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SEC File No.__________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
Coast Bancorp
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(Exact name of registrant as specified in its charter)
California 77-0401327
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
740 Front Street 95060
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(Address of principal (Zip Code)
executive offices)
Santa Cruz, California
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(City and State of principal executive offices)
Registrant's telephone number, including area code (408) 458-4500
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Securities to be registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which each class is
to be so registered to be registered
None None
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Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
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(Title of class)
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I N D E X
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DESCRIPTION PAGE NO.
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ITEM 1. BUSINESS.............................................................1
ITEM 2. SELECTED FINANCIAL DATA.............................................19
ITEM 3. PROPERTIES..........................................................41
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT......43
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS ...................................44
ITEM 6. EXECUTIVE COMPENSATION..............................................46
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................50
ITEM 8. LEGAL PROCEEDINGS...................................................50
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.........................................50
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.............................51
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE
REGISTERED..........................................................52
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS...........................53
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.........................54
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE................................................73
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS...................................73
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ITEM 1. BUSINESS
GENERAL
Coast Bancorp ("Company") is a California corporation and the bank
holding company for Coast Commercial Bank ("Bank"), located in Santa Cruz,
California. The Bank was incorporated as a California state banking corporation
on April 27, 1981, and commenced operations on February 17, 1982. The Company
was incorporated on January 27, 1995 and became the bank holding company for the
Bank on July 25, 1995, pursuant to the Bank Holding Company Act.
GENERAL BANKING SERVICES
The Bank engages in a broad range of financial services activities
in its primary market of Santa Cruz County, and also serves the adjacent
areas of San Benito, Santa Clara and Monterey counties. The City of Santa
Cruz, situated 80 miles south of San Francisco and 35 miles southwest of San
Jose, is the largest city in Santa Cruz County.
The Bank emphasizes the needs of local business people and serves
individuals, retailers, professionals and small and medium-sized businesses
and operates through its corporate offices located in Santa Cruz, California
and through its branch offices located in Santa Cruz, Aptos, Scotts Valley
and Watsonville, California. Services offered include a full range of
commercial banking services, including the acceptance of demand, savings and
time deposits, overdraft protection for checking accounts, and the making of
commercial, real estate (including residential mortgage), personal, home
improvement, automobile and other installment and term loans. The Bank is
one of the largest Small Businesses Administration ("SBA") lenders
in California and has been granted status as a "preferred lender", allowing
it to make SBA loans without first having the SBA approve the loan, and is a
seller/servicer of Freddie Mac mortgage loans. It also offers travelers'
checks, safe deposit boxes, notary public services, Visa credit cards,
courier service for pick-up of non-cash deposits, ATM cards usable at many
ATM's nationwide and a 24 hour telephone service for deposit and loan account
information. The Bank operates automated teller machines at its branches and
at Seascape Village in Aptos, California. The Bank also has an Investment
Services Department which provides financial planning services, financial
consulting, asset management and the purchase and sale of stock and bonds
through a third party provider.
The total population base in Santa Cruz County is approximately
248,900 people. Santa Cruz County's economic base has several significant
components including education (e.g., the University of California at Santa
Cruz); disk drive and software companies headquartered in the Northern part of
the county due to its proximity to the high tech base of Silicon Valley in
adjacent Santa Clara County; tourism because of the beaches and Santa Cruz
Boardwalk; and agriculture in the Southern part of the county in and around
Watsonville.
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The Bank currently has no applications pending to open additional
branch offices, but the Bank may increase the number of its banking facilities
in the Bank's trade areas when such expansion is appropriate. The Bank's
expansion program is, of course, dependent on obtaining the necessary
governmental approvals, a continued earnings pattern and absence of adverse
effects from economic conditions, governmental monetary policies or competition.
No assurance can be given that all or any part of the Bank's expansion program
can be accomplished without the Bank being required to raise additional capital
in the future.
The Bank is a member of the Federal Deposit Insurance Corporation and
each depositor's account is insured up to $100,000. The Bank does not directly
offer trust services or international banking services and does not plan to do
so in the near future.
The Bank's service area consists of Santa Cruz County and extends into
the adjacent areas of San Benito, Santa Clara and Monterey counties. It is
estimated that Santa Cruz County contains 35 competitive banking offices, of
which 2 offices are owned by other independent banks. However, the Bank is the
only independent bank headquartered in Santa Cruz County. It is estimated that
the primary service area also contains 20 offices of savings and loan
associations, and 5 offices of credit unions. Based upon total bank deposits as
of June 30, 1995 (the last period for which data is available), the Bank is
sixth in market share in Santa Cruz County.
The banking business in California generally, and in the Bank's
primary service area specifically is highly competitive with respect to both
loans and deposits, and is dominated by a relatively small number of major banks
with many offices operating over a wide geographic area. Among the advantages
such major banks have over the Bank are their ability to finance wide ranging
advertising campaigns and to allocate their investment assets to regions of
highest yield and demand. Such institutions offer certain services such as
trust services and international banking which are not offered directly by the
Bank (but are offered indirectly through correspondent institutions) and, by
virtue of their greater total capitalization (legal lending limits to an
individual customer are limited to a percentage of a bank's total capital),
they have substantially higher lending limits than does the Bank. Other
entities, both governmental and in private industry, seeking to raise capital
through the issuance and sale of debt or equity securities also provide
competition for the Bank in the acquisition of deposits. The Bank also
competes with money-market funds for deposits.
In order to compete with major financial institutions and other
competitors in its service areas, the Bank builds and retains its customer
base by drawing upon the experience of its executive and senior officers in
serving business individuals, and upon its specialized services, local
promotional activities and the personal contacts made by its officers,
directors and employees. The officers and employees of the Bank are strongly
encouraged to participate in local civic and charitable organizations and
events, which has also served to promote the Bank's business. For customers
whose loan demand exceeds the Bank's legal lending limit, the
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Bank may arrange for such loans on a participation basis with correspondent
banks. The Bank's lending limit is 15% of its capital and allowance for loan
losses for unsecured loans and 25% of its capital and allowance for loan losses
for secured loans.
DEPOSITS
Most of the Bank's deposits are attracted from individuals, small and
medium-sized businesses and professionals. A material portion of the Bank's
deposits have not been obtained from a single person or a few persons, the loss
of any one or more of which would not have a materially adverse effect on the
business of the Bank.
LENDING ACTIVITIES
The Bank engages in a full complement of lending activities, including
commercial, real estate, SBA and consumer/installment loans.
The Bank is one of the largest lenders in California in the SBA loan
program and makes SBA loans from $20,000 to $1,500,000. SBA 7(a) loans are for
such purposes as working capital, inventory and other purposes, and are
government-guaranteed up to 80% of the amount of the loan. The Bank also makes
SBA loans for the purchase or construction of owner occupied real estate which
are also guaranteed up to 80%. The SBA loan program is subject to political and
budgetary uncertainty which in recent years has resulted in a reduction of the
guaranteed portion of SBA loans and lower maximum loan amounts.
The Bank makes real estate construction loans for the construction
of single and multi-family residential units, commercial and industrial
properties, and SBA approved owner occupied commercial real estate. These
loans typically have pre-qualified take outs for permanent financing or
stand-by commitments and a maximum loan to value ratio of 70%. The Bank also
makes loans for lot or land development with a maximum loan to value ratio of
60%. Construction loans are secured by a first deed of trust. As of June
30, 1996, the Bank had outstanding real estate construction loans of
$14,781,000 representing 12% of the Bank's loan portfolio.
The Bank also makes commercial real estate loans for other purposes
such as the purchase or refinance of offices, warehouses, professional
buildings, and industrial buildings, including SBA loans. A portion of these
loans are SBA loans which are guaranteed by the U.S. government in an amount
up to 90% of the loan. Commercial real estate loans generally are fully
amortized over 15 years or have a 10 year term with a twenty-five year
amortization, and typically have a maximum loan to value ratio of 70%. SBA
loans
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for this purpose have a term of up to 25 years and a maximum loan to value
ratio of 90%. The Bank had outstanding real estate term loans of $59,295,000
or 50% of the Bank's loan portfolio at June 30, 1996.
The Bank makes residential mortgage loans which are typically 30
year loans with either adjustable or fixed interest rates. These loans are
sold to Freddie Mac on a "servicing retained" basis, i.e., the Bank continues
to be paid a fee for collecting payments on the loan and performing other
services, or to other investors on a "servicing released" basis, i.e. the
Bank has no further involvement in the loan.
The Bank makes commercial loans to small-to-medium sized businesses
for working capital, lines of credit, loans secured by inventory and
receivables, and term loans for equipment and for working capital. Typically,
the Bank obtains a security interest in the collateral being financed or in
other available assets of the customer. Loan to value ratios vary but generally
do not exceed 80%. As of June 30, 1996, the Bank had $37,158,000 in loans for
these purposes representing 31% of the Bank's loan portfolio.
Consumer and installment loans are made for household, family and
other personal expenditures on both a secured and unsecured basis. As of June
30, 1996 the Bank had a total of $7,637,000 in consumer and installment loans
representing 7% of the Bank's loan portfolio.
The Bank sells the guaranteed portion of SBA loans which it
originates into the secondary market as a source of liquidity and earnings.
Additionally, the Bank sells residential mortgage loans it originates into
the secondary market in order to divest itself of the interest rate risk
associated with these mostly fixed interest rate products. Through 1995, the
Bank accounted for these loans in accordance with the Emerging Issues Task
Force Issues No. 88-11, "Allocation of Recorded Investment when a Loan is
Sold", No. 86-38, "Implication of Mortgage Prepayments on Amortization of
Servicing Rights", and No. 84-21, "Sale of a Loan with a Partial Participation
Retained". No recourse is available to buyers of these loans after 90 days
from the sale. Total loans serviced by the Bank for other investors were
$121,542,000 as of June 30, 1996 and $117,853,000 as of December 31, 1995. For
the years ended December 31, 1995, 1994 and 1993, total loans sold by the Bank
were $20,093,000, $34,673,000, $45,405,000 and $21,457,000 for the six months
ended June 30, 1996.
In May of 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 122, "Accounting for Mortgage
Servicing Rights". This statement eliminates the accounting distinction
between rights to service mortgage loans for others that are acquired through
loan origination activities and those acquired through purchase transactions.
Under this statement, if the Company sells or securities loans and retains
the mortgage servicing rights, the Company should allocate the total cost of
the mortgage loan to the loan and the mortgage servicing rights based on
their relative fair values. Any cost allocated to the mortgage servicing
rights should be recognized as a separate asset and amortized over the period
of estimated net service income. The Company adopted this statement on
January 1, 1996.
See "ACCOUNTING PRONOUNCEMENTS" for a discussion of the Financial
Accounting Standards Board's recently issued Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," which supercedes
Statement No. 122 effective January 1, 1997.
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Credit risk relates to the ability of a borrower to repay the
principal and interest on their loan and is managed by adherence to credit
standards and the taking of collateral to secure most of the Bank's loans.
These risks are inherent in commercial lending generally. Certain risks are
specific to particular types of lending in which the Bank engages such as
real estate lending. The major risk inherent in real estate lending is the
potential decline in the value of the property for market reasons or due to
the condition of the property.
OTHER SERVICES
The Bank has established its own Investment Services Department which
employs 2 investment professionals. The Investment Services Department offers
financial planning services; asset management services through the use of two
unaffiliated investment managers; retirement plans such as 401(k) plans, IRAs
and SEPs; mutual funds; and the purchase and sale of stocks and bonds on an
unsolicited basis.
The Investment Services Department also offers trust services through
Enterprise Trust and Investment Company of Los Gatos, California, an
unaffiliated independent trust company.
SUPERVISION AND REGULATION
The Bank is chartered under the banking laws of the State of California
and is subject to the supervision of, and is regularly examined by, the
Superintendent and the FDIC.
The Company is a bank holding company within the meaning of the Bank
Holding Company Act, "BHC Act", is registered as such with and is subject to
the supervision of the Federal Reserve Board ("FRB").
Certain legislation and regulations affecting the businesses of the Company
and the Bank are discussed below.
GENERAL
As a bank holding company, the Company is subject to the BHC Act. The
Company reports to, registers with, and is examined by the FRB. The FRB also
has the authority to examine the Company's subsidiaries which includes the Bank.
The FRB requires the Company to maintain certain levels of capital.
See" Capital Standards" herein. The FRB also has the authority to take
enforcement action against any bank holding company that commits any unsafe or
unsound practice, or violates certain laws, regulations, or conditions imposed
in writing by the FRB. See "Prompt Corrective Action and Other Enforcement
Mechanisms" herein.
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Under the BHC Act, a company generally must obtain the prior approval
of the FRB before it exercises a controlling influence over, or acquires
directly or indirectly, more than 5% of the voting shares or substantially all
of the assets of any bank or bank holding company. Thus, the Company is
required to obtain the prior approval of the FRB before it acquires, merges or
consolidates with any bank, or bank holding company; any company seeking to
acquire, merge or consolidate with the Company also would be required to obtain
the FRB's approval.
The Company is generally prohibited under the BHC Act from acquiring
ownership or control of more than 5% of the voting shares of any company that is
not a bank or bank holding company and from engaging directly or indirectly in
activities other than banking, managing banks, or providing services to
affiliates of the holding company. A bank holding company, with the approval of
the FRB, may engage, or acquire the voting shares of companies engaged, in
activities that the FRB has determined to be so closely related to banking or
managing or controlling banks as to be a proper incident thereto. A bank
holding company must demonstrate that the benefits to the public of the proposed
activity will outweigh the possible adverse effects associated with such
activity.
The FRB generally prohibits a bank holding company from declaring or
paying a cash dividend which would impose undue pressure on the capital of
subsidiary banks or would be funded only through borrowing or other arrangements
that might adversely affect a bank holding company's financial position. The
FRB's policy is that a bank holding company should not continue its existing
rate of cash dividends on its common stock unless its net income is sufficient
to fully fund each dividend and its prospective rate of earnings retention
appears consistent with its capital needs, asset quality and overall financial
condition.
Transactions between the Company, the Bank and any future subsidiaries
of the Company are subject to a number of other restrictions. FRB policies
forbid the payment by bank subsidiaries of management fees which are
unreasonable in amount or exceed the fair market value of the services rendered
(or, if no market exists, actual costs plus a reasonable profit). Additionally,
a bank holding company and its subsidiaries are prohibited from engaging in
certain tie-in arrangements in connection with the extension of credit, sale or
lease of property, or furnishing of services. Subject to certain limitations,
depository institution subsidiaries of bank holding companies may extend credit
to, invest in the securities of, purchase assets from, or issue a guarantee,
acceptance, or letter of credit on behalf of, an affiliate, provided that the
aggregate of such transactions with affiliates may not exceed 10% of the capital
stock and surplus of the institution, and the aggregate of such transactions
with all affiliates may not exceed 20% of the capital stock and surplus of such
institution. The Company may only borrow from depository institution
subsidiaries if the loan is secured by marketable obligations with a value of a
designated amount in excess of the loan. Further, the Company may not sell a
low-quality asset to a depository institution subsidiary.
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CAPITAL STANDARDS
The FRB, FDIC and other federal banking agencies have risk based
capital adequacy guidelines intended to provide a measure of capital adequacy
that reflects the degree of risk associated with a banking organization's
operations for both transactions reported on the balance sheet as assets, and
transactions, such as letters of credit and recourse arrangements, which are
reported as off balance sheet items. Under these guidelines, nominal dollar
amounts of assets and credit equivalent amounts of off balance sheet items are
multiplied by one of several risk adjustment percentages, which range from 0%
for assets with low credit risk, such as certain U.S. government securities, to
100% for assets with relatively higher credit risk, such as business loans.
A banking organization's risk based capital ratios are obtained by
dividing its qualifying capital by its total risk-adjusted assets and off
balance sheet items. The regulators measure risk-adjusted assets and off
balance sheet items against both total qualifying capital (the sum of Tier 1
capital and limited amounts of Tier 2 capital) and Tier 1 capital. Tier 1
capital consists of common stock, retained earnings, noncumulative perpetual
preferred stock and minority interests in certain subsidiaries, less most other
intangible assets. Tier 2 capital may consist of a limited amount of the
allowance for possible loan and lease losses and certain other instruments with
some characteristics of equity. The inclusion of elements of Tier 2 capital are
subject to certain other requirements and limitations of the federal banking
agencies. Since December 31, 1992, the federal banking agencies have required a
minimum ratio of qualifying total capital to risk-adjusted assets and off
balance sheet items of 8%, and a minimum ratio of Tier 1 capital to risk-
adjusted assets and off balance sheet items of 4%.
In addition to the risk-based guidelines, federal banking regulators
require banking organizations to maintain a minimum amount of Tier 1 capital to
total assets, referred to as the leverage ratio. For a banking organization
rated in the highest of the five categories used by regulators to rate banking
organizations, the minimum leverage ratio of Tier 1 capital to total assets is
3%. It is improbable, however, that an institution with a 3% leverage ratio
would receive the highest rating by the regulators since a strong capital
position is a significant part of the regulators' rating. For all banking
organizations not rated in the highest category, the minimum leverage ratio is
at least 100 to 200 basis points above the 3% minimum. Thus, the effective
minimum leverage ratio, for all practical purposes, is at least 4% or 5%. In
addition to these uniform risk-based capital guidelines and leverage ratios that
apply across the industry, the regulators have the discretion to set individual
minimum capital requirements for specific institutions at rates significantly
above the minimum guidelines and ratios.
The following table presents the capital ratios for the Company and
the Bank as of June 30, 1996.
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Minimum
The Company The Bank Requirement
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Ratio Ratio
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RISK-BASED CAPITAL RATIO:
Tier 1 Capital . . . . 15.2% 13.1% 4.0%
Total Capital. . . . . 16.5% 14.4% 8.0%
TIER 1 CAPITAL LEVERAGE RATIO: 10.1% 8.7% 4.0%
As required by Federal Deposit Insurance Corporation Improvement Act
of 1991 ("FDICIA"), the federal financial institution agencies solicited
comments in September 1993 on a proposed rule and method of incorporating an
interest rate risk component into the current risk-based capital guidelines,
with the goal of ensuring that institutions with high levels of interest rate
risk have sufficient capital to cover their exposures. Interest rate risk is
the risk that changes in market interest rates might adversely affect a bank's
financial condition. Under the proposal, interest rate risk exposures would be
quantified by weighting assets, liabilities and off-balance sheet items by risk
factors which approximate sensitivity to interest rate fluctuations.
As proposed, institutions identified as having an interest rate risk exposure
greater than a defined threshold would be required to allocate additional
capital to support this higher risk. Higher individual capital allocations
could be required by the bank regulators based upon supervisory concerns. The
agencies adopted a final rule effective September 1, 1995 which is substantially
similar to the proposed rule, except that the final rule does not establish (1)
a measurement framework for assessing the level of a bank's interest rate
exposure; nor (2) a minimum level of exposure above which a bank will be
required to hold additional capital for interest rate risk if it has a
significant exposure or a weak interest rate risk
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management process. The agencies also solicited comments on and are continuing
their analysis of a proposed policy statement which would establish a framework
to measure and monitor interest rate exposure.
PROMPT CORRECTIVE ACTION AND OTHER ENFORCEMENT MECHANISMS
FDICIA requires each federal banking agency to take prompt corrective
action to resolve the problems of insured depository institutions, including but
not limited to those that fall below one or more prescribed minimum capital
ratios. The law requires each federal banking agency to promulgate regulations
defining the following five categories in which an insured depository
institution will be placed, based on the level of its capital ratios: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized.
In September 1992, the federal banking agencies issued uniform final
regulations implementing the prompt corrective action provisions of FDICIA. An
insured depository institution generally will be classified in the following
categories based on capital measures indicated below:
"WELL-CAPITALIZED"
TOTAL RISK-BASED CAPITAL OF 10% OR MORE;
TIER 1 RISK-BASED RATIO CAPITAL OF 6% OR MORE; AND
LEVERAGE RATIO OF 5% OR MORE.
"ADEQUATELY CAPITALIZED"
TOTAL RISK-BASED CAPITAL OF AT LEAST 8%;
TIER 1 RISK-BASED CAPITAL OF AT LEAST 4%; AND
LEVERAGE RATIO OF AT LEAST 4%.
"UNDERCAPITALIZED"
TOTAL RISK-BASED CAPITAL LESS THAN 8%;
TIER 1 RISK-BASED CAPITAL LESS THAN 4%; OR
LEVERAGE RATIO LESS THAN 4%.
"SIGNIFICANTLY UNDERCAPITALIZED"
TOTAL RISK-BASED CAPITAL LESS THAN 6%;
TIER 1 RISK-BASED CAPITAL LESS THAN 3%; OR
LEVERAGE RATIO LESS THAN 3%.
"CRITICALLY UNDERCAPITALIZED"
TANGIBLE EQUITY TO TOTAL ASSETS LESS THAN 2%.
An institution that, based upon its capital levels, is classified as
well-capitalized, adequately capitalized or undercapitalized may be treated as
though it were in the next
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lower capital category if the appropriate federal banking agency, after notice
and opportunity for hearing, determines that an unsafe or unsound condition or
an unsafe or unsound practice warrants such treatment. At each successive lower
capital category, an insured depository institution is subject to more
restrictions. The federal banking agencies, however, may not treat an
institution as "critically undercapitalized" unless its capital ratio actually
warrants such treatment.
If an insured depository institution is undercapitalized, it will be
closely monitored by the appropriate federal banking agency. Undercapitalized
institutions must submit an acceptable capital restoration plan with a guarantee
of performance issued by the holding company. Further restrictions and
sanctions are required to be imposed on insured depository institutions that are
critically undercapitalized. The most important additional measure is that the
appropriate federal banking agency is required to either appoint a receiver for
the institution within 90 days or obtain the concurrence of the FDIC in another
form of action.
In addition to measures taken under the prompt corrective action
provisions, commercial banking organizations may be subject to potential
enforcement actions by the federal regulators for unsafe or unsound practices in
conducting their businesses or for violations of any law, rule, regulation or
any condition imposed in writing by the agency or any written agreement with the
agency. Enforcement actions may include the imposition of a conservator or
receiver, the issuance of a cease-and-desist order that can be judicially
enforced, the termination of insurance of deposits (in the case of a depository
institution), the imposition of civil money penalties, the issuance of
directives to increase capital, the issuance of formal and informal agreements,
the issuance of removal and prohibition orders against institution-affiliated
parties and the enforcement of such actions through injunctions or restraining
orders based upon a prima facie showing by the agency that such relief is
appropriate. Additionally, a holding company's inability to serve as a source
of strength to its subsidiary banking organizations could serve as an additional
basis for a regulatory action against the holding company. The Company is
classified as "well-capitalized" under the above guidelines.
SAFETY AND SOUNDNESS STANDARDS
FDICIA also implemented certain specific restrictions on transactions
and required the regulators to adopt overall safety and soundness standards for
depository institutions related to internal control, loan underwriting and
documentation, and asset growth. Among other things, FDICIA limits the interest
rates paid on deposits by undercapitalized institutions, the use of brokered
deposits and the aggregate extension of credit by a depository institution to an
executive officer, director, principal stockholder or related interest, and
reduces deposit insurance coverage for deposits offered by undercapitalized
institutions for deposits by certain employee benefits accounts.
The federal financial institution agencies published a final rule
effective on August 9, 1995, implementing safety and soundness standards. The
FDICIA added a new
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Section 39 to the Federal Deposit Insurance Act which required the agencies to
establish safety and soundness standards for insured financial institutions
covering (1) internal controls, information systems and internal audit systems;
(2) loan documentation; (3) credit underwriting; (4) interest rate exposure; (5)
asset growth; (6) compensation, fees and benefits; (7) asset quality, earnings
and stock valuation; and (8) excessive compensation for executive officers,
directors or principal shareholders which could lead to material financial loss.
The agencies issued the final rule in the form of guidelines only for
operational, managerial and compensation standards and reissued for comment
proposed standards related to asset quality and earnings which are less
restrictive than the earlier proposal in November 1993. Unlike the earlier
proposal, the guidelines under the final rule do not apply to depository
institution holding companies and the stock valuation standard was eliminated.
If an agency determines that an institution fails to meet any standard
established by the guidelines, the agency may require the financial institution
to submit to the agency an acceptable plan to achieve compliance with the
standard. If the agency requires submission of a compliance plan and the
institution fails to timely submit an acceptable plan or to implement an
accepted plan, the agency must require the institution to correct the
deficiency. Under the final rule, an institution must file a compliance plan
within 30 days of a request to do so from the institution's primary federal
regulatory agency. The agencies may elect to initiate enforcement action in
certain cases rather than rely on an existing plan particularly where failure to
meet one or more of the standards could threaten the safe and sound operation of
the institution.
RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS
The power of the board of directors of an insured depository
institution to declare a cash dividend or other distribution with respect to
capital is subject to statutory and regulatory restrictions which limit the
amount available for such distribution depending upon the earnings, financial
condition and cash needs of the institution, as well as general business
conditions. FDICIA prohibits insured depository institutions from paying
management fees to any controlling persons or, with certain limited exceptions,
making capital distributions, including dividends, if, after such transaction,
the institution would be undercapitalized.
The FRB has issued a policy statement that a bank holding company
should not declare or pay a cash dividend to its stockholders if the dividend
would place undue pressure on the capital of its subsidiary banks or if the
dividend could be funded only through additional borrowings or other
arrangements that might adversely affect the financial position of the bank
holding company. Specifically, a bank holding company should not continue its
existing rate of cash dividends on its common stock unless its net income is
sufficient to fully fund each consistent with its capital needs, asset quality,
and overall financial condition. Further, the Company is expected to act as a
source of financial strength for each of its subsidiary banks and to commit
resources to support each subsidiary bank in circumstances when it might not do
so absent such policy.
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The Company's ability to pay dividends depends in large part on the
ability of the Bank to pay management fees and dividends to the Company. The
ability of its subsidiary banks to pay dividends will be subject to restrictions
set forth in the California Banking Law and regulations of the FDIC.
The payment of dividends by a state bank is further restricted by
additional provisions of state law. Under Section 642 of the California
Financial Code, funds available for cash dividend payments by a bank are
restricted to the lesser of: (i) retained earnings; or (ii) the bank's net
income for its three fiscal years (less any distributions to stockholders made
during such period). However, under Section 643 of the California Financial
Code, with the prior approval of the Superintendent, a bank may pay cash
dividends in an amount not to exceed the greater of the: (1) retained earnings
of the bank; (2) net income of the bank for its last fiscal year; or (3) net
income of the bank for its current fiscal year. However, if the Superintendent
finds that the stockholders' equity of the bank is not adequate or that the
payment of a dividend would be unsafe or unsound, the Superintendent may order
such bank not to pay a dividend to stockholders. Currently, it is permissible
for the Bank to pay cash dividends without the Superintendent's prior approval.
Additionally, under FDICIA, a bank may not make any capital
distribution, including the payment of dividends, if after making such
distribution the bank would be in any of the "under-capitalized" categories
under the FDIC's Prompt Corrective Action regulations.
Also, under the Financial Institution's Supervisory Act, the FDIC also
has the authority to prohibit a bank from engaging in business practices which
the FDIC considers to be unsafe or unsound. It is possible, depending upon the
financial condition of a bank and other factors, that the FDIC could assert that
the payment of dividends or other payments in some circumstances might be such
an unsafe or unsound practice and thereby prohibit such payment.
FDIC INSURANCE ASSESSMENTS
The FDIC has established several mechanisms to increase funds to
protect deposits insured by the Bank Insurance Fund ("BIF") administered by the
FDIC. The FDIC is authorized to borrow up to $30 billion from the U.S.
Treasury; borrow from the Federal Financing Bank up to 90% of the fair market
value of assets of institutions acquired by the FDIC as receiver; and borrow
from depository institutions that are members of the BIF. Any borrowings not
repaid by asset sales are to be repaid through insurance premiums assessed to
member institutions. Such premiums must be sufficient to repay any borrowed
funds within 15 years and provide insurance fund reserves of $1.25 for each $100
of insured deposits. The BIF now has reserves of $1.25 for each $100 of insured
deposits. FDICIA also provides authority for special assessments against
insured deposits.
12
<PAGE>
As required by FDICIA, the FDIC has adopted a risk-based assessment
system for deposit insurance premiums. Under this system, depository
institutions are charged anywhere from 0 cents to 27 cents for every $100 in
insured domestic deposits, based on such institutions' capital levels and
supervisory subgroup assignment subject to a minimum $2,000 annual assessment
for all institutions regardless of their supervisory subgroup classification.
The FDIC's rules set forth which supervisory subgroup assignments are made by
the FDIC, the assessment classification review procedure, provide for the
assignment of new institutions to the "well-capitalized" assessment group,
set forth an institution is to make timely adjustments as appropriate, and
set forth the basis, and report data, on which capital group assignments are
made for insured branches of foreign banks, and expressly address the
treatment of certain lifeline accounts for which special assessment treatment
is given. FDICIA prohibits assessment rates from falling below the current
annual assessment rate of 23 cents per $100 of eligible deposits if the FDIC
has outstanding borrowings from the United States Treasury Department or the
1.25% designated reserve ratio has not been met. The BIF has reached the
1.25% reserve ratio.
INTERSTATE BANKING AND BRANCHING
On September 29, 1994, the Reigle/Neal Interstate Banking and
Branching Efficiency Act of 1994 (the "Interstate Act") was signed into law.
This Interstate Act effectively permits nationwide banking. The Interstate Act
provides that one year after enactment, adequately capitalized and adequately
managed bank holding companies may acquire banks in any state, even in those
jurisdictions that currently bar acquisition by out-of-state institutions,
subject to deposit concentration limits. The deposit concentration limits
provide that regulatory approval by the Federal Reserve Board may not be granted
for a proposed interstate acquisition if after the acquisition, the acquiror on
a consolidated basis would control more than 10% of the total deposits
nationwide or would control more than 30% of deposits in the state where the
acquiring institution is located. The deposit concentration state limit does
not apply for initial acquisitions in a state and in every case, may be waived
by the state regulatory authority. Interstate acquisitions are subject to
compliance with the Community Reinvestment Act ("CRA"). States are permitted to
impose age requirements not to exceed five years on target banks for interstate
acquisitions.
Branching between states may be accomplished either by merging
separate banks located in different states into one legal entity, or by
establishing de novo branches in another state. Consolidation of banks is not
permitted until June 1, 1997 provided that the state has not passed legislation
"opting-out" of interstate branching. If a state opts-out prior to June 1,
1997, then banks located in that state may not participate in interstate
branching. A state may opt-in to interstate branching by bank consolidation or
by de novo branching by passing appropriate legislation earlier than June 1,
1997. California has passed legislation to opt-in to this legislation.
Interstate branching is also subject to a 30% statewide deposit concentration
limit on a
13
<PAGE>
consolidated basis, and a 10% nationwide deposit concentration limit. The laws
of the host state regarding community reinvestment, fair lending, consumer
protection (including usury limits) and establishment of branches shall apply to
the interstate branches.
De novo branching by an out-of-state bank is not permitted unless the
host state expressly permits de novo branching by banks from out-of-state. The
establishment of an initial de novo branch in a state is subject to the same
conditions as apply to initial acquisition of a bank in the host state other
than the deposit concentration limits.
Effective one year after enactment, the Interstate Act permits bank
subsidiaries of a bank holding company to act as agents for affiliated
depository institutions in receiving deposits, renewing time deposits, closing
loans, servicing loans and receiving payments on loans and other obligations. A
bank acting as agent for an affiliate shall not be considered a branch of the
affiliate. Any agency relationship between affiliates must be on terms that are
consistent with safe and sound banking practices. The authority for an agency
relationship for receiving deposits includes the taking of deposits for an
existing account but is not meant to include the opening or origination of new
deposit accounts. Subject to certain conditions, insured saving associations
which were affiliated with banks as of June 1, 1994, may act as agents for such
banks. An affiliate bank or saving association may not conduct any activity as
an agent which such institution is prohibited from conducting as principal.
If an interstate bank decides to close a branch located in a low-or
moderate-income area, it must comply with additional branch closing notice
requirements. The appropriate regulatory agency is authorized to consult with
community organizations to explore options to maintain banking services in the
affected community where the branch is to be closed.
To ensure that interstate branching does not result in taking deposits
without regard to a community's credit needs, the regulatory agencies are
directed to implement regulations prohibiting interstate branches from being
used as "deposit production offices." The regulations to implement this
provision are due by June 1, 1997. The regulations must include a provision to
the effect that if loans made by an interstate branch are less than fifty
percent of the average of all depository institutions in the state, then the
regulator must review the loan portfolio of the branch. If the regulator
determines that the branch is not meeting the credit needs of the community, it
has the authority to close the branch and to prohibit the bank from opening new
branches in the state.
The Caldera, Weggeland and Killea California Interstate Banking and
Branching Act of 1995, effective October 2, 1995, (the "Caldera Act") amends the
California Financial Code to, among other matters, regulate the operations of
state banks to eliminate conflicts with and to implement the Riegle-Neal
Interstate Banking and Branching
14
<PAGE>
Efficiency Act of 1994 discussed above. The Caldera Act includes (1) an
election to permit early interstate merger transactions; (2) a prohibition
against interstate branching through the acquisition of a branch business unit
located in California without acquisition of the whole business unit of the
California bank; and (3) a prohibition against interstate branching through de
novo establishment of California branch offices. The Caldera Act mandates that
initial entry into California by an out-of-state institution be accomplished by
acquisition of or merger with an existing whole bank which has been in existence
for at least five years.
COMMUNITY REINVESTMENT ACT
In October 1994, the federal financial institution regulatory agencies
proposed a comprehensive revision of their regulations implementing the
Community Reinvestment Act ("CRA"), enacted in 1977 to promote lending by
financial institutions to individuals and businesses located in low and moderate
income areas. In May 1995, the proposed CRA regulations were published in final
form effective as of July 1, 1995. The revised regulations included
transitional phase-in provisions which generally require mandatory compliance
not later than July 1, 1997, although earlier voluntary compliance is
permissible. Under the former CRA regulations, compliance was evaluated by an
assessment of the institution's methods for determining, and efforts to meet,
the credit needs of such borrowers. This system was highly criticized by
depository institutions and their trade groups as subjective, inconsistent and
burdensome, and by consumer representatives for its alleged failure to
aggressively penalize poor CRA performance by financial institutions. The
revised CRA regulations emphasize an assessment of actual performance rather
than of the procedures followed by a bank, to evaluate compliance with the CRA.
Overall CRA compliance continues to be rated across a four-point scale from
"outstanding" to "substantial noncompliance," and continues to be a factor in
review of applications to merge, establish new branches or form bank holding
companies. In addition, any bank rated in "substantial noncompliance" with the
revised CRA regulations may be subject to enforcement proceedings.
The regulations provide that "small banks", which are defined to
include any independent bank with total assets of less than $50 million, are to
be evaluated by means of a so-called "streamlined assessment method" unless such
a bank elects to be evaluated by one of the other methods provided in the
regulations. The differences between the evaluation methods may be summarized
as follows:
(1) The "streamlined assessment method" presumptively applicable to
small banks requires that a bank's CRA compliance be evaluated pursuant to five
"assessment criteria," including its (i) loan-to-deposit ratio (as adjusted for
seasonal variations and other lending-related activities, such as sales to the
secondary market or community development lending); (ii) percentage of loans and
other lending-related activities in the bank's service area(s); (iii)
distribution of loans and other lending-related activities among borrowers of
different income levels, given the demographic characteristics of its service
15
<PAGE>
area(s); (iv) geographic distribution of loans and other lending-related
activities within its service area(s); and (v) record of response to written
complaints, if any, about its CRA performance.
(2) The "lending, investments and service tests method" is applicable
to all banks larger than $250 million which are not wholesale or limited purpose
banks and do not elect to be evaluated by the "strategic plan assessment
method." Central to this method is the requirement that such banks collect and
report to their primary federal banking regulators detailed information
regarding home mortgage, small business and farm and community development loans
which is then used to evaluate CRA compliance. At the bank's option, data
regarding consumer loans and any other loan distribution it may choose to
provide also may be collected and reported.
Using such data, a bank will be evaluated regarding its (i) lending
performance according to the geographic distribution of its loans, the
characteristics of its borrowers, the number and complexity of its community
development loans, the innovativeness or flexibility of its lending practices to
meet low and moderate income credit needs and, at the bank's election, lending
by affiliates or through consortia or third-parties in which the bank has an
investment interest; (ii) investment performance by measure of the bank's
"qualified investments," that is, the extent to which the bank's investments,
deposits, membership shares in a credit union, or grants primarily to benefit
low or moderate income individuals and small businesses and farms, address
affordable housing or other needs not met by the private market, or assist any
minority or women-owned depository institution by donating, selling on favorable
terms or provisioning on a rent-free basis any branch of the bank located in a
predominately minority neighborhood; and (iii) service performance by evaluating
the demographic distribution of the bank's branches and ATMs, its record of
opening and closing them, the availability of alternative retail delivery
systems (such as telephone banking, banking by mail or at work, and mobile
facilities) in low and moderate income geographies and to low and moderate
income individuals, and (given the characteristics of the bank's service area(s)
and its capacity and constraints) the extent to which the bank provides
"community development services" (services which primarily benefit low and
moderate income individuals or small farms and businesses or address affordable
housing needs not met by the private market) and their innovativeness and
responsiveness.
(3) Wholesale or limited purpose banks which do not make home
mortgage, small farm or business or consumer loans to retail customers may
elect, subject to agency approval of their status, to be evaluated by the
"community development test method," which assesses the number and amount of the
bank's community development loans, qualified investments and community
development services and their innovativeness and complexity.
(4) Any bank may request to be evaluated by the "strategic plan
assessment method" by submitting a strategic plan for review and approval. Such
a plan must
16
<PAGE>
involve public participation in its preparation, and contain measurable goals
for meeting low and moderate income credit needs through lending, investments
and provision of services. Such plans generally will be evaluated by measuring
strategic plan goals against standards similar to those which will be applied in
evaluating a bank according to the "lending, investments and service test
method."
The federal financial institution regulatory agencies issued a final
rule effective as of January 1, 1996 to make certain technical corrections to
the revised CRA regulations. Among other matters, the rule clarifies the
transition from the former CRA regulations to the revised CRA regulations by
confirming that when an institution either voluntarily or mandatorily becomes
subject to the performance tests and standards of the revised regulations, the
institution must comply with all of the requirements of the revised regulations
and is no longer subject to the provisions of the former CRA regulations.
INTER-COMPANY BORROWINGS
Bank holding companies are also restricted as to the extent to which
they and their subsidiaries can borrow or otherwise obtain credit from one
another, or engage in certain other transactions. The "covered transactions"
that an insured depository institution and its subsidiaries are permitted to
engage in with their nondepository affiliates are limited to the following
amounts: (1) in the case of any one such affiliate, the aggregate amount of
covered transactions of the insured depository institution and its subsidiaries
cannot exceed 10% of the capital stock and the surplus of the insured depository
institution; and (ii) in the case of all affiliates, the aggregate amount of
covered transactions of the insured depository institution and its subsidiaries
cannot exceed 20% of the capital stock and surplus of the insured depository
institution. In addition, extensions of credit that constitute covered
transactions must be collateralized in prescribed amounts.
"Covered transactions" are defined by statute to include a loan or
extension of credit to the affiliate, a purchase of securities issued by an
affiliate, a purchase of assets from the affiliate (unless otherwise exempted by
the Federal Reserve Board), the acceptance of securities issued by the affiliate
as collateral for a loan and the issuance of a guarantee, acceptance, or letter
of credit for the benefit of an affiliate. Further, a bank holding company and
its subsidiaries are prohibited from engaging in certain tie-in arrangements in
connection with any extension of credit, lease or sale of property or furnishing
of services.
IMPACT OF MONETARY POLICIES
Banking is a business which depends on interest rate differentials. In
general, the difference between the interest paid by a bank on its deposits and
other borrowings, and the interest rate earned by banks on loans, securities and
other interest-earning assets comprises the major source of banks' earnings.
Thus, the earnings and growth of banks
17
<PAGE>
are subject to the influence of economic conditions generally, both domestic and
foreign, and also to the monetary and fiscal policies of the United States and
its agencies, particularly the FRB. The FRB implements national monetary
policy, such an seeking to curb inflation and combat recession, by its
open-market dealings in United States government securities, by adjusting the
required level of reserves for financial institutions subject to reserve
requirements and through adjustments to the discount rate applicable to
borrowings by banks which are members of the FRB. The actions of the FRB in
these areas influence the growth of bank loans, investments and deposits and
also affect interest rates. The nature and timing of any future changes in such
policies and their impact on Coast cannot be predicted. In addition, adverse
economic conditions could make a higher provision for loan losses a prudent
course and could cause higher loan loss charge-offs, thus adversely affecting a
bank's net earnings.
ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has recently issued SFAS
No. 125, "Accounting for Tranfers and Servicing of Financial Assets and
Extinguishments of Liabilities" effective for transactions occurring after
December 31, 1996. SFAS No. 125 requires that an asset seller
must meet defined conditions to demonstrate that it has surrendered control
over the assets. The failure to meet these conditions usually results in
on-balance sheet treatment for the assets and a liability for the sale
proceeds received. SFAS No. 125 also requires that contracts to service are
recorded as an asset or a liability based on fair value or on an allocation of
the carrying amount of the financial asset. SFAS 125 covers subsequent
accounting, including impairments, and eliminates the distinction between
excess and normal servicing. The Company does not believe that adoption of
this standard will have a significant impact on its financial position or
results of operations.
18
<PAGE>
GENERAL
There has been no material effect upon the Company's capital
expenditures, earnings, or competitive position as a result of federal, state or
local provisions regarding the discharge of materials into the environment.
At June 30, 1996, the Company employed one hundred seventeen (117)
persons including forty (40) part-time employees, four (4) executive officers
and twenty-seven (27) other Vice Presidents and Assistant Vice Presidents. None
of the Company's employees is presently represented by a union or covered under
a collective bargaining agreement. Management of the Bank believes that its
employee relations are excellent.
ITEM 2. SELECTED FINANCIAL DATA
Presented below is selected financial data for the Company for the
last five years and the periods ended June 30, 1996 and 1995. The Company
became the bank holding company for the Bank on July 25, 1995.
The selected consolidated financial data presented below for, and as
of the end of, each of the years in the five-year period ended December 31, 1995
is derived from the audited consolidated financial statements of the Company.
The selected consolidated financial data presented below as of and for the six
month periods ended June 30, 1995 and 1996 have been derived from unaudited
interim consolidated financial statements and the accounting records of the
Company. In the opinion of management, such unaudited interim consolidated
financial statements include all adjustments necessary to fairly state the
information set forth therein. The following data should be read in
conjunction with the consolidated financial statements, related notes and
other financial information included herein and management's discussion and
analysis of financial condition and results of operations.
<TABLE>
<CAPTION>
JUNE 30, December 31,
-------------------------- ---------------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands, except per share information)
INCOME STATEMENT
SUMMARY:
Net interest income $ 6,555 $ 5,833 $ 12,366 $ 9,936 $ 8,953 $ 7,770 $ 7,183
Provision for credit
losses 450 450 900 600 850 528 540
Noninterest income 2,407 1,786 3,558 4,044 5,184 3,892 3,207
Noninterest expense 5,090 4,883 9,855 9,463 8,895 7,591 6,423
Income before taxes 3,422 2,286 5,169 3,917 4,392 3,543 3,427
Income tax expense 1,354 884 2,020 1,479 1,731 1,371 1,343
Net income 2,068 1,402 3,149 2,438 2,661 2,172 2,084
- - ----------------------------------------------------------------------------------------------------------------------------------
PERIOD END:
Total loans, gross $ 118,871 $ 95,883 $ 106,840 $ 97,648 $ 92,488 $ 100,731 $ 88,073
Assets 213,712 184,525 207,668 175,861 153,129 148,244 129,620
Deposits 165,544 153,103 164,046 152,130 135,573 132,785 116,164
Stockholders' equity 21,192 19,674 20,984 17,710 16,280 13,776 12,002
- - ----------------------------------------------------------------------------------------------------------------------------------
AVERAGES FOR PERIOD:
Total loans, gross $112,287 $96,757 99,842 94,273 99,319 95,826 87,114
Earning assets 192,765 156,117 167,089 144,093 138,945 120,560 105,872
Assets 209,873 174,560 184,977 161,686 155,490 137,281 120,224
Deposits 164,357 144,326 151,888 143,195 138,738 123,306 108,306
Stockholders' equity 21,174 18,669 19,538 17,113 15,165 12,711 10,418
- - ----------------------------------------------------------------------------------------------------------------------------------
SELECTED RATIOS:
Net interest margin* 6.8% 7.5% 7.4% 6.9% 6.4% 6.4% 6.8%
Efficiency ratio* 56.8% 64.1% 61.9% 67.7% 62.9% 65.1% 61.8%
Allowance for credit
losses to total loans 2.5% 2.2% 2.3% 1.9% 1.9% 1.6% 1.5%
Return on average
assets * 2.0% 1.6% 1.7% 1.5% 1.7% 1.6% 1.7%
Return on beginning
stockholders' equity * 19.7% 15.8% 17.8% 15.0% 19.3% 18.1% 22.7%
- - ----------------------------------------------------------------------------------------------------------------------------------
CAPITAL RATIOS:
Average equity to
average assets 10.1% 10.7% 10.6% 10.6% 9.8% 9.3% 8.7%
Total risk-based capital
ratio 16.5% 17.6% 17.0% 15.4% 16.1% 13.0%
Tier 1 risk-based
capital ratio 15.2% 16.3% 15.8% 14.2% 14.9% 11.8%
Tier 1 leverage ratio 10.1% 11.0% 10.2% 10.9% 11.1% 9.4%
- - ----------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA:
Net income $ .92 $ .62 $ 1.38 $ 1.07 $ 1.17 $ 0.95 $ 0.92
Book value $ 9.59 $ 8.64 $ 9.29 $ 7.78 $ 7.15 $ 6.05 $ 5.36
Cash dividends
declared $ .20 $ .18 $ 0.36 $ 0.30 $ 0.15 - -
Weighted average
common shares
outstanding 2,235,856 2,277,999 2,280,285 2,277,999 2,277,999 2,277,999 2,277,999
- - ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
BUSINESS ORGANIZATION
Coast Bancorp (the Company) is a California corporation organized in 1995 to act
as the holding company for Coast Commercial Bank (the Bank), a
California-chartered, FDIC-insured commercial bank opened in 1982 with
headquarters in Santa Cruz and branch offices in Aptos, Santa Cruz, Scotts
Valley and Watsonville. During 1995 the Company acquired through merger all the
outstanding common stock of the Bank. The merger was accounted for similar to a
pooling of interests in that the historical cost basis of Coast Commercial Bank
has been carried forward. The Company currently conducts no significant
business activities other than its investment in the Bank. Consequently,
substantially all of the Company's net income, assets and equity are derived
from its investment in the Bank.
The Bank engages in commercial and consumer banking, offering a range of
traditional banking products and services to individuals, retailers, small and
medium-sized businesses and professionals, primarily within the Santa Cruz
County area.
The following analysis is designed to enhance the reader's understanding of the
Company's financial condition and the results of its operations as reported in
the consolidated financial statements included in this Form. This discussion
should be read in conjunction with those financial statements and notes.
YEARS ENDED DECEMBER 31, 1995, 1994, 1993
OVERVIEW
The Company earned net income of $3,149,000 for the year ended December 31,
1995 representing an increase of 29% from 1994 net income of $2,438,000. Net
income reported for 1994 represented a decrease of 8% from 1993 net income of
$2,661,000. On a per share basis, net income for 1995 was $1.38 compared
with $1.07 and $1.17 for the preceding two years. The improvement of net
income in 1995 over 1994 was due to an increase in net interest income
partially offset by increases in the provision for credit losses and
noninterest expenses and a decrease in noninterest income. The decrease in
1994 was due to the decline in noninterest income and increases in
noninterest expenses exceeding the increase in net interest income and
decrease in the provisions for credit losses.
EARNINGS SUMMARY
NET INTEREST INCOME
Net interest income refers to the difference between interest and fees earned on
loans and investments and the interest paid on deposits and other borrowed
funds. It is the largest component of the net earnings of a financial
institution. The primary factors to consider in analyzing net interest income
are the composition and volume of earning assets and interest-bearing
liabilities, the amount of noninterest bearing liabilities and nonaccrual loans,
and changes in market interest rates.
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<PAGE>
Table I sets forth average balance sheet information , interest income and
expense, average yields and rates, and net interest income and net interest
margin for the years ended December 31, 1995, 1994 and 1993.
<TABLE>
<CAPTION>
Table 1 Components of Net Interest Income
Years ended December 31, 1995 1994 1993
-------------------------------- ---------------------------- ----------------------------
Average Average Average Average Average Average
(Dollars in thousands) Balance Interest Rate Balance Interest Rate Balance Interest Rate
---------- -------- ------- ------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Loans (2) (3) $ 99,842 $ 11,804 11.8% $ 94,273 $ 9,961 10.6% $ 99,319 $ 9,901 10.0%
Investment Securities:
Taxable 49,026 3,284 6.7% 33,830 1,666 4.9% 26,315 1,206 4.6%
Nontaxable (1) 6,453 546 8.5% 6,872 580 8.4% 5,083 465 9.1%
Federal funds sold 11,768 671 5.7% 9,118 368 4.0% 8,228 238 2.9%
--------------------------------- ---------------------------- ----------------------------
Total earning assets 167,089 16,305 9.8% 144,093 12,575 8.7% 138,945 11,810 8.5%
Cash and due from banks 13,107 12,626 10,772
Allowance for credit losses (2,135) (1,835) (1,851)
Unearned income (1,606) (1,387) (817)
Bank premises and equipment, 2,691 3,152 3,697
net
Other assets 5,831 5,037 4,744
---------- --------- ---------
Total assets $ 184,977 $ 161,686 $ 155,490
---------- --------- ---------
---------- --------- ---------
Interest-bearing liabilities:
Deposits:
Demand $ 74,907 1,577 2.1% $ 73,122 1,450 2.0% $ 71,163 1,537 2.2%
Savings 16,854 431 2.6% 18,327 446 2.4% 14,261 383 2.7%
Time 19,019 962 5.1% 16,590 546 3.3% 23,209 779 3.4%
-------------------------------- ----------------------------- -----------------------------
Total deposits 110,780 2,970 2.7% 108,039 2,442 2.3% 108,633 2,699 2.5%
Borrowed funds 11,537 783 6.8% 22 - - - - -
-------------------------------- ----------------------------- -----------------------------
Total interest-bearing liabilities 122,317 3,753 3.1% 108,061 2,442 2.3% 108,633 2,699 2.5%
Demand deposits 41,180 35,156 30,147
Other liabilities 1,942 1,356 1,545
Stockholders' equity 19,538 17,113 15,165
----------- --------- ---------
Total liabilities and stockholders'
equity $ 184,977 $ 161,686 $ 155,490
----------- --------- ---------
----------- --------- ---------
Net interest income and margin $ 12,552 7.5% $ 10,133 7.0% $ 9,111 6.6%
--------------------- ------------------ -----------------
--------------------- ------------------ -----------------
</TABLE>
(1) Tax exempt income includes $186,000, $197,000 and $158,000 in 1995, 1994
and 1993, respectively, to adjust to a fully taxable equivalent basis using the
Federal statutory rate of 34%.
(2) Loan fees totaling $991,000, $1,031,000 and $1,083,000 are included in loan
interest income for the years 1995, 1994 and 1993, respectively.
(3) Average nonaccrual loans totaling $883,000, $1,085,000 and $713,000 are
included in average loans for the years 1995, 1994 and 1993, respectively.
-20-
<PAGE>
Net interest income is affected by changes in the amount and mix of
interest-earning assets and interest-bearing liabilities, referred to as "volume
change." Net interest income is also affected by changes in yields earned on
interest-earning assets and rates paid on interest-bearing liabilities, referred
to as "rate change." Table 2 presents changes in interest income and interest
expense for each major category of interest-earning assets and interest-bearing
liabilities. The table also reflects the amount of change attributable to
volume and rate changes for the years indicated.
<TABLE>
<CAPTION>
Table 2 Rate/Volume Analysis
(Dollars in thousands) 1995 Compared to 1994 1994 Compared to 1993
Increase(Decrease) Due To Increase(Decrease) Due To
Change In Change In
-------------------------- --------------------------
Net Net
Volume Rate Change Volume Rate Change
------ ------ ------ ------ ---- ------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $ 588 $ 1,255 $ 1,843 $(503) $ 563 $ 60
Investment securities 815 769 1,584 495 80 575
Federal funds sold 107 196 303 26 104 130
--------------------------- ---------------------------
Total interest income 1,510 2,220 3,730 18 747 765
Interest bearing deposits:
Demand 36 91 127 42 (129) (87)
Savings (36) 21 (15) 109 (46) 63
Time 84 332 416 (225) (9) (234)
--------------------------- ---------------------------
Interest expense on deposits 84 444 528 (74) (184) (258)
Interest expense on borrowings 783 783
--------------------------- ---------------------------
Total interest expense 867 444 1,311 (74) (184) (258)
--------------------------- ---------------------------
Increase in
net interest income $ 643 $ 1,776 $ 2,419 $ 92 $ 931 $ 1,023
-------------------------- ----------------------------
-------------------------- ----------------------------
</TABLE>
Net interest income, on a fully taxable-equivalent basis, totaled $12,552,000 in
1995 or 7.5% of average earning assets, an increase of 24% over $10,133,000 or
7.0% of average earning assets in 1994. The increase in 1995 is primarily
attributable to increased average earning assets and increased yields on loans
corresponding generally with rising market interest rates over 1994. Net
interest income reported in 1994 represented an increase of $1,023,000 or 11%
from $9,111,000 in 1993 reflecting increased yields on loans corresponding
generally with rising market interest rates over 1994 and increased average
earning assets.
-21-
<PAGE>
Interest income, on a fully taxable-equivalent basis, for 1995 was $16,305,000
compared to $12,575,000 and $11,810,000 for 1994 and 1993, respectively. The
significant increase in 1995 is due primarily to the increased yields and growth
in average earning assets. Loan yields averaged 11.8% in 1995 compared to 10.6%
in 1994 and 10.0% in 1993 and generally reflect the increase in market rates
from the cyclical lows in 1993. Approximately 89% of the Bank's loans have
variable interest rates indexed to the prime rate. The Bank's average prime
rate was 8.83%, 7.36% and 6.50% in 1995, 1994 and 1993, respectively. Average
earning assets were $167,089,000 in 1995 representing a $22,996,000 increase, or
16% over $144,093,000 in 1994. The growth in average earning assets resulted
from increased levels of deposits and borrowings which were invested primarily
in investment securities and loans.
The increase in interest income, on a fully taxable-equivalent basis, of
$3,730,000 in 1995 was partially offset by an increase in interest expense of
$1,311,000. The increase was primarily due to higher rates paid on time deposit
accounts, in response to competition from other financial institutions and money
market mutual funds. The decrease in interest expense in 1994 to $2,442,000
from $2,699,000 in 1993 reflects declining rates paid and a shifting of funds
from time deposits to lower yielding savings and interest-bearing demand.
Declining market rates during 1993 compressed the interest rate spread between
time deposits and savings rates resulting in customers moving into the more
liquid savings and interest-bearing demand accounts. During 1995, the average
rate paid on interest bearing deposits was 2.7% compared with 2.3% in 1994 and
2.5% in 1993.
NONINTEREST INCOME
Noninterest income decreased to $3.6 million in 1995 compared to $4.0 million in
1994 and $5.2 million in 1993. Table 3 summarizes the sources of noninterest
income for the years indicated:
<TABLE>
<CAPTION>
Table 3 - Noninterest Income 1995 1994 1993
(Dollars in thousands) ---------- --------- ---------
<S> <C> <C> <C>
Customer service fees $1,527 $1,501 $1,440
Gain on sale of loans 678 1,174 2,418
Loan servicing fees 875 793 664
Gain on sale of other real estate owned 65 163 50
Gain on sale of bank premises and equipment 13 7 208
Gains (losses) on securities transactions (48) 1 59
Other 448 405 345
---------- ---------- ----------
Total noninterest income $3,558 $4,044 $5,184
---------- ---------- ----------
</TABLE>
The decreases in 1995 and 1994 resulted from a decline in premiums on the sale
of SBA loans, related to changes in guarantee programs of the SBA. Customer
service fees, loan servicing fees and other noninterest income increased
consistent with the growth of deposits and loans serviced for others.
-22-
<PAGE>
NONINTEREST EXPENSE
The major components of noninterest expense stated in dollars and as a
percentage of average earning assets are set forth in Table 4 for the years
indicated.
<TABLE>
<CAPTION>
Table 4 - Noninterest Expense
(Dollars in thousands) 1995 1994 1993
----------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Salaries and Benefits $5,009 3.00% $4,658 3.23% $4,403 3.17%
Equipment 1,043 0.62% 1,072 0.74% 965 0.69%
Occupancy 904 0.54% 903 0.63% 913 0.66%
Insurance 280 0.17% 463 0.32% 388 0.28%
Stationery and Postage 278 0.17% 290 0.20% 312 0.22%
Legal Fees 200 0.12% 148 0.10% 97 0.07%
Other 2,044 1.22% 1,838 1.28% 1,799 1.29%
----------------- ----------------- -------------------
Total Excluding OREO 9,758 5.84% 9,372 6.50% 8,877 6.39%
Cost of OREO 97 0.06% 91 0.06% 18 0.01%
----------------- ----------------- -------------------
Total Noninterest Expense $9,855 5.90% $9,463 6.56% $8,895 6.40%
----------------- ----------------- -------------------
----------------- ----------------- -------------------
</TABLE>
Total noninterest expense increased $392,000 or 4% to $9,855,000 in 1995 over
1994 and increased $568,000 or 6% to $9,463,000 in 1994 over 1993.
The $392,000 increase in 1995 was primarily related to higher staff costs and an
increase in other noninterest expenses partially offset by reductions in FDIC
insurance premiums. The FDIC reduced insurance premiums as the Bank Insurance
Fund reached full funding during 1995. The $568,000 increase in 1994 was due to
increases in compensation, equipment, insurance, legal fees, OREO and other
noninterest expenses offset by decreases in the remaining categories of
noninterest expense.
INCOME TAXES
The Company's effective tax rate was 39.1% for 1995 compared to 37.8% for 1994
and 39.4 % for 1993. Changes in the effective tax rate for the Company are
primarily due to fluctuations in the proportion of tax exempt income generated
from investment securities to pre-tax income.
BALANCE SHEET ANALYSIS
Total assets increased to $207.7 million in 1995, an 18% increase from the
$175.9 million a year earlier compared to an increase of 15% from $153.1
million in 1993. Based on average balances, 1995 average total assets of $185.0
million represent an increase of 14% over 1994 and 1994 average total assets of
$161.7 million increased 4% over 1993 average total assets of $155.5 million.
EARNING ASSETS
LOANS
-23-
<PAGE>
Total gross loans increased 9% to $106.8 million at December 31, 1995 compared
to $97.6 million at December 31, 1994, which was 6% above $92.5 million at
December 31, 1993.
Table 5 summarizes the composition of the loan portfolio at December 31, for the
past five years.
<TABLE>
<CAPTION>
Table 5 Loans By Type 1995 1994 1993 1992 1991
(Dollars in thousands) ------------- -------------- ------------ -------------- -----------
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural $ 34,263 $ 32,294 $ 36,047 $ 49,288 $ 38,553
Installment and other 7,989 8,437 7,661 8,711 9,482
Real estate mortgage 50,580 41,200 33,221 29,047 21,533
Real estate construction 14,008 15,717 15,559 13,685 18,505
------------- -------------- ------------ -------------- -----------
Total loans $106,840 $ 97,648 $ 92,488 $100,731 $ 88,073
------------- -------------- ------------ -------------- -----------
------------- -------------- ------------ -------------- -----------
</TABLE>
Average loans in 1995 were $99,842,000 representing an increase of $5,569,000,
or 6% over 1994. The 1995 increase over 1994 reflected growth in average real
estate loans which in the opinion of the Company is due to improved local
economic conditions. Average loans of $94,273,000 in 1994 decreased $5,046,000,
or 5% from $99,319,000 in 1993. The decrease in average loans outstanding in
1994 was due to a decrease in commercial loan demand by qualified borrowers in
the Bank's service area.
Real estate mortgage loans were $50,580,000 at December 31,1995 compared to
$41,200,000 and $35,812,000 at the end of 1994 and 1993, respectively. The
increases of $9,380,000 in 1995 and $5,388,000 in 1994 resulted from the
retained portion of SBA loans and additional loan demand for nonresidential real
estate financing in the Bank's market area. Extensions of credit are based on
an analysis of the borrower's ability to generate debt service, obtain other
financing or sell the property. Advances on nonresidential properties are
limited in general to approximately 70% of the lower of cost or appraised
value.
The Bank's construction loan portfolio was $14,008,000 at December 31, 1995,
compared to $15,717,000 and $15,559,000 at the end of 1994 and 1993,
respectively. Construction loans represented 13% of total loans at December 31,
1995 compared to 16% and 17% in 1994 and 1993. The Bank finances the
construction of commercial and residential properties. These loans are at
variable rates, generally have maturities of less than 12 months, and are
secured by first deeds of trust on the underlying properties. Repayment is
based on an analysis of the borrower's ability to obtain take-out financing or
sell the property. Advances on residential and commercial projects are limited
in general to the lower of approximately 80% and 70%, respectively, of cost or
appraised value of the collateral.
-24-
<PAGE>
Commercial loans were $34,263,000 at the end of 1995 compared to $32,294,000 and
$36,047,000 at the end of 1994 and 1993, respecitvely. The Bank makes
commercial loans available to serve the credit demands of small-to-medium sized
businesses for lines of credit, single payment and term debt obligations.
Typically, loans are collateralized by the working capital, inventory,
receivables, or equipment being financed or other assets available to the
borrower.
Installment loans were $7,989,000 compared to $8,437,000 and $7,661,000 at the
end of 1995, 1994, and 1993, respectively. The installment loan portfolio
finances customers' household, family and other personal expenditures on both a
secured and unsecured basis.
Risk Elements
Lending money involves an inherent risk of nonpayment. Through the
administration of loan policies and monitoring of the portfolio, management
seeks to reduce such risks. The allowance for credit losses is an estimate to
provide a financial buffer for losses, both identified and unidentified, in the
loan portfolio.
Management strives to achieve a low level of credit losses by continuing
emphasis on credit quality in the loan approval process, active credit
administration and regular monitoring. An important tool in achieving a high
level of credit quality is the loan grading system to assess the risk inherent
in each loan. Additionally, management believes its ability to manage portfolio
credit risk is enhanced by lending personnel's knowledge of the Bank's service
area. Lending personnel live in the communities served by the Bank and senior
management and directors of the Company and Bank are active members of the
communities served by the Bank. Further, senior management of the Bank has
experienced minimal turnover since the inception of the Bank in 1982.
Ultimately, credit quality may be influenced by underlying trends in the
economic and business cycles. Management believes that its lending policies and
underwriting standards will tend to minimize losses in an economic downturn,
however, there is no assurance that losses will be limited under such
circumstances. The Bank's loan policies and underwriting standards include, but
are not limited to, the following: 1) maintaining a thorough understanding of
the Bank's service area and limiting investments outside of this area, 2)
maintaining a thorough understanding of the borrowers' knowledge and capacity in
their field of expertise, 3) basing real estate construction loan approval not
only on marketability of the project, but also on the borrowers' capacity to
support the project financially in the event it does not sell within the
original projected time period, and 4) maintaining conforming and prudent loan
to value and loan to cost ratios based on independent outside appraisals and
ongoing inspection and analysis by the Bank's construction lending officers. In
addition, the Bank strives to diversify the risk inherent in the construction
portfolio by avoiding concentrations to individual borrowers and on any one
project.
-25-
<PAGE>
Management regularly reviews and monitors the loan portfolio to determine the
risk profile of each credit, and to identify credits whose risk profiles have
changed. This review includes, but is not limited to, such factors as payment
status, the financial condition of the borrower, borrower compliance with loan
convenants, underlying collateral values, potential loan concentrations, and
general economic conditions. Potential problem credits are identified and,
based upon known information, action plans are developed.
Nonaccrual Loans, Loans Past Due and OREO
The accrual of interest is discontinued and any accrued and unpaid interest is
reversed when the payment of principal or interest is 90 days past due unless
the amount is well secured and in the process of collection. Income on such
loans is then recognized only to the extent that cash is received and where the
future collection of principal is probable. At December 31, 1995 nonaccrual
loans totaled $824,000 or .8% of total loans compared to $848,000 or .9% at
December 31, 1994 and $1,427,000 or 1.5% at December 31, 1993.
Table 6 presents the composition of nonperforming assets at December 31 for the
last 5 years.
<TABLE>
<CAPTION>
Table 6 Nonperforming Assets
(dollars in thousands)
December 31, 1995 1994 1993 1992 1991
Nonperforming Assets:
<S> <C> <C> <C> <C> <C>
Loans Past Due 90 Days or More $ 3 -- $ 871 $ 700 $ 78
Nonaccrual Loans 824 $ 848 1,427 -- 95
------------ ----------- ----------- ------------ -----------
Total Nonperforming Loans 827 848 2,298 700 173
OREO 830 1,419 364 875 582
------------ ----------- ----------- ------------ -----------
Total Nonperforming Assets $ 1,657 $ 2,267 $ 2,662 $ 1,575 $ 755
------------ ----------- ----------- ------------ -----------
------------- ----------- ----------- ------------ -----------
Nonperforming Loans as a Percent of Total Loans 0.77% 0.87% 2.48% 0.69% 0.20%
OREO as a Percent of Total Assets 0.40% 0.81% 0.24% 0.59% 0.45%
Nonperforming Assets as a Percent of Total
Assets 0.80% 1.29% 1.74% 1.06% 0.58%
Allowance for Loan Losses $2,478 $1,859 $1,723 $1,572 $1,338
As a Percent of Total Loans 2.32% 1.90% 1.86% 1.56% 1.52%
As a Percent of Nonaccrual Loans 301% 219% 121% -- 1408%
As a Percent of Nonperforming Loans 300% 219% 75% 225% 773%
</TABLE>
-26-
<PAGE>
There were no loans at December 31, 1995 where management had serious doubts
about the borrower's ability to comply with loan repayment terms and which may
result in disclosure as a nonaccrual, past due or restructured loan, except as
disclosed in Table 6.
For a discussion of concentrations in the Company's loan portfolio, see Note 8
of Notes to Consolidated Financial Statements.
PROVISION AND ALLOWANCE FOR CREDIT LOSSES
Management has established an evaluation process designed to determine the
adequacy of the allowance for credit losses. This process attempts to assess
the risk of loss inherent in the portfolio by segregating the allowance for
credit losses into three components: " historical losses;" "specific;" and
"margin for imprecision." The "historical losses" component is calculated as a
function of the prior four years loss experience for commercial, real estate and
consumer loan types. The four years are assigned weightings of 35%, 30%, 20%
and 15% beginning with the most recent year. The "specific" component is
established by allocating a portion of the allowance to individual classified
credits on the basis of specific circumstances and assessments. The "margin for
imprecision" component is an unallocated portion that supplements the first two
components as a conservative margin to guard against unforeseen factors. The
"historical losses" and "specific" components include management's judgment of
the effect of current and forecasted economic conditions on the ability of the
Company's borrowers' to repay; an evaluation of the allowance for credit losses
in relation to the size of the overall loan portfolio; an evaluation of the
composition of, and growth trends within, the loan portfolio; consideration of
the relationship of the allowance for credit losses to nonperforming loans; net
charge-off trends; and other factors. While this evaluation process utilizes
historical and other objective information, the classification of loans and the
establishment of the allowance for credit losses, relies, to a great extent, on
the judgment and experience of management. The Company evaluates the adequacy
of its allowance for credit losses quarterly.
The Financial Accounting Standards Board issued SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan" in 1993 and SFAS No. 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosure" in
1994, both of which were implemented in the first quarter of 1995. SFAS No.
114 requires the Bank to measure impaired loans based upon the present value
of expected future cash flows discounted at the loan's effective interest
rate, except that as a practical expedient, a creditor may measure impairment
based on a loan's observable market price or the fair value of the collateral
if the loan is collateral dependent. A loan is impaired when, based upon
current information and events, it is probable that a creditor will be unable
to collect all amounts due according to the contractual terms of the loan
agreement. SFAS No. 118 amends SFAS No. 114 to allow a creditor to use
existing methods for recognizing interest income on impaired loans and
requires certain information to be disclosed. The recorded investment in
impaired loans at December 31, 1995 was comprised of one loan of $343,000,
which had a related allowance of $69,000. Such allowance is a portion of the
allowance for credit losses. For 1995, the average recorded investment in
impaired loans was $369,000. No interest income was recognized during the
period of impairment.
The allowance for credit losses totaled $2,478,000 or 2.3% of total loans as of
December 31, 1995, compared to $1,859,000 or 1.9% as of December 31, 1994 and
$1,723,000 or 1.9% as of December 31, 1993. It is the policy of management to
maintain the allowance for possible credit losses at a level adequate for known
and future risks inherent in the loan portfolio. Based on information currently
available to analyze loan loss potential, including economic factors, overall
credit quality, historical delinquency and a history of actual charge-offs,
management believes that the loan loss provision and allowance are adequate;
however, no assurance of the ultimate level of credit losses can be given with
any certainty. Loans are charged against the allowance when management believes
that the collectibility of the principal is unlikely. An analysis of activity
in the allowance for credit losses is presented in Table 7.
-27-
<PAGE>
<TABLE>
<CAPTION>
TABLE 7 Allowance for Credit Losses 1995 1994 1993 1992 1991
(Dollars in thousands) ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total Loans Outstanding $ 106,840 $ 97,648 $ 92,488 $100,731 $ 88,073
Average Total Loans 99,842 94,273 99,319 95,826 87,114
Balance, January 1 $ 1,859 $ 1,723 $ 1,572 $ 1,338 $ 1,196
Charge-offs by Loan Category:
Commercial 293 304 295 262 379
Installment and other 108 32 73 60 37
Real Estate construction - 120 400 - -
Real Estate-other - 30 - - -
----------- ----------- ------------ ----------- -----------
Total Charge-Offs 401 486 768 322 416
Recoveries by Loan Category:
Commercial 79 17 67 24 18
Installment and other 25 3 2 4 -
Real Estate construction 16 - - - -
Real Estate-other - 2 - - -
---------- ----------- ----------- ------------ -----------
Total Recoveries 120 22 69 28 18
Net Charge-Offs 281 464 699 294 398
Provision Charged to Expense 900 600 850 528 540
---------- ------------ ----------- ------------ -----------
Balance, December 31 $ 2,478 $ 1,859 $ 1,723 $ 1,572 $ 1,338
---------- ------------ ----------- ------------ -----------
---------- ------------ ----------- ------------ -----------
Ratios:
Net Charge-offs to Average Loans 0.28% 0.49% 0.70% 0.31% 0.46%
Reserve to Total Loans 2.32% 1.90% 1.86% 1.56% 1.52%
</TABLE>
The allowance for credit losses is allocated based upon management's review of
credit quality and is presented in Table 8. This allocation should not be
interpreted as an indication of expected amounts or categories where losses will
occur.
Table 8 Allocation of the Allowance for Credit Losses
(Dollars in thousands)
<TABLE>
<CAPTION>
1995 1994 1993
------------------------- ------------------------- -------------------------
Percent of Percent of Percent of
Amount Total Loans Amount Total Loans Amount Total Loans
---------- ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Commercial $903 32.1% $883 33.1% $1,152 39.0%
Real estate 669 60.4% 592 58.3% 328 52.7%
Installment and other 100 7.5% 87 8.6% 15 8.3%
Unallocated 806 n/a 297 n/a 228 n/a
--------- ------------ ---------- ----------- ---------- ----------
$2,478 100.0% $1,859 100.0% $1,723 100.0%
--------- ------------ ---------- ----------- ---------- ----------
--------- ------------ ---------- ----------- ---------- ----------
<CAPTION>
1992 1991
------------------------- -------------------------
Percent of Percent of
Amount Total Loans Amount Total Loans
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Commercial $646 48.9% $728 43.8%
Real estate 66 42.4% - 45.4%
Installment and other 109 8.7% 96 10.8%
Unallocated 751 n/a 514 n/a
---------- ------------ ------------ ------------
$1,572 100.0% $1,338 100.0%
---------- ------------ ------------ ------------
---------- ------------ ------------ ------------
</TABLE>
-28-
<PAGE>
The allocation for real estate includes real estate construction and other real
estate loans. Management has historically not allocated the allowance for
credit losses separately for real estate construction and other real estate
loans.
OTHER INTEREST-EARNING ASSETS
The average balance of investment securities and federal funds sold increased
$17,427,000 to $67,247,000 in 1995 and $10,195,000 to $49,820,000 in 1994 from
$39,625,000 in 1993. The 1995 increase resulted from deploying additional
liquidity in the investment securities portfolio. Sources of the additional
liquidity were borrowed funds and the excess of the increase in average deposits
over the increase in average loans which was invested. Management uses
borrowed funds to increase earning assets and enhance the Company's interest
rate risk profile. In 1994, average loans declined while average deposits
increased resulting in additional liquidity which was invested in the investment
securities portfolio.
FUNDING
Deposits represent the Bank's principal source of funds for investment.
Deposits are primarily core deposits in that they are demand, savings, and time
deposits under $100,000 generated from local businesses and individuals. These
sources represent relatively stable, long term deposit relationships which
minimize fluctuations in overall deposit balances. The Bank has never used
brokered deposits. Table 9 presents the composition of deposits for the five
years ended December 31, 1995.
-29-
<PAGE>
Table 9 Composition of Deposits
(Dollars in thousands)
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
Demand, non-interest $ 49,575 $ 43,112 $ 31,278 $ 30,156 $ 28,299
Demand, interest 74,944 77,380 70,060 65,447 52,771
Savings 17,385 17,254 16,637 12,198 4,441
Time 22,142 14,384 17,598 24,984 30,652
--------- --------- --------- --------- ---------
Total $164,046 $152,130 $135,573 $132,785 $116,163
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Deposits increased $11,916,000 or 8% to $164,046,000 as of December 31, 1995
and increased $16,557,000 or 12% as of December 31, 1994 over 1993. Average
total deposits in 1995 of $151,960,000 showed an increase of $8,765,000 or 6%
over 1994. The 1995 growth in average deposits resulted from an increase in
non-interest bearing demand deposits of $5,909,000 and an increase of
$2,856,000 in interest-bearing deposits.
Another source of funding for the Company is borrowed funds. Typically, these
funds result from the use of agreements to sell investment securities with a
repurchase at a designated future date, also known as repurchase agreements.
Repurchase agreements are conducted with major banks and investment brokerage
firms. The maturity of these arrangements for the Bank is typically 30 days,
although the Bank has $4,000,000 maturing in December, 1996. The average
balance of borrowed funds was $11,626,000 and $22,000 during 1995 and 1994,
respectively. The maximum amount of borrowings at any month-end during 1995
was $20,000,000. The weighted average interest rate on borrowed funds at
December 31, 1995 was 6.3%.
LIQUIDITY AND INTEREST RATE SENSITIVITY
Liquidity management refers to the Bank's ability to provide funds on an ongoing
basis to meet fluctuations in deposit levels as well as the credit needs and
requirements of its clients. Both assets and liabilities contribute to the
Bank's liquidity position. Federal funds lines, short-term investments and
securities, and loan repayments contribute to liquidity, along with deposit
increases, while loan funding and deposit withdrawals decrease liquidity. The
Bank assesses the likelihood of projected funding requirements by reviewing
historical funding patterns, current and forecasted economic conditions and
individual client funding needs. The Bank maintains informal lines of credit
with its correspondent banks for short-term liquidity needs.
The Bank manages its liquidity by maintaining a majority of its investment
portfolio in liquid investments in addition to its federal funds sold.
Liquidity is measured by various ratios, including the liquidity ratio of net
liquid assets compared to total assets. As of December 31, 1995, this ratio
was 18.3%. Other key liquidity ratios are the ratios of loans to deposits
and federal funds sold to deposits, which were 65.1% and 4.3%, respectively,
as of December 31, 1995.
-30-
<PAGE>
INTEREST RATE SENSITIVITY
Interest rate sensitivity is a measure of the exposure of the Company's future
earnings due to changes in interest rates. If assets and liabilities do not
reprice simultaneously and in equal volumes, the potential for such exposure
exists. It is management's objective to achieve a modestly asset-sensitive
position, such that the net interest margin of the Company increases as market
interest rates rise and decreases when rates decline.
One quantitative measure of the "mismatch" between asset and liability repricing
is the interest rate sensitivity "gap" analysis. All interest-earning assets
and funding sources are classified as to their expected repricing or maturity
date, whichever is sooner. Within each time period, the difference between
asset and liability balances, or "gap," is calculated. Positive cumulative gaps
in early time periods suggest that earnings will increase if interest rates
rise. Negative gaps suggest that earnings will decline when interest rates
rise. Table 10 presents the gap analyses for the Company at December 31, 1995.
Mortgage backed securities are reported in the period of their expected
repricing based upon estimated prepayments developed from recent experience.
-31-
<PAGE>
<TABLE>
<CAPTION>
Table 10 Interest Rate Sensitivity
As of December 31, 1995
(Dollars in thousands)
Next day Over three Over one
and within months and and within Over
Immediately three months within one year five years five years Total
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Rate Sensitive Assets:
Federal Funds Sold $ 7,000 - - - - $ 7,000
Investment Securities:
Treasury and Agency Obligations - $ 5,002 $ 992 $ 5,028 - 11,022
Mortgage-Backed Securities - 2,501 6,801 23,144 $ 20,702 53,148
Municipal Securities - - 175 941 4,983 6,099
Other - - - - 718 718
--------------------------------------------------------------------------------------
Total Investment Securities - 7,503 7,968 29,113 26,403 70,987
Loans Excluding Nonaccrual Loans 94,196 625 2,618 3,402 5,175 106,016
--------------------------------------------------------------------------------------
Total Rate Sensitive Assets $ 101,196 $ 8,128 $ 10,586 $ 32,515 $ 31,578 $ 184.003
--------------------------------------------------------------------------------------
Rate Sensitive Liabilities:
Deposits:
Money Market, NOW, and Savings $ 92,329 - - - - $ 92,329
Time Certificates - $ 8,738 $ 11,990 $ 1,414 - 22,142
--------------------------------------------------------------------------------------
Total Interest-bearing Deposits 92,329 8,738 11,990 1,414 - 114,471
Borrowings - 16,000 4,000 - - 20,000
--------------------------------------------------------------------------------------
Total Rate Sensitive Liabilities $ 92,329 $ 24,738 $ 15,990 $ 1,414 - $ 134,471
--------------------------------------------------------------------------------------
Gap $ 8,867 $ (16,610) $ (5,404) $ 31,101 $ 31,578 $ 49,532
Cumulative Gap $ 8,867 $ (7,743) $ (13,147) $ 17,954 $ 49,532
</TABLE>
The Company's positive cumulative total gap results from the exclusion from
the above table of noninterest-bearing demand deposits, which represent a
significant portion of the Company's funding sources. The Company maintains
a minor negative cumulative gap in the next day and within three months and
the over three months and within one year time periods and a positive
cumulative gap in all other time periods. The Company's experience indicates
money market deposit rates tend to lag changes in the prime rate which
immediately impact the prime-based loan portfolio. Even in the Company's
negative gap time periods, rising rates result in an increase in net interest
income. Should interest rates stabilize or decline in future periods, it is
reasonable to assume that the Company's net interest margin, as well as net
interest income, may decline correspondingly.
-32-
<PAGE>
<TABLE>
<CAPTION>
TABLE 11 Investment Maturity Distribution
December 31, 1995
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
CARRYING 1 YEAR AVERAGE 1 YEAR TO AVERAGE 5 YEARS TO AVERAGE MORE THAN AVERAGE
VALUE OR LESS YIELD 5 YEARS YIELD 10 YEARS YIELD 10 YEARS YIELD
-------- --------- ------- ---------- ------ ----------- ------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. TREASURY $ 6,020 $ 992 4.52% $ 5,028 5.24% - -- -
U.S. AGENCIES 5,002 5,002 5.62% - - - -- -
MORTGAGE BACKED
SECURITIES 53,148 -- -- 1,550 6.45% $ 3,172 6.58% $48,426 7.04%
OBLIGATIONS OF STATES
AND POLITICAL
SUBDIVISIONS 6,099 175 3.40% 941 6.87% 2,251 5.48% 2,732 5.29%
OTHER SECURITIES 169 - - - - - - 169 -
FEDERAL HOME LOAN BANK 549 - - - - - - 549 -
-------- --------- ---------- ---------- ----------
$70,987 $6,169 $ 7,519 $ 5,423 $51,876
-------- --------- ---------- ---------- ----------
------------------- ---------- ---------- ----------
</TABLE>
Yields are presented on an actual basis.
CAPITAL RESOURCES
Management seeks to maintain adequate capital to support anticipated asset
growth and credit risks, and to ensure that the Company and the Bank are in
compliance with all regulatory capital guidelines. The primary source of new
capital for the Company has been the retention of earnings. Shareholders'
equity was $20,984,000 at December 31, 1995, an increase of $3,274,000, or
18.5% from the $17,710,000 balance at December 31, 1994. This increase was
due to 1995 earnings of $3,149,000, repayment of the ESOP loan of $191,000
and an increase in the net after-tax unrealized gain on available-for-sale
investments of $1,016,000 from the prior year-end less cash dividends of
$820,000 and the repurchase of common stock of $262,000. The Company does
not have any material commitments for capital expenditures as of December 31,
1995.
The Company pays a quarterly cash dividend on its common stock as part of
efforts to enhance shareholder value. The Company's goal is to maintain a
strong capital position that will permit payment of a consistent cash dividend
which may grow commensurately with earnings growth.
During 1995, the Board of Directors approved a stock repurchase program
authorizing open market purchases of up to 3% of the shares outstanding, or
approximately 68,300 shares, in order to enhance long term shareholder value. As
of December 31, 1995, 20,100 shares had been purchased for a total purchase
price of $262,000.
The Company and the Bank are subject to capital adequacy guidelines issued by
the federal bank regulatory authorities. Under these guidelines, the minimum
total risk-based capital requirement is 10.0% of risk-weighted assets and
certain off-balance sheet items for a "well capitalized" depository institution.
At least 6.0% of the 10.0% total risk-based capital ratio must consist of Tier 1
capital, defined as tangible common equity, and the remainder may consist of
-33-
<PAGE>
subordinated debt, cumulative preferred stock and a limited amount of the
allowance for loan losses.
The federal regulatory authorities have established minimum capital leverage
ratio guidelines for state member banks. The ratio is determined using Tier 1
capital divided by quarterly average total assets. The guidelines require a
minimum of 5.0% for a "well capitalized" depository institution.
The Company's risk-based capital ratios were in excess of regulatory guidelines
for a "well capitalized" depository institution as of December 31, 1995, 1994
and 1993. Capital ratios for the Company are set forth in Table 12:
Table 12 Capital Ratios December 31,
-----------------------
1995 1994 1993
---- ---- ----
Total risk-based capital ratio 17.0% 15.4% 16.1%
Tier 1 risk-based capital ratio 15.8% 14.2% 14.9%
Tier 1 leverage ratio 10.2% 10.9% 11.1%
Capital ratios for the Bank at December 31, 1995 were 14.3% total risk-based
capital, 13.1% Tier 1 risk-based capital ratio and 8.8% Tier 1 leverage ratio.
Prior to July 25, 1995, the Bank's ratio are the same as the Company's ratios.
EFFECTS OF INFLATION
The impact of inflation on a financial institution differs significantly from
that exerted on manufacturing, or other commercial concerns, primarily because
its assets and liabilities are largely monetary. In general, inflation
primarily affects the Company indirectly through its effect of increasing market
rates of interest. However, the Company's earnings are affected by the spread
between the yield on earning assets and rates paid on interest-bearing
liabilities rather than the absolute level of interest rates. Additionally,
there may be some upward pressure on the Company's operating expenses, such as
adjustments in salaries and benefits and occupancy expense, based upon consumer
price indices. In the opinion of management, inflation has not had a material
effect on the consolidated financial statements for the years ended December 31,
1995, 1994 and 1993. Changes in interest rates are highly sensitive to many
factors which are beyond the control of management. Changes in interest rates
will influence the growth of loans, investments and deposits, as well as the
rates charged on loans and paid on deposits. The nature, timing and impact of
future changes in interest rates or monetary and fiscal policies are not
predictable.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1995
This discussion should be read in conjunction with "Results of Operations -
Years Ended December 31, 1995, 1994, and 1993."
-34-
<PAGE>
Net income for the six months ended June 30, 1996 was $2,068,000 compared to
$1,402,000 in the first six months of 1995, an increase of 48%. The increase in
net income was primarily due to increases of $722,000 in net interest income and
$621,000 in noninterest income partially offset by an increase of $207,000 in
noninterest expenses and a related increase in income tax expense of $470,000.
The changes in net interest income are presented in Table 13:
<TABLE>
<CAPTION>
Table 13 Components of Net Interest Income
Six Months Ended June 30, 1996 1995
--------------------------------------- ------------------------------------------
($ in thousands) Average Average Average Average
Balance Interest Rate(4) Balance Interest Rate(4)
--------------------------------------- ------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Loans (2) (3) $ 112,287 $ 6,308 11.2% $ 96,757 $ 5,729 11.8%
Investment Securities:
Taxable 63,249 2,093 6.6% 43,589 1,438 6.6%
Nontaxable (1) 6,097 256 8.4% 6,580 280 8.5%
Federal funds sold 11,132 295 5.3% 9,415 277 5.9%
------------------------- ----------------------------
Total earning assets 192,765 8,952 9.3% 156,341 7,724 9.9%
Cash and due from banks 12,944 13,502
Allowance for credit losses (2,690) (1,953)
Unearned income (1,625) (1,573)
Bank premises and equipment, net 2,275 2,700
Other assets 6,154 5,543
----------- ---------
Total assets $ 209,873 $174,560
----------- ---------
----------- ---------
Interest-bearing liabilities:
Deposits:
Demand $ 72,959 688 1.9% $ 73,084 818 2.2%
Savings 25,361 367 2.9% 16,404 231 2.8%
Time 23,007 600 5.2% 16,992 400 4.7%
------------------------- ---------------------------
Total deposits 121,327 1,655 2.7% 106,480 1,449 2.7%
Borrowed funds 22,529 655 5.8% 9,952 347 7.0%
------------------------- ---------------------------
Total interest-bearing liabilities 143,856 2,310 3.2% 116,432 1,796 3.1%
Demand deposits 43,070 37,845
Other liabilities 1,773 1,614
Stockholders' equity 21,174 18,669
----------- -----------
Total liabilities and stockholders'
equity $ 209,873 $ 174,560
----------- -----------
----------- -----------
Net interest income and margin $ 6,642 6.9% $ 5,928 7.6%
------------------------ --------------------------
------------------------ --------------------------
</TABLE>
(1) Tax exempt income includes $87,000 and $95,000 in 1996 and 1995,
respectively, to adjust to a fully taxable equivalent basis using the Federal
statutory rate of 34%.
(2) Loan fees totaling $546,000 and $493,000 are included in loan interest
income for the six months ended June 30, 1996 and 1995, respectivley.
(3) Average nonaccrual loans totaling $568,000 and $662,000 are included in
average loans for the six months ended June 30, 1996 and 1995, respectivley.
(4) Annualized.
-35-
<PAGE>
The increase in net interest income is primarily the result of an increase in
average earning assets. The growth in average earning assets was mostly funded
by increases of $14,847,000 in interest-bearing deposits, $12,577,000 in
borrowed funds and $5,225,000 in noninterest-bearing deposits. The decline in
net interest margin to 6.9% from 7.6% is primarily due to a decline in the
average prime rate on which a substantial portion of the loan portfolio is
indexed. The average prime rate was 8.3% and 8.9% for the first six months of
1996 and 1995, respectively.
Table 14 displays the components of noninterest income for the six months ended
June 30:
Table 14 - Noninterest Income 1996 1995
(Dollars in thousands) ---------- ---------
Customer service fees $ 856 $ 745
Gain on sale of loans 769 397
Loan servicing fees 455 431
Gain on sale of bank premises and equipment - 13
Gains (losses) on securities transactions 66 (13)
Other 261 213
---------- ----------
Total noninterest income $2,407 $1,786
---------- ----------
The increase in customer service fees relates primarily to higher merchant
credit card processing fees. Gains on sale of loans increased as a result of
increased SBA loan originations during 1996.
The major components of noninterest expense stated in dollars and as an
annualized percentage of average earning assets for the six month periods ended
June 30 are set forth in Table 15:
Table 15 - Noninterest Expense
(Dollars in thousands) 1996 1995
--------------------- ---------------------
Salaries and Benefits $2,618 2.72% $2,449 3.13%
Equipment 566 0.59% 504 0.65%
Occupancy 450 0.47% 443 0.57%
Insurance 53 0.05% 212 0.27%
Stationery and Postage 203 0.21% 144 0.18%
Legal Fees 15 0.01% 102 0.13%
Other 1,185 1.23% 1,029 1.32%
--------------------- ---------------------
Total Noninterest Expense $5,090 5.28% $4,883 6.25%
--------------------- ---------------------
--------------------- --------------------
Total noninterest expense increased $207,000 or 4% to $5,090,000 in the first
half of 1996 over the first half of 1995. The increase in noninterest expenses
reflects the growth in total loans, deposits and assets over 1995. The decrease
in noninterest expense as a percentage of average earning assets is the result
of the increase in average earning assets of 23% for the six months ended June
30, 1996 compared to June 30, 1995 exceeding the 4% increase in noninterest
expenses.
-36-
<PAGE>
Financial Condition - June 30, 1996
Total assets at June 30, 1996 were $213,712,000 compared to $207,668,000 at
December 31, 1995, an increase of $6,044,000 or 3%. Total loans increased
$12,031,000, or 11%, to $118,871,000 at June 30, 1996 from $106,840,000 at
December 31, 1995. The increase in loans is due primarily to additional demand
for commercial real estate term loans, principally through SBA guaranteed loan
programs.
Total liabilities were $192,520,000 at June 30, 1996 compared to $186,684,000 at
December 31, 1995, an increase of $5,836,000 or 3%. The principal source of the
increase was a $4,497,000 increase in securities sold under agreements to
repurchase. Deposits increased $1,498,000 or 1% to $165,544,000 at June 30,
1996 from $164,046,000 at December 31,1996.
The Company's nonperforming assets at June 30 are presented in Table 16:
Table 16 Nonperforning Assets
(Dollars in thousands)
June 30, 1996
------
Nonperforming Assets:
Loans Past Due 90 Days or More $ 20
Nonaccrual Loans 518
------
Total Nonperforming Loans 538
OREO 896
------
Total Nonperforming Assets $1,434
------
------
Nonperforming loans as a Percent of Total Loans 0.45%
OREO as a Percent of Total Assets 0.42%
Nonperforming Assets as a Percent of Total Assets 0.67%
Allowance for Loan Losses $2,969
As a Percent of Total Loans 2.50%
As a Percent of Nonaccrual Loans 573%
As a Percent of Nonperforming Loans 552%
The activity in the allowance for credit losses at June 30 is presented in Table
17:
TABLE 17 Allowance for Credit Losses
(Dollars in thousands)
June 30, 1996
------------
Total Loans Outstanding $ 118,871
Average Total Loans 112,287
-37-
<PAGE>
Balance, January 1 $ 2,478
Charge-offs by Loan Category:
Commercial 49
Installment and other 15
Real Estate construction -
Real Estate-other -
--------
Total Charge-Offs 64
Recoveries by Loan Category:
Commercial 60
Installment and other 5
Real Estate construction 40
Real Estate-other -
--------
Total Recoveries 105
Net Charge-offs (Recoveries) (15)
Provision Charged to Expense 450
--------
Balance, June 30 $ 2,969
--------
--------
Ratios:
Net Charge-offs (Recoveries) to Average Loans (0.04)%
Reserve to Total Loans 2.50%
Table 18 presents the interest rate sensitivity gap analysis for the Company at
June 30, 1996.
<TABLE>
<CAPTION>
Table 18 Interest Rate Sensitivity
(Dollars in thousands)
Next day Over three Over one
and within months and and within Over
Immediately three months within one year five years five years Total
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Rate Sensitive Assets:
Federal Funds Sold $ 12,500 $ - $ - $ - $ - $ 12,500
Investment Securities:
Treasury and Agency Obligations - - 3,013 2,941 - 5,954
Mortgage-Backed Securities - 2,019 6,227 16,016 27,073 51,335
Municipal Securities - 175 - 1,416 4,503 6,094
Other - - - - 896 896
------------------------------------------------------------------------------------------
Total Investment Securities - 2,194 9,240 20,373 32,472 64,279
Loans Excluding Nonaccrual Loans 105,647 699 2,348 3,790 5,869 118,353
------------------------------------------------------------------------------------------
Total Rate Sensitive Assets $ 118,147 $ 2,893 $ 11,588 $ 24,163 $ 38,341 $ 195,132
------------------------------------------------------------------------------------------
Rate Sensitive Liabilities:
Deposits:
Money Market, NOW, and Savings $ 93,031 - - - - $ 93,031
Time Certificates - $ 10,958 $ 11,254 $ 1,140 - 23,352
------------------------------------------------------------------------------------------
Total Interest-bearing Deposits 93,031 10,958 11,254 1,140 - 116,383
Borrowings - 20,497 4,000 - - 24,497
------------------------------------------------------------------------------------------
Total Rate Sensitive Liabilities $ 93,031 $ 31,455 $ 15,254 $ 1,140 - 140,880
------------------------------------------------------------------------------------------
Gap $ 25,116 $ (28,562) $ (3,666) $ 23,023 $ 38,341 $ 54,252
Cumulative Gap $ 25,116 $ (3,446) $ (7,112) $ 15,911 $ 54,252
</TABLE>
-38-
<PAGE>
Table 19 presents the time remaining until maturity for certificates of deposits
in denominations of $100,000 or more as of June 30, 1996, which the Company
believes is not significantly different than the time remaining until
maturity at December 31, 1995.
Table 19 Certificates of Deposit
Denominations of $100,000 or more
(in thousands) June 30, 1996
-----------------
Time remaining until maturity:
Less than 3 months $ 4,945
3 months to 6 months 3,564
6 months to 12 months 449
More than 12 months 120
-----------------
Total $ 9,078
-----------------
-----------------
Loan maturities for commercial, financial and agricultural and real estate
construction loans at June 30, 1996, which the Company believes are not
materially different from December 31, 1995, are presented in Table 20.
Table 20 Loan Maturities
(Dollars in thousands)
After One
but Within After
Within One Five Five
Year Years Years Total
- - ----------------------------------------------------------------------------
Commercial, financial and
agricultural $ 21,787 $ 9,959 $ 5,412 $ 37,158
Real estate construction 14,781 - - 14,781
--------------------------------------------
Total $ 36,568 $ 9,959 $ 5,412 $ 51,939
--------------------------------------------
Commercial, financial and agricultural loans at June 30, 1996 maturing after one
year are comprised of fixed rate and variable rate loans as shown below:
(Dollars in thousands) After One
but Within After Five
Five Years Years Total
Fixed rate $ 87 $ 29 $ 116
Variable rate 9,872 5,383 15,255
---------------------------------------
$ 9,959 $ 5,412 $ 15,371
---------------------------------------
The Company believes the distribution of fixed rate and variable rate
commercial, financial and agricultural loans at December 31, 1995 was not
significantly different than as shown above.
-39-
<PAGE>
The capital ratios for the Company and Bank as of June 30, 1996 are presented in
Table 21.
Table 21 Capital Ratios
Company Bank
--------- -----
Total risk-based capital ratio 16.5% 14.4%
Tier 1 risk-based capital ratio 15.2% 13.1%
Tier 1 leverage ratio 10.1% 8.7%
- - --------------------------------------------------------------------------------
40
<PAGE>
ITEM 3. PROPERTIES
The Bank's main branch is located at 720 Front Street, Santa Cruz,
California in a free standing building consisting of approximately 5,760
square feet. The lease is for a period of ten (10) years ending on May 31,
1997. The current rent is $12,060 per month. An option to renew the lease
for four (4) additional sixty month periods is provided. The monthly rental
at the commencement of each renewal period shall be the greater of $11,000
per month or an amount determined by using a formula based upon increases in
the CPI.
The Company's and the Bank's administrative offices and Investment Services
Department are located in a mixed use building at 740 Front Street, Santa Cruz,
California, adjacent to the Bank's main branch. The lease is for a ten (10)
year term commencing on November 1, 1988 and contains three (3) options to renew
for five (5) years each. The Bank has leased additional space in the same
building several times under addendum to the lease, and such addendum run
concurrently with the lease. The present rent is $11,954 per month and is
increased annually in October of each year in accordance with increases in the
CPI.
41
<PAGE>
The Bank's Soquel Drive branch is located at 1975 Soquel Drive, Santa Cruz,
California and consists of approximately 4,935 square feet plus parking. The
lease is for a ten (10) year term commencing on October 1, 1990 with two (2)
options to renew for five (5) years each. The present rent is $6,909 per square
foot ($1.40 per month) and increases by $.05 per square feet per year until it
reaches $1.50 per square foot in years 8, 9 and 10 of the lease. The rent
during the option periods is to be at a market rate determined at the beginning
of each option period and will be adjusted during the option period in
accordance with increases in the CPI. The Bank also has a right of first
refusal to purchase the building.
The Bank's Aptos branch is located at 7775 Soquel Drive, Aptos, California
and contains approximately 1,450 square feet of space. The lease is for a five
(5) year term commencing on July 3, 1996, with an option to renew for five (5)
years. The initial rent is adjusted annually in accordance with increases in
the CPI and at present the rent is $4,142 per month.
The Bank's Scotts Valley branch is located at 203A Mt. Hermon Road, Scotts
Valley, California in a 3,420 square foot area. The lease is for a five (5)
year term beginning on April 1, 1992 with three (3) options to renew for five
(5) years each. The current rent is $4,455 per month and is increased annually
in accordance with increases in the CPI. During the initial options period,
annual increases in rent shall continue to be in accordance with increases in
the CPI. The rent for the first year of the second and third options shall be
based upon market rents in Scotts Valley, and will be adjusted annually during
the remaining four years of each option period in accordance with the CPI.
The Bank's Watsonville branch is located at 1055 S. Green Valley Road,
Watsonville, California and consists of approximately 2,975 square feet. The
lease is for a ten (10) year term commencing on February 1, 1990 with two (2)
options to renew for five (5) years each. The current rent is $6,075 per month
and is adjusted annually in accordance with increases in the CPI.
The Bank's computer and operations center is located at 140 Dubois Street,
Santa Cruz, California and contains approximately 5,250 square feet. The lease
commenced on January 22, 1996 for a one (1) year term and provides an option to
renew the lease for one year. The rent is currently $6,139 per month.
42
<PAGE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The following sets forth information as of March 22, 1996, pertaining to
securities ownership by persons known to the Company to own 5% or more of any
class of the Company's voting securities. The information contained herein has
been obtained from the Company's records, and from information furnished
directly by the individual or entity to the Company.
Amount and Nature
of Beneficial
Name and Address Relationship Ownership as of Percentage
of Beneficial Owner With Company March 22, 1996 of Class
- - ------------------- ------------ --------------- ----------
Richard E. Alderson Director 175,277 7.87%
740 Front Street
Santa Cruz, CA 95060
Ronald M. Israel Director 175,714 7.89%
740 Front Street
Santa Cruz, CA 95060
The following information is supplied with respect to each executive
officer and director and is based upon the records of the Company and
information furnished to it by the named individuals.
Amount and Nature of Beneficial Percentage
Name of Director or Officer Ownership as of March 22, 1996 1/ of Class
- - --------------------------- --------------------------------- ----------
Richard E. Alderson 175,277 2/ 3/ 7.87%
Douglas D. Austin 22,000 2/ .99%
John C. Burroughs 25,000 1.12%
Bud W. Cummings 46,400 2/ 2.08%
David V. Heald 11,117 .50%
43
<PAGE>
Ownership as of
Name of Director or Officer March 22, 1996 1/ Percentage of Class
- - --------------------------- ----------------- -------------------
Richard G. Hofstetter 18,020 4/ .79%
Ronald M. Israel, M. D. 175,714 2/5/ 7.89%
Bruce H. Kendall 1,000 .04%
Malcolm D. Moore 104,060 2/ 4.67%
Harvey J. Nickelson 66,546 2.99%
Gus J.F. Norton 56,743 2/6/ 2.55%
James C. Thompson 76,090 2/ 3.42%
All Executive Officers and Directors
of the Company as a Group
(12 in number) 777,967 7/ 34.56%
__________________________
1/ Unless otherwise indicated, the beneficial owner of these securities has
sole voting and investment power.
2/ Includes an option for 4,000 shares which is exercisable within sixty days
of the Record Date.
3/ Mr. Alderson disclaims beneficial ownership of 4,177 shares held in trust
for his children. Includes 165,302 shares held in trust over which Mr.
Alderson has sole investment and disposition power.
4/ Includes 10,600 shares in trusts over which Mr. Hofstetter has sole voting
and investment power.
5/ Includes 61,714 shares in a trust over which Dr. Israel has sole voting
and investment power.
6/ Includes 52,743 shares in a trust over which Mr. Norton has sole voting
and investment power.
7/ Includes options for 28,000 shares which are exercisable within sixty days
of the Record Date.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
-----------------------------------------------
Relationship Director Since
Name of Director Age With Company (Company/Bank)
- - ---------------- --- ------------ --------------
Richard E. Alderson 57 Director 1995/1993
Douglas D. Austin 55 Director 1995/1982
John C. Burroughs 51 Director and Vice President 1995/1982
Bud W. Cummings 64 Director 1995/1982
Ronald M. Israel, M. D. 59 Director 1995/1982
Malcolm D. Moore 59 Director 1995/1982
Harvey J. Nickelson 52 President, Chief Executive 1995/1982
Officer and Director
Gus J.F. Norton 55 Director 1995/1982
James C. Thompson 56 Chairman of the Board 1995/1982
44
<PAGE>
There are no family relationships between any two or more of the
directors or executive officers. No officer or director of the Company
serves as a director of any company required to report under the Securities
Exchange Act of 1934 or any investment company registered under the
Investment Company Act of 1940.
Set forth below are brief summaries of the background and business
experience of all the directors of the Company. Unless otherwise indicated,
each person has been engaged in the noted occupation with the same entity for
more than 5 years.
RICHARD E. ALDERSON is engaged in personal investments.
DOUGLAS D. AUSTIN is President of Austin Insurance Agency, Inc.
JOHN C. BURROUGHS, is a Vice President of the Bank and Manager of the
Bank's Investment Services Department. Prior to that he was a Certified
Financial Planner with Burroughs Financial Management from 1989 to 1992 and
with Burroughs, Costa Associates prior to 1989.
BUD W. CUMMINGS retired in 1986 from serving as the proprietor of the
Santa Cruz Coin Exchange.
RONALD M. ISRAEL, M.D. is a private investor. Previously, he was a
self-employed physician and an Assistant Professor of Clinical Medicine at
the University of California Medical Center, San Francisco from 1971 to 1994.
MALCOLM D. MOORE is President of P & M Plumbing, Inc. He is also a
partner in two property management and real estate development firms -- P & M
Enterprises and Triad Associates.
HARVEY J. NICKELSON is President, Chief Executive Officer and a director
of the Company and Bank.
GUS J. F. NORTON is the broker of record and a partner in Sun
Properties, a real estate sales and development association.
JAMES C. THOMPSON is currently a partner with the law firm of Comstock,
Thompson, Kontz and Brenner since August 1, 1994. Prior to that he was with
the law firms of Comstock, Shannon and Thompson from June 1, 1992 to August
1, 1994 and Comstock, Shanle, Shannon & Thompson from August 1, 1989 to June
1992.
On November 2, 1993, MPC/PCI Steinhardt Limited, a California limited
partnership which owned a multi-unit apartment building located in San
Francisco, filed a Chapter 11 bankruptcy petition in the U.S. Bankruptcy
Court in San Francisco. John C.
45
<PAGE>
Burroughs, a Vice President of the Bank and a Director of the Company, was a
general partner of this partnership until July 30, 1993.
EXECUTIVE OFFICERS
Set forth below is certain information as of June 30, 1996, with respect
to each executive officer of the Company or Bank, not previously discussed.
Positions and Offices Officer
With the Company Since
Name Age and the Bank (Company/Bank)
- - ---- --- --------------------- -------------
David V. Heald 47 Executive Vice President 1995/1982
of the Company; Executive
Vice President and Chief
Banking Officer of the Bank
Richard G. Hofstetter 41 Senior Vice President and Senior ---/1987
Lending Officer of the Bank
Bruce H. Kendall 38 Senior Vice President and Chief 1995/1995
Financial Officer of the Company
and the Bank
DAVID V. HEALD is Executive Vice President of the Company and Executive
Vice President and Chief Banking Officer of the Bank. Prior to 1992, Mr. Heald
was the Senior Loan Officer of the Bank.
RICHARD G. HOFSTETTER is Senior Vice President and Senior Lending Officer
of the Bank. Prior to 1992, Mr. Hofstetter was Manager of the Bank's Real
Estate Department.
BRUCE H. KENDALL become Senior Vice President and Chief Financial Officer
of the Company and the Bank in 1995. From October 1990 to August 1994, Mr.
Kendall was employed by Silicon Valley Bank, most recently as Senior Vice
President of Finance.
ITEM 6. EXECUTIVE COMPENSATION
The following table sets forth a summary of the compensation paid (for
services rendered in all capacities) during the past three fiscal years to the
executive officers of the Company whose annual compensation for 1995 exceeded
$100,000. All compensation is presently paid by the Bank.
46
<PAGE>
<TABLE>
<CAPTION>
Long-Term
Compensation
Other Annual Awards All Other
Name Position Year Salary Bonus Compensation Options Compensation
- - ---- -------- ---- ------ ----- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Harvey J. President 1995 $148,750 $81,000 -0- -0- $104,156 1/
Nickelson and Chief 1994 $141,222 $81,000 -0- -0- $ 34,030 1/
Executive 1993 $133,580 $76,000 -0- -0- $ 24,428 1/
Officer
David V. Executive 1995 $107,192 $42,500 -0- -0- $ 53,784 1/
Heald Vice 1994 $102,083 $42,500 -0- -0- $ 17,490 1/
President 1993 $ 96,375 $37,000 -0- -0- $ 10,903 1/
and Chief
Banking
Officer
Richard G. Senior 1995 $ 89,942 $35,000 -0- -0- $ 4,936 2/
Hofstetter Vice 1994 $ 85,591 $35,000 -0- -0- $ 4,860 2/
President 1993 $ 80,472 $30,290 -0- -0- $ 2,606 2/
and Senior
Loan Officer
</TABLE>
____________________
1/ Includes amounts allocated to an ESOP account, contributed to a 401(k) Plan
and accrued under a Salary Continuation Agreement
2/ Includes amounts allocated to an ESOP account and contributed to a 401(k)
Plan.
During 1995, non-employee directors of the Company received a retainer of
$4,800 per year and also received $500 for attending Board meetings, $300 for
loan committee meetings and $200 for other committee meetings. Beginning in
October, 1995, the Chairman of the Company receives a retainer of $7,500 per
quarter for his services and receives no other cash compensation. Employee
directors of the Company receive $1,000 for attending Board meetings.
