Document:

exhibit10_1.htm

EXHIBIT 10.1

 

Employment Agreement

THIS EMPLOYMENT AGREEMENT (this “Agreement”) is made effective as of the ___ day of _________, 2010 (the “Commencement Date”), by and between Capitol Bancorp Ltd., a Michigan corporation (the “Company”) and [Insert Name] (the “Executive”).

Background

The Board of Directors of the Company (the “Board”) has determined that it is in the best interests of the Company and its shareholders to employ the Executive.  The Company and the Executive established an employment relationship pursuant to an Employment Agreement dated [Insert Date], as amended (the “Prior Employment Agreement”).  The Company and the Executive desire to enter into this Agreement to amend and restate the terms and conditions of such employment relationship and the Prior Employment Agreement in their entirety.  This Agreement shall represent the entire understanding and agreement between the parties with respect to the Executive’s employment with the Company.

NOW, THEREFORE, in consideration of the foregoing and the terms and conditions set forth herein, the parties agree as follows:

Terms and Conditions

1.  Employment Period. The Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company subject to the terms and conditions of this Agreement, for the Employment Period.  The “Employment Period” shall mean the period commencing on the Commencement Date and ending on the third anniversary of the Commencement Date; provided, however, that commencing on the date one year after the Commencement Date, and on each annual anniversary of such date (such date and each annual anniversary thereof shall be hereinafter referred to as the “Renewal Date”), unless previously terminated, the Employment Period shall be automatically extended so as to terminate three (3) years from such Renewal Date, unless at least thirty (30) days prior to the Renewal Date the Company shall give notice to the Executive that the Employment Period shall not be so extended.  Notwithstanding the foregoing, in the event of a Change in Control, the date the Change in Control occurs shall become the Commencement Date for all purposes thereafter, and each Change in Control thereafter shall result in a new Commencement Date on the date of the latest Change in Control.

 

2.  Terms of Employment.

 

(a)  Position and Duties.

 

(i)  During the Employment Period, the Executive shall serve as the [Insert Title] of the Company, and in such other position or positions with the Company and its subsidiaries as are consistent with the Executive’s positions as [Insert Title] of the Company, and shall have such duties and responsibilities as are assigned to the Executive by the Board.  [The Executive agrees to serve as a member of the Board of Directors of the Company, if elected to serve in such positions during the Employment Period.]

 

  

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(ii)  During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company, to discharge the responsibilities assigned to the Executive hereunder, and to use the Executive’s reasonable best efforts to perform faithfully and efficiently such responsibilities.  During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) be employed by the Company or any of its subsidiaries or affiliates, (B) serve on corporate, civic or charitable boards or committees, (C) deliver lectures, fulfill speaking engagements or teach at educational  institutions and (D) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive’s responsibilities as an employee of the Company in accordance with this Agreement.

 

(b)  Compensation.

 

(i)  Base Salary.  During the Employment Period, the Executive shall receive an annual base salary (the “Annual Base Salary”) at least equal to [Insert Base Salary], which shall be paid in accordance with the Company’s normal payroll practices for senior executive officers of the Company as in effect from time to time.  During the Employment Period, the Annual Base Salary shall be reviewed at least annually.  Any increase in the Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement.  The Annual Base Salary shall not be reduced after any such increase (unless otherwise agreed to by the Executive) and the term “Annual Base Salary” as utilized in this Agreement shall refer to the Annual Base Salary as so increased or adjusted.  The Executive and the Company acknowledge and agree that the Executive voluntarily elected to reduce the Executive’s salary by ten percent (10%) effective January 1, 2009, which reduction the Executive acknowledges will apply for the remainder of 2010.  For purposes of calculating any Severance Amount due under this Agreement, the Company agrees to apply the Executive’s Annual Base Salary without giving any effect to voluntary reductions by the Executive.

 

(ii)  Annual Bonus.  In addition to the Annual Base Salary, for each fiscal year ending during the Employment Period, the Executive shall be eligible for an annual cash bonus (the “Annual Bonus”) pursuant to the terms of the Company’s Management Incentive Plan (the “MIP”) (or any successor plan thereof) or the Company’s 2007 Incentive Plan (or any successor plan thereof) (the “Stock Plan”), as determined by the Compensation Committee of the Board (the “Compensation Committee”).  Each such Annual Bonus awarded to the Executive shall be paid sometime during the first three months of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect, in compliance with Treasury Regulation 1.409A-2(a), to defer the receipt of such Annual Bonus.

 

(iii)  Long-Term Incentive Compensation.  During the Employment Period, the Executive shall be entitled to participate in any stock option, performance share, performance unit or other equity based long-term incentive compensation plan, program or arrangement (the “Plans”) generally made available to senior executive officers of the Company, on substantially the same terms and conditions as generally apply to such other officers, except that the size of the awards made to the Executive shall reflect the Executive’s position with the Company and the Compensation Committee’s views.  During each fiscal year 

 

  

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during the Employment Period, the Executive shall receive an annual award with a target award value (which value shall be as determined in accordance with the policies and practices generally applicable to other senior executive officers of the Company) of not less than twenty percent (20%) of the Annual Base Salary as expected to be in effect at the end of such fiscal year; it being understood that the form of the award shall be determined by the Compensation Committee and such form shall be subject to the terms of the applicable plan or plans of the Company.  The preceding sentence shall not limit any power or discretion of the Board or the Compensation Committee in the administration of any such long-term incentive plan.  The Compensation Committee may increase the award value of any award made in respect of any such fiscal year in its discretion.  The actual benefits conveyed to the Executive in respect of any such awards may be less than, greater than or equal to the targeted award value, as such benefits will be dependent on a series of performance and other factors, such as the value of the Company’s common stock and satisfaction of any applicable vesting requirements and performance conditions.  Notwithstanding the foregoing, the Executive will not participate in the Company’s stock equity plans during the period in which the Company is subject to compensation limitations by virtue of the Company’s participation in the Troubled Asset Relief Program’s Capital Purchase Program (the “CPP”), except to the extent permitted thereunder.  Further, no cash bonuses will be awarded to the Executive during the period in which the Company is subject to compensation limitations by virtue of the CPP, except to the extent permitted thereunder.  [Furthermore, the Executive shall continue to be entitled to an Executive Supplemental Income Agreement (the “ESI”) entered into on [Insert Date]. The ESI provides that the Executive is paid $80,000 per year for fifteen (15) years following the Executive’s death or normal retirement. If anything herein conflicts with the ESI, the terms and conditions of the ESI shall control.]

 

(iv)  Welfare Benefit Plans. During the Employment Period, the Executive and/or the Executive’s family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent available generally or to other senior executive officers of the Company.

 

(v)  Expenses.  During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the plans, practices, policies and programs of the Company. The Executive shall also be entitled to a corporate automobile allowance, which is intended to cover the cost of an automobile and its operation during the term of the Executive’s employment in the amount of $900 per month.

