Document:

ex10_17.htm

Exhibit 10.17

 

FARMERS & MERCHANTS BANK OF CENTRAL CALIFORNIA

EXECUTIVE RETIREMENT PLAN – SALARY COMPONENT

	
1.

	
Purpose of the Plan.  The purpose of this Plan is to serve as part of a program to attract, retain and reward a select group of the Bank’s executive officers by providing a potentially higher level of retirement income.

	
2.

	
Definitions.  As used in this Plan, the following terms shall have the meanings indicated below:

“Adjustment Rate” shall mean the figure equal to one minus the Holding Company’s highest marginal tax rate for the current calendar year.

“Bank” shall mean Farmers & Merchants Bank of Central California and any of its subsidiaries.

“Change of Control” shall mean a change, after January 1, 2005, of control of the Holding Company. Such a Change of Control  will be deemed to have occurred immediately before any of the following occur: (i) individuals, who were members of the Board of Directors of the Holding Company immediately prior to a meeting of the shareholders of the Holding Company which meeting involved a contest for the election of directors, do not constitute a majority of the Board of Directors of the Holding Company following such election or meeting, (ii) an acquisition, directly or indirectly, of more than 35% of the outstanding shares of any class of voting securities of the Holding Company by any Person, (iii) a merger (in which the Holding Company is not the surviving entity), consolidation or sale of all, or substantially all, of the assets of the Holding Company, or (iv) there is a change, during any period of one year, of a majority of the Board of Directors of the Holding Company as constituted as of the beginning of such period, unless the election of each director who is not a director at the beginning of such period was approved by a vote of at least a majority of the directors then in office who were directors at the beginning of such period.  If the events or circumstances described in (i)-(iv), above, shall occur to or be applicable to the Bank, then such Change of Control shall be deemed for all purposes of this agreement to also be a “Change of Control” of the Holding Company.  For purposes of this agreement, the term “Person” shall mean and include any individual, corporation, partnership, group, association or other “person”, as such term is used in Section 14(d) of the Securities Exchange Act of 1934, other than the Holding Company, the Bank, any other wholly owned subsidiary of the Holding Company or any employee benefit plan(s) sponsored by the Holding Company, Bank or other subsidiary of the Holding Company.

“Disability” shall mean when an Executive (i) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or (ii) is by reason of  any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than three months under an accident and health plan covering employees of Bank.  Disability shall be determined by a physician acceptable to both the Bank and the Executive.

  

1

  

Exhibit 10.17

“Executive” shall mean (i) the President, (ii) each of the Executive Vice Presidents, and (iii) any of the Senior Vice Presidents of the Bank who is selected for participation in the Plan based on the approval of the Board of Directors.

“Normal Retirement Age” shall mean the Executive’s sixty-fifth (65th) birthday.

“Retirement Date” shall mean the day on or after Executive’s Normal Retirement Age when Executive’s Employment is Terminated.

“Plan Year” shall mean each calendar year from January 1 through December 31.  In the year of implementation, it shall commence with the date of this Plan and end on December 31, 2003.

“Retirement Account” shall mean the account maintained on the books of the Bank as described in Section 3.2.

“Simulated Investments” shall mean investments specified by the Bank for use in measuring the Retirement Benefit.  Subject to Section 3, the Bank can change the Simulated Investments only with the Executive's written agreement.  The Simulated Investments shall be of equal initial amounts.

“Simulated Investment Earnings” shall mean the after-tax rate of return on a Simulated Investment.  If the Simulated Investment is a life insurance policy, the Simulated Investment Earnings shall track cash surrender value and not include receipt of the policy's death benefit.

“Termination of Employment” or “Employment is Terminated” shall mean the Executive ceases to be employed by the Bank for any reason, voluntary or involuntary, other than (A) death or (B) a leave of absence approved by the Bank.

“Termination for Cause” shall mean the Bank terminating the Executive’s employment for conviction of a felony resulting in a material economic adverse effect on the Bank.

“Year of Employment” shall mean any year (measured from the date of the Executive’s employment with the Bank) in which the Executive completes at least 1,400 hours of employment with the Bank.

“Pool Policies” shall mean all Bank-owned life insurance policies not comprising Simulated Investment Number One (as listed in Appendix A) for all Executives who participate in the Plan. Current Pool Policies are listed in Appendix C, but are subject to change without the Executive's written agreement.

“Earnings on Pool Policies” shall mean 100% of the amount determined by subtracting the value (the calculation of which is to be performed in accordance with Sections 3.1.1 and 3.1.2) of Simulated Investment Number Two on the Pool Polices from Simulated Investment Number One on the Pool Policies and dividing the difference by the Adjustment Rate.

“Executive’s Pro-Rata Share of Earnings on Pool Policies” shall mean the amount calculated by (1) dividing Executive’s current year Forecasted Retirement Contribution amount listed in Appendix D by the sum of all Forecasted Retirement Contributions for such year for all Executives who participate in the Plan, and (2) multiplying such resulting percentage by the Earnings on Pool Policies for the current year.

  

2

  

Exhibit 10.17

“Forecasted Retirement Contribution” shall mean the amounts listed in Appendix D.

“Holding Company” shall mean Farmers & Merchants Bancorp.

	
3.

	
Retirement Compensation.

3.1           Simulated Investments. The Bank shall establish for each Executive two Simulated Investments in an initial amount equal to the cash surrender values of each Executive’s specified life insurance policies as described in Appendix A, as follows:

3.1.1           Simulated Investment Number One shall track the cash surrender value of each Executive’s specified life insurance policies as described in Appendix A.

