Document:

UNITED STATES OF AMERICA

DEPARTMENT OF THE TREASURY

COMPTROLLER OF THE CURRENCY

 

	
        In the Matter of:

        First National Bank in Howell

        Howell, Michigan
	
        )

        )

        )
	AA-EC-2013-83

 

CONSENT ORDER

 

WHEREAS, the Comptroller of the Currency
of the United States of America (“Comptroller” or “OCC”), through his authorized representative, has supervisory
authority over First National Bank in Howell, Howell, Michigan (“Bank”);

 

WHEREAS, the Bank, by and through
its duly elected and acting Board of Directors (“Board”), has executed a Stipulation and Consent to the Issuance of
a Consent Order (“Stipulation and Consent”), dated October 31, 2013 that is accepted by the Comptroller through his
duly authorized representative; and

 

WHEREAS, by this Stipulation and
Consent, which is incorporated by reference, the Bank has consented to the issuance of this Consent Order (“Order”)
by the Comptroller;

 

NOW, THEREFORE, pursuant to the authority
vested in him by the Federal Deposit Insurance Act, as amended, 12 U.S.C. § 1818, the Comptroller hereby orders that:

 

ARTICLE I

 

COMPLIANCE COMMITTEE

 

(1)  The Compliance Committee
appointed by the Board pursuant to the September 24, 2009, Order (“2009 Order”) shall continue to consist of at least
three (3) directors of which at least two (2) shall not be employees, former employees,
or controlling shareholders of the Bank or any of its affiliates (as the term “affiliate” is defined in 12 U.S.C. § 371c(b)(1)),
or a family member of any such person. In the event of a change of the membership, the name of any new member shall be immediately
submitted in writing to the Director for Special Supervision (“Director”). The Compliance Committee shall be responsible
for monitoring and coordinating the Bank’s adherence to the provisions of this Order.

 

    	 

    	 

    

 

(2)  The Compliance Committee
shall meet at least monthly.

 

(3)  Within thirty (30) days of
the date the Compliance Committee last submitted a written progress report to the Board under the terms of the 2009 Order, the
Compliance Committee shall issue a report to the Board and thereafter issue such report to the Board every thirty (30) days setting
forth in detail:

 

		(a)	a description of the actions needed to achieve full compliance with each Article of this Order, Bank personnel responsible
for implementing the corrective actions, and the timeframes for completion;

 

		(b)	actions taken to comply with each Article of this Order; and

 

		(c)	the results and status of those actions.

 

(4)  The Board shall forward a
copy of the Compliance Committee's reports, with any additional comments by the Board, to the Director within ten (10) days of
receiving such report.

 

ARTICLE II

 

STRATEGIC PLAN

 

(1)  Within thirty (30) days of
the date of this Order, the Board shall forward to the Director for his review, pursuant to paragraph (3) of this Article, an acceptable,
written Strategic Plan for the Bank, covering at least a two-year period. The Strategic Plan shall establish objectives for the
Bank’s overall risk profile, earnings performance, growth, balance sheet mix, off-balance sheet activities, liability structure,
capital and liquidity adequacy, together with strategies to achieve those objectives, and shall, at a minimum, include:

 

		(a)	a mission statement that forms the framework for the establishment of strategic goals and objectives;

 

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		(b)	the strategic goals and objectives to be accomplished, including key financial indicators and risk tolerances;

 

		(c)	an assessment of the Bank’s strengths, weaknesses, opportunities, and threats that impact strategic goals and objectives;

 

		(d)	an identification and prioritization of initiatives and opportunities, including timeframes that take into account the requirements
of this Order;

 

		(e)	a description of the Bank’s targeted market(s), competitive factors in its identified target market(s) and a description
of control systems to mitigate risks in the Bank’s markets;

 

		(f)	a financial forecast, to include projections for major balance sheet and income statement accounts, targeted financial ratios,
and growth projections over the period covered by the Strategic Plan;

 

		(g)	a description of the assumptions used to determine financial projections and growth targets;

 

		(h)	an assessment of the present and planned product lines (assets and liabilities), including the Bank’s trust activities,
and the identification of appropriate risk management systems to identify, measure, monitor, and control risks within the product
lines;

 

		(i)	an evaluation of the Bank's internal operations, staffing requirements, salary and related compensation, board and management
information systems, and policies and procedures for their adequacy and contribution to the accomplishment of the goals and objectives
established in the Strategic Plan;

 

		(j)	specific actions to improve Bank earnings and asset quality and reduce the level of concentrations of credit;

 

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		(k)	strategies to reduce rollover risk and maintain sufficient liquidity at reasonable costs, including maintaining sufficient
asset based liquidity and diversification of funding sources without significant reliance on high cost providers;

 

		(l)	assigned responsibilities and accountability for the strategic planning process; and

 

		(m)	description of systems and metrics designed to monitor the Bank’s progress in meeting the Strategic Plan’s goals
and objectives.

 

(2)  If the Board’s Strategic
Plan under paragraph (1) of this Article includes a proposed sale or merger of the Bank, the Strategic Plan shall, at a minimum,
address the steps that will be taken and the associated timeline to effect the implementation of that alternative.

 

(3)  Prior to adoption by the
Board, a copy of the Strategic Plan and any subsequent amendments or revisions shall be submitted to the Director for review and
prior written determination of no supervisory objection. At the next Board meeting following receipt of the Director’s written
determination of no supervisory objection, the Board shall adopt and the Bank, subject to Board review and ongoing monitoring,
shall immediately implement and ensure adherence to the Strategic Plan and any amendments or revisions thereto.

 

(4)  The Bank may not initiate
any action that deviates significantly1 from the Strategic Plan without a written determination of no supervisory objection
from the Director. The Board must give the Director at least thirty (30) days advance written notice of its intent to deviate
significantly from the Strategic Plan, along with an assessment of the impact of such change on the Bank’s condition, including
a profitability analysis and an evaluation of the adequacy of the Bank’s organizational structure, staffing, management
information systems, internal controls, and written policies and procedures to identify, measure, monitor, and control the risks
associated with the change in the Strategic Plan.

 

 

1 For the purposes
of this Consent Order, changes that may constitute a significant deviation from the Strategic Plan include, but are not limited
to, a change in the Bank's marketing strategies, products and services, marketing partners, underwriting practices and standards,
credit administration, account management, collection strategies or operations, fee structure or pricing, accounting processes
and practices, or funding strategy, any of which, alone or in the aggregate, may have a material impact on the Bank's operations
or financial performance; or any other changes in personnel, operations, or external factors that may have a material impact on
the Bank's operations or financial performance.

 

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(5)  At least quarterly, the Board
shall prepare a written evaluation of the Bank’s performance against the Strategic Plan that includes a description of the
actions the Board will require the Bank to take to address any shortcomings, which shall be documented in the Board meeting minutes.
Upon completion of its evaluation, the Board shall submit a copy to the Director.

 

(6)  The Board shall review and
update the Strategic Plan at least annually and more frequently if necessary or if required by the Director in writing. If the
Strategic Plan includes any significant deviations, the Board shall submit a copy of the updated Strategic Plan pursuant to the
requirements of paragraph (3) of this Article for the Director’s review and prior written determination of no supervisory
objection.

 

(7)  Until
the Strategic Plan required under this Article has been submitted by the Board for the Director’s review, has received a
written determination of no supervisory objection from the Director, and is being implemented by the Bank, the Bank shall not significantly
deviate from the products, services, asset composition and size, funding sources, structure, operations, policies, procedures,
and markets of the Bank that existed before this Order without first obtaining the Director’s prior written determination
of no supervisory objection to such significant deviation. Any request to the Director for prior written determination of no supervisory
objection to a significant deviation must be submitted to the Director at least thirty (30) days in advance of the significant
deviation, along with an assessment of the impact of such change on the Bank’s condition, including a profitability analysis
and an evaluation of the adequacy of the Bank’s organizational structure, staffing, management information systems, internal
controls, and written policies and procedures to identify, measure, monitor, and control the risks associated with the change.

 

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ARTICLE III

 

CAPITAL PLAN AND HIGHER MINIMUMS

 

(1)  Within ninety (90) days of
the date of this Order, the Bank shall meet and maintain the following capital ratios (as defined in 12 C.F.R. Part 3):

 

		(a)	Tier 1 capital to adjusted total asset ratio at least equal to eight and one-half percent (8.5%); and

 

		(b)	Total risk-based capital ratio at least equal to eleven percent (11%).

 

(2)  The requirement in this Order
to meet and maintain specific capital levels means that the Bank may not be deemed to be “well capitalized” for purposes
of 12 U.S.C. § 1831o and 12 C.F.R. Part 6, pursuant to 12 C.F.R. § 6.4(b)(1)(iv).

 

(3)  Within thirty (30) days of
the date of this Order, the Board shall develop, document, and implement an effective internal capital planning process to assess
the Bank’s capital adequacy in relation to its overall risks and to ensure maintenance of appropriate capital levels, which
shall in no event be less than the requirements of paragraph (1) of this Article. The capital planning process shall be consistent
with OCC Bulletin 2012-16 (June 7, 2012), Guidance for Evaluating Capital Planning and Adequacy, and shall ensure the integrity,
objectivity, and consistency of the process through adequate governance. The Board shall document the capital planning process
at least annually or more frequently if requested by the Director in writing.