 

(vi)  Vacation. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the plans, practices, policies and programs of the Company consistent with the treatment of other senior executive officers of the Company.

 

(c)  Recoupment of Unearned Incentive Compensation. If the Board, or an appropriate committee thereof, determines that any fraud, negligence, or intentional misconduct by the Executive is a significant contributing factor to the Company having to restate all or a

 

  

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portion of its financial statements, the Board or committee may require reimbursement of any bonus or incentive compensation paid to the Executive if and to the extent that (a) the amount of incentive compensation was calculated based upon the achievement of certain financial results that were subsequently reduced due to a restatement, (b) the Executive engaged in any fraud or misconduct that caused or significantly contributed to the need for the restatement, and (c) the amount of the bonus or incentive compensation that would have been awarded to the Executive had the financial results been properly reported would have been lower than the amount actually awarded.

 

3.  Termination of Employment.

 

(a)  Early Termination of the Employment Period.  Notwithstanding Section 1, the Employment Period shall end upon the earliest to occur of (i) the Executive’s death, (ii) a Termination due to Disability, (iii) a Termination for Cause, (iv) the Termination Date specified in connection with any exercise by the Company of its Termination Right or (v) a Termination for Good Reason.  If the Employment Period terminates as of a date specified under this Section 3, the Executive agrees that, upon written request from the Company, the Executive shall resign from any and all positions the Executive holds with the Company and any of its subsidiaries and affiliates, effective immediately following receipt of such request from the Company (or at such later date as the Company may specify).  This Agreement may be terminated by the Executive at any time upon [insert time] days prior written notice to the Company or upon such shorter period as may be agreed upon between the Executive and the Board.  In the event of such termination, the Company shall be obligated only to continue to pay the Executive’s salary and provide other benefits provided by this Agreement up to the date of the termination.

 

(b)  Benefits Payable Under Termination.

 

(i)  In the event of the Executive’s death during the Employment Period or a Termination due to Disability, the Executive or the Executive’s beneficiaries or legal representatives shall be provided the Unconditional Entitlements, including, but not limited to, any such Unconditional Entitlements that are or become payable under any Company plan, policy, practice or program or any contract or agreement with the Company by reason of the Executive’s death or Termination due to Disability.

 

(ii)  In the event of the Executive’s Termination for Cause, the Executive shall be provided the Unconditional Entitlements.

 

(iii)  In the event of a Termination for Good Reason or the exercise by the Company of its Termination Rights, the Executive shall be provided the Unconditional Entitlements and the Company shall provide the Executive the Conditional Benefits.  Any and all amounts payable and benefits or additional rights provided to the Executive upon a termination of his employment pursuant to Section 3(b)(iii)(other than the Unconditional Entitlements) shall only be payable or provided if the Executive delivers to the Company and does not revoke a general release of claims in favor of the Company and certain related parties in a form reasonably satisfactory to the Company, which the Company shall provide to the Executive within seven (7) days following the Termination Date. Such release shall be executed and

 

  

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delivered (and no longer subject to revocation, if applicable) within thirty (30) days following termination.  In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement, nor shall the amount of any payment hereunder be reduced by any compensation earned by the Executive as a result of employment by a subsequent employer.

 

(c)  Unconditional Entitlements.  For purposes of this Agreement, the “Unconditional Entitlements” to which the Executive may become entitled under Section 3(b) are as follows:

 

(i)  Earned Amounts.  The Earned Compensation shall be paid within  thirty (30) days following the termination of the Executive’s employment hereunder, or if any part thereof constitutes a bonus which is subject to or conditioned upon any performance conditions, within thirty (30) days following the determination that such conditions have been met, provided that in no event shall the bonus be paid later than ninety (90) days following the Executive’s termination of employment.

 

(ii)  Benefits. All benefits payable to the Executive under any employee benefit plans (including, without limitation any pension plans or 401(k) plans) of the Company or any of its affiliates applicable to the Executive at the time of termination of the Executive’s employment with the Company and all amounts and benefits (other than the Conditional Benefits) which are vested or which the Executive is otherwise entitled to receive under the terms of or in accordance with any plan, policy, practice or program of, or any contract or agreement with, the Company, at or subsequent to the date of the Executive’s termination without regard to the performance by the Executive of further services or the resolution of a contingency, shall be paid or provided in accordance with and subject to the terms and provisions of such plans, it being understood that all such benefits shall be determined on the basis of the actual date of termination of the Executive’s employment with the Company.

 

(iii)  Indemnities.  Any right which the Executive may have to claim a defense and/or indemnity for liabilities to or claims asserted by third parties in connection with the Executive’s activities as an officer, director or employee of the Company shall be unaffected by the Executive’s termination of employment and shall remain in effect in accordance with its terms.

 

(iv)  Medical Coverage.  The Executive shall be entitled to such continuation of health care coverage as is required under, and in accordance with, applicable law or otherwise provided in accordance with the Company’s policies.  The Executive shall be notified in writing of the Executive’s rights to continue such coverage after the termination of the Executive’s employment pursuant to this Section 3(c)(iv), provided that the Executive timely complies with the conditions to continue such coverage.  The Executive understands and acknowledges that the Executive is responsible to make all payments required for any such continued health care coverage that the Executive may choose to receive.

 

(v)  Business Expenses. The Executive shall be entitled to reimbursement, in accordance with the Company’s policies regarding expense reimbursement as 

 

  

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in effect from time to time, for all business expenses incurred by the Executive prior to the termination of the Executive’s employment.

 

(vi)  Stock Options/Equity Awards. Except to the extent additional rights are provided upon the Executive’s qualifying to receive the Conditional Benefits, the Executive’s rights with respect to any stock options and/or other equity awards granted to the Executive by the Company shall be governed by the terms and provisions of the plans (including plan rules) and award agreements pursuant to which such stock options and equity awards were awarded, as in effect at the date the Executive’s employment terminated.

 

(d)  Conditional Benefits. For purposes of this Agreement, the “Conditional Benefits” to which the Executive may become entitled are as follows:

 

(i)  Severance Amount. The Company shall pay the Executive a lump sum amount equal to the Severance Amount.  The Severance Amount shall be paid on the date that is six (6) months and one day after the Termination Date (or upon the Executive’s death, if earlier).

 

(ii)  Stock Options.  All of the Executive’s stock options shall become exercisable in accordance with the applicable Original Stock Option Award Documents, on the same basis as such options would have become vested and exercisable if the Executive had remained employed under this Agreement through the end of the Employment Period.  Once exercisable, all stock options shall remain exercisable until the stock option termination date.  All of the Executive’s stock options that were vested and exercisable at the Termination Date shall remain exercisable until the expiration date of such stock options.  Except as otherwise expressly provided herein, all stock options shall continue to be subject to the Original Stock Option Award Documents.