3.1.2           Simulated Investment Number Two shall track the value of a simulated investment account comprised of both principal and accumulated net after-tax interest earnings.  Pre-tax interest earnings equal the current 5-year Treasury Bill rate, which shall initially be set at 4.30%, which shall continue through December 31, 2003.  Each January 1 thereafter the rate shall be reset based on the average 5-year Treasury Bill rate for the previous month of December according to Bloomberg or such other nationally recognized reporting service.  Simulated Investment Number Two assumes the income tax rate to be the Holding Company’s highest marginal tax rate for the current calendar year (which is 42.046%, using a Federal rate of 35% and a State franchise tax rate of 10.84%), and assumes that interest (net of tax) shall be compounded on an annual basis at the end of each Plan Year.

3.2           Retirement Account.  The Bank shall establish a Retirement Account on its books for the Executive.  The amount to be added to the Retirement Account each year after the date hereof until Termination of Employment, but not beyond Normal Retirement Age, will be the greater of (A) one percent (1%) of Simulated Investment Number One as of December 31st of the preceding year or (B) the lesser of:

	
  

	
(i)

	
the sum of: (1) one hundred percent (100%) of the sum determined by subtracting the current year’s increase in the value of Simulated Investment Number Two from the current year’s increase in the value of Simulated Investment Number One and dividing the difference by the Adjustment Rate, plus (2) the Executive’s Pro-Rata Share of Earnings on Pool Policies for the current year; or

	
  

	
(ii)

	
the Forecasted Retirement Contribution for the current year as stated in Appendix  D.

3.3           Earnings on Retirement Account Balances. After the establishment of the rabbi trust contemplated by Section 13.9(d), earnings (losses) will be credited on any undistributed balances on the last day of each calendar month.

3.4           Statement of Accounts. The Bank shall provide to the Executive, within sixty (60) days after each calendar year end, a statement setting forth the Executive’s Retirement Account balance.

3.5          Accounting Device Only.  The Retirement Account and Simulated Investments are solely devices for measuring amounts to be paid under this Plan.  Neither they nor the rabbi trust (contemplated by Section 13.9(d)) are a trust fund of any kind.  The Executive is a general unsecured creditor of the Bank for the payment of benefits.

  

3

  

Exhibit 10.17

	
4.

	
Normal Retirement.  Upon the Executive attaining his or her Retirement Date, the Bank shall pay, or cause to be paid, the Executive’s Retirement Account balance as elected on Appendix B.

	
5.

	
Early Retirement or Termination of Employment.

5.1          Less than Five Years of Employment.  Except in the event of (A) a Change of Control or (B) Disability, if the Executive retires or the Executive’s Employment is Terminated prior to Normal Retirement Age and without completing five (5) Years of Employment (measured from the date of Executive’s employment by the Bank), the Bank shall not pay any benefit to the Executive under this Plan.

5.2          Five or More Years of Employment.  Upon the Executive’s retirement or Termination of Employment (other than Termination for Cause) prior to Normal Retirement Age and after completing five (5) Years of Employment (measured from the date of Executive’s employment by the Bank), the Bank shall pay, or cause to be paid, the Executive’s Retirement Account balance as elected on Appendix B.

5.3          Termination for Cause.   If the Executive’s Employment is Terminated for Cause, the Bank shall not pay any benefit to the Executive under this Plan.

	
6.

	
Disability Benefit.  Upon the Executive's Termination of Employment following a Disability, the Bank shall pay, or cause to be paid, the Executive’s Retirement Account balance as elected on Appendix B.

	
7.

	
Change of Control.

7.1          Change of Control Benefit. Upon a Change of Control prior to the Executive’s Termination of Employment, the Executive shall be entitled to receive a benefit in the amount of:

	
  

	
(a)

	
the balance in his/her Retirement Account, including all accrued interest pursuant to Section 3.3, plus

	
  

	
(b)

	
the sum of the present value of each of the post Change of Control remaining annual Forecasted Retirement Contributions provided for in Appendix D.

 

For purposes of calculating the amount under Section 7.1(b), the present value factor shall be the Treasury Bill rate (as of the date that is five business day prior to the anticipated date of the Change of Control) for the number of years (rounded down to the nearest whole number) remaining on Appendix D for Executive.  Immediately prior to a Change of Control, the Bank shall transfer to the rabbi trust established under Section 13.9(d) any additional amounts required so that the Executive’s Retirement Account balance is equal to the amount calculated under this Section. The Bank shall pay the benefit to the Executive as elected on Appendix B.

  

4

  

Exhibit 10.17

7.2          Gross-Up Payment. In connection with a Change of Control, the Executive shall be entitled to a “Gross-Up Payment” under the terms and conditions set forth herein, and such payment shall include the Excise Tax reimbursement due pursuant to subsection (a) and any federal and state tax reimbursements due pursuant to subsection (b).

 

	
  

	
(a)

	
In the event that any payment or benefit (as those terms are defined within the meaning of Internal Revenue Code Section 280G(b)(2)) paid, payable, distributed or distributable to a Executive (hereinafter referred to as “Payments”) pursuant to the terms of this Plan or otherwise in connection with or arising out a Change of Control would be subject to the Excise Tax imposed by Section 4999 of the Internal Revenue Code or any interest or penalties are incurred by the Executive with respect to such Excise Tax, then the Executive will be entitled to receive an additional payment (“Gross-Up Payment”) in an amount equal to the total Excise Tax, interest and penalties imposed on the Executive as a result of the Payment and the Excise Taxes on any federal and state tax reimbursements as set forth in subsection (b).

