-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EKXNVoPZbpDpTbstNvF+KATdXgw8lxZSO2/u+fTN1I1l1qfADUkQ5lCsqhe/Ajd8 tRJhZzdcIfooLV4LOFklFg== 0000950005-01-500436.txt : 20010815 0000950005-01-500436.hdr.sgml : 20010815 ACCESSION NUMBER: 0000950005-01-500436 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTH BAY BANCORP/CA CENTRAL INDEX KEY: 0001102595 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 680434802 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-93537 FILM NUMBER: 1708083 BUSINESS ADDRESS: STREET 1: 1500 SOSCOL AVE CITY: NAPA STATE: CA ZIP: 94559 BUSINESS PHONE: 7072578500 MAIL ADDRESS: STREET 1: 1500 SOSCOL AVE CITY: NAPA STATE: CA ZIP: 94559 10-Q 1 p14224-10q.txt 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter period ended June 30, 2001 Commission File No. 0-31080 NORTH BAY BANCORP (Exact name of registrant as specified in its charter) California 68-0434802 (State or Jurisdiction of incorporation) (I.R.S. Employer Identification No.) 1500 Soscol Avenue, Napa, California 94559-1314 (Address of principal executive office including Zip Code) Registrant's telephone number, including area code: (707) 257-8585 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: Common Stock, 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 [ ] APPLICABLE ONLY TO CORPORATE ISSURES: Indicate the number of shares outstanding of the North Bay Bancorp's Common Stock outstanding as of August 8, 2001: 1,956,525 PART 1. FINANCIAL INFORMATION FORWARD LOOKING STATEMENTS In addition to the historical information, this Quarterly Report contains certain forward-looking information within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the "Safe Harbor" created by those Sections. The reader of this Quarterly Report should understand that all such forward-looking statements are subject to various uncertainties and risks that could affect their outcome. The Company's actual results could differ materially from those suggested by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, variances in the actual versus projected growth in assets, return on assets, loan losses, expenses, rates charged on loans and earned on securities investments, rates paid on deposits, competition effects, the potential effects of the California energy crisis, fee and other noninterest income earned as well as other factors. This entire Quarterly Report should be read to put such forward-looking statements in context and to gain a more complete understanding of the uncertainties and risks involved in the Company's business. Moreover, wherever phrases such as or similar to "In Management's opinion", or "Management considers" are used, such statements are as of and based upon the knowledge of Management, at the time made and are subject to change by the passage of time and/or subsequent events, and accordingly such statements are subject to the same risks and uncertainties noted above with respect to forward-looking statements. FINANCIAL INFORMATION The information for the three months and six months ended June 30, 2001 and June 30, 2000, is unaudited, but in the opinion of management reflects all adjustments which are necessary to present fairly the financial condition of North Bay Bancorp (Company) at June 30, 2001 and the results of operations and cash flows for the three months and six months then ended. Results for interim periods should not be considered as indicative of results for a full year. 2 ITEM 1. FINANCIAL STATEMENTS North Bay Bancorp Consolidated Balance Sheets (Unaudited)
June 30, June 30, December 31, Assets 2001 2000 2000 ------------- ------------- ------------- Cash and due from banks $ 16,971,000 $ 9,794,000 $ 15,881,000 Federal funds sold 45,436,000 6,224,000 9,475,000 Time deposits with other financial institutions 100,000 100,000 100,000 ------------- ------------- ------------- Total cash and cash equivalents 62,507,000 16,118,000 25,456,000 Investment securities: Held-to-maturity 1,334,000 1,372,000 1,353,000 Available-for-sale 65,123,000 50,127,000 58,251,000 Loans, net of allowance for loan losses of $2,494,000 in June, 2001 $2,068,000 in June, 2000 and $2,268,000 in December, 2000 169,196,000 138,972,000 150,008,000 Bank premises and equipment, net 7,173,000 4,972,000 5,242,000 Accrued interest receivable and other assets 5,828,000 6,896,000 7,159,000 ------------- ------------- ------------- Total assets $ 311,161,000 $ 218,457,000 $ 247,469,000 ============= ============= ============= Liabilities and Shareholders' Equity Liabilities: Deposits: Non-interest bearing $ 70,198,000 $ 52,304,000 $ 60,676,000 Interest bearing 209,010,000 142,028,000 155,962,000 ------------- ------------- ------------- Total deposits 279,208,000 194,332,000 216,638,000 Long term borrowings 2,308,000 0 2,769,000 Short term borrowings 0 500,000 0 ------------- ------------- ------------- 2,308,000 500,000 2,769,000 Accrued interest payable and other liabilities 1,648,000 1,508,000 1,426,000 ------------- ------------- ------------- Total liabilities 283,164,000 196,340,000 220,833,000 ------------- ------------- ------------- Shareholders' equity: Preferred stock - no par value: Authorized, 500,000 shares; Issued and outstanding - none Common stock - no par value: Authorized, 10,000,000 shares; Issued and outstanding - 1,956,040 shares in June 2001, 1,742,119 shares in June, 2000, and 1,850,445 in December, 2000 21,873,000 17,611,000 19,801,000 Retained earnings 5,608,000 5,600,000 6,753,000 Accumulated other comprehensive income (loss) 516,000 (1,094,000) 82,000 ------------- ------------- ------------- Total shareholders' equity 27,997,000 22,117,000 26,636,000 Total liabilities and shareholders' equity $ 311,161,000 $ 218,457,000 247,469,000 ============= ============= =============
The accompanying notes are an integral part of these statements 3 NORTH BAY BANCORP CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
Three Months Ended Six Months Ended ------------------------- ------------------------- June 30, June 30, June 30, June 30, 2001 2000 2001 2000 ----------- ----------- ----------- ----------- Interest Income Loans (including fees) $ 3,792,000 $ 3,145,000 $ 7,381,000 $ 5,953,000 Federal funds sold 361,000 50,000 605,000 121,000 Investment securities - taxable 768,000 660,000 1,523,000 1,334,000 Investment securities - tax exempt 165,000 170,000 332,000 340,000 ----------- ----------- ----------- ----------- Total interest income 5,086,000 4,025,000 9,841,000 7,748,000 Interest Expense Deposits 1,639,000 1,292,000 3,202,000 2,511,000 Short term borrowings 0 18,000 2,000 88,000 Long term borrowings 44,000 16,000 107,000 16,000 ----------- ----------- ----------- ----------- Total interest expense 1,683,000 1,326,000 3,311,000 2,615,000 Net interest income 3,403,000 2,699,000 6,530,000 5,133,000 Provision for loan losses 111,000 90,000 222,000 180,000 ----------- ----------- ----------- ----------- Net interest income after provision for loan losses 3,292,000 2,609,000 6,308,000 4,953,000 Non interest income 567,000 637,000 1,112,000 1,151,000 Gains (losses) on securities transactions, net 0 (8,000) 0 (8,000) Non interest expenses Salaries and employee benefits 1,542,000 1,039,000 2,950,000 2,022,000 Occupancy 200,000 140,000 421,000 252,000 Equipment 218,000 186,000 548,000 348,000 Other 915,000 567,000 1,627,000 1,078,000 ----------- ----------- ----------- ----------- Total non interest expense 2,875,000 1,932,000 5,546,000 3,700,000 ----------- ----------- ----------- ----------- Income before provision for income taxes 984,000 1,306,000 1,874,000 2,396,000 Provision for income taxes 362,000 517,000 698,000 936,000 ----------- ----------- ----------- ----------- Net income $ 622,000 $ 789,000 $ 1,176,000 $ 1,460,000 =========== =========== =========== =========== Basic earnings per common share: $ 0.32 $ 0.45 $ 0.60 $ 0.85 =========== =========== =========== =========== Diluted earnings per common share: $ 0.31 $ 0.44 $ 0.60 $ 0.83 =========== =========== =========== ===========
The accompanying notes are an integral part of these statements 4 NORTH BAY BANCORP CONSOLIDATED STATEMENT OF CHANGE IN SHAREHOLDERS' EQUITY JUNE 30, 2001 (UNAUDITED)
Accumulated Other Total Common Shares Common Retained Comprehensive Shareholders' Comprehensive Outstanding Stock Earnings Income Equity Income ------------ ----------- ----------- ------------ ------------ ------------ BALANCE, DECEMBER 31, 2000 1,850,445 $19,801,000 $ 6,753,000 $ 82,000 $ 26,636,000 Stock dividend 92,307 1,938,000 (1,950,000) (12,000) Cash dividend (371,000) (371,000) Comprehensive income: Net income 1,176,000 1,176,000 $ 1,176,000 Other comprehensive income, net of tax: Change in net unrealized gains on available-for-sale securities, net of tax 434,000 434,000 434,000 ------------ Comprehensive income $ 1,610,000 ============ Stock options exercised 13,288 134,000 134,000 ------------ ----------- ----------- ------------ ------------ BALANCE, June 30, 2001 1,956,040 $21,873,000 $ 5,608,000 $ 516,000 $ 27,997,000 ============ =========== =========== ============ ============
The accompanying notes are an integral part of these statements 5 NORTH BAY BANCORP CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (IN 000'S) Six months Ended June 30, ------------------------- 2001 2000 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,176 $ 1,460 Adjustment to reconcile net income to net cash provided by operating activities: Depreciation and amortization 515 215 Provision for loan losses 222 180 Amortization of deferred loan fees (200) (133) Premium amortization (discount accretion), net (6) 15 Net loss on sale of investment securities 0 8 Net loss on sale of assets 0 8 Changes in: Interest receivable and other assets 1,021 388 Interest payable and other liabilities 223 (128) -------- -------- Total adjustments 1,775 553 -------- -------- Net cash provided by operating activities 2,951 2,013 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Investment securities held-to-maturity: Proceeds from maturities and principal payments 19 18 Investment securities available-for-sale: Proceeds from maturities and principal payments 7,867 6,213 Proceeds from sales 0 5,151 Purchases (13,990) (6,119) Net increase in loans (19,210) (18,853) Capital expenditures (2,446) (2,313) -------- -------- Net cash used in investing activities (27,760) (15,903) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in deposits 62,570 21,952 Decrease in short-term borrowings 0 (4,500) Repayment of long-term borrowings (461) 0 Stock issued 0 2,787 Stock options exercised 134 18 Dividends paid (383) (315) -------- -------- Net cash provided by financing activities 61,860 19,942 -------- -------- Net increase in cash and cash equivalents 37,051 6,052 Cash and cash equivalents at beginning of year 25,456 10,066 -------- -------- Cash and cash equivalents at end of period $ 62,507 $ 16,118 ======== ======== Supplemental Disclosures of Cash Flow Information: Interest paid $ 2,900 $ 2,538 Income taxes paid $ 271 $ 892 Retired Assets $ 15 $ 0 The accompanying notes are an integral part of these statements 6 NORTH BAY BANCORP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 2001 NOTE 1 - BASIS OF PRESENTATION The accompanying consolidated financial statements, which include the accounts of North Bay Bancorp and its subsidiaries (the "Company"), have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) and in Management's opinion, include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of results for such interim periods. The subsidiaries consist of two community banks, The Vintage Bank, established in 1985, and Solano Bank, which was opened July 17, 2000. All significant intercompany transactions and balances have been eliminated. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to SEC rules or regulations; however, the Company believes that the disclosures made are adequate to make the information presented not misleading. The interim results for the six months ended June 30, 2001 and 2000, are not necessarily indicative of results for the full year. It is suggested that these financial statements be read in conjunction with the financial statements and the notes included in the Company's Annual Report for the year ended December 31, 2000. NOTE 2 - COMMITMENTS The Company has outstanding standby Letters of Credit of approximately $2,115,000, undisbursed real estate and construction loans of approximately $33,440,000, and undisbursed commercial and consumer lines of credit of approximately $15,274,000, as of June 30, 2001. NOTE 3 - EARNINGS PER COMMON SHARE The Company declared 5% stock dividends on January 18, 2000 and January 29, 2001. As a result of the stock dividends the number of common shares outstanding and earnings per share data was adjusted retroactively for all periods presented. The following table reconciles the numerator and denominator of the Basic and Diluted earnings per share computations: 7 Weighted Average Per-Share Net Income Shares Amount ---------- --------- ------ For the three months ended June 30, 2001 ----------------------------------------- Basic earnings per share $622,000 1,956,040 $ .32 Stock options 21,407 Diluted earnings per share 1,977,447 $ .31 For the three months ended June 30, 2000 ----------------------------------------- Basic earnings per share $789,000 1,740,041 $ .45 Stock options 33,870 Diluted earnings per share 1,773,911 $ .44 Weighted Average Per-Share Net Income Shares Amount ---------- --------- ------ For the six months ended June 30, 2001 ----------------------------------------- Basic earnings per share $1,176,000 1,951,276 $ .60 Stock options 23,921 Diluted earnings per share 1,975,197 $ .60 For the six months ended June 30, 2000 ----------------------------------------- Basic earnings per share $1,460,000 1,717,131 $ .85 Stock options 35,259 Diluted earnings per share 1,752,390 $ .83 NOTE 4 - COMPREHENSIVE INCOME For the Company, comprehensive income includes net income reported on the statement of income and changes in the fair value of its available-for-sale investments reported as a component of shareholders' equity. The following table presents net income adjusted by the change in unrealized gains or losses on the available-for-sale investments as a component of comprehensive income (in thousands). Three Months Ended June 30, --------------------------- 2001 2000 ------ ------ Net Income $ 622 $ 789 Net change in unrealized gains on available-for-sale investments, net of tax 20 167 ------ ------ Comprehensive Income $ 642 $ 956 ====== ====== Six Months Ended June 30, ------------------------- 2001 2000 ------ ------ Net Income $1,176 $1,460 Net change in unrealized gains on available-for-sale investments, net of tax 434 77 ------ ------ Comprehensive Income $1,610 $1,537 ====== ====== NOTE 5 - SEGMENT REPORTING The Company's operating segments consist of its traditional community banking activities provided through its Banks and activities related to the Bancorp. Community banking activities include the Banks' commercial and retail lending, deposit gathering and investment and liquidity management activities. As 8 permitted, the Company has aggregated the results of the separate banks and branches into a single reportable segment, and the Bancorp activities reported as "Other". The components of the Company's business segments for the six months ended June 30, 2001 were as follows: (In 000's) ---------------------------------------------- Community Intersegment Banking Other Adjustments Consolidated -------- -------- -------- -------- Interest Income $ 9,841 $ 0 $ 0 $ 9,841 Interest Expense 3,205 106 0 3,311 -------- -------- -------- -------- Net Interest Income 6,636 (106) 0 6,530 Provision for loan losses 222 0 0 222 Equity income of subsidiaries 0 1,491 1,491 0 Noninterest Income 1,197 2,204 2,289 1,112 Noninterest Expense 5,195 2,640 2,289 5,546 -------- -------- -------- -------- Income Before Tax 2,416 949 1,491 1,874 Provision for Income Taxes 925 (227) 0 698 -------- -------- -------- -------- Net Income $ 1,491 $ 1,176 $ 1,491 $ 1,176 -------- -------- -------- -------- Assets $308,999 $ 30,907 $ 28,745 $311,161 Loans, Net 169,196 0 0 169,196 Deposits 280,874 0 1,666 279,208 Equity 27,079 27,997 27,079 27,997 The components of the Company's business segments for the six months ended June 30, 2000 were as follows: (In 000's) ---------------------------------------------- Community Intersegment Banking Other Adjustments Consolidated -------- -------- -------- -------- Interest Income $ 7,748 $ 0 $ 0 $ 7,748 Interest Expense 2,599 16 0 2,615 -------- -------- -------- -------- Net Interest Income 5,149 (16) 0 5,133 Provision for loan losses 180 0 0 180 Noninterest Income 1,226 1,078 1,161 1,143 Noninterest Expense 3,193 1,668 1,161 3,700 -------- -------- -------- -------- Income (Loss) Before Tax 3,002 (606) 0 2,396 Provision for Income Taxes 1,188 (252) 0 936 -------- -------- -------- -------- Net Income (Loss) $ 1,814 ($ 354) $ 0 $ 1,460 -------- -------- -------- -------- Assets $215,940 $ 22,853 $ 20,336 $218,457 Loans, Net 138,972 0 0 138,972 Deposits 196,730 0 2,398 194,332 Equity 17,938 22,117 17,938 22,117 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD LOOKING STATEMENTS In addition to the historical information, this Quarterly Report contains certain forward-looking statements. The reader of this Quarterly Report should understand that all such forward-looking statements are subject to various uncertainties and risks that could affect their outcome. The Company's actual results could differ materially from those suggested by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, variances in the actual versus projected growth in assets, return on assets, loan losses, expenses, rates charged on loans and earned on securities investments, rates paid on deposits, competition effects, the potential effects of the California energy crisis, fee and other noninterest income earned as well as other factors. This entire Quarterly Report should be read to put such forward-looking statements in context and to gain a more complete understanding of the uncertainties and risks involved in the Company's business. Moreover, wherever phrases such as or similar to "In Management's opinion", "Management considers" are used, such statements are as of and based upon the knowledge of Management, at the time made and are subject to change by the passage of time and/or subsequent events, and accordingly such statements are subject to the same risks and uncertainties noted above with respect to forward-looking statements. OVERVIEW Net income was $622,000 or $.31 per diluted share for the three months ended June 30, 2001, compared with $789,000 or $.44 per diluted share for the three months ended June 30, 2000, a decrease of 21%. Net income was $1,176,000 or $.60 per diluted share for the six months ended June 30, 2001, compared with $1,460,000 or $.83 per diluted share for the six months ended June 30, 2000, a decrease of 19%. Total assets were $311,161,000 as of June 30, 2001; equating to a 42% growth in assets during the twelve months ended June 30, 2001. SUMMARY OF EARNINGS NET INTEREST INCOME The following table provides a summary of the components of interest income, interest expense and net interest margin for the six months ended June 30, 2001 and June 30, 2000: 10
In 000's ------------------------------------------------------------------------ 2001 2000 ---------------------------------- ----------------------------------- Average Income/ Average Average Income/ Average Balance Expense Yield/Rate Balance Expense Yield/Rate --------- --------- ---------- ---------- --------- ---------- Loans (1)(2) $ 163,007 $ 7,381 9.06% $ 132,652 $ 5,953 8.98% --------- --------- ---------- --------- Investment securities: Taxable 47,430 1,520 6.41% 40,050 1,331 6.65% Non-taxable (3) 13,828 420 6.07% 14,061 430 6.12% --------- --------- ---------- --------- TOTAL LOANS AND INVESTMENT SECURITIES 224,265 9,321 8.31% 186,763 7,714 8.26% Due from banks, time 100 3 6.00% 100 3 6.00% Federal funds sold 28,203 605 4.29% 3,939 121 6.14% --------- --------- ---------- --------- TOTAL EARNING ASSETS 252,568 $ 9,929 7.86% 190,802 $ 7,838 8.22% --------- --------- ---------- --------- Cash and due from banks 15,467 9,659 Allowance for loan losses (2,400) (1,988) Premises and equipment, net 6,687 3,790 Accrued interest receivable and other assets 6,065 6,802 --------- ---------- TOTAL ASSETS $ 278,387 $ 209,065 ========= ========== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Interest bearing demand $ 92,126 $ 1,239 2.69% $ 61,595 $ 696 2.26% Savings 18,393 129 1.40% 15,829 149 1.88% Time 70,568 1,834 5.20% 64,491 1,665 5.16% --------- --------- ---------- --------- 181,087 3,202 141,915 2,510 Long-term borrowings 2,461 107 8.70% 168 16 19.05% Short-term borrowings 90 2 4.44% 2833 88 6.21% --------- --------- ---------- --------- 2,551 109 3,001 104 TOTAL INTEREST BEARING LIABILITIES 183,638 $ 3,311 3.61% 144,916 $ 2,614 3.61% --------- --------- ---------- --------- Noninterest bearing DDA 65,778 43,656 Accrued interest payable and other liabilities 1,542 1,188 Shareholders' equity 27,429 19,305 --------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 278,387 $ 209,065 ========= ========== NET INTEREST INCOME $ 6,618 $ 5,224 ========= ========= NET INTEREST INCOME TO AVERAGE EARNING ASSETS (Net Interest Margin (4)) 5.24% 5.48%