 

(iii)  Equity Awards. Any restrictive stock or other equity award subject to vesting shall continue to vest in accordance with the terms of the Original Award Documents, regardless of the Executive’s termination of employment.  Except as otherwise expressly provided herein, all such restricted stock or other equity awards shall be subject to, and administered in accordance with, the Original Award Documents.

 

(iv)  Pro-Rated Current Year Bonus. The Company shall pay Executive a pro rata annual bonus for the year in which the Termination Date occurs, determined on the basis of an assumed full-year target bonus and the number of days in the applicable fiscal year occurring on or before the Termination Date.  Such pro-rata current year bonus shall be paid no later than the later of (i) two and a half months after the end of the Executive’s tax year in which the Termination Date occurs and (ii) two and a half months after the end of the Company’s tax year in which the Termination Date occurs.

 

(v)  Additional Distribution Rules.  Notwithstanding any other payment date or schedule provided in this Agreement to the contrary, if the Executive is deemed on the date of termination of his employment to be a “specified employee” within the meaning of that term under Section 409A of the Code and the regulations thereunder (“Section 409A”), then each of the following shall apply:

 

  

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(A)  With regard to any payment that is considered “nonqualified deferred compensation” under Section 409A payable on account of and within six months after a “separation from service” (within the meaning of Section 409A and as provided in Section 3(g) of this Agreement), such payment shall instead be made on the date which is the earlier of (A) the expiration of the six (6)-month period measured from the date of the Executive’s “separation from service,” and (B) the date of the Executive’s death (the “Delay Period”) to the extent required under Section 409A.  Upon the expiration of the Delay Period, all payments delayed pursuant to this Section 3(d) (whether they would have otherwise been payable in a single sum or in installments in the absence of such delay) shall be paid to the Executive in a lump sum, and all remaining payments due under this Agreement shall be paid or provided in accordance with the normal payment dates specified for them herein; and

 

(B)  To the extent that benefits to be provided during the Delay Period are considered “nonqualified deferred compensation” under Section 409A provided on account of a “separation from service,” the Executive shall pay the cost of such benefits during the Delay Period, and the Company shall reimburse the Executive, to the extent that such costs would otherwise have been paid or reimbursed by the Company or to the extent that such benefits would otherwise have been provided by the Company at no cost to the Executive, for the Company’s share of the cost of such benefits upon expiration of the Delay Period, and any remaining benefits shall be paid, reimbursed or provided by the Company in accordance with the procedures specified herein.

 

The foregoing provisions of this Section 3(d) shall not apply to any payments or benefits that are excluded from the definition of “nonqualified deferred compensation” under Section 409A, including, without limitation, payments excluded from the definition of “nonqualified deferred compensation” on account of being separation pay due to an involuntary separation from service under Treasury Regulation 1.409A-1(b)(9)(iii).

 

(e)  Definitions.  For purposes of this Agreement, the following terms shall have the meanings ascribed to them below:

 

(i)  “Affiliate” means any corporation, partnership, limited liability company, trust or other entity which directly, or indirectly through one or more intermediaries, controls, is under common control with, or is controlled by, the Company, or any other entity determined to be an affiliate by regulatory agencies.

 

(ii)  “Change in Control” means the first occurrence of:

 

(A)  any Person acquires “beneficial ownership” (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), directly or indirectly, of securities of the Company representing 25% or more of the combined Voting Power of the Company’s securities;

 

(B)  within any 24-month period, the persons who were directors of the Company at the beginning of such period (the “Incumbent Directors”) shall cease to constitute at least a majority of the Board or the board of directors of any successor to the Company; provided that any director elected or nominated for election to the Board by a 

 

  

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majority of the Incumbent Directors still in office shall be deemed to be an Incumbent Director for purposes of this subclause 3(e)(ii)(B);

 

(C)  the effective date of the consummation of any merger, consolidation, share exchange, division, sale or other disposition of all or substantially all of the assets of the Company (a “Corporate Event”), if immediately following the consummation of such Corporate Event those Persons who were shareholders of the Company immediately prior to such Corporate Event do not hold, directly or indirectly, a majority of the Voting Power, in substantially the same proportion as prior to such Corporate Event, of (x) in the case of a merger or consolidation, the surviving or resulting corporation or (y) in the case of a division or a sale or other disposition of assets, each surviving, resulting or acquiring corporation which, immediately following the relevant Corporate Event, holds more than 25% of the consolidated assets of the Company immediately prior to such Corporate Event;

 

(D)  the approval by shareholders of the Company of a plan of liquidation with respect to the Company; or

 

(E)  the occurrence of any other event occurs which the Board declares to be a Change in Control.

 

(iii)  “Code” means the Internal Revenue Code of 1986, as amended.

 

(iv)  “Earned Compensation” means the sum of (a) any Annual Base Salary earned, but unpaid, for services rendered to the Company on or prior to the date on which the Employment Period ends pursuant to Section 3(a) (but excluding any salary and interest accrued thereon payment of which has been deferred) and (b) if the Executive’s employment terminates due to the Executive’s death or in a Termination due to Disability or a Termination for Good Reason or due to the Company’s exercise of its Termination Right, in any case, after the end of a fiscal year, but before the Annual Bonus payable for services rendered in that fiscal year has been paid, the Annual Bonus that would have been payable to the Executive for such completed fiscal year in accordance with Section 3(b).

 

(v)  “Original Stock Option Award Documents” means, with respect to any stock option, the terms and provisions of the award agreement and plan pursuant to which such stock option was granted, each as in effect on the Termination Date.

 

(vi)  “Original Award Documents” means, with respect to any restricted stock or other equity award, the terms and provisions of the award agreement related to and the plan governing, such restricted stock or other equity award, each as in effect on the Termination Date.

 

(vii)  “Person” shall have the same meaning as ascribed to such term in Section 3(a)(9) of the Exchange Act, as supplemented by Section 13(d)(3) of the Exchange Act, and shall include any group (within the meaning of Rule 13d-5(b) under the Exchange Act); provided that Person shall not include (1) the Company or any of its Affiliates, or (2) any employee benefit plan (including an employee stock ownership plan) sponsored by the Company or any of its Affiliates.

 

  

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(viii)  “Severance Amount” means an amount equal to the aggregate Annual Base Salary which would have been earned by the Executive under this Agreement (including any scheduled increase therein) for the period commencing on the day after the Termination Date and ending on the date of the end of the then applicable Employment Period.

