-----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, Ke17SrEV00Abocvv5gLThp2xDl7Q5bVLAq13c7SwTySsT0KqDbJf1RrrTxgUSAVz CXm92ysR/OECLRnjtAXPQw== 0000950129-96-002541.txt : 19961021 0000950129-96-002541.hdr.sgml : 19961021 ACCESSION NUMBER: 0000950129-96-002541 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 21 FILED AS OF DATE: 19961018 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTURY BANCSHARES INC CENTRAL INDEX KEY: 0000785813 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 521489098 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-14417 FILM NUMBER: 96645247 BUSINESS ADDRESS: STREET 1: 1275 PENNSYLVANIA AVE., N.W. CITY: WASHINGTON STATE: DC ZIP: 20004 BUSINESS PHONE: 202-496-4000 MAIL ADDRESS: STREET 1: 1275 PENNSYLVANIA AVE NW CITY: WASHINGTON STATE: DC ZIP: 20004 S-1 1 CENTURY BANCSHARES, INC. 1 As filed with the Securities and Exchange Commission on October 18, 1996 Registration No. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 -------------------- CENTURY BANCSHARES, INC. DELAWARE 6712 52-1489098 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.)
JOSEPH S. BRACEWELL 1275 PENNSYLVANIA AVENUE, N.W. 1275 PENNSYLVANIA AVENUE, N.W. WASHINGTON, D.C. 20004 WASHINGTON, D.C. 20004 (202) 496-4000 (202) 496-4000 (Address, including zip code, and telephone number, including (Name, address, including zip code, and telephone number, area code, of Registrant's principal executive offices) including area code, of agent for service)
-------------------- Copy to: JOHN R. BRANTLEY BRACEWELL & PATTERSON, L.L.P. 711 LOUISIANA STREET, SUITE 2900 HOUSTON, TEXAS 77002-2781 -------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] CALCULATION OF REGISTRATION FEE
=================================================================================================================== Title of each class of Proposed maximum Amount of securities to be registered aggregate offering price(1) registration fee - ------------------------------------------------------------------------------------------------------------------- Common Stock, par value $1.00 per share $999,999.75 $303.04 ===================================================================================================================
(1) Estimated pursuant to Rule 457(o) solely for purposes of calculating the registration fee. This amount includes (i) the 173,913 shares of Common Stock initially issuable upon exercise of the Warrants described herein (the "Warrants"), (ii) an additional 12,173 shares of Common Stock issuable upon exercise of the Warrants as a result of a 7% stock dividend declared by the Company in March 1996 and (iii) such indeterminable amount of additional shares of Common Stock as may be issuable upon exercise of the Warrants as a result of adjustments for stock dividends, stock splits, or reclassification of shares, and certain reorganizations, consolidations and mergers. -------------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. 2 SUBJECT TO COMPLETION, DATED OCTOBER 18, 1996 CENTURY BANCSHARES, INC. *************************************************************************** * * * Information contained herein is subject to completion or amendment. * * A registration statement relating to these securities has been filed * * with the Securities and Exchange Commission. These securities may * * not be sold nor may offers to buy be accepted prior to the time the * * registration statement becomes effective. This prospectus shall not * * constitute an offer to sell or the solicitation of an offer to buy * * nor shall there be any sale of these securities in any State in which * * such offer, solicitation or sale would be unlawful prior to * * registration or qualification under the securities laws of any such * * State. * * * *************************************************************************** 186,086 Shares of Common Stock, $1.00 Par Value Issuable Upon Exercise of Warrants to Purchase Common Stock This Prospectus relates to the issuance of 186,086 shares of Common Stock to be issued from time to time after November 14, 1996, upon exercise of certain warrants (the "Warrants") to purchase shares of common stock, $1.00 par value per share ("Common Stock"), issued on November 14, 1995 by Century Bancshares, Inc., a Delaware corporation (the "Company"). The shares offered hereby include 173,913 shares of Common Stock initially issuable upon exercise of the Warrants, an additional 12,173 shares of Common Stock issuable to holders of Warrants due to the declaration of a 7% stock dividend payable on March 31, 1996, and such additional shares of Common Stock as may become issuable as a result of future stock splits, stock dividends, share reclassifications, mergers or consolidations and certain other capital readjustments and events. There is currently no established market for the Common Stock or the Warrants, although limited and sporadic quotations with respect to, and trading in, the Common Stock occur in the Washington, D.C. area. As of the date of this Prospectus, there were 173,913 Warrants outstanding. Each Warrant is exercisable at an exercise price of $5.75 and entitles the holder to receive 1.07 shares of Common Stock. For a description of the Common Stock and the Warrants, see "Description of Capital Stock." SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH ANY INVESTMENT IN THE COMMON STOCK. THE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION (THE "FDIC") OR ANY OTHER FEDERAL OR STATE AGENCY. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- ------------------------------------------------------------------------------------------------------------- Underwriting Discounts Proceeds to the Warrant Exercise Price and Commissions (1) Company (2) - ------------------------------------------------------------------------------------------------------------- Per Warrant $5.75 None $5.75 - ------------------------------------------------------------------------------------------------------------- Total $999,999.75 None $999,999.75 - -------------------------------------------------------------------------------------------------------------
(1) No commissions or brokerage fees will be paid by the Company in connection with the exercise of the Warrants. (2) Before deducting expenses of this offering, which are estimated to be $75,000. The date of this Prospectus is _____________, 1996. 3 TABLE OF CONTENTS PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 TRADING MARKET FOR THE COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 DIVIDEND POLICY OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 SELECTED CONSOLIDATED FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . 14 BUSINESS AND REGULATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS . . . . . . . . . . . . . . 53 DESCRIPTION OF CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . F-1
THE COMPANY INTENDS TO FURNISH ITS STOCKHOLDERS WITH ANNUAL REPORTS CONTAINING FINANCIAL STATEMENTS AUDITED BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS AND WITH QUARTERLY REPORTS CONTAINING UNAUDITED SUMMARY FINANCIAL INFORMATION FOR EACH OF THE FIRST THREE QUARTERS OF EACH FISCAL YEAR. NO DEALER, SALESMAN OR PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND ANY INFORMATION OR REPRESENTATION NOT CONTAINED HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. UNTIL ________, 199__ (40 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. -2- 4 PROSPECTUS SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and consolidated financial statements, including the notes thereto, appearing elsewhere in this Prospectus. As used in this Prospectus, unless the context otherwise requires, the term "Company" means Century Bancshares, Inc. and its subsidiary. THE COMPANY. . . . . . . . Century Bancshares, Inc., a Delaware corporation ("Company"') and a registered bank holding company under the Bank Holding Company Act of 1956, as amended, was incorporated and organized in 1985. The Company began active operations in April 1986 with the acquisition of its subsidiary, Century National Bank ("Bank"), a full service bank which opened for business in May 1982. The Company's principal executive offices are located at 1275 Pennsylvania Avenue, N.W., Washington, D.C. 20004, and its phone number at that address is (202) 496-4000. THE OFFERING . . . . . . . The Prospectus relates to the issuance by the Company of 186,086 shares of its common stock, $1.00 par value ("Common Stock"), upon exercise of the Company's outstanding warrants ("Warrant") to purchase one share of Common Stock, at a price of $5.75 per Warrant, subject to adjustment in certain circumstances. WARRANTS . . . . . . . . . The Warrants were originally issued in an offering to the Company's stockholders exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"). Each Warrant entitles the holder thereof to purchase one share of Common Stock at a price of $5.75 per share, subject to adjustment in certain circumstances. Because the Company declared a 7% stock dividend on March 31, 1996, each Warrant is currently exercisable for 1.07 shares of Common Stock. The Warrants may be exercised at any time after November 14, 1996 and prior to 5:00 p.m. Eastern Time on November 16, 1998 unless repurchased. The Warrants may be repurchased by the Company at any time on and after November 14, 1997 at a price of $.26 per Warrant on not less than 30 days written notice given by the Company. See "Description of Capital Stock -- The Warrants." USE OF PROCEEDS. . . . . . The estimated net proceeds of the Offering to be received by the Company, assuming all Warrants are exercised, and after deducting legal, financial, accounting, printing and distribution expenses incurred in connection with the Offering, will be approximately $925,000. The proceeds from the Offering will be used for general corporate purposes. See "Use of Proceeds." COMMON STOCK OUTSTANDING AFTER THE OFFERING . . . . . . . Immediately after completion of the Offering, excluding shares issuable upon exercise of options heretofore granted under the Company's stock option plans, and assuming that all Warrants are exercised, there will be 1,309,771 shares of Common Stock outstanding. See "Capitalization" and "Management -- Compensation." RISK FACTORS . . . . . . . The Common Stock offered hereby involves certain risks. Holders of Warrants should consider carefully and thoroughly the information contained in this Prospectus, and in particular, the information contained under the caption "Risk Factors." -3- 5 SUMMARY CONSOLIDATED FINANCIAL INFORMATION The following summary consolidated financial data of the Company should be read in conjunction with the Consolidated Financial Statements of the Company and the Notes thereto appearing elsewhere in this Prospectus and the information contained in "Management's Discussion and Analysis of Financial Condition and Results of Operations." The selected historical consolidated financial data as of and for the five years in the period ended December 31, 1995 are derived from the Company's Consolidated Financial Statements, which have been audited by independent public accountants. The selected historical consolidated financial data as of and for the six months ended June 30, 1996 and June 30, 1995 are unaudited.
Six Months Ended June 30, Year Ended December 31, ------------------- ------------------------------------------------- (Dollars in thousands, except per share data) 1996 1995 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- ---- ---- INCOME STATEMENT DATA: Interest income . . . . . . . . . . . . . . $3,759 $3,441 $7,079 $5,711 $5,455 $6,016 $6,871 Interest expense . . . . . . . . . . . . . 1,331 1,200 2,562 1,902 1,987 2,486 3,458 Net interest income . . . . . . . . . . . 2,428 2,241 4,517 3,809 3,468 3,530 3,413 Provision for loan losses . . . . . . . . . -- 9 26 19 310 596 592 Net interest income after provision for loan losses . . . . . . . . 2,428 2,232 4,491 3,790 3,158 2,934 2,821 Noninterest income . . . . . . . . . . . . 354 244 590 555 572 611 440 Noninterest expense . . . . . . . . . . . . 2,281 2,010 4,045 3,381 3,036 3,284 3,124 Income taxes . . . . . . . . . . . . . . . 192 178 357 374 264 89 100 Income before extraordinary item . . . . . 309 288 680 591 429 173 38 Extraordinary item . . . . . . . . . . . . -- -- -- -- -- 34 100 Net income . . . . . . . . . . . . . . . 309 288 680 591 429 207 138 COMMON SHARE DATA:(1) Net income before extra- ordinary item . . . . . . . . . . . . . . $.26 $.28 $.64 $.58 $.42 $.15 $0 Extraordinary item . . . . . . . . . . . -- -- -- -- -- .04 .11 Net income . . . . . . . . . . . . . . . .26 .28 .64 .58 .42 .19 .11 Book value(2) . . . . . . . . . . . . . . 5.81 5.24 5.53 4.60 4.77 4.38 4.19 Common and common equivalent shares outstanding End of period . . . . . . . . . . . . . 1,174,287 974,247 1,174,763 961,169 922,105 920,958 921,493 Weighted average during period . . . . 1,174,116 967,726 998,512 959,278 922,105 920,958 921,493 BALANCE SHEET DATA: Total assets . . . . . . . . . . . . . . . 96,568 88,949 101,639 90,129 86,286 77,258 84,137 Investments(3) . . . . . . . . . . . . . . 16,251 18,079 21,690 22,654 25,902 14,918 25,982 Total loans(4) . . . . . . . . . . . . . . 71,455 63,119 69,204 60,663 56,644 56,331 52,758 Allowance for loan losses . . . . . . . . . 830 669 740 740 730 744 946 Total deposits . . . . . . . . . . . . . . 83,330 78,561 90,539 82,081 79,982 71,113 78,032 Long term debt . . . . . . . . . . . . . . -- -- -- -- 207 540 540 Preferred equity(5) . . . . . . . . . . . . -- 460 -- 460 468 468 468 Common equity(6) . . . . . . . . . . . . . 6,820 5,102 6,499 4,417 4,403 4,033 3,862 Total stockholders' equity . . . . . . . . 6,820 5,562 6,499 4,877 4,871 4,501 4,330 PERFORMANCE DATA (%): Return on average total assets(7) . . . . .67 .64 .75 .71 .52 .27 .19 Return on average total equity(7) . . . . 9.28 11.03 12.43 12.21 9.04 4.10 3.13 Net interest margin(7) . . . . . . . . . 5.74 5.36 5.42 4.90 4.55 4.94 4.80 Loans to deposits . . . . . . . . . . . . 85.75 80.34 76.44 73.90 70.82 79.21 67.61 ASSET QUALITY RATIOS (%): Nonperforming assets to total assets . . 1.16 .23 .49 .70 .37 1.11 .77 Nonperforming loans to total loans . . . 1.31 .08 .45 1.04 .57 1.16 .78 Net loan charge-offs to average loans(7) (.25) .26 .04 .02 .59 1.40 .72 Allowance for loan losses to total loans 1.16 1.06 1.07 1.22 1.29 1.32 1.79 Allowance for loan losses to nonperforming loans . . . . . . . . . . 89 1,262 240 118 227 114 230 BANK CAPITAL RATIOS (%): Tier I risk-based capital . . . . . . . 9.22 9.82 9.29 10.12 10.64 9.58 8.15 Total risk-based capital . . . . . . . 10.40 11.05 10.41 11.37 11.89 10.83 9.41 Tier I leverage . . . . . . . . . . . . 7.33 6.00 6.83 5.74 5.24 6.09 4.93 (footnotes on following page)
-4- 6 (continued from previous page) ______________ (1) All common share data has been adjusted for three (3) five percent (5%) Common Stock dividends declared effective on July 31, 1993, March 31, 1994 and March 31, 1995, and one (1) seven percent (7%) Common Stock dividend declared effective on March 31, 1996. (2) Book value per common share is based on common equity, calculated in the manner described in footnote (6) below, divided by the number of common and common equivalent shares outstanding. (3) Investments include federal funds sold and interest-bearing deposits in other financial institutions. (4) Net of unearned income. (5) Preferred equity is calculated based on liquidation value of $7.50 per share of Preferred Stock. All shares of Preferred Stock outstanding as of October 17, 1995 were redeemed by the Company on December 10, 1995. (6) Common equity is total stockholders' equity less preferred equity. (7) Ratios annualized for the six-month periods ended June 30, 1996 and 1995. -5- 7 RISK FACTORS An investment in the Common Stock offered hereby involves certain risks. The following factors, in addition to those discussed elsewhere in this Prospectus, should be considered carefully in evaluating the Company and its business. ILLIQUID INVESTMENT There is no active trading market in the Common Stock or the Warrants. Although prices for the Common Stock from time to time are quoted in the "pink sheets" of the National Association of Securities Dealers, Inc. (which set forth the most recent "bid" and "ask" prices), only limited and sporadic quotations are available for the Common Stock in the Washington, D.C. area. Accordingly, holders of Common Stock may experience some difficulty in selling the Common Stock. The most recent transaction in the Common Stock known to the Company took place on August 21, 1996 and involved the sale of 231 shares of Common Stock, at a price of $5.775 per share. Further, there is no assurance that an active trading market in the Common Stock will develop. See "Trading Market for the Common Stock." POTENTIAL ADVERSE EFFECT OF REPURCHASE OF WARRANTS The Warrants may be repurchased by the Company at a price of $.26 per Warrant at any time on and after November 14, 1997 and prior to their expiration at 5:00 p.m., Eastern Time, on November 16, 1998, on written notice mailed by the Company to the registered holder thereof at least 30 days prior to the date fixed for the repurchase. As a result, holders of the Warrants may be forced either to accept the repurchase price for the Warrants or exercise them and pay the exercise price at a time when it may be disadvantageous to the holder to do so. There can be no assurance that, if the Company elects to repurchase the Warrants, the Common Stock to be acquired upon the exercise thereof will be trading at a price in excess of the exercise price then in effect. See "Description of Capital Stock -- The Warrants." RESTRICTIONS ON DIVIDENDS BY THE COMPANY The Company has not paid any cash dividends on the Common Stock to date and presently intends to retain any earnings available for dividends for use in its business. The Company's ability to pay dividends to its shareholders is dependent upon the dividends the Company receives from the Bank. Dividends paid by the Bank are subject to restrictions under various banking laws. See "Business and Regulation--Supervision and Regulation of the Bank." The shares of Common Stock are not suitable for purchase by persons who desire dividend income. -6- 8 RESTRICTIONS ON DIVIDENDS BY THE BANK The cash revenues of the Company are derived principally from dividends paid to the Company by the Bank. Moreover, the payment of dividends by the Bank is subject to certain restrictions imposed by national banking laws applicable to the Bank. Dividends are restricted to the extent that no portion of the Bank's capital stock or capital surplus may be withdrawn for the payment of dividends. In addition, no dividends may be paid in an amount greater than the net retained profits then on hand, less certain deductions for bad debts. Approval by the Office of the Comptroller of the Currency ("OCC") is required prior to the payment of dividends if the total of all dividends, including the proposed dividend, declared by the Bank in any given calendar year exceeds the Bank's net profits for that year combined with its retained net profits for the preceding two years. Under the Federal Deposit Insurance Act, an insured bank is prohibited from paying dividends on its capital stock while in default on payment of any assessment due to the Federal Deposit Insurance Corporation ("FDIC"), except in those cases where the amount of the assessment is in dispute and the insured bank has deposited satisfactory security. The Bank has timely paid all such notices of assessment. In addition, banks are prohibited from paying dividends if such dividends would cause them to be less than "adequately capitalized," as defined by the Federal banking agencies. See "Business and Regulation -- Supervision and Regulation." REGULATION The Company and the Bank are subject to extensive governmental regulation, including that of the Federal Reserve Board, the FDIC and the OCC. These agencies' regulations, among other things, impose percentage limitations on the acquisition of shares of Common Stock without prior agency approval, require the satisfaction by the Bank of certain minimum capital standards and limit the activities which may be conducted by the Company and the Bank. In addition, other agencies regulate certain aspects of the Bank's lending activities. All of these agencies can be expected to continue to propose new regulatory and legislative actions which would affect the operations of the Company and which may alter the competitive nature of the banking business. See "Business and Regulation -- Supervision and Regulation." MONETARY POLICY AND ECONOMIC CONDITIONS The operating income and net income of the Bank, and, consequently, of the Company will depend to a great extent on "rate differentials," the difference between the income the Bank receives from its loans, investments and other assets and the interest it pays on deposits and other liabilities. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- General." These rates are highly sensitive to many factors which are beyond the control of the Company or the Bank, including general economic conditions such as inflation, recession and unemployment, the supply and demand for investable funds, interest rates and international -7- 9 economic conditions, as well as economic conditions affecting the Washington, D.C. metropolitan area. See"Management's Discussion and Analysis of Financial Condition and Results of Operations -- Impact of Inflation, Changing Prices and Monetary Policies." COMPETITION The Bank is subject to vigorous competition in all aspects and areas of its business from banks and other financial institutions, including savings and loan associations, savings banks, finance companies, credit unions and other providers of financial services, such as money market mutual funds, brokerage firms, consumer finance companies and insurance companies. The Bank competes in its market area with a number of much larger financial institutions with greater resources, lending limits, larger branch systems and a wider array of commercial banking services. See "Business and Regulation -- Competition." The Company believes the Bank has been able to compete effectively with other financial institutions by emphasizing customer service, establishing long-term customer relationships, building customer loyalty, and providing products and services designed to address the specific needs of its customers. No assurance may be given, however, that the Bank will continue to be able to compete effectively with other financial institutions in the future. DEPENDENCE ON KEY EMPLOYEES To a large extent, the Company is dependent upon the experience and abilities of certain key employees, including the services of Mr. Joseph S. Bracewell, its President. Should the services of these employees become unavailable for any reason, the business of the Company could be adversely affected. The Company has entered into an Employment Agreement with Mr. Bracewell effective September 1, 1996 providing for his continued employment through August 1998. See "Management--Employment Agreements." SHARES OF COMMON STOCK ARE NOT INSURED DEPOSITS The securities offered pursuant to this Prospectus are not deposits and are not insured by the FDIC or any other federal or state agency. USE OF PROCEEDS The estimated net proceeds of the Offering to be received by the Company, assuming that all Warrants are exercised, and after deducting legal, financial, accounting, printing and distribution expenses in connection with the Offering, will be approximately $925,000. The net proceeds will be used by the Company for general corporate purposes, including but not limited to, using such proceeds as additional capital to support the Bank's growth and expansion program. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Strategic Plan." -8- 10 TRADING MARKET FOR THE COMMON STOCK There is no active trading market in the Company's Common Stock and no assurance may be given that one will develop. Although the Company's shares of Common Stock are quoted in the "pink sheets" of the National Association of Securities Dealers, Inc. (which set forth the most recent "bid" and "ask" prices), only limited and sporadic quotations are available for shares of the Common Stock in the Washington D.C. area. Accordingly, investors who exercise their Warrants may experience difficulty in selling the shares of Common Stock received on exercise of Warrants. Each Warrant holder should consider the Common Stock offered hereby only as a long-term investment, as it may be difficult to promptly liquidate the investment at a reasonable price in the event of personal financial emergency or upon the occurrence of some other event which may result in an immediate requirement for cash. Further, there is no assurance that transactions in the Common Stock to be acquired upon exercise of the Warrants, can be effected at or above the exercise price of the Warrants. See "Risk Factors -- Illiquid Investment." Based on information available to the Company from a limited number of sellers and purchasers of Common Stock, transactions in shares of Common Stock during the past nine months took place at prices ranging from a low of $5.50 to a high of $5.775. The most recent transaction in Common Stock known to the Company took place on August 21, 1996 and involved the sale of 231 shares of Common Stock at a price of $5.775 per share. -9- 11 CAPITALIZATION The following table sets forth, as of June 30, 1996, (i) the historical capitalization of the Company and (ii) the pro forma capitalization of the Company as adjusted to give effect to the Offering, assuming that all Warrants are exercised. See "Use of Proceeds."
June 30, 1996 ------------------------- Pro Forma Historical As Adjusted ---------- ----------- Common Stock, $1.00 par value, 2,000,000 shares authorized; 1,123,685 shares issued and outstanding; 1,309,771 shares issued and outstanding as adjusted . . . . . . . . . . . . . . . . $1,123,685 $1,309,771 Additional paid-in capital. . . . . . . . . . 4,827,935 5,566,849 Retained earnings . . . . . . . . . . . . . . 939,071 939,071 Unrealized loss on investment securities available-for-sale, net of tax effect . . . . . . . . . . . . . . . (70,383) (70,383) ---------- ----------- Total stockholders' equity . . . . . $6,820,308 $7,745,308 ========= ==========
DIVIDEND POLICY OF THE COMPANY The Company has not paid cash dividends on its shares of Common Stock to date and has no present intention to do so in the foreseeable future. The declaration and payment of future cash dividends will depend on, among other things, the Company's earnings, the general economic and regulatory climate, the Company's liquidity and capital requirements, and other factors deemed relevant by the Company's Board of Directors. The Company's ability to pay dividends depends, to a large extent, upon the dividends received from the Bank. Dividends paid by the Bank are subject to restrictions under various federal banking laws. In addition, the Bank must maintain certain capital levels in order to comply with legal and regulatory requirements, which may also restrict its ability to pay dividends to the Company. See "Risk Factors--Restrictions on Dividends by the Bank" and "Business and Regulation--Supervision and Regulation." Given the foregoing restrictions, and the Company's present intention to accumulate retained earnings to support the Company's future growth, it is unlikely that the Company will pay cash dividends with respect to the Common Stock for the foreseeable future. The Company has declared stock dividends from time to time in the past, but has not adopted a policy with respect to future stock dividends. The most recent stock dividend declared by the -10- 12 Company was a 7% stock dividend payable on March 31, 1996 on shares of Common Stock held of record as of March 31, 1996. The declaration of future stock dividends is at the discretion of the Board of Directors. SELECTED CONSOLIDATED FINANCIAL INFORMATION The following selected financial data should be read in conjunction with the Consolidated Financial Statements of the Company and the Notes thereto appearing elsewhere in this Prospectus and the information contained in "Management's Discussion and Analysis of Financial Condition and Results of Operations." The selected historical consolidated financial data as of and for the five years ended December 31, 1995 are derived from the Company's Consolidated Financial Statements, which have been audited by independent public accountants. The selected historical consolidated financial data as of and for the six months ended June 30, 1996 and June 30, 1995 have not been audited but, in the opinion of management, contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position and results of operations of the Company as of such dates and for such periods in accordance with generally accepted accounting principles. The results of operations for the six months ended June 30, 1996 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 1996 or for any future periods. -11- 13
Six Months Ended June 30, Year Ended December 31, ------------------------- ----------------------------------------------- 1996 1995 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- ---- ---- (Dollars in thousands, except per share data) INCOME STATEMENT DATA: Interest income . . . . . . . . . . . . . . $3,759 $3,441 $7,079 $5,711 $5,455 $6,016 $6,871 Interest expense . . . . . . . . . . . . . 1,331 1,200 2,562 1,902 1,987 2,486 3,458 Net interest income . . . . . . . . . . . 2,428 2,241 4,517 3,809 3,468 3,530 3,413 Provision for loan losses . . . . . . . . . -- 9 26 19 310 596 592 Net interest income after provision for loan losses . . . . . . . . 2,428 2,232 4,491 3,790 3,158 2,934 2,821 Noninterest income . . . . . . . . . . . . 354 244 590 555 572 611 440 Noninterest expense . . . . . . . . . . . . 2,281 2,010 4,045 3,381 3,036 3,284 3,124 Income taxes . . . . . . . . . . . . . . . 192 178 357 374 264 89 100 Income before extraordinary item . . . . . 309 288 680 591 429 173 38 Extraordinary item . . . . . . . . . . . . -- -- -- -- -- 34 100 Net income . . . . . . . . . . . . . . . 309 288 680 591 429 207 138 COMMON SHARE DATA:(1) Net income before extra- ordinary item . . . . . . . . . . . . . . $.26 $.28 $.64 $.58 $.42 $.15 $0 Extraordinary item . . . . . . . . . . . -- -- -- -- -- .04 .11 Net income . . . . . . . . . . . . . . . .26 .28 .64 .58 .42 .19 .11 Book value(2) . . . . . . . . . . . . . . 5.81 5.24 5.53 4.60 4.77 4.38 4.19 Common and common equivalent shares outstanding End of period . . . . . . . . . . . . . 1,174,287 974,247 1,174,763 961,169 922,105 920,958 921,493 Weighted average during period . . . . 1,174,116 967,726 998,512 959,278 922,105 920,958 921,493 BALANCE SHEET DATA: Total assets . . . . . . . . . . . . . . . 96,568 88,949 101,639 90,129 86,286 77,258 84,137 Investments(3) . . . . . . . . . . . . . . 16,251 18,079 21,690 22,654 25,902 14,918 25,982 Total loans(4) . . . . . . . . . . . . . . 71,455 63,119 69,204 60,663 56,644 56,331 52,758 Allowance for loan losses . . . . . . . . . 830 669 740 740 730 744 946 Total deposits . . . . . . . . . . . . . . 83,330 78,561 90,539 82,081 79,982 71,113 78,032 Long term debt . . . . . . . . . . . . . . -- -- -- -- 207 540 540 Preferred equity(5) . . . . . . . . . . . . -- 460 -- 460 468 468 468 Common equity(6) . . . . . . . . . . . . . 6,820 5,102 6,449 4,417 4,403 4,033 3,862 Total stockholders' equity . . . . . . . . 6,820 5,562 6,499 4,877 4,871 4,501 4,330 PERFORMANCE DATA (%): Return on average total assets(7) . . . . .67 .64 .75 .71 .52 .27 .19 Return on average total equity(7) . . . . 9.28 11.03 12.43 12.21 9.04 4.10 3.13 Net interest margin(7) . . . . . . . . . 5.74 5.36 5.42 4.90 4.55 4.94 4.80 Loans to deposits . . . . . . . . . . . . 85.75 80.34 76.44 73.90 70.82 79.21 67.61 ASSET QUALITY RATIOS (%): Nonperforming assets to total assets . . 1.16 .23 .49 .70 .37 1.11 .77 Nonperforming loans to total loans . . . 1.31 .08 .45 1.04 .57 1.16 .78 Net loan charge-offs to average loans(7) (.25) .26 .04 .02 .59 1.40 .72 Allowance for loan losses to total loans 1.16 1.06 1.07 1.22 1.29 1.32 1.79 Allowance for loan losses to nonperforming loans . . . . . . . . . . 89 1,262 240 118 227 114 230 BANK CAPITAL RATIOS (%): Tier I risk-based capital . . . . . . . . 9.22 9.82 9.29 10.12 10.64 9.58 8.15 Total risk-based capital . . . . . . . . 10.40 11.05 10.41 11.37 11.89 10.83 9.41 Tier I leverage . . . . . . . . . . . . . 7.33 6.00 6.83 5.74 5.24 6.09 4.93 (footnotes on following page)
-12- 14 (continued from previous page) ______________ (1) All common share data has been adjusted for three (3) five percent (5%) Common Stock dividends declared effective on July 31, 1993, March 31, 1994 and March 31, 1995, and one (1) seven percent (7%) Common Stock dividend declared effective on March 31, 1996. (2) Book value per common share is based on common equity, calculated in the manner described in footnote (7) below, divided by the number of common and common equivalent shares outstanding. (3) Investments include federal funds sold and interest-bearing deposits in other financial institutions. (4) Net of unearned income. (5) Preferred equity is calculated based on liquidation value of $7.50 per share of Preferred Stock. All shares of Preferred Stock outstanding as of October 17, 1995 were redeemed by the Company on December 10, 1995. (6) Common equity is total stockholders' equity less preferred equity. (7) Ratios annualized for the six-month periods ended June 30, 1996 and 1995. -13- 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company, which analyzes the major elements of the Company's consolidated statements of operations and financial condition, should be read in conjunction with the detailed information and consolidated financial statements, and the notes related thereto, included elsewhere herein. References to the operations of the Company include the operations of the Bank, unless the context otherwise requires. GENERAL The Company derives substantially all of its revenues and income from the operation of the Bank, which provides a full range of commercial and consumer banking services to small and middle market businesses and individuals in the Washington, D.C. metropolitan area. As of June 30, 1996, the Company had total assets of $96,567,552, net loans of $70,624,617, total deposits of $83,330,209 and total stockholders' equity of $6,820,308. The Company had net income of $679,598 for the year ended December 31, 1995, and $308,990 for the six months ended June 30, 1996. The Company holds deposits for individuals, businesses, and other organizations, and provides certain services related thereto for the convenience of its depositors. In most cases, the Company pays interest on funds which it holds on deposit for customers, and it also charges fees for certain services which it provides. The interest expense paid on deposits, and the noninterest income earned from service charges, are primarily related to the volume of deposits handled by the Company. The Company's primary source of revenue is the interest income and fees which its earns by lending and investing the funds which are held on deposit. Because loans generally earn higher rates of interest than investments, the Company seeks to employ as much of its deposit funds as possible in the form of loans to individuals, businesses and other organizations. In the interest of liquidity, however, a portion of the Company's deposits are maintained in cash, government securities, deposits with other financial institutions, and overnight loans of excess reserves (known as "federal funds sold") to large correspondent banks. The revenue which the Company earns (prior to deducting its overhead expenses) is essentially a function of the amount of the Company's loans and deposits, as well as the profit margin ("interest spread") and fee income which can be generated thereon. The principal measures of the performance of banking institutions are return on average equity and return on average assets. Return on average equity ("ROE") is determined by dividing annual net income by average stockholders' equity and indicates the effectiveness of an institution in generating net income from the capital invested by its stockholders. For the year ended December 31, 1995, and for the six months ended June 30, 1996 (on an annualized basis), the Company's ROE was 12.4% and 9.3%, respectively. Return on average assets ("ROA") measures net income in relation to total average assets and generally indicates an institution's ability to use its assets profitably. For -14- 16 the year ended December 31, 1995, and for the six months ended June 30, 1996 (on an annualized basis), the Company's ROA was 0.75% and 0.67%, respectively. STRATEGIC PLAN As the local economy has improved during the last four years, the Company has devoted increasing effort and resources toward the stimulation of business growth and the expansion of its customer base. The following are the key action plans being pursued by the Company in the implementation of its growth and expansion strategy: Expanding the branch network. One of the methods by which the Company plans to grow is to conduct business in multiple locations, including expansion into the nearby Maryland and Virginia markets. For the foreseeable future, the Company expects to acquire or establish branch offices in high-density commercial districts, rather than residential areas, to further its objective of increasing the volume of commercial accounts and loans. The Bank established its first branch office in September 1994 by acquiring from the Resolution Trust Corporation ("RTC") a branch of a failed savings and loan association. The branch is located at 1275 Pennsylvania Avenue, N.W., in an area of downtown Washington which is experiencing significant development. As of June 30, 1996, the branch office had approximately 606 accounts with total deposits of approximately $8 million. Effective January 1, 1996, the Bank established a loan production office at 8201 Greensboro Drive in Tysons Corner, Virginia. On September 20, 1996, the OCC approved the Bank's application to establish a full service branch in Tysons Corner, which branch is expected to open for business in early 1997. Expanding products and services. In 1994, the Company commissioned a professional market research firm to evaluate the satisfaction level, service experience, and service needs among the Bank's current clients and certain clients who had recently closed their accounts. The survey identified the potential usage by existing clients of banking-related services not currently offered by the Bank. In response to needs identified in the market survey, the Bank established its own MasterCard/Visa credit card program, introduced two new types of accounts (Basic Checking, designed for customers with low and moderate incomes, and Century Pro, designed for higher-income professionals), introduced two new electronic banking services (TeleBank for personal accounts and ExecuBank for business accounts), established overdraft lines of credit for small businesses (Century Reserve), developed a comprehensive no-charge banking package for related accounts (Century Link), installed a remote ATM in the International Square food court, developed a high-interest money market account to compete with brokerage funds (Premier Investment Account), and introduced check-image statements for all accounts in June of 1996. The Company's current plan contemplates a continued emphasis on the development of commercial loan and deposit business, including expansion of its commercial product line (i.e., cash management and electronic banking services) as well as increased business development in the Maryland and Virginia markets. -15- 17 Exploring acquisition and merger opportunities. The Company has not sought out opportunities to be acquired by larger financial institutions, primarily because of its view that the long-term value of an independent banking franchise in the nation's capital will increase, rather than diminish, as consolidation trends continue. The Company does believe, however, that its franchise value and operating profitability would be enhanced by a significant increase in its asset size. For this reason, the Company in the past has explored, and expects to continue to explore in the future, merger and acquisition opportunities which would accelerate the Company's progress toward the achievement of its strategic plan. There can be no assurance that any such merger and acquisition opportunities will be realized in the future. There can be no assurance that the Company will be successful in implementing any of the future plans described above or that, even if implemented, such actions will produce the desired financial results. The foregoing matters should be taken into account when considering the more specific discussion of the Company's financial performance set forth herein. RESULTS OF OPERATIONS NET INCOME Net income was $308,990 ($0.26 per common share) for the first six months of 1996, compared with net income of $287,610 ($0.28 per common share) for the first six months of 1995, an increase of $21,380 or 7.4%. The increase in net income for the first six months of 1996 compared with the first six months of 1995 resulted principally from a $187,018 increase in net interest income, and a $109,866 increase in noninterest income partially offset by a $270,661 increase in noninterest expenses primarily attributable to costs associated with the Bank's new computer systems, as well as processing costs in support of new fee-generating products and services. Net income was $679,598 for 1995 ($0.69 per common share), compared with $590,904 for 1994 ($0.62 per common share), and $428,978 for 1993 ($0.45 per common share). These improvements resulted primarily from reductions in expenses relating to problem assets (provisions for losses on loans and other real estate owned, legal expenses related to collection matters, and similar expenses). As the local economy and the Company's asset quality have improved, the Company has utilized some of the expense reductions in the problem asset area to support new initiatives designed to stimulate quality asset growth, such as the branch office and business development efforts described above. In the above discussion, all "per share" amounts have been adjusted to give effect to the Company's seven percent (7%) stock dividend which was distributed to stockholders of record as of March 31, 1996, and the three (3) five percent (5%) stock dividends which were distributed to stockholders of record as of March 31, 1995, March 31, 1994 and July 31, 1993. -16- 18 NET INTEREST INCOME Net interest income, which constitutes one of the principal sources of income for the Company, represents the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities. The net yield on total interest-earning assets, also referred to as interest rate margin or net interest margin, represents net interest income divided by average interest-earning assets. The Company's principal interest-earning assets are loans, investment securities and federal funds sold. Net interest income was $2,427,865 for the first six months of 1996, an increase of $187,018 or 8.3% compared with the first six months of 1995. The Company's average balance of net loans receivable and investment securities increased approximately $9,347,000 and decreased approximately $8,657,000, respectively, for the first six months of 1996 compared with the first six months of 1995, resulting in a net increase of approximately $903,000 in the Company's average total interest-earning assets. The Company's loan growth resulted primarily from new commercial loans generated through the Bank's loan production office in Tysons Corner, Virginia. The net interest margin of 5.74% for the first six months of 1996 increased 38 basis points from 5.36% for the first six months of 1995. The improvement in net interest margin resulted from the Company's ability to adjust its yield on interest-earning assets more rapidly, in response to rising market interest rates, than its cost of interest-bearing liabilities. Additionally, the Company's increased emphasis on commercial loans has increased the overall yield of the loan portfolio. Net interest income was $4,517,423 for 1995, an increase of $707,839 or 18.6% compared with net interest income of $3,809,584 for 1994, which represented an increase of $341,640 or 9.9% compared with net interest income of $3,467,944 for 1993. The Company's average total interest-earning assets increased from approximately $77,825,000 for 1994 to $83,348,000 for 1995, representing a 7.1% increase resulting principally from an increase in loans. The net interest margin of 5.42% for 1995 increased 52 basis points from 4.90% for 1994. The Company's net interest income is affected by changes in the amount and mix of interest-earning assets and interest-bearing liabilities, referred to as a "volume change." It is also affected by changes in yields earned on interest-earning assets and rates paid on interest-bearing deposits and other borrowed funds, referred to as a "rate change." The following tables set forth for each category of interest-earning assets and interest-bearing liabilities, the average amounts outstanding, the interest earned or paid on such amounts, and the average rate earned or paid for the six months ended June 30, 1996 and 1995, and for the years ended December 31, 1995, 1994 and 1993. The tables also set forth the average rate earned on total interest-earning assets, the average rate paid on total interest-bearing liabilities, and the net interest margin on average total interest-earning assets for the same periods. -17- 19 AVERAGE BALANCES AND INTEREST RATES: INTERIM PERIODS (DOLLARS IN THOUSANDS)
Six Months Ended June 30, ------------------------------------------------------------ 1996 1995 ---------------------------- -------------------------- Interest Interest Average Income/ Average Average Income/ Average Balance Expense Rate Balance Expense Rate ------- ------- ------- ------- ---------------- INTEREST-EARNING ASSETS: Loans receivable, net $69,914 3,385 9.68% 60,567 $2,844 9.39% Investment securities, taxable(1) 12,392 311 5.02% 20,058 514 5.12% Investment securities, non-taxable(1)(2) 250 6 4.80% 1,241 36 5.82% Federal funds sold 327 13 7.95% 1,236 36 5.75% Interest-earning deposits with banks 1,661 44 5.30% 539 11 4.21% ------- ------- ------- ------- Total interest-earning assets(2) 84,544 3,759 8.89% 83,641 3,441 8.23% NONINTEREST-EARNING ASSETS: Cash and due from banks 4,159 3,698 Other assets 3,978 2,530 ------- ------- Total noninterest-earning assets 8,137 6,228 ------- ------- Total assets $92,681 $89,869 ======= ======= INTEREST-BEARING LIABILITIES: Deposits: Interest-bearing demand (NOW) deposits $13,086 128 1.96% 12,820 131 2.05% Savings deposits 2,286 30 2.62% 2,776 37 2.65% Money market deposits 22,681 365 3.22% 25,885 387 2.99% Time deposits 24,544 675 5.50% 22,699 589 5.19% Short-term borrowings 4,640 133 5.73% 2,308 56 4.78% ------- ------ ------- ------- Total interest-bearing liabilities 67,237 1,331 3.96% 66,488 1,200 3.61% NONINTEREST-BEARING LIABILITIES: Noninterest-bearing deposits 17,486 16,535 Other liabilities 1,296 1,266 ------- ------- Total noninterest-bearing liabilities 18,782 17,801 ------ ------- Stockholders' equity 6,662 5,580 ------- ------- Total liabilities and stockholders' equity $92,681 $89,869 ======= ======= Net interest income $2,428 2,241 ====== ===== Net interest margin(2) 5.74% 5.36% - ------------------------ (1) Average balance and average rate for investment securities are computed based on book value of securities held-to-maturity and cost basis of securities available-for-sale. (2) Average rates on a fully taxable equivalent basis are as follows: Investment securities, non-taxable . . . . . . 7.74% 9.93% Total interest-earning assets . . . . . . . . . 8.90% 8.29% Net interest margin . . . . . . . . . . . . . . 5.75% 5.42%
-18- 20 AVERAGE BALANCES AND INTEREST RATES: ANNUAL PERIODS (DOLLARS IN THOUSANDS)
Year Ended December 31, ------------------------------------------------------------------------------ 1995 1994 1993 ------------------------------------------------------------------------------ Interest Interest Interest Average Income/ Average Average Income/ Average Average Income/ Average Balance Expense Rate Balance Expense Rate Balance Expense Rate ------- ------- ------- ------- ------- ------- ------- ------- ------- INTEREST-EARNING ASSETS: . . . . . . . . . Loans receivable, net . . . . . . . . . . $62,639 6,011 9.60% $57,855 4,802 8.30% 54,069 4,572 8.46% Investment securities, taxable (1) . . . 18,297 918 5.02% 18,251 829 4.54% 13,737 607 4.42% Investment securities, non-taxable (1)(2) 991 57 5.75% 127 6 4.45% 0 0 N/A Federal funds sold . . . . . . . . . . . 428 37 8.64% 1,356 65 4.79% 6,101 182 2.99% Interest-earning deposits with banks . . 993 56 5.64% 236 10 4.09% 2,319 94 4.02% ------- ------ ------- ------ ------- ------ Total interest-earning assets (2) . . . 83,348 7,079 8.49% 77,825 5,712 7.34% 76,226 5,455 7.16% NONINTEREST-EARNING ASSETS: Cash and due from banks . . . . . . . . . 3,854 3,851 4,389 Other assets . . . . . . . . . . . . . . 2,907 1,378 1,239 ------- ------- ------- Total noninterest-earning assets . . . . . 6,761 5,229 5,628 ------- ------- ------- Total assets . . . . . . . . . . . . . $90,109 $83,054 $81,854 ======= ======= ======= INTEREST-BEARING LIABILITIES: Deposits: Interest-bearing demand (NOW) deposits $12,230 258 2.11% $11,926 248 2.08% 11,995 262 2.18% Savings deposits . . . . . . . . . . . 2,526 67 2.65% 2,564 66 2.59% 2,137 60 2.80% Money market deposits . . . . . . . . . 25,153 778 3.09% 24,784 618 2.49% 27,024 700 2.59% Time deposits . . . . . . . . . . . . . 23,128 1,269 5.49% 20,738 922 4.44% 20,039 920 4.59% Short-term borrowings . . . . . . . . . . 3,526 190 5.39% 1,102 43 3.93% 437 11 2.48% Note payable . . . . . . . . . . . . . . 0 0 N/A 51 5 8.20% 374 34 9.00% ------- ------ -------- ------ ------- ------ Total interest-bearing liabilities . . . . 66,563 2,562 3.85% 61,165 1,902 3.11% 62,006 1,987 3.20% NONINTEREST-BEARING LIABILITIES: Noninterest-bearing deposits . . . . . . 16,841 16,159 14,756 Other liabilities . . . . . . . . . . . . 1,236 646 346 ------- -------- ------- Total noninterest-bearing liabilities . . . 18,077 16,805 15,102 ------- ------ ------- Stockholders' equity . . . . . . . . . . . 5,469 5,084 4,746 ------- ------- ------- Total liabilities and stockholders' equity $90,109 $83,054 $81,854 ======= ======= ======= Net interest income . . . . . . . . . . . . $4,517 $3,810 $3,468 ====== ====== ====== Net interest margin (2) . . . . . . . . . . 5.42% 4.90% 4.55% - --------------------------- (1) Average balance and average rate for investment securities are computed based on book value of securities held-to-maturity and cost basis of securities available-for-sale. (2) Average rates on a fully taxable equivalent basis are as follows: Investment securities, non-taxable 9.27% 7.29% N/A Total interest-earning assets 8.53% 7.34% 7.16% Net interest margin 5.46% 4.90% 4.55%
-19- 21 Changes in interest income and interest expense can result from changes in both volume and rate. The Company has an asset and liability management policy designed to provide a proper balance between rate sensitive assets and rate sensitive liabilities, to attempt to maximize interest margins and to provide adequate liquidity for anticipated needs. The following table sets forth for the periods indicated a summary of the changes in interest earned and interest paid resulting from changes in volume and rate. The allocation of the rate/volume variance has been made pro rata based on the percentage that volume and rate variances produce in each category. RATE/VOLUME ANALYSIS OF NET INTEREST INCOME (DOLLARS IN THOUSANDS)
Six Months Ended Year Ended Year Ended June 30, 1996 December 31, 1995 December 31, 1994 Compared With Compared With Compared With June 30, 1995 December 31, 1994 December 31, 1993 Increase (Decrease) due to Increase (Decrease) due to Increase (Decrease) due to ----------------------------- ------------------------------ -------------------------------- Volume Rate Changes Volume Rate Changes Volume Rate Changes ------ ------- ----------- --------- ------- ----------- ---------- -------- ----------- INTEREST EARNED ON: Loans receivable, net . . $446 95 541 428 781 1,209 (317) (87) (230) Investment securities, taxable . . . . . . . . (194) (9) (203) 2 87 89 202 20 222 Investment securities, non-taxable . . . . . . (26) (4) (30) 45 6 51 3 3 6 Federal funds sold . . . (31) 8 (23) (62) 34 (28) (185) 67 (117) Interest-earning deposits with banks . . . 26 7 33 37 9 47 (84) 1 (84) ---- -- --- --- - ----- ---- - --- Total interest income. . $221 97 318 450 917 1,368 253 4 257 ---- -- --- --- --- ----- ---- -- --- INTEREST PAID ON: Interest-bearing (NOW) deposits . . . . . . . . 3 (6) (3) 6 4 10 (2) (12) (14) Savings deposits . . . . (6) (1) (7) (1) 2 1 12 (6) 6 Money market deposits (50) 28 22 10 150 160 (57) (25) (82) Time deposits . . . . . 49 37 86 119 228 346 32 (30) 2 Short-term borrowings 62 15 77 113 34 147 21 11 32 Note payable . . . . . . -- -- -- (5) -- (4) (28) (1) (29) ---- -- --- --- --- ----- ---- -- --- Total interest expense . 58 73 131 242 418 660 (22) (63) (85) ---- -- --- --- --- ----- ---- -- --- Net interest income . . . . $163 24 187 208 499 708 275 67 342 ==== == === === === ===== ==== == ===
-20- 22 PROVISION FOR LOAN LOSSES Provisions for loan losses are charged to income to bring the total allowance for loan losses to a level deemed appropriate by management of the Company based on such factors as historical experience, the volume and type of lending conducted by the Company, the amount of nonperforming assets, regulatory policies, generally accepted accounting principles, general economic conditions, and other factors related to the collectibility of loans in the Company's portfolio. The provision for loan losses for the first six months of 1996 was zero, compared with $8,899 for the first six months of 1995. The provision for loan losses was $26,347 for 1995 compared with $19,431 for 1994, representing an increase of $6,916 or 36% from 1994, and a decrease of $290,839 compared with the provision for loan losses of $310,270 for 1993, which represented a decrease of $285,671 or 48% compared with the provision for loan losses of $595,941 for 1992. The prior reductions in the loan loss provision since 1992 reflect improvement in national and local economic conditions as well as the quality of the Company's asset portfolio. For the periods from 1992 to 1994, the decline in the provision for loan losses relative to 1992 and prior periods was the primary cause of the reported improvements in the Company's financial performance. From January 1, 1994 through June 30, 1996, the Company's provisions for loan losses have been modest compared to the provisions charged to income in the preceding three years. The reasons for this are two-fold. First, the Company has been able to recover sufficient monies on previously charged-off loans to offset loan losses experienced since 1993, with the result that the allowance has been maintained or increased with minimal provisions charged to income. Second, improvements in national and local economic conditions, as well as the Company's asset portfolio, have resulted in such allowance being deemed adequate even though the overall size of the portfolio has increased significantly. In view of the Company's plans to continue its loan growth with increased emphasis on commercial loans (which are generally considered to be more risky than loans secured by real estate), it is unlikely that the Company will be able to continue to maintain an adequate allowance for loan losses without increasing the allowance through provisions charged to income. The Company does not presently anticipate that such provisions will have a material adverse impact on the Company's results of operations in future periods. NONINTEREST INCOME The Company's primary source of noninterest income is service charges on deposit accounts. The remaining noninterest income is derived from Mastercard/Visa, wire transfer, collection and cashier's check fees, mortgage loan referral fees, and safe deposit box rentals. Also included in this category are gains and losses realized on the sale of investment securities and certain other items of income, whether recurring or not, which are not elsewhere classified. Noninterest income for the first six months of 1996 was $353,819, an increase of $109,866 or 45% compared with noninterest income of $243,953 for the first six months of 1995. This increase results primarily from fees generated in connection with the Bank's Mastercard/Visa credit card program which was initially established in March 1995. Noninterest income was $590,339 for 1995, compared with $555,048 for 1994, an increase of $35,291 or 6.4% resulting primarily from fees associated with the credit card program. Noninterest income of $555,048 for 1994 represented a decrease of $16,536 or 2.9% compared with noninterest income of $571,584 for 1993, which represented a decrease of $39,755 or 6.5% compared with noninterest income of $611,339 for 1992. Substantially all of the decrease from 1993 to 1994 resulted from the $11,748 loss realized in 1994 in connection with the sale of certain investment securities, compared with no gains or losses on such sales in 1993. Noninterest income -21- 23 decreased from 1992 to 1993 principally as a result of $122,180 in gains on sales of investment securities which were realized in 1992 but not repeated in 1993. The following table sets forth the various categories of noninterest income for the six months ended June 30, 1996 and 1995, and for the years ended 1995, 1994 and 1993. NONINTEREST INCOME (DOLLARS IN THOUSANDS)
Six Months Ended June 30, Year Ended December 31, ----------------------- ------------------------------------------ 1996 % Change 1995 1995 % Change 1994 % Change 1993 ---- -------- ---- ---- -------- ---- -------- ---- Service charges on deposit accounts . . . . $217 25.4% 173 379 11.5% 340 -1.2% 344 Commission and fee income . . . . . . . . 126 106.6% 61 198 164.0% 75 -27.9% 104 Safe deposit box rentals . . . . . . . . . 11 120.0% 5 6 -60.0% 15 15.4% 13 Gain (loss) on sale of securities . . . . -0- -100.0% (3) (3) -75.0% (12) N/A 0 Other income . . . . . . . . . . . . . . -0- -100.0% 8 10 -92.7% 137 23.4% 111 ---- ------- --- --- ------ --- ------ --- Total noninterest income . . . . . . . . . $354 45.1% 244 590 6.3% 555 -3.0% 572 ==== ======= === === ====== === ====== ===
NONINTEREST EXPENSE The Company's noninterest expense has been consistently higher in relation to its asset size than the average for small community banks. As described above under "-- Strategic Plan," the Company's strategy is to increase its asset size significantly so that its level of noninterest expense in relation to its assets is more in line with those of comparable institutions. To support an increased rate of asset growth, branch expansion and increased product and service offerings, during 1995 and the first six months of 1996 the Company invested approximately $1 million to upgrade its telephone and computer systems. In addition to these capital expenditures, the Company has incurred consulting expenses associated with the installation, specialized programming and security aspects of the computer system. As a result, the Company's noninterest expenses during such periods have increased in anticipation of a subsequent increase in total assets. In addition, to the extent that asset growth results from branch expansion, noninterest expenses can be expected to increase further as a result of rental, salary and other operating expenses associated with such branches. No assurance may be given, however, that the anticipated asset growth or branch expansions will occur. Noninterest expense was $2,280,990 for the first six months of 1996, an increase of $270,661 or 13.5% compared with noninterest expense of $2,010,329 for the first six months of 1995. This increase resulted principally from depreciation expenses associated with the Bank's new computer and telephone systems and remote ATM, as well as data processing costs in support of the credit card program. Noninterest expense was $4,044,653 for 1995, compared with $3,380,751 for 1994, representing an increase of $663,902 or 19.6%, and which represented an increase of $344,371 or 11.3% compared with noninterest expense of $3,036,380 for 1993. The increases from 1993 to 1994 and from 1994 to 1995 were primarily attributable to increased personnel and occupancy expenses associated with the Pennsylvania Avenue branch office, which was acquired on September 16, 1994, together with increased expenses incurred in connection with marketing programs. -22- 24 The following table sets forth the various categories of noninterest expense for the six months ended June 30, 1996 and 1995, and for the years ended 1995, 1994 and 1993. NONINTEREST EXPENSE (DOLLARS IN THOUSANDS)
Six Months Ended June 30, Year Ended December 31, ---------------------------------------------------------------------- 1996 %Change 1995 1995 %Change 1994 %Change 1993 ---- ------- ---- ---- ------- ---- ------- ---- Salaries and employee benefits . . . . . . $951 4.2% 913 1,927 20.8% 1,595 12.6% 1,417 Occupancy and equipment expense . . . . . . 242 -4.7% 254 517 18.0% 438 21.3% 361 Depreciation and amortization . . . . . . . 189 170.0% 70 151 11.0% 136 130.5% 59 Professional fees . . . . . . . . . . . . . 239 58.3% 151 327 0.9% 324 0.9% 321 Data processing . . . . . . . . . . . . . . 217 112.7% 102 332 83.4% 181 -16.2% 216 Federal deposit insurance premiums . . . . 5 -95.0% 100 88 -47.9% 169 0.0% 169 Communications . . . . . . . . . . . . . . 105 36.4% 77 161 41.2% 114 6.5% 107 Marketing and public relations . . . . . . 97 56.5% 62 169 42.0% 119 2.6% 116 Branch expenses paid to RTC . . . . . . . . -0- -100.0% 21 21 -27.6% 29 N/A 0 Office and operations expenses . . . . . . 110 -24.1% 145 208 20.9% 172 18.6% 145 Insurance and lobby security . . . . . . . 49 16.7% 42 86 48.3% 58 11.5% 52 Provision for losses on OREO . . . . . . . 13 -72.3% 47 48 N/A 0 -100.0% 3 Other expenses . . . . . . . . . . . . . . 64 146.2% 26 10 -78.3% 46 -34.3% 70 ------ ------ ----- ----- ------ ----- ------- ----- Total noninterest expense . . . . . . . . . $2,281 13.5% 2,010 4,045 19.6% 3,381 11.4% 3,036 ====== ====== ===== ===== ====== ===== ======= =====
INTEREST RATE SENSITIVITY MANAGEMENT Net interest income, which constitutes one of the principal sources of income for the Company, represents the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities. The difference between the Company's interest-rate sensitive assets and interest-rate sensitive liabilities for a specified time-frame is referred to as "gap." Interest rate sensitivity reflects the potential effect on net interest income of a movement in interest rates. A financial institution is considered to be asset sensitive, or having a positive gap, when the amount of its interest-earning assets maturing or repricing within a given period exceeds the amount of its interest-bearing liabilities also maturing or repricing within that time period. Conversely, a financial institution is considered to be liability sensitive, or having a negative gap, when the amount of its interest-bearing liabilities maturing or repricing within a given period exceeds the amount of its interest-earning assets also maturing or repricing within that time period. During a period of rising interest rates, a positive gap would tend to increase net interest income, while a negative gap would tend to have an adverse effect on net interest income. During a period of falling interest rates, a positive gap would tend to have an adverse effect on net interest income, while a negative gap would tend to increase net interest income. -23- 25 Management of the Company seeks to maintain a balanced interest rate risk position to protect its net interest margin from market fluctuations. Toward this end, the Company maintains an Asset/Liability Committee (the "ALCO Committee") which reviews, on a regular basis, the maturity and repricing of the assets and liabilities of the Company. The ALCO Committee has adopted the objective of achieving and maintaining a one-year cumulative ratio of interest- earning assets to interest-bearing liabilities of 90% to 110%. On a consolidated basis, the Company's one year cumulative ratio of interest-earning assets to interest-bearing liabilities was 108% at the end of June 30, 1996. The following table sets forth the interest-rate sensitive assets and liabilities of the Company at June 30, 1996, which are expected to mature or are subject to repricing in each of the time periods indicated. INTEREST RATE SENSITIVE ASSETS AND LIABILITIES (DOLLARS IN THOUSANDS)
TERM TO REPRICING (at June 30, 1996) ----------------------------------------------------------- 90 Days 91-180 181 Days Over or Less Days to 1 Year 1 Year Total ------- ------ --------- ------ ------- Interest-earning assets: Interest-bearing deposits $5,752 - - - 5,752 Investment securities, taxable 5,653 2,991 - 1,605 10,249 Investment securities, non-taxable - 85 - 165 250 Loans 30,278 7,338 12,449 21,479 71,544 ------- ------ ------ ------ ------ Total interest-earning assets 41,683 10,414 12,449 23,249 87,795 Interest-bearing liabilities: Interest-bearing demand and NOW accounts(1) - 5,240 5,240 - 10,480 Savings deposits(1) - - 2,226 - 2,226 Money market deposits 23,772 - - - 23,772 Time deposits 8,142 3,697 8,523 5,264 25,633 Borrowed funds 2,581 - - 2,800 5,381 ------- ------ ------ ------ ------ Total interest-bearing liabilities 34,502 8,937 15,989 8,064 67,492 ------- ------ ------ ------ ------ Interest sensitivity gap per period $ 7,181 1,477 (3,540) 15,185 20,303 ======= ====== ====== ====== ====== Cumulative gap $ 7,181 8,658 5,118 20,303 20,303 ======= ====== ====== ====== ====== Cumulative gap as percent of total assets 7.44% 8.97% (5.30)% 21.02% 21.02% ======= ====== ====== ====== ====== Cumulative interest-earning assets as percent of cumulative interest-bearing liabilities 121% 120% 110% 130% 130% === === === === ===
- ------------- (1) The repricing analysis set forth in the table above with respect to interest-bearing demand and NOW accounts and savings deposits assumes, based upon management's historical experience, that such interest-bearing liabilities are generally insensitive to pricing changes. -24- 26 ANALYSIS OF FINANCIAL CONDITION LOANS AND ASSET QUALITY The loan portfolio is the largest category of the Company's earning assets. The Company presently is, and in the future expects to remain, a middle market banking organization serving professionals and businesses with interests in and around Washington, D.C. Management believes that the increase in loans from $56,644,000 at the end of 1993 to $71,455,000 as of June 30, 1996, is primarily attributable to increased loan demand resulting from the improving economy in the Washington, D.C. metropolitan area and the Company's business development and marketing initiatives. The volume of the Company's loans remained virtually unchanged during the three year period ended December 31, 1993, principally as a result of a weak local economy and an internal focus on maintaining and improving the quality of the Company's loan portfolio. Most of the Company's real estate lending is in the Washington, D.C. metropolitan area, and a substantial portion of its loan portfolio is collateralized by first mortgages and home equity lines of credit on residences. This concentration is declining, however, as the Company continues its emphasis on the development of new commercial loan business. As of June 30, 1996 and December 31, 1995, approximately $44,619,000 (62%) and $46,103,000 (67%) of the Company's total loan portfolio, respectively, consisted of loans secured by real estate, of which one-to-four-family residential mortgage loans and home equity lines of credit represented $26,849,000 (38%) and $30,561,000 (44%), respectively, of the Company's total loan portfolio. The level of nonperforming loans is also relevant to the credit quality of a loan portfolio. As of June 30, 1996, December 31, 1995 and December 31, 1994, nonperforming loans amounted to approximately $934,000, $308,000 and $628,000 or 1.31%, 0.45% and 1.04% of total loans, respectively. The increase in nonperforming loans from December 31, 1995 to June 30, 1996, resulted primarily from the past due status of certain fully-secured real estate loans originated prior to 1993. See "-- Nonperforming Assets." No loss is anticipated with respect to these credits in excess of any specific reserves established within the allowance for loan losses. Loan concentrations are defined as aggregate credits extended to a number of borrowers engaged in similar activities or resident in the same geographic region, which would cause them to be similarly affected by economic or other conditions. The Company, on a routine basis, evaluates these concentrations for purposes of policing its concentrations and making necessary adjustments in its lending practices to reflect current economic conditions, loan to deposit ratios and industry trends. As a result of the Company's existing branch locations, the Company has significant concentrations of customers and assets in the metropolitan Washington, D.C. area. The industry concentrations in excess of 10% of total loans, where the borrowers as a group might be affected similarly by economic changes, consists of loans to members of the legal -25- 27 profession $18,982,000, business services $11,156,000, and health care services $9,791,000. The Company offers lines of credit, credit cards, home equity lines, and mortgage loans to these groups. The amount of such loans which are past due or considered by management to be potential problem loans is not material. Loans to directors, executive officers and principal stockholders of the Company and to directors and officers of the Bank are subject to limitations contained in the Federal Reserve Act, the principal effect of which is to require that extensions of credit by the Bank to executive officers, directors, and ten percent stockholders satisfy certain standards. The Bank routinely makes loans in the ordinary course of business to certain directors and executive officers of the Company and the Bank, their associates, and members of their immediate families. In accordance with Federal Reserve Act guidelines, these loans are made on substantially the same terms, including interest rates and collateral, as those prevailing for comparable transactions with others and do not involve more than normal risk of collectibility or present other unfavorable features. As of June 30, 1996, loans and commitments outstanding to directors and executive officers of the Company and the Bank, their associates and members of their immediate families totaled $2,780,000 (net of participations sold to other banks on a non-recourse basis), which represented approximately 3.1% of total loans and commitments outstanding as of that date. As of June 30, 1996, none of these loans outstanding from the Bank to related parties was on non-accrual, past due, restructured or considered by management to be a potential problem loan. -26- 28 The following table sets forth the composition of the Company's loan portfolio by type of loan on the dates indicated. LOAN PORTFOLIO ANALYSIS (DOLLARS IN THOUSANDS)
June 30, December 31, ----------------- ------------------------------------------------------ 1996 1995 1994 1993 ----------------- ----------------- ----------------- ----------------- Aggregate Principal Amount -------------------------- Type of loan: 1-4 family residential mortgage $ 20,889 24,921 26,024 25,282 Home equity loans 5,960 5,640 6,035 6,973 Multifamily residential 2,146 2,087 2,164 2,230 Construction 1,752 1,545 1,337 2,536 Commercial real estate 13,872 11,910 8,025 5,539 Commercial loans 15,710 13,213 9,229 8,199 Installment and credit card loans 10,552 9,023 6,475 5,536 Other loans 664 963 1,486 441 -------------- -------------- -------------- -------------- Gross loans 71,545 69,302 60,775 56,736 Less: Unearned income (90) (98) (112) (92) -------------- -------------- -------------- -------------- Total loans, net of unearned $ 71,455 69,204 60,663 56,644 ============== ============== ============== ============== Percentage of Loan Portfolio ---------------------------- Type of loan: 1-4 family residential mortgage 29.20% 35.96% 42.82% 44.56% Home equity loans 8.33% 8.14% 9.93% 12.29% Multifamily residential 3.00% 3.01% 3.56% 3.93% Construction 2.45% 2.23% 2.20% 4.47% Commercial real estate 19.39% 17.18% 13.20% 9.76% Commercial loans 21.95% 19.07% 15.19% 14.45% Installment and credit card loans 14.75% 13.02% 10.65% 9.76% Other loans 0.93% 1.39% 2.45% 0.78% ------------- ------------- ------------- ------------- Gross loans 100.00% 100.00% 100.0% 100.0% ============= ============= ============= =============
-27- 29 The following table sets forth the maturities of loans (based upon contractual dates) outstanding as of June 30, 1996, and an analysis of sensitivities of loans due to changes in interest rates. The Company's portfolio of adjustable rate home mortgages consists of loans to regular customers in the local market area. Such loans generally have balloon maturities within ten years or less, with 2% annual and 6% lifetime "caps" on interest rate changes. Borrowers have the right to prepay such loans without penalty. MATURITIES AND RATE SENSITIVITY OF LOANS (DOLLARS IN THOUSANDS)
OVER 1 YEAR THROUGH 5 YEARS OVER 5 YEARS ------------------- -------------------- ONE YEAR FIXED FLOATING FIXED FLOATING OR LESS RATE RATE RATE RATE TOTAL --------- ------ -------- ------- -------- ------ Commercial . . . . . . . . . . . $12,853 2,692 - 165 - 15,710 Commercial real estate . . . . . 6,063 472 5,167 2,170 - 13,872 Residential mortgage/ home equity . . . . . . . . . . 25,331 989 1,846 507 322 28,995 Construction . . . . . . . . . . 1,493 259 - - - 1,752 Installment/credit card . . . . . 8,597 1,107 825 23 - 10,552 Other . . . . . . . . . . . . . . 664 - - - - 664 ------- ----- ----- ----- --- ------ Total . . . . . . . . . . . $55,001 5,519 7,838 2,865 322 71,545 ======= ===== ===== ===== === ======
NONPERFORMING ASSETS Generally, interest on loans is accrued and credited to income based upon the principal balance outstanding. It is the Company's policy to discontinue the accrual of interest income and classify a loan as non-accrual when principal or interest is past due 90 days or more and the loan is not well secured and in the process of collection, or when, in the opinion of management, principal or interest is not likely to be paid in accordance with the terms of the obligation. The Company will generally charge-off loans after 180 days of delinquency unless adequately collateralized and in the process of collection. A loan is considered in the process of collection if, based on a probable specific event, management believes that the loan will be repaid or brought current within a reasonable period of time. Loans will not be returned to accrual status until future payments of principal and interest appear certain. Interest accrued and unpaid at the time a loan is placed on non-accrual status is charged against interest income. Subsequent payments received are applied to the outstanding principal balance. -28- 30 Real estate acquired by the Company as a result of foreclosure or in-substance foreclosure is classified as other real estate owned ("OREO"). Such loans are reclassified to OREO and recorded at the lower of cost or fair market value less estimated selling costs, and the estimated loss, if any, is charged to the allowance for loan losses at that time. Further allowances for losses are recorded as charges to other expenses at the time management believes additional deterioration in value has occurred. The following table sets forth certain information with respect to the Company's non-accrual loans, OREO, and accruing loans which are contractually past due 90 days or more as to principal or interest, for the periods indicated. NONPERFORMING ASSETS (DOLLARS IN THOUSANDS)
June 30, Year Ended December 31, ----------------- ------------------------------------------------------ 1996 1995 1994 1993 ----------------- ----------------- ----------------- ----------------- Non-accrual loans $934 8 628 322 Accruing past due 90+ days 0 300 0 0 ------ --- --- - Total nonperforming loans 934 308 628 322 Other real estate owned 185 193 0 0 ----- --- --- - Total nonperforming assets $1,119 501 628 322 ====== === === === Nonperforming to total assets 1.16% 0.49% 0.70% 0.37% ====== ==== ==== ====
The amount of interest on non-accrual loans which would have been recorded as income under the original terms of such loans was approximately $60,400 for the first six months of 1996, and approximately $1,000, $32,000 and $2,000 for the years ended 1995, 1994 and 1993, respectively. The amount of interest income recognized on non-accrual loans that was included in net income for the first six months of 1996 and for the year ended 1995 was approximately $24,300 and $3,500, respectively. Non-accrual loans as of June 30, 1996 consisted primarily of five secured real estate loans totaling $791,000, all of which were originated prior to 1993. As of October 15, 1996, one of these loans in the amount of $134,000 had been paid in full, two of the loans totaling $286,000 had been brought current or renewed on a secured basis, and two loans totaling $371,000 remained past due and on non-accrual status. One of the two non-accrual loans having a balance of $300,000 is secured by a first lien on a single family home that is under contract for sale, with settlement expected prior to December 31, 1996. Other real estate owned as of June 30, 1996 consisted of one property located in the District of Columbia, which the Company acquired through foreclosure of a loan that was originated prior to 1993. As of October 15, 1996, the property had been sold for cash and the Company had recovered the full balance carried on its books at June 30, 1996. In view of the fact that the recent increase in nonperforming assets is primarily attributable to loans originated prior to 1993, management of the Company does not view the increase in the ratio of nonperforming assets to total assets as an indication of declining asset quality for loans originated during the growth in the loan portfolio experienced during the past two years, or for the loan portfolio as a whole. ALLOWANCE FOR LOAN LOSSES In originating loans, the Company recognizes that credit losses will be experienced and the risk of loss will vary with, among other things, general economic conditions, the type of loan being made, the creditworthiness of the borrower over the term of the loan and, in the case of a collateralized loan, the quality of the collateral for such loan. The Company maintains an allowance for loan losses based upon, among other things, such factors as historical experience, the volume and type of lending conducted by the Company, the amount of nonperforming assets, regulatory policies, generally accepted accounting principles, general economic conditions, and other factors related to the collectibility of loans in the Company's portfolios. In addition to unallocated allowances, -29- 31 specific allowances are provided for individual loans when ultimate collection is considered questionable by management after reviewing the current status of loans which are contractually past due and considering the net realizable value of the collateral for the loan. Management actively monitors the Company's asset quality in a continuing effort to charge-off loans against the allowance for loan losses when appropriate and to provide specific loss allowances when necessary. Although management believes it uses the best information available to make determinations with respect to the allowance for loan losses, future adjustments may be necessary if economic conditions differ from the assumptions used in making the initial determinations. Based upon criteria consistently applied during the period 1993 to 1995, the Company's allowance for loan losses was $730,000 (or 1.29% of total loans) as of December 31, 1993, $740,000 (or 1.22% of total loans) as of December 31, 1994, and $740,000 (or 1.07% of total loans) as of December 31, 1995. As of June 30, 1996, the allowance for loan losses amounted to $830,000 (or 1.16% of total loans). The allowance for loan losses as a percentage of nonperforming loans decreased from 240% as of December 31, 1995 to 89% as of June 30, 1996, as a result of the increased level of nonperforming loans discussed above. -30- 32 The following table sets forth an analysis of the Company's allowance for loan losses for the periods indicated. ALLOWANCE FOR LOAN LOSSES (DOLLARS IN THOUSANDS) Six Months Ended June 30, Year Ended December 31, -------------- --------------------------------------------------- 1996 1995 1994 1993 -------------- -------------- -------------- -------------- Average loans outstanding $ 70,792 63,354 58,636 54,945 ============== ============== ============== ============== Loans outstanding at period-end 71,455 69,204 60,663 56,644 ============== ============== ============== ============== Total nonperforming loans 934 308 628 322 ============== ============== ============== ============== Beginning balance of allowance 740 740 730 744 Loans charged-off: 1-4 family residential mortgage 0 137 33 84 Home equity loans 0 0 61 0 Multifamily residential 0 0 0 0 Construction 0 0 0 0 Commercial real estate 0 0 0 0 Commercial loans 0 10 1 232 Installment & credit card loans 16 51 11 70 Other loans 0 0 0 1 -------------- -------------- -------------- -------------- Total loans charged-off: 16 198 106 387 Recoveries of previous charge-offs: 1-4 family residential mortgage 37 77 7 1 Home equity loans 0 0 14 0 Multifamily residential 0 0 0 0 Construction 0 0 0 0 Commercial real estate 0 0 0 0 Commercial loans 69 93 71 54 Installment & credit card loans 0 2 5 5 Other loans 0 0 0 3 -------------- -------------- -------------- -------------- Total recoveries 106 172 97 63 -------------- -------------- -------------- -------------- Net loans charged-off (recovered) (90) 26 9 324 Provisions for loan losses -- 26 19 310 -------------- -------------- -------------- -------------- Balance at period-end $ 830 740 740 730 ============== ============== ============== ============== Net charge-offs to average loans (0.25%) 0.04% 0.02% 0.59% Allowance as percent of total loans 1.16% 1.07% 1.22% 1.29% Nonperforming as % of total loans 1.31% 0.45% 1.04% 0.57% Allowance as % of nonperforming 89% 240% 118% 227%
-31- 33 Although the Company considers the composition of its loan portfolio, and the loss potential associated with different types of loans, in determining the level of the allowance, the Company does not formally allocate its allowance for loan losses by loan category. INVESTMENT ACTIVITIES The Company's investment portfolio increased significantly in 1993 as loan growth lagged behind deposit growth. In 1994, all of the branch deposits acquired by the Bank from the RTC were initially invested in U.S. Treasury and agency securities, pending anticipated deposit runoff and eventual redeployment of such deposits into the loan portfolio. The Company's investments of $10,499,000 as of June 30, 1996 consisted primarily of U.S. Treasury securities, federal agency obligations, and mortgage-backed securities. This represented a decline of $3,179,000 or 23% compared to December 31, 1995, as investment maturities were used to fund loan growth and cyclical deposit runoff. The following table sets forth the book value of the Company's investment portfolio as of the dates indicated. Investment securities held to maturity are stated at cost, adjusted for amortization of premium and accretion of discount. Investment securities available for sale are stated at market in accordance with SFAS No. 115, "Accounting For Certain Investments in Debt and Equity Securities," which was adopted by the Company in 1994. Investments classified as available for sale at December 31, 1993, prior to the adoption of SFAS No. 115, were considered held for sale and carried at the lower of cost or market value. INVESTMENT PORTFOLIO COMPOSITION (DOLLARS IN THOUSANDS)
June 30, Year Ended December 31, -------------- ------------------------------------------------------ 1996 1995 1994 1993 -------------- ----------------- ----------------- ----------------- Available for sale: U.S. Treasuries and agencies $ 6,965 9,968 18,323 14,866 Mortgage-backed securities 2,656 2,994 3,356 6,485 -------------- -------------- -------------- -------------- Total available for sale 9,621 12,962 21,679 21,351 Held to maturity: State, county and municipal 250 250 250 0 Other 628 467 532 527 -------------- -------------- -------------- -------------- Total held to maturity 878 717 782 527 -------------- -------------- -------------- -------------- Total investment securities $ 10,499 13,679 22,461 21,878 ============== ============== ============== ==============
-32- 34 The following table sets forth the maturity distribution and weighted average yield of the investment portfolio of the Company as of June 30, 1996. The calculation of the weighted average yields is based on yield, weighted by the respective book value of the securities, using cost basis in the case of securities available for sale. INVESTMENT PORTFOLIO--MATURITY AND YIELDS (DOLLARS IN THOUSANDS)
June 30, 1996 ------------------------------------------------------------------------ 1 Year 1 Year to 5 Years to After or Less 5 Years 10 Years 10 Years ----------------- ----------------- ----------------- ----------------- Maturity Distribution: U.S. Treasury securities $ 1,997 0 0 0 U.S. Government agencies 3,991 976 0 0 Mortgage-backed securities 0 0 0 2,657 State, county and municipal 85 165 0 0 Other 0 0 0 628 -------------- -------------- -------------- -------------- Total $ 6,073 1,141 0 3,285 ============== ============== ============== ============== Weighted Average Yield: U.S. Treasury securities 5.18% N/A N/A N/A U.S. Government agencies 5.53% 6.33% N/A N/A Mortgage-backed securities(1) N/A N/A N/A 6.33% State, county and municipal 3.92% 4.31% N/A N/A Fully taxable equivalent 6.03% 6.62% N/A N/A Other N/A N/A N/A 6.61%
- ----------------- (1) Mortgage-backed securities consist of floating rate debt securities that reprice quarterly or more frequently. DEPOSIT ACTIVITIES Deposits are attracted through the offering of a broad variety of deposit instruments, including checking accounts, money market accounts, NOW accounts, savings accounts, certificates of deposit (including "jumbo" certificates in denominations of $100,000 or more), and retirement savings plans. To stimulate deposit growth in 1995, the Company has introduced higher-rate deposit instruments, in the form of Investor Certificates of Deposits and the Premier Investment Account, designed to attract local institutional deposits in amounts of $100,000 or more. -33- 35 The Company's average balance of total deposits was $80,083,000 for the six months ended June 30, 1996, an increase of $205,000 or 0.3% compared with the average balance of total deposits of $79,878,000 for the year ended December 31, 1995. The average balance of total deposits of $79,878,000 for the year ended December 31, 1995, represented an increase of $3,707,000 or 4.9% compared with the average balance of total deposits of $76,171,000 for the year ended December 31, 1994, which represented an increase of $220,000 or 0.3% compared with the average balance of total deposits of $75,951,000 for the year ended December 31, 1993. The following table sets forth the average balances and weighted average rates for the Company's categories of deposits for the periods indicated. AVERAGE DEPOSITS (DOLLARS IN THOUSANDS)
Year Ended December 31, Six Months Ended --------------------------------------------------------------------------------- June 30, 1996 1995 1994 1993 ---------------------------- ------------------------- --------------------------- --------------------------- % of % of % of % of Average Average Total Average Average Total Average Average Total Average Average Total Balance Rate Deposits Balance Rate Deposit Balance Rate Deposit Balance Rate Deposits --------- ------- ---------- ------- -------- -------- -------- --------- -------- -------- -------- --------- Noninterest- $ 17,486 0.00% 21.83% 16,841 0.00% 21.08% 16,159 0.00% 21.21% 14,756 0.00% 19.44% bearing deposits Interest-bearing 13,086 1.96% 16.34% 12,230 2.11% 15.31% 11,926 2.08% 15.66% 11,995 2.18% 15.79% demand (NOW) deposits Savings deposits 2,286 2.62% 2.85% 2,526 2.65% 3.16% 2,564 2.59% 3.37% 2,137 2.80% 2.81% Money market 22,681 3.22% 28.32% 25,153 3.09% 31.49% 24,784 2.49% 32.54% 27,024 2.59% 35.58% deposits Time deposits 24,544 5.50% 30.65% 23,128 5.49% 21.08% 20,738 4.44% 27.22% 20,039 4.59% 26.38% --------- ---- ------ ------ ---- ------ ------ ---- ------ ------ ----- ------- Total $ 80,083 100.00 79,878 100.00% 76,171 100.00% 75,951 100.00% ========= ====== ====== ====== ====== ======= ====== ======= Weighted average rate 2.99% 2.43% 2.56% ==== ==== ==== ==== 2.97% ====
The Company seeks to rely primarily on core deposits from regular customers to provide a stable and cost-effective source of funding to support asset growth. From time to time, however, the Company has augmented such deposits with short-term advances from the Federal Home Loan Bank of Atlanta ("FHLBA") and/or the generation of high yielding certificates of deposit through advertising. The Company generally considers such funding sources to be temporary in nature and does not rely on such advances or deposits to support long-term asset growth. The Company's Asset/Liability Management Policy limits total brokered deposits to ten percent (10%) of the Bank's total liabilities. As of June 30, 1996, short-term FHLBA advances and brokered deposits represented $2,000,000 (2%) and $5,331,000 (6%), respectively, of the Company's total liabilities. As of June 30, 1996, non-brokered time deposits over $100,000 represented 9.2% of total deposits, compared with 8.7% of total deposits as of December 31, 1995, 9.4% as of December 31, 1994, and 10.6% as of December 31, 1993. As of June 30, 1996, total time deposits in excess of $100,000 accounted for $12,980,000 or 16% of the Company's total deposits. Of this amount, $6,569,000 had a term of six months or less. -34- 36 The following table sets forth the amount of the Company's certificates of deposit of $100,000 or more by time remaining until maturity as of June 30, 1996 and December 31, 1995. TIME DEPOSITS OF $100,000 OR MORE (DOLLARS IN THOUSANDS)
June 30, December 31, ------------------------- ------------------------- Maturity Period 1996 1995 --------------- ------------------------- ------------------------- Three months or less . . . . . . . . . . . . . . . . . . $ 5,021 5,405 Over three months through six months . . . . . . . . . . 1,548 2,320 Over six months through twelve months . . . . . . . . . . 4,891 2,142 Over twelve months . . . . . . . . . . . . . . . . . . . 1,520 3,141 ------------- ------------- Totals . . . . . . . . . . . . . . . . . . . . . . . $ 12,980 13,018 ============= =============
RETURN ON EQUITY AND ASSETS The following table sets forth the Company's performance ratios for the periods indicated. RETURN ON EQUITY AND ASSETS (DOLLARS IN THOUSANDS)
June 30, December 31, ---------------------- ----------------------------------------------------- 1996 1995 1994 1993 ---------------------- -------------------- ---------------- --------------- Return on average assets 0.67% 0.75% 0.71% 0.52% Return on average equity 9.28% 12.43% 12.21% 9.04% Period-end equity to total 7.06% 6.39% 5.41% 5.64%
assets LIQUIDITY The Company's Asset/Liability Management Policy is intended to maintain adequate liquidity for the Bank and thereby enhance its ability to raise funds to support asset growth, meet deposit withdrawals and lending needs, maintain reserve requirements and otherwise sustain operations. The Company accomplishes this primarily through management of the maturities of its interest-earning assets and interest-bearing liabilities. The Company believes that the Bank's present liquidity position is adequate to meet its current and future needs. Asset liquidity is provided by cash and assets which are readily marketable, or which can be pledged, or which will mature in the near future. The asset liquidity of the Bank is maintained in the form of short-term investment securities, demand deposits with commercial banks, vault cash and federal funds sold. The Company's management monitors liquidity requirements as warranted -35- 37 by interest rate trends, changes in the economy and the maturity schedule and interest rate sensitivity of the investment and loan portfolios and deposits. Liability liquidity is provided by access to core funding sources, principally various customers' interest- bearing and noninterest-bearing deposit accounts in the Company's market area. The Bank does have the ability to solicit brokered deposits. Federal funds purchased and short-term borrowings by the Bank are additional sources of liquidity. These sources of liquidity are short-term in nature and are used by the Bank as necessary to fund asset growth and meet short-term liquidity needs. As a member of the FHLBA, the Bank is authorized to borrow up to $13.3 million secured by a blanket pledge of its portfolio of 1-to-4-family residential mortgage loans. The Bank also has approved lines of credit from larger correspondent banks to borrow excess reserves on an overnight basis (known as "federal funds purchased") in the amount of $1.0 million and to borrow on a secured basis ("repurchase agreements") in the amount of $5.0 million. As of June 30, 1996, the Bank had no federal funds purchased or sold, no repurchase agreements, $2,000,000 in short-term borrowings from the FHLBA, and $2,800,000 in fixed-rate term credit advances from the FHLBA maturing in 2006 at an average cost of 6.90%. The Company utilizes fixed rate term credit advances from the FHLBA to fund fixed rate real estate loans of comparable terms and maturities. As of June 30, 1996, $11,824,000 or 73% of the Company's total investment portfolio, including interest bearing deposits held with other financial institutions, was scheduled to mature within one year. The remainder of the portfolio consists of $1,141,000 (7% of total portfolio) in U.S. Government, agency, and municipal securities that will mature within two and one half years, and $2,657,000 (16% of total portfolio) in federal agency mortgage pass-through securities and collateralized mortgage obligations with an estimated weighted average duration of approximately three years, and the Bank's required stock investment in the FHLBA and the Federal Reserve Bank of Richmond totaling $637,000. The unrealized gain contained in the held-to-maturity portion of the investment portfolio as of June 30, 1996 was less than $1,000. In the ordinary course of business, the Bank enters into commitments to make loans and fund letters of credit, and the Company is also a party to two operating leases with respect to its banking quarters. Details of these commitments may be found in the accompanying Notes to Consolidated Financial Statements. The Company had cash on hand in the amount of $53,747 as of June 30, 1996 at the holding company level. The Company anticipates using these funds, together with dividends received from the Bank, as working capital to pay normal operating expenses. As of June 30, 1996, the Company had no indebtedness outstanding at the holding company level. CAPITAL RESOURCES Total stockholders' equity as of June 30, 1996 was $6,820,308, an increase of $321,363 or 4.9% compared with stockholders' equity of $6,498,945 as of December 31, 1995. Net income for -36- 38 the six months ended June 30, 1996 of $308,990 was augmented by a $12,373 increase in the market value of investment securities available-for-sale, net of tax effect. Total stockholders' equity was $4,877,000 as of December 31, 1994, an increase of $6,000 or 0.1% compared with stockholders' equity of $4,871,000 as of December 31, 1993. The increase in total stockholders' equity as of December 31, 1994 was attributable to $591,000 of net income for 1994, offset by a $37,000 preferred stock dividend and a $545,000 decline in the market value of investment securities available-for-sale, net of tax effect. There are no regulatory capital requirements applicable to the Company, because it has total consolidated assets of less than $150 million. The Bank, however, is required to comply with capital standards promulgated by the OCC. The OCC has established certain minimum risk-based capital standards that apply to national banks. The following table sets forth the capital standards required by the OCC, as well as the capital ratios of the Bank as of the dates indicated: RISK-BASED CAPITAL RATIOS (DOLLARS IN THOUSANDS)
Regulatory Capital Ratios June 30, December 31, ------------------------- ----------- ---------------------------------- Adequately Well 1996 1995 1994 1993 Capitalized Capitalized ----------- ---------- ----------- ----------- ----------- ----------- Tier I risk-based capital . . . . . . . $ 6,525 6,134 5,085 4,890 Tier II risk-based capital . . . . . . 830 740 629 599 ----------- ---------- ----------- ----------- Total capital . . . . . . . . . . . . . 7,355 6,874 5,714 5,489 =========== ========== =========== =========== Risk-weighted assets . . . . . . . . . 70,734 66,050 50,259 47,835 =========== ========== =========== =========== Adjusted total assets . . . . . . . . . 89,065 89,789 88,594 93,350 =========== ========== =========== =========== Capital Ratios Tier I risk-based capital . . . . . 9.22% 9.29% 10.12% 10.22% 4.00% 6.00% Total risk-based capital . . . . . . 10.40% 10.41% 11.37% 11.48% 8.00% 10.00% Leverage ratio (Tier I risk-based capital to adjusted total assets) . . . . . . . . . . . . . 7.33% 6.83% 5.74% 5.24% 4.00% 5.00%