11 (1) Average loans include nonaccrual loans (2) Loan interest income includes loan fee income of $452 in 2001 and $313 in 2000 (3) Average yields shown are taxable-equivalent. On a non- taxable basis, 2001 interest income was $332 with an average yield of 4.80%; in 2000 non-taxable income was $340 and the average yield was 4.84%. (4) Net interest margin is calculated by dividing net interest income by the average balance of total earning assets for the applicable period Net interest income represents the amount by which interest earned on earning assets (primarily loans and investments) exceed the amount of interest paid on deposits. Net interest income is a function of volume, interest rates and level of non-accrual loans. Net interest income before the provision for loan losses on a taxable-equivalent basis for the three months ended June 30, 2001 and June 30, 2000 was $3,447,000 and $2,744,000, respectively. These results equate to a 26% increase in net interest income for the second quarter of 2001 compared to the second quarter of 2000. Loan fee income, which is included in interest income from loans, was $255,000 for the three months ended June 30, 2001, compared with $179,000 for the three months ended June 30, 2000. Net interest income before the provision for loan losses on a taxable-equivalent basis for the six months ended June 30, 2001 and June 30, 2000 was $6,618,000 and $5,223,000, respectively. These results equate to a 27% increase in net interest income for the first six months of 2001 compared to the same period in 2000. Loan fee income, which is included in interest income from loans, was $452,000 for the six months ended June 30, 2001, compared with $313,000 for the six months ended June 30, 2000.The average balance of earning assets increased $61,766,000 or 32% during the twelve months ended June 30, 2001. Taxable-equivalent interest income increased $2,091,000 or 27% in the first six months of 2001 compared with the same period of 2000. Increase in the volume of earning assets accounted for $2,350,000 of this increase, with a decrease of $259,000 attributable to lower rates. The average balance of interest-bearing liabilities increased $38,722,000 or 27% during the first six month of 2001 compared with the same period in 2000. Interest paid on interest-bearing liabilities increased $697,000 in 2001 compared with 2000. Increase in the volume of deposits and other borrowings accounted for $511,000 of this increase, while an $185,000 increase was attributed to an increase in rates. Management does not expect a material change in the Company's net interest margin during the next twelve months as the result of a modest increase or decrease in general interest rates. 12 The following table sets forth a summary of the changes in interest income and interest expense for the six months ended June 30, 2001 over June 30, 2000 resulting from changes in assets and liabilities volumes and rates. The change in interest due to both rate and volume has been allocated in proportion to the relationship of absolute dollar amounts of change in each In 000's 2001 Over 2000 --------------------------------- Volume Rate Total ------- ------- ------- Increase (Decrease) In Interest and Fee Income Time Deposits With Other Financial Institutions $ (0) $ 0 $ (0) Investment Securities: Taxable 246 (57) 189 Non-Taxable (1) (7) (3) (10) Federal Funds Sold 745 (261) 484 Loans 1,366 62 1,428 ------- ------- ------- Total Interest and Fee Income 2,350 (259) 2,091 ------- ------- ------- Increase (Decrease) In Interest Expense Deposits: Interest Bearing Transaction Accounts 345 198 543 Savings 24 (44) (20) Time Deposits 156 13 169 ------- ------- ------- Total Deposits 525 167 692 Short-term Borrowings (85) (1) (86) Long-term Borrowings 72 19 91 ------- ------- ------- Total Interest Expense 512 185 697 ------- ------- ------- Net Interest Income $ 1,838 ($ 444) $ 1,394 ======= ======= ======= (1) The interest earned is taxable-equivalent. PROVISION AND ALLOWANCE FOR LOAN LOSSES The Company maintains an allowance for loan losses at a level considered adequate to provide for losses that can be reasonably anticipated. The allowance is increased by the provision for loan losses and reduced by net charge offs. The allowance for loan losses is based on estimates, and ultimate losses may vary from current estimates. These estimates are reviewed periodically and as adjustments become necessary they are reported in earnings in the periods in which they become known. The Company makes credit reviews of the loan portfolio and considers current economic conditions, historical loan loss experience and other factors in determining the adequacy of the allowance balance. This 13 evaluation considers the need for specific allowance for all classified loans over $50,000 and establishes percentage allowance requirements for all other loans, according to the classification as determined by the Company's internal grading system. As of June 30, 2001 the allowance for loan losses of $2,494,000 represented 1.45% of loans outstanding. As of June 30, 2000, the allowance represented 1.47% of loans outstanding. During the six months ended June 30, 2001, $222,000 was charged to expense for the loan loss provision, compared with $180,000 for the same period in 2000. Net loan recoveries were $4,000 for the first six months of 2001 compared with net charge-offs of $99,000, or 0.1% of total loans as of June 30, 2000. The following table summarizes changes in the allowance for loan losses: In 000's ----------------------------- June 30, 2001 June 30, 2000 ------------- ------------- Balance, beginning of year $2,268 $1,987 Provision for loan losses 222 180 Loans charged off 0 102 Recoveries of loans previously charged off 4 3 ------ ------ Balance, end of period $2,494 $2,068 ====== ====== Allowance for loan losses to total outstanding loans 1.45% 1.47% There were no loans on non-accrual at June 30, 2001 or June 30, 2000. NON-INTEREST INCOME Non-interest income was $567,000 for the three months ended June 30, 2001 compared with $637,000 for the same period in 2000, an 11% decrease. Non-interest income was $1,112,000 for the six months ended June 30, 2001 compared with $1,151,000 for the same period in 2000, a 3% decrease. The primary reason for the decrease in 2001 from 2000 was that the Company realized a one-time increase in non-interest income of $142,000 during the second quarter of 2000. This was the result of selling stock acquired as the result of a demutualization of an insurance company in which the Company holds policies. Other increases in non-interest income resulted primarily from an increase in the number of deposit accounts, transaction volumes and directly related service charges. GAIN (LOSSES) ON SECURITIES There were no gains or losses on securities for the three or six months ended June 30, 2001. Net losses of $8,000 for the three and six months ended June 30, 2000 resulted from the sale of several available-for-sale securities. NON-INTEREST EXPENSE Non-interest expense for the three months ended June 30, 2001 and June 30, 2000 was $2,875,000 and $1,932,000, respectively, a 49% increase. Non-interest expense for the six months ended June 30, 2001 and June 30, 2000 was $5,546,000 and $3,700,000, respectively, a 50% increase. The increase compared with the prior reporting period is primarily due to the Company opening its subsidiary de novo bank, Solano Bank, on July, 17, 2000. Salaries and employee benefits expense for the three months ended June 30, 2001 and 2000 were $1,542,000 and $1,039,000, respectively, a 48% increase. Salaries and employee benefits expense for the six months ended June 30, 2001 and 2000 were $2,950,000 and $2,022,000, respectively, a 46% increase. The increase in 2001 resulted from increased salaries paid to Company officers and employees, and an increase of approximately twenty-nine full-time equivalent employees from 96 at June 30, 2000 to 125 at June 30, 2001. Occupancy expense for the three months ended June 30, 2001 and 2000 were $200,000 and $140,000, respectively, a 43% increase. Occupancy expense for the six months ended June 30, 2001 and 2000 were $421,000 and $252,000, respectively, representing a 67% increase. The increase in 2001 is attributed to opening three branch offices of Solano Bank in mid 2000. The Company had three branch offices at June 30, 2000 compared with six at June 30, 14 2001. Equipment expense for the three months ended June 31, 2001 and 2000 was $218,000 and $186,000, respectively, representing an increase of 17.20%. Equipment expenses for the six months ended June 30, 2001 and 2000 was $548,000 and $348,000, respectively, an increase of 57%. The increase was primarily due to an increase in depreciation expense for the new host banking systems and the new item processing and imaging systems, as well as, furniture and equipment depreciation expenses of the three new branch offices. Other expenses for the three months ended June 30, 2001 and June 30, 2000 were $915,000 and $567,000, respectively, a 61% increase. Other expenses for the six months ended June 30, 2001 and June 30, 2000 were $1,627,000 and $1,078,000, respectively, a 51% increase. The increase from last year is primarily due to costs associated with operating six branch offices in 2001 in comparison to three in 2000. INCOME TAXES The Company reported a provision for income tax for the three months ended June 30, 2001 and 2000 of $362,000 and $517,000, respectively. The Company reported a provision for income tax for the six months ended June 30, 2001 and 2000 of $698,000 and $936,000, respectively. Both the 2001 and 2000 provisions reflect tax accruals at maximum rates for both federal and state income taxes, adjusted for the effect of the Company's investments in tax-exempt municipal securities. BALANCE SHEET Total assets as of June 30, 2001 were $311,161,000 compared with $218,457,000 as of June 30, 2000, and $247,469,000 at December 31, 2000 equating to a 42% increase during the twelve months and a 26% increase for the six months ended June 30, 2001. Total deposits as of June 30, 2001 were $279,208,000 compared with $194,332,000 as of June 30, 2000, and $216,638,000 at December 31, 2000 representing a 44% increase during the twelve months and a 29% increase for the six months ended June 30, 2001. Total loans outstanding as of June 30, 2001 were $171,690,000 compared with $140,040,000 as of June 30, 2000, and $152,276,000 at December 31, 2000 equating to a 23% increase during the twelve months and a 13% increase for the three months ended June 30, 2001. BORROWINGS There were no short-term borrowings at June 30, 2001 or December 30, 2000 compared with $500,000 at June 30, 2000. Short-term borrowings consist primarily of federal funds purchased and borrowings from Federal Home Loan Bank. The Company has a $3,000,000 unsecured loan with Union Bank of California, with a current balance of $2,308,000. The term of the loan is three and one half years with principal and interest payments due quarterly. The loan is a variable rate loan tied to Union Bank's reference rate, currently 6.75%. The proceeds of this loan were primarily invested into the Company's subsidiary, Solano Bank. LIQUIDITY AND CAPITAL ADEQUACY The Company's liquidity is determined by the level of assets (such as cash, Federal Funds, and investment in unpledged marketable securities) that are readily convertible to cash to meet customer withdrawals and borrowings. Management reviews the Company's liquidity position on a regular basis to ensure that it is adequate to meet projected loan funding and potential withdrawal of deposits. The Company has a comprehensive Asset/Liability Management and Liquidity Policy, which it uses to determine adequate liquidity. As of June 30, 2001 liquid assets were 41% of total assets, compared with 30% as of June 30, 2000 and 33% at December 31, 2000. The Federal Deposit Insurance Corporation Improvement Act (FDICA) established ratios used to determine whether a Company is "Well Capitalized," "Adequately Capitalized," "Undercapitalized," "Significantly Undercapitalized," or "Critically Undercapitalized." A Well Capitalized Company has risk-based capital of at least 10%, tier 1 risked-based capital of at least 6%, and a leverage ratio of at least 5%. As of June 30, 2001, the Company's risk-based capital ratio was 12.58%. The Company's tier 1 risk-based capital ratio and leverage ratio were 11.54% and 9.54%, respectively. 15 As the following table indicates, The Company, The Vintage Bank and Solano Bank currently exceeds the regulatory capital minimum requirements and are considered "Well Capitalized" according to regulatory guidelines.
To Be Well Capitalized For Capital Under Prompt Corrective Actual Adequacy Purposes Action Provisions ------------------ ----------------- ------------------- (In 000's) ---------------------------------------------------------------- Amount Ratio Amount Ratio Amount Ratio ------- ------- ------- ------ ------- ------- As of June 30, 2001: Total Capital (to Risk Weighted Assets) Consolidated $29,976 13.09% $18,314 >=8.00% $22,892 >=10.00% The Vintage Bank 21,000 10.31% 16,300 >=8.00% 20,375 >=10.00% Solano Bank 8,056 35.73% 1,804 >=8.00% 2,255 >=10.00% Tier I Capital (to Risk Weighted Assets) Consolidated 27,482 12.00% 9,157 >=4.00% 13,735 >=6.00% The Vintage Bank 18,573 9.12% 8,150 >=4.00% 12,225 >=6.00% Solano Bank 7,989 35.43% 902 >=4.00% 1,353 >=6.00% Tier I Capital (to Average Assets) Consolidated 27,482 9.54% 11,519 >=4.00% 14,393 >=5.00% The Vintage Bank 18,573 7.37% 10,082 >=4.00% 12,602 >=5.00% Solano Bank 7,989 22.23% 1,437 >=4.00% 1,797 >=5.00%
16 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk is the exposure to loss resulting from changes in interest rates, foreign currency exchange rates, commodity prices and equity prices. Although the Company manages other risks, as in credit quality and liquidity risk, in the normal course of business, management considers interest rate risk to principally be a market risk. Other types of market risks, such as foreign currency exchange rate risk, do not arise in the normal course of the Company's business activities. The majority of the Company's interest rate risk arises from instruments, positions and transactions entered into for the purpose other than trading. They include loans, securities available-for-sale, deposit liabilities, short-term borrowings and long-term debt. Interest rate risk occurs when assets and liabilities reprice at different times as interest rate changes. The Company manages interest rate risk through an Asset Liability Committee (ALCO). The ALCO monitors exposure to interest rate risk on a quarterly basis using both a traditional gap analysis and simulation analysis. Traditional gap analysis identifies short and long-term interest rate positions or exposure. Simulation analysis uses an income simulation approach to measure the change in interest income and expense under rate shock conditions. The model considers the three major factors of (a) volume differences, (b) repricing differences and (c) timing in its income simulation. The model begins by disseminating data into appropriate repricing buckets based on internally supplied algorithms (or overridden by calibration). Next, each major asset and liability type is assigned a "multiplier" or beta to simulate how much that particular balance sheet category type will reprice when interest rates change. The model uses eight asset and liability multipliers consisting of bank-specific or defaults multipliers. The remaining step is to simulate the timing effect of assets and liabilities by modeling a month-by-month simulation to estimate the change in interest income and expense over the next 12-month period. The results are then expressed as the change in pre-tax net interest income over a 12-month period for +1%, and +2% shocks. Utilizing the simulation model to measure interest rate risk at June 30, 2001 the Company is within the established exposure of a 4% change in "return on equity" tolerance limit. There were no significant changes in interest rate risk from the annual report on form 10KSB for December 31, 2000. PART II - OTHER INFORMATION OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Other than ordinary routine litigation incidental to the business of the Company, there were no material legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) The Second Annual Meeting of the shareholders of the Company was held on April 24, 2001. (b) Proxies for the meeting were solicited pursuant to Regulation 14A under the Act, there were no solicitations in opposition to management's nominees as listed in the proxy statement, and all such nominees were elected. (c) There was no settlement between the Company and any other person terminating any solicitation subject to Rule 14a-11. 17 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) An index of exhibits begins on page 16. (b) On May 1, 2001, the Company filed a Current Report on Form 8-K, reporting the issuance of a press release announcing the Company's earnings for the quarter ended March 31, 2001. No financial statements were filed with the Current Report on Form 8-K. 18 Pursuant to the requirements of the Securities and Exchange Act of 1934, the Company has duly caused this quarterly report to be signed on its behalf by the undersigned, thereunto duly authorized. NORTH BAY BANCORP A California Corporation Date: August 9, 2001 BY: /s/ Terry L. Robinson ------------------------------------ Terry L. Robinson President & CEO (Principal Executive Officer) Date: August 9, 2001 BY: /s/ Lee-Ann Cimino ------------------------------------ Lee-Ann Cimino Sr. Vice President & CFO (Principal Financial Officer) 19 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION - ----------- ----------- 10.1 Amended and Restated Employment Agreement entered into as of May 1, 2001 by and between North Bay Bancorp and Terry L. Robinson 10.2 Employment Agreement entered into as of May 1, 2001 by and between Solano Bank and Glen C. Terry 10.3 Employment Agreement entered into as of May 1, 2001 by and between North Bay Bancorp and Kathi Metro 10.4 Employment Agreement entered into as of May 1, 2001 by and between North Bay Bancorp and Dale Brain 11 Statement re: computation of per share earnings is included in Note 3 to the unaudited condensed consolidated financial statements of Registrant EX-10 3 p14224_ex10-1.txt EXHIBIT 10.1 AMENDED EMPLOYMENT AGREEMENT AMENDED AND RESTATED EMPLOYMENT AGREEMENT THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of the 1st day of May, 2001 by and between North Bay Bancorp, a California corporation (the "Company"), and Terry L. Robinson (the "Employee"). BACKGROUND WHEREAS, the Employee is currently employed by the Company pursuant to an Employment Agreement entered into between Employee and The Vintage Bank effective March 1, 1999 (the "1999 Agreement") WHEREAS, the Employee possesses valuable knowledge and skills that have contributed to the operation of the Company and its subsidiary banks; WHEREAS, the Company desires to continue Employee's employment and the Employee is willing to continue to be employed by the Company; WHEREAS, the Company and the Employee desire to amend and restate the 1999 Agreement upon the terms and subject to the conditions hereinafter set forth and to substitute this Agreement in place and instead of the 1999 Agreement; NOW, THEREFORE, in consideration of the premises, agreements and mutual covenants set forth herein, the parties hereto hereby agree as follows: 1. Employment 1.1 General. The Company hereby employs the Employee as President and Chief Executive Officer on the terms and subject to the conditions contained in this Agreement, and the Employee hereby accepts such employment on the terms and subject to the conditions contained in this Agreement. 1.2 Duties of Employee. During the Term of this Agreement, the Employee shall diligently perform all duties and responsibilities reasonably accorded to and expected of the President and Chief Executive Officer of the Company and as may be assigned to him by the Board of Directors of the Company (the "Board of Directors"), and shall exercise such power and authority as may from time to time be delegated to him thereby. The Employee shall devote his full business time and attention to the business and affairs of the Company as necessary to perform his duties and responsibilities hereunder, render such services to the best of his ability and use his best efforts to promote the interests of the Company. The Employee shall faithfully adhere to, execute and fulfill all policies established by the Company. 1.3 Place of Performance. Except for required travel for the Company's business, the Employee shall perform his duties and responsibilities from the offices of the Company and its subsidiaries. 2. Term. Subject to the provisions of Section 4 of this Agreement, the parties acknowledge that the term of Employee's employment, under the 1999 Agreement commenced on March 1, 1999 (the "Effective Date") and shall continue hereunder until the fifth anniversary of the Effective Date (the "Initial Term"). Unless the Employee shall have notified the Company, or the Company shall have notified the Employee, not less than sixty days prior to the expiration of the Initial Term of such party's election not to continue the Term of this Agreement, upon expiration of the Initial Term, the Employee's employment hereunder shall continue until the sixth anniversary of the Effective Date and thereafter shall continue on a year-to-year basis unless either party notifies the other, not less than sixty days prior to expiration of the then current Renewal Term, of such party's election not to continue the Term of this Agreement (each such additional one-year period, a "Renewal Term"; the Initial Term and any Renewal Term are collectively referred to hereinafter as the "Term"). The election by the Company not to continue the Term of Employee's employment for a Renewal Term shall not be deemed a termination without cause pursuant to Section 4.1(b) hereof. 3. Compensation. 3.1 Salary. During the Term of the Employee's employment hereunder, the Employee shall receive an annual salary of one hundred ninety one thousand dollars ($191,000) payable at such times and in such manner as the Company's normal payroll schedule may from time to time provide. Employee's annual salary shall be subject to annual adjustment as may be determined by the Board of Directors in its sole and absolute discretion. 3.2 Incentive Compensation. The Employee shall be eligible to receive as additional compensation each year during his employment hereunder, as determined by the Board of Directors or an applicable committee thereof, in accordance with the terms of an Incentive Compensation Plan adopted annually by the Board of Directors. Such additional compensation (if any) to be paid at a time or times and in a manner consistent with the Company's normal practices for the payment of bonuses, or as the Board of Directors or applicable committee may otherwise determine. 3.3 Benefits. During his employment hereunder, the Employee shall be entitled to participate in all plans adopted for the general benefit of the Company's management employees, including medical plans and 401(k) plan, to the extent that the Employee is and remains eligible to participate therein and subject to the eligibility provisions of such plans in effect from time to time. In the event Employee's employment hereunder is terminated and the Employee is entitled to compensation pursuant to Section 4.4(d), the Employee shall be entitled to continue to participate in the Company's medical plan until the earlier of (a) expiration of the applicable payment 2 period set forth in Section 4.4(d)(i) or (ii) or (b) the date Employee obtains new employment. 3.4 Vacation. During each calendar year of his employment hereunder, the Employee shall be entitled to twenty (20) days of paid vacation, prorated for any period of employment of less than an entire year, provided that vacation time will continue to accrue only so long as Employee's total accrued vacation does not exceed twenty five (25) days. Should Employee's accrued vacation time reach twenty five (25) days, Employee will cease to accrue further vacation until Employee's accrued vacation time falls below that level. Notwithstanding anything contained in the foregoing, Employee shall take not less than ten (10) consecutive days of vacation during each calendar year during the Term of this Agreement. Employee may be absent from his employment for vacation only at such time as the Board of Directors shall determine from time to time. 3.5 Withholding. Notwithstanding any provision in this Agreement to the contrary, all payments required to be made by the Company to the Employee hereunder or otherwise arising out of, related or incidental to or in connection with the Employee's employment hereunder shall be subject to withholding of such amounts relating to taxes as the Company may reasonably determine it should withhold pursuant to any applicable law or regulation. 3.6 Reimbursement of Expenses. The Company agrees to reimburse the Employee for all reasonable business travel and other out-of-pocket expenses incurred by the Employee in the discharge of his duties hereunder, subject to the Company's reimbursement policies in effect from time to time. All reimbursable expenses shall be appropriately documented in reasonable detail by the Employee upon submission of any request for reimbursement, and in a format and manner consistent with the Company's expense reporting policy, as well as applicable federal and state record keeping requirements. 3.7 Automobile. The Company will pay to Employee an automobile allowance in the amount of seven hundred fifty dollars ($750) per month. The Employee shall be responsible for insurance and maintenance costs associated with such automobile's operation. The Company will reimburse the Employee for mileage. Employee shall procure and maintain an automobile liability insurance policy on the automobile, with coverage including Employee for at least a minimum of $300,000 for bodily injury or death to any one person in any one accident, and $100,000 for property damage in any one accident. The Employer shall be named as an additional insured and Employee shall provide Employer copies of policies evidencing insurance and Employer's inclusion as an additional insured. 4. Termination 4.1 By Company. 3 (a) With Cause. Notwithstanding any provision in this Agreement to the contrary, the Employee's employment hereunder may be terminated by the Company at any time for "Cause," and such termination shall be effective immediately upon written notice to the Employee. For purposes of this Agreement, "Cause" for the termination of the Employee's employment hereunder shall be deemed to exist if, in the reasonable judgment of the Board of Directors: (a) the Employee commits fraud, theft or embezzlement against the Company, or any subsidiary or affiliate thereof; (b) the Employee commits a felony or a crime involving moral turpitude; (c) the Employee compromises trade secrets or other proprietary information of the Company, or any subsidiary or affiliate thereof; (d) the Employee breaches any non-solicitation agreement with the Company, or any subsidiary or affiliate thereof; (e) the Employee breaches any of the terms of this Agreement (other than those referenced in clauses (c) and (d) of this Section 4.1(a)) and fails to cure such breach within ten (10) days after the receipt of written notice of such breach from the Company; (f) the Employee engages in any grossly negligent act or willful misconduct that causes, or could be reasonably expected to cause, harm to the business, operations or reputation of the Company, or any subsidiary or affiliate thereof; or (g) the Company, or any subsidiary or affiliate thereof, is ordered to terminate this Agreement by any governmental regulatory agency with supervisory authority over the Company, or any subsidiary or affiliate thereof. (b) Without Cause. The Company may at any time, in its sole and absolute discretion, terminate the employment of the Employee hereunder without Cause, or otherwise without any cause, reason or justification, provided that the Company provides to the Employee written notice (the "Termination Notice") of such termination. In the event of any such termination by the Company, the Employee's employment with the Company shall cease and terminate on the date specified in the Termination Notice. (c) For Disability of the Employee. If, as a result of incapacity due to physical or mental illness or injury, the Employee shall have been unable to perform the essential functions of his position, with or without reasonable accommodation, on a full-time basis for a period of sixty (60) consecutive days, or for a total of ninety days in any twelve-month period (a "Disability"), then thirty (30) days after written notice to the Employee (which notice may be given before or after the end of the aforementioned periods, but which shall not be effective earlier than the last day of the applicable period), the Company may terminate the Employee's employment hereunder if the Employee is unable to resume his full-time duties at the conclusion of such notice period. 