 

	
  

	
(b)

	
If the Bank is obligated to pay the Executive pursuant to subsection a), the Bank also shall pay the Executive an amount equal to the “total presumed federal and state taxes” that could be imposed on the Executive with respect to the Excise Tax reimbursements due to the Executive pursuant to subsection a) and the federal and state tax reimbursements due to the Executive pursuant to this subsection.  For purposes of the preceding sentence, the “total presumed federal and state taxes” that could be imposed on the Executive shall be conclusively calculated using a combined tax rate equal to the sum of the (A) the highest individual income tax rate in effect under (i) Federal tax law and (ii) the tax laws of the state in which the Executive resides on the date that the payment is computed and (B) the hospital insurance portion of FICA.

 

	
  

	
(c)

	
No adjustments will be made in this combined rate for the deduction of state taxes on the federal return, the loss of itemized deductions or exemptions, or for any other purpose for paying the actual taxes.

 

	
  

	
(d)

	
It is further intended that in the event that any payments would be subject to other “penalty” taxes (in addition to the Excise Tax in subsection (a)) imposed by Congress or the Internal Revenue Service that these taxes would also be included in the calculation of the Gross-Up Payment, including any federal and state tax reimbursements pursuant to subsection (b).

 

	
  

	
(e)

	
An initial determination as to whether a Gross-Up Payment is required pursuant to this Plan and the amount of such Gross-Up Payment shall be made at the Bank’s expense by an accounting firm appointed by the Bank prior to any Change of Control.  The accounting firm shall provide its determination, together with detailed supporting calculations and documentation to the Bank and the Executive prior to submission of the proposed change of control to the Holding Company’s shareholders, Board of Directors or appropriate regulators for approval.  If the accounting firm determines that no Excise Tax is payable by the Executive with respect to a Payment or Payments, it shall furnish the Executive with an opinion reasonably acceptable to the Executive that no Excise Tax will be imposed with respect to any such Payment or Payments.  Within ten (10) days of the delivery of the determination to the Executive, the Executive shall have the right to dispute the determination.  The existence of the dispute shall not in any way affect the Executive’s right to receive the Gross-Up Payment in accordance with the determination.  Upon the final resolution of a dispute, the Bank or its successor shall promptly pay to the Executive any additional amount required by such resolution.  If there is no dispute, the determination shall be binding, final and conclusive upon the Bank and the Executive, except to the extent that any taxing authority subsequently makes a determination that the Excise Tax or additional Excise Tax is due and owing on the payments made to the Executive.  If any taxing authority determines that the Excise Tax or additional Excise Tax is due and owing, the entity acquiring control of the Bank shall pay the Excise Tax and any penalties assessed by such taxing authority.

  

5

  

Exhibit 10.17

	
  

	
(f)

	
Notwithstanding anything contained in this Section to the contrary, in the event that according to the determination, an Excise Tax will be imposed on any Payment or Payments, the Bank or its successor shall pay to the applicable government taxing authorities as Excise Tax withholding, the amount of the Excise Tax that the Bank has actually withheld from the Payment or Payments.

Payment of these amounts will be made subject to the terms of the Executive’s Employment Agreement, or in the absence of such an agreement, immediately prior to the purchaser assuming control of the Bank or Holding Company.

	
8.

	
Death Benefits.

8.1         General Rule.  The Bank shall not pay any benefit under this Plan upon Executive’s death except to the extent set forth in this Section.

8.2         Lump Sum Election.  If Executive dies after (A) completing five (5) Years of Employment (measured from the date of Executive’s employment by the Bank) and (B) making an election on Appendix B for Executive’s beneficiary to receive upon Executive’s death a lump sum payment equal to the balance of Executive’s Retirement Account, the Bank shall pay to such beneficiary the amount of Executive’s Retirement Account balance as of the month ending immediately following Executive’s death.

8.3         Installment Election. If Executive dies after beginning to receive installment payments of the balance of Executive’s Retirement Account pursuant to an election on Appendix B, such installment payments shall cease effective as of the month ending immediately following Executive’s death and Bank shall have no further obligation to Executive or his/her heirs or designees under this Plan.

8.4         Split Dollar.  Notwithstanding anything to the contrary in this Section, a death benefit may be provided according to the terms of a separate Split Dollar Agreement entered into by the Bank and the Executive.

  

6

  

Exhibit 10.17

	
9.

	
Beneficiaries.

9.1         Beneficiary Designations.  The Executive shall designate a beneficiary by filing a written designation with the Bank.  The Executive may revoke or modify the designation at any time by filing a new designation.  However, designations will only be effective if signed by the Executive and received by the Bank during the Executive's lifetime.  The Executive's beneficiary designation shall be deemed automatically revoked if the beneficiary predeceases the Executive or if the Executive names a spouse as beneficiary and the marriage is subsequently dissolved.  If the Executive dies without a valid beneficiary designation, all payments shall be made to the Executive's estate.

9.2   Facility of Payment.  If a benefit is payable to a minor, to a person declared incompetent, or to a person incapable of handling the disposition of his or her property, the Bank may pay such benefit to the guardian, legal representative or person having the care or custody of such minor, incompetent person or incapable person.  The Bank may require proof of incompetence, minority or guardianship as it may deem appropriate prior to distribution of the benefit.  Such distribution shall completely discharge the Bank from all liability with respect to such benefit.

	
10.

	
General Limitations.

10.1         Suicide or Misstatement.  The Bank shall not pay any benefit under this Plan if the Executive commits suicide within three years after the date of this Plan.  In addition, the Bank shall not pay any benefit under this Plan if the Executive has made any material misstatement of fact provided to the Bank, or on any application for any benefits provided by the Bank to the Executive, which causes the Bank financial harm.

	
11.

	
Claims and Review Procedures.

11.1         Claims Procedure.  Any person or entity (“claimant”) who has not received benefits under this Plan that he or she believes should be paid shall make a claim for such benefits as follows:

11.1.1           Initiation – Written Claim.  The claimant initiates a claim by submitting to the Bank a written claim for the benefits.