 

(4)  Within thirty (30) days of
the date of this Order, the Board shall forward to the Director for his review, pursuant to paragraph (6) of this Article, a written
Capital Plan for the Bank, consistent with the Strategic Plan pursuant to Article II, covering at least a two (2) year period.
The Capital Plan shall, at a minimum:

 

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		(a)	include specific plans to achieve and maintain adequate capital, which may in no event be less than the requirements of paragraph
(1) of this Article;

 

		(b)	identify and evaluate all material risks;

 

		(c)	determine the Bank’s capital needs in relation to material risks and strategic direction, as set forth in the Strategic
Plan;

 

		(d)	identify and establish a strategy to maintain capital adequacy and strengthen capital, and establish a contingency or back-up
capital plan commensurate with the Bank’s overall risk and complexity;

 

		(e)	include specific plans detailing how the Bank will comply with restrictions or requirements set forth in this Order, and with
12 U.S.C. § 1831o, including the restrictions regarding brokered deposits in 12 C.F.R. § 337.6; and

 

		(f)	include detailed quarterly financial projections.

 

(5)  The Bank may declare or pay
a dividend or make a capital distribution only:

 

		(a)	when the Bank is in compliance with a Capital Plan that has received a written determination of no supervisory objection and
would remain in compliance with its approved Capital Plan immediately following the declaration or payment of the dividend or the
capital distribution;

 

		(b)	when the Bank is in compliance with 12 U.S.C. §§ 56 and 60; and

 

		(c)	following the prior written determination of no supervisory objection by the Director.

 

(6)  Prior to its adoption by
the Board, a copy of the Capital Plan shall be submitted to the Director for a prior written determination of no supervisory objection.
The Board shall review and update the Bank’s Capital Plan at least annually and more frequently if necessary or if required
by the Director in writing. Revisions to the Bank’s Capital Plan shall be submitted to the Director for a prior written determination
of no supervisory objection. At the next Board meeting following receipt of the Director’s written determination of no supervisory
objection, the Board shall adopt and the Bank, subject to Board review and ongoing monitoring, shall implement and thereafter ensure
adherence to the Capital Plan and any amendments or revisions thereto.

 

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(7)  At least quarterly, the Board
shall prepare a written evaluation of the Bank’s performance against the Capital Plan and shall include a description of
the actions the Board will require the Bank to take to address any deficiencies, which shall be documented in the Board meeting
minutes. Upon completion of its evaluation, the Board shall submit a copy to the Director within ten (10) days.

 

(8)  If the Bank fails to maintain
capital ratios required by paragraph one (1) of this Article or fails to implement an acceptable written Capital Plan to which
the Director has provided a written determination of no supervisory objection, then the Bank may, in the Director’s sole
discretion, be deemed undercapitalized for purposes of this Order. The Bank shall take such corrective measures as the OCC may
direct in writing from among the provisions applicable to undercapitalized depository institutions under 12 U.S.C. § 1831o(e)
and 12 C.F.R. Part 6. For purposes of this requirement, an action “necessary to carry out the purpose of this section”
under 12 U.S.C. § 1831o(e)(5) shall include restoration of the Bank’s capital to the minimum ratios required
by paragraph one (1) of this Article, and any other action deemed necessary by the OCC to address the Bank’s capital deficiency
or the safety and soundness of its operations.

 

ARTICLE IV

 

BOARD TO ENSURE EFFECTIVE
MANAGEMENT AND BOARD STRUCTURE

 

(1)  The Board must ensure that
the Bank has competent and effective executive management in place on a full time basis to achieve the Board’s Strategic
Plan, execute Board established policies, ensure compliance with this Order, applicable laws, rules and regulations, and manage
the day-to-day operations of the Bank in a safe and sound manner.

 

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(2)  Within ninety (90) days of
the date of this Order, the Board shall adopt and implement appropriate corporate governance and decision-making processes to correct
the Bank’s deficiencies in management and Board oversight as described in the Bank’s recent supervisory history, including
the most recent Report of Examination (“ROE”). At a minimum, the Board shall ensure and document that:

 

		(a)	all executive officers are capable of performing present and anticipated duties, factoring in each executive officer’s
past actual performance, experience, and qualifications, compared to each position’s description, duties and responsibilities,
with particular emphasis on proposed responsibilities to execute the Strategic Plan and correct the concerns raised in the ROE;

 

		(b)	clear lines of responsibility and authority exist for each executive officer, including but not limited to, the President,
Chief Executive Officer, Senior Loan Officer, Chief Credit Officer, and Chief Financial Officer;

 

		(c)	a management employment and succession program to promote the retention and continuity of capable management;

 

		(d)	sufficient policies, processes, personnel, and control systems exist to effectively implement and ensure adherence to all provisions
of this Order, and to ensure that Bank personnel have sufficient training and authority to execute their duties and responsibilities
under this Order; and

 

		(e)	that the Board receives and reviews sufficient Bank information from management to enable the Board to provide effective oversight
and to enable each Director to fulfill his or her fiduciary duties and other responsibilities under law and as outlined in the
OCC’s The Directors Handbook and “Duties and Responsibilities of Directors” booklet of the Comptroller’s
Handbook.

 

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(3)  The Board must ensure a competent
and diverse Board of independent directors that have sufficient banking and bank regulatory experience. The Board must assess the
composition of the Board and add at least one (1) new independent director with prior banking experience to the Board.  The
term "independent director" means a person who is not an officer or employee of the Bank, and who is not:

 

		(a)	a director, officer or employee of any affiliate of the Bank;

 

		(b)	a director, officer or employee of any related interest (as that term is defined in 12 C.F.R. § 215) of any current director,
or

 

		(c)	a relative of any current director.

 

(4)  The Bank may pay director
fees and bonuses to executive management only:

 

		(a)	when the Bank is in compliance with the Capital Plan and Strategic Plan that have received a written determination of no supervisory
objection and would remain in compliance with its approved Capital Plan immediately following the payment of director fees and
bonuses to executive management; and

 

		(b)	following the prior written determination of no supervisory objection by the Director.

 

(5)  Within ninety (90) days,
the Compliance Committee or a designated committee of independent directors must develop, adopt, and implement a Compensation Program
that, at a minimum, requires the Board to establish procedures to:

 

		(a)	develop, at least annually, appropriate objectives and measurements for all executive and non-executive employees, including
the objective to execute their duties and responsibilities under this Order;

 

		(b)	perform an annual written performance evaluation for all employees;

 

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		(c)	designate the Compliance Committee or a designated committee of independent directors to perform an annual written performance
evaluation of, each executive officer’s performance according to her or his position’s description and responsibilities,.
Each annual written performance appraisal also must address the following as it applies to each executive officer:

 

		i.	compliance with objectives established by the Board;

 

		ii.	compliance with Board-approved policies and procedures;

 

		iii.	compliance with Board-approved strategic and capital plans;

 

		iv.	compliance with action plans to correct issues raised in Reports
of Examination or audit reports; and

 

		v.	compliance with laws, regulations, and regulatory guidance.

 

		(d)	address any deficiencies identified pursuant to sections (a) through (c) of this paragraph; and

 

		(e)	set annual compensation for each employee that, at a minimum:

 

		i.	is market based, reasonable, and proportionate to the services rendered;

 

		ii.	considers the condition of the Bank;

 

		iii.	is consistent with an approved Strategic Plan required under the Order;

 

		iv.	complies with OCC Bulletin 2010-24; and

 

		v.	complies with 12 C.F.R. Part 30.

 

(6)  The Bank shall not renew
or enter into new contracts or engagements with a third party company, entity, or person, including the Bank’s holding company
or an affiliate as that term is defined in 12 U.S.C. § 371c and 12 C.F.R. § 223.2, (“third party”) to perform
services for, or on behalf of, the Bank unless the engagements are in compliance with OCC Bulletin 2001-47 (Third Party Relationships)
(November 1, 2001). The Bank must also routinely monitor and document its review of the performance and activities of each third
party and shall immediately take appropriate action if the third party is not complying with the written contract or engagement
and shall maintain documentation of any such action.

 

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(7)  Within thirty (30) days of
this Order, the Board shall take the necessary steps to ensure that the Bank timely files complete and accurate Consolidated Reports
of Condition and Income (“Call Reports”) in accordance with the Federal Financial Institutions Examination Counsel’s
“Instructions for Preparation of Consolidated Reports of Condition and Income,” to include at a minimum:

 

		(a)	the designation of an officer with the knowledge, skills, and abilities necessary to ensure the Bank timely and accurately
files its Call Reports;

 

		(b)	training of appropriate Bank personnel in Call Report preparation;

 

		(c)	procedures to ensure the Bank retains documentation providing an appropriate audit trail for all Call Report schedules; and,

 

		(d)	the performance of an independent review and verification of the accuracy of all Call Report schedules in advance of each Call
Report filing.