In addition, non-employee directors of the Company receive stock options
for 2,000 shares each year for five years beginning in 1995.
47
<PAGE>
DIRECTORS' DEFERRED COMPENSATION
In November, 1992, the Bank entered into Deferred Compensation Agreements
("Compensation Agreements") with its directors, except Harvey J. Nickelson.
Under the Compensation Agreements, the directors may elect before January 1 of
each year to defer all or a part of their directors' fees, and they will be
credited with interest based upon the deferred amount. The interest rate on the
deferred amount of the directors' compensation is presently 6.6%. The deferred
amount of the directors' compensation is to be paid to each director at the
earlier of termination of their service as a director of the Bank; attainment of
age 65; or upon 180 days advance notice to the director by the Bank. In the
event of a director's death prior to termination of his service with the Bank or
age 65, his beneficiary will be entitled to receive the payments under the
Compensation Agreement. The Bank has purchased an insurance policy on the life
of each of the participating directors to enable the Bank to make payments as
required by the Compensation Agreements.
EXECUTIVE SALARY CONTINUATION PLANS
On September 19, 1992, the Bank entered into Executive Salary Continuation
Agreements ("Salary Continuation Agreements") with Harvey J. Nickelson and David
V. Heald (collectively "Recipient"). Under the Salary Continuation Agreements
upon retirement at age 65, Mr. Nickelson is entitled to $75,000 per year and Mr.
Heald is entitled to $50,000 per year, each for 15 years. If the Recipient
elects early retirement after age 55 but prior to attaining age 65, the annual
payments shall be reduced by 2% per year for each year such retirement precedes
age 65 and payments are limited to the vested portion of the benefit. In the
event of the Recipient's death or disability, their designated beneficiary would
be entitled to the benefits. In the event of a Change of Control of the
Company, as defined in the Salary Continuation Agreements, the Recipient shall
immediately become fully vested and in the event of termination of employment
after a Change of Control has occurred shall be entitled to receive payments
pursuant to the terms of the Salary Continuation Agreements. The Bank has
purchased insurance policies on the life of each of these officers to enable the
Bank to make payments as required by the Salary Continuation Agreements.
COAST COMMERCIAL BANK EMPLOYEE STOCK OWNERSHIP PLAN
In November, 1991, the Bank amended and restated the Coast Commercial Bank
Employee Savings Plan and it was renamed the Coast Commercial Bank Employee
Stock Ownership Plan, which contains 401(k) provisions ("KSOP"). The KSOP is
considered by the Board of Directors to be a means of recognizing the
contributions made to the Bank's successful operation by its employees and to
reward such contributions. Under the KSOP, there is both a purchase of the
Company's Common
48
<PAGE>
Stock for the account of employees as part of the employee stock ownership
provisions and a contribution by the Bank and an opportunity for employee
contributions and matching under the 401(k) provisions. During 1994, the Bank
contributed $120,000 to the employee stock ownership portion and $41,885 to the
401(k) portion of the KSOP. Under the 401(k) portion, the Bank's matching funds
are used to purchase the Company's Common Stock.
All employees who are 21 years old and have been credited with 1,000 hours
of service are eligible to participate in the KSOP. When an employee retires or
in the event of death or total disability, an employee will be entitled to their
distribution not later than the end of the year following termination of
employment. An employee who has attained age 55 and has 15 years of service may
elect to receive benefits pursuant to the early retirement provisions of the
KSOP. If employment is terminated for any other reason, an employee is entitled
to the payment of their KSOP account.
COAST BANCORP 1995 STOCK OPTION PLAN
On February 22, 1995, the Company adopted the Coast Bancorp 1995 Stock
Option Plan ("1995 Plan") which sets aside 400,000 shares of no par value Common
Stock of the Company for which options may be granted to key, full-time
salaried employees and officers of the Company, as well as non-employee
directors of the Company.
The exercise price of all options to be granted under the 1995 Plan must be
at least 100% of the fair market value of the Company's Common Stock on the
granting date and be paid in full at the time the option is exercised either in
cash, shares of the Company's Common Stock with a fair market value equal to the
purchase price or a combination thereof. Under the 1995 Plan, all options
expire no more than ten years after the date of grant.
In the case of termination of employment or status as a director, no
additional options become exercisable, and exercise rights cease after three (3)
months unless employment or status as a director is terminated because of death
or disability, in which case the option may be exercised for not more than one
year following termination. In case of termination of employment for cause, or
cessation of status as a director as a result of being removed from office by a
bank regulatory authority or by judicial process, exercise rights cease after
thirty (30) days.
No options had been granted to executive officers of the Company pursuant
to the 1995 Plan as of December 31, 1995.
49
<PAGE>
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
INDEBTEDNESS OF MANAGEMENT AND OTHER TRANSACTIONS
The Company has had and expects to have in the future, banking transactions
in the ordinary course of its business with its directors, executive officers,
principal shareholders, and their associates, on substantially the same terms,
including interest rates and collateral on loans comparable to transactions with
others, and such transactions did not involve more than the normal risks of
collectibility or present other unfavorable features.
ITEM 8. LEGAL PROCEEDINGS
The Company is a party to routine litigation which is incidental to its
business. As of June 30, 1996, there are no pending legal proceedings to which
the Company is a party which may have a materially adverse effect upon the
Company's business.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
A. There is limited trading in the shares of Common Stock of the
Company. The Company's Common Stock is not listed on any exchange, but is
listed on the NASDAQ Bulletin Board. There are several market makers handling
trades in the Company's Common Stock.
The prices indicated below may not necessarily represent actual
transactions.
Sale Price of the Company's Common Stock
----------------------------------------
Quarter Ended 1996 Bid Ask
- - ------------------ ------ ------
March 31 $13.00 $15.00
June 30 14.00 16.25
Quarter Ended 1995
- - ------------------
March 31 $ 9.00 $10.25
June 30 10.62 11.00
September 30 10.25 11.00
December 31 10.25 14.00
50
<PAGE>
Quarter Ended 1994
- - ------------------
March 31 $11.50 $12.00
June 30 10.50 12.00
September 30 9.50 11.00
December 31 9.63 10.25
B. As of June 30, 1996, the approximate number of holders of the
Company's Common Stock was 456.
C. The Company paid a cash dividend of $.10 per share in the first and
second quarters; cash dividends of $.09 per share in each quarter during 1995;
and cash dividends of $0.075 per share in each quarter of 1994.
There can be no assurances that the Company will pay either cash or stock
dividends in the future.
The Company considers the payment of cash dividends in order to return a
portion of its profits to shareholders. In considering the amount of cash
dividends to be paid, if any, the Company considers the maintenance of a
consistent dividend policy as part of its effort to make the Company's stock
attractive to investors; the amount and frequency of dividends; the payout
ratio; the need of the Company to have sufficient funds available to pay its
expenses; and compliance with applicable laws, regulations and other regulatory
requirements.
California law provides that in order to declare dividends: (i) after a
corporation has paid a dividend to its shareholders, it must be likely that the
corporation will be able to meet its liabilities as they mature; and (ii) the
amount of the corporation's retained earnings immediately prior to the payment
of the dividend must be equal to or exceed the amount of the proposed cash
dividend.
The Company's primary source of revenue is dividends from its subsidiary,
the Bank. The payment of dividends by the Bank is subject to various legal and
regulatory requirements.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
In connection with the reorganization of the Bank into a bank holding
company structure, the Company issued 2,277,999 shares of its Common Stock to
the shareholders of the Bank in a tax-free exchange pursuant to the exemption
provided under Section 3(a)(12) of the Securities Act of 1933. The
reorganization was completed on July 25, 1995.
51
<PAGE>
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
AUTHORIZED CAPITAL. The Company has an authorized capitalization of
20,000,000 shares of no par value Common Stock of which 2,209,659 shares are
outstanding and 10,000,000 shares of Preferred Stock, of which there are no
shares outstanding. The balance of the Company's authorized capital stock
will be available to be issued when and as the Board of Directors of the Company
determines it advisable to do so. The Board of Directors of the Company has the
authority to issue shares of Common Stock or Preferred Stock to the extent of
the number of authorized unissued shares without obtaining the approval of
existing holders of Common Stock. The Board of Directors of the Company also
has the authority, without further action of the existing holders of Common
Stock, to fix the rights, preferences, privileges and restrictions on any
Preferred Stock issued, including dividend rights, conversion rights, voting
rights, terms of redemption, liquidation preferences, sinking fund terms and the
number of shares constituting any series or the designation of any such series.
The issuance of additional shares of the Company's Common Stock or
Preferred Stock could adversely affect the voting power of holders of Common
Stock. The issuance of shares of Preferred Stock could adversely affect the
likelihood that holders of Common Stock will receive dividend payments and
payments upon liquidation. There are no present plans, understandings,
arrangements or agreements to issue any additional shares of the Company's
Common Stock or Preferred Stock.
VOTING RIGHTS. Holders of the Company's Common Stock are entitled to one
vote for each share held, except that in the election of directors each
shareholder has cumulative voting rights. If cumulative voting is utilized,
each shareholder may give one candidate a number of votes equal to the number of
directors to be elected multiplied by the number of votes to which the
shareholder's shares are entitled, or may distribute the same number of votes
among as many candidates as the shareholder desires. In order to utilize
cumulative voting it must be requested by a shareholder at a shareholders'
meeting. After such request, a shareholder intending to cumulate their votes
may strike out the names of the nominees for whom they do not wish to vote. The
Board of Directors of the Company is not a classified Board.
ASSESSMENT OF SHARES. The Common Stock of the Company is not subject to
assessment, as its Articles of Incorporation do not confer upon its Board of
Directors the authority to order such assessment.
REPURCHASE OF SHARES. The Company may repurchase its own capital stock by
action of the Board of Directors, subject to limitations imposed by the rules of
the Federal Reserve Board and limitations on dividends. The Company is required
to give the Federal Reserve Bank of San Francisco prior written notice before
purchasing or redeeming its equity securities, if the gross consideration for
such purchase or redemption, when aggregated with the net consideration paid by
the Company for all
52
<PAGE>
purchases or redemptions of its equity securities during the 12 months preceding
the date of notification, equals or exceeds 10% of the Company's consolidated
net worth as of the date of such notice. The Federal Reserve Bank may permit a
purchase or redemption to be accomplished if it determines that the repurchase
or redemption would not constitute an unsafe or unsound practice and that it
would not violate any applicable law, rule, regulation or order, or any
condition imposed by, or written agreement with, the Federal Reserve Board.
PREEMPTIVE RIGHTS. The holders of the Company's Common Stock will not,
have preemptive rights. The Company's Common Stock does not have any conversion
rights, redemption rights or sinking fund provisions applicable thereto.
LIQUIDATION RIGHTS. The holders of the Company's Common Stock will also be
entitled to receive their pro rata share of the Company's assets distributable
to shareholders upon liquidation.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
CALIFORNIA LEGISLATION
The Company is subject to the California General Corporation Law ("CGCL"),
which provides a detailed statutory framework covering the limitation of
liability of directors in certain instances and indemnification of any officer,
director or other agent of a corporation who is made or threatened to be made a
party to any legal proceeding by reason of his or her service on behalf of such
corporation.
With respect to limitation of liability, the CGCL permits a California
corporation to adopt a provision in its articles of incorporation reducing or
eliminating the liability of a director to the corporation or its shareholders
for monetary damages for breach of the fiduciary duty of care, provided that
such liability does not arise from certain proscribed conduct (including
intentional misconduct and breach of the duty of loyalty). The CGCL in this
regard relates only to actions brought by shareholders on behalf of the
corporation (i.e., "derivative actions") and does not apply to claims brought by
outside parties.
With respect to indemnification, the CGCL provides that to the extent any
officer, director or other agent of a corporation is successful "on the merits"
in defense of any legal proceeding to which such person is a party or is
threatened to be made a party by reason of his or her service on behalf of such
corporation or in defense of any claim, issue, or matter therein, such agent
shall be indemnified against expenses actually and reasonably incurred by the
agent in connection therewith, but does not require indemnification in any other
circumstance. The CGCL also provides that a corporation may indemnify any agent
of the corporation, including officers and directors, against expenses,
judgments, fines, settlements and other amounts actually and reasonably
53
<PAGE>
incurred in a third party proceeding against such person by reason of his or her
services on behalf of the corporation, provided the person acted in good faith
and in a manner he or she reasonably believed to be in the best Interests of
such corporation. The CGCL further provides that in derivative suits a
corporation may indemnify such a person against expenses incurred in such a
proceeding, provided such person acted in good faith and in a manner he or she
reasonably believed to be in the best interests of the corporation and its
shareholders. Indemnification is not available in derivative actions (1) for
amounts paid or expenses incurred in connection with a matter that is settled or
otherwise disposed of without court approval or (ii) with respect to matters for
which the agent shall have been adjudged to be liable to the corporation unless
the court shall determine that such person is entitled to indemnification.
The CGCL permits the advancing of expenses incurred in defending any
proceeding against a corporate agent by reason of his or her service on behalf
of the corporation upon the giving of a promise to repay any such sums in the
event it is later determined that such person is not entitled to be indemnified.
Finally, the CGCL provides that the Indemnification provided by the statute is
not exclusive of other rights to which those seeking indemnification may be
entitled, by bylaw, agreement or otherwise, to the extent additional rights are
authorized in a corporation's articles of incorporation. The law further
permits a corporation to procure insurance on behalf of its directors, officers
and agents against any liability Incurred by any such individual, even if a
corporation would not otherwise have the power under applicable law to indemnify
the director, officer or agent for such expenses.
The Articles of Incorporation and Bylaws of the Company implement the
applicable statutory framework by limiting the personal liability of directors
for monetary damages for a breach of a directors' fiduciary duty of care and
allowing the Company to expand the scope of its indemnification of directors,
officers and other agents to the fullest extent permitted by California law.
The Articles of the Company, pursuant to the applicable provisions of the CGCL,
also includes a provision allowing the Company to include in its bylaws, and in
agreements between the Company and its directors, officers and other agents,
provisions expanding the scope of indemnification beyond that specifically
provided under California law.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(a) Audited consolidated financial statements of the Company as of
December 31, 1995 and 1994 and for each of the three years in the period
ended December 31, 1995 and unaudited consolidated financial statements as of
June 30, 1996 and for the six month periods ended June 30, 1996 and 1995
appear on pages 55 thru 72.
54
<PAGE>
COAST BANCORP
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
--------------- ----------------------------------
(unaudited)
<S> <C> <C> <C>
ASSETS 1996 1995 1994
--------------- --------------- --------------
Cash and due from banks $ 13,166,000 $ 18,956,000 $ 19,223,000
Federal funds sold 12,500,000 7,000,000 11,500,000
--------------- --------------- --------------
Total cash and equivalents 25,666,000 25,956,000 30,723,000
Securities:
Available-for-sale, at fair value
(amortized cost - 1996 $58,619,000, 1995 $64,080,000, 58,185,000 64,888,000 29,628,000
1994 $30,559,000)
Held-to-maturity, at amortized cost
(fair value - 1996 $6,124,000, 1995 $6,256,000, 1994 6,094,000 6,099,000 11,861,000
$11,377,000)
Loans:
Commercial 37,158,000 34,263,000 32,294,000
Real estate - construction 14,781,000 14,008,000 15,717,000
Real estate - term 59,295,000 50,580,000 41,200,000
Installment and other 7,637,000 7,989,000 8,437,000
--------------- -------------- --------------
Total loans 118,871,000 106,840,000 97,648,000
Unearned income (1,686,000) (1,631,000) (1,580,000)
Allowance for credit losses (2,969,000) (2,478,000) (1,859,000)
--------------- -------------- --------------
Net loans 114,216,000 102,731,000 94,209,000
Bank premises and equipment - net 2,215,000 2,408,000 2,780,000
Other real estate owned 896,000 830,000 1,419,000
Accrued interest receivable and other assets 6,440,000 4,756,000 5,241,000
--------------- -------------- --------------
TOTAL ASSETS $213,712,000 $207,668,000 $175,861,000
--------------- -------------- --------------
--------------- -------------- --------------
LIABILITIES AND EQUITY
LIABILITIES:
Deposits:
Noninterest-bearing demand $ 49,161,000 $ 49,575,000 $ 43,112,000
Interest-bearing demand 66,918,000 74,944,000 77,380,000
Savings 26,113,000 17, 385,000 17,254,000
Time 23,352,000 22,142,000 14,384,000
--------------- -------------- --------------
Total deposits 165,544,000 164,046,000 152,130,000
Securities sold under agreements to repurchase 24,497,000 20,000,000 4,000,000
Accrued expenses and other liabilities 2,479,000 2,638,000 1,830,000
Indebtedness of employee stock ownership plan - - 191,000
--------------- -------------- --------------
Total liabilities 192,520,000 186,684,000 158,151,000
STOCKHOLDERS' EQUITY:
Preferred stock - no par value;
10,000,000 shares authorized; no shares issued - - -
Common stock - no par value; 20,000,000 shares authorized;
shares outstanding: 2,209,659 in 1996, 2,257,899 in 1995
and 2,277,999 in 1994 11,041,000 11,282,000 11,383,000
Indebtedness of employee stock ownership plan - - (191,000)
Retained earnings 10,402,000 9,230,000 7,062,000
Net unrealized gain (loss) on available-for-sale securities (251,000) 472,000 (544,000)
--------------- -------------- --------------
Total stockholders' equity 21,192,000 20,984,000 17,710,000
--------------- -------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $213,712,000 $207,668,000 $175,861,000
--------------- -------------- --------------
--------------- -------------- --------------
</TABLE>
See notes to consolidated financial statements
55
<PAGE>
COAST BANCORP
CONSOLIDATED INCOME STATEMENTS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31,
----------------------------- -----------------------------------------
(unaudited) (unaudited)
1996 1995 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Interest Income:
Loans, including fees $6,308,000 $5,729,000 $11, 804,000 $ 9,961,000 $ 9,901,000
Federal funds sold 295,000 277,000 671,000 368,000 238,000
Securities:
Taxable 2,093,000 1,438,000 3,284,000 1,666,000 1,206,000
Nontaxable 169,000 185,000 360,000 383,000 307,000
----------- ---------- ------------ ----------- -----------
Total interest income 8,865,000 7,629,000 16,119,000 12,378,000 11,652,000
Interest expense:
Deposits 1,655,000 1,449,000 2,970,000 2,442,000 2,699,000
Other borrowings 655,000 347,000 783,000 - -
----------- ---------- ------------ ----------- -----------
Total interest expense 2,310,000 1,796,000 3,753,000 2,442,000 2,699,000
----------- ---------- ------------ ----------- -----------
Net interest income 6,555,000 5,833,000 12,366,000 9,936,000 8,953,000
Provision for credit losses 450,000 450,000 900,000 600,000 850,000
----------- ---------- ------------ ----------- -----------
Net interest income after provision for credit losses 6,105,000 5,383,000 11,466,000 9,336,000 8,103,000
Noninterest income:
Customer service fees 856,000 745,000 1,527,000 1,501,000 1,440,000
Gain on sale of loans 769,000 397,000 678,000 1,174,000 2,418,000
Loan servicing fees 455,000 431,000 875,000 793,000 664,000
Gain on sale of other real estate owned - - 65,000 163,000 50,000
Gain on sale of bank premises and equipment - 13,000 13,000 7,000 208,000
Gains (losses) on securities transactions 66,000 (13,000) (48,000) 1,000 59,000
Other 261,000 213,000 448,000 405,000 345,000
----------- ---------- ------------ ----------- -----------
Total noninterest income 2,407,000 1,786,000 3,558,000 4,044,000 5,184,000
Noninterest expenses:
Salaries and benefits 2,618,000 2,449,000 5,009,000 4,658,000 4,403,000
Equipment 566,000 504,000 1,043,000 1,072,000 965,000
Occupancy 450,000 443,000 904,000 903,000 931,000
Insurance 53,000 212,000 280,000 463,000 388,000
Stationery and postage 203,000 144,000 278,000 290,000 312,000
Legal fees 15,000 102,000 200,000 148,000 97,000
Other 1,185,000 1,029,000 2,141,000 1,929,000 1,799,000
----------- ---------- ------------ ----------- -----------
Total noninterest expenses 5,090,000 4,883,000 9,855,000 9,463,000 8,895,000
----------- ---------- ------------ ----------- -----------
Income before income taxes 3,422,000 2,286,000 5,169,000 3,917,000 4,392,000
Provision for income taxes 1,354,000 884,000 2,020,000 1,479,000 1,731,000
----------- ---------- ------------ ----------- -----------
Net income $ 2,068,000 $1,402,000 $ 3,149,000 $ 2,438,000 $ 2,661,000
----------- ---------- ------------ ----------- -----------
-----------------------------------------------------------------------------
NET INCOME PER COMMON AND EQUIVALENT SHARE $ .92 $ .62 $ 1.38 $ 1.07 $ 1.17
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements
56
<PAGE>
COAST BANCORP
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1996 AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
Indebtedness Net
of Employee Unrealized
Common Stock Stock Gain (Loss) on
------------------------ Ownership Available-for - Retained
Shares Amount Plan Sale Securities Earnings Total
---------- ----------- ------------ --------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993 2,277,999 $11,383,000 $(595,000) $2,988,000 $13,776,000
Cash dividends paid (342,000) (342,000)
Repayment of employee stock
ownership plan loan 185,000 185,000
Net income 2,661,000 2,661,000
---------- ----------- ------------ --------------- ---------- -----------
Balance, December 31, 1993 2,277,999 11,383,000 (410,000) 5,307,000 16,280,000
Initial recognition of unrealized
gains on available-for-sale
securities $ 46,000 46,000
Cash dividends paid (683,000) (683,000)
Repayment of employee stock
ownership plan loan 219,000 219,000
Net decrease in value of
available-for-sale securities,
net of tax of $387,000 (590,000) (590,000)
Net income 2,438,000 2,438,000
---------- ----------- ------------ --------------- ---------- -----------
Balance, December 31, 1994 2,277,999 11,383,000 (191,000) (544,000) 7,062,000 17,710,000
Cash dividends paid (820,000) (820,000)
Repayment of employee stock
ownership plan loan 191,000 191,000
Net increase in value of
available-for-sale securities,
net of tax of $724,000 1,016,000 1,016,000
Repurchase of common stock (20,100) (101,000) (161,000) (262,000)
Net income 3,149,000 3,149,000
---------- ----------- ------------ --------------- ---------- -----------
Balance, December 31, 1995 2,257,899 11,282,000 - 472,000 9,230,000 20,984,000
Cash dividends paid * (447,000) (447,000)
Net decrease in value of
available-for-sale securities,
net of tax of $519,000 * (723,000) (723,000)
Repurchase of common stock * (48,240) (241,000) (449,000) (690,000)
Net income * 2,068,000 2,068,000
---------- ----------- ------------ --------------- ---------- -----------
Balance, June 30, 1996 * 2,209,659 $11,041,000 - $(251,000) $10,402,000 $21,192,000
---------- ----------- ------------ --------------- ---------- -----------
---------- ----------- ------------ --------------- ---------- -----------
</TABLE>
* Unaudited
See notes to consolidated financial statements
57
<PAGE>
COAST BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31,
------------------------- ---------------------------------------
1996 1995 1995 1994 1993
----------- ----------- ----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATIONS:
Net income $2,068,000 $1,402,000 $3,149,000 $ 2,438,000 $ 2,661,000
Adjustments to reconcile net income to net cash provided by
(used in) operations:
Provision for credit losses 450,000 450,000 900,000 600,000 850,000
Depreciation and amortization 9,000 (67,000) (101,000) 1,074,000 735,000
Loss (gain) on sale of property 5,000 (13,000) (78,000) (7,000) (208,000)
Losses (gains) on securities transactions 51,000 (13,000) 48,000 (1,000) (59,000)
Deferred income taxes (382,000) (266,000) (601,000) 36,000 (206,000)
Proceeds from loan sales 20,093,000 10,842,000 20,835,000 34,673,000 45,405,000
Origination of loans held for sale (27,108,000) (13,803,000) (24,283,000) (31,975,000) (45,902,000)
Accrued interest receivable and other assets (783,000) 196,000 363,000 (671,000) (1,408,000)
Accrued expenses and other liabilities (159,000) (130,000) 808,000 964,000 (17,000)
Increase in unearned income 504,000 413,000 875,000 630,000 306,000
Other - net (66,000) 139,000 178,000 - 302,000
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) operations (5,318,000) (850,000) 2,093,000 7,761,000 2,459,000
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of available-for-sale securities 4,628,000 2,855,000 4,665,000 7,911,000 -
Proceeds from maturities of investment securities 11,940,000 3,181,000 9,723,000 5,727,000 1,500,000
Purchases of investment securities (11,207,000) (13,318,000) (42,140,000) (20,237,000) (15,657,000)
Net (increase) decrease in loans (4,975,000) 4,553,000 (6,025,000) (10,708,000) 8,041,000
Purchases of bank premises and equipment (216,000) (262,000) (418,000) (209,000) (1,208,000)
Proceeds from disposals of bank premises and equipment - 26,000 26,000 19,000 781,000
Proceeds from sales of other real estate owned - - 475,000 1,331,000 624,000
Net cash provided by (used in) investing activities 170,000 (2,965,000) (33,694,000) (16,166,000) (5,919,000)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from securities sold under agreements to repurchase 4,497,000 6,000,000 16,000,000 4,000,000 -
Net increase in deposits 1,498,000 973,000 11,916,000 16,557,000 2,788,000
Payment of cash dividends (447,000) (410,000) (820,000) (683,000) (342,000)
Repurchase of common stock (690,000) - (262,000) - -
----------- ----------- ----------- ----------- -----------
Net cash provided by financing activities 4,858,000 6,563,000 26,834,000 19,874,000 2,446,000
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (290,000) 2,748,000 (4,767,000) 11,469,000 (1,014,000)
----------- ----------- ----------- ----------- -----------
Cash and equivalents, beginning of period 25,956,000 30,723,000 30,723,000 19,254,000 20,268,000
----------- ----------- ----------- ----------- -----------
Cash and equivalents, end of period $25,666,000 $33,471,000 $25,956,000 $30,723,000 $19,254,000
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
OTHER CASH FLOW INFORMATION - CASH PAID DURING THE YEAR FOR:
Interest $3,314,000 $2,164,000 $ 3,351,000 $ 2,432,000 $ 2,767,000
Income taxes 1,712,000 1,513,000 2,393,000 892,000 2,215,000
NON-CASH INVESTING AND FINANCING TRANSACTIONS:
Additions to other real estate owned $ 66,000 - - $ 2,247,000 $ 364,000
</TABLE>
See notes to consolidated financial statements
58
<PAGE>
COAST BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1996 (unaudited) and
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
- - --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - In May 1995, the shareholders of Coast Commercial Bank
approved a plan which provided for the formation of COAST BANCORP (a bank
holding company) and the conversion of each share of outstanding Coast
Commercial Bank common stock into one share of Coast Bancorp common stock.
Effective July 25, 1995 Coast Bancorp issued 2,277,999 shares of its common
stock for all the outstanding shares of Coast Commercial Bank through a
merger which has been accounted for similar to a pooling of interests in
that the historical cost basis of Coast Commercial Bank has been carried
forward. As a result of the merger, Coast Commercial Bank became a
wholly-owned subsidiary of Coast Bancorp.
NATURE OF OPERATIONS - Coast Bancorp (the Company) and its subsidiary,
Coast Commercial Bank (the Bank), operate 5 branches in Santa Cruz County,
California. The Company's primary source of revenue is loans to customers,
who are predominately small and middle-market businesses and middle-income
individuals.
BASIS OF PRESENTATION - The accounting and reporting policies of the
Company and the Bank conform to generally accepted accounting principles
and to prevailing practices within the banking industry. The methods of
applying those principles which materially affect the consolidated
financial statements are summarized below. In preparing the financial
statements, management is required to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities, as of the dates of the balance sheets,
and revenues and expenses for the periods indicated. Actual results could
differ from those estimates.
CONSOLIDATION - The consolidated financial statements include the accounts
of the Company and the Bank. All material intercompany accounts and
transactions have been eliminated.
CASH AND CASH EQUIVALENTS - For purposes of reporting cash flows, cash and
cash equivalents include cash on hand, amounts due from banks and federal
funds sold. Generally, federal funds sold are sold for one-day periods.
SECURITIES - The Company adopted Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and
Equity Securities", effective January 1, 1994. This Statement requires
entities to classify debt securities into one of three categories:
held-to-maturity, trading or available-for-sale. Investments in debt
securities are classified as held-to-maturity and measured at amortized cost
only if the Company has the positive intent and ability to hold such
securities to maturity. All other investments in debt and equity are
classified as either trading securities, which are bought and held
principally for the purpose of selling them in the near term and are carried
at market value with a corresponding recognition of the unrealized holding
gain or loss in results of operations, or as available-for-sale securities,
which are all other securities and are carried at market value with a
corresponding recognition of the unrealized holding gain or loss as a net
amount in a separate component of stockholders' equity until realized.
59
<PAGE>
Prior to adopting SFAS No. 115, the Company accounted for investment
securities at amortized cost, based on management's intent to hold the
securities for investment purposes.
Amortization of premiums and accretion of discounts arising at acquisition
of securities are included in income using methods that approximate the
interest method. Market values are based on quoted market prices or dealer
quotes. Gains or losses on the sale of securities are computed using the
specific identification method.
LOANS - Loans are stated at the principal amount outstanding. Loans held
for sale are carried at the lower of cost or market. Interest on loans is
credited to income as earned.
The accrual of interest is discontinued and any accrued and unpaid interest
is reversed when the payment of principal or interest is 90 days past due
unless the amount is well secured and in the process of collection. Income
on nonaccrual loans is then recognized only to the extent that cash is
received and where the future collection of principal is probable.
Loan origination fees and costs are deferred and amortized to income by a
method approximating the effective interest method over the estimated lives
of the underlying loans. Fees received by the Company relating to mortgage
loans held for sale are recognized when the loans are sold.
The Company originates loans that are guaranteed in part by the Small
Business Administration (SBA). The guaranteed portion of such loans can be
sold without recourse. The Company retains the servicing for the portion
sold and has credit risk for the remaining unguaranteed portion. Gains or
losses realized on loans sold are determined by allocating the recorded
investment between the portion of the loan sold and the portion retained
based on an estimate of the relative fair values of those portions as of
the date the loan is sold. Sales of SBA loans totaled $6,915,000,
$15,807,000, and $28,075,000 during 1995, 1994 and 1993, respectively. SBA
loans serviced for other investors were $71,216,000 at December 31, 1995.
The Company also originates and sells residential mortgage loans to the
Federal Home Loan Mortgage Corporation and other participants in the
mortgage markets. Sales of residential mortgage loans totaled
$13,920,000, $18,866,000, and $17,330,000 during 1995, 1994, and 1993,
respectively. Residential mortgage loans serviced for other investors were
$46,637,000 at December 31, 1995.
ALLOWANCE FOR CREDIT LOSSES - The allowance for credit losses is
established through a provision charged to expense. Loans are charged
against the allowance when management believes that the collectibility of
the principal is unlikely. The allowance is an amount that management
believes will be adequate to absorb losses inherent in existing loans and
commitments to extend credit, based on evaluations of collectibility and
prior loan loss experience. The evaluations take into consideration such
factors as changes in the composition of the portfolio, overall portfolio
quality, loan concentrations, specific problem loans, and current and
anticipated local economic conditions that may affect the borrowers'
ability to pay.
In evaluating the probability of collection, management is required to make
estimates and assumptions that affect the reported amounts of loans,
allowance for credit losses and the provision for credit losses charged to
operations. Actual results could differ significantly from those
estimates.
BANK PREMISES AND EQUIPMENT - Bank premises and equipment are stated at
cost less accumulated depreciation and amortization. Depreciation and
amortization are computed on a straight-line basis over the estimated
useful lives of three to twenty years. The Company adopted SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets to be Disposed of"
effective January 1, 1995. The adoption of this statement had no effect on
the Company's financial position or results of operations.
60
<PAGE>
OTHER REAL ESTATE OWNED - Other real estate owned consists of property
acquired as a result of a foreclosure proceeding or through receipt of a
deed-in-lieu of foreclosure. Other real estate owned is carried at the
lower of cost or fair value minus estimated costs to sell. Any excess of
the loan balance over the fair value when the property is acquired is
charged to the allowance for credit losses. Subsequent declines in fair
value, if any, and disposition gains and losses are included in noninterest
income and noninterest expense.
ACCRUED INTEREST RECEIVABLE AND OTHER ASSETS - Accrued interest receivable
and other assets includes the cash surrender value of single premium
insurance policies of $1,979,000 and $1,942,000 at December 31, 1995 and
1994, respectively.
INCOME TAXES - Deferred income taxes are provided for temporary differences
between financial statement and income tax reporting, in accordance with
SFAS No. 109.
NET INCOME PER COMMON AND EQUIVALENT SHARE - Net income per common and
equivalent share is computed using the weighted average shares outstanding
plus the dilutive effect of stock options. The number of shares used to
compute net income per share for the six month periods ended June 30, 1996
and 1995 was 2,235,856 and 2,277,999, respectively, and for the years ended
December 31, 1995, 1994 and 1993 was 2,280,285, 2,277,999 and 2,277,999,
respectively. The difference between primary and fully diluted net income
per share is not significant in any period.
RECLASSIFICATIONS - Certain amounts in the 1993 and 1994 consolidated
financial statements have been reclassified to conform to the 1995
presentation. These reclassifications had no impact on stockholders'
equity or net income.
INTERIM FINANCIAL STATEMENTS (UNAUDITED) - The interim financial statements
as of June 30, 1996 and for the six month periods ended June 30, 1996 and
1995 are unaudited. In the opinion of management, these financial
statements bave been prepared on the same basis as the audited financial
statements and reflect all adjustments, consisting solely of adjustments of
a normal recurring nature, which are necessary to present fairly the
results as of such date and for such interim periods. The results of
interim periods are not necessarily indicative of results of operations
expected for a full year. The information disclosed in these notes to the
consolidated financial statements related to these periods is unaudited.
61
<PAGE>
2. RESTRICTED CASH BALANCES
The Company, through its bank subsidiary, is required to maintain reserves
with the Federal Reserve Bank of San Francisco. Reserve requirements are
based on a percentage of certain deposits. At December 31, 1995 the
Company maintained reserves of $3,270,000 in the form of vault cash and
balances at the Federal Reserve which satisfied the regulatory
requirements.
3. INVESTMENT SECURITIES
The amortized cost and estimated market values of investment securities at
are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gain Loss Market Value
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
JUNE 30, 1996
Available-for-sale:
U.S. Treasury and agency securities $ 6,004,000 $ - $ (50,000) $ 5,954,000
Mortgage-backed securities 51,836,000 461,000 (962,000) 51,335,000
Other 779,000 117,000 - 896,000
----------- ---------- ----------- -----------
Total $58,619,000 $ 578,000 $(1,012,000) $58,185,000
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
Held-to-maturity - State and municipal obligations $ 6,094,000 $ 116,000 $ (86,000) $ 6,124,000
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
DECEMBER 31, 1995
Available-for-sale:
U.S. Treasury and agency securities 11,029,000 $ 20,000 $ (27,000) $11,022,000
Mortgage-backed securities 52,489,000 824,000 (165,000) 53,148,000
Other 562,000 156,000 - 718,000
----------- ---------- ----------- -----------
Total $64,080,000 $1,000,000 $ (192,000) $64,888,000
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
Held-to-maturity - State and municipal obligations $ 6,099,000 $ 180,000 $ (23,000) $ 6,256,000
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
1994
Available-for-sale:
U.S. Treasury and agency securities $ 7,606,000 $ 4,000 $ (299,000) $ 7,311,000
Mortgage-backed securities 22,466,000 - (889,000) 21,577,000
Other 487,000 253,000 - 740,000
----------- ---------- ----------- -----------
Total $30,559,000 $ 257,000 $(1,188,000) $29,628,000
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
Held-to-maturity:
Mortgage-backed securities $ 5,265,000 - $ (208,000) $ 5,057,000
State and municipal obligations 6,596,000 $ 101,000 (377,000) 6,320,000
----------- ---------- ----------- -----------
Total $11,861,000 $ 101,000 $ (585,000) $11,377,000
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
</TABLE>
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<PAGE>
The amortized cost and estimated market value of debt securities at June
30, 1996 and December 31, 1995, by contractual maturity, are as follows:
<TABLE>
<CAPTION>
JUNE 30, 1996 Available-for-sale Held-to-maturity
---------------------------- --------------------------
Amortized Estimated Amortized Estimated
Cost Market Value Cost Market Value
----------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury and agency and state and
municipal securities:
Due within one year $ 3,045,000 $ 3,013,000 $ 175,000 $ 175,000
Due after 1 year through 5 years 2,959,000 2,941,000 1,416,000 1,473,000
Due after 5 years through 10 years - - 2,054,000 2,054,000
Due after 10 years - - 2,449,000 2,422,000
----------- ----------- ---------- ----------
6,004,000 5,954,000 6,094,000 6,124,000
Mortgage-backed securities 51,836,000 51,335,000 - -
----------- ----------- ---------- ----------
Total $57,840,000 $57,289,000 $6,094,000 $6,124,000
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
<CAPTION>
DECEMBER 31, 1995 Available-for-sale Held-to-maturity
---------------------------- --------------------------
Amortized Estimated Amortized Estimated
Cost Market Value Cost Market Value
----------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury and agency and state and
municipal securities:
Due within one year $ 5,999,000 $ 5,996,000 $ 175,000 $ 175,000
Due after 1 year through 5 years 5,030,000 5,026,000 941,000 1,009,000
Due after 5 years through 10 years - - 2,251,000 2,309,000
Due after 10 years - - 2,732,000 2,763,000
----------- ----------- ---------- ----------
11,029,000 11,022,000 6,099,000 6,256,000
Mortgage-backed securities 52,489,000 53,148,000 - -
----------- ----------- ---------- ----------
Total $63,518,000 $64,170,000 $6,099,000 $6,256,000
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
</TABLE>
Proceeds from sales of available-for-sale securities during 1995 and 1994
were $4,665,000 and $7,911,000, respectively, which resulted in gross gains
of $10,000 and gross losses of $58,000 in 1995 and gross gains of $202,000
and gross losses of $201,000 in 1994.
At December 31, 1995, investment securities with a carrying value of
$33,622,000 were pledged to collateralize public deposits and for other
purposes as required by law or contract.
Effective December 1, 1995, mortgage-backed securities totaling $4,667,000
in amortized cost and $4,665,000 in market value were reclassified from
held-to-maturity to available-for-sale, in connection with the adoption of
the Financial Accounting Standards Board Special Report, "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in
Debt and Equity Securities."
4. ALLOWANCE FOR CREDIT LOSSES
Changes in the allowance for credit losses are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------------- -----------------------
63
<PAGE>
1996 1995 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, beginning of period $2,478,000 $1,859,000 $1,859,000 $1,723,000 $1,572,000
Provision charged to expense 450,000 450,000 900,000 600,000 850,000
Loans charged off (64,000) (235,000) (401,000) (508,000) (769,000)
Recoveries 105,000 62,000 120,000 44,000 70,000
----------- ----------- ----------- ----------- -----------
Balance, end of period $2,969,000 $2,136,000 $2,478,000 $1,859,000 $1,723,000
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
Nonaccrual loans were $518,000, $824,000, $848,000 and $1,427,000 at
June 30, 1996, and December 31, 1995, 1994, and 1993, respectively.
The Financial Accounting Standards Board issued SFAS No. 114, "Accounting
by Creditors for Impairment of a Loan" in 1993 and SFAS No. 118, "Accounting
by Creditors for Impairment of a Loan - Income Recognition and Disclosure"
in 1994, both of which were implemented in the first quarter of 1995. SFAS
No. 114 requires the Bank to measure impaired loans based upon the present
value of expected future cash flows discounted at the loan's effective
interest rate, except that as a practical expedient, a creditor may measure
impairment based on a loan's observable market price or the fair value of
the collateral if the loan is collateral dependent. A loan is impaired
when, based upon current information and events, it is probable that a
creditor will be unable to collect all amounts due according to the
contractual terms of the loan agreement. SFAS No. 118 amends SFAS No. 114
to allow a creditor to use existing methods for recognizing interest income
on impaired loans and requires certain information to be disclosed. The
recorded investment in impaired loans at December 31, 1995 was comprised of
one loan of $343,000, which had a related allowance of $69,000. Such
allowance is a portion of the allowance for credit losses. For 1995, the
average recorded investment in impaired loans was $369,000. No interest
income was recognized during the period of impairment.
At December 31, 1995, SBA loans held for sale were $2,206,000 (1994,
$962,000). Mortgage loans held by the Company pending completion of their
sale to the Federal Home Loan Mortgage Corporation (FHLMC) or other
investors were $2,204,000 at December 31, 1995. No mortgage loans were
held pending completion of sale at December 31, 1994. The Company does not
anticipate any loss on the sale of these loans
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<PAGE>
5. BANK PREMISES AND EQUIPMENT
Premises and equipment at December 31 are comprised of the following:
1995 1994
---------- ----------
Buildings and leasehold improvements $2,332,000 $2,327,000
Furniture and equipment 4,244,000 3,912,000
---------- ----------
Total 6,576,000 6,239,000
Accumulated depreciation and amortization (4,168,000) (3,459,000)
---------- ----------
Net bank premises and equipment $2,408,000 $2,780,000
---------- ----------
---------- ----------
Certain of the Company's premises are leased under noncancelable operating
leases which have, in certain instances, renewal options. Future minimum
lease payments are as follows:
1996 $ 598,000
1997 397,000
1998 322,000
1999 168,000
2000 67,000
----------
Total $1,552,000
----------
----------
Rent expense for operating leases was $602,000, $581,000 and $588,000 in
1995, 1994 and 1993, respectively.
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<PAGE>
6. INCOME TAXES
The provision for income taxes consists of the following:
1995 1994 1993
---------- ---------- ----------
Current:
Federal $1,895,000 $ 969,000 $1,416,000
State 726,000 474,000 521,000
---------- ---------- ----------
Total current 2,621,000 1,443,000 1,937,000
---------- ---------- ----------
Deferred:
Federal (471,000) 30,000 (173,000)
State (130,000) 6,000 (33,000)
---------- ---------- ----------
Total deferred (601,000) 36,000 (206,000)
---------- ---------- ----------
Total $2,020,000 $1,479,000 $1,731,000
---------- ---------- ----------
---------- ---------- ----------
The effective tax rate differs from the federal statutory rate as follows:
1995 1994 1993
-------- -------- -------
Statutory federal income tax rate 35.0 35.0 35.0
State income taxes, net of federal tax effect 7.6 7.3 7.3
Tax exempt income (2.2) (3.0) (2.4)
Other - net (1.3) (1.5) (0.5)
-------- -------- -------
Total 39.1 % 37.8 % 39.4 %
-------- -------- -------
-------- -------- -------
The Company's net deferred tax assets are comprised of the following:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- --------
<S> <C> <C> <C>
Deferred tax assets:
Provision for credit losses $ 870,000 $ 689,000 $617,000
Accelerated depreciation 291,000 77,000 102,000
State income tax 143,000 108,000 112,000
Unrealized losses on available-for sale-securities - 387,000 -
Other 168,000 - 9,000
---------- ---------- --------
Total deferred tax assets 1,472,000 1,261,000 840,000
Unrealized gains on available-for sale-securities (336,000) - -
Deferred tax liabilities-other (67,000) (70,000) -
---------- ---------- --------
Total $1,069,000 $1,191,000 $840,000
---------- ---------- --------
---------- ---------- --------
</TABLE>
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<PAGE>
7. COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, there are outstanding various commitments
and contingent liabilities which are not reflected in the consolidated
financial statements. The Company does not anticipate losses as a result
of these commitments. Undisbursed loan commitments total $32,648,000 and
$38,633,000 at June 30, 1996 and December 31, 1995, respectively. Standby
letters of credit were $5,401,000 and $4,802,000, at June 30, 1996 and
December 31, 1995, respectively. The Company's exposure to credit loss is
limited to amounts funded or drawn
Loan commitments are typically contingent upon the borrower meeting certain
financial and other covenants and such commitments typically have fixed
expiration dates and require payment of a fee. As many of these
commitments are expected to expire without being drawn upon, the total
commitments do not necessarily represent future cash requirements. The
Company evaluates each potential borrower and the necessary collateral on
an individual basis. Collateral varies, but may include real property,
bank deposits or business or personal assets.
Standby letters of credit are conditional commitments written by the
Company to guarantee the performance of a customer to a third party. These
guarantees are issued primarily relating to inventory purchases by the
Company's commercial customers and such guarantees are typically short-term.
Credit risk is similar to that involved in extending loan commitments to
customers and the Company, accordingly, uses evaluation and collateral
requirements similar to those for loan commitments. Virtually all of such
commitments are collateralized.
8. LOAN CONCENTRATIONS
The Bank's customers are primarily located in Santa Cruz, Monterey and San
Benito counties, an area on the California coast south of San Francisco.
Commercial loans represent 32% of total loans, with no particular industry
representing a significant portion. Approximately 13% of the Company's
loans are for real estate construction including single family residential
and commercial properties. Other real estate secured loans, primarily for
commercial properties, represent another 48% of loans. Installment and
other loans, primarily automobile and mobile home loans, represent the
remainder of loans. Many of the Company's customers are employed by or are
otherwise dependent on the high technology, tourism, agriculture and real
estate development industries and, accordingly, the ability of any of the
Company's borrowers to repay loans may be affected by the performance of
these sectors of the economy. Virtually all loans are collateralized.
Generally, real estate loans are secured by real property and commercial
and other loans are secured by bank deposits or business or personal
assets. Repayment is generally expected from refinancing or sale of the
related property for real estate construction loans and from cash flows of
the borrower for other loans.
9. RELATED PARTY LOANS
The Bank may make loans to directors and their associates subject to
approval by the Board of Directors. These transactions are at terms and
rates comparable to those granted to other customers of the Company. An
analysis of changes in related party loans for the year ended December 31,
1995 is as follows:
BEGINNING BALANCE ADDITIONS REPAYMENTS ENDING BALANCE
$207,000 $1,000 $38,000 $170,000
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<PAGE>
10. REGULATORY MATTERS
The Company and Bank are subject to capital guidelines issued by federal
and state regulatory agencies. Currently, the minimum total capital ratio
(defined as stockholder's equity plus the allowance for credit losses
divided by total assets plus the allowance for credit losses) for
California state-chartered banks is 6%. The Company's total capital ratio
was 9.9% and 9.5% June 30, 1996 and December 31, 1995, respectively. The
federal agencies have adopted risk-based capital guidelines which compare
Tier 1 capital, primarily stockholders' equity, and total capital, Tier 1
capital plus a portion of the allowance for credit losses, to risk-weighted
assets. Minimum required ratios for Tier 1 and total risk-based capital
are 4% and 8%, respectively. The Company maintained Tier 1 risk-based
capital ratios of 15.2% and 15.8% and total risk-based capital ratios of
16.5% and 17.0% at June 30, 1996 and December 31, 1995, respectively. In
addition, regulatory agencies have adopted a 3% minimum leverage ratio of
Tier 1 capital to total assets. Banks anticipating significant asset
growth are expected to maintain leverage ratios in excess of the minimum,
between 4% and 5%. The Company's leverage ratio was 10.1% and 10.2% at
June 30, 1996 and December 31, 1995, respectively.
11. EMPLOYEE BENEFIT PLANS
The Company has a 401(k) tax-deferred savings plan under which eligible
employees may elect to have a portion of their salary deferred and
contributed to the plan. The Company is not obligated to, but may
contribute to the plan. During 1995, the Company matched each employee's
contribution up to $500, aggregating $42,000 ($42,000 in 1994 and $37,000
in 1993). Participants may elect several investment options, including
investment in the Company's common stock.
Substantially all employees with at least 1,000 hours of service are
covered by a discretionary employee stock ownership plan (ESOP). The ESOP
borrowed $698,000 during 1991 and 1992 to purchase 82,985 shares of the
Company's common stock at fair market value from certain directors. During
1995 the loan was fully repaid. The loan had been recorded as a liability
of the Company with a corresponding reduction to stockholders' equity. The
ESOP serviced the loan with contributions from the Company and with
proceeds from sale of stock to 401(k) plan participants. The Company's
contribution to the ESOP was $120,000 in 1995, 1994 and 1993.
The Bank has a salary continuation plan for two officers which provides for
retirement benefits upon reaching age 65. The Bank accrues such
post-retirement benefits over the vesting period of ten years. In the event
of a change in control of the Company, the officers' benefits will fully
vest. The Bank accrued $146,000, $40,000, and $24,000 in 1995, 1994, and
1993, respectively.
The Bank has a deferred compensation plan whereby certain directors defer
their fees until age 65 or 70. Amounts deferred accrue interest at a rate
determined annually by the Board of Directors (8.8% for 1995). Accumulated
benefits are paid over 8 to 13 years. Total deferred director fees at
December 31, 1995 and 1994 were $247,000, and $157,000, respectively.
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<PAGE>
During 1995, shareholders approved a stock option plan for the granting of
incentive and non-qualified stock options that entitle directors, officers
and key employees to purchase shares of the Company's common stock at a
price not less than the fair market value on the date the option is
granted. Options vest over various periods as set by the Stock Option
Committee and expire five to ten years from the date of grant. During 1995
the only stock option activity was the grant of options on 14,000 shares at
$10.25 per share. As of December 31, 1995, options for 14,000 shares were
exercisable. Options for 386,000 shares were available at December 31,
1995 for future grants. During the first six months of 1996, stock option
activity consisted of the grant of options on 64,000 shares at $14.25 per
share.
12 DISCLOSURE OF FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
"Disclosures About Fair Value of Financial Instruments." The estimated
fair value amounts have been determined by using available market
information and appropriate valuation methodologies. However, considerable
judgment is required to interpret market data to develop the estimates of
fair value. Accordingly, the estimates presented are not necessarily
indicative of the amounts that could be realized in a current market
exchange. The use of different market assumptions and/or estimation
techniques may have a material effect on the estimated fair value amounts.
The following table presents the carrying amount and estimated fair value
of certain assets and liabilities held by the Company at December 31, 1995.
The carrying amounts reported in the consolidated balance sheets
approximate fair value for the following financial instruments: cash and
due from banks, federal funds sold, and demand and savings deposits. See
Note 3 for a summary of the estimated fair value of securities.
<TABLE>
<CAPTION>
December 31, 1995
-------------------------------
Carrying Estimated Fair
Amount Value
-------------- ---------------
<S> <C> <C>
Loans, net $102,731,000 $102,413,000
Time deposits $ 22,142,000 $ 22,155,000
Securities sold under agreements to repurchase $ 20,000,000 $ 20,110,000
</TABLE>
The following methods and assumptions were used by the Company in computing
the estimated fair values in the above table:
LOANS, NET - The fair value of variable rate loans is the carrying value as
these loans are regularly adjusted to market rates. The fair value of
fixed rate loans is estimated by discounting the future cash flows using
current rates at which similar loans would be made to borrowers with
similar credit ratings for the same remaining maturities, adjusted by the
allowance for loan losses.
TIME DEPOSITS - The fair value of fixed rate time deposits was estimated by
discounting the cash flows using rates currently offered for deposits of
similar remaining maturities.
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<PAGE>
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE - The fair value of fixed
rate securities sold under agreements to repurchase was estimated by
discounting the cash flows using rates currently offered for these types of
borrowings of similar remaining maturities.
UNUSED COMMITMENTS TO EXTEND CREDIT - The fair value of letters of credit
and standby letters of credit is not significant.
13. RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS (unaudited)
The Financial Accounting Standards Board has recently issued SFAS No. 122,
"Accounting for Mortgage Servicing Rights" and SFAS No. 123, "Accounting
for Stock-Based Compensation." SFAS No. 122, which was implemented in
the first quarter of 1996, requires entities to recognize as separate
assets rights to service mortgage loans for others without regard to how
those rights were acquired and to assess capitalized mortgage servicing
rights for impairment of value based upon the fair value of those rights.
Adoption of this standard did not have a material impact on the Company
financial position or results of operations.
SFAS No. 123, which also was implemented in the first quarter of 1996,
defines a fair value method of accounting for stock options and other
equity instruments, such as stock purchase plans. The new standard permits
companies to continue to account for equity transactions with employees
under existing accounting rules, but requires disclosure in a note to the
financial statements of the pro-forma net income and earnings per share as
if the company had applied the new method of accounting. The Company
intends to follow these disclosure requirements for its employee stock
plans. As a result, the adoption of the new standard did not impact
reported earnings or earnings per share, and had no impact on the Company's
cash flows.
The Financial Accounting Standards Board has recently issued SFAS
No. 125, "Accounting for Tranfers and Servicing of Financial Assets and
Extinguishments of Liabilities" effective for transactions occurring after
December 31, 1996. SFAS No. 125 requires that an asset seller
must meet defined conditions to demonstrate that it has surrendered control
over the assets. The failure to meet these conditions usually results in
on-balance sheet treatment for the assets and a liability for the sale
proceeds received. SFAS No. 125 also requires that contracts to service are
recorded as an asset or a liability based on fair value or on an allocation
of the carrying amount of the financial asset. SFAS 125 covers subsequent
accounting, including impairments, and eliminates the distinction between
excess and normal servicing. The Company does not believe that adoption of
this standard will have a significant impact on its financial position or
results of operations.
70
<PAGE>
14. PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
As described in Note 1 to the consolidated financial statements, the merger
of Coast Commercial Bank with the Company became effective July, 25, 1995.
The condensed financial statements of Coast Bancorp (parent company only)
as of and for the year ended December 31, 1995 follow:
<TABLE>
<S> <C>
CONDENSED BALANCE SHEET
Cash $ 3,307,000
Investment in Coast Commercial Bank 17,665,000
Other assets 12,000
------------
Total $20,984,000
------------
------------
Liabilities $ -
Stockholders' equity 20,984,000
------------
Total $20,984,000
------------
------------
CONDENSED INCOME STATEMENT
Interest income $ 39,000
General and administrative expenses (53,000)
------------
Loss before equity in net income of Coast Commercial Bank (14,000)
Equity in net income of Coast Commercial Bank:
Dividends received 4,000,000
Excess of dividends received over equity in net income (842,000)
Income tax benefit (expense) 5,000
------------
Net income $ 3,149,000
------------
------------
STATEMENT OF CASH FLOWS
Net income $ 3,149,000
Reconciliation of net income to net cash used by operations:
Excess of dividends received over equity in net income 842,000
Other assets (12,000)
------------
Net cash provided by operations 3,979,000
Financing activities:
Cash dividends paid to shareholders (410,000)
Repurchase of common stock (262,000)
------------
Net cash applied to financing activities (672,000)
------------
Net increase in cash $ 3,307,000
------------
------------
</TABLE>
71
<PAGE>
One of the principal sources of cash for the Company will be dividends from
its subsidiary Bank. Banking regulations limit the amount of dividends
that may be paid without prior approval of the Company's regulatory
agencies to the lesser of retained earnings or the net income of the
Company for its last three fiscal years, less any distributions during such
period, subject to capital adequacy requirements. At December 31, 1995,
the Company has approximately $2,900,000 available for payment of dividends
which would not require the prior approval of the banking regulators under
this limitation.
* * * * *
Independent Auditors' Report
- - --------------------------------------------------------------------------------
To the Board of Directors and Stockholders of Coast Bancorp:
We have audited the accompanying consolidated balance sheets of Coast
Bancorp (formerly Coast Commercial Bank) and its subsidiary as of December
31, 1995 and 1994, and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the three years in the
period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Coast Bancorp and its
subsidiary at December 31, 1995 and 1994, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1995 in confomity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
SAN JOSE, CALIFORNIA
JANUARY 27, 1996
72
<PAGE>
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
EXHIBIT INDEX
Exhibit No. DESCRIPTION
- - ----------- -----------
(2.1) Plan of Reorganization and Merger Agreement
dated March 7, 1995 by and between Coast
Commercial, Coast Merger Corporation and
Coast Bancorp.
(3.1) Articles of Incorporation of Coast Bancorp.
(3.2) Bylaws of Coast Bancorp.
(10.1) Salary Continuation Agreement dated September
19, 1992 by and between Coast Commercial Bank
and Harvey J. Nickelson.
(10.2) Salary Continuation Agreement dated September
19, 1992 by and between Coast Commercial Bank
and David V. Heald.
(10.3) Lease by and between Friend, Friend and Friend
and Coast Commercial Bank dated November, 1986,
for 720 Front Street, Santa Cruz, California.
(10.4) Lease by and between Green Valley Corporation
and Coast Commercial Bank dated July 12, 1988,
for 740 Front Street, Santa Cruz, California.
(10.5) Lease by and between Heffernan Family Trust and
Coast Commercial Bank dated June 21, 1989, for
1975 Soquel Drive, Santa Cruz,California.
(10.6) Lease by and between Martin N. Boone and Robin
Sherman and Coast Commercial Bank dated July
16, 1986, for 7775 Soquel Drive, Aptos, California.
73
<PAGE>
(10.7) Lease by and between Scott Valley Partners and
Coast Commercial Bank dated November 6, 1991,
for 203A Mt. Hermon Road, Scotts Valley.
(10.8) Lease by and between Jay Paul and Coast Commercial
Bank dated December 1, 1989, for 1055 S. Green
Valley Road,. Watsonville.
(10.9) Lease by and between Dubois Office Plaza and Coast
Commercial Bank dated January 23, 1993, for 140
Dubois Street, Santa Cruz.
(10.10) Coast Commercial Bank Employee Stock Ownership Plan.
(10.11) Coast Bancorp 1995 Stock Option Plan.
(10.12) Deferred Compensation Agreement with Richard E.
Alderson dated November 2, 1992.
(10.13) Deferred Compensation Agreement with Douglas D.
Austin Dated Nobember 2, 1992.
(10.14) Deferred Compensation Agreement with Bud W.
Cummings Dated Nobember 2, 1992.
(10.15) Deferred Compensation Agreement with Ronald M.
Israel Dated Nobember 2, 1992.
(10.16) Deferred Compensation Agreement with Malcolm D.
Moore Dated Nobember 2, 1992.
(10.17) Deferred Compensation Agreement with Gus J.F.
Norton Dated Nobember 2, 1992.
(10.18) Deferred Compensation Agreement with James C.
Thompson Dated Nobember 2, 1992.
74
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly issued this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
COAST BANCORP
Date: September 27, 1996
By: /s/ Harvey J. Nickelson
--------------------------------------------
Harvey J. Nickelson, President
and Chief Executive Officer
75
<PAGE>
POWER OF ATTORNEY
Each person whose signature appears below hereby constitues and appoints
Harvey J. Nickelson and Bruce H. Kendall and each of them, his true and
lawful attorney-in-fact and agent, with full powers of substitution, for him
and in his name, place and stead, in any and all capacities, to sign and to
file any and all amendments, including pre- and/or post-effective amendments
to this Registration Statement, with the Securities and Exchange Commission,
granting to said attorney-in-fact full power and authority to perform any
other act on behalf of the undersigned required to be done in connection
therewith.
Pursuant to the requirements of the Securities Act of 1934, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/ Douglas D. Austin Director July 17, 1996
- - ------------------------
DOUGLAS D. AUSTIN
/s/ John C. Burroughs Director July 17, 1996
- - ------------------------
JOHN C. BURROUGHS
/s/ Bud W. Cummings Director July 17, 1996
- - ------------------------
BUD W. CUMMINGS
/s/ Bruce H. Kendall Senior Vice President July 17, 1996
- - ------------------------ and Chief Financial
BRUCE H. KENDALL Officer (Principal
Financial and
Accounting Officer)
/s/ Malcolm D. Moore Director July 17, 1996
- - ------------------------
MALCOLM D. MOORE
76
<PAGE>
/s/ Harvey J. Nickleson President, Chief July 17, 1996
- - ------------------------ Executive Officer and
HARVEY J. NICKLESON Director
/s/ Gus J.F. Norton Director July 17, 1996
- - ------------------------
GUS J.F. NORTON
/s/ James C. Thompson Chairman of the Board July 17, 1996
- - ------------------------ of Directors
JAMES C. THOMPSON
/s/ Ronald W. Israel Director July 17, 1996
- - ------------------------
RONALD M. ISRAEL
77
<PAGE>
Exhibit 2.1
PLAN OF REORGANIZATION AND MERGER AGREEMENT
This Plan of Reorganization and Merger Agreement (the "Merger Agreement")
is entered into as of the ____ day of _____, 1995, by and among Coast Commercial
Bank (the "Bank"), Coast Merger Corporation (the "Subsidiary"), and Coast
Bancorp (the "Holding Company").
RECITALS AND UNDERTAKINGS
A. The Bank is a California state-chartered bank with its principal
office in the City of Santa Cruz, County of Santa Cruz, State of California.
The Subsidiary and the Holding Company are corporations duly organized and
existing under the laws of the State of California with their principal offices
in the City of Santa Cruz, County of Santa Cruz, State of California.
B. As of the date hereof, the Bank has 3,000,000 shares of common stock
authorized, 2,277,999 shares of common stock issued and outstanding, and no
shares of preferred stock issued and outstanding.
C. As of the date hereof, the Subsidiary has 20,000,000 shares of common
stock and 10,000,000 shares of preferred stock authorized. Immediately prior to
the Effective Date (as such term is defined below), 50 shares of such common
stock will be issued and outstanding, all of which shares will be owned by the
Holding Company.
D. As of the date hereof, the Holding Company has 20,000,000 shares of
common stock and 10,000,000 shares of preferred stock authorized. Immediately
prior to the Effective Date, 100 shares of the Holding Company's common stock
will be issued and outstanding.
E. The Boards of Directors of the Bank, the Holding Company and the
Subsidiary, respectively, have approved this Merger Agreement and authorized its
execution.
AGREEMENT
Section 1. GENERAL
1.1 THE MERGER. On the Effective Date, the Subsidiary shall be merged
with and into the Bank, with the Bank being the surviving corporation. The Bank
shall thereafter be a subsidiary of the Holding Company, and its name shall
continue to be "Coast Commercial Bank".
1.2 EFFECTIVE DATE. The merger described herein shall become effective at
the close of business on the day (the
1
<PAGE>
"Effective Date") upon which an executed counterpart of this Merger Agreement
shall have been filed with the Secretary of State of the State of California in
accordance with Section 1103 of the California General Corporation Law.
1.3 ARTICLES OF INCORPORATION AND BYLAWS. On the Effective Date, the
Articles of Incorporation of the Bank, as in effect immediately prior to the
Effective Date, shall remain the Articles of Incorporation of the Bank until
amended; the Bylaws of the Bank, as in effect immediately prior to the Effective
Date, shall remain the Bylaws of the Bank until amended; the Certificate of
Authority of the Bank issued by the Superintendent of Banks of the State of
California shall remain the Certificate of Authority of the Bank; and the Bank's
deposit insurance coverage by the Federal Deposit Insurance Corporation shall
remain the deposit insurance of the Bank.
1.4 EFFECT OF THE MERGER.
(a) ASSETS AND RIGHTS. On the Effective Date and thereafter, all
rights, privileges, franchises and property of the Subsidiary and all debts
and liabilities due or to become due to the Subsidiary including those in
action and every interest or asset of conceivable value or benefit, shall
be deemed fully and finally and without any right of reversion vested in
the Bank without further act or deed; and the Bank shall have and hold the
same in its own right as fully as the same was possessed and held by the
Subsidiary.
(b) LIABILITIES. On the Effective Date and thereafter, all debts,
liabilities and obligations due or to become due of, and all claims and
demands for any cause existing against, the Subsidiary shall be and become
the debts, liabilities or obligations of, or the claims or demands against,
the Bank in the same manner as if the Bank had itself incurred or become
liable for them.
(c) CREDITORS' RIGHTS AND LIENS. On the Effective Date and
thereafter, all rights of creditors of the Subsidiary and all liens upon
the property of the Subsidiary shall be preserved unimpaired, and shall be
limited to the property affected by such liens immediately prior to the
Effective Date.
(d) PENDING ACTIONS. On the Effective Date and thereafter, any
action or proceeding pending by or against the Subsidiary shall not be
deemed to have abated or been discontinued, but may be pursued to judgment
with full right to appeal or review. Any such action or proceeding may be
pursued as if the merger described herein had not occurred,
2
<PAGE>
or with the Bank substituted in place of the Subsidiary as the case may be.
1.6 FURTHER ASSURANCES. The Subsidiary agrees that at any time, or from
time to time, as and when requested by the Bank, or by its successors or
assigns, it will execute and deliver, or cause to be executed and delivered, in
the name by its last acting officers, or by the corresponding officers of the
Bank, all such conveyances, assignments, transfers, deeds and other instruments,
and will take or cause to be taken such further or other action as the Bank, or
its successors or assigns, may deem necessary or desirable in order to carry out
the vesting, perfecting, confirming, assignment, divulsion or other transfer of
the interests, property, privileges, powers, immunities, franchises and other
rights transferred to the Bank in this Section 1, or otherwise to carry out the
intent and purposes of this Merger Agreement.
Section 2. STOCK
2.1 STOCK OF THE SUBSIDIARY. On the Effective Date, each share of common
stock of the Subsidiary issued and outstanding immediately prior to the
Effective Date shall, by virtue of the merger described herein, be deemed to be
exchanged for and converted into one share of fully paid and (except as provided
by California Financial Code Section 662) nonassessable common stock of the
Bank.
2.2 STOCK OF THE HOLDING COMPANY. On the Effective Date, each share of
common stock of the Holding Company issued and outstanding immediately prior to
the Effective Date shall be repurchased by the Holding Company for the amount
paid for such shares upon their original issuance.
2.3 STOCK OF THE BANK. On the Effective Date, each share of common stock
of the Bank issued and outstanding immediately prior to the Effective Date
shall, by virtue of the merger described herein, be deemed to be exchanged for
and converted into one share of fully paid and nonassessable common stock of the
Holding Company, in accordance with the provisions of Paragraph 2.4 hereof.
2.4 EXCHANGE OF STOCK BY THE BANK SHAREHOLDERS. On the Effective Date or
as soon as practical thereafter, the following actions shall be taken to
effectuate the exchange and conversion specified in Paragraph 2.3 hereof:
(a) The shareholders of record of the Bank immediately prior to the
Effective Date shall each be entitled to receive for each share of common
stock of the Bank then held by them one share of common stock of the
Holding Company.
3
<PAGE>
(b) Subject to the provisions of Paragraph 2.4(c) hereof, the Holding
company shall issue to the shareholders of the Bank the shares of common
stock of the Holding Company which said shareholders are entitled to
receive.
(c) Thereafter, outstanding certificates representing shares of
common stock of the Bank (except certificates issued to the Holding Company
in connection with the merger described herein) shall represent shares of
the common stock of the Holding Company, and such certificates may, but
need not be, exchanged by the holders thereof for new certificates for the
appropriate number of shares of the Holding Company.
2.5 OTHER RIGHTS TO STOCK.
(a) On the Effective Date and thereafter, all Bank employees eligible
to participate in the Bank's KSOP will continue to be eligible to so
participate with the same rights, privileges, and preferences as before the
Effective Date.
(b) From time to time as and when required by the provisions of any
agreement to which the Bank or the Holding Company shall become a party
after the date hereof that provides for the issuance of shares of common
stock or other securities, either debt or equity, of the Bank or the
Holding Company in connection with a merger into the bank of any other
banking institution or the acquisition by the Bank of the assets or stock
of any other banking institution or other corporation, the Holding Company
shall issue in accordance with the terms of any such agreement shares of
its common stock or other debt or equity securities as required by such
agreement or in substitution for the shares of common stock or other debt
or equity securities of the Bank required to be issued by such agreement,
as the case may be, which the shareholders of any other such banking
institution or other corporation shall be entitled to receive by virtue of
any such agreement.
Section 3. APPROVALS
3.1 SHAREHOLDER APPROVAL. This Merger Agreement shall be submitted to
the shareholder(s) of the Holding Company, the Subsidiary and the Bank for
ratification and confirmation to the
4
<PAGE>
extent required by, and in accordance with, applicable provisions of law.
3.2 REGULATORY APPROVALS. Each of the parties hereto shall proceed
expeditiously and cooperate fully in procuring all other consents and approvals,
and in satisfying all other requirements, prescribed by law or otherwise,
necessary or desirable for the merger described herein to be consummated,
including without limitation the consents and approvals referred to in
Paragraphs 4.1(b), 4.1(c) and 4.1(d) hereof.
Section 4. CONDITIONS PRECEDENT, TERMINATION AND PAYMENT OF EXPENSES
4.1 CONDITIONS PRECEDENT TO THE MERGER. Consummation of the merger
described herein is conditioned upon the following:
(a) Ratification and confirmation of this Merger Agreement by the
shareholders of the Holding Company, the Subsidiary and the Bank in
accordance with applicable provisions of law;
(b) Procuring all other consents and approvals and satisfying all
other requirements, prescribed by law or otherwise, which are necessary for
the merger described herein to be consummated, including without
limitation: (i) approval from the Federal Deposit Insurance Corporation,
the Superintendent of Banks of the State of California, and the Board of
Governors of the Federal Reserve System; (ii) approval of the California
Commissioner of Corporations under the California Corporate Securities Law
of 1968, and securities administrators of other applicable jurisdictions,
with respect to the securities of the Holding Company issuable upon
consummation of the merger, and (iii) the declaration by the Securities and
Exchange Commission of the effectiveness of a registration statement under
the Securities Act of 1933 with respect to the securities for the Holding
Company issuable upon consummation of the merger or the automatic
effectiveness for such registration statement;
(c) Receipt (unless waived by each of the parties hereto) of an
opinion of counsel and/or accountants with respect to the tax consequences
to the parties and their shareholders of the merger described herein;
(d) Procuring all consents or approvals, governmental or otherwise,
which in the opinion of counsel for the Bank are or may be necessary to
permit or to enable the Bank to conduct, upon and after the merger
described herein, all or any part of the businesses and other activities
that the
5
<PAGE>
Bank engages in immediately prior to such merger, in the same manner and to
the same extent that the Bank engaged in such businesses and other
activities immediately prior to such merger; and
(e) Performance by each of the parties hereto of all obligations
under this Merger Agreement which are to be performed prior to the
consummation of the merger described herein.
4.2 TERMINATION OF THE MERGER. In the event that any condition specified in
Paragraph 4.1 hereof cannot be fulfilled, or prior to the Effective Date the
Board of Directors of any of the parties hereto reaches any of the following
determinations:
(a) The number of shares of common stock of the Bank voting against
the merger described herein makes consummation of such inadvisable; or
(b) Any action, suit, proceeding or claim relating to the merger
described herein, whether initiated or threatened, makes consummation of
such merger inadvisable; or
(c) Consummation of the merger described herein is inadvisable for
any other reason;
then this Merger Agreement shall terminate. Upon termination, this Merger
Agreement shall be void and of no further effect, and there shall be no
liability by reason of this Merger Agreement or the termination hereof on the
part of any of the parties hereto or their respective directors, officers,
employees, agents or shareholders.
4.3 EXPENSES OF THE MERGER. All of the expenses of the merger described
herein, including without limitation filing fees, printing costs, mailing costs,
accountant's fees and legal fees, shall be borne by the Holding Company.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Merger Agreement to
be executed by their duly authorized officers as of the day and year first above
written.
The Bank: COAST COMMERCIAL BANK
By:
----------------------------------
Harvey J. Nickelson
By:
----------------------------------
Sandra Anderson, Secretary
Subsidiary: Coast MERGER CORPORATION
By:
----------------------------------
Harvey J. Nickelson
By:
----------------------------------
Sandra Anderson, Secretary
Holding Company Coast BANCORP
By:
----------------------------------
Harvey Nickelson
By:
----------------------------------
Sandra Anderson, Secretary
7
<PAGE>
Exhibit 3.1
ARTICLES OF INCORPORATION
OF
COAST BANCORP
ARTICLE I
The name of this corporation is Coast Bancorp.
ARTICLE II
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE III
The name and address in the State of California of this corporation's
initial agent for service of process is: David V. Heald, 740 Front Street, Suite
240, Santa Cruz, California 95061-1818.
ARTICLE IV
(a) This corporation is authorized to issue two classes of shares
designated "Preferred Stock" and "Common Stock," respectively. The number of
shares of Preferred Stock authorized to be issued is Ten Million (10,000,000)
and the number of shares of Common Stock authorized to be issued is Twenty
Million (20,000,000), without par value.
(b) The Preferred Stock may be divided into such number of shares as the
Board of Directors may determine. The Board of Directors is authorized to
determine and alter the rights, preferences, privileges and restrictions granted
to and imposed upon any wholly unissued series of Preferred Stock, and to fix
the number of shares of any series of Preferred Stock and the designation of any
such series of Preferred Stock. The Board of Directors, within the limits and
restrictions stated in any resolution or resolutions of the Board of Directors
originally fixing the number of shares constituting any series, may increase or
decrease (but not below the number of shares of such series then
<PAGE>
outstanding) the number of shares of any series subsequent to the issue of
shares of that series.
ARTICLE V
(a) The liability of directors of the corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law.
(b) The corporation is authorized to provide indemnification of agents (as
defined in Section 317 of the California Corporations Code) through Bylaw
provisions, agreements with agents, vote of the shareholders or disinterested
directors or otherwise, to the fullest extent permissible under California law.
(c) Any amendment, repeal or modification of any provision of this Article
V shall not adversely affect any right or protection of an agent of this
corporation existing at the time of such amendment, repeal or modification.
Dated: January 24, 1994
-------------------------------
Stephan R. Silen, Incorporator
-2-
<PAGE>
Exhibit 3.2
BYLAWS
OF
COAST BANCORP
<PAGE>
BYLAWS
OF
COAST BANCORP
History of Actions Taken
Related to Bylaws Date
- - ------------------------ ----
Bylaws Adopted
-------------------
- - ------------------------ -------------------
- - ------------------------ -------------------
- - ------------------------ -------------------
- - ------------------------ -------------------
- - ------------------------ -------------------
- - ------------------------ -------------------
- - ------------------------ -------------------
- - ------------------------ -------------------
<PAGE>
BYLAWS OF
COAST BANCORP
TABLE OF CONTENTS
Page
----
ARTICLE I - CORPORATE OFFICES..................................................1
1.1 PRINCIPAL OFFICE......................................................1
1.2 OTHER OFFICES.........................................................1
ARTICLE II - MEETINGS OF SHAREHOLDERS..........................................1
2.1 PLACE OF MEETINGS.....................................................1
2.2 ANNUAL MEETING........................................................1
2.3 SPECIAL MEETING.......................................................1
2.4 NOTICE OF SHAREHOLDERS' MEETINGS......................................2
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE..........................3
2.6 QUORUM................................................................3
2.7 ADJOURNED MEETING; NOTICE.............................................4
2.8 VOTING................................................................4
2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT.....................5
2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING...............6
2.11 RECORD DATE FOR SHAREHOLDER NOTICE; VOTING;
GIVING CONSENTS.................................................6
2.12 PROXIES...............................................................7
2.13 INSPECTORS OF ELECTION................................................8
ARTICLE III - DIRECTORS........................................................8
3.1 POWERS................................................................8
3.2 NUMBER OF DIRECTORS...................................................9
3.3 NOMINATION OF DIRECTORS..............................................10
3.4 ELECTION AND TERM OF OFFICE OF DIRECTORS.............................10
3.5 REMOVAL..............................................................10
3.6 RESIGNATION AND VACANCIES............................................10
3.7 PLACE OF MEETINGS; MEETINGS BY TELEPHONE.............................11
3.8 REGULAR MEETINGS.....................................................12
3.9 SPECIAL MEETINGS; NOTICE.............................................12
3.10 QUORUM...............................................................12
3.11 WAIVER OF NOTICE.....................................................13
3.12 ADJOURNMENT..........................................................13
i
<PAGE>
3.13 NOTICE OF ADJOURNMENT................................................13
3.14 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING....................13
3.15 FEES AND COMPENSATION OF DIRECTORS...................................13
3.16 APPROVAL OF LOANS TO OFFICERS........................................13
ARTICLE IV - COMMITTEES.......................................................14
4.1 COMMITTEES OF DIRECTORS..............................................14
4.2 MEETINGS AND ACTION OF COMMITTEES....................................15
ARTICLE V - OFFICERS..........................................................15
5.1 OFFICERS.............................................................15
5.2 APPOINTMENT OF OFFICERS..............................................15
5.3 SUBORDINATE OFFICERS.................................................16
5.4 REMOVAL AND RESIGNATION OF OFFICERS..................................16
5.5 VACANCIES IN OFFICES.................................................16
5.6 CHAIRMAN OF THE BOARD................................................16
5.7 PRESIDENT............................................................16
5.8 VICE PRESIDENTS......................................................17
5.9 SECRETARY............................................................17
5.10 CHIEF FINANCIAL OFFICER..............................................18
ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES, AND OTHER AGENTS..........................................18
6.1 INDEMNIFICATION OF DIRECTORS.........................................18
6.2 INDEMNIFICATION OF OTHERS............................................18
6.3 PAYMENT OF EXPENSES IN ADVANCE.......................................19
6.4 INDEMNITY NOT EXCLUSIVE..............................................19
6.5 INSURANCE INDEMNIFICATION............................................19
6.6 CONFLICTS............................................................19
6.7 RIGHT TO BRING SUIT..................................................20
6.8 INDEMNITY AGREEMENTS.................................................20
6.9 AMENDMENT, REPEAL OR MODIFICATION....................................21
ARTICLE VII - RECORDS AND REPORTS.............................................21
7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER.........................21
7.2 MAINTENANCE AND INSPECTION OF BYLAWS.................................22
7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE
RECORDS..............................................................22
7.4 INSPECTION BY DIRECTORS..............................................22
7.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER................................23
ii
<PAGE>
7.6 FINANCIAL STATEMENTS.................................................23
7.7 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.......................24
ARTICLE VIII - GENERAL MATTERS................................................24
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE
AND VOTING...........................................................24
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS............................24
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED...................25
8.4 CERTIFICATES FOR SHARES..............................................25
8.5 LOST CERTIFICATES....................................................25
8.6 CONSTRUCTION; DEFINITIONS............................................26
ARTICLE IX - AMENDMENTS.......................................................26
9.1 AMENDMENT BY SHAREHOLDERS............................................26
9.2 AMENDMENT BY DIRECTORS...............................................26
9.3 RECORD OF AMENDMENTS.................................................26
ARTICLE X - INTERPRETATION................................................. 27
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BYLAWS
OF
COAST BANCORP
ARTICLE I
CORPORATE OFFICES
1.1 PRINCIPAL OFFICE
The Board of Directors shall fix the location of the principal executive
office of the corporation at any place within or outside the State of
California. If the principal executive office is located outside California and
the corporation has one or more business offices in California, then the Board
of Directors shall fix and designate a principal business office in California.
1.2 OTHER OFFICES
The Board of Directors may at any time establish branch or subordinate
offices at any place or places.
ARTICLE II
MEETINGS OF SHAREHOLDERS
2.1 PLACE OF MEETINGS
Meetings of shareholders shall be held at any place within or outside the
State of California designated by the Board of Directors. In the absence of any
such designation, shareholders' meetings shall be held at the principal
executive office of the corporation or at any place consented to in writing by
all persons entitled to vote at such meeting, given before or after the meeting
and filed with the Secretary of the corporation.
2.2 ANNUAL MEETING
An annual meeting of shareholders shall be held each year on a date and at
a time designated by the Board of Directors. At that meeting, directors shall
be elected. Any other proper business may be transacted at the annual meeting
of shareholders.
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2.3 SPECIAL MEETINGS
Special meetings of the shareholders may be called at any time, subject to
the provisions of Sections 2.4 and 2.5 of these Bylaws, by the Board of
Directors, the Chairman of the Board, the President or the holders of shares
entitled to cast not less than ten percent (10%) of the votes at that meeting.
If a special meeting is called by anyone other than the Board of Directors
or the President or the Chairman of the Board, then the request shall be in
writing, specifying the time of such meeting and the general nature of the
business proposed to be transacted, and shall be delivered personally or sent by
registered mail or by other written communication to the Chairman of the Board,
the President, any Vice President or the Secretary of the corporation. The
officer receiving the request forthwith shall cause notice to be given to the
shareholders entitled to vote, in accordance with the provisions of Sections 2.4
and 2.5 of these Bylaws, that a meeting will be held at the time requested by
the person or persons calling the meeting, so long as that time is not less than
thirty-five (35) nor more than sixty (60) days after the receipt of the request.
If the notice is not given within twenty (20) days after receipt of the request,
then the person or persons requesting the meeting may give the notice. Nothing
contained in this paragraph of this Section 2.3 shall be construed as limiting,
fixing or affecting the time when a meeting of shareholders called by action of
the Board of Directors may be held.
2.4 NOTICE OF SHAREHOLDERS' MEETINGS
All notices of meetings of shareholders shall be sent or otherwise given
in accordance with Section 2.5 of these Bylaws not less than ten (10) (or, if
sent by third-class mail pursuant to Section 2.5 of these Bylaws, not less than
thirty (30)) nor more than sixty (60) days before the date of the meeting to
each shareholder entitled to vote thereat. Such notice shall state the place,
date, and hour of the meeting and (i) in the case of a special meeting, the
general nature of the business to be transacted, and no business other than that
specified in the notice may be transacted, or (ii) in the case of the annual
meeting, those matters which the Board of Directors, at the time of the mailing
of the notice, intends to present for action by the shareholders, but, subject
to the provisions of the next paragraph of this Section 2.4, any proper matter
may be presented at the meeting for such action. The notice of any meeting at
which Directors are to be elected shall include the names of nominees intended
at the time of the notice to be presented by the Board for election.
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a director has a direct or indirect financial
interest, pursuant to Section 310 of the California Corporations Code (the
"Code"), (ii) an amendment of the Articles of Incorporation, pursuant to Section
902 of the Code, (iii) a reorganization of the corporation, pursuant to Section
1201 of the Code, (iv) a voluntary dissolution of the corporation, pursuant to
Section 1900 of the Code, or (v) a distribution in dissolution
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other than in accordance with the rights of any outstanding preferred shares,
pursuant to Section 2007 of the Code, then the notice shall also state the
general nature of that proposal.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Notice of a shareholders' meeting shall be given either personally or by
first-class mail, or, if the corporation has outstanding shares held of record
by five hundred (500) or more persons (determined as provided in Section 605 of
the Code) on the record date for the shareholders' meeting, notice may be sent
by third-class mail, or other means of written communication, addressed to the
shareholder at the address of the shareholder appearing on the books of the
corporation or given by the shareholder to the corporation for the purpose of
notice; or if no such address appears or is given, at the place where the
principal executive office of the corporation is located or by publication at
least once in a newspaper of general circulation in the county in which the
principal executive office is located. The notice shall be deemed to have been
given at the time when delivered personally or deposited in the mail or sent by
other means of written communication.
If any notice (or any report referenced in Article VII of these Bylaws)
addressed to a shareholder at the address of such shareholder appearing on the
books of the corporation is returned to the corporation by the United States
Postal Service marked to indicate that the United States Postal Service is
unable to deliver the notice to the shareholder at that address, all future
notices or reports shall be deemed to have been duly given without further
mailing if the same shall be available to the shareholder upon written demand of
the shareholder at the principal executive office of the corporation for a
period of one (1) year from the date of the giving of the notice.
An affidavit of mailing of any notice or report in accordance with the
provisions of this Section 2.5, executed by the Secretary, Assistant Secretary
or any transfer agent, shall be prima facie evidence of the giving of the notice
or report.
2.6 QUORUM
Unless otherwise provided in the Articles of Incorporation of the
corporation, a majority of the shares entitled to vote, represented in person or
by proxy, shall constitute a quorum at a meeting of the shareholders. The
shareholders present at a duly called or held meeting at which a quorum is
present may continue to transact business until adjournment notwithstanding the
withdrawal of enough shareholders to leave less than a quorum, if any action
taken (other than adjournment) is approved by at least a majority of the shares
required to constitute a quorum.
In the absence of a quorum, any meeting of shareholders may be adjourned
from time to time by the vote of a majority of the shares represented either in
person or by
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proxy, but no other business may be transacted, except as provided in the last
sentence of the preceding paragraph.
2.7 ADJOURNED MEETING; NOTICE
Any shareholders' meeting, annual or special, whether or not a quorum is
present, may be adjourned from time to time by the vote of the majority of the
shares represented at that meeting, either in person or by proxy.
When any meeting of shareholders, either annual or special, is adjourned
to another time or place, notice need not be given of the adjourned meeting if
its time and place are announced at the meeting at which the adjournment is
taken. However, if the adjournment is for more than forty-five (45) days from
the date set for the original meeting or if a new record date for the adjourned
meeting is fixed, a notice of the adjourned meeting shall be given to each
shareholder of record entitled to vote at the adjourned meeting in accordance
with the provisions of Sections 2.4 and 2.5 of these Bylaws. At any adjourned
meeting the corporation may transact any business which might have been
transacted at the original meeting.
2.8 VOTING
The shareholders entitled to vote at any meeting of shareholders shall be
determined in accordance with the provisions of Section 2.11 of these Bylaws,
subject to the provisions of Sections 702 through 704 of the Code (relating to
voting shares held by a fiduciary, in the name of a corporation, or in joint
ownership).
Elections for directors and voting on any other matter at a shareholders'
meeting need not be by ballot unless a shareholder demands election by ballot at
the meeting and before the voting begins.
Except as provided in the last paragraph of this Section 2.8, or as may be
otherwise provided in the Articles of Incorporation, each outstanding share,
regardless of class, shall be entitled to one vote on each matter submitted to a
vote of the shareholders. Any holder of shares entitled to vote on any matter
may vote part of the shares in favor of the proposal and refrain from voting the
remaining shares or may vote them against the proposal other than elections to
office, but, if the shareholder fails to specify the number of shares such
shareholder is voting affirmatively, it will be conclusively presumed that the
shareholder's approving vote is with respect to all shares which the shareholder
is entitled to vote.
The affirmative vote of the majority of the shares represented and voting
at a duly held meeting at which a quorum is present (which shares voting
affirmatively also constitute at least a majority of the required quorum) shall
be the act of the
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shareholders, unless the vote of a greater number or voting by classes is
required by the Code or by the Articles of Incorporation.
At a shareholders' meeting at which directors are to be elected, a
shareholder shall be entitled to cumulate votes either (i) by giving one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which that shareholder's shares are
normally entitled or (ii) by distributing the shareholder's votes on the same
principle among as many candidates as the shareholder thinks fit, if the
candidate or candidates' names have been placed in nomination prior to the
voting and the shareholder has given notice prior to the voting of the
shareholder's intention to cumulate the shareholder's votes. If any one
shareholder has given such a notice, then every shareholder entitled to vote may
cumulate votes for candidates in nomination. The candidates receiving the
highest number of affirmative votes, up to the number of directors to be
elected, shall be elected; votes against any candidate and votes withheld shall
have no legal effect.
2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT
The transactions of any meeting of shareholders, either annual or special,
however called and noticed, and wherever held, are as valid as though they had
been taken at a meeting duly held after regular call and notice, if a quorum be
present either in person or by proxy, and if, either before or after the
meeting, each of the persons entitled to vote, not present in person or by
proxy, signs a written waiver of notice or a consent to the holding of the
meeting or an approval of the minutes thereof. Neither the business to be
transacted at nor the purpose of any annual or special meeting of shareholders
need be specified in any written waiver of notice or consent to the holding of
the meeting or approval of the minutes thereof, except that if action is taken
or proposed to be taken for approval of any of those matters specified in the
second paragraph of Section 2.4 of these Bylaws, the waiver of notice or consent
or approval shall state the general nature of the proposal. All such waivers,
consents, and approvals shall be filed with the corporate records or made a part
of the minutes of the meeting.
Attendance of a person at a meeting shall constitute a waiver of notice of
and presence at that meeting, except when the person objects, at the beginning
of the meeting, to the transaction of any business because the meeting is not
lawfully called or convened and except that attendance at a meeting is not a
waiver of any right to object to the consideration of matters required by the
Code to be included in the notice of such meeting but not so included, if such
objection is expressly made at the meeting.
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2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Any action which may be taken at any annual or special meeting of
shareholders may be taken without a meeting and without prior notice, if a
consent in writing, setting forth the action so taken, shall be signed by the
holders of outstanding shares having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted.
Directors may not be elected by written consent except by unanimous
written consent of all shares entitled to vote for the election of directors.
However, a director may be elected at any time to fill any vacancy on the Board
of Directors, provided that it was not created by removal of a director and that
it has not been filled by the directors, by the written consent of the holders
of a majority of the outstanding shares entitled to vote for the election of
directors.
All such consents shall be maintained in the corporate records. Any
shareholder giving a written consent, or the shareholder's proxy holders, or a
transferee of the shares, or a personal representative of the shareholder, or
their respective proxy holders, may revoke the consent by a writing received by
the Secretary of the corporation before written consents of the number of shares
required to authorize the proposed action have been filed with the Secretary.
If the consents of all shareholders entitled to vote have not been
solicited in writing, the Secretary shall give prompt notice of any corporate
action approved by the shareholders without a meeting by less than unanimous
written consent to those shareholders entitled to vote who have not consented in
writing. Such notice shall be given in the manner specified in Section 2.5 of
these Bylaws. In the case of approval of (i) a contract or transaction in which
a director has a direct or indirect financial interest, pursuant to Section 310
of the Code, (ii) indemnification of a corporate "agent," pursuant to
Section 317 of the Code, (iii) a reorganization of the corporation, pursuant to
Section 1201 of the Code, and (iv) a distribution in dissolution other than in
accordance with the rights of outstanding preferred shares, pursuant to
Section 2007 of the Code, the notice shall be given at least ten (10) days
before the consummation of any action authorized by that approval, unless the
consents of all shareholders entitled to vote have been solicited in writing.
2.11 RECORD DATE FOR SHAREHOLDER NOTICE; VOTING; GIVING CONSENTS
In order that the corporation may determine the shareholders entitled to
notice of any meeting or to vote, the Board of Directors may fix, in advance, a
record date, which shall not be more than sixty (60) days nor less than ten (10)
days prior to the date of such meeting nor more than sixty (60) days before any
other action. Shareholders at the
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close of business on the record date are entitled to notice and to vote, as the
case may be, notwithstanding any transfer of any shares on the books of the
corporation after the record date, except as otherwise provided in the Articles
of Incorporation or the Code.
A determination of shareholders of record entitled to notice of or to vote
at a meeting of shareholders shall apply to any adjournment of the meeting
unless the Board of Directors fixes a new record date for the adjourned meeting,
but the Board of Directors shall fix a new record date if the meeting is
adjourned for more than forty-five (45) days from the date set for the original
meeting.
If the Board of Directors does not so fix a record date:
(a) The record date for determining shareholders entitled to
notice of or to vote at a meeting of shareholders shall be at the close of
business on the business day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the business day next preceding
the day on which the meeting is held.
(b) The record date for determining shareholders entitled to give
consent to corporate action in writing without a meeting, (i) when no prior
action by the Board has been taken, shall be the day on which the first written
consent is given, or (ii) when prior action by the Board has been taken, shall
be at the close of business on the day on which the Board adopts the resolution
relating thereto, or the sixtieth (60th) day prior to the date of such other
action, whichever is later.
The record date for any other purpose shall be as provided in Section 8.1
of these Bylaws.
2.12 PROXIES
Every person entitled to vote for directors, or on any other matter, shall
have the right to do so either in person or by one or more agents authorized by
a written proxy signed by the person and filed with the Secretary of the
corporation. A proxy shall be deemed signed if the shareholder's name or other
authorization is placed on the proxy (whether by manual signature, typewriting,
telegraphic or electronic transmission or otherwise) by the shareholder or the
shareholder's attorney-in-fact. A validly executed proxy which does not state
that it is irrevocable shall continue in full force and effect unless (i) the
person who executed the proxy revokes it prior to the time of voting by
delivering a writing to the corporation stating that the proxy is revoked or by
executing a subsequent proxy and presenting it to the meeting or by attendance
at such meeting and voting in person, or (ii) written notice of the death or
incapacity of the maker of that proxy is received by the corporation before the
vote pursuant to that proxy is counted; provided, however, that no proxy shall
be valid after the expiration of eleven (11) months from the date thereof,
unless otherwise provided in the proxy. The dates contained on the forms of
proxy presumptively determine the order of execution, regardless of the
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postmark dates on the envelopes in which they are mailed. The revocability of a
proxy that states on its face that it is irrevocable shall be governed by the
provisions of Sections 705(e) and 705(f) of the Code.
2.13 INSPECTORS OF ELECTION
In advance of any meeting of shareholders, the Board of Directors may
appoint inspectors of election to act at the meeting and any adjournment
thereof. If inspectors of election are not so appointed or designated or if any
persons so appointed fail to appear or refuse to act, then the Chairman of the
meeting may, and on the request of any shareholder or a shareholder's proxy
shall, appoint inspectors of election (or persons to replace those who so fail
to appear) at the meeting. The number of inspectors shall be either one (1) or
three (3). If appointed at a meeting on the request of one (1) or more
shareholders or proxies, the majority of shares represented in person or by
proxy shall determine whether one (1) or three (3) inspectors are to be
appointed.
The inspectors of election shall determine the number of shares
outstanding and the voting power of each, the shares represented at the meeting,
the existence of a quorum, and the authenticity, validity, and effect of
proxies, receive votes, ballots or consents, hear and determine all challenges
and questions in any way arising in connection with the right to vote, count and
tabulate all votes or consents, determine when the polls shall close, determine
the result and do any other acts that may be proper to conduct the election or
vote with fairness to all shareholders.
ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the Code and any limitations in the Articles
of Incorporation and these Bylaws relating to action required to be approved by
the shareholders or by the outstanding shares, the business and affairs of the
corporation shall be managed and all corporate powers shall be exercised by or
under the direction of the Board of Directors. The Board may delegate the
management of the day-to-day operation of the business of the corporation to a
management company or other person provided that the business and affairs of the
corporation shall be managed and all corporate powers shall be exercised under
the ultimate direction of the Board.
3.2 NUMBER OF DIRECTORS
The authorized number of directors of the corporation shall be not less
than seven (7) nor more than thirteen (13) (which in no case shall be greater
than two times the
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stated minimum minus one), and the exact number of directors shall be nine (9)
until changed, within the limits specified above, by a resolution amending such
exact number, duly adopted by the Board of Directors or by the shareholders.
The minimum and maximum number of directors may be changed, or a definite number
may be fixed without provision for an indefinite number, by a duly adopted
amendment to the Articles of Incorporation or by an amendment to this Bylaw duly
adopted by the vote or written consent of holders of a majority of the
outstanding shares entitled to vote; provided, however, that an amendment
reducing the fixed number or the minimum number of directors to a number less
than five (5) cannot be adopted if the votes cast against its adoption at a
meeting, or the shares not consenting in the case of an action by written
consent, are equal to more than sixteen and two-thirds percent (16-2/3%) of the
outstanding shares entitled to vote thereon.
No reduction of the authorized number of directors shall have the effect
of removing any director before that director's term of office expires.
3.3 NOMINATION OF DIRECTORS
Nominations for election of members of the board may be made by the board
or by any holder of any outstanding class of capital stock of the corporation
entitled to vote for the election of directors. Notice of intention to make any
nominations (other than for persons named in the notice of the meeting called
for the election of directors) shall be made in writing and shall be delivered
or mailed to the President of the corporation by the later of: (i) the close of
business twenty-one (21) days prior to any meeting of shareholders called for
the election of directors; or (ii) seven (7) days after the date of mailing of
notice of the meeting to shareholders. Such notification shall contain the
following information to the extent known to the notifying shareholder: (a) the
name and address of each proposed nominee; (b) the principal occupation of each
proposed nominee; (c) the number of shares of capital stock of the corporation
owned by each proposed nominee; (d) the name and residence address of the
notifying shareholder; (e) the number of shares of capital stock of the
corporation owned by the notifying shareholder; (f) the number of shares of
capital stock of any bank, bank holding company, savings and loan association or
other depository institution owned beneficially by the nominee or by the
notifying shareholder and the identities and locations of any such institutions;
and (g) whether the proposed nominee has ever been convicted of or pleaded nolo
contendere to any criminal offense involving dishonesty or breach of trust,
filed a petition in bankruptcy or been adjudged bankrupt. The notification
shall be signed by the nominating shareholder and by each nominee, and shall be
accompanied by a written consent to be named as a nominee for election as a
director from each proposed nominee. Nominations not made in accordance with
these procedures shall be disregarded by the Chairman of the meeting, and upon
his instructions, the inspectors of election shall disregard all votes cast for
each such nominee.
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A copy of the preceding paragraph shall be set forth in the notice to
shareholders of any meeting at which directors are to be elected.
3.4 ELECTION AND TERM OF OFFICE OF DIRECTORS
At each annual meeting of shareholders, directors shall be elected to hold
office until the next annual meeting. Each director, including a director
elected to fill a vacancy, shall hold office until the expiration of the term
for which elected and until a successor has been elected and qualified, except
in the case of the death, resignation, or removal of such a director.
3.5 REMOVAL
The entire Board of Directors or any individual director may be removed
from office without cause by the affirmative vote of a majority of the
outstanding shares entitled to vote on such removal; provided, however, that
unless the entire Board is removed, no individual director may be removed when
the votes cast against such director's removal, or not consenting in writing to
such removal, would be sufficient to elect that director if voted cumulatively
at an election at which the same total number of votes cast were cast (or, if
such action is taken by written consent, all shares entitled to vote were voted)
and the entire number of directors authorized at the time of such director's
most recent election were then being elected.
3.6 RESIGNATION AND VACANCIES
Any director may resign effective upon giving oral or written notice to
the Chairman of the Board, the President, the Secretary or the Board of
Directors, unless the notice specifies a later time for the effectiveness of
such resignation. If the resignation of a director is effective at a future
time, the Board of Directors may elect a successor to take office when the
resignation becomes effective.
Vacancies on the Board of Directors may be filled by a majority of the
remaining directors, or if the number of directors then in office is less than a
quorum by (i) unanimous written consent of the directors then in office, (ii)
the affirmative vote of a majority of the directors then in office at a meeting
held pursuant to notice or waivers of notice, or (iii) a sole remaining
director; however, a vacancy created by the removal of a director by the vote or
written consent of the shareholders or by court order may be filled only by the
affirmative vote of a majority of the shares represented and voting at a duly
held meeting at which a quorum is present (which shares voting affirmatively
also constitute at least a majority of the required quorum), or by the unanimous
written consent of all shares entitled to vote thereon. Each director so
elected shall hold office until the next annual meeting of the shareholders and
until a successor has been elected and qualified, or until his or her death,
resignation or removal.
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A vacancy or vacancies in the Board of Directors shall be deemed to exist
(i) in the event of the death, resignation or removal of any director, (ii) if
the Board of Directors by resolution declares vacant the office of a director
who has been declared of unsound mind by an order of court or convicted of a
felony, (iii) if the authorized number of directors is increased, or (iv) if the
shareholders fail, at any meeting of shareholders at which any director or
directors are elected, to elect the full authorized number of directors to be
elected at that meeting.
The shareholders may elect a director or directors at any time to fill any
vacancy or vacancies not filled by the directors, but any such election by
written consent, other than to fill a vacancy created by removal, shall require
the consent of the holders of a majority of the outstanding shares entitled to
vote thereon. A director may not be elected by written consent to fill a
vacancy created by removal except by unanimous consent of all shares entitled to
vote for the election of directors.
3.7 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
Regular meetings of the Board of Directors may be held at any place within
or outside the State of California that has been designated from time to time by
resolution of the Board. In the absence of such a designation, regular meetings
shall be held at the principal executive office of the corporation. Special
meetings of the Board may be held at any place within or outside the State of
California that has been designated in the notice of the meeting or, if not
stated in the notice or if there is no notice, at the principal executive office
of the corporation.
Members of the Board may participate in a meeting through the use of
conference telephone or similar communications equipment, so long as all
directors participating in such meeting can hear one another. Participation in
a meeting pursuant to this paragraph constitutes presence in person at such
meeting.
3.8 REGULAR MEETINGS
Regular meetings of the Board of Directors shall be held without notice on
the third Thursday of the months of January, April, July and October at 11:00
a.m.
3.9 SPECIAL MEETINGS; NOTICE
Subject to the provisions of the following paragraph, special meetings of
the Board of Directors for any purpose or purposes may be called at any time by
the Chairman of the Board, the President, any Vice President, the Secretary or
any two (2) directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail,
telegram, charges prepaid, or
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by telecopier, addressed to each director at that director's address as it is
shown on the records of the corporation. If the notice is mailed, it shall be
deposited in the United States mail at least four (4) days before the time of
the holding of the meeting. If the notice is delivered personally or by
telephone or by telecopier or telegram, it shall be delivered personally or by
telephone or by telecopier or to the telegraph company at least forty-eight (48)
hours before the time of the holding of the meeting. Any oral notice given
personally or by telephone may be communicated either to the director or to a
person at the office of the director who the person giving the notice has reason
to believe will promptly communicate it to the director. The notice need not
specify the purpose of the meeting.
3.10 QUORUM
A majority of the authorized number of directors shall constitute a quorum
for the transaction of business, except to adjourn as provided in Section 3.11
of these Bylaws. Every act or decision done or made by a majority of the
directors present at a meeting duly held at which a quorum is present is the act
of the Board of Directors, subject to the provisions of Section 310 of the Code
(as to approval of contracts or transactions in which a director has a direct or
indirect material financial interest), Section 311 of the Code (as to
appointment of committees), Section 317(e) of the Code (as to indemnification of
directors), the Articles of Incorporation, and other applicable law.
A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the required quorum for such meeting.
3.11 WAIVER OF NOTICE
Notice of a meeting need not be given to any director who signs a waiver
of notice or a consent to holding the meeting or an approval of the minutes
thereof, whether before or after the meeting, or who attends the meeting without
protesting, prior thereto or at its commencement, the lack of notice to such
director. All such waivers, consents, and approvals shall be filed with the
corporate records or made a part of the minutes of the meeting. A waiver of
notice need not specify the purpose of any regular or special meeting of the
Board of Directors.
3.12 ADJOURNMENT
A majority of the directors present, whether or not a quorum is present,
may adjourn any meeting to another time and place.
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3.13 NOTICE OF ADJOURNMENT
If the meeting is adjourned for more than twenty-four (24) hours, notice
of any adjournment to another time and place shall be given prior to the time of
the adjourned meeting to the directors who were not present at the time of the
adjournment.
3.14 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Any action required or permitted to be taken by the Board of Directors may
be taken without a meeting, if all members of the Board individually or
collectively consent in writing to such action. Such written consent or
consents shall be filed with the minutes of the proceedings of the Board. Such
action by written consent shall have the same force and effect as a unanimous
vote of the Board of Directors.
3.15 FEES AND COMPENSATION OF DIRECTORS
Directors and members of committees may receive such compensation, if any,
for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the Board of Directors. This Section 3.14 shall not
be construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee or otherwise and receiving compensation
for those services.
3.16 APPROVAL OF LOANS TO OFFICERS
If these Bylaws have been approved by the corporation's shareholders in
accordance with the Code, the corporation may, upon the approval of the Board of
Directors alone, make loans of money or property to, or guarantee the
obligations of, any officer of the corporation or of its parent, if any, whether
or not a director, or adopt an employee benefit plan or plans authorizing such
loans or guaranties provided that (i) the Board of Directors determines that
such a loan or guaranty or plan may reasonably be expected to benefit the
corporation, (ii) the corporation has outstanding shares held of record by 100
or more persons (determined as provided in Section 605 of the Code) on the date
of approval by the Board of Directors, and (iii) the approval of the Board of
Directors is by a vote sufficient without counting the vote of any interested
director or directors. Notwithstanding the foregoing, the corporation shall
have the power to make loans permitted by the Code.
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ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The Board of Directors may, by resolution adopted by a majority of the
authorized number of directors, designate one or more committees, each
consisting of two (2) or more directors, to serve at the pleasure of the Board.
The Board may designate one or more directors as alternate members of any
committee, who may replace any absent member at any meeting of the committee.
The appointment of members or alternate members of a committee requires the vote
of a majority of the authorized number of directors. Any such committee shall
have authority to act in the manner and to the extent provided in the resolution
of the Board and may have all the authority of the Board, except with respect
to:
(a) The approval of any action which, under the Code, also
requires shareholders' approval or approval of the outstanding shares.
(b) The filling of vacancies on the Board of Directors or in any
committee.
(c) The fixing of compensation of the directors for serving on the
Board or on any committee.
(d) The amendment or repeal of these Bylaws or the adoption of new
Bylaws.
(e) The amendment or repeal of any resolution of the Board of
Directors which by its express terms is not so amendable or repealable.
(f) A distribution to the shareholders of the corporation, except
at a rate, in a periodic amount or within a price range set forth in the
Articles of Incorporation or determined by the Board of Directors.
(g) The appointment of any other committees of the Board of
Directors or the members thereof.
4.2 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Article III of these Bylaws, Section
3.6 (place of meetings), Section 3.7 (regular meetings), Section 3.8 (special
meetings and notice), Section 3.9 (quorum), Section 3.10 (waiver of notice),
Section 3.11 (adjournment),
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Section 3.12 (notice of adjournment), and Section 3.13 (action without meeting),
with such changes in the context of those Bylaws as are necessary to substitute
the committee and its members for the Board of Directors and its members;
provided, however, that the time of regular meetings of committees may be
determined either by resolution of the Board of Directors or by resolution of
the committee, that special meetings of committees may also be called by
resolution of the Board of Directors, and that notice of special meetings of
committees shall also be given to all alternate members, who shall have the
right to attend all meetings of the committee. The Board of Directors may adopt
rules for the government of any committee not inconsistent with the provisions
of these Bylaws.
ARTICLE V
OFFICERS
5.1 OFFICERS
The officers of the corporation shall be a President, a Secretary, and a
Chief Financial Officer. The corporation may also have, at the discretion of
the Board of Directors, a Chairman of the Board, one or more Vice Presidents,
one or more Assistant Secretaries, one or more Assistant Treasurers, and such
other officers as may be appointed in accordance with the provisions of
Section 5.3 of these Bylaws. Any number of offices may be held by the same
person.
5.2 APPOINTMENT OF OFFICERS
The officers of the corporation, except such officers as may be appointed
in accordance with the provisions of Section 5.3 or Section 5.5 of these Bylaws,
shall be chosen by the Board and serve at the pleasure of the Board, subject to
the rights, if any, of an officer under any contract of employment.
5.3 SUBORDINATE OFFICERS
The Board of Directors may appoint, or may empower the Chairman of the
Board or the President to appoint, such other officers as the business of the
corporation may require, each of whom shall hold office for such period, have
such authority, and perform such duties as are provided in these Bylaws or as
the Board of Directors may from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of
employment, all officers serve at the pleasure of the Board of Directors and any
officer may be removed, either with or without cause, by the Board of Directors
at any regular or special meeting
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of the Board or, except in case of an officer chosen by the Board of Directors,
by any officer upon whom such power of removal may be conferred by the Board of
Directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
5.5 VACANCIES IN OFFICES
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these Bylaws for regular appointments to that office.
5.6 CHAIRMAN OF THE BOARD
The Chairman of the Board, if such an officer be elected, shall, if
present, preside at meetings of the Board of Directors and exercise and perform
such other powers and duties as may from time to time be assigned by the Board
of Directors or as may be prescribed by these Bylaws. If there is no President,
then the Chairman of the Board shall also be the chief executive officer of the
corporation and shall have the powers and duties prescribed in Section 5.7 of
these Bylaws.