11.1.2           Timing of Bank Response.  The Bank shall respond to such claimant within 90 days after receiving the claim.  If the Bank determines that special circumstances require additional time for processing the claim, the Bank can extend the response period by an additional 90 days by notifying the claimant in writing, prior to the end of the initial 90-day period that an additional period is required.  The notice of extension must set forth the special circumstances and the date by which the Bank expects to render its decision.

11.1.3           Notice of Decision.  If the Bank denies part or all of the claim, the Bank shall notify the claimant in writing of such denial.  The Bank shall write the notification in a manner calculated to be understood by the claimant.  The notification shall set forth:

	
  

	
(a)

	
The specific reasons for the denial,

	
  

	
(b)

	
A reference to the specific provisions of this Plan on which the denial is based,

	
  

	
(c)

	
A description of any additional information or material necessary for the claimant to perfect the claim and an explanation of why it is needed,

	
  

	
(d)

	
An explanation of this Plan’s review procedures and the time limits applicable to such procedures, and

  

7

  

Exhibit 10.17

	
  

	
(e)

	
A statement of the claimant’s right to bring a civil action under ERISA Section 502(a) following an adverse benefit determination on review.

11.2        Review Procedure.  If the Bank denies part or all of the claim, the claimant shall have the opportunity for a full and fair review by the Bank of the denial, as follows:

11.2.1           Initiation – Written Request.  To initiate the review, the claimant, within 60 days after receiving the Bank’s notice of denial, must file with the Bank a written request for review.

11.2.2           Additional Submissions – Information Access.  The claimant shall then have the opportunity to submit written comments, documents, records and other information relating to the claim.  The Bank shall also provide the claimant, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the claimant’s claim for benefits.

11.2.3           Considerations on Review.  In considering the review, the Bank shall take into account all materials and information the claimant submits relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.

11.2.4           Timing of Bank Response.  The Bank shall respond in writing to such claimant within 60 days after receiving the request for review.  If the Bank determines that special circumstances require additional time for processing the claim, the Bank can extend the response period by an additional 60 days by notifying the claimant in writing, prior to the end of the initial 60-day period that an additional period is required.  The notice of extension must set forth the special circumstances and the date by which the Bank expects to render its decision.

11.2.5           Notice of Decision.  The Bank shall notify the claimant in writing of its decision on review.  The Bank shall write the notification in a manner calculated to be understood by the claimant.  The notification shall set forth:

	
  

	
(a)

	
The specific reasons for the denial,

	
  

	
(b)

	
A reference to the specific provisions of this Plan on which the denial is based,

	
  

	
(c)

	
A statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the claimant’s claim for benefits, and

	
  

	
(d)

	
A statement of the claimant’s right to bring a civil action under ERISA Section 502(a).

 

	
12.

	
Amendments and Termination.  This Plan may be amended or terminated only by a written agreement signed by the Bank and the Executive.

	
  

	
This Plan is intended to be consistent with the provisions of Section 409A of the Internal Revenue Code.  Bank reserves the right to change this Plan, including reducing any Executive’s interest in this Plan, in order to make such Plan compliant with Section 409A.

  

8

  

Exhibit 10.17

	
13.

	
Miscellaneous.

	
13.1

	
Binding Effect.  This Plan shall bind the Executive and the Bank and their beneficiaries, survivors, successors, executors, administrators and transferees.

	
13.2

	
No Guarantee of Employment.  This Plan is not an employment policy or contract.  It does not give the Executive the right to remain an employee of the Bank, nor does it interfere with the Bank's right to discharge the Executive.  It also does not require the Executive to remain an employee nor interfere with the Executive's right to terminate employment at any time.

	
13.3

	
Applicable Law.  The Plan and all rights hereunder shall be governed by the laws of the State of California except to the extent preempted by the laws of the United States of America.

	
13.4

	
Reorganization.  The Bank shall not merge or consolidate into or with another company, or reorganize, or sell substantially all of its assets to another company, firm or person unless such succeeding or continuing company, firm or person agrees to assume and discharge the obligations of the Bank under this Plan.  Upon the occurrence of such event, the term “Bank” as used in this Plan shall be deemed to refer to the successor or survivor company.

	
13.5

	
Non-Transferability.  Benefits under this Plan cannot be sold, transferred, assigned, pledged, attached or encumbered in any manner,  whether by the Executive or Executive’s beneficiary or estate.

	
13.6

	
Tax Withholding.  The Bank shall withhold any taxes that are required to be withheld from the benefits provided under this Plan.

13.7  Unfunded Arrangement.  The Executive is a general unsecured creditor of the Bank for the payment of benefits under this Plan.  The benefits represent the mere Bank promise to pay, or cause the rabbi trust to pay, such benefits. The Bank will derive all funding for the benefits from its general assets.  The Executive's rights are not subject in any manner to anticipation, alienation, transfer, assignment, pledge, encumbrance, attachment, or garnishment by the Executive's creditors.  The Retirement Account, any Simulated Investment and the rabbi trust (contemplated by Section 13.9(d)) are not, either individually or collectively, a trust fund of any kind.  Any insurance on the Executive's life or any other asset held in connection with this Plan is a general asset of the Bank to which the Executive has no preferred or secured claim.

13.8  Entire Agreement.  This Plan, along with its Appendices, constitutes the entire agreement between the Bank and the Executive as to the subject matter hereof and supersedes all prior agreements and understanding of the parties in connection therewith, including the Prior Plan.  No rights are granted to the Executive by virtue of this Plan other than those specifically set forth herein.