ACCOUNTING MATTERS In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," which will be effective for transactions occurring after December 31, 1996. This Statement requires that, after a transfer of financial assets, an entity recognize the financial and servicing assets it controls and the liabilities it has incurred, and -37- 39 derecognize financial assets when control has been surrendered. The transferor has surrendered control over financial assets only if such assets have been isolated from the transferor, the transferee obtains the right to pledge or exchange the transferred assets, and any agreement to repurchase the transferred assets can be satisfied by delivery of assets that are readily obtainable. Liabilities and derivatives incurred or obtained in exchange for transferred assets are initially measured at fair value. Servicing assets and other retained interests in the transferred assets are measured by allocating the carrying amount between the assets and the retained interests based on their relative fair values. It is management's belief that the adoption of this Statement will not have a material impact on the Company or its results of operations. IMPACT OF INFLATION, CHANGING PRICES AND MONETARY POLICIES The financial statements and related financial data concerning the Company presented herein have been prepared in accordance with generally accepted accounting principles, which require the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. The primary effect of inflation on the operations of the Company is reflected in increased operating costs. Unlike industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, changes in interest rates have a more significant effect on the performance of a financial institution than do the effects of changes in the general rate of inflation and changes in prices. Interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services. Interest rates are highly sensitive to many factors which are beyond the control of the Company, including the influence of domestic and foreign economic conditions and the monetary and fiscal policies of the United States government and federal agencies, particularly the Federal Reserve Board. The Federal Reserve Board implements national monetary policy such as seeking to curb inflation and combat recession by its open market operations in United States government securities, control of the discount rate applicable to borrowing by banks, and establishment of reserve requirements against bank deposits. The actions of the Federal Reserve Board in these areas influence the growth of bank loans, investments and deposits, and affect the interest rates charged on loans and paid on deposits. The nature, timing and impact of any future changes in federal monetary and fiscal policies on the Bank and its results of operations are not predictable. BUSINESS AND REGULATION GENERAL The Company is a registered bank holding company under the Bank Holding Company Act of 1956 ("BHCA"), and conducts its operations through Century National Bank, which it acquired in 1986. The Company was incorporated and organized in 1985. -38- 40 The Bank provides a full range of banking-related services through its main office located at 1875 Eye Street, N.W., Washington, D.C. and its branch office located at 1275 Pennsylvania Avenue, N.W. Effective January 1, 1996, the Company established a loan production office at 8201 Greensboro Drive in Tysons Corner, Virginia. The Company's principal offices are located at 1275 Pennsylvania Avenue, N.W., Washington, D.C. 20004. The Company's telephone number at its main office is (202) 496-4000. As of June 30, 1996, the Company had approximately 270 stockholders and total assets of $96,567,552, total deposits of $83,330,209 and stockholders' equity of $6,820,308. The Bank provides a broad line of financial products and services to small and medium sized businesses and consumers. Lending services are concentrated in professional, service, and commercial business sectors located in the metropolitan Washington, D.C. area. COMPETITION The Company is subject to vigorous competition in all aspects and areas of its business from banks and other financial institutions, including savings and loan associations, savings banks, finance companies, credit unions and other providers of financial services, such as money market mutual funds, brokerage firms, consumer finance companies and insurance companies. The Company also competes with non-financial institutions that maintain their own credit programs and governmental agencies that make available low cost or guaranteed loans to certain borrowers. The principal methods of competition include interest rates paid on deposits and charged on loans and the availability of other banking products and services. The Company competes in its market area with a number of much larger financial institutions that have substantially greater resources, including larger lending limits, larger branch systems and a wider array of commercial banking services. The Company has been able to compete effectively with other financial institutions by emphasizing customer services, establishing long-term customer relationships and building customer loyalty, and by providing products and services designed to address the specific needs of its customers. PERSONNEL At June 30, 1996, the Company employed 37 employees, including 29 employees at the Eye Street location, 7 employees at the Pennsylvania Avenue location and 1 employee at the Tysons Corner, Virginia location. LEGAL PROCEEDINGS The nature of the business of the Company causes it (and the Bank) to be involved in routine legal proceedings from time to time. Management of the Company believes that there are no pending or threatened legal proceedings that upon resolution would have a material adverse impact on the Company. -39- 41 SUPERVISION AND REGULATION In addition to the generally applicable state and federal laws governing business and employers, the Company and Bank are further regulated by special federal and state laws and regulations applicable only to financial institutions and their parent companies. Virtually all aspects of the operations of the Company and the Bank are subject to specific requirements or restrictions and general regulatory oversight, from laws regulating consumer finance transactions, such as the Truth in Lending Act, the Home Mortgage Disclosure Act and the Equal Credit Opportunity Act, to laws regulating collections and confidentiality, such as the Fair Debt Collections Practices Act, the Fair Credit Reporting Act and the Right to Financial Privacy Act. With few exceptions, state and federal banking laws have as their principal objective either the maintenance of the safety and soundness of financial institutions and the federal deposit insurance system or the protection of consumers or classes of consumers, rather than the specific protection of stockholders of the Company. The following discussion sets forth the material statutory and regulatory provisions governing the Company and the Bank. To the extent such discussion describes statutory or regulatory provisions, it is qualified in its entirety by reference to the particular statute or regulation. Regulation of the Company The Company is a bank holding company within the meaning of the BHCA, and therefore is subject to regulation, supervision and examination by the Federal Reserve Board. As such, the Company is required to file reports with and to furnish such other information as the Federal Reserve Board may require pursuant to the BHCA. The Federal Reserve Board has the authority to issue orders to bank holding companies to cease and desist from unsound banking practices and violations of conditions imposed by, or violations of agreements with, the Federal Reserve Board. The Federal Reserve Board is also empowered to assess civil money penalties against companies or individuals who violate the BHCA or orders or regulations thereunder, to order termination of non-banking activities of non-banking subsidiaries of bank holding companies, and to order termination of ownership and control of a non-banking subsidiary by a bank holding company. Certain violations may also result in criminal penalties. The OCC is authorized to exercise comparable authority with respect to the Bank. The Federal Reserve Board takes the position that a bank holding company is required to serve as a source of financial and managerial strength to its subsidiary banks and may not conduct its operations in an unsafe or unsound manner. In addition, it is the Federal Reserve Board's position that, in serving as a source of strength to its subsidiary banks, a bank holding company should stand ready to use available resources to provide adequate capital funds to its subsidiary banks during periods of financial stress or adversity and should maintain the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks. A bank holding company's failure to meet its obligations to serve as a source of strength to its subsidiary banks will generally be considered by the Federal Reserve Board to be an unsafe and unsound banking practice or a violation of the Federal Reserve Board regulations or both. This doctrine has become known -40- 42 as the "source of strength" doctrine. In addition, statutory changes in the Federal Deposit Insurance Act (the "FDIA") made by the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), now require the holding company parent of an undercapitalized bank to guarantee, up to certain limits, the bank's compliance with a capital restoration plan approved by the bank's primary federal supervisory agency. The BHCA and the Change in Bank Control Act, together with regulations promulgated by the Federal Reserve Board, require that, depending on the particular circumstances, either Federal Reserve Board approval must be obtained or notice must be furnished to the Federal Reserve Board and not disapproved prior to any person or company acquiring "control" of a bank holding company, such as the Company, subject to certain exemptions for certain transactions. Control is conclusively presumed to exist if an individual or company acquires 25% or more of any class of voting securities of the bank holding company. Control is rebuttably presumed to exist if a person acquires 10% or more but less than 25% of any class of voting securities and either the company has securities registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, or no other person will own a greater percentage of that class of voting securities immediately after the transaction. The regulations provide a procedure for challenge of the rebuttable control presumption. As a bank holding company, the Company is required to obtain prior approval to merge or consolidate with any other bank holding company, acquire all or substantially all of the assets of any bank or acquire ownership or control of shares of a bank or bank holding company if, after the acquisition, the Company would directly or indirectly own or control 5% or more of the voting shares of such bank or bank holding company. The Company is also prohibited from acquiring a direct or indirect interest in or control of more than 5% of the voting shares of any company that is not a bank or bank holding company and from engaging directly or indirectly in activities other than those of banking, managing or controlling banks or furnishing services to its subsidiary banks, except that it may engage in and may own shares of companies engaged in certain activities found by the Federal Reserve Board to be so closely related to banking or managing and controlling banks as to be a proper incident thereto. These activities include, among others, operating a mortgage, finance, credit card, or factoring company; performing certain data processing operations; providing investment and financial advice; acting as an insurance agent for certain types of credit-related insurance; leasing personal property on a full-payout, non-operating basis; and providing certain stock brokerage and investment advisory services. In approving acquisitions or the addition of activities, the Federal Reserve Board considers whether the acquisition or the additional activities can reasonably be expected to produce benefits to the public, such as greater convenience, increased competition, or gains in efficiency, that outweigh such possible adverse effects as undue concentration of resources, decreased or unfair competition, conflicts of interest or unsound banking practices. In considering any application for approval or an acquisition or merger, the Federal Reserve Board is also required to consider the financial and managerial resources of the companies and the banks concerned, as well as the applicant's record of compliance with the Community Reinvestment Act (the "CRA"). -41- 43 The BHCA generally imposes certain limitations on transactions by and between banks and non-bank companies in the same holding company structure, including limitations on extensions of credit (including guarantees of loans) by the Bank to affiliates, investments in the stock or other securities of the Company by the Bank, and the nature and amount of Company securities that the Bank may accept from any affiliate to secure loans extended to the affiliate. The Company, as an affiliate of the Bank, is also subject to these restrictions. Under the BHCA and the Federal Reserve Board's regulations, a bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit, lease or sale of property or furnishing of services. Regulation of the Bank The Bank is a national banking association and is therefore subject to regulation, supervision, and examination by the OCC. The Bank is also a member of the Federal Reserve System and the FDIC. Requirements and restrictions under the laws of the United States include the requirement that reserves be maintained against deposits, restrictions on the nature and the amount of loans which can be made, restrictions on the business activities in which a bank may engage, restrictions on the payment of dividends to stockholders, and minimum capital requirements. See "Risk Factors--Restrictions on Dividends by the Bank" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The OCC has enforcement authority over the Bank that is similar to that of the Federal Reserve Board with respect to the Company. In addition, upon making certain determinations with respect to the condition of any insured national bank, such as the Bank, the FDIC may begin to terminate a bank's federal deposit insurance. There are certain statutory limitations on the payment of dividends by national banks. Without approval of the OCC, dividends may not be paid in excess of a bank's total net profits for that year, plus its retained profits for the preceding two years, less any required transfers to capital surplus. However, a national bank may not pay dividends in excess of total retained profits, including current year's income. In some cases, the OCC may find a dividend payment that meets these statutory requirements to be an unsafe or unsound practice. Banks are affected by the credit policies of other monetary authorities, including the Federal Reserve Board, which affect the national supply of bank credit. Such policies influence overall growth of bank loans, investments, and deposits and may also affect interest rates charged on loans and paid on deposits. The monetary policies of the Federal Reserve Board have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future. FDICIA requires the OCC to take "prompt corrective action" with respect to any national bank which does not meet specified minimum capital requirements. The applicable regulations establish five capital levels, ranging from "well capitalized" to "critically undercapitalized," which require or permit the OCC to take supervisory action. Under these regulations, a national bank is -42- 44 considered well capitalized if it has a total risk-based capital ratio of 10.0% or greater, a Tier I risk-based capital ratio of 6.0% or greater, and a leverage ratio of 5.0% or greater, and it is not subject to an order, written agreement, capital directive, or prompt corrective action directive to meet and maintain a specific capital level for any capital measure. A national bank is considered adequately capitalized if it has a total risk-based capital ratio of 8.0% or greater, a Tier I risk-based capital ratio and leverage capital ratio of 4.0% or greater (or a leverage ratio of 3.0% or greater if the institution is rated composite 1 in its most recent report of examination, subject to appropriate federal banking agency guidelines), and the institution does not meet the definition of an undercapitalized institution. A national bank is considered undercapitalized if it has a total risk-based capital ratio that is less than 8.0%, a Tier I risk-based capital ratio that is less than 4.0%, or a leverage ratio that is less than 4.0%. A significantly undercapitalized institution is one which has a total risk-based capital ratio that is less than 6.0%, a Tier I risk-based capital ratio that is less than 3.0%, or a leverage ratio that is less than 3.0%. A critically undercapitalized institution is one which has a ratio of tangible equity to total assets that is equal to or less than 2.0%. As of June 30, 1996, the Bank was classified as "well-capitalized." The OCC is authorized by the legislation to take various enforcement actions against any undercapitalized national bank and any national bank that fails to submit an acceptable capital restoration plan or fails to implement a plan accepted by the OCC. These powers include, among other things, requiring the institution to be recapitalized, prohibiting asset growth, restricting interest rates paid, requiring prior approval of capital distributions by any bank holding company which controls the institution, requiring divestiture by the institution of its subsidiaries or by the holding company of the institution itself, requiring new election of directors, and requiring the dismissal of directors and officers. With certain exceptions, national banks will be prohibited from making capital distributions or paying management fees if the payment of such distributions or fees will cause them to become undercapitalized. Furthermore, undercapitalized national banks will be required to file capital restoration plans with the OCC. Undercapitalized national banks also will be subject to restrictions on growth, acquisitions, branching and engaging in new lines of business unless they have an approved capital plan that permits otherwise. The OCC also may, among other things, require an undercapitalized national bank to issue shares or obligations, which could be voting stock, to recapitalize the institution or, under certain circumstances, to divest itself of any subsidiary. Significantly and critically undercapitalized national banks may be subject to more extensive control and supervision. The OCC may prohibit any such institutions from, among other things, entering into any material transaction not in the ordinary course of business, amending their charter or bylaws, or engaging in certain transactions with affiliates. In addition, critically undercapitalized institutions generally will be prohibited from making payments of principal or interest on outstanding subordinated debt. Within 90 days of a national bank becoming critically undercapitalized, the OCC must appoint a receiver or conservator unless certain findings are made with respect to the prospect for the institution's continued viability. -43- 45 Current Regulatory Issues The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 ("Interstate Banking Act") authorizes the Federal Reserve Board to permit adequately capitalized and adequately managed bank holding companies to acquire all or substantially all of the assets of an out-of-state bank after September 29, 1995, subject to deposit concentration limits, state law limits on the time period a target bank must be in existence and consideration of the acquiring bank's compliance with Federal and state community reinvestment laws. Thus, nationwide interstate banking became effective on September 29, 1995. The Interstate Banking Act also authorizes banking subsidiaries of bank holding companies to act as agent for depository institution affiliates in other states when receiving deposits, renewing time deposits, closing loans, servicing loans, or receiving payments on loans and other obligations; and the Interstate Banking Act expressly states that banks acting in an agency capacity are not branches. With respect to interstate branching by multi-state bank holding companies, states have two options -- for the period from September 29, 1994 through June 1, 1997, states may enact legislation that either prohibits interstate merger transactions involving out-of-state banks ("opt-out") or permits interstate merger transactions prior to June 1, 1997 ("opt-in"), so long as the law applies equally to all out-of-state banks. The Interstate Banking Act also contained provisions addressing branch retention in interstate merger transactions and de novo branching by out-of-state banks. Maryland, Virginia, and the District of Columbia have each adopted "opt-in" provisions permitting de novo branching prior to June 1, 1997. In addition, there are several pieces of legislation relevant to the banking industry that were recently enacted into law. On August 20, 1996, President Clinton signed the Small Business Job Protection Act (the "Jobs Act"). The Jobs Act contained several provisions that affect the banking industry. First, the most significant part of the Jobs Act removed the prohibition against banks, savings and loans and bank holding companies electing to be treated as S corporations. This change is effective for tax years beginning after December 31, 1996. Second, the Jobs Act gave qualifying savings associations a tax break when they change their method of accounting for bad debt reserves. This change will save the thrift industry approximately $3,000,000,000 in tax liability and will facilitate the conversion of savings associations into banks. Finally, the Jobs Act increased the IRA deduction from $250 to $2,000 per year for a spouse that does not work outside the home, subject to income eligibility limits. On September 30, 1996, President Clinton signed the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (the "Growth Act"), which contained a comprehensive approach to recapitalize the FDIC's Savings Association Insurance Fund and to assure payment of the Financing Corporation ("FICO") obligations. Most of the Bank's deposits are insured by the FDIC's Bank Insurance Fund ("BIF"). Under the Growth Act, banks insured under the BIF are required to pay a portion of the interest due on bonds that were issued by FICO to help shore up the ailing Federal Savings and Loan Insurance Corporation in 1987. The amount of FICO debt service to be paid by all BIF-insured institutions is approximately $322,000,000 per year from 1997 until the year 2000 when the obligation of BIF-insured institutions increases to approximately $585,000,000 per -44- 46 year through the year 2025. The Bank's portion of this amount has not yet been determined. The Growth Act also contained provisions protecting banks from liability for environmental clean-up costs; prohibiting credit unions sponsored by Farm Credit System banks; easing application requirements for most bank holding companies when they acquire a thrift or a permissible nonbank operation; easing Fair Credit Reporting Act restrictions between bank holding company affiliates; and reducing regulatory burden under the Real Estate Settlement Procedures Act, the Truth-in-Savings Act, the Truth-in-Lending Act, and the Home Mortgage Disclosure Act. In 1994 the Bank acquired the deposits of a savings and loan branch. These so-called "Oakar deposits" are insured under the FDIC's Savings Association Insurance Fund ("SAIF"). Pursuant to a rule promulgated by the FDIC on October 8, 1996, all institutions holding SAIF insured deposits will be charged a one-time special assessment of 65.7 cents per $100 of SAIF insured deposits. This special assessment will be collected on November 27, 1996. The FDIC has also promulgated a proposed rule regarding the amount of premiums payable as of January 1, 1997 by institutions holding SAIF-insured deposits. Under the proposed rule, which is subject to final comments and could change, institutions will be assessed with respect to SAIF-insured deposits anywhere from zero for most safe and sound institutions to 27 cents per $100 of deposits for the least safe and sound institutions. See Note 2 of Condensed Notes to Consolidated Financial Statements. EFFECT OF ECONOMIC ENVIRONMENT The policies of regulatory authorities, including the monetary policy of the Federal Reserve Board, have a significant effect on the operating results of bank holding companies and their subsidiaries. Among the means available to the Federal Reserve Board to affect the money supply are open market operations in U.S. Government securities, changes in the discount rate on member bank borrowings, and changes in reserve requirements against member bank deposits. These means are used in varying combinations to influence overall growth and distribution of bank loans, investment and deposits, and their use may affect interest rates charged on loans or paid for deposits. Federal Reserve Board monetary policies have materially affected the operating results of commercial banks in the past and are expected to continue to do so in the future. The nature of future monetary policies and the effect of such policies on the business and income of the Company and the Bank cannot be predicted. -45- 47 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY AND THE BANK Directors and Executive Officers of the Company The directors and executive officers of the Company, all of whom are elected annually, are as follows:
Name Age Position(s) with the Company ---- --- ---------------------------- Mr. Joseph S. Bracewell 49 Chairman of the Board, President and Chief Executive Officer Dr. George Contis 63 Director Mr. John R. Cope 54 Director, Vice President and General Counsel Mr. Bernard J. Cravath 65 Director and Assistant Secretary Mr. Neal R. Gross 53 Director Mr. Joseph H. Koonz, Jr. 61 Director Mr. William McKee 52 Director Mr. William C. Oldaker 55 Director and Secretary
Mr. Joseph S. Bracewell has been Chairman of the Board, President and Chief Executive Officer of the Company and Chairman of the Board of the Bank since 1985. Mr. Bracewell has also served as Chief Executive Officer of the Bank since 1982 and as President of the Bank from 1982-1988 and since August 15, 1996. Mr. Bracewell serves on the Executive Loan Committee, the Asset/Liability Committee, the Personnel Committee and the Marketing Committee. Mr. Bracewell also serves on the Board of Directors of First University Corporation, a bank holding company located in Houston, Texas. Dr. George Contis was elected as a director of the Company in November, 1995. Dr. Contis has served as a member of the Board of Directors of the Bank since 1988 and is currently Chairman of the Bank's Executive Loan Committee and Legal Matters Review Committee. Dr. Contis is a physician and the President of Medical Services Corporation International, an international contract provider of medical services. Mr. John R. Cope has served as a director and Vice President of the Company since 1985. Since 1982, Mr. Cope has served on the Board of Directors of the Bank, and he has served as Vice Chairman of the Board of the Bank since 1985. In addition, Mr. Cope serves as General Counsel to the Company and the Bank. Mr. Cope is a partner with the law firm of Bracewell & Patterson, L.L.P., who from time to time provides legal services to the Company and the Bank. -46- 48 Mr. Bernard J. Cravath has served as a director of the Company since 1987. In addition, Mr. Cravath is Chairman of the Audit Committee and serves as a member of the Asset/Liability Committee. Mr. Cravath is president of Reality Properties, Inc., a real estate investment firm. Mr. Neal R. Gross was elected as a Director of the Company in October 1995. Mr. Gross has served as a member of the Board of Directors of the Bank since 1992 and is a member of the Bank's Audit Committee. Mr. Gross serves as Chairman of the Board and Chief Executive Officer of Neal R. Gross and Co., Inc., a corporation providing court reporting services to attorneys, law firms, the federal government, and other private organizations and individuals. Mr. Joseph H. Koonz, Jr. has served as a director of the Company since 1985. Mr. Koonz is a senior partner of the law firm of Koonz, McKenney, Johnson & Regan. Mr. William McKee has served as a director of the Company since 1992. Mr. McKee is a partner with the law firm of King & Spalding in Washington, D.C. Mr. William C. Oldaker has served the Company as a director since 1986. In 1992, Mr. Oldaker was elected as Secretary. Since 1984, Mr. Oldaker has served on the Board of Directors of the Bank. Mr. Oldaker also serves as Chairman of the Personnel Committee. Mr. Oldaker is a partner with the Washington, D.C. law firm of Oldaker, Ryan, Phillips & Utrecht. Directors and Executive Officers of the Bank The directors and executive officers of the Bank, all of whom are elected annually, are as follows:
Name Age Position ---- --- -------- Mr. Joseph S. Bracewell 49 Chairman of the Board, President and Chief Executive Officer Hon. Iraline Barnes 49 Director Mr. George Connors 37 Senior Vice President Dr. George Contis 63 Director Mr. John R. Cope 54 Vice Chairman of the Board and General Counsel Mr. Marvin Fabrikant 51 Director Mr. Neal R. Gross 53 Director Mr. Thomas B. Hoppin 57 Director Mr. Robert W. Hutchins 50 Executive Vice President Mr. Roger C. Johnson 44 Director Dr. Michael E. Kossak 49 Director Mr. William C. Oldaker 55 Director and Secretary Ms. Ellen B. Safir 52 Director Ms. Linda W. Townsend 49 Senior Vice President
-47- 49 Hon. Iraline Barnes has served as a director of the Bank since January 1994 and is a member of the Bank's Executive Loan Committee. Ms. Barnes is a former Judge of the D.C. Superior Court and currently serves as the Vice President of Corporate Relations for Potomac Electric Power Co. Mr. George Connors has served as Senior Vice President of the Bank since July 8, 1996. He has been employed by the Bank since 1990 where he has been involved principally in the generation and maintenance of commercial loan and deposit relationships. Mr. Marvin Fabrikant has served as a director of the Bank since 1994 and is a member of the Bank's Executive Loan Committee. Mr. Fabrikant has been engaged in private investments since 1991. Mr. Thomas B. Hoppin has served as a member of the Board of Directors of the Bank since 1988. Mr. Hoppin also served as the President and Chief Operating Officer of the Bank from 1988 through August 14, 1996. Mr. Hoppin also serves as a member of the Bank's Executive Loan Committee, Asset/Liability Committee, and Legal Matters Review Committee. Mr. Hoppin is Executive Vice President of Medical Services Corporation International. Mr. Robert W. Hutchins has served as Executive Vice President of the Bank since 1989. Mr. Hutchins has served as Chief Lending Officer of the Bank since 1990. Mr. Hutchins also serves as a member of the Bank's Executive Loan Committee and Asset/Liability Committee, and has been the Virginia Division Manager since January 1996. Mr. Roger C. Johnson has served as a director of the Bank since 1987. Mr. Johnson also serves as Chairman of the Legal Matters Committee and is a member of the Personnel Committee. Mr. Johnson is a senior partner with the law firm of Koonz, McKenney, Johnson & Regan. Dr. Michael E. Kossak has served as a director of the Bank since 1987. Dr. Kossak also serves as a member of the Audit Committee as well as the Marketing Committee. Dr. Kossak is a periodontist. Ms. Ellen B. Safir has served the Company as a director since 1994. Ms. Safir also serves a member of the Company's Asset/Liability Committee. Since 1986, Ms. Safir has been affiliated with the Howard Hughes Medical Institute, and presently serves as the Institute's Managing Director of Investments. Ms. Linda W. Townsend has been a Senior Vice President of the Bank since August, 1996. She also served as an officer of the Bank from 1984-1990. Prior to her rejoining the Bank, from 1991-1994, Ms. Townsend served as Senior Vice President at Tysons National Bank, where she managed operations, retail, accounting and human resources. From 1995-1996, Ms. Townsend served as a business analyst for the banking services division of a financial services group. -48- 50 EXECUTIVE COMPENSATION Executive Officer Compensation The following table sets forth information regarding the compensation for the Company's Chief Executive Officer and each other executive officer who received compensation in excess of $100,000 for the year ended December 31, 1995: SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation -------------------------------- ------------------------- Name and Principal Other Annual Securities Underlying Position Year Salary Bonus Compensation Options - ----------------------- ---- -------- ----- ------------ ------------------------- Mr. Joseph S. Bracewell 1995 $182,300 $ 11,841 -0- 1,605 President and Chief Executive Officer of the Company; Chief Executive Officer of the Bank Mr. Thomas B. Hoppin 1995 $117,200 10,643 -0- 1,605 President and Chief Operating Officer of the Bank(1) - ------------------ (1) Mr. Hoppin resigned as President and Chief Operating Officer of the Bank on August 14, 1996.
Except as set forth herein, none of the named executive officers received any other annual compensation, stock options, restricted stock awards, stock appreciation rights, long term incentive plan payouts or any perquisites or other personal benefits, securities or property that exceeded the lesser of $50,000 or 10% of the total annual salary and bonus for such named executive officer during the fiscal year ended December 31, 1995. Director Compensation Each member of the Board of Directors of the Company and/or the Bank receives a retainer of $4,200 annually ($6,000 for those directors serving on the Boards of both the Company and the Bank) provided the director attends at least two-thirds of the meetings of the Board of Directors. No additional compensation is paid for service on standing committees. Directors are permitted to defer cash fees in lieu of a deferred compensation plan to provide retirement income, as described below. The Company has entered into Director Compensation Agreements (the "Compensation Agreements"), with the directors of the Company and the Bank, other than Mr. Fabrikant. Each director may elect to enter into a Compensation Agreement in lieu of receiving director's fees in cash. The Compensation Agreements generally provide for the purchase of life insurance for each director with the deferred director's fees and the payment of a retirement benefit for 180 months -49- 51 following retirement, or in the case of an individual's death prior to retirement, the payment of an amount for a period of months, generally 120-180 months following a director's death. The retirement benefit granted under the Compensation Agreement vests pursuant to a schedule, with 20% of the pension benefit vesting each year over a five year period. Prior Stock Option Plans In 1986, the Board of Directors of the Company approved an Incentive Stock Option Plan for Key Employees, a Nonqualified Stock Option Plan for Key Employees and a Nonqualified Stock Option Plan for Directors (collectively referred to herein as the "1986 Plans"). The purpose of each of the plans was to encourage ownership of the Company's Common Stock by key employees and directors of the Company and its subsidiaries. A total of 130,000 shares of Common Stock were reserved under the 1986 Plans. Under the 1986 Plans, the exercise price of any option granted could not be less than the fair market value of the Common Stock subject to the option on the date the option was granted. All of the 1986 Plans were administered by various "option" committees of the Board of Directors of the Company. The 1986 Plans expired during 1992 and 1993; however, many of the options granted under the 1986 Plan are still exercisable by the optionee. In April 1994, the 1986 Plans were replaced by the Company's 1994 Stock Option Plan described below. 1994 Stock Option Plan The Company has reserved 150,000 shares of its Common Stock for the issuance of incentive stock options and nonqualified stock options to directors and key employees under the Century Bancshares, Inc. 1994 Stock Option Plan (the "1994 Plan"). The Board of Directors approved the 1994 Plan in April 1994 and it was approved by the Company's stockholders in May 1994. The 1994 Plan provides for the issuance of stock options covering up to 150,000 shares of Common Stock. The 1994 Plan is administered by the Company's Compensation Committee and provides that the options granted under the 1994 Plan may be either incentive stock options pursuant to Section 422A of the Internal Revenue Code of 1986, as amended, or nonqualified options. Directors and certain key employees are entitled to participate under the 1994 Plan. Options granted under the 1994 Plan will terminate (i) ten years after the date the option was granted, unless the option was granted for a shorter period, (ii) five years from the date of grant in the case of an incentive stock option granted to a 10% or more stockholder of the Company, (iii) three months after the date on which employment with the Company was terminated, or (iv) one year after the death or disability of an optionee. Options granted under the 1994 Option Plan are not transferable by the optionee, other than by will or the laws of descent and distribution. As of September 30, 1996, options to purchase 168,207 shares of Common Stock at exercise prices ranging from $1.61 to $6.00 were outstanding (including 56,285 options issued pursuant to the Company's 1986 Plans). There are 53,967 shares of Common Stock available for future grants under the 1994 Plan. -50- 52 Options Granted to Certain Executives in Last Fiscal Year During the fiscal year ended December 31, 1995, the Company granted the following options to purchase the Company's Common Stock to the executive officers of the Company and the Bank listed in the Summary Compensation Table. OPTION/SAR GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF NUMBER OF PERCENT OF TOTAL STOCK PRICE SECURITIES OPTIONS/SARS APPRECIATION FOR UNDERLYING GRANTED TO PER SHARE OPTION TERM OPTIONS/ SARS EMPLOYEES IN EXERCISE EXPIRATION ------------ NAME GRANTED(1) 1995 PRICE(1) DATE 5% 10% ---- ---------- ---- -------- ---- -- --- Joseph S. Bracewell 1,605 4.6% $5.37 May 17, 2002 $3,509 $8,177 Thomas B. Hoppin 1,605 4.6% $5.37 May 17, 2002 3,509 $8,177 (1) Adjusted to give effect to a 7% stock dividend declared in March 1996.
Options Exercised During Last Fiscal Year During the fiscal year ended December 31, 1995, no options were exercised by executive officers of the Company. -51- 53 EMPLOYMENT AGREEMENTS The Company and Mr. Bracewell have entered into an Employment Agreement which became effective on September 1, 1996 and will terminate on August 31, 1998 unless renewed by the parties on written notice. Under the Employment Agreement, Mr. Bracewell receives an annual salary of $182,300, the use of a Company car, the payment by the Company of life insurance premiums, and certain country club dues. Upon termination of Mr. Bracewell's employment during the term of the Employment Agreement (except by reason of his death or upon termination by the Company for cause), Mr. Bracewell would be entitled to receive a payment in an amount equal to twice his annual salary and all his stock options will automatically vest. If Mr. Bracewell elects not to renew the Employment Agreement upon its expiration, the Employment Agreement provides for a severance payment in the amount of his annual salary. In the event of a change of control, all of Mr. Bracewell's stock options automatically vest. Under the Employment Agreement, a "change of control" means (i) the acquisition by any person or group of persons of beneficial ownership of securities representing more than fifty percent (50%) of the combined voting power of the then outstanding voting securities of the Company or the Bank, (ii) a reorganization with respect to which those persons who had been beneficial owners of the voting securities of either the Bank or the Company immediately prior to such reorganization do not, following such reorganization, beneficially own shares representing more than 50% of the combined voting power of the voting securities of the resulting corporation, (iii) a sale of substantially all the assets of the Bank or Company, (iv) the cessation for any reason of the individuals who constituted the Board of Directors of the Company on the date of the agreement (the "Incumbent Board"), to constitute at least a majority of the Incumbent Board, provided that any person becoming a director subsequent to the date of the agreement whose election or whose nominations for election by the Company's stockholders was approved by a majority vote of the directors comprising the Incumbent Board are, for purposes of the agreement, considered as though he or she were a member of the Incumbent Board, or (v) a change in the Company's status requiring prior notice to the Board of Governors of the Federal Reserve System and/or the OCC pursuant to the Change in Bank Control Act of 1978 and regulations promulgated thereunder. Mr. Bracewell has agreed not to compete with the Company for the term of the Employment Agreement and for 12 months thereafter. CERTAIN TRANSACTIONS The Bank has and expects to have various loan transactions with directors, officers and employees of the Company and the Bank. All loans that have been made and any loans in the future will be made in the ordinary course of business and on the same terms and conditions, including interest rates and collateral, as those of comparable transactions prevailing at the time with non-affiliated parties and, in the opinion of management do not and will not involve more than the normal risk of collectability or otherwise present other terms less favorable to the Bank than would otherwise be obtained with unrelated persons. -52- 54 SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS The following table sets forth, as of September 30, 1996, the shares of Common Stock beneficially owned by (i) any person who, to the knowledge of the Company, beneficially owns more than 5% of such stock, (ii) the directors of the Company and the executive officers of the Company and the Bank and (iii) all directors of the Company and executive officers of the Company and the Bank as a group. Name and Address of Beneficial Owner Number of Shares(1) Percent of Class - -------------------- ------------------- ---------------- Joseph S. Bracewell 139,398(2) 10.82% 1875 Eye Street, N.W. Washington, D.C. 20004 George Contis 56,462(3) 4.99% 1716 Wilson Boulevard Arlington, Virginia 22209 John R. Cope 35,123(4) 3.11% 2000 K Street, N.W. Suite 500 Washington, D.C. 20006 Bernard J. Cravath 70,741(5) 6.20% 9812 Falls Road, Suite 201 Potomac, Maryland 20854 Neal R. Gross 106,622(6) 9.43% 1323 Rhode Island Ave., N.W. Washington, D.C. 20005 Thomas B. Hoppin 25,810(7) 2.27% 1875 Eye Street, N.W. Washington, D.C. 20004 Robert W. Hutchins 18,058(8) 1.59% 1875 Eye Street, N.W. Washington, D.C. 20004 Joseph H. Koonz, Jr. 67,760(9) 5.99% 2020 K. Street, N.W. Washington, D.C. 20006 -53- 55 William S. McKee 60,637(10) 5.34% 1730 Pennsylvania Ave., N.W. Washington, D.C. 20006 William C. Oldaker 66,780(11) 5.83% 818 Connecticut Ave., N.W. Suite 1100 Washington, D.C. 20006 All directors of the Company and 647,391 55.57% executive officers of the Company and the Bank as a group (10 persons) - ------------------------- (1) Unless otherwise indicated, the Company believes that all persons named in the table have sole investment and voting power over the shares of Common Stock and/or Preferred Stock owned. (2) Includes 25,416 shares held directly by Mr. Bracewell, 3,288 shares held by his children, 20,957 shares held as Trustee, 34,205 shares held for the benefit of Mr. Bracewell in the 401(k) plan maintained by the Bank and 6,441 shares of Common Stock held by Mr. Bracewell in individual retirement accounts. Also includes 24,975 shares of Common Stock issuable upon exercise of options which are exercisable within the next sixty days and 24,116 shares issuable on the exercise of Warrants. (3) Includes 7,089 shares of Common Stock issuable upon exercise of currently exercisable options and 697 shares issuable on the exercise of Warrants. (4) Includes 6,209 shares of Common Stock issuable upon exercise of currently exercisable options and 279 shares issuable on the exercise of Warrants. Also includes 784 shares of Common Stock held by Mr. Cope's wife, Jan Naylor Cope; 5,521 shares of Common Stock held by The Lloyd Chapman Cope Family Trust; 2,315 shares of Common Stock held by the Lloyd Chapman Cope Trust and 261 shares of Common Stock held by John Cope, as Trustee for the Lloyd Chapman Cope Family Trust. (5) Includes 1,237 shares of Common Stock held by Mr. Cravath's wife, Jeanne Cravath. Also includes 7,894 shares of Common Stock issuable upon exercise of currently exercisable options and 8,694 shares issuable on the exercise of Warrants. (6) Includes 6,718 shares of Common Stock issuable upon exercise of currently exercisable options. (7) Includes 15,221 shares of Common Stock issuable upon exercise of currently exercisable options and 3,375 shares issuable on the exercise of Warrants. (8) Includes 9,663 shares of Common Stock issuable upon exercise of currently exercisable options and 8,395 shares of Common Stock held for the benefit of Mr. Hutchins in the 401(k) plan maintained by the Bank. (9) Includes 7,894 shares of Common Stock issuable upon exercise of currently exercisable options. Includes 59,866 shares of Common Stock held as joint tenants with Ann G. Koonz. (10) Includes 7,894 shares of Common Stock issuable upon exercise of currently exercisable options and 4,194 shares issuable on the exercise of Warrants. (11) Includes 7,894 shares of Common Stock issuable upon exercise of currently exercisable options and 14,469 shares issuable on the exercise of the Warrants. Also includes 10,586 shares of Common Stock held in individual retirement accounts for Mr. Oldaker's benefit. -54- 56 DESCRIPTION OF CAPITAL STOCK The authorized capital stock of the Company consists of 2,000,000 shares of Common Stock, par value $1.00 per share, and 1,000,000 shares of preferred stock, par value $1.00 per share, issuable in series. The terms of each series of preferred stock may be fixed by the Board of Directors of the Company, within certain limits set by the Company's Certificate of Incorporation, as amended. As of June 30, 1996, there were 1,123,685 shares of Common Stock outstanding, and no shares of preferred stock outstanding. COMMON STOCK Each holder of Common Stock is entitled to one vote for each share held on all matters with respect to which the holders of Common Stock are entitled to vote. The Common Stock has no preemptive or conversion rights and is not subject to redemption. Holders of Common Stock are not entitled to cumulative voting in the election of directors. In the event of dissolution or liquidation, after payment of all creditors the holders of the Common Stock (subject to the prior rights of the holders of any outstanding preferred stock) will be entitled to receive pro rata any assets distributable to stockholders in respect of the number of shares held by them. The holders of shares of Common Stock are entitled to such dividends as the Board of Directors, in its discretion, may declare out of funds legally available therefor. Under the Delaware General Corporation Law, dividends may not be paid if, after the payment, the Company's total assets would be less than the sum of its total debts and stated capital, or if the Company would be unable to pay its debts as they become due in the usual course of its business. The Company has not paid dividends on shares of its Common Stock to date. The Company does not anticipate paying dividends on the Common Stock in the foreseeable future. The payment of dividends on Common Stock is subject to the prior rights of the holders of preferred stock. Payment of future dividends on both the Common Stock and any preferred stock, will be dependent upon, among other things, the earnings and financial condition of the Company and the Bank, the Company's other cash flow requirements and the general economic and regulatory climate. See "Dividend Policy of the Company" and "Risk Factors--Restrictions on Dividends by the Bank," and "Business and Regulation." The Transfer Agent and Registrar for the Common Stock is Chase Mellon Shareholder Services, Inc. THE WARRANTS The following discussion of the principal terms of the Warrants is qualified in its entirety by reference to the form of Warrant which has been filed as an exhibit to this Registration Statement. -55- 57 The Warrants are in registered form, with each such Warrant entitling the registered owner thereof to purchase one share of Common Stock at an exercise price of $5.75 per share, subject to antidilutive adjustments. The Warrants will automatically expire at 5:00 p.m., Washington D.C. time, on November 16, 1998 (the "Expiration Date"). The Warrants are exercisable after November 14, 1996 at any time by surrendering the Warrants, with the subscription form properly completed and duly executed, to the Company together with the payment of the applicable exercise price in lawful money of the United States of America, in cash or by certified check or bank draft payable to the order of the Company. The Company has the option, on and after November 14, 1997 and prior to 5:00 p.m. Washington, D.C. time on the Expiration Date to repurchase the Warrants at a price equal to $.26 per Warrant (the "Warrant Call Price"). The Company may exercise its right to repurchase the Warrants by mailing notice of its election to do so to the record holder of the Warrant at least 30, but no more than 50, days prior to the date fixed for such repurchase (the "Warrant Call Date"). Each such notice shall specify (i) the Warrant Call Date, (ii) the Warrant Call Price, (iii) the place for payment and for delivering this Warrant certificate and transfer instrument(s) in order to receive the Warrant Call Price, (iv) the number of Warrants to be repurchased, and (v) the then effective exercise price and that the right of the holder of this Warrant to exercise such Warrants shall terminate as to the Warrants specified in the Warrant Call Notice at the close of business on the Warrant Call Date (provided that no default by the Company in the payment of the applicable Warrant Call Price shall have occurred and be continuing on the Warrant Call Date). Any notice mailed in such manner shall be conclusively deemed to have been duly given regardless of whether such notice is in fact received. If less than all of the outstanding Warrants are to be repurchased, then the Company will select the Warrants to be repurchased on a pro rata basis, by lot or by another equitable method. In order to facilitate the repurchase of the Warrants, the Board of Directors of the Company may fix a record date for determination of holders of Warrants to be called, which shall not be more than 60 days prior to the Warrant Call Date with respect thereto. If no record date is fixed by the Board of Directors, the record date shall be the date the Warrant Call Notice is mailed. Provision is made in the Warrants for adjustment of the price and number of shares of Common Stock purchasable upon exercise of the Warrant in the event of a stock dividend, stock split, or reclassification of shares, and certain reorganizations, consolidations and mergers. Holders of the Warrants as such will not have voting, dividend or other rights as stockholders of the Company unless and until their Warrants have been duly exercised. PREFERRED STOCK The preferred stock is available for issuance from time to time for various purposes as determined by the Company's Board of Directors, including without limitation, making future acquisitions and raising additional equity capital. Subject to certain limitations set forth in the Company's Certificate of Incorporation, as amended, the preferred stock may be issued on such terms and conditions, and at such times and in such situations, as the Board of Directors in its sole -56- 58 discretion determines to be appropriate, without any further approval or action by the stockholders, unless otherwise required by laws, rules, regulations or agreements applicable to the Company. Because the Certificate of Incorporation of the Company does not prescribe rights and preferences, the Board of Directors of the Company has virtually unlimited authority to set rights and preferences of any series established, including voting rights. The effects of the issuance of preferred stock on the stockholders could include, among other things, (i) reduction of the amount otherwise available for payments of dividends on Common Stock if dividends are payable on a series of preferred stock; (ii) restrictions on dividends on Common Stock if dividends on the series of preferred stock are in arrears, (iii) dilution of the equity interest of holders of Common Stock if the series of preferred stock is convertible, and is converted, into Common Stock; and (iv) restrictions on the rights of holders of Common Stock to share in the Company's assets upon liquidation until satisfaction of any liquidation preference granted to the holders of the series of preferred stock. ANTI-TAKEOVER PROTECTIONS As described above, the Company's Certificate of Incorporation permits the issuance of preferred stock in series by action of the Board of Directors. Although the Company has no plans to utilize the issuance of shares of preferred stock as a deterrent to possible takeover attempts, the power to issue shares of preferred stock in series and to determine certain rights and preferences with respect to each such series may have dilutive effect on the value of shares of Common Stock and other ownership rights of the holders of Common Stock, and may have the effect of discouraging attempts to acquire control of the Company. The Company's Certificate of Incorporation and Bylaws contain certain provisions, in addition to the authority to issue preferred stock in series, which may have the effect of delaying or preventing a change in control of the Company. The Company's Certificate of Incorporation contains provisions which prohibit stockholder action by written consent and which require certain extraordinary corporate transactions, including amendment to the Certificate of Incorporation, to be approved by the vote of the holders of two-thirds of the outstanding shares of capital stock entitled to vote thereon, rather than a majority. The effect of these provisions, when coupled with existing statutory restrictions on the purchase of voting securities of a registered bank holding company, may be to delay or prevent a change in control of the Company. The Bylaws of the Company also impose certain procedural requirements on stockholders who wish (a) to make nominations in the election of directors and (b) to present any other proposal to the stockholders for action, including any repeal or change in the Bylaws of the Company. The requirements include, among other things, the timely delivery to the Company's Secretary of notice of the nomination or proposal and evidence of (i) the stockholder's status as such, (ii) the number of shares the stockholder beneficially owns, (iii) a list of the persons with whom the stockholder is acting in concert and (iv) the number of shares such persons beneficially own. The Bylaws further provide that when nominating directors, the stockholder must also submit such information with -57- 59 respect to the nominee as would be required by a proxy statement and certain other information. The Bylaws provide that failure to follow the required procedures renders the nominee or proposal ineligible to be voted upon by the stockholders. The Company believes that the provisions noted above are prudent and will reduce the Company's vulnerability to takeover attempts and certain other transactions that are not negotiated with or approved by the Board of Directors. In the judgment of the Company, its Board of Directors will be in the best position to determine the true value of the Company and negotiate effectively for what might be in the best interests of its stockholders. Accordingly, the Company believes that it is in the best interests of the Company and its stockholders to encourage potential acquirors to negotiate directly with the Board of Directors, and that these provisions will both encourage this negotiation and discourage hostile takeover attempts. It is also the Company's view that these provisions should not discourage persons from proposing mergers or other transactions at prices that reflect the true value of the Company and are in the best interest of all of the stockholders. PLAN OF DISTRIBUTION The shares of Common Stock issuable upon the exercise of the Warrants are being offered by the Company through its officers and directors who will receive no commissions or other direct or indirect compensation in connection therewith. This Prospectus will be delivered to all Warrant holders of record as of the date hereof. Any supplement or amendment to this Prospectus will be provided to all Warrant holders of record on the date the same is filed with or declared effective by the Securities and Exchange Commission, as applicable. The Warrants are exercisable at a price of $5.75 through November 16, 1998. Persons who wish to exercise their Warrants must deliver an executed Warrant with the Subscription Form, duly executed and accompanied by payment in check or money order payable to "Century Bancshares, Inc." (the "Warrant Agent"). All payments must be received by the Warrant Agent prior to the Expiration Date, and Warrants which are not exercised prior to the Expiration Date will expire. The Company may redeem the Warrants, in whole or in part, at any time after November 14, 1997 until the Expiration Date. EXPERTS The consolidated statements of financial condition as of December 31, 1995 and 1994 and the consolidated statements of operations, changes in stockholders' equity and cash flows for each of the years in the three year period ended December 31, 1995, included in this Prospectus have been included herein in reliance upon the report of KPMG Peat Marwick LLP, Independent Certified Public Accountants, given on the authority of that firm as experts in accounting and auditing. -58- 60 LEGAL MATTERS Certain legal matters will be passed upon for the Company by Bracewell & Patterson, L.L.P., Houston, Texas. Mr. John R. Cope, a director and officer of the Company as well as the Bank, is a partner in the law firm of Bracewell & Patterson, L.L.P. Mr. Cope and other partners of Bracewell & Patterson, L.L.P. own in the aggregate approximately 4% of the shares of Common Stock. ADDITIONAL INFORMATION The Company has filed with the Commission a Registration Statement (together with all amendments and exhibits thereto, the "Registration Statement"), on Form S-1 under the Securities Act with respect to the Common Stock offered hereby. As permitted by the rules and regulations of the Commission, this Prospectus does not contain all of the information set forth in the Registration Statement, of which this Prospectus is a part. For further information with respect to the Company and the Common Stock, reference is made to the Registration Statement, including the exhibits, annexes and schedules thereto. Although the Prospectus contains a discussion of the terms of any contracts or other documents referred to in the Prospectus that the Company believes to be material to investors, statements contained in this Prospectus are not necessarily complete. In each instance, if such contract is filed as an exhibit, each such statement is qualified in its entirety by reference to such exhibit. The Registration Statement and the exhibits and schedules thereto may be inspected without charge at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and upon request at the Commission's regional offices located at: Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York 10048. Copies of such material can be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Copies of such information may be accessed through the Commission's Internet web site at http://www.sec.gov. -59- 61 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF CENTURY BANCSHARES, INC. AND SUBSIDIARY
Page No. -------- CENTURY BANCSHARES, INC. AND SUBSIDIARY, CONSOLIDATED FINANCIAL STATEMENTS: INTERIM PERIODS (UNAUDITED): Consolidated Statement of Financial Condition as of June 30, 1996 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2 Consolidated Statements of Operations for the six month periods ended June 30, 1996 and 1995 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3 Consolidated Statement of Stockholders' Equity for the six months ended June 30, 1996 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4 Consolidated Statements of Cash Flows for the six months ended June 30, 1996 and 1995 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5 Condensed Notes to Consolidated Financial Statements (unaudited) . . . . . . . . . . . . . . . . . . . . F-6 FULL FISCAL YEARS (AUDITED): INDEPENDENT AUDITORS' REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-9 Consolidated Statements of Financial Condition as of December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-10 Consolidated Statements of Operations for the years ended December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-11 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-13 Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-14 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-16
F-1 62 CENTURY BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF FINANCIAL CONDITION June 30, 1996 (unaudited) Assets ------ Cash and due from banks $ 5,704,182 Interest-bearing deposits in other banks 5,751,493 Investment securities available-for-sale, at fair value (Note 1) 9,621,531 Investment securities held to maturity, at cost, fair value of $878,595 (Note 1) 877,719 Loans, net of unearned income 71,454,888 Less - allowance for loan losses (830,271) ------------- Loans, net 70,624,617 Leasehold improvements, furniture, and equipment, net 1,571,799 Accrued interest receivable 611,334 Other real estate owned 184,657 Deposit premium (Note 2) 290,330 Other assets 1,329,890 ------------- $ 96,567,552 ============= Liabilities and Stockholders' Equity ------------------------------------ Liabilities: Deposits: Noninterest-bearing $ 21,219,299 Interest-bearing 62,110,910 ------------- Total deposits 83,330,209 Short-term borrowings 5,380,806 Other liabilities 1,036,229 ------------- Total liabilities 89,747,244 ------------- Stockholders' equity (Note 3): Preferred stock, issuable in series, 1,000,000 shares authorized, no shares issued and outstanding -- Common Stock, $1 par value; 2,000,000 shares authorized; 1,123,685 shares issued and outstanding at June 30, 1996 1,123,685 Additional paid-in capital 4,827,935 Retained earnings 939,071 Unrealized loss on investment securities available-for-sale, tax effect ( 70,383) ------------- Total stockholders' equity 6,820,308 Commitments and contingencies ------------- $ 96,567,552 =============
See accompanying Condensed Notes to Consolidated Financial Statements. F-2 63 CENTURY BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS Six Months ended June 30, 1996 and 1995 (unaudited)
1996 1995 ---- ---- Interest income: Interest and fees on loan $ 3,385,113 $ 2,843,961 Interest on federal funds sold 56,642 35,535 Interest on deposits in other banks 642 11,353 Interest on investment securities 316,858 549,756 ----------- ----------- Total interest income 3,759,255 3,440,605 ----------- ----------- Interest expense: Interest on deposits: Certificates $100,000 and over 355,381 285,680 Certificates under $100,000 320,240 303,748 NOW accounts 128,107 131,480 Savings accounts 29,585 36,731 Money market accounts 365,346 386,979 Interest on short-term borrowings 132,731 55,140 ----------- ----------- Total interest expense 1,331,390 1,199,758 ----------- ----------- Net interest income 2,427,865 2,240,847 Provision for loan losses -- 8,899 ----------- ----------- Net interest income after provision for loan losses 2,427,865 2,231,948 ----------- ----------- Noninterest income: Service charges on deposits accounts 213,157 173,118 Other operating income 140,662 74,032 Loss on sale of securities -- (3,197) ----------- ----------- Total noninterest income 353,819 243,953 ----------- ----------- Noninterest expenses: Salaries and employee benefits 950,814 922,855 Occupancy and equipment expense 242,083 254,224 Depreciation and amortization 188,667 70,367 Professional fees 265,738 151,325 Data processing 132,901 101,853 Federal deposit insurance premiums 27,039 99,739 Communications 93,992 77,020 Provision for losses on other real estate owned -- 47,450 Other operating expenses 379,756 285,496 ----------- ----------- Total noninterest expenses 2,280,990 2,010,329 ----------- ----------- Income before income tax expense 500,694 465,572 Income tax expense 191,704 177,962 ----------- ----------- Net income 308,990 $ 287,610 =========== =========== Income per common share (Note 4) .26 $ .28 =========== =========== Weighted average common and common equivalent shares outstanding (Note 4) 1,174,116 967,726 =========== ===========
See accompanying Condensed Notes to Consolidated Financial Statements F-3 64 CENTURY BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY Six Months ended December 31, 1996 (unaudited)
Unrealized loss on investment Common Stock Additional securities ----------------------- paid-in- Retained available- Shares Amount capital earnings for-sale Total -------- ------------ ----------- ----------- ------------- ----------- Balance, December 31, 1995 1,046,047 $1,046,047 $4,410,876 $1,110,086 $ (68,064) $6,498,945 Stock dividend (7% of shares outstanding) 73,847 73,847 406,158 (480,005) -- -- Issuance of common stock on exercise of stock options 3,791 3,791 10,901 -- -- 14,692 Net income -- -- -- 308,990 -- 308,990 Unrealized loss on investment securities available for sale, net of tax effect -- -- -- -- (2,319) (2,319) --------- ------------ ----------- ---------- ------------ ----------- Balance, June 30, 1996 1,123,685 1,123,685 4,827,935 939,071 (70,383) 6,820,308 ========= ============ =========== ========== ============ ===========
See accompanying Condensed Notes to Consolidated Financial Statements. F-4 65 CENTURY BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months Ended June 30, 1996 and 1995 (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES: 1996 1995 ---- ---- Net Income $ 308,990 $ 287,610 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and Amortization 188,667 70,367 Provision for loan losses -- 8,899 Loans charged off (net of recoveries) (90,151) 79,597 Provision for losses on other real estate owned -- 111,281 Loss on sale of other real estate owned -- 11,883 Loss on sale of securities -- 3,197 (INCREASE) DECREASE IN: Accrued interest receivable (22,204) 48,933 Other assets (447,828) (335,812) INCREASE (DECREASE) IN: Other liabilities 243,852 (5,299) ------------- ------------ NET CASH PROVIDED BY OPERATING ACTIVITIES 181,327 280,656 ------------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Loan repayments (originations), net $ (2,071,501) $ (3,173,020) Decrease in interest bearing deposits in other banks 280,207 170,694 Purchase (maturities) of securities 466,879 (1,132,060) Maturities of securities available for sale 2,714,804 1,585,899 Proceeds from sale of investment securities -- 3,941,086 Deposit premium -- (62,845) Purchase of leasehold improvements, furniture and equipment (280,456) (579,158) Proceeds from sale of other real estate owned 8,001 707,082 ------------- ------------ NET CASH PROVIDED BY INVESTING ACTIVITIES 1,117,934 1,457,678 ------------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES Net maturities of certificates of deposit $ (633,194) $(1,722,212) Net increase (decrease) in demand, savings and money market deposits (6,575,909) (1,798,215) Payment of dividend on preferred stock -- (18,398) Proceeds from issuance of common stock 15,567 -- Increase in short term borrowings 1,572,896 1,660,501 ------------- ------------ NET CASH USED BY FINANCING ACTIVITIES (5,620,640) (1,878,324) ------------ ----------- NET DECREASE IN CASH AND EQUIVALENTS (4,321,379) (139,990) CASH AND CASH EQUIVALENT, BEGINNING OF YEAR 10,025,561 5,912,803 ------------- ------------ CASH AND CASH EQUIVALENT, JUNE 30TH $ 5,704,182 $ 5,772,813 ------------- ------------ INTEREST PAID ON DEPOSITS $ 1,349,389 $ 871,046 ------------- ------------ INCOME TAXES PAID (REFUNDED) $ 408,000 $ (3,938) ------------- ------------ TRANSFER OF LOANS TO OTHER REAL ESTATE OWNED $ -- $ 993,496 ------------- ------------
See accompanying Condensed Notes to Consolidated Financial Statements. F-5 66 CENTURY BANCSHARES, INC. AND SUBSIDIARY CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 1996 AND 1995 The unaudited consolidated financial statements as of and for the six months ended June 30, 1996 and June 30, 1995 have not been audited but, in the opinion of management, contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position and results of operations of the Company as of such date and for such periods. The unaudited consolidated financial statements should be read in conjunction with the Consolidated Financial Statements of the Company and the Notes thereto appearing elsewhere herein. The results of operations for the six months ended June 30, 1996 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 1996 or for any future periods. (1) Investment Securities Investment securities available-for-sale, and their contractual maturities, at June 30, 1996, are summarized as follows:
Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value ---- ----- ------ ----- Obligations of U.S. Treasury, government agencies and corporations: Within one year $ 5,999,750 312 $11,938 $5,988,124 After one, but within five years 1,000,000 -0- 23,800 976,200 After ten years 992,050 -0- 21,638 970,412 ----------- --- ------- ---------- Total 7,991,800 312 57,376 7,934,736 Collateralized mortgage obligations: After ten years 1,738,015 -0- 51,220 1,686,295 ----------- --- ------- ---------- Total investment securities available-for-sale $ 9,729,815 312 $98,596 $9,621,531 =========== === ======= ==========
F-6 67 Investment securities held-to-maturity at June 30, 1996, are summarized as follows:
Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value ---- ----- ------ ----- Municipal securities: Within one year $ 85,000 $ 68 -0- $ 85,068 After one, but within five years 164,865 808 -0- 165,673 -------- ------ ------- -------- Total $249,865 876 -0- 250,741 Federal Reserve Bank stock 119,350 -0- -0- 119,350 Federal Home Loan Bank stock 508,504 -0- -0- 508,504 -------- ------ ------- -------- Total investment securities held-to-maturity $877,719 $ 876 -0- $878,595 ======== ====== ======= ========
(2) Deposit Premium and SAIF Insurance Because it retained possession of the Pennsylvania Avenue branch lease space previously occupied by the Resolution Trust Corporation ("RTC"), the Company was obligated to purchase from the RTC all of the branch-related furniture, fixtures, and equipment at the RTC's book value. This price exceeded the fair value of certain assets purchased in 1994 by $62,045, which amount was classified as an additional premium paid for the acquisition of the branch deposits. The purchased deposits of the Pennsylvania Avenue branch are insured by the Savings Association Insurance Fund ("SAIF"). These SAIF deposits will be assessed a one-time insurance premium of approximately $21,000 as a result of recent Federal legislation. (3) Stock Option Plans Stock option transactions for the six months ended June 30, 1996, are summarized as follows:
Total Options Option Price Per Share ------------- ---------------------- Outstanding, January 1, 1996 152,250 $1.61 to $5.37 Granted 32,485 $6.00 Forfeited -- $4.04 to $4.24 Exercised (3,791) -------- Outstanding, June 30, 1996 180,944 $1.61 to $6.00 ======== Exercisable, June 30, 1996 147,275 $1.61 to $6.00 ========
In connection with the 7% stock dividend effective March 31, 1996, the number of shares subject to any outstanding options, as well as the exercise price per share, have been appropriately and equitably adjusted, pursuant to the stock option plans, so as to maintain the proportionate number of shares without changing the aggregate option price. In the table above, the shares and prices per share have been adjusted to reflect the stock dividend. F-7 68 (4) Income Per Common Share On March 19, 1996, the Company declared a 7% stock dividend to Common Stock holders of record as of March 29, 1995, resulting in the issuance of 73,151 shares of Common Stock on April 20, 1996. Weighted average shares outstanding and income per common share have been restated for the effect of the stock dividend. F-8 69 INDEPENDENT AUDITORS' REPORT The Board of Directors Century Bancshares, Inc.: We have audited the accompanying consolidated statements of financial condition of Century Bancshares, Inc. and subsidiary as of December 31, 1995 and 1994, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Century Bancshares, Inc. and subsidiary as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles. March 15, 1996 F-9 70 CENTURY BANCSHARES, INC. AND SUBSIDIARY Consolidated Statements of Financial Condition December 31, 1995 and 1994
- ---------------------------------------------------------------------------------------------------------------------------- ASSETS 1995 1994 - ---------------------------------------------------------------------------------------------------------------------------- Cash and due from banks $ 8,045,561 5,912,803 Federal funds sold 1,980,000 - Interest bearing deposits in other banks 6,031,700 192,767 Investment securities available-for-sale, at fair value 12,961,735 21,679,053 Investment securities, at cost, fair value of $718,849 and $774,426 in 1995 and 1994, respectively 716,879 782,202 Loans, net of unearned income 69,203,965 60,663,208 Less - allowance for loan losses (740,000) (740,000) - ---------------------------------------------------------------------------------------------------------------------------- Loans, net 68,463,965 59,923,208 - ---------------------------------------------------------------------------------------------------------------------------- Leasehold improvements, furniture, and equipment, net 1,454,056 239,622 Accrued interest receivable 589,130 581,621 Other real estate owned 192,658 - Deposit premium 320,847 293,045 Other assets 882,062 524,821 - ---------------------------------------------------------------------------------------------------------------------------- $ 101,638,593 90,129,142 - ---------------------------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY - ---------------------------------------------------------------------------------------------------------------------------- Liabilities: Deposits: Noninterest-bearing $ 24,712,204 20,122,284 Interest-bearing 65,827,158 61,958,975 - ---------------------------------------------------------------------------------------------------------------------------- Total deposits 90,539,362 82,081,259 Short-term borrowings 3,807,910 2,200,000 Other liabilities 792,376 970,982 - ---------------------------------------------------------------------------------------------------------------------------- Total liabilities 95,139,648 85,252,241 - ---------------------------------------------------------------------------------------------------------------------------- Stockholders' equity: Preferred stock, issuable in series, 1,000,000 shares authorized: Series A cumulative preferred stock, $1 par value; $7.50 liquidation preference (none in 1995 and $459,953 in 1994); no shares issued and outstanding in 1995 and 66,500 shares authorized, 61,327 shares issued and outstanding in 1994 - 61,327 Common stock, $1 par value; 2,000,000 shares authorized; 1,046,047 and 823,232 shares issued and outstanding at December 31, 1995 and 1994, respectively 1,046,047 823,232 Additional paid in capital 4,410,876 3,855,651 Retained earnings 1,110,086 706,836 Unrealized loss on investment securities available-for-sale, net of tax effect (68,064) (570,145) - ---------------------------------------------------------------------------------------------------------------------------- Total stockholders' equity 6,498,945 4,876,901 - ---------------------------------------------------------------------------------------------------------------------------- Commitments and contingencies $ 101,638,593 90,129,142 - ----------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. F-10 71 CENTURY BANCSHARES, INC. AND SUBSIDIARY Consolidated Statements of Operations Years ended December 31, 1995, 1994, and 1993
- ----------------------------------------------------------------------------------------------------- 1995 1994 1993 - ----------------------------------------------------------------------------------------------------- Interest income: Interest and fees on loans $ 6,010,907 4,801,905 4,572,307 Interest on federal funds sold 37,145 64,967 182,451 Interest on deposits in other banks 56,258 9,622 93,211 Interest on securities available-for-sale 917,605 790,967 606,614 Interest on securities held to maturity 57,272 43,665 - - ----------------------------------------------------------------------------------------------------- Total interest income 7,079,187 5,711,126 5,454,583 - ----------------------------------------------------------------------------------------------------- Interest expense: Interest on deposits: Certificates $100,000 and over 636,236 441,693 350,874 Certificates under $100,000 631,662 480,060 569,383 NOW accounts 258,428 248,148 261,651 Savings accounts 67,189 66,341 59,929 Money market accounts 777,954 617,731 700,348 Interest on loan payable - 4,246 33,622 Interest on short term borrowings 190,295 43,323 10,832 - ----------------------------------------------------------------------------------------------------- Total interest expense 2,561,764 1,901,542 1,986,639 - ----------------------------------------------------------------------------------------------------- Net interest income 4,517,423 3,809,584 3,467,944 Provision for loan losses 26,347 19,431 310,270 - ----------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 4,491,076 3,790,153 3,157,674 - ----------------------------------------------------------------------------------------------------- Noninterest income: Service charges on deposit accounts 378,739 340,291 344,322 Other operating income 214,797 226,505 227,262 Loss on sale of securities (3,197) (11,748) - - ----------------------------------------------------------------------------------------------------- Total noninterest income 590,339 555,048 571,584 - -----------------------------------------------------------------------------------------------------
F-11 72 CENTURY BANCSHARES, INC. AND SUBSIDIARY Consolidated Statements of Operations, Continued
- ----------------------------------------------------------------------------------------------------------------------------- 1995 1994 1993 - ----------------------------------------------------------------------------------------------------------------------------- Noninterest expenses: Salaries and employee benefits $ 1,926,939 1,594,625 1,417,496 Occupancy and equipment expense 516,617 438,355 360,678 Depreciation and amortization 151,471 136,180 58,857 Professional fees 327,174 324,431 320,850 Data processing 332,363 180,900 216,371 Federal deposit insurance premiums 88,146 169,185 169,117 Communications 161,090 113,802 106,994 Provision for losses on other real estate owned 48,445 - 3,393 Other operating expenses 492,408 423,273 382,624 - ----------------------------------------------------------------------------------------------------------------------------- Total noninterest expenses 4,044,653 3,380,751 3,036,380 - ----------------------------------------------------------------------------------------------------------------------------- Income before income tax expense 1,036,762 964,450 692,878 Income tax expense 357,164 373,546 263,900 - ----------------------------------------------------------------------------------------------------------------------------- Net income $ 679,598 590,904 428,978 - ----------------------------------------------------------------------------------------------------------------------------- Income per common share $ .69 .62 .45 - ----------------------------------------------------------------------------------------------------------------------------- Weighted average common and common equivalent shares outstanding 933,222 896,522 861,780 - -----------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. F-12 73 CENTURY BANCSHARES, INC. AND SUBSIDIARY Consolidated Statements of Stockholders' Equity Years ended December 31, 1995, 1994, and 1993
- ------------------------------------------------------------------------------------------------------------------------- Preferred stock Common stock ---------------------- --------------------------- Shares Amount Shares Amount - ------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1992 62,335 $ 62,335 743,837 $ 743,837 Stock dividend (5% of shares outstanding) - - 37,166 37,166 Issuance of common stock - - 1,313 1,313 Preferred stock dividend ($.60 per share) - - - - Net income - - - - Unrealized loss on investment securities available-for-sale, net of tax effect - - - - - ------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1993 62,335 62,335 782,316 782,316 Stock dividend (5% of shares outstanding) - - 39,061 39,061 Repurchase of preferred stock (1,008) (1,008) - - Issuance of common stock - - 1,855 1,855 Preferred stock dividend ($.60 per share) - - - - Net income - - - - Unrealized loss on investment securities available-for-sale, net of tax effect - - - - - ------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1994 61,327 61,327 823,232 823,232 Stock options - - 7,831 7,831 Stock dividend (5% of shares outstanding) - - 41,072 41,072 Redemption of preferred stock (33,878) (33,878) - - Exchange of preferred stock (27,449) (27,449) 35,814 35,814 Issuance of common stock - - 138,098 138,098 Preferred stock dividend - - - - Net income - - - - Unrealized gain on investment securities available-for- sale, net of tax effect - - - - - ------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1995 - $ - 1,046,047 $ 1,046,047 - -------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------- Additional Retained Unrealized loss on paid-in earnings investment securities capital (deficit) available-for-sale Total - ----------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1992 3,933,529 (238,849) - 4,500,852 Stock dividend (5% of shares outstanding) (37,166) - - - Issuance of common stock 1,643 - - 2,956 Preferred stock dividend ($.60 per share) - (37,401) - (37,401) Net income - 428,978 - 428,978 Unrealized loss on investment securities available-for-sale, net of tax effect - - (24,844) (24,844) - ----------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1993 3,898,006 152,728 (24,844) 4,870,541 Stock dividend (5% of shares outstanding) (39,061) - - - Repurchase of preferred stock (6,552) - - (7,560) Issuance of common stock 3,258 - - 5,113 Preferred stock dividend ($.60 per share) - (36,796) - (36,796) Net income - 590,904 - 590,904 Unrealized loss on investment securities available-for-sale, net of tax effect - - (545,301) (545,301) - ----------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1994 3,855,651 708,836 (570,145) 4,876,901 Stock options 15,616 - - 23,447 Stock dividend (5% of shares outstanding) 195,092 (236,164) - - Redemption of preferred stock (220,207) - - (254,085) Exchange of preferred stock (8,365) - - - Issuance of common stock 573,089 - - 711,187 Preferred stock dividend - (40,184) - (40,184) Net income - 679,598 - 679,598 Unrealized gain on investment securities available-for- sale, net of tax effect - - 502,081 502,081 - ----------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1995 4,410,876 1,110,086 (68,064) 6,498,945 - -----------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. F-13 74 CENTURY BANCSHARES, INC. AND SUBSIDIARY Consolidated Statements of Cash Flows Years ended December 31, 1995, 1994, and 1993
- ----------------------------------------------------------------------------------------------------------------------- 1995 1994 1993 - ----------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income $ 679,598 590,904 428,978 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 186,682 136,180 58,857 Provision for loan losses 26,347 19,431 310,270 Provision for losses on other real estate owned 48,445 - 3,393 Loss on sale of securities 3,197 11,748 - Loss (gain) on sale of other real estate owned 11,883 - (23,395) (Increase) decrease in accrued interest receivable (7,509) (82,396) (48,498) Decrease (increase) in other assets (357,241) (117,490) 157,117 Increase (decrease) in other liabilities (178,606) (255,459) 121,951 - ----------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 412,796 302,918 1,008,673 Cash flows from investing activities: Loan repayments and recoveries (originations), net (8,916,980) (4,077,823) (637,794) Net decrease (increase) in interest_bearing deposits in other banks (5,838,933) (169,388) 5,256,621 Purchases of securities available_for_sale (1,010,160) (10,454,516) (20,573,337) Purchases of securities held to maturity - (254,852) - Maturities of securities available-for-sale 6,553,254 7,404,794 7,300,000 Proceeds from sale of investment securities 3,738,431 2,164,757 - Purchase of leasehold improvements, furniture and equipment, net of disposals (1,366,073) (95,203) (73,109) Proceeds from sale of other real estate owned 96,890 - 220,000 - ----------------------------------------------------------------------------------------------------------------------- Net cash used by investing activities (6,743,571) (5,482,231) (8,507,619) - -----------------------------------------------------------------------------------------------------------------------
(Continued) F-14 75 CENTURY BANCSHARES, INC. AND SUBSIDIARY Consolidated Statements of Cash Flows, Continued
- ------------------------------------------------------------------------------------------------------------------ 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------ Cash flows from financing activities: Net issuances (maturities) of certificates of deposit $ 3,868,183 2,072,464 (691,535) Net increase in demand, savings, and money market deposits 4,589,920 26,296 9,561,160 Deposit premium (62,845) (303,000) - Repayments of loan payable - (207,000) (333,000) Repurchase of preferred stock (254,085) (7,560) - Issuance of common stock 734,634 5,113 2,956 Dividend paid on preferred stock (40,184) (36,796) (37,401) Increase in short-term borrowings 1,607,910 2,200,000 - - ------------------------------------------------------------------------------------------------------------------ Net cash provided by financing activities 10,443,533 3,749,517 8,502,180 Net increase (decrease) in cash and cash equivalents 4,112,758 (1,429,796) 1,003,234 Cash and cash equivalents, beginning of year 5,912,803 7,342,599 6,339,365 - ------------------------------------------------------------------------------------------------------------------ Cash and cash equivalents, end of year $ 10,025,561 5,912,803 7,342,599 Supplemental disclosures of cash flow information: Interest paid on deposits and borrowings $ 2,483,398 1,902,707 1,938,141 - ------------------------------------------------------------------------------------------------------------------ Income taxes paid (refunded) $ 19,222 (88,190) (67,694) - ------------------------------------------------------------------------------------------------------------------ Transfer of loans to other real estate owned $ 946,366 - - - ------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. F-15 76 CENTURY BANCSHARES, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements December 31, 1995 and 1994 ================================================================================ (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS The primary business of Century Bancshares, Inc. (the Company) and its subsidiary, Century National Bank (Century Bank) is to attract deposits from individual and corporate customers and to originate loans secured by residential and commercial real estate, business assets, and other personal property. The Company operates primarily in the District of Columbia and targets individuals and businesses in professional services as its clientele. The Company is subject to competition from other financial institutions in attracting and retaining deposits and in making loans. The Company and Century Bank are subject to the regulations of certain agencies of the federal government and undergo periodic examinations by those agencies. BASIS OF FINANCIAL STATEMENT PRESENTATION The financial statements have been prepared on the accrual basis and in conformity with generally accepted accounting principles. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ significantly from those estimates. The consolidated financial statements include the accounts of the Company and Century Bank. All significant intercompany accounts and transactions have been eliminated in consolidation. INVESTMENT SECURITIES The Company classifies its debt and marketable equity securities in one of three categories: trading, available-for-sale, or held-to-maturity. Trading securities are bought and held principally for the purpose of selling them in the near term. Held-to-maturity securities are those securities that the Company has the ability and intent to hold until maturity. All other securities not classified as trading or held-to-maturity are classified as available-for-sale. The Company does not engage in trading activities and, accordingly, has no trading portfolio. Available-for-sale and trading securities are recorded at fair value. Held-to-maturity securities are recorded at amortized cost, adjusted for the amortization or accretion of premiums or discounts. Unrealized holding gains and losses, net of the related tax effect, on available-for-sale securities are excluded from earnings and are reported as a separate component of stockholders' equity until realized. A decline in the market value of any available-for-sale or held-to-maturity security below cost that is deemed other than temporary is charged to earnings, resulting in the establishment of a new cost basis for the security. (Continued) F-16 77 CENTURY BANCSHARES, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements ================================================================================ (1) CONTINUED Premiums and discounts are amortized or accreted over the life of the related security as an adjustment to yield using the effective interest method. Dividend and interest income are recognized when earned. Realized gains and losses for securities classified as available-for-sale and held-to-maturity are included in earnings and are derived using the specific identification method for determining the cost of securities sold. Prepayment of the mortgages securing the collateralized mortgage obligations may affect the maturity date and yield to maturity. The Company uses actual principal prepayment experience and estimates of future principal prepayments in calculating the yield necessary to apply the effective interest method. INCOME RECOGNITION ON LOANS Interest on loans is credited to income as earned on the principal amount outstanding. When, in management's judgment, the full collectibility of principal or interest on a loan becomes uncertain, that loan is placed on a cash basis (nonaccrual) for purposes of income recognition. Accrued but uncollected interest on nonaccrual loans is charged against current income. Interest accruals are resumed on such loans only when they are brought fully current with respect to principal and interest and when, in the judgment of management, the loans have demonstrated a new period of performance and are estimated to be fully collectible as to both principal and interest. ALLOWANCE FOR LOAN LOSSES The allowance for loan losses is a valuation allowance available for losses incurred on loans. It is established through charges to earnings in the form of provisions for loan losses. Loan losses are charged to the allowance for loan losses when a determination is made that collection is unlikely to occur. Recoveries are credited to the allowance at the time of recovery. Prior to the beginning of each year, and quarterly during the year, management estimates whether the allowance for loan losses is adequate to absorb losses that can be anticipated in the existing portfolio. Based on these estimates, an amount is charged to the provision for loan losses to adjust the allowance to a level determined to be adequate to absorb currently anticipated losses. (Continued) F-17 78 CENTURY BANCSHARES, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements ================================================================================ (1) CONTINUED Management's judgment as to the level of future losses on existing loans involves management's internal review of the loan portfolio, including an analysis of the borrowers' current financial position, the consideration of current and anticipated economic conditions and their potential effects on specific borrowers; an evaluation of the existing relationships among loans, potential loan losses, and the present level of the loan loss allowance; and results of examinations by independent consultants. In determining the collectibility of certain loans, management also considers the fair value of any underlying collateral. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company's allowances for losses on loans and other real estate owned. Such agencies may require the Company to recognize additions to the allowances based on their judgments about information available to them at the time of their examination. Effective January 1, 1995, the Company adopted Statement of Financial Accounting Standards No. 114, Accounting by Creditors for Impairment of a Loan, as amended by Statement 118, Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures (collectively referred to as SFAS 114). SFAS 114 addresses the accounting by creditors for the impairment of all loans except for large groups of smaller-balance homogeneous loans that are collectively evaluated for impairment, and certain other types of loans specifically excluded by the Standard. SFAS 114 requires that impaired loans be measured at the present value of expected future cash flows discounted at the loan's effective interest rate, or at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. A loan is considered impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the original loan agreement. The adoption of SFAS 114 did not have a significant effect on the Company's financial statements. LOAN FEES Loan origination fees and direct loan origination costs are deferred and recognized either upon the sale of a loan or amortized as an adjustment to yield over the life of the loan. LEASEHOLD IMPROVEMENTS, FURNITURE, AND EQUIPMENT Leasehold improvements, furniture, and equipment are stated at cost, less accumulated depreciation and amortization. Amortization of leasehold improvements is computed using the straight-line method over the estimated useful lives of the improvements or the lease term, whichever is shorter. Depreciation of furniture and equipment is computed using the straight-line method over their estimated useful lives. (Continued) F-18 79 CENTURY BANCSHARES, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements ================================================================================ (1) CONTINUED OTHER REAL ESTATE OWNED Real estate acquired through foreclosure is recorded at the lower of cost or fair value less estimated selling costs. Management periodically evaluates the recoverability of the carrying value of other real estate owned. Costs relating to property improvements are capitalized, and costs relating to holding properties are charged to expense. Gains or losses on the sale of other real estate owned are recognized upon disposition of the property. INCOME TAXES The Company accounts for income taxes based upon the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. INCOME PER COMMON SHARE Income per common share is computed by dividing net income less preferred stock dividends by the weighted average number of common and common equivalent shares (when dilutive and significant) outstanding during the year. Common equivalent shares result from stock options and warrants outstanding and are computed using the treasury stock method. On March 23, 1994, the Company declared a 5 percent stock dividend to common stock shareholders of record as of March 31, 1994, resulting in the issuance of 39,061 shares. On March 14, 1995, the Company declared a 5 percent stock dividend to common stock shareholders of record as of March 31, 1995, resulting in the issuance of 41,072 shares. Weighted average shares outstanding and income per common share have been restated for the effect of the stock dividends. CASH AND CASH EQUIVALENTS For purposes of reporting cash flows, the Company has defined cash and cash equivalents as those amounts included in cash and due from banks and federal funds sold. (Continued) F-19 80 CENTURY BANCSHARES, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements ================================================================================ (1) CONTINUED NEW ACCOUNTING STANDARDS NOT YET IMPLEMENTED During March 1995 the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long Lived Assets and For Long-Lived Assets to be Disposed Of (SFAS 121). SFAS 121 provides guidance for recognition and measurement of impairment of long-lived assets and certain intangible assets. SFAS 121 is effective for fiscal years beginning after December 15, 1995. Management does not expect that the adoption of SFAS 121 will have a material impact on the Company's financial condition or results of operations. During May 1995 the FASB issued SFAS No. 122, Accounting for Mortgage Servicing Rights. SFAS 122 is effective for fiscal years beginning after December 15, 1995. Management does not expect that the adoption of SFAS 122 will have a material impact on the Company's financial condition or results of operations. During October 1995 the FASB issued SFAS No. 123, Accounting for Stock-Based Compensation. SFAS 123 defines a fair value approach to measuring employee stock options. In lieu of recording the value of such options as compensation expense, companies may provide pro forma disclosures quantifying the difference between compensation cost included in net income as prescribed by current accounting standards and the cost measured using the fair value approach. SFAS 123 is effective for awards granted in fiscal years beginning after December 15, 1995. Management does not expect to change its current method of accounting for stock options. RECLASSIFICATIONS Certain amounts for 1994 and 1993 have been reclassified to conform to the presentation for 1995. (2) RESTRICTED CASH Under Federal Reserve Board regulations, banks are required to maintain cash reserves against certain categories of deposit liabilities. Cash balances qualified to meet these reserve requirements consist of vault cash and balances on deposit with the Federal Reserve Bank. Such restricted cash balances are included in "Cash and due from banks" in the consolidated statements of financial condition and amount to approximately $235,000 and $910,000 as of December 31, 1995 and 1994, respectively. (Continued) F-20 81 CENTURY BANCSHARES, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements ================================================================================ (3) INVESTMENT SECURITIES Investment securities available-for-sale, and their contractual maturities, at December 31, 1995 and 1994 are summarized as follows:
1995 ---------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Cost Gains Losses Fair Value ----------------------------------------------------------------------------------------------------------------------- Obligations of U.S. Treasury, government agencies and corporations: Within one year $ 9,001,131 - 26,133 8,974,998 After one, but within five years 1,000,000 - 7,400 992,600 After ten years 1,116,701 - 15,669 1,101,032 ----------------------------------------------------------------------------------------------------------------------- Total 11,117,832 - 49,202 11,068,630 Collateralized mortgage obligations: After ten years 1,948,619 - 55,514 1,893,105 ----------------------------------------------------------------------------------------------------------------------- Total investment securities available-for-sale $ 13,066,451 - 104,716 12,961,735 =======================================================================================================================
1994 --------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Cost Gains Losses Fair Value ----------------------------------------------------------------------------------------------------------------------- Obligations of U.S. Treasury, government agencies and corporations: Within one year $ 5,961,438 - 71,125 5,890,313 After one, but within five years 12,978,693 - 545,168 12,433,525 After ten years 1,323,396 - 61,749 1,261,647 ----------------------------------------------------------------------------------------------------------------------- Total 20,263,527 - 678,042 19,585,485 Collateralized mortgage obligations: After ten years 2,292,672 - 199,103 2,093,568 ----------------------------------------------------------------------------------------------------------------------- Total investment securities available-for-sale $ 22,556,199 - 877,145 21,679,053 =======================================================================================================================
(Continued) F-21 82 CENTURY BANCSHARES, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements ================================================================================ (3) CONTINUED Expected maturities may differ from contractual maturities of mortgage backed securities and collateralized mortgage obligations because borrowers have the right to prepay their obligations at any time. Investment securities held-to-maturity at December 31, 1995 and 1994 are summarized as follows:
1995 --------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Cost Gains Losses Fair Value -------------------------------------------------------------------------------------------------------------------------- Municipal securities-maturing Within one year $ 85,000 170 - 85,170 After one, but within five years 164,829 1,802 - 166,631 -------------------------------------------------------------------------------------------------------------------------- Total 249,829 1,972 - 251,801 Federal Reserve Bank stock 119,350 - - 119,350 Federal Home Loan Bank stock 347,700 - - 347,700 -------------------------------------------------------------------------------------------------------------------------- $ 716,879 1,972 - 718,851 ==========================================================================================================================
1994 --------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Cost Gains Losses Fair Value -------------------------------------------------------------------------------------------------------------------------- Municipal securities - maturing after one but within five years $ 249,752 - 7,776 241,976 Federal Reserve Bank stock 119,350 - - 119,350 Federal Home Loan Bank stock 413,100 - - 413,100 -------------------------------------------------------------------------------------------------------------------------- $ 782,202 - 7,776 774,426 ==========================================================================================================================
Securities carried at $1,000,866 and $1,002,560 at December 31, 1995 and 1994, respectively, were pledged to secure public deposits and for other purposes as required by law. (Continued) F-22 83 CENTURY BANCSHARES, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements ================================================================================ (3) CONTINUED As a member of the Federal Reserve and Federal Home Loan Bank Systems, Century Bank is required to hold stock in the Federal Reserve Bank of Richmond and the Federal Home Loan Bank of Atlanta. These stocks, which have no stated maturity, are carried at cost since no active trading markets exist. During January 1995, Century Bank entered into a principal membership agreement with Mastercard International for the credit card business Century Bank established in 1995. As part of the agreement, Century Bank pledged securities worth $1,000,000. (4) LOANS RECEIVABLE The loan portfolio consists of the following:
December 31, --------------------------------------- 1995 1994 ------------------------------------------------------------------------------------------------------------------------- Commercial $ 13,212,532 10,375,877 Real estate - residential 27,007,742 27,773,228 Real estate - commercial 11,910,244 9,357,921 Real estate - construction 1,545,143 788,310 Consumer 9,985,863 6,474,801 Home equity 5,640,012 6,003,519 ------------------------------------------------------------------------------------------------------------------------- 69,301,536 60,773,656 Unearned income (97,571) (110,448) ------------------------------------------------------------------------------------------------------------------------- 69,203,965 60,663,208 Allowance for loan losses (740,000) (740,000) ------------------------------------------------------------------------------------------------------------------------- Loans, net $ 68,463,965 59,923,208 =========================================================================================================================
Loans on which the accrual of interest has been discontinued amounted to approximately $8,000, $628,000, and $322,000 at December 31, 1995, 1994, and 1993, respectively. Interest lost on these nonaccrual loans was approximately $1,000, $32,000, and $2,000 for 1995, 1994, and 1993, respectively. Interest paid on these nonaccrual loans was approximately $3,500, $13,500, and $3,000 for 1995, 1994, and 1993, respectively. (Continued) F-23 84 CENTURY BANCSHARES, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements ================================================================================ (4) CONTINUED Analysis of the activity in the allowance for loan losses is as follows:
Year ended December 31, --------------------------------------------------- 1995 1994 1993 ------------------------------------------------------------------------------------------------------------------- Balance, beginning of year $ 740,000 730,000 744,422 Provision for loan losses 26,347 19,431 310,270 Loans charged off (198,126) (106,105) (386,586) Recoveries 171,779 96,674 61,894 ------------------------------------------------------------------------------------------------------------------- Balance, end of year $ 740,000 740,000 730,000 ===================================================================================================================
An analysis of the activity of loans to directors, officers, and their affiliates during the years ended December 31, 1995 and 1994, is as follows:
1995 1994 ------------------------------------------------------------------------------------------------------------------- Balance, beginning of year $ 2,566,970 1,868,931 Additions 1,550,080 1,629,291 Payments (796,937) (931,252) ------------------------------------------------------------------------------------------------------------------- Balance, end of year $ 3,320,113 2,566,970 ===================================================================================================================
In the opinion of management, all transactions entered into between the Company and such related parties have been and are in the ordinary course of business and made on the same terms and conditions as similar transactions with unaffiliated persons. The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit and financial guarantees. Commitments to extend credit are agreements to lend to a customer so long as there is no violation of any condition established in the contract. Commitments usually have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of the contractual obligations by a customer to a third party. The majority of these guarantees extend until satisfactory completion of the customer's contractual obligations. All standby letters of credit outstanding at December 31, 1995, are collateralized. (Continued) F-24 85 CENTURY BANCSHARES, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements ================================================================================ (4) CONTINUED Those instruments may involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated statements of financial condition. Credit risk is defined as the possibility of sustaining a loss because the other parties to a financial instrument failed to perform in accordance with the terms of the contract. The Company's maximum exposure to credit loss under standby letters of credit and commitments to extend credit is represented by the contractual amounts of those instruments.