 

ARTICLE V

 

AFFILIATE TRANSACTIONS

 

(1)  Within sixty (60) days of
the date of this Order, the Board shall develop an effective written affiliate transactions policy that complies with 12 C.F.R.
Part 223 and 12 U.S.C. §§371c and 371c-1. The Board shall thereafter adopt and the Bank, subject to Board review and
ongoing monitoring, shall immediately implement and thereafter ensure adherence to the affiliate transactions policy. The policy
shall include, but is not limited to the following:

 

		(a)	mandatory annual training for appropriate Bank staff and the Board;

 

		(b)	procedures to identify and maintain a current list of Bank’s affiliates;

 

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		(c)	procedures to identify and report to the Board all Bank affiliate transactions, as well as non-affiliate transactions that
benefit an affiliate pursuant to 12 C.F.R. § 223.16(a);

 

		(d)	procedures for identifying, allocating, and supporting any shared expenses with an affiliate, if the Bank shares resources,
products, services, or personnel;

 

		(e)	a centralized system of affiliate transactions records to facilitate compliance reviews by the Board and independent reviewers;
and

 

		(f)	an independent annual review, by a qualified third-party, of the Bank’s compliance with affiliate transactions laws and
regulations and confirmation that each affiliate transaction is accurately recorded on the Bank’s books.

 

(2)  From the effective date of
this Order, the Board is prohibited from entering into any arrangement, activity, or fee arrangement that would result in the transfer,
reduction, or depletion of the Bank’s capital base for the benefit of another affiliate, insider, or related entity, unless
the arrangement, activity, or fee arrangement is based on market value, as defined in 12 C.F.R. Part 223 and 12 U.S.C. §§
371c and 371c-1.

 

(3)  The Bank may directly or
indirectly pay money or provide other compensation to or for the benefit of its affiliates, extend credit in any form, including
overdrafts, to or for the benefit of its affiliates, transfer assets between the Bank and its affiliates, or enter into or engage
in any transaction that obligates the Bank to do any of the foregoing only after:

 

		(a)	the Board has reviewed the proposed transaction and has documented the review in writing;

 

		(b)	the Board has determined in writing that it is advantageous for the Bank to engage in such action and that the transaction
complies with all applicable laws, rules, regulations, and Comptroller’s issuances, including, but not limited to 12 C.F.R.
Part 223; and

 

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		(c)	the Board approves the transaction in writing.

 

(4)  For purposes of this Order,
“affiliate” shall have the meaning set forth in 12 U.S.C. § 221a and 12 C.F.R. Part 223.

 

ARTICLE VI

 

LOAN REVIEW

 

(1)  Within sixty (60) days of
the date of this Order, the Board shall implement systems to ensure adherence to an effective, independent, and on-going loan review
system to review, at least quarterly, the Bank’s loan and lease portfolios to ensure the timely identification and categorization
of problem credits. The system shall provide for a quarterly written report to be filed with the Board or a designated committee
thereof after each review and shall use a loan and lease grading system consistent with the guidelines set forth in “Rating
Credit Risk” and “Allowance for Loan and Lease Losses” booklets of the Comptroller’s Handbook and
“Uniform Retail Credit Classification and Account Management Policy” for consumer loans. Further, the loan review system
will be consistent with generally accepted accounting principles (“GAAP”). Such quarterly reports shall be expanded
to include conclusions regarding:

 

		(a)	the credit quality of the consumer and commercial loan and lease portfolios relative to the Bank’s risk profile and capital
levels;

 

		(b)	the identification, type, rating, and amount of problem loans and leases;

 

		(c)	the identification and amount of delinquent and nonaccrual loans and leases;

 

		(d)	the identification and status of credit-related violations of law, rule, or regulation;

 

		(e)	concentrations of credit;

 

		(f)	the accuracy of internal risk ratings and nonaccrual recognition;

 

		(g)	the accuracy of the Bank’s identification of troubled debt restructurings;

 

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		(h)	loans and other extensions of credit that are exceptions to or not in compliance with the Bank’s lending policies and
procedures;

 

		(i)	the accuracy of specific allocations to the Allowance for Loan and Lease Losses (“ALLL”); and

 

		(j)	the Bank’s compliance with regulatory and accounting guidelines for managing and accounting for its Other Real Estate
Owned.

 

(2)  The Board shall continue
to evaluate the loan review written report(s) and shall ensure that immediate, adequate, and continuing remedial action is taken
to correct any deficiencies noted in the report(s).

 

ARTICLE VII

 

LOAN PORTFOLIO MANAGEMENT

 

(1)  Within sixty (60) days of
the date of this Order, the Board shall revise the Bank’s credit policy, consistent with the “Loan Portfolio Management”
booklet of the Comptroller’s Handbook, and thereafter adopt and adhere to the revised credit policy to improve the
Bank's loan portfolio management. At a minimum, the Board must revise the credit policy to address documentation, underwriting,
and administration of consumer and commercial loans, indirect loans, Other Real Estate Owned, the Bank’s concentrations of
credit program, and any other deficiencies in the Bank’s lending procedures noted in the most recent ROE.

 

(2)  Within thirty (30) days of
the date of this Order, the Board shall ensure that the Bank revises and adopts an adequate overdraft policy and procedures in
accordance with OCC Bulletin 2005-9 and OCC Bulletin 2010-15.

 

(3)  The Board shall ensure that
all Bank lenders or any other personnel performing credit analyses are adequately trained in cash flow analysis, particularly global
cash flow analysis, evaluation of contingent liabilities, and verification of liquidity.

 

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(4)  The Board shall ensure that
the Bank has adequate Management Information Systems (“MIS”), including adequate and accurate loan policy exception
and concentration of credit reports, to ensure that the Board and management receive timely and accurate information.

 

(5)  Except as otherwise provided
herein, the Bank shall obtain current and complete credit information on all loans lacking such information, including those listed
in the most recent ROE, in any subsequent Report, in any internal or external loan review, or in any listings of loans lacking
such information provided to management by the OCC within sixty (60) days from receipt of such information. The Bank shall maintain
a list of all credit exceptions, noting those that have not been corrected within the sixty (60) day timeframe. This list shall
include an explanation of the actions taken to correct the exception, the reasons for the exception, and a plan to correct the
exception.

 

(6)  Except as otherwise provided
herein, the Bank shall ensure proper collateral documentation on all loans and correct each collateral exception listed in the
most recent ROE, in any subsequent Report, in any internal or external loan review, or in any listings of loans lacking such information
provided to management by the OCC National Bank Examiners within sixty (60) days from the receipt of such information. The Bank
shall maintain a list of all collateral exceptions, noting those that have not been corrected within the sixty (60) day timeframe.
This list shall include an explanation of the actions taken to correct the exception, the reasons for the continuing exception,
and a plan to correct the exception.

 

(7)  The Bank’s documentation
for all decisions to grant, extend, renew, alter or restructure any loan or other extension of credit, including loan participations,
shall include:

 

		(a)	the specific reason or purpose for the extension of credit;

 

		(b)	the expected source of repayment;

 

		(c)	an analysis demonstrating that repayment terms coincide with the expected source of repayment;

 

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		(d)	current and satisfactory credit information and analysis, including cash flow analysis, where loans are to be repaid from operations;
and

 

		(e)	the value of collateral with supporting material and records of the Bank’s lien, when applicable.

 

(8)  Failure to obtain the information
in paragraph (7) shall require a majority of the full Board (or its designated committee thereof) to certify in writing the specific
reasons why obtaining and analyzing the information in paragraph (7) would be detrimental to the best interests of the Bank. A
copy of the certification of the Board or its designated committee shall be maintained in the credit file of the affected borrower(s).

 

ARTICLE VIII

 

CONCENTRATIONS OF CREDIT

 

(1)  Within
ninety (90) days of the date of this Order, the Board shall revise the written concentration risk management program for identifying,
monitoring, and controlling risks associated with concentrations of credit, consistent with the guidance set forth in OCC Bulletin
2006-46 (December 6, 2006), Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices: Interagency Guidance
on CRE Concentration Management, and the “Concentrations of Credit” booklet of the Comptrollers’ Handbook
(December 13, 2011). The program shall be revised to address:

 

		(a)	all concentrations of credit-related corrective actions required in the most recent ROE;

 

		(b)	appropriate strategies for managing concentration levels, including a contingency plan to reduce or
mitigate concentrations deemed imprudent for the Bank’s earnings, capital, or in the event of adverse market conditions;
and

 

		(c)	quarterly reports to the Board, which shall at a minimum include the following:

 

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		(i)	a summary of concentration levels, by type and sub-type;

 

		(ii)	a summary of the Bank’s market analysis;

 

		(iii)	strategies implemented to ensure or obtain compliance when concentrations approach or exceed Board-approved
limits; and

 

		(iv)	a summary of changes in risk levels by concentration type and sub-type, with discussion of recommended
changes in credit administration procedures (i.e., underwriting practices, risk rating, monitoring, training).