13.9  Administration.  The Bank shall have powers which are necessary to administer this Plan, including but not limited to:

	
  

	
(a)

	
Establishing and revising the method of accounting for the Plan;

	
  

	
(b)

	
Maintaining a record of benefit payments; and

	
  

	
(c)

	
Establishing rules and prescribing any forms necessary or desirable to administer the Plan.

  

9

  

Exhibit 10.17

	
  

	
(d)

	
Establishing a rabbi trust for the Plan and depositing amounts required under Section 3.2 into such trust.  In the event a rabbi trust is established, Bank shall (A) immediately transfer to the rabbi trust an amount equal to Executive’s then Retirement Account and (B) monthly thereafter transfer the applicable increase in the Retirement Account calculated pursuant to Sections 3.2 and 3.3.  The Bank shall also transfer to the rabbi trust any amounts required under Sections 7.1 or 7.2 in connection with any Change of Control at the times provided for in such Sections.

13.10   Named Fiduciary. The Bank shall be the named fiduciary and plan administrator under this Plan.  The named fiduciary may delegate to others certain aspects of the management and operation responsibilities of the Plan including the employment of advisors and the delegation of ministerial duties to qualified individuals.

13.11   Intent. To the extent that this Plan may be construed to be a plan maintained to provide deferred compensation, it is intended to be limited to a “select group of management or highly compensated employees” within the meaning of Section 201(2) of ERISA. This Plan is intended to be exempt from the participation, vesting, funding, and fiduciary requirements of Title 1 of ERISA, to the fullest extent permitted under the law. This Plan shall at all times be “unfunded” within the meaning of ERISA.

 

IN WITNESS WHEREOF, the Bank has caused this Plan to be duly executed this 7th day of March 2006.

FARMERS & MERCHANTS BANK OF CENTRAL CALIFORNIA

	
By:

	
/s/ Ole R. Mettler

	  	  	  
	  	
Chairman of the Board

	  	  
	
By:

	
/s/ Kent A. Steinwert

	  	  	  
	  	
President and C.E.O.

	  	  
	
By:

	
 /s/ Stewart C. Adams, Jr.

	  	  	  
	  	
Chairman of the Personnel Committee of the Board

Amended and Renamed on March 10, 2010

 

 

10Execution
copy

    

    NOTE
PURCHASE AGREEMENT

    

    THIS NOTE PURCHASE AGREEMENT
(this “Agreement”)
is made as of March 9, 2010, between and among: (a) Sinotop
Group Ltd., a Hong Kong company (the “Company”);
and (b) China
Broadband Ltd., a Cayman Islands company (“Holder”).
Each of the foregoing is referred to as a “Party” and
together as the “Parties”.
Capitalized terms not otherwise defined in this Agreement have the meanings
ascribed to them in Section 1 below.

     

    RECITALS

     

    WHEREAS, the Holder intends to
provide the Consideration (as defined below) to the Company;

     

    WHEREAS, the Parties wish to
provide for the sale and issuance of a convertible promissory note in the form
attached as Exhibit A (the
“Note”) in
return for the provision by the Holder of the Consideration to the
Company;

     

    WHEREAS, the Parties intend
for the Company to issue the Note in return for the Consideration;
and

     

    NOW, THEREFORE, in
consideration for the mutual promises and covenants contained herein, and for
other good and valuable consideration, the receipt and adequacy of which is
agreed by the Parties, it is agreed as follows.

     

    AGREEMENT

     

    
      	
              1.

            	
              Definitions.

            

    

     

    
      	
               
      

            	
              1.1

            	
              “Charter”
      means the Articles of Association of the Company in effect as of the date
      hereof

            

    

     

    
      	
               
      

            	
              1.2

            	
              “Closing”
      is defined in Section 3.

            

    

     

    
      	
               
      

            	
              1.3

            	
              “Consideration”
      means Five Hundred Eighty Thousand United States Dollars (US$580,000), or
      its equivalent in another currency acceptable to the Company, paid by the
      Holder pursuant to this Agreement in exchange for the
  Note.

            

    

     

    
      	
               
      

            	
              1.4

            	
              “Governmental
      Authority” means any court, administrative agency, tribunal,
      department, bureau or commission or other governmental authority,
      instrumentality or arbitral body, domestic or foreign, federal, state,
      local or provincial.

            

    

     

    
      	
               
      

            	
              1.5

            	
              “Maturity
      Date” is defined in the
Note.

            

    

     

    
      	
               
      

            	
              1.6

            	
              “Note”
      is defined in the Recitals.

            

    

     

    
      	
               
      

            	
              1.7

            	
              “Transaction
      Documents” means this Agreement, the Note, and the other documents
      and instruments contemplated
therein.

            

    

     

    
      	
               
      

            	
              1.8

            	
              “VIE
      Agreements” is defined in Section
4.7.

            

    

     

    
      	
               
      

            	
              1.9

            	
              “WFOE”
      is defined in Section 6.1.

            

    

     

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    Execution
copy

     

    
      	
              2.

            	
              Terms of the Note. In
      return for the Consideration paid by the Holder, the Company will sell and
      issue the Note to the Holder. The Note will have a principal balance equal
      to the Consideration. The principal amount of the Note will bear interest,
      will be payable on the Maturity Date, and will be convertible into shares
      of the capital stock of the Company, all as provided in the
      Note.

            

    

     

    
      	
              3.

            	
              Closing. The closing of
      the sale and issuance of the Note by the Company to the Holder, in
      exchange for the Consideration, (the “Closing”)
      will take place on March 9, 2010, at the Shanghai, China offices of
      Pillsbury Winthrop Shaw Pittman LLP, or such other time and place as the
      parties may agree in writing. At the Closing, (a) the Holder will deliver
      the Consideration to the Company by wire transfer of immediately available
      funds, to an account or accounts specified in writing by the Company and
      delivered to the Holder at least one (1) day before the Closing, such
      specification to be in sufficient detail to permit the Holder to complete
      such wire transfer; and (b) the Company will deliver an executed original
      of the Note to the Holder.