5.7 PRESIDENT
Subject to such supervisory powers, if any, as may be given by the Board
of Directors to the Chairman of the Board, if there be such an officer, the
President shall be the chief executive officer of the corporation and shall,
subject to the control of the Board of Directors, have general supervision,
direction, and control of the business and the officers of the corporation. The
President shall preside at all meetings of the shareholders and, in the absence
or nonexistence of a Chairman of the Board, at all meetings of the Board of
Directors. The President shall have the general powers and duties of management
usually vested in the office of President of a corporation, and shall have such
other powers and duties as may be prescribed by the Board of Directors or these
Bylaws.
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5.8 VICE PRESIDENTS
In the absence or disability of the President, the Vice Presidents, if
any, in order of their rank as fixed by the Board of Directors or, if not
ranked, a Vice President designated by the Board of Directors, shall perform all
the duties of the President and when so acting shall have all the powers of, and
be subject to all the restrictions upon, the President. The Vice Presidents
shall have such other powers and perform such other duties as from time to time
may be prescribed for them respectively by the Board of Directors, these Bylaws,
the President or the Chairman of the Board.
5.9 SECRETARY
The Secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the Board of Directors may
direct, a book of minutes of all meetings and actions of Directors, committees
of directors and shareholders. The minutes shall show the time and place of
each meeting, whether regular or special (and, if special, how authorized and
the notice given), the names of those present at directors' meetings or
committee meetings, the number of shares present or represented at shareholders'
meetings, and the proceedings thereof.
The Secretary shall keep, or cause to be kept, at the principal executive
office of the corporation or at the office of the corporation's transfer agent
or registrar, as determined by resolution of the Board of Directors, a share
register, or a duplicate share register, showing the names of all shareholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates evidencing such shares, and the number and date of
cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all meetings of
the shareholders and of the Board of Directors required to be given by law or by
these Bylaws. The Secretary shall keep the seal of the corporation, if one be
adopted, in safe custody and shall have such other powers and perform such other
duties as may be prescribed by the Board of Directors or by these Bylaws.
5.10 CHIEF FINANCIAL OFFICER
The Chief Financial Officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The Chief Financial Officer shall deposit all money and other valuables in
the name and to the credit of the corporation with such depositaries as may be
designated
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by the Board of Directors. The Chief Financial Officer shall disburse the funds
of the corporation as may be ordered by the Board of Directors, shall render to
the President and directors, whenever they request it, an account of all of his
or her transactions as Chief Financial Officer and of the financial condition of
the corporation, and shall have such other powers and perform such other duties
as may be prescribed by the Board of Directors or these Bylaws.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES,
AND OTHER AGENTS
6.1 INDEMNIFICATION OF DIRECTORS
The corporation shall, to the maximum extent and in the manner permitted
by the Code, indemnify each of its directors against expenses (as defined in
Section 317(a) of the Code), judgments, fines, settlements, and other amounts
actually and reasonably incurred in connection with any proceeding (as defined
in Section 317(a) of the Code), arising by reason of the fact that such person
is or was a director of the corporation. For purposes of this Article VI, a
"director" of the corporation includes any person (i) who is or was a director
of the corporation, (ii) who is or was serving at the request of the corporation
as a director of another foreign or domestic corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was a director of a corporation
which was a predecessor corporation of the corporation or of another enterprise
at the request of such predecessor corporation.
6.2 INDEMNIFICATION OF OTHERS
The corporation shall have the power, to the extent and in the manner
permitted by the Code, to indemnify each of its employees, officers, and agents
(other than directors) against expenses (as defined in Section 317(a) of the
Code), judgments, fines, settlements, and other amounts actually and reasonably
incurred in connection with any proceeding (as defined in Section 317(a) of the
Code), arising by reason of the fact that such person is or was an employee,
officer, or agent of the corporation. For purposes of this Article VI, an
"employee" or "officer" or "agent" of the corporation (other than a director)
includes any person (i) who is or was an employee, officer, or agent of the
corporation, (ii) who is or was serving at the request of the corporation as an
employee, officer, or agent of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was an
employee, officer, or agent of a corporation which was a predecessor corporation
of the corporation or of another enterprise at the request of such predecessor
corporation.
6.3 PAYMENT OF EXPENSES IN ADVANCE
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Expenses and attorneys' fees incurred in defending any civil or criminal
action or proceeding for which indemnification is required pursuant to
Section 6.1, or if otherwise authorized by the Board of Directors, shall be paid
by the corporation in advance of the final disposition of such action or
proceeding upon receipt of an undertaking by or on behalf of the indemnified
party to repay such amount if it shall ultimately be determined that the
indemnified party is not entitled to be indemnified as authorized in this
Article VI.
6.4 INDEMNITY NOT EXCLUSIVE
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any Bylaw, agreement, vote of shareholders or directors or
otherwise, both as to action in an official capacity and as to action in another
capacity while holding such office. The rights to indemnity hereunder shall
continue as to a person who has ceased to be a director, officer, employee, or
agent and shall inure to the benefit of the heirs, executors, and administrators
of the person.
6.5 INSURANCE INDEMNIFICATION
The corporation shall have the power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation against any liability asserted against or incurred by such person in
such capacity or arising out of that person's status as such, whether or not the
corporation would have the power to indemnify that person against such liability
under the provisions of this Article VI.
6.6 CONFLICTS
No indemnification or advance shall be made under this Article VI, except
where such indemnification or advance is mandated by law or the order, judgment
or decree of any court of competent jurisdiction, in any circumstance where it
appears:
(1) That it would be inconsistent with a provision of the Articles
of Incorporation, these Bylaws, a resolution of the shareholders or an agreement
in effect at the time of the accrual of the alleged cause of the action asserted
in the proceeding in which the expenses were incurred or other amounts were
paid, which prohibits or otherwise limits indemnification; or
(2) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
6.7 RIGHT TO BRING SUIT
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If a claim under this Article is not paid in full by the corporation
within 90 days after a written claim has been received by the corporation
(either because the claim is denied or because no determination is made), the
claimant may at any time thereafter bring suit against the corporation to
recover the unpaid amount of the claim and, if successful in whole or in part,
the claimant shall also be entitled to be paid the expenses of prosecuting such
claim. The corporation shall be entitled to raise as a defense to any such
action that the claimant has not met the standards of conduct that make it
permissible under the Code for the corporation to indemnify the claimant for the
claim. Neither the failure of the corporation (including its Board of
Directors, independent legal counsel, or its shareholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is permissible in the circumstances because he or she has met the
applicable standard of conduct, if any, nor an actual determination by the
corporation (including its Board of Directors, independent legal counsel, or its
shareholders) that the claimant has not met the applicable standard of conduct,
shall be a defense to such action or create a presumption for the purposes of
such action that the claimant has not met the applicable standard of conduct.
6.8 INDEMNITY AGREEMENTS
The Board of Directors is authorized to enter into a contract with any
director, officer, employee or agent of the corporation, or any person who is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, including employee benefit plans, or any person who was a director,
officer, employee or agent of a corporation which was a predecessor corporation
of the corporation or of another enterprise at the request of such predecessor
corporation, providing for indemnification rights equivalent to or, if the Board
of Directors so determines and to the extent permitted by applicable law,
greater than, those provided for in this Article VI.
6.9 AMENDMENT, REPEAL OR MODIFICATION
Any amendment, repeal or modification of any provision of this Article VI
shall not adversely affect any right or protection of a director or agent of the
corporation existing at the time of such amendment, repeal or modification.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER
The corporation shall keep either at its principal executive office or at
the office of its transfer agent or registrar (if either be appointed), as
determined by resolution of
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the Board of Directors, a record of its shareholders listing the names and
addresses of all shareholders and the number and class of shares held by each
shareholder.
A shareholder or shareholders of the corporation holding at least five
percent (5%) in the aggregate of the outstanding voting shares of the
corporation or who hold at least one percent (1%) of such voting shares and have
filed a Schedule 14B with the United States Securities and Exchange Commission
relating to the election of directors, shall have an absolute right to do either
or both of the following (i) inspect and copy the record of shareholders' names,
addresses, and shareholdings during usual business hours upon five (5) days'
prior written demand upon the corporation, or (ii) obtain from the transfer
agent for the corporation, upon written demand and upon the tender of such
transfer agent's usual charges for such list (the amount of which charges shall
be stated to the shareholder by the transfer agent upon request), a list of the
shareholders' names and addresses who are entitled to vote for the election of
directors, and their shareholdings, as of the most recent record date for which
it has been compiled or as of a date specified by the shareholder subsequent to
the date of demand. The list shall be made available on or before the later of
five (5) business days after the demand is received or the date specified
therein as the date as of which the list is to be compiled.
The record of shareholders shall also be open to inspection and copying by
any shareholder or holder of a voting trust certificate at any time during usual
business hours upon written demand on the corporation, for a purpose reasonably
related to the holder's interests as a shareholder or holder of a voting trust
certificate.
Any inspection and copying under this Section 7.1 may be made in person or
by an agent or attorney of the shareholder or holder of a voting trust
certificate making the demand.
7.2 MAINTENANCE AND INSPECTION OF BYLAWS
The corporation shall keep at its principal executive office or, if its
principal executive office is not in the State of California, at its principal
business office in California, the original or a copy of these Bylaws as amended
to date, which shall be open to inspection by the shareholders at all reasonable
times during office hours. If the principal executive office of the corporation
is outside the State of California and the corporation has no principal business
office in such state, then it shall, upon the written request of any
shareholder, furnish to such shareholder a copy of these Bylaws as amended to
date.
7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS
The accounting books and records and the minutes of proceedings of the
shareholders and the Board of Directors, and committees of the Board of
Directors shall be kept at such place or places as are designated by the Board
of Directors or, in
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absence of such designation, at the principal executive office of the
corporation. The minutes shall be kept in written form, and the accounting
books and records shall be kept either in written form or in any other form
capable of being converted into written form.
The minutes and accounting books and records shall be open to inspection
upon the written demand on the corporation of any shareholder or holder of a
voting trust certificate at any reasonable time during usual business hours, for
a purpose reasonably related to such holder's interests as a shareholder or as
the holder of a voting trust certificate. Such inspection by a shareholder or
holder of a voting trust certificate may be made in person or by an agent or
attorney and the right of inspection includes the right to copy and make
extracts. Such rights of inspection shall extend to the records of each
subsidiary corporation of the corporation.
7.4 INSPECTION BY DIRECTORS
Every director shall have the absolute right at any reasonable time to
inspect and copy all books, records, and documents of every kind and to inspect
the physical properties of the corporation and each of its subsidiary
corporations, domestic or foreign. Such inspection by a director may be made in
person or by an agent or attorney and the right of inspection includes the right
to copy and make extracts.
7.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER
The Board of Directors shall cause an annual report to be sent to the
shareholders not later than one hundred twenty (120) days after the close of the
fiscal year adopted by the corporation. Such report shall be sent to the
shareholders at least fifteen (15) (or, if sent by third-class mail, thirty-five
(35)) days prior to the annual meeting of shareholders to be held during the
next fiscal year and in the manner specified in Section 2.5 of these Bylaws for
giving notice to shareholders of the corporation.
The annual report shall contain a balance sheet as of the end of the
fiscal year and an income statement and statement of changes in financial
position for the fiscal year, accompanied by any report thereon of independent
accountants or, if there is no such report, the certificate of an authorized
officer of the corporation that the statements were prepared without audit from
the books and records of the corporation.
The foregoing requirement of an annual report shall be waived so long as
the shares of the corporation are held by fewer than one hundred (100) holders
of record.
7.6 FINANCIAL STATEMENTS
If no annual report for the fiscal year has been sent to shareholders,
then the corporation shall, upon the written request of any shareholder made
more than one
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hundred twenty (120) days after the close of such fiscal year, deliver or mail
to the person making the request, within thirty (30) days thereafter, a copy of
a balance sheet as of the end of such fiscal year and an income statement and
statement of changes in financial position for such fiscal year.
A shareholder or shareholders holding at least five percent (5%) of the
outstanding shares of any class of the corporation may make a written request to
the corporation for an income statement of the corporation for the three-month,
six-month or nine-month period of the current fiscal year ended more than thirty
(30) days prior to the date of the request and a balance sheet of the
corporation as of the end of that period. The statements shall be delivered or
mailed to the person making the request within thirty (30) days thereafter. A
copy of the statements shall be kept on file in the principal office of the
corporation for twelve (12) months and it shall be exhibited at all reasonable
times to any shareholder demanding an examination of the statements or a copy
shall be mailed to the shareholder. If the corporation has not sent to the
shareholders its annual report for the last fiscal year, the statements referred
to in the first paragraph of this Section 7.6 shall likewise be delivered or
mailed to the shareholder or shareholders within thirty (30) days after the
request.
The quarterly income statements and balance sheets referred to in this
section shall be accompanied by the report thereon, if any, of any independent
accountants engaged by the corporation or the certificate of an authorized
officer of the corporation that the financial statements were prepared without
audit from the books and records of the corporation.
7.7 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The Chairman of the Board, the President, any Vice President, the Chief
Financial Officer, the Secretary or Assistant Secretary of this corporation, or
any other person authorized by the Board of Directors or the President or a Vice
President, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority herein
granted may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by such person
having the authority.
ARTICLE VIII
GENERAL MATTERS
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
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For purposes of determining the shareholders entitled to receive payment
of any dividend or other distribution or allotment of any rights or entitled to
exercise any rights in respect of any other lawful action (other than with
respect to notice or voting at a shareholders meeting or action by shareholders
by written consent without a meeting), the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty (60) days prior to
any such action. Only shareholders of record at the close of business on the
record date are entitled to receive the dividend, distribution or allotment of
rights, or to exercise the rights, as the case may be, notwithstanding any
transfer of any shares on the books of the corporation after the record date,
except as otherwise provided in the Articles of Incorporation or the Code.
If the Board of Directors does not so fix a record date, then the record
date for determining shareholders for any such purpose shall be at the close of
business on the day on which the Board adopts the resolution relating thereto or
the sixtieth (60th) day prior to the date of that action, whichever is later.
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS
From time to time, the Board of Directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED
The Board of Directors, except as otherwise provided in these Bylaws, may
authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the Board of Directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.4 CERTIFICATES FOR SHARES
A certificate or certificates for shares of the corporation shall be
issued to each shareholder when any of such shares are fully paid. The Board of
Directors may authorize the issuance of certificates for shares partly paid
provided that these certificates shall state the total amount of the
consideration to be paid for them and the amount actually paid. All
certificates shall be signed in the name of the corporation by the Chairman of
the Board or the Vice Chairman of the Board or the President or a Vice President
and by the Chief Financial Officer or an Assistant Treasurer or the Secretary or
an Assistant Secretary, certifying the number of shares and the class or series
of
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shares owned by the shareholder. Any or all of the signatures on the
certificate may be by facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed on a certificate has ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the corporation with the same effect as if that person were an
officer, transfer agent or registrar at the date of issue.
8.5 LOST CERTIFICATES
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation or its transfer agent or registrar and canceled
at the same time. The Board of Directors may, in case any share certificate or
certificate for any other security is lost, stolen or destroyed (as evidenced by
a written affidavit or affirmation of such fact), authorize the issuance of
replacement certificates on such terms and conditions as the Board may require;
the Board may require indemnification of the corporation secured by a bond or
other adequate security sufficient to protect the corporation against any claim
that may be made against it, including any expense or liability, on account of
the alleged loss, theft or destruction of the certificate or the issuance of the
replacement certificate.
8.6 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Code shall govern the construction of these
Bylaws. Without limiting the generality of this provision, the singular number
includes the plural, the plural number includes the singular, and the term
"person" includes both a corporation and a natural person.
ARTICLE IX
AMENDMENTS
9.1 AMENDMENT BY SHAREHOLDERS
New Bylaws may be adopted or these Bylaws may be amended or repealed by
the vote or written consent of holders of a majority of the outstanding shares
entitled to vote; provided, however, that if the Articles of Incorporation of
the corporation set forth the number of authorized Directors of the corporation,
then the authorized number of Directors may be changed only by an amendment of
the Articles of Incorporation.
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9.2 AMENDMENT BY DIRECTORS
Subject to the rights of the shareholders as provided in Section 9.1 of
these Bylaws, Bylaws, other than a Bylaw or an amendment of a Bylaw changing the
authorized number of directors (except to fix the authorized number of directors
pursuant to a Bylaw providing for a variable number of directors), may be
adopted, amended or repealed by the Board of Directors.
9.3 RECORD OF AMENDMENTS
Whenever an amendment or new Bylaw is adopted, it shall be copied in the
book of minutes with the original Bylaws. If any Bylaw is repealed, the fact of
repeal, with the date of the meeting at which the repeal was enacted or written
consent was filed, shall be stated in said book.
ARTICLE X
INTERPRETATION
Reference in these Bylaws to any provision of the California Corporations
Code shall be deemed to include all amendments thereof.
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SECRETARY'S CERTIFICATE OF ADOPTION OF BYLAWS
OF
COAST BANCORP
I, the undersigned, do hereby certify:
1. That I am the duly elected and acting Secretary of Coast Bancorp, a
California corporation.
2. That the foregoing Bylaws constitute the Bylaws of said corporation
as adopted by the Directors of said corporation by unanimous written consent on
February __, 1995.
IN WITNESS WHEREOF, I have hereunto subscribed my name this
day of February __, 1995.
--------------------------------
Sandra A. Anderson
Secretary
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EXECUTIVE SALARY CONTINUATION AGREEMENT
COAST COMMERCIAL BANK
This Agreement, made and entered into this nineteenth day of September 1992, by
and between Coast Commercial Bank, a corporation organized and existing under
the laws of the State of California (hereinafter called the Corporation), and
Harvey J. Nickelson (hereinafter called the Executive).
WITNESSETH:
WHEREAS, the Executive is in the employ of the Corporation serving as its
Executive Vice President;
WHEREAS, the experience of the Executive, his knowledge of the affairs of the
Corporation, his reputation and contacts in the industry are so valuable that
assurance of his continued service is essential for the future growth of the
Corporation to arrange terms of continued employment for the Executive so as to
reasonably assure his remaining in the Corporation's employment during his
lifetime or until the age of retirement; and
WHEREAS, it is the desire of the Corporation that his services be retained as
herein provided; and
WHEREAS, the Executive is willing to continue in the employ of the Corporation
provided the Corporation agrees to pay him or his beneficiaries certain benefits
in accordance with the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the services to be performed in the future
as well as the mutual promises and covenants herein contained, it is agreed as
follows:
ARTICLE 1
1.1) Beneficiary - The term Beneficiary shall mean the person or persons whom
the Executive shall designate in writing to receive the benefits provided
hereunder.
1.2) Disability - The term Disability shall mean an inability to substantially
perform the usual and regular duties performed by the Executive as an employee
of the Corporation. Such disability may be caused by either illness or injury
and includes mental disabilities. For purposes of this Agreement the
determination of the Executive's disability shall be made solely by the Board of
Directors of the Corporation without participation by the alleged disabled
Executive. Such a
1
<PAGE>
determination by the Board of Directors shall be final and conclusive on all
parties hereto.
1.3) Named Fiduciary and Plan Administrator - The Named Fiduciary and Plan
Administrator of this plan shall be the Corporation.
2
<PAGE>
ARTICLE 2
2.1) Employment - The Corporation agrees to employ the Executive in such
capacity as the Corporation may from time to time determine. The Executive will
continue in the employ of the Corporation in such capacity and with such duties
and responsibilities as may be assigned to him, and with such compensation as
may be determined from time to time by the Board of Directors of the
Corporation.
2.2) Full Efforts - The Executive agrees to devote his full time and attention
exclusively to the business and affairs of the Corporation, except during
vacation periods, and to use his best efforts to furnish faithful and
satisfactory services to the Corporation.
2.3) Fringe Benefit - The salary continuation benefits provided by this
Agreement are granted by the Corporation as a fringe benefit to the Executive
and are not part of any salary reduction plan or any arrangement deferring a
bonus or a salary increase. The Executive has no option to take any current
payment or bonus in lieu of these salary continuation benefits.
ARTICLE 3
3.1) Retirement - If the Executive shall continue in the employment of the
Corporation until he attains the age of sixty-five (65), he may retire from
active daily employment as of the first day of the month next following
attainment of age sixty-five (65) or upon such later date as may be mutually
agreed upon by the Executive and the Corporation. The Executive will be allowed
the option of early retirement on or after attaining the age of fifty-five (55).
3.2) Payment - The Corporation agrees that upon such retirement it will pay to
the Executive the annual sum of Seventy Five Thousand Dollars ($75,000), per
annum, payable monthly on the first day of each month following such retirement
for a period fifteen (15) years or one hundred and eighty (180) months; subject
to the conditions and limitations hereinafter set forth. The Seventy Five
Thousand Dollars ($75,000.00) annual payment amount may be adjusted as of the
first year in which it is to be paid to reflect changes in the federally
determined cost-of-living index. However, the Corporation is not obligated
hereunder to make any such adjustment.
If the Executive elects an early retirement after fifty-five (55) and prior to
age sixty-five (65), the payment shall be reduced by two percent (2%) per year
for each year such retirement precedes his attaining age sixty-five (65) and
payments shall be limited to the vested portion of the Exhibit "A" benefit.
3
<PAGE>
3.3) Death After Retirement - The Corporation agrees that if the Executive
shall so retire, but shall die before receiving the fully amount of payments to
which he is entitled hereunder, it will continue to make such payments to the
Executive's designated Beneficiary on a monthly basis, for the remaining period.
If a valid Beneficiary Designation is not in effect, the payments shall be made
to the Executive's surviving spouse, or if none, said payments shall be made to
the duly qualified personal representative, executor or administrator of his
estate.
4
<PAGE>
ARTICLE 4
4.1) Death Prior to Retirement - In the event the Executive should die while
actively employed by the Corporation at any time after the date of this
Agreement but prior to this attaining the age of sixty-five (65) years, the
Corporation will pay the annual sum of Seven Five Thousand Dollars ($75,000.00)
per year, to the Executive's designated Beneficiary in equal monthly
installments for a period of one hundred eighty (180) months. If a valued
Beneficiary Designation is not in effect, the payments shall be made to the
Executive's surviving spouse or, if none, said payments shall be made to the
duly qualified personal representative, executor or administrator of his estate.
The said monthly payments shall begin the first day of the month following the
month of the decease of the Executive. Provided, however, that anything
hereinabove to the contrary notwithstanding, no death benefit shall be payable
hereunder if it is determined that the Executive's death was caused by suicide
on or before November 1, 1992.
4.2) Disability Prior to Retirement - In the event the Executive should become
disabled while actively employed by the Corporation at any time after the date
of this Agreement but prior to his attaining the age of sixty-five (65) years,
the Executive will be considered to be one hundred percent (100%) vested in the
amount set forth in Schedule A attached hereto and made a part hereof. The
Executive may elect said amount to be paid to the Executive in a lump sum within
three (3) months of the determination of disability. Said payment shall be in
lieu of any other retirement or death benefit under this Agreement. If Executive
does not elect for a lump sum payment, the Corporation agrees that payout shall
commence within three (3) months of the determination of disability in the same
manner as if it were a retirement benefit under Article 3.
ARTICLE 5
5.1) Termination of Employment - The Corporation reserves the right to
terminate the employment of the Executive at any time prior to retirement. In
the event that the employment of the Executive shall terminate prior to this
attaining age sixty-five (65), other than by reason of his disability or his
death or by the Executive electing to take an early retirement upon or after
attaining age fifty five (55), then this Agreement shall terminate upon the date
of such termination of employment.
(01) Upon execution of this agreement the Executive will be considered to be
vested in thirty percent (30%) of the amount set out in Schedule A attached
hereto and made a part hereof and shall become vested in an additional ten
percent (10%) of said amount for each succeeding year thereafter until he
5
<PAGE>
becomes one hundred percent (100%) vested. If the Executive's employment is
terminated under the provisions of this Section 5.1., the Corporation will pay
the Executive's vested amount upon such terms and conditions and commencing no
later than age sixty-five (65). The Executive may elect an early retirement
payout pursuant to the provisions of Article 3.2.
(02) Anything hereinabove to the contrary notwithstanding, if the Executive is
not fully vested in the amount set forth in Schedule A, he will become fully
vested in said amount in the event of a transfer in the controlling ownership or
sale of the Corporation or its parent corporation and shall be entitled to the
full amount set forth in Schedule A, upon the terms and conditions hereof, if
termination of employment thereafter occurs under this Section 5.1.
ARTICLE 6
6.1) Termination of Agreement by Reason of Changes in Law - The Corporation is
entering into this Agreement upon the assumption that certain existing tax laws
will continue in effect in substantially their current form. In the event of any
changes in such federal laws the Corporation shall have an option to terminate
or modify this Agreement. Provided, however, that the Executive shall be
entitled to at least the same amount as he would have been entitled to under
Section 4.2 relating to disability. The payment of said amount shall be made
upon such terms and conditions and at such time as the Corporation shall
determine, but in no event commencing later than age sixty-five (65).
ARTICLE 7
7.1) Nonassignable - Neither the Executive, his spouse, nor any other
beneficiary under this Agreement shall have any power or right to transfer,
assign, anticipate, hypothecate, mortgage, commute, modify, or otherwise
encumber in advance any of the benefits payable hereunder, nor shall any of said
benefits be subject to seizure for the payment of any debts, judgments, alimony
or separate maintenance, owned by the Executive or his beneficiary or any of
them, or be transferable by operation of law in the event of bankruptcy,
insolvency or otherwise.
ARTICLE 8
8.1) Claims Procedure - The Corporation shall make all determinations as to
rights to benefits under this Agreement. Any decision by the Corporation denying
a claim by the Executive or his beneficiary for benefits under this Agreement
shall be stated in writing and delivered or mailed to the Executive or such
beneficiary. Such decision shall set forth the specific reasons for the denial,
written to the best of the Corporation's ability in a manner calculated to be
understood without legal
6
<PAGE>
or actuarial counsel. In addition, the Corporation shall provide a reasonable
opportunity to the Executive or such beneficiary for full and fair review of the
decision denying such claim.
ARTICLE 9
9.1) Unsecured General Creditor - The Executive and his beneficiary shall have
no legal right or equitable, right, interests, or claims in or to any property
or assets of the Corporation. No assets of the Corporation shall be held under
any trust for the benefit of the Executive or his beneficiaries or held in any
way as security for the fulfilling of the obligations of the Corporation under
this plan. All of the Corporation's assets shall be and remain the general,
unpledged, unrestricted assets of the Corporation. The Corporation's obligation
under this plan shall be that of an unfunded and unsecured promise by the
Corporation to pay money in the future. Executives and their beneficiaries shall
be unsecured general creditors with respect to any benefits hereunder.
ARTICLE 10
10.1) Reorganization - The Corporation shall not merge or consolidate into or
with another corporation, or reorganize, or sell substantially all of its assets
to another corporation, firm, or person unless and until such succeeding or
continuing corporation, firm, or person agrees to assume and discharge the
obligations of the Corporation under this Agreement. Upon the occurrence of such
event, the term "Corporation" as used in this Agreement shall be deemed to refer
to such successor or survivor corporation.
ARTICLE 11
11.1) Benefits and Burdens - This Agreement shall be binding upon and insure to
the benefit of the Executive and his personal representatives, and the
Corporation and my successor organization which shall succeed to substantially
all of its assets and business.
ARTICLE 12
12.1) Not a contract of Employment - This Agreement shall not be deemed to
constitute a contract of employment between the parties hereto, nor shall any
provision hereof restrict the right of the Executive to terminate his
employment.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be duly
executed by its proper officer and the Executive has hereunto set his hand at
Santa Cruz, California the day and year first above written.
7
<PAGE>
By: ----------/s/--------------
---------------------------
Its: ---------Secretary----------
----------------------------
EXECUTIVE:
- - --------------/s/-------------
- - ------------------------------
8
<PAGE>
SCHEDULE A
EXECUTIVE SALARY CONTINUATION AGREEMENT
Plan Year Amount in Which Vesting Occurs
1992 30%
1993 10%
1994 10%
1995 10%
1996 10%
1997 10%
1998 10%
1999 10%
9
<PAGE>
EXECUTIVE SALARY CONTINUATION AGREEMENT
COAST COMMERCIAL BANK
This Agreement, made and entered into this nineteenth day of September, 1992, by
and between Coast Commercial Bank, a corporation organized and existing under
the laws of the State of California (hereinafter called the Corporation), and
David V. Heald (hereinafter called the Executive).
WITNESSETH:
WHEREAS, the Executive is in the employ of the Corporation serving as its
Executive Vice President;
WHEREAS, the experience of the Executive, his knowledge of the affairs of the
Corporation, his reputation and contacts in the industry are so valuable that
assurance of his continued service is essential for the future growth of the
Corporation to arrange terms of continued employment for the Executive so as to
reasonably assure his remaining in the Corporation's employment during his
lifetime or until the age of retirement; and
WHEREAS, it is the desire of the Corporation that his services be retained as
herein provided; and
WHEREAS, the Executive is willing to continue in the employ of the Corporation
provided the Corporation agrees to pay him or his beneficiaries certain benefits
in accordance with the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the services to be performed in the future
as well as the mutual promises and covenants herein contained, it is agreed as
follows:
ARTICLE 1
1.1) Beneficiary - The term Beneficiary shall mean the person or persons whom
the Executive shall designate in writing to receive the benefits provided
hereunder.
1.2) Disability - The term Disability shall mean an inability to substantially
perform the usual and regular duties performed by the Executive as an employee
of the Corporation. Such disability may be caused by either illness or injury
and includes mental disabilities. For purposes of this Agreement the
determination of the Executive's disability shall be made solely by the Board of
Directors of the Corporation without participation by the alleged disabled
Executive. Such a
1
<PAGE>
determination by the Board of Directors shall be final and conclusive on all
parties hereto.
1.3) Named Fiduciary and Plan Administrator - The Named Fiduciary and Plan
Administrator of this plan shall be the Corporation.
ARTICLE 2
2.1) Employment - The Corporation agrees to employ the Executive in such
capacity as the Corporation may from time to time determine. The Executive will
continue in the employ of the Corporation in such capacity and with such duties
and responsibilities as may be assigned to him, and with such compensation as
may be determined from time to time by the Board of Directors of the
Corporation.
2.2) Full Efforts - The Executive agrees to devote his full time and attention
exclusively to the business and affairs of the Corporation, except during
vacation periods, and to use his best efforts to furnish faithful and
satisfactory services to the Corporation.
2.3) Fringe Benefit - The salary continuation benefits provided by this
Agreement are granted by the Corporation as a fringe benefit to the Executive
and are not part of any salary reduction plan or any arrangement deferring a
bonus or a salary increase. The Executive has no option to take any current
payment or bonus in lieu of these salary continuation benefits.
ARTICLE 3
3.1) Retirement - If the Executive shall continue in the employment of the
Corporation until he attains the age of sixty-five (65), he may retire from
active daily employment as of the first day of the month next following
attainment of age sixty-five (65) or upon such later date as may be mutually
agreed upon by the Executive and the Corporation. The Executive will be allowed
the option of early retirement on or after attaining the age of fifty-five (55).
3.2) Payment - The Corporation agrees that upon such retirement it will pay to
the Executive the annual sum of Fifty Thousand Dollars ($50,000), per annum,
payable monthly on the first day of each month following such retirement for a
period fifteen (15) years or one hundred and eighty (180) months; subject to the
conditions and limitations hereinafter set forth. The Fifty Thousand Dollars
($50,000.00) annual payment amount may be adjusted as of the first year in which
it is to be paid to reflect changes in the federally determined cost-of-living
2
<PAGE>
index. However, the Corporation is not obligated hereunder to make any such
adjustment.
If the Executive elects an early retirement after fifty-five (55) and prior to
age sixty-five (65), the payment shall be reduced by two percent (2%) per year
for each year such retirement precedes his attaining age sixty-five (65) and
payments shall be limited to the vested portion of the Exhibit "A" benefit.
3.3) Death After Retirement - The Corporation agrees that if the Executive
shall so retire, but shall die before receiving the fully amount of payments to
which he is entitled hereunder, it will continue to make such payments to the
Executive's designated Beneficiary on a monthly basis, for the remaining period.
If a valid Beneficiary Designation is not in effect, the payments shall be made
to the Executive's surviving spouse, or if none, said payments shall be made to
the duly qualified personal representative, executor or administrator of his
estate.
ARTICLE 4
4.1) Death Prior to Retirement - In the event the Executive should die while
actively employed by the Corporation at any time after the date of this
Agreement but prior to this attaining the age of sixty-five (65) years, the
Corporation will pay the annual sum of Fifty Thousand Dollars ($50,000.00) per
year, to the Executive's designated Beneficiary in equal monthly installments
for a period of one hundred eighty (180) months. If a valued Beneficiary
Designation is not in effect, the payments shall be made to the Executive's
surviving spouse or, if none, said payments shall be made to the duly qualified
personal representative, executor or administrator of his estate. The said
monthly payments shall begin the first day of the month following the month of
the decease of the Executive. Provided, however, that anything hereinabove to
the contrary notwithstanding, no death benefit shall be payable hereunder if it
is determined that the Executive's death was caused by suicide on or before
November 1, 1992.
4.2) Disability Prior to Retirement - In the event the Executive should become
disabled while actively employed by the Corporation at any time after the date
of this Agreement but prior to his attaining the age of sixty-five (65) years,
the Executive will be considered to be one hundred percent (100%) vested in the
amount set forth in Schedule A attached hereto and made a part hereof. The
Executive may elect said amount to be paid to the Executive in a lump sum within
three (3) months of the determination of disability. Said payment shall be in
lieu of any other retirement or death benefit under this Agreement. If Executive
does not elect for a lump sum payment, the Corporation agrees that payout shall
commence
3
<PAGE>
within three (3) months of the determination of disability in the same manner as
if it were a retirement benefit under Article 3.
ARTICLE 5
5.1) Termination of Employment - The Corporation reserves the right to
terminate the employment of the Executive at any time prior to retirement. In
the event that the employment of the Executive shall terminate prior to this
attaining age sixty-five (65), other than by reason of his disability or his
death or by the Executive electing to take an early retirement upon or after
attaining age fifty five (55), then this Agreement shall terminate upon the date
of such termination of employment.
(01) Upon execution of this agreement the Executive will be considered to be
vested in thirty percent (30%) of the amount set out in Schedule A attached
hereto and made a part hereof and shall become vested in an additional ten
percent (10%) of said amount for each succeeding year thereafter until he
becomes one hundred percent (100%) vested. If the Executive's employment is
terminated under the provisions of this Section 5.1., the Corporation will pay
the Executive's vested amount upon such terms and conditions and commencing no
later than age sixty-five (65). The Executive may elect an early retirement
payout pursuant to the provisions of Article 3.2.
(02) Anything hereinabove to the contrary notwithstanding, if the Executive is
not fully vested in the amount set forth in Schedule A, he will become fully
vested in said amount in the event of a transfer in the controlling ownership or
sale of the Corporation or its parent corporation and shall be entitled to the
full amount set forth in Schedule A, upon the terms and conditions hereof, if
termination of employment thereafter occurs under this Section 5.1.
ARTICLE 6
6.1) Termination of Agreement by Reason of Changes in Law - The Corporation is
entering into this Agreement upon the assumption that certain existing tax laws
will continue in effect in substantially their current form. In the event of any
changes in such federal laws the Corporation shall have an option to terminate
or modify this Agreement. Provided, however, that the Executive shall be
entitled to at least the same amount as he would have been entitled to under
Section 4.2 relating to disability. The payment of said amount shall be made
upon such terms and conditions and at such time as the Corporation shall
determine, but in no event commencing later than age sixty-five (65).
4
<PAGE>
ARTICLE 7
7.1) Nonassignable - Neither the Executive, his spouse, nor any other
beneficiary under this Agreement shall have any power or right to transfer,
assign, anticipate, hypothecate, mortgage, commute, modify, or otherwise
encumber in advance any of the benefits payable hereunder, nor shall any of said
benefits be subject to seizure for the payment of any debts, judgments, alimony
or separate maintenance, owned by the Executive or his beneficiary or any of
them, or be transferable by operation of law in the event of bankruptcy,
insolvency or otherwise.
ARTICLE 8
8.1) Claims Procedure - The Corporation shall make all determinations as to
rights to benefits under this Agreement. Any decision by the Corporation denying
a claim by the Executive or his beneficiary for benefits under this Agreement
shall be stated in writing and delivered or mailed to the Executive or such
beneficiary. Such decision shall set forth the specific reasons for the denial,
written to the best of the Corporation's ability in a manner calculated to be
understood without legal or actuarial counsel. In addition, the Corporation
shall provide a reasonable opportunity to the Executive or such beneficiary for
full and fair review of the decision denying such claim.
ARTICLE 9
9.1) Unsecured General Creditor - The Executive and his beneficiary shall have
no legal right or equitable, right, interests, or claims in or to any property
or assets of the Corporation. No assets of the Corporation shall be held under
any trust for the benefit of the Executive or his beneficiaries or held in any
way as security for the fulfilling of the obligations of the Corporation under
this plan. All of the Corporation's assets shall be and remain the general,
unpledged, unrestricted assets of the Corporation. The Corporation's obligation
under this plan shall be that of an unfunded and unsecured promise by the
Corporation to pay money in the future. Executives and their beneficiaries shall
be unsecured general creditors with respect to any benefits hereunder.
ARTICLE 10
10.1) Reorganization - The Corporation shall not merge or consolidate into or
with another corporation, or reorganize, or sell substantially all of its assets
to another corporation, firm, or person unless and until such succeeding or
continuing corporation, firm, or person agrees to assume and discharge the
obligations of the Corporation under this Agreement. Upon the occurrence of such
event, the term
5
<PAGE>
"Corporation" as used in this Agreement shall be deemed to refer to such
successor or survivor corporation.
ARTICLE 11
11.1) Benefits and Burdens - This Agreement shall be binding upon and insure to
the benefit of the Executive and his personal representatives, and the
Corporation and my successor organization which shall succeed to substantially
all of its assets and business.
ARTICLE 12
12.1) Not a contract of Employment - This Agreement shall not be deemed to
constitute a contract of employment between the parties hereto, nor shall any
provision hereof restrict the right of the Executive to terminate his
employment.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be duly
executed by its proper officer and the Executive has hereunto set his hand at
Santa Cruz, California the day and year first above written.
By: /s/
---------------------------
Its: Secretary
---------------------------
EXECUTIVE:
/s/
- - -----------------------------
6
<PAGE>
SCHEDULE A
EXECUTIVE SALARY CONTINUATION AGREEMENT
Plan Year Amount in Which Vesting Occurs
1992 30%
1993 10%
1994 10%
1995 10%
1996 10%
1997 10%
1998 10%
1999 10%
7
<PAGE>
INDEX
Section Page
1 PREMISES .......................................................... 1
2 TERM .............................................................. 1
3 HOLDING OVER ...................................................... 1
4 RENTAL
(a) Monthly Rent ............................................. 1
(b) Percentage Rent .......................................... 1
(c) Taxes .................................................... 2
(d) Personal Property Taxes .................................. 2
(e) Maintenance of Common Areas .............................. 2
(f) Insurance ................................................ 3
5 SECURITY DEPOSIT .................................................. 3
6 PURPOSE ........................................................... 3
7 OPERATION OF BUSINESS ............................................. 3
8 AREA CLAUSE ....................................................... 3
9 ADVERTISING AND MERCHANTS ASSOCIATION ............................. 3
10 ABANDONMENT ....................................................... 4
11 SURRENDER OF PREMISES ............................................. 4
12 ASSIGNMENT AND SUBLETTING ......................................... 4
13 USES PROHIBITED ................................................... 4
14 SIGNS ............................................................. 4
15 OBSTRUCTION ....................................................... 4
16 WASTE ............................................................. 4
17 COMPLIANCE WITH LAW ............................................... 4
18 RULES AND REGULATIONS ............................................. 5
19 EMPLOYEES' PARKING ................................................ 5
20 ALTERATIONS AND LIENS ............................................. 5
21 REPAIRS ........................................................... 5
22 SERVICES AND UTILITIES ............................................ 5
23 ENTRY BY LESSOR ................................................... 5
24 INDEMNIFICATION OF LESSOR ......................................... 5
25 LESSEE INSURANCE .................................................. 6
26 FIRE CLAUSE ....................................................... 6
27 PUBLIC APPROPRIATION .............................................. 6
28 INSOLVENCY OR BANKRUPTCY .......................................... 6
29 RECEIVER ON BEHALF OF LESSOR ...................................... 6
30 DEFAULT ........................................................... 6
<PAGE>
31 ATTORNEY'S FEES ................................................... 7
32 SALE BY LESSOR .................................................... 7
33 EXCUSE OF PERFORMANCE ............................................. 7
34 SUBORDINATION ..................................................... 7
35 OFFSET STATEMENTS ................................................. 7
36 WAIVER ............................................................ 7
37 PARTIAL INVALIDITY ................................................ 7
38 NOTICE OF LEASE ................................................... 8
39 NOTICES ........................................................... 8
40 SUCCESSORS ........................................................ 8
41 ENTIRE AGREEMENT .................................................. 8
42 MISCELLANEOUS ..................................................... 8
43 CONSTRUCTION OF IMPROVEMENTS ...................................... 8
44 JOINT OPENING ..................................................... 8
45 FINANCING ......................................................... 8
46 RIGHT TO RELOCATE ................................................. 8
47 CONSTRUCTION PHASES ............................................... 9
48 TELEPHONES ........................................................ 9
49 MAINTENANCE CONTRACTS ............................................. 9
Exhibit Page
A SITE PLAN & DESCRIPTION OF PREMISES............................. 10
B RULES AND REGULATIONS........................................... 11
C. SCOPE OF WORK................................................... 12
<PAGE>
SHOPPING CENTER LEASE
PARTIES
THIS LEASE made the day of November 1986 between Friend, Friend and
-----
Friend, a partnership as Lessor and Coast Commercial Bank as Lessee
1. PREMISES
Lessor does hereby lease to Lessees and Lessee hereby hires from Lessor
those certain premises (hereinafter called "premises") outlined in red on
Exhibit A, attached hereto and made a part hereof said premises being
approximately commonly known as 720 Front Street, Santa Cruz, California 95060
square feet more specifically described as that free standing building and land
on the North end of that shopping center located at Front and Soquel in Santa
Cruz as shown on Exhibit "A: attached hereto, being approximately 5,760 square
feet of building.
2. TERM
Said leasing is upon and subject to the terms, covenants and conditions to
be kept and performed and this lease is made upon the condition of such
performance
Said leasing is for a term of One hundred twenty (120) months beginning on
June 1, 1987 and terminating on May 31, 1997.
3. HOLDING OVER
Any holding over after the expiration of the said term, with or without the
consent of Lessor, shall be construed to be a tenancy from month to month, and
shall be on the terms and conditions herein specified, so far as applicable.
Such holding over shall not constitute an extension of this lease during such
holding over. Lessee shall pay rent at one hundred ten percent (110%) of the
highest monthly rent paid during the term of the Lease, and shall provide Lessor
with written notice at least one month prior to the date of termination as such
monthly tenancy of his intention to terminate such tenancy.
<PAGE>
4(a). RENTAL
(1) Lessee agrees to pay minimum monthly rental in advance on the first
day of each calendar month throughout the demised term without deduction of
offset of any kind as follows
First Year: $8000.00 per month.
Second Year: $8500.00 per month.
Third Year: $9000.00 per month.
Fourth Year: $10000.00 per month.
Fifth Year: $11000.00 per month.
Sixth year through tenth year: See addendum paragraph 50
(2) Lessee agrees that should his rental or any other amount due Lessor
pursuant to this Lease not be paid within fourteen (14) days of the date due,
that Lessor will incur additional expense of management, accounting and legal
costs in an amount impossible to determine with certainty at the time and the
parties therefore agree pursuant to the provisions of California Civil Code,
Sections 1951.5, 1670 and 1671, that Lessor shall recover an additional ten
percent (10%) of the outstanding rental amount as liquidated damages and the
same shall become immediately due and payable. Failure to pay any such late
charge shall bear the same consequence, and Lessor shall have the same remedies
as provided in the Lease for a failure to pay rent.
(3) In the event the term of this Lease commences other than on the first
day of a calendar month, the first and last month's rental shall be prorated
accordingly. Remittance shall be made to Lessor at such address as shall from
time to time be designated by Lessor to Lessee in writing.
(4) Not used.
(b). PERCENTAGE RENT - NOT USED
(c). TAXES
Lessee agrees to pay to Lessor in each year of the demised term as
additional rental an amount equal to One hundred percent (100.00*%) of all real
property taxes on the shopping center land and improvements thereon and any
special assessments on the property and improvements hereby demised. Such
additional rental shall be prorated for the first and last years of the demised
term to reflect periods during either or both of said years not included within
the demised term. Payment of rental under this paragraph shall be made within
fifteen (15) days of presentation of the tax bill from Lessor to Lessee. The
amount of taxes to be paid by Lessee, as set forth above, shall include any
taxes, in whole or in part, assessed in lieu of or as an addition to real
property taxes including without limitation a tax or
<PAGE>
excise on gross sales, rents, rental income, profits or otherwise. *Separate
tax parcel number 005-082-19. See addendum paragraph 53.
(d). PERSONAL PROPERTY TAXES
Lessee agrees to pay before delinquency, any and all taxes levied or
assessed and which become payable during the term hereof on all equipment,
fixtures, and other personal property located on the premises.
(e). MAINTENANCE OF COMMON AREAS
(1) The halls, toilets, and other common areas within the buildings of
which the demised premises form a part as well as the parking lot, walkways, and
landscaped areas within the property, shall be deemed to be the common areas. In
addition to the rental heretofore provided for Lessee shall pay unto Lessor
twenty-one and 15/100 percent (21.15*%) of the cost of maintenance of such
common areas. Cost of maintenance may include upkeep, repairs and replacement to
and of improvements in the common areas, paving, landscaping, signs, lighting,
storm and sanitary sewer, utility services, police protection, night watchman,
sanitary control, scavenger service, public liability and property damage
insurance premiums, personal property taxes, termite inspection, maintenance,
depreciation of machinery and equipment used in such maintenance, the cost of
personnel to implement such services and any and all other expenses, including
ten percent (10%) of all the foregoing costs to cover the Lessor's
administrative and overhead costs, related to the existence of said common areas
and their use by and for the benefit of the several Lessees of the building or
buildings of which the demised premises form a part their employees, customers,
and invitees.
(2) Cost of maintenance as aforesaid shall be determined periodically, but
not more often than monthly, and Lessee shall reimburse Lessor for his proper
proportion thereof within fifteen (15) days from data of receipt of the
computation of said cost of maintenance and demand therefore from Lessor. The
manner and method of operation, maintenance, upkeep and repair shall be at the
sole and absolute discretion of Lessor, and all costs in connection therewith
incurred by Lessor in good faith shall conclusively and finally bind Lessee.
(3) All automobile parking areas, driveways, entrances and exits thereto,
and other facilities furnished by Lessor in or near the shopping center,
including employee parking area, the truck way or ways, loading docks, package
pick-up stations, pedestrian sidewalks and ramps, landscaped areas, exterior
stairways, first-aid stations, comfort stations, and other areas and
improvements provided by
<PAGE>
Lessor for the general use, in common, of Lessees, their officers, agents,
employees and customers, shall at all times be subject to the exclusive control
and management of Lessor and Lessor shall have the right from time to time to
establish, modify and enforce reasonable rules and regulations with respect to
all facilities and areas mentioned in this article. Lessor shall have the right
to construct, maintain and operate lighting facilities on all said areas and
improvements to police the same from time to time to change the areas, level,
location and arrangement of parking areas and other facilities hereinabove
referred to; to restrict parking by Lessees, their officers, agents and
employees to employees' parking areas; to enforce parking charges (by operation
of meters or otherwise) with appropriate provisions for free parking areas or
facilities; to discourage non-customer parking; and to do and perform such other
acts in and to said areas and improvements as in the use of good judgment, the
Lessor shall determine to be advisable with a view to the improvement of the
convenience and use thereof by Lessees, their officers, agents, employees and
customers. Lessor shall further have the right to bill Lessee its share as per
the percentage in Paragraph 1 hereinabove, of any charge for parking imposed on
the Lessor or the shopping center, by any governmental or quasi-governmental
agency or body, however computed. Lessor will operate and maintain the common
facilities referred to above in such manner as Lessor, in its sole discretion,
shall determine from time to time. Without limiting the scope of such
discretion, Lessor shall have the full right and authority to employ all
personnel and to make all rules and regulations pertaining to and necessary for
the proper operation and maintenance of the common areas and facilities. Lessor
hereby reserves the right at any time to make alterations or additions to and to
build additional stories on the building in which the premises are contained and
to build adjoining the same. Lessor also reserves the right to construct other
buildings or improvements in the shopping center from time to time and to make
alterations thereof or additions thereto and to build additional stones on any
such building or buildings and to build adjoining same and to construct double-
deck or elevated parking facilities. *This percentage is based on lessee's
prorata share of the square footage of the shopping center, excluding the Long's
space is responsible for its own maintenance of the common areas.
(f). INSURANCE
Lessee agrees to pay Lessor in each year of the demised term an additional
rental an amount equal to Twelve and 20/100 percent (12.20%) of all insurance
premiums on the shopping center improvements. Said insurance may include
Standard Form Fire Policy with Extended Coverage and Vandalism and Malicious
Mischief Coverage, Broad Form Bolier Coverage, Rental income insurance with one
hundred percent (100% contribution covering all rental and any other payments
due and payable to Lessor, All-Risk and/or Difference in Conditions Coverage,
including flood and earthquake coverage. General Liability Coverage, and any
other business insurance deemed necessary by Lessor. Said insurance shall be in
amounts not greater than the full insurable replacement cost of the shopping
center improvements.
5. SECURITY DEPOSIT
<PAGE>
Lessee has deposited with Lessor the sum of ten thousand dollars
($10,000.00). Said sum shall be held by Lessor as security for the faithful
performance by Lessee of all of the terms, covenants, and conditions of this
Lease to be kept and performed by Lessee during the term hereof. If Lessee
defaults with respect to any provision of this Lease, including but not limited
to the provisions relating to the payment of rent, Lessor may (but shall not be
required to) use, apply or retain all or any part of the security deposit for
the payment of any rent or any other sum in default, or for the payments of any
other amount which Lessor may spend or become obligated to spend by reason of
Lessee's default. If any portion of said deposit is so used or applied, Lessee
shall, upon demand therefor deposit cash with Lessor in an amount sufficient to
restore the security deposit to its original amount and Lessee's failure to do
so shall be a material breach of the Lease. Lessor shall not be required to keep
the security deposit separate from its general funds, and Lessee shall not be
entitled to interest on such deposit. If Lessee shall fully and faithfully
perform every provision of this Lease to be performed by it, the security
deposit or any balance thereof shall be returned to Lessee (or, at Lessor's
option, to the assignee of Lessee's interests hereunder) at the expirations of
the Lease term. In the event of termination of Lessor's interest in the Lease.
Lessor shall transfer said deposit to Lessor's successor in interest.
6. PURPOSE
Lessee agrees to use and occupy the premises during the term hereof for the
purpose of operating a commercial bank and for no other purpose whatever without
the written consent of Lessor. Lessor shall not use or permit said premises, or
any part thereof, to be used for any purposed other than the purposes for which
the said premises are hereby leased.
7. OPERATION OF BUSINESS
Lessee shall continuously use, occupy and operate all of the demised
premises during the entire term of this Lease for the purpose provided in
Paragraph 6 and no other without consent of Lessor, with due diligence and
efficiency so as to produce all of the gross sales which may be produced by such
manner of operation, unless prevented from doing so by causes beyond Lessee's
control. Subject to inability by reason of strikes or labor disputes. Lessee
shall carry at all times in said premises a stock of merchandise of such size,
character and quality as shall be reasonably designed to produce the maximum
return to Lessor and Lessee. Lessee shall conduct its business in the demised
premises during the regular customary days and hours of such type of business in
the city or trade area in which the shopping center is located, and will keep
the leased premises open for business during the same days,
<PAGE>
nights and hours as stores located in the shopping center, or during the same
days, night and hours agreed upon by a majority of the members of the Merchants'
Association, if any. Lessee shall keep the display windows and signs, if any,
in the demised premises well lighted during the hours from sundown to 11:00 p.m.
unless prevented by causes beyond the control of Lessee.
8. AREA CLAUSE
Lessee agrees that during the term of its lease it will not, nor will any
person, firm, or corporation which controls or is controlled by Lessee, own,
operate, or become financially interested in a business similar to the one to be
operated by Lessee hereunder within three (3) miles in any direction from the
demised premises, excluding, however, any business being conducted as of the
date of this Lease. Lessee agrees that from and after the expiration or earlier
termination of the demised terms, it will not, nor will any person, firm, or
corporation which controls or is controlled by Lessee, operate under or use in
any manner any name which includes the name of the shopping center in which the
demised premises form a part.
9. NOT USED
10. ABANDONMENT
Lessee shall not vacate or abandon the premises at any time during the term
hereof, and if Lessee should abandon, vacate or surrender said premises or be
dispossessed by process of law, or otherwise, it shall be a breach of this Lease
and any personal property belonging to Lessee and left on the premises shall be
deemed to be abandoned, and an addition to any other rights which Lessor may
have. Lessor may remove any personal property belonging to Lessee which remains
on the demised premises and store the sane, the cost of such removal and storage
to be charged to the account of Lessee.
11. SURRENDER OF PREMISES
The voluntary or other surrender of this Lease by Lessee, or a mutual
cancellation thereof shall not work a merger, but shall at the option of the
Lessor terminate all or any existing subleases or
<PAGE>
subtenancies, or may at the option of Lessor, operate as an assignment to it
of any or all such subleases or subtenancies.
12. ASSIGNMENT AND SUBLETTING
Lessee shall not assign this Lease or any interest therein, nor lease or
sublet the said premises, or any part thereof, or any right or privilege
appurtenant thereto, nor permit the occupancy or use of any part thereof by any
other pension, without the written consent of the Lessor first had and obtained,
and a consent to one assignment, subletting, occupancy or use, shall not be
construed as a consent to any subsequent assignment, subletting, occupancy or
other use, shall be based upon standards and conditions as follows: The credit
rating of the new tenant; the similarity of the proposed use to the previous
use; the nature or character of the new tenant; the requirements of the new
tenant for services furnished by Lessor; the impact of the new tenant on a
common facilities. Any such assignment, subletting, occupancy, or use, without
the prior written consent of Lessor, shall at the option of Lessor terminate the
Lease and any such purported assignment, sublease, occupancy, or use, without
the prior written consent of Lessor, shall not nor shall any interest therein be
assignable as to the interest of Lessee by operation of law, without the
written consent of Lessor. Transfer of fifty percent (50%) or more of the stock
or effective management control of Lessee shall constitute an assignment under
the terms of this paragraph. SEE ADDENDUM PARAGRAPH 54.
13. USES PROHIBITED
Lessee shall not do or permit anything to be done in or about the premises
or any other areas of the shopping center, nor bring or keep anything therein
which will in any way increase the existing rate of or affect any insurance,
including but not limited to fire, extended coverage, vandalism, malicious
mischief, flood, liability, etc., upon the buildings or any of its contents or
any other building or common areas of the shopping center, or cause a
cancellations of any insurance policy covering said building or any part thereof
or any of its contents. Lessee agrees that if any such activity causes an
increase in any or all insurance premium rates, it will pay such increase in
premiums to Lessor within ten (10) days after receipt by Lessee from Lessor of a
bill setting forth the amount of such increase. In the event any of Lessee's
activities shall cause cancellation of any insurance policy covering the leased
premises, Lessee shall immediately cease to conduct such activity. Lessee shall
not conduct or permit to be conducted any sale of auction on or from said
premises.
14. SIGNS
<PAGE>
Lessee shall not place or permit to be placed any sign, marquee, awning,
decoration, security bars, or other attachment on or to the roof, front,
windows, doors, visible interior walls or exterior walls of the demised premises
without the written consent of Lessor first had and obtained. Lessor may,
without liability, enter upon the premises and remove any such sign, marquee,
awning, decoration or attachment affixed in violations of this paragraph.
Lessee agreeing to pay the cost of removal thereof. Lessor may establish rules
and regulations as to the size, type, and design of all exterior signs and
decorations and Lessee agrees to abide thereby. Lessee shall not exhibit or
affix flags, pennants, banners or similar items on or to the exterior or
interior of the windows or doors. Lessee shall at all time maintain the doors
and store front in a neat and clean condition. Lessee shall not place anything
or allow anything to be placed near the glass of any window, door, partition, or
wall which in the opinion of Lessor appears unsightly from outside the premises.
15. OBSTRUCTION
Lessee shall not obstruct the sidewalks and paved areas adjacent to the
demised premises or any portion of the property on which the demised premises
are situated.
16. WASTE
Lessee shall not commit, or suffer to be committed, any waste upon said
premises, or any nuisance, or other act or thing which may disturb the quiet
enjoyment of any other tenant in the shopping center in which the demised
premises may be located or in any way obstruct, interfere with, injure or annoy
them, or do or permit to be done anything in any way tending to disturb them.
17. COMPLIANCE WITH LAW
Lessee shall not use the premises or permit anything to be done in or about
the premises which will in any way conflict with any law, statute, ordinance or
governmental rule or regulation now in force or which may hereafter be enacted
or promulgated. Lessee shall at its sole cost and expense promptly comply with
all laws, statutes, ordinances and governmental rules, regulations or
requirements now in force or which may hereafter be in force and with the
requirements of any board of fire underwriters or other similar body now or
hereafter constituted relating to or affecting the condition, use or occupancy
of the premises, excluding structural changes not related to or affected by
Lessee's improvements or acts. The judgment of any court of competent
jurisdiction or the admission of Lessee in any action against Lessee, whether
Lessor be a party thereto or not that Lessee has violated any law, statute,
<PAGE>
ordinance or governmental rule, regulations or requirement shall be conclusive
of that fact as between Lessor and Lessee.
18. RULES AND REGULATIONS
Lessee shall faithfully observe and comply with the rules and regulations
attached to this Lease, marked Exhibit B, and all reasonable modifications of
and additions thereto from time to time put into effect by Lessor, provided that
in such event Lessor shall give written notice thereof to Lessee. Lessor shall
not be responsible to Lessee for the non-performance by any other tenant or
occupant of the building of any said rules and regulations.
19. EMPLOYEES' PARKING
Lessee agrees that Lessee and Lessee's employees and agents will park their
automobiles only in that area designated by Lessor for said parking. All other
parking areas are reserved for customers. Should there be any violations of this
provision after written notice from Lessor. Lessee agrees to pay Lessor the sum
of Twenty-Five and No/100 Dollars ($25.00) for each violation and if the
violations persist, Lessee agrees that the offending automobile may be towed to
the designated employee parking area at the expense of Lessee.
20. ALTERATIONS AND LIENS
Lessee shall not make, or allow to be made, any alterations of the demised
premises, or any part thereof, without the written consent of Lessor first had
and obtained and any additions to or alterations of the said premises shall
become at once a part of the realty and belong to Lessor, at Lessor's option.
Lessee shall retain title to all movable furniture and trade fixtures placed in
the property by him. All heating, lighting, plumbing, electrical and air
conditioning installations made by Lessee shall be and become the property of
Lessor upon installation and shall not be deemed trade fixture. If written
consent of Lessor to any proposed alterations by Lessee shall have been
obtained, Lessee agrees to advise Lessor in writing in advance of the data upon
which such alterations will commence in order to permit Lessor to post notices
of non-responsibility. Lessee agrees to post a performance bond in an amount to
be determined by Lessor, should Lessor request that Lessee obtain the same.
Lessee shall keep the demised premises free from any and all liens arising out
of any work performed, materials furnished or obligations incurred by Lessee. In
the event Lessor consents to the making of any alterations, additions or
improvements to the premises by Lessee, the same shall be made by Lessee at
Lessee's sole cost and expense and any contractor or person selected by Lessee
to make the same must
<PAGE>
first be approved of in writing by Lessor. Upon the expiration or sooner
termination of the Lease, Lessee shall, upon demand by Lessor, at Lessee's sole
cost and expense, remove any alterations, additions or improvements made by
Lessee, designated by Lessor to be removed and Lessee shall immediately, at its
sole cost and expense, repair any damage to the premises caused by such removal.
21. REPAIRS
Lessee shall, at his sole cost, keep and maintain said premises and
appurtenances and every part thereof (except exterior walls and roofs)
including, without limitation, glazing storefront, walls, floors, ceilings,
doors, electrical facilities and equipment, including lighting fixtures,
plumbing, air conditioning, heating and sewer facilities, and the interior of
the premises, in good and sanitary order, condition and repair. The Lessor
agrees to maintain the roof over said demised premises in good order and repair.
Lessor agrees to keep all drains and gutters and surfaces of the said roof free
and clear of leaves and debris. It is an express condition precedent to all
obligations of Lessor to repair and maintain that Lessee shall have notified
Lessor in writing of the need of such repairs or maintenance. After such notice,
Lessor shall have a reasonable time in which to effect the necessary repairs or
maintenance. Lessee agrees that any delay by Lessor in the performance of the
obligations of this section shall not be a basis for Lessee canceling this
agreement or for non-performance by Lessee of any of the terms hereunder. By
entry hereunder, Lessee accepts the premises as being in good sanitary order,
condition and repair, and agrees on the last day of said term, or sooner
termination of this Lease, to surrender unto Lessor said premises with said
appurtenances in the same condition as when received, reasonable use and wear
thereof and damage by fire, act of God or by the elements excepted, and to
remove all of Lessee's signs from said premises. In the event that the
provisions of any law, ordinance, or rule now in force or hereafter enacted by
Municipal State or National authority, requires by reason of Lessee's use of the
premises, any alterations, additions, repairs or acts of any kind to be done in
connection with the premises or any part thereof, the same shall be done at the
sole cost and expense of Lessee. It is specifically understood and agreed that
Lessor has no obligations and has made no promises to alter, remodel, improve,
repair, decorate or paint the premises, or any part thereof, and that no
representations respecting the condition of the premises or the building of
which the premises are a part have been made by Lessor to Lessee, except as
specifically herein set forth. If Lessee fails to perform Lessee's obligations
under this section, Lessor may, at Lessor's option, enter the premises and put
the same in good order, condition, and repair, and the cost thereof shall become
due and payable as additional rental by Lessee to Lessor upon demand, but
nothing contained in this sentence shall be deemed to impose any duty upon
Lessor or affect in any manner the obligations placed upon Lessee by this
section.
22. SERVICES AND UTILITIES
<PAGE>
Lessee, from the time it first enters the premises for the purpose of
setting fixture, or from the commencement of the term of this Lease, whichever
date shall first occur, and throughout the term of this Lease shall pay for
water, gas, heat, air conditioning, light, power, telephone service and all
other services supplied to or consumed in or on the leased premises. Lessee
shall not allow refuse, garbage, or trash to accumulate outside of the demised
premises. Lessee shall not be entitled to any abatement or reduction of rental
and Lessor shall not be liable for an interruptions in any of the foregoing when
such failure is caused by accidents, breakage, repair, strikes, lockouts, or
other labor disturbances or labor disputes of any character, or by any other
cause, similar or dissimilar. Wherever heat-generating machines or equipment are
used in the premises which affect the temperature otherwise maintained by the
air conditioning system, Lessor reserves the right to install supplementary air
conditioning units in the premises or any other part of the shopping center and
the cost thereof, including the cost of installation and the cost of operation
and maintenance thereof, shall be paid by Lessee to Lessor upon demand by
Lessor.
23. ENTRY BY LESSOR
Lessee shall permit Lessor and his agents to enter the demised premises at
all reasonable times for any of the following purposes: To inspect the same; to
show said premises to prospective purchasers; to maintain the building in which
the said premises are located; to make such repairs to the demised premises as
Lessor is obligated or may elect to make; to make repairs, alterations,
additions or utility installations to any other portion of the building in
which the demised premises are located, including the erection and maintenance
of such scaffolding, ladders, fences and props as may be required; to post
notices of non-responsibility for alterations, additions, repairs or utility
installations; for the purpose of placing upon the property in which said
premises are located any ordinary "for sale" sign. Lessee shall permit Lessor
within one hundred and twenty (120) days prior to the expiration of this Lease
to place upon the premises ordinary "for lease" signs, and to show said premises
to prospective lessees, during reasonable business hours.
Lessor, or his agent, shall have the right to use any and all means which
Lessor may deem proper to open said doors in an emergency, in order to obtain
entry to the premises, and any entry to the premises obtained by Lessor, or his
agents, by any of said means, or otherwise, shall not under any circumstances be
construed or deemed to be a forcible or unlawful entry into, or a detainer of,
the premises, or an eviction of Lessee from the premises or any portion thereof.
24. INDEMNIFICATION OF LESSOR
Lessor shall not be liable to Lessee, and Lessee hereby waives all claims
against Lessor, for any injury or damage to any person or property in or about
the premises by or from any cause whatsoever, and without limiting the
generality of the foregoing, whether caused by water leakage of any character
<PAGE>
from the roof, walls, basement or other portion of the premises or the building
or caused by gas, fire, oil, electricity or any cause whatsoever in, on or about
the premises or the building or any part thereof. Lessor shall not be liable to
Lessee, his officers, agents, employees, customers, invitees, or third parties
for loss or damage to property, including goods, wares and merchandise, or for
injury or death to persons in, on or about the demised premises. Lessee agrees
to indemnify and save Lessor harmless of and from any and all cost expense,
claims, demands, obligations and liabilities cause or causes of action by reason
of or in connection with the condition of, state of repair or use of the
demised premises or appurtenances thereto, including all adjacent sidewalks,
alleys and parking lots, if any. Lessee's agreement to hold Lessor harmless
under the provisions of this paragraph shall include Lessee's obligation to pay
Lessor reasonable attorney's fees and costs incurred in connection with the
settlement, trial or appeal of any such matter wherein the Lessor must defend
against any such claim, demand or cause of action.
Lessor shall not be liable to Lessee for any damage by or from any act of
negligence of any co-tenant or other occupant of the same building or by any
owner or occupant of adjoining or contiguous property. Lessee agrees to pay for
all damage to the building, as well as to tenants or occupants caused by
Lessees, its agents, servants, employees or invitees misuse or neglect of said
premises, its apparatus and appurtenances.
25. LESSEE INSURANCE
Lessee shall during the entire term hereof keep in full force and effect a
policy of public liability and property damage insurance with respect to the
leased premised and the business operated by Lessee and any subtenants of Lessee
in the leased premises in which the limits of public liability shall be not less
then One Hundred Thousand Dollars ($100,000) for one person injured in one
occurrence and not less than Three Hundred Thousand Dollars ($300,000) for more
than one person injured in one occurrence and in which the property damage
liability shall be not less than Fifty Thousand Dollars ($50,000). Lessee also
agrees to carry a One Million Dollar ($1,000,000) catastrophe "umbrella"
liability policy with a thirty (30) day notice or cancellation clause. The
policy shall name Lessor, any person, firms or corporations designated by Lessor
and Lessee as insured and shall contain a clause that the insurer will not
cancel or materially change the insurance without first giving Lessor thirty
(30) days prior written notice. The insurance shall be with an insurance company
approved by Lessor and a copy of the policy or a certificate of insurance shall
be delivered to Lessor. Lessee agrees that in the event of any loss due to any
peril for which they have agreed to provide insurance or otherwise, that it
shall look solely to its insurance for recovery and does hereby grant to Lessor,
on behalf of any insurer providing insurance with respect to the demised
premises, a waiver of any right of subrogation which any such insurer of Lessee
may acquire against Lessor by virtue of payment of any loss under such
insurance.
26. FIRE CLAUSE
<PAGE>
In the event of partial destruction of demised premises during said term
from any cause insured under a Standard Form of Fire and Extended Coverage
Insurance policy, Lessor shall forthwith repair the same, provided such repairs
can be made within (90) days from date of such destruction, under the then
applicable laws and regulations of Federal, State, County and Municipal
authorities and in the light of the extent of such damage and the then condition
of the labor market and availability of materials and supplies, but such partial
destruction shall in no way annul or void this Lease except that Lessee shall be
entitled to a proportionate reduction to be based upon the extent to which the
making of such repairs shall interfere with the business carried on by Lessee in
the said premises. If Lessor need not make such repairs, but never the less
elects within a reasonable time to make the same, this Lease shall continue in
full force and effect and the rent shall be proportionately reduced as
hereinabove provided in the event that Lessor does not so elect to make such
repairs or such repairs cannot be made, this Lease may be terminated at the
option of either party. In respect to any partial destruction which Lessor is
obligated to repair or may elect to repair under the terms of this paragraph,
the provisions of Section 1932. Subdivision 2 and of Section 1933, Subdivision
4, of the Civil Code of the State of California are waived by Lessee. In the
event that the building in which the demised premises may be situated be
destroyed to the extent of not less than twenty-five percent (25%) of the
replacement cost of said building. Lessor may elect to terminate this Lease,
whether the demised premises be injured or not. A total destruction of the
building in which the said premises be situated shall at the option either of
Lessor Lessee, terminated this Lease. Lessee agrees that in the event of any
loss due to any peril for which it has agreed to provide insurance, that it
shall look solely to its insurance for recovery, and does hereby grant to
Lessor, on behalf of any insurer providing insurance with respect to the demised
premises, a waiver of any right of subrogation which any such insurer of Lessee
may acquire against Lessor by virtue of payment of any loss under such
insurance.
Lessor shall not be required to repair any injury or damage by fire or
other cause, or to make any repairs or replacements of any fixtures, contents,
or any other property contained or installed in the premised by Lessee. Anything
to the contrary contained in this paragraph notwithstanding, Lessor shall not
have any obligation whatsoever to repair, reconstruct or restore the premises
when the damage resulting from any casualty covered under this paragraph occurs
during the last twelve (12) months of the term of this Lease or any extension
thereof, nor shall Lessor be required to make any expenditures greater than the
actual amount of any insurance recovery.
27. PUBLIC APPROPRIATION
In the event any proceedings shall be commenced by any public or quasi-
public authority under the powers of eminent domain, condemnation, or otherwise
affecting the demised premises, Lessee shall have no right to claim any
valuation for his leasehold interest or otherwise by reason of his occupancy of
or improvements to the premises, and any award adjudicated or by way of
settlement shall belong in its entirety to Lessor. Lessee shall, however, be
entitled to any award made to him for depreciation to and cost of removal of
stock, fixtures, and equipment placed in the demised premises by Lessee,
<PAGE>
provided that said award does not otherwise diminish the amount to be received
by Lessor. In the event of a partial taking of the said premises, the rent shall
be reduced in the proportion that the floor area taken bears to the total floor
area prior to the taking. If more than twenty-five percent (25%) of the floor
area of said premises is taken, only then may Lessee, at Lessee's option,
terminate this Lease as of the date the public or quasi-public authority takes
possession of said portion by giving written notice to Lessor within ten (10)
days after the public or quasi-public authority takes such possession. If Lessee
does not terminate this Lease as hereinabove provided, then the rent payable
shall be reduced as set forth above. If any part of building other than the
demised premises shall be so taken or appropriated Lessor shall have the right,
at its option, to terminate this Lease and shall be entitled to the entire
award, as provided above.
In the event of a condemnation of a leasehold interest in all or a portion
of the leased premises, without the condemnation of the fee simple title also,
this Lease shall not terminate and such condemnation shall not excuse Lessee
from full performance of all of its covenants hereunder, but Lessee, in such
event, shall be entitled to present or pursue against the condemning authority
its claim for, and to receive, all compensation or damages sustained by it by
reason of such condemnation, and Lessor's right to recover compensation or
damages shall be limited to compensation for and damages, if any, to its
reversionary interest, it being understood, however, that during such time as
Lessee shall be out of possession of the leased premises by reason of such
condemnation, and the Lease shall not be subject to forfeiture for failure to
observe and perform those covenants not calling for the payment of money. In the
event of condemning authority shall fail to keep the premises in the state of
repair required hereunder, or to perform any other covenant not calling for the
payment of money, Lessee shall have ninety (90) days after the restoration of
possession to it within which to carry out its obligations under such covenant
or covenants. During such time as Lessee shall be out of possession of the
leased premises by reason of such leasehold condemnation. Lessee shall pay to
Lessor, in lieu of the minimum and percentage rents provided for hereunder, and
in addition to any other payments required of Lessee hereunder, an annual rent
equal to the average annual minimum and percentage rents paid by Lessee for the
period from the commencement of the term until the condemning authority shall
take possession, or during the preceding three full calendar years, whichever
period is shorter. At any time after such condemnation proceedings are
commenced, Lessor shall have the right at its option, to require Lessee full
performance of Lessee's covenants, hereunder, such compensation and damages
received pursuant to said assignment to be applied first to the payment of rents
and all other sums from time to time payable by Lessee pursuant to the terms of
this Lease as such sums fall due, and the remainder, if any, to be payable to
Lessee at the end of the term hereof or on restoration of possession to Lessee,
whichever shall first occur, it being understood and agreed that such assignment
shall not relieve Lessee of any of its obligations under this Lease with respect
to such rents, and other sums, except as the same shall be actually received by
Lessor.
<PAGE>
28. INSOLVENCY OR BANKRUPTCY
The appointment of a receiver (except a receiver contemplated by Paragraph
29 hereof) to take possession of all or substantially all of the assets of
Lessee or of the operations of Lessee in the demised premises, or a general
assignment by Lessee for the benefit of creditors, or the filing of proceedings
or insolvency or bankruptcy by or against Lessee shall at the option of Lessor
constitute a default of this Lease by Lessee, such option to be exercised by
Lessor within ninety (90) days from receipt of actual notice of any of the
aforesaid events, and shall such option be exercised. Lessor shall have all the
remedies available under Paragraph 30 herein.
29. RECEIVER ON BEHALF OF LESSOR - NOT USED
30. DEFAULT
In the event of any breach of this Lease by Lessee, the Lessor, besides
other rights or remedies he may have, shall have the right of re-entry and may
remove all persons and property from the premises pursuant to legal proceedings
or pursuant to any notice provided for by law, and may store any such property
removed in a public warehouse or elsewhere, at the cost of, and for the account
of Lessee. Further, pursuant to legal proceedings Lessor may either terminate
this Lease or may, from time to time, without terminating this Lease, relet said
premises or any part thereof for such term or terms (which may be for a term
extending beyond the term of this Lease) and at such rental or rentals and upon
such other terms and conditions as Lessor in his sole discretion may deem
advisable, with the right to make alterations and repairs to said premises Upon
each such re-letting (a) Lessee shall be immediately liable to pay to Lessor,
inaddition to any indebtedness other than rent due hereunder, the cost and
expenses of such re-letting ad of such alteration sand repairs incurred by
Lessor, and the amount if any, by which the rent reserved in this Lease for the
period of such re-letting (up to, but not beyond the terms of this Lease)
exceeds the amount agreed to be paid as rent for the demised premises for such
period, or (b) at the option of Lessor, rents received by Lessor from such re-
letting shall be applied, first, to the payment of any indebtedness, other than
rend due here under from Lessee to Lessor; second, to the payment of any costs
and expenses of such re-letting and of such alterations and repairs; third, to
the payment of rent due and unpaid hereunder and the residue, if any, shall be
held by Lessor and applied in payment of future rent as the same may become due
and payable hereunder. If Lessee has been credited with any rent to be received
by such re-letting under Option (b) during any month be less than that to be
paid during that month by Lessee hereunder, Lessee shall pay any such deficiency
to Lessor. Such deficiency shall be calculated and paid monthly. No such re-
entry or taking possession of said premises by Lessor shall be construed as an
election on his part to terminated this Lease, unless a written notice of such
intention be given to Lessee, or unless the termination thereof be decreed by a
court of competent jurisdiction. Notwithstanding any such re-letting without
termination.
<PAGE>
Lessor may at any time thereafter elect to terminate this Lease for such
previous breach. No such termination of this Lease shall relieve Lessee of its
liabilities and obligations under this Lease, and such liabilities and
obligations shall survive any such termination. In the event of any such
termination, whether or not the demised premises or any part thereof shall have
been re-let. Lessor may recover from Lessee all damages Lessor may incur by
reason of such termination, specifically, including the costs of recovering the
demised premises and including, as provided in California Civil Code Section
1951.2: (A) The worth at the time of award of any unpaid rent which had been
earned after termination; plus, (B) the worth at the time of the amount by which
the unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss Lessee proves could have been
reasonably avoided; plus, (C) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that Lessee proves could be reasonably
avoided; plus (D) any other amount necessary to compensate Lessor for all the
detriment proximately caused by Lessee's failure to perform its obligations
under this Lease or which, in the ordinary course of things, would be likely to
result therefrom.
The term "rent," as used in this section, shall be deemed to be an d to
mean the rental, rental adjustment payments, taxes, common area maintenance
payments, percentage rent payments, and all other sums required to be paid by
Lessee pursuant to the term of this Lease. The term "rental loss," as used in
this section, shall be deemed to include, but shall not be limited by
implication to, all repossession costs, brokerage commissions, legal expenses,
reasonable attorney's fees, alteration costs and expenses of preparation of the
demised premises or parts thereof for re-letting.
As used in Subsections (A) and (B) above, the "worth at the time of award"
is computed by allowing interest at the rate of ten (10%) per annum. As used in
Subsection (C) above, the "worth at the time of award" is computed by
discounting such amount at the discount rate of the Federal Reserve Bank of San
Francisco at the time of award, plus one percent (1%).
Nothing herein contained shall limit or prejudice the right of the Lessor
to prove for and obtain as liquidated damages by reason of such termination, an
amount equal to the maximum allowed by any statute or rule of law in effect at
the time when, and governing the proceedings in which, such damages are to be
proved, whether or not such amount be greater, equal to, or less than the amount
of the damages referred to above.
Lessee hereby waives all claim for damages that may be caused by Lessor's
re-entering and taking possession of the premises or removing and storing
furniture and property, as herein provided, and will save Lessor harmless from
loss, costs or damages occasioned Lessor thereby, and no such re-entry shall be
considered or construed to be a forcible entry as the same is defined in the
Code of Civil Procedure of the State of California.
31. ATTORNEY'S FEES
If Lessor shall be made a party to any litigation commenced by or against
Lessee, Lessee shall pay all costs, expenses and attorney's fees incurred by
Lessor in connection with such litigation, except in the event that such
litigation shall determine that Lessor has committed a breach of this Lease and
shall
<PAGE>
adjudicate that Lessor is liable therefor. In the event of any action at law or
in equity between Lessor and Lessee to enforce any of the provisions and /or
right hereunder, the unsuccessful party to such litigation covenants and agrees
to pay to the successful party all costs and expenses, including reasonable
attorney's fees incurred therein by such successful party, and if such
successful party shall recover judgment in any such action or proceeding, such
costs, expenses and attorney's fees shall be included in and as part of such
judgment.
32. SALE BY LESSOR
In the event of a sale or conveyance by Lessor of the building containing
the premises, or conveyance of his interest in the demised premises, the same
shall operate to release Lessor from any future liability on any of the
covenants or conditions, expressed or implied, herein contained in favor of
Lessee, and in such event Lessee agrees to look solely to the responsibility of
the successor in interest of Lessor in and to this Lease. This Lease shall not
be affected by any such sale, and Lessee agrees to attorn to the purchaser or
assignee.
33. EXCUSE OF PERFORMANCE
Anything in this agreement to the contrary notwithstanding, providing such
cause is not due to the willful act or neglect of the Lessor, the Lessor shall
no be deemed in default, with respect to the performance of any of the terms,
covenants and conditions of this Lease, if same shall be due to any strike,
labor disturbance, lockout, civil commotion, war-like operation, invasion,
rebellion, hostilities, military or usurped power, sabotage, governmental
regulations or control, inability to obtain any material or service, difficulty,
delay or inability to obtain financing acceptable to Lessor, whether through
inclement weather, fire, flood, or other casualty, Act of God, or other cause
beyond the control of the Lessor.
34. SUBORDINATION
This Lease is and shall always be subordinate to any Mortgage, Deed of
Trust, Master Lease, Ground Lease, or any other lien which may result from any
form of financing or otherwise, which is now or shall at any time be placed upon
the demised premises or any part thereof or the building of which the demised
premises are a portion, and Lessee agrees to execute and deliver any instrument,
without cost, which may be deemed necessary to further effect the subordination
of this Lease to any such Mortgage, Deed of Trust, Master Lease, Ground Lease,
or any other lien which may result from any form of financing or otherwise, or
to any purchaser thereof or successor thereto. This Lease shall
<PAGE>
not terminate if Lessee is not in default by Lessee shall attorn to said new
owner as if a party hereto, regardless of any rule or law to the contrary or
absence of privity of contract. In order that Lessor may obtain a loan against
said remises, or the building in which they are situated, at all time during the
term of this Lease. Lessee agrees to furnish Lessor with Lessee's financial
statements as required by any lending institution.
35. OFFSET STATEMENTS
Lessee shall at any time and from time to time, upon not less than ten (10)
days prior request by Lessor, execute, acknowledge, and deliver to Lessor a
statement in writing, and in recordable form, certifying the date of
commencement of this Lease, that this Lease is unmodified and in full force and
effect (or if there has been modification, that the same is in full force and
effect as modified and stating the date of modification ) and further stating
the dates to which the rent and other charges have been paid, and setting forth
such other matters as may reasonably be requested by Lessor.
36. WAIVER
The waiver by Lessor of any breach of any term, covenant or condition
herein contained shall not be deemed to be a waiver of such term, covenant, or
condition by any subsequent breach of the same or any other term, covenant, or
condition therein contained. The subsequent acceptance of rent hereunder by
Lessor shall not be deemed to be a waiver of any preceding breach by Lessee of
any term, covenant, or condition of this Lease, other than the failure of Lessee
to pay the particular rental so accepted, regardless of Lessor's knowledge of
such preceding breach of the time of acceptance of such rent.
37. PARTIAL INVALIDITY
This Lease is subject to the laws of the State of California, and it is
agreed between the parties hereto that if any word, phrase, clause, sentence,
article, provision, or paragraph of this Lease is or shall be held invalid or
unlawful under the laws of the State of California for any reason, the same
shall be deemed severed from the remainder hereof, and stricken therefrom, and
shall in no way affect or impair the validity of this Lease or any other portion
thereof and this Lease shall otherwise remain in full force and effect.
<PAGE>
38. NOTICE OF LEASE
Either party hereto may record Notice or Memorandum hereof and what, when
so requested by the other party, execute such Notice or Memorandum of Lease.
When so requested, Lessor shall at Lessee's sole expense, provide to Lessee a
description of the demised premises which meets the standards for recording as
established by the laws of the state in which said premises are situated.
39. NOTICES
All notices and demands which may or are required to be given by either
party to the Lease shall be in writing. All notices and demands by the Lessor to
the Lessee shall be personally served or sent by United States certified or
registered mail postage prepaid, addressed to the Lessee at the premises or to
such other place as the Lessee may from time to time designate in a notice to
the Lessor. All notices and demands by the Lessee to the Lessor shall be
personally served or sent by United States certified or registered mail postage
prepaid, addressed to the Lessor or to such other person or place as the Lessor
may from time to time designate in a notice to the Lessee.
LESSOR - Friend, Friend, & Friend 585 Mission Street, San Francisco, California
94105
LESSEE - C.C.B. 104 Walnut Avenue, Suite 201, Santa Cruz, California 95060
40. SUCCESSORS
All the terms, covenants and conditions hereof shall be binding upon and --
- - --- to the benefit of the heirs, executors, administrators, successors and
assigns of the parties hereto provided that nothing in this paragraph shall be
deemed to permit any assignment, subletting, occupancy or use contrary to the
provisions of Paragraph 12. No assignee for the benefit of creditors, trustee,
receiver, or referee in bankruptcy shall acquire any rights under this Lease by
virtue of this paragraph.
<PAGE>
41. ENTIRE AGREEMENT
This Lease may be modified in writing only if constitutes the entire
agreement of the parties who acknowledge that no oral or other representations
have been made by themselves or any agent of either of them with respect to the
condition of said premises or any obligation of the Lessor hereunder or
otherwise. The parties agree to execute any documents necessary to carry this
Lease into effect.
42. MISCELLANEOUS
(a) The paragraph titles in this Lease are fro convenience only and shall
not in any way limit or be deemed to construe or interpret the terms and
provisions hereof
(b) Time is of the essence of this Lease and of all provisions hereof
except in respect to the delivery of possession of the demised premises.
(c) The words "Lessor" and "Lessee" as used here shall include the plural
as well as the singular. Words used in the neuter gender include the masculine
and feminine. If there be more than one Lessor or Lessee, the obligations
hereunder imposed upon Lessor or Lessee shall be joint and several.
(d) This Lease shall be construed and enforced in accordance with the laws
of the State of California.
(e) Anything contained in the Lease to the contrary notwithstanding in the
event that the Lease terms has not commenced within three (3) years from the
date hereof, this Lease shall terminate and be of no further force or effect.
(f) Clauses, ----, and riders, if any, signed by Lessor and Lessee and
endorsed on or affixed to this Lease are a part hereof.
43. THROUGH 48. NOT USED
49. MAINTENANCE CONTRACTS
Lessee agrees to obtain and keep in full force and effect maintenance
contracts for the heating and air conditioning units servicing the leased
premises with a maintenance company approved by Lessor in writing. Lessee agrees
to provide Lessor with a copy of the maintenance contract and any renewals
thereof and must obtain Lessor's written approval to the terms thereof.
Exhibits A & B and addendum paragraphs 50-57 were attached to and made a
part of this Lease prior to evaluation of all parties.
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease the day and
year first above written
LESSOR Friend, Friend & Friend LESSEE/COAST COMMERCIAL BANK
by /s/ By /s/
-------------------------- ------------------------------
Eugene L. Friend Harvey Nickelson, President
50.
Commencing with the 61st month of this Lease Agreement, Lessor and Lessee
agree that the rental for months 61 through 90 shall be determined by increasing
the sum of $9,000.00 per month by the percentage of increase in the Cost of
Living Index Figure between April, 1987 and April, 1992, but in no event shall
said monthly figure be less then $11,000.00 per month. The rental commencing
with the 91st month for the period of months 91 through 120 shall be determined
by increasing the monthly sum of $9,000.00 per month by the increase in the Cost
of Living Index Figure between April, 1987 and that figure for October, 1994,
but in no event shall the monthly rental sum be less than that figure paid
during months 61 through 90. The Cost of Living Index to be used shall be that
currently reflected by the Consumer Price Index for All Urban Consumers, San
Francisco, all items published by the United States Department of Labor, Bureau
of Labor Statistics (1967 = 100 base). In the event said index is changed or
discontinued, the most nearly comparable official price index of the United
States Government shall be used for computing the foregoing adjustments of
minimum rent, after converting the existing index as of the base rate to the new
index. The minimum monthly rental payable following an adjustment under the
terms of this paragraph shall continue at the adjusted level until the next
adjustment period or the end of the lease term, whichever first occurs.
51.
Lessor and Lessee each agree that Lessor will deliver the premises to
Lessee in as is condition structurally after vacating the premises by Crocker
Bank, and further agrees that Lessor shall cause Crocker to leave its vault,
vault door and teller line in as is condition. Crocker may remove any of their
other fixtures and Lessee agrees and it shall be responsible for any remodeling
expenses and all interior and exterior fixturization and tenant improvements.
Lessee may remodel the inside of the premised without Lessor's approval, but
shall submit any exterior modifications to Lessor for approval.
52.
<PAGE>
Lessor and Lessee each agree, notwithstanding anything to the contrary
contained in Paragraph 2, with respect to the commencement of the Lease
Agreement on June 1, 1987, that should Lessee open for business earlier than
said date, then Lessee's rental obligation shall commence as of the date of
opening for business.
53.
Notwithstanding anything to the contrary contained in paragraph 4(c)
entitled Taxes Herein, in the event of an outright sale of the property to third
parties during the first twenty (20) years of this Lease Agreement, Lessee
herein shall not be responsible for tax increases directly relating to that sale
during the initial twenty (20) years of this lease term. This paragraph shall be
of no force effect after the initial twenty (20) year term. It is further agreed
between Lessor and Lessee that is paragraph does not apply to transfers among
partners or family of partners or any tax increases due to the death of any
partners involved in the ownership of the real property.
54.
Notwithstanding anything to the contrary contained in paragraph 12 entitled
Assignment and Subletting, Lessor and Lessee agree that Coast Commercial Bank
may assign its Lessee interest in this Lease to another financial institution or
entity of like size or larger in the event of a sale, merger or acquisition of
Coast Commercial Bank to said like size or larger financial institution. In
defining financial institution, specific reference is made only to licensed
banks or savings and loan associations.
55.
Lessor agrees that Lessee may designate that parking currently designated
as Crocker Bank parking all during the term of this Lease Agreement as parking
for customers of Coast Commercial Bank.
56. RENEWAL OPTIONS
At the expiration of the original term of One Hundred Twenty (120) months,
provided that Lessee is not in default under the terms of this Lease, Lessee
shall have the right to renew this lease for
<PAGE>
Four (4) additional periods of sixty (60) months each by giving Lessor written
notice of Lessee's intention to extend the term of this lease at least Twelve
(12) months prior to the expiration of the original lease term or the option
term then in effect presuming earlier exercises of option. Said renewals shall
be upon the same terms and conditions contained in this Lease Agreement except:
1. That no additional renewal options shall be included unless agreed to
between the parties in writing.
2. That at least One Hundred Eighty (180) days prior to the commencement of
each option term, Lessor and Lessee shall mutually agree in writing upon terms
and conditions applicable to the renewal term which are then customarily
required by Lessor in other leases within the shopping center containing the
demised premises or by Lessors of similar properties in Monterey County, whether
now foreseen or unforeseen, including but not limited to such areas as
environmental requirements affecting the buildings; parking regulations or
charges; mass transit or public transportation taxes, levies or charges; anti-
pollution or other environmental regulations or energy regulations or controls.
3. That the fixed minimum rent during the option periods shall be adjusted as
follows: Commencing with the first month of each respective option period,
Lessor and Lessee agree that the rental shall be the greater of market rental
for similar premises as of that date or that figure determined by increasing the
sum of Nine Thousand Dollars ($9,000) per month by the percentage of increase in
the Cost of Living Index Figure between April 1987 and April of the year in
which each respective option period would commence, but no event shall said
monthly figure be less than Eleven Thousand Dollars ($11,000) per month. Both
Lessor and Lessee hereafter agree that commencing with the thirty-first month of
each sixty month option period, the rental shall be re-determined by increasing
the monthly rental for the first month of the option period by the percentage of
increase in the Cost of Living Index Figure between the April preceding the
first month of that respective option period and the figure for October
preceding the thirty-first month of the option term. In each case, the Cost of
Living Index to be used shall be that currently reflected by the Consumer Price
Index for all Urban Consumers, San Francisco, all items, published by the United
States Department of Labor, Bureau of Labor Statistics (1967 = 100 base). In the
event said index is changed or discontinued, the most nearly comparable official
price index of the United States Government shall be used for computing the
foregoing adjustments of minimum rent, after converting the existing index as of
the base date to the new index. The minimum monthly rental payable following an
adjustment under the terms of this paragraph shall continue at the adjusted
level until the next adjustment period or the end of the lease term whichever
first occurs.
57.
Lessor and Lessee agree that if the Consumer Price Index Adjustment set out
in paragraph 50 hereinabove determine a figure less than Eleven Thousand Dollars
($11,000) for the Sixty-First through
<PAGE>
the One Hundred Twentieth month of the original lease term, that Lessee shall
receive a credit for the difference between the figures determined by
utilization of the Consumer Price Index and the sum of Eleven Thousand Dollars
($11,000) actually paid, not to exceed Five Hundred Dollars ($500) per month.
This credit may be recovered by Lessee by deducting the same at a rate not to
exceed Five Hundred Dollars ($500) per month from the rental payable during
years eleven (11) through fifteen (15) only, and only to the extent that in no
event shall Lessee pay less than Eleven Thousand Dollars ($11,000) per month
during years eleven (11) through fifteen (15).
<PAGE>
EXHIBIT B
RULES AND REGULATIONS
Tenant agrees to the establishment of, and shall abide by, the following
Rules and Regulations established for the use of the Shopping Center, as
provided in Section 18 of the Lease:
1. All deliveries and trash pickup, as provided in Section 12(d) of the
Lease, shall be made between the hours of 7:00 A.M. and 7:00 P.M.
2. Subject to the provisions of Section 19 of the Lease, the parking of
vehicles used by Tenant and Tenant's employees shall be restricted to the area.
3. No person shall use any roadway, sidewalk, or walkway, except as a
means of egress from or ingress to any floor area and automobile parking areas
within the Shopping Center, or adjacent public streets. Such use shall be in an
orderly manner, in accordance with the directional or other signs or guides.
Roadways shall not be used at a speed in excess of 20 miles per hour and shall
not be used for parking or stopping, except for the immediate loading or
unloading of passengers. No sidewalk or walkway shall be used for other than
pedestrian travel.
4. No person shall use any automobile parking areas except for the
parking of motor vehicles during the period of time such person or the occupants
of such vehicle are customers or business invitees of the retail establishments
within the Shopping Center. All motor vehicles shall be parked in an orderly
manner within the painted lines defining the individual parking spaces.
5. No person, without the prior written consent of Landlord, shall in or
on any part of the Common Area:
(a) Vend, peddle, or solicit orders for sale or distribution of any
merchandise, device, service, periodical, book, pamphlet, or other matter
whatsoever.
(b) Exhibit any sign, placard, banner, notice, or other written
material.
(c) Solicit signatures on any petition or for any other purpose,
disseminate any information sin connection therewith, or distribute any
circular, booklet, handbill, placard, or other material which has not
relationship to any purpose for which the Shopping Center was built or is being
used.
(d) Solicit membership in any organization, group, or association or
contribution for any purpose which has no relationship to the Shopping Center.
(e) Parade, rally, patrol, picket, demonstrate, or engage in any
conduct that might tend to interfere with or impede the use of any of the Common
Areas by any customer, business invitee, employee, or tenant of the Shopping
Center, create a disturbance, attract attention, or harass, annoy, disparage, or
be detrimental to the interest of any of the retail establishments within the
Shopping Center.
<PAGE>
(f) Use any portion of the Common Area for any purpose when none of
the retail establishments within the Shopping Center is open for business or
employment.
(g) Throw, discard, or deposit any paper, glass, or extraneous matter
of any kind, except in designated receptacles, or create litter or hazards of
any kind.
(h) Deface, damage, or demolish any sign, light standard, or fixture,
landscaping material, or other improvement within the Shopping Center, or the
property of customers, business invitees, or employees situated within the
Shopping Center.
The listing of specific items as being prohibited is not intended
to be exclusive but to indicate in general the manner in which the right to use
the Common Area solely as a means of access and convenience in shopping at the
retail establishments in the Shopping Center is limited and controlled by
Landlord and the tenants of the Shopping Center.
6. Landlord shall have the right to remove or exclude from or to restrain
(or take legal action to do so) any unauthorized person from, or from coming
upon, the Shopping Center or any portion thereof, and to prohibit, abate, and
recover damages arising from any unauthorized act, whether or not such act is in
express violation of the rules and regulations set forth above.
7. Landlord reserves the right to change these Rules and Regulations, and
to make such other Rules and Regulations as in its judgment may from time to
time be necessary for the safety and cleanliness of, and for the preservations
of good order in and the efficient operation of the Shopping Center.
<PAGE>
GVC GREEN VALLEY CORPORATION
701 North first Street San Jose, CA 95112 Tel: (408) 287-0246 Fax: (408)
998-1737
December 4, 1991
ADDENDUM TO LEASE
No. 4
This is a Lease Addendum to that Certain Lease dated July 12, 1988 By and
Between Green Valley Corporation, ("Lessor") and Coast Commercial Bank,
("Lessee"). Both parties agree that the Lease is Hereby Amended as follows:
1. Lessee will Lease an additional 1375 S.F. + as outlined on the
attached Exhibit "A". Lessee shall Lease the space in an "as is"
condition except as noted in Exhibit "A".
2. The additional rental shall be $1718.75/mo. This is 1.25/S.F./month:
current $6,250.29
added 1,718.75
--------
$7,969.04/mo.
3. The term of this Lease shall begin February 1, 1992, and run
concurrently with the Lease referenced in Addendum No. 4.
4. The rent shall begin upon commencement of Tenant improvements.
The above Addendum is acceptable to the parties as listed below. Each agrees
that this addendum shall be incorporated as if full set forth within the
original contract. All other terms and conditions in original lease still
apply.
"LESSOR"
/s/
- - ---------------------------------------
GREEN VALLEY CORPORATION DATE
"LESSEE"
/s/
- - ---------------------------------------
COAST COMMERCIAL BANK DATE
<PAGE>
GVC GREEN VALLEY CORPORATION
701 North first Street San Jose, CA 95112 Tel: (408) 287-0246 Fax: (408)
998-1737
EXHIBIT "A"
Page 1 of 2
December 4, 1991
To: Coast Commercial Bank
740 Front Street, Ste. 325
Santa Cruz, CA. 95061-1818
Attn: Joe Accornero
From: Tim Selna, Green Valley Corporation
701 North First Street
San Jose, CA. 95112
RE Lease Proposal - 1375 S.F.
Dear Joe,
The following are the terms and conditions for the 1375 S.F. of space directly
below your current office.
BUILDING AREA/LOCATION:
----------------------
740 Front St., Ste. 125, Santa Cruz, CA.
TENANT IMPROVEMENTS:
-------------------
Landlord shall provide working heating, ventilating and air
conditioning. All other Tenant Improvements shall be at the sole cost
and responsibility of Tenant, including all permits, fees and
inspections.
/s/ /s/
Landlord Tenant
<PAGE>
THIS IS A LEASE ADDENDUM TO THAT CERTAIN LEASE DATED JULY 12, 1988 BY
AND BETWEEN GREEN VALLEY CORPORATION ("LESSOR") AND COAST COMMERCIAL
("LESSEE"). BOTH PARTIES AGREE THAT THE LEASE IS HEREBY AMENDED AS
FOLLOWS:
1. Lessee will lease an additional 819 square feet as outlined on the
attached Exhibit "A". Lessee shall lease the space in an "as is"
condition.
2. The additional rental shall be $1,122.03 per month or $1.37 per
square foot per month. This shall bring the total monthly lease rate
to $5,124.03, full service.
3. The term of this addendum shall begin on July 1, 1989 and, from
then on, run concurrently with the lease referenced above.
/s/ /s/
- - --------------------- -------------------------
ACCEPTED: ACCEPTED:
Joseph S. Accornero, Rebecca Swenson,
COAST COMMERCIAL BANK GREEN VALLEY CORPORATION
Date: 5/24/89 Date: 5/30/89
<PAGE>
FIRST ADDENDUM TO LEASE
This is an addendum to that certain lease dated July 12, 1988 by and between
Green Valley Corporation and Coast Commercial Bank. The above two parties agree
that the lease shall be amended as follows:
1. The start date of the lease shall be November 1, 1988.
2. The lease term shall be increased to ten (10) years.
3. Lessor grants Lessee three (3) five (5) year options to extend the lease
under the same terms and conditions.
/s/ /s/
- - ------------------- -------------------
GREEN VALLEY CORPORATION COAST COMMERCIAL BANK
September 28, 1988 October 12, 1988
- - ------------------- -------------------
DATE DATE
<PAGE>
OFFICE BUILDING LEASE
1. PARTIES. This Lease, dated, for reference purposes only, July 12, 1988, is
made by and between GREEN VALLEY CORPORATION (herein called "Landlord") and
COAST COMMERCIAL BANK (herein called "Tenant").
2. PREMISES. Landlord does hereby lease to Tenant and Tenant hereby leases
from Landlord that certain office space (herein called "Premises") indicated on
Exhibit "A" attached hereto and hereby reference thereto made a part hereof,
said Premises being agreed, for the purpose of this Lease, to have area of
approximately 3,480 square feet and being situated on the 2nd floor of that
certain Building known as 740 Front Street, Santa Cruz.
Said Lease is subject to the terms, covenants and conditions herein set
forth and the Tenant covenants as a material pert of the consideration for this
Lease to keep and perform each and all of said terms, covenants and conditions
by it to be kept and performed and that this Lease is made upon the condition of
said performance.
3. TERM. The term of this Lease shall be for 5 years, commencing on 1 day of
October, 1988, and ending on the 30th day of September, 1993.
4. POSSESSION.
4.a. If the Landlord, for any reason whatsoever, cannot deliver possession
of the said Premises to the Tenant at the commencement of the term hereof, this
Lease shall not be void or voidable, nor shall Landlord be liable to Tenant for
any loss or damage resulting therefrom, nor shall the expiration date of the
above term be in any way extended, but in that event, all rent shall be abated
during the period between the commencement of said term and the time Landlord
delivers possession.
4.b. In the event that Landlord shall permit Tenant to occupy the Premises
prior to the commencement date of the term, such occupancy shall be subject to
all the provisions of the Lease. Said early possession shall not advance the
termination date hereinabove provided.
5.A MINIMUM RENT. Tenant agrees to pay to Landlord as rental, without prior
notice or demand, for the Premises the sum of: Four Thousand and Two and 00/100
($4002.00) Dollars, on or before the first day the first full calendar month of
the term hereof and a like sum on or before the first day of each and every
successive calendar month thereafter during the term hereof, except that the
first month's rent shall be paid upon the execution hereof. Rent for any period
during the term thereof which is for less than one (1) month shall be prorated
portion of the monthly installment herein, based upon a thirty (30) day month.
<PAGE>
Said rental shall be paid to Landlord, without deduction or offset in lawful
money of the United States of America, which shall be legal tender at the time
of payment at the Office of the Building, or to such other person or at such
other place as Landlord may from time to time designate in writing.
5.B. THE MINIMUM RENTAL as set forth in 5(A) above shall be increased if the
Consumer Price Index - San Francisco-Oakland metropolitan area - All Urban
Consumers (Index) as published by the United States Department of Labor's Bureau
of Labor Statistics, increases over the base period Index. The base period
Index shall be the Index for the calendar month which is four months prior to
the month in which rentals commence. The base period Index shall be compared
with the Index for the same calendar month for each subsequent year (comparison
month). If the Index for any comparison month is higher than the base period
Index, then the minimum rental for the next year shall be increased by the
identical percentage commencing with the next rental commencement month. In no
event shall the Minimum Rental be less than that set forth in 5(A) above.
Should the Bureau discontinue the publication of the above Index, or publish
same less frequently, or alter same some other manner, then Landlord shall adopt
a substitute index or substitute procedure which reasonably reflects and
monitors consumers prices.
6. SECURITY DEPOSIT. Tenant has deposited with Landlord the sum of Three
Thousand and 00/100 ($3,000.00) Dollars. Said sum shall be held by Landlord as
security for the faithful performance by Tenant of all the terms, covenants, and
conditions of this Lease to be kept and performed by Tenant during the term
hereof. If Tenant defaults with respect to any provision of this Lease,
including, but not limited to the provisions relating to the payment of rent,
Landlord may (but shall not be required to) use, apply or retain all or any part
of this security deposit for the payment of any rent or any other sum in
default, or for the payment of any amount which Landlord may spend or become
obligated to spend by reason of Tenant's default, or to compensate Landlord for
any other loss damage which Landlord may suffer by reason on Tenants default.
If any portion of said deposit is so used or applied, Tenant shall with five (5)
days after written demand therefor, deposit cash with Landlord in an amount
sufficient to restore the security deposit to its original amount and Tenant's
failure to do so shall be a material breach of the Lease. Landlord shall not be
required to keep this security deposit separate from is general funds, and
Tenant shall not be entitled to interest on such deposit. If Tenant shall fully
and faithfully perform every provision of this Lease to be performed by it, the
security deposit or any balance thereof shall be returned to Tenant (or, at
Landlord's option, to the last assignee of Tenant's interest hereunder) at the
expiration of the Lease term. In the event of
<PAGE>
termination of Landlord's interest in this Lease, Landlord shall transfer said
deposit to Landlord's successor in interest.
7. (NOT USED)
<PAGE>
8. USE. Tenant shall use the Premises for general office purposes and shall
not use or permit the Premises to be used for any other purpose without the
prior written consent of Landlord.
Tenant shall not do or permit anything to be done in or about the Premises
nor bring or keep anything therein which will in any way increase the existing
rate of or affect any fire or other insurance upon the Building or any of its
contents, or cause cancellation of any insurance policy covering said Building
or any part thereof or any of its contents. Tenant shall not do or permit
anything to be done in or about the Premises which will in nay way obstruct or
interfere with the rights of other tenants or occupants of the Building or
injure or annoy them or use or allow the Premises to be used for any improper,
immoral, unlawful or objectionable purpose, nor shall Tenant cause, maintain or
permit any nuisance in, on or about the Premises. Tenant shall not commit or
suffer to be committed any waste in or upon the Premises.
9. COMPLIANCE WITH LAW. Tenant shall not use the Premises or permit anything
to be done in or about the Premises which will in any way conflict with any law,
statue, ordinance or governmental rule or regulation now in force or which may
hereafter be enacted or promulgated. Tenant shall, at its sole cost and
expense, promptly comply with all laws, statues, ordinances and governmental
rules, regulations or requirement now in force or which may hereafter be in
force, and with the requirements of any board of fire insurance underwriters or
other similar bodies now or hereafter constituted, relating to, or affecting the
condition, use or occupancy of the Premises, excluding structural changes not
related to or affected by Tenant's improvements or acts. The judgment of any
court of competent jurisdiction or the admission of Tenant in any action against
Tenant, whether Landlord be a party thereto or not, that tenant has violated any
law, statue, ordinance or governmental rule, regulation or requirement, shall be
conclusive of that fact as between the Landlord and Tenant.
10. ALTERATIONS AND ADDITIONS. Tenant shall not make or suffer to be made any
alterations, additions or improvements to or of the Premises or any part thereof
without the written consent of Landlord first had and obtained any alterations,
additions or improvements to or of said Premises, including, but not limited to,
wall covering, paneling and built-in cabinet work, but excepting movable
furniture and trade fixtures, shall on the expiration of the term become a part
of the realty and belong to the Landlord and shall be surrendered with the
Premises. In the event Landlord consents to the making of any alterations,
additions or improvements to the Premises by Tenant, the same shall be made by
Tenant at Tenant's sole cost and expense, and any contractor or person selected
by Tenant to make the same must first be approved of in writing the Landlord.
Upon the
<PAGE>
expiration or sooner termination of the term hereof, Tenant shall, upon written
demand by Landlord, given as least thirty (30) days prior to the end of the
term, at Tenants sole cost and expense, forthwith and with all due diligence
remove any alterations, additions, or improvements made by Tenant, designated by
Landlord to be removed, and Tenant shall, forthwith and with all due diligence
at is sole cost and expense, repair any damage to the Premises caused by such
removal.
11. REPAIRS.
11.a. By taking possession of the Premises, Tenant shall be deemed to have
accepted the Premises as being in good, sanitary order, condition and repair.
Tenant shall, at Tenant's sole cost and expense, keep the Premises and every
part thereof in good condition and repair, damage thereto from causes beyond the
reasonable control of Tenant and ordinary wear and tear excepted. Tenant shall
upon the expiration or sooner termination of this Lease hereof surrender the
Premises to the Landlord in good condition, ordinary wear and tear and damage
from causes beyond the reasonable control of Tenant excepted. Except as
specifically provided in an addendum, if any, to this Lease, Landlord shall have
no obligation whatsoever to alter, remodel, improve, repair, decorate or paint
the Premises or any part thereof and the parties hereto affirm that Landlord has
made no representations to Tenant respecting the condition to the Premises or
the Building except as specifically herein set forth.