 

(2)  Upon completion,
the Board shall thereafter adopt and the Bank, subject to Board review and ongoing monitoring, shall immediately implement and
thereafter ensure adherence to the written concentration management program.

 

ARTICLE IX

 

OTHER REAL ESTATE OWNED

 

(1)  Within sixty (60) days of
the date of this Order, the Board shall revise the written Other Real Estate Owned (“OREO”) program to ensure compliance
with 12 U.S.C. § 29 and 12 C.F.R. Part 34 and the Other Real Estate Owned booklet of the Comptroller’s
Handbook. The Board shall implement systems to ensure that repossessed assets are legally held by the Bank, and if applicable,
in accordance with 12 C.F.R. § 5.34 and 12 C.F.R. § 5.36. The revised OREO program shall, at a minimum, address and include:

 

		(a)	accounting procedures for OREO properties and repossessed assets, including valuation methods and treatment of expenses, are
in accordance with GAAP and the instructions to the Consolidated Report of Condition;

 

		(b)	procedures to require timely, independent, and periodic OREO appraisals pursuant to 12 C.F.R. § 34.85 and 12 C.F.R.
Part 34, Subpart C and timely evaluations for repossessed assets;

 

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		(c)	procedures to improve existing files for each OREO property and repossessed asset to include:

 

		i.	valuation analysis and accounting for each OREO property, including the appraisal and all supporting documentation;

 

		ii.	analysis of the OREO property, which compares the cost to carry against the financial benefits of near term sale; and

 

		iii.	a detailed marketing strategy and targeted time frames for disposing of each OREO property;

 

		(d)	requirements for providing monthly reports to the Board on the status of each OREO property and its disposition.

 

(2)  Upon completion, the Board
shall thereafter adopt and the Bank, subject to Board review and ongoing monitoring, shall immediately implement and thereafter
ensure adherence to the written, revised OREO program.

 

ARTICLE X

 

CRITICIZED ASSETS

 

(1)  The Bank shall implement
its existing written criticized asset program designed to eliminate the basis of criticism of those assets criticized as “doubtful,”
“substandard,” or “special mention” in the most recent ROE, in any subsequent ROE, by any internal or external
loan review, or in any list provided to management by the OCC Examiners during any examination.

 

(2)  The Bank shall maintain Criticized
Asset Reports (“CAR(s)”) identifying all credit relationships and other assets totaling in the aggregate two hundred
and fifty thousand dollars ($250,000) or more, criticized as “doubtful,” “substandard,” or “special
mention.” Management shall update and submit the CARs to the Board monthly and to the Director quarterly. Each CAR shall
continue to cover an entire credit relationship and management shall update the existing CAR format to include the following:

 

    	19

    	 

    

 

		(a)	the appraised value of supporting collateral, along with the date and source of the appraisal, and the position of the Bank’s
lien on such collateral, as well as other necessary documentation to support the current collateral valuation;

 

		(b)	an analysis of current and complete credit information, including a global cash flow analysis where loans are to be repaid
from operations;

 

		(c)	results of any impairment analysis as required under Accounting Standards Codification (“ASC”) Topic 310;

 

		(d)	accurate risk ratings consistent with the classification standards contained in the Comptroller’s Handbook on
“Rating Credit Risk”;

 

		(e)	appropriate accrual status pursuant to the FFIEC Instructions for the Preparation of Consolidated Reports of Condition and
Income; and

 

		(f)	the proposed action to eliminate the basis of criticism and the time frame for its accomplishment, including, if appropriate,
an exit strategy.

 

(3)  The Board or a designated
committee shall approve risk rating upgrades on all assets criticized as “doubtful,” “substandard,” or
“special mention” above twenty five (25) thousand dollars. This process shall include, at a minimum:

 

		(a)	a requirement for management to provide the Board or designated committee with a financial analysis using actual and complete
financial information to support the risk rating and accrual changes;

 

		(b)	an independent third party review of changes in risk rating and accrual status on problem loans as part of the independent
loan review;

 

    	20

    	 

    

 

		(c)	documentation of approval of risk rating and accrual changes in the minutes of the appropriate Board or designated committee.
The minutes must contain, at a minimum, the name of the borrower, loan amounts, existing risk rating, proposed risk rating, and
a brief summary of the reason for the change in risk rating.; and

 

		(d)	documentation of the approval in the borrower’s loan file along with the associated credit analysis.

 

(4)  The Bank shall not extend
credit, directly or indirectly, including renewals, modifications or extensions, to a borrower whose loans or other extensions
of credit are criticized in any ROE, in any internal or external loan review, or in any list provided to management by the OCC
Examiners, unless and until a majority of the Board, or a designated committee thereof, finds and documents in writing that each
of the following conditions is met:

 

		(a)	the extension of credit is necessary to promote the best interests of the Bank and why such extension is necessary;

 

		(b)	a written credit and collateral analysis is performed; and

 

		(c)	the Bank’s workout strategy for that borrower will not be compromised by the extension of credit.

 

ARTICLE XI

 

APPRAISAL AND EVALUATION
PROCESS 

 

(1)  Within thirty (30) days of
the date of this Order, the Board shall revise and adopt, and the Bank, subject to Board review and ongoing monitoring, shall implement
and thereafter ensure adherence to a revised real estate appraisal program that addresses appraisals and evaluations prior to and
after the credit decision. The revised program shall be consistent with 12 C.F.R. Part 34 and the “Interagency Appraisal
and Evaluation Guidelines,” included in OCC Bulletin 2010-42 (December 10, 2010). The Bank’s real estate appraisal
program shall include specific criteria for:

 

    	21

    	 

    

 

		(a)	use of appraisals versus evaluations;

 

		(b)	obtaining reappraisals or reevaluations;

 

		(c)	whether an existing appraisal or evaluation may be used to support a subsequent transaction;

 

		(d)	the content and appropriate use of evaluations consistent with safe and sound banking practices;

 

		(e)	ensuring that appraisals and evaluations contain sufficient information to support the credit decision;

 

		(f)	an adequate appraisal review and analysis process;

 

		(g)	internal controls that promote compliance with these program standards, including those related to monitoring third party arrangements;

 

		(h)	collateral valuation monitoring; and

 

		(i)	obtaining appraisals or evaluations for transactions that are not otherwise covered by the appraisal requirements of 12 C.F.R.
Part 34.

 

(2)  The Board shall continue
to require and the Bank shall continue to obtain a current independent appraisal or updated appraisal, in accordance with 12 C.F.R.
Part 34, on any loan that is secured by real property:

 

		(a)	where the loan’s appraisal was found to violate 12 C.F.R. Part 34; or

 

		(b)	where the loan was criticized in the most recent ROE or by the Bank's internal or external loan review and the most recent
independent appraisal is more than twelve (12) months old; or

 

    	22

    	 

    

 

		(c)	where the borrower has failed to comply with the contractual terms of the loan agreement and the loan officer’s analysis
of current financial information does not support the ongoing ability of the borrower or guarantor(s) to perform in accordance
with the contractual terms of the loan agreement and the most recent independent appraisal is more than twelve (12) months old.

 

(3)  Appraisals required by paragraph
(2) of this Article shall continue to be ordered within thirty (30) days following the event triggering the appraisal requirement,
for delivery to the Bank within sixty (60) days of ordering.

 

ARTICLE XII

 

ALLOWANCE FOR LOAN AND LEASE LOSSES

 

(1)  The Board shall revise the
Bank’s written ALLL policies and procedures, and maintain an adequate ALLL, in accordance with GAAP. The Board shall adopt
revised ALLL policies and procedures that are consistent with the guidance set forth in OCC Bulletins 2001-37 (July 20, 2001),
2006-47 (December 13, 2006), and OCC Bulletin 2012-6 (January 31, 2012) and with the “Allowance for Loan and Lease Losses,”
booklet of the Comptroller’s Handbook. The policies and procedures shall include:

 

		(a)	internal loan risk ratings;

 

		(b)	criteria for determining which loans will be reviewed under ASC Topic 310, how impairment will be determined, and procedures
to ensure the analysis of loans complies with ASC 310 requirements;

 

		(c)	recognition of non-accrual loans in conformance with GAAP and regulatory guidance;

 

		(d)	criteria for determining loan pools under ASC 450 and an analysis of those loan pools; and

 

    	23

    	 

    

 

		(e)	a reasonable assessment of qualitative factors in the ASC 450 analysis.

 

(2)  The Board shall review the
ALLL at least once each calendar quarter and shall correct any deficiency in the ALLL in the quarter it is discovered, prior to
the filing of the Consolidated Reports of Condition and Income, by additional provisions from earnings. The Board shall continue
to maintain written documentation of the factors considered and conclusions it reaches in determining the adequacy of the ALLL.

 

(3)  A copy of the Board’s
revised ALLL policy and procedures, and any subsequent revisions, shall be submitted to the Director.