 

(ix)  “Termination for Cause” means a termination of the Executive’s employment by the Company due to the Executive’s (i) gross negligence, (ii) gross misconduct, (iii) willful nonfeasance or (iv) willful material breach of this Agreement, which termination may be effected (A) immediately upon notice from the Company if the Company shall reasonably and in good faith determine that the conduct or cause specified in such notice is not curable (it being understood that such notice shall describe in reasonable detail the conduct or cause giving rise to such notice and shall state the reason(s) why the Company has determined that such conduct or cause if not curable); or (B) upon twenty (20) business days notice from the Company, if the Company shall reasonably and in good faith determine that the conduct or cause specified in such notice is curable (it being understood that such notice shall describe in reasonable detail the conduct or cause giving rise to such notice and shall state the reason(s) why the Company has determined that such conduct or cause is curable and what steps the Company believes should or could be taken to cure such conduct or cause).

 

(x)  “Termination Date” means the earlier to occur of (i) the date the Company specifies in writing to the Executive in connection with the exercise of its Termination Right or (ii) the date the Executive specifies in writing to the Company in connection with any notice to effect a Termination for Good Reason.

 

(xi)  “Termination due to Disability” means a termination of the Executive’s employment by the Company because the Executive has been incapable, after reasonable accommodation, of substantially fulfilling the positions, duties, responsibilities and obligations set forth in this Agreement because of physical, mental or emotional incapacity resulting from injury, sickness or disease for a period of (i) six (6) consecutive months or (ii) an aggregate of nine (9) months (whether or not consecutive) in any twelve (12) month period.  Any question as to the existence, extent or potentiality of the Executive’s disability shall be determined by a qualified physician selected by the Company with the consent of the Executive, which consent shall not be unreasonably withheld.  The Executive or the Executive’s legal representatives or any adult member of the Executive’s immediate family shall have the right to present to such physician such information and arguments as to the Executive’s disability as he, she or they deem appropriate, including the opinion of the Executive’s personal physician.

 

(xii)  “Termination for Good Reason” means a termination of the Executive’s employment by the Executive within thirty (30) days of the Company’s failure to cure, in accordance with the procedures set forth below, any of the following events: (i) a reduction in any of the Executive’s compensation rights hereunder (that is, the Annual Base Salary or target long-term incentive award specified in Section 2(b)(iii)), it being understood that the failure of the Executive to receive in respect of any equity award granted an amount that is equal to or greater than the annual target incentive value ascribed to such award is not a reduction in such compensation rights nor is any reduction in the Annual Base Salary agreed to by the Executive, but a failure to effect a scheduled increase in the Annual Base Salary would be a reduction in such compensation rights; (ii) the removal of the Executive by the Company from 

 

  

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the position of [Insert Title]; (iii) a material reduction in the Executive’s duties and responsibilities as in effect immediately prior to such reduction; (iv) the relocation of the Executive’s principal office to a location that is more than 50 miles outside of Lansing, Michigan; or (v) a material breach of any material provision of this Agreement by the Company.  Notwithstanding the foregoing, a termination shall not be treated as a Termination for Good Reason (A) if the Executive shall have consented in writing to the occurrence of the event giving rise to the claim of Termination for Good Reason, or (B) unless the Executive shall have delivered a written notice to the Board of Directors within forty-five (45) days of the Executive’s having actual knowledge of the occurrence of one of such events stating that the Executive intends to terminate the Executive’s employment for Good Reason and specifying the factual basis for such termination, and such event, if capable of being cured, shall not have been cured within twenty-one (21) days of the receipt of such notice.

 

(xiii)  “Termination Right” means the right of the Company, in its sole, absolute and unfettered discretion, to terminate the Executive’s employment under this Agreement for any reason or no reason whatsoever.  For the avoidance of doubt, any Termination for Cause effected by the Company shall not constitute the exercise of its Termination Right.

 

(xiv)  “Voting Power” means such number of Voting Securities as shall enable the holders thereof to cast all the votes which could be cast in an annual election of directors of a company.

 

(xv)  “Voting Securities” means all securities entitling the holders thereof to vote in an annual election of directors of a company.

 

(f)  Conflict with Plans.  As permitted under the terms of the applicable Plans, the Company and the Executive agree that the definitions of Termination for Cause or Termination for Good Reason set forth in this Section 3 shall apply in place of any similar definition or comparable concept applicable under either of the Plans (or any similar definition in any successor plan).

 

(g)  Section 409A.   It is intended that payments and benefits under this Agreement either be excluded from or comply with the requirements of Section 409A and the guidance issued thereunder and, accordingly, to the maximum extent permitted, this Agreement shall be interpreted consistent with such intent.  In the event that any provision of this Agreement is subject to but fails to comply with Section 409A, the Company may revise the terms of the provision to correct such noncompliance to the extent permitted under any guidance, procedure or other method promulgated by the Internal Revenue Service now or in the future or otherwise available that provides for such correction as a means to avoid or mitigate any taxes, interest or penalties that would otherwise be incurred by the Executive on account of such noncompliance.  Provided, however, that in no event whatsoever shall the Company be liable for any additional tax, interest or penalty imposed upon or other detriment suffered by the Executive under Section 409A or damages for failing to comply with Section 409A.  Solely for purposes of determining the time and form of payments due the Executive under this Agreement (including any payments due under Sections 3(b) or 5) or otherwise in connection with the Executive’s termination of employment with the Company, the Executive shall not be deemed to have incurred a 

 

  

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termination of employment unless and until the Executive shall incur a “separation from service” within the meaning of Section 409A.  The parties agree, as permitted in accordance with the final regulations thereunder, a “separation from service” shall occur when the Executive and the Company reasonably anticipate that the Executive’s level of bona fide services for the Company (whether as an employee or an independent contractor) will permanently decrease to no more than forty (40) percent of the average level of bona fide services performed by the Executive for the Company over the immediately preceding thirty six (36) months.  The determination of whether and when a separation from service has occurred shall be made in accordance with this subparagraph and in a manner consistent with Treasury Regulation Section 1.409A-1(h).  All reimbursements and in-kind benefits provided under this Agreement shall be made or provided in accordance with the requirements of Section 409A to the extent that such reimbursements or in-kind benefits are subject to Section 409A, including, where applicable, the requirements that (i) any reimbursement is for expenses incurred during the Executive’s lifetime (or during a shorter period of time specified in this Agreement), (ii) the amount of expenses eligible for reimbursement during a calendar year may not affect the expenses eligible for reimbursement in any other calendar year, (iii) the reimbursement of an eligible expense will be made on or before the last day of the calendar year following the year in which the expense is incurred and (iv) the right to reimbursement is not subject to set off or liquidation or exchange for any other benefit.  For purposes of Section 409A, the Executive’s right to any installment payment under this Agreement shall be treated as a right to receive a series of separate and distinct payments.  Whenever a payment under this Agreement specifies a payment period with reference to a number of days (e.g., “payment shall be made within ninety (90) days following the date of termination”), the actual date of payment within the specified period shall be within the sole discretion of the Company.

