5 DISTRIBUTION OF BENEFITS
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<PAGE> 55
(a) The Administrator, pursuant to the election of the Participant (or if
no election has been made prior to the Participant's death, by his
Beneficiary), shall direct the Trustee to distribute to a Participant or his
Beneficiary any amount to which he is entitled under the Plan in one or more of
the following methods:
(1) One lump-sum payment;
(2) Payments over a period certain in monthly, quarterly, semiannual, or
annual installments. The period over which such payment is to be made shall not
extend beyond the earlier of the Participant's life expectancy (or the life
expectancy of the Participant and his designated Beneficiary) or the limited
distribution period provided for in Section 7.5(b).
(b) Unless the Participant elects in writing a longer distribution period,
distributions to a Participant or his Beneficiary attributable to Company Stock
shall be in substantially equal monthly, quarterly, semiannual, or annual
installments over a period not longer than five (5) years. In the case of a
Participant with an account balance attributable to Company Stock in excess of
$500,000, the five (5) year period shall be extended one (1) additional year
(but not more than five (5) additional years) for each $100,000 or fraction
thereof by which such balance exceeds $500,000. The dollar limits shall be
adjusted at the same time and in the same manner as provided in Code Section
415(d).
(c) Any distribution to a Participant who has a benefit which exceeds, or
has ever exceeded, $3,500 at the time of any prior distribution shall require
such Participant's consent if such distribution commences prior to the later of
his Normal Retirement Age or age 62. With regard to this required consent:
(1) The Participant must be informed of his right to defer receipt of the
distribution. If a Participant fails to consent, it shall be deemed an election
to defer the commencement of payment of any benefit. However, any election to
defer the receipt of benefits shall not apply with respect to distributions
which are required under Section 7.5(f).
(2) Notice of the rights specified under this paragraph shall be provided
no less than 30 days and no more than 90 days before the first day on which all
events have occurred which entitle the Participant to such benefit.
(3) Written consent of the Participant to the distribution must not be
made before the Participant receives the notice and must not be made more than
90 days before the first day on which all events have occurred which entitle
the Participant to such benefit.
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<PAGE> 56
(4) No consent shall be valid if a significant detriment is imposed under
the Plan on any Participant who does not consent to the distribution.
If a distribution is one to which Code Sections
401(a)(11) and 417 do not apply, such distribution
may commence less than 30 days after the notice
required under Regulation 1.411(a)-11(c) is given,
provided that: (1) the Administrator clearly informs
the Participant that the Participant has a right to
a period of at least 30 days after receiving the
notice to consider the decision of whether or not to
elect a distribution (and, if applicable, a
particular distribution option), and (2) the
Participant, after receiving the notice,
affirmatively elects a distribution.
(d) Notwithstanding anything herein to the contrary, the Administrator, in
his sole discretion, may direct that cash dividends on shares of Company Stock
allocable to Participants' or Former Participants' Company Stock Accounts be
distributed to such Participants or Former Participants within 90 days after
the close of the Plan Year in which the dividends are paid.
(e) Any part of a Participant's benefit which is retained in the Plan
after the Anniversary Date on which his participation ends will continue to be
treated as a Company Stock Account or as an Other Investments Account (subject
to Section 7.4(a)) as provided in Article IV. However, neither account will be
credited with any further Employer contributions or Forfeitures.
(f) Notwithstanding any provision in the Plan to the contrary, the
distribution of a Participant's benefits shall be made in accordance with the
following requirements and shall otherwise comply with Code Section 401(a)(9)
and the Regulations thereunder (including Regulation 1.401(a)(9)-2), the
provisions of which are incorporated herein by reference:
(1) A Participant's benefits shall be distributed to him not later than
April 1st of the calendar year following the later of (i) the calendar year in
which the Participant attains age 70 1/2 or (ii) the calendar year in which the
Participant retires, provided, however, that this clause (ii) shall not apply
in the case of a Participant who is a "five (5) percent owner" at any time
during the five (5) Plan Year period ending in the calendar year in which he
attains age 70 1/2 or, in the case of a Participant who becomes a "five (5)
percent owner" during any subsequent Plan Year, clause (ii) shall no longer
apply and the required beginning date shall be the April 1st of the calendar
year following the calendar year in which such subsequent Plan Year ends.
Alternatively, distributions to a Participant must begin no later than the
applicable April 1st as determined under the preceding sentence and must be
made over a period certain measured by the life expectancy of the Participant
(or the life expectancies of the Participant and his designated Beneficiary) in
accordance with Regulations. Notwithstanding the foregoing, clause (ii) above
shall not apply to any Participant unless the Participant had attained age 70
1/2 before January 1, 1988 and was not a "five (5) percent owner" at any time
during the Plan Year ending with or within the calendar year in which the
Participant attained age 66 1/2 or any subsequent Plan Year.
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<PAGE> 57
(2) Distributions to a Participant and his Beneficiaries shall only be
made in accordance with the incidental death benefit requirements of Code
Section 401(a)(9)(G) and the Regulations thereunder.
(g) Notwithstanding any provision in the Plan to the contrary,
distributions upon the death of a Participant shall be made in accordance with
the following requirements and shall otherwise comply with Code Section
401(a)(9) and the Regulations thereunder. If it is determined pursuant to
Regulations that the distribution of a Participant's interest has begun and the
Participant dies before his entire interest has been distributed to him, the
remaining portion of such interest shall be distributed at least as rapidly as
under the method of distribution selected pursuant to Section 7.5 as of his
date of death. If a Participant dies before he has begun to receive any
distributions of his interest under the Plan or before distributions are deemed
to have begun pursuant to Regulations, then his death benefit shall be
distributed to his Beneficiaries by December 31st of the calendar year in which
the fifth anniversary of his date of death occurs.
However, the 5-year distribution
requirement of the preceding paragraph shall not apply to
any portion of the deceased Participant's interest which is
payable to or for the benefit of a designated Beneficiary.
In such event, such portion may, at the election of the
Participant (or the Participant's designated Beneficiary),
be distributed over a period not extending beyond the life
expectancy of such designated Beneficiary provided such
distribution begins not later than December 31st of the
calendar year immediately following the calendar year in
which the Participant died. However, in the event the
Participant's spouse (determined as of the date of the
Participant's death) is his Beneficiary, the requirement
that distributions commence within one year of a
Participant's death shall not apply. In lieu thereof,
distributions must commence on or before the later of: (1)
December 31st of the calendar year immediately following the
calendar year in which the Participant died; or (2) December
31st of the calendar year in which the Participant would
have attained age 70 1/2. If the surviving spouse dies
before distributions to such spouse begin, then the 5-year
distribution requirement of this Section shall apply as if
the spouse was the Participant.
(h) For purposes of Section 7.5(g), the election by a designated
Beneficiary to be excepted from the 5-year distribution requirement must be
made no later than December 31st of the calendar year following the calendar
year of the Participant's death. Except, however, with respect to a designated
Beneficiary who is the Participant's surviving spouse, the election must be
made by the earlier of: (1) December 31st of the calendar year immediately
following the calendar year in which the Participant died or, if later, the
calendar year in which the Participant would have attained age 70 1/2; or (2)
December 31st of the calendar year which contains the fifth anniversary of the
date of the Participant's death. An election by a designated Beneficiary must
be in writing and shall be irrevocable as of the last day of the election
period stated herein.