 

ARTICLE XIII

 

INTERNAL AUDIT

 

(1) Within ninety (90) days of the date
of this Order, the Board shall adopt, implement, and ensure adherence to an independent, internal audit program sufficient to:

 

		(a)	detect irregularities and weak practices in the Bank’s operations;

 

		(b)	determine the Bank’s level of compliance with all applicable laws, rules and regulations, including trust, overdrafts,
and affiliate and insider transactions;

 

		(c)	determine the Bank’s conformance with regulatory guidance and standards;

 

		(d)	assess and report the effectiveness of policies, procedures, controls, and management oversight relating to accounting and
financial reporting;

 

		(e)	evaluate the Bank’s adherence to established policies and procedures, including the Bank’s adherence to its loan
policies, underwriting standards, problem loan identification, and classification;

 

		(f)	adequately and timely cover Bank activities to maintain or improve the efficiency and effectiveness of the Bank’s risk
management, internal controls, and corporate governance functions;

 

    	24

    	 

    

 

		(g)	identify guidelines and expectations for the internal audit risk assessment, audit plan procedures and reports to include all
auditable areas of the Bank;

 

		(h)	identify the internal controls associated with each auditable area of the Bank;

 

		(i)	identify appropriate audit procedures to test internal controls for each auditable area;

 

		(j)	ensures the designated Internal Auditor receives sufficient support or training if an audit requires specific knowledge or
skill the Internal Auditor does not possess; and

 

		(k)	ensure timely follow-up on identified deficiencies to ensure their correction.

 

(2) The Board shall ensure management undertakes
immediate actions to correct deficiencies cited in audit reports and maintains a written record describing the deficiency, the
corrective action, and the status of the corrective action. The Board shall ensure that management provides detailed written explanations
where the deficiencies cannot be remedied, and that the audit staff maintains a written record describing those actions. The Board
shall provide for a timely independent written follow-up for any uncorrected deficiencies.

 

ARTICLE XIV

 

VIOLATIONS OF
LAW 

 

(1)  The Board shall take all
necessary steps to correct each violation of law, rule, or regulation cited in the most recent ROE or any subsequent ROE, or brought
to the Board’s or Bank’s attention in writing by management, regulators, auditors, loan review, or other compliance
efforts. Within sixty (60) days after the violation is cited or brought to the Board’s or Bank’s attention, the Bank
shall provide to the Board a list of any violations that have not been corrected. This list shall include an explanation of the
actions taken to correct the violation, the reasons why the violation has not yet been corrected, and a plan to correct the violation
by a specified date.

 

    	25

    	 

    

 

(2)  The monthly progress reports
required by Article I of this Order shall include the date and manner in which each correction has been effected during that reporting
period.

 

(3)  Within sixty (60) days, the
Board shall adopt and the Bank, subject to Board review and ongoing monitoring, shall implement and thereafter ensure adherence
to:

 

		(a)	specific procedures to prevent violations cited in the most recent ROE; and

 

		(b)	general procedures addressing compliance management that incorporate internal control systems and education of employees regarding
laws, rules, and regulations applicable to their areas of responsibility.

 

ARTICLE XV

 

OTHER PROVISIONS

 

(1)  Although the Bank is by this
Order required to submit certain proposed actions and programs for the review or prior written determination of no supervisory
objection of the Director, the Board has the ultimate responsibility for proper and sound management of the Bank and the completeness
and accuracy of the Bank’s books and records.

 

(2)  It is expressly and clearly
understood that if, at any time, the Comptroller deems it appropriate in fulfilling the responsibilities placed upon him by the
several laws of the United States of America to undertake any action affecting the Bank, nothing in this Order shall in any way
inhibit, estop, bar or otherwise prevent the Comptroller taking such action.

 

(3)  Each citation or referenced
guidance included in this Order includes any subsequent guidance that replaces, supersedes, amends, or revises the cited law, regulation,
or guidance.

 

(4)  The provisions of this Order
are effective upon issuance by the Comptroller, through his authorized representative whose hand appears below, and shall remain
effective and enforceable, except to the extent that, and until such time as, any provisions of this Order shall have been amended,
suspended, waived, or terminated in writing by the Comptroller, through his authorized representative.

 

    	26

    	 

    

 

(5)  Except as otherwise expressly
provided herein, any time limitations imposed by this Order shall begin to run from the effective date of this Order.

 

(6)  If the Bank requires a waiver
or suspension of any provision or an extension of any timeframe within this Order, the Board shall submit a written request to
the Director asking for relief. Any written requests submitted pursuant to this Article shall include a statement setting forth
in detail, with relevant supporting documentation, the special facts and circumstances that support the waiver or suspension of
any provision or an extension of a timeframe within this Order.

 

(7)  The Director’s decision
concerning a request submitted pursuant to paragraph six (6) of this Article is final and not subject to further review.

 

(8)  In each instance in this
Order in which the Board or a Board committee is required to ensure adherence to and undertake to perform certain obligations of
the Bank, it is intended to mean that the Board shall:

 

		(a)	authorize and adopt such actions on behalf of the Bank as may be necessary for the Bank to perform its obligations and undertakings
under the terms of this Order;

 

		(b)	require the timely reporting by Bank management of such actions directed by the Board to be taken under the terms of this Order;

 

		(c)	follow-up on any non-compliance with such actions in a timely and appropriate manner; and

 

		(d)	require corrective action be taken in a timely manner of any non-compliance with such actions.

 

    	27

    	 

    

 

(9)  This Order is intended to
be, and shall be construed to be, a final order issued pursuant to 12 U.S.C. § 1818(b), and expressly does not form, and may
not be construed to form, a contract binding on the Comptroller or the United States.

 

(10)  The OCC issued a Consent
Order to the Bank on September 24, 2009, AA-EC-09-64 (“2009 Order”). This Order replaces the 2009 Order in its entirety
and, therefore, the 2009 Order is hereby terminated. Provided however, no provision in this Order shall bar or otherwise limit
any enforcement action the OCC may choose to initiate, in its discretion, against the Bank or its institution-affiliated parties
(“IAPs”) for any failure to comply with the 2009 Order while it was effective.

 

(11)  All reports or plans which
the Bank or Board has agreed to submit to the Director pursuant to this Order shall be forwarded, by overnight mail, or via email,
to the following:

 

	Director for Special Supervision	with a copy to:
	Comptroller of the Currency	Cleveland/Detroit Field Office
	400 7th Street, SW	Comptroller of the Currency
	Suite 3E-218, MS 8E-12	200 Public Square, Suite 1610
	Washington, DC 20219	Cleveland, OH 44114-2241

 

The terms of this Order, including this paragraph,
are not subject to amendment or modification by any extraneous expression, prior agreements or prior arrangements between the parties,
whether oral or written.

 

IT IS SO ORDERED, this thirty-first day of October, 2013.

 

	/s/Michael R. Brickman	 
	Michael R. Brickman	 
	Director for Special Supervision	 

 

    	28

    	 

    

 

UNITED STATES OF AMERICA 

DEPARTMENT OF THE TREASURY 

COMPTROLLER OF THE CURRENCY

 

	
        In the Matter of:

        First National Bank in Howell

        Howell, Michigan
	
        )

        )

        )
	AA-EC-2013-83

 

STIPULATION AND CONSENT
TO THE ISSUANCE OF A CONSENT ORDER

 

WHEREAS, the Comptroller of the Currency
of the United States of America (“Comptroller”) intends to initiate cease and desist proceedings against First National
Bank in Howell, Howell, Michigan (“Bank”) pursuant to 12 U.S.C. § 1818(b) through the issuance of a Notice of
Charges, for unsafe or unsound banking practices relating to strategic planning, capital levels, management oversight, credit risk
management, for violations of law and regulation, and for failure to comply with the September 24, 2009 Consent Order;

 

WHEREAS, the Bank, in the interest
of compliance and cooperation, and without admitting or denying any wrongdoing, consents to the issuance of a Consent Order, dated
October 31, 2013 (“Order”);

 

NOW THEREFORE, in consideration of
the above premises, the Comptroller, through his authorized representative, and the Bank, through its duly elected and acting Board
of Directors, hereby stipulate and agree to the following:

 

    	1

    	 

    

 

ARTICLE I

 

JURISDICTION

 

(1)  The Bank is a national banking
association chartered and examined by the Comptroller pursuant to the National Bank Act of 1864, as amended, 12 U.S.C. § 1
et seq.

 

(2)  The Comptroller is “the
appropriate Federal banking agency” regarding the Bank pursuant to 12 U.S.C. §§ 1813(q) and 1818(b).

 

(3)  The Bank is an “insured
depository institution” within the meaning of 12 U.S.C.

 

§ 1818(b)(1).

 

ARTICLE II

 

AGREEMENT

 

(1)  The Bank agrees that said
Order shall be deemed an “order issued with the consent of the depository institution” as defined in 12 U.S.C. §
1818(h)(2), and consents and agrees that said Order shall become effective upon its issuance and shall be fully enforceable by
the Comptroller under the provisions of 12 U.S.C. § 1818(i). Notwithstanding the absence of mutuality of obligation, or of
consideration, or of a contract, the Comptroller may enforce any of the commitments or obligations herein undertaken by the Bank
under his supervisory powers, including 12 U.S.C. § 1818(i), and not as a matter of contract law. The Bank expressly acknowledges
that neither the Bank nor the Comptroller has any intention to enter into a contract.