 

4.  Executive Remedy. The Executive shall be under no obligation to seek other employment or other engagement of the Executive’s services.  The Executive acknowledges and agrees that the payment and rights provided under Section 3 are fair and reasonable, and are the Executive’s sole and exclusive remedy, in lieu of all other remedies at law or in equity, for termination of the Executive’s employment by the Company upon exercise of its Termination Right pursuant to this Agreement or upon a Termination for Good Reason.

 

5.  Additional Payments Following a Change in Control. 

 

(a)  If, during the Employment Period, the Company shall terminate the Executive’s employment other than due to the Executive’s death, a Termination for Cause, a Termination due to Disability or if the Executive shall effect a Termination for Good Reason within two (2) years after a Change in Control:

 

(i)  the Company shall pay to the Executive, in a lump sum in cash within thirty (30) days after the Termination Date, the aggregate of the following amounts:

 

(A)  the Unconditional Entitlements; and

 

(B)  the amount equal to the product of three (3) times the sum of (x) the Annual Base Salary, and (y) the greater of the target bonus for the then current fiscal year under the MIP, the Stock Plan or any successor annual bonus plan and the average annual 

 

  

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bonus paid to or for the benefit of the Executive for the prior three (3) full years (or any shorter period during which the Executive has been employed by the Company).

 

(ii)  the Company shall provide the Executive the Conditional Benefits.

 

(b)  In the event that the aggregate of all payments or benefits made or provided to the Executive under this Agreement and under all other plans, programs or arrangements of the Company (the “Aggregate Payment”) constitutes a parachute payment, as such term is defined in Section 280G(b)(2) of the Code (a “Parachute Payment”), such payments and benefits shall be reduced or eliminated, as determined by the Company, in the following order:  (i) any cash payments, (ii) any taxable benefits, (iii) any nontaxable benefits, and (iv) any vesting or accelerated delivery of equity awards, in each case in reverse order beginning with the payments or benefits that are to be paid the farthest in time from the date that triggers the applicable excise tax, until the amount of the remaining Aggregate Payment is one dollar less than the amount that would constitute as a parachute payment.  The determination of whether the Aggregate Payment constitutes a Parachute Payment and, if so, the amount to be paid to the Executive and the time of payment pursuant to this Section 5 shall be made by an independent accounting firm (the “Accounting Firm”) selected by the Company prior to the Change in Control.  The Accounting Firm shall be a nationally recognized United States public accounting firm which has not, during the two years preceding the date of its selection, acted in any way on behalf of (x) the Company or any affiliate thereof or (v) the Executive.

 

(c)  The Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others.  In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Executive obtains other employment.  The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus, in each case, interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Code.

 

6.  Confidentiality.

 

(a)  Confidentiality. Without the prior written consent of the Company, except (i) as reasonably necessary in the course of carrying out the Executive’s duties hereunder or (ii) to the extent required by an order of a court having competent jurisdiction or under subpoena from an appropriate government agency.  The Executive shall not disclose any Confidential Information unless such Confidential Information has been previously disclosed to the public by the Company or has otherwise become available to the public (other than by reason of the Executive’s breach of this Section 6(a)).   The term “Confidential Information” shall include, but shall not be limited to: (i) the identities of the existing and prospective customers or 

 

  

12

  

 

clients of the Company and its Affiliates, including names, addresses, credit status, and pricing levels; (ii) the buying and selling habits and customs of existing and prospective customers or clients of the Company and its Affiliates; (iii) financial information about the Company and its Affiliates; (iv) product and systems specifications, concepts for new or improved products and other product or systems data; (v) the identities of, and special skills possessed by, employees of the Company and its Affiliates; (vi) the identities of and pricing information about the suppliers and vendors of the Company and its Affiliates; (vii) training programs developed by  the Company or its Affiliates; (viii) pricing studies, information and analyses; (ix) current and prospective products and inventories; (x) financial models, business projections and market studies; (xi) the financial results and business conditions of the Company and its Affiliates; (xii) business plans and strategies of the Company and its Affiliates; (xiii) special processes, procedures, and services of suppliers and vendors of the Company and its Affiliates; and (xiv) computer programs and software developed by the Company or its Affiliates.

 

(b)  Company Property. Promptly following the Executive’s termination of employment, the Executive shall return to the Company all property of the Company, and all copies thereof in the Executive’s possession or under the Executive’s control, except that the Executive may retain the Executive’s personal notes, diaries, rolodexes, mobile devices, calendars and correspondence of a personal nature.

 

7.  Successors.

 

(a)  This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution.  This Agreement shall inure to the benefit of and be enforceable by the Executive’s legal representatives.

 

(b)  This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns and any party acting in the form of a receiver or trustee capacity.

 

(c)  The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place.  As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.

 

8.  Miscellaneous.

 

(a)  This Agreement shall be construed in accordance with, and governed by, the laws of the State of Michigan, without regard to the conflicts of law rules of such state. Each of the parties hereto (a) consents to submit itself to the personal jurisdiction of the courts of the State of Michigan or any federal court with subject matter jurisdiction located in the Western District of Michigan (and any appeals court therefrom) in the event any dispute arises out of this Agreement or any transaction contemplated hereby, (b) agrees that it will not attempt to deny or 

 

  

13

  

 

defeat such personal jurisdiction by motion or other request for leave from any such court, and (c) agrees that it will not bring any action relating to this Agreement or any transaction contemplated hereby in any court other than such courts.  The captions of this Agreement are not part of the provisions hereof and shall have no force or effect.  This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives.

 

(b)  All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

 

If to the Executive:                ________________________      

                                                                 ________________________

                                                                 ________________________             

 

If to the Company:               Capitol Bancorp Ltd.

Capitol Bancorp Center

200 Washington Square North

Lansing, Michigan 48933

Attention:  General Counsel

 

or to such other address as either party shall have furnished to the other in writing in accordance herewith.  Notice and communications shall be effective when actually received by the addressee.

 

(c)  The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.

 

(d)  The Company hereby agrees to indemnify the Executive and hold the Employee harmless to the extent provided under Articles of Incorporation and the By-Laws of the Company [and the Indemnification Agreement, dated as of August 12, 2009], between the Company and the Executive against and in respect of any and all actions, suits, proceedings, claims, demands, judgments, costs, expenses (including reasonable attorney’s fees), losses, and damages resulting from the Executive’s good faith performance of the Executive’s duties and obligations with the Company. This obligation shall survive the termination of the Executive’s employment with the Company.

 

(e)  From and after the Commencement Date, the Company shall cover the Executive under directors’ and officers’ liability insurance both during and, while potential liability exists, after the Employment Period in the same amount and to the same extent as the Company covers its other executive officers and directors.

 

(f)  The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation.

 

(g)  The Executive’s or the Company’s failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the 

 

  

14

  

 

Company may have hereunder, including, without limitation, the right of the executive to effect a Termination for Good Reason shall not be deemed to be a waiver of such provision of right or any other provision or right of this Agreement.