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<PAGE> 58
In the absence of an election by the Participant or a designated Beneficiary,
the 5-year distribution requirement shall apply.
(i) For purposes of this Section, the life expectancy of a Participant and
a Participant's spouse shall not be redetermined in accordance with Code
Section 401(a)(9)(D). Life expectancy and joint and last survivor expectancy
shall be computed using the return multiples in Tables V and VI of Regulation
1.72-9.
(j) Except as limited by Sections 7.5 and 7.6, whenever the Trustee is to
make a distribution or to commence a series of payments on or as of an
Anniversary Date, the distribution or series of payments may be made or begun
on such date or as soon thereafter as is practicable. However, unless a Former
Participant elects in writing to defer the receipt of benefits (such election
may not result in a death benefit that is more than incidental), the payment of
benefits shall begin not later than the 60th day after the close of the Plan
Year in which the latest of the following events occurs:
(1) the date on which the Participant attains the earlier of age 65 or the
Normal Retirement Age specified herein;
(2) the 10th anniversary of the year in which the Participant commenced
participation in the Plan; or
(3) the date the Participant terminates his service with the Employer.
(k) If a distribution is made at a time when a Participant is not fully
Vested in his Participant's Account (employment has not terminated) and the
Participant may increase the Vested percentage in such account:
(1) a separate account shall be established for the Participant's interest
in the Plan as of the time of the distribution; and
(2) at any relevant time, the Participant's Vested portion of the separate
account shall be equal to an amount ("X") determined by the formula:
X equals P(AB plus (R x D)) - (R x D)
For purposes of applying the formula: P is the
Vested percentage at the relevant time, AB is the
account balance at the relevant time, D is the
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amount of distribution, and R is the ratio of the
account balance at the relevant time to the account
balance after distribution.
VII.6 HOW PLAN BENEFIT WILL BE DISTRIBUTED
(a) Distribution of a Participant's benefit may be made in cash or Company
Stock or both, provided, however, that if a Participant or Beneficiary so
demands, such benefit shall be distributed only in the form of Company Stock.
Prior to making a distribution of benefits, the Administrator shall advise the
Participant or his Beneficiary, in writing, of the right to demand that
benefits be distributed solely in Company Stock.
(b) If a Participant or Beneficiary demands that benefits be distributed
solely in Company Stock, distribution of a Participant's benefit will be made
entirely in whole shares or other units of Company Stock. Any balance in a
Participant's Other Investments Account will be applied to acquire for
distribution the maximum number of whole shares or other units of Company Stock
at the then fair market value. Any fractional unit value unexpended will be
distributed in cash. If Company Stock is not available for purchase by the
Trustee, then the Trustee shall hold such balance until Company Stock is
acquired and then make such distribution, subject to Sections 7.5(j) and
7.5(f).
(c) The Trustee will make distribution from the Trust only on instructions
from the Administrator.
(d) Notwithstanding anything contained herein to the contrary, if the
Employer's charter or by-laws restrict ownership of substantially all shares of
Company Stock to Employees and the Trust Fund, as described in Code Section
409(h)(2), the Administrator shall distribute a Participant's Account entirely
in cash without granting the Participant the right to demand distribution in
shares of Company Stock.
(e) Except as otherwise provided herein, Company Stock distributed by the
Trustee may be restricted as to sale or transfer by the by-laws or articles of
incorporation of the Employer, provided restrictions are applicable to all
Company Stock of the same class. If a Participant is required to offer the
sale of his Company Stock to the Employer before offering to sell his Company
Stock to a third party, in no event may the Employer pay a price less than that
offered to the distributee by another potential buyer making a bona fide offer
and in no event shall the Trustee pay a price less than the fair market value
of the Company Stock.
(f) If Company Stock acquired with the proceeds of an Exempt Loan
(described in Section 5.4 hereof) is available for distribution and consists of
more than one class, a Participant or his Beneficiary must receive
substantially the same proportion of each such class.
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VII.7 DISTRIBUTION FOR MINOR BENEFICIARY
In the event a distribution is to be made to a minor, then
the Administrator may direct that such distribution be paid to the legal
guardian, or if none, to a parent of such Beneficiary or a responsible adult
with whom the Beneficiary maintains his residence, or to the custodian for such
Beneficiary under the Uniform Gift to Minors Act or Gift to Minors Act, if such
is permitted by the laws of the state in which said Beneficiary resides. Such a
payment to the legal guardian, custodian or parent of a minor Beneficiary shall
fully discharge the Trustee, Employer, and Plan from further liability on
account thereof.
VII.8 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN
In the event that all, or any portion, of the distribution
payable to a Participant or his Beneficiary hereunder shall, at the later of
the Participant's attainment of age 62 or his Normal Retirement Age, remain
unpaid solely by reason of the inability of the Administrator, after sending a
registered letter, return receipt requested, to the last known address, and
after further diligent effort, to ascertain the whereabouts of such Participant
or his Beneficiary, the amount so distributable shall be treated as a
Forfeiture pursuant to the Plan. In the event a Participant or Beneficiary is
located subsequent to his benefit being reallocated, such benefit shall be
restored.
VII.9 RIGHT OF FIRST REFUSALS
(a) If any Participant, his Beneficiary or any other person to whom shares
of Company Stock are distributed from the Plan (the "Selling Participant")
shall, at any time, desire to sell some or all of such shares (the "Offered
Shares") to a third party (the "Third Party"), the Selling Participant shall
give written notice of such desire to the Employer and the Administrator, which
notice shall contain the number of shares offered for sale, the proposed terms
of the sale and the names and addresses of both the Selling Participant and
Third Party. Both the Trust Fund and the Employer shall each have the right of
first refusal for a period of fourteen (14) days from the date the Selling
Participant gives such written notice to the Employer and the Administrator
(such fourteen (14) day period to run concurrently against the Trust Fund and
the Employer) to acquire the Offered Shares. As between the Trust Fund and the
Employer, the Trust Fund shall have priority to acquire the shares pursuant to
the right of first refusal. The selling price and terms shall be the same as
offered by the Third Party.
(b) If the Trust Fund and the Employer do not exercise their right of
first refusal within the required fourteen (14) day period provided above, the
Selling Participant shall have the right, at any time following the expiration
of such fourteen (14) day period, to dispose of the Offered Shares to the Third
Party; provided, however, that (i) no disposition shall be made to the Third
Party on terms more favorable to the Third Party than those set forth in the
written notice delivered by the Selling Participant above, and (ii) if such
disposition shall not be made to a third party on the terms offered to the
Employer and the Trust Fund, the offered Shares shall again be subject to the
right of first refusal set forth above.
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(c) The closing pursuant to the exercise of the right of first refusal
under Section 7.9(a) above shall take place at such place agreed upon between
the Administrator and the Selling Participant, but not later than ten (10) days
after the Employer or the Trust Fund shall have notified the Selling
Participant of the exercise of the right of first refusal. At such closing,
the Selling Participant shall deliver certificates representing the Offered
Shares duly endorsed in blank for transfer, or with stock powers attached duly
executed in blank with all required transfer tax stamps attached or provided
for, and the Employer or the Trust Fund shall deliver the purchase price, or an
appropriate portion thereof, to the Selling Participant.