 

(2)  The Bank also expressly acknowledges
that no officer or employee of the Comptroller has statutory or other authority to bind the United States, the U.S. Department
of the Treasury, the Comptroller, or any other federal bank regulatory agency or entity, or an officer or employee of any of those
entities to a contract affecting the Comptroller’s exercise of his supervisory responsibilities.

 

    	2

    	 

    

 

ARTICLE III

 

WAIVERS

 

(1)  The Bank, by signing this
Stipulation and Consent, hereby waives:

 

		(a)	the issuance of a Notice of Charges pursuant to 12 U.S.C. § 1818(b);

 

		(b)	any and all procedural rights available in connection with the issuance of the Order;

 

		(c)	all rights to a hearing and a final agency decision pursuant to 12 U.S.C. § 1818(i), 12 C.F.R. Part 19;

 

		(d)	all rights to seek any type of administrative or judicial review of the Order; and

 

		(e)	any and all rights to challenge or contest the validity of the Order.

 

ARTICLE IV

 

OTHER ACTIONS

 

(1)  The Bank agrees that the
provisions of this Stipulation and Consent shall not inhibit, estop, bar, or otherwise prevent the Comptroller from taking any
other action affecting the Bank if, at any time, the Comptroller deems it appropriate to do so to fulfill the responsibilities
placed upon him by the several laws of the United States of America.

 

    	3

    	 

    

 

IN TESTIMONY WHEREOF, the undersigned, authorized
by the Comptroller as his representative, has hereunto set his hand on behalf of the Comptroller.

 

	/s/Michael R. Brickman	 	October 31, 2013
	Michael R. Brickman	 	Date
	Director	 	 
	Special Supervision Division	 	 

 

    	4

    	 

    

 

IN TESTIMONY WHEREOF, the undersigned,
as the duly elected and acting Board of

 

Directors of the Bank, have hereunto set their hands
on behalf of the Bank.

 

	/s/Timothy Corrigan	 	October 31, 2013
	Timothy Corrigan	 	Date
	 	 	 
	/s/Stanley Dickson, Jr.	 	October 31, 2013
	Stanley Dickson, Jr.	 	Date
	 	 	 
	/s/Ronald Long	 	October 31, 2013
	Ronald Long	 	Date
	 	 	 
	/s/Philip Utter	 	October 31, 2013
	Philip Utter	 	Date
	 	 	 
	/s/R. Michael Yost	 	October 31, 2013
	R. Michael Yost	 	Date

 

    	5Exhibit
10.01 

 

LeapFrog
Enterprises, Inc.

 

EMPLOYMENT AGREEMENT

 

This Employment Agreement (the “Agreement”),
dated August 13, 2013 (the “Date of Execution”), is entered into by and between LeapFrog Enterprises, Inc.,
a Delaware corporation (the “Company”), and Michael Dodd (“Employee”).

 

RECITALS

 

WHEREAS, Employee will assume a new position
on an interim basis as an advisor to the Company’s chief executive officer (“CEO”) to ensure a smooth
transition of the Company’s supply chain, product development and engineering functions; and

 

WHEREAS, Employee will remain employed by
the Company in this new position from August 14, 2013 (the “Effective Date”) until no later than December 31,
2014;

 

NOW, THEREFORE, in consideration of the
covenants, promises and representations set forth herein, and for other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties agree as follows:

 

		I.	Position and Responsibilities

 

A.Position.
As of the Effective Date, Employee shall be employed by the Company for the Period of Employment (as defined in Section I.D)
to render services to the Company as an advisor to the CEO for the supply chain, product development and engineering functions.
No employees will report to Employee. Employee will not be an officer or Leadership Team member; however, as determined by the
Company, attendance at Leadership Team meetings may be required. During the Period of Employment, Employee shall perform such duties
and responsibilities as are normally related to such position in accordance with the standards of the industry and any additional
duties commensurate with such position now or hereafter assigned to Employee by the Company. Employee shall abide by the verbal
or written directions of the CEO and other appointed officers, as well as written rules, regulations, and practices as adopted
or modified from time to time in the Company’s sole discretion that have been made available to Employee.

 

B.Other Activities.
 Except upon the prior written consent of the Company, Employee will not, during the term of this Agreement, (i) accept
any other employment, or (ii) engage, directly or indirectly, in any other business activity (whether or not pursued for pecuniary
advantage) that might interfere with Employee’s duties and responsibilities hereunder or create a conflict of interest with
the Company.

 

C.No Conflict.
 Employee represents and warrants that Employee’s execution of this Agreement, employment with the Company, and the performance
of Employee’s proposed duties under this Agreement shall not violate any obligations Employee may have to any other employer,
person or entity, including any obligations with respect to proprietary or confidential information of any other person or entity.

 

    	 

    	 

    

 

D.Period of Employment. Provided
this Agreement is executed in writing by both Employee and Company and becomes effective, the “Period of Employment”
shall be a period beginning July 1, 2013 and ending at the close of business on December 31, 2014. Notwithstanding the foregoing,
the Period of Employment is subject to earlier termination as provided below in this Agreement.

 

E.Hours and Location. Employee’s
employment will be full-time. As required by the Company, a minimum of fifty percent (50%) of Employee’s time shall be spent
in the Company’s offices, or contract manufacturer offices/manufacturing facilities, as approved in advance by the Company.
Employee will have use of a drop-in office in Emeryville, subject to space availability, and shared administrative support, subject
to availability.

 

		II.	Compensation and Benefits

 

A.Base Salary.
 In consideration of the services to be rendered under this Agreement, during the Period of Employment, the Company shall pay
Employee a salary at the rate of four hundred eight thousand Dollars ($408,000) per year (“Base Salary”) less
standard payroll deductions and tax withholdings. The Base Salary shall be paid in accordance with the Company’s regularly
established payroll practice.

 

B.Bonus. During the Period of
Employment, Employee shall be eligible to receive a discretionary annual bonus (the “Bonus”). The annual target
opportunity level of the Bonus shall be 75% of the base salary actually paid during the calendar year. The bonus is in the Company’s
discretion and is based upon the Company’s attainment of financial goals and Employee’s achievement of individual goals
and objectives and is subject to continued employment during the applicable period and on the date the Company pays the bonus,
if any, to employees.

 

C.Benefits.
 Employee shall accrue twenty-two (22) vacation days per year, with no more than eleven (11) days of vacation taken out
of time required to be spent in Company offices, and CM offices/manufacturing facilities. Employee shall be eligible for group
health and 401(k) benefits in accordance with the benefit plans and policies established by the Company. Although Employee will
not be an officer of the Company, solely for purposes of eligibility for benefits and compliance with the Company’s policies,
Employee’s position will be treated as a Senior Vice President level position.

 

D.Expenses.
The Company shall reimburse Employee for reasonable business expenses incurred in the performance of Employee’s duties hereunder
in accordance with the Company’s expense reimbursement guidelines

 

E.Equity Grant. The Company will
recommend to the Company’s board of directors (the “Board”) that it grant Employee stock options to purchase
ninety thousand (90,000) shares (“Options”) and restricted stock units covering forty thousand (40,000) shares
(“RSUs”). These Options and RSUs will each vest as to one-third of the shares on December 31, 2013, and as to
two-thirds of the shares on December 31, 2014, subject to continuous employment. The equity grant dates shall be in accordance
with the Company’s grant date policy as established by the Board and the grants shall be subject to the terms of the equity
plan and applicable award agreements.

 

    	2

    	 

    

 

		III.	Termination of employment

 

A.Termination by Company.
 Employee’s employment by the Company, and the Period of Employment, may be terminated by the Company at any time for
any reason upon sixty (60) days’ written notice. In that event, Employee will be entitled to the Accrued Obligations (as
defined below).

 

B.Termination by Employee. Employee’s
employment by the Company, and the Period of Employment, may be terminated by Employee upon sixty (60) days’ written notice
to the Company. In that event, Employee will be entitled to the Accrued Obligations. In that event, equity vesting and bonus eligibility
shall cease on the effective date of termination.

 

C.Benefits upon Termination by the
Company. If the Company terminates Employee’s employment during the Period of Employment for Cause (as defined in Section
III.F), all equity vesting and bonus eligibility shall cease upon the termination of Employee’s employment. If the Company
terminates Employee’s employment during the Period of Employment without Cause, in addition to the Accrued Obligations and
subject to delivery and non-revocation by Employee of a release of claims acceptable to the Company (as set forth in Section III.D),
Employee shall be entitled to:

 

1.A pro-rata portion of the Company
Component, as defined under the Company’s then-current annual bonus plan for non-sales employees, of the bonus Employee would
have received for the year in which termination occurs based on the portion of the calendar year completed prior to termination.
Any such bonus earned will be paid at the same time as when executive bonuses are generally paid and will be based on actual Company
performance under the applicable annual bonus plan as determined by the Board in its sole discretion. 