            

    

     

    
      	
              4.

            	
              Representations and Warranties
      of the Company. The Company represents and warrants to the Holder,
      as of the date of this Agreement, as set forth
  below.

            

    

     

    
      	
               
      

            	
              4.1

            	
              Organization, Good Standing and
      Qualification. The Company is a company duly organized, validly
      existing and in good standing under the laws of Hong Kong. The Company is
      not required to be qualified, authorized, registered or licensed to do
      business as a foreign corporation in any jurisdiction other than the
      jurisdiction of its incorporation.

            

    

     

    
      	
               
      

            	
              4.2

            	
              Corporate Authority. The
      Company has the absolute and unrestricted corporate right, power and
      authority to enter into and perform its obligations under this Agreement,
      and the execution and delivery thereof by it have been duly authorized by
      all necessary action on the part of its board of directors or other
      governing body. This Agreement, when executed and delivered to the other
      Parties, will constitute the legal, valid and binding obligation of the
      Company, enforceable against it in accordance with its terms and will not
      result in any breach of its memorandum and articles of association or
      other similar charter document.

            

    

     

    
      	
               
      

            	
              4.3

            	
              Charter. A true and
      correct copy of the Company’s Charter is attached as Exhibit
  B.

            

    

     

    
      	
               
      

            	
              4.4

            	
              Subsidiaries. The
      Company does not own or control any equity security or other interest of
      any other corporation, partnership, limited liability company or other
      business entity. The Company is not a participant in any joint venture,
      partnership, limited liability company or similar arrangement. Except as
      set forth in this Section 4.4, since its inception, the Company has not
      consolidated or merged with, acquired all or substantially all of the
      assets of, or acquired the stock of or any interest in any corporation,
      partnership, limited liability company or other business
      entity.

            

    

     

    
      	
               
      

            	
              4.5

            	
              Capitalization;
      Voting Rights.

            

    

     

    
      	
               
      

            	
              (a)

            	
              Authorized Shares. The
      Company is authorized to issue a maximum of 10,000 shares, par value
      HK$1.00 each, of which 1 ordinary share will be issued and outstanding
      immediately prior to the Closing.

            

    

     

    
      	
               
      

            	
              (b)

            	
              Options, Warrants, etc.
      There are no outstanding options, warrants, rights (including
      conversion or preemptive rights and rights of first refusal), proxy or
      stockholder agreements, or agreements of any kind for the purchase or
      acquisition from the Company of any of its securities, except for rights
      contained in this Agreement.

            

    

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    Execution
copy

     

    
      	
               
      

            	
              4.6

            	
              Financial Condition; No
      Operations. The Company was formed on January 15, 2010. It does not
      have and has never had any
operations.

            

    

     

    
      	
               
      

            	
              4.7

            	
              VIE Agreements. The
      Company has entered into certain agreements with a PRC company under
      common control with the Company (together, the “VIE
      Agreements”) in substantially the form attached collectively hereto
      as Exhibit C, and such
      agreements have been duly executed and delivered by the Company and each
      other party thereto.

            

    

     

    
      	
               
      

            	
              4.8

            	
              Other Agreements. Except for the
      VIE Agreements, the Company does not have and has never had any agreements
      or arrangements with, has no debts to, and is not obligated in any way, to
      any other party.

            

    

     

    
      	
               
      

            	
              4.9

            	
              Property, Assets,
      etc. The Company does
      not own, lease or license any real or personal property, including any
      intangible or intellectual
property.

            

    

     

    
      	
               
      

            	
              4.10

            	
              Litigation. The Company
      has not ever been a party to any litigation and to its and that of the
      Guarantor no grounds exist for the assertion of any claims against
      it.

            

    

     

    
      	
               
      

            	
              4.11

            	
              Employees. The Company
      does not have and has never had any
employees.

            

    

     

    
      	
               
      

            	
              4.12

            	
              Disclosure. To the best
      knowledge of Company, all information provided to the Holder relating to
      the Company is true and accurate in all material respects and not
      materially misleading.

            

    

     

    
      	
              5.

            	
              Conditions to the Obligations
      of the Holder. The obligation of the Holder to purchase the Note at
      the Closing is subject to the satisfaction of the following conditions,
      unless waived in writing by the Holder, in the exercise of its sole
      discretion, at or before the
Closing:

            

    

     

    
      	
               
      

            	
              5.1

            	
              Accuracy of Representations and
      Warranties. All representations and warranties made by the Company
      in this Agreement shall be true and correct in all material respects
      (except for those representations and warranties that are qualified as to
      materiality, which shall be true and correct in all respects) when made
      and as of the date of the Closing (except for those representations and
      warranties that are as of a specific date), with the same effect as if
      such representations and warranties had been made on the date of each
      Closing.

            

    

     

    
      	
               
      

            	
              5.2

            	
              Absence of Litigation.
      There shall not be (a) any order of any nature issued by a
      Governmental Authority with competent jurisdiction directing that the
      transactions provided for herein or any aspect of them not be consummated
      as herein provided, or (b) any proceeding before any Governmental
      Authority pending wherein an unfavorable order would prevent the
      performance of this Agreement, or the consummation of any aspect of the
      transactions or events contemplated hereby, declare unlawful any aspect of
      the transactions or events contemplated by this Agreement, cause any
      aspect of the transactions contemplated by the Transaction Documents to be
      rescinded or have a material adverse effect on the
  Company.