(d) Except as provided in this paragraph (d), no Company Stock acquired
with the proceeds of an Exempt Loan complying with the requirements of Section
5.4 hereof shall be subject to a right of first refusal. Company Stock acquired
with the proceeds of an Exempt Loan, which is distributed to a Participant or
Beneficiary, shall be subject to the right of first refusal provided for in
paragraph (a) of this Section only so long as the Company Stock is not publicly
traded. The term "publicly traded" refers to a securities exchange registered
under Section 6 of the Securities Exchange Act of 1934 (15 U.S.C. 78f) or that
is quoted on a system sponsored by a national securities association registered
under Section 15A(b) of the Securities Exchange Act (15 U.S.C. 780). In
addition, in the case of Company Stock which was acquired with the proceeds of
a loan described in Section 5.4, the selling price and other terms under the
right must not be less favorable to the seller than the greater of the value of
the security determined under Section 6.2, or the purchase price and other
terms offered by a buyer (other than the Employer or the Trust Fund), making a
good faith offer to purchase the security. The right of first refusal must
lapse no later than fourteen (14) days after the security holder gives notice
to the holder of the right that an offer by a third party to purchase the
security has been made. The right of first refusal shall comply with the
provisions of paragraphs (a), (b) and (c) of this Section, except to the extent
those provisions may conflict with the provisions of this paragraph.
VII.10 STOCK CERTIFICATE LEGEND
Certificates for shares distributed pursuant to the Plan
shall contain the following legend:
"The shares represented by this certificate are transferable
only upon compliance with the terms of CENTRAL COAST BANCORP EMPLOYEE STOCK
OWNERSHIP PLAN AND TRUST effective as of January 1, 1996, which grants to
Central Coast Bancorp a right of first refusal, a copy of said Plan being on
file in the office of the Company."
VII.11 NONTERMINABLE PROTECTIONS AND RIGHTS
No Company Stock, except as provided in Section 4.3(n),
acquired with the proceeds of a loan described in Section 5.4 hereof may be
subject to a put, call, or other option, or buy-sell or similar arrangement
when held by and when distributed from the Trust Fund, whether or not the Plan
is then an ESOP. The protections and rights granted in this Section are
nonterminable, and such protections and rights shall continue to exist under
the terms of this Plan so long as any Company Stock acquired with the proceeds
of a loan described in Section 5.4
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hereof is held by the Trust Fund or by any Participant or other person for
whose benefit such protections and rights have been created, and neither the
repayment of such loan nor the failure of the Plan to be an ESOP, nor an
amendment of the Plan shall cause a termination of said protections and rights.
VII.12 PRE-RETIREMENT DISTRIBUTION
At such time as a Participant shall have attained the age of
59 1/2 years, the Administrator, at the election of the Participant, shall
direct the Trustee to distribute all or a portion of the amount then credited
to the accounts maintained on behalf of the Participant. However, no
distribution from the Participant's Account shall occur prior to 100% vesting.
In the event that the Administrator makes such a distribution, the Participant
shall continue to be eligible to participate in the Plan on the same basis as
any other Employee. Any distribution made pursuant to this Section shall be
made in a manner consistent with Sections 7.5 and 7.6, including, but not
limited to, all notice and consent requirements of Code Section 411(a)(11) and
the Regulations thereunder.
VII.13 QUALIFIED DOMESTIC RELATIONS ORDER DISTRIBUTION
All rights and benefits, including elections, provided to a
Participant in this Plan shall be subject to the rights afforded to any
"alternate payee" under a "qualified domestic relations order." Furthermore, a
distribution to an "alternate payee" shall be permitted if such distribution is
authorized by a "qualified domestic relations order," even if the affected
Participant has not separated from service and has not reached the "earliest
retirement age" under the Plan. For the purposes of this Section, "alternate
payee," "qualified domestic relations order" and "earliest retirement age"
shall have the meaning set forth under Code Section 414(p).
ARTICLE VIII
TRUSTEE
VIII.1 BASIC RESPONSIBILITIES OF THE TRUSTEE
The Trustee shall have the following categories of
responsibilities:
(a) Consistent with the "funding policy and method" determined by the
Employer, to invest, manage, and control the Plan assets subject, however, to
the direction of an Investment Manager if the Trustee should appoint such
manager as to all or a portion of the assets of the Plan;
(b) At the direction of the Administrator, to pay benefits required under
the Plan to be paid to Participants, or, in the event of their death, to their
Beneficiaries;
(c) To maintain records of receipts and disbursements and furnish to the
Employer and/or Administrator for each Plan Year a written annual report per
Section 8.7; and
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(d) If there shall be more than one Trustee, they shall act by a majority
of their number, but may authorize one or more of them to sign papers on their
behalf.
VIII.2 INVESTMENT POWERS AND DUTIES OF THE TRUSTEE
(a) The Trustee shall invest and reinvest the Trust Fund to keep the Trust
Fund invested without distinction between principal and income and in such
securities or property, real or personal, wherever situated, as the Trustee
shall deem advisable, including, but not limited to, stocks, common or
preferred, bonds and other evidences of indebtedness or ownership, and real
estate or any interest therein. The Trustee shall at all times in making
investments of the Trust Fund consider, among other factors, the short and
long-term financial needs of the Plan on the basis of information furnished by
the Employer. In making such investments, the Trustee shall not be restricted
to securities or other property of the character expressly authorized by the
applicable law for trust investments; however, the Trustee shall give due
regard to any limitations imposed by the Code or the Act so that at all times
the Plan may qualify as an Employee Stock Ownership Plan and Trust.
(b) The Trustee may employ a bank or trust company pursuant to the terms
of its usual and customary bank agency agreement, under which the duties of
such bank or trust company shall be of a custodial, clerical and record-keeping
nature.
(c) In the event the Trustee invests any part of the Trust Fund, pursuant
to the directions of the Administrator, in any shares of stock issued by the
Employer, and the Administrator thereafter directs the Trustee to dispose of
such investment, or any part thereof, under circumstances which, in the opinion
of counsel for the Trustee, require registration of the securities under the
Securities Act of 1933 and/or qualification of the securities under the Blue
Sky laws of any state or states, then the Employer at its own expense, will
take or cause to be taken any and all such action as may be necessary or
appropriate to effect such registration and/or qualification.