4.2 Death of the Employee. This Agreement shall immediately cease and terminate upon the death of Employee. 4.3 Termination by Employee. The Employee may terminate his employment under this Agreement upon not less than thirty (30) days prior written notice to the Company. Upon learning that the Employee is terminating his employment under this Agreement, the Company may, in its sole discretion but subject to its other obligations under this Agreement, relieve Employee of his duties under this Employment 4 Agreement, and assign Employee other reasonable duties and responsibilities to be performed until the termination becomes effective. 4.4 Compensation Upon Early Termination. (a) As a Result of Death, Cause or Resignation. If the Employee's employment under this Agreement is terminated prior to the scheduled expiration of the Term by reason of his death, termination by the Company for Cause or resignation by the Employee, the Employee shall be entitled to be paid solely (i) the Employee's salary then in effect through the effective date of termination, (ii) any accrued vacation due pursuant to Section 3.4, (iii) any amounts due pursuant to Section 3.6, (iv) those benefits, if any, that have vested by operation of state or federal law or under any written term of a plan ("Vested Benefits"), and (v) health care coverage continuation rights under the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA Rights"), and the Company shall have no further liability or other obligation of any kind whatsoever to the Employee. In the case of termination as a result of the death of Employee, any amounts due pursuant to this Section 4.4(a) shall be paid to the Employee's estate, heirs (at law), devisees, legatees or other proper and legally entitled descendants, or the personal representative, executor, administrator or other proper legal representative on behalf of such descendants. (b) By the Company other than for Cause. Except as otherwise expressly provided in Section 4.4(d), if, prior to the scheduled expiration of the Term, the Company terminates the Employee's employment without Cause, the Employee shall be entitled to receive and be paid solely (i) the Employee's salary then in effect until the expiration of six months following the effective date of the termination of Employee's employment payable over such period at the Company's regular and customary intervals for the payment of salaries as in effect from time to time ("Severance Pay"), (ii) any accrued vacation due pursuant to Section 3.4, (iii) any amounts due pursuant to Section 3.6, (iv) any Vested Benefits, and (v) any COBRA Rights, and the Company shall have no further liability or other obligation of any kind whatsoever to the Employee. The payment of Severance Pay shall constitute liquidated damages in lieu of any and all claims by the Employee against the Company, shall be in full and complete satisfaction of any and all rights which the Employee may enjoy hereunder, and shall constitute consideration for a full and unconditional release of any and all liability of the Company or any of its shareholders, benefit plans, affiliate companies, subsidiaries, and the directors, officers, employees, trustees and agents of such entities and their successors or assigns, arising out of this Agreement or out of the employment relationship between the Employee and the Company (in the form of Exhibit A, hereafter the "Release"). Payment of the Severance Pay is expressly conditioned upon receipt by the Company of the Release executed by the Employee. (c) Disability. For the sixty (60) day period following onset of the Employee's Disability, Employee shall be entitled to receive and be paid solely (i) the Employee's salary then in effect until the expiration of said sixty (60) day period payable over such period of time at the Company's regular and customary intervals for the 5 payment of salaries as in effect from time to time, (ii) any accrued vacation due pursuant to Section 3.4, (iii) any amounts due pursuant to Section 3.6, (iv) any Vested Benefits, and (v) any COBRA rights. Following expiration of the sixty (60) day period, the Employee shall be entitled to receive and be paid solely a salary at a rate commensurate with the benefit Employee is eligible to receive under any disability policy maintained by the Company for a period of one hundred twenty (120) days or until Employee's benefits under any disability policy maintained by the Company for the Employee commences, whichever period is shorter, payable over such period of time at the Company's regular and customary intervals for the payment of salaries as in effect from time to time, and the Company shall have no further liability or other obligation of any kind whatsoever to the Employee. (d) Change in Control. Notwithstanding anything contained in the foregoing, if within one year of the effective date of a Change in Control (as defined below) (i) Employee's employment under this Agreement is terminated by the Company, its assignee or successor, without Cause (including, for purposes of this Section 4.1(d), an election by the Company not to continue to Term of Employee's employment) or (ii) Employee terminates his employment under this Agreement on account of (y) Employee's position, responsibilities or working conditions being substantially diminished or (z) a material reduction in the Employee's compensation or benefits, the Employee shall be entitled to receive and be paid, in lieu of compensation payable pursuant to Section 4.4(b), an amount equal to three (3) times (a) the Employee's annual salary then in effect plus (b) the average of the incentive compensation paid to the Employee for the two most recently completed fiscal years of the Company. Said amount shall be payable to the Employee for a period of thirty six (36) months following the effective date of the termination of the Employee's employment (the "Date of Termination"). Said amount shall be payable for such period at the Company's regular and customary intervals for the payment of salaries as in effect from time to time. In addition, the Employee shall be entitled to receive and be paid (v) any accrued vacation due pursuant to Section 3.4, (w) any amounts due pursuant to Section 3.6, (x) any Vested Benefits, (y) any COBRA rights, and (z) prorated incentive compensation for the current fiscal year of the Company. (e) Change in Control Defined. "Change in Control" means in any transaction or related series of transactions: (a) the acquisition (other than solely from the Company), by any individual, entity or group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act), other than the Company or any subsidiary, affiliate (within the meaning of Rule 144 under the Securities Act of 1933, as amended) or employee benefit plan of the Company, of beneficial ownership (within the meaning of Rule 13(d)(3) promulgated under the Exchange Act) of more than 30% of the combined voting power of the then outstanding securities of the Company entitled to vote generally in the election of directors (the "Voting Securities"); (b) a reorganization, merger, consolidation, share exchange or recapitalization of the Company (a "Business Combination"), other than a Business Combination in which more than 50% of the combined voting power of the outstanding voting securities of the surviving or resulting entity immediately following the Business Combination is held by the persons who, 6 immediately prior to the Business Combination, were the holders of the Voting Securities; or (c) a complete liquidation or dissolution of the Company, or a sale of all or substantially all of the Company's assets. (f) Tax Gross-Up Payment. In the event the compensation payable to the Employee pursuant to and by reason of Section 4.4(d) hereof and otherwise payable by the Company to the Employee by reason of a Change in Control (including without limitation, accelerated vesting of stock options and other compensation payable outside of this Agreement (together the "Total Benefits"), but determined without regard to any additional payments required under this Section 4.4(f)) constitute excess parachute payments within the meaning of Section 280G of the Internal Revenue Code (the "Code") and the Employee will be subject to the excise tax imposed by Section 4999 of the Code, then the aggregate compensation payable to the Employee pursuant to and by reason of Section 4.4(d) shall be increased by an additional amount (the "Gross-Up Payment") such that the net amount retained by the Employee, after deduction of any excise tax on the Total Benefits and any federal, state and local income tax, excise taxes and FICA Medicare withholding taxes upon the Gross-Up Payment shall be equal to the Total Benefits. The Gross-Up Payment shall be calculated, and all assumptions to be utilized in performing such calculation, shall be made by the Company's independent auditors (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Employee within fifteen (15) business days after the Date of Termination (defined in Section 4(d)(i)). The calculation of the Gross-Up Payment by the Accounting Firm shall be binding upon the Company and Employee unless with ten (10) business days of receiving the calculations from the Accounting Firm either party objects to the calculation by serving upon the other party a written notice of objection (which shall contain specific details supporting the objection). In the event of a timely objection to the calculation, the Company and Employee shall meet and in good faith attempt to resolve the objection. If the parties fail to resolve the objection with ten (10) business days of receipt of the objection, either party may initiate arbitration, and the dispute shall be resolved by arbitration, pursuant to Section 11 hereof. All reasonable fees and expenses of the Accounting Firm shall be borne solely by the Company. The Gross-Up Payment shall be added to the aggregate compensation payable to the Employee pursuant to and by reason of Section 4.4(d) and be payable over the applicable payment period set forth in Section 4.4(d)(i) or (ii), subject to withholding pursuant to Section 3.5 hereof. 4.5 Expiration of the Term. If not sooner terminated, Employee's employment hereunder shall terminate on the expiration of the Initial Term or the Renewal Term, as applicable. Not less than 45 days prior to the scheduled expiration of Employee's employment hereunder, the parties agree to commence discussions with respect to the possible extension of the Term of this Agreement, possible execution of a new employment agreement or other possible continuation of the Employee's employment (it being understood and agreed that no such discussion shall imply any current or future obligation or commitment to enter into any such agreement or extension or any other expressed or implied arrangement for the continued employment of the 7 Employee following the expiration of the Initial Term or any other termination of the Employee's employment hereunder). 5. Agreement Not to Solicit Customers. The Employee agrees that, during the Term of his employment with the Company or any entity owned by or affiliated with the Company (whether pursuant to this Agreement or otherwise), and for two (2) years following the termination thereof whether or not for any reason whatsoever, he will not, either directly or indirectly, call on, solicit, or take away as a client, customer or prospective client or customer, or attempt to call on, solicit, or take away as a client, customer or prospective client or customer, any person or entity that was a client, customer or prospective client or customer of the Company, or any subsidiary or affiliate thereof. For purposes of this agreement "prospective client or customer" shall include any person or entity with whom the Company has had contact for the purpose of soliciting business within the six months prior to the termination of employment or whom the Company intended to contact for the purpose of soliciting business within six months after termination of employment, of which contact or intended contact the Employee had knowledge while employed by the Company. 6. Agreement Not to Solicit or Hire Employees. The Employee agrees that during the Term of his employment with the Company or any entity owned by or affiliated with the Company (whether pursuant to this Agreement or otherwise), and for two (2) years following the termination thereof whether or not for any reason whatsoever, he will not, either directly or indirectly, on his own behalf or in the service or on behalf of others, solicit, divert or hire, attempt to solicit, divert or hire or induce or attempt to induce to discontinue employment with the Company, or any subsidiary or affiliate thereof, any person employed by the Company, or any subsidiary or affiliate thereof, whether or not such employee is a full time employee or a temporary employee of the Company, or any subsidiary or affiliate thereof and whether or not such employment is for a determined period or is at will. 7. Ownership and Non-Disclosure and Non-Use of Confidential Information. 7.1 Confidential Information. As used in this Agreement, "Confidential Information" shall mean all customer deposit, loan, sales and marketing information, customer account records, proprietary receipts and/or processing techniques, information regarding vendors and products, training and operations memoranda and similar information, personnel records, pricing information, financial information and trade secrets concerning or relating to the business, accounts, customers, employees and affairs of the Company, or any subsidiary or affiliate thereof, obtained by or furnished, disclosed or disseminated to the Employee, or obtained, assembled or compiled by the Employee or under his supervision during the course of his employment by the Company, and all physical embodiments of the foregoing, all of which are hereby agreed to be the property of and confidential to the Company, but Confidential Information shall not include any of the foregoing to the extent that the Employee can show that the same is or 8 becomes publicly known through no action, omission, fault or breach of this Agreement by the Employee. 7.2 Ownership. The Employee acknowledges and agrees that all Confidential Information, and all physical embodiments thereof, are confidential to and shall be and remain the sole and exclusive property of the Company. The Employee agrees that upon request by the Company, and in any event upon termination of the Employee's employment with the Company whether or not for any reason whatsoever, the Employee shall deliver to the Company all property belonging to the Company, or any of its subsidiaries or affiliates, including, without limitation, all Confidential Information (and all embodiments thereof), then in his custody, control or possession. 7.3 Non-Disclosure and Non-Use. The Employee agrees that he will not, either during the Term of his employment hereunder or at any time thereafter, use, disclose or make available any Confidential Information to any person or entity, nor shall he use, disclose, make available or cause to be used, disclosed or made available, or permit or allow, either on his own behalf or on behalf of others, any use or disclosure of such Confidential Information other than in the proper performance of the Employee's duties hereunder. 8. Reasonableness of Restrictions. In the event that any provision relating to time period set forth in Section 5, 6, or 7 shall be held by a court of competent jurisdiction to exceed the maximum time period that the court deems reasonable and enforceable, the time period which the court finds to be reasonable and enforceable shall be deemed to become, and thereafter shall be, the maximum time period of such restriction as to such jurisdiction. 9. Enforceability. Any provision of this Agreement which is held by a court of competent jurisdiction to be invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, but shall be enforced to the maximum extent permitted by law, and any such holding of invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 10. Injunction. The Employee represents that his experience and capabilities are such that the provisions of Sections 5, 6, and 7 will not prevent him from earning his livelihood, and acknowledges that a breach by the Employee of any of the covenants contained therein will cause irreparable harm and damage to the Company, the monetary amount of which may be virtually impossible to ascertain. As a result, the Employee recognizes and hereby acknowledges that the Company shall be entitled to an injunction from any court of competent jurisdiction enjoining and restraining any violation of any or all of the covenants contained in Section 5, 6, and/or 7 of this Agreement by the Employee or any of his affiliates, associates, partners or agents, either directly or indirectly, without any requirement to post bond or other security and that such right to 9 injunction shall be cumulative and in addition to whatever other remedies the Company may possess. 11. Arbitration. Subject to the provisions of Section 10 hereof regarding the remedy of injunctive relief, any dispute (whether based on contract, tort, or statutory duty or prohibition) arising out of or in connection with this Agreement shall be submitted to binding arbitration, in accordance with the Commercial Arbitration Rules of the American Arbitration Association (as modified by this Agreement) by one arbitrator, designated in accordance with those rules. No one who has ever had any business, financial, family, or social relationship with any party to this Agreement shall serve as an arbitrator unless the related party informs the other party of the relationship and the other party consents in writing to the use of that arbitrator. The party demanding arbitration shall submit a written claim to the other party, setting out the basis of the claim. A prearbitration hearing shall be held within twenty (20) business days after the arbitrator's selection. The arbitration shall be held within ninety (90) calendar days after the prearbitration hearing. The arbitrator shall establish any deadlines to accomplish this goal. The arbitration shall take place in Napa, California, at a time and place selected by the arbitrator. Each party shall be entitled to discovery of essential documents and witnesses, as determined by the arbitrator. No less than thirty (30) calendar days before the arbitration, a party may serve a document request calling for any document that would be discoverable in a state civil proceeding. The served with this request shall deliver the requested documents and any objections within ten (10) calendar days. The arbitrator may resolve any dispute over the exchange of documents. Each party may take no more than three (3) depositions, unless additional depositions are allowed by the arbitrator for good cause. All depositions must be completed as of fifteen (15) calendar days before the arbitration hearing unless the parties otherwise agree. The arbitrator may resolve any dispute over the depositions as they would be resolved in a state civil proceeding. Any motion may be heard by the arbitrator on three (3) days notice unless the parties otherwise agree. The arbitrator shall apply California law. The parties agree that all information supplied by any party shall be deemed to be confidential information, and the arbitrator and other participants in the dispute shall protect such information from disclosure to the same extent as confidential information under Section 7 of this Agreement. The arbitrator shall have the following powers: (a) To issue subpenas for the attendance of witnesses and subpenas duces tecum for the production of books, records, documents, and other evidence; (b) To order depositions to be used as evidence; 10 (c) Consistent with the discovery procedures enumerated above, to enforce the rights, remedies, procedures, duties, liabilities, and obligations of discovery as if the arbitration were a civil action before a California superior court; (d) To conduct a hearing on the arbitration issues and related legal and discovery issues; (e) To administer oaths to parties and witnesses; (f) To award damages and remedies which would be available in a civil action before a California superior court; (g) To award expenses and fees of arbitration as the arbitrator deems proper; and (h) To order such other relief as the arbitrator deems proper. Within fifteen (15) calendar days after completion of the arbitration, the arbitrator shall submit a tentative decision in writing specifying the reasoning for the decision and any calculations necessary to explain the award. Each party shall have fifteen (15) calendar days in which to submit written comments to the tentative decision. Within ten (10) calendar days after the deadline for written comments, the arbitrator shall announce the final award. Any party may enter the final award as a judgment in any court of competent jurisdiction. The Company shall pay the arbitrator's expenses and fees, all meeting room charges, and any other expenses that would not have been incurred if the case were litigated in the judicial forum having jurisdiction over it. Unless otherwise ordered by the arbitrator, each party shall pay its own attorney fees, witness fees and other expenses incurred by the party for his or its own benefit. The arbitrator may award the prevailing party his or its expenses and fees of arbitration, including reasonable attorney fees and costs, including witness fees, in such proportion as the arbitrator decides. 12. No Prior Agreements. The Employee represents and warrants that he is not a party to or otherwise subject to or bound by the terms of any contract, agreement or understanding which in any manner would limit or otherwise affect his ability to perform his obligations hereunder, including without limitation any contract, agreement or understanding containing terms and provisions in any manner similar to those contained in Sections 5, 6, and/or 7 hereof. The Employee further represents and warrants that his employment with the Company will not require him to disclose or use any confidential information belonging to prior employers or other persons or entities. 13. Assignment. The Employee shall not delegate his employment obligations pursuant to this Agreement to any other person. This Agreement may be assigned by the Company without the Employee's consent. The rights and protections of the Company 11 hereunder shall extend to any successors or assigns of the Company and to the Company's present or future parents, subsidiaries, divisions and affiliates. 14. Employer's Authority. The relationship between the parties hereto is that of employer and employee. The Employee agrees to observe and comply with the rules and regulations of the Company, as adopted by the Company from time to time with respect to the performance of the duties of the Employee. The Employee acknowledges that he has no authority to enter into any contracts or other obligations that are binding upon the Company unless such contracts or obligations are authorized by the Board of Directors. The Company shall have the power to direct, control and supervise the duties to be performed by the Employee, the manner of performing said duties, and the time of performing said duties. 15. Governing Law. This Agreement, the rights and obligations of the parties hereto, and any claims or disputes relating thereto, shall be governed by and construed in accordance with the laws of the State of California, without giving effect to any of the conflicts of laws provisions thereof that would compel the application of the substantive laws of any other jurisdiction. The Company and the Employee each hereby irrevocably submit to the jurisdiction of the state or federal courts located in the State of California in connection with any suit, action or other proceeding arising out of or relating to this Agreement and hereby agree not to assert, by way of motion, as a defense, or otherwise in any such suit, action or proceeding that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced by such courts. 16. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements, understandings and arrangements, both oral and written, between the parties hereto with respect to such subject matter. 