            

    

     

    
      	
               
      

            	
              5.3

            	
              Required Consents. All
      consents, approvals and other actions of, and notices and filings with,
      all Governmental Authorities and all other entities and Persons as may be
      necessary or required with respect to the execution and delivery by the
      Parties (other than the Purchasers) of any of the Transaction Documents,
      and the consummation by such Parties of the transactions contemplated
      thereby, shall have been obtained or
made.

            

    

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    Execution
copy

     

    
      	
              6.

            	
              Covenants of the
      Company. As long as any portion of the Notes remains outstanding
      (i.e., prior to maturity or conversion thereof), the Company will ensure
      that:

            

    

     

    
      	
               
      

            	
              6.1

            	
              The
      VIE Agreements are assigned by the Company to a new wholly-owned
      subsidiary to be established by the Company under the laws of the People’s
      Republic of China (the “WFOE”)
      as soon as practicable after the establishment of that
    entity.

            

    

     

    
      	
               
      

            	
              6.2

            	
              Each
      of the Company and the WFOE will not, directly or
    indirectly:

            

    

     

    
      	
               
      

            	
              (a)

            	
              amend
      its charter documents, including without limitation, the certificate of
      incorporation and bylaws, in any manner that materially and adversely
      affects any rights of the Holder;

            

    

     

    
      	
               
      

            	
              (b)

            	
              agree
      to, or consummate, a Change of Control, as that term is defined in the
      Note;

            

    

     

    
      	
               
      

            	
              (c)

            	
              enter
      into, create, incur, assume, guarantee or suffer to exist any indebtedness
      for borrowed money of any kind, including but not limited to, a guarantee,
      on or with respect to any of its property or assets now owned or hereafter
      acquired or any interest therein or any income or profits therefrom,
      unless the proceeds of such borrowed money are used at least in part to
      repay the full amount of the Note then
  outstanding;

            

    

     

    
      	
               
      

            	
              (d)

            	
              enter
      into, create, incur, assume or suffer to exist any liens or encumbrances
      of any kind, on or with respect to any of its property or assets now owned
      or hereafter acquired or any interest therein or any income or profits
      therefrom

            

    

     

    
      	
               
      

            	
              (e)

            	
              repay,
      repurchase or offer to repay, repurchase or otherwise acquire any shares
      of its common stock or other equity
securities;

            

    

     

    
      	
               
      

            	
              (f)

            	
              enter
      into any agreement with respect to any of the
  foregoing;

            

    

     

    
      	
               
      

            	
              (g)

            	
              pay
      cash dividends or distributions on any equity securities of the
      Company;

            

    

     

    
      	
              7.

            	
              Binding Arbitration. All
      disputes arising out of or relating to this Agreement or any of the other
      Transaction Documents will be resolved by mandatory, binding arbitration
      in Hong Kong under the Arbitration Rules of the United Nations Commission
      on International Trade Law by one or more arbitrators appointed in
      accordance with such rules. The arbitration and appointing authority will
      be the Hong Kong International Arbitration Centre (“HKIAC”).
      The arbitration will be conducted by a panel of three arbitrators, one
      chosen by each party to any matter to be submitted for arbitration (or, if
      there are more than two such parties, by agreement of all such parties),
      and the third by agreement of the parties; failing agreement within 30
      days of commencement of the arbitration proceeding, the HKIAC will appoint
      any required arbitrator(s). The proceedings will be confidential and
      conducted in English. The arbitral tribunal will have the authority to
      grant any equitable and legal remedies that would be available in any
      judicial proceeding instituted to resolve a disputed matter, and its award
      will be final and binding on the parties. The arbitral tribunal will
      determine how the parties will bear the costs of the arbitration.
      Notwithstanding the foregoing, each party will have the right at any time
      to immediately seek injunctive relief, an award of specific performance or
      any other equitable relief against the other party in any court or other
      tribunal of competent jurisdiction. During the pendency of any arbitration
      or other proceeding relating to a dispute between the parties, the parties
      will continue to exercise their remaining respective rights and fulfill
      their remaining respective obligations under this Agreement, except with
      regard to the matters under
dispute.

            

    

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

     

    Execution
copy

     

    
      	
              8.

            	
              Miscellaneous.

            

    

     

    
      	
               
      

            	
              8.1

            	
              Successors and Assigns.
      Except as otherwise provided herein, the terms and conditions of
      this Agreement will inure to the benefit of and be binding upon the
      respective successors and assigns of the parties, provided, however, that
      each of the parties may not assign its rights and/or obligations under
      this Agreement without the prior written consent of the other party.
      Nothing in this Agreement, express or implied, is intended to confer upon
      any party other than the parties hereto or their respective successors and
      assigns any rights, remedies, obligations or liabilities under or by
      reason of this Agreement, except as expressly provided in this Agreement.
      The Company hereby agrees and acknowledges that, notwithstanding the
      foregoing, if at any time or from time to time there will be a
      recapitalization, reclassification, subdivision, combination or merger or
      sale of assets transaction or similar transaction (including without
      limitation the any restructuring resulting in a new entity that will
      either (i) be owned in substantially the same proportions by the persons
      who held the Company’s securities immediately prior to such transaction or
      (ii) own substantially the same assets and/or property held by the Company
      immediately prior to such transaction (such entity the “New Entity”), the
      Holder will have the unconditional right, in its sole discretion, to have
      the Company’s obligations and the Holder’s rights hereunder, including
      without limitation such rights and obligations under the Note, assumed by
      the New Entity.

            

    

     

    
      	
               
      

            	
              8.3

            	
              Governing Law. This
      Agreement and the Note will be governed by and construed under the laws of
      Hong Kong without giving effect to any choice of law
  rule.