VIII.3 OTHER POWERS OF THE TRUSTEE
The Trustee, in addition to all powers and authorities under
common law, statutory authority, including the Act, and other provisions of the
Plan, shall have the following powers and authorities, to be exercised in the
Trustee's sole discretion:
(a) To purchase, or subscribe for, any securities or other property and to
retain the same. In conjunction with the purchase of securities, margin
accounts may be opened and maintained;
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(b) To sell, exchange, convey, transfer, grant options to purchase, or
otherwise dispose of any securities or other property held by the Trustee, by
private contract or at public auction. No person dealing with the Trustee shall
be bound to see to the application of the purchase money or to inquire into the
validity, expediency, or propriety of any such sale or other disposition, with
or without advertisement;
(c) To vote upon any stocks, bonds, or other securities; to give general
or special proxies or powers of attorney with or without power of substitution;
to exercise any conversion privileges, subscription rights or other options,
and to make any payments incidental thereto; to oppose, or to consent to, or
otherwise participate in, corporate reorganizations or other changes affecting
corporate securities, and to delegate discretionary powers, and to pay any
assessments or charges in connection therewith; and generally to exercise any
of the powers of an owner with respect to stocks, bonds, securities, or other
property;
(d) To cause any securities or other property to be registered in the
Trustee's own name or in the name of one or more of the Trustee's nominees, and
to hold any investments in bearer form, but the books and records of the
Trustee shall at all times show that all such investments are part of the Trust
Fund;
(e) To borrow or raise money for the purposes of the Plan in such amount,
and upon such terms and conditions, as the Trustee shall deem advisable; and
for any sum so borrowed, to issue a promissory note as Trustee, and to secure
the repayment thereof by pledging all, or any part, of the Trust Fund; and no
person lending money to the Trustee shall be bound to see to the application of
the money lent or to inquire into the validity, expediency, or propriety of any
borrowing;
(f) To keep such portion of the Trust Fund in cash or cash balances as the
Trustee may, from time to time, deem to be in the best interests of the Plan,
without liability for interest thereon;
(
g) To accept and retain for such time as the Trustee may deem advisable
any securities or other property received or acquired as Trustee hereunder,
whether or not such securities or other property would normally be purchased as
investments hereunder;
(h) To make, execute, acknowledge, and deliver any and all documents of
transfer and conveyance and any and all other instruments that may be necessary
or appropriate to carry out the powers herein granted;
(i) To settle, compromise, or submit to arbitration any claims, debts, or
damages due or owing to or from the Plan, to commence or defend suits or legal
or administrative proceedings, and to represent the Plan in all suits and legal
and administrative proceedings;
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(j) To employ suitable agents and counsel and to pay their reasonable
expenses and compensation, and such agent or counsel may or may not be agent or
counsel for the Employer;
(k) To apply for and procure from responsible insurance companies, to be
selected by the Administrator, as an investment of the Trust Fund such annuity,
or other Contracts (on the life of any Participant) as the Administrator shall
deem proper; to exercise, at any time or from time to time, whatever rights and
privileges may be granted under such annuity, or other Contracts; to collect,
receive, and settle for the proceeds of all such annuity or other Contracts as
and when entitled to do so under the provisions thereof;
(l) To invest funds of the Trust in time deposits or savings accounts
bearing a reasonable rate of interest in the Trustee's bank;
(m) To invest in Treasury Bills and other forms of United States
government obligations;
(n) To invest in shares of investment companies registered under the
Investment Company Act of 1940;
(o) To deposit monies in federally insured savings accounts or
certificates of deposit in banks or savings and loan associations;
(p) To vote Company Stock as provided in Section 8.4;
(q) To consent to or otherwise participate in reorganizations,
recapitalizations, consolidations, mergers and similar transactions with
respect to Company Stock or any other securities and to pay any assessments or
charges in connection therewith;
(r) To deposit such Company Stock (but only if such deposit does not
violate the provisions of Section 8.4 hereof) or other securities in any voting
trust, or with any protective or like committee, or with a trustee or with
depositories designated thereby;
(s) To sell or exercise any options, subscription rights and conversion
privileges and to make any payments incidental thereto;
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(t) To exercise any of the powers of an owner, with respect to such
Company Stock and other securities or other property comprising the Trust Fund.
The Administrator, with the Trustee's approval, may authorize the Trustee to
act on any administrative matter or class of matters with respect to which
direction or instruction to the Trustee by the Administrator is called for
hereunder without specific direction or other instruction from the
Administrator;
(u) To sell, purchase and acquire put or call options if the options are
traded on and purchased through a national securities exchange registered under
the Securities Exchange Act of 1934, as amended, or, if the options are not
traded on a national securities exchange, are guaranteed by a member firm of
the New York Stock Exchange;
(v) To do all such acts and exercise all such rights and privileges,
although not specifically mentioned herein, as the Trustee may deem necessary
to carry out the purposes of the Plan.
VIII.4 VOTING COMPANY STOCK
The Trustee shall vote all Company Stock held by it as part
of the Plan assets at such time and in such manner as the Administrator shall
direct. Provided, however, that if any agreement entered into by the Trust
provides for voting of any shares of Company Stock pledged as security for any
obligation of the Plan, then such shares of Company Stock shall be voted in
accordance with such agreement. If the Administrator fails or refuses to give
the Trustee timely instructions as to how to vote any Company Stock as to which
the Trustee otherwise has the right to vote, the Trustee shall not exercise its
power to vote such Company Stock and shall consider the Administrator's failure
or refusal to give timely instructions as an exercise of the Administrator's
rights and a directive to the Trustee not to vote said Company Stock. If the
Trustee does not timely receive voting directions from a Participant or
Beneficiary with respect to any Company Stock allocated to that Participant's
or Beneficiary's Company Stock Account, the Trustee shall vote on such Company
Stock.
Notwithstanding the foregoing, if the Employer has a
registration-type class of securities or, with respect to Company Stock
acquired by, or transferred to, the Plan in connection with a securities
acquisition loan (as defined in Code Section 133(b)) after July 10, 1989, each
Participant or Beneficiary shall be entitled to direct the Trustee as to the
manner in which the Company Stock which is entitled to vote and which is
allocated to the Company Stock Account of such Participant or Beneficiary is to
be voted. If the Employer does not have a registration-type class of
securities, with respect to Company Stock other than Company Stock acquired by,
or transferred to, the Plan in connection with a securities acquisition loan
(as defined in Code Section 133(b)) after July 10, 1989, each Participant or
Beneficiary in the Plan shall be entitled to direct the Trustee as to the
manner in which voting rights on shares of Company Stock which are allocated to
the Company Stock Account of such Participant or Beneficiary are to be
exercised with respect to any corporate matter which involves the voting of
such shares with respect to the approval or disapproval of any corporate merger
or consolidation, recapitalization, reclassification, liquidation, dissolution,
sale of substantially all assets of a trade or business, or such similar
transaction as prescribed in Regulations. For purposes of this Section the
term "registration-type class of securities" means: (A) a class of securities
required to be
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registered under Section 12 of the Securities Exchange Act of 1934; and (B) a
class of securities which would be required to be so registered except for the
exemption from registration provided in subsection (g)(2)(H) of such Section
12.
If the Employer does not have a registration-type class of
securities and the by-laws of the Employer require the Plan to vote an issue in
a manner that reflects a one-man, one-vote philosophy, each Participant or
Beneficiary shall be entitled to cast one vote on an issue and the Trustee
shall vote the shares held by the Plan in proportion to the results of the
votes cast on the issue by the Participants and Beneficiaries.