Contractual or notional amount ------------------------------------------------------------------------------------------------------------------ Financial instruments whose contract amounts represent potential credit risk: Commitments to extend credit $ 13,910,000 Standby letters of credit 882,000 ==================================================================================================================
At December 31, 1995, the Company did not have any financial instruments whose notional or contractual amounts exceed the amount of credit risk. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. The Company evaluates each customer's creditworthiness on a case-by-case basis and requires collateral to support financial instruments when deemed necessary. The amount of collateral obtained upon extension of credit is based on management's evaluation of the counterparty. Collateral held varies but may include deposits held by the Company; marketable securities; accounts receivable; inventory; property, plant and equipment; and income-producing commercial properties. Most of the Company's business activity is with customers located in the District of Columbia, Maryland, and northern Virginia. Accordingly, the ultimate collectibility of a substantial portion of the Company's loan portfolio is susceptible to changes in conditions in these markets. Industry concentrations in excess of 10 percent of total loans where the borrowers as a group might be affected similarly by economic changes consist of loans to members of the legal profession, health care profession, and service companies. Century offers lines of credit, home equity lines, and mortgage loans to these groups. The aggregate total of loans to such groups was approximately $13.9 million, $9.1 million, and $9.0 million respectively, as of December 31, 1995. The amount of such loans which are past due or considered by management to be potential problem loans is not material. (Continued) F-25 86 CENTURY BANCSHARES, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements ================================================================================ (5) LEASEHOLD IMPROVEMENTS, FURNITURE, AND EQUIPMENT Leasehold improvements, furniture, and equipment consist of the following:
December 31, ----------------------------------- 1995 1994 ------------------------------------------------------------------------------------------------------------------- Leasehold improvements $ 1,233,384 888,963 Furniture and equipment 1,904,090 882,438 ------------------------------------------------------------------------------------------------------------------- 3,137,474 1,771,401 Less accumulated depreciation and amortization (1,683,418) (1,531,779) ------------------------------------------------------------------------------------------------------------------- Balance, end of year $ 1,454,056 239,622 ===================================================================================================================
Depreciation and amortization expense was $151,471, $77,377, and $58,857 for 1995, 1994, and 1993, respectively. (6) DEPOSITS Major classifications of deposits consist of the following:
December 31, ----------------------------------------- 1995 1994 ------------------------------------------------------------------------------------------------------------------------- Noninterest-bearing - demand deposits $ 24,712,204 20,122,284 ------------------------------------------------------------------------------------------------------------------------- Interest-bearing: NOW accounts 15,132,526 12,083,692 Savings accounts 2,226,283 2,814,662 Money market accounts 22,144,836 24,986,673 Certificates of deposit: Less than $100,000 12,407,734 14,197,539 $100,000 and over 13,915,779 7,876,409 ------------------------------------------------------------------------------------------------------------------------- 65,827,158 61,958,975 ------------------------------------------------------------------------------------------------------------------------- Total deposits $ 90,539,362 82,081,259 =========================================================================================================================
On September 16, 1994, Century Bank acquired deposit accounts of approximately $9.1 million, for which it paid a premium of $366,000. The premium is amortized over the estimated remaining lives of the deposit account relationships on a straight-line basis. (Continued) F-26 87 CENTURY BANCSHARES, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements ================================================================================ (7) STOCKHOLDERS' EQUITY On November 14, 1995, the Company issued 173,912 Units pursuant to an Offering made on September 15, 1995, to existing holders of the Company's Common and Preferred Stock. Each Unit consisted of one share of Common Stock and one Warrant. The offering price was $5.75 per Unit. Each Warrant entitles the holder thereof to purchase one share of Common Stock at a price of $5.75 per share, subject to adjustment. The Warrants may be exercised at any time from November 15, 1996 through November 16, 1998. The Warrants may be repurchased by the Company at any time on and after November 14, 1997 at a price of $.26 per Warrant. Holders of the Company' Series A Cumulative Convertible Preferred Stock were given the opportunity to exchange their Preferred Stock for Units at an exchange ratio of 1.305 Units per share of Preferred Stock. At the time of the Offering, there were 61,327 shares of Preferred Stock outstanding. A total of 27,449 shares of Preferred Stock were exchanged, resulting in the issuance of 35,814 Units and the payment of $40 to redeem fractional shares. The remaining 138,098 Units were sold for cash, yielding net proceeds to the Company of $711,187 after payment of costs associated with the Offering. The Company used a portion of such proceeds to redeem the remaining 33,878 shares of Preferred Stock, which was callable at $7.50 per share. All of the Preferred Stock was redeemed, or funds set aside therefor, as of December 10, 1995, at an aggregate cost of $254,085. The holders of Preferred Stock were entitled to receive annual cumulative dividends equal to $.60 per share per year, payable semiannually. Regular dividends amounting to $36,796, $36,796. and $37,401 were paid during 1995, 1994, and 1993, respectively. Additional dividends paid during 1995, in the amount of $3,388, represented accrued dividends through December 10, 1995, on shares redeemed. (8) STOCK OPTION PLANS Pursuant to the Century Bancshares, Inc. 1994 Stock Option Plan ("1994 Plan") the Company in 1994 reserved 150,000 shares of its common stock for the issuance of incentive stock options and nonqualified stock options to directors and key employees. As of December 31, 1995, after adjusting for stock dividends and stock option activity, there are 155,821 shares of stock reserved for issuance pursuant to the 1994 Plan, of which 83,277 shares are reserved for outstanding options and 72,544 shares are reserved for future option grants. (Continued) F-27 88 CENTURY BANCSHARES, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements ================================================================================ (8) CONTINUED In addition, there remain outstanding certain options granted to directors and key employees under two prior option plans ("Prior Plans") which expired in 1992 and 1993. As of December 31, 1995, after adjusting for stock dividends and stock option activity, there are 59,012 shares of stock reserved for issuance pursuant to options granted under the Prior Plans, which options are still valid and were not affected by the Plans' expiration. As of December 31, 1995, all options granted under the Prior Plans are fully exercisable. In 1994, the Company issued nonqualified stock options to certain key employees to replace options intended to have been granted in 1992 and 1993, when no stock option plan was in effect, with the option price for each such option being equal to the option price previously intended. With the exception of these replacement options, all options issued pursuant to the Prior Plans and the 1994 Plan are priced at no less than 100 percent of the fair market value of the stock on the date of the option grant. In connection with the 5 percent stock dividend effective July 31, 1993, March 31, 1994, and March 31, 1995, the number of shares subject to any outstanding options, as well as the exercise price per share, have been appropriately and equitably adjusted, pursuant to the stock option plans, so as to maintain the proportionate number of shares without changing the aggregate option price. Additionally, in connection with the 5 percent stock dividend effective March 31, 1995, the number of shares reserved for the issuance of future options pursuant to the 1994 Plan have been proportionately increased as prescribed in the 1994 Plan. In the tables below, the shares and prices per share have been adjusted to reflect the stock dividends. (Continued) F-28 89 CENTURY BANCSHARES, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements ================================================================================ (8) CONTINUED Stock option transactions for the years ended December 31, 1995, 1994, and 1993, are summarized as follows:
Total options Option price per share ------------- -------------------------- Outstanding December 31, 1992 97,709 $1.73 to $9.07 Granted 11,183 3.02 to 3.02 Forfeited (22,202) 1.73 to 9.07 Exercised (1,448) 1.73 to 4.10 ------------------------------------------------------------------------------------ Outstanding December 31, 1993 85,242 1.73 to 9.07 Granted 62,324 2.16 to 4.52 Forfeited (14,553) 1.73 to 9.07 Exercised (2,241) 1.73 to 4.10 ------------------------------------------------------------------------------------ Outstanding December 31, 1994 130,772 1.73 to 9.07 Granted 32,668 5.75 to 5.75 Forfeited (13,320) 2.16 to 9.07 Exercised (7,831) 1.73 to 4.52 ------------------------------------------------------------------------------------ Outstanding December 31, 1995 142,289 1.73 to 5.75 ------------------------------------------------------------------------------------ Exercisable, December 31, 1995 122,697 1.73 to 5.75 ------------------------------------------------------------------------------------
(Continued) F-29 90 CENTURY BANCSHARES, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements ================================================================================ (9) INCOME TAXES The provision for taxes on income for the years ended December 31, 1995, 1994, and 1993, consisted of the following:
1995 1994 1993 ------------------------------------------------------------------------------------------------------------------- Current: Federal income tax $ 627,042 29,600 237,000 State income tax 127,114 (39,416) 53,900 ------------------------------------------------------------------------------------------------------------------- 754,156 (9,816) 290,900 Deferred: Federal income tax (benefit) (329,404) 289,682 (20,000) State income tax (benefit) (67,588) 93,680 (7,000) ------------------------------------------------------------------------------------------------------------------- (396,992) 383,362 (27,000) ------------------------------------------------------------------------------------------------------------------- Total income tax $ 357,164 373,546 263,900 ===================================================================================================================
The difference between the statutory federal income tax rates and the effective income tax rates for 1995, 1994, and 1993, are as follows:
1995 1994 1993 ------------------------------------------------------------------------------------------------------------------- Statutory federal income tax rate 34.0% 34.0 34.0 State income taxes, net of federal benefit 1.0 4.0 4.4 Nondeductible expenses - 0.7 0.4 Other (0.5) - (0.7) ------------------------------------------------------------------------------------------------------------------- Effective income tax rate 34.5 38.7 38.1 ===================================================================================================================
(Continued) F-30 91 CENTURY BANCSHARES, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements ================================================================================ (9) CONTINUED The following is a summary of the tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1995 and 1994:
1995 1994 ------------------------------------------------------------------------------------------------------------------- Assets: Fixed assets $ 109,032 58,362 Book general loan loss reserve 432,395 432,395 Deferred rent expense 71,343 76,095 Deferred loan fees 39,936 30,012 Vacation pay accrual 29,631 21,073 Director' deferred compensation 53,970 36,625 ------------------------------------------------------------------------------------------------------------------- Deferred tax assets 736,307 654,562 ------------------------------------------------------------------------------------------------------------------- Liabilities: Federal Home Loan Bank stock dividends (11,583) (14,039) Tax bad debt reserve (269,393) (284,092) Unrealized losses on investments designated as available-for-sale recognized for tax purposes (37,043) (356,060) Other (71,791) (50,866) ------------------------------------------------------------------------------------------------------------------- Deferred tax liabilities (389,810) (705,057) ------------------------------------------------------------------------------------------------------------------- Net deferred tax asset (liability) attributable to operations 346,497 (50,495) Unrealized losses on investments available-for-sale charged directly to stockholders' equity 36,650 307,001 ------------------------------------------------------------------------------------------------------------------- Net deferred tax asset $ 383,147 256,506 ==================================================================================================================
Net deferred tax assets of $383,147 and $256,506 at December 31, 1995 and 1994, respectively, are included in other assets. The Company has not established a valuation allowance for deferred tax assets. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not some portion or all of the deferred tax assets will not be realized. Based on the level of historical taxable income during the carryback period and the reversal of certain deferred tax liabilities, management believes it is more likely than not the Company will realize the benefits of these deductible differences. (Continued) F-31 92 CENTURY BANCSHARES, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements ================================================================================ (10) PROFESSIONAL FEES TO RELATED PARTIES Included in professional fees are legal fees paid to law firms whose partners are directors of the Company or the Bank, totaling approximately $102,000, $81,000, and $129,000 for the years ended December 31, 1995, 1994, and 1993, respectively. (11) EMPLOYEE BENEFIT PLAN The Company maintains a 401(k) plan which covers substantially all employees. Participants may contribute up to 6 percent of their compensation. The Company matches 50 percent of participant contributions to the Plan. This matching contribution totaled approximately $21,000 for each of the years ended December 31, 1995, 1994, and 1993. (12) COMMITMENTS The Company leases its banking facilities under operating leases providing for payment of fixed rentals and providing for pass-through of certain landlord expenses, with options to renew. Rental expense was approximately $323,600, $301,000, and $223,000 for the years ended December 31, 1995, 1994, and 1993, respectively. Total future minimum rental payments at December 31, 1995, are as follows:
Year ending December 31, ------------------------------------------------------------- 1996 $ 352,000 1997 272,000 1998 238,000 1999 240,000 2000 240,000 Thereafter 528,000 ------------------------------------------------------------- 1,870,000 =============================================================
(13) DIVIDENDS FROM SUBSIDIARY Dividends paid to the Company by Century Bank are subject to restrictions by regulatory agencies. As of December 31, 1995, approximately $1,539,000 was available to be paid to the Company in dividends from Century Bank, pursuant to such regulatory restrictions. As described in note 14, regulatory agencies have established laws and guidelines with respect to the maintenance of appropriate levels of bank capital that could further limit the amount available for payment of dividends by Century Bank under regulatory restrictions if applied in the future. (Continued) F-32 93 CENTURY BANCSHARES, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements ================================================================================ (14) CAPITAL AND LIQUIDITY The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) requires regulators to stratify depository institutions into five quality tiers based upon their relative capital strengths and to increase progressively the degree of regulation over the weaker ones, limits the pass-through deposit insurance treatment of certain types of accounts, adopts a "Truth in Savings" program, calls for the adoption of risk-based premiums on deposit insurance, and requires banks to observe insider credit underwriting procedures no less strict than those applied to comparable non-insider transactions. The Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) of 1989 requires depository institutions to maintain minimum capital levels. In addition to its capital requirements, FIRREA includes provisions for changes in the federal regulatory structure for institutions, including a new deposit insurance system, increased deposit insurance premiums, and restricted investment activities with respect to noninvestment grade corporate debt and certain other investments. At December 31, 1995, the Company and Century Bank met regulatory minimum capital levels. The key measures of capital are: (1) Tier I capital (stockholders' equity less certain deductions) as a percent of total risk adjusted assets; (2) Tier I capital as a percent of total assets, and (3) total capital (Tier I capital plus the allowance for loan losses up to certain limitations) as a percent of total risk adjusted assets. The following table summarizes Century Bank's capital position at December 31, 1995:
(Unaudited) ------------------------------------------------------------------------------------------------ "Well "Adequately" Century Bank capitalized" capitalized" ratio minimum minimum ------------------------------------------------------------------------------------------------ Tier I/Assets 6.83% 5.00% 4.00% Tier I/Risk Adjusted Assets 9.29% 6.00% 4.00% Total Capital/Risk Adjusted Assets 10.41% 10.00% 8.00%
During 1993, Century Bank entered into a line of credit arrangement with the Federal Home Loan Bank of Atlanta. There was $2.2 million and zero outstanding under the borrowing arrangement at December 31, 1995 and 1994, respectively; the amount available under such arrangement totaled $13.3 million. The interest rate at December 31, 1995 was 6.10 percent; the balance matures in June 1996. The line of credit is secured by a blanket lien on 1-4 family whole first mortgage loans. (Continued) F-33 94 CENTURY BANCSHARES, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements ================================================================================ (15) PARENT COMPANY-ONLY FINANCIAL STATEMENTS The Century Bancshares, Inc. (parent company-only) condensed financial statements are as follows:
Statements of Financial Condition -------------------------------------------------------------------------------------------------------------------- December 31, 1995 and 1994 ASSETS 1995 1994 -------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents $ 56,769 167,519 Investment in Century Bank 6,430,174 4,808,492 Other assets 21,205 201,340 -------------------------------------------------------------------------------------------------------------------- $ 6,508,148 5,177,351 ==================================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY -------------------------------------------------------------------------------------------------------------------- Liabilities: Notes payable $ - - Other liabilities 9,203 300,450 -------------------------------------------------------------------------------------------------------------------- 9,203 300,450 -------------------------------------------------------------------------------------------------------------------- Stockholders' equity: Preferred stock - 61,327 Common stock 1,046,047 823,232 Additional paid-in capital 4,410,876 3,855,651 Retained earnings 1,110,086 706,836 Unrealized loss on investment securities available-for-sale, net of tax effect (68,064) (570,145) -------------------------------------------------------------------------------------------------------------------- 6,498,945 4,876,901 -------------------------------------------------------------------------------------------------------------------- $ 6,508,148 5,177,351 ====================================================================================================================
(Continued) F-34 95 CENTURY BANCSHARES, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements ================================================================================ (15) CONTINUED
Statements of Operations ------------------------------------------------------------------------------------------------------------------ Years ended December 31, 1995, 1994, and 1993 1995 1994 1993 ------------------------------------------------------------------------------------------------------------------ Income: Dividends from Century Bank $ - 140,000 111,000 Other income 929 1,336 84,661 ------------------------------------------------------------------------------------------------------------------ 929 141,336 195,661 ------------------------------------------------------------------------------------------------------------------ Expenses: Interest expense - 4,246 33,622 Other expenses 50,915 17,291 14,095 ------------------------------------------------------------------------------------------------------------------ 50,915 21,537 47,717 ------------------------------------------------------------------------------------------------------------------ Net income (loss) before income tax benefit and equity in undistributed earnings of bank subsidiary (49,986) 119,799 147,944 Income tax benefit (9,983) (8,203) (10,875) ------------------------------------------------------------------------------------------------------------------ Net income before equity in undistributed earnings of bank subsidiary (40,003) 128,002 158,819 Equity in undistributed earnings of Century Bank 719,601 462,902 270,159 ------------------------------------------------------------------------------------------------------------------ Net income $ 679,598 590,904 428,978 ==================================================================================================================
(Continued) F-35 96 CENTURY BANCSHARES, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements =============================================================================== (15) CONTINUED
Statements of Cash Flows ------------------------------------------------------------------------------------------------------------------ Years ended December 31, 1995, 1994, and 1993 1995 1994 1993 ------------------------------------------------------------------------------------------------------------------ Cash flows from operating activities: Net income $ 679,598 590,904 428,978 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Undistributed earnings of Century Bank (719,601) (462,902) (270,159) Decrease in other assets 180,135 174,434 108,741 Increase (decrease) in other liabilities (291,247) 52,847 (111,867) ------------------------------------------------------------------------------------------------------------------ Net cash provided by (used in) operating activities (151,115) 355,283 155,693 ------------------------------------------------------------------------------------------------------------------ Cash flows from investing activities: Capital contributions to Century Bank (400,000) - - ------------------------------------------------------------------------------------------------------------------ Net cash used in investing activities (400,000) - - ------------------------------------------------------------------------------------------------------------------ Cash flows from financing activities: Repayments under notes payable - (207,000) (333,000) Repurchase of preferred stock (254,085) (7,560) - Issuance of common stock 734,634 5,113 2,956 Preferred stock dividends paid (40,184) (36,796) (37,401) ------------------------------------------------------------------------------------------------------------------ Net cash provided by (used in) financing activities 440,365 (246,243) (367,445) ------------------------------------------------------------------------------------------------------------------ Net (decrease) increase in cash and cash equivalents (110,750) 109,040 (211,752) Cash and cash equivalents, beginning of year 167,519 58,479 270,231 ------------------------------------------------------------------------------------------------------------------ Cash and cash equivalents, end of year $ 56,769 167,519 58,479 Supplemental disclosures of cash flow information: Interest paid $ - 4,246 35,639 Income taxes paid (refunded) 11,222 (88,190) (67,694) =================================================================================================================
(Continued) F-36 97 CENTURY BANCSHARES, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements ================================================================================ (16) FAIR VALUES OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards No. 107, Disclosure About Fair Value of Financial Instruments (FAS 107), requires the disclosure of estimated fair values for financial instruments. Quoted market prices, if available, are utilized as an estimate of the fair value of financial instruments. Because no quoted market prices exist for a portion of Century Bank's financial instruments, the fair value of such instruments has been derived based on management's assumptions with respect to future economic conditions, the amount and timing of future cash flows and estimated discount rates. Different assumptions could significantly affect these estimates. Accordingly, the net realizable value could be materially different from the estimates presented below. In addition, the estimates are only indicative of individual financial instruments' values and should not be considered an indication of the fair value of Century Bank taken as a whole. CASH AND INTEREST BEARING DEPOSITS WITH OTHER BANKS For cash and due from banks and interest-bearing deposits with other banks, the carrying amount approximates fair value. INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES For these instruments, fair values are based on published market or dealer quotes. LOANS, NET The fair value of loans is estimated by discounting the future cash flows, including estimated prepayments of principal, using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. ACCRUED INTEREST RECEIVABLE The carrying amount approximates fair value. NONINTEREST-BEARING DEPOSITS The fair value of these deposits is the amount payable on demand at the reporting date. INTEREST-BEARING DEPOSITS The fair value of demand deposits, savings accounts, and money market deposits with no defined maturity is the amount payable on demand at the reporting date. The fair value of certificates of deposit is estimated by discounting the future cash flows using the current rates at which similar deposits would be accepted. (Continued) F-37 98 CENTURY BANCSHARES, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements ================================================================================ (16) CONTINUED ADVANCE FROM FEDERAL HOME LOAN BANK OF ATLANTA AND OTHER BORROWINGS The carrying amount for variable rate borrowings approximate the fair values at the reporting date. The fair values of the fixed rate borrowings are estimated by discounting the future cash flows using interest rates currently available for borrowings with similar terms and remaining maturities. ADVANCE PAYMENTS BY BORROWERS FOR TAXES AND INSURANCE The carrying amount approximates fair value. ACCRUED INTEREST PAYABLE The carrying amount approximates fair value. OFF-BALANCE SHEET ITEMS Century Bank has reviewed the unfunded portion of commitments to extend credit, as well as standby and other letters of credit, and has determined that the fair value of such instruments is not material. (Continued) F-38 99 CENTURY BANCSHARES, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements ================================================================================ (16) CONTINUED The estimated fair values of Century Bank's financial instruments required to be disclosed under SFAS No. 107 at December 31, 1995 follows:
Carrying Fair Assets value value --------------------------------------------------------------------------------------------------- Cash and interest-bearing deposits with other banks $ 8,045,561 8,045,561 Federal funds sold 1,980,000 1,980,000 Interest-bearing deposits with other banks 6,031,700 6,031,700 Investment securities 13,783,330 13,680,586 Loans, net 68,463,965 75,871,743 Accrued interest receivable 589,130 587,130 Liabilities --------------------------------------------------------------------------------------------------- Noninterest-bearing deposits 24,712,204 24,712,204 Interest-bearing deposits 65,827,158 70,915,705 Short-term borrowings 3,807,910 3,807,910 Accured interest payable 157,882 157,882
================================================================================ F-39 100 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth all expenses in connection with the shares of Common Stock being registered. All amounts shown below are estimates, except the registration fee: Registration fee of Securities and Exchange Commission . . . . $ 304 Accountants' fees and expenses . . . . . . . . . . . . . . . . $ * -------- Legal fees and expenses . . . . . . . . . . . . . . . . . . . $ * -------- Printing fees . . . . . . . . . . . . . . . . . . . . . . . . $ * -------- Transfer Agent fees . . . . . . . . . . . . . . . . . . . . . $ * -------- Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . $ * -------- Total . . . . . . . . . . . . . . . . . . . . . . . . $ * --------
*To be supplied by amendment. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Delaware General Corporation Law Section 145 of the Delaware General Corporation Law provides generally that a person sued as a director, officer, employee or agent of a corporation may be indemnified by the corporation for reasonable expenses, including attorneys' fees, if in the case of other than derivative suits, such person has acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation (and, in the case of a criminal proceeding, had no reasonable cause to believe that such person's conduct was unlawful). In the case of a derivative suit, an officer, employee or agent of the corporation may be indemnified by the corporation for reasonable expenses, including attorneys' fees, if such person has acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made in the case of a derivative suit in respect of any claim as to which an officer, employee or agent has been adjudged to be liable to the corporation unless that person is fairly and reasonably entitled to indemnity for proper expenses. Indemnification is mandatory in the case of a director, officer, employee, or agent who is successful on the merits in defense of a suit against such person. Certificate of Incorporation Consistent with applicable law, the Company's Certificate of Incorporation limits a director's monetary liability to the Company or its stockholders for breach of fiduciary duty, except for breaches of the duty of loyalty, acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, unlawful dividend payments or acts from which the director derived an improper personal benefit. The Company's Certificate of Incorporation does not limit the availability of equitable remedies based on breach of fiduciary duty and does not limit a director's liability for violations of the federal II-1 101 securities laws. The Company believes that the foregoing provisions of its Certificate of Incorporation may assist it in attracting and retaining qualified individuals to serve on its Board of Directors. Indemnification Agreements The Company has entered into indemnification agreements with its officers and directors. The indemnification agreements require the Company to indemnify each of such persons to the full extent permitted by Delaware law and provide for the advancement of expenses to them on receipt of an undertaking to repay any advances to which such persons are later determined not to be entitled. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. On November 14, 1995, the Company issued and sold an aggregate of 173,913 Units, each Unit consisting of one share of Common Stock and one warrant to purchase Common Stock (the"Units"), in reliance upon the exemption provided by Section 3(b) of the Securities Act of 1933, as amended and Rule 504 of Regulation D promulgated thereunder. The Units were offered and sold exclusively to holders of record as of September 15, 1995 of shares of the Company's Common Stock and shares of the Company's Preferred Stock. No other person was permitted to subscribe for Units in the offering. The Units were offered and sold for cash, at a price of $5.75 per Unit, of which $5.49 represented the purchase price of the Common Stock, and $.26 was attributable to the Warrant. In addition to cash subscriptions, holders of the Company's Preferred Stock were given the opportunity to subscribe for the Units by voluntarily exchanging shares of Preferred Stock for Units. During the past three fiscal years and the nine months ended September 30, 1996 the Company has issued an aggregate of 19,024 shares of its Common Stock upon the exercise of outstanding stock options granted to employees or directors at prices ranging from $1.73 to $5.37 per share. All such sales shares were made in reliance upon the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. 3.1 Certificate of Incorporation, as amended of the Company. 3.2 Bylaws of the Company. 3.3 Articles of Association of the Bank. 4.1 Form of Warrant. 4.2 Form of Common Stock certificate. 5* Opinion and Consent of Bracewell & Patterson, L.L.P., as to the validity of the Common Stock registered hereunder.
II-2 102 10.1 Century Bancshares, Inc. 1994 Stock Option Plan. 10.2 Incentive Stock Option Plan for Key Employees, as amended. 10.3 Nonqualified Stock Option Plan for Key Employees, as amended. 10.4 Nonqualified Stock Option Plan for Directors, as amended. 10.5 Form of Director Compensation Agreement between the Company and its directors. 10.6 Form of Indemnity Agreement between Company and the persons named therein. 10.7 Employment Agreement dated September 1, 1996, between the Company and Mr. Joseph S. Bracewell. 10.8 Lease Agreement dated January 3, 1995, between the Bank and Pennsylvania Building Associates. 10.9 Lease and Services Agreement dated November 17, 1995, between ALLIANCE Greensboro, L.P., a Delaware limited partnership d/b/a/ ALLIANCE Business Centers, and the Bank. 10.10 Retail Lease dated January 14, 1982, between the Square 106 Associates and the Bank, as amended on March 14, 1984, December 18, 1991, February 12, 1992, October 27, 1995, and June 1, 1996. 10.11 Sublease Agreement, dated May 1, 1992, between the Company and the Bank. 21 Subsidiaries of the Registrant. 23.1 Consent of KPMG Peat Marwick LLP, independent auditors of the Company (See page II-8). 23.2* Consent of Bracewell & Patterson, L.L.P. (included in the opinion filed as Exhibit 5 hereto). 24 Powers of Attorney. 27 Financial Data Schedule.
- --------------- * To be filed by amendment. ITEM 17. UNDERTAKINGS. The undersigned registrant hereby undertakes: (a) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: II-3 103 (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in this registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in this registration statement or any material change to such information in this registration statement; Provided, however, that the undertakings set forth in paragraphs (1)(i) and (1)(ii) above do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in this registration statement. (b) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment should be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (d) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-4 104 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has caused this Registration Statement or amendment to be signed on its behalf by the undersigned, thereunto duly authorized, in the District of Columbia on the 18th day of October, 1996. CENTURY BANCSHARES INC. (Registrant) By: /S/ JOSEPH S. BRACEWELL ---------------------------------- Joseph S. Bracewell Chairman of the Board, President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Registration Statement or amendment has been signed by the following persons in the capacities indicated and on the 18th day of October, 1996.
Signature Title --------- ----- /s/ JOSEPH S. BRACEWELL Chairman of the Board, President - ---------------------------------- and Chief Executive Officer Joseph S. Bracewell (Principal Financial and Accounting Officer) Director - ---------------------------------- *George Contis Director and Vice President - ---------------------------------- *John R. Cope Director and Assistant Secretary - ---------------------------------- *Bernard J. Cravath Director - ---------------------------------- *Neal R. Gross
II-5 105
Signature Position --------- -------- Director - ---------------------------------- *Joseph H. Koonz, Jr. Director - ---------------------------------- *William McKee Director and Secretary - ---------------------------------- *William C. Oldaker By: /s/ JOSEPH S. BRACEWELL ------------------------------- Joseph S. Bracewell* Attorney-in-Fact
II-6 106 EXHIBIT INDEX 3.1 Certificate of Incorporation, as amended of the Company. 3.2 Bylaws of the Company. 3.3 Articles of Association of the Bank. 4.1 Form of Warrant. 4.2 Form of Common Stock certificate. 5* Opinion and Consent of Bracewell & Patterson, L.L.P., as to the validity of the Common Stock registered hereunder. 10.1 Century Bancshares, Inc. 1994 Stock Option Plan. 10.2 Incentive Stock Option Plan for Key Employees, as amended. 10.3 Nonqualified Stock Option Plan for Key Employees, as amended. 10.4 Nonqualified Stock Option Plan for Directors, as amended. 10.5 Form of Director Compensation Agreement between the Company and its directors. 10.6 Form of Indemnity Agreement between Company and the persons named therein. 10.7 Employment Agreement dated September 1, 1996, between the Company and Mr. Joseph S. Bracewell. 10.8 Lease Agreement dated January 3, 1995, between the Bank and Pennsylvania Building Associates. 10.9 Lease and Services Agreement dated November 17, 1995, between ALLIANCE Greensboro, L.P., a Delaware limited partnership d/b/a/ ALLIANCE Business Centers, and the Bank. 10.10 Retail Lease dated January 14, 1982, between the Square 106 Associates and the Bank, as amended on March 14, 1984, December 18, 1991, February 12, 1992, October 27, 1995, and June 1, 1996. 10.11 Sublease Agreement, dated May 1, 1992, between the Company and the Bank. 21 Subsidiaries of the Registrant. 23.1 Consent of KPMG Peat Marwick LLP, independent auditors of the Company (See page II-8). 23.2* Consent of Bracewell & Patterson, L.L.P. (included in the opinion filed as Exhibit 5 hereto). 24 Powers of Attorney. 27 Financial Data Schedule. - --------------- * To be filed by amendment. EX-3.1 2 CERTIFICATE OF INCORPORATION AS AMENDED 1 EXHIBIT 3.1 CERTIFICATE OF INCORPORATION OF CENTURY BANCSHARES, INC. ARTICLE I The name of the corporation is Century Bancshares, Inc. ARTICLE II The registered agent of the corporation is The Corporation Trust Company. The address of such registered agent is 1209 Orange Street, County of New Castle, Wilmington, Delaware 19801. ARTICLE III The nature of the business or purposes to be conducted or promoted by the corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. ARTICLE IV The total number of shares which the corporation shall have the authority to issue is 3,000,000, of which 2,000,000 shares of the par value of $1.00 each shall be shares of common stock, and 1,000,000 shares of the par value of $1.00 each shall be shares of preferred stock. The corporation may issue one or more series of preferred stock. The preferred stock of each such series shall have such voting powers, full or limited, or no voting powers, and such designations, preferences and relative, participating, optional, redemption, conversion, exchange or other special rights, and qualifications, limitations or restrictions thereof, as shall be stated and 2 expressed by the board of directors in the resolution or resolutions providing for the issue of such series of preferred stock pursuant to the authority to do so which is hereby expressly vested in the board of directors. Except as otherwise provided in any resolution or resolutions of the board of directors providing for the issue of any particular series of preferred stock, the number of shares of stock of any such series so set forth in such resolution or resolutions may be increased or decreased (but not below the number of shares of such series then outstanding) by a resolution or resolutions likewise adopted by the board of directors. Except as otherwise provided in any resolution or resolutions of the board of directors providing for the issue of any particular series of preferred stock, preferred stock redeemed or otherwise acquired by the corporation shall assume the status of authorized but unissued preferred stock and shall be unclassified as to series and may thereafter, subject to the provisions of this Article IV and to any restrictions contained in any resolution or resolutions of the board of directors providing for the issue of any such series of preferred stock, be reissued in the same manner as other authorized but unissued preferred stock. Except as otherwise specifically required by law or as specifically provided in any resolution or resolutions of the board of directors providing for the issue of any particular series of preferred stock, the exclusive voting power of the corporation shall be vested in the common stock of the corporation. Each share of common stock entitles the holder thereof to one vote at all meetings of the stockholders of the corporation. -2- 3 ARTICLE V The name and address of the incorporator of Century Bancshares, Inc. is as follows: Name Mailing Address ---- --------------- William T. Luedke IV 2900 South Tower Pennzoil Place Houston, Texas 77002 ARTICLE VI The name and mailing address of each person who is to serve as a director of the corporation until the first annual meeting of the stockholders of the corporation or until a successor is elected and qualified is as follows: Name Mailing Address ---- --------------- Joseph S. Bracewell Century National Bank 1875 Eye Street, N.W. Washington, D.C. 20006 John R. Cope Bracewell & Patterson 1825 Eye Street, 12th Floor Washington, D.C. 20006 William H. Isaac T/I Associates 1910 K Street, N.W., Suite 800 Washington, D.C. 20006 Joseph H. Koonz, Jr. Koonz, McKenney & Johnson 2020 K Street, N.W., Suite 840 Washington, D.C. 20006 William C. Oldaker 1140 19th Street, N.W. Suite 900 Washington, D.C. 20463 -3- 4 Douglas J. Patton Federal Election Commission 1325 K Street, N.W. Washington, D.C. 20463 ARTICLE VII In furtherance and not in limitation of the powers conferred by statute, the board of directors is expressly authorized to adopt, amend or repeal the by-laws of the corporation. ARTICLE VIII Elections of directors need not be by written ballot unless the by-laws of the corporation shall so provide. Meetings of stockholders may be held within or without the State of Delaware, as the by-laws may provide. The books of the corporation may be kept (subject to any provision contained in the statutes of the State of Delaware) outside the State of Delaware at such place or places as may be designated from time to time by the board of directors or in the by- laws of the corporation. ARTICLE IX The corporation reserves the right to amend, alter or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by the laws of the State of Delaware, and to add additional provisions authorized by such laws as are then in force. All rights conferred on the directors or stockholders of the corporation herein or in any amendment hereof are granted subject to this reservation. -4- 5 I, THE UNDERSIGNED, being the incorporator hereinabove named, for the purpose of forming a corporation pursuant to the General Corporation Law of the State of Delaware, do hereby make this Certificate, hereby declaring and certifying that this is my act and deed and the facts herein stated are true, and accordingly have hereunto set my hand this 17th of July, 1985. /s/ WILLIAM T. LUEDKE IV ------------------------------------- William T. Luedke IV -5- 6 CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION OF CENTURY BANCSHARES, INC. Century Bancshares, Inc. (the "Corporation"), a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, does hereby certify: FIRST: That the Board of Directors of the Corporation (the "Board"), at a meeting duly called and held on February 11, 1987 (the "Board Meeting"), at which meeting a quorum was present and acting throughout, adopted a resolution proposing and declaring advisable and in the best interest of the Corporation that as permitted by Section 102 of the General Corporation Law of the State of Delaware, the Corporation's Certificate of Incorporation ("Certificate") be amended by adding thereto a new Article X which shall be and read in its entirety as follows: "ARTICLE X No director of the corporation shall be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that the foregoing clause shall not apply to any liability of a director (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of the law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. This Article X shall not eliminate or limit the personal liability of a director for any action or omission occurring prior to the date Article X becomes effective." 7 SECOND: That at the Board Meeting, the Board adopted a resolution proposing and declaring advisable and in the best interest of the Corporation that the Certificate be amended by adding thereto a new Article XI which shall be and read in its entirety as follows: "ARTICLE XI No action required to be taken or that may be taken at any annual or special meeting of stockholders of the corporation may be taken by written consent without a meeting, prior notice and a vote." THIRD: That at the Board Meeting, the Board adopted a resolution proposing. and declaring advisable and in the best interest of the Corporation that the Certificate be amended by adding thereto a new Article XII which shall be and read in its entirety as follows: "ARTICLE XII With respect solely to the following five corporate actions, for which the Delaware General Corporation Law provides for the affirmative vote or consent of the holders of a majority of the outstanding shares of capital stock of the corporation or any class or series thereof entitled to vote (and, with respect to any class or series of capital stock established by resolution of the Board of Directors, subject to the provisions of the resolutions establishing such class or series), to the extent, and only to the extent, that such vote or consent is provided for by the Delaware General Corporation Law, the affirmative vote or consent of the holders of at least two-thirds, rather than a majority, of the outstanding shares of capital stock of the corporation or such class or series thereof entitled to vote shall be required to take such action: (i) the amendment of the Certificate of Incorporation of the corporation; (ii) the merger or consolidation of the corporation; (iii) the sale, lease, or exchange of all or substantially all of the property and assets of the-corporation; (iv) the adoption of any plan or proposal for the liquidation or dissolution of the corporation; or (v) the revocation of a dissolution of the corporation." -2- 8 FOURTH: That at the Board Meeting, the Board directed that the preceding proposed amendments to the Certificate be presented to the stockholders of the Corporation for their consideration and recommended the adoption of such amendments by the stockholders of the Corporation. FIFTH: That thereafter, at the annual meeting of the Corporation's stockholders duly called and, upon notice in accordance with the provisions of Section 222 of the General Corporation Law of the State of Delaware, held on February 27, 1987 the holders of more than the majority of the outstanding shares of capital stock of the Corporation entitled to vote thereon approved each and all of the aforesaid amendments to the Certificate. SIXTH: That the aforesaid amendments were duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be signed by Joseph S. Bracewell III, as President of the Corporation, and Rosemary M. DeMark, as Assistant Secretary of the Corporation, this 27th day of February, 1987. CENTURY BANCSHARES, INC. By: /s/ JOSEPH S. BRACEWELL III ------------------------------------ Joseph S. Bracewell III President -3- 9 ATTEST: /s/ ROSEMARY M. DEMARK Rosemary M. DeMark Secretary -4- EX-3.2 3 BYLAWS OF THE COMPANY 1 EXHIBIT 3.2 [COMPOSITE] CENTURY BANCSHARES, INC. BYLAWS ARTICLE I. Meetings of Stockholders Section 1. The annual meeting of stockholders shall be held at such date and time and at such place as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting, for the purposes of electing directors and transacting such other business as may properly come before the meeting. Section 2. Special meetings of the stockholders may be called at any time for any purpose or purposes (a) by the President of the Corporation, or (b) by the Board of Directors of the Corporation, or (c) by the President or Secretary of the Corporation (i) at the request in writing of a majority of the Board of Directors, or (ii) at the request in writing of stockholders owning a majority in amount of the entire capital stock of the Corporation issued and outstanding and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting. Upon written request of any person or persons who have duly called a special meeting, it shall be the duty of the Secretary of the Corporation to mail written notice of such meeting to the stockholders as provided in Section 4 hereof within five days after receipt of the request and to give due notice hereof. If the Secretary shall neglect or refuse to fix the date of the meeting and give notice thereof, the person or persons calling the meeting may do so. Section 3. To be properly brought before any meeting of stockholders for consideration, business must be (a) specified in the notice of meeting given by or at the direction of the President or the Board of Directors (or any supplement thereto); (b) otherwise properly brought before the 2 meeting by or at the direction of the Board of Directors; or (c) properly brought before the meeting by a stockholder. If a stockholder desires to bring business before a meeting for consideration, he must submit timely written notice of the proposed business to the Secretary of the Corporation (the "Secretary"), including with such notice the information specified below. In the case of the annual meeting of stockholders, to be timely a stockholder's notice must be delivered to or mailed and received at the principal office of the Corporation, not less than sixty days in advance of the date of the Corporation's notice of annual meeting given in connection with the previous year's annual meeting. If, however, no annual meeting was held in the previous year or the date of the annual meeting has been changed by more than thirty days from the date contemplated at the time of the previous year's notice of annual meeting, a proposal shall be received by the Corporation a reasonable time before notice of the meeting (and any accompanying solicitation of proxies) is made. In the case of a special meeting of stockholders, to be timely a stockholders' notice must be received by the Corporation a reasonable period of time prior to the date of the meeting to allow sufficient time for the dissemination of information to stockholders; provided, however, that if at least thirty calendar days notice of the meeting has been given to stockholders, a stockholders' notice must be received by the Company no later than the date which is ten days prior to the date of the meeting. A stockholder's notice of proposed business shall set forth as to each matter the stockholder proposes to bring before the meeting of stockholders the following information: (a) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at such meeting; -2- 3 (b) the name and address of the stockholder proposing such business; (c) the class, series (if applicable) and number of shares of the Corporation which are beneficially owned by the stockholder; and (d) any material interest of the stockholder in the business proposed. In addition to the foregoing information, if the business which the stockholder proposes to bring before the meeting of stockholders is the election to the Board of Directors of a person or group of persons to be nominated by or on behalf of the stockholder, the notice shall contain the information required by Article II, Section 11 of these Bylaws. After receipt of the stockholder's notice and prior to commencement of the meeting of stockholders, the Board of Directors, to the extent allowed by law, may consider the subject matter of the proposed business and reasons for conducting such business at the meeting to determine if such business should be considered. Business timely submitted by a stockholder in accordance with the foregoing procedures will be considered at the meeting of stockholders, unless the Board of Directors determines that the proposed business should not be conducted at such meeting. If the business will not be considered at the annual meeting, the Board of Directors shall notify the presiding officer of the annual meeting of such determination and the presiding officer shall declare to the meeting that such proposed business is not properly before the meeting and will not be considered. With respect to any business to be considered, the presiding officer of the meeting may determine that such business has not been brought properly before the meeting in accordance with -3- 4 the provisions of this Section and, if such determination is made, such business will not be considered. Section 4. Every special meeting of the stockholders shall be held at such place within or without the State of Delaware as the Board of Directors may designate, or, in the absence of such designation, at the registered office of the Corporation in the State of Delaware. Section 5. Written notice of every meeting of the stockholders shall be given by the Secretary of the Corporation to each stockholder of record entitled to vote at the meeting, by placing such notice addressed to each stockholder at his address appearing on the books of the Corporation or supplied by him to the Corporation for the purpose of notice in the mail, postage prepaid, not less than ten nor more than sixty days prior to the day named for the meeting. Section 6. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. Section 7. The Board of Directors may fix a date, not less than ten nor more than sixty days preceding the date of any meeting of stockholders, as a record date for the determination of stockholders entitled to notice of, or to vote at, any such meeting. The Board of Directors shall not close the books of the Corporation against transfers of shares during the whole or any part of such period. Section 8. The notice of every meeting of the stockholders may be accompanied by a form of proxy approved by the Board of Directors in favor of such person or persons as the Board of Directors may select. -4- 5 Section 9. Except as otherwise provided by law or by the Certificate of Incorporation of the Corporation, as from time to time amended, or by these By-Laws, the presence in person or by proxy of the holders of a majority of the outstanding shares of stock of the Corporation entitled to vote thereat shall constitute a quorum at each meeting of the stockholders and all questions shall be decided by vote of the majority of the shares so represented in person or by proxy at the meeting and entitled to vote thereat. The stockholders present at any duly organized meeting may continue to do business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. Section 10. Notwithstanding the other provisions of the Certificate of Incorporation or these By-Laws, the holders of a majority of the shares of stock of the Corporation entitled to vote at any meeting, present in Person or represented by proxy, whether or not a quorum is present, shall have. the power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At any such adjourned meeting at which a quorum shall be present any action may be taken that could have been taken at the meeting originally called; provided, that if the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the adjourned meeting. Section 11. Unless otherwise provided in the Certificate of Incorporation, each stockholder shall be entitled, at every meeting of the stockholders, to one vote in person or by proxy for each share of the capital stock having voting power held by such stockholder, but no proxy shall be voted after three years from its date, unless the proxy provides for a longer period. -5- 6 ARTICLE II. Board of Directors Section 1. The business, affairs and property of the Corporation shall be managed by or under the direction of the Board of Directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these By-Laws directed or required to be exercised or done by the stockholders. The number of directors shall be as fixed in such manner as may be determined by the vote of not less than a majority of the directors then in office, but shall not be less than one. The directors shall be elected at the annual meeting of stockholders, except as provided in Section 2 of this Article II. Each director shall hold office until the next annual meeting of stockholders and until his successor is duly elected and qualified or until his earlier death, resignation or removal. A director need not be a stockholder of the Corporation. Section 2. Any vacancy in the Board of Directors, including vacancies resulting from an increase in the number of directors, shall be filled by a majority of the remaining members of the Board though less than a quorum. Directors elected to fill a vacancy shall hold office until the next annual meeting of stockholders and until their successors have been duly elected and qualified, or until their earlier death, resignation or removal. Section 3. Any director may resign at any time by written notice to the Corporation. Any such resignation shall take effect at the date of receipt of such notice or at any later time specified therein, and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. -6- 7 Section 4. Regular meetings of the Board of Directors shall be held at such place or places within or without the State of Delaware, at such hour and on such day as may be fixed by resolution of the Board of Directors, without further notice of such meetings. The time or place of holding regular meetings of the Board of Directors may be changed by the President by giving written notice thereof as provided in Section 6 of this Article II. Section 5. Special meetings of the Board of Directors shall be held whenever called by the President, by a majority of the directors or by resolution adopted by the Board of Directors, at such place or places within or without the State of Delaware as may be stated in the notice of the meeting. Section 6. Written notice of the time and place of, and general nature of the business to be transacted at, all special meetings of the Board of Directors, and written notice of any change in the time or place of holding the regular meetings of the Board of Directors, shall be given to each director either personally or by mail or telegraph, telex, telecopy or similar means of visual data transmission at least one day before the day of the meeting; provided, however, that notice of any meeting need not be given to any director if waived by him in writing, or if he shall be present at such meeting, except when the director attends for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the grounds that the meeting is not lawfully called or convened. Section 7. A majority of the directors in office shall constitute a quorum of the Board of Directors for the transaction of business; but a lesser number may adjourn from day to day until a quorum is present. Except as otherwise provided by law or in these By-Laws, all questions shall be decided by the vote of a majority of the directors present. Directors may participate in any meeting -7- 8 of the directors, and members of any committee of directors may participate in any meeting of such committee, by means of conference telephone or similar communications equipment by means of which all persons participating in such meeting can hear each other, and such participation shall constitute presence in person at any such meeting. Section 8. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. Such writing, which may be in counterparts, shall be manually executed if practicable; provided, however, that if circumstances so require, effect shall be given to written consent transmitted by telegraph, telex, telecopy or similar means of visual data transmission. Section 9. Directors shall be entitled to such compensation for their services as may be approved by the Board of Directors, including, if so approved by resolution of the Board of Directors, a fixed sum and expenses of attendance, if any, for attendance at each regular or special meeting of the Board of Directors or any meeting of a committee of directors. No provision of these By-Laws shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Section 10. Any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of shares entitled to vote at an election of directors. The notice calling such meeting shall state the intention to act upon such matter, and if the notice so provides, -8- 9 the vacancy or vacancies caused by such removal may be filled at such meeting by a vote of the majority of shares entitled to vote at an election of directors. Section 11. Nominations of persons for election to the Board of Directors of the Corporation at the annual meeting of stockholders or any special meeting of stockholders called for the specific purpose of electing Directors may be made at such meeting. of stockholders by or at the direction of the Board of Directors, by any nominating committee or person appointed by the Board to make such nominations, or by any stockholder of the Corporation entitled to vote for the election of Directors at such meeting and who complies with the nomination procedures set forth in this Section and in Article I, Section 3 of these Bylaws. Nominations by stockholders shall be made only pursuant to written notice of stockholders' intent to nominate, given to the Secretary of the Corporation by delivering such notice to the principal office of the Corporation at the time and in the manner provided in Article I, Section 3 of these Bylaws. The stockholder's notice shall set forth as to each person whom the stockholder proposes to nominate for election or reelection as Director ("Nominee"), (a) the Nominee's name, age, business and residence address; (b) the principal occupation or employment of such Nominee; (c) the class, series, if applicable, and number of shares of capital stock of the Corporation beneficially owned by the Nominee and (d) any other information relating to the Nominee that is required to be disclosed in solicitations of Proxies for election of Directors pursuant to Regulation 14A of the Securities Exchange Act of 1934 as amended (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected). The Corporation may require -9- 10 any proposed Nominee to furnish such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed Nominee to serve as a Director of the Corporation. No person shall be eligible for Nomination as Director of the Corporation at any meeting of stockholders unless nominated in accordance with the procedures set forth herein. If the chairman of the meeting determines that a nomination was not made in accordance with the foregoing procedure, he shall indicate to the meeting that the defective nomination has been disregarded. ARTICLE III. Committees of Directors Section 1. The Board of Directors may, by resolution Passed by a majority of the whole Board, designate one or more committees, each committee to consist of two or more of the directors of the Corporation. The board may designate one or more directors as alternate members of any committee. The alternate members of any committee may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in a resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have such power or authority in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the -10- 11 Corporation or a revocation of a dissolution, or amending the by-laws of the Corporation; and, unless the resolution or the Certificate of Incorporation expressly so provide, no committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. Section 2. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. Section 3. Members of special or standing committees shall be entitled to receive such compensation for serving on such committees as the Board of Directors shall determine. ARTICLE IV. Officers Section 1. The officers of the Corporation shall be elected or appointed by the Board of Directors and may include, at the discretion of the Board, a Chairman of the Board, President, Secretary, Treasurer and such Executive, Senior or other Vice Presidents and other officers as may be determined by the Board. Any number of offices may be held by the same person. All officers shall hold office until their successors are elected or appointed, except that any officer may resign at any time by written notice to the Corporation and that the Board of Directors may remove any officer at any time at its discretion with or without cause. Section 2. The officers of the Corporation shall have such powers and duties as generally pertain to their offices, except as modified herein or by the Board of Directors, as well as such powers and duties as from time to time may be conferred by the Board of Directors. The Chairman -11- 12 of the Board, if one is elected, and otherwise the President, shall preside at all meetings of the Board. The President shall preside at meetings of the stockholders. ARTICLE V. Seal The seal of the Corporation shall be in such form as the Board of Directors shall prescribe. ARTICLE VI. Certificates of Stock Section 1. Every holder of stock in the Corporation shall be entitled to have a certificate, signed by, or in the name of the Corporation by, (a.) the Chairman or Vice Chairman of the Board of Directors, or the President or a Vice President and (b.) the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares owned by him in the Corporation. Any of or all the signatures on the certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. Section 2. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the -12- 13 issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. Section 3. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, and subject to applicable federal and state securities laws and contractual obligations, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE VII. Indemnification Section 1. Subject to the provisions of Section 3 of this Article VII, the Corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he -13- 14 is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, Partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or Proceeding, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. Section 2. Subject to the provisions of Section 3 of this Article VII, the Corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of the Corporation and except that no indemnification shall be made in respect to -14- 15 any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the Corporation unless and only to the extent that the Delaware Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all of the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Delaware Court of Chancery or such other court shall deem proper. Section 3. Any indemnification under Sections 1 and 2 of this Article VII (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circum-stances because he had met the applicable standard of conduct set forth in said Sections 1 and 2. Such determination shall be made (a) by the Board of Directors, by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (b) if such quorum is not obtainable, or, even if obtainable and a quorum of disinterested directors so directs, by independent legal counsel (who may be counsel to the Corporation) in a written opinion, or (c) by the stockholders. Section 4. If a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise as a party to any action, suit or proceeding, referred to in Sections 1 and 2 of this Article VII, or with respect to any claim, issue or matter therein (to the extent that a portion of his expenses can be reasonably allocated thereto), he may be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. -15- 16 Section 5. Expenses incurred by each director, officer, employee or agent in defending a civil or criminal action, suit or proceeding by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall be paid by the corporation in advance of the final disposition of such action, suit or Proceeding upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the corporation as authorized in this Article VII. Section 6. By action of the Board of Directors, notwithstanding any interest of the directors in the action, to the full extent permitted by applicable law the Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation, as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article or of Section 145 of the General Corporation Law of the State of Delaware. Section 7. For purposes of this Article VII, references to the "Corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, -16- 17 so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture or other enterprise, shall stand in, the same position under the provisions of this Article VII with respect to the resulting or surviving Corporation as he would have with respect to such constituent corporation if its separate existence had continued. Section 8. The indemnification provided pursuant to the provisions of this Article VII shall not be deemed exclusive of any other rights to those seeking indemnification may be entitled under any other by-law, agreement, contract of insurance, statute, vote of stockholders or disinterested directors or otherwise, both as to action in such person"s official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent of the Corporation or has ceased to be a director, officer, employee or agent of another corporation, partnership, joint venture or other enterprise wherein such person was serving at the request of the corporation and shall inure to the benefit of the heirs, executors and administrators of such person. ARTICLE VIII. Amendments These By-Laws may be altered, amended or repealed or new by-laws may be adopted by the stockholders or by the Board of Directors (a.) at any regular meeting of the stockholders or of the Board of Directors or (b.) at any special meeting of the stockholders or of the Board of Directors if notice of such alteration, amendment, repeal or adoption of new by-laws be contained in the notice -17- 18 of such special meeting. The Power to adopt, amend or repeal by-laws conferred upon the Board of Directors by the Certificate of Incorporation shall not divest or limit the power of the stockholders to adopt, amend or repeal by-laws. -18- EX-3.3 4 ARTICLES OF ASSOCIATION OF THE BANK 1 EXHIBIT 3.3 ARTICLES OF ASSOCIATION For the purpose of organizing an Association to carry on the business of banking under the laws of the United States, the undersigned do enter into the following Articles of Association: FIRST This title of this Association shall be Century National Bank. SECOND The main office of the Association shall be in the District of Columbia. The general business of the Association shall be conducted at its main office and its branches. THIRD The Board of Directors of this Association shall consist of not less than five nor more than twenty-five members, the exact number to be fixed and determined from time to time by resolution of a majority of the full Board of Directors or by resolution of the shareholders at any annual or special meeting thereof. A majority of the full Board of Directors may increase the number of directors between meetings of the shareholders, consistent with applicable statutory and regulatory provisions, and fill the vacancies so created. Each Director, during the full term of his directorship, shall own a minimum of $1,000 par value of stock of this Association or of any other corporation which is permitted by the Comptroller of the Currency. Any vacancy in the Board of Directors may be filled by action of the Board of Directors, FOURTH There shall be an annual meeting of the shareholders the purpose of which shall be the election of Directors and the transaction of whatever other business may be brought before said meeting. It shall be held at the main office or other convenient place as the Board of Directors may designate, on the day of each year specified therefor in the Bylaws, but if no election is held on that day, it may be held on any subsequent day according to such lawful rules as may be prescribed by the Board of Directors. 2 FIFTH The authorized amount of capital stock of this Association shall be 410,000 shares of common stock of the par value of Five Dollars ($5.00) each; but said capital stock may be increased or decreased from time to time, in accordance with the provisions of the laws of the United States. Shares of authorized but unissued capital stock may be issued from time to time at the discretion of the Board of Directors, without the approval of the shareholders, for purposes of raising additional capital funds for the Association, employee compensation programs or other objectives of the Association duly approved by the Board of Directors. If the capital stock is increased by the sale of additional shares thereof, each shareholder shall be entitled to subscribe for such additional shares in proportion to the number of shares of said capital stock owned by him/her at the time the increase is authorized by the shareholders, unless another time subsequent to the date of the shareholders' meeting is specified in a resolution by the shareholders at the time the increase is authorized. The Board of Directors shall have the power to prescribe a reasonable period of time within which the preemptive rights to subscribe to the new shares of capital stock must be exercised. The Association, at any time and from time to time, may authorize and issue debt obligations, whether or not subordinated, without the approval of the shareholders. SIXTH The Board of Directors shall appoint one of its members President of this Association, who shall be Chairman of the Board, unless the Board appoints another Director to be the Chairman. The Board of Directors shall have the power to appoint one or more Vice Presidents, a Cashier and such other officers and employees as may be required to transact the business of this Association. The Board of Directors shall have the power to define the duties of the officers and employees of the Association; to fix the -2- 3 salaries to be paid to them; to dismiss them; to require bonds from them and to fix the penalty thereof; to regulate the manner in which any increase of the capital of the Association shall be made; to manage and administer the business and affairs of the Association; to make all Bylaws that it may be lawful for them to make; and generally to do and perform all acts that it may be legal for a Board of Directors to do and perform. SEVENTH Upon approval by the Comptroller of the Currency and the shareholders owning two-thirds of the stock of the Association, the Board of Directors shall have the power to change the location of the main office to any authorized branch location not more than thirty miles from its present location. The Board of Directors also shall have the power to establish or change the location of any branch or branches of the Association to any other location, without the approval of the shareholders but subject to the approval of the Comptroller of the Currency. EIGHTH The corporate existence of this Association shall continue until terminated in accordance with the laws of the United States. NINTH The Board of Directors of this Association, or any one or more shareholders owning, in the aggregate, not less than twenty-five percent of the stock of this Association, may call a special meeting of shareholders at any time. Unless otherwise provided by the laws of the United States, a notice of the time, place and purpose of every annual and special meeting of the shareholders shall be given by first-class mail, postage prepaid, mailed at least ten days prior to the date of such meeting to each shareholder of record at his address as shown upon the books of this Association. -3- 4 TENTH As provided by the General Corporation Law of the state of Delaware, the following provisions relating to indemnification shall govern with respect to the Association. Section 1. Subject to the provisions of Section 3 of this Article Tenth, the Association may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Association) by reason of the fact that he is or was a director, officer, employee or agent of the Association, or is or was serving at the request of the Association as a director, officer, employee or agent of another association, corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Association, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Association, and with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. Section 2. Subject to the provisions of Section 3 of this Article Tenth, the Association may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Association to procure a judgment in its favor by reason of the -4- 5 fact that he is or was a director, officer, employee or agent of the Association or is or was serving at the request of the Association as a director, officer, employee or agent of another association, corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of the Association and except that no indemnification shall be made in respect to any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the Association unless and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all of the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper. Section 3. Any indemnification under Sections 1 and 2 of this Article Tenth (unless ordered by a court) shall be made by the Association only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he had met the applicable standard of conduct set forth in said Sections 1 and 2. Such determination shall be made (a) by the Board of Directors, by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (b) if such quorum is not obtainable, or, even if obtainable and a quorum of disinterested directors so directs, by independent legal counsel (who may be counsel to the Association) in a written opinion, or (c) by the stockholders. Section 4. If a director, officer, employee or agent of the Association has been successful on the merits or otherwise as a party to any action, suit or proceeding, referred to in Sections 1 and 2 of this Article Tenth, or with respect to any -5- 6 claim, issue or matter therein (to the extent that a portion of his expenses can be reasonably allocated thereto), he may be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. Section 5. Expenses incurred by each director, officer, employee or agent in defending a civil or criminal action, suit or proceeding by reason of the fact that he is or was a director, officer, employee or agent of the Association, or is or was serving at the request of the Association as a director, officer, employee or agent of another association, corporation, partnership, joint venture, trust or other enterprise, shall be paid by the Association in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Association as authorized in this Article Tenth. Section 6. By action of the Board of Directors, notwithstanding any interest of the directors in the action, to the full extent permitted by applicable law, the Association may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Association, or is or was serving at the request of the Association, as a director, officer, employee or agent of another association, corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Association would have the power to indemnify him against such liability under the provisions of this Article or of Section 145 of the General Corporation Law of the State of Delaware, except that such insurance shall exclude coverage on behalf of any person who is or was a director, officer, employee, or agent of the Association against expenses, penalties, or other payments incurred in an administrative proceeding or action instituted by an appropriate bank regulatory agency which proceeding or action -6- 7 results in a final order assessing civil money penalties or requiring affirmative action by an individual or individuals in the form of payments to the Association. Section 7. For purposes of this Article Tenth, references to the "Association" shall include, in addition to the resulting association, any constituent association or corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent association or corporation, or is or was serving at the request of such constituent association or corporation as a director, officer, employee or agent of another association, corporation, partnership, joint venture or other enterprise, shall stand in the same position under the provisions of this Article Tenth with respect to the resulting or surviving association or corporation as he would have with respect to such constituent association or corporation if its separate existence had continued. Section 8. The indemnification provided pursuant to the provisions of this Article Tenth shall not be deemed exclusive of any other rights to those seeking indemnification may be entitled under any other by-law, agreement, contract of insurance, statute, vote of stockholders or disinterested directors or otherwise, both as to action in such person's official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent of the Association or has ceased to be a director, officer, employee or agent of another association, corporation, partnership, joint venture or other enterprise wherein such person was serving at the request of the Association and shall inure to the benefit of the heirs, executors and administrators of such person. Section 9. No director of the Association shall be personally liable to the Association or its stockholders for -7- 8 monetary damages for breach of fiduciary duty as a director; provided, however, that the foregoing clause shall not apply to any liability of a director (i) for any breach of the director's duty of loyalty to the Association or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of the law, (iii) under Section 174 of the General Corporation Law of the State of Delaware, or (iv) for any transaction from which the director derived an improper personal benefit. This Section 9 of Article Tenth shall not eliminate or limit the personal liability of a director for any action or omission occurring prior to the date Section 9 of Article Tenth becomes effective. Section 10. The indemnification provided pursuant to the provisions of this Article Tenth shall not be deemed to include the indemnification of any person who is or was a director, officer, employee, or agent of the Association against expenses, penalties, or other payments incurred in an administrative proceeding or action instituted by an appropriate bank regulatory agency which proceeding or action results in a final order assessing civil money penalties or requiring affirmative action by an individual or individuals in the form of payments to the Association. ELEVENTH These Articles of Association may be amended at any regular or special meeting of the shareholders by the affirmative vote of the holders of a majority of the stock of this Association, unless the vote of the holders of a greater amount of stock is required by law, and in that case by the vote of the holders of such greater amount. -8- EX-4.1 5 FORM OF WARRANT 1 EXHIBIT 4.1 CENTURY BANCSHARES, INC. FORM OF WARRANT CERTIFICATE FOR PURCHASE OF SHARES OF COMMON STOCK THIS WARRANT CERTIFICATE MAY NOT BE TRANSFERRED BY THE HOLDER HEREOF PRIOR TO FEBRUARY 15, 1996 AND IS VOID AFTER 5:00 P.M. ON NOVEMBER 16, 1998. Number of Warrants:__________ Warrant No._________ This Warrant Certificate certifies that, for value received, is the registered holder of the number of Warrants (the "Warrants") set forth above. Each Warrant entitles the holder thereof to purchase from Century Bancshares, Inc., a Delaware corporation ("Company"), at any time or from time to time after November 14, 1996 and on or before 5:00 p.m., Easternt Time, on November 16, 1998 ("Expiration Date"), one (1) share of fully paid and nonassessable Common Stock, $1.00 par value ("Common Stock"), of the Company at an exercise price of $5.75 per share, subject to adjustment as provided herein ("Exercise Price"), on the terms set forth herein. As used herein, the term "Warrant Issuance Date" shall mean November 14, 1995. 1. EXERCISE OF WARRANTS. (a) At any time after November 14, 1996 and prior to the Expiration Date, the Warrants evidenced by this Warrant Certificate may be exercised in whole or in part by presentation and surrender of this Warrant Certificate at the office of the Company with the within contained Subscription Form duly completed and executed and accompanied by payment of the Exercise Price as then in effect by bank draft or cashier's check for the number of Warrants being exercised. If the holder of this Warrant Certificate at any time exercises less than all the Warrants evidenced by this Warrant Certificate, the Company shall issue to such holder a warrant certificate identical in form to this Warrant Certificate, but evidencing a number of Warrants equal to the number of Warrants originally represented by this Warrant Certificate less the number of Warrants previously exercised. Likewise, upon the presentation and surrender of this Warrant Certificate at the office of the Company and at the request of the holder, the Company will, at the option of the holder, issue to the holder in substitution for this Warrant Certificate one or more warrant certificates in identical form and for an aggregate number of Warrants equal to the number of Warrants evidenced by this Warrant Certificate. (b) To the extent that the Warrants evidenced by this Warrant Certificate have not been exercised on or before 5:00 p.m., Eastern Time, on November 16, 1998, such Warrants shall expire and the rights of the holder shall become void and of no effect. 2. REPURCHASE OF WARRANT. (a) If and to the extent the Warrants evidenced by this Warrant Certificate have not theretofore been exercised in full in the manner contemplated by Section 1 hereof, such Warrants may be repurchased by the Company as a whole at any time on and 2 after Friday, November 14, 1997 and prior to the Expiration Date, at the price of $.26 per Warrant (the "Warrant Call Price"). The Company shall have no obligation to establish a sinking fund in respect of the Warrants evidenced by this Warrant Certificate. (b) The Company may exercise its right to repurchase the Warrants evidenced by this Warrant Certificate by mailing notice of its election to do so to the record holder of this Warrant Certificate (the "Warrant Call Notice") at least 30 but not more than 50 days prior to the date fixed for such repurchase (the "Warrant Call Date"). Each such notice shall specify (i) the Warrant Call Date, (ii) the Warrant Call Price, (iii) the place for payment and for delivering this Warrant Certificate and transfer instrument(s) in order to receive the Warrant Call Price, (iv) the number of Warrants to be repurchased, (v) the then effective Exercise Price, and (vi) that the right of the holder of the Warrants evidenced by this Warrant Certificate to exercise such Warrants shall terminate as to the Warrants specified in the Warrant Call Notice at the close of business on the Warrant Call Date (provided that no default by the Company in the payment of the applicable Warrant Call Price shall have occurred and be continuing on the Warrant Call Date). Any notice mailed in such manner shall be conclusively deemed to have been duly given regardless of whether such notice is in fact received. In order to facilitate the repurchase of the Warrants, the Board of Directors of the Company may fix a record date for determination of holders of Warrants to be repurchased, which shall not be more than 60 days prior to the Warrant Call Date with respect thereto. If no record date is fixed by the Board of Directors, the record date shall be the date the Warrant Call Notice is mailed. (c) The holder of any Warrants as to which the Company exercises its right contained in this Section 2 shall not be entitled to receive payment of the Warrant Call Price for such Warrants until such holder shall cause to be delivered to the place specified in the Warrant Call Notice given with respect thereto, the Warrant Certificate or Certificates evidencing the Warrant(s) with the within contained Transfer Form duly completed and sufficient to transfer such Warrants to the Company free of any adverse interest. No interest shall accrue on the Warrant Call Price. (d) At the close of business on the Warrant Call Date for any Warrant, such Warrant shall (provided the Warrant Call Price of such Warrant has been paid or properly provided for) be deemed repurchased, shall cease to be outstanding and all rights of any person other than the Company in such Warrant shall be extinguished on the Warrant Call Date for such Warrant, except for the right to receive the Warrant Call Price, without interest, for such Warrant in accordance with the provisions of this Section 2, subject to applicable escheat laws. (e) In the event that any Warrants evidenced by this Warrant Certificate shall be exercised prior to the Warrant Call Date, then (i) the Company shall not have the right to repurchase such Warrants and (ii) any funds which shall have been set aside for the payment of the Warrant Call Price for such Warrants shall be released to the Company immediately after such exercise. -2- 3 3. RESTRICTIONS ON TRANSFER. This Warrant Certificate, the Warrants evidenced hereby and the shares of Common Stock or other securities purchasable upon the exercise of the Warrants have not been registered under the Securities Act of 1933, as amended, or under any state securities law (collectively, the "Acts"), in reliance on exemptions from the registration provisions thereof. The holder hereof acknowledges that this Warrant Certificate, the Warrants evidenced hereby and the Common Stock or other securities purchasable on the exercise of the Warrants may not be directly or indirectly sold, transferred or otherwise disposed of (i) prior February 15, 1996, or (ii) in violation of the provisions of the Acts. Any purported sale, transfer or other disposition of this Warrant Certificate, the Warrants evidenced hereby or the shares of Common Stock or other securities purchasable on exercise of the Warrants in violation of this provision shall be void and the Company shall not be required to recognize the same. Compliance with this provision is the responsibility of the holder. The Company shall deem and treat the registered holder of this Warrant Certificate as the true and lawful owner of the Warrants evidenced hereby for all purposes, any claims of another person to the contrary notwithstanding. 