17. Notices. All notices, requests, demands and other communications under this Agreement will be in writing and will be deemed to have been duly given (a) on the date of the service if served personally on the party to whom notice is to be given, (b) on the date of transmission if transmitted by facsimile with confirmation of receipt, (c) on the date of receipt if mailed to the party to whom notice is to be given by first class mail, registered or certified, postage prepaid or by overnight courier service (i.e., Federal Express or equivalent) and unless either party should notify the other of a change of address properly addressed as follows, or (d) otherwise on the date of receipt when the intended recipient has acknowledged receipt: (i) If to the Employee: Terry L. Robinson 611 Cottage Drive Napa, CA 94558 12 (ii) If to the Company: North Bay Bancorp 1500 Soscol Avenue Napa, California 94559 Attention: Chairman of the Board Facsimile: (707) 257-8025 18. Binding Effect. The obligations of the Employee under this Agreement shall continue after the expiration of this Agreement and the termination of his employment with the Company for any reason, shall be binding upon his heirs, executors, personal representatives, legal representatives and assigns and shall inure to the benefit of any successor and assigns of the Company. 19. Severability. The invalidity of any one or more of the words, phrases, sentences, clauses, sections or subsections contained in this Agreement shall not affect the enforceability of the remaining portions of this Agreement or any part thereof, all of which are inserted conditionally on their being valid in law, and, in the event that any one or more of the words, phrases, sentences, clauses, sections or subsections contained in this Agreement or any part thereof shall be declared invalid, this Agreement shall be construed as if such invalid word or words, phrase or phrases, sentence or sentences, clause or clauses, section or sections or subsection or subsections had not been inserted. If such invalidity is caused by length of time or size of area, or both, the otherwise invalid provision will be considered to be reduced to a period or area which would cure such invalidity. 20. Section Headings. The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 21. No Third Party Beneficiary. Nothing expressed or implied in this Agreement is intended, or shall be construed, to confer upon or give any person other than the parties hereto and their respective heirs, personal representative, legal representative, successors and assigns, any rights or remedies under or by reason of this Agreement. 22. Amendment; Modification; Waiver. No amendment, modification or waiver of the terms of this Agreement shall be valid unless made in writing and duly executed by the Company and the Employee. No delay or failure at any time on the part of the Company in exercising any right, power or privilege under this Agreement, or in enforcing any provision of this Agreement, shall impair any such right, power or privilege, or be construed as a waiver of any default or as any acquiescence therein, or shall affect the right of the Company thereafter to enforce each and every provision of this Agreement in accordance with its terms. The waiver by either party hereto of a breach or violation of any term or provision of this Agreement shall neither operate nor be construed as a waiver of any subsequent breach or violation. 13 THE EMPLOYEE ACKNOWLEDGES THAT HE HAS READ AND UNDERSTANDS THE FOREGOING PROVISIONSAND THAT SUCH PROVISIONS ARE REASONABLE AND ENFORCEABLE. IN WITNESS WHEREOF, the parties hereto have executed this Agreement or caused this Agreement to be executed as of the day and year first above written. EMPLOYEE ______________________________ Terry L. Robinson COMPANY By:___________________________ Thomas F. Malloy Chairman of the Board 14 EX-10 4 p14224_ex10-2.txt EXHIBIT 10.2 EMPLOYMENT AGREEMENT / TERRY EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of the 1st day of May, 2001 by and between Solano Bank, a California corporation (the "Bank"), and Glen C. Terry (the "Employee"). BACKGROUND WHEREAS, the Employee is currently employed by the Bank and possesses valuable knowledge and skills that have contributed to the operation of the Bank and its subsidiary banks; WHEREAS, the Bank desires to continue Employee's employment and the Employee is willing to continue to be employed by the Bank, upon the terms and subject to the conditions hereinafter set forth; and WHEREAS, the Bank is a wholly-owned subsidiary of North Bay Bancorp, a California corporation (the "Company"). NOW, THEREFORE, in consideration of the premises, agreements and mutual covenants set forth herein, the parties hereto hereby agree as follows: 1. Employment 1.1 General. The Bank hereby employs the Employee as President and Chief Executive Officer on the terms and subject to the conditions contained in this Agreement, and the Employee hereby accepts such employment on the terms and subject to the conditions contained in this Agreement. 1.2 Duties of Employee. During the Term of this Agreement, the Employee shall diligently perform all duties and responsibilities reasonably accorded to and expected of the President and Chief Executive Officer of the Bank and as may be assigned to him by the Board of Directors of the Bank (the "Board of Directors") or the President and Chief Executive Officer of the Company, and shall exercise such power and authority as may from time to time be delegated to him thereby. The Employee shall devote his full business time and attention to the business and affairs of the Bank as necessary to perform his duties and responsibilities hereunder, render such services to the best of his ability and use his best efforts to promote the interests of the Bank. The Employee shall faithfully adhere to, execute and fulfill all policies established by the Bank. 1.3 Place of Performance. Except for required travel for the Bank's business, the Employee shall perform his duties and responsibilities from the offices of the Bank and its subsidiaries. 2. Term. Subject to the provisions of Section 4 of this Agreement, the initial term of Employee's employment hereunder shall commence on the date of this Agreement (the "Effective Date") and shall continue thereafter until the third anniversary of the Effective Date (the "Initial Term"). Unless the Employee shall have notified the Bank, or the Bank shall have notified the Employee, not less than sixty days prior to the expiration of the Initial Term of such party's election not to continue the Term of this Agreement, upon expiration of the Initial Term, the Employee's employment hereunder shall continue until the fourth anniversary of the Effective Date and thereafter shall continue on a year-to-year basis unless either party notifies the other, not less than sixty days prior to expiration of the then current Renewal Term, of such party's election not to continue the Term of this Agreement (each such additional one-year period, a "Renewal Term"; the Initial Term and any Renewal Term are collectively referred to hereinafter as the "Term"). The election by the Bank not to continue the Term of Employee's employment for a Renewal Term shall not be deemed a termination without Cause pursuant to Section 4.1(b) hereof except as expressly provided in Section 4.1(d) hereof. 3. Compensation. 3.1 Salary. During the Term of the Employee's employment hereunder, the Employee shall receive an annual salary of one hundred thirty thousand dollars ($130,000) payable at such times and in such manner as the Bank's normal payroll schedule may from time to time provide. Employee's annual salary shall be subject to annual adjustment as may be determined by the Board of Directors in its sole and absolute discretion. 3.2 Incentive Compensation. The Employee shall be eligible to receive as additional compensation each year during his employment hereunder, as determined by the Board of Directors or an applicable committee thereof, in accordance with the terms of an Incentive Compensation Plan adopted annually by the Board of Directors. Such additional compensation (if any) to be paid at a time or times and in a manner consistent with the Bank's normal practices for the payment of bonuses, or as the Board of Directors or applicable committee may otherwise determine. 3.3 Benefits. During his employment hereunder, the Employee shall be entitled to participate in all plans adopted for the general benefit of the Bank's management employees, including medical plans and 401(k) plan, to the extent that the Employee is and remains eligible to participate therein and subject to the eligibility provisions of such plans in effect from time to time. In the event Employee's employment hereunder is terminated and the Employee is entitled to compensation pursuant to Section 4.4(d), the Employee shall be entitled to continue to participate in the Bank's medical plan until the earlier of (a) expiration of the applicable payment period set forth in Section 4.4(d)(i) or (b) the date Employee obtains new employment. 3.4 Vacation. During each calendar year of his employment hereunder, the Employee shall be entitled to twenty (20) days of paid vacation, prorated for any period of employment of less than an entire year, provided that vacation time will 2 continue to accrue only so long as Employee's total accrued vacation does not exceed twenty five (25) days. Should Employee's accrued vacation time reach twenty five (25) days, Employee will cease to accrue further vacation until Employee's accrued vacation time falls below that level. Notwithstanding anything contained in the foregoing, Employee shall take not less than five (5) consecutive days of vacation during each calendar year during the Term of this Agreement. Employee may be absent from his employment for vacation only at such time as the President and Chief Executive Officer of the Company shall determine from time to time. 3.5 Withholding. Notwithstanding any provision in this Agreement to the contrary, all payments required to be made by the Bank to the Employee hereunder or otherwise arising out of, related or incidental to or in connection with the Employee's employment hereunder shall be subject to withholding of such amounts relating to taxes as the Bank may reasonably determine it should withhold pursuant to any applicable law or regulation. 3.6 Reimbursement of Expenses. The Bank agrees to reimburse the Employee for all reasonable business travel and other out-of-pocket expenses incurred by the Employee in the discharge of his duties hereunder, subject to the Bank's reimbursement policies in effect from time to time. All reimbursable expenses shall be appropriately documented in reasonable detail by the Employee upon submission of any request for reimbursement, and in a format and manner consistent with the Bank's expense reporting policy, as well as applicable federal and state record keeping requirements. 3.7. Automobile. The Bank will pay to Employee an automobile allowance in the amount of five hundred dollars ($500) per month. The Employee shall be responsible for insurance and maintenance costs associated with such automobile's operation. The Employee shall not be entitled to reimbursement for mileage. Employee shall procure and maintain an automobile liability insurance policy on the automobile, with coverage including Employee for at least a minimum of $300,000 for bodily injury or death to any one person in any one accident, and $100,000 for property damage in any one accident. The Employer shall be named as an additional insured and Employee shall provide Employer copies of policies evidencing insurance and Employer's inclusion as an additional insured. 4. Termination 4.1 By Bank. (a) With Cause. Notwithstanding any provision in this Agreement to the contrary, the Employee's employment hereunder may be terminated by the Bank at any time for "Cause," and such termination shall be effective immediately upon written notice to the Employee. For purposes of this Agreement, "Cause" for the termination of the Employee's employment hereunder shall be deemed to exist if, in the reasonable judgment of the Board of Directors: (i) the Employee commits fraud, theft or 3 embezzlement against the Bank, or any subsidiary or affiliate thereof; (ii) the Employee commits a felony or a crime involving moral turpitude; (iii) the Employee compromises trade secrets or other proprietary information of the Bank, or any subsidiary or affiliate thereof; (iv) the Employee breaches any non-solicitation agreement with the Bank, or any subsidiary or affiliate thereof; (v) the Employee breaches any of the terms of this Agreement (other than those referenced in clauses (iii) and (iv) of this Section 4.1(a)) and fails to cure such breach within ten (10) days after the receipt of written notice of such breach from the Bank; (vi) the Employee engages in any grossly negligent act or willful misconduct that causes, or could be reasonably expected to cause, harm to the business, operations or reputation of the Bank, or any subsidiary or affiliate thereof; or (vii) the Bank, or any subsidiary or affiliate thereof, is ordered to terminate this Agreement by any governmental regulatory agency with supervisory authority over the Bank, or any subsidiary or affiliate thereof. (b) Without Cause. The Bank may at any time, in its sole and absolute discretion, terminate the employment of the Employee hereunder without Cause, or otherwise without any cause, reason or justification, provided that the Bank provides to the Employee written notice (the "Termination Notice") of such termination. In the event of any such termination by the Bank, the Employee's employment with the Bank shall cease and terminate on the date specified in the Termination Notice. (c) For Disability of the Employee. If, as a result of incapacity due to physical or mental illness or injury, the Employee is determined to be disabled under any disability policy maintained by the Bank or, in the event no such policy is maintained by the Bank, the Employee shall have been unable to perform the essential functions of his position, with or without reasonable accommodation, on a full-time basis for a period of sixty (60) consecutive days, or for a total of ninety (90) days in any twelve-month period (a "Disability"), then thirty (30) days after written notice to the Employee (which notice may be given before or after the end of the aforementioned periods, but which shall not be effective earlier than the last day of the applicable period), the Bank may terminate the Employee's employment hereunder if the Employee is unable to resume his full-time duties at the conclusion of such notice period. 4.2 Death of the Employee. This Agreement shall immediately cease and terminate upon the death of Employee. 4.3 Termination by Employee. The Employee may terminate his employment under this Agreement upon not less than thirty (30) days prior written notice to the Bank. Upon learning that the Employee is terminating his employment under this Agreement, the Bank may, in its sole discretion but subject to its other obligations under this Agreement, relieve Employee of his duties under this Employment Agreement, and assign Employee other reasonable duties and responsibilities to be performed until the termination becomes effective. 4 4.4 Compensation Upon Early Termination. (a) As a Result of Death, Cause or Resignation. If the Employee's employment under this Agreement is terminated prior to the scheduled expiration of the Term by reason of his death, termination by the Bank for Cause or resignation by the Employee, the Employee shall be entitled to be paid solely (i) the Employee's salary then in effect through the effective date of termination, (ii) any accrued vacation due pursuant to Section 3.4, (iii) any amounts due pursuant to Section 3.6, (iv) those benefits, if any, that have vested by operation of state or federal law or under any written term of a plan ("Vested Benefits"), and (v) health care coverage continuation rights under the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA Rights"), and the Bank shall have no further liability or other obligation of any kind whatsoever to the Employee. In the case of termination as a result of the death of Employee, any amounts due pursuant to this Section 4.4(a) shall be paid to the Employee's estate, heirs (at law), devisees, legatees or other proper and legally entitled descendants, or the personal representative, executor, administrator or other proper legal representative on behalf of such descendants. (b) By the Bank other than for Cause. Except as otherwise expressly provided in Section 4.4(d), if, prior to the scheduled expiration of the Term, the Bank terminates the Employee's employment without Cause, the Employee shall be entitled to receive and be paid solely (i) the Employee's salary then in effect until the expiration of six months following the effective date of the termination of Employee's employment payable over such period at the Bank's regular and customary intervals for the payment of salaries as in effect from time to time ("Severance Pay"), (ii) any accrued vacation due pursuant to Section 3.4, (iii) any amounts due pursuant to Section 3.6, (iv) any Vested Benefits, and (v) any COBRA Rights, and the Bank shall have no further liability or other obligation of any kind whatsoever to the Employee. The payment of Severance Pay shall constitute liquidated damages in lieu of any and all claims by the Employee against the Bank, shall be in full and complete satisfaction of any and all rights which the Employee may enjoy hereunder, and shall constitute consideration for a full and unconditional release of any and all liability of the Bank or any of its shareholders, benefit plans, affiliate companies, subsidiaries, and the directors, officers, employees, trustees and agents of such entities and their successors or assigns, arising out of this Agreement or out of the employment relationship between the Employee and the Bank (in the form of Exhibit A, hereafter the "Release"). Payment of the Severance Pay is expressly conditioned upon receipt by the Bank of the Release executed by the Employee. (c) Disability. For the sixty (60) day period following onset of the Employee's Disability, Employee shall be entitled to receive and be paid solely (i) the Employee's salary then in effect until the expiration of said sixty (60) day period payable over such period of time at the Bank's regular and customary intervals for the payment of salaries as in effect from time to time, (ii) any accrued vacation due pursuant to Section 3.4, (iii) any amounts due pursuant to Section 3.6, (iv) any Vested Benefits, and (v) any COBRA rights. Following expiration of the sixty (60) day period, the Employee shall be 5 entitled to receive and be paid solely a salary at a rate commensurate with the benefit Employee is eligible to receive under any disability policy maintained by the Bank for a period of one hundred twenty (120) days or until Employee's benefits under any disability policy maintained by the Bank for the Employee commences, whichever period is shorter, payable over such period of time at the Bank's regular and customary intervals for the payment of salaries as in effect from time to time, and the Bank shall have no further liability or other obligation of any kind whatsoever to the Employee. (d) Change in Control. Notwithstanding anything contained in the foregoing, if within one year of the effective date of a Change in Control (as defined below), of the Company (i) Employee's employment under this Agreement is terminated by the Bank, its assignee or successor, without Cause (including, for purposes of this Section 4.1(d), an election by the Bank not to continue to Term of Employee's employment) or (ii) Employee terminates his employment under this Agreement on account of (y) Employee's position, responsibilities or working conditions being substantially diminished or (z) a material reduction in the Employee's compensation or benefits, the Employee shall be entitled to receive and be paid compensation as follows in lieu of compensation payable pursuant to Section 4.4(b): (i) Less Than Five Years of Service. If as of the effective date of the Change in Control of the Company the Employee has completed less than five years of service to the Bank (including service to any predecessor or subsidiary of the Bank), the Employee shall be entitled to receive and be paid an amount equal to (a) the Employee's annual salary then in effect plus (b) the average of the incentive compensation paid to the Employee for the two most recently completed fiscal years of the Bank. Said amount shall be payable to the Employee for a period of twelve months following the effective date of the termination of the Employee's employment (the "Date of Termination"). Said amount shall be payable for such period at the Bank's regular and customary intervals for the payment of salaries as in effect from time to time. In addition, the Employee shall be entitled to receive and be paid (v) any accrued vacation due pursuant to Section 3.4, (w) any amounts due pursuant to Section 3.6, (x) any Vested Benefits, (y) any COBRA rights, and (z) prorated incentive compensation for the current fiscal year of the Bank; or (ii) More than Five Years of Service. If as of the effective date of the Change in Control of the Company the Employee has completed five or more years of service to the Bank (including service to any predecessor or subsidiary of the Bank), the Employee shall be entitled to receive and be paid an amount equal to two times (a) the Employee's annual salary then in effect plus (b) the average of the incentive compensation paid to the Employee for the two most recently completed fiscal years of the Bank. Said amount shall be payable to the Employee for a period of twenty-four months following the Date of Termination. Said amount shall be payable for such period at the Bank's regular and customary intervals for the payment of salaries as in effect from time to time. In addition, the Employee shall be entitled to receive and be paid (v) any accrued vacation due pursuant to Section 3.4, (w) any amounts due pursuant 6 to Section 3.6, (x) any Vested Benefits, (y) any COBRA rights, and (z) prorated incentive compensation for the current fiscal year of the Bank. (e) Change in Control Defined. "Change in Control" means in any transaction or related series of transactions: (a) the acquisition (other than solely from the Company), by any individual, entity or group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act), other than the Company or any subsidiary, affiliate (within the meaning of Rule 144 under the Securities Act of 1933, as amended) or employee benefit plan of the Company, of beneficial ownership (within the meaning of Rule 13(d)(3) promulgated under the Exchange Act) of more than 30% of the combined voting power of the then outstanding securities of the Company entitled to vote generally in the election of directors (the "Voting Securities"); (b) a reorganization, merger, consolidation, share exchange or recapitalization of the Company (a "Business Combination"), other than a Business Combination in which more than 50% of the combined voting power of the outstanding voting securities of the surviving or resulting entity immediately following the Business Combination is held by the persons who, immediately prior to the Business Combination, were the holders of the Voting Securities; or (c) a complete liquidation or dissolution of the Company, or a sale of all or substantially all of the Company's assets. (f) Tax Gross-Up Payment. In the event the compensation payable to the Employee pursuant to and by reason of Section 4.4(d) hereof and otherwise payable by the Bank to the Employee by reason of a Change in Control of the Company (including without limitation, accelerated vesting of stock options and other compensation payable outside of this Agreement (together the "Total Benefits"), but determined without regard to any additional payments required under this Section 4.4(f)) constitute excess parachute payments within the meaning of Section 280G of the Internal Revenue Code (the "Code") and the Employee will be subject to the excise tax imposed by Section 4999 of the Code, then the aggregate compensation payable to the Employee pursuant to and by reason of Section 4.4(d) shall be increased by an additional amount (the "Gross-Up Payment") such that the net amount retained by the Employee, after deduction of any excise tax on the Total Benefits and any federal, state and local income tax, excise taxes and FICA Medicare withholding taxes upon the Gross-Up Payment shall be equal to the Total Benefits. The Gross-Up Payment shall be calculated, and all assumptions to be utilized in performing such calculation, shall be made by the Bank's independent auditors (the "Accounting Firm") which shall provide detailed supporting calculations both to the Bank and the Employee within fifteen (15) business days after the Date of Termination (defined in Section 4(d)(i)). The calculation of the Gross-Up Payment by the Accounting Firm shall be binding upon the Bank and Employee unless with ten (10) business days of receiving the calculations from the Accounting Firm either party objects to the calculation by serving upon the other party a written notice of objection (which shall contain specific details supporting the objection). In the event of a timely objection to the calculation, the Bank and Employee shall meet and in good faith attempt to resolve the objection. If the parties fail to resolve the objection with ten (10) business days of receipt of the objection, either party may initiate arbitration, and the dispute shall be resolved by arbitration, pursuant to Section 11 hereof. All reasonable fees and expenses of the Accounting Firm shall be borne solely by the Bank. The Gross- 7 Up Payment shall be added to the aggregate compensation payable to the Employee pursuant to and by reason of Section 4.4(d) and be payable over the applicable payment period set forth in Section 4.4(d)(i) or (ii), subject to withholding pursuant to Section 3.5 hereof. 