11.b.Notwithstanding the provisions of Article 11.a. hereinabove, Landlord
shall repair and maintain the structural portions of the Building, including the
basic plumbing, air conditioning, heating, and electrical systems, installed or
furnished by Landlord, unless such maintenance and repairs are caused in part or
in whole by the act, neglect, fault or omission of any duty by the Tenant, its
agents, servants, employees or invitees, in which case Tenant shall pay to
Landlord the reasonable cost of such maintenance and repairs. Landlord shall
not be liable for any failure to make any such repairs or to perform any
maintenance unless such failure shall persist for an unreasonable time after
written notice of the need of such repairs or maintenance is given to Landlord
by Tenant. Except as provided in Article 22 hereof, there shall be no abatement
of rent and no liability of Landlord by reason of any injury to or interference
with Tenant's business arising from the making of any repairs, alterations or
improvements in or to any portion of the Building or the Premises or in or to
fixtures, appurtenances and equipment therein. Tenant waives the right to make
repairs at Landlord's expense under any law, statue or ordinance now or
hereafter in effect.
12. LIENS. Tenant shall keep the Premises and the property in which the
Premises are situated free from any liens arising out of any work performed,
materials furnished or obligations incurred by Tenant. Landlord may require, at
Landlord's sole option, that Tenant shall provide to Landlord, at Tenant's sole
cost
<PAGE>
and expense, alien and completion bond in an amount equal to one and one-half (1
1/2) times any and all estimated cost of any improvement, additions, or
alterations in the Premises, to insure Landlord against any liability for
mechanics' and materialmen's liens and to insure completion of the work.
13. ASSIGNMENT AND SUBLETTING. Tenant shall not either voluntarily or by
operation on the law, assign, transfer, mortgage, pledge, hypothecate or
encumber this Lease or any interest therein, and shall not sublet the said
Premises or any part thereof, or any right or privilege appurtenant thereto, or
suffer any other person (the employees, agents, servants and invitees of Tenant
excepted) to occupy or use the said Premises, or any portion thereof, without
the written consent of Landlord first had and obtained, which consent shall not
be unreasonably withheld, and consent to one assignment, subletting, occupation
or use by any other person shall not be deemed to be a consent to any subsequent
assignment, subletting, occupation or use by another person. any such
assignment or subletting without such consent shall be void, and shall, at the
option of the Landlord, constitute a default under this Lease.
14. HOLD HARMLESS. Tenant shall indemnify and hold harmless Landlord against
and from any and all claims arising from Tenant's use of the Premises for the
conduct of its business or from any activity, work, or other thing done,
permitted or suffered by the Tenant in or about the Building, and shall further
indemnify and hold harmless Landlord against and from any and all claims arising
from any breach or default in the performance of any obligation on Tenant's part
to be performed under the terms of this Lease, or arising from any act or
negligence of the Tenant, or any officer, agent, employee, guest, or invitee of
Tenant, and from all and against all cost, attorney's fees, expenses and
liabilities incurred in or about any such claim or any action or proceeding
brought thereon, and, in any case, action or proceeding be brought against
Landlord by reason of any such claim, Tenant upon notice from Landlord shall
defend the same at Tenant's expense by counsel reasonably satisfactory to
Landlord. Tenant as a material part of the consideration to Landlord hereby
assumes all risk of damage to property or injury to persons, in, upon or about
the Premises, from any cause other than Landlord's negligence, and Tenant hereby
waives all claims in respect thereof against Landlord.
Landlord or its agents shall not be liable for any damage to property
entrusted to employees of the building, nor for loss or damage to any property
by theft or otherwise, nor for any injury to or damage to persons or property
resulting from fire, explosion, falling plaster, steam, gas, electricity, water
or rain which may leak from any part of the Building or from the pipes,
appliances or plumbing works therein or from the roof, street or subsurface or
from any other place resulting from dampness or any other cause whatsoever,
unless caused by or
<PAGE>
due to the negligence of Landlord, its agents, servants or employees. Landlord
or its agents shall not be liable for interference with the light or other
incorporeal hereditaments, loss of business by Tenant, nor shall Landlord be
liable for any latent defect in the Premises or in the Building. Tenant shall
give prompt notice to Landlord in case of fire or accidents in the Premises or
in the Building or of defects therein or in the fixtures or equipment.
15. SUBROGATION. As long as their respective insurers so permit, Landlord and
Tenant hereby mutually waive their respective rights of recovery against each
other for any loss insured by fire, extended coverage and other property
insurance policies existing for the benefit of the respective parties. Each
party shall obtain any special endorsements, if required by their insurer to
evidence compliance with the aforementioned waiver.
16. LIABILITY INSURANCE. Tenant shall, at Tenant's expense, obtain and keep in
force during the term of this Lease a policy of comprehensive public liability
insurance insuring Landlord and Tenant against any liability arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. The limit of said insurance shall not, however, limit the
liability of the Tenant hereunder. Tenant may carry said insurance under a
blanket policy, providing, however, said insurance by Tenant shall have a
Landlord's protective liability endorsement attached thereto. If Tenant shall
fail to procure and maintain said insurance, Landlord may, but shall not be
required to, procure and maintain same, but at the expense of Tenant. Insurance
required hereunder, shall be in companies rated A+ AAA or better in "Best's
Insurance Guide". Tenant shall deliver to Landlord prior to occupancy of the
Premises copies of policies of liability insurance required herein or
certificates evidencing the existence and amounts of such insurance with loss
payable clauses satisfactory to Landlord. No policy shall be cancelable or
subject to reduction of coverage except after ten (10) days' prior written
notice to Landlord.
17. SERVICES AND UTILITIES. Provided that Tenant is not in default hereunder,
Landlord agrees to furnish to the Premises during reasonable hours of generally
recognized business days, to be determined by Landlord at his sole discretion,
and subject to the rules and regulations of the Building of which the Premises
are a part, electricity for normal lighting and fractional horsepower office
machines, heat and air conditioning required in Landlord's judgment for the
comfortable use and occupation of the Premises, and janitorial service. Landlord
shall also maintain and keep lighted the common stairs, common entries and
toilet rooms in the Building of which the Premises are a part. Landlord shall
not be liable for, and Tenant shall not be entitled to, any reduction of rental
by reason of Landlord's failure to furnish any of the foregoing when such
failure is caused by accident, breakage, repairs, strikes, lockouts or other
labor disturbances or labor disputes of any character, or by any other cause,
similar or dissimilar, beyond the reasonable control of Landlord. Landlord shall
not be liable under any circumstances for a loss of or injury to property,
however occurring, through or in connection with or incidental to failure to
furnish any of the foregoing. Wherever heat generating machines or equipment are
used in the Premises which affect the temperature otherwise maintained by the
air conditioning system, Landlord reserves the right to install supplementary
air conditioning units in the Premises and the cost thereof, including the cost
of installation, and the cost of operation and maintenance thereof shall be paid
by Tenant to Landlord upon demand by Landlord.
Tenant will not, without written consent of Landlord, use any apparatus or
device in the Premises, including, without limitation thereto, electronic data
processing machines, punch card machines, and machines using in excess of 120
volts, which will in any way increase the amount of electricity usually
furnished or supplied for the use of the Premises as general office space; nor
connect with electric current except through existing electrical outlets in the
Premises, any apparatus or device, for the purpose of using electric current. If
Tenant shall require water or electric current in excess of that usually
furnished or supplied for the use of the Premises as general office space,
Tenant shall first procure the written consent of Landlord, which Landlord may
refuse, to the use thereof and Landlord may cause a water meter or electrical
current meter to be installed in the Premises, so as to measure the amount of
water and electric current consumed for any such use. The cost of any such
meters and of installation, maintenance and repair thereof shall be paid for by
the Tenant and Tenant agrees to pay to Landlord promptly upon demand therefor by
Landlord for all such water and electric current consumed as shown by said
meters, at the rates charged for such services by the local public utility
furnishing the same, plus any additional expense incurred keeping account of the
water and electric current so consumed. If a separate meter is not installed,
such excess cost for such water and electric current will be established by an
estimate made by a utility company or electrical engineer.
18. PROPERTY TAXES. Tenant shall pay, or cause to be paid, before delinquency,
any and all taxes levied or assessed and which become payable during the term
hereof upon all Tenant's leasehold improvements, equipment, furniture, fixtures
and personal property located in the Premises; except that which has been paid
for by Landlord, and is the standard of the Building. In the event any or all of
the Tenant's leasehold improvements, equipment, furniture, fixtures and personal
property shall be assessed and taxed with the Building, Tenant shall pay to
Landlord its share of such taxes within ten (10) days after delivery to Tenant
by
<PAGE>
Landlord of a statement in writing setting forth the amount of such taxes
applicable to Tenant's property.
19. RULES AND REGULATIONS. Tenant shall faithfully observe and comply with the
rules and regulations that Landlord shall from time to time promulgate. Landlord
reserves the right from time to time to make all reasonable modifications to
said rules. The additions and modifications to those rules shall be binding upon
Tenant upon delivery of a copy of them to Tenant, Landlord shall not be
responsible to Tenant for the nonperformance of any said rules by any other
tenants or occupants.
20. HOLDING OVER. If Tenant remains in possession of the Premises or any part
thereof after the expiration of the term hereof, with the express written
consent of Landlord, such occupancy shall be a tenancy from month to month at a
rental in the amount of the last monthly rental, plus all other charges payable
hereunder, and upon all the terms hereof applicable to a month to month tenancy.
21. ENTRY BY LANDLORD. Landlord reserves and shall at any time and all times
have the right to enter the Premises, inspect the same, supply janitorial
service and any other service to be provided by Landlord to Tenant hereunder, to
submit said Premises to prospective purchasers or tenants, to post notices of
non-responsibility, and to alter, improve or repair the Premises and any portion
of the Building of which the Premises are a part that Landlord may deem
necessary or desirable, without abatement of rent and may for that purpose erect
scaffolding and other necessary structures where reasonably required by the
character of the work to be performed, always providing the entrance to the
Premises shall not be blocked thereby, and further providing that the business
of the Tenant shall not be interfered with unreasonably. Tenant hereby waives
any claim for damages or for any injury or inconvenience to or interference with
Tenant's business, any loss of occupancy or quiet enjoyment of the Premises, and
any other loss occasioned thereby. For each of the aforesaid purposes, Landlord
shall at all times have and retain a key with which to unlock all of the doors
in, upon and about the Premises, excluding Tenant's vaults, safes and files, and
Landlord shall have the right to use any and all means which Landlord may deem
proper to open said doors in an emergency, in order to obtain entry to the
Premises without liability to Tenant except for any failure to exercise due care
for Tenant's property. Any entry to the Premises obtained by Landlord by any of
said means, or otherwise shall not under any circumstances be construed or
deemed to be a forcible or unlawful entry into, or a detainer of, the Premises,
or an eviction of Tenant from the Premises or any portion thereof.
<PAGE>
22. RECONSTRUCTION. In the event the Premises or the Building of which the
Premises are a part are damaged by fire or other perils covered by extended
coverage insurance, Landlord agrees to forthwith repair the same; and this Lease
shall remain in full force and effect, except that Tenant shall be entitled to a
proportionate reduction of the rent while such repairs are being made, such
proportionate reduction to be based upon the extent to which the making of such
repairs shall materially interfere with the business carried on by the Tenant in
the Premises. If the damage is due to the fault or neglect of Tenant or its
employees, there shall be no abatement of rent.
In the event the Premises or the Building of which the Premises are a part
are damaged as a result of any cause other than the perils covered by fire and
extended coverage insurance, then Landlord shall forthwith repair the same,
provided the extent of the destruction be less ten (10%) per cent of the then
full replacement cost of the Premises or the Building of which the Premises are
a part. In the event the destruction of the Premises or the Building is to an
extent greater than ten (10%) per cent of the full replacement cost, then
Landlord shall have the option; (1) to repair or restore such damage, this Lease
continuing in full force and effect, but the rent to be proportionately reduced
as hereinabove in this Article provided; or (2) give notice to Tenant at any
time within sixty (60) days after such damage terminating this Lease as of the
date specified in such notice, which date shall be no less than thirty (30) and
no more than sixty (60) days after the giving of such notice. In the event of
giving such notice, this Lease shall expire and all interest of the Tenant in
the Premises shall terminate on the date so specified in such notice and the
Rent, reduced by a proportionate amount, based upon the extent, if any, to which
such damage materially interfered with the business carried on by the Tenant in
the Premises, shall be paid up to date of such termination.
Notwithstanding anything to the contrary contained in this Article,
Landlord shall not have any obligation whatsoever to repair, reconstruct or
restore the Premises when the damage resulting from any casualty covered under
this Article occurs during the last twelve (12) months of the term of this Lease
or any extension thereof.
Landlord shall not be required to repair any injury or damage by fire or
other cause, or to make any repairs or replacements of any panels, decoration,
office fixtures, railings, floor covering, partitions, or any other property
installed in the Premises by Tenant.
The Tenant shall not be entitled to any compensation or damages from
Landlord for loss of the use of the whole or any part of the Premises, Tenant's
personal property or any inconvenience or annoyance occasioned by such damage,
repair, reconstruction or restoration.
23. DEFAULT. The occurrence of any one or more of the following events shall
constitute a default and breach of this Lease by Tenant.
<PAGE>
23.a. The vacating or abandonment of the Premises by Tenant.
23.b. The failure by Tenant to make any payment of rent or any other
payment required to be made by Tenant hereunder, as and when due, where such
failure shall continue for a period of three (3) days after written notice
thereof by Landlord to Tenant.
23.c. The failure by Tenant to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by the
Tenant, other than described in Article 23.b. above, where such failure shall
continue for a period of thirty (30) days after written notice thereof by
Landlord to Tenant; provided, however, that if the nature of Tenant's default is
such that more than thirty (30) days are reasonably required for its cure, then
Tenant shall not be deemed to be in default if Tenant commences such cure within
thirty (30) day period and thereafter diligently prosecutes such cure to
completion.
23.d. The making by Tenant of any general assignment or general arrangement
for the benefit of creditors; or the filing by or against Tenant of a petition
to have Tenant adjudged a bankrupt, or a petition or reorganization or
arrangement under any law relating to bankruptcy (unless, in the case of a
petition filed against Tenant, the same is dismissed within sixty (60) days; or
the appointment of a trustee or a receiver to take possession of substantially
all of Tenant's assets located at the Premises or of Tenant's interest in this
Lease, where possession is not restored to Tenant within thirty (30) days; or
the attachment, execution or other judicial seizure of substantially all of
Tenant's assets located at the Premises or of Tenant's interest in this Lease,
where such seizure is not discharged in thirty (30) days.
24. REMEDIES IN DEFAULT. In the event of any such material default or breach
by Tenant, Landlord may at any time thereafter, with or without notice or demand
and without limiting Landlord in the exercise of a right or remedy which
Landlord may have by reason of such default or breach:
24.a. Terminate Tenant's right to possession of the Premises by any lawful
means, in which case this Lease shall terminate and Tenant shall immediately
surrender possession of the Premises to Landlord. In such event Landlord shall
be entitled to recover from Tenant all damages incurred by Landlord by reason of
Tenant's default including, but not limited to, the cost of recovering
possession of the Premises; expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorney's fees, any real
estate commission actually paid; the worth at the time of award by the court
having jurisdiction thereof of the amount by which the unpaid rent for the
balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that Tenant proves could be reasonably avoided;
that portion of the leasing commission paid by Landlord and applicable to the
unexpired term of this Lease. Unpaid installments of rent or other sums shall
bear interest from the date due at the rate of ten
<PAGE>
(10%) per cent per annum. In the event Tenant shall have abandoned the Premises,
Landlord shall have the option of (a) taking possession of the Premises and
recovering from Tenant the amount specified in this paragraph, or (b) proceeding
under the provisions of the following Article 24.b.
24.b. Maintain Tenant's right to possession, in which case this Lease
shall continue in effect whether or not Tenant shall have abandoned the
Premises. In such event Landlord shall be entitled to enforce all of Landlord's
rights and remedies under this Lease, including the right to recover the rent as
it becomes due hereunder.
24.c. Pursue any other remedy now or hereafter available to Landlord under
the laws or judicial decision of the State in which the Premises are located.
25. EMINENT DOMAIN. If more than twenty-five (25%) per cent of the Premises
shall be taken or appropriated by any public or quasi-public authority under the
power of eminent domain, either party hereto shall have the right, at its
option, to terminate this Lease, and Landlord shall be entitled to any and all
income, rent, award, or any interest therein whatsoever which may be paid or
made in connection with such public or quasi-public use of purpose, and Tenant
shall have no claim against Landlord for the value of any unexpired term of this
Lease. If either less than or more than twenty-five (25%) per cent of the
Premises is taken, and neither party elects to terminate as herein provided, the
rental thereafter to be paid shall be equitably reduced. If any part of the
Building other than the Premises may be so taken or appropriated, Landlord shall
have the right at its option to terminate this Lease and shall be entitled to
the entire award as above provided.
26. OFFSET STATEMENT. Tenant shall at any time and from time to time upon not
less than ten (10) days' prior written notice from Landlord execute, acknowledge
and deliver to Landlord a statement in writing, (a) certifying that this Lease
is unmodified and in full force and effect (or, if modified, stating the nature
of such modification and certifying that this Lease as so modified, is in full
force and effect), and the date to which the rental and other charges are paid
in advance, if any, and (b) acknowledging that there are not, to Tenant's
knowledge, any uncured defaults on the part of the Landlord hereunder, or
specifying such defaults if any are claimed. Any such statement may be relied
upon by any prospective purchaser or emcumbrancer of all or any portion of the
real property of which the Premises are a part.
27. PARKING. Tenant shall have the right to use in common with other tenants
or occupants of the Building the parking facilities of the Building, if any,
subject to the monthly rates, rules and regulations, and any other charges of
<PAGE>
Landlord for such parking facilities which may be established or altered by
Landlord at any time or from time to time during the term hereof.
28. AUTHORITY OF PARTIES.
28.a. CORPORATE AUTHORITY. If Tenant is a corporation, each individual
executing this Lease on behalf of said corporation represents and warrants that
he is duly authorized to execute and deliver this Lease on behalf of said
corporation, in accordance with a duly adopted resolution of the board of
directors of said corporation or in accordance with the by-laws of said
corporation, and that this Lease is binding upon said corporation in accordance
with its terms.
28.b. LIMITED PARTNERSHIPS. If the Landlord herein is a limited
partnership, it is understood and agreed that any claims by Tenant on Landlord
shall be limited to the assets of the limited partnership, and furthermore,
Tenant expressly waives any and all rights to proceed against the individual
partners or the officers, directors or shareholders of any corporate partner,
except to the extent of their interest in said limited partnership.
29. GENERAL PROVISIONS.
(i) PLATS AND RIDERS. Clauses, plats and riders, if any, signed by
the Landlord and the Tenant and endorsed on or affixed to this Lease are a part
hereof.
(ii) WAIVER. The waiver by Landlord of any term, covenant or condition
herein contained shall not be deemed to be a waiver of such term, covenant or
condition on any subsequent breach of the same or any other term, covenant or
condition herein contained. The subsequent acceptance of rent hereunder by
Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of
any term, covenant or condition of this Lease, other than the failure of the
Tenant to pay the particular rental so accepted, regardless of Landlord's
knowledge of such preceding breach at the time of the acceptance of such rent.
(iii) NOTICES. All notices and demands which may or are to be required
or permitted to be given by either party to the other hereunder shall be in
writing. All notices and demands by the Landlord to the Tenant shall be sent by
United States Mail, postage prepaid, addressed to the Tenant at the Premises, or
to such other place as Tenant may from time to time designate in a notice to the
Landlord. All notices and demands by the Tenant to the Landlord shall be sent by
United States Mail, postage prepaid, addressed to the Landlord at the Office of
the Building, or to such other person or place as the Landlord may from time to
time designate in a notice to the Tenant.
(iv) JOINT OBLIGATION. If there be more than one Tenant the
obligations hereunder imposed upon Tenants shall be joint and several.
<PAGE>
(v) MARGINAL HEADINGS. The marginal headings and Article titles to
the Articles of this Lease are not a part of this Lease and shall have no effect
upon the construction or interpretation of any part hereof.
(vi) TIME. Time is of the essence of this Lease and each and all of
its provisions in which performance is a factor.
(vii) SUCCESSORS AND ASSIGNS. The covenants and conditions herein
contained, subject to the provisions as to assignment, apply to and bind the
heirs, successors, executors, administrators and assigns of the parties hereto.
(viii) RECORDATION. Neither Landlord nor Tenant shall record this Lease
or a short form memorandum hereof without the prior written consent of the other
party.
(ix) QUIET POSSESSION. Upon Tenant paying the rent reserved hereunder
and observing and performing all of the covenants, conditions and provisions on
Tenant's part to be observed and performed hereunder, Tenant shall have quiet
possession of the Premises for the entire term hereof, subject to all the
provisions of this Lease.
(x) LATE CHARGES. Tenant hereby acknowledges that late payment by
Tenant to Landlord of rent or other sums due hereunder will cause Landlord to
incur costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Landlord by terms of any mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or of sum due from Tenant shall not be
received by Landlord or Landlord's designee within ten (10) days after written
notice that said amount is past due, then Tenant shall pay to Landlord a late
charge equal to ten (10%) per cent of such overdue amount. The parties hereby
agree that such late charged represent a fair and reasonable estimate of the
cost that Landlord will incur by reason of the late payment by Tenant.
Acceptance of such late charges by the Landlord shall in no event constitute a
waiver of Tenant's default with respect to such overdue amount, nor prevent
Landlord from exercising any of the other rights and remedies granted hereunder.
(xi) PRIOR AGREEMENTS. This Lease contains all of the agreements of
the parties hereto with respect to any matter covered or mentioned in this
Lease, and no prior agreements or understanding pertaining to any such matters
shall be effective for any purpose. No provision of this Lease may be amended or
added to except by an agreement in writing signed by the parties hereto or their
respective successors in interest. This Lease shall no be effective or binding
on any part until fully executed by both parties hereto.
(xii) INABILITY TO PERFORM. This Lease and the obligations of the
Tenant hereunder shall not be affected or impaired because the Landlord is
unable to fulfill any of its obligations hereunder or is delayed in doing so, if
such inability or delay
<PAGE>
is caused by reason of strike, labor troubles, acts of God, or any other cause
beyond the reasonable control of the Tenant.
(xiii) ATTORNEYS' FEES. In the event of any action or proceeding
brought by either party against the other under this Lease the prevailing party
shall be entitled to recover all costs and expenses including the fees of its
attorneys in such action or proceeding in such amount as the court may adjudge
reasonable as attorneys' fees.
(xiv) SALE OF PREMISES BY LANDLORD. In the event of any sale of the
Building, Landlord shall be and is hereby entirely freed and relieved of all
liability under any and all of its covenants and obligations contained in or
derived from this Lease arising out of any act, occurrence or omission occurring
after the consummation of such sale; and the purchaser, at such sale or any
subsequent sale of the Premises shall be deemed, without further agreement
between the parties or their successors in interest or between the parties and
any such purchaser, to have assumed and agreed to carry out any and all of the
covenants and obligations of the Landlord under this Lease.
(xv) SUBORDINATION, ATTORNMENT. Upon request of the Landlord, Tenant
will in writing subordinate its rights hereunder to the lien of any first
mortgage, or first deed of trust to any bank, insurance company or other lending
institution, now or hereafter in force against the land and Building of which
the Premises are a part, and upon any buildings hereafter placed upon the land
of which the Premises are a part, and to all advances made or hereafter to be
made upon the security thereof.
In the event any proceedings are brought for foreclosure, or in the event
of the exercise of the power of sale under any mortgage or deed of trust made by
the Landlord covering the Premises, the Tenant shall attorn to the purchaser
upon any such foreclosure or sale and recognize such purchaser as the Landlord
under this Lease.
The provisions of this Article to the contrary notwithstanding, and so long
as Tenant is not in default hereunder, this Lease shall remain in full force and
effect for the full term hereof.
(xvi) NAME. Tenant shall not use the name of Building or of the
development in which the Building is situated for any purpose other than as an
address of the business to be conducted by the Tenant in the Premises.
(xvii) SEPARABILITY. Any provision of this Lease which shall prove to
be invalid, void or illegal shall in no way affect, impair or invalidate any
other provision hereof and such other provision shall remain in full force and
effect.
(xviii) CUMULATIVE REMEDIES. No remedy or election hereunder shall be
deemed exclusive but shall, wherever possible, be cumulative with all other
remedies at law or in equity.
(xix) CHOICE OF LAW. This Lease shall be governed by the laws of the
State in which the Premises are located.
<PAGE>
(xx) SIGNS AND AUCTIONS. Tenant shall not place any sign upon the
Premises or Building or conduct any auction thereon without Landlord's prior
written consent.
30. BROKERS. Tenant warrants that it has had no dealings with any real estate
broker or agents in connection with the negotiation of this Lease excepting only
____________ and it knows of no other real estate broker or agent who is
entitled to a commission in connection with this Lease.
30. OPTIONS. Landlord grants Tenant two (2) five (5) year options under the
same terms and conditions of this Lease.
31. TENANT IMPROVEMENTS. Tenant, at his sole expense shall provide all Tenant
improvements to space. Landlord will remove all cabinetry in space before Tenant
begins construction on said space.
The parties hereto have executed this Lease at the place and on the dates
specified immediately adjacent to their respective signatures. If this Lease has
been filled in, it has been prepared for submission to your attorney for his
approval. No representation or recommendation is made by the real estate broker
or its agents or employees as to the legal sufficiency, legal effect, or tax
consequences of this Lease or the transactions relating thereto.
GREEN VALLEY CORPORATION
------------------------
by: /s/
-----------------------------
Address
----------------------------
----------------------------
"LANDLORD"
COAST COMMERCIAL BANK
---------------------
by: /s/
-----------------------------
Address
----------------------------
- - ----------------------------------- "TENANT"
<PAGE>
RULES AND REGULATIONS
1. No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed or printed or affixed on or to any part of the outside or
inside of the Building without the written consent of Landlord first had and
obtained and Landlord shall have the right to remove any such sign, placard,
picture, advertisement, name or notice without notice to and at the expense of
Tenant.
All approved signs or lettering on doors shall be printed, painted, affixed
or inscribed at the expense of Tenant by a person approved of by Landlord.
Tenant shall not place anything or allow anything to be placed near the
glass of any window, door, partition or wall which may appear unsightly from
outside the Premises; provided, however, that Landlord may furnish and install a
Building standard window covering at all exterior windows. Tenant shall not
without prior written consent of Landlord cause or otherwise sunscreen any
window.
2. The sidewalks, halls, passages, exits, entrances, elevators and stairways
shall not be obstructed by any of the tenants or used by them for any purpose
other than for ingress and egress from their respective Premises.
3. Tenant shall not alter any lock or install any new or additional locks or
any doors or windows of the Premises.
4. The toilet rooms, urinals, wash bowls and other apparatus shall not be used
for any purpose other than that for which they were constructed and no foreign
substance of any kind whatsoever shall be thrown therein and the expense of any
breakage, stoppage or damage resulting from the violation of this rule shall be
borne by the Tenant who, or whose employees or invitees shall have caused it.
5. Tenant shall not overload the floor of the Premises or in any way deface
the Premises or any part thereof.
6. No furniture, freight or equipment of any kind shall be brought into the
Building without the prior notice to Landlord and all moving of the same into or
out of the Building shall be done at such time and in such manner as Landlord
shall designate. Landlord shall have the right to prescribe the weight, size and
position of all safes and other heavy equipment brought into the Building and
also the times and manner of moving the same in and out of the Building. Safes
or other heavy objects shall, if considered necessary by Landlord, stand on
supports of such thickness as is necessary to properly distribute the weight.
Landlord will not be responsible for loss of or damage to any such safe or
property from any cause and
<PAGE>
all damage done to the Building by moving or maintaining any such safe or other
property shall be repaired at the expense of Tenant.
7. Tenant shall not use, keep or permit to be used or kept any foul or noxious
gas or substance in the Premises, or permit or suffer the Premises to be
occupied or used in a manner offensive or objectionable to the Landlord or other
occupants of the Building by reason of noise, odors and/or vibrations, or
interfere in any way with other tenants or those having business therein, nor
shall any animals or birds be brought in or kept in or about the Premises or the
Building.
8. No cooking shall be done or permitted by any Tenant on the Premises, nor
shall the Premises be used for the storage of merchandise, for washing clothes,
for lodging, or for any improper, objectionable or immoral purposes.
9. Tenant shall not use or keep in the Premises or the Building any kerosene,
gasoline or inflammable or combustible fluid or material, or use any method of
heating or air conditioning other than that supplied by Landlord.
10. Landlord will direct electricians as to where and how telephone and
telegraph wires are to be introduced. No boring or cutting for wires will be
allowed without the consent of the Landlord. The location of telephones, call
boxes and other office equipment affixed to the Premises shall be subject to the
approval of Landlord.
11. On Saturdays, Sundays and legal holidays, and on other days between the
hours of 6:00 P.M. and 8:00 A.M. the following day, access to the Building, or
to the halls, corridors, elevators or stairways in the Building, or to the
Premises may be refused unless the person seeking access is known to the person
or employee of the Building in charge and has a pass or is properly identified.
The Landlord shall in no case be liable for damages for any error with regard to
the admission to or exclusion from the Building or any person. In case of
invasion, mob, riot, public excitement, or other commotion, the Landlord
reserves the right to prevent access to the Building during the continuance of
the same by closing of the doors or otherwise, for the safety of the tenants and
protection of property in the Building and the Building.
12. Landlord reserves the right to exclude or expel from the Building any
person who, in the judgment of Landlord, is intoxicated or under the influence
of liquor or drugs, or who shall in any manner do any act in violation of any of
the rules and regulations of the Building.
<PAGE>
13. No vending machine or machines of any description shall be installed,
maintained or operated upon the Premises without the written consent of the
Landlord.
14. Landlord shall have the right, exercisable without notice and without
liability to Tenant, to change the name and street address of the Building of
which the Premises are a part.
15. Tenant shall not disturb, solicit, or canvass any occupant of the Building
and shall cooperate to prevent same.
16. Without the written consent of Landlord, Tenant shall not use the name of
Building in connection with or in promoting or advertising the business of
Tenant except as Tenant's address.
17. Landlord shall have the right to control and operate the public portions of
the Building, and the public facilities, and heating and air conditioning, as
well as facilities furnished for the common use of the tenants, in such manner
as it deems best for the benefit of the tenants generally.
18. All entrance doors in the Premises shall be left locked when the Premises
are not in use, and all doors opening to public corridors shall be kept closed
except for normal ingress and egress from the Premises.
<PAGE>
EXHIBIT D
Amendment to Lease dated May 22, 1989, by Heffernan Family Trust, ("Lessor") and
Coast Commercial Bank ("Lessee") for 1975 Soquel Drive, Santa Cruz, California.
The following paragraphs in said lease are hereby amended and all other terms
and conditions shall remain the same and, in the event of any conflict, this
amendment shall supersede the lease.
1.6 Term: The actual term ( the "Initial Term") shall be for a ten (10) year
period commencing on OCTOBER 1, 1990.
1.7 Options To Extend Lease Term: Lessee shall have the option pursuant to
paragraph 3.2 to extend the term of this Lease for two (2) additional terms at
Market Rate rent as set forth in paragraph 4.3 of this Lease. Paragraph 4.3 of
Lease shall be amended to two (2) options.
1.8 Base Rent: During the Initial Term, the base rent per net rentable square
foot shall be:
Year Rate Per Square Foot Per Month N.N.N.
---- -------------------------------------
1 $0.95
2 $1.20
3 $1.25
4 $1.30
5 $1.35
6 $1.40
7 $1.45
8 $1.50
9 $1.50
10 $1.50
READ AND APPROVED AND RECEIPT OF A COPY IS HEREBY ACKNOWLEDGED:
- - ---------------- ----------------
Date Date
/s/ /s/
- - ------------------------- ----------------------
Heffernan Family Trust Coast Commercial Bank
Exhib-A 1
<PAGE>
Exhibit A
Amendment to Lease
Acceptance Agreement
This Acceptance Agreement dated July 16, 1990 and made with regard to that lease
dated May 22, 1989 between Heffernan Family Trust, Lessor, and Coast Commercial
Bank, Lessee, and affecting those premises commonly known as 1975 Soquel Drive.
The parties agree as follows:
1. All improvements required to be constructed by Lessor have been
completed in accordance with the terms of this lease and are hereby
accepted by Lessee.
2. Possession of the premises has been delivered to Lessee and Lessee has
accepted premises.
3. The commencement date of the lease term (paragraph 1.6) is October 1,
1990 and shall expire on September 30, 1993, unless terminated sooner
according to the terms of this lease or by mutual agreement.
4. The base rent due pursuant to this lease for the first year is Four
Thousand Six Hundred Eighty-Eight Dollars and Twenty-Five cents
($4,688.25) per month.
5. Lessor has received a Security Deposit in the amount of Fourteen
Thousand Sixty-Four Dollars and Seventy-Five cents, ($14,064.75). In
accordance with paragraph 1.10 of this lease, Landlord will apply Four
Thousand Six Hundred Eighty-Eight Dollars and Twenty-Five cents
($4,688.25) on the commencement date to cover the first month's base
rent. This will leave a Security Deposit balance of Nine Thousand
Three Hundred Seventy-Six Dollars and Fifty cents ($9,376.50).
6. Allowances for Lessee Tenant Improvements are as follows:
6.1 Allowance for 2' x 4' suspended ceiling $5,000.
system per Plans and Specs -- 1st floor only
6.2 Allowance for Troffer Lights per Plans and Specs $5,500.
-- 1st floor only
6.3 Allowance for sprinkler system per Plans $5,299.
and Specs -- 1st floor only
6.4 Allowance for HVAC roof mounting equipment and $24,647.
distribution to 1st floor ceiling
7. This lease is in full force and effect, neither party is in default of
its obligations under this lease, and Lessee has no setoffs, claims,
or defenses to the enforcement of the lease.
Exhib-A 1
<PAGE>
Exhibit A
Amendment to Lease
Acceptance Agreement
LESSOR LESSEE
HEFFERNAN FAMILY TRUST COAST COMMERCIAL BANK
By /s/ By /s/
------------------------- -------------------------
Its Its
------------------------ ------------------------
Date Date
----------------------- -----------------------
Exhib-A 2
<PAGE>
STANDARD OFFICE LEASE-NET
1. BASIC LEASE PROVISIONS ("Basic Lease Provisions")
1.1 PARTIES: This Lease, dated May ___, 1989, is made by and between
Heffernan Family Trust, (herein called "Lessor") and Coast Commercial Bank,
(herein called "Lessee").
1.2 PREMISES: The ground floor of the building described in paragraph 1.4
of this Lease, consisting of approximately 4,935 net rentable square feet, more
or less, as defined in paragraph 2 and as shown on EXHIBIT A hereto (the
"Premises") plus any space leased to Lessee as a result of the exercise of
Lessee's option to expand the Premises as set forth in paragraph 39.2 hereto.
1.3 OPTION TO EXPAND PREMISES: Lessee shall have the option to expand the
Premises as set forth in paragraph 39.2 of this Lease.
1.4 BUILDING: To be constructed at the location commonly described as
1975 Soquel Drive, in the County of Santa Cruz, State of California, and as
defined in paragraph 2.
1.5 USE: Lessee shall use the Premises for the operation of a commercial
bank, subject to paragraph 6.
1.6 TERM: The initial term (the "Initial Term") shall be for a three (3)
year period commencing (a) upon substantial completion of the tenant
improvements pursuant to the provisions of EXHIBIT C hereto, or (b) one month
after delivery of substantially completed building shell, whichever event occurs
first ("Commencement Date"). The parties shall immediately execute an amendment
to this Lease stating the Commencement Date when it is ascertained.
1.7 OPTIONS TO EXTEND LEASE TERM: Lessee shall have the option pursuant
to paragraph 3.2 to extend the term of this Lease for three (3) additional terms
at Market Rate rent as set forth in paragraph 4.3 of this Lease.
1.8 BASE RENT: During the Initial Term, the base rent per net rentable
square foot shall be Ninety-Five Cents ($0.95) per month in the first year, One
Dollar and Ten Cents ($1.10) per month in the second year and One Dollar and
Fifteen Cents ($1.15) per month in the third year.
1.9 ESCALATION OF BASE RENT: During the First Extended Term, Second
Extended Term and Third Extended Term (as defined in paragraph 3.2), if any, the
base rent payable by Tenant shall be adjusted, upwards only, as provided in
paragraph 4.3 below.
1.10 LEASE DEPOSIT: Lessee shall pay a lease deposit (the "Lease Deposit")
totaling three (3) months rent (Fourteen Thousand Sixty-Four Dollars and
Seventy-Five Cents ($14,064.75). The parties hereby acknowledge that the Lessee
has already paid Lessor a One Thousand Dollar ($1,000) "good faith" deposit,
which shall be credited to the Lease Deposit. Upon the execution of this Lease,
Lessee shall pay Lessor Thirteen Thousand Sixty-Four Dollars and Seventy-Five
Cents ($13,064.75) as the balance of the Lease Deposit. On the Commencement
Date, Four Thousand Six Hundred Eighty-Eight Dollars and Twenty-Five Cents
($4,688.25) of the Lease Deposit shall be credited to the base rent for the
first month of the lease term, and the balance of Nine Thousand Three Hundred
Seventy-Six Dollars and Fifty Cents ($9,376.50) shall be held as a security
deposit.
1.11 SECURITY DEPOSIT: The security deposit of Nine Thousand Three Hundred
Seventy-Six Dollars and Fifty Cents ($9,376.50) equals that portion of the Lease
Deposit which remains after the base rent for the first month is deducted as set
forth in paragraph 1.10 of this Lease. The security deposit shall be held as
provided in paragraph 1.10 of this Lease. The security deposit shall be held as
provided in paragraph 5 of this Lease.
1.12 FIRST RIGHT TO PURCHASE BUILDING: Lessee shall have the first right
to purchase the Building (as defined in paragraph 2.1 hereto) pursuant to
paragraph 39.3 of this Lease.
-1-
<PAGE>
1.13 LESSEE'S SHARE OF OPERATING EXPENSES: Lessee's Share of Operating
Expenses shall be fifty-five percent (55%), as set forth in paragraph 4.2.
2. PREMISES, PARKING AND COMMON AREAS.
2.1 PREMISES: The Premises are a portion of a building, herein sometimes
referred to as the "Building" identified in paragraph 1.3 of the Basic Lease
Provisions. "Building" shall include adjacent parking facilities used in
connection therewith. The Premises, the Building, the Common Areas (as defined
in paragraph 2.3 hereto), the land upon which the same are located, along with
all other buildings and improvements thereon or thereunder, are herein
collectively referred to as the "Office Building Project." Lessor hereby leases
to Lessee and Lessee leases from Lessor for the term, at the rental, and upon
all of the conditions set forth herein, the real property referred to in the
Basic Lease Provisions, paragraph 1.2, as the "Premises," including rights to
the Common Areas as hereinafter specified. The parties acknowledge that the
actual net rentable square footage of the Premises will not be established until
completion and final approval of the building design. The parties also
acknowledge that the computation of "net rentable" does not include the
stairwell, electrical closet, or the top floor tenant's proportionate share of
lobby space.
2.2 VEHICLE PARKING: So long as Lessee is not in default, and subject to
the rules and regulations attached hereto and as established by Lessor from time
to time, Lessee shall be entitled to use twenty-four (24) parking spaces in the
Office Building Project. Six (6) of the parking spaces located nearest the main
entrance to the Building shall be designated for use solely by Lessee and its
customers.
2.2.1 PROHIBITED ACTIVITIES; TOWING. If, in connection with
vehicular parking, Lessee commits, permits or allows any of the prohibited
activities described in this Lease or the rules then in effect, then Lessor
shall have the right, without notice, in addition to such other rights and
remedies that it may have, to remove or tow away the vehicle involved in such
prohibited activities and charge the cost to Lessee, which cost shall be
immediately payable upon demand by Lessor.
2.3 COMMON AREAS--DEFINITION. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Office Building Project that are provided and designated by the Lessor
from time to time for the general non-exclusive use of Lessor, Lessee and other
lessees of the Office Building including but not otherwise prohibited by this
Lease, loading and unloading areas, trash areas, roadways, sidewalks, walkways,
parkways, ramps, driveways, landscaped areas and decorative walls.
2.4 COMMON AREAS--RULES AND REGULATIONS. Lessee agrees to abide by and
conform to the rules and regulations attached hereto as EXHIBIT B with respect
to the Office Building Project, and to cause its employees, suppliers, shippers,
customers and invitees, to so abide and conform. Lessor or Lessor's agent shall
have the exclusive control and management of the Common Areas and shall have the
right, from time to time, to modify, amend and enforce said rules and
regulations. Lessor shall not be responsible or liable to Lessee for the non-
compliance with said rules and regulations by Lessor or other lessees of the
Office Building Project, or their respective agents, employees and invitees.
2.5 COMMON AREAS--CHANGES. Lessor shall have the right, in Lessor's sole
discretion, from time to time:
(a) To make changes to the Building interior and exterior and Common
Areas, including without limitation, changes in the location, size, shape,
number, and appearance thereof, including but not limited to the lobbies,
windows, stairways, air shafts, elevators, escalators, restrooms, driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, decorative walls, landscaped areas and walkways;
provided, however, Lessor shall at all times provide the parking facilities
required by applicable law;
-2-
<PAGE>
(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;
(c) To designate other land and improvements outside the boundaries
of the Office Building Project to be a part of the Common Areas, provided that
such other land and improvements have a reasonable and functional relationship
to the Office Building Project;
(d) To add additional buildings and improvements to the Common Areas;
(e) To use the Common Areas while engaged in making additional
improvements,
repairs or alterations to the Office Building Project, or any portion
thereof;
(f) To do and perform such other acts and make such other changes in,
to or with respect to the Common Areas and Office Building Project as Lessor
may, in the exercise of sound business judgment deem to be appropriate.
3. TERM.
3.1 TERM. The Initial Term and Commencement Date of this Lease shall be as
specified in paragraph 1.6 of the Basic Lease Provisions.
3.2. OPTION TO EXTEND LEASE TERM. Lessee is hereby granted the option to
extend the term of this Lease for three (3) additional terms, hereinafter
referred to as the "First Extended Term," "Second Extended Term," and the
"Third Extended Term" respectively, on all of the terms and. provisions
contained in this Lease, except rent (which rent shall be set at the Market Rate
as defined in paragraph 4.3) and expiration date of the Initial Term. Lessee may
exercise its option to extend the term of this Lease by giving written notice Of
such exercise (a "Lessee's Renewal Notice") to Lessor not later than nine (9)
months prior to the expiration of the term to be extended; provided, however,
that if Lessee is in default on the date of giving Lessee's Renewal Notice, the
Lessee's Renewal Notice shall be null and void and of no force or effect, and
provided further, that if Lessee is in default on, or this Lease has been
otherwise terminated prior to, the date that the First Extended Term, the Second
Extended Term, or the Third Extended Term, as the case may be, would otherwise
commence, such extended term shall not commence and this Lease shall expire at
the end of the Initial Term, the First Extended Term or the Second Extended
Term, as the case may be. The First Extended Term shall before five (5) years,
commencing on the day after the expiration of the initial Term. The Second
Extended Term shall be for a period of five (5) years, commencing on the day
after the expiration of the First Extended Term. The Third Extended Term shall
be for a period of five (5) years, commencing on the day after the expiration of
the Second Extended Term. Lessee shall have no right to extend the term of this
Lease beyond the Third Extended Term described herein. The Initial Term and any
Extended Term(if commenced as provided above) shall be collectively referred to
herein as the "Lease Term."
3.3 DELAY IN POSSESSION. Notwithstanding said Commencement Date, if for
any reason Lessor cannot deliver possession of the Premises to Lessee on said
date and subject to paragraph 3.3.2, Lessor shall not be subject to any
liability therefore, nor shall such failure affect the validity of this Lease or
the obligations of hereunder or extend the term hereof; but in such case, Lessee
shall not be obligated to pay rent or perform any other obligation of Lessee
under the terms of this Lease, except as may be otherwise provided in this
Lease, until possession of the Premises is tendered to Lessee, as hereinafter
defined; provided, however, that if Lessor has not delivered possession of the
Premises within one hundred twenty (120) days following said Commencement Date,
as the same may be extended by written agreement between Lessor and Lessee,
Lessee may, at Lessee's option, cancel this Lease, by giving notice in writing
to Lessor within ten (10) days after the 120 days following the Commencement
Date, as extended, in which event the parties shall be discharged from all
obligations hereunder; provided, however, that, as to Lessee's obligations,
Lessee shall first reimburse Lessor for all costs incurred for Lessee
Improvements (as defined in Exhibit C) and, as to Lessor's obligations, Lessor
shall return any money previously deposited by Lessee (less any offsets due
Lessor for Lessee Improvements); and provided further, that if such
-3-
<PAGE>
written notice by Lessee is not received by Lessor within said ten (10) day
period, Lessee's right to cancel this Lease hereunder shall terminate and be of
no further force or effect.
3.3.1 POSSESSION TENDERED -- DEFINED. Possession of the Premises
shall be deemed tendered to Lessee ("Tender of Possession") ten (10) days after
Lessor has provided written notice to Lessee that within ten (10) days from such
notice (1) the improvements to be provided by Lessor under this Lease will be
substantially completed, (2) the Building utilities will be brought to and
"stubbed off" inside the Building, and (3) Lessee will have reasonable access to
the Premises.
3.3.2 DELAYS CAUSED BY LESSEE. There shall be no abatement of
rent for, and the one hundred twenty (120) day period following the Commencement
Date before which Lessee's right to cancel this Lease accrues under paragraph
3.3 shall be deemed extended to the extent of, any delays caused in whole or in
part by acts or omissions of Lessee, its agents, employees and contractors.
3.4 EARLY POSSESSION. If Lessee occupies the Premises prior to said
Commencement Date, such occupancy shall be subject to all provisions of this
Lease and such occupancy shall not change the termination date.
3.5 UNCERTAIN COMMENCEMENT. In the event commencement of this Lease term
is defined as the substantial completion of the improvements, Lessee and Lessor
shall execute an amendment to this Lease establishing the date of Tender of
Possession (as defined in paragraph 3.3.1) or the actual taking of possession by
Lessee, whichever first occurs, as the Commencement Date.
3.6 CERTAIN DUTIES OF LESSEE; RIGHTS OF LESSOR UPON TERMINATION.
(a) At the expiration or earlier termination of this Lease or
Lessee's right of possession, Lessee shall (1) notify Lessor of the existence of
any Hazardous Substance (as defined in paragraph 6.1.3 hereto), and if Lessee
caused such Hazardous Substances to be located on the Office Building Project,
cause such Hazardous Substances to be removed from the Premises and the Office
Building Project and to be transported for use, storage, or disposal in
accordance and compliance with all applicable Hazardous Substances Laws (as
defined in paragraph 6.1.3 hereto), and (2) surrender Possession of the Premises
and all keys, any key cards, and any parking stickers or cards, to Lessor, and
advise Lessor as to the combination of any locks or vaults then remaining in the
Premises.
(b) If Lessee fails to perform any removal of Hazardous Substances or
fails to make repairs or restoration or to remove any items from the Premises as
required under paragraph 7.3(a) hereunder or otherwise, Lessor may do so, and
Lessee shall pay Lessor the costs thereof immediately upon demand. All property
removed from the Premises by Lessor pursuant to any provision of this Lease or
any law may be handled or stored by Lessor at Lessee's expense, and Lessor shall
in no event be responsible for the value, preservation or safekeeping thereof.
Unless prohibited by applicable law, Lessor shall have a lien against such
property for the costs incurred in removing and storing same.
4. RENT.
4.1 BASE RENT. Lessee shall pay to Lessor the base rent for the Premises
set forth in paragraphs 1.8 and 1.9 of the Basic Lease Provisions, in advance on
the first day of each month without offset or deduction. Lessee shall begin
paying rent on the Commencement Date. Rent for any period during the term
hereof which is for less than one month shall be prorated based upon the actual
number of days of the calendar month involved. Rent shall be payable in lawful
money of the United States to Lessor at the address stated herein or to such
other persons or at such other places as Lessor may from time to time designate
in writing.
4.2 OPERATING EXPENSES. Lessee shall pay to Lessor during the term
hereof, in addition to the base rent, Lessee's Share, as hereinafter defined, of
all Operating Expenses, as hereinafter defined, during each calendar year of the
term of this Lease, in accordance with the following provisions:
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(a) "Lessee's Share" is defined for purposes of this Lease as the
percentage set forth in paragraph 1.13 of the Basic Lease Provisions, which
percentage has been determined by dividing the approximate net rentable square
footage of the Premises by the total approximate net rentable square footage of
the Office Building Project. It is understood and agreed that the square
footage figures set forth in the Basic Lease Provisions are approximations which
Lessor and Lessee agree are reasonable and shall not be subject to revision
except in connection with an actual change in the size of the Premises or a
change in the space available for lease in the Office Building Project.
(b) "Operating Expenses" is defined for purposes of this Lease to
include all costs, if any, incurred by Lessor in the exercise of its reasonable
discretion, for:
(i) The operation, repair, maintenance, and replacement, in
neat, clean, safe, good order and condition, of the Office Building Project,
including but not limited to, the following:
(aa) The Common Areas, including their surfaces, coverings,
decorative items, carpets, drapes and window coverings, and including parking
areas, loading and unloading areas, trash areas, roadways, sidewalks, walkways,
stairways, parkways, driveways, landscaped areas, striping, bumpers, irrigation
systems, Common Area lighting facilities, building exteriors and roofs, fences
and gates;
(bb) All heating, air conditioning, plumbing, electrical
systems, life safety equipment, telecommunication and other equipment used in
common by, or for the benefit of, lessees or occupants of the Office Building
Project, including without limitation tenant directories and fire detection and
suppression systems, elevators and escalators, including sprinkler system
maintenance and repair.
(ii) Trash disposal, janitorial and security services;
(iii) Any other service to be provided by Lessor that is
elsewhere in this Lease stated to be an "Operating Expense";
(iv) The cost of the premiums for the liability, property
damage (including earthquake and plate glass damage) and rental value insurance
policies to be maintained by Lessor under paragraph 8 hereof;
(v) The amount of the real property, taxes to be paid by
Lessor under paragraph 10.1 hereof;
(vi) The cost of water, sewer, gas, electricity, and other
publicly mandated services to the Office Building Project;
(vii) Labor, salaries and applicable fringe benefits and costs,
materials, supplies and tools, used in maintaining and/or cleaning the Office
Building Project and accounting and a management fee attributable to the
operation of the Office Building Project;
(viii) Replacing and/or adding improvements mandated by any
governmental agency and any repairs or removals necessitated thereby amortized
over its useful life according to Federal income tax regulations or guidelines
for depreciation thereof (including interest on the unamortized balance as is
then reasonable in the judgment of Lessor's accountants);
(ix) The costs of cleanup, decontamination, or closure arising
out of or in connection with a release of a Hazardous Substance, which costs are
not the responsibility of Lessee pursuant to paragraph 7.2(c).
(c) Operating Expenses shall not include the costs of replacements of
equipment or improvements that are not either "3-year property" or "5-year
property" for purposes of MACRS, unless the equipment or improvements are of the
type described in paragraph 4.2(b)(viii), in which case their replacement costs
shall be included as above provided.
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(d) Operating Expenses shall not include any expenses paid by any
lessee directly to third parties, or as to which Lessor is otherwise reimbursed
by any third party, other lessee (except such lessee's share of operating
Expenses), or by insurance proceeds.
(e) Lessee's Share of Operating Expenses shall be payable by Lessee
within ten (10) days after a reasonably detailed statement of actual expenses is
presented to Lessee by Lessor. At Lessor's option, however, an amount may be
estimated by Lessor from time to time of Lessee's Share of annual operating
Expenses and the same shall be payable monthly or quarterly, as Lessor shall
designate, during each calendar year of the Lease term, on the same day as the
base rent is due hereunder. If Lessee pays Lessor's estimate of Lessee's Share
of Operating Expenses as aforesaid, Lessor shall deliver to Lessee within sixty
(60) days after the expiration of each calendar year a reasonably detailed
statement showing Lessee's Share of the actual Operating Expenses incurred
during the preceding year. If Lessee's payments under this paragraph 4.2(e)
during said preceding calendar year exceed Lessee's Share as indicated on said
statement, Lessee shall be entitled to credit the amount of such overpayment
against Lessee's Share of Operating Expenses next falling due. If Lessee's
payments under this paragraph during said preceding calendar year were less than
Lessee's Share as indicated on said statement, Lessee shall pay to Lessor the
amount of the deficiency within ten (10) days after delivery by Lessor to Lessee
of said statement.
4.2.1 SEPARATE METERS. Notwithstanding anything to the contrary in
paragraph 4.2 of this Lease, Lessee shall pay the entire cost of separately-
metered electric and/or other services provided solely for the benefit of the
Premises and/or Lessee.
4.3 RENT APPLICABLE TO EXTENDED TERM OR EXPANDED PREMISES. If Lessee
exercises its option under paragraph 3.2 of this Lease to extend the term hereof
or its option under paragraph 39.2 of this Lease to expand the Premises, the
base rent for the first year of the Extended Term or for the first year the
Second Floor Space (as defined in paragraph 39.2) is leased shall be set at the
market rate as determined by this paragraph 4.3 (the "Market Rate") and shall be
adjusted upwards each year thereafter according to the procedure set forth in
paragraph 4.3.2 of this Lease.
4.3.1 MARKET RATE DETERMINATION. Within thirty (30) days after
receipt of a Lessee's Renewal Notice (as defined in paragraph 3.2) or Lessee's
Expansion Notice (as defined in paragraph 39.2), if such notice is delivered in
accordance with paragraph 3.2 or 39.2, Lessor shall advise Lessee in writing of
Lessor's determination of the Market Rate ("Market Rate Notice") to be
applicable during the first year of the lease for the Extended Term or for the
Second Floor Space, as applicable. Unless Lessee objects to Lessor's
determination in writing within five (5) days after receipt of the Market Rate
Notice, Lessee shall be bound by Lessor's determination. If Lessee objects to
such determination, Lessee shall deliver a written notice to Lessor either (a)
rescinding the Lessee's Renewal Notice or Lessee's Expansion Notice, or (b)
advising Lessor of its proposal as to an alternative Market Rate. If Lessee
elects to rescind its Lessee's Renewal Notice or Lessee's Expansion Notice,
Lessee's option as set forth in paragraph 3.2 or 39.2, as the case may be, shall
terminate. If Lessee gives notice of an alternative proposal regarding the
Market Rate, Lessor may either accept Lessee's proposal, in which event such
proposal by Lessee shall establish the base rent for the Extended Term or Second
Floor Space for the first year, or attempt to negotiate a mutually acceptable
Market Rate with Lessee. If Lessor and Lessee shall not, within five (5) days
of the date of delivery of Lessee's written response to the Market Rate Notice,
have reached agreement as to the Market Rate and if Lessee has not rescinded the
Lessee's Renewal Notice or Lessee's Expansion Notice as provided above, then
upon the written request of either party, made no later than ten (10) days after
the termination of such five (5) day period, the Market Rate issue shall be
submitted for decision to the American Arbitration Association in Santa Cruz
County, California, in accordance with the then rules of said association and
the decision of the arbitrators shall be binding upon the parties,
notwithstanding one party failing to appear after due notice of the proceeding.
The cost of said Arbitrators shall be paid equally by Lessor and Lessee. In the
event that neither party makes a request for arbitration within the ten (10) day
period, Lessee's option to extend the term or lease the Second Floor Space shall
automatically terminate.
4.3.2 ADJUSTMENT OF MARKET RATE. The monthly base rent payable
pursuant to paragraph 4.3.1 shall be adjusted each year subsequent to the first
year by the increase, if any, in the Consumer Price Index of the
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Bureau of Labor Statistics of the Department of Labor for All Urban Consumers,
(1982-1984=100), "All Items," for the San Francisco-Oakland Region, herein
referred to as "C.P.I.," as follows:
(a) The CPI adjustment to the monthly base rent payable pursuant to
paragraph 4.3.1 shall be calculated as follows: the base rent payable for the
first full calendar month of the Extended Term or expansion into the Second
Floor Space ("Adjustment Base Month"), as the case may be, shall be multiplied
by a fraction, the numerator of which shall be the C.P.I. of the calendar month
during which the adjustment is to take effect, and the denominator of which
shall be the C.P.I. for the Adjustment Base Month. The sum so calculated shall
constitute the new monthly base rent hereunder, but, IN no event, shall such new
monthly base rent be less that the base rent payable for the month immediately
preceding the date for the rent adjustment.
(b) In the event the compilation and/or publication of the C.P.I.
shall be transferred to any other governmental department or bureau or agency or
shall be discontinued, then the index most nearly the same as the C.P.I. shall
be used to make the calculations of subparagraph (a). If Lessor and Lessee
cannot agree on such alternative index, then the matter shall be submitted for
decision to the American Arbitration Association in Santa Cruz County,
California, in accordance with the then rules of said association and the
decision of the arbitrators shall be binding upon the parties, notwithstanding
one party failing to appear after due notice of the
proceeding. The cost of said Arbitrators shall- be paid equally by
Lessor and Lessee.
(c) Lessee shall continue to pay the rent at the rate previously in
effect until the increase, if any, is determined. Within five (5) days
following the date on which the increase is determined, Lessee shall make such
payment to Lessor as will bring the increased rental current, commencing with
the effective date of such increase through the date of any rental installments
then due. Thereafter the rental shall be paid at the increased rate.
(d) At such time as the amount of any change in rental required by
this Lease is known or determined, Lessor and Lessee shall execute an amendment
to this Lease setting forth such change.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
the security deposit set forth in paragraph 1.11 of the Basic Lease Provisions
as security for Lessee's faithful performance of Lessee's obligations hereunder.
If Lessee fails to pay rent or other charges due hereunder, or otherwise
defaults with respect to any provision of this Lease, Lessor may use, apply or
retain all or any portion of said deposit for the payment or offset of any rent
or other charge in default, for the payment of any other sum to which Lessor may
become obligated by reason of Lessee's default, or to compensate Lessor for any
loss or damage which Lessor may suffer thereby. If Lessor so uses or applies
all or any portion of said deposit, Lessee shall within ten (10) days after
written demand therefor deposit cash with Lessor in an amount sufficient to
restore said deposit to the full amount then required of Lessee. As the monthly
base rent shall increase at the commencement of the First Extended Term, Second
Extended Term and Third Extended Term of this Lease, Lessee shall, at the time
of such increase, deposit with Lessor additional money as a security deposit so
that the total amount of the security deposit held by Lessor shall equal three
(3) months of the then monthly base rent. Lessor shall not be required to keep
said security deposit separate from its general accounts. If Lessee performs
all of Lessee's obligations hereunder, said deposit, or so much thereof as has
not heretofore been applied by Lessor, shall be returned, without payment of
interest or other increment for its use, to Lessee (or, at Lessor's option, the
last assignee, if any, of Lessee's interest hereunder) at the expiration of the
term hereof, and after Lessee has vacated the Premises. No trust relationship
is created herein between Lessor and Lessee with respect to said security
deposit.
6. USE.
6.1 USE.
(a) Lessee shall use and occupy the Premises only for the purposes
set forth in paragraph 1.5 of the Basic Lease Provisions or any other use which
is reasonably comparable to that use and for no other purpose.
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(b) Lessee shall not cause or permit any Hazardous Substances, as
defined in paragraph 6.1(c) below, to be brought upon or kept or used in or
about the Office Building Project by Lessee, its agents, employees, contractors,
or invitees, unless (1) such Hazardous Substances are necessary for Lessee's
business (and such business is a permitted use under paragraph 6.1(a) above) and
(2) Lessee first obtains the written consent of Lessor. In any event, Lessee
shall report to Lessor not less frequently than annually the presence on or in
the Office Building Project of any Hazardous Substances brought upon or kept or
used in or about the Office Building Project by Lessee, its agents, employees,
contractors, or invitees, and the type, quantity and location thereof.
(c) As used in this Lease, the term "Hazardous Substance or
Substances" means any hazardous or toxic substances, materials or wastes,
including, but not limited to, those substances, materials, and wastes defined
as a "hazardous waste," "extremely hazardous waste," "restricted hazardous
waste," "hazardous substance," or "hazardous material" under any local, state or
federal laws, ordinances, regulations and orders (collectively, "Hazardous
Substances Laws"), or otherwise regulated by Hazardous Substances Laws, and
including, without limitation, any material, waste or substance which is (i)
petroleum, (ii) asbestos, or (iii) polychlorinated biphenyls.
6.2 COMPLIANCE WITH LAW.
(a) Lessor warrants to Lessee that the Premises, in the state
existing on the date that the Lease term commences, but without regard to
alterations or improvements made by Lessee or the use for which Lessee will
occupy the Premises, do not violate any covenants or restrictions of record, or
any applicable building code, regulation or ordinance in effect on such Lease
term Commencement Date. If it is determined that this warranty has been
violated, then it shall be the obligation of the Lessor after written notice
from Lessee, to promptly and at Lessor's sole cost and expense, rectify any such
violation.
(b) Except as provided in paragraph 6.2(a) Lessee shall, at Lessee's
expense, promptly comply with all applicable statutes, ordinances, rules,
regulations, orders, covenants and restrictions of record, and requirements of
any fire insurance underwriters or rating bureaus, now in effect or which may
hereafter come into effect, whether or not they reflect a change in policy from
that now existing, during the term or any part of the term hereof, relating in
any manner to the Premises and the occupation and use by Lessee of the Premises.
Lessee shall conduct its business in a lawful manner and shall not use or permit
the use of the Premises or the Common Areas in any manner that will tend to
create waste or a nuisance or shall tend to disturb other occupants of the
Office Building Project.
(c) Without limiting the foregoing, Lessee shall at all times and in
all respects comply with all Hazardous Substances Laws relating to industrial
hygiene, environmental protection, or the use, analysis, generation,
manufacture, storage, disposal, or transportation of any Hazardous Substances.
Lessee shall at its own expense procure, maintain in effect, and comply with all
conditions of any and all permits, licenses, and other governmental and
regulatory approvals required for Lessee's use of the Premises, including,
without limitation, discharge of (appropriately treated) materials or wastes
into or through any sanitary sewer serving the Office Building Project. Lessee
shall promptly deliver to Lessor copies of applications for such permits,
licenses and approvals upon making such application, and shall promptly deliver
copies of the permits, licenses and approvals upon receipt. Lessee shall also
supply to Lessor as promptly as possible, and in any event within five (5)
business days after Lessee first receives or sends the same, copies of all
claims, reports, complaints, notices, warnings, or asserted violations relating
in any way to Lessee's use of the office Building Project. Except as discharged
into the sanitary sewer in strict accordance and conformity with all applicable
Hazardous Substances Laws, Lessee shall cause any and all Hazardous Substances
removed from the Premises or from the Office Building Project, if removed at
Lessee's direction, to be removed and transported solely by duly licensed
haulers to duly licensed facilities for final disposal of such materials and
wastes. Lessee shall promptly deliver to Lessor copies of hazardous waste
manifests reflecting the legal and proper disposal of all Hazardous Substances
removed from the Premises or from the Office Building Project, if removed at
Lessee's direction.
(d) If at any time Lessee becomes aware, or has reasonable cause to
believe, that any Hazardous Substance has come to be located on or beneath the
Office Building Project, or that Lessee, any other lessee, or Lessor may have
violated a Hazardous Substances Law, then Lessee shall, immediately upon
discovering such
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presence or suspected presence of the Hazardous Substance or violation or
suspected violation of law, give written notice of that condition or violation
to Lessor.
6.3 CONDITION OF PREMISES.
(a) Lessor shall deliver the Premises to Lessee in a clean condition
on the Commencement Date (unless Lessee is already in possession) and Lessor
warrants to Lessee that, to the extent such items are provided by Lessor as
Standard Improvements, the plumbing, lighting, air conditioning, and heating
system in the Premises shall be in good operating condition. If it is
determined that this warranty has been violated then it shall be the obligation
of Lessor, after receipt of written notice from Lessee setting forth with
specificity the nature of the violation, to promptly and at Lessor's sole cost,
rectify such violation.
(b) Except as otherwise provided in this Lease, Lessee hereby accepts
the Premises and the Office Building Project in their condition existing as of
the Commencement Date or the date on which Lessee takes possession of the
Premises, whichever is earlier, subject to all applicable zoning, municipal,
county and state laws. ordinances and regulations governing and regulating the
use of the Premises, and any easements, covenants restrictions of record, and
accepts this Lease subject thereto and to all matters disclosed thereby and by
any exhibits attached hereto. Lessee acknowledges that it has satisfied itself
by its own independent investigation that the Premises are suitable for its
intended use, and that neither Lessor nor Lessor's agent(s) has made any
representation or warranty as to the present or future suitability of the
Premises, Common Areas, or Office Building Project for the conduct of Lessee's
business.
7. MAINTENANCE, REPAIRS, ALTERATIONS AND COMMON AREA SERVICES.
7.1 LESSOR'S OBLIGATIONS. Lessor shall keep the exterior walls, roof, and
Common Areas of the Office Building Project, and the equipment used in common
with other premises, in good condition and repair. Lessor shall not be
obligated to paint, maintain or repair the Premises or any Lessee Improvements,
including, without limitation, doors, walls, interior partitions, ceilings and
floors. Except as provided in paragraph 9.5, there shall be no abatement of
rent or liability of Lessee on account of any injury or interference with
Lessee's business with respect to any improvements, alterations or repairs made
by Lessor to the Office Building Project or any part thereof. Lessee expressly
waives the benefits of any statute now or hereafter in effect which would
otherwise afford Lessee the right to make repairs at Lessor's expense or to
terminate this Lease because of Lessor's failure to keep the Premises in good
order, condition and repair, including, without limitation, California Civil
Code sections 1931 and 1941-1942, inclusive.
7.2 LESSEE'S OBLIGATIONS.
(a) Lessee shall keep the Premises and any equipment (wherever
located) that serves only Lessee or the Premises in good condition and repair.
If Lessee fails to maintain or repair the Premises or equipment as provided
herein, Lessor may do so and charge Lessee the costs thereof (to the extent such
cost is attributable to causes beyond normal wear and tear) as additional rent.
Lessee shall be responsible for the cost of painting, repairing or replacing
Premises wall and floor coverings and ceilings, and to repair or replace any
Lessee Improvements.
(b) On the last day of the term hereof, or on any sooner termination,
Lessee shall surrender the Premises to Lessor in the same condition as received,
ordinary wear and tear excepted, clean and free of debris. Any damage or
deterioration of the Premises shall not be deemed ordinary wear and tear if the
same could have been prevented by good maintenance practices by Lessee. Lessee
shall repair any damage to the Premises occasioned by the installation or
removal of Lessee's trade fixtures, alterations, furnishings and equipment.
Except as otherwise stated in this Lease, Lessee shall leave the air lines,
power panels, electrical distribution systems, lighting fixtures, air
conditioning, window coverings, wall coverings, carpets, wall paneling, ceilings
and plumbing on the Premises in good operating condition.
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(c) Lessee shall maintain the Premises and Office Building Project
free of Hazardous Substances, and shall at its sole cost and expense clean up
any releases of Hazardous Substances which occur in, on or around the Premises
or Office Building Project as a result of, or in connection with, Lessee's
operations.
7.3 ALTERATIONS AND ADDITIONS.
(a) Lessee shall not, without Lessor's prior written consent make any
alterations, improvements, additions, Utility Installations or repairs in, on or
about the Premises, or the office Building Project. @s used in this paragraph
7.3 the term "Utility Installation" shall mean carpeting, window and wall
coverings, power panels, electrical distribution systems, lighting fixtures, air
conditioning, plumbing, and telephone and telecommunication wiring and
equipment. At the expiration of the term, Lessor may require the removal of any
or all of said alterations, improvements, additions or Utility Installations,
and the restoration of the Premises and Office Building Project to their prior
condition, at Lessee's sole cost and expense. If Lessor permits Lessee to make
its own alterations, improvements, additions or Utility Installations, Lessee
shall use only such contractor as has been expressly approved by Lessor, and
Lessor may require Lessee to provide Lessor, at Lessee's sole cost and expense,
a lien and completion bond in an amount equal to one and one-half times the
estimated cost of such improvements, to insure Lessor against any liability for
mechanic's and materialmen's liens and to insure completion of the work. If
Lessee makes any alterations, improvements, additions or Utility Installations
without the prior approval of Lessor, or uses a contractor not expressly
approved by Lessor, Lessor may, at any time during the term of this Lease,
require that Lessee remove any part or all of the same at Lessee's sole cost and
expense.
(b) Any alterations, improvements, additions or Utility Installations
in or about the Premises or the Office Building Project that Lessee desires to
make shall be presented to Lessor in written form with proposed detailed plans.
Lessee shall pay Lessor a reasonable fee to cover Lessor's costs, including
overhead and the costs of outside consultants, in reviewing Lessee's plans and
specifications and performing any supervision of the work. If Lessor gives its
consent to Lessee's making such alterations, improvements, additions or Utility
Installation, the consent shall be deemed conditioned upon Lessee acquiring a
permit to do so from the applicable governmental agencies, furnishing a copy
thereof to Lessor prior to the commencement of the work, and compliance by
Lessee with all conditions Of said permit in a prompt and expeditious manner. If
Lessor consents or supervises, the same shall not be deemed a warranty as to the
adequacy of the design, workmanship or quality of materials, and Lessor hereby
expressly disclaims any responsibility or liability for the same.
(c) Lessee shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for use in
the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises, the Building or the Office Building
Project, or any interest therein.
(d) Lessee shall give Lessor not less than ten (10) days' notice
prior to the commencement of any work in the Premises by Lessee, and Lessor
shall have the right to post notices of non-responsibility in or on the Premises
or the Building as provided by law. If Lessee, in good faith, contests the
validity of any such lien, claim or demand, then Lessee shall at its sole
expense defend itself and Lessor against the same and shall- pay and satisfy any
adverse judgment that may be rendered thereon before the enforcement thereof
against the Lessor or the Premises, the Building or the Office Building Project,
upon the condition that, if Lessor requires, Lessee shall furnish to Lessor a
surety bond satisfactory to Lessor in an amount equal to such contested lien
claim or demand indemnifying Lessor against liability for the same and holding
the Premises, the Building and the Office Building Project free from the effect
of such lien or claim. In addition, Lessor may require Lessee to pay Lessor's
reasonable attorneys fees and costs in participating in such action if Lessor
shall decide it is to Lessor's best interest so to do.
(e) All alterations, improvements, additions or Utility Installation
(whether or not such Utility Installations constitute trade fixtures of Lessee,
which may be made to the Premises by Lessee, including but not limited to, floor
coverings, panelings, doors, drapes, built-ins, moldings, sound attenuation, and
lighting and telephone or communication systems, conduit, wiring and Outlets,
shall be made and done in a good and workmanlike manner and shall be of good and
sufficient quality and materials and shall be the property of Lessor and remain
upon and be surrendered with the Premises at the expiration of the Lease term,
unless Lessor requires their removal pursuant to paragraph 7.3(a). Provided
Lessee is not in default, notwithstanding the provisions of
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this paragraph 7.3(e), Lessee's personal property and equipment, other than that
which is affixed to the Premises so that it cannot be removed without material
damage to the Premises or the Building, and other than utility installations,
shall remain the property of Lessee and may be removed by Lessee subject to the
provisions of paragraph 7.2.
(f) Lessee shall provide Lessor with as-built plans and
specifications for any alterations, improvements, additions or Utility
Installations.
7.4 UTILITY ADDITIONS. Lessor reserves the right to install new or
additional utility facilities throughout the Office Building Project for the
benefit of Lessor or Lessee, or any other lessee of the Office Building Project,
including, but not by way of limitation, such utilities as plumbing, electrical
systems, security systems, communication systems, and fire protection and
detection systems, so long as such installations do not unreasonably interfere
with Lessee's use of the Premises.
8. INSURANCE; INDEMNITY.
8.1 WORKERS' COMPENSATION INSURANCE--LESSEE. Lessee shall maintain during
the term of this Lease workers' compensation insurance as required by law.
8.2 LIABILITY INSURANCE-LESSEE. Lessee shall, at Lessee's expense, obtain
and keep in force during the term of this Lease a policy of Comprehensive
General Liability insurance utilizing an Insurance Services Office standard form
with Broad Form General Liability Endorsement (GL0404), or equivalent, in an
amount of not less than one million Dollars ($1,000,000) per occurrence of
bodily injury and property damage combined or in a greater amount as reasonably
determined by Lessor and shall insure Lessee with Lessor as an additional
insured against liability arising out of the use, occupancy or maintenance of
the Premises. Compliance with the above requirement shall not, however, limit
the liability of Lessee hereunder.
8.3 PROPERTY INSURANCE--LESSEE. Lessee shall, at Lessee's expense, obtain
and keep in force during the term of this Lease for the benefit of Lessee,
business interruption insurance and replacement cost fire and extended coverage
"all risk" property damage insurance, with vandalism and malicious mischief,
sprinkler leakage and earthquake endorsements, in an amount sufficient to cover
not less than one hundred percent (100%) of the full replacement cost, as the
same may exist from time to time, of all of Lessee's personal property,
fixtures, equipment and tenant improvements.
8.4 LIABILITY INSURANCE--LESSOR. Lessor shall obtain and keep in force
during the term of this Lease a policy of Combined Single Limit Bodily Injury
and Broad Form Property Damage Insurance, plus coverage against such other risks
Lessor deems advisable from time to time, insuring Lessor, but not Lessee,
against liability arising out of the ownership, use, occupancy or maintenance of
the Office Building Project in an amount not less than Five Million Dollars
($5,000,000) per occurrence.
8.5 PROPERTY INSURANCE--LESSOR. Lessor shall obtain and keep in force
during the term of this Lease a policy or policies of insurance covering loss or
damage to the Office Building Project improvements, but not Lessee's personal
property, fixtures, equipment or tenant improvements, in the amount of the full
replacement cost thereof, as the same may exist from time to time, utilizing
Insurance Services Office standard form, or equivalent, providing protection
against all perils included within the classification of fire, extended
coverage, vandalism, malicious mischief, earthquake, plate glass, and such other
perils as Lessor deems advisable or may be required by a lender having a lien on
the Office Building Project. In addition, Lessor shall obtain and keep in
force, during the term of this Lease, a policy of rental value insurance
covering a period of one year, with loss payable to Lessor, which insurance
shall also cover all Operating Expenses for said period. Lessee will not be
named in any such policies carried by Lessor and shall have no right to any
proceeds therefrom- The policies required by these paragraphs 8.4 and 8.5 shall
contain such deductibles as Lessor or the aforesaid lender may determine. if the
Premises suffers an insured loss as defined in paragraph 9.1(f) hereof, the
deductible amounts under the applicable insurance policies shall be deemed an
Operating Expense. Lessee shall not do or permit to be done anything which
shall invalidate the insurance policies carried by Lessor. Lessee shall pay the
entirety of any increase in the
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property insurance premium for the Office Building Project over what it was
immediately prior to the commencement of the term of this Lease if the increase
is specified by Lessor's insurance carrier as being caused by the nature of
Lessee's occupancy or any act or omission of Lessee.
8.6 INSURANCE POLICIES. Lessee shall deliver to Lessor copies of
liability insurance policies required under paragraph 8.2 or certificates
evidencing the existence arid amounts of such insurance (and showing Lessor as
an additional insured) prior to the Commencement Date of this Lease or prior to
the date that Lessee enters the Premises pursuant to paragraph 8 of Exhibit C,
whichever is earlier. No such policy shall be cancelable or subject to
reduction of coverage or other modification except after thirty (30) days prior
written notice to Lessor. Lessee shall, at least thirty (30) days prior to the
expiration of such policies, furnish Lessor with renewals thereof.
8.7 WAIVER OF SUBROGATION. Lessor and Lessee release each other, and
their respective representatives, from any claims for damage to any person or to
the Premises and the Office Building Project that are caused by or result from
risks insured against under any insurance policies carried by Lessor or Lessee
and in force at the time of any such damage. Lessor and Lessee shall cause each
insurance policy obtained by it to provide that the insurance company waives all
right of recovery by way of subrogation against the other party in connection
with any damage covered by any such policy. Neither Lessor or Lessee shall be
liable to the other for any damage caused by fire or any of the risks insured
against under any insurance policy required by this Lease. if any insurance
policy cannot be obtained with a waiver of subrogation, or is obtainable only by
the payment of an additional premium charge above that charged by insurance
companies issuing policies without waiver of subrogation, the party undertaking
to obtain the insurance shall notify the other party of this fact. The other
party shall have a period of ten (10) days after receiving the notice either to
place the insurance with a company that is reasonably satisfactory to the other
party and that will carry the insurance with a waiver of subrogation, or to
agree to pay the additional premium if such a policy is obtainable at additional
cost. If the insurance cannot be obtained or the party in whose favor a waiver
of subrogation is desired refuses to pay the additional premium charged, the
other party is relieved of the obligation to obtain a waiver of subrogation
rights with respect to the particular insurance involved.
8.8 INDEMNITY. Lessee shall indemnify and hold harmless Lessor and its
agents, Lessor's master or ground lessor, partners and lenders, from and against
any and all claims for damage to the person or property of anyone or any entity,
and from and against any charges of violations of Hazardous Substances Laws,
arising from Lessee's use of the Office Building Project, Lessee's release or
improper handling or disposal of Hazardous Substances, or from the conduct of
Lessee's business or from any activity, work or things done, permitted or
suffered by Lessee in or about the Premises or elsewhere and shall further
indemnify and hold harmless Lessor from and against any and all claims, costs
and expenses arising from any breach or default in the performance of any
obligation on Lessee's part to be performed under the terms of this Lease, or
arising from any act or omission of Lessee, or any of Lessee's agents,
contractors, employees or invitees and from and against all costs (including
without limitation the costs of cleanup, detoxification or decontamination of
the Office Building Project), fines, attorneys' fees, expenses, losses
(including without limitation diminution in the value of the Office Building
Project) and liabilities incurred by Lessor as the result of any such use,
conduct, activity, work, things done, permitted or suffered, breach, default or
negligence, and in dealing reasonably therewith, including but not limited to
the defense or pursuit of any claim or any action or proceeding involved
therein; and if any action or proceeding is brought against Lessor by reason of
any such matter, Lessee, upon notice from Lessor, shall defend the same at
Lessee's sole cost and expense by counsel reasonably satisfactory to Lessor and
Lessor shall cooperate with Lessee in such defense. Lessor need not have first
paid any such claim in order to be so indemnified. Lessee, as a material part
of the consideration to Lessor, hereby assumes all risk of damage to property of
Lessee or injury to persons, in, upon or about the office Building Project
arising from any cause and Lessee hereby waives all claims in respect thereof
against Lessor.
8.9 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that Lessor
shall not be liable for injury to Lessee's business or any loss of income
therefrom or for loss of or damage to the goods, wares, merchandise or other
property of Lessee, Lessee's employees, invitees, customers, or any other person
in or about the Premises or the office Building Project, nor shall Lessor be
liable for injury to the person of Lessee, Lessee's employees, agents or
contractors, whether such damage or injury is caused by or results from theft,
fire, steam, electricity, gas, water
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or rain, or from the breakage, leakage, obstruction or other defects of pipes,
sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures,
or from any other cause, whether said damage or injury results from conditions
arising upon the Premises or upon other portions of the Office Building Project,
or from other sources or places, or from new construction or the repair,
alteration or improvement of any part of the Office Building Project, or of the
equipment, fixtures or appurtenances applicable thereto, and regardless of
whether the cause of such damage or injury or the means of repairing the same is
inaccessible, Lessor shall not be liable for any damages arising from any act or
neglect of any other lessee, occupant or user of the Office Building Project,
nor from the failure of Lessor to enforce the provisions of any other lease of
any other lessee of the Office Building Project. In any event of liability for
which Lessor is not expressly exempted by the provisions of this paragraph 8.9,
Lessor's liability, if any, shall be limited to an amount equal to Lessor's
interest in the Office Building Project.
8.10 NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor makes no
representation that the limits or forms of coverage of insurance specified in
this paragraph 8 are adequate to cover Lessee's property or obligations under
this Lease.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "Premises Damage" shall mean if the Premises are damaged or
destroyed to any extent.
(b) "Premises Building Partial Damage" shall mean if the Building of
which the Premises are a part is damaged or destroyed to the extent that the
cost to repair is less than thirty-three percent (33%) of the then Replacement
Cost of the Building.
(c) "Premises Building Total Destruction" shall mean if the Building of
which the Premises are a part is damaged or destroyed to the extent that the
cost to repair is thirty-three percent (33%) or more of the then Replacement
Cost of the Building.
(d) "Office Building Project Buildings" shall mean all of the
buildings on the Office Building Project site.
(e) "Office Building Project Buildings Total Destruction" shall mean
if the Office Building Project Buildings are damaged or destroyed to the extent
that the cost to repair is thirty-three percent (33%) or more of the then
Replacement Cost of the Office Building Project Buildings.
(f) "Insured Loss" shall mean damage or destruction which was caused
by an event required to be covered by the insurance described in paragraph 8.
The fact that an Insured Loss has a deductible amount shall not make the loss an
uninsured loss.
(g) "Replacement Cost" shall mean the amount of money necessary to be
spent in order to repair or rebuild the damaged area to the condition that
existed immediately prior to the damage occurring, excluding all improvements
made by lessees, other than those installed by Lessor at Lessee's expense.
9.2 PREMISES DAMAGE; PREMISES BUILDING PARTIAL DAMAGES.
(a) Insured Loss: Subject to the provisions of paragraphs 9.4 and
9.5, if at any time during the term of this Lease there is damage which is an
Insured Loss and which falls into the classification of either Premises Damage
or Premises Building Partial Damage, then Lessor shall, as soon as reasonably
possible and to the extent the required materials and labor are readily
available through usual commercial channels, at Lessor's expense, repair such
damage (but not Lessee's fixtures or equipment or Lessee Improvements) to its
condition existing at the time of the damage, and this Lease shall continue in
full force and effect.
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(b) Uninsured Loss: Subject to the provisions of paragraphs 9.4 and
9.5, if at any time during the term of this Lease there is damage which is not
an Insured Loss and which falls within the classification of Premises Damage or
Premises Building Partial Damage, unless caused by a negligent or willful act or
omission of Lessee (in which event Lessee shall make the repairs at Lessee's
expense), which damage prevents Lessee from making any substantial use of the
Premises, Lessor may, at Lessor's option, either (i) repair such damage as soon
as reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect; or (ii) give written notice to Lessee within
thirty (30) days after the date of the occurrence of such damage of Lessor's
intention to cancel and terminate this Lease as of the date of the occurrence of
such damage, in which event this Lease shall terminate as of the date of the
occurrence of such damage.
9.3 PREMISES BUILDING TOTAL DESTRUCTION; OFFICE BUILDING PROJECT TOTAL
DESTRUCTION. Subject to the provisions of paragraphs 9.4 and 9.5, if at any
time during the term of this Lease there is damage, whether or not it is an
Insured Loss, which falls into the classifications of either (i) Premises
Building Total Destruction, or (ii) Office Building Project Total Destruction,
then Lessor may, at Lessor's option, either (a) repair such damage or
destruction as soon as reasonably possible at Lessor's expense (to the extent
the required materials are readily available through usual commercial channels)
to its condition existing at the time of the damage, but not Lessee's fixtures
or equipment or Lessee Improvements, and this Lease shall continue in full force
and effect; or (b) give written notice to Lessee within thirty (30) days after
the date of occurrence of such damage of Lessor's intention to cancel and
terminate this Lease, in which case this Lease shall terminate as of the date of
occurrence of such damage.
9.4 DAMAGE NEAR END OF TERM. If at any time during the last twelve (12)
months of the term of the Initial Term, First Extended Term, Second Extended
Term or Third Extended Term the Premises are more than eighty percent (80%)
damaged or destroyed, Lessor may at Lessor's option cancel and terminate this
Lease as of the date of occurrence of such damage by giving written notice to
Lessee of Lessor's election to do so within thirty (30) days after the date of
occurrence of such damage.
9.5 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) If Lessor repairs or restores the Building or Premises pursuant
to the provisions of this paragraph 9, and any part of the Premises are not
usable (including loss of use due to loss of access or essential services), the
rent payable hereunder (including Lessee's Share of Operating Expenses) for the
period during which such damage, repair or restoration continues shall be
abated, provided (1) the damage was not the result of the negligence of Lessee,
and (2) such abatement shall only be to the extent the operation of Lessee's
business as operated from the Premises is adversely affected. Except for said
abatement of rent, if any, Lessee shall have no claim against Lessor for any
damage suffered by reason of any such damage, destruction, repair or
restoration.
(b) If Lessor is obligated to repair or restore the Premises or the
Building under the provisions of this paragraph 9 and does not commence such
repair or restoration within ninety (90) days after such occurrence, or if
Lessor does not complete the restoration and repair within six (6) months after
such occurrence, Lessee may at Lessee's option cancel and terminate this Lease
by giving Lessor written notice of Lessee's election to do so at any time prior
to the commencement or completion, respectively, of such repair or restoration,
and this Lease shall terminate as of the date of such notice.
(c) Lessee agrees to cooperate with Lessor in connection with any
such restoration and repair, including but not limited to the approval and/or
execution of plans and specifications required.
9.6 TERMINATION--ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this paragraph 9, an equitable adjustment shall be made concerning
advance rent and any advance payments made by Lessee to Lessor. Lessor shall, in
addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
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9.7 WAIVER. Lessor and Lessee waive the provisions of any statute which
relates to termination of leases when leased property is destroyed (including
but not limited to California Civil Code Section 1932) and agree that such event
shall be governed by the terms of this Lease.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessor shall pay the real property tax, as defined
in paragraph 10.3, applicable to the Office Building Project subject to
reimbursement by Lessee of Lessee's Share of such taxes in accordance with the
provisions of paragraph 4.2 except as otherwise provided in paragraph 10.2.
10.2 ADDITIONAL IMPROVEMENTS. Lessee shall not be responsible for paying
any increase in real property tax specified in the tax assessor's records and
work sheets as being caused by additional improvements placed upon the Office
Building Project by other lessees or by Lessor for the exclusive enjoyment of
any' other lessee. Lessee shall, however, pay to Lessor at the time that
Operating Expenses are payable under paragraph 4.2(c) the entirety of any
increase in real property tax if assessed solely by reason of additional
improvements placed upon the Premises by Lessee or by Lessor at Lessee's
request.
10.3 DEFINITION OF REAL PROPERTY TAX. As used herein, the term "real
property tax" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Office Building Project or any portion thereof
by any authority having the direct or indirect power to tax, including any city,
county, state or federal government, or any school, agricultural, sanitary,
fire, street, drainage or other improvement district thereof, as against any
legal or equitable interest of Lessor in the Office Building Project or in any
portion thereof, as against Lessor's right to rent or other income therefrom,
and as against Lessor's business of leasing the Office Building Project. The
term "real property tax" shall also include any tax, fee, levy, assessment or
charge (i) in substitution of, partially or totally, any tax, fee, levy,
assessment or charge hereinabove included within the definition of "real
property tax," or (ii) the nature of which was hereinbefore included within the
definition of "real property tax," or (iii) which is imposed for a service or
right not charged prior to June 1, 1978, or, if previously charged, has been
increased since June 1, 1978, or (iv) which is imposed as a result of a change
in ownership, as defined by applicable local statutes for property tax purposes,
of the Office Building Project or which is added to a tax or charge hereinbefore
included within the definition of real property tax by reason of such change of
ownership, or (v) which is imposed by reason of this transaction, any
modifications or charges hereto, or any transfers hereof.
10.4 JOINT ASSESSMENT. If the improvements or property, the taxes for
which are to be paid separately by Lessee under paragraph 10.2 or 10.5 are not
separately assessed, Lessee's portion of that tax shall be equitably determined
by Lessor from the respective valuations assigned in the assessor's work sheets
or such other information (which may include the cost of construction) as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.5 PERSONAL PROPERTY TAXES.
(a) Lessee shall pay prior to delinquency all taxes assessed against
and levied upon trade fixtures, furnishings, equipment and all other personal
property of Lessee contained in the Premises or elsewhere.
(b) If any of Lessee's said personal property is assessed with
Lessor's real property, Lessee shall pay to Lessor the taxes attributable to
Lessee within ten (10) days after receipt of a written statement setting forth
the taxes applicable to Lessee's property.
11. UTILITIES.
11.1 SERVICES PROVIDED BY LESSOR. Lessor shall provide heating,
ventilation, air conditioning and janitorial services as reasonably required,
reasonable amounts of electricity for normal lighting and office
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machines, water for reasonable and normal drinking and lavatory use and
replacement light bulbs and/or fluorescent tubes and ballasts for standard
overhead fixtures.
11.2 SERVICES EXCLUSIVE TO LESSEE. Lessee shall pay for all water, gas,
heat, light, power, telephone and other utilities and services specially or
exclusively supplied and/or metered exclusively to the Premises or to Lessee,
together with any taxes thereon. If any such services are not separately metered
to the Premises, Lessee shall pay at Lessor's option, either Lessee's Share or a
reasonable proportion to be determined by Lessor of all charges jointly metered
with other premises in the Building.
11.3 HOURS OF SERVICE. Said services and utilities shall be provided
during generally accepted business days and hours or such other days or hours as
may hereafter be set forth. Utilities and services required at other times shall
be subject to advance request and reimbursement by Lessee to Lessor of the cost
thereof.
11.4 EXCESS USAGE BY LESSEE. Lessee shall not make connection to the
utilities except by or through existing outlets and shall not install or use
machinery or equipment in or about the Premises that uses excess water, lighting
or power, or suffer or permit any act that causes extra burden upon the
utilities or services, including but not limited to security services, over
standard office usage for the Office Building Project. Lessor shall require
Lessee to reimburse Lessor for any excess expenses or costs that may arise out
of a breach of this subparagraph by Lessee. Lessor may, in its sole discretion,
install at Lessee's expense supplemental equipment and/or separate metering
applicable to Lessee's excess usage or loading.
11.5 INTERRUPTIONS. There shall be no abatement of rent and Lessor shall
not be liable in any respect whatsoever for the inadequacy, stoppage,
interruption or discontinuance of any utility or service due to riot, strike,
labor dispute, breakdown, accident, repair or other cause beyond Lessor's
reasonable control or in cooperation with government request or directions.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet or otherwise transfer or
encumber all or any part of Lessee's interest in this Lease or in the Premises,
without Lessor's prior written consent, which Lessor shall not unreasonably
withhold. Lessor shall respond to Lessee's request for consent hereunder in a
timely manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void and shall constitute a material
default and breach of this Lease without the need for notice to Lessee under
paragraph 13.1. "Transfer" within the meaning of this paragraph 12 shall include
the transfer or transfers aggregating (a) If Lessee is a corporation, more than
twenty-five percent (25%) of the voting stock of such corporation, or (b) if
Lessee is a partnership, more than twenty-five percent (25%) of the profit and
loss participation in such partnership.
12.2 LESSEE AFFILIATE. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof without
Lessor's consent, to any corporation which controls, is controlled by or is
under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, all of which are referred to as "Lessee Affiliate;"
provided that before such assignment shall be effective, (a) said assignment
shall assume, in full, the obligations of Lessee under this Lease and (b) Lessor
shall be given written notice of such assignment and assumption. Any such
assignment shall not, in any way, affect or limit the liability of Lessee under
the terms of this Lease even if after such assignment or subletting the terms of
this Lease are materially changed or altered without the consent of Lessee, the
consent of whom shall not be necessary.
12.3 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, no assignment or subletting shall
release Lessee of Lessee's obligations hereunder or alter the primary liability
of Lessee to pay the rent and other sums due Lessor hereunder
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including Lessee's Share of Operating Expenses, and to perform all other
obligations to be performed by Lessee hereunder.
(b) Lessor may accept rent from any person other than Lessee pending
approval or disapproval of such assignment.
(c) Neither a delay in the approval or disapproval of such assignment
or subletting, nor the acceptance of rent, shall constitute a waiver or estoppel
of Lessor's right to exercise its remedies for the breach of any of the terms or
conditions of this paragraph 12 or this Lease.
(d) If Lessee's obligations under this Lease have been guaranteed by
third parties, then an assignment or sublease, and Lessor's consent thereto,
shall not be effective unless said guarantors give their written consent to such
sublease and the terms thereof.
(e) The consent by Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the sublessee. However,
Lessor may consent to subsequent sublettings and assignments of the sublease or
any amendments or modifications thereto without notifying Lessee or anyone else
liable on this Lease or sublease and without obtaining their consent and such
action shall not relieve such persons from liability under this Lease or said
sublease; provided, however, such persons shall not be responsible for the
extent any such amendment or modification enlarges or increases the obligations
of the Lessee or sublessee under this Lease or such sublease.
(f) In the event of any default under this Lease, Lessor may proceed
directly against Lessee, any guarantors or any one else responsible for
performance of this Lease, including the sublessee, without first exhausting
Lessor's remedies against any other person or entity responsible therefor to
Lessor, or any security held by Lessor of Lessee.
(g) Lessor's written consent to any assignment or subletting of the
Premises by Lessee shall not constitute an acknowledgment that no default then
exists under this Lease of the obligations to be performed by Lessee nor shall
such consent be deemed a waiver of any then-existing default, except as may be
otherwise stated by Lessor at the time.
(h) The discovery of the fact that any financial statement relied
upon by Lessor in giving its consent to an assignment or subletting was
materially false shall, at Lessor's election, render Lessor's said consent null
and void.
12.4 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. Regardless
of Lessor's consent, the following terms and conditions shall apply to any
subletting by Lessee of all or any part of the Premises and shall be deemed
included in all subleases under this Lease whether or not expressly incorporated
therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease heretofore or
hereafter made by Lessee, and Lessor may collect such rent and income and apply
same toward Lessee's obligations under this Lease; provided, however, that until
a default shall occur in the performance of Lessee's obligations under this
Lease, Lessee may receive, collect and enjoy the rents accruing under such
sublease, to the extent such rents are not otherwise payable to Lessor as
Lessor's share of any Transfer Premium, as defined in Paragraph 12.9. Lessor
shall not, by reason of this or any other assignment of such sublease to Lessor
nor by reason of the collection of the rents from a sublessee, be deemed liable
to the sublessee for any failure of Lessee to perform and comply with any of
Lessee's obligations to such sublessee under such sublease. Lessee hereby
irrevocably authorizes and directs any such sublessee, upon receipt of a written
notice from Lessor stating that a default exists in the performance of Lessee's
obligations under this Lease, to pay to Lessor the rents due and to become due
under the sublease. Lessee agrees that such sublessee shall have the right to
rely upon any such statement and request from Lessor, and that such sublessee
shall pay such rents to Lessor without any obligation or right to inquire as to
whether such default exists and notwithstanding any notice from or claim from
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Lessee to the contrary. Lessee shall have no right or claim against said
sublessee or Lessor for any such rents so paid by said sublessee to Lessor.
(b) No sublease entered into by Lessee shall be effective unless and
until it has been approved in writing by Lessor. In entering into any sublease,
Lessee shall use only such form of sublease as is satisfactory to Lessor, and
once approved by Lessor, such sublease shall not be changed or modified without
Lessor's prior written consent. Any sublessee shall, by reason of entering into
a sublease under this Lease, by deemed, for the benefit of Lessor, to have
assumed and agreed to conform and comply with each and every obligation herein
to be performed by Lessee other than such obligations as are contrary to or
inconsistent with provisions contained in a sublease to which Lessor has
expressly consented in writing.
(c) In the event Lessee shall default in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of Lessee under such sublease from the time of
the exercise of said option to the termination of such sublease; provided,
however, Lessor shall not be liable for any prepaid rents or security deposit
paid by such sublessee to Lessee or for any other prior defaults of Lessee under
such sublease.
(d) No sublessee shall further assign or sublet all or any part of
the Premises without Lessor's prior written consent.
(e) With respect to any subletting to which Lessor has consented,
Lessor agrees to deliver a copy of any notice of default by Lessee to the
sublessee. Such sublessee shall have the right to cure a default of Lessee
within three (3) days after service of said notice of default upon such
sublessee, and the sublessee shall have right of reimbursement and offset from
and against Lessee for any such defaults cured by the sublessee.
12.5 LESSOR'S EXPENSES. If Lessee assigns or sublets the Premises or
requests the consent of Lessor to any assignment or subletting or if Lessee
requests the consent of Lessor for any act Lessee proposes to do, then Lessee
shall pay Lessor's reasonable costs and expenses incurred in connection
therewith, including attorneys', architects', engineers' or other consultants'
fees.
12.6 CONDITIONS TO CONSENT. Lessor reserves the right to condition any
approval to assign or sublet upon Lessor's determination that (a) the proposed
assignee or sublessee shall conduct a business on the Premises of a quality
substantially equal to that of Lessee and consistent with the general character
of the other occupants of the Office Building Project and not in violation of
any exclusives or rights then held by other lessees, and (b) the proposed
assignee or sublessee be at least as financially responsible as Lessee was
expected to be at the time of the execution of this Lease or of such assignment
or subletting, whichever is greater.
12.7 NOTICE OF PROPOSED ASSIGNMENT OR SUBLEASE. If Lessee desires
Lessor's consent to any proposed assignment or sublease, Lessee shall notify
Lessor in writing, which notice shall include:
(a) the proposed effective date (which shall not be less than 30 nor
more than 180 days after Lessee's notice);
(b) the portion of the Premises to be transferred (the "Subject
Space");
(c) the terms of the proposed assignment or sublease and the
consideration therefor, the name and address of the proposed transferee, and a
copy of all documentation pertaining to the proposed assignment or sublease; and
(d) current financial statements of the proposed transferee certified
by an officer, partner or owner thereof, and any other information to enable
Lessor to determine the financial responsibility, character, and reputation of
the proposed transferee, nature of such transferee's business and proposed use
of the Subject Space, and such other information as Lessor may reasonably
require.
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12.8 LESSOR'S RECAPTURE OF SUBJECT SPACE. Lessor shall have the option, by
giving written notice to Lessee within thirty (30) days after receipt of
Lessee's notice of a proposed assignment or sublease, to recapture the Subject
Space. Lessee shall have fifteen (15) days after receipt of Lessor's notice of
intent to recapture to withdraw Lessee's notice of the proposed assignment or
sublease; if Lessee so withdraws its notice of the proposed assignment or
sublease, Lessor's option to recapture shall terminate and this Lease shall
continue in full force and effect. If Lessee does not withdraw its notice of
proposed assignment or sublease within said fifteen (15) day period, then
Lessor's recapture notice shall cancel and terminate this Lease with respect to
the Subject Space as of the date stated in Lessee's notice as the effective date
of the proposed assignment or sublease (or, at Lessor's option, shall cause the
assignment or sublease to be made to Lessor or its agent, in which case the
parties shall execute the transfer documentation promptly thereafter). If this
Lease is canceled with respect to less than the entire Premises, the Rent
reserved herein shall be prorated on the basis of the number of rentable square
feet retained by Lessee in proportion to the number of rentable square feet
contained in the Premises, this Lease as amended shall continue thereafter in
full force and effect, and upon request of either party, the parties shall
execute written confirmation of the same.
12.9 TRANSFER PREMIUM. If Lessor consents to an assignment or sublease, and
as a condition thereto which the parties hereby agree is reasonable, Lessee
shall pay to Lessor fifty percent (50%) of any Transfer Premium derived by
Lessee from such transfer. "Transfer Premium" shall mean all rent, additional
rent or other consideration paid by such transferee in excess of the Rent
payable by Lessee under this Lease (on a monthly basis during the term, and on a
per rentable square foot basis, if less than all of the Premises is
transferred), after deducting the reasonable expenses incurred by Lessee for any
changes, alterations and improvements to the Premises, any other economic
concessions or services provided to the transferee, and any customary brokerage
commissions paid in connection with the assignment or sublease. If part of the
consideration for such transfer is paid in other than cash, Lessor's share of
such non-cash consideration shall be in such form as is reasonably satisfactory
to Lessor. The percentage of the Transfer Premium due Lessor hereunder shall be
paid within ten (10)days after Lessee receives any Transfer Premium from the
transferee.
13. DEFAULT; REMEDIES.
13.1 DEFAULT. The occurrence of any one or more of the following events
shall constitute a material default of this Lease by lessee:
(a) The vacation or abandonment of the Premises by Lessee. Vacation
of the Premises shall include the failure to occupy the Premises for a
continuous period of ten (10) days or more, whether or not the rent is paid.
(b) The breach by Lessee of any of the covenants, conditions or
provisions of paragraphs 7.3(a), (b) or (d) (alterations), 12.1 (assignment or
subletting), 13.1(a) (vacation or abandonment), 13.1(e) (insolvency), 13.1(f)
(false statement), 13.1(g) (Hazardous Substances), 16(a) (estoppel certificate),
30(b) (subordination), 33 (auctions) or 41.1 (easements), all of which are
hereby deemed to be material, noncurable defaults without the necessity of any
notice by Lessor to Lessee thereof.
(c) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due, where such
failure shall continue for a period of five (5) days after written notice
thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a
Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes
such Notice to Pay Rent or Quit shall also Constitute the notice required by
this subparagraph.
(d) The failure by Lessee to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed or performed by
Lessee other than those referenced in subparagraphs (b) and (c), above, where
such failure shall continue for a period of fifteen (15) days after written
notice thereof from Lessor to Lessee; provided, however, that if the nature of
Lessee's noncompliance is such that more than fifteen (15) days are reasonably
required for its cure, then Lessee shall not be deemed to be in default if
Lessee commenced such cure within said fifteen (15) day period and thereafter
diligently pursues such cure to completion. To the extent
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permitted by law, such fifteen (15) day notice shall constitute the sole and
exclusive notice required to be given to Lessee under applicable Unlawful
Detainer statutes.
(e) (i) The making by Lessee of any general arrangement or general
assignment for the benefit of creditors; (ii) Lessee becoming a "debtor" as
defined in 11 U.S.C. Section 101 or any successor statute thereto (unless, in
the case of a petition filed against Lessee, the same is dismissed within thirty
(30) days; (iii) the appointment of a trustee or receiver to take Possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within thirty
(30) days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where such seizure is not discharged within thirty (30)
days. In the event that any provision of this paragraph 13.1(e) is contrary to
any applicable law, such provision shall be of no force or effect.
(f) The discovery by Lessor that any financial statement given to
Lessor by Lessee, its successor in interest or by any guarantor of Lessee's
obligation hereunder was materially false.
(g) The release by Lessee, its employees, contractors or agents of
any Hazardous Substance, the violation by Lessee, its employees, contractors or
agents of any Hazardous Substances Law, or the failure by Lessee, its employees,
contractors or agents to comply with all conditions of any and all permits,
licenses and governmental and regulatory approvals.
13.2 REMEDIES. In the event of any material default or breach of this
Lease by Lessee, Lessor may at any time thereafter, with or without notice or
demand and without limiting Lessor in the exercise of any right or remedy which
Lessor may have by reason of such default:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises. to Lessor. In
such event, Lessor shall be entitled to recover from Lessee all damages incurred
by Lessor by reason of Lessee's default including, but not limited. to, the cost
of recovering possession of the Premises, expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorneys' fees,
and any real estate commission actually paid, and all amounts recoverable
pursuant to Section 195i.2 of the California Civil Code, including but not
limited to (1) the worth at the time of award by the court having jurisdiction
thereof of the unpaid rent which had been earned at the time of termination; (2)
the worth at the time of award of the amount by which the unpaid rent which
would have been earned after termination until the time of award exceeds the
amount of such rental loss that Lessee proves could have been reasonably
avoided; (3) the worth at the time of award of the amount by which the unpaid
rent for the balance of the term after the time of award exceeds the amount of
such rental loss that Lessee proves could be reasonably avoided; and (4) any
other amount necessary to compensate Lessor for all the detriment proximately
caused by Lessee's failure to perform his obligations under this Lease or which
in the ordinary course of things would be likely to result therefrom.
(b) Maintain Lessee's right to possession in which case this Lease
shall continue in effect whether or not Lessee shall have vacated or abandoned
the Premises. In such event, Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, including the right to recover the rent as
it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the State of California. Unpaid
installments of rent and other unpaid monetary obligations of Lessee under the
terms of this Lease shall bear interest from the date due at the maximum rate
then allowable by law.
13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor fails
to perform obligations required of Lessor within a reasonable time, but in no
event later than thirty (30) days after written notice by Lessee to Lessor and
to the holder of any first mortgage or deed of trust covering the Premises whose
name and address shall have theretofore been furnished to Lessee in writing,
specifying wherein Lessor has failed to perform such obligation; provided,
however, that if the nature of Lessor's obligation is such that more than thirty
(30) days are
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required for performance then Lessor shall not be in default if Lessor commences
performance within such thirty (30) day period and thereafter diligently pursues
the same to completion.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee
to Lessor of base rent, Lessee's Share of Operating Expenses or other sums due
hereunder will cause Lessor to incur Costs not contemplated by this Lease, the
exact amount of which will be extremely difficult to ascertain. Such costs
include, but are not limited to, processing and accounting charges and late
charges which may be imposed on Lessor by the terms of any mortgage or trust
deed covering the Office Building Project. Accordingly, if any installment of
base rent, Operating Expenses, or any other rum due from Lessee shall not be
received by Lessor or Lessor's designee within five (5) days after such amount
shall be due, then, without any requirement for notice to Lessee, Lessee shall
pay to Lessor a late charge equal to six percent (6%) of such overdue amount.
The parties hereby agree that such late charge represents a fair and reasonable
estimate of the costs Lessor will incur by reason of late payment by Lessee.
Acceptance of such late charge by Lessor shall in no event constitute a waiver
of Lessee's default with respect to such overdue amount nor prevent Lessor from
exercising any of the other rights and remedies granted hereunder.
14. CONDEMNATION. If the Premises or any portion thereof or the Office
Building Project are taken under the power of eminent domain, or sold under the
threat of the exercise of said power (all of which are herein called
"condemnation"), this Lease shall terminate as to the part so taken as of the
date the condemning authority takes title or possession, whichever first occurs;
provided that if so much of the Premises or the office Building Project are
taken by such condemnation as would substantially and adversely affect the
operation and profitability of Lessee's business conducted from the Premises,
Lessee shall have the option, to be exercised only in writing within thirty (30)
days after Lessor shall have given Lessee written notice of such taking (or in
the absence of such notice, within thirty (30) days after the condemning
authority shall have taken possession), to terminate this Lease as of the date
the condemning authority takes such possession. If Lessee does not terminate
this Lease in accordance with the foregoing, this Lease shall remain in full
force and effect as to the portion of the Premises remaining, except that the
rent and Lessee's Share of Operating Expenses shall be reduced in the proportion
that the floor area of the Premises taken bears to the total floor area of the
Premises. Common Areas taken shall be excluded from the Common Areas usable by
Lessee and no reduction of rent shall occur with respect thereto or by reason
thereof. Lessor shall have the option in its sole discretion to terminate this
Lease as of the taking of possession by the condemning authority by giving
written notice to Lessee of such election within sixty (60) days after receipt
of notice of a taking by condemnation of any part of the Premises or the Office
Building Project. Any award for the taking of all or any part of the Premises or
the Office Building Project under the power of eminent domain or any payment
made under threat of the exercise of such power shall be the property of Lessor,
whether such award shall be made as compensation for diminution in value of the
leasehold or for the taking of the fee, or as severance damages; provided,
however, that Lessee shall be entitled to any separate award for loss of or
damage to Lessee's trade fixtures, removable personal property and unamortized
tenant improvements that have been paid for by Lessee. For that purpose, the
cost of such improvements shall be amortized over the original term of this
Lease excluding any options. In the event that this Lease is not terminated by
reason of such condemnation, Lessor shall, to the extent of severance damages
received by Lessor in connection with such condemnation, repair any damage to
the Premises caused by such condemnation which materially impairs the conduct of
the ordinary business for which the Premises are leased, except to the extent
that Lessee has been reimbursed therefor by the condemning authority. Lessee
shall pay any amount in excess Of such severance damages required to complete
such repair.