VIII.5 DUTIES OF THE TRUSTEE REGARDING PAYMENTS
(a) The Trustee shall make distributions from the Trust Fund at such times
and in such numbers of shares or other units of Company Stock and amounts of
cash to or for the benefit of the person entitled thereto under the Plan as the
Administrator directs in writing. Any undistributed part of a Participant's
interest in his accounts shall be retained in the Trust Fund until the
Administrator directs its distribution. Where distribution is directed in
Company Stock, the Trustee shall cause an appropriate certificate to be issued
to the person entitled thereto and mailed to the address furnished it by the
Administrator. Any portion of a Participant's Account to be distributed in cash
shall be paid by the Trustee mailing its check to the same person at the same
address. If a dispute arises as to who is entitled to or should receive any
benefit or payment, the Trustee may withhold or cause to be withheld such
payment until the dispute has been resolved.
(b) As directed by the Administrator, the Trustee shall make payments out
of the Trust Fund. Such directions or instructions need not specify the purpose
of the payments so directed and the Trustee shall not be responsible in any way
respecting the purpose or propriety of such payments except as mandated by the
Act.
(c) In the event that any distribution or payment directed by the
Administrator shall be mailed by the Trustee to the person specified in such
direction at the latest address of such person filed with the Administrator,
and shall be returned to the Trustee because such person cannot be located at
such address, the Trustee shall promptly notify the Administrator of such
return. Upon the expiration of sixty (60) days after such notification, such
direction shall become void and unless and until a further direction by the
Administrator is received by the Trustee with respect to such distribution or
payment, the Trustee shall thereafter continue to administer the Trust as if
such direction had not been made by the Administrator. The Trustee shall not be
obligated to search for or ascertain the whereabouts of any such person.
VIII.6 TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES
The Trustee shall be paid such reasonable compensation as
shall from time to time be agreed upon in writing by the Employer and the
Trustee. An individual serving as Trustee who already receives full-time pay
from the Employer shall not receive compensation
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from the Plan. In addition, the Trustee shall be reimbursed for any reasonable
expenses, including reasonable counsel fees incurred by it as Trustee. Such
compensation and expenses shall be paid from the Trust Fund unless paid or
advanced by the Employer. All taxes of any kind and all kinds whatsoever that
may be levied or assessed under existing or future laws upon, or in respect of,
the Trust Fund or the income thereof, shall be paid from the Trust Fund.
VIII.7 ANNUAL REPORT OF THE TRUSTEE
Within a reasonable period of time after the later of the
Anniversary Date or receipt of the Employer's contribution for each Plan Year,
the Trustee shall furnish to the Employer and Administrator a written statement
of account with respect to the Plan Year for which such contribution was made
setting forth:
(a) the net income, or loss, of the Trust Fund;
(b) the gains, or losses, realized by the Trust Fund upon sales or other
disposition of the assets;
(c) the increase, or decrease, in the value of the Trust Fund;
(d) all payments and distributions made from the Trust Fund; and
(e) such further information as the Trustee and/or Administrator deems
appropriate. The Employer, forthwith upon its receipt of each such statement of
account, shall acknowledge receipt thereof in writing and advise the Trustee
and/or Administrator of its approval or disapproval thereof. Failure by the
Employer to disapprove any such statement of account within thirty (30) days
after its receipt thereof shall be deemed an approval thereof. The approval by
the Employer of any statement of account shall be binding as to all matters
embraced therein as between the Employer and the Trustee to the same extent as
if the account of the Trustee had been settled by judgment or decree in an
action for a judicial settlement of its account in a court of competent
jurisdiction in which the Trustee, the Employer and all persons having or
claiming an interest in the Plan were parties; provided, however, that nothing
herein contained shall deprive the Trustee of its right to have its accounts
judicially settled if the Trustee so desires.
VIII.8 AUDIT
(a) If an audit of the Plan's records shall be required by the Act and the
regulations thereunder for any Plan Year, the Administrator shall direct the
Trustee to engage on behalf of all Participants an independent qualified public
accountant for that purpose. Such accountant shall, after an audit of the books
and records of the Plan in accordance with generally accepted auditing
standards, within a reasonable period after the close of the Plan Year, furnish
to the
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Administrator and the Trustee a report of his audit setting forth his opinion
as to whether any statements, schedules or lists that are required by Act
Section 103 or the Secretary of Labor to be filed with the Plan's annual
report, are presented fairly in conformity with generally accepted accounting
principles applied consistently. All auditing and accounting fees shall be an
expense of and may, at the election of the Administrator, be paid from the
Trust Fund.
(b) If some or all of the information necessary to enable the
Administrator to comply with Act Section 103 is maintained by a bank, insurance
company, or similar institution, regulated and supervised and subject to
periodic examination by a state or federal agency, it shall transmit and
certify the accuracy of that information to the Administrator as provided in
Act Section 103(b) within one hundred twenty (120) days after the end of the
Plan Year or by such other date as may be prescribed under regulations of the
Secretary of Labor.
VIII.9 RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE
(a) The Trustee may resign at any time by delivering to the Employer, at
least thirty (30) days before its effective date, a written notice of his
resignation.
(b) The Employer may remove the Trustee by mailing by registered or
certified mail, addressed to such Trustee at his last known address, at least
thirty (30) days before its effective date, a written notice of his removal.
(c) Upon the death, resignation, incapacity, or removal of any Trustee, a
successor may be appointed by the Employer; and such successor, upon accepting
such appointment in writing and delivering same to the Employer, shall, without
further act, become vested with all the estate, rights, powers, discretions,
and duties of his predecessor with like respect as if he were originally named
as a Trustee herein. Until such a successor is appointed, the remaining Trustee
or Trustees shall have full authority to act under the terms of the Plan.
(d) The Employer may designate one or more successors prior to the death,
resignation, incapacity, or removal of a Trustee. In the event a successor is
so designated by the Employer and accepts such designation, the successor
shall, without further act, become vested with all the estate, rights, powers,
discretions, and duties of his predecessor with the like effect as if he were
originally named as Trustee herein immediately upon the death, resignation,
incapacity, or removal of his predecessor.
(e) Whenever any Trustee hereunder ceases to serve as such, he shall
furnish to the Employer and Administrator a written statement of account with
respect to the portion of the Plan Year during which he served as Trustee. This
statement shall be either (i) included as part of the annual statement of
account for the Plan Year required under Section 8.7 or (ii) set forth in a
special statement. Any such special statement of account should be rendered to
the Employer no later than the due date of the annual statement of account for
the Plan Year. The procedures set
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forth in Section 8.7 for the approval by the Employer of annual statements of
account shall apply to any special statement of account rendered hereunder and
approval by the Employer of any such special statement in the manner provided
in Section 8.7 shall have the same effect upon the statement as the Employer's
approval of an annual statement of account. No successor to the Trustee shall
have any duty or responsibility to investigate the acts or transactions of any
predecessor who has rendered all statements of account required by Section 8.7
and this subparagraph.
VIII.10 TRANSFER OF INTEREST
Notwithstanding any other provision contained in this Plan,
the Trustee at the direction of the Administrator shall transfer the Vested
interest, if any, of such Participant in his account to another trust forming
part of a pension, profit sharing or stock bonus plan maintained by such
Participant's new employer and represented by said employer in writing as
meeting the requirements of Code Section 401(a), provided that the trust to
which such transfers are made permits the transfer to be made.