4.5 Expiration of the Term. If not sooner terminated, Employee's employment hereunder shall terminate on the expiration of the Initial Term or the Renewal Term, as applicable in accordance with Section 2 hereof. Not less than 45 days prior to the scheduled expiration of Employee's employment hereunder, the parties agree to commence discussions with respect to the possible extension of the Term of this Agreement, possible execution of a new employment agreement or other possible continuation of the Employee's employment (it being understood and agreed that no such discussion shall imply any current or future obligation or commitment to enter into any such agreement or extension or any other expressed or implied arrangement for the continued employment of the Employee following the expiration of the Initial Term or any other termination of the Employee's employment hereunder). 5. Agreement Not to Solicit Customers. The Employee agrees that, during the Term of his employment with the Bank or any entity owned by or affiliated with the Bank (whether pursuant to this Agreement or otherwise), and for two (2) years following the termination thereof whether or not for any reason whatsoever, he will not, either directly or indirectly, call on, solicit, or take away as a client, customer or prospective client or customer, or attempt to call on, solicit, or take away as a client, customer or prospective client or customer, any person or entity that was a client, customer or prospective client or customer of the Bank, or any subsidiary or affiliate thereof. For purposes of this agreement "prospective client or customer" shall include any person or entity with whom the Bank has had contact for the purpose of soliciting business within the six months prior to the termination of employment or whom the Bank intended to contact for the purpose of soliciting business within six months after termination of employment, of which contact or intended contact the Employee had knowledge while employed by the Bank. 6. Agreement Not to Solicit or Hire Employees. The Employee agrees that during the Term of his employment with the Bank or any entity owned by or affiliated with the Bank (whether pursuant to this Agreement or otherwise), and for two (2) years following the termination thereof whether or not for any reason whatsoever, he will not, either directly or indirectly, on his own behalf or in the service or on behalf of others, solicit, divert or hire, attempt to solicit, divert or hire or induce or attempt to induce to discontinue employment with the Bank, or any subsidiary or affiliate thereof, any person employed by the Bank, or any subsidiary or affiliate thereof, whether or not such employee is a full time employee or a temporary employee of the Bank, or any subsidiary or affiliate thereof and whether or not such employment is for a determined period or is at will. 8 7. Ownership and Non-Disclosure and Non-Use of Confidential Information. 7.1 Confidential Information. As used in this Agreement, "Confidential Information" shall mean all customer deposit, loan, sales and marketing information, customer account records, proprietary receipts and/or processing techniques, information regarding vendors and products, training and operations memoranda and similar information, personnel records, pricing information, financial information and trade secrets concerning or relating to the business, accounts, customers, employees and affairs of the Bank, or any subsidiary or affiliate thereof, obtained by or furnished, disclosed or disseminated to the Employee, or obtained, assembled or compiled by the Employee or under his supervision during the course of his employment by the Bank, and all physical embodiments of the foregoing, all of which are hereby agreed to be the property of and confidential to the Bank, but Confidential Information shall not include any of the foregoing to the extent that the Employee can show that the same is or becomes publicly known through no action, omission, fault or breach of this Agreement by the Employee. 7.2. Ownership. The Employee acknowledges and agrees that all Confidential Information, and all physical embodiments thereof, are confidential to and shall be and remain the sole and exclusive property of the Bank. The Employee agrees that upon request by the Bank, and in any event upon termination of the Employee's employment with the Bank whether or not for any reason whatsoever, the Employee shall deliver to the Bank all property belonging to the Bank, or any of its subsidiaries or affiliates, including, without limitation, all Confidential Information (and all embodiments thereof), then in his custody, control or possession. 7.3 Non-Disclosure and Non-Use. The Employee agrees that he will not, either during the Term of his employment hereunder or at any time thereafter, use, disclose or make available any Confidential Information to any person or entity, nor shall he use, disclose, make available or cause to be used, disclosed or made available, or permit or allow, either on his own behalf or on behalf of others, any use or disclosure of such Confidential Information other than in the proper performance of the Employee's duties hereunder. 8. Reasonableness of Restrictions. In the event that any provision relating to time period set forth in Section 5, 6, or 7 shall be held by a court of competent jurisdiction to exceed the maximum time period that the court deems reasonable and enforceable, the time period which the court finds to be reasonable and enforceable shall be deemed to become, and thereafter shall be, the maximum time period of such restriction as to such jurisdiction. 9. Enforceability. Any provision of this Agreement which is held by a court of competent jurisdiction to be invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, but shall be enforced to the 9 maximum extent permitted by law, and any such holding of invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 10. Injunction. The Employee represents that his experience and capabilities are such that the provisions of Sections 5, 6, and 7 will not prevent him from earning his livelihood, and acknowledges that a breach by the Employee of any of the covenants contained therein will cause irreparable harm and damage to the Bank, the monetary amount of which may be virtually impossible to ascertain. As a result, the Employee recognizes and hereby acknowledges that the Bank shall be entitled to an injunction from any court of competent jurisdiction enjoining and restraining any violation of any or all of the covenants contained in Section 5, 6, and/or 7 of this Agreement by the Employee or any of his affiliates, associates, partners or agents, either directly or indirectly, without any requirement to post bond or other security and that such right to injunction shall be cumulative and in addition to whatever other remedies the Bank may possess. 11. Arbitration. Subject to the provisions of Section 10 hereof regarding the remedy of injunctive relief, any dispute (whether based on contract, tort, or statutory duty or prohibition) arising out of or in connection with this Agreement shall be submitted to binding arbitration, in accordance with the Commercial Arbitration Rules of the American Arbitration Association (as modified by this Agreement) by one arbitrator, designated in accordance with those rules. No one who has ever had any business, financial, family, or social relationship with any party to this Agreement shall serve as an arbitrator unless the related party informs the other party of the relationship and the other party consents in writing to the use of that arbitrator. The party demanding arbitration shall submit a written claim to the other party, setting out the basis of the claim. A prearbitration hearing shall be held within twenty (20) business days after the arbitrator's selection. The arbitration shall be held within ninety (90) calendar days after the prearbitration hearing. The arbitrator shall establish any deadlines to accomplish this goal. The arbitration shall take place in Napa, California, at a time and place selected by the arbitrator. Each party shall be entitled to discovery of essential documents and witnesses, as determined by the arbitrator. No less than thirty (30) calendar days before the arbitration, a party may serve a document request calling for any document that would be discoverable in a state civil proceeding. The served with this request shall deliver the requested documents and any objections within ten (10) calendar days. The arbitrator may resolve any dispute over the exchange of documents. Each party may take no more than three (3) depositions, unless additional depositions are allowed by the arbitrator for good cause. All depositions must be completed as of fifteen (15) calendar days before the arbitration hearing unless the parties otherwise agree. The arbitrator may resolve any dispute over the depositions as they would be resolved in a state civil proceeding. Any motion may be heard by the arbitrator on three (3) days notice unless the parties otherwise agree. The arbitrator shall apply California law. 10 The parties agree that all information supplied by any party shall be deemed to be confidential information, and the arbitrator and other participants in the dispute shall protect such information from disclosure to the same extent as confidential information under Section 7 of this Agreement. The arbitrator shall have the following powers: (a) To issue subpenas for the attendance of witnesses and subpenas duces tecum for the production of books, records, documents, and other evidence; (b) To order depositions to be used as evidence; (c) Consistent with the discovery procedures enumerated above, to enforce the rights, remedies, procedures, duties, liabilities, and obligations of discovery as if the arbitration were a civil action before a California superior court; (d) To conduct a hearing on the arbitration issues and related legal and discovery issues; (e) To administer oaths to parties and witnesses; (f) To award all damages and remedies which would be available in a civil action before a California superior court. (g) To award expenses and fees of arbitration as the arbitrator deems proper; and (h) To order such other relief as the arbitrator deems proper. Within fifteen (15) calendar days after completion of the arbitration, the arbitrator shall submit a tentative decision in writing specifying the reasoning for the decision and any calculations necessary to explain the award. Each party shall have fifteen (15) calendar days in which to submit written comments to the tentative decision. Within ten (10) calendar days after the deadline for written comments, the arbitrator shall announce the final award. Any party may enter the final award as a judgment in any court of competent jurisdiction. The Bank shall pay the arbitrator's expenses and fees, all meeting room charges, and any other expenses that would not have been incurred if the case were litigated in the judicial forum having jurisdiction over it. Unless otherwise ordered by the arbitrator, each party shall pay its own attorney fees, witness fees and other expenses incurred by the party for his or its own benefit. The arbitrator may award the prevailing party his or its expenses and fees of arbitration, including reasonable attorney fees and costs, including witness fees, in such proportion as the arbitrator decides. 11 12. No Prior Agreements. The Employee represents and warrants that he is not a party to or otherwise subject to or bound by the terms of any contract, agreement or understanding which in any manner would limit or otherwise affect his ability to perform his obligations hereunder, including without limitation any contract, agreement or understanding containing terms and provisions in any manner similar to those contained in Sections 5, 6, and/or 7 hereof. The Employee further represents and warrants that his employment with the Bank will not require him to disclose or use any confidential information belonging to prior employers or other persons or entities. 13. Assignment. The Employee shall not delegate his employment obligations pursuant to this Agreement to any other person. This Agreement may be assigned by the Bank without the Employee's consent. The rights and protections of the Bank hereunder shall extend to any successors or assigns of the Bank and to the Bank's present or future parents, subsidiaries, divisions and affiliates. 14. Employer's Authority. The relationship between the parties hereto is that of employer and employee. The Employee agrees to observe and comply with the rules and regulations of the Bank, as adopted by the Bank from time to time with respect to the performance of the duties of the Employee. The Employee acknowledges that he has no authority to enter into any contracts or other obligations that are binding upon the Bank unless such contracts or obligations are authorized by the Board of Directors. The Bank shall have the power to direct, control and supervise the duties to be performed by the Employee, the manner of performing said duties, and the time of performing said duties. 15. Governing Law. This Agreement, the rights and obligations of the parties hereto, and any claims or disputes relating thereto, shall be governed by and construed in accordance with the laws of the State of California, without giving effect to any of the conflicts of laws provisions thereof that would compel the application of the substantive laws of any other jurisdiction. The Bank and the Employee each hereby irrevocably submit to the jurisdiction of the state or federal courts located in the State of California in connection with any suit, action or other proceeding arising out of or relating to this Agreement and hereby agree not to assert, by way of motion, as a defense, or otherwise in any such suit, action or proceeding that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced by such courts. 16. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements, understandings and arrangements, both oral and written, between the parties hereto with respect to such subject matter. 17. Notices. All notices, requests, demands and other communications under this Agreement will be in writing and will be deemed to have been duly given (a) on the date of the service if served personally on the party to whom notice is to be given, (b) on 12 the date of transmission if transmitted by facsimile with confirmation of receipt, (c) on the date of receipt if mailed to the party to whom notice is to be given by first class mail, registered or certified, postage prepaid or by overnight courier service (i.e., Federal Express or equivalent) and unless either party should notify the other of a change of address properly addressed as follows, or (d) otherwise on the date of receipt when the intended recipient has acknowledged receipt: (i) If to the Employee: Glen C. Terry 18 Lighthouse Drive Napa, California 94559 (ii) If to the Bank: North Bay Bancorp 1500 Soscol Avenue Napa, California 94559 Attention: Terry L. Robinson, President and Chief Executive Officer of North Bay Bancorp Facsimile: (707) 257-8025 18. Binding Effect. The obligations of the Employee under this Agreement shall continue after the expiration of this Agreement and the termination of his employment with the Bank for any reason, shall be binding upon his heirs, executors, personal representatives, legal representatives and assigns and shall inure to the benefit of any successor and assigns of the Bank. 19. Severability. The invalidity of any one or more of the words, phrases, sentences, clauses, sections or subsections contained in this Agreement shall not affect the enforceability of the remaining portions of this Agreement or any part thereof, all of which are inserted conditionally on their being valid in law, and, in the event that any one or more of the words, phrases, sentences, clauses, sections or subsections contained in this Agreement or any part thereof shall be declared invalid, this Agreement shall be construed as if such invalid word or words, phrase or phrases, sentence or sentences, clause or clauses, section or sections or subsection or subsections had not been inserted. If such invalidity is caused by length of time or size of area, or both, the otherwise invalid provision will be considered to be reduced to a period or area which would cure such invalidity. 20. Section Headings. The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 13 21. No Third Party Beneficiary. Nothing expressed or implied in this Agreement is intended, or shall be construed, to confer upon or give any person other than the parties hereto and their respective heirs, personal representative, legal representative, successors and assigns, any rights or remedies under or by reason of this Agreement. 22. Amendment; Modification; Waiver. No amendment, modification or waiver of the terms of this Agreement shall be valid unless made in writing and duly executed by the Bank and the Employee. No delay or failure at any time on the part of the Bank in exercising any right, power or privilege under this Agreement, or in enforcing any provision of this Agreement, shall impair any such right, power or privilege, or be construed as a waiver of any default or as any acquiescence therein, or shall affect the right of the Bank thereafter to enforce each and every provision of this Agreement in accordance with its terms. The waiver by either party hereto of a breach or violation of any term or provision of this Agreement shall neither operate nor be construed as a waiver of any subsequent breach or violation. THE EMPLOYEE ACKNOWLEDGES THAT HE HAS READ AND UNDERSTANDS THE FOREGOING PROVISIONS AND THAT SUCH PROVISIONS ARE REASONABLE AND ENFORCEABLE. IN WITNESS WHEREOF, the parties hereto have executed this Agreement or caused this Agreement to be executed as of the day and year first above written. EMPLOYEE ______________________________ Glen C. Terry BANK By: _________________________ Thomas N. Gavin, Chairman of the Board 14 EX-10 5 p14224_ex10-3.txt EXHIBIT 10.3 EMPLOYMENT AGREEMENT / METRO EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of the 1st day of May, 2001 by and between North Bay Bancorp, a California corporation (the "Company"), and Kathi Metro (the "Employee"). BACKGROUND WHEREAS, the Employee is currently employed by the Company and possesses valuable knowledge and skills that have contributed to the operation of the Company and its subsidiary banks; and WHEREAS, the Company desires to continue Employee's employment and the Employee is willing to continue to be employed by the Company, upon the terms and subject to the conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises, agreements and mutual covenants set forth herein, the parties hereto hereby agree as follows: 1. Employment 1.1 General. The Company hereby employs the Employee as Executive Vice President and Credit Administrator on the terms and subject to the conditions contained in this Agreement, and the Employee hereby accepts such employment on the terms and subject to the conditions contained in this Agreement. 1.2 Duties of Employee. During the Term of this Agreement, the Employee shall diligently perform all duties and responsibilities reasonably accorded to and expected of the Executive Vice President and Credit Administrator of the Company and as may be assigned to her by the Board of Directors of the Company (the "Board of Directors") or the President and Chief Executive Officer of the Company, and shall exercise such power and authority as may from time to time be delegated to her thereby. The Employee shall devote her full business time and attention to the business and affairs of the Company as necessary to perform her duties and responsibilities hereunder, render such services to the best of her ability and use her best efforts to promote the interests of the Company. The Employee shall faithfully adhere to, execute and fulfill all policies established by the Company. 1.3 Place of Performance. Except for required travel for the Company's business, the Employee shall perform her duties and responsibilities from the offices of the Company and its subsidiaries. 2. Term. Subject to the provisions of Section 4 of this Agreement, the initial term of Employee's employment hereunder shall commence on the date of this Agreement (the "Effective Date") and shall continue thereafter until the third anniversary of the Effective Date (the "Initial Term"). Unless the Employee shall have notified the Company, or the Company shall have notified the Employee, not less than sixty days prior to the expiration of the Initial Term of such party's election not to continue the Term of this Agreement, upon expiration of the Initial Term, the Employee's employment hereunder shall continue until the fourth anniversary of the Effective Date and thereafter shall continue on a year-to-year basis unless either party notifies the other, not less than sixty days prior to expiration of the then current Renewal Term, of such party's election not to continue the Term of this Agreement (each such additional one-year period, a "Renewal Term"; the Initial Term and any Renewal Term are collectively referred to hereinafter as the "Term"). The election by the Company not to continue the Term of Employee's employment for a Renewal Term shall not be deemed a termination without Cause pursuant to Section 4.1(b) hereof except as expressly provided in Section 4.1(d) hereof. 3. Compensation. 3.1 Salary. During the Term of the Employee's employment hereunder, the Employee shall receive an annual salary of one hundred seven thousand dollars ($107,000) payable at such times and in such manner as the Company's normal payroll schedule may from time to time provide. Employee's annual salary shall be subject to annual adjustment as may be determined by the Board of Directors in its sole and absolute discretion. 3.2 Incentive Compensation. The Employee shall be eligible to receive as additional compensation each year during her employment hereunder, as determined by the Board of Directors or an applicable committee thereof, in accordance with the terms of an Incentive Compensation Plan adopted annually by the Board of Directors. Such additional compensation (if any) to be paid at a time or times and in a manner consistent with the Company's normal practices for the payment of bonuses, or as the Board of Directors or applicable committee may otherwise determine. 3.3 Benefits. During her employment hereunder, the Employee shall be entitled to participate in all plans adopted for the general benefit of the Company's management employees, including medical plans and 401(k) plan, to the extent that the Employee is and remains eligible to participate therein and subject to the eligibility provisions of such plans in effect from time to time. In the event Employee's employment hereunder is terminated and the Employee is entitled to compensation pursuant to Section 4.4(d), the Employee shall be entitled to continue to participate in the Company's medical plan until the earlier of (a) expiration of the applicable payment period set forth in Section 4.4(d)(i) or (b) the date Employee obtains new employment. 3.4 Vacation. During each calendar year of her employment hereunder, the Employee shall be entitled to twenty (20) days of paid vacation, prorated for any period of employment of less than an entire year, provided that vacation time will continue to accrue only so long as Employee's total accrued vacation does not exceed twenty five (25) days. Should Employee's accrued vacation time reach twenty five (25) 2 days, Employee will cease to accrue further vacation until Employee's accrued vacation time falls below that level. Notwithstanding anything contained in the foregoing, Employee shall take not less than five (5) consecutive days of vacation during each calendar year during the Term of this Agreement. Employee may be absent from her employment for vacation only at such time as the President and Chief Executive Officer of the Company shall determine from time to time. 3.5 Withholding. Notwithstanding any provision in this Agreement to the contrary, all payments required to be made by the Company to the Employee hereunder or otherwise arising out of, related or incidental to or in connection with the Employee's employment hereunder shall be subject to withholding of such amounts relating to taxes as the Company may reasonably determine it should withhold pursuant to any applicable law or regulation. 