4. ANTIDILUTIVE ADJUSTMENT. The shares of Common Stock purchasable on exercise of the Warrants evidenced by this Warrant Certificate are shares of Common Stock of the Company as constituted as of the Warrant Issuance Date. The number and kind of securities purchasable on the exercise of the Warrants evidenced by this Warrant Certificate, and the Exercise Price, shall be subject to adjustment from time to time upon the happening of certain events, as follows: (a) MERGERS, CONSOLIDATIONS AND RECLASSIFICATIONS. In case of any reclassification or change of outstanding securities issuable upon exercise of the Warrants evidence by this Warrant Certificate at any time after the Warrant Issuance Date (other than a change in par value, or from par value to no par value, or from no par value to par value or as a result of a subdivision or combination to which subsection 4(b) applies), or in case of any consolidation or merger of the Company with or into another corporation (other than a merger with another corporation in which the Company is the surviving corporation and which does not result in any reclassification or change [other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination to which subsection 4(b) applies] of outstanding securities issuable upon exercise of this Warrant), the holder of the Warrants evidenced by this Warrant Certificate shall have, and the Company, or such successor corporation or other entity, shall covenant in the constituent documents effecting any of the foregoing transactions that such holder does have, the right to obtain upon the exercise of the Warrants evidenced by this Warrant Certificate, in lieu of each share of Common Stock, other securities, money or other property theretofore issuable upon exercise of a Warrant, the kind and amount of shares of stock, other securities, money or other property receivable upon such reclassification, change, consolidation or merger by a holder of Common Stock, other securities, money or other property issuable upon exercise of a Warrant as if the Warrants evidenced by this Warrant Certificate had been exercised immediately prior to such reclassification, change, -3- 4 consolidation or merger. The constituent documents effecting any such reclassification, change, consolidation or merger shall provide for any adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided in this subsection 4(a). The provisions of this subsection 4(a) shall similarly apply to successive reclassifications, changes, consolidations or mergers. (b) SUBDIVISIONS AND COMBINATIONS. If the Company, at any time after the Warrant Issuance Date, shall subdivide its shares of Common Stock into a greater number of shares, the Exercise Price in effect immediately prior to such subdivision shall be proportionately reduced, and the number of shares of Common Stock purchasable upon exercise of the Warrants evidenced by this Warrant Certificate shall be proportionately increased, as at the effective date of such subdivision, or if the Company shall take a record of holders of its Common Stock for the purpose of so subdividing, as at such record date, whichever is earlier. If the Company, at any time after the Warrant Issuance Date, shall combine its shares of Common Stock into a smaller number of shares, the Exercise Price in effect immediately prior to such combination shall be proportionately increased, and the number of shares of Common Stock purchasable upon exercise of the Warrants evidenced by this Warrant Certificate shall be proportionately reduced, as at the effective date of such combination, or if the Company shall take a record of holders of its Common Stock for purposes of such combination, as at such record date, whichever is earlier. (c) DIVIDENDS AND DISTRIBUTIONS. If the Company at any time after the Warrant Issuance Date shall declare a dividend on its Common Stock payable in stock or other securities of the Company or of any other corporation or other entity, or in property or otherwise than in cash, to the holders of its Common Stock, the holder of a Warrant evidenced by this Warrant Certificate shall, without additional cost, be entitled to received upon any exercise of a Warrant evidenced by this Warrant Certificate, in addition to the Common Stock to which such holder would otherwise be entitled upon such exercise, the number of shares of stock or other securities or property which such holder would have been entitled to receive if he had been a holder immediately prior to the record date for such dividend (or, if no record date shall have been established, the payment date for such dividend) of the number of shares of Common Stock purchasable on exercise of such Warrant immediately prior to such record date or payment date, as the case may be. 5. COVENANTS OF THE COMPANY. The Company covenants and agrees that: (a) During the period within which the Warrants evidenced by this Warrant Certificate may be exercised, the Company shall at all times reserve and keep available, free from preemptive rights, out of the aggregate of its authorized but unissued Common Stock, for the purpose of enabling it to satisfy any obligation to issue shares of Common Stock upon the exercise of the Warrants evidenced by this Warrant Certificate, the number of shares of Common Stock issuable upon the exercise of such Warrants. -4- 5 (b) The Company shall pay all expenses, taxes (other than stock transfer taxes or charges) and other charges payable in connection with the preparation, issuance and delivery of new warrant certificates on transfer of the Warrants evidenced by this Warrant Certificate. (c) All Common Stock which may be issued upon exercise of the Warrants evidenced by this Warrant Certificate shall upon issuance be validly issued, fully paid, non-assessable and free from all taxes, liens and charges with respect to the issuance thereof. (d) All original issue taxes payable in respect of the issuance of shares of Common Stock to the registered holder hereof upon the exercise of the Warrants evidenced by this Warrant Certificate shall be borne by the Company; provided, that the Company shall not be required to pay any tax or charge imposed in connection with any transfer involved in the issuance of any certificate representing shares of Common Stock in any name other than that of the registered holder hereof, and in such case the Company shall not be required to issue or deliver any certificate representing shares of Common Stock until such tax or other charge has been paid or it has been established to the Company's satisfaction that no such tax or charge is due. 6. NO RIGHTS AS STOCKHOLDER. The holder of the Warrants evidenced by this Warrant Certficate shall not, by virtue of holding such Warrants, be entitled to any rights of a stockholder of the Company either at law or in equity, and the rights of the holder of the Warrants evidenced by this Warrant Certificate are limited to those expressed herein. IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be executed this _____ day of ___________________, 199__ by its President and Secretary, thereunto duly authorized. CENTURY BANCSHARES, INC. By: ---------------------------------- Joseph S. Bracewell President ATTEST: - ------------------------- William C. Oldaker Secretary -5- 6 SUBSCRIPTION FORM [To be executed on exercise of the Warrants evidenced by this Warrant Certificate] TO: Century Bancshares, Inc. The undersigned, the holder of the Warrants evidenced by the attached Warrant Certificate, hereby irrevocably elects to exercise the purchase right evidenced by such Warrant Certificate for, and to purchase thereunder, __________ shares of Common Stock of Century Bancshares, Inc. and herewith makes payment of ______________________________________ ($_______________) for those shares, and requests that the certificate representing those shares be issued in the name of _____________________ and delivered to ___________________________________, whose address is ___________________________________________. . Dated: __________ ________________________________________ ________________________________________ Signature(s) of Registered Holder(s) Note: The above signature(s) must correspond with the name as written on the face of this Warrant Certificate in every particular, without alteration or enlargement or any change whatsoever. - -------------------------------------------------------------------------------- TRANSFER FORM [To be executed only upon transfer of the Warrants evidenced by this Warrant Certificate] FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto ______________________________________________________ the Warrants represented by the within Warrant Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint _____________________________________ Attorney-in-Fact, to transfer same on the books of the Company with full power of substitution in the premises. Dated:____________ _____________________________________ _____________________________________ Signature(s) of Registered Holder(s) Note: The above signature(s) must correspond with the name as written on the face of this Warrant Certificate in every particular, without alteration or enlargement or any change whatsoever. WITNESS: _____________________________ -6- EX-4.2 6 FORM OF COMMON STOCK CERTIFICATE 1 EXHIBIT 4.2 [FACE OF CERTIFICATE] CERTIFICATE NUMBER CENTURY COMMON SHARES Bancshares, Inc. INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE SPECIMEN - -------- THIS CERTIFICATE IS TRANSFERABLE IN WASHINGTON, D.C. SEE REVERSE FOR INFORMATION CONCERNING CERTAIN DEFINITIONS AND RESTRICTIONS This certifies that [SPECIMEN] is the owner of ______ FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK OF THE PAR VALUE OF $1.00 PER SHARE OF Century Bancshares, Inc. transferable on the books of the Corporation by the holder hereof, in person, or by duly authorized attorney, upon surrender of this certificate properly endorsed. This certificate and the shares represented hereby are issued and shall be subject to the provisions of the laws of the State of Delaware and to all of the provisions of the Certificate of Incorporation and the Bylaws of the Corporation, as amended from time to time, to all of which the holder hereof by acceptance of this certificate assents. This Certificate is not valid unless countersigned by the Transfer Agent and registered by the Registrar. Witness the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. DATED -------------------- [SEAL] - ----------------------------------------- ------------------------------- SECRETARY CHAIRMAN 2 [REVERSE OF CERTIFICATE] The corporation will furnish without charge to each stockholder who so requests a statement of the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Any such request should be made to the Secretary of the Corporation. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations. TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian TEN ENT - as tenants by the ------ -------- entireties (Cust) (Minor) JT TEN - as joint tenants with under Uniform Gifts to right of survivorship Minors Act and not as tenants in common ------------------ (State) Additional abbreviations may also be used though no in the above list. For Value Received, hereby sell, assign and transfer unto -------- PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE [ ] ---------------------------------------------------------------------------- (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Shares ---------------------------------------------------------------------- of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint Attorney -------------------------------------------------------------------- to transfer the said stocks on the books of the within named Corporation with full power of substitution in the premises. Dated --------------------------------- ------------------------------------------- NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. -2- EX-10.1 7 1994 STOCK OPTION PLAN 1 EXHIBIT 10.1 CENTURY BANCSHARES, INC. 1994 STOCK OPTION PLAN SECTION 1. Purpose of the Plan. The purpose of this Century Bancshares, Inc. 1994 Stock Option Plan ("Plan") is to encourage ownership of common stock, $1.00 par value ("Common Stock"), of Century Bancshares, Inc., a Delaware corporation (the "Company"), by eligible key employees and directors of the Company and/or its bank subsidiaries (collectively, the "Bank") and to provide increased incentive for such employees and directors to render services and to exert maximum effort for the business success of the Company. In addition, the Company expects that the Plan will further strengthen the identification of employees and directors with the stockholders. Certain options to be granted under this Plan are intended to qualify as Incentive Stock Options ("ISOs") pursuant to Section 422 of the Internal Revenue Code of 1986, as amended ("Code"), while other options granted under this Plan will be nonqualified options which are not intended to qualify as ISOs ("Nonqualified Options"), either or both as provided in the agreements evidencing the options as provided in Section 6 hereof. SECTION 2. Administration of the Plan. (a) Composition of Committee. The Plan shall be administered by the Compensation Committee (the "Committee") designated by the Board of Directors of the Company (the "Board"), which shall also designate the Chairman of the Committee. If the Company is governed by Rule 16b-3 promulgated by the Securities and Exchange Commission ("Commission") pursuant to the Securities Exchange Act of 1934, as amended ("Exchange Act"), no director shall serve as a member of the Committee unless such director is a "disinterested person" within the meaning of such Rule 16b-3. (b) Committee Action. The Committee shall hold its meetings at such times and places as it may determine. A majority of its members shall constitute a quorum, and all determinations of the Committee shall be made by not less than a majority of its members. Any decision or determination reduced to writing and signed by a majority of the members shall be fully effective as if it had been made by a majority vote of its members at a meeting duly called and held. The Committee may designate the Secretary of the Company or other Company employees to assist the Committee in the administration of the Plan, -1- 2 and may grant authority to such persons to execute award agreements or other documents on behalf of the Committee and the Company. Any duly constituted committee of the Board satisfying the qualifications of this Section 2 may be appointed as the Committee. (c) Committee Expenses. All expenses and liabilities incurred by the Committee in the administration of the Plan shall be borne by the Company. The Committee may employ attorneys, consultants, accountants or other persons. SECTION 3. Stock Reserved for the Plan. Subject to adjustment as provided in Section 6(k) hereof, the aggregate number of shares of Common Stock that may be optioned under the Plan is 150,000. The shares subject to the Plan shall consist of authorized but unissued shares of Common Stock and such number of shares shall be and is hereby reserved for sale for such purpose. Any of such shares which may remain unsold and which are not subject to outstanding options at the termination of the Plan shall cease to be reserved for the purpose of the Plan, but until termination of the Plan or the termination of the last of the options granted under the Plan, whichever last occurs, the Company shall at all times reserve a sufficient number of shares to meet the requirements of the Plan. Should any option expire or be cancelled prior to its exercise in full, the shares theretofore subject to such option may again be made subject to an option under the Plan. SECTION 4. Eligibility. The persons eligible to participate in the Plan as a recipient of options ("Optionee") shall include only key employees and directors of the Company or the Bank at the time the option is granted. An employee who has been granted an option hereunder may be granted an additional option or options, if the Committee shall so determine. SECTION 5. Grant of Options. (a) Committee Discretion. The Committee shall have sole and absolute discretionary authority (i) to determine, authorize, and designate those key employees and directors of the Company or the Bank who are to receive options under the Plan, (ii) to determine the number of shares of Common Stock to be covered by such options and the terms thereof, and (iii) to determine the type of option granted: ISO, Nonqualified Option or a combination of ISO and Nonqualified Options; provided that a director may not receive any ISOs. The Committee shall thereupon grant options in accordance with such determinations as evidenced by a written option agreement. Subject to the express provisions of the Plan, -2- 3 the Committee shall have discretionary authority to prescribe, amend and rescind rules and regulations relating to the Plan, to interpret the Plan, to prescribe and amend the terms of the option agreements (which need not be identical) and to make all other determinations deemed necessary or advisable for the administration of the Plan. (b) Stockholder Approval. All options granted under this Plan are subject to, and may not be exercised before, the approval of this Plan by the stockholders prior to the first anniversary date of the Board meeting held to approve the Plan, by the affirmative vote of the holders of a majority of the outstanding shares of the Company present, or represented by proxy, and entitled to vote thereat or by written consent in accordance with the laws of the State of Delaware; provided that if such approval by the stockholders of the Company is not forthcoming, all options previously granted under this Plan shall be void. (c) Limitation on Incentive Stock Options. The aggregate fair market value (determined in accordance with Section 6(b) of this Plan at the time the option is granted) of the Common Stock with respect to which ISOs may be exercisable for the first time by any Optionee during any calendar year under all such plans of the Company and the Bank shall not exceed $100,000. SECTION 6. Terms and Conditions. Each option granted under the Plan shall be evidenced by an agreement, in a form approved by the Committee, which shall be subject to the following express terms and conditions and to such other terms and conditions as the Committee may deem appropriate. (a) Option Period. The Committee shall promptly notify the Optionee of the option grant and a written agreement shall promptly be executed and delivered by and on behalf of the Company and the Optionee, provided that the option grant shall expire if a written agreement is not signed by said Optionee (or said Optionee's agent or attorney) and returned to the Company within 60 days from date of receipt by the Optionee of such agreement. The date of grant shall be the date the option is actually granted by the Committee, even though the written agreement may be executed and delivered by the Company and the Optionee after that date. Each option agreement shall specify the period for which the option thereunder is granted (which in no event shall exceed ten years from the date of grant) and shall provide that the option shall expire at the end of such period. If the original term of an option is less than ten years from the date of -3- 4 grant, the option may be amended prior to its expiration, with the approval of the Committee and the Optionee, to extend the term so that the term as amended is not more than ten years from the date of grant. However, in the case of an ISO granted to an individual who, at the time of grant, owns stock possessing more than 10 percent of the total combined voting power of all classes of stock of the Company or the Bank ("Ten Percent Stockholder"), the period for which the option thereunder is granted shall not exceed five years from the date of grant. (b) Option Price. The purchase price of each share of Common Stock subject to each option granted pursuant to the Plan shall be determined by the Committee at the time the option is granted and, in the case of ISOs, shall not be less than 100% of the fair market value of a share of Common Stock on the date the option is granted, as determined by the Committee. In the case of an ISO granted to a Ten Percent Stockholder, the option price shall not be less than 110% of the fair market value of a share of Common Stock on the date the option is granted. The purchase price of each share of Common Stock subject to a Nonqualified Option under this Plan shall be determined by the Committee prior to granting the option. The Committee shall set the purchase price for each share subject to a Nonqualified Option at such price as the Committee in its sole discretion shall determine. For all purposes under the Plan, the fair market value of a share of Common Stock on a particular date shall be equal to the mean of the reported high and low sales prices of the Common Stock on the New York Stock Exchange Composite Tape on that date, or if no prices are reported on that date, on the last preceding date on which such prices of the Common Stock are so reported. If the Common Stock is not traded on the New York Stock Exchange at the time a determination of its fair market value is required to be made hereunder, its fair market value shall be deemed to be equal to the average between the closing bid and ask prices of the Common Stock on the most recent date the Common Stock was publicly traded. In the event the Common Stock is not publicly traded at the time a determination of its value is required to be made hereunder, the determination of its fair market value shall be made by the Committee in such manner as it deems appropriate. (c) Exercise Period. The Committee may provide in the option agreement that an option may be exercised in whole, immediately, or is to be exercisable in increments. However, no portion of any option may be exercisable -4- 5 by an Optionee prior to the approval of the Plan by the stockholders of the Company. (d) Procedure for Exercise. Options shall be exercised by the manner set out in this paragraph. Ten (10) days prior to exercise of an option, the Optionee shall deliver to the Company by the U.S. mails or by hand delivery an irrevocable written notice (a) setting forth the number of shares with respect to which the option is exercised and (b) specifying the address to which the shares are to be mailed. Such notice shall be deemed to be received by the Company on the date the notice was mailed, if sent through the U.S. mails, or on the date actually received by the Company, if the notice is delivered other than by the U.S. mails. Such notice shall be accompanied by consideration equal to the option price for the shares to be acquired by the exercise of the Option (the "Option Price Amount") in the form of (i) cash, (ii) cashier's check, bank draft or postal or express money order payable to the order of the Company, (iii) shares of Common Stock already owned by the Optionee, duly endorsed to the order of the Company, having a total fair market value (as determined by the Committee) equal to the Optionee Price Amount, or (iv) any combination of the above-described consideration equal to the Option Price Amount. The Committee shall determine the value of any shares of the Company stock paid to the Company to satisfy the Option Price Amount. Such value shall be determined as of the date the notice is deemed to be received by the Company. As promptly as practicable after receipt of such written notice and the Option Price Amount, the Company shall deliver to the Optionee certificates for the number of shares with respect to which such option has been so exercised, issued in the Optionee's name; provided, however, that such delivery shall be deemed effected for all purposes when a stock transfer agent of the Company shall have deposited such certificates in the United States mail, addressed to the Optionee at the address specified in the notice. (e) Termination of Employment. If an employee to whom an option is granted ceases to be employed by the Company for any reason other than death or disability or if a director to whom an option is granted ceases to serve on the Board for any reason other than death or disability, any option which is exercisable on the date of such termination of employment or cessation from the Board shall expire upon such date of such termination of employment or cessation from the Board except as hereinafter provided. Any options which are exercisable on the date of such termination may be exercised during -5- 6 a three-month period beginning on such date; provided, however, if an Optionee's termination of employment or cessation from the Board is due to such Optionee's dishonesty, theft, embezzlement from the Company or the Bank, disclosing trade secrets of the Company or the Bank, willful violation of any rules of the Company or the Bank pertaining to the conduct of individuals performing services for the Company or the Bank, or the commission of a willful felonious act while in the employment of the Company or the Bank or while serving on the Board, then any option or unexercised portion thereof granted to said Optionee, shall expire upon such termination. (f) Disability or Death of Optionee. In the event of the determination of disability or death of an Optionee under the Plan while he or she is employed by the Company or while he or she serves on the Board, the options previously granted to him may be exercised (to the extent he or she would have been entitled to do so at the date of the determination of disability or death) at any time and from time to time, within a one year period after such determination of disability or death, by the former employee or director, the guardian of his or her estate, the executor or administrator of his or her estate or by the person or persons to whom his or her rights under the option shall pass by will or the laws of descent and distribution, but in no event may the option be exercised after its expiration under the terms of the option agreement. An Optionee shall be deemed to be disabled if, in the opinion of a physician selected by the Committee, he or she is incapable of performing services for the Company of the kind he or she was performing at the time the disability occurred by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long, continued and indefinite duration. The date of determination of disability for purposes hereof shall be the date of such determination by such physician. The Committee, in its sole discretion, may allow an Optionee to exercise all or a portion of the Options granted but unexercised for a longer period than one year after disability or death. (g) Assignability. An option shall not be assignable or otherwise transferable except by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order as defined in the Code or Title I of the Employee Retirement Income Security Act, as amended, or the rules thereunder. During the lifetime of an Optionee, an option shall be exercisable only by him. -6- 7 (h) Incentive Stock Options. Each option agreement may contain such terms and provisions as the Committee may determine to be necessary or desirable in order to qualify an option designated as an incentive stock option. (i) No Rights as Stockholder. No Optionee shall have any rights as a stockholder with respect to shares covered by an option until the option is exercised by the written notice and accompanied by payment as provided in clause (d) above. (j) Extraordinary Corporate Transactions. The existence of outstanding options shall not affect in any way the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations, exchanges, or other changes in the Company's capital structure or its business, or any merger or consolidation of the Company, or any issuance of Common Stock or other securities or subscription rights thereto, or any issuance of bonds, debentures, preferred or prior preference stock ahead of or affecting the Common Stock or the rights thereof, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. If the Company recapitalizes or otherwise changes its capital structure, or merges, consolidates, sells all of its assets or dissolves (each of the foregoing a "Fundamental Change"), then thereafter upon any exercise of an option theretofore granted the Optionee shall be entitled to purchase under such option, in lieu of the number of shares of Common Stock as to which option shall then be exercisable, the number and class of shares of stock and securities to which the Optionee would have been entitled pursuant to the terms of the Fundamental Change if, immediately prior to such Fundamental Change, the Optionee had been the holder of record of the number of shares of Common Stock as to which such option is then exercisable. If (i) the Company shall not be the surviving entity in any merger or consolidation (or survives only as a subsidiary of another entity), (ii) the Company sells all or substantially all of its assets to any other person or entity (other than a wholly-owned subsidiary), (iii) any person or entity (including a "group" as contemplated by Section 13(d)(3) of the Exchange Act) acquires or gains ownership or control of (including, without limitation, power to vote) more than 50% of the outstanding shares of Common Stock, (iv) the Company is to be dissolved and liquidated, or (v) as a result of or in connection with a contested election of -7- 8 directors, the persons who were directors of the Company before such election shall cease to constitute a majority of the Board (each such event in clauses (i) through (v) above is referred to herein as a "Corporate Change"), the Committee, in its sole discretion, may accelerate the time at which all or a portion of an Optionee's Options may be exercised for a limited period of time before or after a specified date. (k) Changes in Company's Capital Structure. If the outstanding shares of Common Stock or other securities of the Company, or both, for which the option is then exercisable shall at any time be changed or exchanged by declaration of a stock dividend, stock split, or combination of shares, the number and kind of shares of Common Stock or other securities which are subject to the Plan or subject to any options theretofore granted, and the option prices, shall be appropriately and equitably adjusted so as to maintain the proportionate number of shares or other securities without changing the aggregate option price. SECTION 7. Amendments or Termination. The Board may amend, alter or discontinue the Plan, but no amendment or alteration shall be made which would impair the rights of any Optionee, without his or her consent, under any option theretofore granted, or which, without the approval of the stockholders, would: (i) except as is provided in Section 6(k) of the Plan, increase the total number of shares reserved for the purposes of the Plan, (ii) change the class of persons eligible to participate in the Plan as provided in Section 4 of the Plan, (iii) extend the applicable maximum option period provided for in Section 6(a) of the Plan, (iv) extend the expiration date of this Plan set forth in Section 14 of the Plan, (v) except as provided in Section 6(k) of the Plan, decrease to any extent the option price of any option granted under the Plan or (vi) withdraw the administration of the Plan from the Committee. SECTION 8. Compliance With Other Laws and Regulations. The Plan, the grant and exercise of options thereunder, and the obligation of the Company to sell and deliver shares under such options, shall be subject to all applicable federal and state laws, rules and regulations and to such approvals by any governmental or regulatory agency as may be required. The Company shall not be required to issue or deliver any certificates for shares of Common Stock prior to the completion of any registration or qualification of such shares under any federal or state law or issuance of any ruling or regulation of any government body which the Company shall, in its sole discretion, determine to be necessary or advisable. Any adjustments provided for in subparagraphs 6(j), (k) and (l) -8- 9 shall be subject to any shareholder action required by Delaware corporate law. SECTION 9. Purchase for Investment. Unless the options and shares of Common Stock covered by this Plan have been registered under the Securities Act of 1933, as amended, or the Company has determined that such registration is unnecessary, each person exercising an option under this Plan may be required by the Company to give a representation in writing that he or she is acquiring such shares for his or her own account for investment and not with a view to, or for sale in connection with, the distribution of any part thereof. SECTION 10. Taxes. (a) The Company may make such provisions as it may deem appropriate for the withholding of any taxes which it determines is required in connection with any options granted under this Plan. (b) Notwithstanding the terms of Paragraph 10(a), any Optionee may pay all or any portion of the taxes required to be withheld by the Company or paid by him in connection with the exercise of a nonqualified option by electing to have the Company withhold shares of Common Stock, or by delivering previously owned shares of Common Stock, having a fair market value, determined in accordance with Paragraph 6(b), equal to the amount required to be withheld or paid. An Optionee must make the foregoing election on or before the date that the amount of tax to be withheld is determined ("Tax Date"). All such elections are irrevocable and subject to disapproval by the Committee. SECTION 11. Replacement of Options. The Committee from time to time may permit an Optionee under the Plan to surrender for cancellation any unexercised outstanding option and receive from the Company in exchange an option for such number of shares of Common Stock as may be designated by the Committee. The Committee may, with the consent of the person entitled to exercise any outstanding option, amend such option, including reducing the exercise price of any option to not less than the fair market value of the Common Stock at the time of the amendment and extending the term thereof. SECTION 12. No Right to Company Employment. Nothing in this Plan or as a result of any option granted pursuant to this Plan shall confer on any individual any right to continue in the employ of the Company or interfere in any way with the right of the Company to terminate an individual's employment -9- 10 at any time. The option agreements may contain such provisions as the Committee may approve with reference to the effect of approved leaves of absence. SECTION 13. Liability of Company. The Company and the Bank which is in existence or hereafter comes into existence shall not be liable to an Optionee or other persons as to: (a) The Non-Issuance of Shares. The non-issuance or sale of shares as to which the Company has been unable to obtain from any regulatory body having jurisdiction the authority deemed by the Company's counsel to be necessary to the lawful issuance and sale of any shares hereunder; and (b) Tax Consequences. Any tax consequence expected, but not realized, by any Optionee or other person due to the exercise of any option granted hereunder. SECTION 14. Effectiveness and Expiration of Plan. The Plan shall be effective on the date the Board adopts the Plan. If the stockholders of the Company fail to approve the Plan within twelve months of the date the Board approved the Plan, the Plan shall terminate and all options previously granted under the Plan shall become void and of no effect. The Plan shall expire ten years after the date the Board approves the Plan and thereafter no option shall be granted pursuant to the Plan. SECTION 15. Non-Exclusivity of the Plan. Neither the adoption by the Board nor the submission of the Plan to the stockholders of the Company for approval shall be construed as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including without limitation, the granting of restricted stock or stock options otherwise than under the Plan, and such arrangements may be either generally applicable or applicable only in specific cases. SECTION 16. Governing Law. This Plan and any agreements hereunder shall be interpreted and construed in accordance with the laws of the State of Delaware and applicable federal law. -10- 11 IN WITNESS WHEREOF, and as conclusive evidence of the adoption of the foregoing by directors of the Company has caused these presents to be duly executed in its name and behalf by its proper officers thereunto duly authorized as of this day of ,1994. ----- --------- CENTURY BANCSHARES, INC. By: ------------------------------- Name: ----------------------------- Title: ---------------------------- ATTEST: - ----------------------------- -11- EX-10.2 8 INCENTIVE STOCK OPTION PLAN FOR KEY EMPLOYEES 1 EXHIBIT 10.2 CENTURY BANCSHARES, INC. INCENTIVE STOCK OPTION PLAN FOR KEY EMPLOYEES 1. History and Purpose of the Plan. (a) History. Effective as of the 11th day of February, 1987, the Board of Directors of Century Bancshares, Inc., a Delaware corporation (the "Company") hereby further amends and restates the terms of the Century Bancshares, Inc. Incentive Stock Option Plan For Key Employees (the "Plan") in order to take into account the changes in the federal income tax laws enacted by the Tax Reform Act of 1986 (the "Act"). Century National Bank established the Century National Bank 1982 Incentive Stock Option Plan ("Prior Plan") which was separately amended, restated, superseded, replaced, and continued as the Plan on April 10, 1986. The Board of Directors intends that the options granted under the Plan constitute "incentive stock options" within the meaning of Section 422A of the Internal Revenue Code of 1986 and prior law and that recipients of options under the Plan qualify for the tax treatment described in such section of the Code. As part of the April 10, 1986 restatement of the Plan, the Prior Plan stock options awarded to employees before April 10, 1986 under the Prior Plan have been (i) adjusted by reducing the stock option price by $7.50 per share for purposes of reflecting the acquisition debt assumption or Company preferred stock which was given to holders of Bank (as that term is defined below) stock, as consideration in addition to shares of Company common stock, and (ii) reissued and dated under this Plan to provide for the date the stock option was awarded under the Prior Plan. (b) Purpose. The Plan has been established to encourage ownership of the common stock $1.00 par value ("Common Stock"), of the Company by eligible key employees of the Company or its bank subsidiaries (the "Bank") and to provide increased incentive for such employees to render services and to exert maximum effort for the business success of the Company and the Bank. For purposes of this Plan, any employee of a subsidiary of the Company shall be deemed to be an employee of the Company. 2. Administration of the Plan. The Board of Directors of the Company shall appoint and maintain a Stock Option Committee ("Committee") which shall consist of at least three members of the Board of Directors who shall not have been eligible to participate in the Plan at any time within one year prior to appointment and shall serve without compensation at the pleasure of the Board of Directors. No member of the Committee shall be eligible to receive stock options under the Plan while serving on the Committee. The Committee shall have full power and authority to designate participants and to interpret the provisions and supervise the administration of the Plan. All decisions and selections made by the Committee pursuant to the provisions of the Plan shall be made by the affirmative vote of a majority of its members. Any decision reduced to writing and 2 signed by a majority of the members shall be fully effective as if it had been made by a majority at a meeting duly held. 3. Stock Reserved for the Plan. Subject to adjustment as provided in paragraph 5(j) hereof, a total of 50,000 shares of Common Stock shall be subject to the Plan. The shares subject to the Plan shall consist of unissued shares, and such amount of shares shall be and is hereby reserved for sale for such purpose. Any of such shares which may remain unsold and which are not subject to outstanding options at the termination of the Plan shall cease to be reserved for the purpose of the Plan, but until termination of the Plan the Company shall at all times reserve a sufficient number of shares to meet the requirements of the Plan. Should any option expire or be cancelled prior to its exercise in full, the shares theretofore subject to such option may again be made subject to an option under the Plan. 4. Grant of Options. The persons eligible to participate in the Plan as recipients of options shall include only key employees of the Company or the Bank. The Committee shall, from time to time, determine and designate those key employees of the Company or the Bank who are to receive options under the Plan, the number of shares to be covered by such options and the terms thereof. The Committee shall thereupon grant options in accordance with such determinations as evidenced by a written option agreement as more fully described in paragraph 5. An employee who has been granted an option hereunder may be granted an additional option or options, if the Committee shall so determine. In the case of options issued prior to January 1, 1987, the Committee shall not grant to any employee in any calendar year options to purchase shares of Common Stock the value of which on the date of grant exceeds $100,000 plus any unused carryover limit (as that term is defined in Section 422A(c)(4) of the Code prior to the Act. In the case of options granted after December 31, 1986, the Committee shall not grant to any employee options which violate the following rule--the aggregate fair market value (determined at the time the option is granted) of the shares of Common Stock with respect to which options are granted after December 31, 1986 under this Plan or any other plans maintained by the Company or members of its affiliated group which other plans qualify as incentive stock option plans under Section 422A of the Code ("Other Affiliated Plans") and which are exercisable for the first time under the terms of this Plan or the terms of the Other Affiliated Plans by any employee during any calendar year may not exceed $100,000. 5. Terms and Conditions. Each option granted under the Plan shall be evidenced by an agreement, in a form approved by the Committee, which shall be subject to the following express terms and conditions and to such other terms and conditions, not inconsistent herewith, as the Committee may deem appropriate. (a) Option Period. Each option agreement shall specify the period for which the option thereunder is granted (which in no event shall exceed ten years from the date of grant) -2- 3 and shall provide that the option shall expire at the end of such period. If the optionee owns more than ten percent of the outstanding stock of the Company (determined in accordance with Section 425(d) of the Internal Revenue Code) on the date the option is granted to him, the option period shall not exceed five years. (b) Option Price. The purchase price of each share of Common Stock subject to each option granted pursuant to the Plan shall be determined by the Committee at the time the option is granted and shall not be less than the fair market value of a share of Common Stock on the date the option is granted, as determined by the Committee. If the optionee owns more than ten percent of the outstanding stock of the Company (determined in accordance with Section 425(d) of the Internal Revenue Code) on the date the option is granted to him, the option price shall not be less than 110 percent of the fair market value of a share of Common Stock on such date. (c) Exercise Period. No part of any option may be exercised until the optionee shall have remained in the employ of the Company or the Bank for such period after the date on which the option is granted as the Committee may specify in the option agreement. (d) Procedure for Exercise. Options shall be exercised by the manner set out in this paragraph. Ten (10) days prior to exercise of an option, the optionee shall deliver to the Company by the U.S. mails or by hand delivery an irrevocable written notice (a) setting forth the number of shares with respect to which the option is exercised and (b) specifying the address to which the shares are to be mailed. Such notice shall be deemed to be received by the Company on the date the notice was mailed, if sent through the U.S. mails, or on the date actually received by the Company, if the notice is delivered other than by the U.S. mails. Such notice shall be accompanied by consideration equal to the option price for the shares to be acquired by the exercise of the Option (the "Option Price Amount") in the form of (i) cash, (ii) cashier's check, bank draft, or postal or express money order payable to the order of the Company, (iii) shares of Common Stock already owned by the optionee, duly endorsed to the order of the Company, having a total fair market value (as determined by the Committee) equal to the Optionee Price Amount, or (iv) any combination of the above-described consideration equal to the Option Price Amount. The Committee shall determine the value of any shares of the Company stock paid to the Company to satisfy the Option Price Amount. Such value shall be determined as of the date the notice is deemed to be received by the Company. As promptly as practicable after receipt of such written notice and the Option Price Amount, the Company shall deliver to the optionee certificates for the number of shares with respect to which such option has been so exercised, issued in the optionee's name; provided, however, that such delivery shall be deemed effected for all -3- 4 purposes when a stock transfer agent of the Company shall have deposited such certificates in the United States mail, addressed to the optionee at the address specified in the notice. (e) Termination of Employment. If an employee to whom an option has been granted ceases to be employed by the Company or the Bank for any reason other than death or disability, the options granted to him shall thereupon terminate. Notwithstanding the foregoing, any options which are exercisable on the date of such termination of employment may be exercised during a three-month period beginning on such date. (f) Disability or Death of Optionee. In the event of the disability or death of the holder of an option under the Plan while he is employed by the Company or the Bank, the options previously granted to him may be exercised (to the extent he would have been entitled to do so at the date of his disability or death) at any time and from time to time, within a period of one year after his disability or death, by the former employee, by the executor or administrator of his estate or by the person or persons to whom his rights under the option shall pass by will or the laws of descent and distribution, but in no event may the option be exercised after its expiration. An employee shall be deemed to be disabled if, in the opinion of a physician selected by the Committee, he is incapable of performing services for the Company or the Bank by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long, continued and indefinite duration. (g) Assignability. An option shall not be assignable or otherwise transferable except by will or by the laws of descent and distribution. During the lifetime of an optionee, an option shall be exercisable only by him. (h) No Rights as Shareholder. No optionee shall have any rights as a shareholder with respect to shares covered by an option until the date of issuance of a stock certificate for such shares. Except as provided in paragraph 5(j), no adjustment for dividends, or otherwise, shall be made if the record date therefor is prior to the date of issuance of such certificate. (i) Extraordinary Corporate Transactions. If the Company is dissolved or liquidated, or is merged or consolidated into or with another corporation, other than by a merger or consolidation in which the Company is the surviving corporation, the then exercisable but unexercised options granted under the Plan shall not be exercisable after the date of such dissolution, liquidation, merger or consolidation, unless such other surviving corporation makes provision for adoption of the Plan and the assumption of the Company's obligations thereunder. -4- 5 (j) Changes in Company's Capital Structure. The existence of outstanding options shall not affect in any way the right or power of the Company or its shareholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the Company's capital structure or its business, or any merger or consolidation of the Company, or any issuance of Common Stock or subscription rights thereto, or any issuance of bonds, debentures, preferred or prior preference stock ahead of or affecting the Common Stock or the rights thereof, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. Provided, however, that if the outstanding shares of Common Stock of the Company shall at any time be changed or exchanged by declaration of a stock dividend, stock split, combination of shares or recapitalization, the number and kind of shares subject to the Plan or subject to any options theretofore granted, and the option prices, shall be appropriately and equitably adjusted so as to maintain the proportionate number of shares without changing the aggregate option price. (k) Investment Representation. The Company shall not be required to sell or issue any shares of Common Stock under any option unless (i) a registration statement under the Securities Act of 1933, as now in effect or hereafter amended ("Securities Act"), is in effect with respect to the shares of Common Stock covered by such option, or (ii) the Board of Directors of the Company has received evidence satisfactory to it to the effect that an exemption from registration under the Securities Act and any applicable state securities laws is available for the sale and issuance contemplated. In the case of options granted prior to January 1, 1987, the receipt of such option may be exercised only in the order in which such options were granted. In the case of options granted after December 31, 1986, such options may be exercised by the recipient in any order. (l) Sequence of Exercise of Options. In the case of options granted prior to January 1, 1987, the receipt of such options may be exercised only in the order in which such options were granted. In the case of options granted after December 31, 1986, such options may be exercised by the recipient in any order. 6. Amendments or Termination. The Board of Directors of the Company may amend, alter or discontinue the Plan, but no amendment or alteration shall be made which would impair the rights of any participant under any option theretofore granted without his consent, or which, without the approval of the shareholders, would: (i) except as is provided in paragraph 5(j) of the Plan, increase the total number of shares reserved for the purposes of the Plan or decrease the option price provided for in paragraph 5(b) of the Plan; (ii) change the class of persons eligible to participate in the Plan as provided in paragraph 4 of the Plan; (iii) extend the option period provided for in paragraph 5(a) of the Plan; or (iv) extend the expiration date of this Plan set forth in paragraph 8 of the Plan. -5- 6 7. Compliance With Other Laws and Regulations. The Plan, the grant and exercise of options thereunder, and the obligation of the Company to sell and deliver shares under such options, shall be subject to all applicable federal and state laws, rules and regulations and to such approvals by any governmental or regulatory agency as may be required. The Company shall not be required to issue or deliver any certificates for shares of Common Stock prior to the completion of any registration or qualification of such shares under any federal or state law, or any ruling or regulation of any government body which the Company shall, in its sole discretion, determine to be necessary or advisable. 8. Effectiveness and Expiration of Plan. The Plan as set forth in this document shall be effective on the date the Board of Directors of the Company adopts the amended Plan. If the shareholders of the Company fail to approve the Plan within twelve months of the date the Board of Directors approve the Plan, the Plan shall terminate and all options previously granted under the Plan shall become void and of no effect. The Plan shall expire ten years after the effective date of the Prior Plan and thereafter no option shall be granted pursuant to this Plan. Notwithstanding the above, options issued to employees under the Prior Plan shall be recognized and effective under this Plan and shall not be subject to shareholders' approval under this paragraph. I, Rosemary M. DeMark, being the duly elected Assistant Secretary of Century Bancshares, Inc. DO HEREBY CERTIFY, on this 5th day of March 1987, that the preceding Incentive Stock Option Plan For Key Employees is a true and complete copy of such Plan as amended and restated by the Board of Directors of the Company at a meeting duly called and held on February 11, 1987 at which meeting a quorum was present and acting through, and that said Plan, as amended and restated above, is in full force and effect as of the date hereof. /s/ ROSEMARY M. DEMARK --------------------------- Rosemary M. DeMark Assistant Secretary -6- EX-10.3 9 NONQUALIFIED STOCK OPTION PLAN FOR KEY EMPLOYEES 1 EXHIBIT 10.3 CENTURY BANCSHARES, INC. NON-QUALIFIED STOCK OPTION PLAN FOR KEY EMPLOYEES (1) History and Purpose of the Plan. (a) History. Effective as of the 11th day of February, l987, the Board of Directors of Century Bancshares, Inc., a Delaware corporation (the "Company") hereby further amends and restates the terms of the Century Bancshares, Inc. Non-Qualified Stock Option Plan For Key Employees ("Plan") to provide that options may be exercised by tendering shares of Common Stock (as that term is defined below) already owned by the optionee. Century National Bank established the Century National Bank 1982 Nonqualifying Stock Option Plan ("Prior Plan") which was separately amended, restated, superseded, replaced and continued as the Plan on April 10, 1986. As part of the April 10, 1986 restatement of the Plan, the stock options awarded to employees before April 10, 1986 under the Prior Plan have been (i) adjusted by reducing the stock option price by $7.50 per share for purposes of reflecting the acquisition debt assumption for Company preferred stock which was given to holders of Bank stock, as consideration in addition to shares of Company common stock, and (ii) reissued and dated under this Plan to provide for the date the stock option was awarded under the Prior Plan. (b) Purpose. The Plan has been established to encourage ownership of the common stock $1.00 par value ("Common Stock") of the Company by eligible key employees of the Company or its bank subsidiaries (the "Bank") and to provide increased incentive for such employees to render services and to exert maximum effort for the business success of the Company and the Bank. The Plan is not intended to constitute an Incentive Stock Option under section 422A of the Internal Revenue Code of 1986 or its predecessors. For purposes of this Plan, any employee of a subsidiary of the Company shall be deemed to be an employee of the Company. (2) Administration of the Plan. The Board of Directors of the Company shall appoint and maintain a Stock Option Committee ("Committee") which shall consist of at least three members of the Board of Directors who shall not have been eligible to participate in the Plan at any time within one year prior to appointment and shall serve without compensation at the pleasure of the Board of Directors. No member of the Committee shall be eligible to receive stock options under the Plan while serving on the Committee. The Committee shall have full power and authority to designate participants and to interpret the provisions and supervise the administration of the Plan. All decisions and selections made by the Committee pursuant to the provisions of the Plan shall be made by the affirmative vote of a majority of its members. Any decision reduced to writing and signed by a majority of the members shall be fully effective as if it had been made by a majority at a meeting duly held. 2 (3) Stock Reserved for the Plan. Subject to adjustment as provided in paragraph 5(j) hereof, a total of 10,000 shares of Common Stock shall be subject to the Plan. The shares subject to the Plan shall consist of unissued shares and such amount of shares shall be and is hereby reserved for sale for such purpose. Any of such shares which may remain unsold and which are not subject to outstanding options at the termination of the Plan shall cease to be reserved for the purpose of the Plan, but until termination of the Plan the Company shall at all times reserve a sufficient number of shares to meet the requirements of the Plan. Should any option expire or be cancelled prior to its exercise in full, the shares theretofore subject to such option may again be made subject to an option under the Plan. (4) Grant of Options. The persons eligible to participate in the Plan as recipients of options shall include only key employees of the Company or the Bank. The Committee shall, from time to time, determine and designate those key employees of the Company or the Bank who are to receive options under the Plan, the number of shares to be covered by such options and the terms thereof. The Committee shall thereupon grant options in accordance with such determinations as evidenced by a written option agreement as more fully described in paragraph 5. An employee who has been granted an option hereunder may be granted an additional option or options, if the Committee shall so determine. (5) Terms and Conditions. Each option granted under the Plan shall be evidenced by an agreement, in a form approved by the Committee, which shall be subject to the following express terms and conditions and to such other terms and conditions, not inconsistent herewith, as the Committee may deem appropriate. (a) Option Period. Each option agreement shall specify the period for which the option thereunder is granted (which in no event shall exceed ten years from the date of grant) and shall provide that the option shall expire at the end of such period. (b) Option Price. The purchase price of each share of Common Stock subject to each option granted pursuant to the Plan shall be determined by the Committee at the time the option is granted and shall not be less than the fair market value of a share of Common Stock on the date the option is granted, as determined by the Committee. (c) Exercise Period. No part of any option may be exercised until the optionee shall have remained in the employ of the Company or the Bank for such period after the date on which the option is granted as the Committee may specify in the option agreement. (d) Procedure for Exercise. Options shall be exercised in the manner set out in this paragraph. Ten (10) days prior to exercise of an option, the optionee shall deliver to the Company by the U.S. mails or by hand delivery an irrevocable written notice (a) setting forth -2- 3 the number of shares with respect to which the option is exercised and (b) specifying the address to which the shares are to be mailed. Such notice shall be deemed to be received by the Company on the date the notice was mailed, if sent through the U.S. mails, or on the date actually received by the Company, if the notice is delivered other than by the U.S. mails. Such notice shall be accompanied by consideration equal to the option price for the shares to be acquired by the exercise of the Option (the "Option Price Amount") in the form of (i) cash, (ii) cashier's check, bank draft, or postal or express money order payable to the order of the Company, (iii) shares of Common Stock already owned by the optionee, duly endorsed to the order of the Company, having a total fair market value (as determined by the Committee) equal to the Optionee Price Amount, or (iv) any combination of the above-described consideration equal to the Option Price Amount. The Committee shall determine the value of any shares of the Company stock paid to the Company to satisfy the Option Price Amount. Such value shall be determined as of the date the notice is deemed to be received by the Company. As promptly as practicable after receipt of such written notice and the Option Price Amount, the Company shall deliver to the optionee certificates for the number of shares with respect to which such option has been so exercised, issued in the optionee's name; provided, however, that such delivery shall be deemed effected for all purposes when a stock transfer agent of the Company shall have deposited such certificates in the United States mail, addressed to the optionee at the address specified in the notice. (e) Termination of Employment. If an employee to whom an option has been granted ceases to be employed by the Company or the Bank for any reason other than death or disability, the options granted to him shall thereupon terminate. Notwithstanding the foregoing, any options which are exercisable on the date of such termination of employment may be exercised during a three-month period beginning on such date. (f) Disability or Death of Optionee. In the event of the disability or death of the holder of an option under the Plan while he is employed by the Company or the Bank, the options previously granted to him may be exercised (to the extent he would have been entitled to do so at the date of his disability or death) at any time and from time to time, within a period of one year after his disability or death, by the former employee, by the executor or administrator of his estate or by the person or persons to whom his rights under the option shall pass by will or the laws of descent and distribution, but in no event may the option be exercised after its expiration. An employee shall be deemed to be disabled if, in the opinion of a physician selected by the Committee, he is incapable of performing services for the Company or the Bank by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long, continued and indefinite duration. -3- 4 (g) Assignability. An option shall not be assignable or otherwise transferable except by will or by the laws of descent and distribution. During the lifetime of an optionee, an option shall be exercisable only by him. (h) No Rights as Shareholder. No optionee shall have any rights as a shareholder with respect to shares covered by an option until the date of issuance of a stock certificate for such shares; except as provided in paragraph 5(j), no adjustment for dividends, or otherwise, shall be made if the record date therefor is prior to the date of issuance of such certificate. (i) Extraordinary Corporate Transactions. If the Company is dissolved or liquidated, or is merged or consolidated into or with another corporation, other than by a merger or consolidation in which the Company is the surviving corporation, the then exercisable but unexercised options granted under the Plan shall not be exercisable after the date of such dissolution, liquidation, merger or consolidation, unless such other surviving corporation makes provision for adoption of the Plan and the assumption of the Company's obligations thereunder. (j) Changes in Company's Capital Structure. The existence of outstanding options shall not affect in any way the right or power of the Company or its shareholders to make or authorize any or all adjustments, recapitalizations, reorganizations, exchanges, or other changes in the Company's capital structure or its business, or any merger or consolidation of the Company, or any issuance of Common Stock or subscription rights thereto, or any issuance of bonds, debentures, preferred or prior preference stock ahead of or affecting the Common Stock or the rights thereof, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. Provided, however, that if the outstanding shares of Common Stock of the Company shall at any time be changed or exchanged by declaration of a stock dividend, stock split, combination of shares, or recapitalization, the number and kind of shares subject to the Plan or subject to any options theretofore granted, and the option prices, shall be appropriately and equitably adjusted so as to maintain the proportionate number of shares without changing the aggregate option price. (k) Investment Representation. The Company shall not be required to sell or issue any shares of Common Stock under any option unless (i) a registration statement under the Securities Act of 1933, as now in effect or hereafter amended ("Securities Act"), is in effect with respect to the shares of Common Stock covered by such option, or (ii) the Board of Directors of the Company has received evidence satisfactory to it to the effect that an -4- 5 exemption from registration under the Securities Act and any applicable state securities laws is available for the sale and issuance contemplated. (6) Amendments or Termination. The Board of Directors of the Company may amend, alter or discontinue the Plan, but no amendment or alteration shall be made which would impair the rights of any participant under any option theretofore granted, without his consent or which, without the approval of the shareholders, would: (i) except as is provided in paragraph 5(j) of the Plan, increase the total number of shares reserved for the purposes of the Plan or decrease the option price provided for in paragraph 5(b) of the Plan, (ii) change the class of persons eligible to participate in the Plan as provided in paragraph 4 of the Plan, (iii) extend the option period provided for in paragraph 5(a) of the Plan; or (iv) extend the expiration date of this Plan set forth in paragraph 8 of the Plan. (7) Compliance With Other Laws and Regulations. The Plan, the grant and exercise of options thereunder, and the obligation of the Company to sell and deliver shares under such options, shall be subject to all applicable federal and state laws, rules and regulations and to such approvals by any governmental or regulatory agency as may be required. The Company shall not be required to issue or deliver any certificates for shares of Common Stock prior to the completion of any registration or qualification of such shares under any federal or state law, or issuance of any ruling or regulation of any government body which the Company shall, in its sole discretion, determine to be necessary or advisable. (8) Effectiveness and Expiration of Plan. The Plan as set forth in this document shall be effective on the date the Board of Directors of the Company adopts the amended Plan. If the shareholders of the Company fail to approve the Plan within twelve months of the date the Board of Directors approves the Plan, the Plan shall terminate and all options previously granted under the Plan shall become void and of no effect. The Plan shall expire ten years after the effective date of the Prior Plan and thereafter no option shall be granted pursuant to this Plan. Notwithstanding the above, options issued to employees under the Prior Plan shall be recognized and effective under this Plan and shall not be subject to shareholders' approval under this paragraph. (9) No Right to Company Employment or Service. Nothing in this Plan or as a result of any option pursuant to this Plan shall confer on any individual any right to continue in the employ of the Company or interfere in any way with the right of the Company to terminate an individual's employment or rendering of service at any time. Options granted under this Plan shall not be affected by any change of employment so long as the individual continues to perform services for the Company. The option agreements may contain such provisions as the Committee may approve -5- 6 with reference to the effect of approved leaves of absence or the definition of "services" to be rendered to the Company. (10) Liability of Company. The Company, its parent or any subsidiary which is in existence or hereafter comes into existence shall not be liable to an optionee or other persons as to: (a) The Non-Issuance of Shares. The non-issuance or sale of shares as to which the Company has been unable to obtain from any regulatory body having jurisdiction the authority deemed by the Company's counsel to be necessary to the lawful issuance and sale of any shares hereunder; and (b) Tax Consequences. Any tax consequence expected, but not realized, by any optionee or other person due to the exercise of any option granted hereunder. (11) Non-Exclusivity of the Plan. Neither the adoption of the Plan by the Board nor the submission of the Plan to the shareholders of the Company for approval shall be construed as creating any limitations of the power of the Board to adopt such other incentive arrangements as it may deem desirable, including without limitation, the granting of restricted stock or stock options otherwise than under the Plan, and such arrangements may be either generally applicable or applicable only in specific cases. (13) Governing Law. This Plan and any agreements hereunder, shall be interpreted and construed in accordance with the laws of the State of Delaware and applicable federal law. I, Rosemary M. DeMark, being the duly elected Assistant Secretary of Century Bancshares, Inc. DO HEREBY CERTIFY, on this 5th day of March 1987, that the preceding Non-Qualified Stock Option Plan For Key Employees is a true and complete copy of such Plan as amended and restated by the Board of Directors of the Company at a meeting duly called and held on February 11, 1987 at which meeting a quorum was present and acting through, and that said Plan, as amended and restated above, is in full force and effect as of the date hereof. /s/ ROSEMARY M. DEMARK --------------------------------- Rosemary M. DeMark Assistant Secretary -6- 7 FIRST AMENDMENT TO THE CENTURY BANCSHARES, INC. NON-QUALIFIED STOCK OPTION PLAN FOR KEY EMPLOYEES W I T N E S S E T H: WHEREAS, Century Bancshares, Inc. (the "Company") presently maintains the Century Bancshares, Inc. Non-Qualified Stock Option Plan for Key Employees ("Plan") which became effective on February 11, 1987; and WHEREAS, the Board of Directors of the Company, pursuant Section 6 of the Plan, has the right to amend the Plan from time to time subject to certain limitations. NOW, THEREFORE, in order to make the revisions desired by the Board of Directors of the Company, the Plan is hereby amended in the following manner: 1. Effective as of the date hereof, Section 2 is hereby amended in its entirety to read as follows: (2) Administration of the Plan. The Board of Directors of the Company shall appoint and maintain a Stock Option Committee ("Committee") which shall consist of two or more members of the Board of Directors who shall not have participated in the Plan or any other plan of the Company or any of its Affiliates which entitles participants to acquire stock appreciation rights or stock options of the Company or its Affiliates at any time within one year prior to appointment (except that such persons may participate in a formula plan meeting the conditions of Rule 16b-3(c)(2)(ii) promulgated under the Securities Exchange Act of 1934) and shall serve without compensation at the pleasure of the Board of Directors. No member of the Committee shall be eligible to receive stock appreciation rights or stock options under the Plan or any other plan of the Company or its Affiliates (except a Rule 16b- 3(c)(2)(ii) formula plan) while serving on the Committee. The Committee shall have full power and authority to designate participants and to interpret the provisions and supervise the administration of the Plan. All decisions and selections made by the Committee pursuant to the provisions of the Plan shall be made by the affirmative vote of a majority of its members. Any decision reduced to writing and signed by a majority of the members shall be fully effective as if it had been made by a majority at a meeting duly held. As used in the Plan, the term "Affiliates" means any "parent corporation" and any "subsidiary corporation" of the Company as defined in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986. 8 2. Effective as of the date hereof, Section (5)(g) is hereby amended in its entirety to read as follows: (g) Assignability. An option shall not be assignable or otherwise transferable except by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order as defined in the Internal Revenue Code of 1986 or Title I of the Employee Retirement Income Security Act, or the rules thereunder. IN WITNESS WHEREOF, the Company has executed this First Amendment to the Century Bancshares, Inc. Non-Qualified Stock Option Plan for Key Employees on this 18th day of March, 1992. ATTEST: CENTURY BANCSHARES, INC. /s/ FRANCES K. ROBERTS By: /s/ JOSEPH S. BRACEWELL - ---------------------------- ---------------------------- Name: Joseph S. Bracewell Title: Chairman of the Board -2- EX-10.4 10 NONQUALIFIED STOCK OPTION PLAN FOR DIRECTORS 1 EXHIBIT 10.4 CENTURY BANCSHARES, INC. NON-QUALIFIED STOCK OPTION PLAN FOR DIRECTORS SECTION 1. History and Purpose of the Plan. (a) History. Effective as of the 11th day of February, 1987, the Board of Directors of Century Bancshares, Inc., a Delaware corporation (the "Company") hereby further amends and restates the terms of the Century Bancshares, Inc. Non-Qualified Stock Option Plan For Directors ("Plan") to provide that option's may be exercised by tendering shares of Common Stock (as that term is defined below) already owned by the optionee. The Plan was established by the Company on November 19, 1986. (b) Purpose. The purpose of the Plan is to encourage ownership of the common stock, $1.00 par value ("Common Stock"), of the Company, by directors of the Company and/or its bank subsidiaries (the "Bank") and to provide increased incentive for such individuals to render services and to exert maximum effort for the business success of the Company and the Bank. SECTION 2. Administration of the Plan. The Board of Directors (the "Board") of the Company shall appoint and maintain a Stock Option Committee ("Committee") which shall consist of at least three officers of one of the Company's bank subsidiaries who shall not have been eligible to participate in the Plan at any time within one year prior to appointment and shall serve without compensation at the pleasure of the Board. No member of the Committee shall be eligible to receive stock options under the Plan while serving on the Committee. The Committee shall have full power and authority to designate participants and to interpret the provisions and supervise the administration of the Plan. All decisions and selections made by the Committee pursuant to the provisions of the Plan shall be made by the affirmative vote of a majority of its members. Any decision reduced to writing and signed by a majority of the members shall be fully effective as if it had been made by a majority at a meeting duly held. SECTION 3. Stock Reserved for the Plan. Subject to adjustment as provided in Section 6(i) hereof, the aggregate number of shares of Common Stock that may be optioned under the Plan is 30,000. The shares subject to the Plan shall consist of authorized but unissued shares of Common Stock of the Company and such number of shares shall be and is hereby reserved for sale for such purpose. Any of such shares which may remain unsold and which are not subject to outstanding options at the termination of the Plan shall cease to be reserved for the purpose of the Plan, but until termination of the Plan, the Company shall at all times reserve a sufficient number of shares to meet the requirements of the Plan. Should any option expire or be canceled prior to its exercise in full, 2 the shares theretofore subject to such option may again be made subject to an option under the Plan. SECTION 4. Eligibility. The persons eligible to participate in the Plan as recipients of options shall be directors of the Company and/or the Bank. An individual who has been granted an option hereunder shall remain eligible to receive an additional option or options, if the Committee shall so determine. SECTION 5. Grant of Options. The Committee shall have the authority (i) to determine, authorize, and designate those individuals of the Company or the Bank who are to receive options under the Plan, and (ii) to determine the number of shares to be covered by such options and the terms thereof. The Committee shall thereupon grant options in accordance with such determinations as evidenced by a written option agreement. Subject to the express provisions of the Plan, to prescribe, amend and rescind rules and regulations relating to it, the Committee shall have discretionary authority to interpret the Plan, to prescribe and amend the terms of the option agreements (which need not be identical) and to make all other determinations deemed necessary or advisable for the administration of the Plan. SECTION 6. Terms and Conditions. Each option granted under the Plan shall be evidenced by an agreement, in a form approved by the Committee, which shall be subject to the following express terms and conditions and to such other terms and conditions as the Committee may deem appropriate. (a) Option Period. Each option agreement shall specify the period for which the option thereunder is granted (which in no event shall exceed seven years from the date of grant) and shall provide that the option shall expire at the end of such period. (b) Option Price. The purchase price of each share of Common Stock subject to each option granted pursuant to the Plan shall be determined by the Committee at the time the option is granted and shall not be less than the fair market value of a share of Common Stock on the date the option is granted, as determined by the Committee. (c) Exercise Period. Any option may be exercised on and after the date on which the option is granted. (d) Procedure for Exercise. Options shall be exercised by the manner set out in this paragraph. Ten (10) days prior to exercise of an option, the optionee shall deliver to the Company by the U.S. mails or by hand delivery an irrevocable written notice (a) setting forth the number of shares with respect to which the option is exercised and (b) specifying the address to which the shares are to be mailed. Such notice shall be deemed to be received by -2- 3 the Company on the date the notice was mailed, if sent through the U.S. mails, or on the date actually received by the Company, if the notice is delivered other than by the U.S. mails. Such notice shall be accompanied by consideration equal to the option price for the shares to be acquired by the exercise of the Option (the "Option Price Amount") in the form of (i) cash, (ii) cashier's check, bank draft, or postal or express money order payable to the order of the Company, (iii) shares of Common Stock already owned by the optionee, duly endorsed to the order of the Company, having a total fair market value (as determined by the Committee) equal to the Optionee Price Amount, or (iv) any combination of the above-described consideration equal to the Option Price Amount. The Committee shall determine the value of any shares of the Company stock paid to the Company to satisfy the Option Price Amount. Such value shall be determined as of the date the notice is deemed to be received by the Company. As promptly as practicable after receipt of such written notice and the Option Price Amount, the Company shall deliver to the optionee certificates for the number of shares with respect to which such option has been so exercised, issued in the optionee's name; provided, however, that such delivery shall be deemed effected for all purposes when a stock transfer agent of the Company shall have deposited such certificates in the United States mail, addressed to the optionee at the address specified in the notice. (e) Termination of Service. If an individual to whom an option has been granted ceases to render services for the Company or the Bank for any reason other than death or disability, the options granted to him shall thereupon terminate. However, options which are exercisable on the date of such termination may be exercised during a three-month period beginning on such date; provided further, if an optionee's service is terminated because of the optionee's dishonesty, theft, embezzlement from the Company or the Bank, disclosing trade secrets of the Company or the Bank, willful violation of any rules of the Company or the Bank pertaining to the conduct of individuals performing services for the Company or the Bank, or the commission of a willful felonious act while in the employment of the Company or the Bank or performing services for the Company or the Bank, then any option or unexercised portion thereof granted to said optionee, shall expire upon such termination. (f) Disability or Death of Optionee. In the event of the disability or death of an optionee under the Plan while he is employed or performing services for the Company or the Bank, the options previously granted to him may be exercised (to the extent he would have been entitled to do so at the date of his disability or death) at any time and from time to time, within a period of one year after his disability or death, by the former individual, by the executor or administrator of his estate or by the person or persons to whom his rights under the option shall pass by will or the laws of descent and distribution, but in no event may the option be exercised after its expiration under the terms of the option agreement. An individual shall be deemed to be disabled if, in the opinion of a physician selected by the -3- 4 Committee, he is incapable of performing services for the Company or the Bank by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long, continued and indefinite duration. (g) Assignability. An option shall not be assignable or otherwise transferable except by will or by the laws of descent and distribution. During the lifetime of an optionee, an option shall be exercisable only by him. (h) Stock Options. Each option agreement shall contain such terms and provisions as the Committee may determine to be necessary or desirable. (i) No Rights as Shareholder. No optionee shall have any rights as a shareholder with respect to shares covered by an option until the date of issuance of a stock certificate for such shares; except as provided in Section 6(i), no adjustment for dividends, or otherwise, shall be made if the record date therefor is prior to the date of issuance of such certificate. (j) Extraordinary Corporate Transactions. New option rights may be substituted for the option rights granted under the Plan, or the Company's duties as to options outstanding under the Plan may be assumed, by an employer corporation other than the Company, or by a parent or subsidiary of the Company or such employer corporation, in connection with any merger, consolidation, acquisition, separation, reorganization, liquidation or like occurrence in which the Company is involved, including substitution or assumption which will allow any stock options to continue to qualify as such. In the event such employer corporation, or parent or subsidiary of the Company or such employer corporation, does not substitute new option rights for, and substantially equivalent to, the option rights granted hereunder, or assume the option rights granted hereunder, the option rights granted hereunder shall terminate and thereupon become null and void (i) upon dissolution or liquidation of the Company, or similar occurrence, (ii) upon any merger, consolidation, acquisition, separation, reorganization, or similar occurrence, where the Company will not be a surviving entity or (iii) upon a transfer of substantially all of the assets of the Company or more than 50% of the outstanding Common Stock; provided, however, that option granted under this Plan shall have the right immediately prior to or concurrently with such dissolution, liquidation, merger, consolidation, acquisition, separation, reorganization, or similar occurrence, to exercise any unexercised option rights granted hereunder. (k) Changes in Company's Capital Structure. The existence of outstanding options shall not affect in any way the right or power of the Company or its shareholders to make or authorize any or all adjustments, recapitalizations, reorganizations, exchanges, or other changes in the Company's capital structure or its business, or any merger or consolidation -4- 5 of the Company, or any issuance of Common Stock or subscription rights thereto, or any issuance of bonds, debentures, preferred or prior preference stock ahead of or affecting the Common Stock or the rights thereof, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. However, if the outstanding shares of Common Stock of the Company shall at any time be changed or exchanged by declaration of a stock dividend, stock split, combination of shares, recapitalization, or reorganization, the number and kind of shares subject to the Plan or subject to any options theretofore granted, and the option prices, shall be appropriately and equitably adjusted so as to maintain the proportionate number of shares without changing the aggregate option price. (l) Investment Representation. Each option agreement shall contain a provision that, upon demand by the Committee for such a representation, the optionee (or any person acting under Section 6(d)) shall deliver to the Committee at the time of any exercise of an option a written representation that the shares to be acquired upon such exercise are to be acquired for investment and not for resale or with a view to the distribution thereof. Upon such demand, delivery of such representation prior to the expiration of the option period and prior to the delivery of certificates representing shares issued upon exercise of the option shall be a condition precedent to the right of the optionee or such other person to purchase any shares. SECTION 7. Amendments or Termination. The Board of Directors of the Company may amend, alter or discontinue the Plan, but no amendment or alteration shall be made which would impair the rights of any individual, without his consent, under any option theretofore granted, or which, without the approval of the shareholders, would: (i) except as is provided in Section 6(h) of the Plan, increase the total number of shares reserved for the purposes of the Plan, (ii) change the class of persons eligible to participate in the Plan as provided in Section 4 of the Plan, (iii) extend the option period provided for in Section 6(a) of the Plan, (iv) extend the expiration date of this Plan set forth in Section 11 of the Plan, (v) decrease to any extent the option price of any option granted under the Plan or (vi) withdraw the administration of the Plan from the Committee. SECTION 8. Compliance With Other Laws and Regulations. The Plan, the grant and exercise of options thereunder, and the obligation of the Company to sell and deliver shares under such options, shall be subject to all applicable federal and state laws, rules and regulations and to such approvals by any governmental or regulatory agency as may be required. The Company shall not be required to issue or deliver any certificates for shares of Common Stock prior to the completion of any registration or qualification of such shares under any federal or state law or issuance of any ruling or regulation of any government body which the Company shall, in its sole discretion, determine to be necessary or advisable. -5- 6 SECTION 9. No Right to Company Employment or Service. Nothing in this Plan or as a result of any option pursuant to this Plan shall confer on any individual any right to continue in the employ of the Company or interfere in any way with the right of the Company to terminate an individual's employment or rendering of service at any time. Options granted under this Plan shall not be affected by any change of employment so long as the individual continues to perform services for the Company. The option agreements may contain such provisions as the Committee may approve with reference to the effect of approved leaves of absence or the definition of "services" to be rendered to the Company. SECTION 10. Liability of Company. The Company, its parent or any subsidiary which is in existence or hereafter comes into existence shall not be liable to an optionee or other persons as to: (a) The Non-Issuance of Shares. The non-issuance or sale of shares as to which the Company has been unable to obtain from any regulatory body having jurisdiction the authority deemed by the Company's counsel to be necessary to the lawful issuance and sale of any shares hereunder; and (b) Tax Consequences. Any tax consequence expected, but not realized, by any optionee or other person due to the exercise of any option granted hereunder. SECTION 11. Effectiveness and Expiration of Plan. The Plan shall be effective on the date the Board of Directors of the Company adopts the Plan. If the shareholders of the Company fail to approve the Plan within twelve months of the date the Board of Directors approved the Plan, the Plan shall terminate and all options previously granted under the Plan shall become void and of no effect. The Plan shall expire seven years after the date the Board of Directors approves the Plan and thereafter no option shall be granted pursuant to the Plan. SECTION 12. Non-Exclusivity of the Plan. Neither the adoption of the Plan by the Board nor the submission of the Plan to the shareholders of the Company for approval shall be construed as creating any limitations of the power of the Board to adopt such other incentive arrangements as it may deem desirable, including without limitation, the granting of restricted stock or stock options otherwise than under the Plan, and such arrangements may be either generally applicable or applicable only in specific cases. SECTION 13. Governing Law. This Plan and any agreements hereunder, shall be interpreted and construed in accordance with the laws of the State of Delaware and applicable federal law. -6- 7 I, Rosemary M. Demark, being the duly elected Assistant Secretary of Century Bancshares, Inc. DO HEREBY CERTIFY, on this 5th day of March l987, that the preceding Non-Qualified Stock Option Plan For Directors is a true and complete copy of such Plan as amended and restated by the Board of Directors of the Company at a meeting duly called and held on February 11, l987 at which meeting a quorum was present and acting throughout, and that said Plan, as amended and restated above, is in full force and effect as of the date hereof. /s/ ROSEMARY M. DEMARK --------------------------------------- Rosemary M. DeMark Assistant Secretary -7- 8 FIRST AMENDMENT TO THE CENTURY BANCSHARES, INC. NON-QUALIFIED STOCK OPTION PLAN FOR DIRECTORS W I T N E S S E T H: WHEREAS, Century Bancshares, Inc. (the "Company") presently maintains the Century Bancshares, Inc. Non- Qualified Stock Option Plan for Directors ("Plan"), which became effective on November 19, 1986; and WHEREAS, the Board of Directors of the Company, pursuant Section 7 of the Plan, has the right to amend the Plan from time to time subject to certain limitations. NOW, THEREFORE, in order to make the revisions desired by the Board of Directors of the Company, the Plan is hereby amended in the following manner: 1. Effective as of the date hereof, Section 2 is hereby amended in its entirety to read as follows: SECTION 2. Administration of the Plan. The Plan shall be administered by the Board of Directors of the Company ("Committee"). Subject to the terms of the Plan, the Committee shall have the power to interpret the provisions and supervise the administration of the Plan. All decisions made by the Committee pursuant to the provisions of the Plan shall be made by a majority of its members at a duly held regular or special meeting or by written consent in lieu of any such meeting. A majority of the directors in office shall constitute a quorum and all decisions made by the Committee pursuant to the provisions of the Plan shall be made by a majority of the directors present at any duly held regular or special meeting at which a quorum is present (unless the concurrence of a greater proportion is required by law or by the articles or bylaws of the Company) or by the written consent of all of the directors in lieu of any such meeting. 2. Effective as of the date hereof, Section 4 is hereby amended in its entirety to read as follows: SECTION 4. Eligibility. Each director of the Company and/or Century National Bank who is not otherwise an employee of the Company or any of the Company's subsidiaries (as defined in Section 424(f) of the Internal Revenue Code of 1986) shall be eligible to participate in the Plan as recipients of options. 3. Effective as of the date hereof, Section 5 is hereby deleted in its entirety. 9 4. Effective as of the date hereof, Section 6(a) is hereby amended in its entirety to read as follows: (a) Option Awards and Exercise Period. Each director of the Company and/or Century National Bank who is eligible to receive options under the Plan shall be granted one automatic and nondiscretionary option to acquire the following number of shares of Common Stock on the date of each Annual Meeting of Stockholders at which he is elected or reelected to serve as a director of the Company and/or Century National Bank: (i) An amount equal to the total number of shares of Common Stock reserved under the Plan which are not subject to outstanding options, divided by the total number of directors eligible to receive options under the Plan at such Annual Meeting of Stockholders, or (ii) 1,500 shares of Common Stock, whichever is less. Each option granted under the Plan shall provide that it shall terminate and be of no force or effect with respect to any shares not previously taken up by the optionee upon the expiration of seven years from the date of grant. 5. Effective as of the date hereof, Section 6(b) is hereby amended in its entirety to read as follows: (b) Option Price. The purchase price of each share of Common Stock subject to each option granted pursuant to the Plan shall be equal to the greater of the par value of the Common Stock or 100% of the fair market value of a share of Common Stock on the date the option is granted. The fair market value of a share of Common Stock on a particular date shall be deemed to be the average (mean) of the reported "high" and "low" sales prices for such shares as reported in The Wall Street Journal's NYSE-Composite Transactions listing for such day (corrected for obvious typographical errors), or if such shares are not reported in such listing, then the average of the reported "high" and "low" sales prices on the largest national securities exchange (based on the aggregate dollar value of securities listed) on which such shares are listed or traded, or if such shares are not listed or traded on any national securities exchange, then the average of the reported "high" and "low" sales prices for such shares in the over-the-counter market, as reported on the National Association of Securities Dealers Automated Quotations System, or, if such prices shall not be reported thereon, the average between the closing bid and asked prices so reported, or, if such prices shall not be reported, then the average closing bid and asked prices reported by the National Quotation Bureau Incorporated, or, in all other cases, the value established by the Board of Directors of the Company in good faith. -2- 10 6. Effective as of the date hereof, Section 5(g) is hereby amended in its entirety to read as follows: (g) Assignability. An option shall not be assignable or otherwise transferable except by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order as defined in the Internal Revenue Code of 1986 or Title I of the Employee Retirement Income Security Act, or the rules thereunder. 7. Effective as of the date hereof, Section 7 is hereby amended by the addition of the following sentence as the last sentence thereof: Notwithstanding the foregoing, to the extent but only to the extent required in order that Rule 16b- 3(c)(2)(ii)(B), as promulgated in SEC Release No. 34-28869, February 8, 1991, be complied with, the Plan shall not be amended more than once every six months, other than to comport with changes in the Internal Revenue Code of 1986, the Employee Retirement Income Security Act, or the rules thereunder. IN WITNESS WHEREOF, the Company has executed this First Amendment to the Century Bancshares, Inc. Non-Qualified Stock Option Plan for Directors on this 18th day of March, 1992. ATTEST: CENTURY BANCSHARES, INC. /s/ FRANCES K. ROBERTS By: /s/ JOSEPH S. BRACEWELL ---------------------- ----------------------------- Name: Joseph S. Bracewell --------------------------- Title: Chairman of the Board -------------------------- -3- EX-10.5 11 FORM OF DIRECTOR COMPENSATION AGREEMENT 1 EXHIBIT 10.5 SAMPLE AGREEMENT DIRECTOR'S COMPENSATION AGREEMENT This Agreement is entered into effective as of the _____ day of _____________, between CENTURY NATIONAL BANK ("Bank"), CENTURY BANCSHARES, INC. ("Company") and ________________ ("Director"). WITNESSETH WHEREAS, the Bank and the Company recognize that the competent and faithful efforts of the Director on behalf of the Bank and the Company have contributed significantly to the success and growth of the Bank and the Company; and WHEREAS, the Bank and the Company value the efforts, abilities and accomplishments of the Director and recognize that the Director's continued service is expected to contribute to the Bank's and the Company's continued growth and success in the future; and WHEREAS, the Bank and the Company desire to compensate the Director, as set forth below, if elected to serve on the Board of Directors of the Bank and/or the Company ("Board"); and WHEREAS, the Director wishes to defer current director's fees under a deferred compensation arrangement with the Bank and the Company pursuant to which (a) the Director would be entitled to receive a retirement benefit for a specified period after the Director retires from the Board or the Director's term of service on the Board ends, and/or (b) the Director's family would be entitled to such benefits from and after the Director's death; and WHEREAS, the parties hereto wish to provide the terms and conditions upon which the Bank and the Company shall pay such retirement benefits to the Director after retirement or to the Director's family after the Director's death; NOW, THEREFORE, it is mutually agreed as follows: 1. Deferral of Fees: Subject to the terms and conditions of the Agreement, the Bank, the Company and the Director agree to defer payment of fees of which the Director would otherwise be entitled to be paid ("Deferred Fees"), for a period of up to five years from the date hereof. 2. Retirement Benefit: The Bank and the Company agree to pay the Director the total sum of $_________ payable in monthly installments of $______ for 180 consecutive months, commencing on the first day of the month following the Director's 65th birthday ("Retirement Date"). Payments to the Director will terminate when all such payments have been made or at the time of the Director's death, whichever occurs first. 2 DIRECTOR'S COMPENSATION AGREEMENT Page 2 3. Death of Director Before Retirement Date: In the event the Director should die before the Retirement Date, the Bank and the Company agree to pay the total sum of $_________ payable in monthly installments of $______ for ___ consecutive months, commencing on the first day of the month following the date of the Director's death, to the Director's then living Beneficiary designated in writing to the Bank, if any, for the life of said Beneficiary; if none, then to the Director's then living spouse, if any, for the life of said spouse; if none, or from and after the death of said spouse, then to the then living descendants of the Director, if any, in equal shares, per stirpes, for their joint and survivor lives; and if none, or after their respective joint and survivor lives, any balance thereof in one lump sum to the estate of the Director. 4. Death Of Director After Retirement Date: If the Director dies after the Retirement Date but prior to receiving all of the monthly installments set forth in paragraph "2", the remaining monthly installments will be paid to the Director's designated Beneficiary. The Beneficiary shall receive all remaining installments which the Director would have received designated Beneficiary. The Beneficiary shall receive all remaining installments which the Director would have received until the total sum set forth in paragraph "2" (as reduced by the provisions of paragraph "6" if applicable) has been paid. If the Director fails to designate a Beneficiary in writing to the Bank, the remaining monthly installments after the time of the Director's death shall be paid to the legal representative of the estate of the Director. 5. Early Retirement: If the Director, for any reason other than death of the Director or change of control of the Company or the Bank, fails to serve on the Board of Directors of either the Company or the Bank for five consecutive years, the Director will receive monthly compensation (or the Director's Beneficiary will receive a monthly benefit) which is reduced proportionately based on the number of full months served in relation to the required service of 60 months. For example, if the Director served only 30 months on the Board, the Director would be entitled to 30/60 or 50% of the monthly compensation stated in paragraph "2". Similarly, in the above example, if the Director died after leaving the Board but before the Retirement Date, the Director's Beneficiary would be entitled to 30/60 or 50% of the monthly benefit stated in paragraph "3". In determining consecutive years of service, beginning _______________, no year shall be counted in which the Director fails to attend at least two-thirds of the regularly scheduled meetings of the Board of Directors, except pursuant to the circumstances set forth in paragraph "6" below. In the event that there is a change of control of the Bank or the Company while the Director is serving on the Board, there shall be no reduction in compensation or benefits on account of the provisions of this paragraph, except for any reduction resulting from the Director's failure to fulfill the attendance requirement prior to the time the change of control takes place. 6. Interruption of Service: The service of the Director shall not be deemed to have been terminated or interrupted due to absence from active service on account of illness, disability, during any authorized vacation or during temporary leaves of absence granted by the Bank and/or the 3 DIRECTOR'S COMPENSATION AGREEMENT Page 3 Company for reasons of professional advancement, education, health, or government service, or during military leave for any period if the Director is elected to serve on the Board following such interruption. 7. Prohibited Payment: The obligation of the Bank and the Company, and their successors and assigns, to make payments pursuant to this Agreement shall be reduced or eliminated to the extent required (i) to comply with regulations or orders issued pursuant to Section 18(k)(1) of the Federal Deposit Insurance Act, (ii) by any other law, rule, or regulation which is binding on the Company or the Bank or (iii) by direction or instruction from a federal regulatory authority. 8. Suicide: No payments will be made to the Director's Beneficiary or estate in the event of death by suicide during the first three years of this Agreement. 9. Status of Agreement: This Agreement does not constitute a contract of employment between the parties, nor shall any provision of this Agreement constitute an agreement by the Bank, the Company, or shareholders of the Bank and the Company, to nominate or elect the Director as a director in the future or restrict the right of the shareholders of the Bank or the Company to remove the Director in accordance with the Bank's and the Company's charter and by-laws. The Director retains the right to resign from the Board of Directors or to decline to stand for reelection. 10. Assignment of Rights: Except as provided in this Agreement, none of the rights to benefits under this Agreement are assignable by the Director or any Beneficiary or designee of the Director and any attempt to sell, transfer, assign, pledge, encumber or change the Director's right to receive compensation shall be void. 11. Status of Director's Rights: The rights granted to the Director or any designee or Beneficiary under this Agreement shall be solely those of an unsecured creditor of the Bank. 12. Funding Vehicles: If the Bank and the Company shall acquire an insurance policy or any other asset in connection with the liabilities assumed by it hereunder, it is expressly understood and agreed that neither the Director nor any Beneficiary shall have any right with respect to, or claim against, such policy or other asset. Such policy or asset shall be and remain a general, unpledged, unrestricted asset of the Bank or the Company and shall not be deemed to be held under any trust for the benefit of the Director or any Beneficiary or to be held in any way as collateral security for the fulfilling of the obligations of the Bank under this Agreement, except as expressly provided by the terms of such policy or other asset. 13. 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 District of Columbia (excluding the choice of law rules thereof). 4 DIRECTOR'S COMPENSATION AGREEMENT Page 4 14. 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 Director, the Bank and the Company. No delay or failure at any time on the part of the Bank and 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 Bank and the Company thereafter to enforce each and every provision of this Agreement in accordance with its term. 15. Binding Effect: This Agreement shall be binding upon and inure to the benefit of the parties hereto, the successors and assigns of the Bank and the Company, and the heirs and legal representatives of the Director. Any successor of the Bank and the Company shall be deemed substituted for the Bank and the Company under the terms of this Agreement. As used herein, the term "successor" shall include any person, corporation or other business entity which at any time, whether by merger, purchase or otherwise, acquires all or substantially all of the stock, assets or business of the Bank and/or the Company. IN WITNESS HEREOF, the parties have signed this Agreement effective as of the day and year above written. ATTEST CENTURY BANCSHARES, INC. ( "Company" ) By - ------------------------- -------------------------------- President ATTEST CENTURY NATIONAL BANK ("Bank") By - ------------------------- -------------------------------- Chairman of the Board - ------------------------- -------------------------------- Witness ________________ ("Director") 5 BENEFICIARY DESIGNATION Date --------------- Pursuant to Paragraph "3" and Paragraph "4" of the Director's Compensation Agreement between CENTURY NATIONAL BANK, CENTURY BANCSHARES, INC., and _______________, dated as of ______________________, the undersigned hereby requests that any death benefits payable under the provisions of said Agreement be payable to (please provide full name and relationship):