15. BROKER'S FEE.
(a) The brokers involved in this transaction are J. R. Parrish Inc.
as "listing broker" and J.R. Parrish, Inc. as "cooperating broker," licensed
real estate broker(s). A "cooperating broker" is defined as any broker other
than the listing broker entitled to a share of any commission arising under this
Lease. Upon execution of this Lease by both parties, Lessor shall pay to said
brokers jointly, or in such separate shares as they may mutually designate in
writing, a fee as set forth in that certain Commission Agreement between J. R.
Parrish Inc. and Lessor, dated as of September 29, 1988.
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(b) Lessee and Lessor each represent and warrant to the other that
neither has had any dealings with any person, firm, broker or finder (other than
the person(s) whose names are set forth in paragraph 15(a) above) in connection
with the negotiation of this Lease arid/or the consummation of the transaction
contemplated hereby, and no other broker or other person, firm or entity is
entitled to any commission or finder's fee in connection with said transaction
and Lessee and Lessor do each hereby indemnify and hold the other harmless from
and against any costs, expenses, attorneys' fees or liability for compensation
or charges which may be claimed by any such unnamed broker, finder or other
similar party by reason of any dealings or actions of the indemnifying party.
16. ESTOPPEL CERTIFICATE.
(a) Each party (as "responding party") shall at any time upon not
less than ten (10) days' prior written notice from the other party ("requesting
party") execute, acknowledge and deliver to the requesting party a statement in
writing (i) certifying that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of such modification and certifying
that this Lease, as so modified, is in full force and effect) and the date to
which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to the responding party's knowledge, any
uncured defaults on the part of the requesting party, or specifying such
defaults if any are claimed. Any such statement may be conclusively relied upon
by any prospective purchaser or encumbrancer of the Office Building Project or
of the business of Lessee.
(b) At the requesting party's option, the failure to deliver such
statement within such time shall be a material default of this Lease by the
party who is to respond, without any further notice to such party, or it shall
be conclusive upon such party that (i) this Lease in full force and effect
without modification except as may be
represented by the requesting party, (ii) there are no uncured defaults
in the requesting party's performance and (iii) if Lessor is the requesting
party, not more than one (1) month's rent has been paid in advance.
(c) If Lessor desires to finance, refinance or sell the Office
Building Project, or any part thereof, Lessee hereby agrees to deliver to any
lender or purchaser designated by Lessor such financial statements of Lessee as
may be reasonably required by such lender or purchaser. Such statements shall
include the past three (3) years' financial statements of Lessee. All such
financial statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean only the
owner or owners at the time in question of the fee title or a lessee's interest
in a ground lease of the Office Building Project, and in the event of any
transfer of such title or interest, Lessor herein named (and in case of any
subsequent transfers the then grantor) shall be relieved from and after the date
of such transfer of all liability as respects Lessor's obligations thereafter to
be performed, provided that any funds in the hands of Lessor or the then grantor
at the time of such transfer, in which Lessee has an interest, shall be
delivered to the grantee. The obligations contained in this Lease to be
performed by Lessor shall, subject as aforesaid, be binding on Lessor's
successors and assigns only during their respective periods of ownership.
18. SEVERABILITY. The invalidity of any provision of this Lease as determined
by a court of competent jurisdiction shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided,
any amount due to Lessor not paid when due shall bear interest at the maximum
rate then allowable by law or judgments from the date due until paid. Payment of
such interest shall not excuse or cure any default by Lessee under this Lease,
provided, however, that interest shall not be payable on late charges incurred
by Lessee nor on any amounts upon which late charges are paid by Lessee.
20. TIME OF ESSENCE. Time is of the essence with respect to the obligations
to be performed under this Lease.
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21. ADDITIONAL RENT. All monetary obligations of Lessee to Lessor under the
terms of this Lease, including but not limited to Lessee's Share of Operating
Expense and any other expenses payable by Lessee hereunder shall be deemed to be
rent.
22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease and the
Exhibits attached hereto contain all agreements of the parties with respect to
any matter mentioned herein or therein. No prior or contemporaneous agreement or
understanding pertaining to any such matter shall be effective. This Lease may
be modified in writing only, signed by the parties in interest at the time of
modification. Except as otherwise stated in this Lease, Lessee hereby
acknowledges that neither the real estate broker listed in paragraph 15 hereof
nor any cooperating broker on this transaction nor the Lessor or any employee or
agents of any of said persons has made any oral or written warranties or
representations to Lessee relative to the condition or use by Lessee of the
Premises or the Office Building Project and Lessee acknowledges that Lessee
assumes all responsibility regarding the Occupational Safety Health Act, the
legal use and adaptability of the Premises and the compliance thereof with all
applicable laws and regulations in effect during the term of this Lease.
23. NOTICES. Any notice required or permitted to be given hereunder shall be
in writing and may be given by personal delivery or by certified or registered
mail, and shall be deemed sufficiently given if delivered or addressed to Lessee
or to Lessor at the address noted adjacent to the signatures of the respective
parties. mailed notices shall be deemed given upon actual receipt at the address
required, or forty-eight hours following deposit in the mail, first-class
postage prepaid, whichever first occurs. Either party may by notice to the other
specify a different address for notice purposes except that upon Lessee's taking
possession of the Premises, the Premises shall constitute Lessee's address for
notice purposes. A copy of all notices required or permitted to be given to
Lessor hereunder shall be concurrently transmitted to William H. Plageman, Jr.;
Thelen, Marrin, Johnson & Bridges, One Kaiser Plaza, Suite 1950, Oakland,
California; or to such other party or parties at such addresses as Lessor may
from time to time hereafter designate by notice to Lessee.
24. WAIVERS. No waiver by Lessor of any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder by
Lessor shall not be a waiver of any preceding breach by Lessee of any provision
hereof. No acceptance of a lesser amount than the rent herein stipulated shall
be deemed a waiver of Lessor's right to receive the full amount due, nor shall
any endorsement or statement on any check or payment or any letter accompanying
such check or payment be deemed an accord and satisfaction, and Lessor may
accept such check or payment without prejudice to Lessor's right to recover the
full amount due.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of this
Lease for recording purposes.
26. HOLDING OVER. Unless Lessor expressly agrees otherwise in writing, Lessee
shall pay Lessor two hundred percent (200%) of the amount of Rent then
applicable (or the highest amount permitted by law, whichever is less) prorated
on per them basis for each day Lessee shall retain possession of the Premises or
any part thereof after expiration or earlier termination of this Lease, together
with all damages sustained by Lessor on account thereof. The foregoing
provisions shall not serve as permission for Lessee to hold-over, nor serve to
extend the term (although Lessee shall remain bound to comply with all
provisions of this Lease until Lessee vacates the Premises, and shall be subject
to the provisions of paragraph 3.5 hereof). Notwithstanding the foregoing to the
contrary, at any time before or after the expiration or earlier termination of
this Lease, Lessor may serve notice advising Lessee of the amount of Rent and
other terms required, should Lessee desire to enter a month-to-month tenancy
(and if Lessee shall hold over more than one full calendar month after such
notice, Lessee shall thereafter be deemed a month-to-month tenant, on the terms
and provisions of this Lease as in effect immediately prior to the beginning of
such hold-over, as modified by Lessor's notice, and except that Lessee shall not
be entitled to any renewal or expansion rights contained in this Lease or any
amendments hereto).
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
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28. COVENANTS AND CONDITIONS. Each provision of this Lease performable by
Lessee shall be deemed both a covenant and a condition.
29. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof
restricting assignment or subletting by Lessee and subject to the provisions of
paragraph 17, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State of
California and any litigation concerning this Lease between the parties hereto
shall be initiated in the County of Santa Cruz.
30. SUBORDINATION.
(a) This Lease, and any Option or right of first refusal granted
hereby, at Lessor's option, shall be subordinate to any ground lease, mortgage,
deed of trust, or any other hypothecation or security now or hereafter placed
upon the Office Building Project and to any and all advances made on the
security thereof and to all renewals,
modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination, Lessee's right to quiet possession of the
Premises shall not be disturbed if Lessee is not in default and so long as
Lessee shall pay the rent and observe and perform all of the provisions of this
Lease, unless this Lease is otherwise terminated pursuant to its terms. If any
mortgagee, trustee or ground lessor shall elect to have this Lease and any
Options granted hereby prior to the lien of its mortgage, deed of trust or
ground lease, and shall give written notice thereof to Lessee, this Lease and
such Options shall be deemed prior to such mortgage, deed of trust or ground
lease, whether this Lease or such Options are dated prior or subsequent to the
date of said mortgage, deed of trust or ground lease or the date of recording
thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination, or to make this Lease or any Option granted herein
prior to the lien of any mortgage, deed of trust or ground lease, as the case
may be, Lessee's failure to execute such documents within ten (10) days after
written demand shall constitute a material default by Lessee hereunder without
further notice to Lessee, or at Lessor's option, Lessor shall execute such
documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee does hereby
make, constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact and
in Lessee's name, place and stead, to execute such documents in accordance with
this paragraph 30(b).
31. ATTORNEY'S FEES.
31.1 If either party or the broker(s) named herein bring an action to
enforce the terms hereof or declare rights hereunder, the prevailing party in
any such action, trial or appeal thereon, shall be entitled to its reasonable
attorneys' fees to be paid by the losing party as fixed by the court in the same
or a separate suit, and whether or not such action is pursued to decision or
judgment. The provisions of this paragraph shall inure to the benefit of the
broker named herein who seeks to enforce a right hereunder.
31.2 The attorneys' fees shall not be computed in accordance with any court
fee schedule, but shall be such as to fully reimburse all attorneys' fees
reasonably incurred in good faith.
31.3 Lessor shall be entitled to reasonable attorneys' fees and all other
costs and expenses incurred in the preparation and service of notices of default
and consultations in connection herewith, whether or not a legal action is
subsequently commenced in connection with the default.
32. LESSOR'S ACCESS.
32.1 Lessor and Lessor's agents shall have the right to enter the Premises
at reasonable times for the purposes of inspecting the same, performing any
services required of Lessor, showing the same to prospective purchasers,
lenders, or lessees, inspecting and testing for presence of Hazardous
Substances, taking such safety measures, erecting such scaffolding or other
necessary structures, making such alterations, repairs, improvements or
additions to the Premises or to the Office Building Project as lessor may
reasonably deem necessary or desirable
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and the erecting, using and maintaining of utilities, services, pipes and
conduits through the Premises and/or other premises as long as there is no
material adverse effect to Lessee's use of the Premises. Lessor may at any time
place on or about the Premises or the Building any ordinary "For Sale" signs and
Lessor may at any time during the last one hundred twenty (120) days of the term
hereof place on or about the Premises any ordinary "For Lease" signs.
32.2 All activities of Lessor pursuant to this paragraph shall be without
abatement of rent, nor shall Lessor have any liability to Lessee for the same.
32.3 Lessor shall have the right to retain keys to the Premises and to
unlock all doors in or upon the Premises other than to files, vaults and safes,
and in the case of emergency to enter the Premises by any reasonably appropriate
means, and any such entry shall not be deemed a forcible or unlawful entry or
detainer of the Premises or an eviction. Lessee waives any charges for damages
or injuries or interference with Lessee's property or business in connection
therewith.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises or the Common Areas
without first having obtained Lessor's prior written consent. Notwithstanding
anything to the contrary in this Lease, Lessor shall not be obligated to
exercise any standard of reasonableness in determining whether to grant such
consent. The holding of any auction on the Premises or Common Areas in violation
of this paragraph shall constitute a material default of this Lease.
34. SIGNS. Lessee shall have the right to use a pro-rata share of the
monument sign arid any other signage installed by Lessor and approved by Santa
Cruz County. Except as set forth in this paragraph 34, Lessee shall not place
any sign upon the Premises or the Office Building Project without Lessor's prior
written consent. Under no circumstances shall Lessee place a sign on any roof of
the Office Building Project.
35. MERGER. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies.
36. CONSENTS. Except for paragraphs 33 (auctions) and 34 (signs) hereof,
wherever in this Lease the consent of one party is required to an act of the
other party such consent shall not be unreasonably withheld or delayed. Lessee
acknowledges and agrees that it shall not be unreasonable for Lessor to withhold
its consent to any proposed assignment, subletting, or transfer of Lessee's
interest in this Lease if the anticipated or foreseeable use of the Premises by
the proposed assignee, subtenant, or transferee involves the generation,
storage, use, treatment, or disposal of Hazardous Substances. Lessor shall have
the absolute right to refuse to consent to or approve of any matter affecting
the structure, safety or security of the Office Building Project, or the
appearance of the Building or Premises from any common or public areas.
37. GUARANTOR. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. QUIET POSSESSION. Upon Lessee paying the rent for the Premises and
observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease. The individuals executing this Lease on behalf of
Lessor represent and warrant to Lessee that they are fully authorized and
legally capable of executing this Lease on behalf of Lessor and that such
execution is binding upon all parties holding an ownership interest in the
Office Building Project.
39. OPTIONS.
39.1 DEFINITION. As used in this paragraph, the word "Option" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (2) the option or right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of first
refusal to lease other space within the Office Building Project or other
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property of Lessor or the right of first offer to lease other space within the
Office Building Project or other property of Lessor; (3) the right or option to
purchase the Premises or the Office Building Project, or the right of first
refusal to purchase the Premises or the Office Building Project or the right of
first offer to purchase the Premises or the Office Building Project, or the
right or option to purchase other property of Lessor, or the right of first
refusal to purchase other property of Lessor or the right of first offer to
purchase other property of Lessor.
39.2 OPTION TO EXPAND PREMISES. Lessee shall have the option to lease the
second floor of the Building (the "Second Floor Space") under the same terms and
conditions as set forth in this Lease except rent payable shall be at the Market
Rate rent as determined in paragraph 4.3 of this Lease. The option can be
exercised by Lessee at any time; provided, however, that if Lessor gives Lessee
notice that Lessor intends to commence negotiations to lease the Second Floor
Space to a third party (the "Notice of Intent to Lease"), Lessee shall have only
five (5) days in which to exercise tile option by giving Lessor written notice
of Lessee's intention to lease the Second Floor Space (the "Lessee's Expansion
Notice"), and the option shall terminate if it is not exercised by Lessee within
the five (5) day period. Upon termination of the option,, Lessor shall have one
hundred and eighty (180) days to lease the Second Floor Space to any third
party. If Lessor fails to lease the Second Floor Space within the one hundred
eighty (180) day period, Lessee's option to lease the Second Floor Space shall
be reinstated and can be exercised as set forth in this paragraph 39.2.
39.3 FIRST RIGHT TO PURCHASE BUILDING. If Lessor decides to sell the
Building to an unrelated third party, Lessor shall notify Lessee of the terms on
which Lessor is willing to sell. If Lessee, within five (5) days after receipt
of Lessor's notice, indicates in writing its agreement to purchase the Building
on the terms stated in Lessor's notice, Lessor shall sell and convey the
Building to Lessee on the same terms stated in the notice. If Lessee does not
indicate its agreement within five (5) days, Lessor thereafter shall have the
right to sell and convey the Building within one hundred eighty (180) days.
Subsequent to the one hundred eighty (180) day period, any further transaction
shall be deemed a new determination by Lessor to sell the Building and Lessee's
first right to purchase shall be reinstated. If Lessee purchases the Building
pursuant to this paragraph 39.3, this Lease shall terminate on the date title
vests in Lessee.
39.4 OPTIONS PERSONAL. Each Option granted to Lessee in this Lease is
personal to the original Lessee and may be exercised only by the original Lessee
while occupying the Premises who does so without the intent of thereafter
assigning this Lease or subletting the Premises or any portion thereof, and may
not be exercised or be assigned, voluntarily or involuntarily, by or to any
person or entity other than lessee; provided, however, that an Option may be
exercised by or assigned to any Lessee Affiliate as defined in paragraph 12.2 of
this Lease. The Options, if any, herein granted to Lessee are not assignable
separate and apart from this Lease, nor may any option be separated from this
Lease in any manner, either by reservation or otherwise.
39.5 MULTIPLE OPTIONS. In the event that Lessee has any multiple options
to extend or renew this Lease, a later option cannot be exercised unless the
prior option to extend or renew this Lease has been so exercised.
39.6 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary, (i) during the time
commencing from the date Lessor gives to Lessee a notice of default pursuant to
paragraph 13.1(c) or paragraph 13.1(d) and continuing until the noncompliance
alleged in said notice of default is cured; or (ii) during the period of time
commencing on the day after a monetary obligation to Lessor is due from Lessee
and unpaid (without any necessity for notice thereof to Lessee) and continuing
until the obligation is paid; or (iii) in the event that Lessor has given to
Lessee three (3) or more notices of default under paragraph 13.1(c) or paragraph
13.1(d), whether or not the defaults are cured, during the twelve (12) month
period of time immediately prior to the time that Lessee attempts to exercise
the subject Option; or (iv) if Lessee has committed any noncurable breach,
including without limitation those described in paragraph 13.1(b), or is
otherwise in default of any of the terms, covenants or conditions of this Lease.
(b) The period of time within which an option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
option because of the provisions of paragraph 39.6(a).
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(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
(without any necessity of Lessor to give notice thereof to Lessee) within the
number of days provided in this Lease for payment of each such monetary
obligation, including, but not limited to, the monetary obligations and payment
periods specified in Paragraphs 4.2(e), 12.9, 13.1 and 13.4; or (ii) Lessee
fails to commence to cure a default specified in paragraph 13.1(d) within thirty
(30) days after the date that Lessor gives notice to Lessee of such default
and/or Lessee fails thereafter to diligently prosecute said cure to completion;
(iii) Lessor gives to Lessee three (3) or more notices of default under
paragraph 13.1(c) or paragraph 13.1(d), whether or not the defaults are cured;
or (iv) if Lessee has committed any noncurable breach including without
limitation those described in paragraph 13.1(b), or is otherwise in default of
any of the terms, covenants and conditions of this Lease.
40. SECURITY MEASURES--LESSOR'S RESERVATIONS.
40.1 Lessee hereby acknowledges that Lessor shall have no obligation
whatsoever to provide guard service or other security measures for the benefit
of the Premises or the Office Building Project. Lessee assumes all
responsibility for the protection of Lessee, its agents and invitees and the
property of Lessee and of Lessee's agents and invitees from acts of third
parties. Nothing herein contained shall prevent Lessor, at Lessor's sole option,
from providing security protection for the Office Building Project or any part
thereof, in which event the cost thereof shall be included within the definition
of Operating Expenses, as set forth in paragraph 4.2(b).
40.2 Lessor shall have the following rights:
(a) To change the name, address or title of the Office Building
Project or building in which the Premises are located upon not less than ninety
(90) days' prior written notice;
(b) To, at Lessee's expense, provide and install Building standard
graphics on the door of the Premises and such portions of the Common Areas as
Lessor shall reasonably deem appropriate;
(c) To permit any lessee the exclusive right to conduct any business
as long as such exclusive does not conflict with any rights expressly given
herein;
(d) To place such signs, notices or displays as Lessor reasonably
deems necessary or advisable upon the roof, exterior of the buildings or the
Office Building Project or on pole signs in the Common Areas.
40.3 Lessee shall not:
(a) Use a representation (photographic or otherwise) of the Building
or the Office Building Project or their name(s) in connection with Lessee's
business;
(b) Suffer or permit anyone, except in emergency, to go upon the roof
of the Building.
41. EASEMENTS.
41.1 Lessor reserves to itself the right, from time to time, to grant such
easements, rights and dedications that Lessor deems necessary or desirable and
to cause the recordation of Parcel Maps and restrictions, so long as such
easements, rights, dedications, maps and restrictions do not unreasonably
interfere with the use of the Premises by Lessee. Lessee shall sign any of the
aforementioned documents upon request of Lessor and failure to do so shall
constitute a material default of this Lease by Lessee without the need for
further notice to Lessee.
41.2 The obstruction of Lessee's view, air or light by any structure
erected in the vicinity of the Building, whether by Lessor or third parties,
shall in no way affect this Lease or impose any liability upon Lessor.
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<PAGE>
42. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment, and there shall survive the right on the part
of said party to institute suit for recovery of such sum. If it shall be
adjudged that there was no legal obligation on the part of said party to pay
such sum or any part thereof, said party shall be entitled to recover such sum
or so much thereof as it was not legally required to pay under the provisions of
this Lease.
43. AUTHORITY. If Lessee is a corporation, trust or general or limited
partnership, Lessee, and each individual executing this Lease on behalf of such
entity, represent and warrant that such individual is duly authorized to execute
and deliver this Lease on behalf of said entity. If Lessee is a corporation
trust or partnership, Lessee shall, within thirty (30) days after execution of
this Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
44. CONFLICT. Any conflict between the printed provisions, Exhibits or
addenda of this Lease and the typewritten or handwritten provisions, if any
shall be controlled by the typewritten or handwritten provisions.
45. NO OFFER. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to Lessee to lease.
This Lease shall become binding upon Lessor and Lessee only when fully executed
by both parties.
46. LENDER MODIFICATION. Lessee agrees to make such reasonable modifications
to this Lease as may be reasonably required by an institutional lender in
connection with the obtaining of normal financing or refinancing of the Office
Building Project.
47. MULTIPLE PARTIES. If more than one person or entity is named as either
Lessor or Lessee herein, except as otherwise expressly provided herein, the
obligations of the Lessor or Lessee herein shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee,
respectively.
48. WORK LETTER; AGREEMENT REGARDING INITIAL CONSTRUCTION. This Lease is
supplemented by that certain Work Letter of even date executed by Lessor and
Lessee attached hereto as Exhibit C and incorporated herein by this reference.
This Lease is also supplemented by that certain Agreement Regarding Initial
Construction of even date executed by Lessor and Lessee attached hereto as
Exhibit D and incorporated herein by reference.
49. ATTACHMENTS. Attached hereto are the following documents which constitute
a part of this Lease:
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
LESSOR LESSEE
HEFFERNAN FAMILY TRUST COAST COMMERCIAL BANK
By /s/ By /s/
--------------------------- ---------------------------
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<PAGE>
Its Its
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Executed at Executed at
------------------- -------------------
On On
---------------------------- ----------------------------
Address Address
----------------------- -----------------------
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<PAGE>
EXHIBIT A
STANDARD OFFICE LEASE
FLOOR PLAN
Exhibits -1-
<PAGE>
EXHIBIT B
RULES AND REGULATIONS FOR
STANDARD OFFICE LEASE
This Exhibit B is made part of that certain lease between Heffernan Family Trust
("Lessor") and Coast Commercial Bank ("Lessee") dated May __, 1989 (the
"Lease").
GENERAL RULES
1. Lessee shall not suffer or permit the obstruction of any Common Areas,
including driveways, walkways and stairways.
2. Lessor reserves the right to refuse access to any persons Lessor in
good faith judges to be a threat to the safety, reputation, or property of the
Office Building Project and its occupants.
3. Lessee shall not make or permit any noise or odors that annoy or
interfere with other lessees or persons having business within the Office
Building Project.
4. Lessee shall not keep animals or birds within the Office Building
Project, and shall not bring bicycles, motorcycles or other vehicles into areas
not designated as authorized for same.
5. Lessee shall not make, suffer or permit litter except in appropriate
receptacles for that purpose.
6. Lessee shall not alter any lock or install new or additional locks or
bolts.
7. Lessee shall be responsible for the inappropriate use of any toilet
rooms, plumbing or other utilities. No foreign substances of any kind are to be
inserted therein.
8. Lessee shall not deface the walls, partitions or other surfaces of the
Premises or Office Building Project.
9. Lessee shall not suffer or permit any thing in or around the Premises
or Office Building Project that causes excessive vibration or floor loading in
any part of the office Building Project.
10. Furniture, significant freight and equipment shall be moved into or
out of the Building only with the Lessor's knowledge and consent, and subject to
such reasonable limitations, techniques and timing, as may be designated by
Lessor. Lessee shall be responsible for any damage to the Office Building
Project arising from any such activity.
11. Lessee shall not employ any service or contractor for services or work
to be performed in the Building, except as approved by Lessor.
12. Lessor reserves the right to close and lock the Building on Saturdays,
Sundays and legal holidays, and on other days between the hours of -- P.M. and
A.M. of the following day. If Lessee uses the Premises during such periods,
Lessee shall be responsible for securely locking any doors it may have opened
for entry.
13. Lessee shall return all keys at the termination of its tenancy and
shall be responsible for the cost of replacing any keys that are lost.
Exhibits -2-
<PAGE>
14. No window coverings, shades or awnings shall be installed or used by
Lessee.
15. No Lessee, employee or invitee shall go upon the roof of the Building.
16. Lessee shall not suffer or permit smoking or carrying of lighted
cigars or cigarettes in areas reasonably designated by Lessor or by applicable
governmental agencies as non-smoking areas.
17. Lessee shall not use any method of heating or air conditioning other
than as
18. Lessee shall not install, maintain or operate any vending machines
upon the Premises without Lessor's written consent.
19. The Premises shall not be used for lodging, manufacturing, cooking or
food preparation.
20. Lessee shall comply with all safety, fire protection and evacuation
regulations established by Lessor or any applicable governmental agency.
21. Lessor reserves the right to waive any one of these rules or
regulations, and/or as to any particular Lessee, and any such waiver shall not
constitute a waiver of any other rule or regulation or any subsequent
application thereof to such Lessee.
22. Lessee assumes all risks from theft or vandalism and agrees to keep
its Premises locked as may be required.
23. Lessor reserves the right to make such other reasonable rules and
regulations as it may from time to time deem necessary for the appropriate
operation and safety of the Office Building Project and its occupants. Lessee
agrees to abide by these and such rules and regulations.
PARKING RULES
1. Parking areas shall be used only for parking by vehicles no longer
than full size, passenger automobiles herein called "Permitted Size Vehicles."
Vehicles other than Permitted Size Vehicles are herein referred to as "Oversized
Vehicles."
2. Lessee shall not permit or allow any vehicles that belong to or are
controlled by Lessee or Lessee's employees, suppliers, shippers, customers, or
invitees to be loaded, unloaded, or parked in areas other than those designated
by Lessor for such activities.
3. Parking stickers or identification devices shall be the property of
Lessor and be returned to Lessor by the holder thereof upon termination of the
holder's parking privileges. Lessee will pay such replacement charge as is
reasonably established by Lessor for the loss of such devices.
4. Lessor reserves the right to refuse the sale of monthly identification
devices to any person or entity that willfully refuses to comply with the
applicable rules, regulations, laws and/or agreements.
5. Lessor reserves the right to relocate all or a part of any parking
spaces within the parking area and/or to reasonably adjacent offsite locations,
and to reasonably allocate them between compact and standard size spaces, as
long as the same complies with applicable laws, ordinances and regulations.
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Exhibits
<PAGE>
6. Users of the parking area will obey all posted signs and park only in
the areas designated for vehicle parking.
7. Unless otherwise instructed, every person using the parking area is
required to park and lock his own vehicle. Lessor will not be responsible for
any damage to vehicles, injury to persons or loss of property, all of which
risks are assumed by the party using the parking area.
8. Validation, if established, will be permissible only by such method or
methods as Lessor and/or its licensee may establish at rates generally
applicable to visitor parking.
9. The maintenance, washing, waxing or cleaning of vehicles in the
parking structure or Common Areas is prohibited.
10. Lessee shall be responsible for seeing that all of its employees,
agents and invitees comply with the applicable parking rules, regulations, laws
and agreements.
11. Lessor reserves the right to modify these rules and/or adopt such
other reasonable and non-discriminatory rules and regulations as it may deem
necessary for the proper operation of the parking area.
12. Such parking use as is here-in provided is intended merely as a
license only and no bailment is intended or shall be created hereby.
-4-
Exhibits
<PAGE>
EXHIBIT C
WORK LETTER TO STANDARD OFFICE LEASE
This EXHIBIT C is made part of that certain lease between Heffernan Family
Trust ("Lessor") and Coast Commercial Bank ("Lessee'') dated May__, 1989 (the
"Lease").
1. Lessor's Standard Improvements shall include the following:
a. WALL SURFACES. Lessor will sheetrock the interior surface of the
exterior walls.
b. DOORS. Lessors will provide exterior doors.
c. UTILITY SERVICE LINES. Lessor will provide service lines for
water, gas and electricity which lines will be brought to the
Building and "stubbed off" inside the Building. The distribution
lines of utilities within the building shall be part of the
Lessee improvements.
d. CEILING. Lessor will provide a drop ceiling.
e. LIGHTING. Lessor will provide "troffer lights" as contemplated
by the Plans and Specifications.
f. HEATING AND AIR CONDITIONING SYSTEM. Lessor shall provide an
HVAC system.
Improvements not constructed in accordance with the above shall be deemed Lessee
Improvements.
2. Construction of Lessor's Standard Improvements.
2.1 Lessor shall construct and substantially complete Lessor's
Standard Improvements substantially in accordance with the plans and
specifications prepared by Ifland Engineers, Inc., dated [November 29, 1988],
consisting of [twenty-six (26)] sheets.
2.2 Lessee shall take possession of the Premises under the tender
thereof as provided in paragraph 3.3.1 of the Lease. Lessee shall notify Lessor
in writing of any items that Lessee deems incomplete or incorrect in order for
the Premises to be acceptable to Lessee within ten (10) days following Tender of
Possession as set forth in paragraph 3.3.1 of the Lease. Lessee shall be deemed
to have accepted the Premises and approved construction if Lessee does not
deliver such a list to Lessor within said number of days.
3. PREPARATION OF PLANS AND SPECIFICATIONS FOR LESSEE IMPROVEMENTS.
3.1 Within ten (10) days after the date of the Lease Lessor and
Lessee shall meet for the purpose of determining basic design parameters for the
Lessee Improvements. Within forty-five (45) days after the date of the Lease,
Lessee shall prepare at its cost and deliver to Lessor for its approval three
(3) copies of preliminary plans
-5-
Exhibits
<PAGE>
and specifications for the completion of the Lessee Improvements within the
design parameters set at the design meeting. Lessor shall approve said
preliminary plans and specifications or specify with particularity its
reasonable objections thereto within fifteen (15) days following receipt
thereof. Failure to so approve or reasonably reject within said period of time
shall constitute approval of the preliminary plans arid specifications.
3.2 If Lessor reasonably rejects said preliminary plans and
specifications with regard to minor details within the scope of the design
parameters set at the first design meeting, Lessee shall at its cost prepare
revised plans and specifications and deliver them to Lessor within fifteen (15)
days. Lessor shall approve or reasonably reject the revised plans and
specifications within five (5) days. Failure to so approve or reasonably reject
within said period of time shall constitute approval of the revised plans arid
specifications. Any other revision of the plans and specifications shall be
performed by Lessee at Lessee's sole cost and expense.
3.3 The plans and specifications, when approved by Lessor (or deemed
approved by Lessor pursuant to Paragraphs 3.1 or 3.2 of this Exhibit C), shall
be deemed "final plans and specifications" and shall supersede any prior
agreement concerning the improvements.
4. CONSTRUCTION OF LESSEE IMPROVEMENTS.
At its sole cost and expense, Lessee or a contractor reasonably
approved by Lessor shall construct the Lessee Improvements substantially in
accordance with the final plans and specifications as defined in paragraph 3.3
of this Exhibit C.
5. COMPLETION.
5.1 Lessee shall obtain a building permit to construct the
improvements as soon as reasonably possible.
5.2 Lessee shall substantially complete the construction of the
improvements as soon as reasonably possible after the obtaining of necessary
building permits.
5.3 The term "substantial completion" as used in this Exhibit C is
hereby defined to mean the date the Planning Department of the County of Santa
Cruz shall have made a final inspection of the improvements and authorized a
final release of restrictions on the use of public utilities in connection
therewith and the same are in a broom-clean condition.
5.4 Lessee shall use its best efforts to achieve substantial
completion of the Lessee Improvements on or before the Commencement Date set
forth in paragraph 1.6 of the Basic Lease Provisions.
5.5 In the event that the Lessee Improvements or any portion thereof
have not reached substantial completion by the Commencement Date, the Lease
shall not be invalid, but rather the Lease shall commence on the Commencement
Date and Lessee shall substantially complete the same as soon thereafter as is
possible and Lessor shall not be liable to Lessee for damages in any respect
whatever.
6. WORK DONE BY LESSEE.
Any work done by Lessee shall be done only with Lessor's prior written
consent and in conformity with a valid building permit and all applicable rules,
regulations, laws and ordinances, and be done in a good and workmanlike manner
of good and sufficient materials.
-6-
Exhibits
<PAGE>
EXHIBIT D
AGREEMENT REGARDING INITIAL CONSTRUCTION OF OFFICE BUILDING PROJECT
This EXHIBIT D is made part of that certain lease between Heffernan Family
Trust("Lessor") and Coast Commercial Bank ("Lessee") dated May __, 1989 (the
"Lease").
1. CONSTRUCTION OF PROJECT. Lessor, at its cost, shall construct and
substantially complete the Office Building Project in accordance with the final
plans and specifications and working drawings prepared by Ifland Engineers,
Inc., Lessor's architect, dated [November 29, 1988], consisting of 26 sheets
("Lessor's Plans").
2. CONSTRUCTION OF LESSEE'S SPECIAL IMPROVEMENTS. As soon as possible,
but no later than thirty (30) days after commencement of construction, Lessee
shall provide Lessor with all information necessary for the coordination of
construction of Lessee's special improvements, including the bank vault, special
security devices and the private entries to the ground floor bathrooms. Any
redesigned building plans and specifications may be subject to the approval of
Santa Cruz County. Lessee shall pay the entire costs incurred by Lessor as a
result of such redesign, and Lessee shall pay the entire costs incurred by
Lessor in obtaining any additional County approvals. Lessor shall install the
vault, but all Costs of such installation, and any additional construction costs
for the redesigned bathrooms shall be borne by the Lessee. At Lessor's election,
an the end of the Lease Term (as defined in the Lease) or upon earlier
termination of the Lease, Lessee shall at its expense remove the vault and
restore the Premises (including but not limited to the vault and bathroom
areas).
3. CHANGE ORDERS. Lessee may request change orders ("Change Orders') to
Lessor's Plans with regard to the Premises. If Lessor approves the Change
Orders, Lessor shall construct the Office Building Project in accordance with
the Lessor's Plans, as modified by the Change Orders. Lessee shall pay the
entire increased amount of the costs of constructing the Office Building Project
resulting from or related to the Change Orders.
4. DATE OF SUBSTANTIAL COMPLETION; DELAYS. Lessor shall use good faith
efforts to substantially complete the construction required by this EXHIBIT D
within six (6) months after the final plans and specifications and working
drawings have been approved by all appropriate government agencies,
environmental testing and remedial work (if any) is complete, and Lessor's
lender has approved the Lease, whichever date is later. The period for
substantial completion of construction shall be extended by the time needed to
perform the additional construction covered by any Change Orders requested by
Lessee and authorized by Lessor, and by any delay due to causes beyond the
reasonable control of Lessor or Lessor's contractor.
5. FINANCING.
5.1 The effectiveness of the Lease shall be conditioned on Lessor's
obtaining commitments for construction financing and permanent financing for the
construction required by this Exhibit. Lessor shall use reasonable efforts to
obtain such commitments. If Lessor, after reasonable efforts, has not been able
to obtain such commitments by _July 1_, 19 89_, after that date either party
can terminate the Lease at any time before the commitments are obtained, by
giving notice to the other party.
5.2 Lessee recognizes that the provisions of the Lease must be
approved by the institutional lender that finances the construction of the
Office Building Project. if, as a condition to financing, the institutional
lender requires modification of the provisions of the Lease, Lessee shall
approve and execute the required modification, other than a modification that
substantially changes the size, dimensions, or location of the Building and
other improvements that are a part of the Premises, increases the rent Lessee is
obligated to pay under the Lease, or changes any of Lessee's obligations in a
material and adverse manner.
6. DEFINITION OF SUBSTANTIAL COMPLETION. The term "substantial
completion" for purposes of this EXHIBIT D shall mean the date the Santa Cruz
building department shall have made [an inspection of the Lessor's
-7-
Exhibits
<PAGE>
Standard Improvements] and the same are in a broom-clean condition, and service
lines for water, gas and electric have been brought to and "stubbed off" inside
the Building.
7. EARLY ENTRY; TAKING POSSESSION OF PREMISES.
7.1 Lessor shall notify Lessee of the estimated date of substantial
completion of the construction as provided in this EXHIBIT D at least thirty
(30) days before such date. After Lessor notifies Lessee of the date, and after
Lessee provides to Lessor the certificates of insurance or copies of insurance
policies as required by paragraph 8.6 of the Lease, Lessee shall have the right
to enter the Premises to commence its construction obligations and to commence
equipping and fixturing the Premises, as long as the entry does not interfere
with Lessor or Lessor's contractor.
7.2 If Lessee enters the Premises prior to their substantial
completion as provided in paragraph 6 of this EXHIBIT D, all the provisions of
the Lease, including but not limited to Lessee's obligation to provide
insurance, shall be in full force and effect, except the rent provisions. Lessee
shall take possession of the Premises under the tender thereof as provided in
paragraph 3.3.1 of the Lease.
8. ACCEPTANCE OF PREMISES. Within five (5) days after Lessor has
notified Lessee that the construction of Lessor's construction obligations
required under this EXHIBIT D has been substantially completed (whether or not
Lessee has entered the Premises earlier as allowed by paragraph 6 of this
EXHIBIT D), Lessee shall deliver to Lessor a list of items that Lessee deems it
necessary that Lessor complete or correct in order for the Premises to be
acceptable. Lessor shall immediately commence to complete or correct the items,
except those that it contends are not justified. If Lessee does not deliver the
list to Lessor within the five (5) day period, Lessee shall be deemed to have
accepted the Premises and approved the construction.
-8-
Exhibits
<PAGE>
COAST COMMERCIAL BANK Joseph S Accornero
Post Office Box 1818 Executive Vice President
Santa Cruz. CA 95061-1818
(408) 458-4500
March 19, 1991
Martin Boone
Sherman & Boone Associates
1260 41st Avenue, Suite A
Capitola, California 95010
Dear Martin:
Please consider this letter your official notification of Coast Commercial
Banks's intention to exercise the first of its three five year renewal options,
for our Aptos Branch Site located at 7775 Soquel Drive, Aptos, California.
This exercise is as outlined in section 1.01 of the Lease dated July 16, 1986.
Thank you for your consideration. If you have any questions please do not
hesitate to call me.
Sincerely,
/s/
Joseph S. Accornero
Executive Vice President
Chief Operating Officer &
Cashier
<PAGE>
ADDENDUM
This addendum is attached to and made a part of that certain lease agreement
dated July 3. 1986, wherein MARTIN N. BOONE AND ROBIN SHERMAN are referred to as
"Lessor" and COAST COMMERCIAL BANK is referred to as "CCB" and is the Lessee of
the property located at 7775 Soquel Drive, Aptos, Ca.
In that it is the intention of the Lessor to develop one or more parcels
adjacent to the subject property and tie all developed parcels together as a
center sharing parking and access and in that the proposed development offers
potential advantages to the CCB, CCB egress over the property leased by CCB
provided County parking requirements for CCB are maintained.
The attached proposed development proposals are provided to give a conceptual
understanding of the parties concerning this agreement. It is understood that
the development may be modified in scope or design due to Lessor's ability to
develop the additional property or Governmental requirements to change design
and traffic flow.
All other terms and conditions to remain the same.
Dated: 4-9,1987
LESSOR:
/s/
------------------------------------
Martin N. Boone
/s/
------------------------------------
Robin Sherman
LESSEE:
Coast Commercial Bank
By
/s/
------------------------------------
<PAGE>
LEASE
MARTIN N. BOONE AND ROBIN SHERMAN, herein called "Lessor," hereby lease to
COAST COMMERCIAL BANK a California Banking Corporation, herein called "CCB,"
those certain premises, herein called "said premises," in the County of Santa
Cruz, State of California, described as 7775 Soquel Drive, Aptos, California.
RECITALS
Lessor owns the entire parcel of real property on which the said premises
are located, and it is currently occupied by multiple tenants including a
business known as "Art World" pursuant to a lease dated May l, 1985, between
Lessor, as Lessor therein, and Patrick Walsh which occupies the front 1450
square feet of the said premises.
CCB is desirous of having the entire real property available or the
location of a branch banking facility on the terms and conditions set forth
herein.
Lessor shall acquire the leasehold interest of PatrickWalsh pursuant to the
terms of an "Agreement to Terminate Lease" of even date herewith which is
attached hereto as Exhibit "1" and incorporated herein. Lessor's obligations
regarding use of the property thereunder shall be deemed incorporated herein and
are agreed to and accepted by CCB.
Lessor further agrees to make the remaining tenant space on the real
property available to CCB upon the expiration or earlier termination of the last
of the applicable existing leases for such space to expire or terminate. This
agreement shall, when such space is available, be applicable to such space.
Lessor and CCB agree that the principles set forth in Exhibit "A", attached
hereto and incorporated herein, shall govern the amendment of this lease when
the additional space is available.
The terms of this lease shall apply to such portions of the said premises
as are subject to use and occupancy by CCB.
ARTICLE l. TERM OF LEASE
Original Term
Section 1.01. This Lease shall be for a period of Five Years from the
execution hereof with options for renewal under the same terms and conditions
for three successive like periods. CCB shall notify Lessor not less than 90 days
prior to the expiration of a term hereunder of the exercise of its option to
extend the lease.
Hold Over
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Section 1.02. Should CCB hold over and continue in possession of said
premises after expiration of the term of this lease or any extension thereof,
CCB's continued occupancy of said premises shall be considered a month-to-month
tenancy subject to all the terms and conditions of this lease.
ARTICLE 2. RENT
Minimum Rent
Section 2.01. CCB agrees to pay to Lessor, in addition to the sums
specified in Sections 2.02 and 2.03 of this lease, a fixed minimum rental for
the use and occupancy of the initial portion of said premises of $1,712.52 per
month payable on the 1st day of each month commencing upon execution hereof at
the office of Lessor at 1260 41st Avenue Capitola, California, or at such other
place or places as Lessor may from time to time designate by written notice
delivered to CCB.
The minimum rent hereunder will be adjusted pursuant to the principles set
forth in Exhibit "A" when all of said premises are available for the use and
occupancy of CCB. There are approximately 1140 Square Feet in the remaining
tenant space and the "minimum rent" for that space shall be the same as the
minimum rent, including any adjustments under Section 2.04. hereof, for the
original space at the time the remaining tenant space is added to this lease.
Premium
Section 2.02. Lessor, pursuant to the terms of Exhibit 1, is required to
expend the sum of $25,000.00 for the purpose of the granting of this lease, and
CCB, during the first term hereof, agrees to pay as additional rent the sum of
$614.62 per month, the liquidated sum represents the cost to the Lessor of
acquiring and making the leased space available to CCB and is payable without
regard to any lawful earlier termination hereof.
Project Rent
Section 2.03. When CCB has pursuant to the terms of the lease required that
the Lessor undertake the contemplated improvement project there shall be payable
to Lessor as Project Rent such monthly sum as is necessary to defer the Lessors
additional expenses in accordance with the "statement of principles".
Rent Increase (C.P.I.)
Section 2.04. At the end of the first year of this lease and each
successive year thereafter the initial minimum rental shall be adjusted by the
use of a Cost of Living Escalator as follows: the index to be used shall be the
Bureau of Labor Statistics Consumer Price Index, All Items, San Francisco, 1967
= 100, hereinafter referred to as the "CPI". Base index shall be that published
nearest to the date hereof. The rent increase hereunder shall be proportional to
the increase in the CPI as above, over the base index.
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Deposit
Section 2.05. CCB shall upon execution hereof provide the Lessor with the
sum of $3,200.00 the same to represent the first month's rent hereunder and a
security deposit for the faithful performance by CCB of all obligations
hereunder.
Reappraisal of Minimum Rent
Section 2.06. Upon the expiration of TEN years after the beginning of this
lease the minimum rent hereunder will be adjusted to the then current fair
market rental value in accordance with the provisions of Article 11 hereof.
ARTICLE 3. USE OF PREMISES
Permitted Use
Section 3.01. Said premises shall, during the term of this lease and any
extensions thereof, be used for the purpose of operating and conducting thereon
and therein a branch banking operation, for uses normally incident to such
purpose, and for no other purpose without the prior consent of the Lessor which
shall not be unreasonably withheld.
Insurance Hazards
Section 3.02. CCB shall not commit or permit the commission of any acts on
said premises nor use or permit the use of said premises in any manner that will
increase the existing rates for or cause the cancellation of any fire,
liability, or other insurance policy insuring said premises or the improvements
on said premises. CCB shall, at its own cost and expense, comply with any and
all requirements of Lessor's insurance carriers necessary for the continued
maintenance at reasonable rates of fire and liability insurance policies on said
premises and the improvements on said premises.
Waste or Nuisance
Section 3.03. CCB shall not commit or permit the commission by others of
any waste on said premises; CCB shall not maintain, commit, or permit the
maintenance of commission of any nuisance as defined in Section 3479 of the
California Civil Code on said premises; and CCB shall not use or permit the use
of said premises for any unlawful purpose.
Compliance with Law
Section 3.04. CCB shall at CCB's own cost and expense comply with all statutes,
ordinances, regulations, and requirements of all governmental entities, both
federal and state and county or municipal, relating to
<PAGE>
CCB's use and occupancy of said premises whether such statutes, ordinances,
regulations, and requirements be now in force or hereinafter enacted.
ARTICLE 4. TAXES AND UTILITIES
Payment of Utility Charges
Section 4.01. There is only one meter for each of the utility services to
the premises. During such time as CCB occupies less than the entire building it
shall pay its prorata share of all utility charges. At the time of execution
hereof this share is agreed to be 40%. When CCB has acquired all of the improved
space available CCB shall pay, and hold Lessor and the property of Lessor free
and harmless from, all charges for the furnishing of gas, water, electricity,
telephone service, and other public utilities to said premises during the term
of this lease or any extension thereof and for the removal of garbage and
rubbish from said premises during the term of this lease or any extensions
thereof.
Personal Property Taxes
Section 4.02. CCB shall pay before they become delinquent all taxes,
assessments, or other charges levied or imposed by any governmental entity on
the furniture, trade fixtures, appliances, and other personal property placed by
CCB in, on, or about said premises including, without limiting the generality of
the other terms used in this section, any shelves, counters, vaults, vault
doors, wall safes, partitions, fixtures, machinery, office equipment, or
communication equipment brought on said premises by CCB.
Real Property Tax Increases
Section 4.03. CCB shall reimburse the Lessor, within 10 days of receiving
written notice thereof, for any increase in the real property taxes caused by
and resulting from lawful increases in the applicable Santa Cruz County tax
rates occurring during the term hereof.
ARTICLE 5. ALTERATIONS AND REPAIRS
Condition of Premises
Section 5.01. CCB accepts said premises, as well as the improvements
thereon and the facilities appurtenant thereto, in their present condition and
stipulates with Lessor that said premises as well as the improvements thereon
and the facilities appurtenant thereto are in good, clean, safe, and tenantable
condition as of the date of this lease.
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Maintenance by Lessor
Section 5.02. Lessor shall, at his own cost and expense, maintain in good
condition and repair the exterior roof, exterior walls, structural supports, the
foundation of said premises, and the driveway and parking area surfaces.
Maintenance by CCB
Section 5.03. CCB shall, at its own cost and expense, maintain in good
condition and repair all of the interior of the improvements occupied by it
pursuant to this lease, and when it has possession of the entire parcel CCB
shall maintain the landscaping and cleanliness of the paved areas.
Alterations and Liens
Section 5.04. In making any improvements or alterations to the leased
premises CCB shall keep the premises free and clear from any and all liens,
claims, and demands for work performed, materials furnished, or operations
conducted on said premises at the instance or request of CCB. Furthermore, any
and all alterations, additions, improvements, and fixtures, except furniture and
trade fixtures, made or placed in or on said premises by CCB or any other person
shall upon being placed upon the premises become the property of Lessor and
remain on said premises
Inspection by Lessor
Section 5.05. CCB shall permit Lessor or Lessor's agents, representatives,
or employees to enter said premises at all reasonable times for the purpose of
inspecting said premises to determine whether CCB is complying with the terms of
this lease and for the purpose of doing other lawful acts that may be necessary
to protect Lessor's interest in said premises under this lease or to perform
Lessor's duties under this lease.
Surrender of Premises
Section 5.06. On expiration or sooner termination of this lease, or any
extensions or renewals of this lease, CCB shall promptly surrender and deliver
said premises to Lessor in as good condition as they are now at the date of this
lease, reasonable wear and tear and repairs herein required to be made by Lessor
excepted.
ARTICLE 6. INDEMNITY AND INSURANCE
Hold-Harmless Clause
Section 6.01. CCB agrees to indemnify and hold Lessor and the property of
Lessor, including said premises, free and harmless from any and all claims,
liability, loss, damage, or expenses resulting
<PAGE>
from CCB's occupation and use of said premises, specifically including, without
limitation, any claim, liability, loss, or damage arising by reason of:
a. The death or injury of any person or persons, including CCB or any
person who is an employee or agent of CCB, or by reason of the damage to or
destruction of any property, including property owned by CCB or any person who
is an employee or agent of CCB, and caused or allegedly caused by some act or
omission of CCB or of some agent, contractor, employee, servant, sublessee, or
concessionaire of CCB on said premises
b. Any work performed on said premises or materials furnished to said
premises at the instance or request of CCB or any agent or employee of CCB; and
c. CCB's failure to perform any provision of this lease or to comply with
any requirement of law or any requirement imposed on the leased premises by any
duly authorized governmental agency or political subdivision.
Liability Insurance
Section 6.02. CCB shall, at its own cost and expense, secure and maintain
during the entire term of this lease and any renewals or extensions of such term
a broad form comprehensive coverage policy of public liability insurance issued
by an insurance company acceptable to Lessor and insuring CCB, and naming the
Lessor as an additional insured, against loss or liability caused by or
connected with CCB's occupation and use of said premises under this lease in
amounts not less than:
a. $500,000.00 for injury to or death of one person and, subject to such
limitation for the injury or death of one person, of not less than $1,000,000.00
for injury to or death of two or more persons as a result of any one accident or
incident; and
b. $50,000.00 for damage to or destruction of any property of others.
Fire Insurance
Section 6.03. During the full term of this lease and any renewals or
extensions thereof, CCB shall maintain at CCB's own cost and expense an
insurance policy issued by a reputable company authorized to conduct insurance
business in California insuring for their full insurable value all fixtures and
equipment in or on said premises against damage or destruction by fire, theft,
or the elements.
Subrogation Waiver
Section 6.04. Lessor and CCB agree that in the event of loss due to any of
the perils for which they have agreed to provide insurance, that each party
shall look solely to its insurance for recovery. Lessor and CCB hereby grant to
each other, on behalf of any insurer providing insurance to either of them with
respect to the demised premises, a waiver of any right of subrogation which any
such insurer of one party may acquire against the other by virtue of payment of
any loss under such insurance.
<PAGE>
ARTICLE 7. SIGNS AND TRADE FIXTURES
Installation and Removal of Trade Fixtures
Section 7.01. CCB shall have the right at any time and from time to time
during the term of this lease and any renewal or extension of such term, at
CCB's sole cost and expense, to install and affix in, to, or on said premises
such items, herein called "trade fixture," for use in CCB's trade or business as
CCB may, in its sole discretion, deem advisable. Any and all such trade fixtures
that can be removed without structural damage to said premises or any building
or improvements on said premises shall remain the property of CCB and may be
removed by CCB at any time or times prior to the expiration or sooner
termination of this lease.
Unremoved Trade Fixtures
Section 7.02. Any trade fixtures described in this Article that are not
removed from said premises by CCB within 30 days after the expiration or sooner
termination, regardless of cause, of this lease shall be deemed abandoned by CCB
and shall automatically become the property of Lessor as owner of the real
property to which they are affixed.
ARTICLE 8. DESTRUCTION AND CONDEMNATION
Destruction
Section 8.01. Should said premises, the building, or any portion thereof be
destroyed or partially destroyed by any cause not the fault of CCB, this lease
shall continue in full force and effect and Lessor, at Lessor's own cost and
expense, shall promptly commence the work of repairing and restoring said
premises to their prior condition in accordance with the improvement scheme.
Insurance Proceeds
Section 8.02. Any insurance proceeds received by Lessor because of the
total or partial-destruction of said premises or the building on said premises
shall be expended on the required repairs or prorated between the parties as
their interests appear if the lease is terminated by the parties.
Abatement of Rent
Section 8.03. All payments hereunder, including but not limited to rent,
shall be abated to the extent and for the time that CCB is prevented from using
the whole of said premises.
<PAGE>
Condemnation
Section 8.04. Should, during the term of this lease or any renewal or
extension thereof, title and possession of all or any part of said premises be
taken under the power of eminent domain by any public or quasi-public agency or
entity, the following shall occur:
a) If the whole of the premises shall be so taken this lease shall
terminate as of 12:00 A. M. of the date actual physical possession of said
premises is taken by the agency or entity exercising the power of eminent domain
and both Lessor and CCB shall thereafter be released from all obligations,
except those specified in Section 5.06 of this lease, under this lease.
b) If a part only of the premises is so condemned or taken and the
remaining portion is not suitable for the purposes for which CCB has leased said
premises, CCB shall have the right to terminate this Lease. If by such
condemnation and taking a part only of the premises is taken, and the remaining
part thereof is suitable for the purposes for which CCB has leased said
premises, this Lease shall continue, but the rental shall be reduced in an
amount proportionate to the value of the portion taken as it relates to the
total value of the premises.
Condemnation Award
Section 8.05. Should, during the term of this lease or any renewal or
extension thereof, title and possession of all or any portion of said premises
be taken under the power of eminent domain by any public or quasi-public agency
or entity, the portion of the compensation or damages for the taking awarded to
each of the parties to this lease, Lessor and CCB, shall belong to and be the
sole property of the party Lessor or CCB, to whom it is awarded.
ARTICLE 9. MISCELLANEOUS
Force Majeure--Unavoidable Delays
Section 9.01. Should the performance of any act required by this lease to
be performed by either Lessor or CCB be prevented or delayed by reason of an act
of God, strike, lockout, labor troubles, inability to secure materials,
restrictive governmental laws or regulations, or any other cause except
financial inability not the fault of the party required to perform the act, the
time for performance of the act will be extended for a period equivalent to the
period of delay and performance of the act during the period of delay will be
excused; provided, however, that nothing contained in this section shall excuse
the prompt payment of rent by CCB as required by this lease or the performance
of any act rendered difficult solely because of the financial condition of the
party, Lessor or CCB, required to perform the act.
<PAGE>
Attorney's Fees
Section 9.02. Should any litigation be commenced between the parties to
this lease concerning said premises, this lease, or the rights and duties of
either in relation thereto, the party, Lessor or CCB, prevailing in such
litigation shall be entitled, in addition to such other relief as may be granted
in the litigation, to a reasonable sum as and for his attorney's fees in such
litigation which shall be determined by the court in such litigation or in a
separate action brought for that purpose.
Notices
Section 9.03. Except as otherwise expressly provided by law, any and all
notices or other communications required or permitted by this lease or by law to
be served on or given to either party hereto by the other party hereto shall be
in writing and shall be deemed duly served and given when personally delivered
to the party to whom they are directed, or in lieu of such personal service when
deposited in the United States mail, first-class postage prepaid, addressed to
CCB at 104 Walnut Street, Santa Cruz, California, or to Lessor at 1260 41st
Ave., Capitola, California. Either party, CCB or Lessor, may change his address
for the purpose of this section by giving written notice of such change to the
other party in the manner provided in this section.
Binding on Heirs and Successors
Section 9.04. This lease shall be binding on and shall inure to the benefit
of the heirs, executors, administrators, successors, and assigns of the parties
hereto.
Partial Invalidity
Section 9.05. Should any provision of this lease be held by a court of
competent jurisdiction to be either invalid, void, or unenforceable, the
remaining provisions of this lease shall remain in full force and effect
unimpaired by the holding.
Time of Essence
Section 9.06. Time is expressly declared to be of the essence in this
lease.
ARTICLE 10. RIGHT OF FIRST REFUSAL AND OPTION
First Refusal
Section 10.01. Should Lessor, during the lease term, any renewal term,
option term, or extension of the foregoing, elect to sell all or any portion of
the premises, CCB shall have the right of first refusal to meet any bona fide
offer of sale accepted by Lessor on the same terms and conditions of such offer,
and on failure to meet such bona fide offer within 45 days after written notice
thereof from Lessor, Lessor shall
<PAGE>
sell the premises or portion thereof to such third person in accordance with the
terms and conditions of that contract. If for any reason CCB shall not act on
its right of first refusal and the Sale does not occur the right of first
refusal shall be reinstated.
ARTICLE 11. REAPPRAISAL
Section 11.01. Pursuant to the terms hereof the minimum rental shall be
adjusted to reflect the then current fair rental value that Lessor of the
premises in accordance with the principles upon which the lease is based. The
minimum rental shall be at such sum as may be agreed on by Lessor and CCB or, if
the parties are unable to agree, fixed by appraisal in the following manner:
(1) On or before sixty (60) days prior to commencement of the renewed
term, each of the parties to this lease, Lessor and CCB, shall appoint an
appraiser and give written notice of the name and address of such appraiser to
the other party to this lease. The two appraisers thus appointed shall, within
ten (10) days after appointment of the last of the two appraisers to be
appointed, appoint a third appraiser and serve written notice of the name and
address of such appraiser on Lessor and CCB in the manner prescribed by this
lease for service of notice on Lessor by CCB and on CCB by Lessor.
(2) All appraisers appointed under this section shall be, at the time
of their appointment, members in good standing of the American Institute of Real
Estate Appraisers.
(3) Within ten (10) days after the appointment of the third appraiser,
the three appraisers shall confer and each shall submit in writing to Lessor and
CCB his honest appraisal of the equivalent full cash rental value, as described
in this section, of said premises. The term "equivalent full cash rental value"
as used in this section means the price a willing lessee would pay to a willing
lessor for said premises for the highest and best potential use of said premises
in the original condition and without improvements for which CCB is obligated
hereunder to pay the Lessor's full cost and for which the additional "Project
Rent" is payable pursuant to section 2.03. of this lease, the appraisers shall
also disregard the effect of CCB's own leasehold improvements on rental value.
(4) The appraised value agreed on in writing by any two of the three
appointed appraisers shall be conclusive and binding on the parties to this
lease, Lessor and CCB, and shall establish the current fair rental value of said
premises for purposes of this section. Should no two of the three appraisers be
able to agree, both the highest appraisal and the lowest appraisal submitted by
any of the three appraisers shall be disregarded and the remaining appraisal
shall be binding and conclusive on the parties, Lessor and CCB, to this lease
and shall establish the current fair rental value of said premises for purposes
of this section.
(5) Should either party, Lessor or CCB, fail to appoint an appraiser as
required by this section within ten (10) days after service on him of written
demand to do so, the appraiser appointed by the other party shall act for both
Lessor and CCB. The decision in writing of such appraiser shall, in such event,
be binding on both Lessor and CCB and establish the full cash rental value of
said premises for purposes of this section.
<PAGE>
(6) Lessor and CCB shall each pay the fee and all expenses incurred by the
appraiser appointed by each of them and one-half of all expenses and the fee
incurred by the third appraiser appointed pursuant to subparagraph (1) of this
section.
ARTICLE 12 NOTICE AND SUBORDINATION
Recorded Notice
Section 12.01. The parties hereto agree to record a notice of this lease
and any documents that may be required to release the same in the event that it
expires or is terminated by agreement without the exercise of the option.
Subordination
Section 12.02. This Lease shall be prior to any encumbrance recorded after
the date of this Lease affecting the premises. If, however, a lender requires
that this Lease be subordinate to any such encumbrance, this Lease shall be
subordinate to that encumbrance if Lessor first obtains from the lender a
written agreement that provides substantially the following:
"So long as CCB performs its obligations under this Lease, no foreclosure
of, deed given in lieu of foreclosure of, or sale under the encumbrance, and no
steps or procedures taken under this encumbrance shall affect Tenant's rights
under this Lease. The provisions of this Lease concerning the disposition of
insurance proceeds on destruction of the premises , and the provisions
concerning the disposition of any condemnation award, shall prevail over any
conflicting provisions in the encumbrance. CCB shall have the right to purchase
the encumbrance and receive an assignment of all rights appertaining thereunto
by paying to the encumbrancer the full amount of its demand prior to the opening
of a public sale in a foreclosure proceeding."
CONDITION
This lease is subject to approval by the State of California Department of
Banking.
Dated: 7-16, 1986.
LESSOR:
/s/
------------------------------------------
MARTIN N. BOONE
/s/
------------------------------------------
ROBIN SHERMAN
LESSEE: COAST COMMERCIAL BANK
By /s/
-----------------------------------------
<PAGE>
STATEMENT OF PRINCIPLES
REGARDING
IMPROVEMENT PROJECT ON LEASED PREMISES
This statement is a part of a the terms of a lease between MARTIN N. BOONE
and ROBIN SHERMAN, as Lessors (hereinafter "Lessor") and COAST COMMERCIAL BANK,
a California Banking Corporation (hereinafter "CCB"), of even date herewith.
The parties have entered into a lease whereby CCB is initially leasing and
occupying the front 1450 square feet of the building located at 7775 Soquel
Drive, Aptos, California. It is the intent of the parties that once all of the
remaining improved space on the described real property is available and
included in the lease pursuant to the terms thereof Lessor will undertake a work
of improvement pursuant to the plans and specifications submitted by CCB through
licensed contractors approved by CCB (hereinafter "improvement project").
It is intended that the Lessor shall not suffer economic detriment as a
result of completing the improvement project as specified by CCB. In order to
insure that result, the rent under the lease shall include, in addition to the
initial monthly minimum rent, a monthly sum for "project rent."
CCB shall pay as monthly project rent such sum as shall be required to
provide the Lessor with the same "average monthly effective net return" lessor
would have received if the Lessor had not incurred the "Costs" required to
comply with its obligations under CCB's improvement project. The "costs"
referred to in this paragraph shall include all direct charges and expenses
related to the remodeling of the building and grounds as required or approved by
CCB in writing.
The "average monthly net effective return" for purposes hereof shall mean
the total annual rental income under the preexisting leases less all expenses
required to be paid by the Lessor pursuant to the terms of such existing leases
and as owner of the real property; including but not limited to expenditures for
existing mortgage obligations, real property taxes, assessments, maintenance,
utilities, and insurance; the difference to be divided by twelve to determine
the average.
In the event that CCB does not exercise the any of the options for
additional terms under the lease after the improvement project has been
completed CCB shall pay to Lessor the balance of the rent hereunder as if all
options had been exercised after deducting a discount for increases in market
valuation and a discount for cash prepayment as well as credits for increased
fair market rental value. It is the intent of the parties that Lessor shall not
be damaged nor suffer reductions in the Lessor's current effective return during
the maximum term
EXHIBIT A, PAGE 1
<PAGE>
hereof by virtue of constructing the improvements specified by CCB.
CCB will be responsible for constructing and installing all interior
leasehold improvements and fixtures necessary and required for its use of the
premises as a banking facility to the extent that the same are not included in
the improvement project.
Dated: 7-16, 1986.
COAST COMMERCIAL BANK
/s/
- - ------------------------------------
MARTIN N. BOONE
By: /s/
------------------------------
/s/
- - ------------------------------------
ROBIN SHERMAN
EXHIBIT A, PAGE 2
<PAGE>
AGREEMENT TO TERMINATE LEASE
MARTIN N. BOONE and ROBIN SHERMAN, as Lessor, and PATRICK WALSH, doing
business as ART WORLD, as Lessee, executed a written lease dated May 1, 1985,
for a period ending on July 15, 1988.
Lessor and Lessee hereby agree to terminate the above Lease effective July
1, 1986, upon the terms and conditions set forth herein.
Lessor will pay the Lessee the sum of $25,000.00 for the termination of the
lease pursuant to the terms hereof. The sum of $2,800.00 shall be paid upon the
execution hereof, $1,200.00 will be paid on July 15, 1986, and the balance of
$15,000.00 will be paid upon the surrender of the premises on July 31, 1986.
Lessee shall have the right to occupy the premises without rent until July 31,
1986. Any holdover occupancy shall be at $100.00 per day for the first 15 days
and shall increase to $200 at that time and further increases of $100.00
increments shall occur each 15 day period thereafter. Such holdover rent shall
belong to the new tenant described below.
The premises have been leased to Coast Commercial Bank effective July 1,
1986, and they have notice of and have consented to the terms of this agreement.
Lessor agrees that Lessee may maintain appropriate signs on the real
property containing the leased premises redirecting Lessee's customers to his
new location until October 1, 1986.
Lessor further agrees that lessor shall not permit the leased premises to
be used for the purpose of conducting a business selling art supplies or
providing art instruction for a period of five years after the execution hereof.
Lessee's obligations relative to the surrender of the premises under this
agreement modify his obligations under the above lease only in so far as the
actual surrender of possession is accelerated as a result of the early
termination of the lease.
Dated: July 3, 1986.
/s/ /s/
- - -------------------------------- -----------------------------------
MARTIN N. BOONE ROBIN SHERMAN
/s/
-----------------------------------
PATRICK WALSH
Coast Commercial Bank hereby
acknowledges receipt of a copy hereof
/s/
- - -------------------------------
<PAGE>
LEASE
THIS LEASE is made at Santa Cruz, California, as of the first day of
November, 1991, between SCOTTS VALLEY PARTNERS, a California general
partnership, (herein called "Landlord") and COAST COMMERCIAL BANK, (herein
called "Tenant").
WITNESSETH:
That Landlord hereby leases to Tenant, the Tenant hereby leases from
Landlord, upon the terms and conditions hereinafter set forth, those certain
Premises located on Landlord's real property which is situated at 203 Mt. Hermon
Road, City of Scotts Valley, Santa Cruz County, California, which real property
is more particularly described in Exhibit "A" attached hereto and incorporated
herein by this reference (herein called Landlord's Real Property). The Premises
consist of approximately 3420 square feet and are shown on that certain diagram
attached hereto, marked Exhibit "B", and incorporated herein by this reference.
Prior to commencement of the Lease term Landlord shall install the HVAC
mechanical equipment on the roof, and make all other roof penetrations required
for the completion of the tenant improvements. Landlord shall pay for the cost
of such mechanical equipment and installation up to a maximum of $5,000.00,
Tenant shall be responsible for the balance of this and all other costs of
tenant improvements.
1. TERM. The term of this Lease shall be five (5) years and shall
commence on the April 1, 1992 (the "Commencement Date").
If Tenant, with Landlord's consent, takes possession of the Premises
prior to the Commencement Date, Tenant shall do so subject to all of the terms
and conditions of this Lease, except the obligation to pay rent for the period
prior to the Commencement Date. The initial term of this Lease shall end five
(5) years from the date of commencement.
Provided Lessee is not in default of any of the terms of this Lease,
than it shall have three (3) options to extend the term of this lease for
additional five (5) year periods, ("The Option Periods"). Lessee shall give
Lessor written notice no less than six (6) months prior to the expiration of the
term, (or Option period) of its intent to exercise the option.
Rent for the First Option Period: Rental for the first Option period
(years six through ten) shall be adjusted according to the provisions of
Paragraph 2.B, with the sixth year of the term being increased by the CPI over
the fifth year.
Rent for the first year of the second and third Option periods shall
be an amount equal to the "fair market monthly rent" as hereinafter determined
for similar buildings in the City of Scotts Valley, (years 11 and 16 shall be
adjusted to market). In no event shall the monthly rent be less than for the
prior year.
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The rent for years following each year the rent is adjusted to market
shall be adjusted as outlined in paragraph 2.b and in no event shall the rent be
less than the rent for the prior year.
The procedure for establishing the Rent for the first year of the
second and third Option periods shall be as follows.
A. During the thirty (30) day period following receipt of Lessee's
notice of extension (the "negotiation Period"), Lessor and Lessee
shall use their best efforts to agree on the fair market rent for the
Premises for the first year of the Option period.
B. If the parties are unable to agree on the fair market rent within
the Negotiation Period, then within ten (10) days after the expiration
of that period each party shall, at its cost and by written notice to
the other party, appoint a real estate appraiser with at least five
years full time commercial real estate appraisal experience in Santa
Cruz County. Each appraiser selected by a party pursuant to the
provisions hereof shall be impartial and unrelated, professionally or
otherwise, to either of the parties hereto. If either party fails to
appoint an appraiser and give written notice of such appointment to
the other party within said ten (10) day period, the single appraiser
shall alone establish, by written notice to the parties within (30)
days of being appointed, the fair market monthly rent for the first
year of that Option period. If both parties appoint appraisers, the
two appraisers shall promptly meet and attempt to agree on the fair
market monthly rent. If the two appraisers agree on the fair market
monthly rent, such amount shall be binding on the parties hereto and
shall be the monthly Rent for the first year of that Option period.
C. If the two appraisers are unable to agree on the fair market
monthly rent within thirty (30) days after the second appraiser has
been appointed, they shall elect a third appraiser meeting the above
stated qualifications within then (10) days after the expiration of
said thirty (30) day period. If they are unable to agree on the third
appraiser, either of the parties of this Lease by giving ten (10) days
written notice to the other party, may apply to the presiding judge of
the Superior Court of Santa Cruz County to select a third appraiser
who meets the qualifications stated in subparagraph (B). The third
appraiser, however selected, shall not have acted in any capacity for
either party. Each of the Parties shall bear one-half of the cost of
the third appraiser.
D. Within thirty (30) days after the selection of the third
appraiser, the fair market monthly rent, and the monthly Rent for the
first year of the Option period shall be determined by a majority of
appraisers in accordance with the provisions of paragraph (a) above.
If the majority of appraisers are
<PAGE>
unable to agree within the stipulated period of time, the fair market
monthly rent for the first year of the Option period shall be the
average of the three (3) appraisals; provided, however, that if any
appraisal differs from the median appraisal by an amount equal to or
more than ten percent (10%) of such median appraisal, that appraisal
shall be disregarded, and the average of the remaining appraisals (or
the remaining appraisal) shall be the monthly rent for the Second
Extended Term.
2. RENT.
A. Tenant shall pay to Landlord as minimum monthly base rent, without
deduction, set-off, prior notice, or demand, the sum of Four Thousand One
Hundred and four dollars ($4,104.00) per month ($1.20 per square foot NNN) in
advance, which sum is subject to possible adjustment as provided in subsection
(B) of this section, on the first day of the month, commencing on the date the
term commences, and continuing throughout the term, except as provided by the
following Paragraph:
Minimum monthly rent for the first month or portion of it shall be
paid on the day the term commences. In the event Tenant has not completed its
tenant improvements as of April 1, 1992, than it shall pay 1/2 the base monthly
rental until the improvements are completed, or June 1, 1992, whichever event
occurs sooner. In the event the improvements are completed "mid-month" than the
rental for that month shall be prorated with a charge for those days the
improvements were not completed of $68.40 and the days of completed improvements
$136.80. Operating expenses are due when the term commences without setoff. All
rent shall be paid to Landlord at the address to which notices to Landlord are
given.
B. The minimum monthly rent provided for in subsection (A) shall be
subject to adjustment at the commencement of the second year of the term and
each year thereafter (the adjustment date) as follows:
The base for computing the adjustment is the Consumer Price Index for
All Urban Consumers (base year 1982-84 = 100) for San Francisco-
Oakland, California, published by the United States Department of Labor, Bureau
of Labor Statistics (Index), which is published for the date nearest the date of
commencement of the term (Beginning Index). If the Index published nearest the
adjustment date (Extension Index) has increased over the Beginning Index, the
minimum monthly rent for the following year (until the next rent adjustment)
shall be set by multiplying the minimum monthly rent set forth in subsection (A)
by a faction, the numerator of which is the extension index and the denominator
of which is the Beginning Index. In no case shall the minimum monthly rent be
less than the minimum monthly rent set for the in subsection (A). On adjustment
of the minimum monthly rent as provided in this lease, the parties shall
immediately execute an amendment to the lease stating the new minimum monthly
rent.
<PAGE>
If the Index is changed so that the base year differs from that used
as the month immediately preceding the month in which the term
commences, the Index shall be converted in accordance with the
conversion factor published by the United States Department of Labor,
Bureau of Labor Statistics. If the Index is discontinued or revised
during the term, such other government index or computation with which
it is replaced shall be used in order to obtain substantially the same
result as would be obtained if the Index has not been discontinued or
revised.
3. LATE PAYMENT. In the event that any monthly payment is
delinquent for a period of ten (10) days or more, Tenant shall pay to Landlord
as and for a late payment the sum of 5% of the delinquent monthly rental
payment, which shall be payable with the delinquent monthly rental payment.
4. SECURITY DEPOSIT. Tenant hereby deposits with Landlord the sum of Ten
thousand five hundred sixty dollars, ($10,560.00) as security for the full and
faithful performance of each and every provision of this Lease to be performed
by Tenant. Landlord shall not be required to keep this security deposit separate
from its general funds in a trust account, and Tenant shall not be entitled to
any interest on such deposit.
If Tenant defaults with respect to any provisions of this Lease, including, but
not limited to the provisions relating to the payment of rent, Landlord may use,
apply or retain all or any part of this security deposit for the payment of any
delinquent rent or other sum in default, or for the payment of any other amount
which landlord may spend or become obligated to spend by reason of Tenant's
default, or to compensate Landlord for any other loss or damage which landlord
may suffer by reason of Tenant's default. If any portion of this security
deposit is so used or applied, Tenant shall, within five (5) days after written
demand therefor, deposit cash with Landlord in an amount sufficient to restore
the security deposit to its original amount and Tenants failure to do so shall
be a material breach of this Lease. If Tenant shall fully and faithfully perform
every provision of this Lease to be performed by it, the security deposit shall
be returned to tenant within thirty (30) days from the date of expiration of the
Lease term, or any extension thereof
In the event of Landlords termination of Landlords interest in this Lease,
Landlord shall transfer said deposit to Landlords successor in interest
whereupon Landlord shall automatically be released from liability for the return
of such deposit or the accounting therefor.
5. TAX ON THE PREMISES. Except for the following real property taxes and
assessments that are levied against the Common Areas which is covered in
Paragraph "Common Area", below, Tenant hereby agrees to be responsible for and
pay to Landlord the following percentages of any and all real property taxes and
assessments levied by the City of Scotts Valley and the County of Santa Cruz or
any other governmental agency
<PAGE>
against Landlord's real property and improvements thereon as described in
Exhibit "A" attached hereto, during the term of this Lease, including
extensions:
100% of Taxes and Assessments Levied for Tenant's improvements.
6.2% of Taxes and Assessments Levied for Land and other Improvements.
Tenant's pro rata share of said real property taxes and assessments
shall be payable in advance on the first day of each month in an equal to one
twelfth (1/12) of the total of such real property taxes and assessments
reasonably estimated by Landlord to be payable during the calendar year in which
such month falls, multiplied by tenant's pro rata share. Within ninety (90) days
after the end of each calendar year, Landlord will give to Tenant a written
statement of the actual real property taxes and assessments during the preceding
calendar year. Within ten (10) days after said statement is given, an adjustment
will be made by payment to Landlord or to Tenant as the case may require so that
Tenant shall have paid its pro rata share of the real property taxes and
assessments actually assessed and no more. Notwithstanding the above, Tenant
shall be solely responsible for the payment of any increase in real property
taxes arising out of Tenant's leasehold improvements, whether or not of a
permanent nature.
Tenant has represented to Landlord that it is exempt from personal
property taxes. In the event any agency of the government assesses Tenant for
personal property taxes, it shall be the duty of Tenant to either pay the taxes
or resolve the issue to the satisfaction of all parties. If this Lease expires
prior to the determination of the amount of such taxes and assessments for the
last fiscal year in which the Lease expiration occurs, Tenant shall nevertheless
promptly pay such percentage following proper notice from Landlord appropriately
prorated for the portion of the Lease term that falls within such last fiscal
year.
6. TAX ON TENANT'S PROPERTY. Tenant shall be liable for all taxes
levied against any personal property or trade fixtures placed by Tenant in or
about the Premises. If any such taxes on Tenant's personal property or trade
fixtures are levied against Landlord or Landlord's property, and if Landlord
pays same, which Landlord shall have the right to do regardless of the validity
of such levy, or if the assessed value of Landlord's Premises in increased by
the inclusion therein of the value placed upon such personal property or trade
fixtures of Tenant, and if Landlord pays the taxes based upon such increased
assessment, which Landlord shall have the right to do regardless of the validity
thereof, Tenant, upon demand shall, as the case may be, repay to Landlord the
taxes so levied against Landlord, or the proportion of such taxes resulting from
such increase in the assessment.
Tenant shall be responsible for payment of any business, gross
receipts or similar tax or charge and any penalties or interest thereon imposed
by any governmental agency that arises as a result of Tenant's use of the
Premises. Tenant shall not be
<PAGE>
responsible for the payment of any taxes levied on Landlord's business such as
income, excess profits, franchise, capital, or stock tax.
7. USE. The Premises are to be used for the operation of a
Commercial Bank. The business conducted by the Tenant on the Premises shall be
of a character and nature that will not be detrimental to the value of the real
property. No use shall be made or permitted to be made of the Premises, nor acts
done in or about the Premises, which will in any way conflict with any law,
ordinance, rule or regulation affecting the occupancy or use of the Premises,
which are or may hereafter be enacted or promulgated by any public authority, or
which will increase the existing rate of insurance upon the building as of the
Commencement Date or cause a cancellation of any insurance policy covering
Landlord's real property described in Exhibit "A", attached hereto. Should the
rate of insurance increase through any use conducted by Tenant on the Premises,
Tenant shall have the right to pay the increased premium.
8.a: COMMON AREA. Certain areas have been or will be constructed by
Landlord within Landlord's Real Property for the general use, convenience and
benefit of the occupants of the buildings located thereon and their customers
and employees, including the automobile parking areas, sidewalks, landscaped
areas and other areas for pedestrian and vehicular use (herein called the
"Common Area"). Except as may be limited herein, Tenant shall have the
nonexclusive right for itself and for its customers, invites, employees,
contractors, subtenants and licensees to use the Common Area in common with
Landlord and other persons permitted to use the same for parking of vehicles and
for vehicular and pedestrian ingress, egress and access.
The Common Area, and all improvements and facilities situated thereon
and required in connection therewith, shall be maintained by Landlord or its
designee. Tenant shall pay six and 2/10s percent (6.2%) of those certain costs
paid and incurred in connection with the operating, management, maintenance and
repair of the Common Area as provided below.
Landlord shall, at or about the time that Tenant's obligation to pay
rent commences and from time to time thereafter, submit to Tenant an estimate of
the monthly payments required to discharge Tenant's obligations with respect to
payment of its share of Common Area Expenses pursuant to this paragraph.
Landlord shall, no more than annually, revise such estimate in the event that
the then current estimate is not reasonably related to actual amounts then
payable by Tenant hereunder. Tenant shall pay such estimated amounts to Landlord
on the first day of each calendar month during the term. Adjustments shall be
made by Landlord within sixty (60) days after the end of each calendar year, so
that if the total of such estimated amounts paid by Tenant during such year
exceeds the actual amounts payable by Tenant during such year, Landlord shall
pay such overages to Tenant forthwith at the time such adjustment is made.
Failure of Tenant to pay when due any of the charges required by this paragraph
to be paid shall constitute a default the same as a failure to pay rent when
due.
<PAGE>
Common Area Expenses incurred in connection with the operation and
maintenance of the Common Area shall include, but are not limited to, all sums
expended in connection with Common Area for all general maintenance and repairs,
resurfacing or painting, restriping, cleaning, sweeping and janitorial services;
maintenance and repair of sidewalks, curbs and signs; sprinkler systems,
planting and landscaping; lighting and other utilities; directional signs and
other markers and bumpers; maintenance and repair of any fire protection systems
and lighting systems; management and personnel to implement such services
(including administrative, bookkeeping, clerical and similar office staff)
including, if Landlord deems necessary, the cost of security guards; real and
personal property taxes and assessments on the improvements and land comprising
the Common Area; fees, charges, assessments, payments and other amounts of any
kind or nature levied or collected by any governmental agency for the use or
operation of the Common Area; premiums for public liability, casualty and other
insurance on the Common Area; provided, however, that notwithstanding anything
to the contrary contained herein, Common area expenses shall exclude any costs
for items that are capitalized by Landlord, executive salaries, depreciation and
interest, legal fees, leasing commissions, costs to correct original
construction defects in the improvements and property (excluding Tenants
Improvements other than the equipment requiring roof penetrations). Tenant shall
have no liability for payment of roof repairs other than for normal wear and
tear. Tenant shall be responsible for reimbursement to Landlord of expenses
related to the maintenance of the HVAC equipment, including maintenance
contracts and roof repairs required after one year from commencement.
Subject to the following qualifications, Landlord shall also have the
right to establish from, time to time, change alter and amend, and to enforce
against Tenant and the users of the automobile parking areas, such reasonable
rules and regulations as may be deemed necessary or advisable for the proper and
efficient operation and maintenance of said automobile parking areas. Such rules
and regulations may include the hours during which the automobile parking areas
shall be open for use, and designated parking areas for employees of Tenant.
Landlord shall not restrict use of parking areas in any manner which conflicts
with normal business hours of the type of business being conducted by Tenant on
the Premises. Tenant shall have the right to identify and so mark, with
Landlord's consent which shall not be unreasonably withheld, up to ten parking
spaces as being exclusively for Tenants clients and employees use. Landlord
shall have no liability to enforce parking space use of the spaces identified be
Tenant as being for the exclusive use of Tenants clients and employees.
8.b: COMMON AREA AND TENANTS SHARE: Notwithstanding anything to the
contrary contained in this Lease, tenant shall be responsible for 100% of the
expenses, including property taxes, that can be directly related to Tenants
portion of the building and project. Landlord, or Landlord's agents, shall make
its best efforts to isolate expenses incurred by the building of which the
premises are a part and then bill Tenant according to its percentage of
occupancy of the building. Expenses that cannot be directly related to the
building, shall be billed to Tenant in accordance with Tenants portion of the
total project.
<PAGE>
In the event Landlord sells or separates a portion of the project, Landlord and
tenant agree to execute an addendum to this Lease setting forth the new
percentages of Property taxes and other common area expenses Tenant is
responsible for.
9. EXISTING CONDITIONS. Tenant is aware that subject building is
existing in a shell form. Tenant has examined the building and as-built drawings
and accepts subject building in its present form. Landlord agrees to install a
demising wall to secure the premises from the balance of the premises. This wall
shall be a one hour fire wall. Landlord will assist Tenant, Tenants architect
and/or Tenants general contractor with locations of utility stubs. Landlord
shall also make all roof penetrations, and install the heating, ventilation air
conditioning equipment on the roof Landlord shall pay for such HVAC equipment
and corresponding work on roof, up to a maximum of $5,000.00.
10. ASSIGNMENT AND SUBLETTING: Tenant shall not voluntarily assign,
sell, encumber, pledge or otherwise transfer all or any part of Tenant's
leasehold estate hereunder, or permit the Premises to be occupied by anyone
other than Tenant or Tenant's employees, or sublet the Premises or any portion
thereof, without Landlord's prior written consent. Landlord's consent shall not
be unreasonably withheld provided:
(a) The proposed assignee or subtenant is financially capable to
fully perform all of the terms, covenants, conditions to be
performed by Tenant herein;
(b) That each and every covenant, condition or obligation imposed
upon Tenant by this Lease, and each and every right, remedy or
benefit afforded Landlord by this Lease is not thereby materially
impaired or diminished;
(c) Tenant remains liable for performance of each and every
obligation under this Lease to be performed by Tenant;
(d) As to subletting, Landlord shall receive 50% of the gross rent in
excess of the gross rent otherwise payable to Landlord pursuant
to this Lease.
(e) Tenant reimburses Landlord for Landlord's reasonable costs and
professional fees (legal and/or accounting) incurred in
conjunction with the processing and documentation of any such
requested assignment or subletting of this Lease by Tenant.
If Tenant desires at any time to assign this Lease, or sublet any
portion of the Premises, Tenant Shall first notify Landlord of its desire to do
so and shall submit in writing to Landlord, at least fifteen (15) days but not
more than sixty (60) days before the intended date of assignment/subletting, the
name of the proposed assignee/subtenant, the nature of the proposed assignee's
subtenant's business to be carried on in the Premises, the terms and provisions
of the proposed assignment/subletting, and such reasonable financial information
as Landlord my request, certified by the proposed assignee/ subtenant as being
true and correct as of the date of certification. If Landlord disapproves the
proposed
<PAGE>
assignment or subletting, it shall give Tenant in writing specific reasons for
the disapproval.
11. REPAIRS AND MAINTENANCE
A. Landlord's Obligations. Subject to the provisions of Paragraph
"Damage or Destruction", below, Landlord, at its sole cost and expense, shall
maintain, in a good state of repair, the structural parts of the roof (but not
the roof surface), exterior walls (excluding the interior of all walls and the
exterior and interior of all windows, doors, plate glass and show cases),
foundations of the Premises and building, all capital repairs and structural
portions of the building and any repairs required by governmental agencies or
regulations, including but not limited to life and safety systems within the
building that are not required due to the particular use of the building by
Tenant or Tenant's assignee or subtenants; provided however that in the event
any maintenance and repairs are made necessary by the wrongful act or omission
of Tenant or its employees, agents, customers, or invites, Tenant shall pay to
Landlord within ten (10) days after written demand, as additional rent, the
actual cost of such maintenance and repairs plus interest from the date of
expenditure at the highest rate of then permitted under California law. Landlord
shall make repairs under this Paragraph within thirty (30) days after Tenant has
notified Landlord in writing of the need for such repairs and maintenance unless
the particular work to be performed would take longer than thirty (30) days to
complete. In such case, the time period shall be extended to a reasonable time
so long as Landlord exercises due diligence in carrying out such repair and
maintenance. Landlord shall be responsible to repair roof damage (including
leaks) caused by the installation of the HVAC and other equipment installed by
Landlord that penetrates the roof
Landlord shall have no maintenance or repair obligations whatsoever
with respect to the Premises except as expressly provided in this Paragraph.
Tenant hereby expressly waives the provisions of subsection 1 of Section 1932
and Sections 1941 and 1942 of the Civil Code of California and all rights to
make repairs at the expense of Landlord as provided in Section 1942 of said
Civic Code.
B. Tenant's Obligations. Tenant, at Tenant's sole cost and expense,
shall maintain the Premises and appurtenances and every part thereof (excepting
only those items which Landlord is specifically obligated to repair pursuant to
A, above,) in good state of repair, exclusive of ordinary wear and tear,
including without limitation, all interior walls, partitions and floors,
interior surfaces and the ceilings, doors, windows, plate glass, show cases, all
electrical, plumbing and lighting systems and equipment, HVAC equipment and any
fixtures, signs and equipment installed by or at the expenses of Tenant. Tenant
shall not be obligated to repair the roof surface unless said repairs are for
ordinary wear and tear or are the result of Tenants acts or the acts of Tenants
agents.
Should Tenant fail to make repairs required of Tenant hereunder, within
thirty (30) days after notice is given by Landlord, Landlord, in addition to all
other remedies available hereunder or by law and without waiving any alternative
remedies, may make the repairs,
<PAGE>
and in that event, Tenant shall reimburse Landlord, as additional rent, for the
cost of such maintenance or repairs within ten (10) days of written demand by
Landlord. Notwithstanding the above, should Tenant diligently commence repairs
and should said repairs require more than thirty (30) days to complete, Tenant
shall have a reasonable time beyond thirty (30) days from Landlord's notice
within which to complete same.
12. ALTERATIONS. Except as provided below, Tenant shall not make, or
suffer to be made, any alterations, improvements or additions (collectively
"alterations") in, on, about or to the Premises or any part thereof, without the
prior written consent of Landlord (which consent shall not be unreasonably
withheld or delayed) and without a valid building permit issued by the
appropriate governmental authority. As a condition to giving such consent,
Landlord may impose such requirements as Landlord in its sole discretion deems
necessary, including without limitation, requirements that (i) Tenant agrees to
remove any such alterations at the termination of this Lease, and to restore the
Premises to their prior condition; (ii) Tenant secure a completion and lien
indemnity bond satisfactory to Landlord for said work; and (iii) Landlord may
reasonably approve the contractor for such alterations and limit the times
during which the alteration work may be done. Unless Landlord requires that
Tenant remove any such alterations, the alteration, except moveable furniture,
and trade fixtures not affixed to the Premises, shall become the property of the
Landlord upon installation and shall remain upon and be surrendered with the
Premises at the termination of this Lease. (Vaults and vault doors are trade
fixtures) Notwithstanding the above, Tenant shall have the right to make minor,
decorating-type, non-structural alterations and changes to the Premises without
the prior consent of Landlord so long as such changes do not affect the exterior
of the Premises and Tenant obtains all required governmental permits and
approvals at its own cost prior to commencement of work.
Tenant shall not permit any mechanic's or materialman's liens to be
placed on the Premises and shall indemnify, defend and hold Landlord harmless
against any liens, claims, demands, encumbrances or judgments relating to any
labor or services performed or materials furnished for such alterations to the
Premises.
Tenant shall also give Landlord written notice ten (10) days prior to
commencement of services or receipt of material for such alterations and shall
permit Landlord to post a notice of non-responsibility in accordance with the
statutory requirement of California Civil Code Section 3095 or any amendment
thereof Tenant shall have the right to construct improvements to the interior of
the building subject to Landlord's prior written approval of the improvements,
which approval will not be unreasonably withheld.
13. TRADE FIXTURES: Subject to the provisions on Paragraphs "Repairs
and Maintenance" and "Alterations", above, Tenant may install and maintain its
trade fixtures on the Premises, provided that such fixtures, by reason of the
manner in which they are affixed, do not become and integral part of the
building or Premises. Tenant, if not in default hereunder, may at any time or
from time to time during the term hereof or
<PAGE>
upon the expiration of termination of this Lease, alter or remove any such trade
fixtures so installed by Tenant, and any damage to the Premises caused by such
installation, alteration or removal of such trade fixtures shall be promptly
repaired by Tenant at the expense of Tenant. If not so removed by Tenant within
fifteen (15) days of the expiration or sooner termination of this Lease, said
trade futures shall, at Landlord's option, become the property of Landlord, or
Landlord, at his option, may remove said trade futures and any damage to the
Premises caused by such installation, alteration or removal of such trade
fixtures and the cost of such removal shall be paid by Tenant to Landlord upon
demand. It is understood and agreed that Vaults and Vault doors and equipment
are trade futures.
14. DAMAGE OR DESTRUCTION. In the event the Premises, or the building
or other improvements (exclusive of Tenant's Improvements) in which the Premises
are located, shall be damaged by fire, earthquake, the elements or other
casualty so that the damage thereto is such that the Premises, or the building
and other improvements in which the Premises are located, may be repaired,
reconstructed or restored within a period of ninety (90) days, Landlord shall
give Tenant notice of its intent to repair within fifteen (15) days and shall
promptly commence the work of repair, reconstruction and restoration, and shall
diligently prosecute the same to completion at Landlord's expense. During this
period of time, this Lease shall continue in full force and effect except that
Tenant shall not be liable for monthly rent if the Premises are totally
destroyed or are unusable by Tenant. Tenant would be liable only for monthly
rent in proportion to usable space if partially destroyed. If the Premises, or
the building or other improvements (exclusive of Tenant's Improvements) in which
the Premises are located, could not be restored within three hundred sixty-five
(365) days, either Tenant or Landlord has the option to terminate this Lease by
giving written notice to the other, Notwithstanding the above, in the event of
any partial destruction to the building representing thirty percent (30%) or
more of the replacement cost of the building housing the Premises or any partial
destruction to the Premises occurring during the last six (6) months of the
Lease term, or any extension thereof, Landlord shall have the right for a period
of thirty (30) days after the determination of the availability of insurance
proceeds to retain all insurance proceeds and to terminate this Lease which
right shall be exercised by giving written notice to Tenant of such termination
within said thirty (30) day period.
Should the Lease be terminated as provided in this Paragraph, the
termination date shall be the date of the casualty.
15. ENTRY AND INSPECTION. Tenant will permit Landlord and his agents
to enter into and upon the Premises at all reasonable times and upon reasonable
written notice for the purpose of inspecting the same, or for the purpose of
protecting the interest therein of Landlord, or to post notices of
nonresponsibility, or to service or make alterations, repairs or additions to
the Premises or to any other portion of the building in which the Premises are
situated, including the erection of scaffolding, props, or other mechanical
devises, and will permit Landlord, at any time within sixty (60) days prior to
the expiration of this Lease, to bring upon the Premises, for purposes of
inspection or
<PAGE>
display, prospective tenants thereof. Landlord shall not unreasonably interfere
with Tenant's use and possession of the Premises.
It is understood and agreed that Tenant intends to use the premises as
a commercial bank and as such certain areas are not available to open and
immediate inspections. Tenant shall use its best efforts to comply with the
provisions of this paragraph in accordance with the applicable laws and Landlord
agrees to be accompanied by Tenant or Tenants agent when so requested by Tenant.
16. HOLD HARMLESS AND NON-LIABILITY OF LANDLORD. Tenant agrees to and
shall defend and indemnify Landlord against all claims, liability, loss and
expense by reason of injury to person or property, or both, including, without
limitation, injury to the person or property of Tenant, it's agents, officers,
employees, licensees or invites arising out of the condition of the Premises or
any portion thereof over which Tenant has control and a duty to repair and
maintain under the terms of this Lease; provided, however, that this covenant
shall not apply to injury to person or property resulting from acts of Landlord,
his agents or employees while in or on the Premises.
Landlord agrees to and shall defend and indemnify Tenant against all
claims, liability, loss, and expense by reason of injury to person or property,
or both, including, without limitation, injury to the person or property of
landlord, its agents, officers, employees, licensees or invites arising out of
the condition of the Premises and the Landlord's Real Property and Common Area,
or any portion thereof, over which Landlord has control and a duty to repair and
maintain under the terms of this Lease; provided, however, that this covenant
shall not apply to injury to person or property resulting from acts of Tenant,
his agents or employees while in or on the Premises.
17. UTILITIES. Tenant shall be responsible for the payment of the
cost it's proportionate share of all utilities serving the Premises.
18. NOTICES. Any notice require to be given pursuant to this
Agreement shall be given in writing to the other party and delivered either
personally or by depositing the same in the United States postal service,
registered or certified mail, return receipt requested, with the postage
prepaid, addressed to the parties as follows:
If, to Landlord:
Scotts Valley Partners
350 Coral Street
Santa Cruz, CA 95060
with copy to:
Monterey Bay Property Management
133 Mission St. #103
Santa Cruz, CA. 95060
<PAGE>
If, to Tenant:
Coast Commercial Bank
P.O. Box 1818
Santa Cruz, CA 95061-1818
Attn.: Chief Operating Officer
Any notice delivered by mail shall be deemed delivered forty-eight
(48) hours after deposit in the United States Postal Service mail. The address
to which any notice is to be delivered may be changed by either party by
compliance with the provisions of this Paragraph.
19. BANKRUPTCY AND INSOLVENCY. The filing or commencement of any
proceeding by or against Tenant under the Federal Bankruptcy Code whether
voluntary or involuntary, if not dismissed within sixty (60) days from the date
of filing, shall constitute a default under this Lease.
20. RECEIVERSHIP. Either the appointment of a receiver to take
possession of all, or substantially all, of the assets of any Tenant or
garnishment of or levy or writ of execution on, all or substantially all of the
assets of any Tenant which remains in effect for more than sixty (60) days, or a
general assignment by any Tenant for the benefit of creditors, shall constitute
a breach of this Lease by Tenant.
21. DEFAULT AND REMEDIES. The occurrence of any one or more of the
following events shall constitute a material default and breach of this Lease by
Tenant:
(a) The failure by Tenant to make any payment of rent or any
other payment required to be made by Tenant hereunder as and when due
and after ten (10) days written notice to Tenant by Landlord to pay
same.
(b) The occurrence of an event described in Paragraphs
"Bankruptcy and Insolvency" and "Receivership", hereof
(c) The failure by Tenant to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed or
performed by Tenant, other than described in subparagraph (b) and (c)
above, where such failure shall continue for a period of thirty (30)
days after written notice thereof from Landlord to Tenant, provided
that if such failure cannot be cured within such thirty (30) day time
period, then it shall not be an event of default so long as Tenant is
diligently pursuing the cure of such matter.
In the event of any such material default or breach by Tenant,
Landlord may at any time thereafter, with or without notice or demand and
without limiting Landlord in the exercise of any right or remedy which Landlord
may have by reason of such default or breach:
<PAGE>
(a) Terminate Tenant's right to possession of the Premises by
any lawful means, in which case this Lease shall terminate and Tenant
shall immediately surrender possession of the Premises to Landlord. In
such event, Landlord shall be entitled to recover from Tenant all
damages incurred by Landlord by reason of Tenant's default, including,
but not limited to expenses of reletting, reasonable attorney's fees,
and any real estate commission actually paid; the worth at the time of
award by a court having jurisdiction of the unpaid rent which had been
eared after termination until the time of such award exceeds the
amount of such rental loss that the Tenant proves could have been
reasonably avoided; the worth at the time of such award of the amount
by which the unpaid rent for the balance of the term after the time of
such award exceeds the amount of such rental loss that the Tenant
proves could be reasonably avoided; and the portion of any real estate
commission payable by Landlord applicable to the unexpired term of
this Lease. Unpaid installments of rent or other sums shall bear
interest from the date due at the rate of ten percent (10%) per annum.
In the event Tenant shall have abandoned the Premises, Landlord shall
have the option of (i) retaking possession of the Premises and
recovering from Tenant the amount specified in this subparagraph (a),
or (ii) proceeding against subparagraph (b). For purposes of
subparagraph (a), the term "worth at the time of such award" shall
have the meaning provided in Section 1951.2(b) of the California Civil
Code.
(b) As provided in Section 1951.4 of the California Civil Code,
maintain Tenant's right to possession, in which case this Lease shall
continue in effect whether or not Tenant shall have abandoned the
Premises. In such event, Landlord shall be entitled to enforce all of
Landlord's rights and remedies under this Lease, including the right
to recover the rent as it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Landlord
under the laws or judicial decisions of the State of California
22. REMOVAL OF PROPERTY. Should Tenant default, as provided in
Paragraph "Default and Remedies", above, Landlord shall, at his option, be
entitled to remove any property of Tenant from the Premises and store the same
elsewhere for the account, and at the expense and risk, of Tenant and should
Tenant fail to pay the cost of storing any such property after it has been
stored for a period of ninety (90) days or more, Landlord, after ten (10) days'
written notice to Tenant and Tenant's failure to pay the required amount, may
sell any or all of such property at public or private sale, in such manner and
at such times and places as Landlord, in his sole discretion, may deem proper,
for the payment of any charges for the removal, storage and sale of such
property, and shall apply the proceeds of such sale: first, to the cost and
expenses of such sale, including reasonable attorney's fees actually incurred;
second, to the payment of the cost of or charges for removing and storing any
such property; third, to the payment of any other
<PAGE>
sums of money which may then or thereafter be due to Landlord from Tenant under
any of the terms hereof; and fourth, the balance, if any, to Tenant.
23. WAIVER OF DAMAGES FOR REENTRY. Tenant hereby waives all claims
for damages that may be caused by Landlord's reentering and taking possession of
the Premises or removing and storing the property of Tenant as herein provided,
and will save Landlord harmless from, loss, costs or damages occasioned thereby,
and no such reentry shall be considered or construed to be a forcible entry.
24. ATTORNEY'S FEES. In the event suit is brought to enforce or
interpret any part of this Agreement, the prevailing party shall be entitled to
recover as an element of his costs of suit, and not as damages, a reasonable
attorney's fee to be fixed by the Court. The "prevailing parties shall be the
party who is entitled to recover his costs of suit, whether or not the suit
proceeds to final judgment. A party not entitled to recover his costs shall not
recover attorney's fees. No sum for attorney's fees shall be counted in
calculating the amount of a judgment for purposes of determining whether a party
is entitled to recover his costs or attorney's fees.
25. LITIGATION AGAINST TENANT OR LANDLORD. Should Landlord, without
fault on Landlord's part, be made a party to any litigation instituted by Tenant
against any third party, or instituted by any third party against Tenant, or by
or against any person holding under or using the premises by license of Tenant,
or for the foreclosure of any lien for labor or material furnished to or for
Tenant or for such other person otherwise arising out of or resulting from any
act or transaction of Tenant or of any such other person, Tenant covenants to
pay to Landlord the amount of any judgment rendered against landlord of the
premises, or any part thereof, and all costs and expenses, including reasonable
attorney's fees, incurred by landlord or in connection with such litigation.
Should Tenant, without fault on Tenant's part, be made a party to any litigation
instituted by Landlord, against any third party, or instituted by any third
party against Landlord, Landlord covenants to pay to Tenant the amount of any
judgment rendered against Tenant, and all costs and expenses, including
reasonable attorneys fee's incurred by Tenant in connection with such
litigation.
Tenant's obligation under this paragraph, shall not be applicable to
any action brought by Tenant against Landlord.
26. WAIVER. The waiver by Landlord of any breach of any term,
covenant or condition herein contained shall not be deemed to be a waiver of
such term, covenant, or condition or of any subsequent breach of the same or any
other term, covenant or condition herein contained. The subsequent acceptance of
rent hereunder by Landlord shall not be deemed to be a waiver of any preceding
breach by Tenant of any term, covenant or condition of this Lease, other than
the failure of Tenant to pay the particular rental so accepted, regardless of
Landlord's knowledge of such preceding breach at the time of acceptance of such
rent.
<PAGE>
The waiver by Tenant of any breach of any term, covenant or condition
herein contained shall not be deemed to be a waiver of such term, covenant or
condition or of any subsequent breach of the same or any other term, covenant or
condition herein contained.
27. LIENS. Tenant shall keep the Premises and building and the
property on which the premises are situated, free of any liens arising out of
work performed, materials furnished or obligations incurred by Tenant. Tenant,
however, shall have the right to contest in good faith any lien arising out of
work performed or materials furnished or obligations incurred by Tenant provided
Tenant posts a bond reasonably satisfactory to Landlord in the amount of such
lien or otherwise provides landlord with security reasonably acceptable to
Landlord in the amount of such lien.
28. SUBORDINATION AND OFFSET STATEMENT. Tenant agrees that this Lease
shall be subject to any mortgage, trust deed or like encumbrance heretofore or
hereafter placed upon said Premises by Landlord or his successors in interest to
secure the payments of monies loaned, interest thereon and other obligations.
Landlord shall seek to have any mortgage, deed of trust or like encumbrance
placed upon the Premises by landlord to secure the payments of monies loaned,
interest thereon, and other obligations to recognize the phooey of this Lease,
or if such lender requires that this Lease be subordinate to any such
encumbrance, that Landlord shall further seek to have such lender execute a
written agreement that provides substantially the following:
As long as Tenant performs its obligations under this Lease, no
foreclosure of, deed given in lieu of foreclosure of, or sale under
the encumbrance, and no steps or procedures taken under the
encumbrance, shall affect Tenant's rights under this Lease. The
provisions in Paragraph "Insurance" below, concerning the disposition
of insurance proceeds on destruction of the premises, and the
provision in Paragraph "Condemnation" below, concerning the
disposition of any condemnation award, shall prevail over any
conflicting provisions in this encumbrance.
Should such lender not accept this Lease as being prior to such
encumbrance, Tenant agrees that this Lease shall be subject to such encumbrance.
In all instances, Tenant shall attain to any purchaser at any foreclosure of
sale or any grantee or transferee designated in any deed given in lieu of
foreclosure. Tenant shall execute any written agreement and any other documents
required by the lender to accomplish the purpose of this Paragraph.
If Landlord desires to sell or to finance or refinance Landlord's real
property described in Exhibit "A", attached hereto, or any part thereof, Tenant
agrees to deliver to any prospective purchaser or lender designated by Landlord
such financial statements of Tenant that are provided to shareholders of Tenant
upon request.
<PAGE>
Tenant also agrees to promptly execute and deliver to Landlord from
time to time, as demanded by Landlord, an offset statement of estoppel
certificate containing such facts as are within the knowledge of or are
available to Tenant pertaining to this Lease, as a purchaser of the leased
property or a lender may reasonably require if said statement is prepared for
signing by Landlord. Failure to deliver the executed offset statement or
estoppel certificate to Landlord within ten (10) days from receipt of same,
shall be conclusive upon Tenant for the benefit of the party requesting the
statement or certificate, or his successor, that this Lease is in full force and
effect and has not been modified except as may be represented by Landlord in the
statement of certificate delivered to Tenant.
29. INSURANCE.
(a) During the lease term, Tenant shall at its own expense, maintain
in full force a policy or policies of comprehensive liability
insurance, including property damage, written by one or more
responsible insurance companies licensed to do business in California,
and in good standing with the Insurance Commissioner of California,
that will insure Tenant and Landlord (or lender(s) of Landlord)
against liability for injury to persons and property and for death of
any person or persons occurring in or about the Premises. The
liability under such insurance shall not be less than Three Million
Dollars ($3,000,000.00) for bodily injury and One Million Dollars
($1,000,000.00) for property damage.
(b) During the lease term, Tenant shall maintain in full force on all
of its fixtures and equipment in the Premises, a policy or policies of
fire insurance with standard extended coverage endorsement, to the
extent of at lease eighty percent (80%) of their insurable value.
Landlord shall have no interest in the insurance upon Tenant's
equipment and fixtures and will sign all documents necessary or proper
in connection with the settlement of any claim or loss by Tenant.
(c) During the lease term, Landlord shall maintain in full force on
the Premises exclusive of Tenant's improvements, fixture and
equipment, a policy or policies of all-risk, hazard insurance and fire
insurance with standard extended coverage endorsement to the extent of
at least the full replacement value of the improvements located on the
Landlord's real property described in Exhibit "A", attached hereto,
exclusive of Tenant's fixtures, equipment, furnishings and other
personal property. As long as this Lease is in effect, the proceeds
from any such policy or policies shall be used for the repair or
replacement of the Premises pursuant to Paragraph "Damage or
Destruction:, above. Tenant shall pay its pro rata share of the amount
of the premium cost for this insurance (based on the property the
premium is covering), within ten (10 days of receipt from Landlord of
a copy of the premium statement for the particular premium. Tenant
shall pay a pro rata share of any premium or insurance which covers a
period prior
<PAGE>
to the Commencement Date or subsequent to the expiration date of this
Lease.
Tenant shall provide Landlord with certificates of all policies,
require under subparagraph (a) and (b), including in each instance an
endorsement providing that such insurance shall not be canceled except after
thirty (30) days written notice to Landlord.