3.6 Reimbursement of Expenses. The Company agrees to reimburse the Employee for all reasonable business travel and other out-of-pocket expenses incurred by the Employee in the discharge of her duties hereunder, subject to the Company's reimbursement policies in effect from time to time. All reimbursable expenses shall be appropriately documented in reasonable detail by the Employee upon submission of any request for reimbursement, and in a format and manner consistent with the Company's expense reporting policy, as well as applicable federal and state record keeping requirements. 3.7. Automobile. The Company will pay to Employee an automobile allowance in the amount of five hundred dollars ($500) per month. The Employee shall be responsible for insurance and maintenance costs associated with such automobile's operation. The Employee shall not be entitled to reimbursement for mileage. Employee shall procure and maintain an automobile liability insurance policy on the automobile, with coverage including Employee for at least a minimum of $300,000 for bodily injury or death to any one person in any one accident, and $100,000 for property damage in any one accident. The Employer shall be named as an additional insured and Employee shall provide Employer copies of policies evidencing insurance and Employer's inclusion as an additional insured. 4. Termination 4.1 By Company. (a) With Cause. Notwithstanding any provision in this Agreement to the contrary, the Employee's employment hereunder may be terminated by the Company at any time for "Cause," and such termination shall be effective immediately upon written notice to the Employee. For purposes of this Agreement, "Cause" for the termination of the Employee's employment hereunder shall be deemed to exist if, in the reasonable judgment of the Board of Directors: (i) the Employee commits fraud, theft or embezzlement against the Company, or any subsidiary or affiliate thereof; (ii) the Employee commits a felony or a crime involving moral turpitude; (iii) the Employee 3 compromises trade secrets or other proprietary information of the Company, or any subsidiary or affiliate thereof; (iv) the Employee breaches any non-solicitation agreement with the Company, or any subsidiary or affiliate thereof; (v) the Employee breaches any of the terms of this Agreement (other than those referenced in clauses (iii) and (iv) of this Section 4.1(a)) and fails to cure such breach within ten (10) days after the receipt of written notice of such breach from the Company; (vi) the Employee engages in any grossly negligent act or willful misconduct that causes, or could be reasonably expected to cause, harm to the business, operations or reputation of the Company, or any subsidiary or affiliate thereof; or (vii) the Company, or any subsidiary or affiliate thereof, is ordered to terminate this Agreement by any governmental regulatory agency with supervisory authority over the Company, or any subsidiary or affiliate thereof. (b) Without Cause. The Company may at any time, in its sole and absolute discretion, terminate the employment of the Employee hereunder without Cause, or otherwise without any cause, reason or justification, provided that the Company provides to the Employee written notice (the "Termination Notice") of such termination. In the event of any such termination by the Company, the Employee's employment with the Company shall cease and terminate on the date specified in the Termination Notice. (c) For Disability of the Employee. If, as a result of incapacity due to physical or mental illness or injury, the Employee is determined to be disabled under any disability policy maintained by the Company or, in the event no such policy is maintained by the Company, the Employee shall have been unable to perform the essential functions of her position, with or without reasonable accommodation, on a full-time basis for a period of sixty (60) consecutive days, or for a total of ninety (90) days in any twelve-month period (a "Disability"), then thirty (30) days after written notice to the Employee (which notice may be given before or after the end of the aforementioned periods, but which shall not be effective earlier than the last day of the applicable period), the Company may terminate the Employee's employment hereunder if the Employee is unable to resume her full-time duties at the conclusion of such notice period. 4.2 Death of the Employee. This Agreement shall immediately cease and terminate upon the death of Employee. 4.3 Termination by Employee. The Employee may terminate her employment under this Agreement upon not less than thirty (30) days prior written notice to the Company. Upon learning that the Employee is terminating her employment under this Agreement, the Company may, in its sole discretion but subject to its other obligations under this Agreement, relieve Employee of her duties under this Employment Agreement, and assign Employee other reasonable duties and responsibilities to be performed until the termination becomes effective. 4 4.4 Compensation Upon Early Termination. (a) As a Result of Death, Cause or Resignation. If the Employee's employment under this Agreement is terminated prior to the scheduled expiration of the Term by reason of her death, termination by the Company for Cause or resignation by the Employee, the Employee shall be entitled to be paid solely (i) the Employee's salary then in effect through the effective date of termination, (ii) any accrued vacation due pursuant to Section 3.4, (iii) any amounts due pursuant to Section 3.6, (iv) those benefits, if any, that have vested by operation of state or federal law or under any written term of a plan ("Vested Benefits"), and (v) health care coverage continuation rights under the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA Rights"), and the Company shall have no further liability or other obligation of any kind whatsoever to the Employee. In the case of termination as a result of the death of Employee, any amounts due pursuant to this Section 4.4(a) shall be paid to the Employee's estate, heirs (at law), devisees, legatees or other proper and legally entitled descendants, or the personal representative, executor, administrator or other proper legal representative on behalf of such descendants. (b) By the Company other than for Cause. Except as otherwise expressly provided in Section 4.4(d), if, prior to the scheduled expiration of the Term, the Company terminates the Employee's employment without Cause, the Employee shall be entitled to receive and be paid solely (i) the Employee's salary then in effect until the expiration of six months following the effective date of the termination of Employee's employment payable over such period at the Company's regular and customary intervals for the payment of salaries as in effect from time to time ("Severance Pay"), (ii) any accrued vacation due pursuant to Section 3.4, (iii) any amounts due pursuant to Section 3.6, (iv) any Vested Benefits, and (v) any COBRA Rights, and the Company shall have no further liability or other obligation of any kind whatsoever to the Employee. The payment of Severance Pay shall constitute liquidated damages in lieu of any and all claims by the Employee against the Company, shall be in full and complete satisfaction of any and all rights which the Employee may enjoy hereunder, and shall constitute consideration for a full and unconditional release of any and all liability of the Company or any of its shareholders, benefit plans, affiliate companies, subsidiaries, and the directors, officers, employees, trustees and agents of such entities and their successors or assigns, arising out of this Agreement or out of the employment relationship between the Employee and the Company (in the form of Exhibit A, hereafter the "Release"). Payment of the Severance Pay is expressly conditioned upon receipt by the Company of the Release executed by the Employee. (c) Disability. For the sixty (60) day period following onset of the Employee's Disability, Employee shall be entitled to receive and be paid solely (i) the Employee's salary then in effect until the expiration of said sixty (60) day period payable over such period of time at the Company's regular and customary intervals for the payment of salaries as in effect from time to time, (ii) any accrued vacation due pursuant to Section 3.4, (iii) any amounts due pursuant to Section 3.6, (iv) any Vested Benefits, and (v) any COBRA rights. Following expiration of the sixty (60) day period, the 5 Employee shall be entitled to receive and be paid solely a salary at a rate commensurate with the benefit Employee is eligible to receive under any disability policy maintained by the Company for a period of one hundred twenty (120) days or until Employee's benefits under any disability policy maintained by the Company for the Employee commences, whichever period is shorter, payable over such period of time at the Company's regular and customary intervals for the payment of salaries as in effect from time to time, and the Company shall have no further liability or other obligation of any kind whatsoever to the Employee. (d) Change in Control. Notwithstanding anything contained in the foregoing, if within one year of the effective date of a Change in Control (as defined below) (i) Employee's employment under this Agreement is terminated by the Company, its assignee or successor, without Cause (including, for purposes of this Section 4.1(d), an election by the Company not to continue to Term of Employee's employment) or (ii) Employee terminates her employment under this Agreement on account of (y) Employee's position, responsibilities or working conditions being substantially diminished or (z) a material reduction in the Employee's compensation or benefits, the Employee shall be entitled to receive and be paid compensation as follows in lieu of compensation payable pursuant to Section 4.4(b): (i) Less Than Five Years of Service. If as of the effective date of the Change in Control the Employee has completed less than five years of service to the Company (including service to any predecessor or subsidiary of the Company), the Employee shall be entitled to receive and be paid an amount equal to (a) the Employee's annual salary then in effect plus (b) the average of the incentive compensation paid to the Employee for the two most recently completed fiscal years of the Company. Said amount shall be payable to the Employee for a period of twelve months following the effective date of the termination of the Employee's employment (the "Date of Termination"). Said amount shall be payable for such period at the Company's regular and customary intervals for the payment of salaries as in effect from time to time. In addition, the Employee shall be entitled to receive and be paid (v) any accrued vacation due pursuant to Section 3.4, (w) any amounts due pursuant to Section 3.6, (x) any Vested Benefits, (y) any COBRA rights, and (z) prorated incentive compensation for the current fiscal year of the Company; or (ii) More than Five Years of Service. If as of the effective date of the Change in Control the Employee has completed five or more years of service to the Company (including service to any predecessor or subsidiary of the Company), the Employee shall be entitled to receive and be paid an amount equal to two times (a) the Employee's annual salary then in effect plus (b) the average of the incentive compensation paid to the Employee for the two most recently completed fiscal years of the Company. Said amount shall be payable to the Employee for a period of twenty-four months following the Date of Termination. Said amount shall be payable for such period at the Company's regular and customary intervals for the payment of salaries as in effect from time to time. In addition, the Employee shall be entitled to receive and be paid (v) any accrued vacation due pursuant to Section 3.4, (w) any amounts due pursuant to 6 Section 3.6, (x) any Vested Benefits, (y) any COBRA rights, and (z) prorated incentive compensation for the current fiscal year of the Company. (e) Change in Control Defined. "Change in Control" means in any transaction or related series of transactions: (a) the acquisition (other than solely from the Company), by any individual, entity or group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act), other than the Company or any subsidiary, affiliate (within the meaning of Rule 144 under the Securities Act of 1933, as amended) or employee benefit plan of the Company, of beneficial ownership (within the meaning of Rule 13(d)(3) promulgated under the Exchange Act) of more than 30% of the combined voting power of the then outstanding securities of the Company entitled to vote generally in the election of directors (the "Voting Securities"); (b) a reorganization, merger, consolidation, share exchange or recapitalization of the Company (a "Business Combination"), other than a Business Combination in which more than 50% of the combined voting power of the outstanding voting securities of the surviving or resulting entity immediately following the Business Combination is held by the persons who, immediately prior to the Business Combination, were the holders of the Voting Securities; or (c) a complete liquidation or dissolution of the Company, or a sale of all or substantially all of the Company's assets. (f) Tax Gross-Up Payment. In the event the compensation payable to the Employee pursuant to and by reason of Section 4.4(d) hereof and otherwise payable by the Company to the Employee by reason of a Change in Control (including without limitation, accelerated vesting of stock options and other compensation payable outside of this Agreement (together the "Total Benefits"), but determined without regard to any additional payments required under this Section 4.4(f)) constitute excess parachute payments within the meaning of Section 280G of the Internal Revenue Code (the "Code") and the Employee will be subject to the excise tax imposed by Section 4999 of the Code, then the aggregate compensation payable to the Employee pursuant to and by reason of Section 4.4(d) shall be increased by an additional amount (the "Gross-Up Payment") such that the net amount retained by the Employee, after deduction of any excise tax on the Total Benefits and any federal, state and local income tax, excise taxes and FICA Medicare withholding taxes upon the Gross-Up Payment shall be equal to the Total Benefits. The Gross-Up Payment shall be calculated, and all assumptions to be utilized in performing such calculation, shall be made by the Company's independent auditors (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Employee within fifteen (15) business days after the Date of Termination (defined in Section 4(d)(i)). The calculation of the Gross-Up Payment by the Accounting Firm shall be binding upon the Company and Employee unless with ten (10) business days of receiving the calculations from the Accounting Firm either party objects to the calculation by serving upon the other party a written notice of objection (which shall contain specific details supporting the objection). In the event of a timely objection to the calculation, the Company and Employee shall meet and in good faith attempt to resolve the objection. If the parties fail to resolve the objection with ten (10) business days of receipt of the objection, either party may initiate arbitration, and the dispute shall be resolved by arbitration, pursuant to Section 11 hereof. All reasonable fees and expenses of the Accounting Firm shall be borne solely by the 7 Company. The Gross-Up Payment shall be added to the aggregate compensation payable to the Employee pursuant to and by reason of Section 4.4(d) and be payable over the applicable payment period set forth in Section 4.4(d)(i) or (ii), subject to withholding pursuant to Section 3.5 hereof. 4.5 Expiration of the Term. If not sooner terminated, Employee's employment hereunder shall terminate on the expiration of the Initial Term or the Renewal Term, as applicable in accordance with Section 2 hereof. Not less than 45 days prior to the scheduled expiration of Employee's employment hereunder, the parties agree to commence discussions with respect to the possible extension of the Term of this Agreement, possible execution of a new employment agreement or other possible continuation of the Employee's employment (it being understood and agreed that no such discussion shall imply any current or future obligation or commitment to enter into any such agreement or extension or any other expressed or implied arrangement for the continued employment of the Employee following the expiration of the Initial Term or any other termination of the Employee's employment hereunder). 5. Agreement Not to Solicit Customers. The Employee agrees that, during the Term of her employment with the Company or any entity owned by or affiliated with the Company (whether pursuant to this Agreement or otherwise), and for two (2) years following the termination thereof whether or not for any reason whatsoever, he will not, either directly or indirectly, call on, solicit, or take away as a client, customer or prospective client or customer, or attempt to call on, solicit, or take away as a client, customer or prospective client or customer, any person or entity that was a client, customer or prospective client or customer of the Company, or any subsidiary or affiliate thereof. For purposes of this agreement "prospective client or customer" shall include any person or entity with whom the Company has had contact for the purpose of soliciting business within the six months prior to the termination of employment or whom the Company intended to contact for the purpose of soliciting business within six months after termination of employment, of which contact or intended contact the Employee had knowledge while employed by the Company. 6. Agreement Not to Solicit or Hire Employees. The Employee agrees that during the Term of her employment with the Company or any entity owned by or affiliated with the Company (whether pursuant to this Agreement or otherwise), and for two (2) years following the termination thereof whether or not for any reason whatsoever, she will not, either directly or indirectly, on her own behalf or in the service or on behalf of others, solicit, divert or hire, attempt to solicit, divert or hire or induce or attempt to induce to discontinue employment with the Company, or any subsidiary or affiliate thereof, any person employed by the Company, or any subsidiary or affiliate thereof, whether or not such employee is a full time employee or a temporary employee of the Company, or any subsidiary or affiliate thereof and whether or not such employment is for a determined period or is at will. 8 7. Ownership and Non-Disclosure and Non-Use of Confidential Information. 7.1 Confidential Information. As used in this Agreement, "Confidential Information" shall mean all customer deposit, loan, sales and marketing information, customer account records, proprietary receipts and/or processing techniques, information regarding vendors and products, training and operations memoranda and similar information, personnel records, pricing information, financial information and trade secrets concerning or relating to the business, accounts, customers, employees and affairs of the Company, or any subsidiary or affiliate thereof, obtained by or furnished, disclosed or disseminated to the Employee, or obtained, assembled or compiled by the Employee or under her supervision during the course of her employment by the Company, and all physical embodiments of the foregoing, all of which are hereby agreed to be the property of and confidential to the Company, but Confidential Information shall not include any of the foregoing to the extent that the Employee can show that the same is or becomes publicly known through no action, omission, fault or breach of this Agreement by the Employee. 7.2. Ownership. The Employee acknowledges and agrees that all Confidential Information, and all physical embodiments thereof, are confidential to and shall be and remain the sole and exclusive property of the Company. The Employee agrees that upon request by the Company, and in any event upon termination of the Employee's employment with the Company whether or not for any reason whatsoever, the Employee shall deliver to the Company all property belonging to the Company, or any of its subsidiaries or affiliates, including, without limitation, all Confidential Information (and all embodiments thereof), then in her custody, control or possession. 7.3 Non-Disclosure and Non-Use. The Employee agrees that she will not, either during the Term of her employment hereunder or at any time thereafter, use, disclose or make available any Confidential Information to any person or entity, nor shall she use, disclose, make available or cause to be used, disclosed or made available, or permit or allow, either on her own behalf or on behalf of others, any use or disclosure of such Confidential Information other than in the proper performance of the Employee's duties hereunder. 8. Reasonableness of Restrictions. In the event that any provision relating to time period set forth in Section 5, 6, or 7 shall be held by a court of competent jurisdiction to exceed the maximum time period that the court deems reasonable and enforceable, the time period which the court finds to be reasonable and enforceable shall be deemed to become, and thereafter shall be, the maximum time period of such restriction as to such jurisdiction. 9. Enforceability. Any provision of this Agreement which is held by a court of competent jurisdiction to be invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, but shall be enforced to the 9 maximum extent permitted by law, and any such holding of invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 10. Injunction. The Employee represents that her experience and capabilities are such that the provisions of Sections 5, 6, and 7 will not prevent her from earning her livelihood, and acknowledges that a breach by the Employee of any of the covenants contained therein will cause irreparable harm and damage to the Company, the monetary amount of which may be virtually impossible to ascertain. As a result, the Employee recognizes and hereby acknowledges that the Company shall be entitled to an injunction from any court of competent jurisdiction enjoining and restraining any violation of any or all of the covenants contained in Section 5, 6, and/or 7 of this Agreement by the Employee or any of her affiliates, associates, partners or agents, either directly or indirectly, without any requirement to post bond or other security and that such right to injunction shall be cumulative and in addition to whatever other remedies the Company may possess. 