VIII.11 DIRECT ROLLOVER
(a) Notwithstanding any provision of the Plan to the contrary that would
otherwise limit a distributee's election under this Section, a distributee may
elect, at the time and in the manner prescribed by the Plan Administrator, to
have any portion of an eligible rollover distribution paid directly to an
eligible retirement plan specified by the distributee in a direct rollover.
(b) For purposes of this Section the following definitions shall apply:
(1) An eligible rollover distribution is any distribution of all or any
portion of the balance to the credit of the distributee, except that an
eligible rollover distribution does not include: any distribution that is one
of a series of substantially equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the distributee or the
joint lives (or joint life expectancies) of the distributee and the
distributee's designated beneficiary, or for a specified period of ten years or
more; any distribution to the extent such distribution is required under Code
Section 401(a)(9); and the portion of any distribution that is not includible
in gross income (determined without regard to the exclusion for net unrealized
appreciation with respect to employer securities).
(2) An eligible retirement plan is an individual retirement account
described in Code Section 408(a), an individual retirement annuity described in
Code Section 408(b), an annuity plan described in Code Section 403(a), or a
qualified trust described in Code Section 401(a), that accepts the
distributee's eligible rollover distribution. However, in the case of an
eligible rollover distribution to the surviving spouse, an eligible retirement
plan is an individual retirement account or individual retirement annuity.
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(3) A distributee includes an Employee or former Employee. In addition,
the Employee's or former Employee's surviving spouse and the Employee's or
former Employee's spouse or former spouse who is the alternate payee under a
qualified domestic relations order, as defined in Code Section 414(p), are
distributees with regard to the interest of the spouse or former spouse.
(4) A direct rollover is a payment by the plan to the eligible retirement
plan specified by the distributee.
ARTICLE IX
AMENDMENT, TERMINATION AND MERGERS
IX.1 AMENDMENT
(a) The Employer shall have the right at any time to amend the Plan,
subject to the limitations of this Section. Any such amendment shall be adopted
by formal action of the Employer's board of directors and executed by an
officer authorized to act on behalf of the Employer. However, any amendment
which affects the rights, duties or responsibilities of the Trustee and
Administrator may only be made with the Trustee's and Administrator's written
consent. Any such amendment shall become effective as provided therein upon its
execution. The Trustee shall not be required to execute any such amendment
unless the Trust provisions contained herein are a part of the Plan and the
amendment affects the duties of the Trustee hereunder.
(b) No amendment to the Plan shall be effective if it authorizes or
permits any part of the Trust Fund (other than such part as is required to pay
taxes and administration expenses) to be used for or diverted to any purpose
other than for the exclusive benefit of the Participants or their Beneficiaries
or estates; or causes any reduction in the amount credited to the account of
any Participant; or causes or permits any portion of the Trust Fund to revert
to or become property of the Employer.
(c) Except as permitted by Regulations, no Plan amendment or transaction
having the effect of a Plan amendment (such as a merger, plan transfer or
similar transaction) shall be effective to the extent it eliminates or reduces
any "Section 411(d)(6) protected benefit" or adds or modifies conditions
relating to "Section 411(d)(6) protected benefits" the result of which is a
further restriction on such benefit unless such protected benefits are
preserved with respect to benefits accrued as of the later of the adoption date
or effective date of the amendment. "Section 411(d)(6) protected benefits" are
benefits described in Code Section 411(d)(6)(A), early retirement benefits and
retirement-type subsidies, and optional forms of benefit.
In addition, no such amendment shall
have the effect of terminating the protections and rights
set forth in Section 7.11, unless such
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termination shall then be permitted under the applicable
provisions of the Code and Regulations; such a termination
is currently expressly prohibited by Regulation
54.4975-11(a)(3)(ii).
IX.2 TERMINATION
(a) The Employer shall have the right at any time to terminate the Plan by
delivering to the Trustee and Administrator written notice of such termination.
Upon any full or partial termination, all amounts credited to the affected
Participants' Accounts shall become 100% Vested as provided in Section 7.4 and
shall not thereafter be subject to forfeiture, and all unallocated amounts
shall be allocated to the accounts of all Participants in accordance with the
provisions hereof.
(b) Upon the full termination of the Plan, the Employer shall direct the
distribution of the assets of the Trust Fund to Participants in a manner which
is consistent with and satisfies the provisions of Sections 7.5 and 7.6. Except
as permitted by Regulations, the termination of the Plan shall not result in
the reduction of "Section 411(d)(6) protected benefits" in accordance with
Section 9.1(c).
IX.3 MERGER OR CONSOLIDATION
This Plan and Trust may be merged or consolidated with, or
its assets and/or liabilities may be transferred to any other plan and trust
only if the benefits which would be received by a Participant of this Plan, in
the event of a termination of the plan immediately after such transfer, merger
or consolidation, are at least equal to the benefits the Participant would have
received if the Plan had terminated immediately before the transfer, merger or
consolidation, and such transfer, merger or consolidation does not otherwise
result in the elimination or reduction of any "Section 411(d)(6) protected
benefits" in accordance with Section 9.1(c).
ARTICLE X
MISCELLANEOUS
X.1 PARTICIPANT'S RIGHTS
This Plan shall not be deemed to constitute a contract
between the Employer and any Participant or to be a consideration or an
inducement for the employment of any Participant or Employee. Nothing contained
in this Plan shall be deemed to give any Participant or Employee the right to
be retained in the service of the Employer or to interfere with the right of
the Employer to discharge any Participant or Employee at any time regardless of
the effect which such discharge shall have upon him as a Participant of this
Plan.
X.2 ALIENATION
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(a) Subject to the exceptions provided below, no benefit which shall be
payable out of the Trust Fund to any person (including a Participant or his
Beneficiary) shall be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, or charge, and any attempt to
anticipate, alienate, sell, transfer, assign, pledge, encumber, or charge the
same shall be void; and no such benefit shall in any manner be liable for, or
subject to, the debts, contracts, liabilities, engagements, or torts of any
such person, nor shall it be subject to attachment or legal process for or
against such person, and the same shall not be recognized by the Trustee,
except to such extent as may be required by law.
(b) This provision shall not apply to a "qualified domestic relations
order" defined in Code Section 414(p), and those other domestic relations
orders permitted to be so treated by the Administrator under the provisions of
the Retirement Equity Act of 1984. The Administrator shall establish a written
procedure to determine the qualified status of domestic relations orders and to
administer distributions under such qualified orders. Further, to the extent
provided under a "qualified domestic relations order," a former spouse of a
Participant shall be treated as the spouse or surviving spouse for all purposes
under the Plan.
X.3 CONSTRUCTION OF PLAN
This Plan and Trust shall be construed and enforced
according to the Act and the laws of the State of California, other than its
laws respecting choice of law, to the extent not preempted by the Act.
X.4 GENDER AND NUMBER
Wherever any words are used herein in the masculine,
feminine or neuter gender, they shall be construed as though they were also
used in another gender in all cases where they would so apply, and whenever any
words are used herein in the singular or plural form, they shall be construed
as though they were also used in the other form in all cases where they would
so apply.