Landlord hereby releases Tenant, and Tenant hereby releases Landlord,
from any and all claims or demands for damages, loss, expense or injury to the
Premises, or to the improvements, fixtures and equipment, or personal property
or other property of either Landlord or Tenant in, about or upon the Premises
adjoining property, as the may be, which is caused by or results from perils,
events or happening which are the subject of insurance carried by the respective
parties and in force at the time of any such loss; provided, however, that such
mutual waiver shall be effective only to the extent permitted by the insurance
covering such loss.
30. CONDEMNATION. Should the whole or any part of the Premises be
condemned and taken by any competent authority for any public or quasi-public
use or purpose, or should Landlord make a conveyance in lieu thereof, all awards
payable on account of such condemnation and taking or conveyance shall be
payable to Landlord, and Tenant hereby waives all interest in or claim to said
awards, or any part thereof Tenant shall be entitled, however, to any award
based upon the taking of or damage to Tenant's trade fixtures and improvement to
the Premises to the extent Tenant has the right to remove them at the end of the
lease term., Tenant shall also be entitled to any award for removal or
relocation costs as well as injury to its business being conducted on the
Premises.
If the whole of the Premises shall be so condemned and taken or
conveyed, then this Lease shall terminate.
If a part only of the Premises is so condemned and taken or conveyed,
and the remaining portion thereof is not suitable for the purposes for which
Tenant has leased said Premises, Tenant shall have the right to terminate this
Lease. If by such condemnation and taking a part only of the Premises is taken,
and the remaining part thereof is suitable for the purposes for which Tenant has
leased said premises, this Lease shall continue, but the rental shall be reduced
in an amount proportionate to the value of the portion taken as it related to
the total value of the Premises.
31. WAIVER OF REDEMPTION BY TENANT, HOLDING OVER. Tenant hereby
waives for Tenant and for all those claiming under Tenant, all right now or
hereafter existing to redeem by order or judgment of any court or by any legal
process or writ, Tenant's right to occupancy of the leased Premises after any
termination of this Lease. If Tenant holds over the term hereof, with the
express or implied consent of Landlord, such tenancy shall be from month-to-
month only, and not a renewal hereof, or an extension for any further term, and
in such case rent shall be payable in the amount and at the time
<PAGE>
specified in Paragraph "Rent", above, including adjustments for real property,
tax and assessments increase and consumer price index change. Such
month-to-month tenancy shall be subject to every other term, covenant, and
agreement contained herein.
32. RULES AND REGULATIONS. Landlord shall have the right from time to
time to adopt reasonable rules and regulations for the use of the Common Area by
all of the tenants within Landlord's Real Property and their respective agents,
employees, customers, and other invites. Attached hereto, marked Exhibit "C" and
incorporated herein by this reference, is a copy of the initial Rules and
Regulations to which Tenant shall be subject. Tenant, on behalf of itself and
its agents, employees, customers and other invites, agrees to abide by each and
every rule and regulation.
33. HAZARDOUS MATERIALS. As used in this Lease, the term "hazardous
materials" shall mean any substance or material which has been determined by the
State of California, the federal government, the City of Scotts Valley, or any
agency of said governments, to be capable of posing a risk of injury to health,
safety and property including, but not limited to, all of those materials and
substances designated as hazardous or toxic by the Environmental Protection
Agency, the California Water Quality Control Board, the US Department of Labor,
the California Department of Industrial Relations, and the Department of
Transportation, the Department of Agriculture, the Consumer Products Safety
Commission, the Department of Health, Education and Welfare, the Food and Drug
Administration or any other governmental agency now or hereafter authorized to
regulate materials and substances in the environment. Without limiting the
generality of the foregoing, the term "hazardous materials" shall include all of
those materials and substances defined as "toxic materials" in Section s 66680
through 66685 of Title 22 of the California Administrative Code, Division 4,
Chapter 30, as the same may be amended from time to time.
Landlord and Tenant shall promptly comply with all laws related to
hazardous materials, including any and all required monitoring and record
keeping, and any orders of a governmental authority requiring the cleanup and
removal of hazardous materials from the Premises. If the Premises, or any part
thereof (including the soil, surface water, ground water or the air in or about
the Premises), becomes contaminated by any hazardous material through any act or
omission of either party, its agents, employees, or invites, such party shall
promptly at its sole cost take all action necessary to clean up and remove such
contamination and restore the Premises to the condition existing immediately
prior to the existence of such hazardous material in or about the Premises.
Tenant's and Landlord's obligations under this Paragraph shall survive Lease
termination. Tenant shall immediately notify Landlord in writing if Tenant
causes or permits any hazardous material to be used or kept in or about the
Premises or know or has reasonable cause to believe that any hazardous material
has come to be located in or about the Premises or discovers the existence of
any hazardous material in or about the premises.
Landlord shall be solely responsible for the cost of any required
cleanup and removal of hazardous materials and/or toxic wastes which have been
placed or left
<PAGE>
upon the Premises or the rest of Landlord's Real Property by Landlord. Landlord
shall immediately notify Tenant in writing if Landlord causes or permits any
hazardous material to be used or kept in or about the Premises or the rest of
Landlord's Real Property, or knows or has reasonable cause to believe that any
hazardous material has come to be located in or about the Premises or the rest
of Landlord's Real Property or discovers the existence of any hazardous material
in or about the Premises or the rest of Landlord's Real Property.
Each party shall indemnify the other and its successors and assigns
against and hold them harmless from any and all claims, demands, liabilities,
damages, including punitive damages, costs and expense, including reasonable
attorneys fees, herein collectively referred to as "Claims":
(1) Any Claim by a federal, state and local governmental agency
arising out of or in any way connected with the environmental condition of
the Premises including, but not limited to, claims for additional cleanup
of the Premises which is due to any act or omission of such party, its
agents, employees, or invites; and
(2) Any Claim by a successor in interest of Tenant (including a
mortgagee who acquires title to the Premises through foreclosure or by
accepting a deed in lieu of foreclosure), or by any subtenant, licensee, or
invitee of Tenant arising out of or in any way connected with the
environmental condition of the Premises.
34. DEFINED TERMS. The words "Landlord" and "Tenant" as used herein,
shall include the plural as well as the singular, words used in neuter gender
include the masculine and feminine and words in the masculine or feminine gender
include the neuter. If there be more than one Landlord or Tenant, the
obligations hereunder imposed upon Landlord or Tenant shall be joint and
several. The marginal headings or titles to the paragraphs of this Lease are not
a part of this Lease and shall have no effect upon the construction or
interpretation of any part thereof.
35. HEIRS. Subject to the provisions hereof relating to assignment,
mortgaging, pledging and subletting, this Lease is intended to and does bind the
heirs, executors, administrators, successors and assigns of any and all of the
parties hereto.
36. JURISDICTION. This Agreement shall be governed by and construed
in accordance with the laws of the State of California
37. TIME. Time is of the essence of this Lease.
38. SEVERABILITY If any term or provisions hereof is illegal or
invalid for any reasons whatsoever, such illegality or invalidity shall not
affect the validity of the remainder of this Lease.
<PAGE>
39. ENTIRE AGREEMENT. This Lease contains the sole and entire
agreement of the parties, and correctly sets forth the rights, duties and
obligations of each to the other, and any prior agreements, promises,
negotiations, or representations not expressly set fourth in this Agreement are
hereby superseded and of no force and effect. Any changes to this Lease must be
in writing, signed by both Landlord and Tenant.
40. AUTHORIZATION. Tenant hereby represents to Landlord that the
party executing this Lease on behalf of Tenant, is authorized by Tenant to
execute this Lease and thus bind Tenant to all of the terms, covenants and
conditions contained herein.
Landlord hereby represents to Tenant that the party executing this
Lease on behalf of Landlord is authorized by Landlord to execute this Lease and
thus bind Landlord to all of the terms, covenants and conditions contained
herein.
41. TENANT'S REMEDY. If, as a consequence of a default by Landlord
under this Lease, Tenant recovers a money judgment against Landlord, such
judgments shall be satisfied only out of the proceeds of sale received upon
execution of such judgment and levied thereon against the right, title and
interest of Landlord in the real property described in Exhibit "A", attached
hereto, and out of rent or other income from such property receivable by
Landlord where out of consideration received by Landlord from the sale or other
disposition of all or any part of Landlord's right, title or interest in said
real property, and neither Landlord nor its agents shall be liable for any
deficiency.
Transfer of Landlord's interest in the event of a sale of conveyance
by Landlord of Landlord's interest in the Premises other than a transfer for
security purposes only, Landlord shall be relieved from and after the date
specified in any such notice of transfer of all obligations and liabilities
accruing thereafter on the part of Landlord provided that any funds in the hands
of Landlord at the time of transfer in which Tenant has an interest shall be
delivered to the successor of Landlord. This Lease shall not be effected by any
such sale and Tenant agrees to attorn to the purchaser or assignee provided all
of Landlord's obligations hereunder are assumed in writing by the transferee.
42. QUIET ENJOYMENT. So long as Tenant fully performs under the terms
and conditions of this Lease, Landlord covenants to Tenant quiet enjoyment of
the Premises.
43. Warranty. Landlord represents and warrants to Tenant that as of
the Commencement Date the Premises and all improvements shall comply with all
applicable laws and governmental regulations, that Landlord is the sole owner of
the Real Property where the Premises are situated and has not assigned, pledged,
transferred or otherwise encumbered its interest in the Real Property in a
manner which would preclude Landlord from entering into this Lease and fully
performing all of the covenants, terms and conditions contained herein, and that
Landlord has all right, authority and power to execute and perform under this
Lease.
<PAGE>
44. SIGNAGE. Tenant shall have the right to place signs on the
exterior of the Premises so long as such signs are in full compliance with
applicable ordinances and regulation of the City of Scotts Valley and, if
required, all approvals and permits of said City have been obtained. Tenant must
also obtain approval from Landlord of design and location. Landlords approval
will not be unreasonably withheld.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease the date
and year first above written.
SCOTTS VALLEY PARTNERS, a
California general partnership
By: /s/
---------------------------
Landlord
COAST COMMERCIAL BANK
By: /s/
---------------------------
Tenant
<PAGE>
EXHIBIT "C"
RULES & REGULATIONS
1. Lessee shall not suffer or permit the obstruction of any Common Areas,
including driveways or walkways.
2. Lessee shall not keep animals or birds within the Office Building
Project, and shall not bring motorcycles or other vehicles into areas
not designated as authorized for same.
3. Lessee shall not make, suffer or permit litter except in appropriate
receptacles for that purpose.
4. Lessee shall not deface the walls, partitions or other surfaces of the
Premises or Office Building Project.
5. Lessee shall not suffer or permit anything in or around the Premises
or Building that causes excessive vibration or floor loading in any
part of the Office Building Project.
6. No exterior window coverings, shades, or awnings shall be installed or
used by Lessee, unless approved by Lessor and City of Scotts Valley.
7. Lessee shall not use any method of heating or air conditioning other
than as provided or approved by lessor.
8. The Premises shall not be used for lodging, cooking or food
preparation except in approved designated areas.
9. Lessee shall comply with all safety, fire protection and evacuation
regulations established by Lessor or any applicable governmental
agency.
10. Lessor reserves the right to waive any one of these rules or
regulations and/or as to any particular Lessee, and any such waiver
shall not constitute a waiver of any other rules or regulations or any
subsequent application thereof to such Lessee.
11. Lessee assumes all risks from theft or vandalism and agrees to keep
its Premises locked as may be required.
12. Lessor reserves the right subject to Lessee's review and comment, to
make such other reasonable rules and regulations as it may from time
to time deem necessary for the appropriate operation and safety of the
Office Building
<PAGE>
Project and its occupants. Lessee agrees to abide by these and such
rules and regulations.
<PAGE>
EXHIBIT "C" (CONT.)
13. Lessee will abide by all laws and/or ordinances established by the
State of California, County of Santa Cruz and City of Scotts Valley,
or any governmental agency having jurisdiction.
14. Parking areas shall be used only for parking by vehicles no longer
than full size passenger automobiles herein called "Permitted Size
Vehicles." Vehicles other than Permitted Size Vehicles are herein
referred to as "Oversize Vehicles" and must be parked in designated
parking spaces only.
15. Lessee shall not permit or allow any vehicles that belongs to or are
controlled by Lessee or Lessee's employees, suppliers, shippers,
customers, or invitees to be loaded, unloaded, or parked in areas
other than those designated for such activities for an unreasonable
length of time or that it blocks the normal flow of traffic.
16. Users of the parking area will obey all posted signs and park only in
the areas designated for vehicle parking.
17. Unless otherwise instructed, every person using the parking area is
required to park and lock his own vehicle. Lessor will not be
responsible for any damage to vehicles, injury to persons or loss of
property, all of which risks are assumed by the party using the
parking area.
18. The maintenance, washing, waxing or cleaning of vehicles in the Common
Areas is prohibited. (This rule (#18) does not apply to secured
parking area behind Building #l)
19. Lessee shall be responsible for seeing that all of its employees,
agents and invitees comply with the applicable parking rules,
regulations, laws and agreements.
20. Lessor reserves the right to modify these rules and/or adopt such
other reasonable and nondiscriminatory rules and regulations as it may
deem necessary for the proper operation of the parking area.
21. Such parking use as is herein provided is intended merely as a license
only and no bailment is intended or shall be created hereby.
<PAGE>
JAY PAUL COMPANY
February 12, 1990
Mr. Joe Accornero
Coast Commercial Bank
740 Front Street, Suite 240
Santa Cruz, CA 95061-1818
Re: Pajaro Hill Center
Correction on Rent Commencement
Dear Joe:
Per my conversation with Shannon, this is to correct the previous letter dated
February 6, 1990.
Since we had not received any first or last month rent deposits, your rent
commencement date will be March 1, 1990. You will need also to send a check in
the amount of $4,908.75 for the last month rent, as soon as possible.
Thank you for your prompt attention to this matter. If you have any questions,
please do not hesitate to contact me.
Sincerely,
/s/
Lucile Nickerson,
Project Manager
5619 Scotts Valley Dr., Suite 280, Scotts Valley, CA 95066, (408) 438-3888
<PAGE>
JAY PAUL COMPANY
February 6, 1990
Mr. Joe Accornero
Coast Commercial Bank
740 Front Street, Suite 240
Santa Cruz, CA 95061-1818
Re: Pajaro Hill Center - Commencement date
Dear Joe:
Per our telephone conversation, this is to confirm that the lease between Coast
Commercial and Paul Tarigo Associates was executed on the 29th of December 1989.
Your commencement date is 60 (sixty) days from the date of the execution of the
lease, or March 1st, 1990.
We will apply your 1st month rent deposit to the month of March 1990. April 1st,
1990 will be the date when your monthly rent payments will be starting.
If you have any questions, please do not hesitate to contact me.
Sincerely.
/s/
Lucile Nickerson,
Project Manager
LN/ca
110 Cooper Street, Santa Cruz, California 95060, (408) 429-9800
<PAGE>
LIST OF TENANT RESPONSIBILITIES CONCERNING COMMENCEMENT
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As an aid to Tenant, the following is a list of some, but not all, of
Tenant's obligations under the Lease relating to commencement, use, and tenant
improvements.
1. Tenant realizes that Landlord and its agents can only estimate net
charges for taxes, insurance, and common area maintenance on new buildings,
based on other projects. Detailed net charge information shall be forthcoming
from the Landlord once those costs are established. The net charges may vary
from month to month.
2. Tenant is responsible to ensure that its business use is acceptable
according the City and other governmental agencies for the Premises' zoning. If
Tenant's business requires any seating, Tenant realizes it is Tenant's
responsibility to confirm the availability of parking for the Premises with the
appropriate City department, and to gain such approvals as are necessary to
ensure Tenant's ability to have adequate seating.
3. Tenant recognizes that Tenant is responsible for any and all fees
charged by the City and other governmental agencies in connection with any
permits Tenant may need. Tenant is fully responsible for determining the amount
and type of fees involved in the City process.
4. Tenant recognizes that Tenant is responsible for tendering any plans
for changes in the Premises, as required in the Lease, to Landlord for
Landlord's approval and subsequently to the appropriate City department for any
necessary approvals.
5. Tenant recognizes that any proposed signage for the Premises must meet
with Landlord's approval and also requires approval by the appropriate City
department.
6. If this lease has been filled in and addendum(s) attached hereto, it
has been prepared for submission to your attorney for his approval. No
representation or recommendation is made by Retail Real Estate Group or its
agents or employees as to legal sufficiency, legal effect or tax consequences of
this lease or the transaction relating thereto .
The foregoing provisions constitute supplemental provisions of this Lease,
and supersede any provisions elsewhere contained in this Lease to the contrary.
<PAGE>
Landlord___/s/____
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Tenant____/s/____
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NET SHOPPING CENTER LEASE
BASIC LEASE PROVISIONS
REFERENCE DATE , 1989
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LANDLORD Jay Paul
TENANT Coast Commercial Bank, a California banking corporation
PREMISES Approximately 2,975 square feet of space, the location of
which is indicated on Exhibit A hereto, on the land located
in the City of Watsonville, County of Santa Cruz, State of
California, more particularly described as Refer to Exhibit
A. which is part of the Pajaro s Hills shopping center.
Landlord hereby reserves the right at any time, and from
time to time, to make alterations or additions to the
Premises and to install, maintain, use, repair, and replace
pipes, ducts, conduits, and wires, leading through, under,
or over the Premises, in locations serving other parts of
the Shopping Center, which will not materially interfere
with Tenant's use of the Premises. Landlord also reserves
the right to enlarge the area of the shopping center by
acquisition or leasehold, to construct other buildings or
improvements in the Shopping Center, from time to time, to
make alterations therof or additions therto, to build
additional stores on any building or buildings, to build
adjoining to the same, and to construct parking facilities.
In such instance, Tenants Pro Rata Share, as described
below, shall be altered to reflect the new square footage of
the Shopping Center.
TERM One Hundred Twenty (120 ) months.
TERM
COMMENCEMENT DATE 60 (sixty) days from the execution date of this lease
agreement.
<PAGE>
OPTION TO EXTEND 2, 5 year options at market Rent. Refer to attached Option
Agreement.
RENT Minimum Monthly Rent Four Thousand Nine Hundred Eight
Dollars and 75/100 ($4,908.75 )
Gross Sales Percentage N.a (-0- %)
RENT COMMENCEMENT Same as term commencement date.
SECURITY DEPOSIT Four Thousand Nine Hundred Eight Dollars and 75/100
($4,908.75 )
TENANT'S
PRORATA SHARE Five and thirty-three percent (5.33 %)
TENANT___/s/_____
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RETAIL REAL ESTATE GROUP LANDLORD___/s/_____
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<PAGE>
USE Full Service Retail Banking.
TRADE NAME Coast Commercial Bank
COST OF LIVING
ADJUSTMENTS Annual rent increases per the San Francisco/Oakland Consumer
Price Index.
COMBINED SINGLE
LIABILITY LIMIT One Million Dollars ($l,000,000.00)
NOTICES TO LANDLORD:
Jay Paul Company
812 Pollard Road. Suite 5
Los Gatos, California 95030
COPY TO:
TO TENANT:
Coast Commercial Bank
740 Front Street Suite 240
Santa Cruz, CA 95061-1818
COPY TO:
PREPAID RENT Four Thousand Nine Hundred Eight Dollars and 75/100
($4,908.75) as the First month's rent
MISCELLANEOUS This lease agreement is subject to Tenant's obtaining
approval from the State Regulatory Agency within 75 days of
lease execution. Failure to obtain such approval shall make
this lease voidable by either Landlord or Tenant with
written notice.
LANDLORD'S AGENT Retail Real Estate Group, a California corporation
TENANT'S AGENT J. R. Parish
RADIUS Two (2) Miles
<PAGE>
EXHIBITS DESCRIPTION OF PREMISES A
WORK LETTER B
SIGN CRITERIA C
RULES AND REGULATIONS D
ADDENDUM
TENANT____/s/______
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RETAIL REAL ESTATE GROUP LANDLORD____/s/______
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<PAGE>
TABLE OF CONTENTS
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ARTICLE PAGE
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1 TERM OF LEASE 1
1.1. Fixed Term 1
1.2. Acceptance of the Premises 1
1.3. Option to Extend Lease l
1.4. Minimum Monthly Rent for Extended Term 1
1.5. Determination of Fair Market Net Rent 1
2 RENT 2
2.1. Minimum Rent 2
2.2. Periodic Adjustment by Index 2
2.3. Percentage Rent 2
2.4. Records, Reports, and Accounting 3
2.5. Security Deposit4
2.6. Real Property Taxes 4
2.7. Proration of Tenant's Tax and Assessment Liabilities 5
2.8. Late Charge 5
2.9. Impounds6
2.10. Additional Rent 6
3 USE OF PREMISES 6
3.1. Permitted Use 6
3.2. Limitations on Use 6
3.3. Cancellation of Insurance; increase in
Insurance Rates 7
3.4. Compliance with Laws and Documents 7
3.5. Waste; Nuisance 7
3.6. Overloading 7
3.7. Quiet Enjoyment 7
3.8. Common Areas 7
3.9. Toxic Materials 9
3.10. Continuous Operation 9
4 MAINTENANCE AND REPAIR 10
4.1. Tenant's Obligations 10
4.2. Landlord's Obligations l0
<PAGE>
4.3. Tenant's Failure to Maintain 10
4.4. Waiver of Legal Rights 10
5 ALTERATIONS, FIXTURES AND SIGNS 11
5.1. Alterations 11
5.2. Required Alterations 11
5.3. Security for Completion 11
5.4. Additional Conditions 11
5.5. No Landlord Conditions 11
5.6. Notice 12
6.7. Manner; Cost 12
5.8. Mechanic's Liens 12
5.9. Trade Fixtures 12
5.10. Removal 12
5.11. Signs 12
5.12. Insurance 12
6 UTILITIES AND SERVICES 12
6.1. Tenant to Provide 12
(iii)
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TABLE OF CONTENTS
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(Continued)
ARTICLE PAGE
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7 INDEMNITY AND EXCULPATION; INSURANCE 13
7.1. Indemnity 13
7.2. Comprehensive Liability Insurance 13
7.3. Tenant's Fire Insurance 13
7.4. Plate Glass Insurance 13
7.5. Liquor Liability Insurance 13
7.6. File insurance on Shopping Center 13
7.7. Loss of Rents Insurance 13
7.8. Workers' Compensation Insurance 14
7.9. Waiver of Subrogation 14
7.10. Other Insurance Matters 14
7.11. Additional Clauses of Endorsements 14
7.12. Named Insureds 14
7.13.Delivery of Policies 14
8 DESTRUCTION 14
8.1. Uninsured Risks 14
8.2. Insured Risks 15
8.3. Extent of Obligation 15
9 CONDEMNATION 15
9.1. Definitions 15
9.2. Parties' Rights and Obligations To Be Governed
by Lease 16
9.3. Total Taking 16
9.4. Partial Taking 16
9.5. Effect on Rent 16
9.6. Restoration of Premises 16
9.7. Award 16
9.8. Temporary Taking 16
10 ASSIGNMENT, SUBLETTING & ENCUMBRANCE 16
10.1. Consent Required 16
10.2. Deemed Assignment or Subletting 16
<PAGE>
10.3. Submittal by Tenant 16
10.4. Landlord Options 17
10 5. Deemed Reasonable 17
18.6. Remitting Excess Rent 17
10.7. Basic Standards 17
10.8. Permitted Assignment 18
10.9. Failure to Comply 18
10.10 Landlord's Costs 18
10.11 Involuntary Assignment 18
10 12. No Release of Tenant 18
11 DEFAULT 18
11.1. Default Described 18
11.2 Landlord's Remedies 18
11.3. Tenants Right to Possession Not Terminated 18
11.4. Termination of Tenant's Right to Possession 19
11.5. Landlord's Right to Cure Tenant's Default 19
11 6 Interest on Unpaid Rent 19
11.7. Waiver of Redemption 19
11.8. Tenant's Property 19
(iv)
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<PAGE>
TABLE OF CONTENTS
(Continued)
ARTICLE PAGE
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11.9. All Sums Due and Payable as Rent 19
11.10. Procedural Waivers 19
11.11. No Merger 20
11.12. Landlord Default 20
11.13. Chronic Delinquency 20
11.14. Pre-litigation) Fees and Costs 20
12 LANDLORD'S ENTRY ON PREMISES 20
12.1. Right of Entry 20
12.2. Exculpation 20
13 SUBORDINATION; ESTOPPEL 21
13.1. Subordination 21
13.2. Prior Lien 21
13.3. Documentation 21
13 4. Attornment 21
13 5. Estoppel Certificates 21
14 NOTICES 21
14.1. Certified Mail 21
14.2. Address 21
14.3. Notice of Default 21
15 WAIVER 22
15.1. Delay or Omission 22
15.2. Receipt of Rent 22
15.3. Written Notice 22
15.4. Consent or Approval 22
15.5. Default 22
15.6. Other Tenants 22
<PAGE>
16 ATTORNEYS' FEES 22
16.1. Landlord Made Party to Litigation 22
16.2. Certain Litigation Between the Parties 22
17 DELIVERY OF POSSESSION; HOLDING OVER 22
17.1. Delivery of Possession 22
17.2. Landlord Election 23
17.3. Failure to Deliver Possession 23
17 4. Holding Over 23
17.5. Free of Liens 23
16 ADVERTISING MEDIA 23
18.1. Restrictions 23
19 RULES AND REGULATIONS 23
19.1 Compliance 23
(v)
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<PAGE>
TABLE OF CONTENTS
(Continued)
ARTICLE PAGE
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20 DEFINITIONS 23
20.1. Definitions 23
21 GENERAL CONDITIONS 24
21.1. Time of Essence 24
21.2. Consent of the Parties 24
21.3. Corporate or Partnership Authority 24
21.4. Successors 24
21.5. Rent Payable In U.S. Money 24
21.8. Status of Parties on Termination of Lease 24
21.7. Landlord Liability 24
21.8. Landlord 25
21.9. Agency 25
21.10. Broker Disclaimer 25
21.11. Brokerage Commissions 25
21.12. Exhibits--Incorporation in Lease 25
21.13. Force Majeure 25
21.14. Relationship 25
21.15. Security Measures 26
21.16. Easements 26
21.17. Radius 26
21.18. Right to Relocate 26
22 INTERPRETATION OF LEASE 26
22.1. California Law 26
22 2. Integrated Agreement; Modification 26
22.3. Provisions Are Covenants and Conditions 26
22.4. Use of Definitions 26
22 5. Headings; Ambiguity 26
22.6. Singular and Plural 28
22.7. Joint and Several Obligations 28
22.8. Severability 28
22.9. Counterparts 27
<PAGE>
(vi)
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NET SHOPPING CENTER LEASE
Landlord hereby leases to Tenant and Tenant hereby leases from landlord the
Premises described in the Basic Lease Provisions subject to any superior liens
or encumbrances and subject to the covenants, terms, and conditions of this
Lease and reserving and excepting to Landlord the roof and the right to install,
maintain, use, repair, and replace facilities in or leading through the
Premises, in locations which do not materially interfere with a permitted use
thereof by Tenant (or if material interference results therefrom, provided
Tenant is granted reasonable allowance therefor) and provided that this Lease
confers no rights either with regard to the subsurface of the land (herein
called "the Land") below the ground level of the building (herein called "the
Building") in the shopping center ("the Shopping Center") in which the Premises
are located, or with regard to airspace, interior, or exterior, above the
ceiling of the Building.
ARTICLE 1
TERM OF LEASE
1.1. FIXED TERM. This Lease shall be for the term set forth in the Basic
Lease Provisions commencing at 12:01 A.M. on the Commencement Date and ending at
11:59 P.M. on the Expiration Date unless sooner terminated or extended as herein
provided. In the event that Landlord shall permit Tenant to occupy the Premises
prior to the Commencement Date, such occupancy shall be subject to all the
provisions of this Lease and shall not advance the Expiration Date.
1.2. ACCEPTANCE OF THE PREMISES. Tenant (i) has examined the Premises is
aware of their condition and acknowledges that Landlord has made no warranty or
representation with respect to same, (ii) accepts the Premises and Improvements
thereon In their present condition (iii) agrees that the Premises and
improvements, and facilities appurtenant thereto, are in good, clean, safe and
tenantable condition as of the date of this Lease and that this provision shall
be conclusively binding on the parties hereto, and (iv) acknowledges that
Landlord is relying on such acceptance and agreement as consideration for
entering into this Lease.
1.3. OPTION TO EXTEND LEASE. Provided Tenant is not in default when Tenant
exercises its option, and subject to Section 11.13 hereof, Tenant shall Slave
one option to extend the term of this Lease if the same is granted in the Basic
Lease Provisions. The option shall be exercised by giving notice of exercise of
the
<PAGE>
option ("option notice") to Landlord at least six (6) months, but not more than
one year, before the expiration of the then current term, provided that if
Tenant is in default on the date of giving the option notice, the option notice
shall be totally ineffective, or if Tenant is in default on the date the
extended term is to commence, the extended term shall not commence, and, in
either case, this Lease shall expire at the end of the then current term unless
terminated sooner under the provisions hereof. The option to extend is granted
by Landlord to Tenant personally, and shall not be exercised or assigned,
voluntarily or involuntarily, by or to anyone other than Tenant, except that the
option may be assigned together with this Lease in an assignment permitted or
consented to by Landlord in accordance with the provisions of Article 10 hereof.
Except as provided in the preceding sentence, any assignment of the option to
extend without Landlord's prior written consent shall be void, and at Landlord's
election shall constitute a default hereunder. After the exercise of the option
to extend and the commencement of the option term, all references in this Lease
to the term shall be considered to mean the term as extended.
1.4. MINIMUM RENT FOR EXTENDED TERM.
1.4.1. For the extended term, Landlord and Tenant shall have a thirty (30)
day period after Landlord receives the option notice in which to agree on
minimum monthly rent during the extended term. If the parties agree on the
minimum monthly rent for the extended term during that period, they shall
immediately execute an amendment to this Lease stating the minimum monthly rent.
1.4.2. If the parties are unable to agree on the minimal monthly rent for
such extended term within the thirty (30) day period described in subsection
1.4.1, tile minimum monthly rent for such extended term shall be conclusively
determined in the manner set forth in Section 1 5.
1.4.3. The minimum monthly rent for each year of the extended term as
determined under this Section 1.4 shall be subject to adjustment at the
beginning of each succeeding lease year in accordance with subsection 2.2.1
below. In no case shall the minimum monthly rent determined or adjusted under
this Section 1.4 be less than the minimum monthly rent for a preceding lease
year.
1.4.4. Rent adjustments made under this Section 1.4 shall be final and
binding upon both Landlord and Tenant.
1.5. DETERMINATION OF FAIR MARKET NET RENT.
<PAGE>
1.5.1. For purposes of this Lease, "fair market net rent" shall be deemed
to mean the base amount of minimal monthly rental which would typically be paid
by a tenant under a net lease (exclusive of all other sums payable by the tenant
under a net lease such as taxes, insurance premiums, common area maintenance
charges, repair and restoration costs, and similar charges)
-1-
Landlord____/s/______
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Tenant____/s/______
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for premises of a similar type, design* and quality in the same or similar
quality geographic area in which the Premises are situated under market leasing
conditions existing at that time and taking into consideration the presence, if
any, of adjustment by index or other escalation provisions provided hereunder.
*excluding Tenant's leasehold improvements,
1.5.2. Within ten (10) days after the expiration of the thirty (30) day
period described in Section 1.4 respecting the extended term, each party at its
cost and by giving notice to the other party, shall appoint a real estate
appraiser with at least live years full-time commercial appraisal experience in
the geographical area in which the Premises are located, to appraise and set the
then fair market net rent as the minimum monthly rent for the first year of the
extended term. If a party does not appoint an appraiser within ten (l0) days
after the other party has given notice of the name of its appraiser, the single
appraiser appointed shall be the sole appraiser and shall set the minimum
monthly rent for the first year of the extended term.
1.5.3. If the two appraisers are appointed by the parties as stated in this
Section 1.5, they shall meet promptly and attempt to appraise and set the then
fair market net rent as the minimal monthly rent for the first year of the
extended term. If they are unable to agree within thirty (30) days after the
second appraiser has been appointed, they shall attempt to select a third
appraiser, meeting the qualifications stated in this Section 1.5, within ten
(10) days after the last day the two appraisers are given to set the minimum
monthly rent. Each of the parties shall bear one-half of the cost of appointing
the third appraiser, and of paying the third appraiser's fees. The third
appraiser, however selected, shall be a person who has not previously acted in
any capacity for either party. If they are unable to agree on a third appraiser,
then the two (2) appraisers shall appraise and set the fair market net rent as
the minimum monthly rent for the first year of the extended term in the same
manner as three appraisers would pursuant to subsection 1.5.4 (but not 1 5.5)
hereof.
1.5.4. Within thirty (30) days after the selection of the third appraiser,
a majority of the appraisers shall appraise and set the fair market net rent as
the minimum monthly rent for the first year of the extended term. If a majority
of the appraisers are unable to so set the minimum monthly rent within the
stipulated period of time, the three appraisals of same shall be added together
and their total divided by three. The resulting quotient shall be the minimum
monthly rent for the Premises during the first year of the extended term.
1.5.5. If, however, the low appraisal and/or the high appraisal are more
than ten percent (10%) lower or higher than the middle appraisal, the low
<PAGE>
appraisal and/or the high appraisal shall be disregarded. It only one appraisal
is disregarded, the remaining two appraisals shall be added together and their
total divided by two. The resulting quotient shall be the minimum monthly rent
for the Premises during the first year of the extended term.
ARTICLE 2
RENT
2.1. MINIMUM RENT. Tenant agrees to pay to Landlord, as minimum monthly
rent, without deduction, setoff, prior notice, or demand, the sum per month set
forth in the Basic Lease Provisions, subject to adjustment as provided in
Sectors 2.2 hereof, in advance on the first day of each and every month
commencing on the Rent Commence Date, to Landlord or its agent, at the Rent
Address, or at such other place or places Landlord may, from time to time,
designate by written notice delivered to Tenant.
2.2 PERIODIC ADJUSTMENT BY INDEX.
2 2.1. The minimum monthly rent shall be subject to adjustment at the
commencement of the second lease year of the term, and each lease year
thereafter ("the adjustment date") as follows: the base for computing the
adjustment is the Consumer Price Index for All Urban Consumers
(base year 1982-84=100) for San Francisco-Oakland-San Jose All items published
by the United States Department of Labor, Bureau of Labor Statistics ("index"),
which is most recently published prior to the date of the commencement of the
term ("beginning Index"). If the index most recently published prior to the
adjustment date ("extension index") has increased over the beginning index, the
minimum monthly rent for the following year shall be set by multiplying the
minimum monthly rent set forth in Section 2.1 by a fraction, the numerator of
which is the extension index, and the denominator of which is the beginning
index. In no case shall the minimum monthly rent be less than the minimum
monthly rent for the preceding lease year. The term "lease year" shall mean the
twelve month period beginning with the first day of the month in which the term
commences and each successive twelve month period thereafter during the term of
this lease.
2 2.2. If the index is changed so that the base year differs from that
used for the beginning index, the index shall be converted in accordance with
the conversion factor published by the United States Department of Labor, Bureau
of Labor Statistics. If the index Is discontinued or revised during the term,
such other government index or computation with which it is replaced shall be
used in order
<PAGE>
to obtain substantially the same result as would be obtained if the index had
not been discontinued or revised. Rent adjustments made under this Section 2.2
shall be final and binding on Landlord and Tenant.
2.3. Percentage Rent (NOT USED)
2.3.1. through 2.4.3. (NOT USED)
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2.5. SECURITY DEPOSIT. Upon the execution of this Lease by Tenant, Tenant
shall deposit with Landlord the first installment of minimum monthly rent due
hereunder and the sum set forth in the Basic Lease Provisions as and for a
Security Deposit to secure the faithful performance by Tenant of each term,
covenant and condition to be performed or observed by Tenant under this Lease.
If Tenant shall at any time fail to timely make any payment due or fail to
timely perform or observe any term, covenant or condition on its part to be
performed or observed under this Lease, Landlord may without waiving or
releasing Tenant from any obligation under this Lease, and without waiving its
right to treat such failure as a default hereof, use, apply, or retain the whole
or any part of the Security Deposit reasonably necessary to remedy such failure
of Tenant and to compensate Landlord for damage it suffers thereby. In such
event, Tenant shall, within five (5) days of written demand by Landlord, remit
to Landlord sufficient funds to restore said Security Deposit to its original
sum; Tenant's failure to do so shall be a material breach of this Lease.
Landlord shall not be a trustee of the Security Deposit and may commingle it,
use it in ordinary business, transfer or assign it, or use it in any combination
of those ways. Landlord alone shall be entitled to any earnings or interest on
the Security Deposit. Should Tenant comply with all of said terms, covenants,
and conditions, including, without limitation, its obligation to timely pay all
amounts due hereunder as the same become due, and at the end of the term of this
Lease leave the Premises in the condition required by the terms of this Lease,
then said Security Deposit shall be returned to Tenant following the termination
of this Lease and surrender of the Premises by Tenant.
2.6. REAL PROPERTY TAXES.
2.6.1. Tenant shall pay, as additional rent, its pro rata share (as
defined in the Basic Lease Provisions) of all real property taxes levied or
assessed against any interest of Landlord or Tenant or both (including any legal
or equitable interest of Landlord or its mortgagee it any) in the Premises, the
Land, the Building and/or the common areas of the Shopping Center by any
governmental entity or public authority in the following manner:
(i) From and after the date the rental provided for in this Lease
has commenced, and throughout the term hereof, Tenant shall pay to Landlord, on
the first day of each calendar month, an amount estimated by Landlord to be one-
twelfth of Tenant's pro rata share of the real property taxes. The foregoing
estimated monthly charge may be advertised by Landlord from time to time on the
basis of reasonably anticipated changes in the amount of the real property
taxes.
(ii) Within 30 days following the end of each calendar quarter
or, al Landlord's sole election, each calendar year, Landlord shall furnish
Tenant a
<PAGE>
statement covering the calendar quarter of year just expired, certified as
correct by a certified public accountant or an authorized representative of
Landlord, showing the total of the real property taxes the amount of Tenant's
share of the real property taxes for such calendar quarter or year, and the
payments made by Tenant with respect to such period as set the in (i) above. If
Tenant's share of the real property taxes exceeds Tenant's payments so made,
Tenant shall pay Landlord the deficiency within 10 days after receipt of such
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<PAGE>
statement. If said payments exceed Tenant's share of the real property taxes,
Tenant shall be entitled to offset the excess against payments next thereafter
to become due to Landlord as set forth in (i) above. Tenant's share of the real
property taxes for the previous calendar quarter or year shall be that portion
of all such expenses which is equal to that proportion thereof which the number
of square feet of floor area in the Premises bears to the total number of square
feet of floor area of buildings in the Shopping Center which are occupied and
open for business as of the commencement of such calendar quarter or year. There
shall be appropriate adjustment to Tenant's share of the real property taxes as
of the commencement of rentals and expiration of the term of this Lease.
(iii) Failure of Tenant to pay any of the charges as in this
Section 2.6 required to be paid shall constitute a default under the terms
hereof in like manner as failure to pay minimum monthly rent when due.
2.6.2. As used herein, the term "real property taxes" shall include
every form of tax (other then general net income or estate taxes of Landlord),
charge, levy, assessment, sewer assessment, fee, license fee, service fee
(including, without limitation, those based on commercial rentals, energy or
environmental grounds as well as any increase due to reassessment or escape
assessment whether caused by sale or lease of the Premises or the Building or
otherwise), ordinary or extraordinary, imposed by any authority having direct or
indirect power to tax , including, without limitation, any city, county, state
or federal government or any improvement district, against any legal or
equitable interest of Landlord in, or against Landlord's right to rent, the
Premises, the Building, or the Shopping Center, and any such tax, charge, levy,
assessment or fee Imposed, in addition to or in substitution for any tax
previously included within the definition of real property tax, partially or
totally, whether or not foreseeable or now within the contemplation of the
parties.
2.6.3. Tenant's obligation to pay its share of the assessments, as
provided in this Section 2.6, shall be calculated on the basis of the amount due
if Landlord allows the assessments to go to bond, and the assessment is to be
paid in installments, even if Landlord pays the assessment in full. All real
property taxes levied against the Building, the Shopping Center, and/or the
Land, attributable solely to Tenant's business or Tenant's improvements which
are valued at an amount in excess of the Building standard improvements, shall
be paid entirely by Tenant, and not prorated with other tenants of the Building.
Tenant shall pay its pro rata share of any obligation which may be assessed or
imposed by any governmental entity or agency or public authority in establishing
underground utilities in a beautification district.
<PAGE>
2.6.4. In the event the Premises and the underlying really are not
separately assessed, but are part of a larger parcel for assessment purposes
(hereinafter referred to as the "larger parcel"), taxes and assessments shall be
calculated by using a fraction of said taxes and assessments on the larger
parcel (excluding taxes and assessments on any common areas thereon), the
numerator of which shall be the Floor Area of the Premises and the denominator
of which shall be the Floor Area of all the areas available for exclusive use
and occupancy by tenants of the larger parcel, whether or not actually occupied
and open for business, provided that an equitable adjustment shall be made for
buildings which are only partially completed on the date such taxes and
assessments become a lien. With respect to any assessments which may be levied
against or upon the Premises and the underlying realty, or which under the laws
then in force may be evidenced by improvements or other bonds, or may be paid in
annual installments, only the amount of such annual installment (with
appropriate proration for any partial year) and statutory interest shall be
included within the computation of the annual taxes and assessments levied
against the Premises and the underlying realty. In the event the cost to
Landlord of the insurance that Landlord is required to maintain on the Premises
under Article 7, of this Lease is not separately charged to Landlord by its
insurance carrier, the portion of such cost applicable to the Premises shall be
that proportion of such cost which the Floor Area of the Premises bears to the
Floor Area of all of the areas which are covered by such insurance and are
available for exclusive use and occupancy by tenants of the Shopping Center,
whether or not actually occupied and open for business. The term "Floor Area" as
used throughout this Lease shall mean and include the square footage of all
areas for the exclusive use and occupancy by any tenant of Landlord, measured
from the exterior surface of building walls (and extensions thereof, in the case
of openings) and demising partitions, either of which form the perimeter of the
Premises, and from the center line of demising partitions Premises and those of
adjacent tenants. The Floor Area shall include, without limitations, restrooms,
mezzanines, warehousing or storage areas, clerical or office areas, and employee
areas.
2.7. PRORATION OF TENANT'S TAX AND ASSESSMENT LIABILITIES. Tenant's
liability to pay real property taxes and general and special assessments shall
be prorated on the basis of a 365-day year, to account for any fractional
portion of a fiscal tax year included in the term at its commencement and
expiration.
2.8. LATE CHARGE. Tenant acknowledges that the late payment to rent or any
other sum due from Tenant will cause Landlord to incur costs not contemplated by
this Lease, the exact amount of such costs being extremely difficult and
impractical to fix. Such costs include, without limitation, processing and
accounting charges and late charges that may be imposed on Landlord by the terms
of any encumbrance and notes secured by any encumbrance covering the
<PAGE>
Premises and the cost of money used by Landlord in place of such rent or other
sum. Therefore if any installment of rent or other amount due from Tenant is not
received by Landlord within five (5) days after the same is due, Tenant shall
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pay to Landlord upon demand an additional suns of 10% of said installment of
rent or other amount as a late charge. The parties agree that this late charge
represents a fair and reasonable estimate of the costs that Landlord will incur
by reason of late payment by Tenant. Acceptance of any late charges shall not
constitute a waiver of Tenant's default with respect to the overdue amount, or
prevent Landlord from exercising any of the rights and remedies available to
Landlord under this Lease or by law. Such late charge shall be considered and be
due as additional rent.
2 9. IMPOUNDS. In the event that a late charge is payable hereunder,
whether or not collected, for three (3) installments of rent or any other
monetary obligation of Tenant under the terms of this Lease, Tenant shall pay to
Landlord, if Landlord shall so request, in addition to any other payments
required under this Lease, a monthly advance installment, payable at the same
time as the monthly rent, as estimated by Landlord, for real property tax and
insurance expenses on the Premises which are payable by Tenant under the terms
of this Lease. Such fund shall be established to insure payment when due, before
delinquency, of any or all such real property taxes and insurance premiums. If
the amounts paid to Landlord by Tenant under the provisions of this Section are
insufficient to discharge the obligations of Tenant to pay such real property
taxes and insurance premiums as the same become due, Tenant shall pay to
Landlord, upon Landlord's demand, such additional sums necessary to pay such
obligations. All moneys paid to Landlord under this Section may be intermingled
with other moneys of Landlord and shall not bear interest. In the event of a
default in the obligations of Tenant to perform under this Lease, then any
balance remaining from funds paid to Landlord under the provisions of this
Section may, at the option of Landlord, be applied to the payment of any
monetary default of Tenant in lieu of being applied to the payment of real
property tax and insurance premiums.
2.10. ADDITIONAL RENT. Tenant shall pay as additional rent all sums of
money required to be paid pursuant to this Lease, whether or not the same be
designated as "additional rent." If such amounts or charges are not paid at the
time provided in this Lease, they shall nevertheless be collectible as
additional rent with the next installment of minimum monthly rent thereafter
falling due, but nothing herein contained shall be deemed to suspend or delay
the payment of any amount of money or charge at the time the same becomes due
and payable hereunder or to limit arty other remedy of Landlord.
<PAGE>
ARTICLE 3
USE OF PREMISES
3.1. PERMITTED USE. Tenant shall use the Premises for operating and
conducting the business specified in the Basic Lease Provisions, and shall not
use the Trade Name specified in the Basic Lease Provisions, and shall not use
the Premises for any other purpose or under any other trade name. Tenant
acknowledges and agrees that the success of a project such as the Shopping
Center is dependent upon Landlord being able to maintain, in its sole and
absolute discretion, a so called "quality tenant mix" whereby Landlord selects
and leases space in the Shopping Center to quality tenants providing different
services, goods, and merchandise to customers so as to create the synergism
necessary for a successful retail project. Therefore, Tenant agrees that neither
it, nor its successors and assigns as permitted by this Lease, shall have the
right to change the Permitted Use.
3.2. LIMITATIONS ON USE. Tenant shall not, without the prior written
consent of Landlord, sell merchandise from vending machines or allow any coin to
token operated vending, video, pinball, or gaming machines on the Premises, nor
shall keep or allow animals of any kind on the Premises, whether as part of its
business or otherwise, at any time. Tenant shall not use, or permit any person
to use, the Premises for the sale or display of pornography, drug-oriented
paraphernalia, or any goods and/or services which, in Landlord's sole
discretion, are inconsistent with the image of a community or family-oriented
shopping center. Tenant further covenants and agrees that it will not use or
suffer or permit any person or persons to use the Premises or any part thereof
for conducting therein a second-hand store, auction, distress or fire sale, or
bankruptcy or going-out-of-business sale. Tenant agrees that all trash and
rubbish of Tenant shall be deposited only within receptacles as provided by
Landlord and that there shall be no other trash receptacles permitted to remain
outside the Building. Landlord agrees to cause such receptacles to be emptied
and trash removed at the sole cost and expense of Tenant. Tenant may not display
or sell merchandise or allow carts, portable signs, devices or any other objects
to be stored or to remain outside the defined exterior walls or roof and
permanent doorways of the Premises, or in hallways. No serial or antenna shall
be erected on the roof or exterior walls of the Premises without first
obtaining, in each instance, the written consent of Landlord. Any serial or
antenna so installed without such written consent shall be subject to removal
without notice at any time, at Tenant's cost. In addition, Tenant shall not
solicit or distribute materials in any manner in the Common Areas or the
enclosed mall of the Shopping Center. Tenant shall use its best efforts to
complete, or cause be completed, all deliveries, loading, unloading and services
to the Premises prior to
<PAGE>
10:00 A.M of each day. Tenant shall use its best efforts to prevent delivery
trucks or other vehicles servicing the Premises from parking or standing in
front of, or at the rear of, the Premises from 10:00 A.M. to 9:00 P.M. of each
day. Landlord reserves the right to further regulate the activities of the
Tenant in regard to deliveries and servicing of the Premises, and Tenant agrees
to abide by such further non-discriminatory regulations of Landlord. Tenant's
use of the Premises as provided In this Lease shall also be in accordance with
the following Sections of this Article 3.
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3.3. CANCELLATION OF INSURANCE; INCREASE IN INSURANCE RATES. Tenant shall
not do, bring, keep or allow anything in or about the Premises, including
without limitation, the expressly permitted use, that may be dangerous or may
cause a cancellation of any insurance covering the Building or the Shopping
Center. If the rate of any insurance carried by Landlord is Increased as a
result of Tenant's failure to perform its obligations set forth in the preceding
sentence or by Tenant's use or occupancy of the Premises, Tenant shall pay to
Landlord, within ten (10) days after Landlord delivers to Tenant a statement
from Landlord's insurance carrier which slates the amount of rate Increase and
that said increase was caused solely by an activity of Tenant or a condition
permitted by Tenant at the Premises (provided that nothing herein shall be
deemed to allow an activity or condition not within the use permitted in this
Lease), a sum equal to the difference between the original premium and the
increased premium. Tenant shall comply with any and all requirements of any
insurer of the Premises which pertain to the Premises and which are necessary
for the maintenance of the insurance required or provided for herein.
3 4. COMPLIANCE WITH LAWS AND DOCUMENTS. At all times during the term and
any extension thereof, Tenant shall comply at Tenant's sole cost with all laws
concerning the Premises or Tenant's use or occupancy of the Premises, and any
certificate of occupancy, certificate of compliance, permit, easement,
condition, covenant or restriction covering or affecting the use or occupancy of
the Premises, including, without limitation the obligation to take curative
action, whether substantial or insubstantial, to alter, maintain or restore the
Premises in compliance and conformity with all laws relating to the condition,
use, or occupancy of the Premises. Tenant acknowledges that the Premises are
subject to various recorded documents, and Tenant shall faithfully and timely
observe, perform, and comply with each provision thereof and all supplements and
successors thereto, and Tenant shall indemnify and hold Landlord harmless from
all consequences of any failure of Tenant to do so.
3.5. WASTE; NUISANCE. Tenant shall not use or occupy the Premises in any
manner that may constitute, nor shall Tenant suffer or permit the existence,
maintenance, or commission of, any act, omission, or condition that may
constitute at the Premises waste, nuisance, unlawful acts, or unreasonable
annoyance to other tenants in the Shopping Center; and Tenant shall not use the
Premises in any manner or for any purpose which would tend to affect adversely
the uses by any other tenants In the Shopping Center of their leased premises.
Landlord shall not be obligated, however, to take any steps to prevent or to
discontinue any use by Tenant of the Premises in any manner or for any purpose
which would tend to affect adversely the uses by any other tenants in the
Shopping Center of their leased premises.
<PAGE>
3.6. OVERLOADING. Tenant shall not do anything on the Premises that will
cause damage to the Premises, the Building, or the Shopping Center. Tenant shall
not suffer or allow the Premises to be used in any manner that will harm or
impair the structural strength of the Building nor to suffer or allow to be
installed or operated on the Premises, or the Building, any machinery or
apparatus whose weight or vibration would harm or impair the structural strength
of the Premises or the Building. Tenant shall not place a load upon the floor or
roof of the Premises without Landlord's prior written consent obtained pursuant
to Article 5 hereof, which consent may be conditioned on moving by skilled
licensed handlers, or which exceeds the load per square foot which such floor or
roof was designed to carry. If Tenant shall want a floor or roof load in excess
of that for which the floor or roof of any portion of the Premises or Building
is designed and if Landlord agrees to such loading, upon submission to Landlord
of plans indicating the locators of and the desired floor or roof live load for
the area in question, Landlord shall reinforce the same, at Tenant's sole
expense so as to carry the live load wanted. Business machines and mechanical
equipment used by Tenant which cause vibration or noise that may be transmitted
to the Building structure or to any leased space to such a degree as to be
reasonably objectionable to Landlord or to any tenants in the Building shall be
placed and maintained by Tenant at its expense, in settings of cork, rubber, or
spring-type vibration eliminators sufficient to eliminate such vibration or
noise.
3.7. QUIET ENJOYMENT. As long as Tenant timely complies with and performs
each and every covenant, agreement, term, provision, and condition contained in
this Lease on the part of Tenant to be complied with or performed, Tenant shall
quietly enjoy the Premises without disturbance by Landlord, subject to the
covenants, agreements, terms, provisions, and conditions of this Lease. This
covenant of Landlord is in lieu of any covenant of quiet enjoyment implied by
law.
3.8. COMMON AREAS.
3.8.1. The term "Common Areas" shall mean and refer to all areas
within the exterior boundaries of the Shopping Center which are now or hereafter
made available for general use, convenience, and benefit of Landlord and other
persons entitled to occupy floor area in the Shopping Center, including, without
limiting the generality of the foregoing roofs, exterior walls, structural parts
of the Shopping Center and structural floor, pipes and conduits, outside
lighting fixtures, automobile parking areas, driveways, sidewalks, landscaped
and planted areas, and HVAC and plumbing systems and similar common areas,
facilities, and systems. Tenant and its employees and invitees are, except as
otherwise specifically provided in this Lease, authorized, empowered, and
privileged to use the Common Areas in
<PAGE>
common with other persons during the term of this Lease. Landlord agrees to
maintain and operate, or cause to be maintained and operated (except as
hereinafter provided with reference to cost of maintenance), said Common Areas
at all times for the benefit and use of the customers and patrons of Tenant, and
of other tenants, owners, and occupants of the Shopping Center.
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3.8.2. Landlord shall keep or cause the Common Areas to be kept In a neat,
clean, and orderly condition, and provided lighting and landscaping, and shall
repair any damage to the facilities thereof, but all Common Area Expenses shall
be charged and prorated in the manner hereinafter set forth. Common Area
Expenses as used herein shall include, but not be limited to, all sums expended
in connection with the Common Areas for all general maintenance and repairs,
resurfacing, painting, restripping, cleaning, sweeping and janitorial services;
maintenance and repair of sidewalks, curbs, and Shopping Center signs; sprinkler
systems, planting, and landscaping; lighting and other utilities; directional
signs and other markers and bumpers; maintenance and repair of any fire
protection systems, lighting systems, storm drainage systems and other utility
systems; all maintenance and repair costs and expenses, except as to cost of
replacement of the roof, exterior walls, structural parts of the Premises and
structural floor, and pipes and conduits outside the leased Premises In the
Shopping Center that furnish said leased Premises with various utilities (except
to the extent that the same are the obligations of the appropriate utility
company), incurred by Landlord pursuant to Section 4.2 hereof; personnel to
implement such services including, if Landlord deems necessary, security guards;
real and personal property taxes and assessments on the improvements and land
comprising the Common Areas; any governmental imposition or surcharge imposed
upon Landlord or assessed against any portion of the Common Areas; al costs and
expense pertaining to any security alarm system for the tenants in the Shopping
Center; depreciation on maintenance and operating machinery and equipment (if
owned) and rental paid for such machinery and equipment (if rented); and
adequate public liability and property damage insurance on the Common Areas. In
addition, the Common Area Expenses shall include a management fee not to exceed
10% of the total to all other Common Areas Expenses, adjusted from time to time
as provided herein. Landlord may cause any or all of said services to be
provided by an Independent contractor or contractors. Should Landlord acquire or
make available additional land not described as part of the Shopping Center in
the Basic Lease Provisions and make the same available for parking or other
Common Area purposes, then the Common Area Expenses shall also include all of
the aforementioned expenses incurred and paid in connection with said additional
land.
3.8.3. The Common Area Expenses shall be prorated in the following
manner:
(i) From and after the date the rental provided for in this Lease
has commenced and throughout the term hereof, Tenant shall pay to Landlord, on
the first day of each calendar month, an amount estimated by Landlord to be
Tenant's share of the Common Area Expenses. The foregoing established monthly
<PAGE>
charge may be adjusted by Landlord at the end of any calendar quarter on the
basis of Landlord's experience and reasonably anticipated costs.
(ii) Within 30 days following the end of each calendar quarter
or, at Landlord's sole election, each calendar year, Landlord shall furnish
Tenant a statement covering the calendar quarter or year just expired, certified
as correct by a certified public accountant or an authorized representative of
Landlord, showing the total of the Common Area Expenses, the amount of Tenant's
share of the Common Area Expenses for such calendar quarter or year, and the
payments made by Tenant with respect to such period as set forth in (i) above.
If Tenant's share of the Common Area Expenses exceeds Tenant's payments so made,
Tenant shall pay Landlord the deficiency within 10 days after receipt of such
statement. If said payments exceed Tenant's share of the Common Area Expenses,
Tenant shall be entitled to offset the excess against payments next thereafter
to become due to Landlord as set forth in (i) above. Tenant's share of the
Common Area Expenses for the previous calendar quarter or year shall be that
portion of all such expenses which is equal to the proportion thereof which the
number of square feet of floor area in the Premises bears to the total number to
square feet of floor area of buildings in the Shopping Center which are occupied
and open for business as of the commencement of such calendar quarter or year.
There shall be appropriate adjustment of Tenant's share of the Common Area
Expenses as of the commencement of rentals and expiration of the term of this
Lease.
3.8.4. Failure of Tenant to pay any of the charges as in this Section
3.8 required to be paid shall constitute a default under the terms hereof In
like manner as failure to pay minimum monthly rent when due.
3.8.5 Landlord shall at all times have the right and privilege of
determining the nature and extent of the Common Areas, and of making such
changes therein and thereto from time to time which in its sole discretion It
deems to be desirable able and in the best interest of all persons using the
Common Areas, including without limitation the location and relocation of
driveways, entrances, exits, automobile parking spaces, the direction and flow
of traffic, installation of prohibited areas, landscaped areas, utilities, and
all other facilities thereof.
3.8.6. Nothing contained herein shall be deemed to create any
liability upon Landlord for any damage to motor vehicles of customers or
employees or for loss of property from within such motor vehicles, unless solely
caused by the active gross negligence or greater culpability of Landlord, it
agents, servants or employees. Tenant acknowledges that If Landlord provides
security guards for the Common Areas, Landlord does not represent, guarantee, or
assume responsibility
<PAGE>
that Tenants will be secure from losses caused by the tortious or illegal acts
of third parties and does not assume responsibility for any such tortious or
Illegal acts. To induce Landlord to provide such security guards, if any, as
Landlord deems reasonable, appropriate, and economically feasible, Tenant hereby
waives any present or future claim Tenant may have against Landlord, whether
known or unknown, for bodily injury or property damage arising from the action
or inaction of such security guards.
3.8.7. Landlord shall have the right to establish, and from time to
time change, after and amend, and to enforce against Tenant and the other users
of tile Common Areas such reasonable rules and regulations (including the
exclusion of employees parking thereform) as Landlord in its sole discretion may
deem necessary or advisable for
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the proper and efficient operation and maintenance of the Common Areas. The
rules and regulations herein provided may include, without limitation, the hours
during which the Common Areas shall be open for use.
3.8.8 Landlord shall at all times during the term of this Lease have
the sole and exclusive control of the Common Areas, including, without
limitation, the right to lease space within the Common Areas to tenants for the
sale of merchandise and/or services, the right to install and lease kiosks, and
the right to permit advertising displays, educational displays, and
entertainment in the Common Areas. Landlord shall also have the right at any
time and from time to time during the term hereof to exclude and restrain any
person from use or occupancy thereof, excepting, however, bona fide customers,
patrons, and service suppliers of Tenant, and other tenants of Landlord who make
use of the Common Areas fully in accordance with the rules and regulations
established by Landlord from time to time with respect thereto. The rights of
Tenant hereunder in and to the Common Areas shall at all times be subject to the
rights of Landlord, the other tenants of Landlord, and the other owners of the
Shopping Center to use the same in common with Tenant, and it shall be the duty
of Tenant to keep all of the Common Areas free and clear of any obstructions
created or permitted by Tenant to resulting from Tenant's operation and permit
the use of the Common Areas only for normal parking and ingress and egress by
said customers, patrons, and service suppliers to and from the Building.
3.8.9 If the sole discretion of Landlord unauthorized persons are
using any of the Common Areas by reason of the presence of Tenant in the
Premises, Tenant, upon demand of Landlord, shall enforce such rights against all
such unauthorized persons by appropriate proceedings. Nothing herein shall
affect the rights of Landlord at any time to remove any such unauthorized
persons from said areas or to restrain the use of any of said areas by
unauthorized persons.
3.8.10 The employees of Tenant and the others tenants of Landlord
within the Shopping Center and the employees of other owners of the Shopping
Center shall no be permitted to park their automobiles in the automobile parking
areas of the Common Areas which may from time to time be designated for patrons
of the Shopping Center. Landlord agrees to furnish and/or cause to be furnished
either within the automobile parking areas or reasonably close thereto, space
for employee parking * Landlord at all times shall have the right to designate
the particular parking area to be used by any or all of such employees and any
such designation may be chanted at Landlord's sole election from time to time.
Tenant and its employees shall park their cars only in those portions of the
Common Areas, if any, designated for that purpose by Landlord. Tenant shall
furnish Landlord with its and its employees' license numbers within fifteen (15)
days after
<PAGE>
taking possession of the Premises and Tenant shall thereafter notify Landlord of
any changes within five (5) days after such change occurs. If Tenant or its
employees fail to park their cars in designated parking areas, then Landlord may
charge Tenant Ten Dollars ($10.00) per day for each day or partial day per car
parked in any areas other than those designated. All amounts due under the
provisions of subsection 3.8.10 shall be payable by Tenant within ten (10) days
after demand therefor. *, however, at no time will employee parking be
designated for those parking spaces immediately adjacent to the premises.
3.9 TOXIC MATERIALS. Without giving 10 days prior written notice to
Landlord, Tenant shall not bring, allow, use, or permit upon the Premises, or
generate or create at or emit or dispose from the Premises any toxic or
hazardous gaseous, liquid, or solid materials or waste ("Toxic Materials"),
including, without limitation, material or substance having characteristics of
ignitability, corrosivity, reactivity, or extraction procedure toxicity or
substances or materials which are listed on any of the Environmental Protection
Agency's lists of hazardous wastes or which are identified in Sections 66680
through 66685 of Title 22 of the California Administrative Code as the same may
be amended from time to time. Tenant shall indemnify and hold Landlord harmless
from any claims, liabilities, costs, or expenses incurred or suffered by
Landlord arising from such bringing, allowing, using, permitting, generating,
creating, or emitting or disposing of Toxic Materials. Tenant's indemnification
and hold harmless obligations include, without limitation, all of the following:
(i) claims, liabilities, costs or expenses resulting from or based upon
administrative, judicial (civil or criminal), or other action, legal or
equitable, brought by any private or public person under common law or any
Federal, State, County or Municipal law, ordinance or regulation, (ii) claims,
liabilities, costs, or expenses pertaining to the cleanup or containment of
Toxic Materials, the identification of the pollutants from soils, riverbeds or
aquifers, the provision of an alternative public drinking water source, or the
long term monitoring of ground water and surface waters, and (iii) all costs of
defending such claims. Tenant shall comply, at its sole cost, with all laws
pertaining to such Toxic Materials. Tenant's hold harmless and indemnity
obligations hereunder shall survive the expiration of this Lease.
3.10 CONTINUOUS OPERATION. Tenant shall continuously use the Premises for
the uses specified in this Lease, and shall continuously operate its business,
during all days and hours usual and customary for similar business in the area.
*Tenant agrees that any interruption in Tenant's operation of its business for
more than one (1) week during any part of which time rent payments are
delinquent shall be conclusively presumed to be an abandonment of the Premises
by Tenant, at the option of Landlord. Tenant covenants and agrees that,
continuously and uninterruptedly from and after its initial opening for
business, it shall operate and
<PAGE>
conduct within the Premises the business which it is permitted to operate and
conduct under the provisions hereof, except while the Premises are untenantable
by reason of fire or other casually, and that it shall at all times keep and
maintain and upon the Premises an adequate stock of merchandise and trade
fixtures to service and supply the usual and ordinary demands and requirements
of its customers and that it will keep the Premises in a neat, clean, and
orderly condition. Recognizing that it is in the interests *or consistent with
Tenant's other offices.
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<PAGE>
of both Tenant and Landlord to have regulated hours of business of all of the
Shopping Center, Tenant agrees that commencing with the opening for business by
Tenant in the Premises and for the remainder of the term of this Lease, Tenant
shall be open for business daily, and shall, in addition, continuously so remain
open for business at least those days and hours that the Shopping Center is open
for business to the public, as designated by Landlord in its sole discretion.
Tenant further agrees to have its window displays, exterior signs, and exterior
advertising displays adequately illuminated continuously during all hours on all
days that the Shopping Center is open for business to the public as designated
by Landlord in its sole discretion.
ARTICLE 4
MAINTENANCE AND REPAIR
4.1. TENANT'S OBLIGATIONS. Tenant agrees at all times during the term
hereof, at its own expense, to repair, replace and maintain in good tenantable
condition the Premises and every part there of (except that portion of the
Premises to be maintained by Landlord as hereinafter provided) and including,
without limitation, the utility meters, pipes and conduits, all fixtures, air
conditioning equipment and heating equipment, if any, exclusively serving the
Premises and other equipment therein, including any equipment installed by
Tenant which is part of said system, the storefront or storefronts, all signs,
locks and closing devices, and all window sash, casement of frames, door and
door frames, floor coverings, including carpeting, terrazzo or other special
flooring, and all such items of repair, maintenance, alteration and improvement
or reconstruction as may at any time or from time to time be required by a
governmental agency having jurisdiction thereof. Tenant shall contract with a
qualified service company for the monthly maintenance of the air conditioning
equipment of heating, ventilating and air conditioning equipment, as the case
may be, exclusively serving the Premises, with a copy of the service contract to
be furnished to Landlord within ten (10) days after Tenant's opening of the
Premises to the public for business and a copy of any subsequent contracts to be
furnished from time to time during the Lease Term; provided that, a Landlord's
sole election, Landlord may so contract directly with a qualified service
company, and Tenant shall promptly reimburse Landlord for the full cost of same.
Maintenance of all glass, both exterior and interior, is the sole responsibility
of Tenant, and any glass broken shall be promptly replaced by Tenant with glass
of the same kind, size and quality. Upon surrender of the Premises, Tenant shall
deliver the Premises to Landlord in good order, condition and state of repair,
but shall not be responsible for damage resulting from ordinary wear and tear.
<PAGE>
4.2. LANDLORD'S OBLIGATIONS. Subject to the foregoing provisions and to the
reimbursement by Tenant described in subsection 3.8.2 hereof, Landlord shall
keep and maintain in good and tenantable condition and repair the roof, exterior
walls, structural parts of the Premises and structural floor, and pipes and
conduits outside the Premises that furnish the Premises with various utilities
(except to the extent that the same are the obligations of the appropriate
utility company); provided, however, that Landlord shall not be required to make
repairs necessitated by reason of the negligence of Tenant or anyone claiming
under Tenant, by reason of failure of Tenant to perform or observe any
conditions or agreements of this Lease, or by reason of alterations, additions,
or improvements made by Tenant or anyone claiming under Tenant. As used in this
Section, "exterior walls, shall not include storefronts, plate glass, window
cases or window frames, doors or door frames, security grilles or similar
enclosures. It is understood and agreed that Landlord shall be under no
obligation to make any repairs, alterations, renewals, replacements or
improvements to and upon the Premises or the mechanical equipment exclusively
serving the Premises at any time except as this Lease expressly provides.
Anything to the contrary contained in this Lease notwithstanding, Landlord shall
not in any way be liable to Tenant for failure to make repairs as herein
specifically required of it unless Tenant has previously notified Landlord, in
writing, of the need for such repairs and Landlord has failed to commence said
repairs within a reasonable period of time following receipt of Tenant's written
notification.
4.3. TENANT'S FAILURE TO MAINTAIN. If Tenant refuses or neglects to make
repairs or maintain the Premises, or any part thereof, in a manner reasonably
satisfactory to Landlord, Landlord, shall have the right, upon giving Tenant
reasonable written notice of its election to do so, to make such repairs or
perform such maintenance on behalf of and for the account of Tenant. In such
event the cost of such work shall be paid by Tenant as additional rent promptly
upon receipt of an invoice therefor.
4.4. WAIVER OF LEGAL RIGHTS. Tenant waives the benefits of any law existing
now or at any time during the term of this Lease and any extension thereof or
thereafter giving Tenant rights or remedies as a result of the physical
condition of the Premises, the Building, or Shopping Center and, without
limitation, Section 1932, 1933, 1941, 1941.2, 1942 and 1942.1 of the Civil Code
of California and all right to make repairs at the expense of Landlord or to
terminate this Lease as provided in said Sections of said Civil Code or
otherwise, except as expressly provided herein.
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ARTICLE 5
ALTERATIONS, FIXTURES AND SIGNS
5.1. ALTERATIONS. Except for those Approved Alterations described in the
Basic Lease Provisions, if any, Tenant shall not make any alterations to the
Premises or the Building without the prior written consent of Landlord which
consent shall not be unreasonably withheld or withdrawn. Landlord shall be
deemed to have reasonably withheld or withdrawn consent unless each and every
proposed alteration (i) shall not, individually or in the aggregate, lessen the
fair market value of the Premises or the Building, or materially affect the
usefulness of the Premises or the Building, either for Tenant's business or the
business of potential successor tenants, (ii) be accompanied by all final plans
and specifications with any deviation therefrom constituting a separate
alteration subject to this Article 5, (iii) be constructed by a California
licensed contractor and under the direction of a California licensed architect
satisfactory to Landlord, and (iv) once consented to by Landlord, shall be
completed expeditiously in a good and workmanlike manner, with first class
quality materials, and in compliance with all applicable legal and insurance
requirements, (v) shall become part of the Premises and subject to this Lease,
provided, at Landlord's option, Tenant shall remove any such alteration and
restore the Premises to their condition prior to the making of same, normal wear
and tear excepted, upon the expiration or earlier termination of the term
hereof. Landlord shall exercise its option by 30 days notice given no later than
30 days after such expiration or termination and, if Tenant has not so removed
and restored within 30 days after Landlord gives said notice, Tenant shall pay
Landlord upon demand the reasonable rental value of the Premises during the
period beginning with the date immediately following said 30 days after Landlord
gives its notice and ending with the date upon which the removal and restoration
is completed and Landlord may, but shall not be obligated to, remove such
alteration and restore the Premises and Tenant also shall pay Landlord its costs
of same upon demand.
5.2. REQUIRED ALTERATIONS. Subject to Section 5.1 above, Tenant shall, at
its sole cost, make any alteration, addition, or change to the Premises of any
sort, substantial or insubstantial, ordinary or extraordinary, foreseeable or
unforeseeable, whether structural or otherwise, as may be required by law due to
the existence of, or Tenant's use or occupancy of, the Premises or as a result
of Tenant's application for any permit or governmental approval, provided that
Landlord may elect to make same, in which case Tenant shall reimburse Landlord
promptly upon demand for all costs of Landlord's making same.
<PAGE>
5.3. SECURITY FOR COMPLETION. Before commencing any proposed alteration,
Tenant, if requested by Landlord, shall furnish to Landlord security reasonably
satisfactory to Landlord guaranteeing to Landlord the completion of the proposed
alteration within a reasonable time, free and clear of all liens and, if
available, all encumbrances, chattel mortgages, conditional bills of sale,
security agreements and other claims and charges (other than those, if any,
permitted hereunder) and in accordance with any plans and specifications
theretofore approved by Landlord, and, if required under any Landlord's
encumbrance, by Landlord's lender.
5.4. ADDITIONAL CONDITIONS. Tenant further covenants and agrees that no
alterations will be made except in compliance with, and Tenant hereby covenants
that it will comply with, each of the following provisions:
5.4.1. Before any alterations are begun, Tenant shall procure, at its
own sole cost and expense, all necessary permits from all governmental
authorities and shall, on demand, deliver photocopies thereof to Landlord. Upon
Tenant's request, Landlord shall join in application for such permits whenever
such action is necessary;
5.4.2. All alterations shall be made in compliance and conformity with
all applicable laws;
5.4.3. In making any alterations, Tenant shall not violate the terms
of conditions of any insurance policy obtained or required pursuant to the
provisions of this Lease affecting or relating to the Premises or any part
thereof;
5.4.4 Promptly after the completion of any alterations, Tenant shall
procure, at Tenant's own sole cost and expense, all permits of governmental
authorities for the completed alterations as may be required by any applicable
laws, if any, and, on demand, shall promptly deliver photocopies thereof to
Landlord; and
5.4.5. Tenant shall pay all costs, expenses and liabilities arising
out of, in connection with, or by reason of, any alterations, and shall keep the
Premises free and clear of all liens, claims and encumbrance in any way arising
out of it, in connection with, or by reason of, any alterations.
5.5. NO LANDLORD CONTRIBUTION. Landlord shall not be required to make any
contribution to the cost of any alterations or any part thereof, and Tenant
covenants that Landlord shall not be required to pay any cost, expense or
liability arising out of or in connection with or by reason of any alterations
and shall indemnify and hold Landlord harmless from and against, and shall
reimburse
<PAGE>
Landlord upon demand for, all such costs, expenses and liabilities (including,
without limitation, reasonable attorneys' fees and disbursements).
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5.6. NOTICE. If Tenant makes any alterations to the Premises as provided in this
Article 5, the alterations shall not be commenced until ten (10) days after
Landlord has received written notice from Tenant stating the date the
installation of the alterations is to commence so that Landlord can post and
record an appropriate notice of nonresponsibility at the Premises.
5.7. MANNER; COST. Any alterations by Tenant shall be made in a manner that
will not interfere with the quiet enjoyment of the other tenants in the
Building. Tenant shall pay prior to delinquency all cost for construction done
by it or caused by it to be done on the Premises as permitted by this Lease.
Tenant shall also reimburse Landlord upon demand for all costs Landlord incurs
in reviewing any proposed allocation, including, without limitation, architect,
engineer and legal fees. Upon completion of any such work, Tenant shall have
recorded in the office of the County Recorder of Santa Clara County a Notice of
Completion as required or permitted by law, and Tenant shall deliver to Landlord
within ten days after completion of said work, a copy of the building permit
respect thereto.
5.8. MECHANIC'S LIENS. Tenant shall keep the Land, the Premises, and the
Building free and clear of all mechanic's liens resulting from construction done
by or for Tenant.
5.9. TRADE FIXTURES. Tenant shall have the right at any time, and from time
to time during the term of this Lease and any renewal or extension of such term,
at Tenant's sole cost and expense, to install in or on the Premises such items,
herein called "trade fixtures," for use in Tenant's trade or business as Tenant
may, in its sole discretion, deem advisable, except that all such Tenant's trade
fixtures, furniture, furnishings, signs, and other personal property not
permanently affixed to the Premises must be new when installed in, or attached
to, the Premises. Any and all such trade fixtures shall remain the property of
Tenant, and may be removed by Tenant at any time or times prior to the
expiration or sooner termination of this Lease so long as Tenant is not in
default hereunder, so long as Tenant shall immediately replace the same with
similar personal property of comparable or better quality, except that Tenant
shall not be obligated to replace such personal property at the expiration or
earlier termination of this Lease, and Tenant shall immediately repair all
damage caused by such removal and restore the Premises to substantially the
condition they were in prior to the installation of such evidence fixtures so
that no trace remains of their presence at the Premises. At all times during the
term of the Lease, Tenant shall maintain such trade fixtures in a good, first
class condition. Tenant hereby grants to Landlord a security interest in
Tenant's personal property and merchandise located on the Premises to secure
Tenant's performance of any and all of Tenant's obligations under this Lease. In
the event of Tenant's default, all of Tenant's fixtures, furniture, equipment,
<PAGE>
improvements, additions, alterations, and other personal property shall remain
on the Premises and, continuing until such default has been cured by Tenant,
Landlord shall have the right to take exclusive possession of same and to use
same free of rent or charge until all defaults have been cured or, at its
option, to require Tenant to forthwith remove same.
5.10. REMOVAL. Any trade fixtures described in this Article 5 that are not
removed from the Premises by Tenant on the date of expiration or sooner
termination, regardless of cause, of this Lease shall be deemed abandoned by
Tenant and shall automatically become the property of Landlord and Tenant shall
hold Landlord harmless as to all claimants with respect to same.
5.11. SIGNS. Prior to opening for business, Tenant, at its sole cost and
expense, shall have installed signage for the space in accordance with the sign
criteria attached hereto as Exhibit C, all of which signs shall be in English,
Tenant shall not place, construct or maintain any other sign, advertising or
other exterior decoration without Landlord's prior written consent. Any sign
that Tenant has the right to place, construct or maintain shall comply with all
laws at all times during the term hereof, and Tenant shall obtain any approval
required by such law. Landlord makes no representation with respect to Tenant's
ability to obtain such approval.
5.12. INSURANCE. In the event that Tenant shall make any permitted
improvements to the Premises under the provisions of this Article 5, Tenant
agrees to carry such insurance as required by Section 7.3 covering any such
improvements, it being expressly understood and agreed that none of such
improvements shall be insured by Landlord under the insurance it may carry upon
the Building, nor shall Landlord be required to reconstruct any such
improvements under any circumstances whatsoever, notwithstanding the provisions
of Article 8 hereof.
ARTICLE 6
UTILITIES AND SERVICES
6.1. TENANT TO PROVIDE. Tenant shall make all arrangements for, and shall
pay prior to delinquency, and shall indemnify and hold Landlord harmless from,
all costs incurred in installation, hook-up, delivery, and repair of all
utilities and services whatsoever supplied to or consumed by Tenant on the
Premises. Landlord shall not be responsible for providing any utilities to
Tenant whatsoever, and shall not be liable to Tenant for any interruption of
failure of any utility services to the
<PAGE>
Premises from any cause whatsoever, nor shall such interruption or failure
constitute a constructive eviction or give rise to a right of rent offset or
abatement or affect the obligations of Tenant under this Lease in any other way
whatsoever.
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ARTICLE 7
INDEMNITY AND EXCULPATION; INSURANCE
7.1. INDEMNITY. Tenant hereby waives any claim against Landlord for and
shall indemnify and hold Landlord harmless from any and all liability,
obligation, loss, damages, claims or costs, (including all costs and attorneys
fees incurred in defending against claims of same) of any nature whatsoever on
account of, or arising out of or alleged to be on account of or arising out of,
injury to person or property, of whatever nature, (specifically including,
without limitation, injury to the person or property of Tenant, its agents,
officers, employees, licensees, invitees, or other persons) partially or
entirely arising from or in any way connected with the existence, condition, use
or occupancy of the Premises, or act, occurrence or omission upon the Premises,
or any part thereof, or the acts or omissions of any other tenants in the
Shopping Center or those of their employees, agents, or invitees, or the conduct
of Tenant's business or any breach or default in the performance of any
obligation on Tenant's part to be performed hereunder and Tenant hereby assumes
all risk of and liability for same unless caused solely by Landlord's default in
its obligations hereunder. For purposes of this Lease, Landlord shall not be
deemed in default hereunder unless and until Tenant shall first deliver to
Landlord thirty (30) days' prior written notice, and Landlord shall fail to cure
said default within said thirty (30) day period, or in the event Landlord shall
reasonably require in excess of thirty (30) days to cure said default, shall
fail to commence said cure within said thirty (30) day period, and thereafter
diligently to prosecute the same to completion. This indemnity and hold harmless
provision shall survive the expiration or other termination of the term of this
Lease with respect to any such injury, existence, condition, use, occupancy,
act, occurrence, omission, conduct, or Tenant breach or default which occurs or
is alleged to have occurred during the term, and any extended term, hereof.
7.2. COMPREHENSIVE LIABILITY INSURANCE. Tenant, at its cost, shall maintain
comprehensive general liability insurance against claims for personal injury,
bodily injury, death and property damage in or about the Premises with a
combined single liability limit in the amount set forth in the Basic Lease
Provisions, insuring against all liability of Tenant and its authorized
representatives arising out of or in connection with Tenant's use or occupancy
of the Premises. All such liability insurance shall insure performance by Tenant
of the indemnity provisions of Section 7.1. Landlord (and, if Landlord requests,
its lender) shall be named as an additional insureds, and the policy shall
contain cross-liability endorsements. Not more frequently than each three (3)
years, if, in the opinion of Landlord's lender or the reasonable opinion of an
insurance broker retained by Landlord, the amount
<PAGE>
of comprehensive liability insurance coverage at that time is not adequate,
Tenant shall increase the insurance coverage as reasonably recommended by either
Landlord's lender or Landlord's insurance broker. Tenant shall at its sole cost
and expense, procure and maintain at all times when any alterations are being
made, (i) owner's contingent or protective liability insurance covering claims
not covered by or under the provisions of the above mentioned comprehensive
general liability insurance policy, (ii) contractual liability insurance
covering the indemnity contained in Section 7.1 hereof, and (iii) builder's risk
completed value coverage for 100% of the contract price, deleting all co-
insurance penalties, against all risks insured against pursuant to Section 7.6
hereof.
7.3. TENANT'S FIRE INSURANCE. Tenant, at its sole cost, shall maintain on
all its personal property, tenant improvements, and alterations, in, on, or
about the Premises, a policy provided "All Risk" coverage, to the extent of 100%
of their full replacement value containing, (i) an agreed amount endorsement
waiving all co-insurance penalties, (ii) inflation endorsements, and (iii)
providing for a reasonable deductible approved by Landlord. Unless the Lease is
terminated as herein provided, Tenant shall use the proceeds from any such
policy for the replacement of personal property at the Premises and the
restoration of its tenant improvements or alterations at the Premises.
7.4. PLATE GLASS INSURANCE. Tenant, at its sole cost, shall be responsible
for replacement of any plate glass on the Premises. Both landlord and Tenant
shall be named as co-insureds if plate glass is acquired.
7.5. LIQUOR LIABILITY INSURANCE. Tenant's indemnification obligations under
Section 7.1 shall extend to damage resulting from the sale, service or
manufacturing of alcoholic beverages. The comprehensive liability insurance
required in Section 7.2 above shall include liability insurance for this
exposure.
7.6. FIRE INSURANCE ON SHOPPING CENTER. Landlord, at the expense of Tenant,
shall maintain on the Shopping Center and other improvements related to the
Premises a policy covering such property on an "All Risk" basis (including, at
Landlord's election, the perils of earthquake) to the extent of 100% of full
replacement value. Tenant shall reimburse Landlord Tenant's pro rata share of
the cost of such insurance upon delivery of the insurance premium invoice.
7.7. LOSS OF RENTS INSURANCE. Landlord, at Tenant's cost, shall maintain
loss of rents insurance insuring the minimum monthly rent, Tenant's pro rate
share of Common Area Charges, and real property taxes. Said insurance shall
provide coverage for a period of up to two years if the Premises are destroyed
or rendered
<PAGE>
inaccessible by a risk insured against by the policy of standard fire and
extended coverage insurance, with related endorsements, described in 7.6.
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7.8. WORKER'S COMPENSATION INSURANCE. Tenant at its sole cost shall
maintain Worker's Compensation insurance in the amounts and as required by the
State of California.
7.9. WAIVER OF SUBROGATION.
7.9.1. The parties release each other, and their respective authorized
representatives, from any claims for damage to any person or to the Premises and
the Building, and to the fixtures, personal property, tenant improvements, and
alterations of either Landlord or Tenant in or on the Premises and the Building
that are caused by or result from risks insured against under the fire and
extended coverage insurance policies carried by the parties and in force at the
time of any such damage pursuant to this Article 7.
7.9.2. Each party shall cause each fire and extended coverage
insurance policy obtained by it to provide that the insurance company waives all
right of recovery by way of subrogation against either party in connection with
any damage covered by such policy. Neither party shall be liable to the other
for any damage caused by fire or any of the risks insured against under such
insurance policy required by this Lease.
7.9.3. If any such insurance policy cannot be obtained with a waiver
of subrogation of the party undertaking to obtain the insurance shall give
notice to the other party of this fact. The other party shall have a period of
ten (10) days after receiving the notice either to place the insurance with a
company that is reasonably satisfactory to the party which gave notice and that
will carry the insurance with a waiver of subrogation. If the insurance cannot
be obtained, the party which gave notice is relieved of the obligation to obtain
a waiver of subrogation rights with respect to the particular insurance
involved.
7.10. OTHER INSURANCE MATTERS. All the insurance required under this Lease
shall be issued (i) by insurance companies authorized to do business in the
State of California, with a financial rating of at least an A-XIII status as
rated in the most recent edition of Best's Insurance Reports and consented to by
Landlord; (ii) as a primary policy; (iii) at the insuring party's option, as
part of a blanket policy, provided that such party shall furnish to the other
party written evidence specifying the amount of the total insurance allocated to
the Premises, which shall not be less than that required by Sections 7.2. and
7.3. hereof; (iv) containing an endorsement required 30 days written notice from
the insurance company to both parties before cancellation of change in the
coverage, scope, or amount of any policy; and (v) evidenced by certificates to
be obtained by the party obtaining the
<PAGE>
insurance and delivered to the other party within 10 days after the date such
insurance is required to be in effect.
7.11. ADDITIONAL CLAUSES OR ENDORSEMENTS. All policies of insurance
provided for in Section 7.2 and 7.6 hereof shall, to the extent obtainable,
contain clauses or endorsements to the effect that (i) no act or negligence of
Tenant, or of anyone acting for Tenant, or of any other occupant or user of the
Premises or any part thereof, which might otherwise result in a forfeiture of
such insurance or any part thereof shall in any way affect the validity of
enforceability of such insurance insofar as Landlord and any Landlord's lender
are concerned; (ii) such policies shall not be changed or canceled without at
least 30 days Notice to Landlord and, if required under any Landlord's
encumbrance, to Landlord's lender; and (iii) neither Landlord nor any Landlord's
lender shall be liable for any premiums thereon or subject to any assessments
thereunder.
7.12. NAMED INSUREDS. All policies of insurance provided for in Sections
7.2 and 7.6 hereof shall name Landlord, Tenant and, to the extent required under
any Landlord's encumbrance, Landlord's lender as the insured or additional
insureds, as their respective interests may appear.
7.13. DELIVERY OF POLICIES. No later than the Commencement Date, and
thereafter not less than thirty (30) days prior to the expiration dates of the
policies theretofore furnished pursuant to Section 7.2 and 7.3 hereof,
certificates of insurance for all initial, replacement, and/or renewal policies
(or, in the case of liability insurance and workers' compensation coverage,
certificates of the insurers in form reasonably satisfactory to Landlord), as
the case may be, accompanied by evidence satisfactory to Landlord of payment of
the first installment of the premiums thereof, shall be delivered by Tenant to
Landlord; provided, however, that is the originals of any such policies are
required under the terms of any Landlord's encumbrance to be delivered to
Landlord's lender, Tenant shall cause the same to be done and shall in such case
deliver to Landlord a certified copy of each policy so delivered, together with
an insurance company certificate or memorandum of such policy, in a form
reasonably satisfactory to Landlord.
ARTICLE 8
DESTRUCTION
8.1 UNINSURED RISKS. If, during the term, the Premises are totally or
partially destroyed from a risk not covered by the insurance described in
Section 7.6 above, Landlord, at its option, my elect to terminate this Lease by
giving
<PAGE>
notice to Tenant or may elect to restore the same and Tenant shall reimburse
Landlord upon demand for all its cost of restoration provided that, as to such
destruction to the Building which includes a portion of the Building
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which is not part of the Premises, Tenant shall pay its pro rata share of the
cost of restoring same (except for a portion of the Premises which is another
tenant's premises) and provided, further, if Tenant's obligation under this
Section 8.1 exceeds its pro rata share of replacement value of the Premises and
the Building immediately prior to such damage or destruction, Tenant may elect
to terminate this Lease on notice given to Landlord no later than 30 days after
Landlord notifies Tenant that its obligation shall so exceed said pro rata share
except neither of the two preceding provisions shall apply to destruction which
was caused by an act or omission of Tenant, its employees, agents, invitees or
permitees. If Landlord elects not to restore, Landlord shall have not right to
terminate the Lease if, within 10 days following receipt of Landlord's notice of
its election not to restore and to terminate, Tenant provides to Landlord
reasonable assurance satisfactory to Landlord in Landlord's sole discretion that
Tenant shall pay for the cost of restoring the Premises and the Building shell
outside of the Premises. However, as to destruction which was caused by an act
or omission of Tenant, its employees, agents, invitees or permitees, Tenant
shall reimburse Landlord the full cost of the restoration of the Premises,
Building shell, and all leasehold improvements therein under any circumstances.
8.2 INSURED RISKS. If, during the term, the Premises are totally or
partially destroyed from a risk covered by insurance described in Section 7.6
above, Landlord shall forthwith repair the same to substantially the same
condition the were in immediately prior to the destruction and to the extent of
proceeds received under such insurance, provided such repairs can be made within
ninety (90) days under then existing law. Such destruction shall in no way annul
or void this Lease, except that Tenant shall be entitled to a proportionate
reduction of rent while such repairs are being made, including but not limited
to the ninety days aforementioned, such proportionate reduction to be equal to,
and granted upon Landlord's receipt of, the proceeds received by Landlord from
the business interruption insurance provided under Article 7. Such reduction
shall be in an amount which bears the same proportion to the minimum monthly
rent as the floor area of that portion of the Premises which has been damaged or
is otherwise unusable by Tenant bears to the total floor area of the Premises.
If such repairs cannot be made in 90 days, Landlord may, at its option, make
same within a reasonable time, this Lease continuing in full force and effect
and the rent being proportionately reduced as aforesaid. In the event that
Landlord does not so elect to make such repairs which cannot be made in 90 days,
or such repairs cannot be made under such then existing law, this Lease shall
terminate. In the event that the Premises or the Shopping Center be destroyed to
the extent of 33-1/3% or more of the replacement cost thereof or during the last
year of the term or any extended term, Landlord may elect to terminate this
Lease. Determination of the
<PAGE>
extent of damage shall be made by Landlord based upon written appraisals and
insurance adjustment reports, and shall be final and binding on the parties.
8.3. EXTENT OF OBLIGATION. Notwithstanding the foregoing, Landlord shall
not be required to repair, reconstruct, or restore damage or destruction by fire
or other cause to any portion of the Premises constructed by or for Tenant, and
Tenant shall at its sole cost and expense fully restore or replace its stock in
trade, trade fixtures, furniture, furnishings, equipment, and other personal
property. Tenant shall commence all such replacement and restoration work
promptly following the occurrence of any such damage or destruction, and shall
diligently prosecute such work to completion. Tenant hereby waives any statutory
rights of termination which may arise by reason of any partial or total
destruction of the Premises or any part thereof. Upon termination of the Lease
under any of the provisions of this Article 8, the parties shall be released
thereby from any further obligations hereunder except for obligations which,
prior to the date of such termination, had already accrued, and except as
provided in the following sentence. In the event of such a termination, all
proceeds from Tenant's fire insurance described in Section 7.3 hereof which
pertain to alterations or improvements to the Premises which would otherwise
become the property of Landlord upon expiration or termination of this Lease
shall be disbursed and paid to Landlord.
ARTICLE 9
CONDEMNATION
9.1 DEFINITIONS.
9.1.1. "Condemnation" means (i) the exercise of any governmental
power, whether by legal proceedings or otherwise, by a condemnor and (ii) a
voluntary sale or transfer by Landlord to any condemnor, either under threat of
condemnation or while legal proceedings for condemnation are pending.
9.1.2. "Date of taking" means the date the condemnor has the right to
possession of the property being condemned.
9.1.3. "Award" means all compensation, sums, or anything of value
awarded, paid, or received on a total or partial condemnation.
9.1.4. "Condemnor" means any public or quasi-public authority, or
private corporation or individual, having the power of condemnation.
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9.2. PARTIES' RIGHTS AND OBLIGATIONS TO BE GOVERNED BY LEASE. If, during
the term or during the period of time between the execution of this Lease and
the date the term commences, there is any taking of all or any part of the Land,
the Shopping Center, or any interest in this Lease by condemnation, the rights
and obligations of the parties shall be determined pursuant to this Article 9.
9.3. TOTAL TAKING. If any portion of the Premises is taken by condemnation,
this Lease shall continue in full force and effect, except that minimum monthly
rent shall be reduced pursuant to Section 9.5. If a portion of the Shopping
Center in excess of 10% of the rentable square feet or if any portion of the
Land is taken which would reduce the ingress, egress or parking, then Landlord,
at its option, may terminate this Lease, unless Tenant, in writing, waives
Landlord's obligations to restore as set forth in Section 9.6 hereof, and the
continuation of the Lease does not violate any then applicable law.
9.5 EFFECT ON RENT. If any portion less than all of the Premises is taken
by condemnation and this Lease remains in full force and effect, on the date of
taking the minimum monthly rent shall be reduced by an amount that is the same
ratio to minimum monthly rent as the total number of square feed in the Premises
taken bears to the total number of square feet in the Premises immediately
before the date of taking.
9.6. RESTORATION OF PREMISES. If there is a partial taking of the Premises
and this Lease remains in full force and effect, Landlord, at its cost, shall
accomplish all necessary restoration.
9.7. AWARD. The entire award or compensation in such proceedings, whether
for a total or partial taking or for the fee shall belong to and be the property
of Landlord; provided that Tenant shall be entitled to recover from the
condemnor such compensation as may be separately awarded by the condemnor to
Tenant or recoverable from the condemnor by Tenant in its own right. Each party
waives any statutory right in conflict with the provisions hereof, including,
without limitation, rights under California Code of Civil Procedure Section
1265.130.
9.8. TEMPORARY TAKING. The taking of the Premises or any part of the
Premises by military or other public authority shall constitute a taking of the
Premises by condemnation only when the use and occupancy by the taking authority
has continued for longer than 90 consecutive days. During the ninety-day period,
all the provisions of this Lease shall remain in full force and effect, except
that Landlord shall be entitled to whatever award may be paid for the use and
occupation of the Premises for the period involved and minimum monthly rent
shall be abated or reduced during such period of taking based on the extent to
<PAGE>
which the taking interferes with Tenant's use of the Premises, said reduction
not to exceed said award.
ARTICLE 10
ASSIGNMENT, SUBLETTING & ENCUMBRANCE
10.1 CONSENT REQUIRED. Tenant shall not assign this Lease or any interest
therein nor shall Tenant sublet, license or permit the Premises or any part
thereof to be used or occupied by others, without Landlord's prior written
consent, which shall not be unreasonably withheld or delayed, obtained as
provided in this Article 10. The consent by Landlord to any assignment or
subletting shall not waive the need for Tenant (and Tenant's assignee or
subtenant) to obtain the consent of Landlord to any different or further
assignment of subletting.
10.2. Not Used.
10.3. SUBMITTAL BY TENANT. If Tenant proposed to assign this Lease or any
interest therein or to sublet all or any portion of the Premises, Tenant shall
submit to Landlord, (i) a true and current financial statement of the proposed
assignee or subtenant, (ii) a fully executed counterpart of such an assignment
or sublease (conditioned only upon the obtaining of Landlord's consent), and
(iii) all other additional documents and information requested by Landlord
within ten (10) days after receipt of such counterpart and documentation.
Landlord shall notify Tenant or Landlord's election to grant or withhold consent
by the later of twenty (20) days after receiving in writing from Tenant the
financial statement, counterpart and documentation described in (i) and (ii),
for ten days after receiving in writing from Tenant the additional documents and
information described in (iii).
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10.4 LANDLORD OPTIONS. Landlord shall have the following options, to be
exercised on or before the date which is the later of (i) thirty (30) days after
receiving in writing from Tenant the financial statement and counterpart
described in Section 10.3, or (ii) ten (10) days after receiving in writing from
Tenant the additional documents and information described in Section 10.3:
10.4.1. If the proposed assignment or subletting shall affect 90% or
more of the Premises, Landlord shall have the options to, (i) terminate this
Lease as of the proposed effective date for the assignment or for the
commencement of the term of the proposed sublease, and this Lease shall then be
terminated accordingly, or (ii) take assignment of or sublet from Tenant the
affected portion of the Premises pursuant to the same terms and conditions as
set forth in the executed assignment or sublease submitted by Tenant.
10.4.2. If the proposed assignment or sublease shall affect less than
90% of the Premises, Landlord shall have the options to, (i) declare this Lease
to be modified so as to exclude thereform the space proposed to be assigned or
sublet (if sublet, then for the term of the sublease), the modification to
become effective automatically as of the proposed effective date for the
assignment or for the commencement of the term of the proposed sublease whereby
the rent and all other charges payable hereunder shall be reduced by the
percentage of space excluded from the Premises, or (ii) take assignment or
sublet from Tenant the affected portion of the Premises pursuant to the same
terms and conditions as set forth in the executed assignment or sublease by
Tenant.
10.4.3. If Landlord shall not exercise the foregoing options within
the time set forth above, the existence and exercise of which are themselves
hereby agreed to be not an unreasonable withholding of consent, then Landlord's
consent to such proposed assignment of subletting shall not be unreasonably
withheld. Any assignment or subletting shall be subject to the terms of this
Lease.
10.4.4. If Landlord does exercise its option to terminate under
subsections 10.4.1 or 10.4.2, the provisions of this Lease applicable to
Tenant's obligations on termination shall apply.
10.4.5. If Landlord, pursuant to option set forth in subsection 10.4.1
or 10.4.2, sublets space or terminates this Lease as to space which is a portion
of the Premises so that a remaining portion of the Premises remains in the
possession of Tenant, Tenant shall provide Landlord, without charge, reasonable
and appropriate access to such space and reasonable use of any common areas and
facilities appurtenant thereto (e.g., restrooms, janitor, telephone, and
electrical or mechanical closets).
<PAGE>
10.5. DEEMED REASONABLE. Landlord's consent to such proposed assignment or
subletting shall no be unreasonably withheld. The parties agree that it shall be
deemed reasonable (and not unreasonable) for Landlord to withhold consent if any
condition hereinafter set forth (which conditions are not exclusive and other
conditions may also be reasonable) has not been satisfied. Tenant expressly
waives any rights it may have under Civil Code Section 711 or a breach of any
duty of good faith and fair dealing, it being understood and agreed that the
leasehold estate of Tenant hereunder is expressly limited by said provisions. By
way of example and without limitations, the parties agree it shall be reasonable
for Landlord to withhold its consent if any of the following situations exist or
may exist: (i) the proposed transferee's contemplated use conflicts with the
permitted use as described in the Basic Lease Provisions; (ii) in Landlord's
reasonable business judgment the proposed transferee lacks sufficient business
reputation or experience to operate a successful business of the type and
quality permitted under this Lease; (iii) in Landlord's reasonable business
judgment the present net worth of the proposed transferee is inadequate; or (iv)
the proposed assignment or sublease would breach any covenant of Landlord
respecting radius, location, use, or exclusivity in any other lease, financing
agreement, or other argument relating to the Shopping Center.
10.6 REMITTING EXCESS RENT. Landlord may require that the assignee or
subtenant remit directly to Landlord, payable as additional rent, all
consideration due to Tenant by said assignee or subtenant as consideration for
said assignment or sublease, whether payable before, after, or throughout the
term of such assignment or sublease, to the extent such consideration exceeds
the Minimum Monthly Rent and other amounts then due Landlord hereunder.*
10.7. BASIC STANDARDS. Tenant and the proposed assignee or subtenant must
demonstrate to Landlord's reasonable satisfaction that the proposed assignee or
subtenant, (i) has a good reputation and successful business history, (ii) is
financially responsible, and (iii) proposes to use the Premises for the same use
as the current authorized use and in keeping with the character, standing and
quality of the Premises and the Shopping Center and which use is otherwise
reasonably satisfactory to Landlord and not injurious to or likely to cause
greater cost or expense, wear and tear, or greater traffic, parking, utility or
other burden than the existing use to the Premises or the Shopping Center and
will not disturb or be detrimental to other tenants or Landlord.
*However, this paragraph shall not apply to an assignment or sublease to either
a stock brokerage, travel agency, insurance, tax service or financial planning
use.
<PAGE>
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10.8 PERMITTED ASSIGNMENT. Notwithstanding the foregoing, Tenant shall have
the right to assign this Lease and any options to extend set forth in Article 1,
to a corporation with which it may merge or consolidate, or to a purchaser of
90% or more of Tenant's assets, provided that said assignee shall execute an
instrument satisfactory to Landlord assuming Tenant's obligations hereunder,
provided further that said assignee's net worth both immediately prior to and
immediately after the merger, consolidation or purchase shall equal or exceed
that of Tenant and provided further that such assignment shall not affect or
limit the liability of Tenant under the terms of this Lease.
10.9 FAILURE TO COMPLY. Any assignment, encumbrance or sublease which is
attempted or created without Landlord's prior written consent shall be voidable
by Landlord and shall constitute a default and material breach of this Lease. No
consent to any assignment or sublease shall constitute a waiver of the
provisions of this Section and no further assignment or subletting shall be made
without Landlord's prior written consent and full compliance with this Article
10.
10.10. LANDLORD'S COSTS. If Tenant requests Landlord to consent to a
proposed assignment or subletting, Tenant shall pay to Landlord upon demand,
whether or not consent is ultimately given, Landlord's reasonable attorney's
fees, accountant's fees, and other expenses incurred in connection with each
such request, as additional rent.
10.11. INVOLUNTARY ASSIGNMENT. No interest of Tenant in this Lease shall be
assignable or assigned by operation of law (including, without limitation, the
transfer of this Lease by testacy or intestacy) and Tenant shall not permit or
suffer same or any involuntary assignment. Each of the following acts shall be
considered an involuntary assignment in breach of the preceding sentence (i) if
Tenant or any guarantor of this Lease is or becomes bankrupt or insolvent, makes
an assignment for the benefit of creditors, or institutes a proceeding under the
federal bankruptcy laws in which Tenant or the guarantor is the bankrupt; or, if
Tenant is a partnership or consists of more than one person or entity, if any
partner of the partnership or other person or entity is or becomes bankrupt or
insolvent, or makes an assignment for the benefit of creditors, (ii) if a writ
of attachment or execution is levied on this Lease and remains so levied for ten
days, and (iii) if, in any proceeding or action to which Tenant is a party, a
receiver is appointed with authority to take possession of the Premises.
10.12. NO RELEASE OF TENANT. Regardless of Landlord's consent, no
subletting or assignment shall release Tenant or Tenant's obligation or alter
the primary liability of Tenant to pay the rent and to perform all other
obligations to be performed by Tenant hereunder. The acceptance of rent by
Landlord from any
<PAGE>
other person shall not be deemed to be a waiver by Landlord or any provision
hereof. Consent to one assignment or subletting shall not be deemed consent to
any subsequent assignment or subletting. In the event of default by any
assignee, subtenant or any other successor of Tenant, in the performance of any
of the terms hereof, Landlord may proceed directly against Tenant without the
necessity of exhausting remedies against which assignee, subtenant or successor.
ARTICLE 11
DEFAULT
11.1. DEFAULT DESCRIBED. The occurrence of any of the following shall
constitute a material breach of this Lease and a default by Tenant: (i) failure
to pay rent or any other amount when due; (ii) abandonment or vacation of the
Premises (failure to occupy and use the Premises for normal business operations
under the permitted use for five (5) consecutive days or while rent is due and
unpaid shall be deemed an abandonment or vacation but shall not be the exclusive
means of determining abandonment or vacation); (iii) assignment, encumbrance or
subletting in violation of the provisions hereof, or waste or nuisance or any
act, omission or condition prohibited hereunder at the Premises or use of the
Premises for an unlawful purpose or failure to perform any provision of this
Lease which cannot, after such failure, be formed; (iv) Tenant's failure to
vacate and deliver possession of the Premises upon the expiration or termination
of this Lease as provided for herein or (v) Tenant's failure to perform timely
any other provision of this Lease, provided that if such default cannot
reasonably be cured within thirty (30) days, Tenant shall be excused from its
default of this Lease if Tenant commences to cure the default immediately upon
receipt of notice from Landlord to do so and continuously, diligently, and in
good faith accomplishes such cure within a reasonable time thereafter, not to
exceed ninety (90) days.
11.2. LANDLORD'S REMEDIES. Landlord shall have the remedies set forth in
this Article 11 if a default occurs. These remedies are not exclusive; they are
cumulative in addition to any remedies now or later allowed by law including but
not limited to the unlawful detainer proceedings authorized by California Code
of Civil Procedure Sections 1161, at seq., equity or agreement of the parties.
11.3. TENANT'S RIGHT TO POSSESSION NOT TERMINATED. Landlord may continue
this Lease in full force and effect, and Landlord shall have the right to
collect rent and other sums when due. During the period Tenant is in default,
Landlord may enter the Premises and relet them, or any part of them, to third
parties for Tenant's account and alter or install locks and other security
devices at the
<PAGE>
Premises. Tenant shall be liable immediately to Landlord for all costs Landlord
incurs in reletting the Premises, including, without limitation, attorneys'
fees, brokers'
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commissions, expenses of remodeling the Premises required by the releting, and
like costs. Reletting may be for a period equal to, shorter or longer than the
remaining term of this Lease and rent received by Landlord shall be applied to
(i) first, any indebtedness from Tenant to Landlord other than rent due from
Tenant; (ii) second, all costs incurred by Landlord in reletting, including,
without limitation, brokers' fees or commissions and attorneys fees, the cost of
removing and storing the property of Tenant or any other occupant, and the costs
of repairing, altering, maintaining, remodeling or otherwise putting the
Premises into condition acceptable to a new Tenant or Tenants; (iii) third, rent
due and unpaid under this Lease. After deducting the payments referred to in
this subsection 11.3, any sum remaining from the rent Landlord receives from
reletting shall be held by Landlord and applied in payment of future rent and
other amounts as rent and such amounts become due under this Lease. In no event
shall Tenant be entitled to any excess rent received by Landlord.
11.4. TERMINATION OF TENANT'S RIGHT TO POSSESSION. Landlord can terminate
Tenant's right to possession of the Premises or this Lease or both at any time
after a default by Tenant by giving notice to Tenant or Landlord's election to
do so and such termination shall be effective on the date set forth in such
notice. Acts of maintenance, efforts to relet the Premises, or the appointment
of a receiver on Landlord's initiative to protect Landlord's interest under this
Lease shall not constitute a termination of Tenant's right to possession. No act
by Landlord other than giving notice to Tenant shall terminate this Lease. On
termination of this Lease, Landlord has the right to recover from Tenant; (i)
the worth, at the time of the award, of the unpaid rent that had been earned at
the time of termination of this Lease; (ii) the worth, at the time of the award,
of the amount by which the unpaid rent that would have been earned after the
date of termination of this Lease until the time of award exceeds the amount of
the loss of rent that Tenant proves could have been reasonably avoided; (iii)
the worth, at the time of the award, of the amount by which the unpaid rent for
the balance of the term after the time of award exceeds the amount of the loss
of rent that Tenant proves could have been reasonably avoided; (iv) any other
amount, and court costs, necessary to compensate Landlord for all detriment
proximately caused by Tenant's default, or which in the ordinary course of
things would be likely to result therefrom, including, without limitation, the
unamortized portion of brokers' fees of commissions and attorneys' fees incurred
by Landlord in connection with the negotiation and execution of the Lease with
Tenant; and (v) "the worth, at the time of the award," as used in (i) and (ii)
above, is to computed by allowing interest at 10% or the highest rate then
permitted by law. "The worth, at the time of the award," as referred to in
(iii), is to be computed by discounting the amount at the discount rate of the
Federal Reserve Bank of San Francisco at the time of the award, plus 1%.
<PAGE>
11.5. LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT. If Tenant fails to
immediately commence and diligently and continuously prosecute to completion
performance of any of its obligations hereunder after notice by Landlord or any
governmental authority that it do so, then Landlord, in addition to all other
remedies available hereunder or by law and equity, and without waiving any
alternative remedies, including the right to declare Tenant in breach and
default of this Lease, may perform the same, and in that event, Tenant shall
reimburse Landlord, upon demand, as additional rent, for all costs Landlord
incurs in taking steps to perform such obligations regardless of which party
actually completes the same, together with interest from the date Landlord
incurs the cost until paid at 10% per annum or the highest rate then permitted
by law.