 

2.If the termination of Employee’s
employment occurs in 2013, vesting of a pro-rata portion of the Options and RSUs scheduled to vest in 2013 (as set forth in Section
II.E) based on the portion of the period of time between the Effective Date and December 31, 2013 completed prior to termination;
and

 

3.If the termination of Employee’s
employment occurs in 2014, vesting of a pro-rata portion of the Options and RSUs scheduled to vest in 2014 (set forth in Section
II.E) based on the portion of the calendar year 2014 completed prior to termination.

 

D.Release for Payment of Severance.
As a condition precedent to any Company obligation to Employee pursuant to Section III.C (other than an obligation to pay the Accrued
Obligations), Employee shall, within the sixty (60) notice day period, provide the Company with a valid, executed general release
agreement (the “Release”) (a form of which is attached hereto as Exhibit A), and the Release shall have
not been revoked by Employee pursuant to any revocation rights afforded by applicable law. This Section III.D shall apply notwithstanding
anything else contained in this Agreement or any stock option or other equity-based award agreement to the contrary.

 

    	3

    	 

    

 

E.Release of Prior Severance and
Change in Control Benefits and Prior Claims.

 

1.Upon execution of the Agreement,
Employee hereby irrevocably waives and releases all rights and benefits under Employee’s Executive Management Severance and
Change in Control Agreement, including without limitation the rights and benefits under the Executive Management Severance and
Change in Control Agreement described in the letters to Employee dated December 19, 2007 and September 29, 2010. This Section III.E.1
shall apply notwithstanding anything else contained in this Agreement or any stock option or other equity-based award agreement
to the contrary.

 

2.In addition, Employee is concurrent
herewith executing a release in the form attached hereto as Exhibit B.

 

F.Certain Defined Terms.

 

1.As used herein, “Accrued
Obligations” means:

 

a.any Base Salary that had accrued but
had not been paid (including accrued and unpaid vacation time) on or before the Severance Date; and

 

b.any reimbursement due to Employee
pursuant to Section II.D for expenses incurred by Employee on or before the Severance Date.

 

2.As used herein, “Cause”
shall mean: (i) the Employee’s misconduct or negligence in the performance of the Employee’s duties to the Company;
(ii) the Employee’s failure to perform the Employee’s duties to the Company or to follow the lawful directives
of the Board or any executive to which the Employee reports which failure remains uncured for five (5) days; (iii) indictment
for, conviction of, or pleading of guilty or nolo contendere to, a felony or any crime involving moral turpitude;
(iv) the Employee’s failure to cooperate in any audit or investigation of the business or financial practices of the
Company or any of its subsidiaries; (v) the Employee’s performance of any act of theft, embezzlement, fraud, malfeasance,
dishonesty or misappropriation of the Company’s property; or (vi) breach of this Agreement or any other agreement with
the Company, or a violation of the Company’s code of conduct or other written policy.

 

		IV.	Termination Obligations

 

A.Return of Property.
Employee agrees that all property (including without limitation all equipment, tangible proprietary information, documents, records,
notes, contracts and computer-generated materials) furnished to or created or prepared by Employee incident to Employee’s
employment belongs to the Company and shall be promptly returned to the Company upon termination of Employee’s employment.

 

    	4

    	 

    

 

B.Resignation and Cooperation.
 Upon termination of Employee’s employment, Employee shall be deemed to have resigned from all offices and directorships
then held with the Company. Following any termination of employment, Employee shall cooperate with the Company in the winding up
of pending work on behalf of the Company and the orderly transfer of work to other employees. Employee shall also cooperate with
the Company in the defense of any action brought by any third party against the Company that relates to Employee’s employment
by the Company.

 

		V.	Prohibition on Third Party Information

 

A.Employee Confidentiality Agreement.
Executive agrees that he continues to be bound by the terms of the Employee Proprietary Information and Inventions Agreement dated
April 18, 2005 (the “Proprietary Information Agreement”).

 

B.Non-Solicitation.
Employee acknowledges that because of Employee’s position in the Company, Employee will have access to material intellectual
property and confidential information. During the term of Employee’s employment and for one year thereafter, in addition
to Employee’s other obligations hereunder or under the Proprietary Information Agreement, Employee shall not, for Employee
or any third party, directly or indirectly (i) solicit, induce, recruit or encourage any person employed by the Company to terminate
his or her employment; or (ii) divert or attempt to divert from the Company any business with any customer, client, member, business
partner or supplier about which Employee obtained confidential information during his employment with the Company, by using the
Company’s trade secrets or by otherwise engaging in conduct that amounts to unfair competition. Nothing in this Section V.B
shall alter or diminish Employee’s obligations pursuant to the Proprietary Information Agreement and any other restrictive
covenants between or among Employee and the Company.

 

		VI.	Amendments; Waivers; Remedies

 

This Agreement may not be amended or waived
except by a writing signed by Employee and by the CEO or the Board. Failure to exercise any right under this Agreement shall not
constitute a waiver of such right. Any waiver of any breach of this Agreement shall not operate as a waiver of any subsequent breaches.
All rights or remedies specified for a party herein shall be cumulative and in addition to all other rights and remedies of the
party hereunder or under applicable law.

 

		VII.	Assignment; Binding Effect

 

A.Assignment.
 The performance of Employee is personal hereunder, and Employee agrees that Employee shall have no right to assign and shall
not assign or purport to assign any rights or obligations under this Agreement. This Agreement may be assigned or transferred by
the Company; and nothing in this Agreement shall prevent the consolidation, merger or sale of the Company or a sale of any or all
or substantially all of its assets.

 

    	5

    	 

    

 

B.Binding Effect.
 Subject to the foregoing restriction on assignment by Employee, this Agreement shall inure to the benefit of and be binding
upon each of the parties; the affiliates, officers, directors, agents, successors and assigns of the Company; and the heirs, devisees,
spouses, legal representatives and successors of Employee.

 

		VIII.	Notices

 

All notices or other communications required
or permitted hereunder shall be made in writing and shall be deemed to have been duly given if delivered: (a) by hand; (b) by a
nationally recognized overnight courier service; or (c) by United States first class registered or certified mail, return receipt
requested, to the principal address of the other party, as set forth below. The date of notice shall be deemed to be the earlier
of (i) actual receipt of notice by any permitted means, or (ii) five business days following dispatch by overnight delivery service
or the United States Mail. Employee shall be obligated to notify the Company in writing of any change in Employee’s address.
Notice of change of address shall be effective only when done in accordance with this paragraph.

 

Company’s Notice Address:

 

LeapFrog Enterprises, Inc.

6401 Hollis Street, Suite 100

Emeryville, CA 94608-1071

Attention: General Counsel

 

Employee’s Notice Address:

 

The last personal address provided to the Company.

 

		IX.	Severability

 

If any provision of this Agreement shall
be held by a court or arbitrator to be invalid, unenforceable, or void, such provision shall be enforced to the fullest extent
permitted by law, and the remainder of this Agreement shall remain in full force and effect. In the event that the time period
or scope of any provision is declared by a court or arbitrator of competent jurisdiction to exceed the maximum time period or scope
that such court or arbitrator deems enforceable, then such court or arbitrator shall reduce the time period or scope to the maximum
time period or scope permitted by law.

 

		X.	Taxes

 

All amounts paid under this Agreement shall
be paid less all applicable state and federal tax withholdings (if any) and any other withholdings required by any applicable jurisdiction
or authorized by Employee. Notwithstanding any other provision of this Agreement whatsoever, the Company, in its sole discretion,
shall have the right to provide for the application and effects of Section 409A of the Internal Revenue Code of 1986, as amended
(the “Code”), and the final regulations and any guidance promulgated thereunder (“Section 409A”)
(relating to deferred compensation arrangements) and any related administrative guidance issued by the Internal Revenue Service.
Notwithstanding anything to the contrary in this Agreement, if Employee is a “specified employee” within the meaning
of Section 409A at the time of Employee’s termination (other than due to death), then the cash severance benefits payable
to Employee under this Agreement, if any, and any other severance payments or separation benefits that may be considered deferred
compensation under Section 409A (together, the “Deferred Compensation Separation Benefits”) otherwise due to
Employee on or within the six (6) month period following Employee’s termination shall accrue during such six (6) month period
and shall become payable in a lump sum payment on the date six (6) months and one (1) day following the date of Employee’s
termination of employment. All subsequent payments, if any, shall be payable in accordance with the payment schedule applicable
to each payment or benefit. Notwithstanding anything herein to the contrary, if Employee dies following his termination but prior
to the six (6) month anniversary of his termination, then any payments delayed in accordance with this Section shall be payable
in a lump sum as soon as administratively practicable after the date of Employee’s death and all other Deferred Compensation
Separation Benefits shall be payable in accordance with the payment schedule applicable to each payment or benefit.

 

    	6

    	 

    

 

It is the intent of this Agreement to comply
with the requirements of Section 409A so that none of the severance payments and benefits to be provided
hereunder shall be subject to the additional tax imposed under Section 409A, and any ambiguities herein shall be interpreted
to so comply.