Beneficiary Relationship ----------- ------------ 1. ------------------------------------------ ---------------------------------- 2. ------------------------------------------ ---------------------------------- 3. ------------------------------------------ ---------------------------------- 4. ------------------------------------------ ---------------------------------- - --------------------------------------------------- ---------------------------------- WITNESS
EX-10.6 12 FORM OF INDEMNITY AGREEMENT 1 EXHIBIT 10.6 INDEMNITY AGREEMENT This Agreement made between Century Bancshares, Inc., a Delaware corporation ("Company") and ______________________ ("Indemnitee"). The Company and Indemnitee desire that Indemnitee serve or continue to serve as a director or officer of the Company, and the Company desires and intends hereby to provide indemnification (including advancement of expenses) against any and all liabilities asserted against Indemnitee to the fullest extent permitted by the General Corporation Law of the State of Delaware. For and in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows: 1. Continued Service. Indemnitee will serve or continue to serve, at the will of the Company or under separate contract, if such exists, as a director and/or officer so long as he is duly elected and qualified in accordance with the By-Laws of the Company or until he tenders his resignation. 2. Indemnification. The Company shall indemnify Indemnitee as follows: (a) The Company shall indemnify Indemnitee when he is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that he is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another 2 corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlements actually and reasonably incurred by him or on his behalf in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. (b) The Company shall indemnify Indemnitee when he is a party or is threatened to be made a party to any threatened, pending or completed action or suit brought by or in the right of the Company to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him or on his behalf in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company and except that no indemnification shall be made in respect of any claim, issue or matter as to which Indemnitee shall have been adjudged to be liable to the Company unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnification for such expenses which the Court of Chancery or such other court shall deem proper. -2- 3 (c) Any indemnification under paragraphs (a) and (b) of this Section 2 (unless ordered by a court) shall be made by the Company only as authorized in the specific case upon a determination (in accordance with Section 3 hereof) that indemnification of Indemnitee is proper in the circumstances because he has met the applicable standard of conduct set forth in paragraphs (a) and (b) of this Section 2. Such determination shall be made (1) by the board of directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (3) by the stockholders. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that Indemnitee failed to act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. (d) Expenses (including attorney fees) incurred by Indemnitee in defending a civil or criminal action, suit or proceeding by reason of the fact that he is or was a director or officer of the Company shall be paid by the Company in advance of the final disposition of such action, suit or proceeding within 14 days of the receipt by the Company of a sworn statement of request for advancement of expenses substantially in the form of Exhibit 1 attached hereto and made a part hereof ("Undertaking"), averring that (i) he has reasonably incurred or will reasonably incur actual expenses in defending a civil or criminal action, suit or proceeding, and (ii) he undertakes to repay -3- 4 such amount if it is ultimately determined that he is not entitled to be indemnified by the Company under this Agreement or otherwise. (e) The right to indemnification and advancement of expenses provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may be entitled under any statute, by-law, insurance policy, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue after Indemnitee has ceased to be a director, officer, employee or agent and shall inure to the benefit of his heirs, executors and administrators. 3. Determination of Right to Indemnification. For purposes of making the determination in a specific case under paragraph (c) of Section 2 hereof whether to make indemnification, the board of directors, independent legal counsel, or stockholders, as the case may be, shall make such determination in accordance with the following procedure: (a) Indemnitee may submit to the board of directors a sworn statement of request for indemnification substantially in the form of Exhibit 2 attached hereto and made a part hereof ("Indemnification Statement") averring that he has met the applicable standard of conduct set forth in paragraphs (a) and (b) of Section 2 hereof; and (b) Submission of the Indemnification Statement to the board of directors shall create a rebuttable presumption that Indemnitee is entitled to indemnification under this Agreement, and the board of directors, independent legal counsel, or stockholders, as the case may be, shall within 60 days after submission of the Indemnification Statement specifically determine that -4- 5 Indemnitee is so entitled, unless it or they shall possess sufficient evidence to rebut the presumption that Indemnitee has met the applicable standard of conduct set forth in paragraph (a) or (b) of Section 2 hereof, which evidence shall be disclosed to Indemnitee with particularity in a sworn written statement signed by all persons who participated in the determination and voted to deny indemnification. 4. Merger, Consolidation or Change in Control. In the event that the Company shall be a constituent corporation in a consolidation or merger, whether the Company is the resulting or surviving corporation or is absorbed, or if there is a change in control of the Company as defined in Section 5 hereof, Indemnitee shall stand in the same position under this Agreement with respect to the resulting, surviving or changed corporation as he would have with respect to the Company if its separate existence had continued or if there had been no change in the control of the Company. 5. Certain Definitions. For purposes of this Agreement, the following definitions apply herein: "other enterprises" shall include employee benefit plans, and civic, non-profit, or charitable organizations, whether or not incorporated; "fines" shall include any excise taxes assessed on Indemnitee with respect to any employee benefit plan; "serving at the request of the Company" shall include any service at the request or with the express or implied authorization of the Company, as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, Indemnitee with respect to a -5- 6 corporation or "other enterprises," its participants or beneficiaries; and if Indemnitee acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of such "other enterprises," he shall be deemed to have acted in a manner "not opposed to the best interests of the Company" as referred to in this Agreement; and "change in control" shall include any change in the ownership of a majority of the capital stock of the Company or in the composition of a majority of the members of the board of directors of the Company. 6. Attorneys' Fees. In the event that Indemnitee institutes any legal action to enforce his rights under, or to recover damages for breach of this Agreement, Indemnitee, if he prevails in whole or in part, shall be entitled to recover from the Company all attorneys' fees and disbursements incurred by him. 7. Severability. If any provision of this Agreement or the application of any provision hereof to any person or circumstances is held invalid, the remainder of this Agreement and the application of such provision to other persons or circumstances shall not be affected. 8. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without regard to its conflict of laws rules. 9. Modification; Survival. This Agreement contains the entire agreement of the parties relating to the subject matter hereof. This Agreement may be modified only by an instrument in writing signed by both parties hereto. The provisions of this Agreement shall survive the termination of Indemnitee's service as a director or officer of the Company. -6- 7 10. Deposit of Funds in Trust. In the event that the Company decides to voluntarily dissolve or to file a voluntary petition for relief under applicable bankruptcy, moratorium or similar laws, then not later than ten days prior to such dissolution or filing, the Company shall deposit in trust for the exclusive benefit of Indemnitee a cash amount equal to all amounts previously authorized to be paid to Indemnitee hereunder, such amounts to be used to discharge the Company's obligations to Indemnitee hereunder. Any amounts in such trust not required for such purpose shall be returned to the Company. This Section 10 shall not apply to dissolution of the Company in connection with a transaction as to which Section 4 hereof applies. -7- 8 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement and set their seals effective as of the ___ day of _______, ____. CENTURY BANCSHARES, INC. Attest: By: ----------------- --------------------------------- Name/Title Name/Title INDEMNITEE (Corporate Seal) ------------------------------------ - ------------- -8- 9 EXHIBIT 1 STATEMENT OF UNDERTAKING STATE OF ) ) COUNTY OF ) I, ______________________, being first duly sworn do depose and say as follows: 1. This Statement is submitted pursuant to the Indemnity Agreement effective as of ______________________, between Century Bancshares, Inc., a Delaware corporation (Company), and the undersigned. 2. I am requesting advancement of certain actual expenses which have reasonably been incurred or will be reasonably incurred by me or on my behalf in defending a civil or criminal action, suit or proceeding by reason of the fact that I am or was a director or officer of the Company. 3. I hereby undertake to repay this advancement of expenses if it is ultimately determined that I am not entitled to be indemnified by the Company. -1- 10 4. The expenses for which advancement is requested have been or will be incurred in connection with the following action, suit or proceeding: --------------------------- Subscribed and sworn to before me this ____ day of __________________, 19__. ----------------------------------- Notary Public in and for said state and county My Commission Expires: ------------- -2- 11 Exhibit 2 STATEMENT OF REQUEST FOR INDEMNIFICATION STATE OF ) ) COUNTY OF ) I, _____________________, being first duly sworn do depose and say as follows: 1. This Statement is submitted pursuant to the Indemnity Agreement effective ___________, ______, between Century Bancshares, Inc., a Delaware corporation ("Company"), and the undersigned. 2. I am requesting indemnification against expenses (including attorneys' fees) and, with respect to any action not by or in the right of the Company, judgements, fines and amounts paid in settlement, all of which have been actually and reasonably incurred by me or on my behalf in connection with a certain action, suit or proceeding to which I am a party or am threatened to be made a party by reason of the fact that I am or was a director or officer of the Company. -1- 12 3. With respect to all matters related to any such action, suit or proceeding, I acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, I had no reason to believe that my conduct was unlawful. 4. I am requesting indemnification in connection with the following suit, action or proceeding: ------------------------------- Subscribed and sworn to before me this _____ day of ____________, ______. ------------------------------- Notary Public in and for said state and county My commission expires: -2- EX-10.7 13 EMPLOYMENT AGREEMENT - JOSEPH S. BRACEWELL 1 EXHIBIT 10.7 EXECUTIVE EMPLOYMENT AGREEMENT THIS EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") is made and entered as of the 1st day of September 1996, by and between CENTURY BANCSHARES, INC., a Delaware corporation ("Employer"), and JOSEPH S. BRACEWELL, a District of Columbia resident ("Employee"). WITNESSETH: WHEREAS, Employee is employed by Employer and Employer desires Employee's continued services as Chairman of the Board and Chief Executive Officer of Employer and as a senior executive officer of its wholly-owned subsidiary, CENTURY NATIONAL BANK, a national banking association ("Bank"). WHEREAS, Employee is willing to continue to provide services to Employer upon the terms and conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the foregoing premises, the mutual covenants and conditions set forth in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which each party acknowledge, the parties intending to be legally bound agree as follows: 1. DUTIES AND RESPONSIBILITIES OF EMPLOYEE. By this Agreement Employer employs Employee and Employee hereby accepts continued employment as Chairman of the Board and Chief Executive Officer of Employer and as a senior executive of the Bank. In such capacities, Employee shall devote his full time and attention to the affairs of Employer, use his skill and best efforts in the faithful performance of his duties, faithfully discharge his responsibilities, and comply in all material respects with the bylaws, rules, regulations, policies, and instruments established or issued by Employer and Bank. Employee shall report to the Board of Directors of Employer and, as applicable, the Board of Directors of Bank. Employee shall have such authority as shall be required to enable him to preform the duties of his positions. Subject to prior approval of the Board of Directors of Employer, Employee may participate or serve as an investor or director of any other company or as an officer, director, or member of any trade, social, or charitable organization where such participation or service does not, in Employer's reasonable judgment, conflict with Employer's interests or interfere with Employee's duties under this Agreement. 2. TERM AND RENEWAL. Employee's employment under this Agreement shall commence September 1, 1996, and shall continue until August 31, 1998 (the "Initial Term"), unless extended in accordance with the following procedure. Employee's employment shall be extended 2 for additional one (1) year terms commencing September 1 and ending August 31 (the "Renewal Term(s)"), if Employer gives written notice to Employee at least one hundred eighty (180) days before the end of the Initial or any Renewal Term of such extension of this Agreement, and Employee, within sixty (60) days after such notice, notifies Employer of his consent to such extension. Notwithstanding anything in this Agreement to the contrary, Employer and Employee may mutually agree to an acceleration of the expiration of the Initial Term of any Renewal Term. 3. COMPENSATION. 3.1 SALARY. During the Initial Term or any Renewal Term of this Agreement, Employer shall pay Employee a yearly salary of One Hundred Eighty-Two Thousand Three Hundred Dollars ($182,300), payable under Employer's customary payroll procedures, less withholdings required by law or authorized by Employee. Payment of salary, benefits and other compensation may be provided by Employer or, in its discretion, by Bank or any other subsidiary or affiliate of Employer and, in such latter event, any such payments shall constitute payment under this Agreement. 3.2 COMPENSATION REVIEWS. By January 1, 1997, and by January 1 of each succeeding year of the Initial Term or any Renewal Term, Employer shall review the yearly salary of Employee and may, in its business judgment, increase such salary, effective on such date for the succeeding year. 3.3 BONUSES AND PERQUISITES. Employee shall be entitled to participate in or receive benefits from any and all incentive compensation and bonus plans, retirement plans, pension plans, profit-sharing plans, health and accident plans, medical and disability coverage, insurance policies of any kind, stock option plans or agreements, vacation, sick leave, and any other perquisites which Employer makes available to its senior executives and/or key management employees as a group, subject to and consistent with the terms, conditions and administration of such plans and arrangements. Nothing in this Agreement shall obviate any existing or future vested right of Employee in any other agreement with Employer, including but not limited to Employee's rights under split-dollar insurance programs, director compensation programs, or stock option programs. 3.4 REIMBURSEMENT OF EXPENSES; OTHER BENEFITS. Employer shall continue to pay or reimburse Employee for (a) all reasonable professional association dues and licenses, travel and other expenses, including participation in trade or professional associations, approved by Employer through its designated representative and incurred by Employee in performing his duties in the lawful and ordinary course of business and properly reported to Employer in accordance with its accounting procedures; and (b) country club dues, life insurance premiums, automobile use, and parking, as currently made available to Employee. Page 2 of 15 3 Employer shall continue to furnish Employee with the exclusive use of the automobile now used by Employee or an equivalent luxury automobile. Employer shall provide Employee with use of a new automobile on the earlier of every three (3) years from the date such automobile was placed in use by Employee or Forty-Five Thousand (45,000) miles of usage on such automobile. 3.5 DISABILITY. In the event Employee shall become disabled within the meaning of this Agreement Employer shall continue to pay Employee's salary and all other compensation and benefits provided under this Paragraph 3 during the period of Employee's disability until the Termination Date, as defined in Paragraph 5.5. 4. NON-COMPETITION. 4.1 EMPLOYER'S CUSTOMERS; BUSINESS. During the term of this Agreement and for a period of twelve (12) months following the Termination Date, Employee shall not, directly or indirectly, solicit any customer of Employer, or any prospective customer with whom Employee has had discussions during the term of his employment, for any business purpose that is directly competitive with the business of Employer. In addition, for a period of twelve (12) months following the Termination Date, Employee shall not engage, directly or indirectly, whether as a principal or as an agent, officer, director, employee, or consultant, along or in association with any other person, corporation, or other entity, in any Competing Business within the Washington, D.C. Metropolitan Area (as defined later in this Paragraph 4.1), or within the area of any city or county outside the Washington, D.C. Metropolitan Area in which Employer maintained an office on the Termination Date (such areas within and outside the Washington, D.C. Metropolitan Area being referred to in this Agreement as "Employer's Area of Business Activity"). For purposes of this Paragraph 4.1, the term "Competing Business" shall mean the business of independent commercial banking and other activities permitted to be conducted by an independent bank or independent bank holding company; provided, however, that the phrase "independent bank or independent bank holding company" shall not include any national or regional entity, but only an independent bank or independent bank holding company that derives at least seventy-five (75%) percent of its revenue, in the aggregate, from Employer's Area of Business Activity. For purposes of this Paragraph 4.1, the term "Washington, D.C. Metropolitan Area" shall include only the District of Columbia; Montgomery County and Prince George's County within the State of Maryland; the City of Alexandria, Arlington County and Fairfax County within the Commonwealth of Virginia; and any incorporated city or township within such Maryland and Virginia counties. Notwithstanding anything in this Agreement to the contrary, this Paragraph 4.1 shall not prevent Employee from (a) personally owning up to ten percent (10%) of the outstanding and issued stock of a Competing Business; (b) engaging in the private practice of law with a Competing Business as a client; or (c) becoming employed by Page 3 of 15 4 or engaging in any enterprise that is directly competitive with the business of Employer as an independent bank or independent bank holding company, if and so long as Employee's participation in such enterprise does not involve any activity, directly or indirectly, that is directly competitive with the business of Employer. 4.2 EMPLOYER'S EMPLOYEES. For a period of twelve (12) months following the Termination Date, Employee shall not, directly or indirectly, solicit or induce, or attempt to solicit or induce, any employee of Employer to leave the employ of Employer for any reason whatsoever, or hire any employee of Employer. 5. TERMINATION. 5.1 TERMINATION FOR DEATH OR DISABILITY. 5.1.1 DEATH. Employee's employment under this Agreement shall terminate upon Employee's death. 5.1.2 DISABILITY. If Employee is subject to a Disability (as defined later in this Paragraph 5.1.2) during a period or more than six (6) consecutive months, Employer, by resolution of its Board of Directors, may terminate Employer's employment under this Agreement upon twenty (20) days prior written notice given to him at any time after the expiration of the aforesaid six (6) month period. In addition, Employer, by resolution of its Board of Directors, may terminate Employee's employment, upon twenty (20) days prior written notice to Employee, in the event that Employee is subject to Disability for more than nine (9) months, not necessarily consecutive, during the term of this Agreement. Notwithstanding anything in this Agreement to the contrary, if Employee is subject to a Disability, Employer may relieve him of his responsibilities and appoint a temporary successor. Should Employee sufficiently recover from his Disability prior to the expiration of the six-month or nine-month period described above, he shall then be permitted to resume his duties. For purposes of this Agreement, Employee shall be considered to have a Disability: (a) if he is under a legal decree of incompetency (the date of such decree being deemed the date on which such mental incompetence occurred for purposes of this Agreement), or (b) because of a "Medical Determination of Mental and/or Physical Illness or Incapacity." A Medical Determination of Mental and/or Physical Illness or Incapacity shall mean the written determination by a physician selected by Employer and reasonably acceptable to Employee that, because of a medically determinable mental and/or physical illness or incapacity, Employee is unable to perform his material duties in connection with his regular full-time employment with Employer. The date so specified in any written determination shall be the date on which such mental and/or physical illness or incapacity shall be deemed to have commenced for purposes of this Agreement, if the written Page 4 of 15 5 determination concludes that Employee is disabled. In conjunction with determining the existence of a Disability, Employee consents to such examinations which are relevant to a determination of whether he has a mental and/or physical illness or incapacity and which are required by the aforesaid physician, and to furnish such medical information as may be reasonably requested. Employee waives any applicable physician-patient privilege that may arise because of such examination. The physician selected pursuant to this Paragraph 5.1.2 shall be Board-certified in the specialty most closely related to the nature of the mental and/or physical illness or incapacity alleged to exist. 5.2 TERMINATION BY EMPLOYER. 5.2.1 FOR CAUSE. Employer may terminate this Agreement for cause effective upon written notice to Employee and, notwithstanding anything in this Agreement to the contrary, shall have no further obligations under this Agreement except as set forth in Paragraph 6.2. The term "for cause" as used in this Agreement shall mean (I) Employee's willful failure faithfully and diligently to perform his duties as an Employee or Employee's breach of any of the material terms or provisions of this Agreement after written notice to him by the Board of Directors of Employer specifying in detail such failure or breach, provided that such cause shall have been found by a majority vote of all members of the Board of Directors (exclusive of Employee), after at least thirty (30) days written notice to Employee specifying in detail the cause proposed to be claimed and after an opportunity for Employee to be heard at a meeting of the Board of Directors; (ii) a conviction of Employee, whether upon a verdict or plea of guilty or nolo contendere, of a felony or other offense involving moral turpitude or fraud; (iii) a conviction of Employee in a criminal proceeding, whether upon a verdict or plea of guilty or nolo contendere, or a finding of violation or order of a court or administrative agency in a civil proceeding restraining or imposing sanctions upon Employee for violation of Federal banking law, Federal securities law, or any other law directly related to the performance of his duties; (iv) a final order for removal of Employee by a regulator having jurisdiction over Employer or Bank; (v) Employee's theft or fraud with respect to the business or affairs of Employer or Bank; or (vi) chronic alcohol abuse or illegal drug abuse by Employee. An act or failure to act on the part of Employee shall be considered "willful" if done, or omitted to be done, by Employee in bad faith or without a reasonable belief that the act or omission was in the best interests of Employer. 5.2.2 WITHOUT CAUSE. Employer may terminate this Agreement at any time without cause, pursuant to a resolution adopted by the Board of Directors of Employer, by giving at least twenty (20) days prior written notice to Employee. Page 5 of 15 6 5.2.3 EFFECT ON INDEMNITY AGREEMENT. Nothing in this Agreement shall be deemed to modify or otherwise effect the Indemnity Agreement, dated February 27, 1987, between Employer and Employee. 5.3 TERMINATION BY EMPLOYEE. 5.3.1 FOR CAUSE. If Employer commits a material breach of any provision of this Agreement and fails to cure such breach within thirty (30) days after notice by Employee of such breach ("Cure Period"), Employee may terminate this Agreement for cause by giving written notice of termination to Employer, which notice shall be given within fifteen (15) days after the end of the Cure Period (including any mutually agreed extensions thereof) and specify an effective date of termination of no more than thirty (30) days following the end of the Cure Period (including any mutually agreed extensions thereof). For purposes of this Paragraph 5.3.1, a "material breach" includes, but is not limited to (a) a failure by Employer not attributable to the action or inaction of Employee to timely pay or provide compensation or benefits to Employee under Paragraph 3; (b) a material reduction in Employee's duties, responsibilities, status, or authority; (c) the appointment of any other employee or consultant (other than the Board of Directors) to supervise Employee's performance of his duties; and (d) the removal of, or failure to reelect or reappoint, Employee to any of the positions as set forth in Paragraph 1 unless (i) due to Employee's promotion to a higher office with expanded duties, responsibilities, status, and compensation, or (ii) effected pursuant to Paragraphs 5.1 or 5.2. 5.3.2 FOR CHANGE OF CONTROL. Employee may terminate this Agreement by reason of a Change of Control as defined in Paragraph 5.4 by giving written notice of termination to Employer no later than sixty (60) days after such Change of Control. 5.4 CHANGE OF CONTROL DEFINED. A "Change of Control" shall mean the occurrence of: (a) a change in Employer's status requiring prior notice to the Board of Governors of the Federal Reserve System and/or the Office of the Comptroller of the Currency pursuant to the Change in Bank Control Act of 1978 and regulations, 12 C.F.R. Sections 5.50 and 225.41, promulgated thereunder, or (b) the acquisition by any person or group of persons (as such terms are defined and used in Sections 3(a)(9) and 14(d)(2) of the Securities Exchange Act of 1934, as amended) of beneficial ownership (as defined in Rule 13d-3 issued under that Act), directly or indirectly, of securities representing more than fifty percent (50%) of the combined voting power of the then outstanding voting securities of Employer or Bank entitled to vote generally in the election of directors ("Voting Securities"), or (c) individuals who constitute the Board of Directors of Employer on the date of this Agreement ("Incumbent Board") cease for any reason to constitute at least a majority of that Board, provided that any person becoming a director subsequent to the date of this Page 6 of 15 7 Agreement whose election or whose nominations for election by Employer's stockholders was approved by a majority vote of the directors comprising the Incumbent Board shall be, for purposes of this Agreement, considered as though he or she were a member of the Incumbent Board; or (d) a reorganization, merger, or consolidation with respect to which those persons (as defined above) who were beneficial owners of the Voting Securities of Bank or of Employer immediately prior to such reorganization, merger, or consolidation do not, following such reorganization, merger, or consolidation, beneficially own, directly or indirectly, shares representing more than 50% of the combined voting power of the Voting Securities of the corporation resulting from such reorganization, merger, or consolidation; or (e) a sale of all or substantially all the assets of Bank or Employer. 5.5 TERMINATION DATE DEFINED. "Termination Date" shall mean, as the case may be: the date of Employee's death if termination occurs pursuant to Paragraph 5.1.1; the effective date specified by written notice of Employer if termination occurs pursuant to Paragraph 5.1.2 or 5.2; the effective date specified by written notice of Employee if termination occurs pursuant to Paragraph 5.3; or the date of expiration of the Initial Term or any Renewal Term if the Agreement is not extended for an additional term pursuant to Paragraph 2. 6. EFFECT OF TERMINATION, EXPIRATION, AND CHANGE OF CONTROL. 6.1 IN GENERAL. In the event of a failure to renew this Agreement or a termination for any reason other than Employee's death pursuant to Paragraph 5.1.1 or termination by Employer for cause pursuant to Paragraph 5.2.1, Employer shall (a) within ten (10) days after the Termination Date pay to Employee all accrued and unpaid salary, bonuses, vacation, and other amounts earned or otherwise due to Employee through the Termination Date, less withholdings required by law; (b) maintain, at its own expense, for a period of one (1) year after the Termination Date, Employee's group medical and other health plans in which Employee and his immediate family were participating on the Termination Date; (c) maintain, at its own expense, for a period of one (1) year after the Termination Date, life insurance coverages to which Employee was entitled on the Termination Date; (d) permit Employee, at his own expense and upon full payment to Employer of any cash surrender value, to continue any life insurance or health coverages or benefits after such one (1) year term to the extent permitted by the terms of such coverages or as may otherwise be required by law and to purchase any split-dollar life insurance policies at Employer's book value; (e) cause all stock options granted under agreements between Employer and Employee to become fully vested as of the Termination Date regardless of length of service; and (f) pay to Employee a Severance Payment as prescribed in Paragraph 6.4. Except as otherwise set forth in this Agreement, any other compensation Page 7 of 15 8 in the form of salary, bonuses, benefits, or perquisites due Employee pursuant to this Agreement shall cease as of the Termination Date. 6.2 FOR CAUSE BY EMPLOYER. In the event of a termination by Employer for cause pursuant to Paragraph 5.2.1, Employer's obligations under this Agreement shall be limited to payment to Employee, within ten (10) days after the Termination Date, of all accrued and unpaid salary, vacation, bonuses, and any other amounts that were earned by or otherwise due to Employee as of the Termination Date, less withholdings required by law. Employee shall not be entitled to any bonuses for the year in which he is terminated for cause. 6.3 EMPLOYEE'S DEATH. In the event of a termination by reason of Employee's death pursuant to Paragraph 5.1.1, Employer shall within ten (10) days after the Termination Date pay to Employee's personal representative, or such other person as Employee shall have designated, all accrued and unpaid salary, vacation, bonuses, and any other amounts earned by or otherwise due to Employee as of the Termination Date, less withholdings required by law. In addition, Employer shall maintain, at its own expense, for a period of one (1) year after the Termination Date, Employee's group medical and other health plans in which Employee and his immediate family were participating on the Termination Date. Upon expiration of the one (1) year term, Employer shall permit Employee's family, at its own expense, to continue any such group medical and other health plans to the extent permitted by the terms of such plans or as may otherwise be required by law. 6.4 SEVERANCE PAYMENT. 6.4.1 IN GENERAL. For any event specified in Paragraph 6.1 except the circumstances specified in Paragraphs 6.4.2 and 6.4.3, the amount of the Severance Payment shall be equal to two (2) times Employee's yearly salary then in effect. Employer shall make such Severance Payment in eight (8) equal quarterly installments, less applicable withholding, beginning no later than ten (10) business days following the Termination Date. 6.4.2 EMPLOYEE'S FAILURE TO EXTEND TERM. In the event Employee does not consent to an extension of this Agreement pursuant to Paragraph 2, the amount of the Severance Payment shall be equal to one (1) times Employee's yearly salary then in effect. Employer shall make such Severance Payment in four (4) equal quarterly installments, less applicable withholding, beginning no later than ten (10) business days following the Termination Date. 6.4.3 EMPLOYEE'S CONTINUED EMPLOYMENT AFTER CHANGE OF CONTROL. The amount of the Severance Payment shall be zero if, after a termination by Employee for Page 8 of 15 9 Change of Control pursuant to Paragraph 5.3.2, Employee continues to be employed by any successor or assign of Employer on substantially the same or better provisions than this Agreement. Employee's decision to continue, discontinue, accept, or reject such employment shall be within Employee's sole and absolute discretion. 6.4.4 OPTIONAL MANNER OF PAYMENT. Notwithstanding anything in this Agreement to the contrary, for any event specified in Paragraph 6.1 except termination by Employer pursuant to Paragraph 5.1.2, at the option of Employee, Employer shall pay the entire amount of the Severance Payment, less applicable withholding, in a lump sum no later than ten (10) business days following the Termination Date to Employee or to the trustee of a trust provided by Employee. 6.5 CHANGE OF CONTROL. In the event of a Change of Control which would render valueless any stock options granted by Employer to Employee that are not fully vested, then, whether or not this Agreement is terminated as a result of such Change of Control, Employer shall cause all such stock options to become fully vested in Employee, regardless of length of service, effective as of the date such Change of Control occurs or, if applicable, such earlier time as may be necessary to allow Employee's shares purchased pursuant to such options to be sold or exchanged in connection with the transaction resulting in such Change of Control. 7. SUCCESSORS AND ASSIGNS. 7.1 EMPLOYEE'S PERSONAL SERVICES ASSIGNMENT. Employee's duties under this Agreement are personal in nature and shall not be assignable or otherwise transferable by either party. Employee shall be under no duty to mitigate or otherwise reduce any compensation to which he is entitled under this Agreement, by accepting any other employment or compensation for his services rendered of any kind. 7.2 BINDING EFFECT, ETC. This Agreement, including all of its terms and provisions, shall be binding upon and inure to the benefit of the parties and their personal representatives and, in the case of Employer, its successors and assigns (including without limitation any corporation which might acquire all or substantially all of Employer's assets or business, or with which Employer or a successor may be consolidated or merged). The obligations of Employee under Paragraphs 4, 18, 19 and 22 and the obligations of Employer under Paragraphs 6, 18, and 19 shall survive any termination or expiration of this Agreement. 8. CHOICE OF LAW. This Agreement has been negotiated and executed, and is to be substantially performed, in the District of Columbia. Any rights or obligations of the parties shall Page 9 of 15 10 be governed by and construed under the internal laws of the District of Columbia, but not its conflicts of laws. 9. NOTICES. All notices required under this Agreement shall be in writing and shall be deemed effective upon receipt if hand delivered or upon the lapse of three (3) business days, when mailed by certified or registered mail, return receipt requested, as follows: If to Employer: If to Employee: -------------- -------------- Century Bancshares, Inc. Mr. Joseph S. Bracewell Attention: Secretary 4554 Klingle Street, N.W. 1275 Pennsylvania Avenue, N.W. Washington, D.C. 20016 Washington, D.C. 20004 With copy to: With copy to: Century National Bank William H. Shawn, Esq. Attention: Secretary Shawn, Mann & Niedermayer, L.L.P. 1875 Eye Street, N.W. 1850 M Street, N.W., Suite 280 Washington, D.C. 20006 Washington, D.C. 20036-5803 Frederic T. Spindel, Esq. Reed Smith Shaw & McClay 1301 K Street, N.W., Suite 1100 East Tower Washington, D.C. 20005 or such other address as may be designated by either of the parties in a written notice to the other party. 10. WAIVER AND SURVIVAL OF RIGHTS. No act, failure, omission, or delay, in whole or in part, by any party in exercising any right, power, or privilege under this Agreement shall be a waiver to exercise any such right, power, or privilege. The rights and remedies in this Agreement are cumulative and not exclusive of any rights or remedies provided at law or equity. All covenants and rights of the parties shall survive expiration or termination of this Agreement until all such covenants and rights shall have been performed in full. 11. ENTIRE AGREEMENT; AMENDMENTS. This Agreement represents the entire understanding between the parties, supersedes all prior negotiations between the parties, and cannot be changed or amended, except by a written agreement, which makes specific reference to this Agreement and is signed by the parties. Page 10 of 15 11 12. SEVERABILITY. It is the intention of the parties that this Agreement shall be enforceable to the fullest extent permissible under applicable law, but that the unenforceability (or modification to conform to applicable law) of any provision shall not render unenforceable, or impair, the remainder of this Agreement. If any provision of this Agreement shall for any reason be held or deemed to be, or shall in fact be, invalid, inoperative, or unenforceable as applied to any particular case or circumstance, such case or circumstance shall not have the effect of rendering the provision in question, invalid, inoperative, or unenforceable in any other jurisdiction or in any other case or circumstance, or of rendering any other provision or provisions of this Agreement invalid, inoperative, or unenforceable to the extent that such other provisions are not themselves actually in conflict, and this Agreement shall be deemed amended to delete or modify the offending provision so that it will be rendered valid, operative, and enforceable to the maximum extent permitted in such jurisdiction or in such case. 13. COUNTERPARTS. This Agreement may be signed in multiple counterparts, each of which shall have the same effect as originals, but all such counterparts collectively shall constitute the same instrument. 14. HEADINGS. The headings to Paragraphs of this Agreement are for information purposes only and shall not constitute a part of this Agreement. 15. RECITALS. The recitals in this Agreement shall not constitute a part of this Agreement. 16. TERMINOLOGY. All personal pronouns used in this Agreement, whether in the masculine, feminine, or neuter genders, shall include all other genders, and the singular shall include the plural and vice versa. 17. REPRESENTATION BY COUNSEL; INTERPRETATION. The parties acknowledge that each party to this Agreement has been represented by counsel in the negotiation, preparation, and execution of this Agreement and the transactions contemplated by this Agreement. Accordingly, any rule of law, including, but not limited to, the doctrine of contra proferentum, or any legal decision which would require interpretation of any claimed ambiguities in this Agreement against the drafting party has no application and is expressly waived. The provisions of this Agreement shall be interpreted in a reasonable manner to effect the intent of the parties. 18. DISPUTE RESOLUTION. 18.1 ARBITRATION. Except as otherwise provided in Paragraph 18.3, any controversy or claim arising out of or relating to this Agreement, or any breach thereof, shall be resolved by submission to arbitration before a single arbitrator in accordance with the Page 11 of 15 12 rules of the American Arbitration Association, and confirmation of such award rendered by the arbitrator may be entered in the Superior Court of the District of Columbia. The arbitration shall be held in the District of Columbia, or such other place as may be mutually agreed upon at the time by the parties to the arbitration. The costs and expenses of the arbitration ("Arbitration Costs"), including the arbitrator's fee and expenses, shall be allocated between the parties to the arbitration as determined by the arbitrator to be fair and reasonable; provided, however, that each party shall pay for and bear the cost of his or its own experts, evidence, and counsel. Notwithstanding the foregoing, where a claim has been asserted or defended against on grounds that the arbitrator deems frivolous, or where the arbitrator determines, upon a clear and convincing showing, that the non-prevailing party has engaged in unconscionable conduct to delay or obstruct the proceedings, the arbitrator may assess all Arbitration Costs upon the non-prevailing party, including the prevailing party's attorneys' fees and expenses. No award of punitive damages may be rendered by the arbitrator in such proceeding. 18.2 MEDIATION. At least sixty (60) days before a party may deliver a demand for arbitration pursuant to Paragraph 18.1, such party shall provide to the other party a written notice describing the nature of his or its claim or controversy (the "Dispute Notice"). Following receipt of the Dispute Notice, each party shall use his or its good faith efforts to reach a mutually acceptable resolution of the dispute, and shall designate a representative not directly involved in the dispute to exchange relevant information and meet with the other party's representative. If the parties are unable to reach a settlement within thirty (30) days, the parties shall endeavor to settle the dispute by mediation pursuant to the Center for Public Resources Model Procedure for Mediation of Business Disputes. For this purpose, the parties shall, within ten (10) days, appoint a mutually agreeable neutral person ("Neutral"), or failing agreement a Neutral shall be selected with the assistance of the Center for Public Resources, to facilitate resolution of the dispute. All discussions between the parties shall be confidential and shall be treated as inadmissable settlement negotiations under Rule 408 of the Federal Rules of Evidence and similar rules. If the good faith efforts of the parties fail to resolve the dispute within the sixty (60) day period following delivery of the Dispute Notice, a party who provided the Dispute Notice may initiate arbitration under Paragraph 18.1 and take any other action available in connection with the dispute. 18.3 EQUITABLE RELIEF. Without limiting any rights or remedies which Employer may otherwise have, in the event of a breach or threatened breach of any of the provisions of Paragraphs 4 and 22, Employer shall be entitled to institute judicial proceedings against Employee for equitable relief, including, without limitation, a decree of specific performance, a temporary restraining order and/or a preliminary or permanent injunction to enforce and compel compliance with such provisions, in the Superior Court for the District of Columbia or the U.S. District Court for the District of Columbia. Employee consents to Page 12 of 15 13 personal jurisdiction of such courts and waives only defenses based on improper venue or inconvenient forum. Employee further acknowledges and agrees that, for purposes of such judicial proceedings, a breach of the provisions of Paragraph 4 or 22 shall be deemed to constitute irreparable injury to Employer for which a remedy at law is inadequate. No temporary restraining order, or preliminary or permanent injunction, shall be granted by the court except upon a showing that a breach of Paragraph 4 or 22 has occurred or is imminently threatened. 19. FURTHER ASSURANCES. The parties to this Agreement shall perform such acts and/or execute, acknowledge, and deliver to each other any instruments which may be reasonably required to implement the purposes of this Agreement. 20. GUARANTEE. Employer agrees, upon request of Employee, to use its best efforts to cause Bank to guarantee the financial payments due to Employee under the provisions of this Agreement. 21. NO SET-OFF OR DEMANDS. No payments owed or other obligations owing to Employee under this Agreement shall be reduced by any amounts claimed or other demands against Employee except for (a) bona fide loans and advances from Employer to Employee documented in writing, (b) payments made by Employer to third parties on Employee's behalf at his direction or with his approval and documented in writing, and (c) any payments which Employee actually receives under any short-term or long-term disability insurance coverages maintained by Employer during the period of Employee's Disability prior to the Termination Date or, if later, the date of the final payment due from Employer to Employee pursuant to Paragraph 6. Nothing in this Agreement shall be deemed a waiver of any claim Employer or Employee may have against the other or otherwise prejudice the right of Employer or Employee or seek recovery of such claim. 22. CONFIDENTIAL INFORMATION. 22.1 NEED FOR CONFIDENTIALITY. Employee acknowledges that: (a) in the course of his employment by Employer it will be necessary for Employee to acquire, among other things, information concerning Employer's internal structure, financial condition, sales, prospective customers, identity of and strategies with respect to sales, identity of and strategies with respect to customers and prospective customers, Employer's computer programs, system documentation, and hardware, Employer's manuals, lists, processes, methods, ideas, and other confidential or proprietary information belonging to Employer or relating to Employer's affairs (collectively referred to herein as the "Confidential Information"); (b) the Confidential Information is the property of Employer; (c) the misuse, misappropriation, or unauthorized disclosure of the Confidential Information would constitute a breach of trust and could cause irreparable injury to Employer; and (d) it is Page 13 of 15 14 essential to the protection of the Employer's good will and to the maintenance of Employer's competitive position that the Confidential Information be kept secret and that Employee not disclose the Confidential Information to Employer's disadvantage, Employee's own advantage, or the advantage of others. For purpose of this Paragraph 22.1, Confidential Information shall not include information that (i) becomes generally available to the public other than by reason of its disclosure by Employee through breach of this Agreement; (ii) was known by Employee prior to its receipt by him from Employer; (iii) becomes available to Employee from a source other than Employer, and Employee has no reasonable grounds to believe that such source is bound by a confidentiality agreement with Employer or is or is otherwise under a duty to protect the confidentiality of such information; or (iv) is required by law to be disclosed, provided that Employee shall give reasonable notice to Employer in advance of any disclosure required by law and shall cooperate with Employer in the event it seeks to prevent such disclosure through court order or otherwise. 22.2 NON-DISCLOSURE OF CONFIDENTIAL INFORMATION. Employee shall hold and safeguard the Confidential Information in trust for Employer, its successors and assigns and shall not for any reason, without prior written consent of Employer, or except as reasonably required in the performance of Employee's duties to Employer hereunder, disclose or make available to anyone for use outside Employer's organization at any time, either during his employment with Employer or subsequent to his termination, any of the Confidential Information, whether or not developed by Employee. 22.3 RETURN OF MATERIALS. Upon the termination of Employee's employment with Employer for any reason, Employee shall promptly deliver to Employer all correspondence, letters, notes, notebooks, reports, financial statements, forecasts and analyses, data, flowcharts, programs, proposals, tapes, card decks, listings, programming documentation, or any other written, graphic or recorded information relating or pertaining to Employer or any of its customers or potential customers, or concerning products or processes used by Employee and, without limiting the foregoing, will promptly deliver to Employer any and all other documents or materials containing or constituting Confidential Information. 22.4 WORK MADE FOR HIRE. Employee further recognizes and understands that his duties at Employer may include the preparation of materials, including written or graphic materials, and that any such materials conceived or written by him shall be done as "work made for hire" as defined and used in the Copyright Act of 1976, 17 U.S.C. Section 1 et seq. In the event of publication of such materials, including right of copyright, and that the Employer may, at its discretion, on a case-by-case basis, grant Employee by-line credit on such materials as Employer may deem appropriate. Page 14 of 15 15 IN WITNESS WHEREOF, the parties have duly executed this Agreement under seal as of the day and year first written above. CENTURY BANCSHARES, INC. /s/ WILLIAM C. OLDAKER /s/ JOHN R. COPE (SEAL) - ----------------------------- ----------------------------- Attest: William C. Oldaker By: John R. Cope Secretary Title: Vice President /s/ KATHY ROBERTS /s/ JOSEPH S. BRACEWELL - ----------------------------- ----------------------------- Witness: JOSEPH S. BRACEWELL Page 15 of 15 EX-10.8 14 LEASE AGREEMENT - PENNSYLVANIA BUILDING ASSOCIATES 1 EXHIBIT 10.8 LEASE AGREEMENT THIS LEASE AGREEMENT is made and entered into this 3rd day of January,1995, by and between CENTURY NATIONAL BANK, hereinafter referred to as "Tenant," and PENNSYLVANIA BUILDING ASSOCIATES, a District of Columbia limited partnership, hereinafter referred to as "Landlord." WITNESSETH: That for and in consideration of the rents herein reserved and to be paid by the Tenant to the Landlord and of the covenants and agreements herein set forth to be kept, performed and observed by the respective parties hereto, the Landlord does hereby rent, demise and lease to the Tenant and the Tenant does hereby take, lease and hire from the Landlord, upon the terms and conditions hereinafter set forth, the following described premises situated in the District of Columbia, namely: Approximately 2,750 square feet of area in the "as is" condition located in the building (the "building") having a street address of 1275 Pennsylvania Avenue, N.W., Washington, D.C., more fully described in Exhibit "A" attached hereto and made a part hereof, the premises demised hereunder being hereinafter referred to as the "demised premises." 1. Premises and Term. (A) Landlord does hereby grant, demise and lease unto Tenant, and Tenant hereby accepts and leases form Landlord, for the term as hereinbelow provided, and at the rental and upon the terms and conditions hereinafter set forth, the demised premises. (B) The term of this Lease shall be for a period of ten (10) years, commencing on October 1, 1994 (the "effective commencement date"), and expiring on the last day of the 120th consecutive full month following the effective commencement date (September 30, 2004), or until such term shall sooner cease and expire as hereinafter provided. Landlord and Tenant acknowledge the effective commencement date, under the terms of this Agreement. 2. Possession of Premises. Tenant has inspected and shall accept from Landlord possession of the demised premises in "as is" condition, without the requirement of necessity of Landlord to perform or provide any labor or material of any type, kind or description. 2 3. Rental. (A) Rent. (i) Tenant's obligations to pay rent of any kind as may be specified in this Lease shall begin on the effective commencement date. Tenant hereby covenants and agrees to pay to Landlord for the demised premises as basic annual rent (subject to adjustments and increases as below provided) during the respective portions of the lease term as designated herein below the following sums:
Period Basic Annual Monthly Rent Installment (BAR) 10/1/94 - 9/30/94 $68,750.00 $5,729.17 10/1/95 - 9/30/96 $68,750.00 $5,729.17 10/1/96 - 9/30/97 $68,750.00 $5,729.17 10/1/97 - 9/30/98 $68,750.00 $5,729.17 10/1/98 - 9/30/99 $68,750.00 $5,729.17 10/1/99 - 9/30/00 $77,000.00 $6,416.17 10/1/00 - 9/30/01 $77,000.00 $6,416.17 10/1/01 - 9/30/02 $77,000.00 $6,416.17 10/1/02 - 9/30/03 $77,000.00 $6,416.17 10/1/03 - 9/30/04 $77,000.00 $6,416.17
Provided Tenant is not in default of the Lease, Landlord shall abate fifty percent (50%) of the monthly installment of Basic Annual Rent for the period of October 1, 1994, through September 30, 1995. In the event Tenant defaults the Lease, Landlord shall have the right to recover all abated rent, together with other remedies pursuant to the Lease. Landlord shall credit Tenant's rent to reflect overpayment of rent for the period of September 17, 1994 through September 30, 1994 in the amount of $2,287.33. (ii) In addition to monthly installments of Basic Annual Rent pursuant to Provisions of Paragraph (A)(i), herein, Tenant shall pay Supplemental Quarterly Rent (determined by the Excess Deposit Percentage as defined in paragraph 3(B)(v)), herein during the respective portions of the Lease term as designated herein below for the following sums: 3
Quarter Benchmark Maximum Ending Deposits Supplemental Quarterly Rent (BD) (MSQR) Dec 31, 1994 $ 8,000,000 $ 5,000 Mar 31, 1995 $ 9,000,000 $ 5,000 June 30, 1995 $10,000,000 $ 5,000 Sept 30, 1995 $11,000,000 $ 5,000 Dec 31, 1995 $12,000,000 $ 6,000 Mar 31, 1996 $13,000,000 $ 6,000 June 30, 1996 $14,000,000 $ 6,000 Sept 30, 1996 $15,000,000 $ 6,000 Dec 31, 1996 $16,000,000 $ 7,000 Mar 31, 1997 $17,000,000 $ 7,000 June 30, 1997 $18,000,000 $ 7,000 Sept 30, 1997 $19,000,000 $ 7,000 Dec 31, 1997 $20,000,000 $ 8,000 Mar 31, 1998 $21,000,000 $ 8,000 June 30, 1998 $22,000,000 $ 8,000 Sept 30, 1998 $23,000,000 $ 8,000 Dec 31, 1998 $24,000,000 $ 9,000 Mar 31, 1999 $25,000,000 $ 9,000 June 30, 1999 $26,000,000 $ 9,000 Sept 30, 1999 $27,000,000 $ 9,000 Dec 31, 1999 $28,000,000 $ 8,000 Mar 31, 2000 $29,000,000 $ 8,000 June 30, 2000 $30,000,000 $ 8,000 Sept 30, 2000 $31,000,000 $ 8,000 Dec 31, 2000 $32,000,000 $ 9,000 Mar 31, 2001 $33,000,000 $ 9,000 June 30, 2001 $34,000,000 $ 9,000 Sept 30, 2001 $35,000,000 $ 9,000 Dec 31, 2001 $36,000,000 $10,000 Mar 31, 2002 $37,000,000 $10,000 June 30 2002 $38,000,000 $10,000 Sept 30, 2002 $39,000,000 $10,000 Dec 31, 2002 $40,000,000 $11,000 Mar 31, 2003 $41,000,000 $11,000 June 30, 2003 $42,000,000 $11,000
-3- 4 Sept 30, 2003 $43,000,000 $11,000 Dec 31, 2003 $44,000,000 $12,000 Mar 31, 2004 $45,000,000 $12,000 June 30, 2004 $46,000,000 $12,000 Sept 30, 2004 $47,000,000 $12,000
(iii) Notwithstanding the provisions in Paragraph 3(A)(i) and (ii), in the event the Average Branch deposits are $35,000,000.00 or higher for more than four (4) consecutive quarters, monthly installments of the Basic Annual Rent shall be adjusted to $7,333.33 (based upon $32.00 per square foot) and shall continue through the term of the Lease, provided the Average Branch Deposits do not at any time decrease below $35,000,000 for more than two (2) consecutive quarters and the Maximum Supplemental Quarterly Rent due the Landlord pursuant to Paragraph (A)(ii) shall be adjusted to credit difference between the specified Basic Annual Rent per Paragraph (A)(i) and the increased Basic Annual Rent herewith. (iv) The following examples of rent calculation based upon provisions of Paragraph (A)(i),(ii) and (iii) are for clarification only: Example 1: First fifteen months: a. December 31, 1994, Average Branch Deposits (ABD) exceeds $8,000,000.00 by 25%, Tenant obligated to pay: $22,187.51 ($5,729.17 (Basic Rent per month) x 3 mos + $5,000 Maximum Supplemental quarterly Rent (MSQR) b. March 31, 1995, ABD exceeds $9,000,000.00 by 25%. Tenant obligated to pay: $22,187.51 ($5,729.17 x 3 + $5,000) c. June 30, 1995, ABD exceeds $10,000,000.00 by 10%. Tenant obligated to pay: $19,187.51 (($5,729.17 x 3) + .40 x $5,000) d. September 30, 1995, ABD exceeds $10,000,000.00 but does not exceed $11,000,000.00. Tenant obligated to pay: $17,187.51 ($5,729.17 x 3) -4- 5 e. December 31, 1995, ABD exceeds $12,000,000.00 by 25% Tenant obligated to pay: $23,187.51 ($5,729.17 x 3 + $6,000) Example 2: In the event provisions of (iii) occur, the following will be the rent calculation: a. June 30, 1999, ABD continues to exceed $35,000,000 which means ABD also exceeds BD of $26,000,000 by more than 25%. Tenant obligated to pay: $26,187.49 ($7,333.33 x 3 + ($9,000 - 4,812.50)) The $4,812.50 is the product of 2,750 sf x $7.00 psf (difference between $25.00 psf and $32.00 psf) on a quarterly basis, which is credited against the $9,000 MSQR which would otherwise be due. b. September 30, 2000, ABD continues to exceed $35,000,000.00 and exceeds $31,000,000 by 25%. Tenant obligated to pay: $27,250.00 ($7,333.33 x 3 + ($8,000 - $2,750)) The $2,750 is the product of 2,750 sf x $4.00 psf (difference between $28.00 psf and $32.00 psf) on a quarterly basis, which is credited against the $8,000.00 MSQR which would otherwise be due. c. March 31, 2001, ABD is $38,000,000 which exceeds BD of $33,000,000 by 15%, which means the Supplemental Rent Percentage is 60%, and the Supplemental Quarterly Rent is $5,400.00 (60% of $9,000 MSQR). Tenant obligated to pay: $24,649.99 ($7,333.33 x 3 + ($5,400 - 2,750)) d. March 31, 2002, ABD is $36,500,000.00. Tenant obligated to pay: $21,999.99 ($7,333.33 x 3) In the event the effective commencement date shall occur on a date other than the first day of a calendar month, basic monthly rent for such partial calendar month shall be pro-rated using a thirty (30) day month and such pro-rated sum shall be due and payable to Landlord no later than the expiration of five (5) days following the effective commencement date. -5- 6 (B) Definitions. (i) "Lease Year" means each period of twelve (12) consecutive months, commencing on the 1st day of October and ending on the last day of the following September with the first such lease year to commence October 1, 1994. (ii) "Average Branch Deposits" means, for a calendar quarter, the mathematical average of Total Branch Deposits as of the lst day of the month for each of the three months of the quarter. (for example, Average Branch Deposits for the second quarter would be calculated by adding the Total Branch Deposits as of April 30, May 31, and June 30, then dividing the sum by three). (iii) "Total Branch Deposits" means, as of a given date, the sum of all the balances in Deposit Accounts which were either opened by the Tenant at the demised premises or acquired by the Tenant pursuant to the Tenant's Agreement with the Resolution Trust Corporation dated September 16, 1994. (iv) "Deposit Accounts" means deposit liabilities of the Tenant to its customers in all types of accounts (demand, NOW, money market, savings, certificates of deposit, etc.) included within the definition of "Total Deposits" for regulatory reporting purposes. (v) "Excess Deposit Percentage" means, for a calendar quarter, the quotient obtained by first subtracting Benchmark Deposits (as set forth in the second column of Paragraph 3(A)(ii) herein) from Average Branch Deposits, then dividing the result by Benchmark Deposits; provided, however, that if the Excess Deposit Percentage is computed to be less than zero, it is defined as zero, and if it is computed to be greater than 25%, it is defined as 25%. (vi) "Supplemental Rent Percentage" means, for a calendar quarter, the result obtained by multiplying the Excess Deposit Percentage by four. (vii) "Supplemental Quarterly Rent" means, for a calendar quarter, the result obtained by multiplying the Supplemental Rent Percentage by the Maximum Supplemental Rent, as set forth in the third column of Paragraph 3(A)(ii) herein. The Tenant will pay the Quarterly Supplemental Rent due for each calendar quarter, if any, within thirty (30) days after the end of the quarter. (C) No Set Off or Waiver. Tenant will pay all monthly installments of basic annual rent in advance without demand, deduction or set off, by check to Landlord c/o Willco construction Co., Inc., 7811 Montrose Road, Potomac, Maryland 20854, or to such other party or to such other address as Landlord may designate from time to time by written notice to Tenant, on -6- 7 or before the first day of each month during the term hereof, with the first such installment of basic monthly rent to be paid to Landlord upon the execution hereof by Tenant. If Landlord shall at any time or times accept said rent after it shall become due and payable, such acceptance shall not excuse delay upon subsequent occasions, or constitute a waiver of any or all of Landlord's rights hereunder. If Tenant shall present to Landlord more than two times during the term hereof any checks or drafts for payment of rent and/or additional rent hereunder not honored by the institution upon which such checks or drafts are issued, then Landlord, at its option, may require that all future payments of rent and additional rentals and other sums thereafter payable by Tenant be made by certified or cashier's check (in addition to and not in limitation of any other remedies available to Landlord under this Lease). (D) Late Charges. In the event that Tenant pays Landlord any installment of basic monthly rental after the tenth (10th) day from the due date, or any additional rent more than ten (10) days after billing therefor, then and in such event Tenant shall pay to Landlord, together with and in addition to said installment of rental or payment of additional rent, a late charge of five percent (5%) of said installment of rental or additional rent past due. Further, in the event that Tenant pays Landlord any installment of rental after the expiration of twenty (20) days for which such installment is due, or any installment of additional rent after twenty (20) days form billing therefor by Landlord, then and in such event Tenant shall pay to Landlord together with and in addition to said installment of rental or payment of additional rent an additional late charge of five percent (5%) of said installment past due. Any installments of basic monthly rent or payments of adjustment rent not made within thirty (30) days from the date due shall, in addition to the foregoing late charges, bear interest from the date due at the rate of eighteen percent (18%) per annum. (E) Additional Rent - Taxes. Tenant further covenants and agrees to pay as additional rental during the term hereof, including any extensions or renewal terms thereof its proportionate share (calculated to be 1.27%) of the annual Taxes which may be levied, assessed or imposed against the land and building comprising Lot 38 in Square 291 of the District of Columbia (said lot including the building or any part thereof). For purposes hereof, the Tenant's proportionate share shall mean that percentage found by dividing the Rentable Area (2,750 square feet) by the total rentable square foot area of all commercial and office space contained within the building (216,454 square feet). In no event shall any garage space or storage space be considered to constitute either commercial or office space for purposes of making the foregoing determination. For purposes hereof, "Taxes" shall mean all taxes, rates and assessments, general and special and including also any increases in tax rate and/or in assessed valuation, which are now or at any time(s) hereafter levied, assessed or imposed with respect to the building and all land related or appurtenant thereto, and/or upon Landlord's leasehold interest (if applicable) in the said land, and including also without limitation real estate taxes, personal property taxes applicable to the personality in the building owned by Landlord and used or usable in connection with the operation of the building an/or land appurtenant thereto, vault rental, and assessments of any and every kind and nature whatsoever, and -7- 8 shall also mean and include any and all unincorporated and other business license and/or franchise taxes (except any such taxes calculated at Landlord's net income), and any taxes, assessments or other levies which may at any time be imposed and/or collected by any federal, state, county, municipal, quasi-governmental or corporate entity in respect of bus, subway or other public transportation facilities operating in the metropolitan area of the District of Columbia, and including also any tax assessment or other charges in the nature of a sales, use or other tax upon the Landlord, the demised premises, the building, the land and/or the rents payable hereunder (except income taxes, estate or inheritance taxes of the Landlord). If the system of real estate taxation shall be altered or varied and any new tax or levy shall be levied or imposed on the building and/or land and/or Landlord, in addition to or in substitution for real estate taxes and/or personal property taxes presently levied or imposed on immovables in the District of Columbia, and including also without limitation any taxes on rents, then any such new tax or levy shall be in included within the term "Taxes." If any such tax is levied or assessed in such a manner that the amount thereof required to be paid by Tenant hereunder in respect of the Tenant's proportionate share of the aforesaid Taxes is not ascertainable because such tax relates to more than the demised premises or to more than the rent payable hereunder, then the proportionate share of said items to be paid by Tenant forming a part of the Taxes aforesaid shall be determined by Landlord in the Landlord's reasonable discretion. If any governmental authorities require that a tax, other than the taxes above mentioned, be paid by Tenant, but collected by Landlord for and on behalf of said governmental authorities, and from time to time forwarded by the Landlord to said governmental authorities, the same shall be timely paid by Tenant to Landlord, and such payment may be enforced by Landlord in the same way and manner as provided for the enforcement of the payment of the basic monthly rental and additional rent hereunder, and for the purpose of enforcing such payment the same shall be deemed additional rent under this Lease. It shall be the primary responsibility of Tenant to pay all taxes assessed or imposed during the term of this Lease upon or against Tenant, or against Tenant's income or interest in this Lease, or against personal property of any kind owned by or in placed in, upon or about the demised premises by the Tenant, including any penalty or interest assessed thereon in the event of late payment. In the event that the taxing authority includes or calculates in the over-all taxes the value of improvements or betterments made or installed by the Tenant in the demised premises, or machinery, equipment, fixtures, or other assets of the Tenant, then Tenant shall be responsible and liable for all taxes to the extent applicable to such items. Tenant shall deliver to Landlord a copy of all paid tax bills for taxes paid by Tenant within fifteen (15) days after payment or upon request of Landlord. Copies of real estate tax bills received by Landlord and sent to Tenant shall be deemed conclusive evidence as of the amount of all such taxes as well as the items so taxed. All amounts billed to Tenant by Landlord as additional rent pursuant to this paragraph shall be due and payable within ten (10) days after billing. (F) Additional Rent - Operating Expenses. Tenant further covenants and agrees to pay as additional rental during the term hereof its aforesaid proportionate share (28.80%) of any of the Operating Expenses which shall be incurred by Landlord in connection with the -8- 9 ownership, management, servicing, repair, maintenance and/or operation of the building, to the extent same are allocated by Landlord to the commercial space contained within the building. Tenant's proportionate share for Operating Expense purposes shall mean that percentage found by dividing the square foot rentable area contained within the Premises (2,750 square feet), by the total rentable square foot area of all commercial space contained within the building (9,550 square feet). In no event shall any garage space or storage space be considered to constitute commercial space for purposes of making the foregoing determination. Such Operating Expenses shall include without limitation (to the extent same are applicable to the commercial space) utilities for common areas, management fees (not including brokerage fees) incurred for the building, insurance for the building char and cleaning of common areas, water and sewer charges, trash removal, maintenance and repair of building systems and its structure, and all other expenses incurred by Landlord which would be included in operating expenses in accordance with generally accepted management practices and/or accounting principles in the Washington, D.C. metropolitan area. Notwithstanding the foregoing, Operating Expenses shall not include any expenses for solely the office areas of the building; capital improvements; interest and principal amortization on mortgages; depreciation of the building; Taxes (as defined hereinabove); and expenses reimbursed to Landlord by any tenant within the building or by insurance; char and cleaning services provided to any tenant or occupant of the building within their respective premises; any income or franchise taxes assessed against the net income of Landlord from the operation of the building; any expenses for repairs, restoration or other work necessitated by fire or other casualty; or any leasing or brokerage commissions or fees. To the best of its knowledge and belief, Landlord represents that the operating expense amounts for prior years that have been disclosed in writing to the Tenant are true and accurate. (G) Payment of Additional Rent. All amounts billed to Tenant by Landlord as additional rent pursuant to subparagraph 3(D) or 3(E) above, shall be due and payable within ten (10) days after billing. Landlord shall be entitled to estimate from time to time during the term hereof the liability of Tenant hereunder for such additional rent, and in such event Tenant shall pay concurrently with each installment of basic monthly rent due hereunder one- twelfth (1/12th) of the amount so estimated by Landlord. Within forty-five (45) days following the expiration of any fiscal year of the Landlord in which Tenant paid monthly estimates, Landlord shall render to Tenant a computation showing Tenant's liability under this paragraph for such fiscal year. In the event the foregoing computation reveals that the estimated payments paid by Tenant during the preceding fiscal year were less than the amount of Tenant's liability hereunder, Tenant shall within ten (10) days pay any amounts due. In the event the computation shall disclose that Tenant paid more than its liability hereunder, Tenant shall receive credit therefor against the next installment of basic monthly rent then due, provided that if the term hereof shall have expired, Tenant shall in such event receive a refund for the excess amount paid by Tenant. Notwithstanding the foregoing, Tenant's proportionate share of Operating Expenses, as defined in Paragraph (F) herein (excluding insurance and utilities for common area) shall not exceed an increase for each calendar year of seven percent (7%) above the like Operating Expenses for the calendar year immediately preceding. -9- 10 (H) Net Lease. Except as otherwise provided in Paragraph 5 with respect to the maintenance of the structural portions of the building, the Landlord shall not be required to pay any charges, or provide any services or do any act in connection with the demised premises, including, but not limited to furnishing heat, air conditioning, ventilation, or electricity; and Landlord shall not be liable or accountable to the Tenant for any failure of water supply or electric current or of any service by any utility, and the rent hereunder shall be paid to the Landlord without any claim on the part of Tenant for discontinuance or abatement. If Landlord shall incur any charge or expense on behalf of Tenant under the terms of this Lease, such charge or expense shall be considered as additional rent hereunder, and shall be repaid to Landlord within ten (10) days after demand therefor. The provisions of this subparagraph and of subparagraph (C) above shall be in addition to and not in limitation of any other rights and remedies which Landlord may have and in the event Tenant shall fail to pay any sums required under this Lease when due, such non-payment shall entitle Landlord to all remedies available to it under applicable law. 4. Use of Premises. (A) Tenant hereby covenants and agrees that the demised premises shall not be used for any purpose other than for a bank branch whose primary business is the conduct of financial services, except as may be permitted under Paragraph 12 below. It is understood that Tenant shall conduct such business in a first-class manner consistent with the operations customarily conducted in other first-class developer-owned office buildings of high quality and image in the downtown Washington, D.C. area. Tenant hereby covenants and agrees to continuously conduct during the term hereof such business in good faith, in a first-class manner, during ordinary commercial banking hours. In no event shall the demised premises be used for any other purpose whatsoever, except as may be permitted under Paragraph 12 below, without the prior written consent of Landlord nor for any disorderly, unlawful or extra hazardous purpose. (B) Tenant, at its own expense, shall comply with and carry out promptly, all orders, requirements or conditions imposed by the ordinances, laws and regulations of the District of Columbia and of all other governmental authorities having jurisdiction over the demised premises, which are occasioned by or required in the conduct of Tenant's business in the demised premises. Tenant will indemnify Landlord and save it harmless of its business in the demised premises. Tenant shall be responsible for obtaining all licenses, permits, certificates of occupancy, variances, special exceptions or any other permission necessary for use of the demised premises as contemplated herein, and Landlord hereby makes no representation or warranty with regard thereto. (C) Tenant shall not suffer or permit the demised premises or any portion thereof to be used by the public without restriction or in such manner as might reasonably tend to -10- 11 impair Landlord's title to the demised premises, or any portion thereof, or in such manner as might reasonably make possible a claim or claims of adverse usage or adverse possession by the public, as such, or of implied dedication of the demised premises or any portion thereof. Tenant hereby expressly recognizes that in no event shall it be deemed the agent of Landlord under Title 38-101 of the District of Columbia code (1981 Edition), and no contractor of Tenant shall by virtue of its contract be entitled to assert any lien against the building or premises. 5. Operating Costs and Maintenance. (A) Throughout the term of this Lease, and any renewal terms hereof, the Tenant shall, at its sole cost and expense, keep the demised premises in good repair and clean order and condition (and free of all building code violations), and make all necessary repairs thereto, ordinary and extraordinary, normal wear and tear from reasonable use excepted, as reasonably determined by Landlord. The Tenant shall, at its sole cost and expense, keep and maintain in good condition, repair and order, the plumbing, heating, ventilating, and air conditioning equipment and systems, electrical wiring, floor, interior walls, ceilings, plate glass and all interior and exterior pipes, lines an conduits, to the extent they service the demised premises. When used in this Paragraph 5 the term "repair" shall include all necessary replacements, renewals, alterations, additions, betterments and any work required as a condition to the continued use of the then existing improvements or any work required by any order of any governmental agency. Provided, however, that Tenant shall not be required to replace any major component (i.e., costing in excess of $5,000, adjusted to reflect increases in the Consumer Price Index elapsing during the Lease term) of the heating, ventilating and/or air- conditioning equipment or systems servicing the demised premises during the last Lease year of the term hereof. All repairs made by Tenant shall be equal in quality and class to the original work, and shall be performed in a good and workmanlike manner and in accordance with all applicable governmental requirements. (B) Landlord agrees to keep in good repair the roof, exterior walls, and foundation of the building. Tenant shall advise Landlord in writing of the need for any such repairs promptly. Landlord represents that all common areas are in good repair and clean order and condition. (C) From and after the date the Tenant shall obtain access to the demised premises, and at all other times during the term hereof the Tenant covenants and agrees to pay for all electric current, gas, telephones and all other utilities (excepting water and sewer which shall be an Operating Expense for purposes of Paragraph 3(E)) used or consumed in or on the demised premises, including all costs to heat and air condition said demised premises. Tenant shall be required to install at its expense appropriate meters or submeters for determining Tenant's electricity usage within the premises, and following such installation, Tenant's electricity usage shall be -11- 12 determined by such submeters. If such charges or rentals are not so paid, the same shall be added to the next monthly installment of rental. (D) Tenant shall have no authority to incur any debt or to make any charge against Landlord, or to create any lien upon the demised premises for any work or materials furnished the same, and if any such lien should be filed against the demised premises on account of work done to or labor or materials furnished on the demised premises at Tenant's request (whether or not Tenant obtained Landlord's approval), Tenant shall have a period of thirty (30) days from the date notice of such lien is brought to its attention to pay off said lien and have the same discharged of record, or if Tenant disputes such lien or the amount thereof, to post with the Court having appropriate jurisdiction adequate bond required to release said lien of record. 6. Present Condition and Use. The Tenant accepts the demised premises in its present condition, and without any representation or warranty by Landlord as to the condition of said demised premises or as to the use or occupancy which may be made thereof, and the Landlord shall not be responsible for any latent defect in any structural component of the demised premises or change of condition in the demised premises. The rent hereunder shall in no case be withheld or denied on account of any (i) defect in the demised premises, (ii) change in condition of the demised premises, (iii) damage occurring within the demised premises, or (iv) the existence of any defect within the demised premises. 7. Signs and Personal Property. (A) Tenant agrees that no sign, awning, decal, sticker, graphics, advertisement or notice shall be inscribed, affixed or displayed on any part of the demised premises, or the building, with the exception of Tenant's "permitted sign" and/or Tenant's "permitted decal" (as above defined in Paragraph 7(B)) or which may in any manner be visible from the exterior of the premises without Landlord's consent which shall not be unreasonably withheld provided Tenant's proposed signage complies with applicable governmental regulations and Pennsylvania Avenue Development Corporation, and is consistent in quality and appropriateness with other bank branches in first-class office buildings in the downtown business district of Washington, D.C. Notwithstanding the foregoing sentence, Tenant's permitted sign, as defined herein, must be in compliance with the approved design, attached hereto, in regards to number of signs, size of sign box, height of letters and color of sign box, background and letters. If any such sign, awning, decal, sticker, graphics, advertisement or notice is inscribed, affixed or displayed without Landlord's written consent, then and in such event Landlord shall have the right to either cause Tenant to remove or to have immediately removed said item or matter, in addition to any other rights or remedies provided under this Lease. No cloth, paper, stamp, sticker, decal or other similar signs, -12- 13 advertising or other notices, nor any flashing lights or noise-making devices which may be visible or audible from the exterior of the premises shall be installed by Tenant. The provisions hereof shall not prohibit normal bank interior signage not intended to be visible from the exterior of the demised premises. For purposes of this Lease the term "display windows" shall mean and refer to all windows which shall be in any manner visible from any portion of the exterior thereof and shall be of a first-class nature, and shall be subject to the Landlord's prior written consent. Tenant shall maintain any items referred to hereinabove which are installed by it and which have been approved by Landlord, in good repair and clean order and condition at all times during the term hereof. (B) Notwithstanding any provisions contained in Paragraph 7(A) to the contrary, Tenant shall be entitled to install at its own cost and expense a sign visible from the exterior of the premises containing solely Tenant's name, which sign shall be of first-class quality and in conformity with the specifications shown on Exhibit "B." Such sign is referred to herein as the "permitted sign." In addition, Tenant shall be entitled to affix to the display windows, any decal required under federal banking laws to be displayed. Such decals are referred to herein as the "permitted decals." (C) All personal property of the Tenant in the demised premises shall be at the sole risk of the Tenant. The Landlord shall not be liable for any accident or damage to the property of Tenant resulting from use or operation of any heating, cooling, electrical, or plumbing system or equipment situated at the demised premises. Landlord shall not, in any event, be liable, for damages to property resulting form water, steam or other causes. Tenant hereby expressly releases Landlord from any liability incurred or claimed by reason of damage to Tenant's property, unless caused by the negligence of the Landlord. (D) The Tenant covenants and agrees to maintain in good repair, clean order and condition all the fixtures, equipment, and improvements to be installed or to be made by Tenant within the demised premises, and will make all repairs thereto and replacements thereof; and at the expiration or other termination of this Lease, Tenant will fully account to the Landlord therefor and surrender same to the Landlord in the same order and condition as when received, usual and normal wear and tear, damage by fire or other casualty only excepted. If any of said fixtures, equipment or improvements are destroyed or so damaged that the same cannot be properly repaired, the Tenant shall, at its own expense, replace the same with property of at least equal quality and value. Notwithstanding the foregoing, provided Tenant shall not be in default hereunder at the expiration of the basic term, Tenant shall be entitled to remove all of its movable trade fixtures, equipment and furnishings not affixed to the demised premises. Any damage caused by removal of same to the building, including the demised premises, shall be promptly repaired at the cost and expense of Tenant. -13- 14 8. Alterations. Tenant shall not make any exterior or structural alterations, installations, changes, replacements, additions or improvements in or to the demised premises or any part thereof, except as required under Paragraph 5(A). All other alternations, installations, changes, replacements, additions or improvements in or to the demised premises or any part thereof, which are not structural or exterior, may be made by Tenant, provided Landlord has first expressly consented to same in writing. The consent of Landlord under this paragraph may be granted, withheld or conditioned upon such terms as Landlord may in its sole discretion determine appropriate. Tenant agrees to provide Landlord with the name of any proposed contractor of Tenant, certificates of liability insurance maintained by such contractor in amount reasonably acceptable to Landlord and copies of all plans for such improvements at the time request for Landlord's approval is made by Tenant. Upon approval by Landlord of same, Tenant shall provide Landlord with a copy of all requisite permits from District of Columbia prior to commencement of any such work. It is distinctly understood that all structural alterations, installations, changes, replacements, additions to or improvements, upon the demised premises (whether with or without the Landlord's consent) made subsequent to the initial leasehold improvements shall the election of the Landlord remain upon the demised premises and be surrendered with the demised premises at the expiration of this Lease without disturbance, molestation or injury. The foregoing shall not apply with respect to Tenant's equipment, fixtures and non-structural alterations, installations, changes, replacements, additions or improvements to the demised premises without Landlord's prior written consent, provided that no such work shall affect any of the mechanical, electrical or other systems servicing the building, but Tenant shall provide Landlord with plans or working drawings prior to the commencement of any non-structural alterations, installations, changes, replacements, additions or improvements to the demised premises costing in excess of Five Thousand Dollars ($5,000.00). All of Tenant's aforesaid alterations, installations, changes, replacements, additions or improvements shall be performed in a good and workmanlike manner and in compliance with all applicable laws, codes, rules and ordinances. (However, Landlord at its option and discretion may require the Tenant, at Tenant's expense, to remove at the expiration or any termination of this Lease any or all alterations to the demised premises made by Tenant, unless at the time that Tenant shall have obtained Landlord's consent thereto, Landlord shall have agreed in writing to waive its rights under the preceding provisions for the removal of same.) Further, Landlord may at its option and discretion require Tenant, at Tenant's expense, to repair any damage to the demised premises caused by either the removal of the aforesaid alterations, or the removal of any of Tenant's equipment or fixtures that are removable, and Tenant will promptly comply with such directions. In addition to all legal, equitable and other rights and remedies available to Landlord, it is greed that if Tenant does not comply with its obligations under this paragraph or any other provision or provisions of this lease, the Landlord shall have the right (but not the obligation) to perform or cause to be performed Tenant's obligations, duties and covenants, under this paragraph or any other provisions of this Lease in which event Tenant shall reimburse to Landlord within ten (10) days after demand all costs -14- 15 incurred by Landlord as a result thereof. It is understood that all alternations, signs or other modifications proposed by Tenant shall be subject to requisite governmental approvals. 