11.6. INTEREST ON UNPAID RENT. Rent not paid when due shall bear interest
from the date due until paid at 10% per annum or the maximum rate then permitted
by law.
11.7. WAIVER OF REDEMPTION. Tenant hereby expressly waives any and all
rights to recover or regain possession of the Premises or to reinstate to redeem
this Lease to which it may be entitled by or under any present or future law or
decisions including, without limitation, Sections 1174 and 1179 of the
California Code of Civil Procedure.
11.8. TENANT'S PROPERTY. Any personal property of Tenant or of any
subtenant or occupant or other person which shall remain in, on or about the
Premises after the expiration or termination of the term and Tenant's removal
from the Premises shall be deemed to have been abandoned by Tenant and either
may be retained by Landlord as its property or may be disposed of in such manner
as Landlord may see fit. Tenant waives all claims against Landlord with respect
to any disposition of property permitted hereunder and shall hold Landlord
harmless as to any loss, claim, damage or injury of any other person in
connection with such disposition.
11.9. ALL SUMS DUE AND PAYABLE AS RENT. Tenant shall also pay without
notice, or where notice is required under this Lease, immediately upon demand
without any abatement, deduction, or setoff, as additional rent all sums,
impositions, costs, expenses, and other payments which Tenant in any of the
provisions of this Lease assumes or agrees to pay, and, in case of any
nonpayment thereof, Landlord shall have, in addition to all other rights and
remedies, all the rights and remedies provided for in this Lease or by law in
the case of nonpayment of rent. (Tenant hereby waives its right under Section
1161, subsection 2 of the
<PAGE>
California Code of Civil Procedure to have Landlord serve notice of default on
Tenant within one year after rent becomes due).
11.10. PROCEDURAL MATTERS. For purposes of Code of Civil Procedure Section
1011, concerning service of notices or papers during litigation, "residence" of
Tenant shall mean and be in the Premises.
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11.11. NO MERGER. The voluntary or other surrender or termination of this
Lease, or a mutual termination or cancellation thereof, shall not work a merger
and shall, at the option of Landlord, either, (i) terminate all or any existing
subleases or subtenancies, or (ii) operate as an assignment to Landlord of any
or all of such subleases or subtenancies.
11.12. LANDLORD DEFAULT. For purposes of this Lease, Landlord shall not be
deemed in default hereunder unless and until Tenant shall first deliver to
Landlord thirty (30) days' prior written notice, and Landlord shall fail to cure
said default within said thirty (30) day period, or in the event Landlord shall
reasonably require in excess of thirty (30) days to cure said default, shall
fail to commence said cure with said thirty (30) day period, and thereafter
diligently to prosecute the same to completion.
11.13. CHRONIC DELINQUENCY. In the event that Tenant defaults in its
obligations under this Lease more than three (3) times in any twelve-month
period at any time during the term or any extended term of this Lease, and based
upon at least three (3) of any such defaults in any twelve-month period Landlord
serves Tenant with a notice or notices pursuant to California Code of Civil
Procedure Section 1161, then (i) upon the service of the third such notice, any
option to extend the term of this Lease granted to Tenant pursuant to Article 1
hereof shall become automatically null and void and of no further force or
effect, and (ii) upon the occurrence of any additional default within such
twelve-month period that results in the service of an additional notice by
Landlord pursuant to California Code of Civil Procedure Section 1161, the
minimum monthly rent and Percentage Rent payable by Tenant pursuant to Article 2
hereof shall immediately become due and payable quarterly in advance, throughout
the remainder of the term and any extended term hereof.
11.14. PRE-LITIGATION FEES AND COSTS. Tenant shall fully reimburse and pay
Landlord for any and all costs and expenses which Landlord incurs in enforcing
the terms of this Lease including, but not limited to, attorneys' fees and
collection expenses, regardless of whether legal proceedings are or have been
commenced to enforce said terms. This reimbursement and payment shall be due and
payable within thirty (30) days of written notice to Tenant of the amounts so
due. Failure to make these reimbursements and payments within thirty (30) days
of written notice will constitute an additional default of this Lease, as
provided in this Article 11.
<PAGE>
ARTICLE 12
LANDLORD'S ENTRY ON PREMISES
12.1. RIGHT OF ENTRY. Landlord and its authorized representatives shall
have the right and Tenant shall permit them to enter the Premises at all
reasonable times for any of the following purposes:
12.1.1. To determine whether the Premises are in good condition and
whether Tenant is complying with its obligations under this Lease;
12.1.2. To do any necessary or appropriate maintenance and to make any
restoration to the Premises or the Building and other improvements in which the
Premises are located that the Landlord has under the Lease the right or
obligation to perform;
12.1.3. To serve, post, or keep posted any notices required or allowed
under the provisions of this Lease;
12.1.4 To post "for sale" signs at any time during the term, to post
"for rent" signs during the last 180 days of the term or any extension thereof,
or during any period while the Tenant is in default;
12.1.5. To show the Premises to prospective brokers, agents, buyers,
tenants, or persons interested in an exchange, at any time during the term; and
12.1.6. To shore the foundations, footings, and walls of the Building,
and to erect scaffolding and protective barricades around and about the
Premises, but not so as to prevent entry to the Premises, and to do any other
act or thing necessary for the safety to preservation of the Premises or the
Building and the other improvements in which the Premises are located if any
excavation or other construction is undertaken or is about to be undertaken on
any adjacent property or nearby street. Landlord's right under this provision
extends to the owner of the adjacent property on which excavation or
construction is to take place, and to the adjacent property owner's authorized
representatives.
12.2. EXCULPATION. Landlord shall not be liable in any manner for any
inconvenience, disturbance, loss of business, nuisance, or other damage arising
out of Landlord's entry on the Premises as provided in this Article 12, nor
shall any such entry constitute a constructive eviction or in any way affect
Tenant's obligations under this Lease or entitle Tenant to an abatement or
reduction of rent.
<PAGE>
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ARTICLE 13
SUBORDINATION; ESTOPPEL
13.1. SUBORDINATION. This Lease, at Landlord's option, shall be subordinate
to any ground lease, mortgage, deed of trust, or any other hypothecation for
security hereafter placed upon the Premises and to any and all advances made
upon the security thereof and to all renewals, modifications, consolidations,
replacements and extensions thereof. Notwithstanding such subordination,
Tenant's right to quiet possession of the Premises set forth in Section 3.7
hereof shall not be disturbed if Tenant is not in default hereunder and so long
as Tenant shall pay the rent and observe and perform all of the provisions of
this Lease on its part to be observed or performed.
13.2. PRIOR LIEN. If any mortgagee, trustee or ground lessor shall elect to
have this Lease prior to the lien of its mortgage, deed of trust or ground
lease, and shall give written notice thereof to Tenant, this Lease shall be
deemed prior to such mortgage, deed of trust or ground lease, whether this Lease
is dated prior or subsequent to the date of said mortgage, deed of trust or
ground lease on the date of recording thereof.
13.3. DOCUMENTATION. Tenant agrees to execute any documents required to
effectuate any such subordination or make this Lease prior to the lien of any
such mortgage, deed of trust or ground lease, as the case may be, and failing to
do so within ten (10) days after written demand, does hereby make, constitute
and irrevocably appoint Landlord as Tenant's attorney in fact and in Tenant's
name, place and stead to do so.
13.4. ATTORNMENT. Tenant shall attorn to any purchaser at any foreclosure
sale, or to any grantee or transferee designated in any deed given in lieu of
foreclosure. Tenant shall execute the written agreement and any other documents
required by such purchaser, grantee or transferee to accomplish the purposes of
this Section 13.4.
13.5. ESTOPPEL CERTIFICATES. Tenant, within five days of each request by
Landlord to do so shall (1) execute and deliver to Landlord estoppel
certificate(s), (a) certifying that this Lease is unmodified and in full force
and effect or, if modified, stating the nature of such modification and
certifying that this Lease, as so modified, is in full force and effect and the
date to which the rent and other charges are paid in advance, if any, and (b)
acknowledging that there are not, to Tenant's knowledge, any uncured defaults on
the part of Landlord hereunder, or stating the nature of defaults if such exist,
and (c) evidencing the status of the
<PAGE>
Lease, as may be required either by a prospective or actual lender making a loan
to Landlord or a purchaser of the Premises from Landlord or successor Landlord
with respect to some other interest in the Premises, Building or Lease, and (2)
deliver to Landlord current financial statements of Tenant with an opinion of a
certified public accountant, if available, including a balance sheet and profit
and loss statement for the most recent prior year all prepared in accordance
with generally accepted accounting principles consistently applied. Tenant's
failure to perform timely each of its obligations under this Section 13.5 shall
constitute a material breach of this Lease, entitling Landlord to exercise all
of its remedies for same, and without limiting or waiving Landlord's right to so
exercise same with respect to the timely execution and delivery Landlord of said
estoppel certificate(s) also shall be conclusive upon Tenant as to Landlord and
any third party at whose request Landlord has requested the aforesaid documents
from Tenant, (i) that this Lease is in full force and effect, without
modification except as may be represented by Landlord (ii) that there are no
uncured defaults in Landlord's performance (iii) that no rent has been paid in
advance except as expressly set forth in this Lease and (iv) that every other
representation set forth in such estoppel certificate(s) is true.
ARTICLE 14
NOTICES
14.1. CERTIFIED MAIL. Any notice, demand, request, consent, approval,
submittal or communication that either party desires or is required to give to
the other party or any other person shall be in writing and either served
personally or sent by prepaid, first-class certified mail to the address set
forth in Section 14.2.
14.2. ADDRESS. Any notice, demand, request, consent, approval, submittal or
communication that either party desires or is required to give to the other
party shall be addressed to Tenant at the Premises and otherwise at the
addresses set forth in the Basic Lease Provisions. Landlord may change its
address and either party may change its copy address by notifying the other
party of the change of address. Tenant, at all times during the term hereof, may
be served at the Premises, whether or not it has vacated same at time of
service.
14.3. NOTICE OF DEFAULT. Notwithstanding any other provision of this Lease
a notice to Tenant given under Article 11 requiring Tenant to quit the Premises,
or one which gives Tenant the alternative to cure its default shall also
constitute notice under California Code of Civil Procedure Section 1161 and may
be served by any of the methods set forth in Code of Civil Procedure Section
1162 as well as Section 14.2 of this Lease and any notice served by mail shall
be deemed served,
<PAGE>
and the requisite waiting period deemed to begin under said Code of Civil
Procedure Section and said Section 14.2 upon mailing without any additional
waiting requirement under California Code of Civil Procedure Section 1013 or by
other law. For purposes of Code of Civil Procedure Section 1162, Tenant's "place
of residence" usual place of business", "the property" and "the place where the
property is situated" shall mean and be the Premises, whether or not Tenant has
vacated same at the time of service.
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ARTICLE 15
WAIVER
15.1. DELAY OR OMISSION. No delay or omission in the exercise of any right
or remedy of Landlord on any default by Tenant shall impair such a right or
remedy or be construed as a waiver of any such default or of any subsequent
default concerning the same or any other provision of this Lease.
15.2. RECEIPT OF RENT. The receipt and acceptance by Landlord of rent shall
not constitute a waiver of any default known or unknown to Landlord,; no payment
by Tenant or receipt by Landlord of a lesser amount than the monthly rent or
other sum due hereunder, nor any endorsement or statement on any check or any
letter accompanying any check or payment as rent or other sum due hereunder
shall be deemed an accord and satisfaction, and Landlord may accept such check
or payment without prejudice to Landlord's right to recover the balance of such
rent or other sum or pursue any other remedy provided for in this Lease or
otherwise. No receipt or retention by Landlord of any rent or other sum due
hereunder after the termination in any way of this Lease or after the expiration
of the time to cure a default, shall reinstate, continue, or extend the lease
term, or constitute a cure of such default. No receipt or retention by Landlord
of any rent or other sum due hereunder after the commencement of suit or
proceeding, or after final judgment for possession of the Premises, shall
reinstate, continue, or extend the lease term of affect said suit or proceeding
or said judgment.
15.3. WRITTEN NOTICE. No act or conduct of Landlord, including, without
limitation,, the acceptance of the keys to the Premises, shall constitute an
acceptance by Landlord of the surrender of the Premises by Tenant before the
expiration of the term. Only a notice from Landlord to Tenant shall constitute
acceptance of the surrender of the Premises and accomplish a termination of the
Lease.
15.4. CONSENT OR APPROVAL. Landlord's consent to or approval of any act by
Tenant requiring Landlord's consent or approval shall not be deemed to waive or
render unnecessary Landlord's consent to or approval of any subsequent act by
Tenant.
15.5. DEFAULT. Any waiver by Landlord of any default must be in writing and
shall not be a waiver of a continuing default or of any other default concerning
the same or any other provision of this Lease.
<PAGE>
15.6. OTHER TENANTS. No waiver, benefit, privilege, or service voluntarily
granted or performed by Landlord to or for Tenant or any other tenant in the
Building shall be construed to vest any contractual right in Tenant by custom,
estoppel, or otherwise.
ARTICLE 16
ATTORNEYS' FEES
16.1. (Not Used)
16.2. CERTAIN LITIGATION BETWEEN THE PARTIES. In the event any action or
proceeding in law or equity or any arbitration proceeding be instituted by
Landlord for damages or possession of the Premises or both, for an alleged
breach of any obligation of Tenant under this Lease, to recover rent, to
terminate the tenancy of Tenant at the Premises, or to enforce, protect, or
establish any right or remedy of Landlord, the prevailing party (by judgment or
settlement) in such action or proceeding shall be entitled to recover as part of
such action or proceeding such reasonable attorneys' fees, expert witness fees,
and court costs as may be fixed by the court or jury but this provision shall
not apply to any cross-complaint filed by anyone other than Landlord in such
action or proceeding.
ARTICLE 17
DELIVERY OF POSSESSION; HOLDING OVER
17.1 DELIVERY OF POSSESSION. Immediately upon expiration or sooner
termination of the term, or if extended, such extended term, Tenant shall vacate
and deliver to Landlord possession of the Premises and, except as provided in
the next sentence, all tenant improvements and alterations, broom clean, in good
condition, free of all toxic or hazardous materials and waste materials of any
nature, and in substantially the same condition as they are in at the
commencement of this Lease or when installed, if later, normal wear and tear
excepted. Prior to such delivery, Tenant shall remove all its personal property
and alterations that Tenant has the right to remove or is obligated to remove
under provisions of Section 5.1 and shall repair all damage caused by and
perform all restoration made necessary by the removal of any alterations or
Tenant's personal property.
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Landlord____/s/______
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<PAGE>
17.2. LANDLORD ELECTION. Landlord may elect to retain or dispose of in any
manner any alterations or Tenant's personal property that Tenant does not remove
from the Premises on expiration or sooner termination of the term as allowed or
required by this Lease. Title to any such alterations or Tenant's personal
property that Landlord elects to retain or dispose of shall vest in Landlord.
Tenant waives all claims against Landlord for any damages or injury to Tenant
resulting from Landlord's retention or disposition of any such alterations or
Tenant's personal property and shall indemnify and hold Landlord harmless from
liability for damages and all costs and expenses incurred by Landlord in
defending claims of same from any other person. Tenant shall reimburse Landlord
upon demand for Landlord's costs for storing, removing, and disposing of any
alterations or Tenant's personal property.
17.3. FAILURE TO DELIVER POSSESSION. If Tenant fails to vacate and deliver
possession of the Premises to Landlord on expiration or termination of the term,
or if extended, the extended term, as required by Section 17.1, Tenant shall
hold Landlord harmless from all claims, liabilities, and damages resulting from
Tenant's failure to vacate and deliver possession of the Premises, including,
without limitation,, claims made by a succeeding tenant resulting from Tenant's
failure to vacate and deliver possession of the Premises and rental loss which
Landlord suffers.
17.4. HOLDING OVER. If Tenant, with Landlord's consent, remains in
possession of the Premises after expiration of the term, or extension thereof,
such possession by Tenant shall be deemed to be a month-to-month tenancy
terminable on 30 days notice given at any time by either party. All provisions
of this Lease, except those pertaining to term, and option to extend, shall
apply to the month-to-month tenancy, provided that the minimum monthly rent
shall be 150% of the minimum monthly rent in effect immediately prior to said
expiration.
17.5. FREE OF LIENS. Tenant shall vacate and deliver possession of the
Premises free and clear of all liens, charges, or encumbrances thereon resulting
from any act or omission on Tenant's part and free and clear of all violations
of applicable laws of any federal, state, municipal, or other agency or
authority, and shall indemnify Landlord against any and all loss, expense,
damage, costs, and attorney's fees arising out of Tenant's failure to do so.
<PAGE>
ARTICLE 18
ADVERTISING MEDIA
18.1. RESTRICTIONS. Tenant shall not affix or maintain upon the glas panes
and supports of the show windows (and within twenty-four inches [24"] of any
window), doors and the exterior walls of the Premises, any signs, advertising
placards, names, insignia, trademarks, descriptive material or any other such
like item or items except such as shall have first received the written approval
of Landlord as to size, type, color, location, copy, nature, and display
qualities. Anything to the contrary in this Lease notwithstanding, Tenant shall
not affix any sign to the roof of the Premises. In addition, no advertising
medium shall be utilized by Tenant which can be heard or experienced outside the
Premises, including, without limitation, flashing lights, searchlights,
loudspeakers, phonographs, radios, or television. Tenant shall not display,
paint, or place, or cause to be displayed, painted, or placed, any handbills,
bumper stickers, or other advertising devices on any vehicle parked in the
parking area of the Shopping Center, whether belonging to Tenant, or to Tenant's
agent, or to any other person, nor shall Tenant distribute, or cause to be
distributed, in the Shopping Center, any handbills or other advertising devices.
ARTICLE 19
RULES AND REGULATIONS
19.1. COMPLIANCE. Tenant and Tenant's agents, servants, employees,
contractors, visitors, and licensees shall observe faithfully and comply
strictly with the Rules and Regulations attached hereto as Exhibit D and made
a part hereof, and such other and further reasonable Rules and Regulations as
Landlord or Landlord's agents may from time to time adopt. Tenant shall have
no right to assert the unreasonableness of any Rule or Regulation unless the
same has been made by service of a notice upon Landlord within 10 days after
notice of the adoption of any such Rule or Regulation has been served upon
Tenant. Landlord shall not be liable to Tenant for violation of any of said
Rules and Regulations, or the breach of any term, covenant, condition,
provision, or agreement in any lease, by any other tenant, or other party in
the Shopping Center.
<PAGE>
ARTICLE 20
DEFINITIONS
20.1 DEFINITIONS. As used in this Lease, the following words and phrases
shall have the following meanings:
20.1.1. "expiration" - the coming to an end of the time specified in
this Lease as its duration, including any extension of the term resulting from
the exercise of any option to extend.
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Landlord____/s/______
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Tenant____/s/______
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<PAGE>
20.1.2. "good condition" - the good physical condition of the Premises
and each portion of the Premises, including, without limitation, signs, windows,
appurtenances, and Tenant's personal property as defined herein; "in good
condition" means first class, neat, clean and broom-clean, and is equivalent to
similar phrases referring to physical adequacy in appearance and for use.
20.1.3. "law" - any judicial decision, statute, constitution,
ordinance, resolution, regulation, rule, administrative order, or other
requirement of any municipal, county, state, federal, or other government agency
or authority having jurisdiction over the parties or the Premises, or both, in
effect either at the time of execution of this Lease or at any time during the
term, including, without limitation, any regulation or order of a quasi-official
entity or body (e.g., board of fire examiners or public utilities).
20.1.4. "lien" - a charge imposed on the Premises by someone other
than Landlord, by which the Premises are made security for the performance of an
act. Most of the liens referred to in this Lease are mechanics' liens.
20.1.5. "maintenance" - repairs, replacement, repainting cleaning and
keeping in good, usable and working condition.
20.1.6. "trade fixture" - any personal property installed in or on the
Premises by Tenant for purposes of trade, manufacture, ornament, or related use
and the affixation, if any, of which to the Premises is minor so that removal
can be accomplished without material damage to, or threat to the structural
integrity of, the Premises and so the Premises can be restored to a condition
such that no evidence of the prior presence of such property remains.
20.1.7. "term" - the period of time during which Tenant has a right to
occupy the Premises, which includes any extended term provided for once such
term has commenced.
20.1.8. "termination" - the ending of the term for any reason before
expiration, as defined herein.
ARTICLE 21
GENERAL CONDITIONS
21.1. TIME OF ESSENCE. Time is of the essence of each provision of this
Lease.
<PAGE>
21.2. CONSENT OF THE PARTIES. In consideration of each covenant made
elsewhere under this Lease wherein one of the parties agrees not to unreasonably
withhold or delay its consent or approval, the requesting party hereby releases
the other and waives all claims for any damages arising out of or connected with
any alleged or claimed unreasonable withholding or delaying of consent or
approval, and the sole remedy for such shall be an action or specific
performance and injunctive relief.
21.3. CORPORATE OR PARTNERSHIP AUTHORITY. If either party is a corporation
(or partnership), (i) that party shall deliver to the other party on execution
of this Lease a certified copy of a resolution of its board of directors (or all
its general partners) authorizing the execution of this Lease and naming the
officers that are authorized to execute this Lease on behalf of and as the act
of the corporations and (ii) those persons signing on behalf of said party
represent that they are authorized to do so on behalf of and as the act of said
party, and the failure of such representation to be true shall both make such
persons personally parties to this Lease and also constitute a default and
material breach hereof on the part of such persons
21.4. SUCCESSORS. This Lease shall be binding on and inure to the benefit
of the parties and their successors, except as provided in Article 10.
21.5. RENT PAYABLE IN U.S. MONEY. Rent and all other sums payable under
this Lease must be paid in lawful money of the United States of America or check
for same (subject to collection).
21.6. STATUS OF PARTIES ON TERMINATION OF LEASE. Except as provided in
Article 11 on Tenant's default, if a party elects to terminate this Lease as
allowed in this Lease, on the date this Lease terminates the parties shall be
released from further liabilities and obligations, and Landlord shall return to
Tenant any unearned rent, as long as Tenant is not in default on the date this
Lease terminates, provided that Tenant's hold harness obligations shall survive
expiration of termination of this Lease.
21.7. LANDLORD LIABILITY. Tenant agrees that if Landlord shall fail to
perform any covenant or obligation on its part to be performed, and as a
consequence thereof, or it on any other claim by Tenant concerning the Premises
or this Lease, Tenant shall recover a money judgment against Landlord, then such
judgment shall be satisfied only out of Landlord's estate in the Premises, and
Landlord shall have no personal or further liability whatsoever with respect to
any such default or judgment.
<PAGE>
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Tenant____/s/______
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21.8. LANDLORD. The term "Landlord" as used in this lease, so far as the
covenants or obligations on the part of Landlord are concerned shall be limited
to mean and include only the owner of the fee title of the Premises at the time
in question, and in the event of any transfer or transfers of the title of such
fee, the Landlord herein named (and in case of any subsequent transfers or
conveyances, the then grantor) shall after the date of such transfer or
conveyance be automatically freed and relieved of all liability with respect to
performance of any covenants or obligations on the part of the Landlord
contained in this Lease thereafter to be performed, provided, that this Section
shall not apply to covenants or obligations with respect to any funds in the
hands of Landlord or the then grantor at the time of such transfer, in which
Tenant has an interest, unless the same shall be turned over or credited to the
grantee.
21.9. AGENCY.
21.9 1. Not used.
21.9.2. SOLE AGENCY. Landlord and Tenant understand and agree that
Landlord's Broker represents only Landlord in the leasing of the Premises and
that Tenant's Broker represents only Tenant, and Landlord and Tenant each
acknowledge that they have authorized and consented to such sole
representations.
LANDLORD'S INITIALS __/s/__ TENANT'S INITIALS __/s/___
STRIKE ONE OF THE FOREGOING
21.10. BROKER DISCLAIMER. Tenant and Landlord acknowledge that, except as
otherwise expressly stated herein, Landlord's Broker has not made any
investigation, determination, warranty, or representation with respect to any of
the following: (a) the legality of the present or any possible future use of the
Premises under any federal, state, or local law; (b) pending or possible future
action by any governmental entity or agency which may affect the Premises; (c)
the physical condition of the Premises, including but not limited to soil
conditions, toxic contamination, and the structural integrity of any
improvements; (d) the accuracy or completeness of income and expense information
and projections, of square footage figures, and of the texts of any agreements
or other documents affecting the Premises; (e) the possibility that agreements
or other documents exist which affect or encumber the Premises and which have
not been provided or disclosed by Landlord; or (f) the presence or location of
any hazardous materials on or about the Premises, including, but not limited to,
asbestos, PCBs, other toxic, hazardous or contaminated substances, and
underground storage tanks. Tenant agrees that
<PAGE>
investigation and analysis of the foregoing matters is Tenant's sole
responsibility and that Tenant shall not hold Landlord's Broker responsible
therefor.
21.11. BROKERAGE COMMISSIONS. Landlord reaffirms its agreement to pay to
Landlord's Broker a real estate brokerage commission. Tenant represents and
warrants that it has been represented in this leasing transaction by Tenant's
Broker, and by no other real estate broker, agent, or finder whatsoever. Except
as to the commission described above, Tenant shall pay and indemnify Landlord
against and hold Landlord harmless from any and all brokerage of finders' fees
or commissions which may be payable as a result of any listing agreement or
other agreement between Tenant and any broker concerning the negotiation or
execution of this Lease. Landlord shall pay and shall indemnify Tenant against
and hold Tenant harmless from any and all brokerage or finder's fees or
commissions which may be payable as a result of any listing agreement or other
agreement between Landlord and any broker concerning the negotiation or
execution of this Lease. The provisions of this paragraph may not be amended or
modified without the prior written consent of Landlord's Broker.
21.12. EXHIBITS--INCORPORATION IN LEASE. All exhibits leveled to are
attached to this Lease and incorporated by reference.
21.13. FORCE MAJEURE. Any prevention, delay, or stoppage due to strikes,
lockouts, labor disputes, acts of God or Nature, inability to obtain labor or
materials or reasonable substitutes therefor, governmental restrictions,
governmental regulations, governmental controls, judicial orders, enemy or
hostile governmental action, civil commotion, fire or other casualty, and other
causes beyond the reasonable control of the party obligated to perform, shall
excuse the performance by such party for a period equal to any such prevention,
delay or stoppage except the obligations imposed with regard to rent and other
charges to be paid by tenant pursuant to this Lease.
21.14. RELATIONSHIP. Nothing contained herein shall be deemed or construed
by the parties hereto nor by any third party as creating the relationship of
principal and agent or of partnership or of joint venture between the parties
hereto, it being understood and agreed that neither any provision contained
herein, nor any acts of the parties hereto, shall be deemed to create any
relationship between the parties hereto other than the relationship of Landlord
and Tenant.
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Landlord____/s/______
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Tenant____/s/______
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<PAGE>
21.15. SECURITY MEASURES. Tenant hereby acknowledges that the rental
payable to Landlord hereunder does not include the cost of guard service or
other security measures, and that Landlord shall have no obligation whatsoever
to provide same. Tenant assumes all responsibility for the protection of Tenant,
its agents, and its invitees from acts of third parties.
21.16. EASEMENTS. Landlord reserves to itself the right, from time to time,
with respect to the Premises, Building and Land, to grant such easements, rights
and dedications that Landlord deems necessary or desirable, and to cause the
recordation of parcel maps and restrictions, so long as such easements, rights,
dedications, maps and restrictions do not unreasonably interfere with the use of
the Premises by Tenant. Tenant shall sign any of the aforementioned documents
and take such actions and sign such other documents as are required to
effectuate the rights reserved to Landlord under this Section 21.14 upon request
of Landlord, and failure to do so shall constitute a material breach of this
Lease.
21.17. RADIUS. In the event that Tenant or any person, firm, or corporation
which controls is controlled by, of is under common control with Tenant, owns,
operates, or becomes financially interested in a similar business within the
Radius set forth in the Basic Lease Provisions, the gross sales from such
business shall be included in the gross sales made in, upon, or from the
Premises for the purpose of computing the Percentage Rent payable to Landlord
under this Lease.
21.18. RIGHT TO RELOCATE. Landlord shall have the right, at any time and
from time to time during the term of this Lease including any extension terms,
to cause Tenant to relocate from the Premises to substantially comparable space
(the "Relocation Premises") within the Shopping Center at any time upon not less
than sixty (60) days written notice to Tenant, and Tenant shall complete its
relocation within such sixty-day period. Landlord shall reimburse Tenant for all
reasonable expenses Tenant incurs in relocating to the Relocation Premises. Such
relocation shall not terminate or otherwise affect or modify this Lease in any
way whatsoever, except that from and after the date of such relocation, the term
"Premises" in this Lease shall mean and refer to the Relocation Premises into
which Tenant has moved, rather than the space originally defined as the
Premises, and Tenant's Pro Rata Share shall be appropriately adjusted.
<PAGE>
ARTICLE 22
INTERPRETATION OF LEASE
22.L. CALIFORNIA LAW. This Lease shall be construed and interpreted in
accordance with the laws of the State of California.
22.2. INTEGRATED AGREEMENT; MODIFICATION. This Lease contains all the
agreements of the parties and cannot be amended or modified except by written
agreement signed by the party against whom enforcement of the amendment or
modification is sought. No rights or licenses are acquired by Tenant by
implication or otherwise except as expressly set forth in this Lease.
Notwithstanding the foregoing, Tenant shall be bound, without the need for
Tenant's signature, to all amendments and modifications to the Rules and
Regulations hereafter adopted by Landlord in accordance with Section 21.15 and
Section 3.2 hereof.
22.3. PROVISIONS ARE COVENANTS AND CONDITIONS. All provisions, whether
covenants or conditions, creating obligations on the part of Tenant shall be
deemed to be both covenants and conditions.
22.4. USE OF DEFINITIONS. The definitions contained in this Lease shall be
used to interpret this Lease.
22.5 HEADINGS; AMBIGUITY. The Article and Section heading used in this
Lease are for the purpose of convenience only; they shall not be construed to
limit or to extend the meaning of any part of this Lease. This is a negotiated
Lease. Should any provision of this Lease be found to create an ambiguity,
Tenant waives any right it may have to construe the ambiguity against Landlord
on the basis that Landlord provided the Lease form or the particular provision.
22.6. SINGULAR AND PLURAL. When required by the context of this Lease, the
neuter shall include the masculine and feminine and the singular shall include
the plural.
22.7. JOINT AND SEVERAL OBLIGATIONS. "Party" shall mean Landlord or Tenant;
and if Landlord or Tenant is more than one person, the obligations imposed on
that party shall be joint and several.
22.8. SEVERABILITY. The unenforceability, invalidity, or illegality of any
provision except those requiring payment of rent or any other sum to Landlord
shall not render the other provisions unenforceable, invalid, or illegal.
<PAGE>
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Tenant____/s/______
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<PAGE>
22.9. COUNTERPARTS. This Lease may be executed in two or more identical
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Executed as of the Reference Date.
Landlord: -----------------------
a
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By________/s/___________
----------------------
Its
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Tenant: -----------------------
a
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By_________/s/_________
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Its
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<PAGE>
EXHIBIT B
LANDLORD SHALL PROVIDE THE FOLLOWING IMPROVEMENTS:
1. Electrical service panel - 100 amp. service. Gas and water, stubbed to
the premises.
2. Roof - per code.
3. Floor - Floor area, uncolored concrete slab.
4. Exterior Walls - per code.
5. Air condition and heating - Refrigerated air conditioning and heating
per Landlord's design, (located on the roof) adequate for typical
retail business. Air conditioning will not be provided for dry
cleaning plants, laundries, restaurant food preparation areas, and
those businesses not normally air conditioned. Any extraordinary
requirements necessitated because of Tenant's use of demised premises
will be at the expense of Tenant. Tenant shall be responsible for any
and all distribution and dusting.
6. Store front - Per Landlord's design, with one (1), 3'0" x 7'0" door
with lock.
Within fourteen (14) days from date hereof and pursuant to Section
26.14 subparagraph C of this lease, Tenant shall deliver to Landlord
fully dimensioned drawings with respect to requirements of Tenants,
which shall conform in all respects with the agreement of the Owner as
above stated. Said drawings shall be at Tenant's expense. If Tenant
fails to provide to Landlord said drawings within said fourteen (14)
days, Landlord may, at Landlord's option, tender possession of the
lease premises in an "as is" condition; rent and term shall
immediately commence and Tenant shall be solely responsible for
completing any and all Tenant Improvements from said "as is"
condition.
TENANT SHALL BE RESPONSIBLE FOR THE COST OF ALL IMPROVEMENTS NOT LISTED
ABOVE.
<PAGE>
RULES AND REGULATIONS WHICH CONSTITUTE A PART OF THE LEASE
(a) Tenant and Tenant's employees shall not in any way obstruct the
sidewalks, entry passages, pedestrian passageways, driveways, entrances and
exits to THE PAJARO HILL SHOPPING CENTER hereinafter defined as the Shopping
Center, and they shall use the same only as passageways to and from their
respective work areas.
(b) Any sash doors, sashes, windows, glass doors, lights and skylights that
reflect or admit light into the common areas of the Shopping Center shall not be
covered or obstructed by Tenant. Water closets, urinals and wash basins shall
not be used for any purpose other than those for which they were constructed,
and no rubbish, newspapers, food or other substance of any kind shall be thrown
into them. Tenant shall not mark, drive nails, screw or drill into, paint or in
any way deface the exterior walls, roof foundations, bearing walls or pillars
without the prior written consent of Landlord. The expense of repairing any
breakage, stoppage or damage resulting from a violation of this rule shall be
borne by Tenant.
(c) No awning or shade shall be affixed or installed over or in the show
windows or the exterior of the Premises except with the consent of Landlord. If
Tenant desires window drop curtains in the show windows of the Premises, the
same must be of such uniform shape, color, material, and make as may be
prescribed by Landlord and must be put up as directed by Landlord, and paid for
by Tenant.
(d) No boring or cutting for wires shall be allowed, except with the
consent of Landlord.
(e) Tenant shall not do anything in the Premises, or bang or keep anything
therein, which will in any way Increase or tend to increase the risk of fire or
the rate of fire insurance or which shall conflict with the regulations of the
Fire Department or the law or with any insurance policy on the Premises or any
part thereof, or with any rules or regulations established by any administrative
body or official having jurisdiction, and it shall not use any machinery
therein, even though its installation may have been permitted, which may cause
any unreasonable noise or jar, or tremor to the floors or walls, or which by its
weight might injure the floors of the Premises.
(f) Landlord may limit weight, size and position of all sales, fixtures and
other equipment used in the Premises. In the event Tenant shall require extra
heavy equipment, Tenant shall notify Landlord of such fact and shall pay the
cost
<PAGE>
of structural bracing to accommodate same. All damage done to the Premises or
Shopping Center by putting in or taking out, or maintaining extra heavy
equipment shall be repaired at the expense of Tenant.
(g) Tenant and Tenant's officers, agents and employees shall not make nor
permit any loud, unusual or improper noises nor interfere in any way with other
tenants or those having business with them, nor bring into nor keep within the
Shopping Center any animal or bird (with the exception of the authorized pet
store), or any bicycle, automobile or other vehicle, except such vehicle as
Landlord may from time to time permit. Tenant and Tenant's officers, agents and
employees shall not throw refuse or other substances or litter of any kind in or
about the Shopping Center, except in receptacles placed therein for such
purposes by Landlord or governmental authorities.
(h) No machinery of any kind will be allowed in the Premises without the
written consent of Landlord. This shall not apply, however, to customary office
equipment or trade fixtures or package handling equipment.
(i) All freight must be moved into, within and out of the Premises only
during such hours and according to such regulations as may be posted from time
to time by the Landlord.
(j) No radio or television or other similar device shall be installed
without first obtaining in each instance Landlord's consent in writing. No
aerial shall be erected on the roof or exterior walls of the Premises, or on the
grounds, without in each instance, the written consent of Landlord. Any aerial
so installed without such written consent shall be subject to removal without
notice at any time.
(k) All garbage, including wet garbage, refuse or trash shall be placed by
the Tenant in the receptacles provided by the Landlord for that purpose and only
during those prescribed by the landlord.
(l) Tenant shall not burn any trash or garbage at any time in or about the
Premises or any area of Shopping Center.
(m) Tenant shall use at Tenant's cost such pest extermination contractor as
Landlord may direct and at such intervals as Landlord may require.
(n) Tenants are required to observe all security regulations issued by the
Landlord and to comply with instructions and/or directions of the duly
authorized security personnel for the protection of the Shopping Center and all
tenants therein.
<PAGE>
EXHIBIT D
<PAGE>
(o) Any requirements of Tenant will be attended to only upon written
application to Landlord at the General Offices of the Shopping Center.
(p) No waiver of any rule or regulation by Landlord shall be effective
unless expressed in writing and signed by Landlord or their authorized agent.
(q) Landlord reserves the right to exclude or expel from the Shopping
Center any person who, in the judgment of Landlord is intoxicated or under the
influence of liquor or drugs, or who shall in any manner do any act in violation
of the law or the rules and regulations of the Shopping Center.
(r) Landlord reserves the right at any time to change or rescind any one or
more of these rules or regulations or to make such other and further reasonable
rules and regulations as in Landlord's judgment may from time to time be
necessary for the management, safety, care and cleanliness of the Premises, and
for the preservation of good order therein, as well as for the convenience of
other occupants and tenants of the Shopping Center. Landlord shall not be
responsible to Tenant or to any other person for the nonobservance or violation
of the rules and regulations by any other tenant or other person. Tenant shall
be deemed to have read these rules and to have agreed to abide by them as a
condition to its occupancy of the space herein leased.
(s) Tenant shall abide by any additional rules regulations which are
ordered or requested by any governmental or military authority.
(t) In the event of any conflict between these rules and regulations or any
further or modified rules and regulations from time to time issued by Landlord
and the lease provisions, the lease provisions shall govern and control.
(u) Landlord specifically reserves to itself or to any person or firm it
selects, the right to place in and upon the Shopping Center, coin-operated
machines for the sale of cigarettes, candy and other merchandise or service and
the revenue resulting therefrom, including the sale of goods which may compete
with those which Tenant is permitted to sell. Neither party shall place or
permit vending machines in the Premises.
<PAGE>
LEASE EXTENSION AND MODIFICATION AGREEMENT
This extension agreement for reference purposes only dated October 4, 1995
is made by and between DUBOIS OFFICE PLAZA, A CALIFORNIA LIMITED PARTNERSHIP,
hereinafter called "Landlord", and COAST COMMERCIAL BANK, hereinafter called
"Tenant".
RECITALS
A. Landlord and Tenant made and entered into a written lease dated
January 22, 1993, herein called "said lease".
B. The expiration date of said lease is February 29, 1996.
C. The parties wish to extend said lease for one additional year.
NOW, THEREFORE, the parties agree as follows:
1. The parties hereto agree to extend the term of said lease for one
additional year commencing March 1, 1996 and expiring February
28, 1997.
2. The monthly base rent from throughout the one year extension
shall be $1.30 per square foot ($6,825.00 per month).
3. There will be a one year option to renew at $1.35 per square foot
($7,087.50 per month). Tenant must provide Landlord with four
months prior written notice of intention to exercise its option
to renew.
4. In all other respects, said lease shall continue in full force
and effect.
TENANT LANDLORD
Coast Commercial Bank Dubois Office Plaza
a California Limited Partnership
By: /s/ By: /s/
--------------------------- -----------------------------
Bruce Kendall Stuart M. Gordon
Senior Vice-President Managing General Partner
Chief Financial Officer
Date of Execution: 10/19/95 Date of Execution: 10/23/95
<PAGE>
LEASE
(MULTI-TENANT MODIFIED UNIT)
by and between
DUBOIS OFFICE PLAZA
A California Limited Partnership
("Landlord")
and
COAST COMMERCIAL BANK
A California banking corporation
("Tenant")
For the approximately 5,250 SF Premises at
140 Dubois Street, Santa Cruz, CA 95060
<PAGE>
LEASE SUMMARY
Lease Date: January 22, 1993
Landlord: Dubois Office Plaza,
A California Limited Partnership
Address of Landlord: The Gordon Group
901 Battery Street, Suite 310
San Francisco, CA 94111
Tenant:
Address of Tenant: 740 Front Street
Post Office Box 1818
Santa Cruz, CA 95061
Additional Address 140 DuBois Street, Suite B
for Notices: Santa Cruz, CA 95060
Contact: Thomas LeMasters
Telephone: (408) 458-4500
Premises: 5,250 Square Feet at
140 DuBois Street,
Santa Cruz, CA 95060
Building Square Footage: 15,060
Lease Commencement Date: March 1, 1993
Rent Commencement Date: March 1, 1993
Term: Three (3) Years
Net Monthly Rent: $6,037.50
Net Monthly Rent Increases: Annual C.P.I. increases not to
exceed 5% per annum commencing
twelve (12) months
<PAGE>
after the Rent Commencement Date,
and annually thereafter
Security Deposit: $6,037.50
Tenant's Building Percentage: 34.9%
Tenant's Project Percentage: 17.5%
Options to Renew: One (1) terms of three (3) years
<PAGE>
LEASE
(MULTI-TENANT MODIFIED RENT)
TABLE OF CONTENTS
Paragraph Page
- - --------- ----
1 BASIC LEASE PROVISIONS. . . . . . . . . . . . . . . . . . l
2. PREMISES. . . . . . . . . . . . . . . . . . . . . . . . . 3
3. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . 3
4. LEASE TERM. . . . . . . . . . . . . . . . . . . . . . . . 4
5. RENT. . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6. LATE PAYMENT CHARGES. . . . . . . . . . . . . . . . . . . 5
7. SECURITY DEPOSIT. . . . . . . . . . . . . . . . . . . . . 6
8. HOLDING OVER. . . . . . . . . . . . . . . . . . . . . . . 6
9. TENANT IMPROVEMENTS . . . . . . . . . . . . . . . . . . . 6
10. CONDITION OF PREMISES . . . . . . . . . . . . . . . . . . 6
11. USE OF THE PREMISES . . . . . . . . . . . . . . . . . . . 7
12 QUIET ENJOYMENT . . . . . . . . . . . . . . . . . . . . . 7
13. ALTERATIONS . . . . . . . . . . . . . . . . . . . . . . . 7
14. SURRENDER OF THE PREMISES . . . . . . . . . . . . . . . . 8
15. REAL PROPERTY TAXES . . . . . . . . . . . . . . . . . . . 8
16. UTILITIES AND SERVICES. . . . . . . . . . . . . . . . . . 9
17. REPAIR AND MAINTENANCE. . . . . . . . . . . . . . . . . . 9
<PAGE>
18. LIENS . . . . . . . . . . . . . . . . . . . . . . . . . . 12
19. LANDLORD'S RIGHT TO ENTER THE PREMISES. . . . . . . . . . 12
20. SIGNS . . . . . . . . . . . . . . . . . . . . . . . . . . 12
21. INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . 13
22. WAIVER OF SUBROGATION . . . . . . . . . . . . . . . . . . 15
- i -
Paragraph Page
- - --------- ----
23. DAMAGE OR DESTRUCTION . . . . . . . . . . . . . . . . . . 15
24. CONDEMNATION. . . . . . . . . . . . . . . . . . . . . . . 17
25. ASSIGNMENT AND SUBLETTING . . . . . . . . . . . . . . . . 18
26. DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . 19
27. SUBORDINATION . . . . . . . . . . . . . . . . . . . . . . 22
28. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . 23
29. ATTORNEY'S FEES . . . . . . . . . . . . . . . . . . . . . 23
30. TENANT STATEMENTS . . . . . . . . . . . . . . . . . . . . 23
31. TRANSFER OF THE BUILDING BY LANDLORD. . . . . . . . . . . 24
32. LANDLORD'S RIGHT TO PERFORM TENANT'S COVENANTS. . . . . . 24
33. TENANT'S REMEDY . . . . . . . . . . . . . . . . . . . . . 25
34. MORTGAGEE PROTECTION. . . . . . . . . . . . . . . . . . . 25
35. BROKERS . . . . . . . . . . . . . . . . . . . . . . . . . 25
36. ACCEPTANCE. . . . . . . . . . . . . . . . . . . . . . . . 25
<PAGE>
37. RECORDING . . . . . . . . . . . . . . . . . . . . . . . . 25
38. PARKING . . . . . . . . . . . . . . . . . . . . . . . . . 25
39 GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . 25
40. TENANT IMPROVEMENT. . . . . . . . . . . . . . . . . . . . 27
TABLE OF EXHIBITS
EXHIBIT A The Premises
EXHIBIT B The Project
EXHIBIT C Tenant Improvement
- ii -
<PAGE>
STANDARD MULTI-TENANT LEASE - TRIPLE NET
THE GORDON GROUP
901 Battery Street, Suite 301
San Francisco, California 94111
(415) 362-2707
THIS LEASE (the "Lease"), for reference purposes only dated January 22,
1993, is entered into by and between Dubois Office Plaza, A California Limited
Partnership ("Landlord"), whose address is c/o The Gordon Group, 901 Battery
Street, San Francisco, California 94111, and Coast Commercial Bank, a California
banking corporation ("Tenant"), whose address is 740 Front Street, Post Office
Box 1818, Santa Cruz, California 95061. Tenant's additional address for notices
is 140 DuBois Street, Suite B. Santa Cruz, California 95060.
1. BASIC LEASE PROVISIONS.
1.1 PREMISES. Approximately five thousand two hundred and fifty
(5,250) square feet, commonly known as the street address of 140 DuBois Street,
in the City of Santa Cruz (the "City"), County of Santa Cruz (the "County"),
California, as more particularly described in EXHIBIT A.
1.2 BUILDING. The Building in which the Premises are located.
1.3 COMMENCEMENT DATE. This Lease shall commence on March 1, 1993.
The payment of rent shall commence on March 1, 1993, and continue each month
thereafter.
1.4 TERM. Three (3) years commencing upon the date of the first rent
payment on March 1, 1993, as defined in Paragraph 3.3 and ending three (3) years
thereafter on February 28, 1991.
1.5 USE. General office and any other use consistent with Tenant's
business subject to Paragraph 11, and other uses that may be approved by the
City and are acceptable to the Landlord.
1.6 MONTHLY RENT. Commencing on March 1, 1993, and continuing on the
first day of each month thereafter, Tenant shall pay to Landlord the net Monthly
Rent set forth below. Also commencing on March 1, 1993, and continuing on the
first day of each month thereafter, Tenant shall pay to Landlord Tenant's
appropriate percentage of the monthly costs set forth below.
<PAGE>
1.7 MONTHLY RENT ADJUSTMENTS. The net Monthly Rent shall be increased
during the Term as follows: Every twelve (12) months, commencing with the
thirteenth (13th) month of the Term, by a C.P.I. rental increase not to exceed
5% per annum.
- 1 -
<PAGE>
It is hereby understood by and between the parties hereto that the
anniversary date for computing the annual C.P.I. increases shall be one year
after the commencement of rent as set forth in paragraph 1.6 hereinabove.
The annual adjustment in the Monthly Rent shall be based upon a
comparison of the C.P.I. for the Index Month next preceding the commencement of
a new twelve (12) month period as compared to such C.P.I. for the Index Month
for the preceding year, with Monthly Rent to be increased by the same percentage
as the index for the Index Month next preceding the commencement of the new
Lease year exceeds the index application to such Index Month in the preceding
year. In no event shall the Monthly Rent for the next twelve (12) month period
be less than the preceding twelve (12) month period
As used herein the C.P.I. shall mean the Consumer Price Index, All
Urban Consumer, All Items for the San Francisco-Oakland-San Jose Metropolitan
Area (1982-84=100), as published by the U.S. Department of Labor Bureau of Labor
Statistics (the "Index") as such Index was revised effective January 1988 or its
successor or most nearly comparable index thereto if it is no longer published.
As used herein "Index Month" shall be that calendar month which is two
(2) months prior to the calendar month in which the Commencement Date falls.
1.8 SECURITY DEPOSIT. There shall be a Security Deposit required in
the amount of $6,037.50.
1.9 TENANT'S PERCENTAGES.
1.9.1 TENANT'S BUILDING PERCENTAGE. The percentage determined by
dividing the approximate square footage of the Premises by the approximate total
square footage of the Building Tenant's Building Percentage is to be thirty-four
and 9/10 percent (34.9%) for the purposes of this Lease.
1.9.2 TENANT'S PROJECT PERCENTAGE. If the Building defined in
Paragraph 1.2 is the only building on the Project, Tenant's Project Percentage
shall be equal to Tenant's Building Percentage. If there are additional
buildings on the Project, Tenant's Project Percentage shall be determined by
dividing the approximate square footage of the Premises by the approximate total
footage of all buildings on the Project. Tenant's Project Percentage is agreed
to be seventeen and 5/10 percent (17.5%) for the purposes of this Lease.
<PAGE>
1.10 PROJECT. The real property upon which the Building is
located consisting of approximately one (1) acre as more particularly described
in EXHIBIT B.
1.11 CC&R'S. None.
- 2 -
<PAGE>
1.12 BROKER(S). None.
1.13 OPTIONS TO RENEW. Option to renew: One (1) terms of three
(3) years at market rent. If the parties are unable to agree on the market rent
they shall submit the matter to arbitration as set forth in Exhibit "E" attached
hereto. Tenant shall give at least six (6) months written notice of exercising
each option.
2. PREMISES. Landlord hereby leases to Tenant and Tenant hereby leases
from Landlord the Premises together with a right in common to the Common Area,
as defined in Paragraph 3.2, and the Outside Area, as defined in Paragraph 3.7.
Tenant's right to use the Common Area shall be a right in common with other
Tenants of the Building, and Tenant's right to use the Outside Area shall be a
right in common with other Tenants of the Project.
3. DEFINITIONS. The following terms shall have the following meanings in
this Lease:
3.1 ALTERATIONS. Any alterations, additions or improvements made
in, on or about the Building or the Premises after the Commencement Date,
including, but not limited to, lighting, heating, ventilating, air conditioning,
electrical, partitioning, drapery and carpentry installations.
3.2 COMMON AREA. All areas and facilities within the Building
provided and designated by Landlord for the general use and convenience of
Tenant and other Tenants, and occupants of the Building, including, without
limitation, hallways, stairs, elevators, entrances and exists, restrooms,
appurtenant equipment serving the Building, trash disposal facilities, and the
exterior walls and windows and roof of the Building, subject to the reasonable
rules and regulations and changes therein from time to time promulgated by
Landlord governing the use of the Common Area.
3.3 COMMENCEMENT DATE. This Lease shall commence on the date of
execution of this Lease. The Commencement Date for Tenant's obligation to pay
its net Monthly Rent, and its share of the monthly costs set forth herein, shall
be March 1, 1993.
Once the actual Commencement Date has been determined pursuant to
the foregoing, the parties shall execute a Commencement Date Memorandum.
3.4 HVAC. Heating, ventilating and air conditioning.
<PAGE>
3.5 INTEREST RATE. Twelve percent (12%) per annum, however, in
no event to exceed the maximum rate of interest permitted by law.
3.6 LANDLORD'S AGENTS. Landlord's authorized agents, partners,
subsidiaries, directors, officers, and employees.
- 3 -
<PAGE>
3.7 OUTSIDE AREA. All areas and facilities within the Project,
exclusive of the Building and any other buildings on the Project, provided and
designated by Landlord for the general use and convenience of Tenant and other
Tenants and occupants of the Project, including, without limitation, the parking
areas, access and perimeter roads, sidewalks, landscaped areas, service areas,
trash disposal facilities, and similar areas and facilities, subject to the
reasonable rules and regulations and changes therein from time to time
promulgated by Landlord governing the use of the Outside Area.
3.8 REAL PROPERTY TAXES. Any form of assessment, license, fee,
rent tax, levy, penalty (if a result of Tenant's delinquency), or tax (other
than net income, estate, succession, inheritance, transfer or franchise taxes),
imposed by any authority having the direct or indirect power to tax, or by any
city, county, state or federal government or any improvement or other district
or division thereof, whether such tax is: (i) determined by the area of the
Project or any part thereof or the rent and other sums payable hereunder by
Tenant; (ii) upon any legal or equitable interest of Landlord in the Project or
the buildings thereon or any part thereof; (iii) levied or assessed in lie of,
in substitution for, or in addition to, existing or additional taxes against the
Project whether or not now customary or within the contemplation of the parties;
or (iv) surcharged against the Outside Area.
3.9 RENT. Monthly Rent plus the Additional Rent defined in
Paragraph 5.2.
3.10 SUBLET. Any transfer, sublet, assignment, license or
concession agreement, mortgage, or hypothecation of this Lease or the Tenant's
interest in the Lease or in and to all or a portion of the Premises.
3.11 SUBRENT. Any consideration of any kind received, or to be
received, by Tenant from a Subtenant if such sums are related to Tenant's
interest in this Lease or in the Premises.
3.12 SUBTENANT. The person or entity with whom a Sublet
agreement is proposed to be or is made.
3.13 TENANT IMPROVEMENTS. Those improvements to the Premises to
be constructed pursuant to EXHIBIT C, if any.
3.14 TENANT'S PERSONAL PROPERTY. Tenant's trade fixtures,
furniture, equipment and other personal property in the Premises.
<PAGE>
4. LEASE TERM.
4.1 TERM. The Term shall be as set forth in Paragraph 1.4, as it
may be renewed pursuant to any options to renew granted therein.
- 4 -
<PAGE>
4.2 DELIVERY OF POSSESSION. Landlord shall deliver possession of
the Premises to Tenant on the Anticipated Commencement Date, but if Landlord is
unable to deliver possession of the Premises to Tenant on the Commencement Date,
Landlord shall not be subject to liability therefore, nor shall such failure
effect the validity of this Lease, the obligations of Tenant, or extend the
Term. In such case, subject to the provisions of Section 4.3, Tenant shall not
be obligated to pay Rent or perform any other obligations of Tenant under this
Lease, except as may be otherwise provided herein, until possession of the
Premises is tendered to Tenant. Notwithstanding anything in this Lease to the
contrary, if the Landlord cannot deliver possession within ninety (90) days from
the Anticipated Commencement Date, Tenant shall have the right to terminate this
Lease.
4.3 TENANT DELAYS. If the Commencement Date has not occurred on
or before the Anticipated Commencement Date set forth in Paragraph 1.3, due to
the fault of Tenant, then notwithstanding any other provision hereof, the
Commencement Date of this Lease shall be the date specified as the Anticipated
Commencement Date and Tenant shall commence payment to Landlord of the Monthly
Rent set forth in Paragraph 1.6.
4.4 EARLY ENTRY. If Tenant is permitted to occupy the Premises
prior to the Commencement Date for the purpose of fixturing or any other purpose
permitted by Landlord, such early entry shall be at Tenant's sole risk and
subject to all the terms and provisions hereof, except for the payment of
Monthly Rent which shall commence on the date set forth in Paragraph 1.6.
Landlord shall have the right to impose such additional conditions on Tenant's
early entry as Landlord shall deem appropriate, and shall further have the right
to require that Tenant execute an early entry agreement containing such
conditions prior to Tenant's early entry.
5. RENT.
5.1 MONTHLY RENT. Tenant shall pay to Landlord, in lawful money
of the United States, commencing on the date specified in Paragraph 1.6 and
continuing on the first day of each calendar month thereafter throughout the
Term, the net Monthly Rent, subject to adjustment as provided in Paragraph 1.7.
Monthly Rent shall be payable in advances without abatement, deduction, claim,
offset, prior notice or demand. Monthly Rent for any partial month shall be
prorated.
5.2 ADDITIONAL RENT. All monies required to be paid by Tenant
under this Lease, including, without limitation, Real Property Taxes, pursuant
to Paragraph 15, repair and maintenance charges, pursuant to Paragraph 17,
Common Area Expenses and Outside Area Expenses, pursuant to Paragraph 17,
<PAGE>
and insurance premiums pursuant to Paragraph 21, shall be deemed Additional
Rent.
- 5 -
<PAGE>
6. LATE PAYMENT CHARGES. Tenant acknowledges that late payment by
Tenant to Landlord of rent and other charges provided for under this Lease will
cause Landlord to incur costs not contemplated by this Lease, the exact amount
to such costs being extremely difficult or impracticable to fix. Therefore, if
any installment of Rent or any other charge due from Tenant is not received by
Landlord within ten (10) days of when due, Tenant shall pay to Landlord an
additional sum equal to five percent (5%) of the amount overdue as a late charge
for every month or portion thereof that the Rent or other charges remain unpaid.
The parties agree that his late charge represents a fair and reasonable estimate
of the costs that Landlord will incur by reason of the late payment by Tenant.
Initials:
/s/ /s/
----------------------------- ------------------------------
Landlord Tenant
7. SECURITY DEPOSIT. Tenant shall not be required to pay a Security
Deposit in the amount of $6,037.50.
8. HOLDING OVER. It Tenant remains in possession of all or any part
of the Premises after the expiration of the Terms, with or without the express
or implied consent of Landlord, such tenancy shall be from month-to-month only
and not a renewal hereof or any extension for any further term, and in such
case, Rent and other monetary sums due hereunder shall be payable in the amount
of 125% of then current Monthly Rent and at the time applicable at the time of
expiration and at the time specified in this Lease and such month-to-month
tenancy shall be subject to every other term, covenant and agreement of this
Lease.
9. TENANT IMPROVEMENTS. See Exhibit "C" attached hereto.
10. CONDITION OF PREMISES. Tenant acknowledges that neither Landlord
nor its Agents have made any representations or warranties as to the suitability
or fitness of the Premises for the conduct of Tenant's business or for any other
purpose, nor have Landlord or its Agents agreed to undertake any construction of
the Tenant Improvement or alterations to the Premises.
11. USE OF THE PREMISES.
11.1 TENANT'S USE. Tenant shall use the Premises solely for the
purposes specified in Paragraph 1.5 and shall not use the Premises for any other
purpose without obtaining the prior written consent of Landlord.
<PAGE>
11.2 COMPLIANCE. Tenant shall not use the Premises or suffer or
permit anything under its control to be done in or about the Project which will
in any way conflict with any law, statute,
- 6 -
<PAGE>
zoning restriction, ordinance or governmental law, rule, regulation or
requirement of duly constituted public authorities now in force or which may
hereafter be in force, or the requirements of the Board of Fire Underwriters or
other similar body now or hereafter constituted relating to or affecting the
condition, use or occupancy of the Premises or the Project. Tenant shall not
commit any public or private nuisance or any other act or thing which might or
would disturb the quiet enjoyment of any other Tenant of Landlord or any
occupancy of nearby property. Tenant shall place no loads upon the floors, walls
or ceilings in excess of the maximum designed load determined by Landlord or
which endanger the structure; nor place any harmful liquids in the drainage
systems, nor dump or store waste materials or refuse or allow such to remain
outside the Building proper, except in the enclosed trash areas provided, if
any. Tenant shall not store or permit to be stored or otherwise placed any other
material of any nature whatsoever outside the Building. In particular, Tenant,
at its sole cost, shall reasonably comply with all laws relating to the storage,
use and disposal of hazardous, toxic or radioactive matter, including those
materials identified in Sections 66680 through 66685 of Title 22 of the
California Administrative Code, Division 4, Chapter 30 ("Title 22") as they may
be amended from time to time (collectively "Toxic Materials"). If Tenant does
store, use or dispose of any Toxic Materials, Tenant shall notify Landlord in
writing at least ten (10) days prior to their first appearance on the Premises.
12. QUIET ENJOYMENT. Landlord covenants that Tenant, upon performing
the terms, conditions and covenants of this Lease, shall have quiet and peaceful
possession of the Premises as against any person claiming the same by, through
or under Landlord. Landlord agrees to have its current Lender execute the "Non-
Disturbance Agreement" attached hereto as Exhibit "D", and all future Lenders,
if they agree to do so.
13. ALTERATIONS. After the Commencement Date, Tenant shall not make
or permit any Alterations in, on or about the Premises, except for nonstructural
Alterations not exceeding Twenty-Five Thousand and no/100 Dollars ($25,000.00)
in cost, without the prior written consent of Landlord, which consent shall not
be unreasonably withheld, and according to plans and specifications reasonably
proved in writing by Landlord. Notwithstanding the foregoing, Tenant shall not,
without the prior written consent of Landlord, make any (i) Alterations to the
exterior of the Building; (ii) Alterations to and penetrations of the roof of
the Building; or (iii) Alterations visible from outside the Building to which
Landlord may withhold Landlord's consent on wholly aesthetic grounds. All
Alterations shall be installed at Tenant's sole expense, in compliance with all
applicable laws, permit requirements, by a licensed contractor, shall be done in
a good and workmanlike manner conforming in quality and design with the Premises
existing as of the Commencement Date, and shall not diminish the value
<PAGE>
of either the Building or the Premises. All maintenance and minor Alterations
can be performed by Tenant's inhouse maintenance
- 7 -
<PAGE>
staff without the necessity of being performed by permit, if not required, and
without the requirement of having such maintenance work and minor Alterations
performed by a licensed contractor, although such work and minor Alterations
shall still be performed in a good and workmanlike manner. All Alterations made
by Tenant shall be and become the property of Landlord upon installation and
shall not be deemed Tenant's Personal Property; provided, however, that Landlord
may, at its option, require that Tenant, at Tenant's expense, remove any or all
nonstructural Alterations installed by Tenant and return the Premises to their
condition as of the Commencement Date of this Lease, normal wear and tear
excepted and subject to the provision of this Lease, Tenant shall be solely
responsible for the maintenance and repair of any Alterations made by it to the
Premises. In no event shall Alterations include the items of Tenant's Personal
Property, which shall included all items installed by Tenant which are not
permanently affixed to the Property.
14. SURRENDER OF THE PREMISES. Upon the expiration or earlier
termination of the Term, Tenant shall surrender the Premises to Landlord in its
condition existing as of the Commencement Date, normal wear and tear and fire or
other casualty excepted, with all interior areas cleaned. Tenant shall remove
from the Premises all of Tenant's Alterations required to be removed pursuant to
Paragraph 13, and all Tenant's Personal Property and repair any damage and
perform any restoration work caused by such removal. If Tenant fails to remove
such Alterations and Tenant's Personal Property, and such failure continues
after the termination of this Lease, Landlord may retain such property and all
rights of Tenant with respect to it shall cease, or Landlord may place all or
any portion of such property in public storage for Tenant's account. Tenant
shall be liable to Landlord for costs of removal of any such Alterations and
Tenant's Personal Property and storage and transportation costs of same, and the
cost of repairing and restoring the Premises, together with interest at the
Interest Rate from the date of expenditure by Landlord.
15. REAL PROPERTY TAXES.
15.1 PAYMENT BY TENANT. On April 1 and December 1 of each
calendar year during the Term, Tenant shall pay to Landlord, as Additional Rent,
Tenant's Project Percentage of all Real Property Taxes as set forth on the
County Assessor's tax statement for the Project. Landlord shall give Tenant at
least ten (10) days proper written notice of the amount so due. If Tenant fails
to pay Tenant's Project Percentage of the Real Property Taxes on or before April
1 and December 1, respectively, Tenant shall pay to Landlord any penalty
incurred by such late payment. Tenant shall pay Tenant's Project Percentage of
any Real Property Tax not included within the County Tax Assessor's tax
statement within
<PAGE>
ten (10) days after being billed for same by Landlord. The foregoing dates are
based on the dates established by the County as the dates on which Real Property
Taxes become delinquent if not paid. If such delin-
- 8 -
<PAGE>
quency dates change, the dates on which Tenant must pay Tenant's Project
Percentage of such taxes shall be at least ten (10) days prior to the
delinquency dates.
15.2 TAXES ON TENANT IMPROVEMENTS AND PERSONAL PROPERTY.
Notwithstanding any other provision hereof, Tenant shall pay the full amount of
any increase in Real Property Taxes during the Term resulting from any and all
Alterations and Tenant Improvements of any kind whatsoever placed in, on or
about the Premises and the Project for the benefit of, at the request of, or by
Tenant. Tenant shall pay prior to delinquency all taxes assessed or levied
against Tenant's Personal Property in, on or about the Premises. When possible,
Tenant shall cause its Personal Property to be assessed and billed separately
from the real or personal property of Landlord.
15.3 PRORATION. Tenant's liability to pay Real Property Taxes
shall be prorated on the basis of a 365-day year to account for any fractional
portion of a fiscal tax year included at the commencement or expiration of the
Term.
16. UTILITIES AND SERVICES. Tenant shall be responsible for and shall
pay promptly all charges for water, gas, electricity, sewer, telephone, refuse
pickup, janitorial service and all other utilities, materials and services
furnish directly to or used by Tenant in, on or about the Premises during the
term, together with any taxes thereon. Landlord shall not be liable in damages
or otherwise for any failure or interruption of any utility service or other
service furnished to the Premises, except that resulting from the act or neglect
of Landlord.
17. REPAIR AND MAINTENANCE.
17.1 BUILDING.
17.1.1 LANDLORD'S OBLIGATIONS. Landlord shall keep in good
order, condition and repair the structural parts of the Building, which
structural parts include, but are not limited to, the foundation, subflooring,
existing below grade plumbing, exterior walls, roof structure and roofing,
except for any damage thereto caused by the negligence or willful, acts or
omissions of Tenant or of Tenant's agents, employees or invitees, or by reason
of the failure of Tenant to perform or comply with any terms, conditions or
covenants in this Lease, or caused by Alterations made by Tenant or by Tenant's
agents, employees or contractors, which shall be Tenant's responsibility.
Landlord shall also maintain, repair and replace the HVAC system for the
Premises and Tenant shall reimburse Landlord for the maintenance costs thereof,
as and when billed by Landlord. If such HVAC system is not separately metered to
the Premises, Tenant shall be
<PAGE>
billed for its proportionate share of such maintenance cost as reasonably
determined by Landlord. At Landlord's option, Landlord shall have the right to
require Tenant to maintain and repair the HVAC and for it to be maintained in
good condition at all times and Tenant shall obtain an HVAC system
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preventive maintenance contract with bi-monthly service which shall be subject
to the reasonable approval of Landlord and paid for by Tenant and which shall
provide for and include replacement of filters, oiling and lubricating of
machinery, parts replacement, adjustment of drive belts, oil change and other
preventive maintenance. If the Landlord's repairs materially interfere with
Tenant's use of the Premises for more than ten (10) days, the Monthly Rent shall
abate until the repairs are complete or until Tenant has substantial use of its
Premises again, whichever occurs first.
17.1.2 TENANT'S OBLIGATIONS. Tenant shall at all times and
at its own expense clean, keep and maintain in good, safe and sanitary order,
condition and repair every part of the Premises which is not within Landlord's
obligation pursuant to Paragraph 17.1.1. Tenant's repair and maintenance
obligations shall include, without limitation, all fixtures, interior walls,
floors, ceilings, interior windows, store front, doors, entrances, plate glass,
showcases, skylights, all electrical facilities and equipment including lighting
fixtures, lamps, fans and any exhaust equipment and systems, any automatic fire
extinguisher equipment within the Premises, electrical motors and all other
appliances and equipment of every kind and nature located in, upon or about the
Premises. Tenant shall also be responsible for all pest control within the
Premises. All glass is at the sole risk of Tenant, and any broken glass shall
promptly be replaced by Tenant at Tenant's expense with glass of the same kind,
size and quality.
17.2 COMMON AREA AND OUTSIDE AREA.
17.2.1 LANDLORD'S OBLIGATIONS. Landlord shall maintain and
repair the Outside Area in good, safe and sanitary manner. Landlord shall at all
times have exclusive control of the Common Area and Outside Area, and may at any
reasonable time temporarily close any part thereof, or exclude and restrain
anyone from any part thereof, except the bona fide customers, employees and
invitees of Tenant who use such areas in accordance with the reasonable rules
and regulations as Landlord may from time to time promulgate, and may reasonably
change the configuration or location of such area. In exercising any such
rights, Landlord shall use diligent efforts to minimize any disruption of
Tenant's business. Landlord shall have the right to reconfigure the parking area
and ingress to and egress from the parking area, and to modify the directional
flow or traffic of the parking area. If the exercise of any of Landlord's rights
hereunder materially interferes with Tenant's use of the Premises for more than
ten (10) days, the Monthly Rent shall abate until Tenant has substantial use of
its Premises again.
17.2.2 TENANT TO PAY COMMON AREA OUTSIDE AREA EXPENSES.
Tenant shall pay, as Additional Rent, Tenant's Building Percentage and
<PAGE>
Tenant's Project Percentage, respectively, of all reasonably costs and expenses
as may be paid or incurred by Landlord in maintaining, operating and repairing
the Common Area (the "Common
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<PAGE>
Area Expenses"), and Outside Area ("Outside Area Expenses"), as the case may be
during the Term. The Common Area and Outside Area Expenses may include, without
limitation, the cost of any policies of insurance covering such areas, and the
cost of labor, materials, supplies and services used or consumed in operating,
maintaining, repairing and replacing the Common Area and Outside Area, including
maintaining concrete walkways and paved parking areas, maintaining and repairing
signs and site lighting, all utilities provided to the Outside Area, any
alterations or improvements required by governmental authority, and the cost of
maintaining exterior windows and walls and the roof of the Building. A
management fee may be included in Outside Area Expenses, but shall not exceed
four percent (4%) of net monthly rent. Any capital expenses included in either
Common Area Expenses or Outside Area Expenses shall be amortized over their
useful life as determined by standard accounting practices, whether or not such
period would extent beyond the expiration of the Lease Term.
17.2.3 MONTHLY PAYMENTS. From and after the Commencement
Date, Tenant shall pay to Landlord on the first day of each calendar month of
the Term an amount estimated by Landlord to be Tenant's Building Percentage of
the monthly Common Area Expenses and Tenant's Building Percentage of the monthly
Outside Area Expenses (collectively, the "Expenses"). Such estimated monthly
Expenses may be adjusted by Landlord at the end of any calendar quarter on the
basis of Landlord's experience and reasonably anticipated costs. Any such
adjustment shall be effective as of the calendar month next succeeding receipt
by Tenant of written notice of the adjustment. Within one hundred twenty (120)
days following the end of each calendar year, Landlord shall furnish Tenant a
statement of Tenant's Building and Project Percentages, as the case may be, of
the actual Expenses (the "Actual Expenses") for the calendar year and the
payments made by Tenant with respect to such period. If Tenant's payments for
the Expenses do not equal Tenant's Percentage, as defined in section 1.9, of the
Actual Expenses, Tenant shall pay Landlord the deficiency within ten (10) days
after receipt of such statement. If Tenant's payments exceed Tenant's Percentage
of the Actual Expenses, Landlord shall either offset the excess against Tenant's
Percentage of the Expenses next thereafter to become due to Landlord, or shall
refund the amount of the overpayments to Tenant, in cash, as Landlord shall
elect. There shall be appropriate adjustments of the Expenses as of the
Commencement Date and expiration of the Term. Notwithstanding any other
provision hereof, if Landlord incurs costs which relate only to Tenant's use of
the Premises, such costs shall be payable solely by Tenant. Landlord may either
bill such costs directly to Tenant, in which case Tenant shall pay such costs
within ten (10) days of receipt of a statement therefor, or Landlord may include
such costs on the statement of Expenses payable by Tenant.
<PAGE>
17.3. WAIVER. Tenant waives the provisions of Sections 1941 and
1942 of the California Civil Code and any similar or
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<PAGE>
successor law regarding Tenant's right to make repairs and deduct the expenses
of such repairs from the Rent due under this Lease.
17.4. COMPLIANCE WITH GOVERNMENTAL REGULATIONS. Tenant shall, at
its cost comply with, including the making by Tenant of any Alteration to the
Premises (if required because of Tenant's particular use), all present and
future regulations, rules, laws, ordinances, and requirements of all
governmental authorities (including state, municipal, County and federal
governments, and their departments, bureaus, boards and officials) arising from
Tenant's particular use or occupancy of the Premises or the Project.
18. LIENS. Tenant shall keep the Building and the Project free from
any liens arising out of any work performed, materials furnished or obligations
incurred by or on behalf of Tenant and hereby indemnifies and holds Landlord and
its Agents harmless from all liability and cost, including attorneys' fees and
costs, in connection with or arising out of any such lien or claim of lien.
Tenant shall cause any such lien imposed to be release of record by payment or
posting of a proper bond within ten (10) days after written request by Landlord.
Tenant shall give Landlord written notice of Tenant's intention to perform work
on the Premises which might result in any claim of lien at least ten (10) days
prior to the commencement of such work to enable Landlord to post and record a
Notice of Nonresponsibility or other notice reasonably deemed proper by
Landlord. If Tenant fails to so remove any such lien within the prescribed ten
(10) day period, then Landlord may do so and Tenant shall reimburse Landlord
upon demand. Such reimbursement shall include all sums incurred by Landlord
including Landlord's reasonable attorneys' fees, with interest thereon at the
Interest Rate.
19. LANDLORD'S RIGHT TO ENTER THE PREMISES. Tenant shall permit
Landlord and its Agents to enter the Premises at all reasonable times with at
least twenty-four (24) hours prior notice, except for emergencies in which case
no notice shall be required, to inspect the same, to post Notices of
Nonresponsibilities and similar notices, to show the Premises to interested
parties such as prospective lenders and purchasers, to make necessary repairs,
to discharge Tenant's obligations hereunder when Tenant has failed to do so
within a reasonable time after written notice from Landlord, and at any
reasonable time within one hundred eighty (180) days prior to the expiration of
the term, to place upon the Building or in the Outside Area ordinary "For Lease"
signs and to show the Premises to prospective Tenants. The above rights are
subject to reasonable security regulations of Tenant, and to the requirement
that Landlord shall at all times act in a manner to cause the least possible
interference with Tenant's business.
<PAGE>
20. SIGNS. Landlord shall provide space for Tenant's identification
sign on an exterior monument sign in the Outside Area in common with the other
Tenants of the Building or the project, as the case may be, and Tenant shall
have the right, at its expense, to
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<PAGE>
place an identification sign on its door to the Premises. All costs of the
monument sign shall be paid for by Tenant, as and when billed by landlord,
except for the cost of the sign pedestal. Tenant shall have no right to maintain
Tenant identification signs in any other location in, on or about the Premises,
the Building or the Project and shall not display or erect any other Tenant
identification sign, display or other advertising material that is visible from
the exterior of the Building. The size, design, color and other physical aspects
of the Tenant identification sign shall be subject to the Landlord's written
reasonable approval prior to installation, and any appropriate municipal or
other governmental approvals. The cost of the sign installation, and its
maintenance and removal expense shall be Tenant's sole expense. If Tenant fails
to maintain any of its signs, or if Tenant fails to remove any such sign upon
termination of this Lease, Landlord may do so at Tenant's expense and Tenant's
reimbursement to Landlord for such amounts shall be deemed Additional Rent.
21. INSURANCE.
21.1 INDEMNIFICATION. Tenant hereby agrees to defend, indemnify
and hold harmless Landlord and its Agents from and against any and all damage,
loss, liability or expense including, without limitation, attorneys' fees and
legal costs suffered directly or by reason of any claim, suit or judgment
brought by or in favor of any person or persons for damage, loss or expense due
to, but not limited to, bodily injury and property damages sustained by such
person or persons which arises out of, is occasioned by or in any way
attributable to the use or occupancy of the Premises, the Building or the
Project or any part thereof and adjacent areas by the Tenant, the acts or
omissions of the Tenant, its agents, employees or any contractors brought into
the Premises, the Building or the Project by Tenant, except to the extent caused
by the negligence or willful misconduct of Landlord or its Agents. Tenant agrees
that the obligations assumed herein shall survive this Lease.
Notwithstanding anything in this Lease to the contrary, Landlord
hereby agrees to defend, indemnify and hold harmless Tenant and its Agents from
and against any and all damage, loss, liability or expense including, without
limitation, attorneys' fees and legal costs suffered directly or by reason of
any claim, suit or judgment brought by or in favor of any person or persons for
damage, loss or expense due to, but not limited to, bodily injury and property
damages sustained by such persons or persons which arose out of, is occasioned
by or attributable to the negligence, acts or omissions of Landlord, his Agents,
invitees or contractors. Landlord agrees that the obligations assumed herein
shall survive this Lease.
<PAGE>
Either party's obligation to indemnify the other party is subject
to the party seeking indemnification giving to the other party prompt notice of
any claim, action, or proceeding, cooperating with the other party, giving the
other party sole settlement
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<PAGE>
authority and permitting the other party the power to defend with its choice of
counsel.
21.2 TENANT'S INSURANCE. Tenant agrees to maintain in full force
and effect at all times during the Term, at its own expense, for the protection
of Tenant and Landlord, as their interests may appear, policies of insurance
issued by a responsible carrier or carriers which afford the following
coverages:
21.2.1 LIABILITY. Comprehensive general liability insurance
in an amount not less than One Million and no/100 Dollars ($1,000,000.00)
combined single limit for both bodily injury and property damage which includes
blanket contractual liability broad form property damage, personal injury,
completed operations, and fire legal liability (in an amount not less than
Twenty-Five Thousand and no/ 100 Dollars ($125,000.00), naming Landlord and its
Agents as additional insureds.
21.3 ALL-RISK INSURANCE. During the Term Landlord shall maintain
"All Risk" property insurance (including, and Landlord's option, inflation
endorsement sprinkler leakage endorsement on the Building) excluding coverage of
all Tenant's Personal Property located on or in the Premises, but including the
Tenant Improvements. Such insurance shall name Landlord and its Agents as named
insured and include a lender's loss payable endorsement in favor of Landlord's
lender (Form 438 BFU Endorsement). Tenant shall reimburse Landlord for Tenant's
Building Percentage of Landlord's cost of such insurance as Additional Rent,
monthly on the first day of each calendar month of the Term, prorated for any
partial month, or on such other periodic basis as Landlord shall elect. If the
insurance premiums are increased after the Commencement Date due to all increase
in premium rates, due to an increase in the valuation of the Building or its
replacement costs, Tenant shall pay Tenant's Building Percentage of such
increase within ten (10) days of notice of such increase. If such insurance
premiums are increased after the Commencement Date due to Tenant's use of the
Premises or any other cause solely attributable to Tenant, Tenant shall pay the
full amount of the increase within ten (10) days of notice of such increase.
Landlord shall have the right to insured the Building on a policy which includes
other buildings on the Project, if any. In such case, Tenant shall pay a
percentage of such policy cost determined by dividing the square footage of the
Premises by the square footage of all buildings covered by such policy, provided
the insurance rate is similar on all buildings in the Project. Landlord agrees
to carry insurance equal to at least ninety (90%) percent of the Building's
replacement value.
21.4. CERTIFICATES. Tenant shall deliver to Landlord at least
ten (10) days prior to the time such insurance is first required to be carried
by Tenant, and
<PAGE>
thereafter at least thirty (30) days prior to expiration of each such policy,
certificates of insurance evidencing the above coverage with limits not less
than those specified above. The certificates shall expressly provide
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<PAGE>
that the interest of Landlord therein shall not be affected by any breach of
Tenant of any policy provision for which such certificates evidence coverage.
All certificates shall expressly provide that no less than thirty (30) days
prior written notice shall be given Landlord in the event of cancellation of the
coverages evidenced by such certificates.
21.5 INSURANCE REQUIREMENTS. All insurance shall be in a form
satisfactory within reason to Landlord and shall be carried with companies that
have a general policy holder's rating of not less than "B+" and a financial
rating of not less than Class "VIII" in the most current edition of BEST'S
INSURANCE REPORTS; shall provide that such policies shall not be subject to
material alteration or cancellation except after at least thirty (30) days prior
to the expiration of the term of such coverage. If Tenant fails to procure and
maintain the insurance required hereunder, Landlord may, upon written notice to
Tenant, order such insurance at Tenant's expense and Tenant shall reimburse
Landlord Such reimbursement shall include all reasonable sums incurred by
Landlord, including Landlord's reasonable attorneys' fees and costs, with
interest thereon at the Interest Rate.
21.7 LANDLORD'S DISCLAIMER. Landlord and its Agents shall not be
liable for any loss or damage to persons or property resulting from fire,
explosion, falling plaster, glass, tile or sheetrock, steam, gas, electricity,
water or rain which may leak from any part of the Building, or from the pipes,
appliances or plumbing works therein or from the roof, street or subsurface of
whatsoever, unless caused by or due to the negligence of willful acts of
Landlord. Landlord and its Agents shall not be liable for interference with the
light or air. Tenant shall give prompt written notice to Landlord in case of a
casualty, accident or repair needed in the Premises.
22. WAIVER OF SUBROGATION. Landlord and Tenant each hereby waive all
rights of recovery against the other on account of loss and damage occasioned to
such waiving party for its property or the property of others under its control
to the extent that such loss or damage is insured against or is required to be
insured against under any insurance policies which may be in force at the time
of such loss or damage. Tenant and Landlord shall, upon obtaining policies of
insurance required hereunder, give notice to the insurance carrier that the
foregoing mutual waiver of subrogation is contained in this Lease and Tenant and
Landlord shall cause each insurance policy obtained by such party to provide
that the insurance company waives all right of recovery by way of subrogation
against either Landlord or Tenant in connection with any damage covered by such
policy.
<PAGE>
23. DAMAGE OR DESTRUCTION.
23.1 PARTIAL DAMAGE - INSURED. If the Premises are damaged by
any casualty which is covered under the "All-Risk"
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<PAGE>
insurance carried by Landlord pursuant to Paragraph 21.3, then Landlord shall
restore such damage, provided insurance proceeds are available to pay at least
ninety percent (90%) or more of the cost of restoration and provided such
restoration can be completed within one hundred twenty (120) days after the
commencement of the work in the reasonable opinion of a registered architect or
engineer appointed by Landlord for such determination. In effect, except that
Tenant shall be entitled to a proportionate reduction of Monthly Rent while such
restoration takes place, such proportionate reduction to be based upon the
extent to which Tenant's use of the Premises is Materially interfered with. Any
dispute between Landlord and Tenant as to the amount of such rent reduction
shall be resolved by arbitration.
23.2 PARTIAL DAMAGE - UNINSURED. If the Premises or the Building
is damaged by a risk not covered by Landlord's insurance, or the proceeds of
available insurance are less than ninety percent (90%) of the cost of
restoration, or the restoration cannot be completed within one hundred twenty
(120) days after the commencement of work, in the reasonable opinion of the
registered architect or engineer appointed by Landlord for such determination,
then Landlord shall have the option either to: (1) repair or restore such
damage, this Lease continuing in full force and effect, but the Monthly Rent to
be proportionately abated as provided in Paragraph 23.1; or (ii) give notice to
Tenant at any time within thirty (30) days after such damage terminating this
Lease as of a date to be specified in such notice, which date shall be not less
than thirty (30) nor more than sixty (60) days after giving such notice. Unless
the damage is caused by Tenant, if the Premises cannot be restored within one
hundred twenty (120) days, Tenant shall also have the right to terminate this
Lease by giving notice to Landlord, at any time within thirty (30) days after
such damage, terminating this Lease as of a date to be specified in such notice,
which date shall be not less than thirty (30) days nor more than sixty (60) days
after giving such notice. If notice of termination is given, this Lease shall
expire and all interest of Tenant in the Premises shall terminate on such date
so specified in such notice and the Monthly Rent, reduced by any proportionate
reduction based upon the extent, if any, to which such damage interfered with
the use of the Premises by Tenant, shall be paid to the date of such
termination. Notwithstanding the above, if Landlord elects to terminate the
Lease because insurance proceeds are insufficient to pay for the cost of
repairs, Tenant may elect to pay the deficiency and keep the Lease in effect, by
written notice delivered to Landlord within ten (10) days after Landlord's
election to terminate, together with a deposit of funds sufficient to cover a
reasonable estimate of the deficiency.
23.3 TOTAL DESTRUCTION. If the Premises or the Building is
totally destroyed or the Premises or Building, as the case may be, cannot be
reasonably
<PAGE>
restored under applicable laws and regulations or due to the presence of
hazardous factors such as earthquake faults, chemical wastes and similar
dangers,
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<PAGE>
notwithstanding the availability of insurance proceeds, this Lease shall be
terminated effective the date of the damage.
23.4 LANDLORD'S OBLIGATIONS. Landlord shall not be required to
repair any injury or damage by fire or other cause, or to make any restoration
or replacement of any panelings, decorations, temporary partitions, railings,
floor coverings, office fixtures which are Alterations of Personal Property
installed in the Premises by Tenant or at the expense of Tenant, and are not
fixtures of the Building, unless caused solely by Landlord's negligence, subject
to the provisions of Paragraph 22. Tenant shall be required to repair and
maintain the Premises over which they are responsible in a safe condition.
Except for abatement of Monthly Rent, if any, Tenant shall have no claim against
Landlord for any damage suffered by reason of any such damage, destruction,
repair or restoration; nor shall Tenant have the right to terminate this Lease
as the result of any statutory provisions nor or hereafter in effect pertaining
to the damage and destruction of the Premises, except as expressly provided
herein.
23.5 DAMAGE NEAR END OF TERM. Anything herein to the contrary
notwithstanding, if the Premises or the Building is destroyed or damaged during
the last six (6) months of the term as extended by Tenant's exercise of its
option to extend, the Landlord or Tenant may cancel and terminate this Lease as
of the date of the occurrence of such damage. If Landlord or Tenant does not
elect to so terminate this Lease, the repair of such damage shall be governed by
the other provisions of this Paragraph 23.
24. CONDEMNATION. If title to all of the Premises, the y Building or
the Project or so much thereof is taken or appropriated for any public or quasi-
public use under any statute or by right of eminent domain and reconstruction of
the Premises will not, in Tenant's reasonable judgment, result in the Premises
being suitable for Tenant's continued occupancy for the uses and purposes
permitted by this Lease, this Lease shall terminate as of the date that
possession of the Building or Premises or part thereof be taken, provided that
if Landlord disagrees with Tenant's judgment, the Lease shall not terminate and
the issues as to whether the remaining Premises are suitable for Tenant's
continued occupancy for the uses and purposes permitted by this Lease shall be
submitted into arbitration. A sale by Landlord to any authority having the power
of eminent domain, either under threat of condemnation or while condemnation
proceedings are pending, shall be deemed a taking under the power of eminent
domain for all purposes of this paragraph. If any part of the Premises, the
Building or the Project is taken and the remaining part is reasonably suitable
for Tenant's continued occupancy for the purposes and uses permitted by this
Lease, this Lease shall, as to the part so taken, terminate as of the date that
possession of such part of the Premises or Building is
<PAGE>
taken. If the Premises is so partially taken the Rent and other sums payable
hereunder shall be reduced in the same proportion that Tenant's use and
occupancy of the Premises is reduced. If the parties disagree
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<PAGE>
as to suitability of the Premises for Tenant's continued occupancy or the amount
of any applicable Rent reduction, the matter shall be resolved by arbitration.
No award for any partial or entire taking shall be apportioned. Tenant assigns
to landlord its interest in any award which may be made in such taking or
condemnation, together with any and all rights of Tenant arising in or to the
same of any part thereof. Nothing contained herein shall be deemed to give
Landlord any interest in or require Tenant to assign to Landlord any separate
award made to Tenant for the taking of Tenant's Personal Property, for the
interruption of Tenant's business, or its moving costs, or far the loss of its
good will. No temporary taking of the Premises shall terminate this Lease or
give Tenant any right to any abatement of Rent. Any award made to Tenant by
reason of such temporary taking shall belong entirely to Tenant an Landlord
shall not be entitled to share therein. Each party agrees to execute and deliver
to the other all instruments that may be required to effectuate the provisions
of this paragraph.
24.1 ARBITRATION. The parties hereto shall diligently and in
good faith attempt to resolve all disputes by mutual consent. All disputes not
resolved by mutual consent shall be submitted to binding arbitration in Santa
Cruz, California pursuant to the rules of the American Arbitration Association.
Both parties agree to expeditiously proceed with the arbitration. The procedure
to commence arbitration proceedings shall be initiated within thirty (30) days
from notice by the aggrieved party. If the non-aggrieved party fails to
cooperate with the commencement of the arbitration procedure, or either party
fails to expeditiously proceed with the arbitration procedure according the time
periods established pursuant to the arbitration rules, the other party shall
have the right to pursue its remedies at law. Any dispute shall be submitted to
a panel of three (3) arbitrators selected from the panel of the American
Arbitration Association, one of whom shall be an attorney. The award of
arbitration shall be final judgment may be entered thereon on any court of
competent jurisdiction.
25. ASSIGNMENT AND SUBLETTING.
25.1 LANDLORD'S CONSENT. Tenant shall not enter into Sublet
without Landlord's prior written consent, which consent shall not be
unreasonably withheld. Any attempted or purported Sublet without Landlord's
prior written consent shall be void and confer no rights upon any third person
and shall be
<PAGE>
deemed a material default of this Lease. Each Subtenant shall agree
in writing, for the benefit of Landlord, to assume, to be bound by, and to
perform the terms, conditions and covenants of this Lease to be performed by
Tenant. Notwithstanding anything contained herein, Tenant shall not be released
from personal liability for the performance of each term, condition and covenant
of this Lease by reason of Landlord's consent to a Sublet unless Landlord
specifically grants such release in writing.
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<PAGE>
25.2 INFORMATION TO BE FURNISHED. If Tenant desires at any time
to Sublet the Premises of any portion thereof, it shall first notify Landlord of
its desire to do so and shall submit in writing to Landlord: (i) the name of the
proposed Subtenant; (ii) the nature of the proposed Subtenant's business to be
carried on in the Premises; (iii) the terms and provisions of the proposed
Sublet and a copy of the proposed Sublet form containing a description of the
subject premises; and (iv) such financial information, including financial
statements, as Landlord may reasonable request concerning the proposed
Subtenant.
25.3 LANDLORD'S ALTERNATIVES. At any time within thirty (30)
days after Landlord's receipt of the information specified in Paragraph 25.2,
Landlord may, by written notice to Tenant, elect: (i) to lease for its own
account the Premises or the portion thereof so proposed to be Sublet by tenant,
upon the same terms as those offered to the proposed Subtenant but on a form
acceptable to Landlord; (ii) to consent to the Sublet by Tenant; or (iii) to
refuse its consent to the Sublet, which consent shall not be unreasonably
withheld. If Landlord consents to the Sublet, Tenant may thereafter enter into a
valid Sublet of the Premises or portion thereof, upon the terms and conditions
and with the proposed Subtenant set forth in the information furnished by Tenant
to Landlord pursuant to Paragraph 25.2.
25.4 PRORATION. If a portion of the Premises is Sublet, the pro
rata share of the Rent attributable to such partial area of the Premises shall
be determined by Landlord by dividing the Rent payable by Tenant hereunder by
the total square footage of the Premises and multiplying the resulting quotient
(the per square foot rent) by the number of square feet of the Premises which
are Sublet.
25.5 EXECUTED COUNTERPART. No sublet shall be valid nor shall
nay Subtenant take possession of the Premises until an executed counterpart of
the Sublet agreement has been delivered to Landlord.
25.6 EXEMPT SUBLETS. Notwithstanding the above, Landlord's prior
written consent shall not be required for an assignment of this Lease to a
subsidiary, affiliate or parent corporation of Tenant, or a corporation into
which Tenant merges or consolidates, or to a successor in interest, if Tenant
gives Landlord prior written notice of the name of any such assignee, and if the
assignee assumes, in writing, all of Tenant's obligations under the Lease.
26. DEFAULT.
26.1 TENANT'S DEFAULT. A default under this Lease by Tenant
shall exist if any of the following events shall occur:
<PAGE>
26.1.1 If Tenant fails to pay Rent or any other sum required
to be paid hereunder when due and such failure continues for ten (10) days; or
26.1.2 If Tenant shall have failed to perform any term,
covenant or condition of this Lease except those requiring the payment of money,
and Tenant shall have failed to cure such breach within thirty (30) days after
written notice from Landlord where such breach could reasonably be cured within
such thirty (30) day period; provided, however, that where such failure could
not reasonable he cured within the thirty (30) period, that Tenant shall not be
in default if it commences such performance within the thirty (30) day period
and diligently thereafter prosecutes the same to completion; or
26.1.3 If permitted by law, Tenant assigns its assets for
the benefit of its creditors; or
26.1.4 If permitted by law, the sequestration or attachment
of or execution on any material part of Tenant's Personal Property essential to
the conduct of Tenant's business occurs, and Tenant fails to obtain a return or
release of such Personal Property within thirty (30) days thereafter, or prior
to sale pursuant to such sequestration, attachment or levy, whichever is
earlier; or
26.1.5 If permitted by law, a court shall make or enter any
decree or order other than under the bankruptcy laws of the United States
adjudging Tenant to be insolvent; or approving as properly filed a petition
seeking reorganization of Tenant; or directing the winding up or liquidation of
Tenant and such decree or order shall have continued for period of thirty (30)
days,
26.2 REMEDIES. Upon a default, Landlord shall have the following
remedies, in addition to all other rights and remedies provided by law or
otherwise provided in this Lease, to which Landlord may resort cumulatively or
in the alternative:
26.2.1 Landlord may continue this Lease in full force and
effect, and this Lease shall continue in full force and effect as long as
Landlord does not terminate this Lease, and Landlord shall have the right to
collect Rent when due. However, Landlord shall use its best effort to mitigate
its damage.
26.2.2 Landlord may terminate Tenant's right to possession
of the Premise at any time by giving written notice to that effect, and relet
the Premises or any part thereof for the remaining term of this Lease. Tenant
shall be liable immediately to Landlord for all costs Landlord incurs in
reletting the Premises or any part thereof, including, without limitation,
broker's commissions, expenses
<PAGE>
or cleaning and repairing to its condition upon the commencement of this Lease
as required by the subletting and like costs. Reletting may be for a period
shorter or longer than the remaining Term of this Lease. No act by Landlord
other
- 20 -
<PAGE>
than giving written notice to Tenant shall terminate this Lease. Acts of
maintenance, efforts to relet the Premises, or the appointment of a receiver on
Landlord's initiative to protect Landlord's interest under this Lease shall not
constitute a termination of Tenant's right to possession. On termination,
Landlord has the right to remove all Tenant's Personal Property and store same
at Tenant's cost and to recover from Tenant as damages:
(a) The worth at the time of award of unpaid Rent and
other sums due and payable which had been earned at the time of termination;
plus
(b) The worth at the time of award of the amount by
which the unpaid Rent and other sums due and payable which would have been
payable after termination until the time of award excess the amount of such Rent
loss that Tenant proves could have been reasonably avoided; plus
(c) The worth at the time of award of the amount by
which the unpaid Rent and other sums due and payable for the balance of the Term
after the time of award exceeds the amount of such Rent loss that Tenant proves
could be reasonably avoided; plus
(d) Any other amount necessary which is to compensate
Landlord for Tenant's failure to perform Tenant's obligations under this Lease,
or which, in the ordinary course of things, would be likely to result therefrom,
including, without limitation, any costs or expenses incurred by Landlord: (i)
in retaking possession of the Premises; (ii) in maintaining, repairing,
preserving, restoring, cleaning, or rehabilitation the Premises or any portion
thereof, including such acts for reletting to a new Tenant or Tenants; (iii) for
leasing commission; or (iv) for any other costs necessary or appropriate to rent
the Premises; plus
(e) At Landlord's election, it shall seek the market
rental of the premises rather than the rent as specified in this Lease.
The "worth at the time of award" of the amounts referred to in
Paragraph 26.2.2(a) and 26.2.2(b) is computed by allowing interest at the
Interest Rate on the unpaid rent and other sums due and payable from the
termination date through the date of award. The "worth at the time of award: of
the amount referred to in Paragraph 26.2.2(c) is computed by discounting such
amount at the discount rate of the Federal Reserve Bank of San Francisco at the
time of award plus one percent (1%).
<PAGE>
26.2.3 After Tenant has been in default for ninety (90)
days, Landlord may, with or without terminating this Lease, reenter the Premises
and remove all persons and property from the Premises; such property may be
removed and stored in a public warehouse or elsewhere at the cost of and for the
account of Tenant.
- 21 -
<PAGE>
No re-entry or acts of maintenance, preservation or efforts to relet shall be
construed as an election to terminate this Lease unless a written notice of such
intention is given to Tenant.
26.3 LANDLORD'S DEFAULT. Landlord shall not be deemed to be in
default in the performance of any obligation required to be performed by it
hereunder unless and until it has failed to perform such obligation within
thirty (30) days after receipt of written notice by Tenant to Landlord
specifying the nature of such default; provided, however, that if the nature of
Landlord's obligation is such that more than thirty (30) days are required for
its performance, then Landlord shall not be deemed to be in default if it shall
commence such performance within such thirty (30) day period and thereafter
diligently prosecute the same to competition.
Notwithstanding anything to the contrary, upon default, Tenant
shall have the following remedies, in addition to all other rights and remedies
provided by law or otherwise provided in this Lease, to which Tenant may resort
cumulatively or in the alternative:
26.3.1 Tenant may terminate this Lease; or
26.3.2 Tenant may cure the default and subtract any costs and/or
expenses incurred by Tenant in curing such default from the Monthly Rent.
27. SUBORDINATION. This Lease is subject and subordinate to mortgages
and deeds of trust (collectively "Encumbrances") which may now affect the
Premises, the building, or the Project, and to all renewals, modifications,
consolidations, replacements and extensions thereof; provided, however, if the
holder or holders of any such Encumbrance ("Holder") shall require that this
Lease to be prior and superior thereto, within ten (10) days of written request
of Landlord to Tenant, Tenant shall execute, have acknowledged and deliver any
and all documents or instruments, in the form presented to Tenant, which
Landlord or Holder deems necessary or desirable for such purposes provided any
such documents or instruments are not inconsistent with, change or add terms to
the terms of this Lease. Landlord shall have the right to cause this Lease to be
and become and remain subject and subordinate to any and all Encumbrances which
are now or may hereafter be executed covering the Premises, the Building, or the
Project, or any renewals, modifications, consolidations, replacements or
extensions thereof, for the full amount of all advances made or to be made
thereunder and without regard to the time or character of such advances,
together with interest thereon and subject to all the terms and provisions
thereof; provided only, that upon the foreclosure of any such mortgage or deed
of trust, so long as Tenant is
<PAGE>
not in default, Holder agrees to recognize Tenant's rights under this Lease as
long as Tenant shall pay the Rent and observe and perform all the provisions of
this Lease to be observed and performed by Tenant. Within ten (10) days after
Landlord's written request, Tenant shall
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<PAGE>
execute any and all documents required by Landlord or the Holder required to
effectuate such subordination to make this Lease subordinate to any lien of the
Encumbrances provided any such documents or instruments are not inconsistent
with, change or add terms to the terms of this Lease. If Tenant fails to do so,
it shall be deemed that this lease is so subordinated. Notwithstanding anything
to the contrary set forth in this paragraph, Tenant hereby attorneys and agrees
to attorn to any entity purchasing or otherwise acquiring the Building at any
sale or other proceeding or pursuant to the exercise of any other rights, powers
or remedies under such Encumbrance.
Each statement, instrument or document that Tenant is required to
sign under this Section shall provide that Tenant, upon performing the terms,
conditions and covenants of this Lease, shall have quit and peaceful possession
of the Premises as against any person claiming the same by, through or under
Landlord.
28. NOTICES. Any notice or demand required or desired to be given
under this Lease shall be in writing and shall be personally served or in lieu
of personal service may be given by mail. If given by mail, such notice shall be
deemed to have been given when seventy-two (72) hours have elapsed from the time
when such notice was deposited in the United States mail, registered or
certified, and postage prepaid, addressed to the party to be served. At the date
of execution of this Lease, the addresses of Landlord and Tenant are as set
forth in the first paragraph of this Lease. Either party may change its address
by giving notice of same in accordance with this paragraph.
29. ATTORNEYS FEES. If either party brings any action or legal
proceeding for damages for an alleged breach of any provision of this Lease, to
recover rent, or other sums due, to terminate the tenancy of the Premises or to
enforce, protect or establish any term, condition or covenant of this Lease or
right of either party, the prevailing party shall be entitled to recover as a
part of such action or proceedings, or in a separate action brought for that
purpose, reasonable attorneys' fees and costs.
30. TENANT STATEMENTS. Tenant shall within ten (10) days following
written request by Landlord:
30.1 ESTOPPEL CERTIFICATES. Execute and deliver to Landlord any
documents provided any such documents or instruments are not inconsistent with,
change or add terms to the terms of this Lease, including estoppel certificates,
in the form prepared by Landlord (a) certifying that this Lease is unmodified
and in full force and effect or, if modified, stating the nature of such
modification and certifying
<PAGE>
that this Lease, as so modified, is in full force and effect and the date to
which the Rent and other charges are paid in advance, if any, and (b)
acknowledging that there are not, to Tenant's knowledge, any uncured defaults on
the part of Landlord, or, if there are uncured defaults on the part of
- 23 -
<PAGE>
the Landlord, stating the nature of such uncured defaults, and (c) evidencing
the status of the Lease as may be required either by a lender making a loan to
Landlord to be secured by deed of trust or mortgage covering the Building or the
Property or a purchaser of the building or the Property from Landlord. Tenant's
failure to deliver an estoppel certificate within ten (10) days after delivery
of Landlord's written request therefor shall be conclusive upon Tenant (a) that
this Lease is in full force and effect, without modification except as may be
represented by Landlord, (b) that there are now no uncured defaults in
Landlord's performance and (c) that no Rent has been paid in advance. If Tenant
fails to so deliver a requested estoppel certificate within the prescribed time
it shall be deemed that there exist no defaults under this Lease on the part of
Landlord, that the rent is current and that Tenant has no claims against
Landlord.
Each statement, instrument or document that Tenant is required to
sign under this Section shall provide that Tenant, upon performing the terms,
conditions and covenants of this Lease, shall have quiet and peaceful possession
of the Premises as against any person claiming the same by, through or under
Landlord.
30.2 FINANCIAL STATEMENTS. Deliver to Landlord the current
financial statements of Tenant or a statement of financial condition from
Tenant's certified public accountant, and Tenant's financial statements for the
two (2) years prior thereto.
31. TRANSFER OF THE BUILDING BY LANDLORD. In the event of any
conveyance of the Building or the Project and assignment by Landlord of this
Lease, Landlord shall be and is hereby entirely released from all liability
under any and all of its covenants and obligations contained in or derived from
this Lease occurring after the date of such conveyance and assignment, provided
such transferee assumes Landlord's obligations under this Lease, and Tenant
agrees to attorney to such transferee.
32. LANDLORD'S RIGHT TO PERFORM TENANT'S COVENANTS. If Tenant fails
to make any payment or perform any other act on its part to be made or performed
under this Lease, provided that Landlord has delivered to Tenant written notice,
and any applicable cure period has expired, Landlord may, but shall not be
obligated to and without waiving or releasing Tenant from any obligation of
Tenant under this Lease, make such payment or perform such other act to the
extent Landlord may deem desirable, and in connection therewith, pay expenses
and employ counsel. All sums so paid by Landlord and all penalties, interest and
costs in connection therewith shall be due and payable by Tenant on the next day
after any such payment by Landlord, together with interest thereon at the
Interest Rate
<PAGE>
from such date to the date of payment by Tenant to landlord, plus collection
costs and attorneys fees. Landlord shall have the same rights and remedies for
the nonpayment thereof as in the case of default in the payment of Rent.
- 24 -
<PAGE>
33. TENANT'S REMEDY. Deleted.
34. MORTGAGEE PROTECTION. If Landlord defaults under this Lease,
Tenant will notify by registered or certified mail to any beneficiary of a deed
of trust or mortgagee of a mortgage covering the Building or the Project, and
offer such beneficiary or mortgagee a reasonable opportunity to cure the
default, including time to obtain possession of the Building or the Project by
power of sale or a judicial foreclosure, if such should prove necessary to
effect a cure. Landlord shall provide Tenant with the names and addresses of
such beneficiaries or mortgagees.
35. BROKERS. Landlord and Tenant each warrants and represent that it
has had no dealings with any real estate broker or agent in connection with the
negotiation of this Lease, except for the broker(s) referred to in Paragraph
1.12 and that is known of no other real estate broker or agent who is or might
be entitled to a commission in connection with this Lease. If any other claim is
made by any other broker or individual for a real estate brokerage commission or
finder's fee, the party alleged to have created the liability shall defend,
indemnify and hold the other party harmless from and against any and all
liabilities or expenses, including attorneys' fees and costs, arising out of or
in connection with such claims.
36. ACCEPTANCE. Delivery of this Lease, duly executed by Tenant,
constitutes an offer to lease the Premises, and under no circumstances shall
such delivery be deemed to create an option or reservation to lease the Premises
for the benefit of Tenant. This Lease shall only become effective and binding
upon full execution hereof by Landlord and delivery of a signed copy to Tenant.
Landlord shall execute this Lease within two (2) business days after its receipt
of this Lease duly executed by Tenant.
37. RECORDING. Neither party shall record this Lease nor a short form
memorandum thereof.
38. PARKING. Tenant shall have the right to park on the Project's
parking facilities in common with other Tenants of the Project upon terms and
conditions as may from time to time be established by Landlord. Tenant agrees
not to overburden the parking facilities and agrees to cooperate with Landlord
and other Tenants in the use of the parking facilities. Landlord reserves the
right in its discretion to determine whether the parking facilities are becoming
crowded and to allocate and assign parking spaces among Tenant and the other
Tenants.
<PAGE>
39. GENERAL.
39.1 CAPTIONS. The captions and headings used in this Lease are
for the purpose of convenience only and shall not be construed to limit or
extend the meaning of any part of this Lease.
- 25 -
<PAGE>
39.2 EXECUTED COPY. Any fully executed copy of this Lease shall
be deemed an original for all purposes.
39.3 TIME. Time is of the essence for the performance of each
term, condition and covenant of this Lease.
39.4 SEPARABILITY. If one or more of the provisions contained
herein, except for the payment of Rent, is for any reason to be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality,
or unenforceability shall not affect any other Provision of this Lease, but his
Lease shall be construed as if such invalid, illegal or unenforceable provision
had not been contained herein.
39.5 CHOICE OF LAW. This Lease shall be construed and enforced
in accordance with the laws of the State of California. The language in all
parts of this Lease shall in all cases be construed as a whole according to its
fair meaning and not strictly for or against either Landlord or Tenant.
39.6 GENDER; SINGULAR, PLURAL. When the context of this Lease
requires, the neuter gender includes the masculine, the feminine, a partnership
or corporation or joint venture, and the singular includes the plural.
39.7 BINDING EFFECT. The covenants and agreement contained in
this Lease shall be binding on the parties hereto and on their respective
successors and assigns to the extent this Lease is assignable.
39.8 WAIVER. The waiver by Landlord or Tenant of any breach of
any term, condition or covenant, of this Lease shall not be deemed to be a
waiver of such provision or any subsequent breach of the same or any other term,
condition or covenant of this Lease. The subsequent acceptance of Rent hereunder
by Landlord shall not be deemed to be a waiver of any preceding breach at the
time of acceptance of such payment. No covenant, term or condition of this Lease
shall be deemed to have been waived by Landlord or Tenant unless such waiver is
in writing signed by Landlord or Tenant, respectively.
39.9 ENTIRE AGREEMENT. This Lease is the entire agreement
between the parties, and there are no agreements or representations between the
parties except as expressed herein. Except as otherwise provided herein, no
subsequent change or addition to this Lease shall be binding unless in writing
and signed by the parties hereto.