11. Arbitration. Subject to the provisions of Section 10 hereof regarding the remedy of injunctive relief, any dispute (whether based on contract, tort, or statutory duty or prohibition) arising out of or in connection with this Agreement shall be submitted to binding arbitration, in accordance with the Commercial Arbitration Rules of the American Arbitration Association (as modified by this Agreement) by one arbitrator, designated in accordance with those rules. No one who has ever had any business, financial, family, or social relationship with any party to this Agreement shall serve as an arbitrator unless the related party informs the other party of the relationship and the other party consents in writing to the use of that arbitrator. The party demanding arbitration shall submit a written claim to the other party, setting out the basis of the claim. A prearbitration hearing shall be held within twenty (20) business days after the arbitrator's selection. The arbitration shall be held within ninety (90) calendar days after the prearbitration hearing. The arbitrator shall establish any deadlines to accomplish this goal. The arbitration shall take place in Napa, California, at a time and place selected by the arbitrator. Each party shall be entitled to discovery of essential documents and witnesses, as determined by the arbitrator. No less than thirty (30) calendar days before the arbitration, a party may serve a document request calling for any document that would be discoverable in a state civil proceeding. The served with this request shall deliver the requested documents and any objections within ten (10) calendar days. The arbitrator may resolve any dispute over the exchange of documents. Each party may take no more than three (3) depositions, unless additional depositions are allowed by the arbitrator for good cause. All depositions must be completed as of fifteen (15) calendar days before the arbitration hearing unless the parties otherwise agree. The arbitrator may resolve any dispute over the depositions as they would be resolved in a state civil proceeding. Any motion may be heard by the arbitrator on three (3) days notice unless the parties otherwise agree. The arbitrator shall apply California law. 10 The parties agree that all information supplied by any party shall be deemed to be confidential information, and the arbitrator and other participants in the dispute shall protect such information from disclosure to the same extent as confidential information under Section 7 of this Agreement. The arbitrator shall have the following powers: (a) To issue subpenas for the attendance of witnesses and subpenas duces tecum for the production of books, records, documents, and other evidence; (b) To order depositions to be used as evidence; (c) Consistent with the discovery procedures enumerated above, to enforce the rights, remedies, procedures, duties, liabilities, and obligations of discovery as if the arbitration were a civil action before a California superior court; (d) To conduct a hearing on the arbitration issues and related legal and discovery issues; (e) To administer oaths to parties and witnesses; (f) To award all damages and remedies which would be available in a civil action before a California superior court. (g) To award expenses and fees of arbitration as the arbitrator deems proper; and (h) To order such other relief as the arbitrator deems proper. Within fifteen (15) calendar days after completion of the arbitration, the arbitrator shall submit a tentative decision in writing specifying the reasoning for the decision and any calculations necessary to explain the award. Each party shall have fifteen (15) calendar days in which to submit written comments to the tentative decision. Within ten (10) calendar days after the deadline for written comments, the arbitrator shall announce the final award. Any party may enter the final award as a judgment in any court of competent jurisdiction. The Company shall pay the arbitrator's expenses and fees, all meeting room charges, and any other expenses that would not have been incurred if the case were litigated in the judicial forum having jurisdiction over it. Unless otherwise ordered by the arbitrator, each party shall pay its own attorney fees, witness fees and other expenses incurred by the party for her or its own benefit. The arbitrator may award the prevailing 11 party her or its expenses and fees of arbitration, including reasonable attorney fees and costs, including witness fees, in such proportion as the arbitrator decides. 12. No Prior Agreements. The Employee represents and warrants that she is not a party to or otherwise subject to or bound by the terms of any contract, agreement or understanding which in any manner would limit or otherwise affect her ability to perform her obligations hereunder, including without limitation any contract, agreement or understanding containing terms and provisions in any manner similar to those contained in Sections 5, 6, and/or 7 hereof. The Employee further represents and warrants that her employment with the Company will not require her to disclose or use any confidential information belonging to prior employers or other persons or entities. 13. Assignment. The Employee shall not delegate her employment obligations pursuant to this Agreement to any other person. This Agreement may be assigned by the Company without the Employee's consent. The rights and protections of the Company hereunder shall extend to any successors or assigns of the Company and to the Company's present or future parents, subsidiaries, divisions and affiliates. 14. Employer's Authority. The relationship between the parties hereto is that of employer and employee. The Employee agrees to observe and comply with the rules and regulations of the Company, as adopted by the Company from time to time with respect to the performance of the duties of the Employee. The Employee acknowledges that she has no authority to enter into any contracts or other obligations that are binding upon the Company unless such contracts or obligations are authorized by the Board of Directors. The Company shall have the power to direct, control and supervise the duties to be performed by the Employee, the manner of performing said duties, and the time of performing said duties. 15. Governing Law. This Agreement, the rights and obligations of the parties hereto, and any claims or disputes relating thereto, shall be governed by and construed in accordance with the laws of the State of California, without giving effect to any of the conflicts of laws provisions thereof that would compel the application of the substantive laws of any other jurisdiction. The Company and the Employee each hereby irrevocably submit to the jurisdiction of the state or federal courts located in the State of California in connection with any suit, action or other proceeding arising out of or relating to this Agreement and hereby agree not to assert, by way of motion, as a defense, or otherwise in any such suit, action or proceeding that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced by such courts. 16. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements, understandings and arrangements, both oral and written, between the parties hereto with respect to such subject matter. 12 17. Notices. All notices, requests, demands and other communications under this Agreement will be in writing and will be deemed to have been duly given (a) on the date of the service if served personally on the party to whom notice is to be given, (b) on the date of transmission if transmitted by facsimile with confirmation of receipt, (c) on the date of receipt if mailed to the party to whom notice is to be given by first class mail, registered or certified, postage prepaid or by overnight courier service (i.e., Federal Express or equivalent) and unless either party should notify the other of a change of address properly addressed as follows, or (d) otherwise on the date of receipt when the intended recipient has acknowledged receipt: (i) If to the Employee: Kathi Metro 1166 Green Valley Road Napa, California 94558 (ii) If to the Company: North bay Bancorp 1500 Soscol Avenue Napa, California 94559 Attention: President and Chief Executive Officer Facsimile: (707) 257-8025 18. Binding Effect. The obligations of the Employee under this Agreement shall continue after the expiration of this Agreement and the termination of her employment with the Company for any reason, shall be binding upon her heirs, executors, personal representatives, legal representatives and assigns and shall inure to the benefit of any successor and assigns of the Company. 19. Severability. The invalidity of any one or more of the words, phrases, sentences, clauses, sections or subsections contained in this Agreement shall not affect the enforceability of the remaining portions of this Agreement or any part thereof, all of which are inserted conditionally on their being valid in law, and, in the event that any one or more of the words, phrases, sentences, clauses, sections or subsections contained in this Agreement or any part thereof shall be declared invalid, this Agreement shall be construed as if such invalid word or words, phrase or phrases, sentence or sentences, clause or clauses, section or sections or subsection or subsections had not been inserted. If such invalidity is caused by length of time or size of area, or both, the otherwise invalid provision will be considered to be reduced to a period or area which would cure such invalidity. 20. Section Headings. The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 13 21. No Third Party Beneficiary. Nothing expressed or implied in this Agreement is intended, or shall be construed, to confer upon or give any person other than the parties hereto and their respective heirs, personal representative, legal representative, successors and assigns, any rights or remedies under or by reason of this Agreement. 22. Amendment; Modification; Waiver. No amendment, modification or waiver of the terms of this Agreement shall be valid unless made in writing and duly executed by the Company and the Employee. No delay or failure at any time on the part of the Company in exercising any right, power or privilege under this Agreement, or in enforcing any provision of this Agreement, shall impair any such right, power or privilege, or be construed as a waiver of any default or as any acquiescence therein, or shall affect the right of the Company thereafter to enforce each and every provision of this Agreement in accordance with its terms. The waiver by either party hereto of a breach or violation of any term or provision of this Agreement shall neither operate nor be construed as a waiver of any subsequent breach or violation. THE EMPLOYEE ACKNOWLEDGES THAT HE HAS READ AND UNDERSTANDS THE FOREGOING PROVISIONS AND THAT SUCH PROVISIONS ARE REASONABLE AND ENFORCEABLE. IN WITNESS WHEREOF, the parties hereto have executed this Agreement or caused this Agreement to be executed as of the day and year first above written. EMPLOYEE _________________________________ Kathi Metro COMPANY By: ____________________________ Terry L. Robinson, President and Chief Executive Officer 14 EX-10 6 p14224_ex10-4.txt EXHIBIT 10.4 EMPLOYMENT AGREEMENT / BRAIN EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of the 1st day of May, 2001 by and between North Bay Bancorp, a California corporation (the "Company"), and Dale Brain (the "Employee"). BACKGROUND WHEREAS, the Employee is currently employed by the Company and possesses valuable knowledge and skills that have contributed to the operation of the Company and its subsidiary banks; and WHEREAS, the Company desires to continue Employee's employment and the Employee is willing to continue to be employed by the Company, upon the terms and subject to the conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises, agreements and mutual covenants set forth herein, the parties hereto hereby agree as follows: 1. Employment 1.1 General. The Company hereby employs the Employee as Executive Vice President and Chief Operating Officer on the terms and subject to the conditions contained in this Agreement, and the Employee hereby accepts such employment on the terms and subject to the conditions contained in this Agreement. 1.2 Duties of Employee. During the Term of this Agreement, the Employee shall diligently perform all duties and responsibilities reasonably accorded to and expected of the Executive Vice President and Chief Operating Officer of the Company and as may be assigned to him by the Board of Directors of the Company (the "Board of Directors") or the President and Chief Executive Officer of the Company, and shall exercise such power and authority as may from time to time be delegated to him thereby. The Employee shall devote his full business time and attention to the business and affairs of the Company as necessary to perform his duties and responsibilities hereunder, render such services to the best of his ability and use his best efforts to promote the interests of the Company. The Employee shall faithfully adhere to, execute and fulfill all policies established by the Company. 1.3 Place of Performance. Except for required travel for the Company's business, the Employee shall perform his duties and responsibilities from the offices of the Company and its subsidiaries. 2. Term. Subject to the provisions of Section 4 of this Agreement, the initial term of Employee's employment hereunder shall commence on the date of this Agreement (the "Effective Date") and shall continue thereafter until the third anniversary of the Effective Date (the "Initial Term"). Unless the Employee shall have notified the Company, or the Company shall have notified the Employee, not less than sixty days prior to the expiration of the Initial Term of such party's election not to continue the Term of this Agreement, upon expiration of the Initial Term, the Employee's employment hereunder shall continue until the fourth anniversary of the Effective Date and thereafter shall continue on a year-to-year basis unless either party notifies the other, not less than sixty days prior to expiration of the then current Renewal Term, of such party's election not to continue the Term of this Agreement (each such additional one-year period, a "Renewal Term"; the Initial Term and any Renewal Term are collectively referred to hereinafter as the "Term"). The election by the Company not to continue the Term of Employee's employment for a Renewal Term shall not be deemed a termination without Cause pursuant to Section 4.1(b) hereof except as expressly provided in Section 4.1(d) hereof. 3. Compensation. 3.1 Salary. During the Term of the Employee's employment hereunder, the Employee shall receive an annual salary of one hundred fifteen thousand dollars ($115,000) payable at such times and in such manner as the Company's normal payroll schedule may from time to time provide. Employee's annual salary shall be subject to annual adjustment as may be determined by the Board of Directors in its sole and absolute discretion. 3.2 Incentive Compensation. The Employee shall be eligible to receive as additional compensation each year during his employment hereunder, as determined by the Board of Directors or an applicable committee thereof, in accordance with the terms of an Incentive Compensation Plan adopted annually by the Board of Directors. Such additional compensation (if any) to be paid at a time or times and in a manner consistent with the Company's normal practices for the payment of bonuses, or as the Board of Directors or applicable committee may otherwise determine. 3.3 Benefits. During his employment hereunder, the Employee shall be entitled to participate in all plans adopted for the general benefit of the Company's management employees, including medical plans and 401(k) plan, to the extent that the Employee is and remains eligible to participate therein and subject to the eligibility provisions of such plans in effect from time to time. In the event Employee's employment hereunder is terminated and the Employee is entitled to compensation pursuant to Section 4.4(d), the Employee shall be entitled to continue to participate in the Company's medical plan until the earlier of (a) expiration of the applicable payment period set forth in Section 4.4(d)(i) or (b) the date Employee obtains new employment. 3.4 Vacation. During each calendar year of his employment hereunder, the Employee shall be entitled to twenty (20) days of paid vacation, prorated for any period of employment of less than an entire year, provided that vacation time will continue to accrue only so long as Employee's total accrued vacation does not exceed twenty five (25) days. Should Employee's accrued vacation time reach twenty five (25) 2 days, Employee will cease to accrue further vacation until Employee's accrued vacation time falls below that level. Notwithstanding anything contained in the foregoing, Employee shall take not less than five (5) consecutive days of vacation during each calendar year during the Term of this Agreement. Employee may be absent from his employment for vacation only at such time as the President and Chief Executive Officer of the Company shall determine from time to time. 3.5 Withholding. Notwithstanding any provision in this Agreement to the contrary, all payments required to be made by the Company to the Employee hereunder or otherwise arising out of, related or incidental to or in connection with the Employee's employment hereunder shall be subject to withholding of such amounts relating to taxes as the Company may reasonably determine it should withhold pursuant to any applicable law or regulation. 3.6 Reimbursement of Expenses. The Company agrees to reimburse the Employee for all reasonable business travel and other out-of-pocket expenses incurred by the Employee in the discharge of his duties hereunder, subject to the Company's reimbursement policies in effect from time to time. All reimbursable expenses shall be appropriately documented in reasonable detail by the Employee upon submission of any request for reimbursement, and in a format and manner consistent with the Company's expense reporting policy, as well as applicable federal and state record keeping requirements. 3.7. Automobile. The Company will pay to Employee an automobile allowance in the amount of five hundred dollars ($500) per month. The Employee shall be responsible for insurance and maintenance costs associated with such automobile's operation. The Employee shall not be entitled to reimbursement for mileage. Employee shall procure and maintain an automobile liability insurance policy on the automobile, with coverage including Employee for at least a minimum of $300,000 for bodily injury or death to any one person in any one accident, and $100,000 for property damage in any one accident. The Employer shall be named as an additional insured and Employee shall provide Employer copies of policies evidencing insurance and Employer's inclusion as an additional insured. 4. Termination 4.1 By Company. (a) With Cause. Notwithstanding any provision in this Agreement to the contrary, the Employee's employment hereunder may be terminated by the Company at any time for "Cause," and such termination shall be effective immediately upon written notice to the Employee. For purposes of this Agreement, "Cause" for the termination of the Employee's employment hereunder shall be deemed to exist if, in the reasonable judgment of the Board of Directors: (i) the Employee commits fraud, theft or embezzlement against the Company, or any subsidiary or affiliate thereof; (ii) the Employee commits a felony or a crime involving moral turpitude; (iii) the Employee 3 compromises trade secrets or other proprietary information of the Company, or any subsidiary or affiliate thereof; (iv) the Employee breaches any non-solicitation agreement with the Company, or any subsidiary or affiliate thereof; (v) the Employee breaches any of the terms of this Agreement (other than those referenced in clauses (iii) and (iv) of this Section 4.1(a)) and fails to cure such breach within ten (10) days after the receipt of written notice of such breach from the Company; (vi) the Employee engages in any grossly negligent act or willful misconduct that causes, or could be reasonably expected to cause, harm to the business, operations or reputation of the Company, or any subsidiary or affiliate thereof; or (vii) the Company, or any subsidiary or affiliate thereof, is ordered to terminate this Agreement by any governmental regulatory agency with supervisory authority over the Company, or any subsidiary or affiliate thereof. (b) Without Cause. The Company may at any time, in its sole and absolute discretion, terminate the employment of the Employee hereunder without Cause, or otherwise without any cause, reason or justification, provided that the Company provides to the Employee written notice (the "Termination Notice") of such termination. In the event of any such termination by the Company, the Employee's employment with the Company shall cease and terminate on the date specified in the Termination Notice. (c) For Disability of the Employee. If, as a result of incapacity due to physical or mental illness or injury, the Employee is determined to be disabled under any disability policy maintained by the Company or, in the event no such policy is maintained by the Company, the Employee shall have been unable to perform the essential functions of his position, with or without reasonable accommodation, on a full-time basis for a period of sixty (60) consecutive days, or for a total of ninety (90) days in any twelve-month period (a "Disability"), then thirty (30) days after written notice to the Employee (which notice may be given before or after the end of the aforementioned periods, but which shall not be effective earlier than the last day of the applicable period), the Company may terminate the Employee's employment hereunder if the Employee is unable to resume his full-time duties at the conclusion of such notice period. 4.2 Death of the Employee. This Agreement shall immediately cease and terminate upon the death of Employee. 4.3 Termination by Employee. The Employee may terminate his employment under this Agreement upon not less than thirty (30) days prior written notice to the Company. Upon learning that the Employee is terminating his employment under this Agreement, the Company may, in its sole discretion but subject to its other obligations under this Agreement, relieve Employee of his duties under this Employment Agreement, and assign Employee other reasonable duties and responsibilities to be performed until the termination becomes effective. 4 4.4 Compensation Upon Early Termination. (a) As a Result of Death, Cause or Resignation. If the Employee's employment under this Agreement is terminated prior to the scheduled expiration of the Term by reason of his death, termination by the Company for Cause or resignation by the Employee, the Employee shall be entitled to be paid solely (i) the Employee's salary then in effect through the effective date of termination, (ii) any accrued vacation due pursuant to Section 3.4, (iii) any amounts due pursuant to Section 3.6, (iv) those benefits, if any, that have vested by operation of state or federal law or under any written term of a plan ("Vested Benefits"), and (v) health care coverage continuation rights under the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA Rights"), and the Company shall have no further liability or other obligation of any kind whatsoever to the Employee. In the case of termination as a result of the death of Employee, any amounts due pursuant to this Section 4.4(a) shall be paid to the Employee's estate, heirs (at law), devisees, legatees or other proper and legally entitled descendants, or the personal representative, executor, administrator or other proper legal representative on behalf of such descendants. (b) By the Company other than for Cause. Except as otherwise expressly provided in Section 4.4(d), if, prior to the scheduled expiration of the Term, the Company terminates the Employee's employment without Cause, the Employee shall be entitled to receive and be paid solely (i) the Employee's salary then in effect until the expiration of six months following the effective date of the termination of Employee's employment payable over such period at the Company's regular and customary intervals for the payment of salaries as in effect from time to time ("Severance Pay"), (ii) any accrued vacation due pursuant to Section 3.4, (iii) any amounts due pursuant to Section 3.6, (iv) any Vested Benefits, and (v) any COBRA Rights, and the Company shall have no further liability or other obligation of any kind whatsoever to the Employee. The payment of Severance Pay shall constitute liquidated damages in lieu of any and all claims by the Employee against the Company, shall be in full and complete satisfaction of any and all rights which the Employee may enjoy hereunder, and shall constitute consideration for a full and unconditional release of any and all liability of the Company or any of its shareholders, benefit plans, affiliate companies, subsidiaries, and the directors, officers, employees, trustees and agents of such entities and their successors or assigns, arising out of this Agreement or out of the employment relationship between the Employee and the Company (in the form of Exhibit A, hereafter the "Release"). Payment of the Severance Pay is expressly conditioned upon receipt by the Company of the Release executed by the Employee. (c) Disability. For the sixty (60) day period following onset of the Employee's Disability, Employee shall be entitled to receive and be paid solely (i) the Employee's salary then in effect until the expiration of said sixty (60) day period payable over such period of time at the Company's regular and customary intervals for the payment of salaries as in effect from time to time, (ii) any accrued vacation due pursuant to Section 3.4, (iii) any amounts due pursuant to Section 3.6, (iv) any Vested Benefits, and (v) any COBRA rights. Following expiration of the sixty (60) day period, the 5 Employee shall be entitled to receive and be paid solely a salary at a rate commensurate with the benefit Employee is eligible to receive under any disability policy maintained by the Company for a period of one hundred twenty (120) days or until Employee's benefits under any disability policy maintained by the Company for the Employee commences, whichever period is shorter, payable over such period of time at the Company's regular and customary intervals for the payment of salaries as in effect from time to