X.5 LEGAL ACTION
In the event any claim, suit, or proceeding is brought
regarding the Trust and/or Plan established hereunder to which the Trustee or
the Administrator may be a party, and such claim, suit, or proceeding is
resolved in favor of the Trustee or Administrator, they shall be entitled to be
reimbursed from the Trust Fund for any and all costs, attorney's fees, and
other expenses pertaining thereto incurred by them for which they shall have
become liable.
X.6 PROHIBITION AGAINST DIVERSION OF FUNDS
(a) Except as provided below and otherwise specifically permitted by law,
it shall be impossible by operation of the Plan or of the Trust, by termination
of either, by power of revocation or amendment, by the happening of any
contingency, by collateral arrangement or by
234
<PAGE> 74
any other means, for any part of the corpus or income of any trust fund
maintained pursuant to the Plan or any funds contributed thereto to be used
for, or diverted to, purposes other than the exclusive benefit of Participants,
Retired Participants, or their Beneficiaries.
(b) In the event the Employer shall make an excessive contribution under a
mistake of fact pursuant to Act Section 403(c)(2)(A), the Employer may demand
repayment of such excessive contribution at any time within one (1) year
following the time of payment and the Trustees shall return such amount to the
Employer within the one (1) year period. Earnings of the Plan attributable to
the excess contributions may not be returned to the Employer but any losses
attributable thereto must reduce the amount so returned.
X.7 BONDING
Every Fiduciary, except a bank or an insurance company,
unless exempted by the Act and regulations thereunder, shall be bonded in an
amount not less than 10% of the amount of the funds such Fiduciary handles;
provided, however, that the minimum bond shall be $1,000 and the maximum bond,
$500,000. The amount of funds handled shall be determined at the beginning of
each Plan Year by the amount of funds handled by such person, group, or class
to be covered and their predecessors, if any, during the preceding Plan Year,
or if there is no preceding Plan Year, then by the amount of the funds to be
handled during the then current year. The bond shall provide protection to the
Plan against any loss by reason of acts of fraud or dishonesty by the Fiduciary
alone or in connivance with others. The surety shall be a corporate surety
company (as such term is used in Act Section 412(a)(2)), and the bond shall be
in a form approved by the Secretary of Labor. Notwithstanding anything in the
Plan to the contrary, the cost of such bonds shall be an expense of and may, at
the election of the Administrator, be paid from the Trust Fund or by the
Employer.
X.8 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE
Neither the Employer nor the Trustee, nor their successors,
shall be responsible for the validity of any Contract issued hereunder or for
the failure on the part of the insurer to make payments provided by any such
Contract, or for the action of any person which may delay payment or render a
Contract null and void or unenforceable in whole or in part.
X.9 INSURER'S PROTECTIVE CLAUSE
Any insurer who shall issue Contracts hereunder shall not
have any responsibility for the validity of this Plan or for the tax or legal
aspects of this Plan. The insurer shall be protected and held harmless in
acting in accordance with any written direction of the Trustee, and shall have
no duty to see to the application of any funds paid to the Trustee, nor be
required to question any actions directed by the Trustee. Regardless of any
provision of this Plan, the insurer shall not be required to take or permit any
action or allow any benefit or privilege contrary to the terms of any Contract
which it issues hereunder, or the rules of the insurer.
X.10 RECEIPT AND RELEASE FOR PAYMENTS
235
<PAGE> 75
Any payment to any Participant, his legal representative,
Beneficiary, or to any guardian or committee appointed for such Participant or
Beneficiary in accordance with the provisions of the Plan, shall, to the extent
thereof, be in full satisfaction of all claims hereunder against the Trustee
and the Employer, either of whom may require such Participant, legal
representative, Beneficiary, guardian or committee, as a condition precedent to
such payment, to execute a receipt and release thereof in such form as shall be
determined by the Trustee or Employer.
X.11 ACTION BY THE EMPLOYER
Whenever the Employer under the terms of the Plan is
permitted or required to do or perform any act or matter or thing, it shall be
done and performed by a person duly authorized by its legally constituted
authority.
X.12 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY
The "named Fiduciaries" of this Plan are (1) the Employer,
(2) the Administrator and (3) the Trustee. The named Fiduciaries shall have
only those specific powers, duties, responsibilities, and obligations as are
specifically given them under the Plan. In general, the Employer shall have the
sole responsibility for making the contributions provided for under Section
4.1; and shall have the sole authority to appoint and remove the Trustee and
the Administrator; to formulate the Plan's "funding policy and method"; and to
amend or terminate, in whole or in part, the Plan. The Administrator shall have
the sole responsibility for the administration of the Plan, which
responsibility is specifically described in the Plan. The Trustee shall have
the sole responsibility of management of the assets held under the Trust,
except those assets, the management of which has been assigned to an Investment
Manager, who shall be solely responsible for the management of the assets
assigned to it, all as specifically provided in the Plan. Each named Fiduciary
warrants that any directions given, information furnished, or action taken by
it shall be in accordance with the provisions of the Plan, authorizing or
providing for such direction, information or action. Furthermore, each named
Fiduciary may rely upon any such direction, information or action of another
named Fiduciary as being proper under the Plan, and is not required under the
Plan to inquire into the propriety of any such direction, information or
action. It is intended under the Plan that each named Fiduciary shall be
responsible for the proper exercise of its own powers, duties, responsibilities
and obligations under the Plan. No named Fiduciary shall guarantee the Trust
Fund in any manner against investment loss or depreciation in asset value. Any
person or group may serve in more than one Fiduciary capacity. In the
furtherance of their responsibilities hereunder, the "named Fiduciaries" shall
be empowered to interpret the Plan and Trust and to resolve ambiguities,
inconsistencies and omissions, which findings shall be binding, final and
conclusive.
X.13 HEADINGS
The headings and subheadings of this Plan have been inserted
for convenience of reference and are to be ignored in any construction of the
provisions hereof.
X.14 APPROVAL BY INTERNAL REVENUE SERVICE
236
<PAGE> 76
(a) Notwithstanding anything herein to the contrary, contributions to this
Plan are conditioned upon the initial qualification of the Plan under Code
Section 401. If the Plan receives an adverse determination with respect to its
initial qualification, then the Plan may return such contributions to the
Employer within one year after such determination, provided the application for
the determination is made by the time prescribed by law for filing the
Employer's return for the taxable year in which the Plan was adopted, or such
later date as the Secretary of the Treasury may prescribe.
(b) Notwithstanding any provisions to the contrary, except Sections 3.6,
3.7, and 4.1(c), any contribution by the Employer to the Trust Fund is
conditioned upon the deductibility of the contribution by the Employer under
the Code and, to the extent any such deduction is disallowed, the Employer may,
within one (1) year following the disallowance of the deduction, demand
repayment of such disallowed contribution and the Trustee shall return such
contribution within one (1) year following the disallowance. Earnings of the
Plan attributable to the excess contribution may not be returned to the
Employer, but any losses attributable thereto must reduce the amount so
returned.