 

		XI.	Governing Law

 

This Agreement shall be governed by and
construed in accordance with the laws of the State of California.

 

		XII.	Interpretation

 

Each party recognizes that this is a legally
binding contract and acknowledges and agrees that they have had the opportunity to consult with legal counsel of their choice.
This Agreement shall be construed as a whole, according to its fair meaning, and not in favor of or against any party. Employee
agrees and acknowledges that he has read and understands this Agreement, is entering into it freely and voluntarily, and has been
advised to seek counsel prior to entering into this Agreement and has had ample opportunity to do so. Sections and section headings
contained in this Agreement are for reference purposes only, and shall not affect in any manner the meaning or interpretation of
this Agreement. Whenever the context requires, references to the singular shall include the plural and the plural the singular.

 

		XIII.	OBLIGATIONS SURVIVE TERMINATION OF EMPLOYMENT

 

Employee agrees that any and all of Employee’s
obligations under this agreement shall survive the termination of employment and the termination of this Agreement.

 

    	7

    	 

    

 

		XIV.	Counterparts

 

This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original of this Agreement, but all of which together shall constitute one and
the same instrument.

 

		XV.	Authority

 

Each party represents and warrants that
such party has the right, power and authority to enter into and execute this Agreement and to perform and discharge all of the
obligations hereunder; and that this Agreement constitutes the valid and legally binding agreement and obligation of such party
and is enforceable in accordance with its terms.

 

		XVI.	Entire Agreement

 

This Agreement is intended to be the final,
complete, and exclusive statement of the terms of Employee’s employment by the Company and may not be contradicted by evidence
of any prior or contemporaneous statements or agreements. This Agreement supersedes all prior and contemporaneous agreements of
the parties hereto that directly or indirectly bears upon the subject matter hereof, including without limitation the letters to
Employee dated December 19, 2007 and September 29, 2010 regarding Employee’s prior compensation and severance benefits and
Employee’s offer letter dated March 31, 2005. To the extent that the practices, policies or procedures of the Company, now
or in the future, apply to Employee and are inconsistent with the terms of this Agreement, the provisions of this Agreement shall
control. Any subsequent change in Employee’s duties, position, or compensation will not affect the validity or scope of this
Agreement.

 

		XVII.	EMPLOYEE Acknowledgement

 

EMPLOYEE ACKNOWLEDGES EMPLOYEE HAS HAD THE
OPPORTUNITY TO CONSULT LEGAL COUNSEL CONCERNING THIS AGREEMENT, THAT EMPLOYEE HAS READ AND UNDERSTANDS THE AGREEMENT, THAT EMPLOYEE
IS FULLY AWARE OF ITS LEGAL EFFECT, AND THAT EMPLOYEE HAS ENTERED INTO IT FREELY BASED ON EMPLOYEE’S OWN JUDGMENT AND NOT
ON ANY REPRESENTATIONS OR PROMISES OTHER THAN THOSE CONTAINED IN THIS AGREEMENT.

 

    	8

    	 

    

 

In
Witness Whereof, the parties have duly executed this Agreement as of the date first written above.

 

	LEAPFROG ENTERPRISES, INC.	 	MICHAEL DODD
	 	 	 
	/s/ John Barbour	 	/s/ Michael Dodd
	Signature	 	Signature
	 	 	 
	Chief Executive Officer	 	 
	Title: 	 	August 12, 2013
	 	 	Date:
	August 13, 2013	 	 
	Date:	 	 

 

    	 

    	 

    

 

EXHIBIT A

 

General Release

 

Michael Dodd (“Employee”)
and LeapFrog Enterprises, Inc. (the “Company”) have agreed to enter into this General Release (“Release”)
on the following terms:

 

Effective [Separation Date], Employee’s
employment at the Company shall be terminated. Subject to the effectiveness of this Release and any delay required to avoid the
imposition of additional taxes under Internal Revenue Code Section 409A, Employee will begin receiving the severance benefits set
forth in Section III.C of Employment Agreement dated ______, 2013 (“Agreement”), in accordance with the
terms of that Agreement.

 

In exchange for the foregoing Severance,
Employee completely releases the Company, its affiliated, related, parent or subsidiary corporations, and its and their present
and former directors, officers, and employees from, and agrees not to file, cause to be filed, or otherwise pursue, any and all
claims Employee may now have or has ever had against any of them, including but not limited to claims for compensation, bonuses,
severance pay, equity, and all claims arising from Employee’s employment or the termination of that employment (including,
without limitation, any claims arising under the Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment
Act, the WARN Act or any state counterpart, the California Fair Employment and Housing Act, or any other claims for violation of
any federal, state, or municipal statutes), and any and all claims for attorneys’ fees and costs. This release does not extend
to any severance obligations or Accrued Obligations due Employee under the Agreement. Nothing in this Agreement waives Employee’s
rights to indemnification or any payments under any fiduciary insurance policy, if any, provided by any act or agreement of the
Company, state or federal law or policy of insurance.

 

Employee agrees that because this Release
specifically covers known and unknown claims, Employee waives any rights under Section 1542 of the California Civil Code, or under
any comparable law of any other jurisdiction. Section 1542 states: “A general release does not extend to claims which the
creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her
must have materially affected his or her settlement with the debtor.”

 

Employee acknowledges that Employee has
21 days to consider this Release (but may elect to sign it at any time beforehand), and may consult an attorney in doing so. Employee
also acknowledges that he or she may revoke this Release within 7 days of signing it by sending a certified letter to that effect
to [name and address]. Employee understands and agrees that this Release shall not become effective or enforceable and no
payments or benefits will be provided until the 7-day revocation period has expired.

 

Employee acknowledges that the Agreement
and this Release represent the entire agreement and understanding between the parties, supersede and replace any and all prior
agreements and understandings between them, and shall not be modified in any way except in writing executed by both parties. Employee
also agrees that if any term or portion contained herein shall be found to be unenforceable under applicable law, such finding
shall not invalidate the whole Release, but the Release shall be construed as not containing the particular term or portion held
to be invalid and the rights and obligations of the parties shall be construed and enforced accordingly.

 

    	10

    	 

    

 

Employee acknowledges that Employee has
read this Release, fully understands all of its provisions and the consequences of signing it, and agrees to all of its conditions.

 

	 	 	
	Michael Dodd	 	[Name of Company Signatory] 
	 	 	 	LeapFrog Enterprises, Inc.
	 	 	 	 
	Date:  	 	 	Date:  	 

 

    	11

    	 

    

 

EXHIBIT B

 

General Release

 

Michael Dodd (“Employee”)
and LeapFrog Enterprises, Inc. (the “Company”) have agreed to enter into this General Release (“Release”)
on the following terms:

 

Effective August 14, 2013 Employee’s
employment with the Company pursuant to an Employment Agreement shall begin.

 

In exchange for the benefits under the Employment
Agreement, Employee completely releases the Company, its affiliated, related, parent or subsidiary corporations, and its and their
present and former directors, officers, and employees from, and agrees not to file, cause to be filed, or otherwise pursue, any
and all claims Employee may now have or has ever had against any of them, including but not limited to claims for compensation,
bonuses, severance pay, equity, and all claims arising from Employee’s employment or the termination of that employment (including,
without limitation, any claims arising under the Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment
Act, the WARN Act or any state counterpart, the California Fair Employment and Housing Act, or any other claims for violation of
any federal, state, or municipal statutes), and any and all claims for attorneys’ fees and costs. This release does not extend
to any severance obligations or Accrued Obligations due Employee under the Agreement. Nothing in this Agreement waives Employee’s
rights to indemnification or any payments under any fiduciary insurance policy, if any, provided by any act or agreement of the
Company, state or federal law or policy of insurance.

 

Employee agrees that because this Release
specifically covers known and unknown claims, Employee waives any rights under Section 1542 of the California Civil Code, or under
any comparable law of any other jurisdiction. Section 1542 states: “A general release does not extend to claims which the
creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her
must have materially affected his or her settlement with the debtor.”

 

Employee acknowledges that the Agreement
and this Release represent the entire agreement and understanding between the parties, supersede and replace any and all prior
agreements and understandings between them, and shall not be modified in any way except in writing executed by both parties. Employee
also agrees that if any term or portion contained herein shall be found to be unenforceable under applicable law, such finding
shall not invalidate the whole Release, but the Release shall be construed as not containing the particular term or portion held
to be invalid and the rights and obligations of the parties shall be construed and enforced accordingly.

 

    	12

    	 

    

 

Employee acknowledges that Employee has
read this Release, fully understands all of its provisions and the consequences of signing it, and agrees to all of its conditions.

 

	/s/ Michael Dodd	 	/s/ John Barbour
	Michael Dodd	 	LeapFrog Enterprises, Inc.
	 	 	 	 	 
	 	 	 	Title:   	Chief Executive Officer
	 	 	 	 	 
	Date:  	August 12, 2013	 	Date: 	August 13, 2013

 

    	13

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