time, and the Company shall have no further liability or other obligation of any kind whatsoever to the Employee. (d) Change in Control. Notwithstanding anything contained in the foregoing, if within one year of the effective date of a Change in Control (as defined below) (i) Employee's employment under this Agreement is terminated by the Company, its assignee or successor, without Cause (including, for purposes of this Section 4.1(d), an election by the Company not to continue to Term of Employee's employment) or (ii) Employee terminates his employment under this Agreement on account of (y) Employee's position, responsibilities or working conditions being substantially diminished or (z) a material reduction in the Employee's compensation or benefits, the Employee shall be entitled to receive and be paid compensation as follows in lieu of compensation payable pursuant to Section 4.4(b): (i) Less Than Five Years of Service. If as of the effective date of the Change in Control the Employee has completed less than five years of service to the Company (including service to any predecessor or subsidiary of the Company), the Employee shall be entitled to receive and be paid an amount equal to (a) the Employee's annual salary then in effect plus (b) the average of the incentive compensation paid to the Employee for the two most recently completed fiscal years of the Company. Said amount shall be payable to the Employee for a period of twelve months following the effective date of the termination of the Employee's employment (the "Date of Termination"). Said amount shall be payable for such period at the Company's regular and customary intervals for the payment of salaries as in effect from time to time. In addition, the Employee shall be entitled to receive and be paid (v) any accrued vacation due pursuant to Section 3.4, (w) any amounts due pursuant to Section 3.6, (x) any Vested Benefits, (y) any COBRA rights, and (z) prorated incentive compensation for the current fiscal year of the Company; or (ii) More than Five Years of Service. If as of the effective date of the Change in Control the Employee has completed five or more years of service to the Company (including service to any predecessor or subsidiary of the Company), the Employee shall be entitled to receive and be paid an amount equal to two times (a) the Employee's annual salary then in effect plus (b) the average of the incentive compensation paid to the Employee for the two most recently completed fiscal years of the Company. Said amount shall be payable to the Employee for a period of twenty-four months following the Date of Termination. Said amount shall be payable for such period at the Company's regular and customary intervals for the payment of salaries as in effect from time to time. In addition, the Employee shall be entitled to receive and be paid (v) any accrued vacation due pursuant to Section 3.4, (w) any amounts due pursuant to 6 Section 3.6, (x) any Vested Benefits, (y) any COBRA rights, and (z) prorated incentive compensation for the current fiscal year of the Company. (e) Change in Control Defined. "Change in Control" means in any transaction or related series of transactions: (a) the acquisition (other than solely from the Company), by any individual, entity or group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act), other than the Company or any subsidiary, affiliate (within the meaning of Rule 144 under the Securities Act of 1933, as amended) or employee benefit plan of the Company, of beneficial ownership (within the meaning of Rule 13(d)(3) promulgated under the Exchange Act) of more than 30% of the combined voting power of the then outstanding securities of the Company entitled to vote generally in the election of directors (the "Voting Securities"); (b) a reorganization, merger, consolidation, share exchange or recapitalization of the Company (a "Business Combination"), other than a Business Combination in which more than 50% of the combined voting power of the outstanding voting securities of the surviving or resulting entity immediately following the Business Combination is held by the persons who, immediately prior to the Business Combination, were the holders of the Voting Securities; or (c) a complete liquidation or dissolution of the Company, or a sale of all or substantially all of the Company's assets. (f) Tax Gross-Up Payment. In the event the compensation payable to the Employee pursuant to and by reason of Section 4.4(d) hereof and otherwise payable by the Company to the Employee by reason of a Change in Control (including without limitation, accelerated vesting of stock options and other compensation payable outside of this Agreement (together the "Total Benefits"), but determined without regard to any additional payments required under this Section 4.4(f)) constitute excess parachute payments within the meaning of Section 280G of the Internal Revenue Code (the "Code") and the Employee will be subject to the excise tax imposed by Section 4999 of the Code, then the aggregate compensation payable to the Employee pursuant to and by reason of Section 4.4(d) shall be increased by an additional amount (the "Gross-Up Payment") such that the net amount retained by the Employee, after deduction of any excise tax on the Total Benefits and any federal, state and local income tax, excise taxes and FICA Medicare withholding taxes upon the Gross-Up Payment shall be equal to the Total Benefits. The Gross-Up Payment shall be calculated, and all assumptions to be utilized in performing such calculation, shall be made by the Company's independent auditors (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Employee within fifteen (15) business days after the Date of Termination (defined in Section 4(d)(i)). The calculation of the Gross-Up Payment by the Accounting Firm shall be binding upon the Company and Employee unless with ten (10) business days of receiving the calculations from the Accounting Firm either party objects to the calculation by serving upon the other party a written notice of objection (which shall contain specific details supporting the objection). In the event of a timely objection to the calculation, the Company and Employee shall meet and in good faith attempt to resolve the objection. If the parties fail to resolve the objection with ten (10) business days of receipt of the objection, either party may initiate arbitration, and the dispute shall be resolved by arbitration, pursuant to Section 11 hereof. All reasonable fees and expenses of the Accounting Firm shall be borne solely by the 7 Company. The Gross-Up Payment shall be added to the aggregate compensation payable to the Employee pursuant to and by reason of Section 4.4(d) and be payable over the applicable payment period set forth in Section 4.4(d)(i) or (ii), subject to withholding pursuant to Section 3.5 hereof. 4.5 Expiration of the Term. If not sooner terminated, Employee's employment hereunder shall terminate on the expiration of the Initial Term or the Renewal Term, as applicable in accordance with Section 2 hereof. Not less than 45 days prior to the scheduled expiration of Employee's employment hereunder, the parties agree to commence discussions with respect to the possible extension of the Term of this Agreement, possible execution of a new employment agreement or other possible continuation of the Employee's employment (it being understood and agreed that no such discussion shall imply any current or future obligation or commitment to enter into any such agreement or extension or any other expressed or implied arrangement for the continued employment of the Employee following the expiration of the Initial Term or any other termination of the Employee's employment hereunder). 5. Agreement Not to Solicit Customers. The Employee agrees that, during the Term of his employment with the Company or any entity owned by or affiliated with the Company (whether pursuant to this Agreement or otherwise), and for two (2) years following the termination thereof whether or not for any reason whatsoever, he will not, either directly or indirectly, call on, solicit, or take away as a client, customer or prospective client or customer, or attempt to call on, solicit, or take away as a client, customer or prospective client or customer, any person or entity that was a client, customer or prospective client or customer of the Company, or any subsidiary or affiliate thereof. For purposes of this agreement "prospective client or customer" shall include any person or entity with whom the Company has had contact for the purpose of soliciting business within the six months prior to the termination of employment or whom the Company intended to contact for the purpose of soliciting business within six months after termination of employment, of which contact or intended contact the Employee had knowledge while employed by the Company. 6. Agreement Not to Solicit or Hire Employees. The Employee agrees that during the Term of his employment with the Company or any entity owned by or affiliated with the Company (whether pursuant to this Agreement or otherwise), and for two (2) years following the termination thereof whether or not for any reason whatsoever, he will not, either directly or indirectly, on his own behalf or in the service or on behalf of others, solicit, divert or hire, attempt to solicit, divert or hire or induce or attempt to induce to discontinue employment with the Company, or any subsidiary or affiliate thereof, any person employed by the Company, or any subsidiary or affiliate thereof, whether or not such employee is a full time employee or a temporary employee of the Company, or any subsidiary or affiliate thereof and whether or not such employment is for a determined period or is at will. 8 7. Ownership and Non-Disclosure and Non-Use of Confidentia Information. 7.1 Confidential Information. As used in this Agreement, "Confidential Information" shall mean all customer deposit, loan, sales and marketing information, customer account records, proprietary receipts and/or processing techniques, information regarding vendors and products, training and operations memoranda and similar information, personnel records, pricing information, financial information and trade secrets concerning or relating to the business, accounts, customers, employees and affairs of the Company, or any subsidiary or affiliate thereof, obtained by or furnished, disclosed or disseminated to the Employee, or obtained, assembled or compiled by the Employee or under his supervision during the course of his employment by the Company, and all physical embodiments of the foregoing, all of which are hereby agreed to be the property of and confidential to the Company, but Confidential Information shall not include any of the foregoing to the extent that the Employee can show that the same is or becomes publicly known through no action, omission, fault or breach of this Agreement by the Employee. 7.2. Ownership. The Employee acknowledges and agrees that all Confidential Information, and all physical embodiments thereof, are confidential to and shall be and remain the sole and exclusive property of the Company. The Employee agrees that upon request by the Company, and in any event upon termination of the Employee's employment with the Company whether or not for any reason whatsoever, the Employee shall deliver to the Company all property belonging to the Company, or any of its subsidiaries or affiliates, including, without limitation, all Confidential Information (and all embodiments thereof), then in his custody, control or possession. 7.3 Non-Disclosure and Non-Use. The Employee agrees that he will not, either during the Term of his employment hereunder or at any time thereafter, use, disclose or make available any Confidential Information to any person or entity, nor shall he use, disclose, make available or cause to be used, disclosed or made available, or permit or allow, either on his own behalf or on behalf of others, any use or disclosure of such Confidential Information other than in the proper performance of the Employee's duties hereunder. 8. Reasonableness of Restrictions. In the event that any provision relating to time period set forth in Section 5, 6, or 7 shall be held by a court of competent jurisdiction to exceed the maximum time period that the court deems reasonable and enforceable, the time period which the court finds to be reasonable and enforceable shall be deemed to become, and thereafter shall be, the maximum time period of such restriction as to such jurisdiction. 9. Enforceability. Any provision of this Agreement which is held by a court of competent jurisdiction to be invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, but shall be enforced to the 9 maximum extent permitted by law, and any such holding of invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 10. Injunction. The Employee represents that his experience and capabilities are such that the provisions of Sections 5, 6, and 7 will not prevent him from earning his livelihood, and acknowledges that a breach by the Employee of any of the covenants contained therein will cause irreparable harm and damage to the Company, the monetary amount of which may be virtually impossible to ascertain. As a result, the Employee recognizes and hereby acknowledges that the Company shall be entitled to an injunction from any court of competent jurisdiction enjoining and restraining any violation of any or all of the covenants contained in Section 5, 6, and/or 7 of this Agreement by the Employee or any of his affiliates, associates, partners or agents, either directly or indirectly, without any requirement to post bond or other security and that such right to injunction shall be cumulative and in addition to whatever other remedies the Company may possess. 11. Arbitration. Subject to the provisions of Section 10 hereof regarding the remedy of injunctive relief, any dispute (whether based on contract, tort, or statutory duty or prohibition) arising out of or in connection with this Agreement shall be submitted to binding arbitration, in accordance with the Commercial Arbitration Rules of the American Arbitration Association (as modified by this Agreement) by one arbitrator, designated in accordance with those rules. No one who has ever had any business, financial, family, or social relationship with any party to this Agreement shall serve as an arbitrator unless the related party informs the other party of the relationship and the other party consents in writing to the use of that arbitrator. The party demanding arbitration shall submit a written claim to the other party, setting out the basis of the claim. A prearbitration hearing shall be held within twenty (20) business days after the arbitrator's selection. The arbitration shall be held within ninety (90) calendar days after the prearbitration hearing. The arbitrator shall establish any deadlines to accomplish this goal. The arbitration shall take place in Napa, California, at a time and place selected by the arbitrator. Each party shall be entitled to discovery of essential documents and witnesses, as determined by the arbitrator. No less than thirty (30) calendar days before the arbitration, a party may serve a document request calling for any document that would be discoverable in a state civil proceeding. The served with this request shall deliver the requested documents and any objections within ten (10) calendar days. The arbitrator may resolve any dispute over the exchange of documents. Each party may take no more than three (3) depositions, unless additional depositions are allowed by the arbitrator for good cause. All depositions must be completed as of fifteen (15) calendar days before the arbitration hearing unless the parties otherwise agree. The arbitrator may resolve any dispute over the depositions as they would be resolved in a state civil proceeding. Any motion may be heard by the arbitrator on three (3) days notice unless the parties otherwise agree. The arbitrator shall apply California law. 10 The parties agree that all information supplied by any party shall be deemed to be confidential information, and the arbitrator and other participants in the dispute shall protect such information from disclosure to the same extent as confidential information under Section 7 of this Agreement. The arbitrator shall have the following powers: (a) To issue subpenas for the attendance of witnesses and subpenas duces tecum for the production of books, records, documents, and other evidence; (b) To order depositions to be used as evidence; (c) Consistent with the discovery procedures enumerated above, to enforce the rights, remedies, procedures, duties, liabilities, and obligations of discovery as if the arbitration were a civil action before a California superior court; (d) To conduct a hearing on the arbitration issues and related legal and discovery issues; (e) To administer oaths to parties and witnesses; (f) To award all damages and remedies which would be available in a civil action before a California superior court. (g) To award expenses and fees of arbitration as the arbitrator deems proper; and (h) To order such other relief as the arbitrator deems proper. Within fifteen (15) calendar days after completion of the arbitration, the arbitrator shall submit a tentative decision in writing specifying the reasoning for the decision and any calculations necessary to explain the award. Each party shall have fifteen (15) calendar days in which to submit written comments to the tentative decision. Within ten (10) calendar days after the deadline for written comments, the arbitrator shall announce the final award. Any party may enter the final award as a judgment in any court of competent jurisdiction. The Company shall pay the arbitrator's expenses and fees, all meeting room charges, and any other expenses that would not have been incurred if the case were litigated in the judicial forum having jurisdiction over it. Unless otherwise ordered by the arbitrator, each party shall pay its own attorney fees, witness fees and other expenses incurred by the party for his or its own benefit. The arbitrator may award the prevailing 11 party his or its expenses and fees of arbitration, including reasonable attorney fees and costs, including witness fees, in such proportion as the arbitrator decides. 12. No Prior Agreements. The Employee represents and warrants that he is not a party to or otherwise subject to or bound by the terms of any contract, agreement or understanding which in any manner would limit or otherwise affect his ability to perform his obligations hereunder, including without limitation any contract, agreement or understanding containing terms and provisions in any manner similar to those contained in Sections 5, 6, and/or 7 hereof. The Employee further represents and warrants that his employment with the Company will not require him to disclose or use any confidential information belonging to prior employers or other persons or entities. 13. Assignment. The Employee shall not delegate his employment obligations pursuant to this Agreement to any other person. This Agreement may be assigned by the Company without the Employee's consent. The rights and protections of the Company hereunder shall extend to any successors or assigns of the Company and to the Company's present or future parents, subsidiaries, divisions and affiliates. 14. Employer's Authority. The relationship between the parties hereto is that of employer and employee. The Employee agrees to observe and comply with the rules and regulations of the Company, as adopted by the Company from time to time with respect to the performance of the duties of the Employee. The Employee acknowledges that he has no authority to enter into any contracts or other obligations that are binding upon the Company unless such contracts or obligations are authorized by the Board of Directors. The Company shall have the power to direct, control and supervise the duties to be performed by the Employee, the manner of performing said duties, and the time of performing said duties. 15. Governing Law. This Agreement, the rights and obligations of the parties hereto, and any claims or disputes relating thereto, shall be governed by and construed in accordance with the laws of the State of California, without giving effect to any of the conflicts of laws provisions thereof that would compel the application of the substantive laws of any other jurisdiction. The Company and the Employee each hereby irrevocably submit to the jurisdiction of the state or federal courts located in the State of California in connection with any suit, action or other proceeding arising out of or relating to this Agreement and hereby agree not to assert, by way of motion, as a defense, or otherwise in any such suit, action or proceeding that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced by such courts. 16. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements, understandings and arrangements, both oral and written, between the parties hereto with respect to such subject matter. 12 17. Notices. All notices, requests, demands and other communications under this Agreement will be in writing and will be deemed to have been duly given (a) on the date of the service if served personally on the party to whom notice is to be given, (b) on the date of transmission if transmitted by facsimile with confirmation of receipt, (c) on the date of receipt if mailed to the party to whom notice is to be given by first class mail, registered or certified, postage prepaid or by overnight courier service (i.e., Federal Express or equivalent) and unless either party should notify the other of a change of address properly addressed as follows, or (d) otherwise on the date of receipt when the intended recipient has acknowledged receipt: (i) If to the Employee: Dale Brain 279 St. Andrews Drive Napa, CA 94558 (ii) If to the Company: North Bay Bancorp 1500 Soscol Avenue Napa, California 94559 Attention: President and Chief Executive Officer Facsimile: (707) 257-8025 18. Binding Effect. The obligations of the Employee under this Agreement shall continue after the expiration of this Agreement and the termination of his employment with the Company for any reason, shall be binding upon his heirs, executors, personal representatives, legal representatives and assigns and shall inure to the benefit of any successor and assigns of the Company. 19. Severability. The invalidity of any one or more of the words, phrases, sentences, clauses, sections or subsections contained in this Agreement shall not affect the enforceability of the remaining portions of this Agreement or any part thereof, all of which are inserted conditionally on their being valid in law, and, in the event that any one or more of the words, phrases, sentences, clauses, sections or subsections contained in this Agreement or any part thereof shall be declared invalid, this Agreement shall be construed as if such invalid word or words, phrase or phrases, sentence or sentences, clause or clauses, section or sections or subsection or subsections had not been inserted. If such invalidity is caused by length of time or size of area, or both, the otherwise invalid provision will be considered to be reduced to a period or area which would cure such invalidity. 20. Section Headings. The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 13 21. No Third Party Beneficiary. Nothing expressed or implied in this Agreement is intended, or shall be construed, to confer upon or give any person other than the parties hereto and their respective heirs, personal representative, legal representative, successors and assigns, any rights or remedies under or by reason of this Agreement. 22. Amendment; Modification; Waiver. No amendment, modification or waiver of the terms of this Agreement shall be valid unless made in writing and duly executed by the Company and the Employee. No delay or failure at any time on the part of the Company in exercising any right, power or privilege under this Agreement, or in enforcing any provision of this Agreement, shall impair any such right, power or privilege, or be construed as a waiver of any default or as any acquiescence therein, or shall affect the right of the Company thereafter to enforce each and every provision of this Agreement in accordance with its terms. The waiver by either party hereto of a breach or violation of any term or provision of this Agreement shall neither operate nor be construed as a waiver of any subsequent breach or violation. THE EMPLOYEE ACKNOWLEDGES THAT HE HAS READ AND UNDERSTANDS THE FOREGOING PROVISIONS AND THAT SUCH PROVISIONS ARE REASONABLE AND ENFORCEABLE. IN WITNESS WHEREOF, the parties hereto have executed this Agreement or caused this Agreement to be executed as of the day and year first above written. EMPLOYEE _____________________________________ Dale Brain COMPANY By: ________________________________ Terry L. Robinson, President and Chief Executive Officer 14 -----END PRIVACY-ENHANCED MESSAGE-----