 

(h)  This Agreement, and all agreements, documents, instruments, schedules, exhibits or certificates prepared in connection herewith, represent the entire understanding and agreement between the parties with respect to the subject matter hereof, supersede all prior agreements or negotiations between such parties, including the Prior Employment Agreement, and may be amended, supplemented or changed only by an agreement in writing which makes specific reference to this Agreement or the agreement or document delivered pursuant hereto, as the case may be, and which is signed by the party against whom enforcement of any such amendment, supplement or modification is sought.

 

Signatures on the Following Page

 

  

15

  

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

 

	  	  
	
The Executive:

 

 

___________________________

[Insert Name]

	
The Company:

Capitol Bancorp Ltd.

 

By:   ___________________________

Name:  _________________________

Title:  __________________________

	  	  

Signature Page to Employment Agreementexhibit10-1.htm

 

EXHIBIT 10.1

MODIFICATION TO CREDIT AGREEMENT

 

 

This Modification to Credit Agreement ("Modification") is made as of October 12, 2010, by and among OWENS MORTGAGE INVESTMENT FUND, a California limited partnership (“Borrower”), CALIFORNIA BANK & TRUST, in its capacity as Agent for the Lenders, and CALIFORNIA BANK & TRUST, FIRST BANK and CITY NATIONAL BANK (each, a “Lender”).

 

RECITALS

 

A.           Pursuant to the terms of a Credit Agreement ("Credit Agreement") between Lenders and Borrower dated as of August 31, 2001, Lenders agreed to make Revolving Loans to Borrower up to the credit limit of the principal sum of $20,000,000.  California Bank & Trust is the agent of Lenders under the Credit Agreement (“Agent”).  The Credit Agreement was amended by a Modification to Credit Agreement, dated February 28, 2002, executed by the parties that, among other things, added Swing Loans to the facility.  The Revolving Loans and Swing Loans are collectively referred to as “Loans.”  By a Modification to Credit Agreement, dated August 16, 2002, executed by the parties, the “Amount of Aggregate Commitment” for each Lender was increased.  By a Modification to Credit Agreement dated July 31, 2003, executed by the parties, the “Commitment Termination Date” was extended to July 31, 2005.  By a further Modification to Credit Agreement dated July 31, 2005, the “Commitment Termination Date” was extended to September 30, 2005.  By another Modification to Credit Agreement, dated September 30, 2005, the “Commitment Termination Date” was extended to July 31, 2007.  By another Modification to Credit Agreement, dated February 9, 2006, the Amount of Aggregate Commitment for each Lender through July 31, 2006 was amended and Second Replacement Revolving Promissory Notes were executed.  By a Modification to Credit Agreement, dated August 15, 2006, compliance with section 11.25 of the Credit Agreement as of September 30, 2006 was waived. By a further Modification to Credit Agreement, dated February 23, 2007, the “Amount of Aggregate Commitment” for Loans was temporarily increased through July 31, 2007, provision for an Unused Commitment Fee was added, and Third Replacement Promissory Notes were executed. By another Modification to Credit Agreement, dated July 20, 2007, the Commitment Termination Date was further extended to July 31, 2009.  The Credit Agreement was again amended by a Modification to Credit Agreement, dated March 31, 2008, by which the Amount of Aggregate Commitment was changed, the Unused Commitment Fee was reaffirmed, and the Minimum Tangible Net Worth covenant was adjusted, among other things.  The Credit Agreement was again amended by a Modification to Credit Agreement, dated March 27, 2009 by which section 5.1 of the Credit Agreement was modified to establish an interest rate floor.  The Credit Agreement was also modified by a Modification to Credit Agreement, dated September 30, 2009, by which the Commitment Termination Date was extended to March 31, 2010, advances were suspended, the commitment amounts were lowered, the interest rate was adjusted, a new financial covenant replaced the profitability covenant and a new restricted distribution covenant was added, among other things.

 

B.           Borrower’s obligations under the Credit Agreement matured on March 31, 2010 (the “Maturity Date”) and are now due and payable, owing, and delinquent.

 

  

  

  

C.           The aggregate outstanding principal balance on the Loans as of September 27, 2010 was $16,375,680.22.

 

D.           Borrower and Lenders have agreed to further modify the terms of the Credit Agreement, as set forth in this Modification.  Capitalized terms shall have the meanings assigned to them in the Credit Agreement, as previously modified, except as set forth in this Modification.

 

AGREEMENT

 

NOW, THEREFORE, Borrower and Lenders agree as follows:

 

1.          Adoption of Recitals.  Pursuant to Section 622 of the California Evidence Code, each of the parties hereto agrees that each of the foregoing recitals are conclusively presumed to be true as between the parties hereto and Borrower hereby represents and warrants to Agent and the Lenders that each of the recitals set forth above is true, accurate, and complete.

2.           Conditions Precedent.  This Modification shall become effective only upon Borrower's delivery or satisfaction of the following conditions in form and substance acceptable to Agent:

(a) Borrower shall have executed this Modification;

 

(b) Agent and the Majority Lenders shall have executed this Modification;

 

(c) Owens Financial Group, Inc. shall have executed the Acknowledgment and Consent appended to this Modification;

 

(d) Borrower shall pay to Agent all of Agent’s and each Lender’s attorneys' fees incurred in connection with the negotiation, preparation, and execution of this Modification and all out-of-pocket fees incurred by Agent or each Lender in connection with this Modification; and

 

(e) Borrower shall provide any other items or documents reasonably required by Agent in connection with the consummation of this Modification.

 

3.           Request to Apply Balances.  Borrower hereby requests that (a) promptly following the effectiveness of this Modification, First Bank and City National Bank remit to Agent all collected balances maintained in deposit accounts of Borrower at such banks, (b) upon receipt of such funds, Agent accept and apply same to the payment of the outstanding principal balance of the Loans, and (c) following the remittance of such funds to Agent, First Bank and City National Bank close all deposit accounts of Borrower maintained at such banks.  The payments made hereunder are being made by Borrower and are not the result of a setoff or other exercise of remedies by Agent or the Lenders.

4.           Modification of Credit Documents.  In order to effectuate the request made in Section 3 above, the Credit Documents are hereby amended as follows:

  

  

  

(a)           Section 11.25 of the Credit Agreement, entitled “Deposit Account Requirement” is deleted and replaced with the following new covenant:

 

“Operating/Business Accounts. Borrower shall maintain Borrower’s primary operating and business accounts with California Bank & Trust.”

 

5.           Security Instruments.  The Credit Documents which recite that they are security instruments or that purport to create security interests or liens shall secure, in addition to any other obligations secured thereby, the payment and performance by Borrower of all obligations under the Credit Documents.

6.           Borrower’s Representations and Warranties.  Borrower represents and warrants to Agent and the Lenders as of the date of this Modification:

(a)           Accuracy of Representations in Modification.  All representations and warranties made and given by Borrower in this Modification are accurate and correct.