            

    

     

    
      	
               
      

            	
              8.4

            	
              Counterparts. This
      Agreement may be executed in two or more counterparts, each of which will
      be deemed an original, but all of which together will constitute one and
      the same instrument.

            

    

     

    
      	
               
      

            	
              8.6

            	
              Titles and Subtitles.
      The titles and subtitles used in this Agreement are used for convenience
      only and are not to be considered in construing or interpreting this
      Agreement.

            

    

     

    
      	
               
      

            	
              8.7

            	
              Notices. All notices and
      other communications given or made pursuant hereto will be in writing and
      will be deemed effectively given: (i) upon personal delivery to the party
      to be notified, (ii) when sent by confirmed electronic mail or facsimile
      if sent during normal business hours of the recipient, if not so
      confirmed, then on the next business day, (iii) five (5) days after having
      been sent by registered or certified mail, return receipt requested,
      postage prepaid or (iv) one (1) day after deposit with a nationally
      recognized overnight courier, specifying next day delivery, with written
      verification of receipt. All communications will be sent to the respective
      parties at the respective addresses shown on the signature pages hereto
      (or at such other addresses as will be specified by notice given in
      accordance with this Section 8.7).

            

    

     

    
      	
               
      

            	
              8.8

            	
              Expenses. If any action
      at law or in equity is necessary to enforce or interpret the terms of this
      Agreement, the prevailing party will be entitled to reasonable attorneys’
      fees, costs and necessary disbursements in addition to any other relief to
      which such party may be
entitled.

            

    

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

     

    Execution
copy

     

    
      	
               
      

            	
              8.9

            	
              Entire Agreement; Amendments
      and Waivers. This Agreement and the other Transactional Documents
      constitute the full and entire understanding and agreement between the
      parties with regard to the subjects hereof and thereof. Nonetheless, any
      term of the Transaction Documents may be amended and the observance of any
      term thereof may be waived (either generally or in a particular instance
      and either retroactively or prospectively), with the written consent of
      all Parties thereto.

            

    

     

    
      	
               
      

            	
              8.10

            	
              Severability. If one or
      more provisions of this Agreement are held to be unenforceable under
      applicable law, such provision will be excluded from this Agreement and
      the balance of the Agreement will be interpreted as if such provision were
      so excluded and will be enforceable in accordance with its
      terms.

            

    

     

    
      	
               
      

            	
              8.11

            	
              Covenants of the Company to
      Deliver Information and Financial Statements. The Company will
      deliver to the Holder such financial statements or information as the
      Company provides to its stockholders simultaneously with the delivery
      thereof to the stockholders.

            

    

     

    
      	
               
      

            	
              8.12

            	
              Further Assurances. From
      time to time, the Company will execute and deliver to the Holder such
      additional documents and will provide such additional information to the
      Holder as any Holder may reasonably require to carry out the terms of any
      of the Transaction Documents.

            

    

     

    
      	
               
      

            	
              8.13

            	
              Publicity. No party
      hereto will disclose the source, existence and contents of this Agreement
      or the transactions contemplated hereby to any person (other than its
      respective key officers, members of the board of directors, accountants or
      attorneys provided that such persons agree to maintain the confidentiality
      of the source, existence and contents of this Agreement or the
      transactions contemplated hereby) without the prior written consent of the
      other parties.

            

    

     

    [The
Remainder of this Page is Intentionally Left Blank]

     

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

     

    Execution
copy

     

    IN
WITNESS WHEREOF, the Parties have executed this Agreement as of the date first
above written.

     

    
      
        
          
            
              
                
                  	
                          “COMPANY”

                        	 
      	
                          “HOLDER”

                        
	 
      	 
      	 
      
	
                          SINOTOP
      GROUP LTD., a Hong Kong

                        	 
      	
                          CHINA
      BROADBAND LIMITED, a

                        
	
                          company

                        	 
      	
                          Cayman
      company

                        
	 
      	 
      	 
      
	
                          By:

                        	
                          

                        	 
      	
                          By:

                        	   
      
	 
      	 
      	 
      	 
      	 
      
	
                          Name:

                        	
                          Weicheng
      Liu

                        	 
      	
                          Name:

                        	
                          Marc
      Urbach

                        
	 
      	 
      	 
      	 
      	 
      
	
                          Its:

                        	
                          Sole
      Director

                        	 
      	
                          Its:

                        	 
      

                

              

            

          

        

      

    

     

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

     

    
      Execution
copy

       

      IN
WITNESS WHEREOF, the Parties have executed this Agreement as of the date first
above written.

       

      
        
          
            
              
                
                  
                    	
                            “COMPANY”

                          	 
      	
                            “HOLDER”

                          
	 
      	 
      	 
      
	
                            SINOTOP
      GROUP LTD., a Hong Kong

                          	 
      	
                            CHINA
      BROADBAND LIMITED, a

                          
	
                            company

                          	 
      	
                            Cayman
      company

                          
	 
      	 
      	 
      
	
                            By:

                          	
                              

                          	 
      	
                            By:

                          	 
      
	 
      	 
      	 
      	 
      	 
      
	
                            Name:

                          	
                            Weicheng
      Liu

                          	 
      	
                            Name:

                          	
                            Marc
      Urbach

                          
	 
      	 
      	 
      	 
      	 
      
	
                            Its:

                          	
                            Sole
      Director

                          	 
      	
                            Its:

                          	 
      

                  

                

              

            

          

        

      

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    Execution
copy

     

    EXHIBIT
A

     

    Form
of Note

     

    (attached)

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

     

    Execution
copy

     

    EXHIBIT
B

     

    Charter
of Company

     

    (attached)

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

     

    Execution
copy

     

    EXHIBIT
C

     

    Copies
of VIE Agreements

     

    (attached)

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00170-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00170-of-00352.parquet"}]]