9. Rules and Regulations. The Tenant recognizes that, since the demised premises is situated in a building containing premises which will be occupied by others, it is imperative in the interests of the Landlord and of the other tenants and occupants of the building that extreme care be exercised by the Tenant in operating its business in said premises in a manner that will not detract from the high standards of the building, or that will be objectionable to such other tenants and occupants. Accordingly, the Tenant covenants and agrees to utilize reasonable efforts to enforce and comply with the following rules and standards throughout the term hereof. Landlord covenants and agrees to utilize commercially reasonable measures to enforce all rules and regulations uniformly on all commercial tenants. (A) Garbage and trash shall not be permitted to accumulate in or about the demised premises but shall be disposed of at least once during each day that Tenant shall be open for business. No trash may be removed from the store premises between the hours of 7:00 A.M. and 7:00 P.M. Proper and adequate receptacles for collection of garbage and trash shall be maintained by Tenant so that offensive odors shall not be permitted to exude therefrom at any time. In no vent shall any trash be stored by Tenant in any area which would be visible form the interior or exterior of the premises. Such garbage and trash shall be placed in odor-free receptacles located in areas designated therefor by the Landlord, and in no event shall any garbage or trash be stored in any other portion of the building. (B) Adequate exterminating service shall be employed and maintained at all times by the Tenant, so that the demised premises shall at all times be protected against and free of rodents, insects, pests and vermin, consistent with the highest and best extermination services available in the greater Washington, D.C. area. (C) The Tenant shall provide, at its own cost and expense, adequate janitorial and cleaning service so that the demised premises, shall at all times be kept clean and orderly, recognizing the Landlord's desire to maintain the first- class image of the building. Exterior surfaces of all windows shall be cleaned daily by Tenant. (D) Tenant will not cause or permit objectionable odors to emanate or be dispelled from the demised premises. (E) Tenant will not place or maintain any merchandise, equipment or machinery or other articles in any vestibule or entry of the premises, on the footwalks adjacent thereto or -15- 16 elsewhere on the exterior thereof, or any public corridors, lobby areas, halls or stairwells or sidewalks adjacent thereto. (F) Tenant shall not maintain or operate nor permit to be maintained or operated in the demised premises or any portion thereof, any music machines or other instruments emitting noises that are objectionable to other occupants or tenants of the building. (G) Tenant shall not install any automatic teller machines or other equipment or machinery on the exterior of the building. (H) Landlord reserves the right to promulgate additional reasonable rules and regulations, from time to time, for the maintenance of standards of the building in which the premises is situated, and which the Landlord reasonably deems to be in the best interests of the building; and the Tenant expressly covenants agrees to perform, observe and abide by such rules and regulations, it being agreed that this Lease is granted to the Tenant in reliance on Tenant's covenant to comply with the provisions hereof. (I) Tenant shall, at its own cost, make all repairs required for the interior of the demised premises promptly upon the occurrence of the necessity therefor and will maintain said premises at a high standard of cleanliness (to the satisfaction of Landlord) at Tenant's own expense. In no event shall Landlord be required to provide any char or cleaning services for Tenant; it being agreed that Tenant shall provide such services at its own expense daily and in a proper and adequate manner. All elements of Tenant's interior design shall be professionally designed and shall at all times during the term remain subject to Landlord's prior written approval. Landlord reserves the right to correct any non-conformity of Tenant throughout the term. (J) The Landlord shall have the right at all times during the term hereof to prescribe the manner in which Tenant shall comply with the provisions of this Article 9. If, in the opinion of the Landlord, the Tenant does not maintain said premises to the satisfaction of the Landlord, the Tenant shall correct the fault complained of by the Landlord promptly after receipt of notice from the Landlord. 10. Insurance. (A) The Landlord assumes no liability or responsibility whatsoever with respect to the conduct and operation of the business to be conducted within the demised premises. The Landlord shall not be liable for any accident or injury to any person or persons or property in or about the demised premises which are caused by the conduct and operation of said business, or by virtue of equipment or property of the Tenant in the demised premises. The Tenant agrees to hold the Landlord harmless against all such claims. Furthermore, Tenant shall and hereby does defend, -16- 17 indemnify and save harmless Landlord and Landlord's agents and employees (collectively, "Indemnitees") from and against all liability (statutory or otherwise), claims, suits, causes of action, demands, judgments, costs, interest and expenses (including also reasonable counsel fees and disbursements incurred in the defense thereof) to which any Indemnitees may (except insofar as it arises out of the fault or neglect of such Indemnitees) be subject or suffered, whether by reason of any claim for, any injury to, or death of, any person or persons or damage to or loss of property (including also any loss of use thereof) or otherwise, and arising from or in connection with the use by Tenant of, or from any work or anything whatsoever done by Tenant (or any of its officers, directors, agents, contractors, employees, licensees or while within the premises, invitees) in any part of the demised premises (other than by Landlord or its agents or contractors) during the term of this Lease, or arising from any condition of the demised premises due to or resulting from any default by Tenant in the keeping, observance or performance of any covenant or agreement contained in this Lease or from any fault or neglect of Tenant or any of its officers, directors, agents, contractors, employees, licensees or while within the premises, invitees. (B) In order to assure the indemnity referred to in Paragraph 10(A) hereinabove, Tenant shall carry and keep in full force and effect at all times during the terms of this Lease, for the protection of Landlord and Tenant and naming both Landlord and Tenant as parties insured, public liability insurance with limits for bodily injury or death of at least ONE MILLION DOLLARS ($1,000,000.00) for any one person and at least THREE MILLION DOLLARS ($3,000,000.00) for any one accident, and at least TWO HUNDRED FIFTY THOUSAND DOLLARS ($250,000.00) for property damage. Landlord shall be entitled to increase the aforesaid minimum amounts during the term hereof (but not more than once in any lease year) to commercially reasonable amounts of coverage. (C) Tenant shall carry fire and extended coverage insurance on all of Tenant's furniture, equipment, decor and furnishings (collectively, the "Furnishings") in an amount not less than eighty percent (80%) of the full insurable replacement cost at all times. Tenant shall carry statutory workman's compensation insurance covering its employees in, on and about the premises, and plate glass insurance. In the event of any loss or damage to any of the Tenant Furnishings or Tenant's plate glass, by fire or other casualty for which Tenant is required to carry insurance, the proceeds of such insurance shall be payable to Landlord and Tenant jointly, which proceeds shall be used by Tenant towards the cost of replacing or repairing and property so damaged, and Landlord agrees to release said insurance proceeds for that purpose. (D) All insurance policies required to be obtained by Tenant shall be issued by recognized and responsible insurance companies qualified to do business in the District of Columbia, and shall provide that such policies shall not be canceled without fifteen (15) days' prior written notice to Landlord. Landlord shall be named as an additional insured on all such -17- 18 policies, with the exception of the statutory workmen's compensation coverage referred to hereinabove. Tenant shall deliver to Landlord a copy of all such insurance policies or a certificate thereof showing the same to be in full force and effect. (E) In the event Tenant shall fail to keep in force and maintain any such policy of insurance, Landlord shall have the right, at its option, and at the sole cost of Tenant, in addition to all other rights and remedies, to purchase such policy or policies of insurance and to pay the premiums thereon, and if not reimbursed to Landlord by Tenant within ten (10) days following written request therefor, the amounts so paid, with interest thereon at the rate of eighteen percent (18%) per annum, shall at the option of the Landlord be added to the next installment of rent payable under provisions of the Lease. 11. Licenses and Permits. Tenant shall at its own cost and expense promptly obtain from appropriate governmental authorities (and maintain in full force and effect throughout the term of this Lease), all permits, licenses, and the like required to permit Tenant to occupy the demised premises for the purposes stated in Paragraph 4 hereinabove. Landlord agrees to cooperate at no cost or expense to Landlord with procurement of all permits requiring the joinder of the Landlord, promptly following Tenant's request to Landlord. Landlord agrees to maintain all of its permits and licenses for the building and Landlord's operation thereof. 12. Assignment and Subletting. (A) Tenant shall not assign, mortgage, or hypothecate this Lease or any interest therein, or otherwise transfer any legal or equitable interest in this Lease, nor shall Tenant sublet the demised premises or any part thereof, whether voluntarily or involuntarily or by operation of law, without the prior written consent of Landlord. Landlord may grant, withhold or condition its consent upon such terms and provisions which Landlord in its sole and exclusive discretion determine, unless otherwise below provided in Paragraph 12(B). Further, Tenant shall not have any right hereunder to mortgage or encumber any of Tenant's leasehold improvements to be made within the demised premises, and all such improvements shall be installed free and clear of any and all liens or encumbrances of any kind whatsoever. Any assignment or other transfer consented to by Landlord shall not relieve Tenant for any of its obligations under this Lease, and any such assignment or other transfer not first consented to in writing by Landlord shall be null and void. Any attempted assignment of this Lease by operation of any of the aforesaid events not consented to by Landlord in writing shall be null and void. In the event Landlord shall determine, in its sole and exclusive discretion, to approve a proposed subtenant or assignee of Tenant, such assignee or subtenant shall in any event be consistent with the type of tenants commonly found in other first- -18- 19 class developer-owned office buildings of the highest quality in Washington, D.C. Consent of the Landlord to any such assignment or subletting shall not operate as a waiver of the necessity for a consent to any subsequent assignment or subletting, and the terms of such consent shall be binding upon any person holding by, or through the Tenant. (B) Notwithstanding the aforesaid provisions contained in Paragraph 12(A) of the Lease, the Landlord shall be required to consent to any proposed assignment of this Lease or subletting (in whole) of the demised premises, provided that the proposed assignment or subletting shall occur in connection with any merger, acquisition or consolidation of Tenant whereby the party succeeding to all (or substantially all) of Tenant's assets prior to such merger, consolidation or acquisition shall succeed to Tenant's interest in this Lease, and further provided that the party succeeding to such interest shall execute and deliver unto Landlord such documents as Landlord shall reasonably request in order to evidence its or their assumption of all of the obligations, covenants, duties and agreements under this Lease of the Tenant, and further that the use of the demised premises is in compliance with Paragraph 4, herein. In the event of any such permitted transfer of this Lease as hereinabove provided, the original named Tenant shall remain fully liable for all obligations under this Lease and no such permitted transfer shall relieve any such party of any liability hereunder. Tenant shall pay to Landlord upon request, the administrative expenses and reasonable attorneys' and accountants' fees incurred by Landlord in review of any proposed assignment or subletting, and in preparing or reviewing any documents, financial data or other information concerning a proposed assignment or subletting by Tenant. 13. Examination of Premises. Tenant shall allow Landlord and its agents free access to the demised premises upon reasonable advance notice, except in the case of an emergency, for the purpose of examining the same to ascertain and determine if the demised premises are in good repair and condition, and to exhibit the same to (i) prospective purchasers at any reasonable time during the term hereof, and (ii) to prospective tenants during the last six (6) months of the Lease term (as same may be extended by Tenant). Notwithstanding the foregoing, Landlord's access shall not unreasonably interfere with Tenant's business. 14. Subordination. (A) Tenant agrees that this Lease shall be subject and subordinate to the lien or liens of any mortgages, deed or deeds of trust, or other security interests (collectively the "Interests") that may now be placed against the demised premises, and, all such Interests which shall at any time hereafter be placed against the demised premises. Tenant agrees, at any time hereafter, on demand, to execute any instruments, releases or other documents that may be required for the -19- 20 purpose of subjecting and subordinating this Lease to the lien of any mortgage or mortgages or deed or deeds of trust, whether original or substituted. Tenant covenants and agrees in the event any proceedings are brought for the foreclosure of any such mortgage or deed of trust, to attorn to the purchaser upon any such foreclosure sale and to recognize such purchaser as the Landlord under this Lease. Tenant agrees to execute and deliver at any time and from time to time, upon the request of Landlord or of any such holder, any instrument which, in the sole judgment of Landlord, may be necessary or appropriate in any such foreclosure proceeding or otherwise to evidence such attornment. Tenant further waives the provisions of any statute or rule of law, now or hereafter in effect, which may give or purport to give Tenant any right or election to terminate or otherwise adversely affect this Lease and the obligations to Tenant hereunder in the event any such foreclosure proceeding is brought, and agrees that this Lease shall not be affected in any manner whatsoever by any such foreclosure proceedings. (B) Landlord agrees to use reasonable best efforts to obtain for the benefit of Tenant a non-disturbance and attornment agreement duly executed by the holder of any first mortgage or ground lease new or hereafter affecting the building, whereunder Tenant's rights under this Lease shall recognized, notwithstanding any foreclosure by such holder. 15. Bankruptcy. (A) For purposes of this Lease, the following shall be deemed "Events of Bankruptcy" of Tenant: (i) if Tenant becomes "insolvent", as defined in Title 11 of the United States Code, entitled "Bankruptcy", 11 U.S.C. Section 101 et. seq. (hereinafter called the "Bankruptcy Code"), or under the insolvency laws of any state, district, commonwealth or territory of the United States of America ("Insolvency Laws"); or (ii) if a receiver or custodian is appointed for any or all of Tenant's property or assets, or there is instituted a foreclosure action on any of Tenant's property; or (iii) if Tenant files a voluntary petition under the Bankruptcy Code or Insolvency Laws; or (iv) if there is filed an involuntary petition against Tenant as the subject debtor under the Bankruptcy Code or Insolvency Laws, which is not dismissed within thirty (30) days of filing, or results in issuance of an order for relief against the debtor; or (v) if Tenant makes or consents to an assignment of its assets, in whole or in part, for the benefit of creditors, or a common law composition of creditors. (B) Upon the occurrence of an Event of Bankruptcy, or if Tenant takes advantage of any Insolvency Laws, then in any such event Landlord at its option and sole discretion may terminate this Lease by written notice to Tenant (subject, however, to applicable provisions of the Bankruptcy Code or Insolvency Laws during the pendency of any action thereunder involving Tenant as the subject debtor). If this Lease is terminated under this paragraph, Tenant shall immediately surrender and vacate the demised premises, waive all statutory or other notice to quit, -20- 21 and agree that Landlord's obligations under this Lease shall cease from termination date, and Landlord may recover possession by process of law or in any other lawful manner. Furthermore, if this Lease terminates under this Paragraph, Landlord shall have all rights and remedies against Tenant provided in case of default of Tenant in payment of rent. (C) If Tenant becomes the subject debtor in a case pending under the Bankruptcy Code, Landlord's right to terminate this Lease under this Paragraph shall be subject to the applicable rights (if any) of the Trustee in Bankruptcy to assume or assign this Lease as then provided for in the Bankruptcy Code. However, the Trustee in Bankruptcy must give to Landlord and Landlord must receive proper written notice of the Trustee's assumption or rejection of this Lease, within sixty (60) days after the date of the Trustee's appointment; it being agreed that failure of the Trustee to give notice of such assumption hereof within said sixty (60) day period shall conclusively and irrevocably constitute the Trustee's rejection of this Lease and waiver of any rights of the Trustee to assume or assign this Lease. The Trustee shall not have the right to assume or assign this Lease unless said Trustee (i) promptly and fully cures all defaults under this Lease, (ii) promptly and fully compensates Landlord for all monetary damages incurred as a result of such default, and (iii) provides to Landlord "adequate assurance of future performance" (as defined hereinbelow). Landlord and Tenant hereby agree in advance that "adequate assurance of future performance", as used in this paragraph, shall mean that all of the following minimum criteria must be met: (a) Tenant's gross receipts in the ordinary course of its business during the thirty (30) days immediately preceding the initiation of the case under the Bankruptcy Code must be at least ten (10) times greater than the next payment of rent due under this Lease, (b) both the average and median of Tenant's monthly gross receipts in the ordinary course of its business during the six (6) months immediately preceding initiation of the case under the Bankruptcy Code must be at least ten (10) times greater than next payment of monthly rent due under this Lease, (c) Tenant must pay to Landlord all rentals and other sums payable by Tenant hereunder, and (d) the Tenant's business shall be conducted in a first class manner, and that no liquidating sales, auctions, or other non-first class business operations shall be conducted on the demised premises, and that the use of the demised premises as stated in this Lease will remain unchanged, and that the assumption or assignment of this Lease will not violate or affect the rights of other lessees in the building. In the event Tenant is unable to: (i) cure its defaults, (ii) reimburse Landlord for its monetary damages, (iii) pay the rents due under this Lease or any other payments required of Tenant under this Lease on time, or (iv) meet the criteria and obligations imposed by (a) through (d) above in this Paragraph 15, the Tenant hereby agrees in advance that it has not met its burden to provide adequate assurance of future performance, and this Lease may be terminated by Landlord in accordance with Paragraph 15(B) above. (D) It is further stipulated and agreed that, in the event of the termination of the term of this Lease by the happening of any such event described in this Paragraph 15, Landlord shall forthwith, upon such termination, and any other provisions of this Lease to the -21- 22 contrary notwithstanding, become entitled to recover as and for the liquidated damages caused by such breach of the provisions of this Lease an amount equal to the difference between the then cash value of the rent reserved hereunder for the unexpired portion of the term hereby demised, and the then cash rental value of the demised premises for such unexpired portion of the term hereby demised, unless the statute which governs or shall govern the proceeding which such damages are to be proved limits or shall limit the amount of such claim capable of being so proved, in which case Landlord shall be entitled to prove as and for liquidated damages as an amount equal to that allowed by or under any such statute. The provisions of this paragraph of this Lease shall be without prejudice to (a) Landlord's right to prove in full damages for rent accrued prior to the termination of this Lease, but not paid, or (b) any rights given to Landlord by any pertinent statute to prove for any amounts allowed thereby. In making any such computation, the then cash rental value of the demised premises shall be deemed prima facie to be the rental realized upon any reletting, if such reletting can be accomplished by Landlord within a reasonable time after such termination of this Lease, and the then present cash value of the future rents hereunder reserved to Landlord for the unexpired portion of the term hereby demised shall be deemed to be such sum, if invested at six per centum (6%) simple interest, as will produce the future rent over the period of time in question. 16. Default. (A) In the event that (i) Tenant shall fail to pay when due any payment of the rental or any other sum payable by Tenant hereunder, and such failure shall continue for a period of five (5) days beyond the due date thereof, or (ii) Tenant shall violate any other term, covenant or condition of this Lease or neglect or fail to perform or to observe any of the other terms, conditions or covenants herein contained on Tenant's part to be performed or observed and Tenant shall fail to remedy the same within thirty (30) days after Landlord shall have given Tenant written notice specifying such violation, neglect or failure, or (iii) in the event that this Lease or the demised premises or any part thereof shall be taken upon execution or by other process of law directed against Tenant, or shall be taken upon or subject to any attachment at the instance of any creditor of or claimant against Tenant, and said attachment shall not be discharged or disposed of within thirty (30) days after the levy thereof; or (iv) if Tenant shall abandon, vacate or desert the demised premises, or fail to continuously operate the demised premises for the purposes provided in Paragraph 4 hereof, then in any one or more of such events, Landlord shall have the right, at its option, exercisable by sending written notice thereof to Tenant, to terminate this Lease, in which event Tenant agrees to immediately surrender possession of the demised premises, without any notice to quit or demand for possession of the demised premises whatsoever, notice to quit or intention to re-enter the same being hereby expressly waived by Tenant, and Tenant hereby grants Landlord full and free entrance to, into and upon the demised premises or any part thereof, or take possession thereof with or without process of law and to expel and remove Tenant or any other person occupying the demised premises or any part hereof, and may repossess itself of the same as of its former estate, but such entry shall -22- 23 not constitute a trespass or forcible entry or detainer, nor shall it cause a forfeiture of rents due by virtue hereof nor waiver of any covenant, agreements or promises of this Lease contained to be performed by Tenant. If this Lease shall be terminated as aforesaid, the demised premises, or any part thereof, may be re-let by Landlord for the account and benefit of Tenant, for such rent and upon such terms and to such person or persons and for such period or periods as may seem fit to Landlord and if a sufficient sum shall not be received from such reletting to satisfy the rent reserved in this Lease, after paying the expense of reletting and collection, including reasonable commissions to agents and reasonable attorneys' fees, and any court costs, Tenant agrees to pay and satisfy any and all such deficiencies; but the acceptance of a tenant by Landlord in place of Tenant, shall not operate as a release of Tenant from the performance of any covenant, promise or agreement herein contained, and the performance of any substitute tenant by the payment of rent, or otherwise, shall constitute only satisfaction pro-tanto of the obligations of Tenant arising hereunder. Any damages or deficiencies, at the option of Landlord, may be recovered by Landlord in separate actions, from time to time, as Tenant's obligations to payment would have accrued if the term had continued, or from time to time as said damages or deficiencies shall have been made more easily ascertainable by relettings of the demised premises, or any such action by Landlord may, at the option of Landlord, be deferred until the expiration of the term. (B) Tenant hereby expressly waives any provision of law now in force or which hereafter may be enacted giving Tenant the right under any condition after default to the redemption and repossession of the demised premises or any part thereof. (C) No payment by Tenant or receipt by Landlord of a lesser amount than the monthly installments of rent herein stipulated shall be deemed to be other than on account of the earliest stipulated rent, nor shall any endorsement or statement on any check or any letter accompanying any check or payment as rent be deemed in accord and satisfaction, and the Landlord may accept such check or payment without prejudice to the Landlord's right to recover the balance of such rent or pursue any other remedy in this Lease provided. (D) Tenant shall reimburse Landlord any reasonable legal fees or other costs incurred in the event of a default of Tenant hereunder, in pursuit of Landlord's rights and remedies hereunder, whether or not suit shall be brought. 17. Effect of Waiver. If, under the provisions of this Lease, a summons or other notice shall, at any time, be served upon Tenant by Landlord and a compromise or settlement shall be effected either before of after judgment or decree, whereby Tenant shall be allowed or permitted to retain possession of the demised premises, the same shall not constitute a waiver of any covenant or -23- 24 agreement herein contained, or of this Lease itself. No waiver by Landlord or any breach of agreement herein contained shall be construed to be a waiver of the covenant itself or of any subsequent breach hereof. 18. Estoppel Certificates. Tenant agrees at any time and from time to time, upon not less than ten (10) days' prior written notice by Landlord, to execute, acknowledge and deliver to Landlord a statement in writing certifying (1) that this Lease is unmodified and in full force and effect (or if there have been modifications, that the Lease is in full force and effect as modified and stating the modifications), (2) the date to which the rent and other charges hereunder have been paid by Tenant, (3) whether or not Landlord is in default in the performance of any covenant, agreement or condition contained in this Lease, and, if so, specifying each such default of which Tenant may have knowledge, and (4) the address to which notices to Tenant should be sent. Any such statement delivered pursuant hereto may be relied upon by any owner of the demised premises, any mortgagee or prospective mortgagee of the demised premises or of Landlord's interest therein or any prospective assignee of any such interest. 19. Eminent Domain. Tenant agrees that if the demised premises, or any part thereof, shall be taken or condemned for public or quasi-public use or purpose by any competent authority, Tenant shall have no claim against the Landlord and shall not have any claim or right to any portion of the amount that may be awarded as damages or paid as a result of any such condemnation; and all right of the Tenant to damages thereof, if any, are hereby assigned by the Tenant to the Landlord. And upon any condemnation or taking affecting all or any substantial part of the demised premises, the term of this Lease shall cease and terminate at the option of either Landlord or Tenant by written notice to the other from the date of such governmental taking or condemnation. The Tenant shall have no claim against the Landlord for the value of any unexpired term of this Lease. If less than the whole of the demised premises is taken or condemned by any governmental authority for any public or quasi-public use or purpose, and in the event neither Landlord nor Tenant shall desire to terminate this Lease, then and in such event the rent shall be equitably adjusted on the date when title vests in such governmental authority and the Lease shall otherwise continue in full force and effect. Tenant shall be entitled to pursue a separate claim for the value of the Tenant's furnishings, equipment and movable trade fixtures so taken, together with relocation expenses, provided such claim shall in no manner diminish the award or other compensation to which Landlord would otherwise be entitled. -24- 25 20. Quiet Enjoyment. Landlord covenants and agrees that it has the right to execute this Lease and that if the covenants and agreements on the part of Tenant shall be kept, performed and observed by Tenant as in this Lease provided, Tenant shall have the quiet, peaceable and uninterrupted possession and enjoyment of the demises premises, subject to the terms and provisions contained herein. 21. Notices. Until further notice by either party to the other, in writing, all notices or communications required or permitted hereunder shall be sent by registered or certified mail, return receipt requested, (a) if to Landlord, addressed to: c/o Willco Construction Co., Inc. 7811 Montrose Road Potomac, MD 20854 and (b) if to Tenant, addressed to: Century National Bank 1275 Pennsylvania Avenue, NW Washington, DC 20004 22. Tenant Holdover. If the Tenant shall, with the knowledge and written consent of the Landlord, continue to remain in the demised premises after the expiration of the term of this Lease, then and in that event, Tenant shall, by virtue of this agreement become a tenant by the month at the maximum monthly rental payable (as specified in Paragraph 3, herein) in the last month of the immediately preceding expired term hereof, commencing said monthly tenancy with the first day next after the end of the term above demised; and said Tenant shall give to the Landlord at least thirty (30) days' written notice of any intention to quit the demised premises, and Tenant shall be entitled to thirty (30) days' written notice to quite the demised premises, except in the event of nonpayment of rent in advance or of the breach of any other covenant by the said Tenant, in which event the said Tenant shall not be entitled to any notice to quit, the statutory thirty (30) days' notice and all other notices to quit being hereby expressly waived; provided, however, that in the event that the Tenant shall hold over after the expiration of the term hereby created, and if the Landlord shall desire to regain possession of the demised premises promptly at the expiration of the term aforesaid, then at any time prior to Landlord's acceptance of rent from the Tenant as a monthly tenant hereunder, the Landlord, at Landlord's option, may forthwith re-enter and take possession of the demised premises without process, or by any legal process in force. Notwithstanding the foregoing, -25- 26 in the event Tenant shall wrongfully holdover subsequent to the expiration of the term of this Lease, Landlord shall in lieu of rent be entitled to demand and receive from Tenant monthly use and occupancy payments for each month in which tenant shall wrongfully holdover subsequent to the expiration of the term of this Lease, in an amount equal to twice the monthly rental payable in the last month of the immediately preceding expired term of this Lease. Each such use and occupancy payment shall be due on or before the first of each calendar month in which Tenant shall wrongfully holdover hereunder. In no event shall Landlord's demand or acceptance of such use and occupancy payments be considered to constitute an acquiescence by Landlord to the extension of the term hereof, and Landlord shall be entitled to obtain immediate possession of the premises irrespective of any such demand or acceptance. In the event Tenant shall pay monthly use and occupancy payments for any calendar month following expiration of the term hereof, such payment shall be pro-rated upon Tenant's surrender of full and exclusive possession of the premises to the Landlord, free of all subtenants and other parties claimed by, through or under the Tenant. 23. Damage by Casualty. If the demised premises shall be partially or totally damaged or destroyed, then Landlord shall diligently and as soon as practicable after such damage occurs (taking into account the time necessary to effectuate a satisfactory settlement with any insurance company, and reasonable delay on account of "labor troubles" or any other causes beyond Landlord's control) repair or rebuild the demised premises, provided, however, that in no event shall Landlord be obligated to expend in such repair or rebuilding any sums in excess of the amount of insurance proceeds paid to Landlord in connection therewith, except for any deductible paid by the Landlord. The foregoing notwithstanding, in no event shall Landlord be required to repair, restore or rebuild any portions of the demised premises constituting a part of Tenant's leasehold improvements or other tenant work, trade fixtures, equipment and personal property. If the demised premises are rendered wholly or partially untenantable by such damage or destruction, any such damage and destruction was without the fault or neglect of the Tenant, its servants, employees, agents, or licensees, then the basic monthly rent payable by Tenant under the Lease during the period in which the demised premises are so untenantable shall be equitably abated by the percentage that the unusable floor area of the demised premises bears to the total floor area thereof. Except as set forth in this Article, Landlord shall not be liable for any damages (including, without limitation, business interruption) that may be suffered by Tenant by reasons of any casualty to the demised premises and/or Landlord's repairing or rebuilding thereof and/or the deprivation of Tenant's use and possession of the demised premises. All of the foregoing provisions of this Article notwithstanding, if the demised premises and/or the common area access to the demises premises, if necessary to Tenant's business, are rendered wholly untenantable by fire or other cause, and such damage cannot be repaired by Landlord within one hundred eighty (180) days following the date of such casualty, then and in such event Tenant, provided it is not in default hereunder, may, at its option, cancel and terminate this Lease by giving -26- 27 to the Landlord, within two hundred ten (210) days from the date of such damage, notice in writing of its intention to cancel this Lease. Further, in the event the demised premises, together with any other substantial portion of the building (i.e. 25% or more of the building) shall be damaged or destroyed due to fire or other casualty, Landlord shall be entitled to terminate this Lease, by giving written notice to Tenant within sixty (60) days following such fire or other casualty. In the event of termination by either Landlord or Tenant, as aforesaid, the term of this Lease shall cease and determine upon the tenth day after such notice is given, and the Tenant shall vacate the demised premises and surrender the same to the Landlord. 24. Jury Trial Waiver. Landlord and Tenant hereby waive trial by jury in any action, proceeding or counterclaim brought by either of the parties hereto against the other one or in respect of any matter whatsoever arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant hereunder, Tenant's use or occupancy of the demised premises, and/or claim of injury or damage. 25. Landlord's Lien. In the consideration of the mutual benefits arising under this Lease, the Tenant hereby grants to Landlord a lien on all property of the Tenant in or on the premises (except such part of any property that may be exchanged, replaced or sold from time to time in the ordinary course of business operation of the Tenant while not in default under this Lease), and such property shall be and remain subject to the lien of Landlord for the payment of all monthly rental and additional rent and any other sums agreed to be paid by the Tenant herein. Said lien shall be in addition to any lien provided to the Landlord by law. 26. General Provisions. (A) Upon the expiration or sooner termination of the term hereof, Tenant shall quit and surrender the demised premises to Landlord in good order except for ordinary wear and tear, as reasonably determined by Landlord, and shall comply with Paragraphs 7(c) and 8 hereof. Any damage to the demised premises negligently caused or occasioned by Tenant in the removal of its property from the demised premises shall be repaired at Tenant's sole cost and expense. (B) During the term of this Lease, Tenant shall not use the name of Landlord in connection with any business operation which Tenant conducts on or about the demised premises. -27- 28 (C) Nothing in this Lease shall be deemed or construed in any way as constituting the consent or request of Landlord, expressed or implied, by inference or otherwise, to any contractor, subcontractor, laborer or materialmen for the performance of any labor or the furnishing of any material for any specific improvement, alteration or repair of the demised premises or any part thereof. (D) Nothing herein contained shall in any way be considered or construed as creating the legal relation of a partnership or joint venture between Landlord and Tenant, it being expressly understood and agreed by the parties hereto that the relationship between the parties shall be one of landlord and tenant. (E) It is further understood and agreed that the covenants, agreements and conditions herein contained shall be binding upon the Landlord and Tenant, as well as their respective heirs, executors, administrators, successors and permitted assigns. (F) This Lease shall be governed and construed in accordance with the laws of the District of Columbia. (G) If any covenants or agreement of this Lease or the application thereof to any person or circumstance shall be held to be invalid or unenforceable, then and in each such event the remainder of this Lease or the application of such covenant or agreement to any other person or any other circumstance shall not be thereby affected, and each covenant and agreement hereof shall remain valid and enforceable to the fullest extent permitted by law. (H) The captions and headings throughout this Lease are for convenience and reference only, and the words contained in such captions shall in no way be held or deemed to define, limit, describe, explain, modify, amplify or add to the interpretation, construction or meaning of any provision of this Lease. 27. Limitation on Right of Recovery Against Landlord. It is specifically understood and agreed that there shall be no personal liability of any shareholder, partner, director, trustee, officer, employee, representative, or agent of Landlord, in respect to any of the covenants, conditions or provisions of this Lease. In the event of a breach or default by Landlord of any of its obligations under this Lease, Tenant shall look solely to the equity of the Landlord in the Building for the satisfaction of Tenant's remedies. Accordingly Tenant hereby agrees to look solely to Landlord's equity in the Building for the satisfaction of any claim arising from this Lease and shall not seek to impose personal liability on any shareholder, trustee, partner, officer, employer, representative or agency of Landlord. -28- 29 28. Renewal Term. (A) Provided that Tenant shall have faithfully kept and performed all of its obligations and agreements set forth in this Lease, Tenant shall have the right to extend and renew the term of this Lease for one (1) additional period of five (5) years commencing therefor upon expiration of the initial term, and fully ending on the last day of the sixtieth calendar month thereafter. The renewal term shall be upon the same terms and conditions as set forth in this Lease with the exception of the following: (1) rent and increases therein which shall be as set forth in subparagraph 28 (B) below, and (2) there shall be no right to a further renewal term beyond the aforesaid renewal term. Tenant shall be required to exercise this renewal term by written notice delivered to Landlord no later than twelve (12) months prior to the expiration of the initial lease term. In the absence of such notice, all rights hereunder of Tenant to a renewal term shall be declared null and void. (B) In the event Tenant shall exercise its rights to a renewal term, as aforesaid, Tenant covenants and agrees to pay a basic annual rent during the aforesaid first renewal term, a sum equal to the market rental for comparable retail space within the geographical area of Washington, D.C. in which the building is located, reasonably projected by the parties to be in effect as of the commencement of the renewal period, together with increases therein consistent with the prevailing market practices, and shall be agreed upon by the parties within sixty (60) days following the last day upon which such option may be exercised by Tenant under Paragraph 28(A) above. In the event the parties are unable to agree upon the rate of rental and/or determination of increases therein for such additional term, during the aforesaid sixty (60) day period, then the basic annual rent and rate of increases therein shall be determined by a board of three (3) licensed real estate brokers, one of whom shall be named by the Landlord, one by the Tenant, and the third selected by the two brokers selected by the Landlord and Tenant. All of said brokers shall be licensed real estate brokers in Washington, D.C. specializing in commercial leasing in the central business district having not less than ten (10) years experience and recognized as ethical and reputable within their industry. The parties agree to select their respective designated brokers within ten (10) days after the expiration of the sixty (60) day period herein provided. The third broker shall be selected within fifteen (15) days after both of the first two (2) brokers have been selected. Within fifteen (15) days after the third broker has been selected all of the brokers shall meet to attempt to agree upon the base rate of rental. If they are unable to reach agreement, they shall within said fifteen (15) day period submit in writing the rate of rental they deem appropriate and the base rate of rental shall be the amount which is the mean between the two (2) closest amounts determined by two (2) of the brokers. In no event shall the base annual rent for the initial year of the renewal term be less than the base annual rent in effect in the tenth (10th) year of the initial term of the Lease. Upon determination of the new rental and rate of increases therein for the renewal term, Tenant agrees to execute and deliver to Landlord -29- 30 within ten (10) days following Landlord's request, and appropriate amendment to this Lease confirming the renewal term and the revised basic annual rent and determination of increases to remain in effect during the renewal term. 29. Entire Agreement. It is understood and agreed by and between the parties hereto that this Lease contains the final and entire agreement between the said parties and they shall not be bound by any terms, statements, conditions or representations, oral or written, not herein contained. IN WITNESS WHEREOF, the Tenant has caused these presents to be signed and sealed and Landlord has caused these presents to be signed and sealed by one of its general partners, all as of the day and year first written hereinabove. LANDLORD: PENNSYLVANIA BUILDING ASSOCIATES /s/ Illegible By: /s/ S. GREENHOOT FISCHER (SEAL) - ------------------------------ ----------------------------- Witness S. Greenhoot Fischer, General Partner /s/ KRISTIE MCKILLIP By: /s/ RICHARD S. COHEN (SEAL) - ------------------------------ ----------------------------- Witness Willco Associates, General Partner, By Richard S. Cohen, its General Partner TENANT: CENTURY NATIONAL BANK /s/ F. KATHRYN ROBERTS By: /s/ JOSEPH S. BRACEWELL (SEAL) - -------------------------- ----------------------------- Witness Joseph Bracewell, Chairman of the Board -30- EX-10.9 15 LEASE & SERVICES AGMT. - ALLIANCE BUSINESS CTRS. 1 EXHIBIT 10.9 LEASE AND SERVICES AGREEMENT LEASE AND SERVICES AGREEMENT ("Agreement"), made this 17th day of November 1995, by and between ALLIANCE Greensboro, L.P., a Delaware partnership d/b/a ALLIANCE Business Centers with principal offices at 8201 Greensboro Drive, McLean, VA 22102 (the "Landlord") and Century National Bank, a District of Columbia corporation with principal offices at 1875 Eye Street, NW, Washington, D.C. 20006 (the "Tenant"), to lease the office(s) described below and to purchase certain services described in this Agreement. Agreement to Lease. Landlord hereby leases to Tenant, and Tenant rents from Landlord, a portion of the Landlord's executive suite (the "Executive Suite") located in the building known as 8201 Greensboro Drive, Suite 1000, McLean, VA 22102 (the "Building") identified as Office/Suite number(s) #1049 and designated on the floor plan attached to this Agreement as Exhibit "A" (the "Premises"). Premises shall be used by no more than one person. No adjustment in the maximum number of persons occupying the Premises will be made without Landlord's prior written consent. Changes in the number of persons occupying The Premises shall result in a rental adjustment as stated in paragraph 6 of this Agreement. Tenant shall pay the rent and other charges and perform all other obligations required of Tenant in this Agreement without set-off or deduction. The Basic Terms of this Agreement are also outlined in Exhibit "B & D", attached. 1. Use of Office. During the term of this Agreement, provided Tenant is not in default of any of the terms, covenants, conditions or provisions of this Agreement, Tenant shall have the exclusive use of the Premises. Landlord may take possession of the Premises and substitute other space in the Executive Suite substantially comparable to the Premises by giving written notice to Tenant at least thirty (30) days in advance, and Landlord shall pay for all reasonable costs of relocation. 2. Rent and Other Charges. Tenant agrees to pay Fixed Monthly Rental Charges of $880.00 in advance, on the first day of each calendar month during the term of this Agreement, without notice or demand, and without set off or deduction. The rent for the first month shall be paid upon the signing of this Agreement. If any payment of rent or other charges due under this Agreement is not received within five (5) calendar days after its due date, the Tenant will also pay a late payment charge which shall be an amount equal to 10% of the past due payment for each and every month or part thereof that such payment remains unpaid or $50.00, whichever is greater. The financial terms of this Agreement are strictly confidential and Tenant agrees not to divulge this information to any other Tenant or potential tenant of Landlord. All checks must be drawn on a United States Bank or all fees or delays shall be charged to Tenant. 3. Term. The term of this Agreement is for a period of approximately twelve months, commencing on January 1, 1996 at 9:00 a.m. and expiring on December 31, 1996 at 5:00 p.m. -1- 2 4. Security Deposit. Tenant shall deposit with Landlord $880.00 as a non-interest bearing security deposit. Landlord may use the security deposit to cure any default of Tenant under this Agreement, restore the Premises including any and all furniture, fixtures and equipment provided by Landlord and vendors at the Premises to their original condition, reasonable wear and tear excepted, to pay for repairs to any damage to the Premises, Executive Suite or Building, caused by Tenant or Tenant's guests, to pay any rent or other charges which Tenant owes Landlord at or prior to the expiration of this Agreement, and to reimburse Landlord for costs or expenses arising from any other obligation of Tenant which Tenant has failed to perform. If Landlord transfers control or ownership of the Premises and Landlord transfers the security deposit to such purchaser, Tenant will look solely to the new Landlord for the return of the security deposit, and the Landlord named in this Agreement shall be released from all liability for the return of the security deposit. The security deposit (less any sums used by Landlord) will be returned within sixty (60) days after the termination of any services rendered or expiration of the term hereof. The security deposit shall not be considered to be the final payment of Fixed Monthly Rental charges or service charges under this Agreement. 5. Services. Provided Tenant is not in default of any of the terms, covenants, conditions or provisions of this Agreement, Landlord shall make available to Tenant certain Services and Facilities ("Services") as more fully described in Exhibit "C" attached to this Agreement. Such Services which are described in Exhibit "C" as being subject to a separate charge are due and shall be paid for by Tenant on the first day of each calendar month following the period being billed during the term of this Agreement. If payment is not received by Landlord within five (5) calendar days of first becoming due, Tenant shall pay a late charge in an amount equal to 10% per month on the unpaid balances, or $50.00, whichever is greater. All such Services shall be performed or provided at rates which are from time to time established by Landlord during the term of this Agreement. The current rates are listed on Exhibit "C". Landlord reserves the right to change the rates and charges for Services, or to discontinue any Services upon a default by Tenant of any of the terms, covenants, conditions or provisions of this Agreement, or, after providing thirty (30) days advance written notice to Tenant. 6. Multiple Occupancy/Use. The Fixed Monthly Rental Charges are based on the Premises and services being used by one person only. If more than one person habitually use the Premises or services, the Fixed Monthly Rental Charges will be increased by a factor of $100.00 for each additional person. Tenant has asked that the second occupant not receive personal answering. 7. Telecommunications. a. Provided Tenant is not in default of any of the terms, covenants, conditions or provisions of this Agreement, Landlord will make available to Tenant, a telecommunications package which may consist of some combination of telephone numbers, lines, optional features such as call forwarding, conference calling, etc., voice mail, long distance, and directory listing. All -2- 3 components of the telecommunications package including any telephone numbers used by Tenant will remain at all times the property of Landlord and Tenant will acquire no rights in the components beyond the term specified by Landlord. In the event that any toll fraud is traceable to telecommunications services employed by Tenant, Tenant will reimburse Landlord for all charges associated with the toll fraud including, but not limited to, unauthorized use of calling cards or telephone lines. It is expressly acknowledged and agreed that Landlord shall be the sole and exclusive provider of telecommunication services to Tenant. b. Tenant waives its recourse to the Landlord for any claimed liability arising from the provision of telecommunication services. The liability of Landlord for direct damages including, without limitation, injuries to persons or property, arising out of mistakes, omissions, interruptions, delays, errors or defects in transmissions occurring in the course of furnishing telecommunications services and not caused by the negligence of the Tenant or Tenant-provided equipment, or arising out of the failure of Landlord to maintain proper standards of maintenance and operation and to exercise reasonable supervision shall not exceed an amount equivalent to the proportionate telecommunications charge to the Tenant for the period of time during which such mistake, omission, delay, error or defect in transmission occurs as calculated on a pro rata basis in quarter hour increments using a thirty (30) day month as the base period. c. Landlord has granted an exclusive license to Fairchild Communication Services Company to provide telephone equipment, voice and data services and other telecommunication services for the Premises. Tenant shall enter into a customer service agreement with Fairchild for telecommunication services as described in and at the rates set out in the Service Order Agreement which is attached hereto as Exhibit "F" and made a part hereof. 8. Furnishings. The Premises shall contain those items of furniture and other items indicated on the Schedule of Furnishings attached hereto as Exhibit "E" and made a part hereof ("furnishings"). All furniture and office equipment supplied to Tenant for its exclusive use will be returned to Landlord at the expiration of this contract in the same condition as first delivered to Tenant, normal wear and tear excepted. If any repairs become necessary, Landlord will cause the repairs to be made and, if repairs are necessitated by Tenant's acts or negligence the repair charges will be billed to Tenant's account. Tenant is not authorized to order any repairs or to make any repairs itself. 9. Use of Office. Tenant will use the Premises only for general office purposes. The type of business Tenant will conduct from the Premises is Sales. Tenant will not conduct any other type of business from the Premises without the prior written consent of Landlord. Tenant will not store or use anything which will create a fire or theft hazard, cause noise, create an odor, use abnormal amounts of electricity, create a nuisance, cause an increase in Landlord's insurance premiums or cancellation of its insurance. Tenant will not act in any manner which may offend Landlord or other tenants. Tenant will not bring any pets into the office. If Tenant uses an impact -3- 4 or dot matrix printer, it will keep its office door closed during use. Smoking is not permitted in the Executive Suite. 10. Alterations. Tenant will not make any alterations to the Premises unless it obtains prior written approval from Landlord. Approval may be conditioned on: (a) agreement that improvements will remain the property of Landlord, at the termination of this Agreement; and/or (b) Tenant making a security deposit; and/or (c) agreement by Tenant that it will return the Premises to its original condition when it vacates. 11. Assignment/Subletting. Tenant shall not assign or encumber this lease nor sublease all or a part of the Premises used by it. 12. Recruiting Landlord's Employees. Tenant acknowledges that finding, hiring and training employees is time-consuming and expensive. Tenant agrees that it will not, during the term of this Agreement and any renewals thereof, or for a period of one year after the expiration or sooner termination of this Agreement, hire or cause an offer to employ any person who is or has been an employee of Landlord or Landlord's agent. If Tenant either (i) hires an employee of Landlord or Landlord's agent; or (ii) hires any person who has been an employee of Landlord or it's agent within six months prior to the time they are hired by Tenant, Tenant will be liable to Landlord for liquidated damages in an amount equal to six months' wages of the employee, at the rate last paid that employee by Landlord. The provisions hereof shall survive the expiration or sooner termination of the term hereof. 13. Personal Property Damage. Landlord shall not be liable for any damage to personal property owned by Tenant, its guests, customers, invitees or visitors, unless the damage is caused by the gross negligence of the Landlord or its employees. 14. Personal Injury. Landlord shall not be liable for personal injury suffered by Tenant, its guests, customers, invitees or visitors, unless the injury is caused by Landlord's own gross negligence, or that of its employees. 15. Tenant's Property. If Tenant vacates the Premises and leaves behind any property, whatsoever, same will be considered abandoned by Tenant and may be disposed of by Landlord at Tenant's expense. If Tenant defaults in the payment of sums due to Landlord, and Landlord changes the locks, removes Tenant's property, or otherwise denies access to Tenant, Landlord will not be guilty of conversion. 16. Indemnity. If a claim is made against Landlord because of some action or inaction of Tenant or its guests, customers, invitees or visitors, Tenant will indemnify Landlord and hold it harmless from those claims. This indemnity includes not only the amount of any such claim, but also all of Landlord's costs in investigating and defending those claims including all related fees charged -4- 5 by Landlord's Legal Counsel, plus a charge at the rate of $170.00 per hour for any time spent by Landlord's officers in dealing with those claims. Further, in the event that any of Landlord's employees travel off premises at the request of Tenant and such travel results in damages or exposes Landlord to liability, then Tenant will indemnify Landlord and hold it harmless from any such claims or damages. 17. Insurance: Waiver of Claims. a. Landlord has no obligation to and will not carry insurance on Tenant's liability coverage, personal or business property or on the Premises. Landlord will not be liable to Tenant or to any other person for damages on account of loss, damage or theft, to any business or personal property of Tenant. Tenant waives any claims against Landlord from any loss, cost, liability or expense (including reasonable attorneys' fees) arising from Tenant's use of the Premises or any common areas made available to Tenant by Landlord or from the conduct of Tenant's business, or from any activity, work, or thing done in the Premises or common areas by Tenant or Tenant's agents, contractors, visitors or employees. b. The Landlord shall not be liable or responsible to the Tenant for any injury or damage resulting from the acts or omissions of Landlord, its employees, persons leasing office space or obtaining services from the Landlord, or other persons occupying any part of the Executive Suite or Building, or for any failure of services provided such as water, gas or electricity, or for any injury or damage to person or property caused by any person (except for such loss or damage arising from the willful or grossly negligent misconduct of the Landlord, its agents, servants, or employees) or from the Landlord's failure to make repairs which it is obligated to make hereunder. Neither Landlord or any of its agents, employees, officers or directors shall be responsible for damages resulting from any error, omission or defect in any typing, copying, assembling or other secretarial work, or work performed or provided as part of the services rendered, whether uncompensated services or compensated services are rendered. c. Tenant shall provide Landlord with a certificate of insurance evidencing General/Public Liability coverage with liability limits of not less than One Million Dollars ($1,000,000) per occurrence for Bodily Injury and/or Property Damage Liability and One Hundred Thousand Dollars ($100,000) per occurrence for Fire/Legal Liability. Said insurance coverage shall remain in force during the term of this Agreement and renewals thereof and the Landlord shall be named as an additional insured. Tenant's failure to provide or maintain such insurance shall not reduce or otherwise alter Tenant's liability or responsibility to pay any judgment rendered against Tenant for such Liability and Damages. d. Tenant agrees to defend, indemnify and hold Landlord harmless from and against any and all claims, damages, injury, loss and expenses to or of any person or property -5- 6 resulting from the acts or negligence of Tenants, its agents, employees, invitees and licensees while in the Building, Executive Suite and Premises. 18. Right of Entry. Landlord has the right without notice to enter upon the Premises at any reasonable time to examine same, make repairs, alterations or improvements, or to show the Premises to prospective tenants, and in the ordinary course of providing services requested by Tenant. Landlord's right of entry shall include the right to enter upon the Premises for the purposes of inspection. Landlord shall have a key to the Premises. 19. Waiver. If Landlord allows any default or variance in this Agreement, or does not enforce each and every provision of this Agreement, same will not constitute a waiver of its rights. No matter how often Landlord allows the default or variance, or a variety of defaults or variances by Tenant or others, or does not enforce each and every provision of this Agreement, it may still, without advance notice, require strict adherence to this Agreement or prohibit future variances. Nothing will change the terms of this Agreement, or extend it, or add to it, unless in writing and signed by Landlord and Tenant. 20. Holdover. If Tenant or any one claiming through Tenant holds over in the Premises beyond the expiration or termination of the term of this Agreement, then Tenant's occupancy may be continued, at Landlord's option, on a month-to-month basis, at an increased rate equal to twice the Fixed Monthly Rental Charges set forth in Paragraph 2 hereof. The Fixed Monthly Rental Charges will be due on the first day of each month, and there will be no pro-ration for a partial month of use. 21. Vacating. Upon the expiration or sooner termination of the term of this Agreement, Tenant will promptly vacate the Promises in the same condition as when first occupied by Tenant, normal wear and tear excepted, turn in its keys, and provide Landlord with a forwarding address and telephone number. 22. Mail Forwarding. After termination or expiration of the term of this Agreement, Tenant shall notify all parties of Tenant's new address. Landlord will forward mail to Tenant at its new address for a period of 15 days, and will bill Tenant for clerical, supplies and/or any cost of delivery or any new postage necessary for the forwarding. Afterwards, mail forwarding may be continued for a monthly fee of $50.00, plus 50 cents per piece handling fee and any cost associated with delivery or postage. Tenant, if requested by Landlord, shall pay a retainer against anticipated monthly forwarding charges. Absent such an arrangement, mail will be returned. 23. Events of Default. The following are Events of "Default": a. Fixed Monthly Rental Charges more than five days past due; b. Any other costs or charges more than ten days past due; -6- 7 c. If Tenant becomes insolvent, makes an assignment for benefit of creditors, or files a voluntary petition under any bankruptcy or insolvency law, or has filed against it an involuntary petition under any such law; or, d. Default in any other terms of this Agreement or the exhibits attached hereto, but only if Landlord gives Tenant written notice of the default, and Tenant fails to cure the default within five (5) days of the notice. In the event of a recurring default, Landlord will give Tenant five (5) days notice to cure for the first event of default. Thereafter, Landlord need not give Tenant any notice for a substantially similar default. 24. Remedies. On Default, Landlord may choose any or all of the following remedies: a. Terminate this Agreement; b. Accelerate the Fixed Monthly Rental Charges, and demand all sums due immediately; c. Take possession of all property in the Premises and store same, at Tenant's expense, until taken in full or partial satisfaction of any lien or judgment; d. Deny access to the Premises (as well as to the Executive Suite) by Tenant and deny use of any of the services; and e. Any other remedies allowed by law. 25. Additional Charges Upon Default. In the event of default, Tenant will be liable for the following additional charges: a. Attorneys' fees and expenses incurred by Landlord; b. Time spent by any of Landlord's management or the management of Landlord's agents, at the rate of $170.00 per hour; c. Interest on unpaid sums at 18% per annum; d. Any other costs incurred by Landlord as a result of the default. 26. Other Consequences of Default. In the event of default, Landlord may immediately cease providing Tenant with any or all services, including but not limited to, telecommunications services. 27. Primary Lease. Tenant recognizes that by a Primary Lease Agreement between the owner of the Building and Landlord, dated November 15, 1994, Landlord, ALLIANCE Greensboro, L.P., doing business as ALLIANCE Business Centers, leased the Executive Suite. This Agreement is subject to the Primary Lease Agreement. 28. Severability. In the event any one or more provisions of this Agreement are held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions hereof, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision were not contained herein. -7- 8 29. Notices. All notices excluding late notification, under this Agreement shall be in writing and shall be deemed given if: (i) delivered by hand, the receiving party having signed a receipt therefor, or (ii) mailed by registered mail or certified mail, return receipt requested, first class postage, or sent by overnight courier providing a receipt, if to the Landlord: ALLIANCE Greensboro, L.P. Attn: Lori Shackleton 8201 Greensboro Drive, Suite 1000 McLean, VA 22102 with a copy to: ALLIANCE Business Centers Attn: Accounting 122 East 42nd Street, Suite 1700 New York, NY 10168 and if to Tenant: Century National Bank 1875 Eye Street, NW Washington, D.C., 20006 30. Ambiguities. Tenant has had an opportunity to read this Agreement and to ask questions. If Tenant later claims any ambiguities in the Agreement, those ambiguities will be interpreted in favor of Landlord. 31. Guaranty. In consideration of the execution this Agreement by the Landlord, the undersigned Guarantors, jointly and severally, do hereby guarantee to the Landlord, its successors and assigns, payment of all or any sums due or to become due under the terms and conditions of this Agreement and the performance by Tenant of all of the undertakings, obligations and liabilities imposed upon Tenant by this Agreement. The liability of the guarantors hereunder shall be unconditional and shall not in any manner be affected by any indulgence whatsoever granted or consented to by the Landlord, including but not limited to, any extension of time, renewal, waiver or other modification. Guarantors are liable for all sums due under this Agreement, any Extensions, Amendments, or Addendums thereof, and for any other sums due from Tenant to Landlord, no matter when or how incurred. Landlord does not have to attempt collection from Tenant before proceeding against Guarantor. Guarantor will not be released unless Landlord specifically releases Guarantor in writing signed by Landlord. 32. Returned Check. If a Tenant check is returned for any reason at all, Tenant will pay an additional charge of $100.00 per returned check and, for the purposes of calculating late charges or events of default, it will be as if the payment represented by the check had never been made. -8- 9 33. Entire Agreement. This Agreement, including Attachments and Exhibits, expresses the entire understanding and all agreements of the parties. Neither party has made or shall be bound by any agreement or representation to the other party which is not expressly set forth herein. This Agreement may not be modified orally or in any manner other than by an amendment in writing signed by both the parties hereto. IN WITNESS WHEREOF, the parties have executed this Agreement on the dates indicated below. Landlord: ALLIANCE Greensboro, L.P. a Delaware Partnership Date: 12/18/95 By: /s/ LORI SHACKLETON ---------------------------------------------- EOG Greensboro, Inc. General Partner Lori Shackleton - General Manager Tenant: Century National Bank Date: 12/15/95 By: /s/ ROBERT W. HUTCHINS ---------------------------------------------- Print: Robert W. Hutchins, EVP ------------------------------------------- GUARANTORS: ------------------------------------------------- ------------------------------------------------- -9- 10 EXHIBIT A [This exhibit is a floorplan of the Alliance Business Center located at 8201 Greensboro Dr., Suite 1000, McLean, VA 22102.] -10- 11 EXHIBIT B BASIC TERMS OF AGREEMENT TENANT: Century National Bank LANDLORD: ALLIANCE Greensboro, L.P. TERM: One Year Lease MOVE IN DATE: January 1, 1996 MOVE OUT DATE: December 31, 1996 OFFICE/SUITE NO.(S): #1049 CONFERENCE ROOM USAGE ALLOWANCE: Up to 40 hours per month. FIXED MONTHLY OFFICE RENTAL: $775.00 FIXED MONTHLY FURNITURE RENTAL: 105.00 FIXED MONTHLY PHONE CHARGE: See Exhibit "F" FIXED MONTHLY ADD'L PEOPLE CHARGE: 0.00 FIXED MONTHLY PARKING: Complimentary for first lease term. OTHER FIXED MONTHLY CHARGES: DESCRIPTION: REFUNDABLE SECURITY DEPOSIT: Rent: $775.00 Furniture: 105.00 Services: (parking) 0.00 Keys (1 #of Set(s)): 45.00 Total Deposit: $925.00 PAYMENT DUE AT SIGNING: 1st Month's Office Rental $775.00 1st Month's Furniture Rental 105.00 1st Month's Parking 0.00 Initial Set-up Charge 75.00 Security Deposit Increase 925.00 TOTAL FIRST MONTH'S RENTAL AND CHARGES AND DEPOSIT . . . . . . . . . . . . . . . . . . . . . . $1880.00 Note: Please be sure to write a separate check for all deposits. PAYMENT DUE ON THE FIRST OF EACH MONTH THEREAFTER: Fixed Monthly Office Rental $775.00 Fixed Monthly Furniture Rental 105.00 State Tax on Furniture Rental (4.5%) 4.73 Other Fixed Monthly Charges 0.00 TOTAL FIXED MONTHLY RENTAL CHARGES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $884.73
-11- 12 EXHIBIT B (CONTINUED) FEATURES & SERVICES INCLUDED IN OFFICE RENT 1) Individual office(s) appointed with a set of office furniture (if included in Exhibit E). 2) Cleaning and maintenance of office space and trash collection. 3) HVAC during normal business hours (per building regulations), electric utility costs and real estate taxes per Agreement (Does not include occupancy taxes if applicable.) 4) Twenty-four hour access to office. 5) Reasonable use of kitchen facilities. 6) Furnished reception area and a receptionist to greet and announce guests. 7) Use of conference rooms and audio-visual equipment based on the "Allowance" specified in Exhibit B and subject to availability. 8) Personalized telephone answering Monday through Friday from 8:30 a.m. to 5:30 p.m. 9) Building directory listing, subject to availability. 10) Facsimile Number (usage to be billed at attached rates) 11) Normal Mail and package receiving. -12- 13 EXHIBIT C SCHEDULE OF SERVICES A. ACCOUNTING 1) Establishing a second account for Tenant's convenience $ 25.00 each time 2) Clerical fee for processing payment using MC/VISA $ 25.00 each time 3) Clerical fee for processing payment using American Express $ 25.00 each time 4) Fax or send duplicate statement or records $ 5.00/copy/each (plus postage and faxing costs) 5) Research, collection calls or processing Actual time billed as Clerical Service (plus postage, faxing and telephone incurred charges) B. ADMINISTRATIVE 1) Credit authorization fee per contract (charged to all new Tenants/Clients) $ 75.00/contract (Full-time Tenant) $ 50.00/contract (Identity) 2) Moving a Tenant from one suite to another, switching keys and cards $ 50.00/person 3) Additional employee initial set up $ 50.00 one-time charge Recurring Monthly Charge $ 100.00/month 4) Painting and cleaning fee for a lease of less than six (6) months including administrative coordination $ 200.00 per office 5) Lost security card, lost key $ 25.00 per item 6) Tenant Monthly Storage (boxes, other items) $ 40.00/month/closet C. ANSWERING SERVICE (8:30 - 5:30 p.m.)(Mon. - Fri.) 1) Full-Time Tenant Included in Contract 2) Answering Service/Voice Mail Only $ 110.00 (Includes 2 persons, one voice mail box) (Hand written messages will be assessed a Clerical Service fee billed in 6 minute increments.) D. CLERICAL SERVICE* Standard Clerical Rate $ 22.00/Hour (24-Hour Turnaround) 1) Proofreading/Editing, outgoing calls for Tenants, Clerical Service billed typing forms, preparation of expense reports, payroll, in 6 minute increments check reconciliation, light accounting, bill paying, invoicing (bookkeeping), extensive fax transmission travel, ordering office supplies, photocopying for Tenants or visitors, bank deposits, arrange conference calls and meetings, computer maintenance, research, filing, project coordination.
-13- 14 EXHIBIT C. (CONTINUED) 2) The clerical services mentioned above will be billed at $ 44.00/Hour 200% per Clerical rate if performed before or after scheduled (l-8/Hour Turnaround) working hours, or requested as a rush job. Clerical Service billed in 6 minute increments 3) Notary Clerical Service billed in 6 minute increments 4) Patching a call through to a seven-digit number not set 6 minutes Clerical per call plus up with a patch service cost of call E. CONCIERGE SERVICES Arrangement for Business Supplies, Clerical Service billed Catering, Meal order taking, etc. in 6 minute increments (18 minute minimum) F. CONFERENCE ROOMS 1) Rental Included for Full-Time Tenants $ 25.00/Hour $ 150.00/Day (1 - 12 Persons) 2) Seminar Room Included for Full-Time Tenants $ 50.00/Hour $ 300.00/Day (up to 40 Persons) 3) Cancellation, if not within 24 hours for conference room, Billed at 50% of time reserved will be applied to Identity Tenants only. 4) Clean up after Client/Tenant in conference room Clerical Service billed in 6 minute increments (18 minute minimum) G. DIRECTORY LISTING - Building Lobby 1) Full-Time Tenant Included 2) Identity Client or Additional Listings $ 40.00/line/one-time H. FURNITURE 1) Moves/adds/changes including administrative coordination $ 25.00/piece 2) Additional Furniture Rental Price Based on Piece Requested Standard Furniture Set $ 75.00/month/set I. KITCHEN FACILITIES - Coffee, tea, etc. 1) Tenants/Clients per cup service Included 2) Pots for Conf. Room $ 10.00/pot
-14- 15 EXHIBIT C (CONTINUED) J. MAIL SERVICES 1) Deliver parcel to Tenants office or distribute to client from front desk. All parcels are called to Tenant.(If not picked up by 5:00 p.m., we (6 minutes Clerical Service) will deliver to office.) 2) Prepare Certified, Express, or Courier (6 minutes Clerical Service) 3) Check mailbox/review mail by phone (6 minutes Clerical Service) 4) Prepare packages, such as label/wrap Clerical Services billed in 6 minute increments plus supplies 5) Trace Shipments (Fed Ex, UPS, etc.) (6 minutes Clerical Service plus cost of call) 6) Mass mailings (folding, stuffing, posting, etc.) Varies depending upon size of mailing. K. MESSAGE HANDLING 1) Message taking for visitors or conference room use Clerical Services billed in 6 minute increments 2) Tenant advertisements - recording messages Clerical Services (18 minute minimum) 3) Relaying Tenant voice mail messages over the phone Clerical Services billed in 6 minute increments 4) Advertisements - Newspaper/magazine/publish material, etc. $ 30.00/ad/month L. OFFICE SUPPLIES 1) Minimum supplies are available on site through ALLIANCE or Cost + 20% may be ordered. (See a Clerical Assistant for requests) 2) Weekly orders may be placed directly for Tenant Clerical Services billed in 6 minute increments (18 minute minimum) M. PARKING 1) Surface Complimentary 2) Covered Parking Garage $ 50.00/pass/month N. POSTAGE FEES 1) U.S. Mail/UPS Cost + 20% 2) Courier Service Cost + 20% 3) Federal Express Standard Rates (Landlord shall serve as postal agent to all tenants and clients.)
-15- 16 EXHIBIT C (CONTINUED) O. PRODUCTION AND COPYING 1) Binding, copying, transparencies Clerical Services billed (production time only) in 6 minute increments 2) Photocopies $ .15/ea. (1-500) $ .10/ea. (Production Rate) 3) Binding (Includes Spine, Cover & Backing) $ 3.50/ea. (A medium volume copy machine is available for Tenants.) P. TELECOMMUNICATIONS 1) Standard Phone Equipment $ 95.00/set per month - Includes phone with built in speaker phone, DID phone number with 2 roll over lines, 1 line directory listing, voice mail and other basic features of telephone system. Installation fee and set up not included. (Billed Directly from Fairchild Communications Services Company) 2) Phone, Fax or Dataline installation. $ 130.00/line 3) Fax or Data Line (Additional recurring charge each month) $ 40.00/line per month 4) Additional voice mail boxes/telephone answering $ 110.00/person per month 5) Splitting a phone number for additional voice mail boxes $ 10.00/each box per month 6) Voice mail; adding another personal box $ 10.00/each box per month 7) Programming voice mail to pager $ 25.00 programming fee per pager 8) Voice Mail Paging (Monthly) $ 10.00/each pager per month plus call transfer fee (As charged by local phone company) 9) Call Patching set up fee $ 25.00 per number (one time charge) 10) Call Patching (Monthly) $ 25.00/month plus call transfer (Includes 40 patches) fee (Based on distance of call) Additional patches $.75/ea. 11) Reconnect fee (after termination of service) $ 130.00/phone or data line Q. TELECOPY/FAX - (Plain paper available) 1) Outgoing $ 2.00/page + Phone Call 2) Incoming $.50/page (Clerical charges may be incurred for faxes sent after normal business hours.) R. WORD PROCESSING/GRAPHICS* 1) Standard Word Processing Rate $ 26.00/hour 2) The Word Processing rate mentioned above will be billed at $ 52.00/hour 200% per this rate if performed before or after scheduled working hours, or requested as a rush job. 3) Resumes: Typing Only $ 40.00/1st page $ 20.00/each additional page 4) Resume Writing Consultation Services $ 45.00/hour
-16- 17 EXHIBIT C (CONTINUED) 5) Resumes supplied on diskette provided by Landlord $ 10.00/disk 6) Letters typed for outside Tenants (including cover letters for resumes) $ 9.00/page 7) Letters, memos, proposals $ 26.00/hour billed in 6 minute increments (18 minute minimum) 8) Tables, charts $ 35.00 - 80.00/hour billed in 6 minute increments (18 minute minimum) 9) Company Flyers, Pamphlets, Brochures Varies upon scope of project 10) Technical Design Varies upon scope of project 11) Flow Charts Varies upon scope of project 12) Logo Design Varies upon scope of project 13) Business Cards (consultation with Tenant and includes 3 designs-does not include print shop charges) Varies upon scope of project 14) Letterhead and/or envelope design (consultation with Tenant and includes 5 designs--does not include print shop charges) Varies upon scope of project 15) Spreadsheets $ 35.00-80.00/hour (Price may vary depending upon complexity of spreadsheet (i.e., formats)
*Landlord shall bill in accordance with Industry Production Standards (IPS), published by the National Association of Secretarial Services and the Executive Suite Association. IPS are used for computing the time charged for document production and non-keyboarding services. IPS are based on the average time required to perform specific duties by a professional word processing operator. This allows Tenant to know how much a project will cost regardless of how long it takes to complete it. -17- 18 EXHIBIT D RULES & REGULATIONS 1) Landlord shall assign Tenant a specific Client number, unique to Tenant which Tenant shall use to obtain various services from Landlord including: photocopies, typing, word processing and dictation/transcription, clerical, concierge and assorted other services. Tenant agrees to keep this Client number confidential and Tenant agrees to pay all costs for services charged to this Client number. The Landlord will maintain records that account for all such service charges for a period of sixty (60) days after billing Tenant for these charges. These records are available for review by Tenant upon request of at least three (3) business days prior written notice. 2) Any special wiring, including any computer or printer networking wiring desired by Tenant, must be approved in writing by the Landlord and installed at Tenant's expense by an electrician approved by the Landlord. Tenant shall bear the cost of removing such wiring at the expiration of the Lease term. 3) Tenant shall not use hot plates, coffee makers, microwave ovens or similar devices in the Premises nor shall Tenant at any time use in the Premises any machine, equipment, or other article which, in Landlord's judgment, creates an unreasonable risk of fire, explosion, or other hazard, or requires excess electrical current. 4) The sidewalks, entries, passages, public corridors, stairways and other parts of the Building and Executive Suite shall not be obstructed or used for any other purpose than ingress or egress. 5) Tenant shall not install or permit the installation of mylar films or sun filters on windows. Tenant shall not place any type of sign in the Premises, Executive Suite or the Building. 6) Tenant agrees to conduct business in the Premises in a quiet and orderly manner so as not to disturb other occupants. Loud music, noisy equipment and other disturbing sounds are not permitted. Tenant agrees to take whatever steps are necessary to correct or cease any violation of this regulation immediately upon notification of such violation by Landlord. 7) Bicycles, motor scooters or any other type of vehicle shall not be brought into the Building, Executive Suite or the Premises. 8) No animal shall be permitted within the Premises, Executive Suite or the Building at any time, except if permission is granted in writing by Landlord. 9) Tenant will not conduct any activity within the Premises, Executive Suite or Building which in the sole judgment of the Landlord will create excessive traffic or is inappropriate to the executive suite environment. 10) Without Landlord's specific prior written permission, Tenant is not permitted to place "mass market", direct mail or advertising (i.e. newspaper, classified advertisements, yellow pages, billboards) using Tenant's assigned telephone number or take any such action that would generate a significant number of incoming phone calls. 11) Immediately following Tenant's use of conference room space and/or AudioVisual equipment, Tenant shall clean up and return the space and equipment to the state and condition it was in prior to Tenant's use. If not, Landlord may charge Tenant for the "clerical time" and any other expenses required to restore the conference space and/or equipment to its original condition. 12) Tenants who leave equipment "on" in the Premises overnight or for long periods of time when they are not in the Premises will be subject to an additional charge for excess electrical usage unless this usage was approved in writing by the Landlord and specifically included in Tenant's monthly rent. -18- 19 EXHIBIT D (CONTINUED) 13) Tenant shall not provide or offer to provide any services to Landlord's Tenants or it's other customers if such services are available from the Landlord. 14) Cigar smoking is not permitted anywhere in the Building. Cigarette and/or pipe smoking is permitted only in designated areas. Landlord has the right to change designated smoking areas upon at least two (2) days prior written notice. 15) Tenant shall not make any additional copies of any Landlord issued keys. All keys and security cards are the property of Landlord and must be returned upon request or by the close of the business on the expiration or sooner termination of the Agreement term. Any lost or unreturned keys or cards shall incur a $25.00 per item charge and the cost to re-key the office. 16) Landlord must be notified in writing if Tenant desires to utilize the conference room or other common areas of the Executive Suite during weekend hours. Landlord may deny the Tenant access if the desired usage is inappropriate and may disrupt normal operations. 17) Tenant shall not solicit other Tenants of the Executive Suite or companies and their employees in the Building without first obtaining Landlord's prior written approval. 18) Tenant is aware that employees of Landlord are not permitted to date Tenants or their employees and Tenant shall so advise its employees. 19) Tenant's parking fights (if any) are defined by the Landlord's Lease agreement with the owner of the Building. Landlord reserves the right to modify parking arrangements if required to do so by Building management. 20) Tenant must abide by any rules and regulations set forth by the Building in addition to those of the Landlord. 21) ALLIANCE Business Centers is a network of shared office facilities which includes owned, Affiliate, and Associate locations. Due to the nature of the network there may be periodic changes in membership. Consequently, ALLIANCE cannot guarantee that any location that is currently in the network will be a participant in the future. 22) ALLIANCE Business Centers is not a franchise and therefore does not in any way dictate or control the operations of Affiliate or Associate locations. 23) Without Landlord's specific prior written permission, Tenant shall not install any equipment such as copiers and fax machines in the Premises. 24) Schedule D may be modified or amended at any time by the Landlord to assure, in Landlord's sole judgment, a professional and cost effective business operation of the Executive Suite within which the Premises are contained. -19- 20 EXHIBIT E SCHEDULE OF FURNISHINGS
FURNITURE COLOR CONDITION CHARGE - --------- ----- --------- ------ 1 Executive Desk(s) Mahogany Good - ---- --------------------- ----------------- ----------------------- 1 Credenza(s) Mahogany Good - ---- --------------------- ----------------- ----------------------- 0 Lateral File(s) - ---- --------------------- ----------------- ----------------------- 1 Bookcase(s) Mahogany Good - ---- --------------------- ----------------- ----------------------- 0 Round Conference Table(s) - ---- --------------------- ----------------- ----------------------- 1 Executive Chair(s) Teal Good - ---- --------------------- ----------------- ----------------------- 2 Guest Chair(s) Mahogany Good - ---- --------------------- ----------------- ----------------------- 0 Secretarial Chair(s) - ---- --------------------- ----------------- ----------------------- 1 Waste Basket(s) Tan Good - ---- --------------------- ----------------- ----------------------- 1 Floor Mat(s) Clear Good - ---- --------------------- ----------------- ----------------------- ARTWORK: _________ FRAMED PICTURE(S) - ------- (1) (2) --------------------------------- --------------------------------- (3) (4) --------------------------------- --------------------------------- (5) (6) --------------------------------- --------------------------------- ADDITIONS/DELETIONS: DATE: ----------------------------------------------------------- ------------------ COMMENTS ON CHANGES: ---------------------------------------------------------------------------------- Century National Bank Tenant SIGNATURE: By: /s/ ROBERT W. HUTCHINS DATE: 12/15/95 -------------------------------------------------------------- ------------------ Robert W. Hutchins, EVP Landlord SIGNATURE: By: /s/ LORI SHACKELTON DATE: 12/18/95 ------------------------------------------------------------ ------------------
-20- 21 EXHIBIT E (CONTINUED) One key each for file drawer in credenza and desk 1 key(s) for office/suite (#1049) door - ----- 1 security card for building #8201 (Card #_______________) - ----- 1 security key or card for 10th floor at 8201 Greensboro Drive - ----- Century National Bank Tenant SIGNATURE: By: /s/ ROBERT W. HUTCHINS DATE: 12/15/95 -------------------------------------------------------------- ------------------ Robert W. Hutchins, EVP Landlord SIGNATURE: By: /s/ LORI SHACKELTON DATE: 12/18/95 ------------------------------------------------------------ ------------------
-21- EX-10.10 16 RETAIL LEASE - SQUARE 106 ASSOCIATES 1 EXHIBIT 10.10 RETAIL LEASE FOR CENTURY NATIONAL BANK 1875 EYE STREET, N. W. WASHINGTON, D. C. 2 RETAIL LEASE Table of Contents
Page ---- 1. DEMISED PREMISES 1 2. TERM 1 3. USE 2 4. RENT 2 5. DEPOSIT 3 6. RENTAL ESCALATION FOR INCREASES IN EXPENSES 4 7. OPTION TO EXTEND 5 8. ASSIGNMENT AND SUBLETTING 6 9. PRE-OCCUPANCY TENANT WORK 7 10. ALTERATIONS 8 11. MECHANIC' S LIEN 9 12. WASTE OF DEMISED PREMISES 10 13. SIGNS AND ADVERTISEMENTS 10 14. DELIVERIES 10 15. ENTRY FOR REPAIRS AND INSPECTIONS 11 16. INSURANCE RATING 11 17. PLATE GLASS INSURANCE 11 18. PUBLIC LIABILITY INSURANCE 12 19. LESSEE'S EQUIPMENT INCLUDING VAULTS 12 20. SERVICES AND UTILITIES 13 21. TRASH COLLECTION 14 22. RESPONSIBILITY FOR CERTAIN DAMAGE AND BREAKAGE 15 23. LIABILITY FOR DAMAGE TO PERSONAL PROPERTY AND PERSON 15 24. DAMAGE TO THE BUILDING AND/OR DEMISED PREMISES 15 25. DEFAULT OF LESSEE 18 26. REPEATED DEFAULTS 19 27. WAIVER 19 28. SUBORDINATION 19 29. CONDEMNATION 20 30. RULES AND REGULATIONS 21 31. RIGHT OF LESSOR TO CURE LESSEE'S DEFAULT 21 32. NO PARTNERSHIP 22 33. NO REPRESENTATIONS BY LESSOR 22 34. BROKERS 22 35. WAIVER OF JURY TRIAL 22
-i- 3 36. ENFORCEMENT OF LEASE 22 37. NOTICES 23 38. ESTOPPEL CERTIFICATES 23 39. HOLDING OVER 23 40. CONTINUOUS OPERATION 24 41. APPROVAL OF LESSEE'S DECOR 24 42. COVENANTS OF LESSOR 25 43. LIEN FOR RENT 25 44. GENDER 25 45. BENEFIT AND BURDEN 25 46. GOVERNING LAW 25 47. ADVERTISING AND PROMOTIONAL FUND 26 48. LENDER APPROVAL 26 49. ENTIRE AGREEMENT 26
-ii- 4 LEASE THIS LEASE, made and entered into on this 14th day of January 1982, by and between The Square 106 Associates, hereinafter called "Lessor", and Century National Bank, hereinafter called "Lessee". WITNESSETH, That, for and in consideration of the rents, mutual covenants, and agreements hereinafter set forth, the parties hereto do hereby mutually agree as follows: 1. DEMISED PREMISES Lessor does hereby lease to Lessee, and Lessee does hereby lease from Lessor, for the term and upon the conditions hereinafter provided approximately 3,895 square feet of rentable area on the ground floor of the office building situated at 1875 Eye Street, N. W., Washington, D. C., (such building being hereinafter referred to as the "Building" and such area being hereinafter referred to as the "Demised Premises"). The Demised Premises are outlined on the floor plan attached hereto and made a part hereof as Exhibit A. Lessee hereby hires the Demised Premises, upon and subject to the terms and conditions herein set forth, in its "as is" condition existing on the date possession is delivered to Lessee, with out requiring any further alterations, improvements, repairs or decorations to be made by Lessor, or at Lessor's expense, either at the time possession is given to Lessee or during the entire term of this Lease, or any extension thereof. Notwithstanding the foregoing, Lessor shall provide the demising walls of the Demised Premises, and Lessor shall also replace the doors on 19th Street and the doors on Eye Street with glass. In connection therewith, Lessee represents that it has thoroughly examined the Building and the Demised Premises. 2. TERM Subject to and upon the terms and conditions set forth herein, or in any exhibit or addendum hereto, the term of this Lease, and therefore Lessee's and Lessor's obligations thereunder, shall commence on the 1st day of January, 1982, or on the date Lessee shall first open for business, whichever shall first occur (hereinafter called the "Commencement Date"), and shall expire on the 30th day of April, 1992. In the event Lessor cannot deliver possession of the Demised Premises by said Commencement Date, Lessor, its agents and employees shall not be liable or responsible for any claims, damages, or liabilities in connection therewith or by reason thereof, nor shall Lessee be excused from its obligations under this Lease, except that the payment of monthly rent shall be abated until the extended Commencement Date. The Commencement Date shall be extended to the 5 date Lessee accepts possession of the Demised Premises, at which time Lessor and Lessee shall execute the "Declaration as to Date of Delivery and Acceptance of Possession of Demised Premises," attached hereto as Exhibit C. 3. USE Lessee will use and occupy the Demised Premises solely for the purpose of operating a bank. The Demised Premises will not be used for any other purpose without the prior written consent of Lessor. Lessee will not use or occupy the Demised Premises for any unlawful purpose, and will comply with all present and future laws, ordinances, regulations, and orders of all governments, government agencies, and any other public authority having jurisdiction over the Demised Premises. 4. RENT Lessee's obligation to pay rent shall begin on the Commencement Date and shall continue in effect for the entire term of the Lease. Monthly rent for the Demised Premises on the Commencement Date of the Lease, which Lessee hereby agrees to pay in advance to Lessor and Lessor hereby agrees to accept, shall be as follows:
Period Monthly Rent - ------ ------------ for any period prior to the commence- ment of the first full calendar month of the initial term of the Lease ($297.53/day) for calendar months 1 through 4 abated for calendar months 5 through 12 ($ 8,926.04) for calendar months 13 through 24 ($ 9,250.62) for calendar months 25 through 36 ($ 9,575.21) for calendar months 37 through 48 ($ 9,899.79) for calendar months 49 through 60 ($10,224.38)
-2- 6 for calendar months 61 through 72 ($10,548.96) for calendar months 73 through 84 ($10,873.54) for calendar months 85 through 96 ($11,198.12) for calendar months 97 through 108 ($11,522.71) for calendar months 109 through 120 ($11,847.29) for calendar months 121 through the expiration of the initial term of the Lease ($12,171.88)