 

(b)           Enforceable Credit Documents/No Conflicts.  The Credit Documents and this Modification are legal, valid and binding agreements of Borrower, enforceable in accordance with their respective terms.  This Modification does not conflict with any law, agreement, or obligation by which Borrower is bound.

 

7.           Borrower Acknowledgments.  Borrower hereby acknowledges and agrees that:

 

(a)           No Breach by Agent or Lenders.  Neither Agent nor any of the Lenders have breached any duty owed to Borrower in connection with the Credit Documents, and Agent and each of the Lenders have fully performed all obligations that they owed to Borrower.

 

(b)           Interest, Fees, and Other Charges.  All interest, fees or other charges imposed, accrued, or collected by Agent or the Lenders under the Credit Documents, and the method of computing the interest, fees, or other charges, were and are proper and agreed to by Borrower and were properly computed and collected.

 

(c)           Existing Events of Default.  The Borrower’s failure to repay the Loans in full in cash on the Maturity Date constituted and continues to constitute an Event of Default under the Credit Documents, the Borrower’s declaration and payment of dividends to its equity investors after the Maturity Date also constituted and continues to constitute an Event of Default under the Credit Documents and such Events of Default (the “Existing Events of Default”) have not been waived or consented to by Agent or any of the Lenders.

 

  

  

  

 (d)           No Waivers.  By entering into this Modification, neither Agent nor the Lenders waive any existing defaults or any defaults hereafter occurring, and neither Agent nor the Lenders have made any commitment, representation, warranty, promise, or statement (whether in writing or orally) obligating them to waive any event of default (including the failure to repay the Loans in full on the Maturity Date) and have made no commitment, representation, warranty, promise, or statement (whether in writing or orally) relative to forbearing from exercising any of their rights and remedies available under the Credit Documents.

 

(e)           No Future Obligations.  Lenders have no obligation to make any additional Loans or extensions of credit to or for the benefit of Borrower, and Lenders have no obligation to provide additional forbearance or to extend further accommodations to Borrower.  Nothing in this Modification shall operate as a waiver or an amendment of any right, power or remedy of Agent or the Lenders nor, except as expressly set forth herein, as a consent to any departure from the terms of any of the Credit Documents.

 

(f)  No Assurances.  Agent and the Lenders continue to evaluate their response to the Existing Events of Default and nothing contained in this Modification is intended to or shall be construed as a waiver of any of their rights, remedies, and powers against Borrower or a waiver of any Defaults or Events of Default, whether specified herein or otherwise, and Agent and each of the Lenders have expressly reserved all of their rights, remedies, and powers under the Credit Documents, at law, in equity, or otherwise.

 

(g)           No Third Party Beneficiaries.  This Modification is not intended for, and shall not be construed to be for, the benefit of any person not a signatory hereto.

 

(h)           Fair Consideration.  All payments made by Borrower to Agent or the Lenders under the Credit Documents are for fair consideration and reasonably equivalent value.

 

  

  

  

8.           Release.

 

(a)             Borrower, for itself and on behalf of its respective successors and assigns, does hereby release, acquit and forever discharge Agent and the Lenders, all of their respective predecessors in interest, and all of their respective past and present officers, directors, attorneys, affiliates, employees and agents, of and from any and all claims, demands, obligations, liabilities, indebtedness, breaches of contract, breaches of duty or of any relationship, acts, omissions, misfeasance, malfeasance, causes of action, defenses, offsets, debts, sums of money, accounts, compensation, contracts, controversies, promises, damages, costs, losses and expenses, of every type, kind, nature, description or character, whether known or unknown, suspected or unsuspected, liquidated or unliquidated, each as though fully set forth herein at length (each, a “Released Claim” and collectively, the “Released Claims”), that have occurred on or before the later of:  (i) the date this Modification becomes effective through the satisfaction (or waiver) of all conditions hereto; or (ii) the date that Borrower has executed and delivered this Modification to Agent (hereafter, the “Release Date”) that Borrower ever had from the beginning of the world, now has, or might hereafter acquire, including without limitation, those Released Claims in any way arising out of, connected with or related to any and all prior credit accommodations, if any, provided by Agent or any of the Lenders, or any of their respective predecessors in interest, to Borrower, and any agreements, notes or documents of any kind related thereto or the transactions contemplated thereby or hereby, or any other agreement or document referred to herein or therein.

 

(b)             Borrower hereby acknowledges, represents and warrants to Agent and the Lenders that it agrees to assume the risk of any and all unknown, unanticipated or misunderstood defenses and Released Claims which are released by the provisions of this Section 8 in favor of Agent and the Lenders, and Borrower hereby waives and releases all rights and benefits which it might otherwise have under any state or local laws or statutes with regard to the release of such unknown, unanticipated or misunderstood defenses and Released Claims.  Without limiting the generality of the foregoing, as to each and every claim released hereunder, Borrower hereby represents that it has received the advice of legal counsel with regard to the releases contained herein, and having been so advised, specifically waives the benefit of the provisions of Section 1542 of the Civil Code of California which provides as follows:

 

(c) “A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH A CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS/HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM/HER, MUST HAVE MATERIALLY AFFECTED HIS/HER SETTLEMENT WITH THE DEBTOR.”

 

(d) Each person signing below on behalf of Borrower acknowledges that he or she has read each of the provisions of this Section 8.  Each such person fully understands that this Section 8 has important legal consequences, and each such person realizes that they are releasing any and all Released Claims that Borrower may have or may hereafter acquire.  Borrower hereby acknowledges that it has had an opportunity to obtain a lawyer's advice concerning the legal consequences of each of the provisions of this Section 8.

 

(e) Borrower hereby specifically acknowledges and agrees that:  (i) none of the provisions of this Section 8 shall be construed as or constitute an admission of any liability on the part of Agent or any Lender; (ii) the provisions of this Section 8 shall constitute an absolute bar to any Released Claim of any kind, whether any such Released Claim is based on contract, tort, warranty, mistake or any other theory, whether legal, statutory or equitable; and (iii) any attempt to assert a Released Claim barred by the provisions of this Section 8 shall subject Borrower to the provisions of applicable law setting forth the remedies for the bringing of groundless, frivolous or baseless claims or causes of action.

 

  

  

  

9.   Compromise Negotiations.  Other than the provisions of this Modification explicitly set forth herein, any discussions between the parties hereto in reference to the drafting hereof (the “Negotiations”) shall not be utilized or admissible in any subsequent litigation between the parties hereto.  All such Negotiations shall be considered “compromise negotiations” pursuant to Fed. R. Evid. 408 and any comparable provision of any other state or federal law which may now or in the future be deemed applicable to the Negotiations, and none of such Negotiations shall be considered “otherwise discoverable” or be permitted to be discoverable or admissible for any other purpose or to prove “bias or prejudice; negating a contention of undue delay; and proving an effort to obstruct a criminal investigation or prosecution” as provided by Fed. R. Evid. 408 and any comparable provision of any other state or federal law which may now or in the future be deemed applicable to the Negotiations.