X.15 UNIFORMITY
All provisions of this Plan shall be interpreted and applied
in a uniform, nondiscriminatory manner. In the event of any conflict between
the terms of this Plan and any Contract purchased hereunder, the Plan
provisions shall control.
X.16 SECURITIES AND EXCHANGE COMMISSION APPROVAL
The Employer may request an interpretative letter from the
Securities and Exchange Commission stating that the transfers of Company Stock
contemplated hereunder do not involve transactions requiring a registration of
such Company Stock under the Securities Act of 1933. In the event that a
favorable interpretative letter is not obtained, the Employer reserves the
right to amend the Plan and Trust retroactively to their Effective Dates in
order to obtain a favorable interpretative letter or to terminate the Plan.
ARTICLE XI
PARTICIPATING EMPLOYERS
XI.1 ADOPTION BY OTHER EMPLOYERS
Notwithstanding anything herein to the contrary, with the
consent of the Employer and Trustee, any other corporation or entity, whether
an affiliate or subsidiary or not, may adopt this Plan and all of the
provisions hereof, and participate herein and be known as a Participating
Employer, by a properly executed document evidencing said intent and will of
such Participating Employer.
XI.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS
237
<PAGE> 77
(a) Each such Participating Employer shall be required to use the same
Trustee as provided in this Plan.
(b) The Trustee may, but shall not be required to, commingle, hold and
invest as one Trust Fund all contributions made by Participating Employers, as
well as all increments thereof. However, the assets of the Plan shall, on an
ongoing basis, be available to pay benefits to all Participants and
Beneficiaries under the Plan without regard to the Employer or Participating
Employer who contributed such assets.
(c) The transfer of any Participant from or to an Employer participating
in this Plan, whether he be an Employee of the Employer or a Participating
Employer, shall not affect such Participant's rights under the Plan, and all
amounts credited to such Participant's Account as well as his accumulated
service time with the transferor or predecessor, and his length of
participation in the Plan, shall continue to his credit.
(d) All rights and values forfeited by termination of employment shall
inure only to the benefit of the Participants of the Employer or Participating
Employer by which the forfeiting Participant was employed, except if the
Forfeiture is for an Employee whose Employer is an Affiliated Employer, then
said Forfeiture shall be allocated to the Participants employed by the Employer
or Participating Employers who are Affiliated Employers. Should an Employee of
one ("First") Employer be transferred to an associated ("Second") Employer
which is an Affiliated Employer, such transfer shall not cause his account
balance (generated while an Employee of "First" Employer) in any manner, or by
any amount to be forfeited. Such Employee's Participant Account balance for all
purposes of the Plan, including length of service, shall be considered as
though he had always been employed by the "Second" Employer and as such had
received contributions, forfeitures, earnings or losses, and appreciation or
depreciation in value of assets totaling the amount so transferred.
(e) Any expenses of the Trust which are to be paid by the Employer or
borne by the Trust Fund shall be paid by each Participating Employer in the
same proportion that the total amount standing to the credit of all
Participants employed by such Employer bears to the total standing to the
credit of all Participants.
XI.3 DESIGNATION OF AGENT
Each Participating Employer shall be deemed to be a party to
this Plan; provided, however, that with respect to all of its relations with
the Trustee and Administrator for the purpose of this Plan, each Participating
Employer shall be deemed to have designated irrevocably the Employer as its
agent. Unless the context of the Plan clearly indicates the contrary, the word
"Employer" shall be deemed to include each Participating Employer as related to
its adoption of the Plan.
238
<PAGE> 78
XI.4 EMPLOYEE TRANSFERS
It is anticipated that an Employee may be transferred
between Participating Employers, and in the event of any such transfer, the
Employee involved shall carry with him his accumulated service and eligibility.
No such transfer shall effect a termination of employment hereunder, and the
Participating Employer to which the Employee is transferred shall thereupon
become obligated hereunder with respect to such Employee in the same manner as
was the Participating Employer from whom the Employee was transferred.
XI.5 PARTICIPATING EMPLOYER'S CONTRIBUTION
Any contribution subject to allocation during each Plan Year
shall be allocated only among those Participants of the Employer or
Participating Employer making the contribution, except if the contribution is
made by an Affiliated Employer, in which event such contribution shall be
allocated among all Participants of all Participating Employers who are
Affiliated Employers in accordance with the provisions of this Plan. On the
basis of the information furnished by the Administrator, the Trustee shall keep
separate books and records concerning the affairs of each Participating
Employer hereunder and as to the accounts and credits of the Employees of each
Participating Employer. The Trustee may, but need not, register Contracts so as
to evidence that a particular Participating Employer is the interested Employer
hereunder, but in the event of an Employee transfer from one Participating
Employer to another, the employing Employer shall immediately notify the
Trustee thereof.
XI.6 AMENDMENT
Amendment of this Plan by the Employer at any time when
there shall be a Participating Employer hereunder shall only be by the written
action of each and every Participating Employer and with the consent of the
Trustee where such consent is necessary in accordance with the terms of this
Plan.
XI.7 DISCONTINUANCE OF PARTICIPATION
Any Participating Employer shall be permitted to discontinue
or revoke its participation in the Plan. At the time of any such discontinuance
or revocation, satisfactory evidence thereof and of any applicable conditions
imposed shall be delivered to the Trustee. The Trustee shall thereafter
transfer, deliver and assign Contracts and other Trust Fund assets allocable to
the Participants of such Participating Employer to such new Trustee as shall
have been designated by such Participating Employer, in the event that it has
established a separate pension plan for its Employees, provided however, that
no such transfer shall be made if the result is the elimination or reduction of
any "Section 411(d)(6) protected benefits" in accordance with Section 9.1(c).
If no successor is designated, the Trustee shall retain such assets for the
Employees of said Participating Employer pursuant to the provisions of Article
VII hereof. In no such event shall any part of the corpus or income of the
Trust as it relates to such Participating Employer be used for or diverted to
purposes other than for the exclusive benefit of the Employees of such
Participating Employer.
XI.8 ADMINISTRATOR'S AUTHORITY
239
<PAGE> 79
The Administrator shall have authority to make any and all
necessary rules or regulations, binding upon all Participating Employers and
all Participants, to effectuate the purpose of this Article.
240
<PAGE> 80
IN WITNESS WHEREOF, this Plan has been executed the day and
year first above written.
Signed, sealed, and delivered
in the presence of:
Central Coast Bancorp
______________________________ By______________________________
EMPLOYER
______________________________
WITNESSES AS TO EMPLOYER
______________________________ _______________________ (SEAL)
TRUSTEE
______________________________
WITNESSES AS TO TRUSTEE
241
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-89948 of Central Coast Bancorp on Form S-8 of our report dated February 11,
1997 (March 28, 1997 as to the stock split information in Note 1), appearing in
the Annual Report on Form 10-K of Central Coast Bancorp for the year ended
December 31, 1996.
DELOITTE & TOUCHE LLP
Salinas, California
March 28, 1997
242
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from (a) Item 7 -
"Financial Statements and Supplementary Data" and is qualified in its entirety
by reference to such (b) financial statements included in this report and
incorporated herein by reference.
</LEGEND>
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0
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