Monthly rent as specified above shall be payable in advance on the first day of each calendar month during the term of this Lease. Monthly rent shall be increased as provided in the section of the Lease entitled RENTAL ESCALATIONS FOR INCREASES IN EXPENSES. If the Commencement Date and therefore the obligation under the Lease to pay monthly rent hereunder begins on a day other than on the first day of a calendar month, then the monthly rent from such date until the first day of the following calendar month shall be prorated at the rate of one-thirtieth (1/30th) of the monthly rent for each day of that month from and including the Commencement Date, payable in advance, as specified above. Lessee will make all payments of monthly rent by check, payable to the Lessor's agent, The Oliver T. Carr Company, Agent, Suite 900, 1700 Pennsylvania Avenue, N. W., Washington, D. C. 20006, or to such other party or to such other address as Lessor may designate from time to time by written notice to Lessee, without demand and without deduction, set-off or counterclaim. If Lessor shall at any time or times accept said rent after it shall become due and payable, such acceptance shall not excuse delay upon subsequent occasions, or constitute, or be construed as, a waiver of any or all of Lessor's rights hereunder. 5. DEPOSIT Simultaneously with the execution of this Lease, Lessee shall deposit with. Lessor the sum of Eight Thousand Nine Hundred Twenty-six and 04/100 Dollars ($8,926.04), as a deposit towards payment of the Fifth (5th) month's rent. Such deposit, prior to its being applied to the payment of rent, shall be security for the payment and performance by Lessee of all Lessee's obligations, covenants, conditions and agreements under this Lease, and Lessor shall have the right, but shall not -3- 7 be obligated, to apply all or any portion of the deposit to cure any default by Lessee, in which event Lessee shall be obligated to promptly deposit with Lessor the amount necessary to restore the deposit to its original amount. In the event Lessee fails to perform its obligations and to take possession of the Demised Premises on the appropriate Commencement Date provided herein, said deposit shall not be deemed liquidated damages and Lessor may apply the deposit to reduce Lessor's damages and such application of the deposit shall not preclude Lessor from recovering from Lessee all additional damages incurred by Lessor. 6. RENTAL ESCALATION FOR INCREASES IN EXPENSES In the event the operating expenses of the Building increase during any calendar year after the calendar year 1981, hereinafter referred to as the "base year", Lessee shall pay to Lessor, as a part of rent, Lessee's proportionate share of the increase in such operating expenses. The proportionate share to be so paid by Lessee shall be the percentage which the total square feet of the Demised Premises bears to the total square feet of all office and store space in the Building of which the Demised Premises are a part, which is 1.53%, and the amount of said percentage to be paid by the Lessee shall be the percentage of the calendar year said Demised Premises were leased by Lessee. The term "operating expenses" is defined as meaning (i) any and all expenses, charges and fees incurred in connection with the management, operation, maintenance, servicing, insuring and repair of the Building and related exterior appurtenances of which the Demised Premises are a part, (ii) ground rent increases, if any, and (iii) real estate taxes and impositions, general and special, of whatever kind or description levied against the Building or land. Operating expenses shall not include the costs and expenses of capital improvements, electricity (which shall be separately metered for Lessee), any cleaning contract, cleaning supplies, window cleaning services, trash removal, elevator maintenance, painting or decorating other than public areas, interest and amortization of mortgages, depreciation of the Building, compensation paid to officers or executives of the Lessor or Agent and income or franchise taxes or other such taxes imposed or measured by the income of the Lessor from the operation of the Building. Commencing with the first day of May in calendar year 1983 and on the first day of May of each calendar year of the Lease thereafter, Lessee will pay to Lessor as additional rent with monthly rent one-twelfth (1/12th) of ninety percent (90%) of Lessee' s proportionate share of any increases, over the base year, of operating expenses during the prior calendar year. Lessee shall continue to make said payment monthly thereafter on the first day of each calendar month until the amount of such payment is adjusted on May 1 of the following calendar year because of increases in Lessee's proportionate share of operating expenses. Within ninety (90) days after the expiration of each calendar year, a firm of certified public accountants, selected by Lessor, shall audit the books and records of Lessor and a determination shall -4- 8 subsequently be made by Lessor of the increases (if any) in the operating expenses of the Building for such calendar year over the operating expenses of the Building for the base year. Lessor shall submit to Lessee a statement of the aforesaid determination, including Lessee's aforesaid proportionate share of such increases. Within thirty (30) days after the delivery of such statement (including any statement delivered after the expiration or termination of the term of this Lease), Lessee shall pay to Lessor an amount equal to its proportionate share of the amount of the difference between the amount of the increases (if any) in operating expenses for the calendar year over the base year operating expenses, less the aggregate amount of that portion of the monthly rent paid by Lessee between May 1st and April 30th attributable to payment of increases in operating expenses. If the aggregate amount of the portion of monthly rent that represents payment for increases in operating expenses, paid by Lessee during the May 1st through April 30th period, exceeds Lessee's proportionate share of increases in operating expenses for the previous calendar year, the excess shall be credited toward the next payment of monthly rent to be paid by Lessee after Lessee receives said statement of operating expenses from Lessor. Lessee, at its expense, shall have the right at all reasonable times to audit Lessor's books and records relating to this Lease for the base year and for the last three (3) years for which payments increases in operating expenses become due. Said operating expenses shall be computed on the accrual basis. 7. OPTION TO EXTEND Lessee shall have the option to extend the term of this Lease for two (2) successive additional five (5) year terms, respectively commencing on the date immediately following the expiration of the initial term and the date immediately following the expiration of the first extension term, provided the options to extend are properly exercised by Lessee as provided herein, and there are no uncured defaults by Lessee under the terms of this Lease. Lessee may exercise each option to extend only by giving written notice to Lessor of its election to exercise the option to extend one (1) year prior to the expiration date of the initial term or one (1) year prior to the expiration date of the first extension term, whichever is applicable, and by Lessor and Lessee mutually agreeing upon the amount of rent to be paid during the applicable extension term within sixty (60) days from the date of said written notice to extend. If Lessee properly exercises its options, the terms of this Lease (including without limitation the provisions of the Section entitled RENTAL ESCALATION FOR INCREASE IN EXPENSES) shall continue in full force and effect during said additional term or terms. In the event Lessor and Lessee are unable to mutually agree upon the rent to be paid by Lessee during the applicable extension term, within sixty (60) days from the date of said written notice to extend, the option to extend shall be null and void, and Lessor shall be free to lease the Demised Premises to any person upon any terms and for any purpose. -5- 9 8. ASSIGNMENT AND SUBLETTING Lessee will not assign or otherwise transfer this Lease, or sublet (including permitting occupancy or use by another party) the Demised Premises, or any part thereof, without giving the Lessor thirty (30) days prior written notice of Lessee' s intention to assign this Lease or sublet all or any part of the Demised Premises. Within thirty (30) days after receipt of said notice, Lessor shall have the option (i) to elect to terminate the Lease, if Lessee desires to assign this Lease, or (ii) to terminate the Lease with regard to that portion of the Demised Premises which Lessee seeks to sublet, or alternately to sublet that portion of the Demised Premises from Lessee for the term Lessee desires to sublet that portion of the Demised Premises, at the rate and upon the same terms and conditions as Lessee is leasing the Demised Premises from Lessor. Lessor may exercise the option by giving Lessee written notice of its election to exercise the option within said thirty (30) day period. The effective date of termination, or the effective date of commencement of the sublease to Lessor, shall be mutually agreed upon by Lessor and Lessee, and, if they cannot agree upon a termination date or sublease commencement date, the termination or sublease commencement date will be sixty (60) days from the date Lessor received the notice that Lessee desires to assign the Lease or sublet all or any portion of the Demised Premises. Upon termination, all of the rights and obligations of Lessor and Lessee under the terms of this Lease shall be terminated, or terminated with regard to that portion of the Demised Premises Lessee notified Lessor that Lessee desires to sublet, except that Lessee shall continue to be obligated to pay rent and all other charges for the Demised Premises which accrue to the date of termination. If Lessor does not exercise its option to terminate or sublet, Lessee may assign this Lease or sublet all or any part of the Demised Premises after first obtaining the prior written consent of Lessor, which consent will not be unreasonably withheld, contingent upon the assignee or sublessee being similar in kind and character to Lessee and financially reliable. No assignment of this Lease shall be effectuated by operation of law or otherwise without the prior written consent of Lessor. The transfer and/or issuance of more than fifty percent (50%) of the voting stock of Lessee to any persons or entities that are not stockholders of Lessee on the date of execution of this Lease, shall be deemed an assignment of this Lease that will give Lessor the option of terminating this Lease as provided above. Notwithstanding any other provision of this Lease to the contrary, Lessee has the right to assign this Lease or sublet the Demised Premises in whole or in part to any subsidiary, affiliate or successor corporation or partnership, without Lessor's consent, upon giving Lessor ten (10) days prior written notice of such assignment or subletting. A "subsidiary" of Lessee shall mean any corporation not less than fifty percent (50%) of whose outstanding voting stock shall, at the time, be owned, directly or indirectly, by Lessee. An "affiliate" of Lessee shall mean any corporation which, directly or indirectly, controls or is controlled by or is under common control with Lessee. For purpose of the definition of "affiliate", the word "control" (including "controlled by" and "under common control with"), as used with respect to any corporation, partnership, or association shall -6- 10 mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policy of a particular corporation, partnership or association, whether through the ownership of voting securities or by contract or otherwise. A "successor corporation or partnership" shall mean any corporation or partnership into which Lessee is merged or with which Lessee is consolidated or to which all or a substantial portion of Lessee's assets are transferred. The consent by Lessor to any assignment or subletting to any party other than Lessor, including a subsidiary, affiliate or successor corporation or partnership shall not be construed as a waiver or release of Lessee from the terms of any covenant or obligation under this Lease, nor shall the collection or acceptance of rent from any such assignee or subtenant constitute a waiver or release of Lessee of any covenant or obligation contained in this Lease, nor shall any such assignment or subletting be construed to relieve Lessee from giving Lessor said thirty (30) days notice or from obtaining the consent in writing of Lessor to any further assignment or subletting. In the event that Lessee defaults hereunder, Lessee hereby assigns to Lessor the rent due from any subtenant of Lessee and hereby authorizes each such subtenant to pay said rent directly to Lessor. Lessee will not mortgage or encumber this Lease without the prior written consent of Lessor. 9. PRE-OCCUPANCY TENANT WORK Lessee shall perform all pre-occupancy tenant work on the Demised Premises. Lessor shall provide only the demising walls for the Demised Premises. Construction by Lessee of pre-occupancy tenant work on the Demised Premises shall not commence until (i) this Lease is executed, (ii) the design and working drawings of all tenant work and installations to be undertaken by Lessee, certified to by a registered architect or engineer, have been submitted to and approved in writing by Lessor and Lessor' s architect or supervising engineer, it being understood that Lessor will diligently review Lessee's design and working drawings, and (iii) Lessee's contractors have been approved by Lessor in writing. Lessee shall not make any changes to said design and working drawings without the written approval of Lessor. Lessee shall have the right to retain contractors to perform its pre-occupancy tenant work, subject only to obtaining prior written approval of Lessor. Approval of a contractor by Lessor, which will not be unreasonably withheld, shall be based upon the contractor being properly licensed, his financial posture, experience and past job performance. If a contractor retained by Lessee and approved by Lessor is a non-union contractor, and said contractor's retention or presence causes Lessor's general contractor or other subcontractors present in the Building to experience labor problems, Lessee agrees to take action as necessary to eliminate said labor problems by (a) adjusting Lessee's contractor's work schedules, or (b) deferring the work of Lessee's contractor until the -7- 11 general contractor and other subcontractors' work in the Demised Premises and the Building has been completed, or (c) terminating Lessee' s contractor. Lessor reserves the right to inspect and approve all pre-occupancy tenant work performed by Lessee's contractors, and Lessor may correct, at Lessee's expense, any work defectively performed by Lessee's contractor that, in Lessor's sole discretion, affects the structure of the Building or the Demised Premises, or affects the mechanical, plumbing or electrical systems of the Building or the Demised Premises. Upon completion of Lessee's pre-occupancy tenant work, Lessee shall submit to Lessor invoices totalling the costs of all such work plus a waiver of mechanic's liens by all contractors or subcontractors employed by Lessee. Lessor shall verify and approve all said invoices and, after inspection and approval by Lessor of Lessee's pre-occupancy work as specified above, Lessor shall pay to Lessee a lump sum payment in the amount of Sixty-Two Thousand Three Hundred Twenty Dollars ($62,320.00), representing a cash allowance for performance of pre-occupancy tenant work by Lessee. Failure by Lessee or its contractors to complete pre-occupancy tenant work in the Demised Premises, for whatever reason or cause, shall in no way or manner delay the Commencement Date of the Lease or Lessee' s obligation under the Lease, except as specifically provided for herein. 10. ALTERATIONS After Lessee's initial occupancy of the Demised Premises and installation of Lessee's approved pre-occupancy tenant work, Lessee shall make no alterations, installations, additions or improvements (herein collectively called Alterations) in or to the Demised Premises or the Building without Lessor's prior written consent. Consent by Lessor to Lessee's Alterations shall not be unreasonably withheld, except that Lessor may withhold its consent for any reason with regard to requested Alterations by Lessee which affect the structure of the Building or the mechanical, plumbing or electrical systems of the Building. Lessee, at its sole cost and expense, must provide Lessor with a copy of the original or revised full floor mechanical and electrical plans for the floor or floors on which the Alterations are to be made, revised by the Building architect and engineers to show Lessee's proposed Alterations. If any such Alterations are made without the prior written consent of Lessor, Lessor may correct or remove the same, and Lessee shall be liable for any and all expenses incurred by Lessor in the performance of this work. All Alterations shall be made at Lessee' s sole expense, at such times and in such manner as Lessor may designate, and only by such contractors or mechanics as are approved in writing by Lessor. Approval of contractors or mechanics by Lessor, which approval will not be unreasonably withheld, shall be based upon the contractors or mechanics being properly licensed, their financial posture, experience and past job performance. -8- 12 All Alterations to the Demised Premises, whether made by Lessor or Lessee, and whether at Lessor's or Lessee's expense, or the joint expense of Lessor and Lessee, shall be and remain the property of Lessor, except that any Alterations, fixtures or any other property installed in the Demised Premises at the sole expense of Lessee and with respect to which Lessee has not been granted any credit or allowance by Lessor, and which can be removed without causing material damage to the Building or the Demised Premises, shall be and remain the property of Lessee. Any replacements of any property or improvements of Lessor, whether made at Lessee's expense or otherwise, shall be and remain the property of Lessor. Lessor, at the expiration or earlier termination of the term of the Lease, may elect to require Lessee to remove all or any part the Alterations made by Lessee subsequent to the Commencement Date, unless Lessor agrees in writing not to require the removal of any Alterations at the time Lessor consents to the Alterations. Removal of Lessee's Alterations shall be at Lessee's cost and expense and Lessee shall, at its cost and expense, repair any damage to the Demised Premises or the Building caused by such removal. Lessee shall remove, at its sole expense, all of Lessee's property, including Lessee's bank vault, at the expiration or earlier termination of the Lease. In the event Lessee does not remove Lessee's property at the expiration or earlier termination of the Lease, such property shall become the property of Lessor. In the event Lessee fails to remove its property or the Alterations requested to be removed by Lessor on or before the expiration, or earlier termination, of the term of the Lease, then and in such event, Lessor may remove Lessee's property and Alterations from the Demised Premises at Lessee's expense and Lessee hereby agrees to reimburse Lessor, as additional rent, for the cost of such removal together with any and all damages which Lessor may suffer and sustain by reason of the failure of Lessee to remove the same. Said amount of additional rent and the cost of Lessor's damages shall be due and payable upon receipt by Lessee of a written statement of costs from Lessor. 11. MECHANIC'S LIEN If any mechanic's lien is filed against the Demised Premises, or the Building of which the Demised Premises are a part, for work claimed to have been done for Lessee or materials claimed to have been furnished to Lessee, such mechanic's lien shall be discharged by Lessee, at its sole cost and expense, within ten (10) days from the date Lessee receives written demand from Lessor to discharge said lien, by the payment thereof or by filing any bond required by law. If Lessee shall fail to discharge any such mechanic's lien, Lessor may, at its option, discharge the same and treat the cost thereof as additional rent, due and payable upon receipt by Lessee of a written statement of costs -9- 13 from Lessor. It is hereby expressly covenanted and agreed that such discharge of any mechanic's lien by Lessor shall not be deemed to waive or release Lessee from its default under the Lease for failing to discharge the same. Lessee will indemnify and hold harmless Lessor from and against any and all expenses, liens, claims or damages to person or property which may or might arise as a result of Lessee undertaking pre-occupancy tenant work in the Demised Premises at its own cost and under its own control and direction, or making any Alterations to the Demised Premises. 12. WASTE OF DEMISED PREMISES Lessee will keep the Demised Premises and the fixtures and equipment therein in clean, safe and sanitary condition, will take good care thereof, will suffer no waste or injury thereto, and will, at the expiration or other termination of the term of this Lease, surrender the same broom clean and in the same order and condition in which they were on the commencement of the term of this Lease, ordinary wear and tear and damage by the elements, fire and other casualty excepted. Lessee shall provide its own cleaning and char services and supplies. Lessee shall clean, maintain and, where appropriate, polish all windows and other elements of the Demised Premises which are in public view, including but not limited to doors, signs and advertisements and, in the event Lessee shall fail to do so, Lessor shall have the right to clean, maintain and polish the same, and any charge or cost incurred by Lessor shall be deemed additional rent due and payable by Lessee upon receipt by Lessee of a written statement of costs from Lessor. 13. SIGNS AND ADVERTISEMENTS No sign, advertisement or notice shall be inscribed, painted, affixed or displayed on any part of the outside or the inside of the Building, including the windows and doors of the Demised Premises, except a standard building sign and signs, advertisements and notices which have been approved by Lessor in writing. Any installation, placement or construction of an approved sign, advertisement or notice shall be at the sole expense and cost of the Lessee. Lessor shall have the right to prohibit any published advertisement or notice of Lessee which in its opinion tends to impair the reputation of the Building or its desirability as a high-quality office building, and, upon written notice from Lessor, Lessee shall immediately refrain from and discontinue any such advertisement or notice. 14. DELIVERIES All inventory, supplies, furniture and equipment shall be delivered to and received by Lessee at the loading dock area of the Building and transported to the Demised Premises through the service corridors. No deliveries of inventory, supplies, furniture and equipment shall be made from the abutting street through the front door of the Demised Premises without the prior written consent of -10- 14 Lessor. If Lessor consents to deliveries through the front door of the Demised Premises, Lessee agrees promptly to remove from the sidewalks adjacent to the Building or from public areas of the Building, any of the Lessee's inventory, supplied furniture and equipment there delivered or deposited. All moving of inventory, supplies, furniture, equipment and other material within the public areas and in elevators shall be made before 8:00 A.M. or after 6:00 P.M. and shall be under the direct control and supervision of Lessor who shall, however, not be responsible for any damage to or charges for moving the same. 15. ENTRY FOR REPAIRS AND INSPECTIONS Lessee will permit Lessor, or its representative to enter the Demised Premises, at all reasonable times, without charge therefore to Lessor and without diminution of the rent payable by Lessee, to examine, inspect and protect the same, and upon one (1) day written notice, to make such repairs as in the judgment of Lessor may be deemed necessary to maintain or protect the Demised Premises or the Building, or to exhibit the same to prospective tenants during the last one hundred twenty (120) days of the term of this Lease. Lessor shall use reasonable efforts to minimize interference to Lessee's business when making repairs, but Lessor shall not be required to perform the repairs at a time other than during normal working hours. In the event of an emergency, Lessor may enter the Demised Premises without notice and make whatever repairs are necessary to protect the Demised Premises or Building. 16. INSURANCE RATING Lessee will not conduct or permit to be conducted any activity or place any equipment in or about the Demised Premises, which will increase in any way the rate of fire insurance or other insur-ance on the Building; and if any increase in the rate of fire insurance or other insurance is stated by any insurance company or by the applicable Insurance Rating Bureau to be due to activity or equipment in or about the Demised Premises, such statement shall be conclusive evidence that the increase in such rate is due to such activity or equipment and, as a result thereof, Lessee shall be liable for such increase. Any cost to Lessor because of said increase shall be deemed additional rent and shall be due and payable to Lessor by Lessee upon receipt by Lessee of a written statement of costs from Lessor. Lessee may contest any insurance rate increase, at its sole cost and expense, provided such action by Lessee will not adversely affect the insurance coverage of Lessor. 17. PLATE GLASS INSURANCE Lessee will, during the full term of this agreement or any renewal or extension thereof, carry with a standard insurance company, full coverage insurance on all plate glass in said premises and -11- 15 cause same to be replaced if chipped, cracked or broken; said insurance policy or certificate from Lessee's insurance company to be deposited with Lessor or his Agent; and such policy shall provide that it shall not be cancelled for any reason unless and until Lessor or his Agent is given fifteen (15) days' notice in writing by the insurance company. 18. PUBLIC LIABILITY INSURANCE Lessee agrees that it will indemnify and save harmless the Lessor from any and all liability, damage, expense, cause of action, suits, claims, judgments and cost of defense arising from injury to person or personal property in and on the Demised Premises or upon any adjoining sidewalks or public areas of the Building which arise out of the act, failure to act or negligence of Lessee, its agents or employees. In order to assure such indemnity, Lessee agrees to carry and keep in full force and effect at all times during the term of this Lease for the protection of Lessor and Lessee, public liability insurance with limits of at least One Million Dollars ($1,000,000.00) with respect to injury or death to any one person and One Million Dollars ($1,000,000.00) with respect to injury or death to more than one person in any one occurrence, and property damage insurance with a minimum limit of Fifty Thousand Dollars ($50,000.00). Public liability insurance shall be obtained from a good and responsible insurance company. Lessee shall deliver to Lessor a copy of said policy or a certificate of insurance showing the same to be in force and effect with a clause requiring not less than fifteen (15) days notice to be given to Lessor by the insurance company prior to termination of the policy. 19. LESSEE'S EQUIPMENT INCLUDING VAULTS Lessor shall have the right to prescribe the weight and position of all heavy equipment and fixtures, including, but not limited to, heavy display shelves and cabinets, record and file systems, vaults and safes, which Lessee intends to install or locate within the Demised Premises. Lessee shall deliver to the Lessor by January 24, 1982, its requirements for additional weight loading capabilities of the floor slab for any equipment which will exceed the building's design of 100 pound dead load and 100 pound live load. The information to be submitted to the Lessor shall include, but not necessarily be limited to a floor plan indicating the exact location of vaults, safes, equipment, etc., the manufacturer's data and anticipated load materials to be stored in the equipment. Lessee shall obtain Lessor's prior review and approval before installing or locating heavy equipment and fixtures in the Demised Premises. If Lessor approves such plans in writing, and if installation or location of such equipment or fixtures, in Lessor's opinion, requires structural modifications or reinforcement of any portion of the Demised Premises or the Building, then the Lessor's engineers and contractors shall make the necessary modifications to the Building. Lessee shall reimburse Lessor for all costs in excess of standard Building costs related to construction of the necessary modifications to the Building to accommodate Lessee's load requirements, including the preparation of special -12- 16 specifications and drawings and for all construction and incidental costs, of standard Building costs. Such modifications or reinforcements shall be completed prior to Lessee installing or locating such equipment or fixtures in the Demised Premises. Lessee shall reimburse Lessor within thirty (30) days of receipt of any statement setting forth those costs. If the use of Lessee's equipment shall result in electrical demand in excess of the capacity of the electrical system in the Demised Premises, additional transformers, distribution panel and wiring may be required and, if so required, shall be installed by the Lessor at the cost and expense of Lessee. Lessee shall not install any equipment of any kind or nature whatsoever which will or may necessitate any changes, replacements or additions to, or in the use of, the water system, heating-system, plumbing system, air-conditioning system, or electrical system of the Demised Premises or the Building without first obtaining prior written consent of Lessor. Business machines and mechanical equipment belonging to Lessee which cause noise or vibration that may be transmitted to the structure of the Building or to any space therein to such a degree as to be objectionable to Lessor or to any tenant in the Building shall be installed and maintained by Lessee, at Lessee's expense, on vibration eliminators or other devices sufficient to eliminate such noise and vibration. 20. SERVICES AND UTILITIES A. Lessor shall be responsible for the following utilities and services and Lessor's costs for providing said utilities and services shall be considered operating expenses of the Building: (1) Water and sewer service at the wet stacks in the Building. (2) Installation of a separate heating and air-conditioning system for the Demised Premises. (3) Maintenance, painting and electricity service for all public areas in the Building. B. Lessee shall be responsible for the following utilities and services, and shall pay all costs and charges incurred: (1) Installation and maintenance of a separate electric meter for the Demised Premises, at Lessee's expense, in order to permit separate metering of Lessee's electricity usage. The charges for electricity used by Lessee in the Demised Premises measured by Lessee's separate electric meter shall be paid by Lessee directly to the electric company. -13- 17 (2) Cleaning and char services for the Demised Premises, including window cleaning and trash removal. (3) Operation, maintenance and repair, including replacement parts, of heating and air-conditioning system of the Demised Premises. (4) Installation and maintenance of bathroom facilities as may be required by applicable District of Columbia codes and regulations, including appropriate and necessary plumbing to connect the facilities in the Demised Premises to the wet stacks of the Building. C. In the event any public utility supplying energy, or any government law, regulation, executive or administrative order results in a requirement that Lessor or Lessee must reduce or maintain at a certain level the consumption of electricity for the Demised Premises or Building, which affects the heating, air-conditioning, lighting, or hours of operation of the Demised Premises or Building, Lessor and Lessee shall each adhere to and abide by said laws, regulations or executive orders without any reduction in rent. D. Lessor's inability to furnish any services it is required to furnish under the provisions of this Lease, or any cessation thereof, shall not render Lessor liable for damage to either person or property, nor be construed as an eviction of Lessee, nor, work an abatement of rent, nor relieve Lessee from the obligation to fulfill any covenant or agreement hereof, but Lessor shall be obligated to use reasonable diligence in making all repairs, obtaining replacement parts or installing new equipment if necessary. In the event the heating, air-conditioning, electric or plumbing systems of the Demised Premises are adversely affected or cease to function because of any break down or malfunction of the Building equipment, machinery or electric or plumbing systems, then Lessor shall use reasonable diligence to repair or replace the same promptly, but Lessee shall have no claim for rebate of monthly rent or damages on account of any interruptions in service occasioned thereby or resulting therefrom. 21. TRASH COLLECTION Lessor will enter into a trash removal contract for the Building with a company selected by Lessor. Based upon said trash removal contract, Lessor and Lessee will mutually agree upon the amount Lessee shall pay Lessor monthly, as additional rent, for trash removal. In the event Lessor and Lessee cannot agree upon the amount Lessee will pay Lessor for trash removal, Lessee shall be responsible for making arrangements for trash collection, subject to the approval and regulation by Lessor and Lessee shall pay all trash collection charges. -14- 18 22. RESPONSIBILITY FOR CERTAIN DAMAGE AND BREAKAGE All injury breakage or damage to the Demised Premises or the Building of which they are a part, done by Lessee or the agents, servants, employees and visitors of Lessee shall be repaired by Lessor, at the sole expense of Lessee. Payment of the cost of such repairs by Lessee shall be due as additional rent with the next installment of monthly rent after Lessee receives a bill for such repairs from Lessor. This provision shall be construed as an additional remedy granted to the Lessor and not in limitation of any other rights and remedies which the Lessor has or may have in such circumstances. 23. LIABILITY FOR DAMAGE TO PERSONAL PROPERTY AND PERSON All personal property of the Lessee, its employees, agents, business invitees, licensees, customers, clients, family members, guests or trespassers, in and on said Demised Premises, shall be and remain on the Demised Premises at their sole risk. Lessor shall not be liable to any such person or party for any damage to, or loss of personal property arising from any act of any other persons, or from the leaking of the roof, or from the bursting, leaking or overflowing of water, sewer or steam pipes, or from heating or plumbing fixtures, or from electrical wires or fixtures, or from air- conditioning failure, nor shall Lessor be liable for the interruption or loss to Lessee's business arising from any of the above described acts or causes, Lessee especially agreeing to save Lessor harmless in all such cases. Lessor shall not be liable for any personal injury to Lessee, Lessee's employees, agents, business invitees, licensees, customers, clients, family members, guests or trespassers arising from the use, occupancy and condition of the Demised Premises, unless such party establishes that there has been negligence or a willful act or failure to act on the part of Lessor, its agents or employees. 24. DAMAGE TO THE BUILDING AND/OR THE DEMISED PREMISES Lessor shall obtain and subsequently maintain fire and extended casualty insurance covering the Building. If the Demised Premises shall be damaged by fire or other casualty insured against by Lessor's fire and extended coverage insurance policy covering the Building, and the Demised Premises can be fully repaired in Lessor's opinion within 180 days from the date of such damage, Lessor, at Lessor's expense, shall repair such damage; provided, however, Lessor shall have no obligation to repair any damage to, or to replace Lessee's non-building standard tenant improvements or any other property located in the Demised Premises. Except as otherwise provided herein, if the entire Demised Premises shall be rendered untenantable by reason of any such damage, the monthly rent shall abate for the period from the date of such damage to the date when such damage shall have been repaired, and if only a part of the Demised Premises shall be so rendered untenantable, then the -15- 19 monthly rent shall abate for such period in the proportion which the area of the part of the Demised Premises so rendered untenantable bears to the total area of the Demised Premises; provided, however, if, prior to the date when all of such damage shall have been repaired, any part of the Demised Premises so damaged shall be rendered tenantable and shall be used or occupied by Lessee or any person claiming through or under Lessee, then the amount by which the monthly rent shall abate shall be equitably apportioned for the period from the date of any such use or occupancy to the date when all such damage shall have been repaired. No compensation or claim or reduction of monthly rent will be allowed or paid by Lessor by reason of inconvenience, annoyance, or injury to business arising from the necessity of repairing the Demised Premises or any portion of the Building of which they are a part. Notwithstanding the provisions above, if, prior to or during the term of this Lease (a) the Demised Premises shall be so damaged that in Lessor's opinion, the Demised Premises cannot be fully repaired within 180 days from the date the damage occurred, or (b) the Building shall be so damaged by fire or other casualty that, in Lessor's opinion, substantial repair or reconstruction of the Building shall be required (whether or not the Demised Premises shall have been damaged or rendered untenantable), then, in any of such events, Lessor, at its option, may give to Lessee, within sixty (60) days after such fire or other casualty, a thirty (30) days' notice of termination of this Lease and, in the event such notice is given, this Lease shall terminate (whether or not the term shall have commenced) upon the expiration of such thirty (30) days with the same effect as if the date of expiration of such thirty (30) days were the date definitely fixed for expiration of the term of the Lease, and the then applicable monthly rent shall be apportioned as of such date, including any rent abatement as provided above. Lessor shall attempt to obtain and maintain, throughout the term, in Lessor's fire insurance policies, provisions to the effect that such policies shall not be invalidated should the insured waive, in writing, prior to a loss, any or all right of recovery against any party for loss occurring to the Building. In the event that at any time Lessor's fire insurance carriers shall exact an additional premium for the inclusion of such or similar provisions, Lessor shall give Lessee notice thereof, and, if Lessee agrees, in writing, to reimburse Lessor for such additional premium for the remainder of the term, Lessor shall require the inclusion of such or similar provisions by Lessor's fire insurance carriers. So long as such or similar provisions are included in Lessor's fire insurance policies then in force, Lessor hereby waives (a) any obligation on the part of Lessee to make repairs to the Demised Premises necessitated or occasioned by fire or other casualty that is an insured risk under such policies, and (b) any right of recovery against Lessee, any other permitted occupant of the Demised Premises, and any of their servants, employees, agents, or contractors, for any loss occasioned by fire or other casualty that is an insured risk under such policies. In the event that at any time Lessor's fire insurance carriers shall not include such or similar provisions in Lessor's fire insurance policies, the waivers set forth in the foregoing sentence shall, upon notice given by Lessor -16- 20 to Lessee, be deemed of no further force or effect. Except to the extent expressly provided herein, nothing contained in this Lease shall relieve Lessee of any liability to Lessor or to its insurance carriers which Lessee may have under law or the provisions of this Lease in connection with any damage to the Demised Premises or the Building by fire or other casualty. Notwithstanding the provisions above, if any such damage, occurring after any date when the waivers set forth above are no longer in force and effect, is due to the fault or neglect of Lessee, any person claiming through or under Lessee, or any of their servants, employees, agents, contractors, visitors or licensees, then there shall be no abatement of monthly rent by reason of such damage. Lessee shall obtain and subsequently maintain throughout the term of the Lease fire and extended casualty insurance, insuring against loss to the Lessee's tenant improvements and property in and about the Demised Premises. In addition, Lessee shall attempt to have included, during the term of the Lease, in Lessee's fire and casualty insurance policies, or in any other type of insurance policy insuring Lessee's use and occupancy of the Demised Premises and/or Lessee's business income (and shall cause any other permitted occupants of the Demised Premises to attempt to obtain in similar policies), provisions to the effect that such policies shall not be invalidated should the insured waive, in writing, prior to a loss, any or all right of recovery against any party for loss occasioned by fire or other casualty which is an insured risk under such policies. In the event that at any time the fire insurance carriers issuing such policies shall exact an additional premium for the inclusion of such or similar provisions, Lessee shall give Lessor notice thereof, and, if Lessor agrees, in writing, to reimburse Lessee or any person claiming through or under Lessee, as the case may be, for such additional premium for the remainder of the term, Lessee shall require the inclusion of such or similar provisions by such fire insurance carriers. As long as such or similar provisions are included in such fire insurance policies then in force, Lessee hereby waives (and agrees to cause any other permitted occupants of the Demised Premises to execute and deliver to Lessor written instruments waiving) any right of recovery against Lessor, any lessors under any ground or underlying leases, any other tenants or occupants of the Building, and any servants, employees, agents, or contractors of Lessor, or of any such lessor, or of any such other tenants or occupants, for any loss occasioned by fire or other casualty which is an insured risk under such policies. In the event that at any time such fire insurance carriers shall not include such or similar provisions in any such fire insurance policy, the waiver set forth in the foregoing sentence shall, upon notice given by Lessee or Lessor, be deemed of no further force and effect with respect to any insured risks under such policy from and after the giving of such notice. During any period while the foregoing waiver of right of recovery is in effect, Lessee, or any other permitted occupant of the Demised Premises, as the case may be, shall look solely to the proceeds of such policies to compensate Lessee or such other permitted occupant for any loss occasioned by fire or other casualty which is an insured risk under such policies. -17- 21 25. DEFAULT OF LESSEE This Lease shall, at the option of Lessor, cease and terminate if (i) Lessee shall fail to pay rent including any installment of monthly rent, costs of preoccupancy tenant work, or any additional rent or other charges, although no legal or formal demand has been made, and such failure to pay rent shall continue for a period of five (5) days after written notice has been delivered by Lessor to Lessee, or (ii) Lessee shall violate or fail to perform any of the other conditions, covenants or agreements of this Lease made by Lessee, and any violation or failure to perform any of those conditions, covenants or agreements shall continue for a period of ten (10) days, after written notice thereof has been delivered by Lessor to Lessee, or in cases where the violation or failure to perform cannot be corrected within ten (10) days, Lessee does not begin to correct the violation or failure to perform within ten (10) days after receiving Lessor's written notice and/or Lessee thereafter does not diligently pursue the correction of the violation or failure to perform. Any said violation or failure to perform or to pay any rent, if left uncorrected, shall operate as a notice to quit, any further notice to quit or notice of Lessor's intention to re-enter being hereby expressly waived. Lessor may hereafter proceed to recover possession under and by virtue of the provisions of the laws of the District of Columbia or by such other proceedings, including re-entry and possession, as may be applicable. If Lessor elects to terminate this Lease, everything herein contained on the part of Lessor to be done and performed shall cease without prejudice to the right of Lessor to recover from Lessee all accrued rent up to the time of termination or recovery of possession by Lessor, whichever is later. Should this Lease be terminated before the expiration of the term of this Lease by reason of Lessee's default as hereinabove provided, or if Lessee shall abandon or vacate the Demised Premises before the expiration or termination of the term of this Lease, the Demised Premises may be relet by Lessor for a monthly rent and upon such terms as are not unreasonable under the circumstances and, if the full monthly rent provided for in this Lease shall not be realized by Lessor, Lessee shall be liable for all damages sustained by Lessor, including, without limitation, deficiency in rent and other payments, reasonable attorneys' fees, brokerage fees, and expenses of placing the Demised Premises in first class rentable condition. Any damage or loss of monthly rent sustained by Lessor may be recovered by Lessor, at Lessor's option, at the time of the reletting, or in separate actions, from time to time, as said damage shall have been made more easily ascertainable by successive relettings, or, at Lessor's option, may be deferred until the expiration of the term of this Lease, in which event the cause of action shall not be deemed to have accrued until the date of expiration of said term. The provisions contained in this section shall be in addition to and shall not prevent the enforcement of any claim Lessor may have against Lessee for anticipatory breach of the unexpired term of this Lease. -18- 22 26. REPEATED DEFAULTS If Lessee shall be in default of this Lease for the same or substantially the same reason more than twice during any twelve (12) month period during the term of this Lease, then, at Lessor's election, Lessee shall not have any right to cure such repeated default, the terms and conditions of the section of this Lease entitled DEFAULT hereof notwithstanding. In the event of Lessor's election not to allow a cure of a repeated default, Lessor shall have all of the rights provided for in this Lease for an uncured default. 27. WAIVER If Lessor shall institute legal or administrative proceedings against Lessee and a compromise or settlement thereof shall be made, the same shall not constitute a waiver of Lessee's obligations to comply with any covenant, agreement or condition, nor of any of Lessor's rights hereunder. No waiver by Lessor of any breach of any covenant, condition, or agreement specified herein shall operate as an invalidation or as a continual waiver of such covenant, condition or agreement itself, or of any subsequent breach thereof. No payment by Lessee or receipt by Lessor of a lesser amount than the monthly rent shall be deemed to be other than on account of the earliest stipulated rent, nor shall any endorsement or statement on any check or letter accompanying a check for payment of such rent be deemed an accord and satisfaction and Lessor may accept such check or payment without prejudice to Lessor's right to recover the balance of such rent or to pursue any other remedy provided for in this Lease or in the governing law of the jurisdiction in which the Building is located. No re-entry by Lessor, and no acceptance by Lessor of keys from Lessee, shall be considered an acceptance of a surrender of the Lease. 28. SUBORDINATION This Lease is subject and subordinate to the lien of all and any mortgages (which term "mortgages" shall include both construction and permanent financing and shall include deeds of trust and similar security instruments) which may now or hereafter encumber or otherwise affect the real estate (including the Building) of which the Demised Premises is a part, or Lessor's leasehold interest therein, and to all and any renewals, extensions, modifications, recastings or refinancings thereof. In confirmation of such subordination, Lessee shall, at Lessor's request, promptly execute any requisite or appropriate certificate or other document. Lessee hereby constitutes and appoints Lessor as Lessee's attorney-in-fact to execute any such certificate or other document for or on behalf of Lessee if Lessee does not execute said certificate or document within five (5) days from receipt thereof. -19- 23 Lessee agrees that in the event that any proceedings are brought for the foreclosure of any such mortgage, Lessee shall attorn to the purchaser at such foreclosure sale, if requested to do so by such purchaser. Lessee shall also recognize such purchaser as the Lessor under this Lease. Lessee waives the provisions of any statute or rule of law, now or hereafter in effect, which may give or purport to give Lessee any right to terminate or otherwise adversely affect this Lease and the obligations of Lessee hereunder in the event that any such foreclosure proceeding is prosecuted or completed. If the Building, the Demised Premises or any part respectively thereof is at any time subject to a mortgage or a deed of trust or other similar instrument and this Lease or the rentals are assigned to such mortgagee, trustee or beneficiary and the Lessee is given written notice thereof, including the post office address of such assignee, then Lessee shall not terminate this Lease for any default on the part of Lessor without first giving written notice by certified or registered mail, return receipt requested, to such Assignee, Attention: Mortgage Loan Department. The notice shall specify the default in reasonable detail, and afford such assignee a reasonable opportunity to make performance, at its election, for and on behalf of Lessor. 29. CONDEMNATION If the whole or a substantial part of the Demised Premises, or the Building shall be condemned or acquired in lieu of condemnation by any governmental authority for any public or quasi-public use or purpose, then the term of this Lease shall cease and terminate as of the date when title vests in such governmental authority. Lessee shall have no claim against Lessor or the condemning authority for any portion of the amount of the condemnation award or settlement that may be claimed as damages by Lessee as a result of such condemnation or acquisition, or for the value of any unexpired term of the Lease. Lessee may make a separate claim against the condemning authority for a separate award for the value of any of Lessee's tangible personal property and trade fixtures, for moving and relocation expenses and for such business damages and/or consequential damages as may be allowed by law, provided the same shall not diminish Lessor's award. If less than a substantial part of the Demised Premises is condemned or acquired in lieu of condemnation by any governmental authority for any public or quasi-public use or purpose, the rent shall be equitably adjusted on the date when title vests in such governmental authority and the Lease shall otherwise continue in full force and effect. For purposes of this section, a "substantial part of the Demised Premises" shall be considered to have been taken if twenty- five percent (25%) or more of the Demised Premises are condemned or acquired in lieu of condemnation, or if less than twenty-five percent (25%) of the Demised Premises is taken and the portion of the Demised Premises taken renders the entire Demised Premises untenantable for the conduct of Lessee's business. -20- 24 If twenty-five percent (25%) or more of the Building is condemned (whether or not the Demised Premises shall have been condemned) and Lessor elects to demolish the remainder of the Building, Lessor may elect to terminate this Lease. 30. RULES AND REGULATIONS Lessee, its agents and employees shall abide by and observe the rules and regulations attached hereto as Exhibit B. Lessee, its agent and employees, shall abide by and observe such other reasonable rules and regulations from the time of actual notice as may be promulgated from time to time by Lessor for the operation and maintenance of the Building provided a copy thereof is sent to Lessee. Nothing contained in this Lease shall be construed to impose upon Lessor any duty or obligation to enforce such rules and regulations, or the terms, conditions or covenants contained in any other lease as against any other tenant, and Lessor shall not be liable to Lessee for violation of the same by any other tenant, any other tenant's employees, agents, business invitees, licensees, customers, clients, family members or guests. Lessor shall not discriminate against Lessee in the enforcement of any rule or regulation. 31. RIGHT OF LESSOR TO CURE LESSEE'S DEFAULT If Lessee defaults in the making of any payment to any third party or in the doing of any act required to be made or done by Lessee, then Lessor may, but shall not be required to, make such payment or do such act, and the amount of the expense thereof, if made or done by Lessor, with interest thereon at the then applicable prime rate of interest per annum as fixed by The Riggs National Bank accruing from the date paid by Lessor, shall be paid by Lessee to Lessor and shall constitute additional rent hereunder due and payable by Lessee upon receipt by Lessee of a written statement of costs from Lessor. The making of such payment or the doing of such act by Lessor shall not operate to cure Lessee's default nor shall it prevent Lessor from the pursuit of any remedy to which Lessor would otherwise be entitled. Any installments of rent, including monthly rent, additional rent, costs of pre-occupancy tenant work, or other charges to be paid by Lessee, pursuant to this Lease, which are not paid by Lessee within ten (10) days after the same becomes due and payable, shall bear interest at the then prime rate of interest per annum as fixed by The Riggs National Bank accruing from the date such installment or payment became due and payable to the date of payment thereof by Lessee. Such interest shall constitute additional rent due and payable to Lessor by Lessee upon the date of payment of the delinquent payment referenced above. -21- 25 32. NO PARTNERSHIP Nothing contained in this Lease shall be deemed or construed to create a partnership or joint venture of or between Lessor and Lessee, or to create any other relationship between the parties hereto other than that of Lessor or Lessee. 33. NO REPRESENTATIONS BY LESSOR Neither Lessor nor any agent or employee of Lessor has made any representations or promises with respect to the Demised Premises or the Building except as herein expressly set forth, and no rights, privileges, easements or licenses are acquired by Lessee except as herein set forth. Lessee, by taking possession of the Demised Premises, shall accept the same in the then "as is" condition, except for latent defects and punch list items, said items being those identified in a list delivered to Lessor within five (5) days after Lessee takes possession of the Demised Premises. Taking of possession of the Demised Premises by Lessee shall be conclusive evidence that the Demised Premises and the Building are in good and satisfactory condition at the time of such taking of possession, as provided for in Exhibit C. 34. BROKERS Lessor and Lessee each represent and warrant one to another that, except as hereinafter set forth, neither of them has employed any broker in carrying on the negotiations relating to this Lease. Lessor shall indemnify and hold Lessee harmless, and Lessee shall indemnify and hold Lessor harmless, from and against any claim or claims for brokerage or other commission arising from or out of any breach of the foregoing representation and warranty by the respective indemnitors. Lessor recognizes The Oliver T. Carr Company as its exclusive agent. 35. WAIVER OF JURY TRIAL Lessor and Lessee hereby waive trial by jury in any action, proceeding or counterclaim brought by either of the parties hereto against the other on or in respect of any matter whatsoever arising out of or in any way connected with this Lease, the relationship of Lessor and Lessee hereunder, Lessee's use or occupancy of the Demised Premises, and/or any claim of injury or damage. 36. ENFORCEMENT OF LEASE In the event Lessor is required or elects to take legal action to enforce against Lessee the performance of Lessee's obligations under this Lease, then Lessee shall immediately reimburse -22- 26 Lessor for all expenses, including, without limitation, reasonable attorneys' fees, incurred by Lessor in any such successful legal action. 37. NOTICES All notices or other communications hereunder shall be in writing and shall be deemed duly given if delivered in person, by certified mail return receipt requested, or by registered mail postage prepaid, (i) if to Lessor, c/o The Oliver T. Carr Company, Suite 900, 1700 Pennsylvania Avenue, N. W., Washington, D. C., and (ii) if to Lessee, prior to the Commencement Date 1850 K Street N.W., Suite 500, Wash., D.C. 20006, and at the Demised Premises thereafter. The party to receive notices and the place notices are to be sent for either Lessor or Lessee may be changed by notice given pursuant to the provisions of this section. 38. ESTOPPEL CERTIFICATES Lessee agrees, at any time and from time to time, upon not less than five (5) days prior written notice by Lessor, to execute, acknowledge and deliver to Lessor a statement in writing (i) certifying that this Lease is unmodified and in full force and effect (or if there have been modifications, that the Lease is in full force and effect as modified and stating the modifications), (ii) stating the dates to which the rent and other charges hereunder have been paid by Lessee, (iii) stating whether or not, to the best knowledge of Lessee, Lessor is in default in the performance of any covenant, agreement or condition contained in this Lease, and, if so, specifying each such default of which Lessee may have knowledge, (iv) stating the address to which notices to Lessee should be sent and, if Lessee is a corporation, the name of its registered agent in the jurisdiction in which the Building is located, and (v) agreeing not to pay rent more than thirty (30) days in advance or to amend the Lease without the consent of the mortgage lender. Any such statement delivered pursuant hereto may be relied upon by any owner of the Building, any prospective purchaser of the Building, any mortgagee or prospective mortgagee of the Building or of Lessor's interest, or any prospective assignee of any such mortgage. 39. HOLDING OVER In the event that Lessee shall not immediately surrender the Demised Premises on the date of expiration of the term of this Lease or any extension period thereof, Lessee shall, by virtue of this section, become a lessee by the month at the monthly rent in effect during the last month of the term of this Lease. The month to month tenancy shall commence with the first day next after the expiration of the term of this Lease. Lessee as a month to month tenant shall continue to be subject to all of the conditions and covenants of this Lease. Lessee shall give to Lessor at least thirty (30) days' written notice of any intention to quit the Demised Premises. Lessee shall be entitled to thirty -23- 27 (30) days' written notice to quit the Demised Premises, except in the event of nonpayment of the monthly rent in advance, in which event Lessee shall not be entitled to any notice to quit, the usual thirty (30) days' notice to quit being hereby expressly waived. Any notice given pursuant to this Section may be given on any day of the month, and such notice period shall commence on such a day. Notwithstanding the foregoing provisions of this section, in the event that Lessee shall hold over after the expiration of the term, or the Lease or extension period thereof, and if Lessor shall desire to regain possession of the Demised Premises promptly at the expiration of the term of this Lease, or extension period thereof, then at any time prior to Lessor's acceptance of rent from Lessee as a month to month tenant hereunder, Lessor, at its option, may forthwith re-enter and take possession of the Demised Premises without process, or by any legal process in force in the jurisdiction in which the Building is located. Furthermore, in the event Lessee continues to occupy the Demised Premises after the date of expiration of the term or any extension period and after receipt of written notice from Lessor that Lessor desires possession of the Demised Premises upon expiration of the term of this Lease or any extension period, Lessee hereby agrees to pay to Lessor, as a penalty but not as liquidated damages, an amount equal to twice the amount of the then applicable monthly rent including the portion of monthly rent pursuant to the section of this Lease, entitled RENTAL ESCALATION FOR INCREASES IN OPERATING EXPENSES, for each month or part of a month Lessee occupies the Demised Premises after the date of expiration of the term of this Lease or any extension period thereof. 40. CONTINUOUS OPERATION The Lessee shall keep the premises open for business during the hours of each business day generally observed by similar banking institutions in the vicinity of the Demised Premises. During such hours Lessee shall maintain access to the Demised Premises at the corner of 19th and Eye Streets and from the Building lobby. 41. APPROVAL OF LESSEE'S DECOR It is the intent of the Lessor to maintain a high quality of decor throughout the Building and, in furtherance thereof, Lessee shall submit to Lessor its plans for both exterior and interior design of the Demised Premises, including decorations, graphics and furnishings for the Demised Premises, and Lessee shall not commence construction of any exterior or interior design work prior to written approval from Lessor of Lessee's design plans, and Lessee shall not change the design, decoration or furnishings of the Demised Premises without having first obtained the written consent of Lessor. -24- 28 42. COVENANTS OF LESSOR Lessor covenants that it has the right to make this Lease for the term aforesaid, and that if Lessee shall pay all rents and other payments and perform all of the covenants, terms and conditions of this Lease to be performed by Lessee, Lessee shall, during the term hereby created, freely, peaceably and quietly occupy and enjoy the full possession of the Demised Premises without molestation or hindrance by Lessor or any party claiming through or under Lessor. 43. LIEN FOR RENT In consideration of the mutual benefits arising under this agreement, Lessee hereby grants to Lessor, a lien on all property of Lessee now or hereafter placed in or on the premises (except such part of any property as may be exchanged, replaced, or sold from time to time in the ordinary course of business operation or trade) and such property shall be and remain subject to such lien of Lessor for payment of all rent and other sums agreed to be paid by Lessee herein. Said lien shall be in addition to and cumulative upon the Lessor's liens provided by law. Said lien shall be second in priority to the rights of the equipment Lessor under any equipment lease or the rights of the seller under any conditional sales contract. 44. GENDER Feminine or neuter pronouns shall be substituted for those of the masculine form, and the plural shall be substituted for the singular number, in any place or places herein in which the context may require such substitution or substitutions. 45. BENEFIT AND BURDEN The terms and provisions of this Lease shall be binding upon and shall inure to the benefit of the parties hereto and each of their respective representatives, successors and assigns. Lessor may freely and fully assign its interest hereunder. 46. GOVERNING LAW This Lease and the rights and obligations of Lessor and Lessee hereunder shall be governed by the laws of the jurisdiction in which the Building is located. -25- 29 47. ADVERTISING AND PROMOTIONAL FUND Lessor may establish and administer an Advertising and Promotional Fund, the purpose of which will be to furnish and maintain advertising and promotions for the benefit of the merchants of International Square, Phases I, II, and III. Lessor agrees that, if such Fund is established, Lessor will contribute not less than Fifteen Thousand Dollars ($15,000.00) at the commencement of the Fund and the same amount at the commencement of each calendar year thereafter. Lessee agrees that, if Lessor establishes such Fund, Lessee shall pay to the Advertising and Promotional Fund, as additional rent, an amount equal to Thirty-Five Cents ($0.35) per square foot of floor area of the Demised Premises per year, payable by Lessee in equal monthly installments with each payment of monthly rent. If the Fund is established, Lessee agrees to participate in all joint advertising and promotional activities sponsored by the Fund. A committee composed of a representative of Lessor and one (1) representative from each of no fewer than four (4) merchant/retail tenants of International Square shall be formed to consult with and advise Lessor on the advertising and promotional activities sponsored by the Fund. All monies contributed to the Fund shall be administered by Lessor and shall be used solely for the purposes of advertising and promotional services for International Square, Phases I, II, and III. If at any time after Lessor establishes the Fund, Lessor decides to terminate the Fund, Lessor may do so unilaterally. Upon termination of the Fund, Lessor's and Lessee's obligation to contribute to the Fund shall cease, and Lessor shall return to Lessee Lessee's proportionate share of any monies remaining in the Fund as of the date the Fund is terminated. 48. LENDER APPROVAL The terms and provisions of this Lease are contingent upon the consent of Lessor's construction and/or permanent lender(s). 49. ENTIRE AGREEMENT This Lease, together with Exhibits A, B, and C attached hereto and made a part hereof, contain and embody the entire agreement of the parties hereto, and no representations, inducements, or agreements, oral or otherwise between the parties not contained and embodied in said Lease and exhibits, shall be of any force and effect, and the same may not be modified, changed or terminated in whole or in part in any manner other than by an agreement in writing duly signed by all parties hereto. -26- 30 IN WITNESS WHEREOF, said Lessor has caused these presents to be signed in its name by Oliver T. Carr, Jr., Managing Venturer, and does hereby constitute and appoint Oliver T. Carr, Jr., its true and lawful Attorney-in-Fact for it and in its name as such Managing Venturer to acknowledge and deliver these presents as the act and deed of The Square 106 Associates. IN WITNESS WHEREOF, said Lessee has caused its corporate name to be signed hereto by its Chairman of the Board, Charles Emmett Lucey, Esq., attested to by its Secretary, and caused its seal to be affixed hereto, and does hereby appoint as its Attorney-in-Fact Charles Emmett Lucey, Esq., to acknowledge these presents as its act and deed. LESSOR: THE SQUARE 106 ASSOCIATES By: /s/ OLIVER T. CARR, JR. (SEAL) ----------------------------- Oliver T. Carr, Jr., Managing Venturer LESSEE: Attest: CENTURY NATIONAL BANK /s/ ROBERT [illegible] By: /s/ CHARLES EMMETT LUCEY - -------------------------- ---------------------------------- Secretary Chairman of the Board SEAL: -27- 31 Lessor's Notary Acknowledgment DISTRICT OF COLUMBIA, to wit: I, Olivia M. Kerr, a Notary Public in and for the District of Columbia, do hereby certify that Oliver T. Carr, Jr., who is personally well known to me as the person who executed the foregoing and annexed Lease, as a Managing Venturer of The Square 106 Associates, the Lessor in sale annexed Lease, bearing date on the 14th day of January, 1982, personally appeared before me in said District and acknowledged the said Lease to be the act and deed of The Square 106 Associates. GIVEN under my hand and seal this 1st day of February, 1982. /s/ OLIVIA M. KERR --------------------------- Notary Public, D.C. My commission expires: November 30, 1986 Lessee' s Notary Acknowledgment DISTRICT OF COLUMBIA, to wit: I, Jane B. Shapiro, a Notary Public in and for the District of Columbia, do hereby certify that Charles Emmett Lucey, who is personally well known to me as the person named as attorney-in-fact for Lessee in the foregoing and annexed Lease, dated the 14th day of January, 1982, to acknowledge the same, personally appeared before me in said District and as attorney-in-fact as aforesaid, and by virtue of the power and authority in him vested by the aforesaid Lease, acknowledged the same to be the act and deed of Century National Bank, a corporation, and delivered the same as such. GIVEN under my hand and seal this 12th day of January, 1982. /s/ JANE B. SHAPIRO --------------------------- Notary Public, D.C. My commission expires: June 14, 1984 -28- 32 EXHIBIT "A" [This exhibit is a floor plan of the ground floor of International Square.] 33 EXHIBIT "B" RULES AND REGULATIONS 1. The sidewalks, entrances, passages, courts, elevators, vestibules, stairways, corridors or halls or other parts of the Building not occupied by any Lessee shall not be obstructed or encumbered by any Lessee or used for any purpose other than ingress and egress to and from the demised premises and if demised premises are situated on the ground floor of the building the Lessee thereof shall, at said Lessee's own expense, keep the sidewalks and curb directly in front of said demised premises clean and free from ice and snow. Lessor shall have the right to control and operate the public portions of the Building and the facilities furnished for the common use of' the Lessees in such manner as Lessor deems best for the benefit of the Lessees generally. No Lessee shall permit the visit to the demised premises of persons in such numbers or under such conditions as to interfere with the use and enjoyment by other Lessees of the entrances, corridors, elevators and other public portions or facilities of the Building. 2. No awnings or other projections shall be attached to the outside walls of the Building without the prior written consent of the Lessor. No drapes, blinds, shades, or screens shall be attached to or hung in, or used in connection with any window or door of the demised premises, without the prior written consent of the Lessor. Such awnings, projections, curtains, blinds, shades, screens or other fixtures must be of a quality, type, design and color, and attached in the manner approved by Lessor. 3. No sign, advertisement, notice or other lettering shall be exhibited, inscribed, painted or affixed by any Lessee on any part of the outside or inside of the demised premises or building without the prior written consent of the Lessor. In the event of the violation of the foregoing by any Lessee, Lessor may remove same without any liability, and may charge the expense incurred by such removal to the Lessee or Lessees violating this rule. Interior signs on doors and directory tablet shall be inscribed, painted or affixed for each Lessee by the Lessor at the expense or such Lessee, and shall be of a size, color and style acceptable to the Lessor. 4. No show cases or other articles shall be put in front of or affixed to any part of the exterior of the building, nor placed in the halls, corridors or vestibules without the prior written consent or the Lessor. 5. The water and wash closets and other plumbing fixtures shall not be used for any purposes other than those for which they were constructed, and no sweepings, rubbish, rags, or other substances shall be thrown therein. All damages resulting from any misuse of the fixtures shall be borne by the Lessee who, or whose servants, employees, agents, visitors or licensees, shall have caused the same. 34 6. There shall be no marking, painting, drilling into or in any way defacing any part of the demised premises or the Building. No boring, cutting or stringing of wires shall be permitted. Lessee shall not construct, maintain, use or operate within the demised premises or elsewhere within or on the outside of the Building, any electrical device, wiring or apparatus in connection with a loud speaker system or other sound system. 7. No bicycles, vehicles or animals, birds or pets of any kind shall be brought into or kept in or about the premises, and no cooking shall be done or permitted by any Lessee on said premises. No Lessee shall cause or permit any unusual or objectionable odors to be produced upon or permeate from the demised premises. 8. No space in the building shall be used for manufacturing, for the storage of merchandise, or for the sale of merchandise, goods or property of any kind at auction. 9. No Lessee shall make, or permit to be made, any unseemingly or disturbing noises or disturb or interfere with occupants of this or neighboring buildings or premises of those having business with them whether by the use of any musical instrument, radio, talking machine, unmusical noise, whistling, singing, or in any other way. No Lessee shall throw anything out of the doors or windows or down the corridors stairs. 10. No inflammable, combustible or explosive fluid, chemical or substance shall be brought or kept upon the demised premises. 11. No additional locks or bulbs of any kind shall be placed upon any of the doors, or windows by any Lessee, nor shall any changes be made in existing locks or the mechanism thereof. The doors leading to the corridors or main halls shall be kept closed during business hours except as they may be used for ingress or egress. Each Lessee shall, upon the termination of his tenancy, restore to Lessor all keys of stores, offices, storage, and toilet rooms either furnished to, or otherwise procured by, such Lessee, and in the event of the loss of any keys so furnished such Lessee shall pay to the Lessor the cost thereof. 12. All removals, or the carrying in or out of any safes, freight, furniture or bulky matter of any description must take place during the hours which the Lessor or its Agent may determine from time to time. The Lessor reserves the right to inspect all freight to be brought into the building and to exclude from the building all freight which violates any of these Rules and Regulations or the lease of which these Rules and Regulations are a part. 13. Any person employed by any Lessee to do janitor work within the demised premises must obtain Lessor's consent and such person shall, while in the Building and outside of said demised premises, comply with all instructions issued by the Superintendent of the Building. No -2- 35 Lessee shall engage or pay any employees on the demised premises, except those actually working for such Lessee on said premises. 14. No Lessee shall purchase spring water, ice, coffee, soft drinks, towels, or other like service, from any company or persons not approved by the Lessor. 15. Lessor shall have the right to prohibit any advertising by any Lessee which, in Lessor's opinion, tends to impair the reputation of the building or its desirability as a building for offices, and upon written notice from Lessor, Lessee shall refrain from or discontinue such advertising. 16. The Lessor reserves the right to exclude from the building at all times any person who is not known or does not properly identify himself to the building management or watchman on duty. Lessor may at his option require all persons admitted to or leaving the building between the hours of 6 P.M. and 8 A.M., Monday thru Saturday, Sundays and legal holidays to register. Each Lessee shall be responsible for all persons for whom he authorizes entry into or exit out of the building, and shall be liable to the Lessor for all acts of such persons. 17. The premises shall not be used for lodging or sleeping or for any immoral or illegal purpose. 18. Each Lessee, before closing and leaving the demised premises at any time, shall see that all windows are closed and all lights turned off. 19. The requirements of Lessees will be attended to only upon application at the office of the building. Employees shall not perform any work or do anything outside of the regular duties, unless under special instruction from the management of the building. 20. Canvassing, soliciting and peddling in the Building is prohibited and each Lessee shall cooperate to prevent the same. 21. No water cooler, plumbing or electrical fixtures shall be installed by any Lessee. 22. There shall not be used in any space, or in the public halls of the Building, either by any Lessee or by jobbers or others, in the delivery or receipt of merchandise, any hand trucks, except those equipped with rubber tires and side guards. 23. Access plates to underfloor conduits shall be left exposed. Where carpet is installed, carpet shall be cut around access plates. Where Lessee elects not to provide removable plates in their carpet for access into the underfloor duct system, it shall be the Lessee's responsibility to pay for the -3- 36 removal and replacement of the carpet for any access needed into the duct system at any time in the future. 24. Mats, trash or other objects shall not be placed in the public corridors. 25. The Lessor does not maintain or clean suite finishes which are non-standard, such as kitchens, bathrooms, wallpaper, special lights, etc. However, should the need for repairs arise, the Lessor will arrange for the work to be done at the Lessee's expense. 26. Drapes installed by the Lessee for their use which are visible from the exterior of the building must be approved by Lessor in writing and be cleaned by the Lessee. 27. The Lessor will furnish and install light bulbs for the building standard flourescent or incandescent fixtures only. For special fixtures the Lessee will stock his own bulbs, which will be installed by the Lessor when so requested by the Lessee. 28. Violation of these rules and regulations, or any amendments thereto, shall be sufficient cause for termination of this Lease at the option of the Lessor. 29. The Lessor may, upon request by any Lessee, waive the compliance by such Lessee of any of the foregoing rules and regulations, provided that (i) no waiver shall be effective unless signed by Lessor or Lessor's authorized agent, (ii) any such waiver shall not relieve such Lessee from the obligation to comply with such rule or regulation in the future unless expressly consented to by Lessor, and (iii) no waiver granted to any Lessee shall relieve any other Lessee from the obligation of complying with the foregoing rules and regulations unless such other Lessee has received a similar waiver in writing from Lessor. -4- 37 EXHIBIT "C" DECLARATION AS TO DATE OF DELIVERY AND ACCEPTANCE OF POSSESSION OF DEMISED PREMISES Attached to and made a part of the Lease, dated the 14th day of January, 1982, entered into by and between The Square 106 Associates, as Lessor, and Century National Bank, as Lessee. Lessor and Lessee do hereby declare and evidence that possession of the Demised Premises in its "as is" condition was accepted by Lessee on the 18th day of January, 1982. The Lease is now in full force and effect. For the purpose of this Lease, the Commencement Date is established as beginning on the 1st day of January, 1982. As of the date of delivery and acceptance of possession of the Demised Premises as herein set forth, there is no right of set-off against rents claimed by Lessee against Lessor. Lessee, if a corporation, states that its registered agent is Charles Emmett Lucey, Esquire, having an address at 1850 K Street, N.W., Suite 500, Washington, D. C. 20006, and that it is a corporation in good standing in the jurisdiction in which the Building is located. LESSOR: THE SQUARE 106 ASSOCIATES By: /s/ OLIVER T. CARR, JR. (SEAL) --------------------------- Oliver T. Carr, Jr., Managing Venturer LESSEE: Attest: CENTURY NATIONAL BANK /s/ ROBERT [illegible] By: /s/ CHARLES EMMETT LUCEY - -------------------------- --------------------------------- Secretary Chairman of the Board SEAL: 38 Lease Addendum No. 1 This Lease Addendum No. 1 is made and entered into this 14th day of March, 1984, Associates, hereinafter called "Lessor," and Century National Bank, hereinafter called "Lessee." W I T N E S S E T H: WHEREAS, by Lease dated the 14th day of January, 1982, Lessor leased to Lessee approximately 3,895 square feet of rentable area on the ground floor of the office building situated at 1875 Eye Street, N.W., Washington, D.C. (said premises hereinafter referred to as the "Demised Premises," and said building herein-after referred to as the "Building"); WHEREAS, Lessee desires to lease additional rentable area on the metro level of said building and Lessor agrees to lease said rentable area to Lessee; WHEREAS, Lessor and Lessee desire to formally reflect their understanding and agreement whereby Lessee will lease this additional rentable area from Lessor, and therefore to revise and modify the Lease accordingly, with respect to the following provisions: 1. Demised Premises 2. Term 3. Rent 4. Rental Escalation for Increases in Expenses 5. Lessee's Improvements 6. Option to Extend 7. Advertising and Promotional Fund 8. Other Terms and Provisions NOW THEREFORE, in consideration of the mutual covenants and agreements contained herein, the parties agree as follows: 1. Demised Premises. Lessee agrees to lease from Lessor, and Lessor agrees to lease to Lessee additional rentable square feet amounting to approximately 5,038 square feet of rentable area on the metro level of the Building, the additional area being identified on the floor plan attached hereto and made a part hereof as Exhibit A (said rentable area being hereinafter referred to as "Additional Demised Premises"). The Demised Premises and the Additional Demised Premises shall be collectively referred to as the "Demised Premises Expanded," and shall amount to a total rentable area of approximately 8,933 square feet. 39 Lessee accepts possession of the Additional Demised Premises in its "as is" condition, as specified in Exhibit B, existing on the date possession is delivered to Lessee, without requiring any alterations, improvements, or decorations to be made by Lessor at Lessor's expense, provided that Lessor agrees to vacuum clean the carpet therein prior to the delivery of the Additional Demised Premises to Lessee. Lessee represents that it has thoroughly examined the Building and the Additional Demised Premises and is aware of and accepts the existing condition of the Additional Demised Premises and the Building. 2. Term. The term of the Lease with regard to the Additional Demised Premises shall commence on March 1, 1984 (hereinafter called the "Commencement Date"), and shall be coterminous with the term of the Lease. In the event Lessor is unable to deliver possession of the Additional Demised Premises to Lessee by the Commencement Date, Lessor, its agents, and employees, shall not be liable or responsible for any claims, damages or liabilities arising in connection therewith or by reason thereof, nor shall Lessee be excused or released from this Lease Addendum No. 1, because of Lessor's inability to deliver the Additional Demised Premises. The Commencement Date with regard to the Additional Demised Premises shall be extended to the date Lessor delivers possession of the Additional Demised Premises, and Lessee's obligations, including rent, pursuant to this Lease Addendum No. 1 shall commence thereon. When Lessee accepts possession of the Additional Demised Premises, Lessor and Lessee shall execute the "Declaration as to Date of Delivery and Acceptance of Possession of Additional Demised Premises," attached hereto as Exhibit D, which shall specify the Commencement Date. For the purposes of this Lease Addendum No. 1, the term "Commencement Date" shall also mean any extended Commencement Date which may be established pursuant to the operation of the provisions of this section of this Lease Addendum. 3. Rent: Monthly rent attributable to the Additional Demised Premises shall be as follows:
MONTHLY RENT FOR PERIOD ADDITIONAL DEMISED PREMISES ------ --------------------------- Month of March, 1984* $230.23/day For calendar months 1 through 24 ($7,137.16/mo.)
40 *April, 1984 is defined as "calendar month 1" For calendar months 25 through 36 ($7,976 83/mo.) For calendar months 37 through 48 ($8,816.50/mo.) For calendar months 49 through 60 ($9,656.16/mo.) For calendar months 61 through 72 ($10,495.83/mo.) For calendar months 73 through 84 ($11,335.50/mo.) For calendar months 85 through the expiration of the initial term of the Lease ($12,175.16/mo.)
The obligation to pay monthly rent attributable to the Additional Demised Premises shall arise as of the Commencement Date as set forth herein. Notwithstanding the foregoing, provided Lessee is not in default of its obligations hereunder, Lessor agrees to forgive and abate monthly rent attributable to the Additional Demised Premises, for the first two (2) full calendar months of the initial term of the Lease, the total amount of such abatement to be equal to the sum of Fourteen Thousand Two Hundred Seventy-four and 32/100ths Dollars ($14,274.32). Monthly rent shall be payable as provided for in the Lease. Monthly rent shall be subject to escalation as provided in the section of the Lease entitled "RENTAL ESCALATION FOR INCREASES IN EXPENSES," as the same may be amended by this Lease Addendum. If the obligation of Lessee to pay monthly rent hereunder begins on a day other than on the first day of a calendar month, monthly rent from such date until the first day of the following calendar month shall be prorated at the rate of one-thirtieth (1/30) of the amount of monthly rent payable for the first full calendar month, for each day, payable in advance. -3- 41 4. Rental Escalation for Increases in Expenses. Lessee's obligation to pay as a part of rent for the Demised Premises, its proportionate share of the increases in operating expenses for the Building as set forth in the section of the Lease entitled "RENTAL ESCALATION FOR INCREASES IN EXPENSES" shall remain unchanged. In addition, Lessee shall also pay to Lessor, as a part of rent for the Additional Demised Premises, its proportionate share of the increases in operating expenses for the Building in excess of expenses incurred in calendar year 1983, such year being hereinafter referred to as the "base year." Lessee's obligation to pay rental escalations for increases in operating expenses attributable to the Additional Demised Premises shall begin on the Commencement Date of this Addendum and shall continue in effect for the entire term of the Lease. The proportionate share to be so paid by Lessee shall be the percentage which the total square feet of the Additional Demised Premises bears to the total square feet of all office and store space in the Building of which the Additional Demised Premises are a part, which is 1.99%, and the amount of said percentage to be paid by Lessee shall be the percentage of the calendar year said Additional Demised Premises were leased by Lessee. Commencing with the first day of May in calendar year 1985 and on the first day of May of each calendar year of the Lease thereafter, Lessee will pay to Lessor as additional rent attributable to the Additional Demised Premises with monthly rent, one-twelfth (1/12th) of ninety percent (90%) of Lessee's proportionate share of any increases, over the base year, of operating expenses during the prior calendar year. Lessee shall continue to make said payment monthly thereafter on the first day of each calendar month until the amount of such payment is adjusted on May 1 of the following calendar year because of increases in Lessee's proportionate share of operating expenses. Notwithstanding the foregoing, provided Lessee is not in default of its obligations hereunder, Lessee shall be entitled to an abatement of its obligation with respect to increases in operating expenses during calendar year 1984 in an amount equal to one-half ( 1/2) of the product of .0199 multiplied by the difference between operating expenses of the Building during calendar year 1984 and operating expenses of the Building during the base year. Within ninety (90) days after the expiration of each calendar year, a firm of certified public accountants, selected by Lessor, shall audit the books and records of Lessor and a determination shall subsequently be made by Lessor of the increases (if any) in the operating expenses of the Building for such calendar year over the operating expenses of the Building for the base year. Lessor shall submit to Lessee a statement of the aforesaid determination, including Lessee's aforesaid proportionate share of such increases. Within thirty (30) days after the delivery of such statement (including any statement delivered after the expiration or termination of the term of this Lease), Lessee shall pay to Lessor an amount equal to its proportionate share of the amount of the difference between the amount of the increases (if any) in operating expenses for the calendar year over the base year operating expenses, less the -4- 42 aggregate amount of that portion of the monthly rent paid by Lessee between May 1st and April 30th attributable to payment of increases in operating expenses. If the aggregate amount of the portion of monthly rent that represents payment for increases in operating expenses, paid by Lessee during the May 1st through April 30th period, exceeds Lessee's proportionate share of increases in operating expenses for the previous calendar year, the excess shall be credited toward the next payment of monthly rent to be paid by Lessee after Lessee receives said statement of operating expenses from Lessor. Lessee, at its expense, shall have the right at all reasonable times to audit Lessor's books and records relating to this Lease for the base year and for the last three (3) years for which payments increases in operating expenses become due. Said operating expenses shall be computed on the accrual basis. 5. Lessee's Improvements. Lessee shall have the right to construct at its sole cost, a stairway connecting the Demised Premises with the Additional Demised Premises (said stairway hereinafter referred to as the "Improvements"). Prior to commencement of construction of the Improvements, Lessee's plans must be approved in writing by Lessor's architect and structural engineer. If Lessee installs the stairway as aforesaid, Lessee shall be entitled to and shall receive an additional abatement of monthly rent, in the amount of Thirty-five Thousand Six Hundred Eighty-five and 80/100 Dollars ($35,685.80). Such right to said abatement is conditioned upon Lessor having inspected the Improvements and confirmed that they have been constructed in accordance with the approved plans and specifications. Such abatement of monthly rent shall commence on the first day of the calendar month following such inspection. Provided, however, if Lessor, pursuant to the section of the Lease entitled "DEFAULT OF LESSEE," terminates the Lease prior to April 30, 1992, Lessee shall, at its sole expense, remove the Improvements and restore the Demised Premises Expanded to the condition that existed on the date possession of the Additional Demised Premises was delivered to Lessee. 6. Option to Extend. The option to extend the terms of the Lease granted in the section of the Lease entitled "OPTION TO EXTEND" shall, by this Lease Addendum No. 1, be made applicable to the Demised Premises Expanded as a whole rather than to the Demised Premises only. 7. Advertising and Promotional Fund. The provisions of the section of the Lease entitled "ADVERTISING AND PROMOTIONAL FUND" shall by this Lease Addendum No. 1, be made applicable to the Demised Premises Expanded as a whole rather than to the Demised Premises only. 8. Other Terms and Provisions. All provisions of the Lease shall be fully applicable to the Additional Demised Premises and are hereby reaffirmed as if fully set forth herein. If any provision of Lease Addendum No. 1 conflicts with any provision of the Lease with regard to the Additional Demised Premises, the provisions of this Lease Addendum No. 1 shall control. -5- 43 IN WITNESS WHEREOF, said Lessor has caused this Lease Addendum No. 1 to be signed in its name by Oliver T. Carr, Jr., Managing Venturer, and does hereby constitute and appoint Oliver T. Carr, Jr., its true and lawful Attorney-in-Fact for it and in its name as such Managing Venturer to acknowledge and deliver this Lease Addendum No. 1 as the act and deed of The Square 106 Associates. IN WITNESS WHEREOF, said Lessee has caused its corporate name to be signed hereto by its President, Joseph S. Bracewell, attested to by its Cashier, and its Attorney-in-Fact Joseph S. Bracewell, to acknowledge this Lease Addendum No. 1 as its act and deed. LESSOR: THE SQUARE 106 ASSOCIATES By: --------------------------------- Oliver T. Carr, Jr. Managing Venturer LESSEE: Attest: CENTURY NATIONAL BANK By: /s/ PAMELA MUSSENDEN By: /s/ JOSEPH S. BRACEWELL -------------------------- --------------------------------- Cashier President -6- 44 Lease Addendum No. 2 This Lease Addendum No. 2 is made and entered into this 18th day of December, 1991, by and between The Square 106 Associates, hereinafter called "Lessor," and Century National Bank, hereinafter called "Lessee." W I T N E S S E T H: WHEREAS, by Lease dated the 14th day of January, 1982, Lessor leased to Lessee approximately 3,895 square feet of rentable area on the ground floor of the office building situated at 1875 Eye Street, N.W., Washington, D.C. (said premises hereinafter referred to as the "Demised Premises," and said building hereinafter referred to as the "Building"); WHEREAS, by Lease Addendum No. 1 ("Lease Addendum No. 1") dated the 14th day of March, 1984, Lessor leased to Lessee additional rentable area amounting to approximately 5,038 square feet on the metro level of the Building (said Lease and Lease Addendum No. 1 hereinafter collectively referred to as the "Lease" and said additional rentable area, referred to in the Lease Addendum No. 1 as the "Additional Demised Premises," hereinafter referred to as the "Metro Level Space"). WHEREAS, Lessee desires to lease additional rentable area on the metro level of the Building and Lessor agrees to lease said rentable area to Lessee; WHEREAS, Lessor and Lessee desire to formally reflect their understanding and agreement whereby Lessee will lease this additional rentable area from Lessor, and therefore to revise and modify the Lease accordingly, with respect to the following provisions: 1. Demised Premises 2. Term 3. Rent 4. Rental Escalation for Increases in Expenses 5. Option to Extend 6. Advertising and Promotional Fund 7. Other Terms and Provisions. NOW THEREFORE, in consideration of the mutual covenants and agreements contained herein, the parties agree as follows: 45 1. Demised Premises. Lessee agrees to lease from Lessor, and Lessor agrees to lease to Lessee additional rentable area amounting to approximately 248 square feet of rentable area on the metro level of the Building, the additional area being identified on the floor plan attached hereto and made a part hereof as Exhibit A (said additional area hereinafter referred to as the "Additional Metro Level Space"). The Metro Level Space and the Additional Metro Level Space shall be collectively referred to as the "Metro Level Space Expanded," and shall amount to a total rentable area of approximately 5,286 square feet. The Demised Premises and the Metro Level Space Expanded shall be collectively referred to as the "Demised Premises Enlarged" and shall amount to a total rentable area of approximately 9,181 square feet. Lessee accepts possession of the Additional Metro Level Space in its "as is" condition, as specified in Exhibit B, existing on the date possession is delivered to Lessee, without requiring any alterations, improvements, or decorations to be made by Lessor at Lessor's expense. Lessee represents that it has thoroughly examined the Additional Metro Level Space and is aware of and accepts the existing condition of the Additional Metro Level Space. 2. Term. The term of the Lease with regard to the Additional Metro Level Space shall commence on September 1, 1984 (hereinafter referred to as the "Commencement Date"), and shall be coterminous with the term of the Lease. 3. Rent. For purposes of determining Monthly Rent attributable to the Metro Level Space Expanded, April, 1984 is defined as "calendar Month 1" (as set forth in the Lease Addendum No. 1). Monthly rent attributable to the Metro Level Space Expanded shall be as follows:
MONTHLY RENT FOR THE PERIOD METRO LEVEL SPACE EXPANDED ------ -------------------------- For calendar months 6 through 24 ($7,488.50/mo.) For calendar months 25 through 36 ($8,369.50/mo.) For calendar months 37 through 48 ($9,250.50/mo.) For calendar months 49 through 60 (10,131.50/mo.)
-2- 46 For calendar months 61 through 72 ($11,012.50/mo.) For calendar months 73 through 84 ($11,893.50/mo.) For calendar months 85 through the expiration of the initial term of the Lease ($12,774.50/mo.)