 

10.   Governing Law.  This Modification shall be construed, governed and enforced in accordance with the laws of the State of California.

 

11.   Interpretation.  No provision of this Modification is to be interpreted for or against either Borrower or Lenders because that party, or that party's representative, drafted such provision.

 

12.   Full Force and Effect.  Except as set forth herein, all other terms and conditions of the Credit Documents shall remain in full force and effect.

 

13.   Reaffirmation.  Borrower hereby acknowledges, reaffirms and confirms its obligations under the Credit Documents, as amended and modified by this Modification.  Borrower hereby further ratifies and reaffirms the validity and enforceability of each of the Credit Documents executed by Borrower prior to the date hereof (irrespective of whether Agent was a signatory thereto) and the validity and enforceability of all of the liens and security interests heretofore granted, pursuant to and in connection with any Credit Document and acknowledges and agrees that all of such liens and security interests continue to be and remain collateral for such obligations from and after the date hereof.

 

14.   Entire Agreement.  This Modification and the Credit Documents represent the entire agreement of the parties and supersede all prior oral and written communication between the parties.  If there is any conflict between this Modification and any documents referred to herein, this Modification shall prevail.  No amendment of this Modification shall be valid unless it is in writing and is signed by the parties to this Modification.

 

IN WITNESS WHEREOF, the parties have executed this Modification as of the day and year first above written.

 

SIGNATURES APPEAR ON THE FOLLOWING PAGES

 

  

  

  

OWENS MORTGAGE INVESTMENT FUND,

a California limited partnership,

By:           OWENS FINANCIAL GROUP, INC.,

a California corporation, its general partner

By:           /s/ Bryan H. Draper

Name:      Bryan H. Draper

Title:        CFO

2221 Olympic Boulevard

Walnut Creek, CA 94595

Fax: 925-935-1486

{Clients\CBT-LN\0118\AGR\07010013.DOC}

  

  

  

CALIFORNIA BANK & TRUST, a California

banking corporation, as Agent and as a Lender

By:           /s/ Stephen C. Bellicini

Name:      Stephen C. Bellicini

Title:        Executive Vice President

By:           /s/ Carmen Sanz

Name:      Carmen Sanz

Title:        Vice President

San Francisco Corporate Banking

465 California Street, First Floor

San Francisco, CA 94104

Fax:  415/875-1456

{Clients\CBT-LN\0118\AGR\07010013.DOC}

  

  

  

FIRST BANK, a Missouri banking corporation, formerly FIRST BANK & TRUST, as a Lender

By:           /s/ William G. Nelle, Jr.

Name:      William G. Nelle, Jr.

Title:        SVP

By:           

Name:           

Title:           

Commercial and Private Banking

550 Montgomery Street

San Francisco, CA 94111

Fax:  415/398-7190

{Clients\CBT-LN\0118\AGR\07010013.DOC}

  

  

  

CITY NATIONAL BANK, a national

association, as a Lender

By:           /s/ Kevin P. McKenna

Name:      Kevin P. McKenna

Title:        Vice President

By:           

Name:           

Title:           

Address:      555 South Flower Street, 16th Floor

                      Los Angeles, CA 90071

Fax:               213-673-8958

{Clients\CBT-LN\0118\AGR\07010013.DOC}

  

  

  

ACKNOWLEDGMENT AND CONSENT

 

REAFFIRMATION AND CONSENT

 

Owens Financial Group, Inc. (“Guarantor”) hereby (i) consents to the amendment of the Credit Agreement as set forth in the Modification; (ii) acknowledges and reaffirms its obligations owing to Agent and the Lenders under its continuing guaranty, dated August 31, 2001 (the “Continuing Guaranty”); and (iii) agrees that the Continuing Guaranty is and shall remain in full force and effect.  Without limiting the generality of the foregoing, Guarantor hereby restates, ratifies and reaffirms each and every term and condition set forth in the Continuing Guaranty effective as of the date hereof.  All obligations owing by Guarantor under the Continuing Guaranty are unconditionally owing by such Guarantor to Agent and the Lenders, without offset, defense, withholding, counterclaim or deduction of any kind, nature or description whatsoever.  Guarantor hereby represents and warrants to Agent and the Lenders that (x) the execution, delivery, and performance of this Reaffirmation and Consent does not (A) violate any material provision of federal, state, or local law or regulation applicable to Guarantor or any order, judgment, or decree of any court or other governmental authority binding on Guarantor, (B) conflict with, result in a breach of, or constitute (with due notice or lapse of time or both) a default under any material contract of Guarantor, (C) result in or require the creation or imposition of any lien of any nature whatsoever upon any assets of Guarantor, (D) require any approval or consent of any other person under any material contract of Guarantor, other than consents or approvals that have been obtained and that are still in force and effect, or (E) require any registration with, consent, or approval of, or notice to, or other action with or by, any governmental authority, other than registrations, consents, approvals, notices or other actions that have been obtained and that are still in force and effect, and (y) this Reaffirmation and Consent has been duly executed and delivered by Guarantor and is the legally valid and binding obligation of Guarantor, enforceable against Guarantor in accordance with its terms, except as enforcement may be limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or limiting creditors’ rights generally.

 

Although Guarantor has been informed of the matters set forth in the Modification and has acknowledged and agreed to same, Guarantor understands and agrees that Agent and the Lenders have no obligation to inform it of amendments of, or consents or waivers relative to, the Credit Documents in the future or to seek its acknowledgment or agreement to future amendments of, or consents or waivers or relative to, the Credit Documents and nothing herein shall create such a duty.

 

Delivery of an executed counterpart of this Reaffirmation and Consent by telefacsimile or other electronic method of transmission shall be equally as effective as delivery of an original executed counterpart of this Reaffirmation and Consent.  Any party delivering an executed counterpart of this Reaffirmation and Consent by telefacsimile or other electronic method of transmission also shall deliver an original executed counterpart of this Reaffirmation and Consent but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Reaffirmation and Consent.

 

This Reaffirmation and Consent shall be determined under, governed by, and construed in accordance the laws of the State of California.

 

Dated:  October 12, 2010

 

  

  

  

OWENS FINANCIAL GROUP, INC.,

a California corporation

By:                           /s/ Bryan H. Draper

Printed Name:        Bryan H. Draper

Title:                        CFO

ACCEPTED AND ACKNOWLEDGED BY:

CALIFORNIA BANK & TRUST, AS AGENT FOR THE LENDERS

By:                                   /s/ Carmen Sanz

Printed Name:                Carmen Sanz

Title:                                Vice President

 

 

 

{Clients\CBT-LN\0118\AGR\07010013.DOC}

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