The obligation to pay monthly rent attributable to the Metro Level Space Expanded shall arise as of the Commencement Date of the term with regard to the Additional Metro Level Space. Monthly rent attributable to the Metro Level Space Expanded shall be payable as provided for in the Lease and shall be subject to escalation as provided in the section of the Lease entitled, "RENTAL ESCALATION FOR INCREASES IN EXPENSES," as the same may be amended by this Lease Addendum No. 2. Pursuant to the section of the Lease Addendum No. 1 entitled, "Lessee's Improvements," Lessor recognizes that Lessee has installed a stairway connecting the Demised Premises with the Metro Level Space. Pursuant to said same section of the Lease Addendum No. 1, Lessor hereby agrees to abate and forgive the payment of monthly rent for the Metro Level Space Expanded for the months of June, July, August, September and October of 1985, in the amount of Thirty-Five Thousand Six Hundred Eighty-Five and 80/100ths Dollars ($35,685.80), plus an additional abatement of One Thousand Seven Hundred Fifty-Six and 70/100ths Dollars ($1,756.70), reflecting the addition of the Additional Metro Level Space, for a total abatement of Thirty-Seven Thousand Four Hundred Forty Two and 50/100ths Dollars ($37,442.50) . 4. Rental Escalation for Increases in Expenses. Lessee's obligation to pay as a part of rent for the Demised Premises, its proportionate share of the increases in operating expenses for the Building as set forth in the section of the Lease entitled, "RENTAL ESCALATION FOR INCREASES IN EXPENSES" shall remain unchanged. With the addition to the Metro Level Space of the Additional Metro Level Space, Lessee's share of increases in operating expenses, as set forth in the section of the Lease Addendum No. 1 entitled "Rental Escalation for Increases in Expenses," shall be increased from 1.99% to 2.09%, payable in accordance with said same section of the Lease Addendum No. 1. Said increase in the percentage of Lessee's share of increases in Operating Expenses shall become effective as of the Commencement Date of the term with regard to the Additional Metro Level Space, and Lessee's share of increases in Operating Expenses for calendar year 1984 shall be calculated accordingly. -3- 47 5. Option to Extend. The option to extend the term of the Lease granted in the section of the Lease entitled, "OPTION TO EXTEND," shall, by this Lease Addendum No. 2, be made applicable to the Demised Premises Enlarged. 7. Advertising and Promotional Fund. The provisions of the section of the Lease entitled, "ADVERTISING AND PROMOTIONAL FUND," shall, by this Lease Addendum No. 2, be made applicable to the Demised Premises Enlarged. 8. Other Terms and Provisions. All provisions of the Lease shall be fully applicable to the Additional Metro Level Space and are hereby reaffirmed as if fully set forth herein. If any provision of this Lease Addendum No. 2 conflicts with any provision of the Lease with regard to the Additional Metro Level, Space, the provision of this Lease Addendum No. 2 shall control. IN WITNESS WHEREOF, said Lessor has caused this Lease Addendum No. 2 to be signed in its name by Oliver T. Carr, Jr., Managing Venturer, to acknowledge and deliver this Lease Addendum No. 2 as the act and deed of The Square 106 Associates. IN WITNESS WHEREOF, said Lessee has caused its corporate name to be signed hereto by its President, Joseph S. Bracewell, attested to by its Secretary, to acknowledge this Lease Addendum No. 2 as its act and deed. *Lessor and Lessee acknowledge and agree that prior to the date of this Lease Addendum No. 2 Lessor and Lessee have abided by the terms and conditions hereof and fully performed their respective obligations accruing hereunder prior to the date hereof. LESSOR: THE SQUARE 106 ASSOCIATES By: /s/ OLIVER T. CARR, JR. (SEAL) --------------------------- Oliver T. Carr, Jr. Managing Venturer -4- 48 Lessor's Notary Acknowledgment DISTRICT OF COLUMBIA, to wit: I, Olivia M. Kerr, a Notary Public in and for the District of Columbia, do hereby certify that Oliver T. Carr, Jr., who is personally well known to me as the person who executed the foregoing and annexed Lease Addendum No. 2, as Managing Venturer of The Square 106 Associates, Lessor in said annexed Lease Addendum No. 2, bearing date on the 18th day of December, 1991, personally appeared before me in said District and acknowledged said Lease Addendum No. 2 to be the act and deed of The Square 106 Associates and delivered the same as such. GIVEN under my hand and seal this 6th day of January 1992. /s/ OLIVIA M. KERR -------------------------------- Notary Public, D .C. My commission expires: November 30, 1996 LESSEE: Attest: CENTURY NATIONAL BANK /s/ ROSEMARY DEMARK By: /s/ JOSEPH S. BRACEWELL - ----------------------- --------------------------- Secretary Chairman (Corporate Seal) Lessee's Notary Acknowledgment DISTRICT OF COLUMBIA, to wit: I, Maria Lina Gonzalez, a Notary Public in and for the District of Columbia, do hereby certify that Joseph S. Bracewell who is personally well known to me to be the person who executed the foregoing and annexed Lease Addendum No. 2, dated the 18th day of December, 1991, to acknowledge the same, personally appeared before me in said District and acknowledged the same to be the act and deed of Century National Bank and delivered the same as such. -5- 49 GIVEN under my hand and seal this 18th day of December, 1991. /s/ MARIA LINA GONZALEZ -------------------------------- Notary Public, D.C. My commission expires: May 14, 1994 -6- 50 EXHIBIT "B" LEASE ADDENDUM NO. 2 BY AND BETWEEN THE SQUARE 106 ASSOCIATES AND CENTURY NATIONAL BANK Pre-occupancy Tenant Work to be provided by and at the expense of Lessor and included within the monthly rent: (NONE) Lessee accepts possession of the Additional Metro Level Space in its "as is" condition existing on the date possession is delivered to Lessee, without requiring any alterations, improvements, or decorations to be made by Lessor at Lessor's expense. -7- 51 LEASE ADDENDUM NO. 3 THIS LEASE ADDENDUM NO. 3 is made and entered into this 12th day of February, 1992, by and between The Square 106 Associates, a District of Columbia joint venture, hereinafter called "Lessor," and Century Bancshares, Inc., a Delaware corporation, hereinafter called "Lessee." W I T N E S S E T H: WHEREAS, by Lease dated the 14th day of January, 1982, Lessor leased to Century National Bank ("Century Bank"), Lessee's predecessor-in-interest, approximately 3,895 square feet of rentable area on the ground floor of the office building situated at 1875 Eye Street, N.W., Washington, D.C., 20006 (said premises hereinafter referred to as the "Ground Floor Demised Premises," and said building hereinafter referred to as the "Building"); WHEREAS, by Lease Addendum No. 1 dated the 14th day of March, 1984, Lessor leased to Century Bank additional rentable area in the Building comprising approximately 5,038 square feet of rentable area on the metro level of the Building; WHEREAS, by Lease Addendum No. 2 dated the 18th day of December, 1991, Lessor leased to Century Bank approximately 248 square feet of additional rentable area on the metro level of the Building (said Lease, Lease Addendum No. 1 and Lease Addendum No. 2 hereinafter collectively referred to as the "Lease"); WHEREAS, the rentable area on the metro level of the Building is hereinafter collectively referred to as the "Metro Level Demised Premises," and shall amount to a total rentable area of five thousand two hundred eighty-six (5,286) square feet, and the Metro Level Demised Premises and the Ground Floor Demised Premises are hereinafter collectively referred to as the "Demised Premises," and shall amount to a total rentable area of nine thousand one hundred eighty-one (9,181) square feet; WHEREAS, Lessee is the successor by merger to Century Bank, and Lessee has assumed all of Century Bank's interest, rights and obligations under the Lease; WHEREAS, Lessee desires to extend the term of the Lease, and Lessor and Lessee have agreed upon the terms and conditions whereby the term of the Lease shall be extended; and WHEREAS, Lessor and Lessee desire to reflect formally their understanding and agreement whereby the term of the Lease shall be extended, and therefore to revise and modify the Lease accordingly, with respect to the following provisions: 52 1. Term; 2. Use; 3. Rent; 4. Rental Escalation for Increases in Expenses; 5. Option to Extend; 6. Options to Extend; 7. Option to Expand; 8. Alterations; 9. Brokers; 10. Advertising and Promotional Fund; and 11. Other Terms and Provisions. NOW THEREFORE, in consideration of the mutual covenants and agreements contained herein, and intending to be legally bound, the parties hereto do hereby mutually agree as follows: 1. Term. (A) Subject to and upon the covenants, agreements and conditions of Lessor and Lessee set forth in the Lease and this Lease Addendum No. 3, the term of the Lease with respect to the Ground Floor Demised Premises shall be extended for a period of ten (10) years commencing on May 1, 1992 (hereinafter the "Extension Commencement Date") and expiring on the 30th day of April, 2002. Such period shall hereinafter be referred to as "Ground Floor Extension Period 1." In connection therewith, Lessor shall not be obligated to perform any alterations, improvements or decorations to the Ground Floor Demised Premises. (B) Subject to and upon the covenants, agreements and conditions of Lessor and Lessee set forth in the Lease and this Lease Addendum No. 3, the term of the Lease with respect to the Metro Level Demised Premises shall be extended for a period of five (5) years commencing on the Extension Commencement Date and expiring on the 30th day of April, 1997. Said period shall hereinafter be referred to as "Metro Level Extension Period 1." In connection therewith, Lessor shall not be obligated to perform any alterations, improvements or decorations to the Metro Level Demised Premises. -2- 53 2. Use. Lessee may use and occupy the Metro Level Demised Premises for general office purposes in addition to the use allowed within such space pursuant to the section of the Lease entitled "USE." 3. Rent. (A) The monthly rent for the Ground Floor Demised Premises (hereinafter "Ground Floor Monthly Rent") as of the Extension Commencement Date, which Lessee hereby agrees to pay monthly in advance to Lessor and Lessor hereby agrees to accept, shall be as follows:
Period Monthly Rent ------ ------------ May 1, 1992 through April 30, 1997 ($12,496.46) May 1, 1997 through April 30, 2002 ($14,119.38)
Ground Floor Monthly Rent as specified above shall be payable in accordance with the payment of monthly rent for the Demised Premises pursuant to the terms of the section of the Lease entitled "RENT"; provided, however, Lessor agrees to forgive and abate the payment of Ground Floor Monthly Rent for the first three (3) full calendar months of Ground Floor Extension Period 1. (B) The monthly rent for the Metro Level Demised Premises (hereinafter "Metro Level Monthly Rent") as of the Extension Commencement Date, which Lessee hereby agrees to pay monthly in advance to Lessor and Lessor hereby agrees to accept, shall be as follows:
Period Monthly Rent ------ ------------ May 1, 1992 through April 30, 1997 ($10,131.50)
Metro Level Monthly Rent as specified above shall be payable in accordance with the payment of monthly rent for the Demised Premises pursuant to the terms of the section of the Lease entitled "RENT," provided however, Lessor agrees to forgive and abate the payment of Metro Level Monthly Rent for the first five (5) full calendar months of Metro Level Extension Period 1. (C) Ground Floor Monthly Rent and Metro Level Monthly Rent are hereinafter referred to collectively as "Monthly Rent," and all references to monthly rent in the Lease shall be applicable -3- 54 to Ground Floor Monthly Rent and Metro Level Monthly Rent. In addition to the payment of Monthly Rent, Lessee shall make payments toward additional rent provided for in the paragraph of this Lease Addendum No. 3 entitled "Rental Escalation for Increases In Expenses." 4. Rental Escalation for Increases in Expenses. (A) Prior to the Extension Commencement Date, Lessee shall continue to pay additional rent to Lessor pursuant to the section of the Lease entitled "RENTAL ESCALATION FOR INCREASES IN EXPENSES." (B) As of the Extension Commencement Date, the provisions of the section of the Lease entitled "RENTAL ESCALATION FOR INCREASES IN EXPENSES" shall not apply to the leasing of the Demised Premises from and after the Extension Commencement Date, and in lieu thereof, the following provisions shall apply to the leasing of the Demised Premises from and after the Extension Commencement Date: "(A) If the Operating Expenses (as defined below) of the Building increase during any calendar year after calendar year 1992 (hereafter called the "Base Year"), Lessee shall pay to Lessor, as additional rent, Lessee's proportionate share of the increase in such Operating Expenses. Lessee's proportionate share shall be the percentage which the total square feet of the Demised Premises bears to the total square feet of all office and retail rentable areas in the Building, which percentage as of the date of the Extension Commencement Date (as defined in the Lease Addendum No. 3) is 3.62%. The amount of such percentage to be paid by Lessee for any calendar year shall be prorated by the percentage of the calendar year the Demised Premises (or any portion thereof) were leased by Lessee. (B) The term "Operating Expenses" shall mean (i) any and all expenses, charges and fees incurred in connection with managing, operating, maintaining, servicing, insuring and repairing the Building, atrium (if any) and related exterior appurtenances; and (ii) real estate taxes and ad valorem taxes, surcharges, special assessments and impositions, general and special, ordinary and extraordinary, foreseen or unforeseen, of any kind levied against the Building or land upon which the Building is located, or in connection with the use thereof (collectively, "Real Estate Taxes"). Any transit, personal property, sales, rental, use, gross receipts and occupancy tax and other similar charges levied upon Lessor shall also be deemed Real Estate Taxes included in Operating Expenses. Lessor represents that the current management fee for the Building is two percent (2%) of the gross income of the Building. Operating Expenses shall not include (a) the cost and expenses of capital improvements (except the costs and expenses of capital improvements reasonably intended -4- 55 to reduce Operating Expenses or required by public authorities to bring the Building in compliance with applicable laws or regulations, with the costs and expenses of those improvements being amortized over the useful life of those improvements and with only the amortized amount of the costs and expenses of those improvements attributable to a calendar year being an element of Operating Expenses in that particular calendar year), of the cleaning contract as it relates to office suites, of cleaning supplies to the extent used for office suites, of the elevator maintenance contracts, of electricity to the extent supplied to office suites, of water to the extent supplied to office suites, of electrical, HVAC, plumbing, electronic access control and mechanical supplies and repairs to the extent supplied to office suites and painting or decoration of other than public and common areas of the Building, (b) interest and amortization of mortgages or other debt of Lessor not resulting from an incurred Operating Expense, (c) ground rent (if any), (d) depreciation of the Building, (e) compensation paid to officers or executives of Lessor or Agent, (f) leasing commissions, costs and other expenses, including attorney's fees, incurred in connection with negotiating leases with tenants, other occupants or potential occupants of the Building (including Lessee), (g) income or franchise taxes or other such taxes imposed or measured by Lessor's income from the operation of the Building, (h) all costs for which Lessor is reimbursed from any source other than by tenants of the Building under a method or provision similar or substantially similar to the pro rata provisions of this Lease relating to Operating Expenses, (i) expenses or costs incurred by Lessor resulting from the violation by Lessor, or by any tenant of the Building other than Lessee, of the terms and conditions of any lease or other rental arrangement for space within the Building, but only to the extent that the expenses and costs incurred to cure such violation would not otherwise be deemed Operating Expenses, (j) advertising and promotional expenses incurred during the leasing or any sale of the Building or an interest therein and (k) any fines or penalties incurred due to violations by Lessor or any tenant in the Building other than Lessee of any federal, state or local law, statute or ordinance, or any rule, regulation, judgment or decree of any governmental rule or authority, (1) costs for artwork displayed in the Building, (m) the cost of utilities to tenants which are separately metered for such utilities and expenses attributable solely to tenants in the food court of the Building, and (n) general overhead and administrative expenses of Lessor, except expenses incurred in the operation of the property management office and related facilities serving the Building (which office and facilities do not include the corporate offices of Lessor's Agent). (C) Lessor shall notify Lessee prior to the beginning of calendar year 1993 and each calendar year thereafter of Lessor's reasonable estimate of the amount of Operating Expenses (the "Estimated Operating Expenses") that Lessor likely will incur for the Building during the coming calendar year, and pursuant to paragraph (D) hereof, shall advise Lessee of the amount of its Estimated Payments for the coming calendar year. -5- 56 (D) Lessee shall pay to Lessor, as additional rent, an amount equal to one-twelfth (1/12th) of Lessee's proportionate share of the increases in Estimated Operating Expenses over the Operating Expenses for the Base Year (the "Estimated Payment"). Lessee shall make its first Estimated Payment on the first day of January following the Extension Commencement Date. Thereafter, Lessee shall make its Estimated Payment on the first day of each calendar month. Lessee shall pay the same amount of the Estimated Payment until the amount is adjusted, effective the next succeeding January 1, based upon Lessor's determination of the Estimated Operating Expenses for the following calendar year. (E) Within ninety (90) days after the expiration of each calendar year (including the calendar years in which the Extension Commencement Date and expiration or earlier termination of the Lease occurs), a firm of certified public accountants selected by Lessor, shall audit Lessor's books and records for the Building. Thereafter, Lessor shall determine any increase in the Operating Expenses for such calendar year over the Operating Expenses for the Base Year. The Operating Expenses for each calendar year (including the Base Year) shall be those actually incurred; provided, however, that if the Building was not at least eighty-five percent (85%) occupied during the entire calendar year, then only those Operating Expenses that vary according to the occupancy of the Building shall be adjusted to project the Operating Expenses as if the Building were eighty-five percent (85%) occupied. (F) Lessor shall submit to Lessee a statement setting forth Lessor's determination of (i) any increases in Operating Expenses over the Operating Expenses for the Base Year; (ii) Lessee's proportionate share of such increases; and (iii) Lessee's net obligation for such Operating Expenses for the calendar year ("Lessee's Net Obligation") which reflects the credit of Lessee's Estimated Payments during the prior calendar year. Lessor shall endeavor to provide Lessee with such statement no later than April 15th during each applicable calendar year, but in any event Lessor shall deliver such statement no later than December 31 of such calendar year. Within thirty (30) days after the delivery of such statement (including any statement delivered after the expiration or earlier termination of the Lease), Lessee shall pay Lessor the full stated amount of Lessee's Net Obligation. If the aggregate amount of Lessee's Estimated Payments during the prior calendar year exceeds Lessee's proportionate share of the increases in Operating Expenses, the excess, at Lessor's option, shall be refunded to Lessee or credited to Lessee's next Estimated Payment(s) or payment(s) of Monthly Rent, until such excess is fully refunded to Lessee. Upon Lessee's written request, Lessor agrees to provide Lessee with a line-item statement of the Operating Expenses for the Building for the current calendar year. (G) Lessee, at its expense, may, at reasonable times, audit Lessor's books and records for the Building relating to Lessor's determination of any increase or decrease in the Operating Expenses for (i) the calendar year for which Lessor's current determination is being made, (ii) the two (2) prior -6- 57 calendar years, and (iii) the Base Year. In the event that a review performed by an independent, certified public accounting firm employed by Lessee for such calendar year shows that Lessee has made an overpayment of its proportionate share of Operating Expenses (after the annual reconciliation set forth in paragraph (F) above) then such report shall be reviewed by Lessor and its accountants. If after reviewing both reports, Lessor and Lessee disagree with each other's reports, then the respective accounting firms of Lessor and Lessee shall meet to resolve any mathematical discrepancies between the respective reports and any difference in classification of costs and expenses as properly and appropriately included as Operating Expenses in that calendar year. The resolution of the two auditors or accountants shall be binding upon the parties. In no event shall any interpretation of any provision of this Lease by either or both accounting firms be binding upon Lessor or Lessee. In the event the resolution shows any overpayment, Lessor shall refund the overpayment within thirty (30) days thereafter. In the event such resolution shows that Lessor has overstated the aggregate amount of Operating Expenses by five percent (5%) or more, Lessor shall along with the refund reimburse Lessee for the reasonable and necessary accounting fees Lessee incurred in its review, to the extent such costs do not exceed the amount of the overpayment. Lessor shall compute the Operating Expenses on the accrual basis. 5. Option to Extend. The section of the Lease entitled "OPTION TO EXTEND" is hereby deleted in its entirety. 6. Options to Extend. (A) With regard to the Metro Level Demised Premises, Lessor grants to Lessee three (3) consecutive options to extend the term of the Lease, each option being for a period of five (5) years, as set forth below, provided Lessee exercises each such option as set forth below, and provided further that Lessee is not in default under the Lease beyond any applicable notice and cure period either on the date Lessee notifies Lessor of its intent to exercise the applicable option or at any time thereafter up to and including the date upon which the applicable extension period is to commence. The extension periods shall be from May 1, 1997 through April 30, 2002 ("Metro Level Extension Period 2"); from May 1, 2002 through April 30, 2007 ("Metro Level Extension Period 3"); and from May 1, 2007 through April 30, 2012 ("Metro Level Extension Period 4"). Each such five (5) year period may also be hereinafter called "Metro Level Extension Period." Lessee may exercise each such option to extend only by serving on Lessor, no later than fourteen (14) months, nor earlier than twenty (20) months, prior to the commencement of each applicable Metro Level Extension Period, written notice of Lessee's intent to exercise the then applicable option to extend. -7- 58 The Metro Level Monthly Rent for Metro Level Extension Period 2 shall be equal to one twelfth (1/12th) of the product of (i) the number of square feet of rentable area comprising the Metro Level Demised Premises, times (ii) Twenty-Eight and 00/100ths Dollars ($28.00). Metro Level Monthly Rent for the first four (4) full calendar months of Metro Level Extension Period 2 shall be forgiven and abated. The Metro Level Monthly Rent for Metro Level Extension Period 3 and for Metro Level Extension Period 4 shall each be determined by the mutual agreement of Lessor and Lessee within sixty (60) days after the date Lessor receives Lessee's notice of its election to extend the term of the Lease for the applicable Metro Level Extension Period. The Metro Level Monthly Rent for each such Metro Level Extension Period shall be based upon the Market Rent (as hereafter defined) for the Metro Level Demised Premises. However, the Metro Level Monthly Rent for Metro Level Extension Period 3 shall be no less than the Metro Level Monthly Rent in effect during April 2002; and the Metro Level Monthly Rent for Metro Level Extension Period 4 shall be no less than the Metro Level Monthly Rent in effect during April 2007. If Lessor and Lessee are unable to agree within the applicable sixty (60) day period upon the Market Rent for the Metro Level Demised Premises in order to determine the Metro Level Monthly Rent for the applicable Metro Level Extension Period, then the Market Rent (upon which the Metro Level Monthly Rent for the applicable Metro Level Extension Period will be based) shall be determined by a board of three (3) licensed real estate brokers. Lessor and Lessee shall each appoint one (1) broker within ten (10) days after expiration of the sixty (60) day period, or sooner if mutually agreed upon. The two so appointed shall select a third within fifteen (15) days after they both have been appointed. Each broker on said board shall be licensed in the District of Columbia as a Real Estate Broker, specializing in the field of commercial leasing in the central business district having no less than ten (10) years experience in such field, and recognized as ethical and reputable within his or her field. Each broker, within fifteen (15) days after the third broker is selected, shall submit his or her determination of Market Rent. Market Rent shall be the mean of the two (2) closest rental rate determinations (or the middle of the three if there are no two closest determinations), and the Metro Level Monthly Rent for the applicable Metro Level Extension Period shall be based upon the Market Rent as so determined by the brokers; provided, however, if the Market Rate determination produces a Metro Level Monthly Rent for Metro Level Extension Period 3 less than the Metro Level Monthly Rent in effect for April 2002, then the Metro Level Monthly Rent for Metro Level Extension Period 3 shall be the Metro Level Monthly Rent in effect for April 2002; and provided further, that if the Market Rent determination produces a Metro Level Monthly Rent for Metro Level Extension Period 4 less than the Metro Level Monthly Rent in effect during April 2007, then the Metro Level Monthly Rent for Metro Level Extension Period 4 shall be the Metro Level Monthly Rent in effect for April 2007. -8- 59 "Market Rent" shall mean the effective base rent (i.e. taking into account any tenant concessions which may be in the marketplace, such as, but not limited to, rent abatements and improvement allowances) that would be received by landlords reletting space in renewal transactions of quality, size and location comparable to the Metro Level Demised Premises, in comparable buildings in the central business district of the District of Columbia for a comparable term commencing on or about the date of the commencement of the applicable Metro Level Extension Period, adjusted to reflect that the provisions of the section of this Lease Addendum No. 3 entitled "Rental Escalation for Increases in Expenses" shall continue uninterrupted and without modification and that Metro Level Monthly Rent shall not be adjusted during the applicable Metro Level Extension Period. If the Market Rent for any Metro Level Extension Period, determined in accordance with this section of this Lease Addendum No. 3, is less than the Metro Level Monthly Rent in effect for the month of April immediately preceding the commencement of the applicable Metro Level Extension Period, Lessee shall have the right, at its sole option, to terminate the Lease with regard to the Metro Level Demised Premises. To exercise this termination option, Lessee shall serve on Lessor written notice of its election to exercise such termination option no later than thirty (30) days following the receipt of the brokers' determination of Market Rent for the applicable Metro Level Extension Period pursuant to this section. If Lessee exercises its option to terminate the Lease with regard to the Metro Level Demised Premises as aforesaid, then notwithstanding anything contained in the Lease or herein to the contrary, the Lease with regard to the Metro Level Demised Premises shall terminate and become of no further force or effect on the later of (i) the then applicable expiration date of the Lease with respect to the Metro Level Demised Premises, or (ii) the date ("Revised Metro Level Expiration Date") which is the last day of the twelfth month following the date Lessee serves Lessor with such notice, except as to obligations of Lessee accruing in each case on or before such expiration date which shall remain obligations of Lessee until satisfied. If the Revised Metro Level Expiration Date becomes the effective date of expiration of the term of the Lease with respect to the Metro Level Demised Premises, the term of the Lease with regard to the Metro Level Demised Premises shall automatically be extended for a period commencing on the date the term would have expired ("Original Metro Level Expiration Date") but for this paragraph, and expiring on the Revised Metro Level Expiration Date (such period called the "Limited Metro Level Extension Period"), and all of the terms, covenants and conditions of the Lease and this Lease Addendum No. 3 shall remain in full force and effect, except that the Metro Level Monthly Rent for the Limited Metro Level Extension Period shall equal the Metro Level Monthly Rent in effect during the last full calendar month immediately preceding the commencement of the Limited Metro Level Extension Period. The Lease with regard to the Ground Floor Demised Premises shall be unaffected by any such termination and shall continue in full force and effect. -9- 60 (B) With regard to the Ground Floor Demised Premises, Lessor grants to Lessee two (2) consecutive options to extend the term of the Lease, each option being for a period of five (5) years, as set forth below, provided Lessee exercises each such option as set forth below, and provided further that Lessee is not in default under the Lease beyond any applicable notice and cure period either on the date Lessee notifies Lessor of its intent to exercise the applicable option or at any time thereafter up to and including the date upon which the applicable extension period is to commence. The extension periods shall be from May 1, 2002 through April 30, 2007 ("Ground Floor Extension Period 2"); and from May 1, 2007 through April 30, 2012 ("Ground Floor Extension Period 3"). Each such five (5) year period may also be called "Ground Floor Extension Period." Lessee may exercise each such option to extend only by serving on Lessor, no later than fourteen (14) months, nor earlier than twenty (20) months, prior to the commencement of each applicable Ground Floor Extension Period, written notice of Lessor's intent to exercise the then applicable option to extend. The Ground Floor Monthly Rent for Ground Floor Extension Period 2 and for Ground Floor Extension Period 3 shall each be determined by the mutual agreement of Lessor and Lessee within sixty (60) days after the date Lessor receives Lessee's notice of its election to extend the term of the Lease for the applicable Ground Floor Extension Period. The Ground Floor Monthly Rent for each such Ground Floor Extension Period shall be based upon the Market Rent (as hereafter defined) for Ground Floor Demised Premises. However, the Ground Floor Monthly Rent for Ground Floor Extension Period 2 shall be no less then the Ground Floor Monthly Rent in effect during April 2002; and the Ground Floor Monthly Rent for Ground Floor Extension Period 3 shall be no less than the Ground Floor Monthly Rent in effect during April, 2007. If Lessor and Lessee are unable to agree within the applicable sixty (60) day period upon the Market Rent for the Ground Floor Demised Premises in order to determine the Ground Floor Monthly Rent for the applicable Ground Floor Extension Period, then the Market Rent (upon which the Ground Floor Monthly Rent for the applicable Ground Floor Extension Period will be based) shall be determined by a board of three (3) licensed real estate brokers. Lessor and Lessee shall each appoint one (1) broker within ten (10) days after expiration of the sixty (60) day period, or sooner if mutually agreed upon. The two so appointed shall select a third within fifteen (15) days after they both have been appointed. Each broker on said board shall be licensed in the District of Columbia as a Real Estate Broker, specializing in the field of commercial leasing in the central business district having no less than ten (10) years experience in such field, and recognized as ethical and reputable within his or her field. Each broker, within fifteen (15) days after the third broker is selected, shall submit his or her determination of Market Rent. Market Rent shall be the mean of the two (2) closest rental rate determinations (or the middle of the three if there are no two (2) closest determinations), and the Ground Floor Monthly Rent for the applicable Ground Floor Extension -10- 61 Period shall be based upon the Market Rent as so determined by the brokers; provided, however, if the Market Rent determination produces a Ground Floor Monthly Rent for Ground Floor Extension Period 2 less than the round Floor Monthly Rent in effect for April 2002, then the Ground Floor Monthly Rent for Ground Floor Extension Period 2 shall be the Ground Floor Monthly Rent in effect for April, 2002; and provided further, that if the Market Rent determination produces a Ground Floor Monthly Rent for Ground Floor Extension Period 3 less than the Ground Floor Monthly Rent in effect during April 2007, then the Ground Floor Monthly Rent for Ground Floor Extension Period 3 shall be the Ground Floor Monthly Rent in effect for April 2007. "Market Rent" shall mean the effective base rent (i.e. taking into account any tenant concessions which may be in the marketplace, such as, but not limited to, rent abatements and improvement allowances) that would be received by landlords reletting space in renewal transactions of quality, size and location comparable to the Ground Floor Demised Premises, in comparable buildings in the central business district of the District of Columbia for a comparable term commencing on or about the date of the commencement of the applicable Ground Floor Extension Period, adjusted to reflect that the provisions of the section of this Lease Addendum No. 3 entitled "Rental Escalation for Increases in Expenses" shall continue uninterrupted and without modification and that Ground Floor Monthly Rent shall not be adjusted during the applicable Ground Floor Extension Period. If the Market Rent for any Ground Floor Extension Period, determined in accordance with this section of this Lease Addendum No. 3, is less than the Ground Floor Monthly Rent in effect for the month of April immediately preceding the commencement of the next applicable Ground Floor Extension Period, Lessee shall have the right, at its sole option, to terminate the Lease for the Demised Premises. To exercise this termination option, Lessee shall serve on Lessor written notice of its election to exercise such termination option no later than thirty (30) days following the receipt of the brokers' determination of Market Rent for the applicable Ground Floor Extension Period pursuant to this section. If Lessee exercises its option to terminate the Lease as aforesaid, then notwithstanding anything contained in the Lease or herein to the contrary, the Lease shall terminate and become of no further force or effect on the later of (i) the then applicable expiration date of the Lease, or (ii) the date ("Revised Expiration Date") which is the last day of the twelfth month following the date Lessee serves Lessor with such notice, except as to obligations of Lessee accruing in each case on or before each expiration date which shall remain obligations of Lessee until satisfied. If the Revised Expiration Date becomes the effective date of expiration of the term of the Lease, the term of the Lease shall automatically be extended for a period commencing on the date the term would have expired ("Original Expiration Date") but for this paragraph, and expiring on the Revised Expiration Date (such period called the "Limited Extension Period"), and all of the terms, covenants and conditions of the Lease and this Lease Addendum No. 3 shall remain in full force and effect, except that the Ground Floor Monthly Rent and the Metro Level Monthly Rent (if applicable) -11- 62 for the Limited Extension Period shall equal the Ground Floor Monthly Rent and the Metro Level Monthly Rent, respectively, in effect during the last full calendar month immediately preceding the commencement of the Limited Extension Period. (C) Lessee's exercise of any option for any Metro Level Extension Period shall not be a condition precedent to Lessee's right to exercise its option to extend the term of the Lease for any Ground Floor Extension Period. If Lessee fails to exercise timely or properly, or elects not to exercise its option to extend the Lease for any Metro Level Extension Period, then from and after the expiration of the term of the Lease for the Metro Level Demised Premises, (i) the Demised Premises shall consist solely of the Ground Floor Demised Premises, (ii) Lessee's proportionate share of increases in Operating Expenses payable by Lessee pursuant to the section of this Lease Addendum No. 3 entitled "Rental Escalation for Increases in Expenses" shall be 1.53%, and (iii) Lessee shall have no further rights to lease from Lessor, and Lessor shall have no further obligations to lease to Lessee, the Metro Level Demised Premises. If Lessee fails to exercise timely or properly, or elects not to exercise its option to extend for any Ground Floor Extension Period, Lessee shall have no option to extend the term of the Lease for the Demised Premises, and Lessee shall have no further rights to lease the Demised Premises from Lessor, and Lessor shall have no further obligations to lease to Lessee the Demised Premises after the expiration of the then applicable term of the Lease. (D) Additional rent for Operating Expenses as set forth in the section of this Lease Addendum No. 3 entitled "Rental Escalation for Increases in Expenses" shall continue uninterrupted, through each successive Metro Level Extension Period set forth in this section, and through each successive Ground Floor Extension Period set forth in this section. However, Lessee's proportionate share of increases in Operating Expenses shall be appropriately adjusted to reflect the then current area of the Demised Premises. All other terms and provisions of the Lease shall remain in full force and effect during each Metro Level Extension Period and Ground Floor Extension Period properly and timely exercised by Lessee. (E) In the event the brokers' determination system is utilized by Lessor and Lessee, Lessor and Lessee shall each pay the fee of the broker selected by it and they shall share equally the payment of the fee of the third broker. (F) An addendum setting forth the term of the applicable extension period, the applicable monthly rent and any other appropriate terms and conditions consistent with this Lease Addendum No. 3 shall be executed by Lessor and Lessee within ten (10) days after the parties' agreement, or in the alternative, within thirty (30) days after the brokers' determination of Market Rent for the applicable extension period. -12- 63 (G) This section of Lease Addendum No. 3 shall become null and void and of no force and effect if Lessee assigns the Lease or subleases any portion of the Demised Premises to a party other than a subsidiary, affiliate, successor corporation or partnership (as such terms are defined in the section of the Lease entitled "ASSIGNMENT AND SUBLETTING"). 7. Option to Expand. Subject and subordinate to the rights of existing tenants of the Expansion Space (as hereinafter defined) as of the date of this Lease Addendum No. 3, Lessor grants to Lessee during Metro Level Extension Period 1 an option to expand the Metro Level Demised Premises to include an area on the metro level of the Building, having a rentable area of approximately 1,612 square feet (said area is hereinafter referred to as the "Expansion Space" and is outlined on Exhibit A-1 attached hereto), provided Lessee exercises this option as set forth below, and provided further that Lessee is not in default under the Lease beyond any applicable notice and cure period either on the date Lessee notifies Lessor of its intent to exercise this option or at any time thereafter up to and including the commencement date of the term of the Lease with respect to the Expansion Space (the "Expansion Space Commencement Date"). Except as noted above, the option to expand granted herein shall be superior to the rights of all other parties with regard to the leasing or use and occupancy of any or all of the Expansion Space. Provided all such existing tenants have either waived or elected not to exercise any and all rights such tenants may have for the Expansion Space, Lessor shall notify Lessee in writing at such time during Metro Level Extension Period 1 as the Lessor is able to lease the Expansion Space to Lessee, and shall specify the anticipated delivery date of the Expansion Space which date shall be no earlier than ninety (90) days following the delivery of such notice from Lessor to Lessee. Lessee may exercise this option to expand only by delivering written notice to Lessor, no later than ninety (90) days after Lessee's receipt of Lessor's notice specifying the availability of the Expansion Space, stating its intent to exercise this option. In such event, the Expansion Space Commencement Date, and the date Lessor shall deliver possession of the Expansion Space to Lessee, shall be the date specified in Lessor's notice to Lessee as provided above. In the event Lessor is unable to deliver possession of the Expansion Space to Lessee by the date specified in Lessor's notice, Lessor, its agents and employees, shall not be liable or responsible for any claims, damages or liabilities arising in connection therewith or by reason thereof. In such event, Lessee's option to expand shall remain in effect, and Lessor shall notify Lessee in writing no less than ten (10) days prior to the date Lessor is able to deliver possession of the Expansion Space to Lessee. Unless Lessee notifies Lessor of Lessee's desire to withdraw the exercise of its option to expand in writing and such notice is received by Lessor within ten (10) days after the specified delivery date, any delay in the delivery of possession of the Expansion Space beyond the date specified in Lessor's notice will not excuse or release Lessee from its obligation to accept possession of the Expansion Space, pay rent for the -13- 64 Expansion Space, and perform all of Lessee's obligations under the Lease with respect to the Expansion Space. The Expansion Space Commencement Date shall be extended to the earlier of (i) the date Lessor delivers possession of the Expansion Space, provided Lessor has given Lessee ten (10) days prior written notice of the date of such delivery, or (ii) the date Lessee enters into possession of the Expansion Space. Lessee's exercise of this option to expand shall be subject to the following conditions: (i) Lessee shall accept the Expansion Space, as part of the Demised Premises, in its then "as is" condition; (ii) the term of the Lease with respect to the Expansion Space shall commence on the Expansion Space Commencement Date, and said term shall be coterminous with the term of this Lease as it applies to the Metro Level Demised Premises and any extension thereof; (iii) Lessee's obligation to pay monthly rent for the Expansion Space, in advance, shall commence on the Expansion Space Commencement Date; (iv) monthly rent for the Expansion Space shall be an amount equal to the product of the number of square feet of rentable area attributable to the Expansion Space, multiplied by the Metro Level Monthly Rent per square foot of rentable area attributable to the Metro Level Demised Premises in effect during the first full calendar month following the Expansion Space Commencement Date; (v) the percentage of Lessee's proportionate shares of operating expenses shall be increased to reflect the addition of the Expansion Space to the Demised Premises (with the Base Year remaining calendar year 1992), in accordance with the calculation of such percentages set forth in the section of the Lease Addendum No. 3 entitled, "Rental Escalation for Increases in Expenses," such revised percentages to become effective as of the Expansion Space Commencement Date, with appropriate pro rata adjustments being made in the calculation of Lessee's proportionate share of Operating Expenses for the calendar year in which the Expansion Space Commencement Date occurs; (vi) monthly rent for the Expansion Space shall be abated from and following the Expansion Space Commencement Date for up to five (5) full calendar months, provided the actual number of months of abatement of such monthly rent shall be reduced by the number of lease years of the Lease that have expired in Metro Level Extension Period 1 at the time the Expansion Space Commencement Date occurs. By example, and assuming the Extension Commencement Date is May 1, 1992, if the Expansion Space Commencement Date occurs on June 1, 1995, Lessee shall be -14- 65 entitled to two (2) months of abatement of monthly rent attributable to the Expansion Space; if the Expansion Space Commencement Date occurs on January l, 1995, Lessee shall be entitled to three (3) months of such abatement. (vii) Lessor shall provide to Lessee an improvement allowance, not to exceed Forty Thousand Three Hundred and 00/100ths Dollars ($40,300.00), (the "Expansion Allowance") for (a) the purchase and installation of Lessee's Alterations within the Expansion Space during the first six (6) full calendar months following the Expansion Space Commencement Date, and (b) ancillary costs directly related to Lessee's occupancy of the Expansion Space (including, but not limited to, furniture purchases and relocation expenses). The Expansion Allowance shall first be used as a credit to reduce or satisfy any payments due from Lessee. In the event any portion of the Expansion Allowance remains unapplied after crediting amounts due from Lessee, Lessee may submit to Lessor, but on a monthly basis only, invoices for such costs incurred by Lessee under (a) and (b) above. Lessee shall also provide appropriate signed waivers of mechanic's liens executed by all contractors or subcontractors installing Alterations in the Expansion Space or providing other qualified services on behalf of Lessee. After inspection and approval of the portion of the Alterations installed as reflected by such invoices, and verification of the invoices and waivers submitted, Lessor shall pay to Lessee (or any other party on Lessee's behalf at Lessee's written request) the lesser of (c) the total amount of such approved invoices or (d) the Expansion Allowance. In no event however shall Lessor be obligated to reimburse Lessee (or pay to any other party on Lessee's behalf at Lessee's written request) for any amount, where Lessor's liability for amounts applied by Lessor or reimbursed exceed in the aggregate the amount of the Expansion Allowance specified above. In the event any portion of the Expansion Allowance remains after the first six (6) full calendar months following the Expansion Space Commencement Date, such remaining portion shall be credited to Lessee's next due payment(s) of Monthly Rent. In the event Lessee employs the services of Lessor as a construction manager for Lessee's Alterations in the Demised Premises, Lessee shall pay to Lessor seven percent (7%) of the cost of such Alterations installed in the Demised Premises, such fee being compensation for Lessor's general conditions, overhead and profit; (viii) by the exercise of the option to expand the Metro Level Demised Premises to include the Expansion Space, Lessee shall be deemed to have exercised its option to extend the term of the Lease for Metro Level Extension Period 2, pursuant to paragraph (A) of the section of this Lease Addendum No. 3 entitled "Options to Extend"; (ix) for the purposes of this Lease, during any subsequent Metro Level Extension Period, the Expansion Space shall be deemed part of, and included within the definition of, the Metro Level Demised Premises; and -15- 66 (x) all other terms and conditions of the Lease shall apply to the Expansion Space, except as the same are specifically modified by the mutual agreement of Lessor and Lessee. Within thirty (30) days after Lessee exercises this option, Lessor and Lessee shall execute an addendum to this Lease setting forth the terms and conditions for the leasing of the Expansion Space consistent with this Lease Addendum No. 3. When Lessee accepts possession of the Expansion Space, Lessor and Lessee shall execute the "Declaration as to Date of Delivery and Acceptance of Possession of Expansion Space," attached hereto as Exhibit B, which shall specify the Expansion Space Commencement Date. 8. Alterations. (A) Lessor shall provide to Lessee an improvement allowance, not to exceed One Hundred Ninety Thousand Five Hundred Seventy-Five and 00/l00ths Dollars ($190,575.00) (the "Allowance"), for (i) the purchase and installation of Lessee's Alterations (as defined in the Lease) within the Demised Premises during the first six (6) calendar months following the Extension Commencement Date, and (ii) ancillary costs directly related to Lessee's occupancy of the Demised Premises (including, but not limited to, furniture purchases and relocation expenses). Lessee may submit to Lessor, but on a monthly basis only, invoices for such costs incurred by Lessee under (i) and (ii) above. Lessee shall also provide appropriate signed waivers of mechanic's liens executed by all contractors or subcontractors installing Alterations in the Demised Premises or providing other qualified services on behalf of Lessee. After inspection and approval of the portion of the Alterations installed as reflected by such invoices, and verification of the invoices and waivers submitted, Lessor shall pay to Lessee (or any other party on Lessee's behalf at Lessee's written request) the lesser of (i) the total amount of such approved invoices or (ii) the Allowance. In no event however shall Lessor be obligated to reimburse Lessee (or any other party on Lessee's behalf at Lessee's written request) for any amount, where Lessor's liability for amounts applied by Lessor or reimbursed exceed in the aggregate the amount of the Allowance specified above. In the event a portion of the Allowance remains after the first six (6) full calendar months following the Extension Commencement Date, such remaining portion shall be credited to Lessee's next due payment(s) of Monthly Rent. In the event Lessee employs the services of Lessor as a construction manager for Lessee's Alterations in the Demised Premises, Lessee shall pay to Lessor seven percent (7%) of the cost of such Alterations installed in the Demised Premises, such fee being compensation for Lessor's general conditions, overhead and profit. (B) Lessee shall not be required by Lessor to remove (i) the tenant improvements located in the Ground Floor Demised Premises and the Metro Level Demised Premises in place as of the date of this Addendum as first hereinabove set forth, or (ii) the Alterations installed pursuant to -16- 67 either (a) this paragraph 8 of Addendum No. 3, or (b) subparagraph 7(vii) of Addendum No. 3, at the expiration or earlier termination of the term of the Lease; provided that in any case and notwithstanding the foregoing Lessee shall have the responsibility to remove those tenant improvements unique to Lessee's banking operations and use, including but not limited to automatic teller machines, after hours depository and vaults. Lessee will not be required to remove doors or walls. The provisions of the Lease as to Alterations shall otherwise cover Lessee's obligations for repairs to the Ground Floor Demised Premises and the Metro Level Demised Premises where Lessee removes or is required to remove tenant improvements. (C) In the event Lessee does not elect to exercise its option to extend the term of the Lease for the then applicable Metro Level Extension Period, and provided that Lessee is not in default under the Lease beyond any applicable notice and cure periods, Lessor will remove, or cause to be removed, the internal staircase within the Demised Premises, promptly after the expiration of the term of the Lease with respect to the Metro Level Demised Premises. In the area of the Ground Floor Demised Premises so affected by such removal, Lessor shall restore such area with Building standard flooring and floor covering at Lessor's cost and expense. Lessee shall not be entitled to any abatement of rent arising from such restoration by Lessor. (D) Lessee shall have the responsibility to comply with and undertake at its expense any physical modifications to the Demised Premises required due to the nature of Lessee's business operations, use of the Demised Premises, or both, by application of any law, statute, ordinance or regulation. 9. Brokers Lessor and Lessee each represent and warrant one to another that, except as hereinafter set forth, neither of them has had any dealings with any broker or employed any broker with respect to this Lease Addendum No. 3. Lessee represents that it has employed The Rome Group, Inc. as its broker, and Lessor represents that it has employed The Oliver Carr Company as its broker. Lessor further agrees to pay the commissions accruing to each identified broker pursuant to certain outside agreement(s). Lessor shall indemnify and hold Lessee harmless, and Lessee shall indemnify and hold Lessor harmless, from and against any claim or claims for brokerage or other commission arising from or out of any breach of the foregoing representation and warranty by the respective indemnitors. 10. Advertising and Promotional Fund. Effective as of the Extension Commencement Date, the section of the Lease entitled "ADVERTISING AND PROMOTIONAL FUND" is hereby deleted in its entirety. -17- 68 11. Other Terms and Provisions. All provisions of the Lease are hereby reaffirmed as if fully set forth therein, except as they are modified or restated by the provisions of this Lease Addendum No. 3. If any provision of this Lease Addendum No. 3 conflicts with any provision of the Lease, the provision of this Lease Addendum No. 3 shall control. All terms and conditions of the Lease, except as otherwise stated in this Lease Addendum No. 3, are fully applicable to the Additional Demised Premises. IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease Addendum No. 3 to be signed in their names by their duly authorized representatives and delivered as their act and deed, intending to be legally bound by its terms and provisions. LESSOR: THE SQUARE 106 ASSOCIATES By: /s/ OLIVER T. CARR, JR. ------------------------------- Oliver T. Carr, Jr., Managing Venturer DISTRICT OF COLUMBIA, to wit: I, Olivia M. Kerr, a Notary Public in and for the District of Columbia do hereby certify that Oliver T. Carr, Jr., who is personally well known to me as the person who executed the foregoing and annexed Lease Addendum No. 3, dated the 12th day of February, 1992, on behalf of the Lessor, to acknowledge the same, personally appeared before me in said District and acknowledged said Lease Addendum No. 3 to be the act and deed of The Square 106 Associates, and delivered the same as such. GIVEN under the hand and seal this 28th day of February, 1992. /s/ OLIVIA M. KERR ---------------------------------- Notary Public, D.C. My commission expires: November 30, 1996 -18- 69 LESSEE: Attest: CENTURY BANCSHARES, INC. /s/ ROSEMARY GAINES By: /s/ JOSEPH S. BRACEWELL - ------------------------------ --------------------------- Name: Rosemary Gaines Name: Joseph S. Bracewell Title: Acting Secretary Title: President ( Corporate Seal ) The District of Columbia ) ) to wit: - --------------------------- ) - --------------------------- I, Mark A. Hayes, a Notary Public in and for the aforesaid jurisdiction do hereby certify that Joseph S. Bracewell, who is personally well known to me as the person who executed the foregoing and annexed Lease Addendum No. 3, dated the 12th day of February, 1992, on behalf of the Lessee, to acknowledge the same, personally appeared before me in said jurisdiction and acknowledged said Lease Addendum No. 3 to be the act and deed of Century Bancshares, Inc., and delivered the same as such. GIVEN under the hand and seal this 13th day of February, 1992. /s/ MARK A. HAYES ------------------------------ Notary Public My commission expires: July 31, 1993 -19- 70 EXHIBIT A [This exhibit is a floor plan of the ground floor of International Square indicating with a crosshatch the existing office space leased to Century Bancshares, Inc.] -20- 71 EXHIBIT A-1 [This exhibit is a floor plan of the metro level of International Square indicating with vertical lines the existing office space leased to Century Bancshres, Inc. and indicating with a crosshatch the expansion area being leased under Lease Addendum No. 3.] -21- 72 ADDENDUM NO. 4 TO LEASE THIS ADDENDUM NO. 4 dated the 27th day of October, 1995, by and between Carr Realty, L.P., a Delaware limited partnership (hereinafter referred to as "Lessor"), and Century Bancshares, Inc., a Delaware corporation, (hereinafter referred to as "Lessee"). WHEREAS, by Lease dated the 14th day of January, 1982, The Square 106 Associates, predecessor in interest of Lessor ("Prior Lessor"), leased to Century National Bank ("Century Bank"), Lessee's predecessor-in-interest, approximately 3,895 square feet of rentable area on the ground floor of the office building situated at 1875 Eye Street, N.W., Washington, D.C., 20006 (said premises hereinafter referred to as the "Ground Floor Demised Premises," and said building hereinafter referred to as the "Building"); WHEREAS, by Lease Addendum No. 1 dated the 14th day of March, 1984, Prior Lessor leased to Century Bank additional rentable area in the Building comprising approximately 5,038 square feet of rentable area on the metro level of the Building; WHEREAS, by Lease Addendum No. 2 dated the 18th day of December, 1991, Prior Lessor leased to Century Bank approximately 248 square feet of additional rentable area on the metro level of the Building; WHEREAS, the rentable area on the metro level of the Building is hereinafter collectively referred to as the "Metro Level Demised Premises," and shall amount to a total rentable area of five thousand two hundred eighty-six (5,286) square feet, and the Metro Level Demised Premises and the Ground Floor Demised Premises are hereinafter collectively referred to as the "Demised Premises," and shall amount to a total rentable area of nine thousand one hundred eighty-one (9,181) square feet; WHEREAS, Lessee is the successor by merger to Century Bank, and Lessee has assumed all of Century Bank's interest, rights and obligations under the Lease; WHEREAS, by Lease Addendum No. 3 dated the 12th day of February, 1992, the term of the Lease was extended pursuant to the provisions thereof (said Lease, Lease Addendum No. 1, Lease Addendum No. 2 and Lease Addendum No. 3 hereinafter collectively referred to as the "Lease"); WHEREAS, Lessor has notified Lessee of the availability of approximately 65 square feet of additional rentable area on the metro level of the Building, and Lessor and Lessee have successfully negotiated mutually agreeable terms and conditions for the leasing of said area by Lessee; 73 WHEREAS, Lessor and Lessee desire to formally reflect their understandings and agreements whereby the Demised Premises will be expanded, and therefore to revise and modify the Lease accordingly, with respect to the following provisions: 1. Additional Rentable Area 2. Broker and Agent 3. Other Terms and Provisions NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, the parties agree as follows: 1. ADDITIONAL RENTABLE AREA Lessee agrees to lease from Lessor, and Lessor agrees to lease to Lessee, additional rentable square feet amounting to approximately 65 square feet of rentable area on the metro level of the Building, the additional area being identified on the attached floor plan and made part of this Addendum No. 4 as Exhibit A (said rentable area being hereinafter referred to as the "Additional Rentable Area"). The Demised Premises and the Additional Rentable Area shall be collectively referred to as the "Demised Premises Expanded", and said amount to a total rentable area of approximately 9,246 square feet. Subject to and upon the covenants, agreements and conditions of Lessor and Lessee set forth herein, or in any Exhibit hereto, the term of the Lease with respect to the Additional Rentable Area shall commence on November 1, 1995 (hereinafter called the "Additional Rentable Area Commencement Date"), and shall be coterminous with the term of the Lease as it applies to the Ground Floor Demised Premises * see page 3. Lessor shall deliver, and Lessee shall accept, the Additional Rentable Area in its "as-is" condition. The initial Monthly Rent for the Additional Rentable Area, as of the Additional Rentable Area Commencement Date, which Lessee hereby agrees to pay in advance to Lessor, and Lessor hereby agrees to accept, shall be Four Hundred Dollars ($400.00). Such Monthly Rent shall, however, be increased on each November 1, commencing on November 1, 1996, by multiplying the then Monthly Rent by one hundred three percent (103%). Lessor agrees to abate such Monthly Rent in the aggregate amount of One Thousand Two Hundred Dollars ($1,200.00), such abatement to be applied against such Monthly Rent from November 1, 1995 to January 31, 1996. 74 As of the Additional Rentable Area Commencement Date, Lessee's proportionate share of increases in Operating Expenses shall be increased by 0.02%, from 3.62% to 3.64%. Lessee's obligations with respect to 1995 shall be pro-rated accordingly. All Alterations to the Additional Rentable Area shall be performed in accordance with the section of the Lease entitled "ALTERATIONS," and in connection therewith Lessee shall submit for Lessor's approval all design and construction documents. 2. BROKER AND AGENT Lessor and Lessee each represent and warrant one to another that, except as hereinafter set forth, neither of them has employed any broker in carrying on the negotiations, or had any dealings with any broker, relating to this Addendum No. 4. Lessor represents that it has employed Carr Real Estate Services as its broker. Lessor, pursuant to a separate agreement, has agreed to pay the commission of such identified broker. Lessor shall indemnify and hold Lessee harmless, and Lessee shall indemnify and hold Lessor harmless, from and against any claim or claims for brokerage or other commission arising from or out of any breach of the foregoing representation and warranty by the respective indemnitors. 3. OTHER TERMS AND CONDITIONS All other provisions of the Lease shall remain in effect and unchanged except as modified herein, and all terms, covenants and conditions shall remain in effect as modified by this Addendum No. 4. If any provision of this Addendum No. 4 conflicts with the Lease, the provisions of this Addendum No. 4 shall control. *including options to extend; provided, however, that the options to extend shall apply separately to the Ground Floor Demised Premises and the Additional Rentable Area. -3- 75 IN WITNESS WHEREOF, Lessor and Lessee have each caused this Addendum No. 4 to be signed in its name under seal by its duly authorized representative and delivered as its act and deed, intending to be legally bound by all its terms and conditions. LESSOR: CARR REALTY, L.P. Attest: By: Carr Realty Corporation General Partner /s/ ANDREA FISH BRADLEY By: /s/ THOMAS A. CARR - -------------------------- ----------------------------- NAME: Andrea Fish Bradley Thomas A. Carr ---------------------------- President TITLE: Vice President, General --------------------------- Counsel and Corporate Secretary LESSEE: Attest: CENTURY BANCSHARES, INC. By: /s/ PAUL P. SCHAUS /s/ JOSEPH S. BRACEWELL - --------------------------------- ------------------------------- NAME: Paul P. Schaus NAME: Joseph S. Bracewell --------------------------- -------------------------- TITLE: Senior Vice President/CFO TITLE: Chairman of the Board -------------------------- ------------------------ -4- 76 DISTRICT OF COLUMBIA, to wit: I, Olivia M. Kerr, a Notary Public in and for the District of Columbia, do hereby certify that Thomas A. Carr, who is personally well known to me to be the person who executed the foregoing and annexed Lease Addendum No. 4, bearing date on the 27th day of October, 1995, on behalf of Lessor, personally appeared before me in said District and acknowledged the said Lease Addendum No. 4 to be the act and deed of Carr Realty, L.P., and delivered the same as such. GIVEN under my hand and seal this 9th day of November, 1995. /s/ OLIVIA M. KERR ------------------------- Notary Public, Inc. My commission expires: November 30, 1996 ) - ------------- ) - ------------- ) - ------------- I, Debra M. Johnson , a Notary Public in and for the jurisdiction aforesaid, do hereby certify that Joseph S. Bracewell, who is personally well known to me to be the person who executed the foregoing and annexed Lease Addendum No. 4, dated the 27th day of October,1995, on behalf of Lessee, to acknowledge the same, personally appeared before me in said jurisdiction and acknowledged said Lease Addendum No. 4 to be the act and deed of Century Bancshares, Inc. and delivered the same as such. GIVEN under my hand and seal this 27th day of October, 1995. /s/ DEBRA M. JOHNSON ------------------------ Notary Public My commission expires: April 30, 2000 -5- 77 November 13, 1995 Mr. Paul P. Schaus Senior Vice President and Chief Financial Officer Century Bancshares, Inc. 1875 Eye Street, N.W. Washington, D.C. 20006 Re: Addendum No. 4 to Lease Century Bancshares, Inc. 1875 Eye Street. N.W. Dear Mr. Schaus: Enclosed please find your fully executed original of the above-referenced document. If you have any questions, please feel free to contact me at (202) 624-1725. Very truly yours, CARR REAL ESTATE SERVICES /s/ DOUGLAS D. OLSON Douglas D. Olson Director of Retail Leasing DDO/kac Enclosure cc: Mr. Jerry Masotti (w/enclosure) Mr. Larry Goodwin (w/enclosure) Ms. Kimberly Falck (w/enclosure) Robert N. Weinstock, Esquire (w/enclosure) -6- 78 EXHIBIT A [This exhibit is a floor plan of the metro level of International Square.] -7- 79 LEASE ADDENDUM NO. 5 THIS LEASE ADDENDUM NO. 5 ("Addendum No. 5) dated as of the first (1st) day of June, 1996, by and between Carr Realty, L.P., a Delaware limited partnership (hereinafter referred to as "Lessor"), and Century Bancshares, Inc., a Delaware corporation (hereinafter referred to as "Lessee"). WHEREAS, by Lease dated the 14th day of January, 1982, The Square 106 Associates, Lessor's predecessor-in-interest ("Prior Lessor"), leased to Century National Bank ("Century Bank"), Lessee's predecessor-in-interest, approximately 3,895 square feet of rentable area on the ground floor of the office building situated at 1875 Eye Street, N.W., Washington, D.C., 20006 (said premises hereinafter referred to as the "Ground Floor Demised Premises," and said building hereinafter referred to as the "Building"); WHEREAS, by Lease Addendum No. 1 dated the 14th day of March, 1984, Prior Lessor leased to Century Bank additional rentable area in the Building comprising approximately 5,038 square feet of rentable area on the metro level of the Building; WHEREAS, by Lease Addendum No. 2 dated the 18th day of December, 1991, Prior Lessor leased to Century Bank approximately 248 square feet of additional rentable area on the metro level of the Building (said area together with the approximately 5,038 square feet of rentable area on the metro level of the building is collectively referred to as the "Metro Level Demised Premises" amounting to a total rentable area of approximately 5,286 square feet of rentable area); WHEREAS, Lessee is the successor by merger to Century Bank, and Lessee has assumed all of Century Bank's interest, fights and obligations under the Lease; WHEREAS, by Lease Addendum No. 3 dated the 12th day of February, 1992, the term of the Lease was extended pursuant to the provisions thereof; WHEREAS, by Addendum No. 4 to Lease dated the 27th day of October, 1995, Lessor leased to Lessee approximately 65 square feet of additional rentable area on the metro level of the Building (said area hereinafter referred to as the "Additional Rentable Area"); WHEREAS, the above-described Lease, Lease Addendum No. 1, Lease Addendum No. 2, Lease Addendum No. 3 and Addendum No. 4 to Lease are hereinafter collectively referred to as the "Lease"; 80 WHEREAS, the Ground Floor Demised Premises, the Metro Level Demised Premises and the Additional Rentable Area are hereinafter collectively referred to as the "Demised Premises" and shall amount to a total rentable area of approximately 9,246 square feet; WHEREAS, Lessee has requested that the term of the Lease with respect to the Metro Level Demised Premises be extended for an additional term of five years, and Lessor, upon receipt of Lessee's request, has agreed to the requested extension of the term of the Lease upon the terms and conditions hereinafter set forth in the body of this Addendum No. 5; WHEREAS, Lessor and Lessee desire to reflect their understandings and agreements formally whereby the term of the Lease will be extended with respect to the Metro Level Demised Premises, and therefore to revise and modify the Lease accordingly, with respect to the following provisions: 1. Term 2. Rent 3. Options to Extend 4. Alterations 5. Option to Partially Terminate 6. Broker and Agent 7. Other Terms and Provisions
NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, the parties agree as follows: 1. TERM The term of the Lease with respect to the Metro Level Demised Premises shall be extended for a period of five (5) years, such period to commence on May 1, 1997 (the "Metro Level Extension Period 2 Commencement Date"), and to expire on April 30, 2002 (the "Metro Level Extension Period 2 Expiration Date"). This period is hereinafter referred to as the "Metro Level Extension Period 2." 2. RENT Effective as of June 1, 1996 (the "Effective Date") Lessee shall pay to Lessor and Lessor shall accept from Lessee as monthly rent for the Metro Level Demised Premises (the "Metro Level Monthly Rent"), without setoff, deduction or demand, the following: -2- 81
Annual Rate Per Rentable Period Monthly Rent Square Foot ------ ------------ ----------------- June 1, 1996 -May 31, 1997 $ 8,810.00 $ 20.00 June 1, 1997 -May 31, 1998 9,030.25 20.50 June 1, 1998 -May 31, 1999 9,254.91 21.01 June 1, 1999 -May 31, 2000 9,488.37 21.54 June 1, 2000 -May 31, 2001 9,726.24 22.08 June 1, 2001 -April 30, 2002 9,968.52 22.63
3. OPTIONS TO EXTEND Lessee's rights as set forth in this Addendum No. 5 shall be in lieu of and in full satisfaction of Lessee's rights with respect to Metro Level Extension Period 2 as set forth in Addendum No. 3. Lessee's rights with respect to Metro Level Extension Period 3 and Metro Level Extension Period 4, each as set forth in Addendum No. 3, shall continue in full force and effect. 4. ALTERATIONS (A) Lessor, at Lessor's sole expense, shall make the renovations to the Metro Level Demised Premises described in the space plans and specifications attached hereto as Exhibit A ("Preliminary Drawing and Specifications") (the "Renovations"). Lessor's obligations shall include without limitation, any and all costs associated with the design or construction of the Renovations, including the costs of permits and licenses and construction management fees, life safety systems and sprinkler installations, space planning, engineering architectural and design fees phone and computer cabling and installation costs, and costs of fixtures, furnishings, and equipment. As part of the Renovations, and included in the cost thereof, Lessor shall restore Lessee's HVAC to good working condition for use in the Metro Level Demised Premises. Lessor currently estimates the costs of the Renovations shall equal approximately $45,000. Notwithstanding such estimate, Lessor agrees that it shall be solely responsible for any costs to perform and complete the Renovations in excess of said estimate except to the extent such excess costs are caused by changes to the Renovations requested by Lessee in writing. Notwithstanding anything contained in the Lease to the contrary, Lessor shall maintain and repair the HVAC system in the Metro Level Demised Premises, but only to the extent such maintenance and repair is not covered by the service contract required to be obtained by Lessee for such system pursuant to the Lease. (B) All Renovations shall be performed by a general contractor selected by Lessor in Lessor's discretion ("Lessor's General Contractor"), shall consist solely of new materials and shall be of good quality and workmanship. The Renovations shall be purchased and installed by Lessor -3- 82 or Lessor's General Contractor. All Renovations shall be and shall remain the property of Lessor. After the Effective Date, any replacement of any property, fixtures or improvements of Lessor, whether made at Lessee's expense or otherwise, shall be and shall remain the property of Lessor. (C) As part of the Renovations, Lessor's staff architect shall prepare design and architectural drawings which shall be subject to the written approval of Lessor and Lessee and shall be consistent with the Preliminary Drawings and Specifications. Lessor shall also prepare mechanical and electrical working drawings ("Working Drawings"). The Working Drawings shall be based upon the architectural drawings, and Lessor shall obtain Lessee's approval of the Working Drawings. (D) Lessor shall use, and shall cause Lessor's General Contractor to use, reasonable efforts not to interfere with Lessee's business but shall be granted access to the Demised Premises during business hours for the purpose of performing the Renovations. Lessor shall use reasonable efforts to obtain all necessary permits and licenses for the performance and completion of the Renovations as soon as reasonably practicable following the execution and delivery of this Addendum No. 5. Lessor shall use reasonable efforts to cause Lessor's General Contractor to commence the Renovations within 10 days after such permits and licenses are issued and to complete the Renovations within 30 days thereafter. In no event shall Lessee be entitled to any rent abatement as a result of the performance of the Renovations. Lessor shall indemnify and hold harmless Lessee from any property damage or bodily injury to Lessee, its employees, agents or customers caused by Lessor or Lessor's General Contractor, or their respective employees, agents or subcontractors, in the course of completing the Renovations. In no event will Lessor be responsible for consequential damages, including but not limited to business interruption. 5. OPTION TO PARTIALLY TERMINATE Lessee shall have, and is hereby given, the option to terminate this Lease with respect to the Metro Level Demised Premises at any time during the term of this Lease, provided Lessee is not in default of its obligation to pay rent, or of any other material term or condition of this Lease, either on the date Lessee notifies Lessor of its intent to exercise this option or (at Lessor's option) at any time up to and including the date upon which the Lease is to terminate with respect to the Metro Level Demised Premises (the "Metro Level Demised Premises Termination Date"). Lessee may exercise this option to terminate only by serving upon Lessor written notice of such election no later than twelve (12) months prior to the Metro Level Demised Premises Termination Date (the "Required Election Date"). Lessee shall, as a condition to such termination, pay to Lessor an "Unamortized Loan Amount Termination Fee" as hereinafter defined. The Unamortized Loan Amount Termination Fee shall be due and payable on or before the Metro Level Demised Premises Termination Date, and the payment thereof shall be a condition of the effectiveness of the termination of this Lease with respect to the Metro Level Demised Premises. -4- 83 The "Unamortized Loan Amount Termination Fee" shall be the then-current balance of the "Assumed Loan" (as hereinafter defined) as of the Metro Level Demised Premises Termination Date. The Assumed Loan shall be a hypothetical loan made by Lessor to Lessee as of the Effective Date. The original principal amount of the Assumed Loan shall be deemed to be all costs and expenses incurred by Lessor in connection with the Renovations. Interest shall be deemed to accrue from time to time on the outstanding principal balance of the Assumed Loan at an annual rate of eight percent (8%) compounded monthly. For each full monthly payment of Monthly Rent paid by Lessee to Lessor, Lessee shall be deemed to have paid concurrently with such monthly payment to Lessor that amount which, in seventy-one (71) equal consecutive monthly installments of such amount, would fully amortize the original principal amount of the Assumed Loan and all interest earned thereon. In the event Lessee elects to terminate the Lease with respect to the Metro Level Demised Premises pursuant to this section of the Lease, Lessee shall, in addition, remain fully obligated for all rent and other charges, including Lessee's prorated share of increases in Operating Expenses attributable to the Metro Level Demised Premises and incurred under the Lease through the Metro Level Demised Premises Termination Date, including amounts billed subsequent to the Metro Level Demised Premises Termination Date relating to the period prior thereto. In the event Lessee properly exercises this option, Lessor shall prepare and the parties shall execute a Termination of Metro Level Lease Agreement within thirty (30) days following the date on which Lessee exercises its option to terminate. 6. BROKER AND AGENT Lessor and Lessee each represents and warrants one to the other that, except as hereinafter set forth, it has not employed any broker in carrying on the negotiations, or had any dealings with any broker, relating to this Addendum No. 5. Lessor represents that it has employed Carr Real Estate Services as its broker. Lessor, pursuant to a separate agreement, has agreed to pay the commission of such identified broker. Lessor shall indemnify and hold Lessee harmless, and Lessee shall indemnify and hold Lessor harmless, from and against any claim or claims for brokerage or other commission arising from or out of any breach of the foregoing representation and warranty by the respective indemnitors. 7. OTHER TERMS AND CONDITIONS All other provisions of the Lease shall remain in effect and unchanged except as modified herein, and all terms, covenants and conditions shall remain in effect as modified by this Addendum No. 5. Specifically, this Addendum No. 5 shall have no effect on Lessee's obligations with regard to the Ground Floor Demised Premises. If any provision of this Addendum No. 5 conflicts with the Lease, the provisions of this Addendum No. 5 shall control. -5- 84 IN WITNESS WHEREOF, Lessor and Lessee have each caused this Addendum No. 5 to be signed in its name under seal by its duly authorized representative and delivered as its act and deed, intending to be legally bound by all its terms and conditions. LESSOR: CARR REALTY, L.P. By: CarrAmerica Realty Corporation Attest: General Partner By: - --------------------------- --------------------------- NAME: Thomas A. Carr ---------------------- President TITLE: --------------------- LESSEE: Attest: CENTURY BANCSHARES, INC. /s/ F. KATHRYN ROBERTS By: /s/ JOSEPH S. BRACEWELL - --------------------------- ---------------------------- NAME: F. Kathryn Roberts Joseph S. Bracewell ---------------------- Chairman of the Board TITLE: Corporate Secretary --------------------- -6- 85 DISTRICT OF COLUMBIA, to wit: I, , a Notary Public in and for the District of ----------------------- Columbia do hereby certify that Thomas A. Carr, who is personally well known to me to be the person who executed the foregoing and annexed Lease Addendum No. 5, dated as of the first day of June, 1996, on behalf of Lessor, personally appeared before me in said District and acknowledged the said Lease Addendum No. 5 to be the act and deed of Carr Realty, L.P., and delivered the same as such. GIVEN under my hand and seal this day of ,1996. --------- -------------------- ------------------------------- Notary Public My commission expires: --------------------- District of Columbia ) ) - -------------------------- ) - -------------------------- I, Debra M. Johnson, a Notary Public in and for the jurisdiction aforesaid, do hereby certify that Joseph S. Bracewell, who is personally well known to me to be the person who executed the foregoing and annexed Lease Addendum No. 5, dated as of the first day of June, 1996, on behalf of Lessee, to acknowledge the same, personally appeared before me in said jurisdiction and acknowledged said Lease Addendum No. 5 to be the act and deed of Century Bancshares, Inc. and delivered the same as such. GIVEN under my hand and seal this 1st day of October, 1996. /s/ DEBRA M. JOHNSON ------------------------------- Notary Public My commission expires: April 30, 2000 -7- EX-10.11 17 SUBLEASE AGREEMENT BETWEEN COMPANY & BANK 1 EXHIBIT 10.11 SUBLEASE AGREEMENT THIS SUBLEASE AGREEMENT ("Sublease") is made and entered into as of the 1st day of May, 1992, by and between CENTURY BANCSHARES, INC., a Delaware corporation, hereinafter called "Sublessor," and CENTURY NATIONAL BANK, a national banking association, hereinafter called "Sublessee." W I T N E S S E S T H: WHEREAS, by Lease dated the 14th of January, 1982, The Square 106 Associates, a District of Columbia joint venture, hereinafter called "Lessor", leased to Sublessee, Sublessor's predecessor in interest, approximately 3,895 square feet of rentable area on the ground floor of the office building situated at 1875 Eye Street, N.W., Washington, D.C. 20006 (said premises hereinafter referred to as the "Ground Floor Demised Premises" and said building hereinafter referred to as the "Building"); WHEREAS, by Lease Addendum No. 1 dated the 14th of March, 1984, Lessor leased to Sublessee additional rentable area in the Building comprising approximately 5,038 of square feet of rentable area on the metro level of the Building; WHEREAS, by Lease Addendum No. 2 dated the 18th day of December, 1991, Lessor leased to Sublessee approximately 248 square feet of additional rentable area on the metro level of the Building (said Lease, Lease Addendum No. 1 and Lease Addendum No. 2 hereinafter collectively referred to as the "Lease"); WHEREAS, by Lease Addendum No. 3 dated the 12th day of February, 1992, Sublessor, the successor to Sublessee and having assumed all of Sublessee's interests, rights and obligations under 2 the Lease, extended the term of the Lease with respect to the Ground Floor Demised Premises for a period of ten (10) years commencing on May 1, 1992 and expiring on April 30, 2002, and extended the term of the Lease with respect to the total rentable area on the metro level of the Building leased by Sublessor totaling approximately 5,286 square feet (said premises hereinafter referred to as the "Metro Level Demised Premises") for a period of five (5) years commencing on May 1, 1992 and expiring on April 30, 1997 (the Lease and said Lease Addendum No. 3 hereinafter collectively referred to as the "Master Lease"); WHEREAS, Sublessor desires to sublease to Sublessee approximately 3,755 square feet of the rentable area on the Ground Floor Demised Premises and approximately 5,286 square feet of the rentable area on the Metro Level Demised Premises (said subleased premises hereinafter collectively referred to as the "Subleased Premises") which Subleased Premises are crosshatched on Exhibit A attached hereto; and WHEREAS, Sublessor and Sublessee desire to reflect formally their understanding and agreement whereby the Subleased Premises shall be subleased; NOW THEREFORE, in consideration of the mutual covenants and agreements contained herein, and intending to be legally bound, the parties hereto do hereby mutually agree as follows: 1. Subleased Premises. Subject to and upon the terms and conditions set forth herein, Sublessor hereby subleases unto Sublessee the Subleased Premises. 2. Term. The term of this Sublease shall commence on the first day of May, 1992 ("Commencement Date"), and shall expire on the date thirty (30) days after written notice of -2- 3 termination is given by Sublessor to Sublessee or by Sublessee to Sublessor; provided, however, that subject to the option of the Sublessee to extend the period of this Sublease in accordance with Paragraph 6 hereof, the term of this Sublease shall not extend, with respect to the portion of the Subleased Premises within the Ground Floor Demised Premises, beyond the 29th day of April, 2002, and with respect to the portion of the Subleased Premises within the Metro Level Demised Premises, beyond the 29th day of April, 1997. 3. Use. Sublessor will use and occupy the Subleased Premises solely for the purpose of operating a bank and general office purposes. The Subleased Premises will not be used for any other purposes without the prior written consent of Sublessor. 4. Base Rent. A. Beginning on the Commencement Date, and continuing throughout the term of this Sublease, Sublessee hereby agrees and promises to pay monthly in advance to Sublessor for the portion of the Subleased Premises within the Ground Floor Demised Premises, without demand therefor and without deduction or setoff, at Sublessor's address as provided herein, and Sublessor hereby agrees to accept, base rent as follows:
Period Monthly Rent ------ ------------ May 1, 1992 through April 30, 1997 $12,309.01 May 1, 1997 through March 31, 2002 $13,907.59 April 1, 2002 through April 29, 2002 $13,259.84
-3- 4 In the event that Sublessee exercises its option to extend the term of this Sublease under Paragraph 6 hereof, monthly base rent for the term so extended shall be adjusted in accordance with the provisions of Paragraph 6 hereof. B. Beginning on the Commencement Date, and continuing throughout the term of this Sublease, Sublessee hereby agrees and promises to pay monthly in advance to Sublessor for the portion of the Subleased Premises within the Metro Level Demised Premises, without demand therefor and without deduction or setoff, at Sublessor's address as provided herein, and Sublessor hereby agrees to accept, rent as follows:
Period Monthly Rent ------ ------------ May 1, 1992 through March 31, 1997 $10,131.50 April 1, 1997 through April 29, 1997 $ 9,659.62
In the event that Sublessee exercises its option to extend the term of this Sublease under Paragraph 6 hereof, monthly base rent for the term so extended shall be adjusted in accordance with the provisions of Paragraph 6. 5. Additional Rent. Throughout the term of this Sublease, Sublessee agrees and promises to pay to Sublessor, as additional rent hereunder, within ten (10) days after receipt of Sublessor's statement therefor, and without deduction or setoff, its pro rata share of expenditures incurred by Sublessor pursuant to sections in the Master Lease entitled "Rental Escalation for Increases in Expenses." For all purposes hereof, Sublessee's pro rata share shall be deemed to be 98.50%. -4- 5 6. Option to Extend. In the event that Sublessor exercises any of its options under the Master Lease to extend the term of the Master Lease with regard to the Ground Floor Demised Premises and/or the Metro Level Demised Premises, Sublessor shall serve upon Sublessee written notice of Sublessor's exercise any such option to extend within thirty (30) days of such exercise, and Sublessee shall have the option to extend the term of this Sublease for the term of the extension period granted to Sublessor under the Master Lease less one day. Sublessee may exercise any such option to extend only by serving on Sublessor, no later than thirty (30) days after receipt from Sublessor of notice of Sublessor's exercise of its option(s) to extend under the Master Lease, written notice of Sublessee's intent to exercise its option to extend. The monthly base rent and additional rent for the term of this Sublease as so extended shall be determined by Sublessor and Sublessee based on the rental payable by Sublessor determined in accordance with sections in the Master Lease entitled "Options to Extend." 7. Acceptance of Subleased Premises. Sublessee accepts the Subleased Premises from Sublessor in an "as is" condition and agrees not to make any improvements, additions, changes or modifications in or to the Subleased Premises during the term hereof without the prior written consent of Sublessor. 8. Sublessor's Liability. Sublessor does not agree to perform or assume any obligations of Lessor under the provisions of the Master Lease, but shall exercise due diligence in attempting to cause Lessor to perform its obligations under the Master Lease for the benefit of Sublessor and Sublessee. -5- 6 9. Sublessee's Indemnity of Sublessor. Sublessee agrees to indemnify and hold harmless Sublessor from all damages resulting from any default of Sublessee under this Sublease. If Sublessee defaults in its obligations under this Sublease and Sublessor pays any sums due or performs any of Sublessee's other obligations or duties under this Sublease in order to prevent Sublessor from being in default under the terms of the Master Lease, Sublessee shall immediately reimburse Sublessor for the amount of such sums and all other costs incurred by Sublessor in fulfilling Sublessee's obligations under this Sublease together with interest on such sums at the interest rate of twelve percent (12%) per annum. 10. Sublessor Remedies Against Sublessee. In the event Sublessee defaults under the terms of this Sublease, Sublessor shall have all of the rights and remedies against the Sublessee that are available by law and those reserved by Lessor in the Master Lease in the event of a default by Sublessor thereunder. These rights and remedies include, without limitation, Sublessor's right to proceed to recover possession of the Subleased Premises from the Sublessee under and by virtue of the provisions of the laws of the District of Columbia or by such other proceedings, including re-entry and possession, as may be applicable. 11. Master Lease. This Sublease is subject to all of the terms and provisions of the Master Lease and Sublessee shall not suffer any act or omission which will violate any of the provisions of the Master Lease. To the extent the Master Lease does not conflict with the terms and conditions of this Sublease, the Master Lease is hereby incorporated into this Sublease by reference as if fully set forth herein, and Sublessee hereby promises Sublessor to perform all of the obligations of Sublessor -6- 7 to Lessor under the Master Lease and agrees to be bound by the terms and conditions of the Master Lease to the extent they are not expressly modified or limited by the terms of this Sublease and to the extent that they apply to the Subleased Premises. However, Sublessee in no way assumes or promises Lessor to perform any of the obligations of Sublessor to Lessor under the Master Lease. In the event the Master Lease terminates, this Sublease shall automatically terminate and the parties shall be relieved from all liabilities and obligations under this Sublease. 12. Surrender of the Premises Upon Termination of this Lease. Upon termination of this Sublease, Sublessee shall surrender the Subleased Premises and all improvements thereon and therein which have been made by Sublessee to Sublessor in accordance with the terms of the Master Lease. 13. Assignment/Sublease. Sublessee shall not assign this Sublease nor sublet the Subleased Premises in whole or in part, and shall not permit Sublessee's interest in this Sublease to be vested in any third party by operation of law or otherwise. 14. Notices. All notices or other communications hereunder shall be in writing and shall be deemed duly given if delivered in person, or by certified or registered mail, return receipt requested, postage prepaid, (1) if to Sublessor, at 1875 Eye Street, N.W., Washington, D.C. 20006, Attention: Chairman, and (3) if to Sublessee, at 1875 Eye Street, N.W., Washington, D.C. 20006, Attention: President. The party to receive notices and the place notices are to be sent for Sublessor or Sublessee may be changed by notice given pursuant to the provisions hereof. -7- 8 15. Miscellaneous. A. Nothing herein shall be deemed or construed by the parties hereto or by any third party as creating the relationship of principal-agent, partnership or joint venture between any of the parties hereto. B. The headings of the several paragraphs contained herein are for convenience only and do not define, limit or construe the contents of such paragraphs. C. Sublessee represents that it has read and is familiar with all of the terms of the Master Lease. D. Words of any gender used in this Sublease shall be held and construed to include any other gender and words in the single number shall be held to include the plural, unless the context requires otherwise. E. This Sublease, together with the terms of the Master Lease incorporated herein and Exhibit A attached hereto and made a part hereof, contain the entire agreement between the parties and this Sublease may be modified or amended only by a written agreement executed by the parties hereto. F. This instrument shall be binding upon and inure to the benefit to all of the parties hereto, their successors, legal representatives, and (to the extent permitted hereunder) assigns. IN WITNESS WHEREOF, Sublessor and Sublessee have caused this Sublease to be signed in their names under seal by their duly authorized officers and deliveredd as their act and deed, intending to be legally bound by its terms and provisions. -8- 9 SUBLESSOR: ATTEST: CENTURY BANCSHARES, INC. /s/ WILLIAM C. OLDAKER /s/ JOSEPH S. BRACEWELL - ---------------------------- ---------------------------- Name: William C. Oldaker Joseph S. Bracewell Title: Secretary Chairman (Corporate Seal) SUBLESSEE: ATTEST: CENTURY NATIONAL BANK /s/ ROSEMARY GAINES /s/ THOMAS B. HOPPIN - ---------------------------- ---------------------------- Name: Rosemary Gaines Name: Thomas B. Hoppin Title: Vice President Title: President (Corporate Seal) -9- 10 DISTRICT OF COLUMBIA to wit: I, Maria Lina Gonzalez, notary public in and for the aforesaid jurisdiction, do hereby certify that Joseph S. Bracewell, who is personally well known to me as the person who executed the foregoing and annexed Sublease dated as of the 1st day of May, 1992, on behalf of the Sublessor, to acknowledge the same, personally appeared before me in said jurisdiction and acknowledged said Sublease to be the act and deed of Century Bancshares, Inc. and delivered the same as such. Given under the hand and seal this 12th day of August, 1992. /s/ MARIA LINA GONZALEZ ----------------------------------- Notary Public, District of Columbia My commission expires: May 14, 1994. ------------ -10- 11 DISTRICT OF COLUMBIA to wit: I, Maria Lina Gonzalez, a notary public in and for the aforesaid jurisdiction, do hereby certify that Thomas B. Hoppin who is personally well known to me as the person who executed the foregoing and annexed Sublease dated as of the 1st day of May, 1992, on behalf of the Sublessee, to acknowledge the same, personally appeared before me in said jurisdiction and acknowledged said Sublease to be the act and deed of Century National Bank and delivered the same as such. GIVEN under the hand and seal this 12th day of August, 1992. /s/ MARIA LINA GONZALEZ ----------------------------------- Notary Public, District of Columbia My commission expires: May 14, 1994. ------------ -11- 12 EXHIBIT "A" [Two pages, each bearing a drawing by Oliver Carr Co. depicting "International Square," bordered by Eye St., 19th St., K St. and 18th St., and identifying with cross hatches the Subleased Premises on the Ground Floor and Metro Level, respectively]. -12- EX-21 18 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT Century National Bank, incorporated under the laws of the United States. EX-23.1 19 CONSENT OF KPMG PEAT MARWICK LLP 1 EXHIBIT 23.1 Consent of Independent Auditors The Board of Directors Century Bancshares, Inc.: We consent to the use of our report dated March 15, 1996, included herein, and to the reference to our firm under the heading "Experts" in the Prospectus. KPMG Peat Marwick LLP Washington, D.C. October 18, 1996 EX-24 20 POWERS OF ATTORNEY 1 EXHIBIT 24.1 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer or director of Century Bancshares, Inc., a Delaware corporation (the "Company"), hereby constitutes and appoints Joseph S. Bracewell the undersigned's true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for the undersigned and in the undersigned's name, place and stead, in any and all capacities (until revoked in writing), to sign, execute and file with the Securities and Exchange Commission the Company's Registration Statement on Form S-1 (or other appropriate form), together with all amendments thereto, with all exhibits and any and all documents required to be filed with respect thereto with any regulatory authority, granting unto said attorney-in-fact and agent, or his substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises in order to effectuate the same as fully to all intents and purposes as the undersigned might or could do if personally present, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue thereof. IN WITNESS WHEREOF, the undersigned has hereto signed this power of attorney this 14th day of October, 1996. /s/ BERNARD J. CRAVATH ----------------------------------- Bernard J. Cravath 2 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer or director of Century Bancshares, Inc., a Delaware corporation (the "Company"), hereby constitutes and appoints Joseph S. Bracewell the undersigned's true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for the undersigned and in the undersigned's name, place and stead, in any and all capacities (until revoked in writing), to sign, execute and file with the Securities and Exchange Commission the Company's Registration Statement on Form S-1 (or other appropriate form), together with all amendments thereto, with all exhibits and any and all documents required to be filed with respect thereto with any regulatory authority, granting unto said attorney-in-fact and agent, or his substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises in order to effectuate the same as fully to all intents and purposes as the undersigned might or could do if personally present, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue thereof. IN WITNESS WHEREOF, the undersigned has hereto signed this power of attorney this 15th day of October, 1996. /s/ GEORGE CONTIS ------------------------------------ George Contis 3 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer or director of Century Bancshares, Inc., a Delaware corporation (the "Company"), hereby constitutes and appoints Joseph S. Bracewell the undersigned's true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for the undersigned and in the undersigned's name, place and stead, in any and all capacities (until revoked in writing), to sign, execute and file with the Securities and Exchange Commission the Company's Registration Statement on Form S-1 (or other appropriate form), together with all amendments thereto, with all exhibits and any and all documents required to be filed with respect thereto with any regulatory authority, granting unto said attorney-in-fact and agent, or his substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises in order to effectuate the same as fully to all intents and purposes as the undersigned might or could do if personally present, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue thereof. IN WITNESS WHEREOF, the undersigned has hereto signed this power of attorney this 15th day of October, 1996. /s/ JOSEPH H. KOONZ, JR. ------------------------------------ Joseph H. Koonz, Jr. 4 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer or director of Century Bancshares, Inc., a Delaware corporation (the "Company"), hereby constitutes and appoints Joseph S. Bracewell the undersigned's true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for the undersigned and in the undersigned's name, place and stead, in any and all capacities (until revoked in writing), to sign, execute and file with the Securities and Exchange Commission the Company's Registration Statement on Form S-1 (or other appropriate form), together with all amendments thereto, with all exhibits and any and all documents required to be filed with respect thereto with any regulatory authority, granting unto said attorney-in-fact and agent, or his substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises in order to effectuate the same as fully to all intents and purposes as the undersigned might or could do if personally present, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue thereof. IN WITNESS WHEREOF, the undersigned has hereto signed this power of attorney this 14th day of October, 1996. /s/ WILLIAM McKEE ------------------------------------ William McKee 5 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer or director of Century Bancshares, Inc., a Delaware corporation (the "Company"), hereby constitutes and appoints Joseph S. Bracewell the undersigned's true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for the undersigned and in the undersigned's name, place and stead, in any and all capacities (until revoked in writing), to sign, execute and file with the Securities and Exchange Commission the Company's Registration Statement on Form S-1 (or other appropriate form), together with all amendments thereto, with all exhibits and any and all documents required to be filed with respect thereto with any regulatory authority, granting unto said attorney-in-fact and agent, or his substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises in order to effectuate the same as fully to all intents and purposes as the undersigned might or could do if personally present, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue thereof. IN WITNESS WHEREOF, the undersigned has hereto signed this power of attorney this 15th day of October, 1996. /s/ WILLIAM C. OLDAKER ------------------------------------ William C. Oldaker 6 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer or director of Century Bancshares, Inc., a Delaware corporation (the "Company"), hereby constitutes and appoints Joseph S. Bracewell the undersigned's true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for the undersigned and in the undersigned's name, place and stead, in any and all capacities (until revoked in writing), to sign, execute and file with the Securities and Exchange Commission the Company's Registration Statement on Form S-1 (or other appropriate form), together with all amendments thereto, with all exhibits and any and all documents required to be filed with respect thereto with any regulatory authority, granting unto said attorney-in-fact and agent, or his substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises in order to effectuate the same as fully to all intents and purposes as the undersigned might or could do if personally present, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue thereof. IN WITNESS WHEREOF, the undersigned has hereto signed this power of attorney this 15th day of October, 1996. /s/ NEAL R. GROSS ------------------------------------ NEAL R. Gross 7 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer or director of Century Bancshares, Inc., a Delaware corporation (the "Company"), hereby constitutes and appoints Joseph S. Bracewell, the undersigned's true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for the undersigned and in the undersigned's name, place and stead, in any and all capacities (until revoked in writing), to sign, execute and file with the Securities and Exchange Commission the Company's Registration Statement on Form S-1 (or other appropriate form), together with all amendments thereto, with all exhibits and any and all documents required to be filed with respect thereto with any regulatory authority, granting unto said attorney-in-fact and agent, or his substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises in order to effectuate the same as fully to all intents and purposes as the undersigned might or could do if personally present, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue thereof. IN WITNESS WHEREOF, the undersigned has hereto signed this power of attorney this 15th day of October, 1996. /s/ JOHN R. COPE ------------------------------------ John R. Cope EX-27 21 FINANCIAL DATA SCHEDULE
9 1,000 YEAR YEAR JUN-30-1996 DEC-31-1995 JUN-30-1996 DEC-31-1995 5,704 8,046 5,751 6,031 0 1,980 0 0 9,621 12,962 878 717 10,498 13,681 71,455 69,204 830 740 96,568 101,639 83,330 90,539 5,380 3,808 1,036 792 0 0 0 0 0 0 1,124 1,046 5,697 5,453 96,658 101,639 3,385 6,011 374 1,068 0 0 3,759 7,079 1,199 2,371 1,331 190 2,428 4,517 0 26 0 (3) 2,281 4,045 501 1,037 501 1,037 0 0 0 0 309 680 .26 .69 .26 .69 8.89 8.49 934 308 0 0 934 308 0 0 740 740 16 198 106 172 830 740 0 0 0 0 740 740
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