39.10 AUTHORITY. If Landlord or Tenant is a corporation or a
partnership, each individual executing this Lease on behalf of said corporation
or
<PAGE>
partnership, as the case may be, represents and warrants that he is duly
authorized to execute and deliver this Lease on behalf of said entity in
accordance with its corporate
- 26 -
<PAGE>
bylaws, statement of partnership or certificate of limited partnership, as the
case may be, and that this Lease is binding upon said entity in accordance with
its terms. Landlord or Tenant, at is option, may require a copy of such written
authorization to enter into this Lease. The failure of Landlord or Tenant to
deliver the same to the requesting party within ten (10) days of the request
therefor shall be deemed a default under this Lease.
39.11 EXHIBITS. All exhibits, amendments, riders and addenda
attached hereto are hereby incorporated herein and made a part hereof.
39.12 TIME PERIODS. Other than as to Monthly Rent payments,
notwithstanding anything in this Lease to the contrary, no bill, invoice and/or
statement from Landlord shall be due until ten (10) days after the Landlord has
presented such bill, invoice and/or statement to Tenant for payment. Any such
bill, invoice or statement shall be submitted in detail and Tenant shall have
the right to review Landlord's back-up documentation for any such bill, invoice
and/or statement.
40. TENANT IMPROVEMENTS. Tenant shall accept the Premises in an "as
is" condition, and the Landlord shall have no responsibility to complete any
Tenant Improvements.
THIS LEASE is effective as of the date the last signatory
necessary to execute the Lease shall have executed this Lease.
TENANT:
Dated: January , 1993 Coast Commercial Bank, a California
banking corporation
By: /s/
----------------------
Its:
By: /s/
----------------------
Its:
LANDLORD:
Dated: January, 1993 DuBois Office Plaza, A California
Limited Partnership
By: /s/
--------------------------
STUART M. GORDON
Managing General Partner
<PAGE>
LEGAL DESCRIPTION OF PROPERTIES
The legal descriptions for 140 DuBois and 150 DuBois respectively are
as herein set forth hereinbelow:
All that property in the City of Santa Cruz, Country of Santa Cruz,
State of California, described as:
PARCEL ONE:
Parcel 2 as shown and designated upon that certain Parcel Map filed
for record September 13, 1985 in Book 45, of Parcel Maps, Page 55, Santa Cruz
County Records.
PARCEL TWO:
Parcel 3 as shown and designated upon that certain Parcel Map filed
for record September 13, 1985 in Book 45, of Parcel Maps, Page 55, Santa Cruz
County Records.
EXHIBIT A
<PAGE>
TENANT IMPROVEMENTS
Tenant shall accept the Premises in an "as is" conditions and the
Landlord shall have no responsibility to complete any Tenant Improvements.
EXHIBIT C
14857
- 28 -
<PAGE>
COAST COMMERCIAL BANK
EMPLOYEE STOCK OWNERSHIP PLAN
(WITH 401(k) PROVISIONS)
EFFECTIVE AS OF JANUARY 1, 1991
<PAGE>
SECTION PAGE
1. Nature of Plan. . . . . . . . . . . . . . . . . . 1.1
2. Definitions . . . . . . . . . . . . . . . . . . . 2.1
3. Eligibility and Participation . . . . . . . . . . 3.1
4. Employer and Employee Contributions . . . . . . . 4.1
5. Investment of Trust Assets . . . . . . . . . . . 5.1
6. Allocations to Participants' Accounts . . . . . . 6.1
7. Expenses of the Plan and Trust . . . . . . . . . 7.1
8. Voting Bank Stock . . . . . . . . . . . . . . . . 8.1
9. Disclosure to Participants . . . . . . . . . . . 9.1
10. Capital Accumulation . . . . . . . . . . . . . . 10.1
11. Retirement, Disability or Death . . . . . . . . . 11.1
12. Termination of Service, Break in Service,
Vesting and Forfeitures . . . . . . . . . . . . . 12.1
13. Credited Service . . . . . . . . . . . . . . . . . 13.1
14. When Capital Accumulation Will Be Distributed . . 14.1
15. How Capital Accumulation Will Be Distributed . . . 15.1
16. Rights, Options and Restrictions on
Bank Stock . . . . . . . . . . . . . . . . . . . 16.1
17. No Assignments of Benefits, Dividends, Hardship,
Optional Distributions and Loans . . . . . . . . 17.1
18. Administration . . . . . . . . . . . . . . . . . . 18.1
19. Claims Procedure . . . . . . . . . . . . . . . . . 19.1
20. Guaranties . . . . . . . . . . . . . . . . . . . . 20.1
21. Future of the Plan . . . . . . . . . . . . . . . . 21.1
22. "Top-Heavy" Contingency Provisions . . . . . . . . 22.1
23. Diversification . . . . . . . . . . . . . . . . . 23.1
24. Governing Law. . . . . . . . . . . . . . . . . . . 24.1
25. Execution. . . . . . . . . . . . . . . . . . . . . 25.1
<PAGE>
COAST COMMERCIAL BANK
EMPLOYEE STOCK OWNERSHIP PLAN
(WITH 401(k) PROVISIONS)
SECTION 1. NATURE OF PLAN.
The purpose of this Plan is to enable participating Employees to share in
the growth and prosperity of the Bank through Employer contributions to the Plan
and to provide Participants with an opportunity to accumulate capital for their
future economic security. The Plan is designed to permit both Employer and
Employee contributions to the Plan. The primary purpose of the Plan is to
enable Participants to acquire stock ownership interests in the Bank.
Therefore, the Trust Assets held under the Plan will be invested primarily in
Bank Stock.
The Plan is also designed to be available as a technique of corporate
finance to the Bank. Accordingly, it may be used to accomplish the following
objectives:
(a) To meet general financing requirements of the Bank, including capital
growth and transfers in the ownership of Bank Stock;
(b) To provide Participants with beneficial ownership of Bank Stock and
other assets through Employer and Employee contributions to the Plan;
and
(c) To receive loans (or other extensions of credit) to finance the
acquisition of Bank Stock ("Acquisition Loans"), with such loans to be
repaid by Employer Contributions to the Trust and dividends received
on such Bank Stock.
The Plan, hereby effective as of January 1, 1991, is a stock bonus plan
containing Section 401(k) features that is intended to qualify under Section
401(a) of the Internal Revenue Code. The Plan is a complete amendment and
restatement of the Coast Commercial Bank Employee Savings Plan originally
effective January 1, 1985, and as amended from time to time thereafter. The
Plan is also designed to be an employee stock ownership plan under Section
4975(e)(7) of the Code.
1.1
<PAGE>
All Trust Assets under the Plan will be administered, distributed,
forfeited and otherwise governed by the provisions of this Plan and the related
Trust Agreement. The Plan is administered by a Board of Trustees and an
Administrative Committee for the exclusive benefit of Participants (and their
Beneficiaries).
1.2
<PAGE>
SECTION 2. DEFINITIONS
In this Plan, whenever the context so indicates, the singular or plural
number and the masculine, feminine or neuter gender shall be deemed to include
the other, the terms "he," "his," and "him" shall refer to a Participant, and
the capitalized terms shall have the following meanings:
ACCOUNT
One of the several accounts maintained to record the interest of a
Participant under the Plan. See Section 6.
ACQUISITION LOAN
A loan (or other extension of credit) used by the Trust to finance the
Acquisition of Bank Stock, which loan may constitute an extension of credit
to the Trust from a party in interest (as defined by ERISA). See Section
5(b).
ADJUSTED COMPENSATION
The total remuneration paid to an Employee as an Employee in each Plan
Year, as reported on IRS Form W-2, plus the amount (if any) of his Salary
Reduction Contributions for the Plan Year. For any Plan Year, however,
Adjusted Compensation exceeding $200,000 for any Employee (adjusted in
accordance with the Section 415(d) of the Code for cost of living
increases) shall not be taken into account.
AFFILIATED COMPANY
Any corporation or business which is a member of a controlled group of
corporations or businesses with the Bank pursuant to Section 414(b), (c),
or (m) of the Code.
ANNIVERSARY DATE
The 31st day of December of each year (the last day of each Plan Year).
ANNUITY STARTING DATE
The first day of the first period for which an amount is payable as an
annuity; or in the case of a benefit not payable in the form of an annuity,
the first day on which all events have occurred which entitle the
participant to such benefit.
APPROVED ABSENCE
A leave of absence (without pay) granted to an Employee by an Employer
under its established leave policy.
BANK
Coast Commercial Bank, a state Bank organized under the laws of California.
2.1
<PAGE>
BANK STOCK
Shares of capital stock issued by the Bank, which are either voting common
stock or preferred stock (convertible into voting common stock) and which
shares constitute "employer securities" under Section 409(1) of the Code.
BANK STOCK ACCOUNT
The Account of a Participant which reflects his interest in Bank Stock held
under the Plan. See Section 6(e).
BENEFICIARY
The person (or persons) entitled to receive any benefit under the Plan in
the event of a Participant's death. See Section 15(b).
BOARD OF DIRECTORS
The Board of Directors of the Bank.
BREAK IN SERVICE
A Plan Year in which a Participant is not credited with more than 500 Hours
of Service by reason of his termination of Service. See Section 12(b).
BUYOUT
A transaction or series of related transactions by which the Bank is sold,
either through the sale of a Controlling Interest in the Bank's voting
stock or through the sale of substantially all of the Bank's assets, to a
party not having a Controlling Interest in the Bank's voting stock on the
date of execution of this Agreement.
2.2
<PAGE>
CAPITAL ACCUMULATION
A Participant's vested, nonforfeitable interest in his Accounts under the
Plan. See Section 10.
CHANGE IN CONTROL
A Buyout, Merger or Substantial Change in Ownership.
CODE
The Internal Revenue Code of 1986.
COMMITTEE
The Administrative Committee appointed by the Board of Directors to
administer the Plan. See Section 18.
COMPENSATION
The total remuneration paid to an Employee by the Employer in each Plan
Year for personal services, excluding (a) contributions to a plan of
deferred compensation (to the extent contributions are not included in
gross income of the employee for the taxable year contributed) and
distributions from such a deferred compensation plan (whether or not
includable in gross income), (b) amounts realized in connection with the
exercise of non-qualified stock options (or the sale exchange or other
disposition of qualified stock options) and amounts which receive special
tax benefits.
CONTROLLING INTEREST
Controlling Interest shall mean ownership, either directly or indirectly,
of more than twenty percent (20%) of the Bank's voting stock.
CREDITED SERVICE
The number of calendar years during which an Employee is credited with at
least 1000 Hours of Service. See Section 13.
DEFINED CONTRIBUTION DOLLAR LIMITATION
The dollar amount of $30,000, or, if greater, one-fourth of the defined
benefit dollar limitation set forth in Section 415(b)(1) of the Code as in
effect for the Plan Year.
EMPLOYEE
Any common-law employee of an Employer.
EMPLOYER
2.3
<PAGE>
The Bank and any other Affiliated Company which is designated by the Board
of Directors as an Employer and which adopts the Plan for the benefit of
its Employees.
EMPLOYER CONTRIBUTIONS
Payments made to the Trust by an Employer which include Basic
Contributions, Matching Contributions and Optional Contributions. See
Section 4.
EMPLOYER DISCRETIONARY BASIC CONTRIBUTIONS
Plan contributions made pursuant to Plan Section 4(1)(a)(3).
EMPLOYER DISCRETIONARY MATCHING CONTRIBUTIONS
Plan contributions made pursuant to Plan Section 4(1)(a)(2).
EMPLOYER DISCRETIONARY OPTIONAL CONTRIBUTIONS
Plan contributions made pursuant to Plan Section 4(1)(a)(4).
ENTRY DATE
January 1 or July 1 of each Plan Year. See Section 3(a).
ERISA
The Employee Retirement Income Security Act of 1974, as amended.
FINANCED SHARES
Shares of Bank Stock acquired by the Trust with the proceeds of an
Acquisition Loan.
FORFEITURE
Any portion of a Participant's Accounts which does not become a part of his
Capital Accumulation upon the occurrence of a Break in Service. See
Sections 12(b) and (c).
HIGHLY COMPENSATED PARTICIPANT
An Employee who, in accordance with Code Section 414(q), during the year or
the preceding year: (A) was at any time a five percent (5%) owner of the
Employer, (B) received compensation from the Employer in excess of $75,000,
(C) received compensation from the Employer in excess of $50,000 and was in
the top-paid group of Employees for such year (defined as the top twenty
percent (20%) of Employees when ranked on the basis of compensation paid
during such year), or (D) was at any time an officer and received
compensation greater than one hundred fifty percent (150%) of the amount in
effect under Section 415(c)(1)(A) for such year. See Section 4(2)(c).
HOUR OF SERVICE
2.4
<PAGE>
Each hour of Service for which an Employee is credited under the Plan, as
described in Section 3(d).
KEY EMPLOYEE
Any Employee or former Employee (and the beneficiaries of such Employee)
who at any time during the Plan Year (or any of the four preceding Plan
Years) was an officer of the Employer if such individual's annual
Compensation exceeds one hundred fifty percent (150%) of the dollar
limitation under Section 415(c)(1)(A) of the Code, an owner (or considered
an owner under Section 318 of the Code) of both more than .5% interest, as
well as one of the ten (10) largest interests in the Employer if such
individual's Compensation exceeds one hundred percent (100%) of such dollar
limitation, a five percent (5%) owner of the Employer, or a one percent
(1%) owner of the Employer who has an annual Compensation of more than
$150,000.
LOAN SUSPENSE ACCOUNT
The account to which Financed Shares are credited and maintained while an
Acquisition Loan is outstanding. See Sections 5(b) and 6(e).
MERGER
A transaction or series of transactions wherein the Bank is combined with
another business entity, and after which the persons or entities who had
owned, either directly or indirectly, a Controlling Interest in the Bank's
voting stock on the date of execution of this Agreement own less than a
Controlling Interest in the voting stock of the combined entity.
NON-KEY EMPLOYEE
Any Employee or former Employee not defined as a Key Employee.
OTHER INVESTMENTS ACCOUNT
The portion of the Optional Contribution Account of a Participant which
reflects his interest under the Plan attributable to Trust Assets other
than Bank Stock. See Section 6(e).
PARTICIPANT
Any Employee who is participating in this Plan. See Section 3.
PLAN
Coast Commercial Bank Employee Stock Ownership Plan (with Section 401(k)
provisions), which includes the Trust Agreement.
PLAN YEAR
The twelve-month period ending on each Anniversary Date.
2.5
<PAGE>
PRIOR PLAN ACCOUNT
The Account of a Participant attributable to contributions prior to the
date of the restatement of the Plan.
SALARY REDUCTION CONTRIBUTIONS
Plan contributions made as a result of the salary reduction elections of
Participants pursuant to Plan Section 4(2).
SERVICE
Employment with the Bank (or an Affiliated Company).
SUBSTANTIAL CHANGE IN OWNERSHIP
A transaction or series of transactions in which a Controlling Interest in
the Bank is acquired by or for a person or business entity, either of which
did not own, either directly or indirectly, a Controlling Interest in the
Bank on the date that this Agreement was executed. The above shall not
apply to stock purchased by the Coast Commercial Bank Employee Stock
Ownership Plan (ESOP).
TRUST
Coast Commercial Bank Employee Stock Ownership Trust, created by the Trust
Agreement entered into between the Bank and the Trustee.
TRUST AGREEMENT
The agreement between the Bank and the Trustee establishing the Trust and
specifying the duties of the Trustee.
TRUST ASSETS
The Bank Stock and other assets held in the Trust for the benefit of
Participants. See Section 5.
TRUSTEE
The Board of Trustees (and any successor Trustee) appointed by the Board of
Directors to hold and invest the Trust Assets. See Section 18.
VESTED ACCOUNT
The fair market value of a Participant's nonforfeitable benefit under the
Plan.
2.6
<PAGE>
SECTION 3. ELIGIBILITY AND PARTICIPATION.
(a) All Employees currently participating in the Plan will remain as
Participants in the restated Plan. Thereafter, each Employee will become a
Participant on the Entry Date following his initial date of Service (the date he
is first credited with an Hour of Service), provided that he has attained age
twenty-one (21) and is credited with at least 1000 Hours of Service during an
eligibility computation period. For this purpose, an eligibility computation
period shall first be the period of twelve (12) consecutive months beginning on
the Employee's initial date of Service and thereafter shall be the Plan Year.
(b) A Participant is generally entitled to share in the allocations of
Employer Contributions and Forfeitures only for a Plan Year in which he is
credited with at least 1000 Hours of Service and in which he was an Employee (or
on Approved Absence) on the Anniversary Date. A Participant shall also share in
the allocations of Employer Contributions for the Plan Year of his retirement,
disability or death (as provided in Section 12).
(c) A former Employee who is reemployed by an Employer and has previously
satisfied the eligibility requirements of Section 3(a) shall become a
Participant as of his date of reemployment. An Employee who is on an Approved
Absence shall not become a Participant until the end of his Approved Absence but
a Participant who is on an Approved Absence shall continue as a Participant
during the period of his Approved Absence. Failure to return to work by the end
of the Approved Absence will terminate Service as of the beginning of the
Approved Absence.
(d) HOURS OF SERVICE. For purposes of determining the Hours of Service to
be credited to an Employee under the Plan, the following rules shall be applied:
(1) Hours of Service shall include:
(a) each hour of Service for which an Employee is paid, or
entitled to payment, for the performance of duties, with
such hours of Service being credited in the Plan Year in
which the duties are performed; and
(b) each hour of Service for which an Employee is paid, or
entitled to payment, for a period during which no duties are
performed (irrespective of whether the employment
relationship has terminated) due to vacation, holiday,
illness, incapacity (including disability), layoff, jury
duty, military
3.1
<PAGE>
duty or leave of absence; provided that no more than 501
Hours of Service need be credited for one continuous period
during which an Employee does not perform duties; and
(c) each hour of Service for which back pay, irrespective of
mitigation of damages, is either awarded or agreed to;
provided, however, that Hours of Service credited under
either subparagraph (a) or (b) above shall not be credited
under this subparagraph (c). These Hours of Service will be
credited to Employee for the Plan Year to which the award or
agreement pertains rather than the Plan Year in which the
award, agreement or payment is made.
(2) The crediting of Hours of Service shall be determined by the Committee
in accordance with the rules set forth in Section 2530.200b-2(b) and (c) of
the regulations prescribed by the Department of Labor, which rules shall be
consistently applied with respect to all Employees within the same job
classification.
(3) Hours of Service shall not be credited to an Employee for a period
during which no duties are performed if payment is made or due under a plan
maintained solely for the purpose of complying with applicable worker's
compensation, unemployment compensation or disability insurance laws, and
Hours of Service shall not be credited on account of any payment made or
due an Employee solely in reimbursement of medical or medically-related
expenses.
(4) An Employee compensated on an hourly basis shall be credited for each
Hour of Service as described above. Unless an Employer maintains records
of actual Hours of Service, a salaried Employee who completes at least one
Hour of Service during a monthly period shall be credited with 190 Hours
for each such period of Service.
(5) Hours of Service will be credited for employment with other members of
an affiliated service group (under Section 414(m) of the Code), a
controlled group of corporations (under Section 414 (b) of the Code), a
group of trades or businesses under common control (under Section 414 (c)
of the Code), of which an Employer is, or may become, a member.
(6) For purposes of determining whether an Employee has incurred a
Break in Service and for vesting and participation purposes, if an Employee
begins a maternity/paternity leave of absence described in Section
411(a)(6)(E)(i) of the Code, his Hours of Service shall include the Hours
of Service that would have been credited to him if he had not been so
absent (or eight (8) Hours of Service for each day of such absence if the
actual Hours of Service cannot be determined). An Employee shall be
credited for such Hours of Service (up to a maximum of 501 Hours of
Service) in the Plan Year in which his absence begins (if such crediting
will prevent him from incurring a Break in Service in such Plan Year) or,
in all other cases, in the following Plan Year. For purposes of this
provision, a maternity/paternity leave of absence described in Section
411(a)(6)(E)(i) of the Code pertains to a Participant who is absent from
work for any period by reason of the pregnancy of the Participant, by
reason of the birth of a child of the Participant, by reason of the
placement of a child with the Participant in connection with the adoption
of such child by such Participant, or for purposes of caring for such child
for a period beginning immediately following such birth or placement.
3.2
<PAGE>
SECTION 4. EMPLOYER AND EMPLOYEE CONTRIBUTIONS.
1. EMPLOYER CONTRIBUTIONS
(a) The Employer shall contribute the following amounts to the Plan each
Plan Year:
1. The amount of each Participant's Salary Reduction Contribution
made pursuant to Section 4(2). As provided in Section 12(a), the
interests of a Participant in the Salary Reduction Contributions
allocated to his account will always be 100% vested.
2. An Employer Discretionary Matching Contribution on behalf of each
Participant up to a maximum of one hundred percent (100%) of the
Participant's Salary Reduction Contributions, provided, however,
that the maximum Employer Matching Contribution shall be based on
a Participant's Salary Reduction Contribution of up to six
percent (6%) of such Participant's Compensation. As provided in
Section 12(a), the interests of a Participant in the Employer
Matching Contributions allocated to his account will be 100%
vested at all times.
3. An Employer Discretionary Basic Contribution, which shall be
determined at the sole discretion of the Board of Directors. As
provided in Section 12(a), the interests of a Participant in the
Employer Basic Contributions allocated to his account will always
be 100% vested.
4. An Employer Discretionary Optional Contribution, which shall be
determined in the sole discretion of the Board of Directors. The
interests of a Participant in the Employer Discretionary Optional
Contributions allocated to his account will become nonforfeitable
pursuant to the vesting schedule contained in Section 12(a).
(b) Salary Reduction Contributions shall be paid to the Trustee promptly
(and in no event later than 30 days after the end of the Plan Year) following
each pay period.
(c) Employer Discretionary Matching, Basic, and Optional Contributions for
each Plan Year shall be paid to the Trustee not later than the due date
(including extensions) for filing the Employer's Federal income tax return for
that Plan Year.
(d) In the event Employer Contributions are paid to the Trust by reason of
a mistake of fact, such Employer Contributions may be returned to the Employer
(upon the request of the Employer) by the Trustee within one (1) year after the
payment to the Trust.
2. EMPLOYEE SALARY REDUCTION CONTRIBUTIONS
(a) A Participant may authorize his Employer to contribute to the Trust on
his behalf Salary Reduction Contributions. Such Salary Reduction Contributions
shall be stated as a whole percentage, and shall not be less than 1%, or more
than 15%, of the Participant's Compensation. The total amount of Salary
Reduction Contributions by a Participant for any
4.1
<PAGE>
Plan Year shall not exceed $7,000, multiplied by any cost of living adjustment
factor prescribed by the Secretary of the Treasury under Section 415(d) of the
Code.
(b) Each Participant electing to have his Employer contribute Salary
Reduction Contributions on his behalf during the Plan Year shall file a written
notice with the Plan Administrator at least thirty (30) days prior to the Entry
Date that he intends such election to take effect. This requirement shall be
waived on adoption of the Plan and each Participant shall be given a reasonable
time to elect Salary Reduction Contributions. Such written notice shall contain
an election of the percentage of his Compensation to be contributed and
authorization for his Employer to reduce his Compensation by such amount.
Salary Reduction Contributions may be suspended at any time by giving prior
written notice. After suspension, the Participant shall not be eligible for
further Salary Reduction Contributions until the beginning of the next Plan
Year. A Participant may change the percentage of his Salary Reduction
Contributions only as of a quarterly Entry Date, but upon not less than thirty
(30) days prior written notice. A Participant shall be fully vested at all
times in the portion of his Account from Salary Reduction Contributions.
(c) For any Plan Year, the Committee shall have the right to limit or
reduce the Salary Reduction Contributions of the Highly Compensated Participants
in order to insure that the Maximum Deferral Percentage Limit under Code Section
401(k) is not exceeded. Furthermore, in accordance with Proposed Regulation
1.401(k)-1(f), the Employer may make additional Basic Contributions, Optional
Contributions and/or Matching Contributions or may distribute or recharacterize
such contributions made during the Plan Year in order to provide that the
Maximum Deferral Percentage Limit under Code Section 401(k) is not exceeded.
The Maximum Deferral Percentage Limit under Code Section 401(k) is equal to the
greater of Limit 1 or Limit 2:
Limit 1. The Actual Deferral Percentage of the Highly Compensated
Participants may not exceed one hundred twenty-five percent
(125%) of the Actual Deferral Percentage of all other
Participants; or
Limit 2. The Actual Deferral Percentage of the Highly Compensated
Participants may not exceed the lesser of:
(a) The Actual Deferral Percentage of all other Participants,
plus two percent (2%) or
4.2
<PAGE>
(b) The Actual Deferral Percentage of all other Participants,
multiplied by two hundred percent (200%).
Actual Deferral Percentage with respect to any specific group of
Participants for a Plan Year shall mean the average of the ratios (calculated
separately for each Participant in such group) of (A) the amount of Salary
Reduction Contributions paid into the Trust Fund on behalf of each Participant
for such Plan Year to (B) the Participant's Compensation for such Plan Year. In
the case of a Highly Compensated Participant who is eligible to have Salary
Reduction Contributions paid into a trust fund to his account under two or more
plans maintained by the Employer, the Actual Deferral Percentage shall be
determined as if all such Salary Reduction Contributions were made under a
single arrangement. Furthermore, for purposes of determining the Actual
Deferral Percentage of a Highly Compensated Participant, the amount of Salary
Reduction Contributions paid into the Trust Fund on his behalf shall include
Salary Reduction Contributions made on behalf of certain family members
described in Section 414(q)(6).
(d) In the event the Maximum Deferral Percentage Limit under Code Section
401(k) is exceeded, the amount of excess contributions for a Highly Compensated
Participant will be determined in the following manner, pursuant to Regulation
1.401(k)-1(f)(2). First, the Actual Deferral Percentage (ADP) of the Highly
Compensated Participant with the highest ADP will be reduced to the extent
necessary to satisfy the Maximum Deferral Percentage Limit under Code Section
401(k) or to cause such Participant's ADP to equal the ADP of the Highly
Compensated Participant with the next highest ADP. Second, this process is
repeated until the Maximum Deferral Percentage Limit under Code Section 401(k)
is satisfied. For each such Highly Compensated Participant whose ADP is
reduced, the amount of such Participant's excess contributions is equal to the
Participant's total Basic and Salary Reduction Contributions (determined prior
to the application of this paragraph) minus the amount determined by multiplying
the Participant's ADP (determined after application of this paragraph) by such
Participant's Compensation. In the case of a Highly Compensated Participant
whose ADP is determined pursuant to the Code Section 414(q)(6) family
aggregation rules, the determination of the amount of excess assets shall be
made pursuant to Proposed Regulation 1.401(k)-1(f)(5)(iii).
The amount of a Participant's excess contributions distributed or
recharacterized pursuant to Proposed Regulation 1.401(k)-1(f) shall be reduced
by any excess deferrals previously
4.3
<PAGE>
distributed or recharacterized during such Plan Year. The distribution or
recharacterization of excess contributions will include any income attributable
thereto (computed pursuant to Proposed Regulation 1.401(k)-1(f)(4)) from the
date such excess contributions were made until such date of recharacterization
or distribution. The distribution or recharacterization of any excess
contribution is to be made prior to the two and one-half month period following
the end of the Plan Year in which such excess contributions were made. Any
recharacterized excess contributions will remain subject to Plan provisions
applicable to Salary Reduction Contributions.
(e) In the event a Participant's Salary Reduction Contribution or Employer
Contribution:
(1) is made under a mistake of fact;
(2) is conditioned upon initial qualification of the Plan under Code
Section 401(a) and the Plan does not so qualify,
the contribution may be returned to the Employer within one (1) year after the
payment of the contribution, the disallowance of the deduction to the extent
disallowed, or the date of denial of the qualification of the Plan, whichever is
applicable. Except as provided under this paragraph, the assets of the Plan
will be used for the exclusive purpose of providing benefits to Participants
under the Plan and their Beneficiaries and for defraying reasonable
administrative expenses of the Plan.
3. EMPLOYEE VOLUNTARY CONTRIBUTIONS
(a) A Participant may (subject to the limitation provision of Section 6)
make Voluntary Participant Contributions. These contributions may be made
during any period in which he is a Participant. Voluntary Participant
Contributions shall be made in accordance with procedures set up by the
Administrative Committee.
A Participant's Voluntary Participant Contributions, including any
voluntary contributions he has made under any other qualified plan of the
Employer may not, in the aggregate, exceed 10% of his aggregate earnings from
the Employer for the period of time that he has actively participated under this
and such other plan or plans.
(b) Before the date he ceases to be an Employee, a Participant may
withdraw any part of his Capital Accumulation resulting from his Voluntary
Participant Contributions in a single sum.
4.4
<PAGE>
(c) Voluntary Participant Contributions shall be credited to the
Participant's Account as they are made and shall be forwarded to the Trustee at
least quarterly. Voluntary Participant Contributions are fully vested and
nonforfeitable.
(d) For any Plan Year, the Committee shall have the right to limit or
reduce the Voluntary Contributions or the Matching Contributions attributable
to the Highly Compensated Participants in order to insure that the Maximum
Contribution Percentage Limit under Code Section 401(m) is not exceeded. The
Maximum Contribution Percentage Limit under Code Section 401(m) is equal to the
greater of Limit 1 or Limit 2:
Limit 1. The Actual Contribution Percentage of the Highly Compensated
Participants may not exceed one hundred twenty-five percent
(125%) of the Actual Contribution Percentage of all other
Participants; or
Limit 2. The Actual Contribution Percentage of the Highly Compensated
Participants may not exceed the lesser of:
(a) The Actual Contribution Percentage of all other Participants,
plus two percent (2%) or
(b) The Actual Contribution Percentage of all other Participants,
multiplied by two hundred percent (200%).
Actual Contribution Percentage with respect to any specific group of
Participants for a Plan Year shall mean the average of the ratios (calculated
separately for each Participant in such group) of (A) the amount of Voluntary
and Matching Contributions paid into the Trust Fund on behalf of each
Participant for such Plan Year to (B) the Participant's Compensation for such
Plan Year. A Participant's Voluntary and Matching Contributions are to be taken
into account if they are paid to the Trust during the Plan Year or are paid to
an agent of the Plan and are transmitted to the Trust within a reasonable period
after the end of the Plan Year. In the case of a Participant who has no
Voluntary and Matching Contributions, the Actual Contribution Percentage is
considered to be zero. In the case of a Highly Compensated Participant who is
eligible to have Voluntary and Matching Contributions paid into a trust fund to
his account under two or more plans maintained by the Employer, the Actual
Contribution Percentage shall be determined as if all such Voluntary and
Matching Contributions were made under a single arrangement. Furthermore, for
purposes of determining the Actual Contribution Percentage of a Highly
Compensated Participant, the amount of Voluntary and Matching Contributions paid
4.5
<PAGE>
into the Trust Fund on his behalf shall include Voluntary and Matching
Contributions made on behalf of certain family members described in Code Section
414(q)(6) and the Regulations thereunder.
(e) In the event the Maximum Contribution Percentage Limit under Code
Section 401(m) is exceeded, the amount of excess aggregate contributions for a
Highly Compensated Participant will be determined in the following manner,
pursuant to Regulation 1.401(m)-1(e)(2). First, the Actual Contribution
Percentage (ACP) of the Highly Compensated Participant with the highest ACP will
be reduced to the extent necessary to satisfy the Maximum Contribution
Percentage Limit under Code Section 401(m) or to cause such Participant's ACP to
equal the ACP of the Highly Compensated Participant with the next highest ACP.
Second, this process is repeated until the Maximum Contribution Percentage Limit
under Code Section 401(m) is satisfied. For each such Highly Compensated
Participant whose ACP is reduced, the amount of such Participant's excess
aggregate contributions is equal to the Participant's total Voluntary and
Matching Contributions (determined prior to the application of this paragraph)
minus the amount determined by multiplying the Participant's ACP (determined
after application of this paragraph) by such Participant's Compensation. In the
case of a Highly Compensated Participant whose ACP is determined pursuant to the
Code Section 414(q)(6) family aggregation rules, the determination of the amount
of excess assets shall be made pursuant to Proposed Regulation 1.401(m)-
1(e)(4)(iii).
The amount of a Participant's excess contributions distributed pursuant to
Proposed Regulation 1.401(m)-1(e) shall be reduced by any excess contributions
previously distributed during such Plan Year. The distribution of excess
contributions will include any income attributable thereto (computed pursuant to
Proposed Regulation 1.401(m)-1(e)(3)) from the date such excess contributions
were made until such date of recharacterization or distribution. The
distribution of any excess aggregate contribution is to be made prior to the two
and one-half month period following the end of the Plan Year in which such
excess contributions were made. Any recharacterized excess contributions will
remain subject to Plan provisions applicable to Voluntary and Matching
Contributions.
(f) For any Plan Year, the application of the Maximum Deferral Percentage
Limitation and Maximum Contribution Percentage Limitation pursuant to Sections
4(2)(c) and 4(3)(d) of the
4.6
<PAGE>
Plan shall be made in accordance with the multiple use limitations under
Regulation 1.401(m)-2.
(g) To the extent Matching Contributions are used, pursuant to Plan
Section 4(2)(c), to compute the Maximum Deferral Percentage Limit under Code
Section 401(k), they will not be used to compute the Maximum Contribution
Percentage Limit under Code Section 401(m). Furthermore, at the election of the
Employer, Optional Contributions and Basic Contributions (to the extent not
utilized to compute the Maximum Deferral Percentage Limit under Code Section
401(k)) may be used in the computation of the Maximum Contribution Percentage
Limit under Code Section 401(m).
4. EMPLOYEE ROLLOVER CONTRIBUTION
4.7
<PAGE>
(a) With the Employer's consent, a Rollover Contribution may be made by or
for an Employee if either of the following conditions are met:
(1) The Contribution is a rollover contribution which the Code
permits to be transferred to a plan that meets the requirements
of Section 401(a) of the Code; and
(2) The Contribution is made within 60 days after the Employee
receives or would be entitled to receive the distribution; and
(3) The Employee furnishes evidence satisfactory to the Committee
that proposed transfer is in fact a rollover contribution which
meets conditions (1) and (2) above.
-OR-
(4) The contribution is made pursuant to Plan Section 23
diversification requirements.
The Rollover Contribution may be made by the Employee or may be made with
his consent by the named fiduciary of another plan. The Contribution will be
made according to procedures set up by the Committee.
(b) If the Employee is not a Participant at the time the Rollover
Contribution is made, he will be deemed to be a Participant only for the
purposes of investment and distribution of the Rollover Contribution. No
Employer Contribution will be made for him and he may not make Participant
Contributions, until the time he meets all of the requirements to become a
Participant.
(c) Any Rollover Contribution made by or for an Employee is credited to
his Account when made and is at all times fully vested and nonforfeitable.
4.2
<PAGE>
SECTION 5. INVESTMENT OF TRUST ASSETS.
(a) Trust Assets under the Plan will be invested by the Trustee, with the
exception provided in (c), primarily in Bank Stock in accordance with the Trust
Agreement. Employer Contributions (and other Trust Assets) may be used to
acquire shares of Bank Stock from Bank shareholders or from the Bank. The
Trustee may also invest Trust Assets in such other prudent investments as the
Trustee deems to be desirable for the Trust, or Trust Assets may be held
temporarily in cash. All purchases of Bank Stock by the Trustee shall be made
at prices which do not exceed the fair market value of Bank Stock, as determined
in good faith by the Trustee in accordance with the provisions of Section 18.
The Trustee may invest and hold up to one hundred percent (100%) of the Trust
Assets in Bank Stock.
(b) The Trustee may incur Acquisition Loans from time to time to finance
the acquisition of Bank Stock (Financed Shares) for the Plan or to repay a prior
Acquisition Loan. An installment obligation incurred in connection with the
purchase of Bank Stock shall constitute an Acquisition Loan. An Acquisition
Loan shall be for a specific term, shall bear a reasonable rate of interest and
shall not be payable on demand except in the event of default. An Acquisition
Loan may be secured by a pledge of the Financed Shares so acquired (or acquired
with the proceeds of a prior Acquisition Loan which is being refinanced). No
other Trust Assets may be pledged as collateral for an Acquisition Loan, and no
lender shall have recourse against Trust Assets other than any Financed Shares
remaining subject to pledge. If the lender is a party in interest (as defined
in ERISA), Financed Shares may be transferred to the lender only upon and to the
extent of the failure of the Plan to meet the payment schedule of the loan. Any
pledge of Financed Shares must provide for the release of the shares so pledged
as payments on the Acquisition Loan are made by the Trustee and such Financed
Shares are allocated to Participants' Bank Stock Accounts under Section 6(e).
Payments of principal and interest on any Acquisition Loan shall be made by the
Trustee only from Employer Contributions to enable the Trust to repay such
Acquisition Loan, from earnings attributable to such Employer Contributions,
from Salary Reduction Contributions, and from any dividends received by the
Trust on such Financed Shares.
5.1
<PAGE>
(c) Salary Reduction Contributions and the Prior Plan Account will not
normally be invested in Bank Stock. However, a Participant may, with the
consent of the Trustee, direct the investment of his Salary Reduction Account
and the Prior Plan Account in one of the following Investment Funds:
(1) The Equity Fund has a principal investment goal of capital
appreciation primarily through investment in Bank Stock.
(2) A Bond Fund has a principal investment goal of the production of
income through ownership and governmental debt instruments.
(3) The Money Market Fund has a principal investment goal of the
preservation of principal and the production of high current
income with liquidity, primarily through government and other
money market fixed income securities.
(4) The Mutual Fund has a principal investment goal of a balanced
mixture of income and capital appreciation through ownership of
interests in regulated investment companies.
Notwithstanding the principal investment goal of each Investment Fund, the
Trustee may make temporary short-term investment of assets in a Money Market
Fund. Investment direction shall normally be made in twenty-five percent (25%)
increments with the exception that any percentage up to one hundred percent
(100%) of such Accounts may be invested in Bank Stock.
(d) As of each Anniversary Date, the Trustee shall determine the fair
market value of each Investment Fund being administered by the Trustee. With
respect to each such Investment Fund, the Trustee shall determine the net gain
or loss resulting from expenses paid, and realized and unrealized gains and
losses. After each Anniversary Date, the net gain or loss of each Investment
Fund shall be allocated by the Trustee to the Accounts of Participants
participating in such Investment Fund.
The reasonable and equitable decision of the Trustee as to the value of
each Investment Fund and of any Account as of each Anniversary Date shall be
conclusive and binding upon all Participants having any interest, direct or
indirect, in the Investment Funds or in any Account.
5.2
<PAGE>
SECTION 6. ALLOCATIONS TO PARTICIPANT'S ACCOUNT.
Separate Accounts shall be established to reflect each Participant's
interest under the Plan.
(a) EMPLOYER MATCHING CONTRIBUTION ACCOUNT. The Employer Matching
Contribution Account maintained for each Participant will be credited annually
with the amount of the Employer Matching Contribution allocable to such
Participant, as determined pursuant to Section (4)(1)(a)(2), and with his share
of the net income (or loss) of the Trust.
(b) EMPLOYER BASIC CONTRIBUTION ACCOUNT. The Employer Basic Contribution
Account maintained for each Participant will be credited annually with his
allocable share of Employer Basic Contributions and with his share of the net
income (or loss) of the Trust. Employer Basic Contributions under Section 4
shall be allocated as of the Anniversary Date among the Accounts of Participants
so entitled under Section 3(b) in a manner necessary to satisfy the
nondiscrimination requirements of the Code.
(c) EMPLOYEE SALARY REDUCTION AND VOLUNTARY CONTRIBUTION ACCOUNT. The
Employee Salary Reduction and Voluntary Contribution Accounts maintained for
each Participant will be credited (or debited) annually with his share of the
net income (or loss) of the Trust, his Salary Reduction and Voluntary
Contributions, if any, made during the Plan Year, and with any financed shares
released from the Loan Suspense Account on account of his Salary Reduction
Contributions. This Account shall keep separate the portion attributable to
Salary Reduction Contributions and the portion attributable to Voluntary
Participant Contributions.
(d) EMPLOYEE ROLLOVER CONTRIBUTION ACCOUNT. The Rollover Contribution
Account maintained for each Participant will be credited (or debited) annually
with his share of net income (or loss) of the Trust and with his Rollover
Contributions, if any, made during the Plan Year.
(e) EMPLOYER OPTIONAL CONTRIBUTION ACCOUNT. A separate Bank Stock Account
and Other Investments Account shall be established to reflect each Participant's
interest under the Employer Optional Contribution portion of the Plan. The Bank
Stock Account maintained for each Participant will be credited annually with his
allocable share of Bank Stock (including fractional shares) purchased and paid
for by the Trust or contributed in kind to the Trust, with
6.1
<PAGE>
any Forfeitures of Bank Stock and with any stock dividends on Bank Stock
allocated to his Bank Stock Account. Financed Shares shall initially be
credited to a Loan Suspense Account and shall be allocated to the Bank Stock
Accounts of Participants only as payments on the Acquisition Loan are made by
the Trustee. The number of Financed Shares to be released from the Loan
Suspense Account for allocation to Participants' Bank Stock Accounts for each
Plan Year shall be determined by the Committee as described under (e)(1) and
(e)(2) below.
(1) GENERAL RULE. The number of Financed Shares held in the Loan
Suspense Account immediately before the release for the current Plan Year shall
be multiplied by a fraction. The numerator of the fraction shall be the amount
of principal or principal and interest paid on the Acquisition Loan for that
Plan Year. The denominator of the fraction shall be the sum of the numerator
plus the total payments of principal or principal and interest on the
Acquisition Loan projected to be paid for all future Plan Years. For this
purpose, the interest to be paid in future years is to be computed by using the
interest rate in effect as of the Anniversary Date of the Plan Year.
(2) SPECIAL RULE. The Committee may elect (at the time an
Acquisition Loan is incurred) or the provisions of the Acquisition Loan may
provide for the release of shares from the Loan Suspense Account based solely
upon the ratio that the payments of principal for each Plan Year bear to the
total principal amount of the Acquisition Loan. This method may be used only
if: (A) the Acquisition Loan provides for annual payments of principal and
interest at a cumulative rate that is not less rapid at any time than level
annual payments of such amounts for ten (10) years; (B) interest included in any
payment on the Acquisition Loan is disregarded only to the extent that it would
be determined to be interest under standard loan amortization tables; and (C)
the entire duration of the Acquisition Loan repayment period does not exceed ten
(10) years, even in the event of a renewal, extension or refinancing of the
Acquisition Loan.
(3) OTHER INVESTMENTS ACCOUNTS. The Other Investments Account
maintained for each Participant will be credited (or debited) annually with his
share of the net income (or loss) of the Trust, with any cash dividends on Bank
Stock allocated to his Bank Stock Account (other than currently distributed
dividends) and with his allocable share of Employer Contributions in cash and
other Forfeitures from the Other Investments Accounts. Such
6.2
<PAGE>
Account will be debited for the Participant's share of any cash payments made
for the acquisition of Bank Stock or for the repayment of any principal and
interest on an Acquisition Loan.
The allocations to Participants' Accounts for each Plan Year will be made
as follows under the remaining subsections of this Section.
(f) EMPLOYER CONTRIBUTIONS AND FORFEITURES. Employer Contributions under
Section 4 and Forfeitures under Section 12(b) and (c) for each Plan Year will be
allocated as of the Anniversary Date among the Accounts of Participants so
entitled under Section 3(b) in the ratio which the Adjusted Compensation of each
such Participant bears to the total Adjusted Compensation of all such
Participants for that Plan Year.
(g) ALLOCATION LIMITATIONS. For each Plan Year, the Annual Additions with
respect to any Participant may not exceed the lesser of:
(1) Twenty-five percent (25%) of his compensation (within the meaning
of Code Section 415(c)(3)); or
(2) The Defined Contribution Dollar Limitation.
For this purpose, "Annual Additions" shall be the total amount of any Employer
Contributions, Salary Reduction Contributions, Voluntary Participant
Contributions and Forfeitures (including any income attributable to Forfeitures
and amounts described in Code Sections 415(L)(1) and 419A(d)(2)) allocated to
the Participant in this Plan and any other Employer defined contribution plan.
For purposes of applying these limitations only, the Plan uses the safe harbor
definition of Compensation pursuant to Section 1.415-2(d)(8) of the regulations,
as defined in Section 2 of the Plan. In computing Annual Additions, Forfeitures
of Bank Stock and Employer Contributions of Bank Stock shall be based on the
fair market value of Bank Stock as of the Anniversary Date.
Prior to the allocation of the Employer Contributions for any Plan Year,
the Committee shall determine whether the amount to be allocated would cause the
limitation described herein to be exceeded as to any Participant. In the event
that the limitation is exceeded for any Participant due to the allocation of a
forfeiture or a reasonable error in the estimation of a
6.3
<PAGE>
Participant's Compensation, the following action shall be taken until the
limitation for the Plan Year will not any longer be exceeded:
(i) First, Salary Reduction Contributions allocated in accordance with
Section 6 shall be subtracted from the Participant's Account.
(ii) Next, Employer Matching Contributions allocated in accordance with
Plan Section 6 shall be subtracted from the Participant's Account.
(iii) Next, Employer Basic Contributions allocated in accordance with Plan
Section 6 shall be subtracted from the Participant's Account.
(iv) Next, Employer Optional Contributions allocated in accordance with
Plan Section 6 shall be subtracted from the Participant's Account.
The amount of Salary Reduction Contributions (including any income and gains
thereon) and Employer Contributions (including any income and gains thereon)
subtracted from a Participant's Account in accordance witht the foregoing shall
be maintained in a separate suspense account and shall be allocated in the next
subsequent Plan Year as if such amounts were an additional contribution to the
appropriate Account. No contributions which would be included in the next
limitation year's Annual Addition may be made before the total suspense account
has been reallocated.
In addition, for any Participant who was covered under a defined benefit
plan, Annual Additions may not be allocated to his Accounts (under this Plan) in
amounts which cause the sum of the defined benefit plan fraction and the defined
contribution plan fraction to exceed 1.0 for any Plan Year. For this purpose,
the "defined benefit plan fraction" shall have as its numerator the projected
annual benefit of the Participant under the defined benefit plan as of the
Anniversary Date and shall have as its denominator the lesser of (i) the product
of 1.25 multiplied by the dollar limitation in effect under Section 415(b)(1)(A)
of the Code for such Plan Year; or (ii) the product of 1.4 multiplied by the
amount which may be taken into account under Section 415(b)(1)(B) of the Code
with respect to the Participant for such Plan Year. The "defined contribution
plan fraction" shall have as its numerator the total of the Annual Additions of
the Participant (under this Plan and any other Employer defined contribution
plan) for all Plan Years and shall have as its denominator the sum of the lesser
of the following amounts determined for such Plan Years and for each prior year
of Service with an Employer: (i) the
6.4
<PAGE>
product of 1.25 multiplied by the dollar limitation taken into account under
Section 415(c)(1)(A) of the Code for the year; or (ii) the product of 1.4
multiplied by the amount which may be taken into account under Section
415(c)(1)(B) of the Code with respect to such Participant for such year.
Any excess amount shall be reallocated among the Accounts of the other
Participants according to the ratio which the Adjusted Compensation of each such
Participant bears to the total Adjusted Compensation of all such Participants
for that Plan Year, to the extent possible without exceeding the limitations
with respect to any other Participant for that Plan Year.
(h) SPECIAL LIMITATION PROVISION. Any Employer Contributions which are
applied by the Trust (not later than the due date, including extensions, for
filing the Bank's Federal income tax return for that Plan Year) to pay interest
on an Acquisition Loan, and any Financed Shares which are allocated as
Forfeitures, shall not be included as Annual Additions under Section 6(g);
provided, however, that the provisions of this Section 6(h) shall be applicable
only for Plan Years for which not more than one-third (1/3) of the Employer
Contributions applied to pay principal or interest, or both, on an Acquisition
Loan are allocated to Participants who are highly compensated employees within
the meaning of Code Section 414(q).
(i) NET INCOME (OR LOSS) OF THE TRUST. The net income (or loss) of the
Trust for each Plan Year will be determined as of the Anniversary Date. Each
Participant's share of the net income (or loss) will be allocated to his
Accounts in the ratio which the balance of such Accounts on the preceding
Anniversary Date (reduced by the amount of any distribution of Capital
Accumulation from such Account during the Plan Year) bears to the sum of such
Account balances for all Participants as of that date. Net income earned on
each Participant's Salary Reduction Contributions made during the Plan Year
shall be allocated on a method which takes into account the timing of such
Contributions into the Account. The net income (or loss) of the Trust includes
the increase (or decrease) in the fair market value of Trust Assets (other than
Bank Stock), interest income, dividends and other income and gains (or loss)
attributable to Trust Assets (other than any dividends on Bank Stock allocated
to Bank Stock Accounts) since the preceding Anniversary Date, reduced by any
expenses charged to the Trust Assets for that Plan Year. The computation of the
net income (or loss) of the Trust shall not take into account any interest paid
by the Trust under an Acquisition Loan.
6.5
<PAGE>
(j) DIVIDENDS ON BANK STOCK. Cash dividends received on shares of Bank
Stock allocated to Participants' Accounts will be allocated to the respective
Other Investments Account portion of the Employer Optional Contribution Accounts
of those Participants. Cash dividends received on unallocated shares of Bank
Stock shall be included in the computation of net income (or loss) of the Trust.
Stock dividends received on Bank Stock shall be credited to the Accounts to
which such Bank Stock was allocated. Any cash dividends which are currently
distributed to Participants, used to repay a loan to the ESOP under Sections
17(b) or (c) shall not be credited to their Other Investments Account portion of
the Employer Optional Contribution Account. Furthermore, any cash dividends
used to pay administrative expenses of the Plan shall not be credited to
Participants' Other Investments Account portion of the Employer Optional
Contribution Account.
(k) ACCOUNTING FOR ALLOCATIONS. The Committee shall establish accounting
procedures for the purpose of making the allocations to Participants' Accounts
provided for in this Section. The Committee shall maintain adequate records of
the aggregate cost basis of Bank Stock allocated to each Participant's Bank
Stock Account. The Committee shall also keep separate records of Financed
Shares and of Employer Contributions (and any earnings thereon) made for the
purpose of enabling the Trust to repay any Acquisition Loans. From time to
time, the Committee may modify the accounting procedures for the purposes of
achieving equitable and nondiscriminatory allocations among the Accounts of
Participants in accordance with the general concepts of the Plan, the provisions
of this Section and the requirements of the Code and ERISA.
(l) LIMITATION ON ALLOCATION TO CERTAIN SHAREHOLDERS. To the extent that
a Bank shareholder sells qualifying Bank securities to the Plan Trust and elects
(with the consent of the Bank) nonrecognition of gain under Section 1042 of the
Code, no portion of the Bank securities purchased in nonrecognition transaction
(or other dividends or other income attributable thereto) may accrue or be
allocated:
(1) during the nonallocation period (the ten year period beginning on
the later of (i) the date of the sale of the qualified Bank
securities, or (ii) the date of the Plan allocation attributable
to the final payment of acquisition indebtedness incurred in
connection with such sale) for the benefit of:
6.6
<PAGE>
(A) the selling shareholder;
(B) the spouse, brothers or sisters (whether by the whole or
half blood), ancestors or lineal descendants of the selling
shareholder or decedent referred to above;
OR
(2) for the benefit of any other person who owns after application of
Section 318(a) more than 25% of:
(A) any class of outstanding stock of the Bank or of any
corporation which is a member of the same controlled group
or corporations within the meaning of subsection (1)(4) as
the Bank, or
(B) the total value of any class of outstanding stock of the
Bank or any such corporation described in (2)(A) above.
For the purposes of this subparagraph (1)(2), Code Section 318(a) shall be
applied without regard to the employee trust exception in Section
318(a)(2)(B)(i).
6.7
<PAGE>
SECTION 7. EXPENSES OF THE PLAN AND TRUST.
All expenses of administering the Plan and Trust shall be charged to and
paid out of the Trust Assets. The Bank may pay all or any portion of such
expenses, and payment of expenses by the Bank shall not be deemed to be Employer
Contributions.
7.1
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SECTION 8. VOTING BANK STOCK.
If the Bank Stock is a registration-type class of securities as described
in Section 409(e)(4) of the Code, each Participant will be entitled to direct
the Trustee as to the exercise of any voting rights attributable to shares of
Bank Stock then allocated to his Bank Stock Account but only to the extent
required by Sections 4975(e)(7) and 409(e)(2) of the Code and the regulations
thereunder. In that event, any allocated Bank Stock with respect to which
voting instructions are not received from Participants shall not be voted, and
all Bank Stock which is not then allocated to Participants' Bank Stock Accounts
shall be voted by the Trustee only in such manner as it shall determine in its
sole discretion.
If the Bank Stock is not a registration-type class of securities as
described in Section 409(e)(4) of the Code, then all Bank Stock in the Trust
shall normally be voted by the Trustee in such manner as it shall determine in
its sole discretion. However, with respect to any corporate matter which
involves the voting of Bank Stock as to the approval or disapproval of any
corporate merger or consolidation, recapitalization, reclassification,
liquidation, dissolution, sale of substantially all assets of a trade or
business, or such similar transactions as may be prescribed in Code regulations,
each Participant will be entitled to direct the Trustee as to the exercise of
any voting rights attributable to shares of Bank Stock then allocated to his
Bank Stock Account but only to the extent required by Sections 401(a)(22) and
409(e)(3) of the Code and the regulations thereunder. In that event, any
allocated Bank Stock with respect to which voting instructions are not received
from Participants shall not be voted, and all Bank Stock which is not then
allocated to Participants' Bank Stock Accounts shall be voted in the manner
determined by the Trustee.
8.1
<PAGE>
SECTION 9. DISCLOSURE TO PARTICIPANTS.
(a) SUMMARY PLAN DESCRIPTION. Each Participant shall be furnished with
the summary plan description required by Sections 102(a)(1) and 104(b)(1) of
ERISA. Such summary plan description shall be updated from time to time as
required under ERISA and Department of Labor regulations thereunder.
(b) SUMMARY ANNUAL REPORT. Within nine (9) months after each Anniversary
Date, each Participant shall be furnished with the summary annual report of the
Plan required by Section 104(b)(3) of ERISA, in the form required by regulations
of the Department of Labor.
(c) ANNUAL STATEMENT. Following each Anniversary Date, each Participant
shall be furnished with a statement reflecting the following information:
(1) The balance (if any) in his Accounts as of the beginning of the
Plan Year.
(2) The amounts of Employer Contributions, Salary Reduction
Contributions, and Forfeitures allocated to his Accounts for that
Plan Year.
(3) The adjustments to his Accounts to reflect his share of dividends
(if any) on Bank Stock and the net income (or loss) of the Trust
for that Plan Year.
(4) The new balance in his Accounts, including the number of shares
of Bank Stock allocated to his Bank Stock Account and the fair
market value of Bank Stock as of that Anniversary Date.
(5) His number of years of Credited Service and his vested percentage
in his Account balances (under Sections 12 and 13) as of that
Anniversary Date.
(d) ADDITIONAL DISCLOSURE. The Committee shall make available for
examination by any Participant copies of the Plan, the Trust Agreement and the
latest annual report of the Plan filed (on Form 5500) with the Internal Revenue
Service. Upon written request of any Participant, the Committee shall furnish
copies of such documents and may make a reasonable charge to cover the cost of
furnishing such copies, as provided in regulations of the Department of Labor.
9.1
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SECTION 10. CAPITAL ACCUMULATION.
A Participant's vested (nonforfeitable) interest under the Plan is called
his Capital Accumulation. His Capital Accumulation shall be determined in
accordance with the provisions of Sections 11 and 12. Each Participant's
Capital Accumulation will be distributed as provided in Sections 14 and 15.
10.1
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SECTION 11. RETIREMENT, DISABILITY, OR DEATH.
Upon a Participant's retirement, disability or death, his Capital
Accumulation will be the total of his Account balances (100% vested). The
Participant will share in the allocation of Employer Contributions and
Forfeitures for the Plan Year in which his retirement, disability, or death
occurs.
A Participant will be treated as having retired under the Plan if his
Service ends by any of the following:
(a) NORMAL RETIREMENT
A Participant's Normal Retirement Age is his sixty-fifth (65th)
birthday. Upon attaining his Normal Retirement Age while employed by
the Company (or an Affiliated Company), a Participant's Account
balances will become nonforfeitable.
(b) EARLY RETIREMENT
A Participant may elect early retirement under the Plan at any time
after he has attained age fifty-five (55) and completed at least
fifteen (15) years of Service.
(c) DEFERRED RETIREMENT
In the event a Participant's Service continues beyond his Normal
Retirement Age, he shall continue to participate in the Plan.
(d) DISABILITY RETIREMENT
If the Committee determines that a Participant has suffered a
disability (while employed by the Bank or an Affiliated Company) of a
type that entitles him to receive total disability benefits under
Social Security, he will be granted disability retirement under the
Plan without regard to his age or period of Service.
11.1
<PAGE>
SECTION 12. OTHER TERMINATION OF SERVICE, BREAK IN SERVICE, VESTING AND
FORFEITURES.
(a) If Participant's Service terminates for any reason other than his
retirement, disability or death, his Employer Optional Contribution Account
Capital Accumulation will be determined on the basis of his nonforfeitable
interest, in accordance with the following vesting schedule:
Credited Service Nonforfeitable
Under Section 13 Percentage
---------------- ----------
Less than Three Years 0%
Three Years 20%
Four Years 40%
Five Years 60%
Six Years 80%
Seven Years or More 100%
A Participant is 100% vested at all times in his Account due to Employer Basic
and Matching Contributions, and in Employee Salary Reduction, Voluntary and
Rollover Contributions. A Participant will not share in the allocation of
Employer Contributions and Forfeitures for the Plan year if his Service
terminates prior to the Anniversary Date (except for reasons of retirement,
disability or death).
(b) Any portion of the final balances in a Participant's Accounts which is
not vested (and does not become part of his Capital Accumulation) will become a
Forfeiture upon the occurrence of a Break in Service, provided the Participant
has first received a distribution of his nonforfeitable interest in his Account
balances. If the Participant has not received a distribution of his Account
balances, then the portion of his Account balance which is not vested shall be
forfeited only upon the occurrence of a five-consecutive-year Break in Service.
Forfeitures shall first be charged against a Participant's Other Investments
Account, with any balance charged against his Bank Stock Account at the then
fair market value of Bank Stock. Financed Shares shall be forfeited only after
other shares of Bank Stock have been forfeited. Forfeitures will be reallocated
among the Participants, as provided in Section 6(f), as of the Anniversary Date
of the Plan Year in which a Break in Service occurs. A Break in Service will
12.1
<PAGE>
occur only in a Plan Year for which a Participant is not credited with more than
500 hours of Service and is not an Employee on the Anniversary Date by reason of
his termination of Service.
(c) RESTORATION OF FORFEITED ACCOUNTS. If a Participant is reemployed
after a one-year Break in Service but prior to the occurrence of a five-
consecutive-year Break in Service, the portion of his Accounts (attributable to
the prior period of Service) that was forfeited upon the occurrence of a one-
year Break in Service shall be restored as if there had been no Forfeiture,
provided the Participant repays any amounts previously distributed. Such
restoration shall be made out of Forfeitures in the Plan Year of reemployment
(prior to allocations under Section 6(f)). To the extent such Forfeitures are
not sufficient, the Bank shall make a special contribution to the Participant's
restored Accounts. Any amount so restored to a Participant shall not constitute
an Annual Addition under Section 6(g).
(d) SUBSEQUENT VESTING. If the Participant received a distribution of his
Capital Accumulation prior to the occurrence of a five-consecutive-year Break in
Service and he is reemployed prior to the occurrence of such a Break in Service,
the portion of his Account restored under Section 12(c) shall be maintained
separately until he becomes one-hundred percent (100%) vested. His Capital
Accumulation ("X") attributable to such separate Accounts shall be detemined
(prior to one-hundred percent (100%) vesting) at the time his participation in
the Plan subsequently terminates, in accordance with the following formula:
X = P(AB + D) - D
For purposes of applying this formula, P is the vested percentage at the time of
the subsequent termination; AB is the total of such Account balances at that
time; and D is the amount of his Capital Accumulation previously distributed.
(e) Upon a Change in Control, a Participant will be 100% vested in his
Bank Stock Account and Other Investments Account.
12.2
<PAGE>
SECTION 13. CREDITED SERVICE.
(a) GENERAL RULE. For purposes of vesting, an Employee's Credited Service
includes the total number of Plan Years in which he is credited with at least
1,000 Hours of Service with the Employer. Credited Service shall include such
Service with the Bank, any other Employer and any Affiliated Company. Service
prior to January 1, 1985 shall not be recognized for purposes of vesting.
(b) REEMPLOYMENT. If a former Participant is reemployed after the
occurrence of a Break in Service, the following special rules shall apply in
determining his Credited Service:
(1) New Accounts will be established to reflect his interest in the
Plan attributable to his Service after the Break in Service.
(2) If he is reemployed after the occurrence of a five-consecutive-
year Break in Service, Credited Service after the Break in
Service will not increase his vested interest in his Accounts
attributable to Service prior to the Break in Service.
(3) After he completes one (1) Plan Year of Credited Service
following his reemployment, his Credited Service with respect to
his new Accounts will include his Credited Service accumulated
prior to the Break in Service.
(4) In the case of a Participant who is reemployed who has not
attained a vested interest under this Plan, Service prior to the
Break in Service shall not be included in determining his
Credited Service provided the number of consecutive one-year
Breaks in Service equals or exceeds the greater of five (5), or
the aggregate number of years of Credited Service before such
consecutive Breaks in Service.
13.1
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SECTION 14. WHEN CAPITAL ACCUMULATION WILL BE DISTRIBUTED.
(a) A Participant's Capital Accumulation will be computed following the
termination of his Service. The Committee will, upon implementation of the
Plan, determine whether distribution of a Participant's Capital Accumulation for
any reason other than retirement, disability or death be made: (i) as soon as
reasonably possible after termination of Service, (ii) at some set date or dates
during the Plan Year, or (iii) as soon as reasonably possible after a Break in
Service has occurred. Once such determination has been made by the Committee,
it must be applied equally and in a nondiscriminatory manner to all terminating
Participants. In the event of a Participant's retirement, disability or death,
his Capital Accumulation will be distributed in a single distribution as soon as
reasonably possible after the close of the Plan Year in which the Participant
retires, is disabled or dies. In no event, however, shall distribution in such
case be delayed later than one year after the close of the Plan Year in which
the Participant retires, is disabled or dies. Under certain circumstances
described in Section 14(d), the Committee may delay the timing of a distribution
to the Participant because the Plan lacks sufficient cash liquidity to convert a
Participant's Stock Account to cash.
In no event, however (with the exception of Financed Shares described in
the succeeding sentence), shall distribution be deferred more than one year
after the close of the fifth Plan Year following the Participant's termination
of Service (unless the Participant has been reemployed by the Bank at the end of
the fifth Plan Year following the termination of Service or the Participant has
chosen to delay the distribution of his Capital Accumulation beyond this date).
In the event any portion of the Participant's Account consists of Bank Stock
attributable to a loan made to the Plan (pursuant to Section 5 of the Plan)
which has not been fully repaid, if the Plan lacks sufficient cash liquidity as
described in Section 14(d), the above timing as to distributions may be delayed
until the earlier of the Plan Year in which sufficient cash liquidity is
available or the Plan Year following the year in which the loan is fully repaid.
Once entitled to distribution, the Participant may choose the following
alternative modes of distribution:
14.1
<PAGE>
(1) Distribution of a Participant's Capital Accumulation in a single
distribution at some later date; or
(2) Distribution of a Participant's Capital Accumulation in
substantially equal, annual installments over a period not
exceeding five (5) years (provided that such period does not
exceed the life expectancy of the Participant); or
(3) Any combination of the foregoing.
Notwithstanding Section 14(a)(2) above, if the fair market value of a
Participants' Account attributable to Bank Stock is in excess of $500,000 as of
the date distribution is to begin, the five-year maximum distribution period
shall be extended by one additional year (up to an additional five years) for
each $100,000 increment, or fraction of such increment, by which the value of
the Participants' Account exceeds $500,000. The $500,000 and $100,000 dollar
amounts shall be subject to adjustment in accordance with Section 409(o)(2) of
the Code.
(b) Distribution of a Participant's Capital Accumulation shall commence
not later than sixty (60) days after the Anniversary Date coinciding with or
next following his Normal Retirement Age (or his termination of Service, if
later). A Participant who terminates Service prior to attaining age fifty-five
(55) but after completing at least fifteen (15) years of Service shall be
entitled, upon his request, to have the distribution of his Capital Accumulation
commence upon his attaining age fifty-five (55). The distribution of the
Capital Accumulation of any Participant with respect to the Plan Year in which
he attains age 70 1/2 must commence not later than April 1st of the next Plan
Year (even if he has not terminated Service and regardless of any consent
requirements pursuant to Section 15(c) of the Plan). If the amount of a
Participant's Capital Accumulation cannot be ascertained by the Committee by the
date on which a distribution is to commence, or if the Participant cannot be
located, distribution of his Capital Accumulation shall commence within sixty
(60) days after the date on which his Capital Accumulation is able to be
determined or after the date on which the Committee locates the Participant.
(d) If any part of a Participant's Capital Accumulation is retained in the
Trust after his Service or participation ends, his Accounts will continue to be
treated as provided in Section 6.
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<PAGE>
However, such Accounts will not be credited with any additional Employer
Contributions or Forfeitures.
(e) In accordance with Section 15 of the Plan, if Company Stock is not
readily tradable on an established market, the Participant must be given the
right to demand distribution of his Capital Accumulation entirely in cash, Bank
Stock or some combination of the two. In such case, the Trustees will strive to
create sufficient cash reserves in the Plan to permit a terminating Participant
to convert the portion of his Capital Accumulation consisting of Bank Stock to
cash. However, should Plan cash reserves not permit conversion of Bank Stock to
cash, the Committee may delay distribution of a Participant's Capital
Accumulation, within the limits described in Section 14(a), until the date such
Plan cash reserves can be reasonably generated through either additional
Employer contributions to the Plan or a restructuring of existing Plan assets.
14.3
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SECTION 15. HOW CAPITAL ACCUMULATION WILL BE DISTRIBUTED.
(a) Distribution of a Participant's Capital Accumulation will be made in
whole shares of Bank Stock, cash or a combination of both, as determined by the
Committee; provided, however, that the Committee shall notify the Participant of
his right to demand distribution of his Capital Accumulation entirely in cash or
entirely in whole shares of Bank Stock (with the value of any fractional share
paid in cash). If Bank Stock is readily tradable on an established market, a
Participant need not be given the right to demand distribution in cash. In the
event a distribution is to be made in shares of Bank Stock, any balance in a
Participant's Other Investments Account will be applied to provide whole shares
of Bank Stock for distribution, at the then fair market value. If securities
acquired with the proceeds of an exempt loan are available for distribution and
consist of more than one class of Bank Stock, a Participant must receive
substantially the same proportion of each such class of Bank Stock.
(b) The Trustee will make distributions from the Trust only upon the
direction of the Committee. Distribution will be made to the Participant if
living, and if not, to his Beneficiary. Upon the death of a Participant, the
Participant's Beneficiary shall be his surviving spouse, or if none, his estate.
A Participant (with the consent of his spouse, if any) may designate a different
Beneficiary (and contingent Beneficiaries) and alternate form of distribution of
his Capital Accumulation from time to time (and may change such designation of
Beneficiary or form of distribution at any time) with the consent of his spouse
(unless the original consent permits subsequent choice of Beneficiary or form of
distribution without further spousal consent) by filing a written designation
with the Committee. The consent for a designation of a Beneficiary (or change
in designation of Beneficiary and form of distribution) must be in writing, must
acknowledge the effect of such election, and must be witnessed by a Plan
representative or a notary public. A deceased Participant's entire Capital
Accumulation shall be distributed to his Beneficiary within five (5) years after
his death, except to the extent that distribution has previously commenced in
accordance with Section 14(a).
(c) The Bank shall furnish the recipient of a distribution with the tax
consequences explanation required by Section 402(f) of the Code and shall comply
with the applicable
15.1
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withholding requirements of Section 3405 of the Code with respect to
distributions from the Trust (other than any dividend distributions under
Section 17(b)). If a Participant's Accumulation has at any time exceeded
$3,500, no portion of his Capital Accumulation shall be distributed to him in a
lump sum without his consent, or where the Participant has died, the consent of
the surviving Participant's Beneficiary. Regardless of the value of a
Participant's Capital Accumulation, no distribution may be made under the
preceding sentence after the Annuity Starting Date unless the Participant and
the spouse of the Participant (or where the Participant has died, the surviving
spouse) consents in writing to such distribution in accordance with Section 417
of the Code and the Regulations thereunder.
15.2
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SECTION 16. RIGHTS, OPTIONS AND RESTRICTIONS ON BANK STOCK.
(a) Shares of Bank Stock distributed by the Trust shall be subject to a
"right of first refusal" if the Bank Stock is not publicly traded at the time
the right may be exercised. The right of first refusal shall not be applicable
if Bank Stock is publicly traded at the time the right may otherwise be
exercised. For this purpose, "publicly traded" refers to shares of Bank Stock
which are listed on a national securities exchange or which are quoted on a
system sponsored by a national securities association. If the Bank Stock is
subject to a right of first refusal, the right shall provide that, prior to any
subsequent transfer of such shares, the shares must first be offered for
purchase in writing to the Bank, and then to the Trust, at their then fair
market value. A bona fide written offer from an independent prospective buyer
shall be deemed to be the fair market value of such Bank Stock for this purpose.
The Bank and the Trustee shall have a total of fourteen (14) days to exercise
the right of first refusal on the same terms offered by a prospective buyer.
The Bank or the Trustee may require that a Participant entitled to a
distribution of Bank Stock execute an appropriate stock transfer agreement
(evidencing the right of first refusal) prior to receiving a distribution of
Bank Stock.
(b) In accordance with Section 409(h) of the Code and the regulations
thereunder, the Bank shall not be required to issue a "put option" to any
Participant who receives a distribution of Bank Stock if the Bank Stock is
readily tradable on any established market or if the Bank is not allowed by law
to purchase its own stock. If the Bank is permitted by law to purchase its own
stock and the Bank's stock is not readily tradable on an established market, the
Bank shall issue a "put option" to any Participant who receives a distribution
of Bank Stock. The put option shall permit the Participant to sell such Bank
Stock to the Bank at any time during two option periods, at the fair market
value of such shares. The first put option period shall be for at least sixty
(60) days beginning on the date of distribution. The second put option period
shall be for at least sixty (60) days beginning after the new determination of
the fair market value of Bank Stock by the Trustee (and notice to the
Participant) in the following Plan Year. The Bank may allow the Trustee to
purchase shares of Bank Stock tendered to the Bank under a put option. In the
event neither the Trustee nor the Bank wishes to purchase such shares, then the
Participant has the right to demand distribution in cash. If the distribution
to
16.1
<PAGE>
the Participant constituted a total distribution within the meaning of Code
Section 409(h)(5), payment of the fair market value of a Participants' Account
consisting of Bank Stock may be made in five substantially equal annual
payments. The first installment shall be paid not later than 30 days after the
Participant exercises the put option. The Plan will pay a reasonable rate of
interest (as determined by the Bank or the Trustees) and will provide adequate
security on amounts not paid after 30 days. If the distribution to the
Participant did not constitute a total distribution within the meaning of Code
Section 409(h)(5), the Participant shall be paid an amount equal to the fair
market value of the Bank Stock repurchased no later than 30 days after the
Participant exercises the put option.
(c) The Bank or the Trustee may at any time offer to purchase any shares
of Bank Stock (including, if a put option is issued, those shares not sold under
the put option described in Section 16(b)) which are held by former Participants
(or Beneficiaries), at the then fair market value. The terms of payment for any
such purchase of Bank Stock may be either in a lump sum or in installments over
a period not exceeding ten (10) years, with interest payable at a reasonable
rate on any unpaid installment balance (as determined by the Trustee).
(d) Shares of Bank Stock held or distributed by the Trustee may include
such legend restrictions on transferability as the Bank may reasonably require
in order to assure compliance with applicable federal and state securities and
banking laws. Except as otherwise provided in this Section 16, no shares of
Bank Stock held or distributed by the Trustee may be subject to a put, call or
other option, or buy-sell or similar arrangement. Furthermore, except as
otherwise provided in this Section 16, the Trustee may not obligate the Plan or
Trust to acquire securities from a particular security holder at an indefinite
time determined upon the happening of an event. The provisions of this Section
16 shall continue to be applicable to Bank Stock even if the Plan ceases to be
an employee stock ownership plan under Section 4975(e)(7) of the Code.
16.2
<PAGE>
SECTION 17. NO ASSIGNMENT OF BENEFITS, DIVIDENDS, HARDSHIP DISTRIBUTIONS; AND
LOANS
(a) Prior to a Participant receiving distribution of his Capital
Accumulation, such Participant's Capital Accumulation may not be anticipated,
assigned (either at law or in equity), alienated or subject to attachment,
garnishment, levy, execution or other legal or equitable process, except in
accordance with a "qualified domestic relations order" (as defined in Section
414(p) of the Code).
(b) DIVIDENDS ON ALLOCATED STOCK. Any cash dividends on Bank Stock
allocated to the Accounts of Participants may be paid currently (or within
ninety (90) days after the end of the Plan Year in which the dividends are paid
to the Trust) in cash to such Participants on a nondiscriminatory basis, as
determined by the Committee. Such distribution (if any) of cash dividends to
Participants may be limited to dividends on shares of Bank Stock which are then
vested or may be applicable to dividends on all shares allocated to Bank Stock
Accounts.
(c) DIVIDENDS USED TO REPAY LOAN TO PLAN. Any cash dividends on allocated
and unallocated Bank Stock may also be used to repay a loan to the Plan which
meets the requirements of Code Section 4975 and the Regulations thereunder.
(d) TRUSTEE DISCRETION AS TO DIVIDENDS. The decision as to whether cash
dividends on Bank Stock will be distributed to Participants, used to repay a
loan to the ESOP, or held in the Trust shall be made in the sole discretion of
the Committee, and the Committee may request the Bank to pay such dividends
directly to Participants.
(e) HARDSHIP DISTRIBUTIONS. Upon prior written notice effective as of the
first Anniversary Date after receipt of such notice, a Participant who is 100%
vested in his Accounts may be permitted to make a withdrawal in accordance with
the rules listed below. However, a Participant shall cease Salary Deferrals for
a one year period after receipt of a hardship distribution.
(1) An application for approval shall be made in writing on a form
provided for such purposes by the Committee, and
(2) Withdrawals shall be subject to the following conditions:
17.1
<PAGE>
(i) Withdrawals shall be approved only on account of an
immediate and heavy financial hardship and shall be approved
only up to the amount that is necessary to satisfy such
financial hardship. The determination of the existence of
an immediate and heavy financial need and of the amount
necessary to meet such need is to be made in a
nondiscriminatory and objective manner on the basis of all
relevant facts and circumstances. The determination of the
Committee as to justification of the withdrawal and the
amount thereof shall be final.
(ii) A distribution will generally be treated as necessary to
satisfy a financial need if the Committee reasonably relies
upon the Participants' representation that the need cannot
be relieved:
(A) through reimbursement or compensation by insurance or
otherwise, or
(B) by reasonable liquidation of the Participants' assets
(or those of his spouse), to the extent such
liquidation would not itself cause an immediate and
heavy financial need, or
(C) by cessation of Salary Reduction or Voluntary
Participant Contributions under the Plan, or
(D) by other distributions or nontaxable (at the time of
the loan) loans from any tax-qualified employee benefit
plans maintained by the Employer or any other employer
of the Participant, or by borrowing from commercial
sources on reasonable commercial terms.
(iii) For the purpose of this Section, the term "financial
hardship" shall mean the financial inability to the
Participant to provide the necessary funds:
(A) to meet the extraordinary medical expenses (described
in Code Section 213(d)) incurred by the Participant,
the Participant's spouse, or any dependents of the
Participant (as defined in Code Section 152), or
(B) to provide payment of tuition for the next semester or
quarter of post-secondary education for the
Participant, his or her spouse, children or dependents,
or
(C) to provide funds for the purchase (excluding mortgage
payments) of a principal residence for the Participant
or to provide funds to prevent the eviction of the
Participant from his principal residence or
foreclosure on the mortgage of the Participant's
principal residence.
(iv) Withdrawals shall not exceed one hundred percent (100%) of
the Participant's Vested Account Balances (excluding
earnings attributable to Salary Reduction Contributions
after December 31, 1988)..
(v) Withdrawals shall be made in cash.
17.2
<PAGE>
(f) LOANS TO PARTICIPANTS. The Committee is hereby designated with sole
authority and responsibility to approve or deny loans and, except as provided in
this Section, collect unpaid loans. Loans may be made on any Quarterly Date
upon the written application of a Participant submitted to the Committee during
the period 30 days prior to and ending 15 days before the date the loan is to be
made.
Written application shall be in a form acceptable to the Trustee and shall
set forth the reason the loan is being requested. Loans shall be made available
to all Participants in a uniform and nondiscriminatory manner. All loans will
be adequately secured and will bear a reasonable rate of interest as determined
by the Committee. The term of the loan shall be determined by the Committee,
but shall not exceed the earlier of five (5) years or a Participant's Normal
Retirement Date, except that the Committee, in its discretion, may permit a
repayment period in excess of five years for loans used to acquire, construct,
or substantially rehabilitate any dwelling unit which is to be used as a
principal residence of the Participant.
The Committee shall bear sole responsibility for ensuring compliance with
all applicable federal or state laws and regulations. Each loan shall be secured
by a written assignment of that portion of the Participant's vested Account
which the Committee determines to be necessary to adequately secure repayment of
the loan. However, no portion of the Participant's Capital Accumulation may be
used as security for such loan unless the spouse (if any) consents in writing to
such use during the 90-day period ending on the date on which the loan is
secured. No loan shall be approved by the Committee to any Participant in any
amount which exceeds (1) minus (2) where:
(1) is the lesser of:
(i) $50,000; or
(ii) fifty percent (50%) of the Participant's vested Other Investment
Account.
(2) is the aggregate unpaid amount of all loans made to the Participant
under this or any other qualified plan maintained by the Employer.
Each loan shall be made from the borrowing Participant's Account.
Repayments of the loan and interest shall be credited to his Account. No loan
shall be considered a general
17.3
<PAGE>
investment of the Trust Fund. In the event a Participant does not repay the
principal of such loan within the time prescribed by the Committee or interest
thereon at such times as are required by the terms of the loan or if the
Participant ceases to be an Employee while such Participant has a loan which is
outstanding, the Committee may direct the Trustee to take such action as the
Committee may reasonably determine, including:
(1) demand repayment of the loan and institute legal action to enforce
collection, or
(2) demand repayment of the loan and charge the total amount against the
balance credited to the Participant's vested Account which was
assigned as security, and reduce any payment or distribution from the
Trust Fund to which the Participant or his Beneficiary may become
entitled to the extent necessary to discharge the obligation on the
loan.
17.4
<PAGE>
SECTION 18. ADMINISTRATION.
The Plan will be administered by a Board of Trustees (the "Trustee") and an
Administrative Committee (the "Committee"), each composed of individuals
appointed by the Board of Directors to serve at its pleasure and without
compensation. The Trustee shall be the named fiduciary with authority and
responsibility for the management and investment of the Trust Assets. The
Committee members shall be the named fiduciaries with authority to control and
manage all other aspects of the administration of the Plan. Any Committee
member may also serve as a Trustee of the Plan, if so designated by the Board
of Directors.
Committee action will be by vote of a majority of the members at a meeting
or in writing without a meeting. Minutes of each meeting of the Committee shall
be kept. The Committee shall make such rules, regulations, computations,
interpretations, and decisions, and shall maintain such records and accounts as
may be necessary to administer the Plan in a nondiscriminatory manner for the
exclusive benefit of the Participants and their Beneficiaries, as required under
the Code and ERISA. The Committee shall establish procedures to determine the
qualified status of domestic relations orders and to administer distributions
under such qualified orders (in accordance with Section 414(p) of the Code).
The Committee will give instructions to the Trustee with respect to matters
which require instructions, as provided in this Plan and the Trust Agreement.
The Committee members may allocate their fiduciary responsibilities among
themselves and may designate other persons (including the Trustee) to carry out
its fiduciary responsibilities under the Plan. In the event that the Committee
specifically designates the Trustee to perform any of the Committee's fiduciary
responsibilities, or if the Trustee is composed of the same individuals as the
Committee, then any specific instructions otherwise required by the Plan or
Trust Agreement from the Committee to the Trustee with respect to such
designated fiduciary responsibilities shall not be required.
The Trustee shall be responsible for investing the Trust Assets under the
Plan. The Trustee shall establish a funding policy and method for acquiring
Bank Stock for the Trust in a manner that is consistent with the objectives of
the Plan and the requirements of ERISA. If Bank Stock is readily tradable on an
established securities market, the fair market value of Bank Stock shall be
based upon the offering price established by current bid and asked prices quoted
by persons independent of the Bank, pursuant to Section 3(18)(A)(ii) of ERISA.
In the
18.1
<PAGE>
absence of Bank Stock trading on an established securities market, all
valuations of Bank Stock pursuant to activities carried on by the Plan shall be
made by an independent appraiser meeting requirements similar to those contained
in Treasury Regulations under Section 170(a)(1) of the Code.
The Trustee and the Committee are empowered, on behalf of the Plan, to
employ investment advisers, accountants, legal counsel and other agents to
assist them in the performance of their duties under the Plan. The Bank shall
secure fidelity bonding for the fiduciaries of the Plan, as required by Section
412 of ERISA. All reasonable expenses of the Trustee and the Committee shall be
paid as provided in Section 7. The Bank shall indemnify each member of the
Board of Trustees and the Committee against any personal liability or expense,
except such liability or expense as may result from his own willful misconduct.
The Bank shall be the Plan Administrator under Section 414(g) of the Code
and under Section 3(16)(A) of ERISA. The Committee shall be the designated
agent of the Plan for the service of legal process.
18.2
<PAGE>
SECTION 19. CLAIMS PROCEDURE.
Unless otherwise specified in the Plan, distributions of Capital
Accumulations under the Plan will normally be paid without a Participant (or
Beneficiary) having to file a claim for benefits. However, a Participant (or
Beneficiary) who does not receive a distribution to which he believes he is
entitled may present a claim to the Committee for any unpaid benefits. All
questions and claims regarding benefits under the Plan shall be acted upon by
the Committee.
Each Participant (or Beneficiary) who wishes to file a claim for benefits
with the Committee shall do so in writing, addressed to the Committee or to the
Bank. If the claim for benefits is wholly or partially denied, the Committee
shall notify the Participant (or Beneficiary) in writing of such denial of
benefits within ninety (90) days after the Committee initially received the
benefit claim.
Any notice of a denial of benefits shall advise the Participant (or
Beneficiary) of:
(a) the specific reason or reasons for the denial;
(b) the specific provisions of the Plan on which the denial is based;
(c) any additional material or information necessary for the
Participant (or Beneficiary) to perfect his claim and an
explanation of why such material or information is necessary; and
(d) the steps which the Participant (or Beneficiary) must take to
have his claim for benefits reviewed.
Each Participant (or Beneficiary) whose claim for benefits is denied shall
have the opportunity to file a written request for a full and fair review of his
claim by the Committee, to review all documents pertinent to his claim and to
submit a written statement regarding issues relative to his claim. Such written
request for review of his claim must be filed by the Participant (or
Beneficiary) within sixty (60) days after receipt of written notification of the
denial of his claim.
The decision of the Committee will be made within sixty (60) days after
receipt of a request for review and shall be communicated in writing to the
claimant. Such written notice shall set forth the specific reasons and specific
Plan provisions on which the Committee based its
19.1
<PAGE>
decision. If there are special circumstances (such as the need to hold a
hearing) which require an extension of time for completing the review, the
Committee's decision shall be rendered not more than one hundred twenty (120)
days after receipt of a request for review.
All notices by the Committee denying a claim for benefits, and all
decisions on request for a review of the denial of a claim for benefits, shall
be written in a manner calculated to be understood by the Participant (or
Beneficiary) filing the claim or requesting the review.
19.2
<PAGE>
SECTION 20. GUARANTIES.
All Capital Accumulations will be paid only from the Trust Assets. An
Employer, the Trustee or the Committee shall not have any duty or liability to
furnish the Trust with any funds, securities or other assets, except as
expressly provided in the Plan.
The adoption and maintenance of the Plan shall not be deemed to constitute
a contract of employment or otherwise between an Employer and any Employee, or
to be a consideration for, or an inducement or condition of, any employment.
Nothing contained in this Plan shall be deemed to give an Employee the right to
be retained in the Service of an Employer or to interfere with the right of an
Employer to discharge, with or without cause, any Employee at any time.
20.1
<PAGE>
SECTION 21. FUTURE OF THE PLAN.
As future conditions cannot be foreseen, the Bank reserves the right to
amend or terminate the Plan (in whole or in part) and the Trust Agreement at any
time, by action of its Board of Directors. Neither amendment nor termination
shall retroactively reduce the vested rights of Participants or permit any part
of the Trust Assets to be diverted to or used for any purpose other than for the
exclusive benefit of the Participants (and their Beneficiaries).
The Bank specifically reserves the right to amend the Plan and the Trust
Agreement retroactively in order to satisfy any applicable requirements of the
Code and ERISA.
The Bank further reserves the right to terminate the Plan in the event of a
determination by the Internal Revenue Service (after a timely Application for
Determination is filed by the Bank) that the Plan initially fails to satisfy the
requirements of Section 401(a) and 4975(e)(7) of the Code. In that event, all
Trust Assets shall (upon written direction of the Bank) be returned to the Bank,
and the Plan and the Trust shall terminate.
If the Plan is terminated (or partially terminated) by the Bank,
participation of all Participants affected by the termination will end. The
Accounts of all Participants affected by termination or partial termination will
become nonforfeitable as of the date of termination. A complete discontinuance
of Employer Contributions shall be deemed to be a termination of the Plan for
this purpose. The Plan will not be considered "terminated," however, if Employer
Contributions are replaced by contributions to a comparable plan that meets the
requirements of Section 401(a) of the Code. After termination of the Plan,
the Trust will be maintained until the Capital Accumulations of all Participants
have been distributed. Capital Accumulations will be distributed following
termination of the Plan in accordance with Section 14 of the Plan.
In the event of the merger or consolidation of this Plan with another Plan,
or the transfer of Trust Assets (or liabilities) to another Plan, the Account
balances of each Participant immediately after such merger, consolidation or
transfer must be at least as great as immediately before such merger,
consolidation or transfer (as if the Plan had then terminated).
21.1
<PAGE>
SECTION 22. "TOP HEAVY" CONTINGENCY PROVISIONS.
(a) The provisions of this Section 22 are included in the Plan pursuant to
Section 401(a)(10)(B)(ii) of the Code and shall become applicable only if the
Plan becomes a "top-heavy plan" under Section 416(g) of the Code for any Plan
Year.
(b) The determination as to whether the Plan becomes "top-heavy" for any
Plan Year shall be made as of the Anniversary Date of the immediately preceding
Plan Year (or as of December 31, 1991, for the Plan Year ending on that date),
by considering the Account balances of Participants in (1) the Plan, (2) any
other plan (such as a defined contribution or defined benefit plan) of the
Employer in which a Key Employee participates (in the Plan Year containing the
determination date or any of the preceding four Plan Years, even if the plan was
terminated), and (3) each other plan which enables any plan in which a Key
Employee participates during the period tested to meet the requirements of Code
Section 401(a)(4) or 410(b). All employers aggregated under Code Section
414(b), (c), or (m) are considered a single employer. The Plan (and any other
defined contribution plan or any defined benefit plan) shall be "top-heavy" only
if the total of the Account balances under the Plan and any other defined
contribution plan and the value of accrued benefits under any defined benefit
plan for Key Employees as of the determination date for that Plan Year exceeds
sixty percent (60%) of the total of the Account balances for all Participants.
For such purpose, Account balances (including Participants' Account balances
under any other defined contribution plan) and accrued benefit values shall be
computed and adjusted pursuant to Section 416(g) of the Code. In determining
Key Employees under this Section 22(b), the term "annual compensation" in
Section 416(i)(1)(A) of the Code shall mean Compensation (as defined in Section
2).
(c) For any Plan Year in which the Plan is "top-heavy," each Participant
who is an Employee on the Anniversary Date and is not a participant in a defined
benefit plan and who is a Non-Key Employee shall receive, regardless of his
Hours of Service for that Plan Year, a minimum allocation of Employer
Contributions and Forfeitures which is equal to the lesser of:
22.1
<PAGE>
(1) Three percent (3%) of his Compensation; or
(2) The same percentage of his Compensation as the allocation to the
Key Employee for whom the Percentage is the highest for that Plan
Year. For purposes of this calculation, any salary reduction or
other similar arrangement of a Key Employee shall be included in
determining the percentage allocation to a Key Employee.
If such Employee is also a Participant in any other defined contribution plan,
he shall receive only the minimum allocation in this Plan and shall not receive
the minimum allocation provided in the defined contribution plan.
(d) As of the first day of any Plan Year in which the Plan has become
"top-heavy," the vesting schedule in Section 12(a) shall be amended to read as
follows:
Nonforfeitable
Credited Service Percentage
---------------- ----------
Less Than Two Years 0%
Two Years 20%
Three Years 40%
Four Years 60%
Five Years 80%
Six Years or More 100%
(e) The Capital Accumulation of an Employee who has not performed any
Service for the Employer at any time during the five-year period ending on the
determination date is excluded from the calculation to determine top-heaviness.
22.2
<PAGE>
SECTION 23. DIVERSIFICATION.
(a) Within 90 days after the last day of each Plan Year during the
Participants' Qualified Election Period, any Plan Participant who has attained
age fifty-five (55) has completed ten (10) years of Credited Service (i.e., a
"Qualified Participant") shall have the right to make an election to direct the
Plan as to the investment of twenty-five percent (25%) of the value of the
Participants' Account attributable to Bank Stock which was acquired by the Plan.
Within 90 days after the close of the last Plan Year in the Participants'
Qualified Election Period, a Qualified Participant may direct the Plan as to the
investment of fifty percent (50%) of the value of such Account. The term
Qualified Election Period shall mean the six (6) Plan Year period beginning with
the Plan Year in which a Plan Participant first becomes a Qualified Participant.
(b) METHOD OF DIRECTING INVESTMENT. The Participant's election to
diversify his Account shall be provided to the Plan Administrator in writing and
shall be effective no later than 180 days after the close of the Plan Year to
which the election applies.
(c) DISTRIBUTION OF ACCOUNT. Upon a Qualified Participant's election to
direct the investment of a portion of the Participant's Account, the Plan may
distribute the portion of the Account that is covered by the election within 90
days after the last day of the period during which the election can be made.
Such distribution shall be subject to such requirements of the Plan concerning
put options (Section 16) and such provisions under Section 15 as require the
consent of the Participant and the Participant's spouse (if any) to a
distribution with a value in excess of $3,500.
23.1
<PAGE>
SECTION 24. GOVERNING LAW.
The provisions of the Plan and the Trust Agreement shall be construed,
administered and enforced in accordance with the laws of the State of
California, to the extent such laws are not superseded by ERISA.
24.1
<PAGE>
SECTION 25. EXECUTION.
To record the adoption of this Plan, the Bank has caused this document to
be executed this _18th__ day of __December_, 1991.
COAST COMMERCIAL BANK
By: /s/ Harvey Nickelson
--------------------------------
President
By: /s/ Sara Anderson
--------------------------------
Secretary
25.1
<PAGE>
AMENDMENT NUMBER 1 TO THE
COAST COMMERCIAL BANK
EMPLOYEE STOCK OWNERSHIP PLAN (WITH 401(k) PROVISIONS)
Coast Commercial Bank, a banking association organized and operated under
the laws of the state of California, hereby adopts the following amendments to
the Coast Commercial Bank Employee Stock Ownership Plan (with 401(k) Provisions)
("Plan"):
1. Section 2 of the Plan is hereby amended to add the following language
to the definition of "Adjusted Compensation":
"For purposes of applying the $200,000 limit on compensation to the
family unit in accordance with Section 414(q)(6) of the Code, and, except
for the purpose of determining compensation below the Plan's integration
level, if applicable, the $200,000 limit will be allocated among the
members of the family unit in proportion to their respective
contributions."
2. Section 2 of the Plan is hereby amended to add the following
definition of "Direct Rollover":
"A payment by the Plan to the eligible retirement plan specified by the
distributee."
3. Section 2 of the Plan is hereby amended to add the following
definition of "Distributee":
"A Distributee includes an employee or former employee. In addition, the
employees or former employee's surviving spouse and the employee's or
former employee's spouse or former spouse who is the alternate payee under
a qualified domestic relations order, as defined in Section 414(p) of the
Code, or Distributees with regard to the interests of the spouse or former
spouse."
1
<PAGE>
4. Section 2 of the Plan is hereby amended to add the following
definition of "Eligible Retirement Plan":
"A qualified trust described in Section 401(a) of the Code, that accepts
the Distributee's eligible rollover distribution. However, in the case of
an eligible rollover distribution to the surviving spouse, an Eligible
Retirement Plan is an individual retirement account or individual
retirement annuity."
5. Section 2 of the Plan is hereby amended to add the following
definition of "Eligible Rollover Distribution":
"Any distribution of all or any portion of the balance to the credit of the
Distributee, except that an Eligible Rollover Distribution does not
include: any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for the life (or
life expectancy) of the Distributee or the joint lives (or joint life
expectancies) of the Distributee and the Distributee's designated
beneficiary, or for a specified period of ten years or more; any
distribution to the extent such distribution is required under Section
401(a)(9) of the Code; and the portion of any distribution that is not
includable in gross income proceeds determined without regard to the
exclusion for net unrealized appreciation with respect to employer
securities."
6. Section 2 of the Plan is hereby amended to add the following definition
of "Family Members":
"With respect to either a five percent owner or one of the ten most highly
compensated employees, the employee's spouse, and the employee's lineal
descendants who have not attained age 19 before the close of the year."
2
<PAGE>
7. Section 2 of the Plan is hereby amended to add the following language
to the definition of "Highly Compensated Participant":
"The top-paid group consists of the top 20 percent of employees ranked on
the basis of compensation received during the year. For purposes of
determining the number of employees in the top-paid group, employees
described in Section 414(q)(8) and Q & A 9(b) of Section 1.414(q)-1T of the
regulations are excluded."
"The number of officers is limited to 50 (or, if lesser, the greater of
three employees or 10 percent of employees) excluding those employees who
may be excluded in determining the top-paid group."
"When no officer has compensation in excess of 50 percent of the Section
415(b)(1)(A) limit, the highest paid officer is treated as highly
compensated."
"Compensation is compensation within the meaning of Section 415(c)(3),
including elective or salary reduction contributions to a cafeteria plan,
cash or deferred arrangement or tax-sheltered annuity."
"Employers aggregated under Sections 414(b), (c), (m), or (o) are treated
as a single employer. IRC Section 414(q) and Regs. Section 1.414(q)-1T.
Plan Section 2.3."
"A participant who is both described in parts (B), (c), or (D), in
definition of Highly Compensated Participant, when these paragraphs are
modified to substitute the determination year for the look back year and
one of the 100 employees who receive the most compensation from the
employer during the determination year."
3
<PAGE>
"The determination year is the plan year for which the determination of who
is highly compensated is being made."
"The look-back year is the 12 month period immediately preceding the
determination year, or if the employer elects, the calendar year ending
with or within the determination year."
8. Part (D) of the definition of "Highly Compensated Participant" in
Section 2 of the Plan is hereby deleted, and substituted therefor is a new Part
(D) to read as follows:
"Was at any time an officer and received compensation greater then fifty
percent (50%) of the amount in effect under Section 415(b)(1)(a) for such
year."
9. The last sentence of Section 3(a) of the Plan is hereby deleted, and
substituted therefor is a new sentence to read as follows:
"For this purpose, an eligibility computation period shall first be the
period of twelve (12) consecutive months beginning on the Employee's
initial date of service and thereafter shall be the Plan Year which
includes the first anniversary of his initial date of service in which case
an employee will be credited with a year of eligibility service in each
computation period that he completes at least 1,000 hours of service."
10. Section 4.2 (c) of the Plan is hereby amended to include the following
language:
"The Plan will take into account the actual deferral ratios of all eligible
employees for purposes of the actual deferral percentage (ADP) test and
Section 401(k). For this purpose, an eligible employee is an employee who
4
<PAGE>
is directly or indirectly eligible to make a cash or deferred election
under the Plan for all or a portion of a Plan Year and includes: an
employee who would be a Plan participant but for the failure to make
required contributions; an employee whose eligibility to make elective
contributions has been suspended because of an election (other than certain
one-time elections) not to participate, the distribution, or alone; and, an
employee who cannot defer because of the Section 415 limits on annual
additions. In the case of an eligible employee who makes no elective
contributions to a deferral ratio that is to be included in determining the
ADP is zero."
"In the case of a highly compensated employee who is either a five percent
owner or one of the ten most highly compensated employees and is subject to
the family aggregation rules as set forth in Section 414(q)(6), the actual
deferral ratio for the family group (which is treated as one highly
compensated employee) is determined by combining the elective
contributions, compensation, and amounts treated as elective contributions
of all eligible family members. Except to the extent taken into account in
the preceding sentence, the elective contributions, compensation, and
amounts treated as elective contributions of all family members are
disregarded in determining their individual actual deferral percentages."
"An elective contribution will be taken into account under the actual
deferral percentage test of Section 401(k)(3)(A) of the Code for a Plan
Year only if it is allocated to an employee as of the date within that Plan
Year. For this purpose, an elective contribution is considered allocated
as of a date within a Plan Year if the allocation is not contingent on
participation or performance of services after such date and the elective
5
<PAGE>
contribution is actually paid to the Trust no later than twelve (12) months
after the Plan Year to which the contribution relates. For purposes of
determining whether the Plan satisfies the ADP test of Section 401(k), all
elective contributions that are made under two or more plans that are
aggregated for purposes of Section 401(a)(4) or 410(b) are to be treated as
made under a single plan. If two or more plans are permissibly aggregated
for purposes of Section 401(k), the aggregated plans must also satisfy
Sections 401(a)(4) and 410(b) as though they were a single plan."
11. Section 4.2(d) of the Plan is amended to include the following
language:
"The distribution of excess contributions will include the income allocable
thereto. The income allocable to excess contributions includes income for
the Plan Year for which the excess contributions were made and is to be
calculated in the manner provided by Treas. Reg. Section 1.401(k)-1(f)(4)."
12. The last sentence of paragraph 1 in Section 4.2(d) of the Plan is
hereby deleted and substituted therefor is a new sentence to read as follows:
"In the case of a Highly Compensated Participant whose ADP is determined
pursuant to Code Section 414(q)(6) family aggregation rules, the excess
contributions shall be determined in accordance with the leveling method
described in Treas. Reg. Section 1.401(k)-1(f)(2) and allocated among
family members in proportion to the contributions of each family member
that have been combined."
6
<PAGE>
13. Section 4.2(e) of the Plan is hereby deleted and substituted therefor
is a new Section 4.2(e) to read as follows:
"In the event a Participant's Salary Reduction Contribution or Employer
Contribution is made under a mistake of fact, the contribution may be
returned to the Employer within one (1) year after the payment of the
contribution or the disallowance of the deduction to the extent allowed,
whichever is applicable. Except as provided under this paragraph, the
assets of the Plan will be used for the exclusive purpose of providing
benefits to Participants under the Plan and their Beneficiaries and for for
defraying reasonable administrative expenses of the Plan."
14. Section 4.3(a) of the Plan is hereby amended by deleting the word
"earnings" and substituting therefor the word "compensation."
15. Section 4.3(d) of the Plan is amended to include the following
language:
"For purposes of determining whether a plan satisfies the actual
contribution percentage test of Code Section 401(m), all employee and
matching contributions that are made under two or more plans that are
aggregated for purposes of Code Sections 401(a)(4) and 410(b) are to be
treated as made under a single plan; if two or more plans are permissively
aggregated for purposes of Section 401(m), these plans must also satisfy
Sections 401(a)(4) and 410(b) as though they were a single plan."
"In the case of a Highly Compensated Employee who is either a five percent
(5%) owner or one of the ten most
7
<PAGE>
Highly Compensated Employees and is thereby subject to the family
aggregation rules of Section 414(q)(6), the actual contribution ratio (ACR)
for the family group (which is treated as one Highly Compensated Employee)
is the ACR determined by combining the contributions and compensation of
all eligible family members. Except to the extent taken into account in
the preceding sentence, the contributions and compensation of all family
members are disregarded in determining the actual contribution percentage
for the groups of Highly Compensated Employees and Nonhighly Compensated
Employees."
"Furthermore, in accordance with Regulation 1.401(k)-1(f), the Employer may
allow additional Voluntary Contributions and/or Matching Contributions or
may distribute or recharacterize such contributions made during the Plan
Year in order to provide that the maximum Contribution Percentage Limit
under Code Section 401(m) is not exceeded."
16. The last paragraph of Section 4.3(e) of the Plan is hereby deleted,
and substituted therefor is a new paragraph to read as follows:
"In the case of a highly compensated employee who is either a five percent
owner or one of the ten most highly compensated employees and is subject to
the family aggregation rules as set forth in Section 414(q)(6), the actual
contribution ratio for the family group is determined by combining the
contributions and compensation of all eligible family members. When a
highly compensated employee's actual contribution ratio is determined under
the family aggregation rules, the determination of the amount of excess
aggregate contributions shall be made as follows: (a) the ACR is reduced
in accordance with the "leveling" method described in Prop. Reg. Section
8
<PAGE>
1.401(m)-1(e)(2), and (b) the excess aggregate contributions are allocated
among the family members in proportion to the contributions of each family
member that have been combined. The distribution of excess aggregate
contributions will include the income allocable thereto, determined
pursuant to the safe harbor method of allocating gap period income pursuant
to Prop. Rep. Section 1.401(m)-1(e)(3)(ii)(D). The income allocable to
the excess aggregate contributions includes income for the plan year for
which the excess aggregate contributions were made."
17. Section 4.3(e) of the Plan is amended to include the following
language:
"The distribution (or forfeiture, if applicable) of excess aggregate
contributions shall be made on the basis of the respective portions of such
amounts attributable to each Highly Compensated Employee."
"The amount of excess aggregate contributions for a Plan Year shall be
determined only after first determining the excess contributions that are
treated as employee contributions due to recharacterization."
18. Section 4.3(f) of the Plan is amended to include the following
language:
"If multiple use of the alternative limitation occurs, it must be corrected
by reducing the actual deferral percentage of all highly compensated
employees, regardless of whether they are eligible under both the
arrangement subject to Section 401(k) and the plan subject to Section
401(m).
9
<PAGE>
19. Section 4.4(a) of the Plan is hereby amended to add the following
language:
"All distributions made on or after January 1, 1993, not withstanding any
provision of the Plan to the contrary that would otherwise limit a
Distributee's election under Code Section 401(a)(31), a Distributee may
elect, at the time and in the manner prescribed by the Plan administrator,
to have any portion of an eligible rollover distribution paid directly to
an eligible retirement plan specified by the Distributee in a direct
rollover."
20. Section 5(a) of the Plan is hereby amended to include the following
language:
"Valuations of employer securities which are not readily tradable on an
established market are made by an independent appraiser, who meets the
requirements similar to the requirements of the regulations prescribed
under Code Section 170(a)(1)."
21. Section 11(a) of the Plan is hereby deleted and substituted therefore
is a new Section 11(a) to read as follows:
"A Participant's Normal Retirement Age is his sixty-fifth (65th) birthday
or the fifth anniversary of the time the Participant commenced
participation in the Plan. Upon attaining his Normal Retirement Age, a
Participant's Account balances will become nonforfeitable."
10
<PAGE>
22. Subsection 17(e)(2)(iii)(B) is hereby deleted, and substituted
therefor is a new subpart to read as follows:
"To provide payment of tuition and related educational fees for the next
twelve (12) months of post-secondary education for the employee, or the
employee's spouse, children, or dependents (as defined in Section 152).
IN WITNESS WHEREOF, the undersigned, a duly authorized officer of Coast
Commercial Bank, hereby adopts this Amended Number 1 to the Coast Commercial
Bank Employee Stock Ownership Plan (with 401(k) provisions) on this 15th day of
April , 1993.
COAST COMMERCIAL BANK
By: /s/
------------------------------
As Its:
-----------------------
11
<PAGE>
COAST COMMERCIAL BANK
RESOLUTIONS RELATING TO AMENDMENT OF
EMPLOYEE STOCK OWNERSHIP PLAN
WITH 401(K) PROVISIONS
AMENDMENT NO. 2
August 18, 1993
-------------------------------------------------------------------------------
WHEREAS, Coast Commercial Bank (the "Bank") desires to amend the Coast
Commercial Bank Employee Stock Ownership Plan with 401(k) Provisions (the
"Plan") in order to provide that an employee may participate in the Plan
provided that he has attained age eighteen (18) and is credited with at least
1,000 Hours of Service during an eligibility computation period; and
WHEREAS, the Bank desires to amend the Plan in order to provide that
interest on any acquisition loan shall first be paid from the Optional
Contribution Account to the extent available before such interest is paid from
other accounts of the Plan; and
WHEREAS, the Bank desires to amend the Plan in order to provide that a
Participant may direct that up to fifty percent (50%) of his salary deferrals
may be invested in Bank Stock; and
WHEREAS, the Bank recognizes that such Amendments will serve the interests
of the Bank and its shareholders by increasing the opportunity for Bank
personnel to share in the profitability of the Bank as a result of their efforts
and receive greater value from investments of their own contributions.
W I T N E S S E T H:
RESOLVED, pursuant to Section 21 of the Plan, Section 3(a) of the Plan is
deleted in its entirety and is replaced with the following, effective for the
Plan Year beginning January 1, 1993:
(a) All employees currently participating in the Plan will remain as
Participants in the restated Plan. Thereafter, each Employee will
become a Participant on the Entry Date following his initial date of
Service (the date he is first credited with an Hour of Service),
provided that he has attained age eighteen (18) and is credited with
at least 1,000 Hours of Service during an eligibility computation
period. For this purpose, an eligibility computation period shall
first be the period of twelve (12) consecutive months beginning on the
Employee's initial date of service and thereafter shall be the Plan
Year which includes the first anniversary of his initial date of
service in
<PAGE>
which case an Employee be credited with a year of eligibility service
and each computation period that he completes 1,000 Hours of Service.
RESOLVED, pursuant to Section 21 of the Plan, Section 5(b) of the Plan is
hereby amended to add the following language, effective for the Plan Year
beginning January 1, 1991:
Payments of interest on any Acquisition Loan shall be made from a
Participant's Optional Contribution Account to the extent that such account
is sufficient to meet the obligation. Otherwise, to the extent the
Optional Contribution Account is deficient to meet such obligation,
payments of interest shall be made from the Participant's other Employee
Contribution Accounts. Salary Reduction Contributions shall only be
applied to the payment of principal on Acquisition Loans.
RESOLVED, pursuant to Section 21 of the Plan, Section 5(c) of the Plan is
deleted in its entirety and is replaced with the following, effective for the
Plan Year beginning on January 1, 1991:
(c) Salary Reduction Contributions in the Prior Plan Account will not
normally be invested in Bank Stock. However, a Participant may, with
the consent of the Trustee, direct the investment of his Salary
Reduction Account in the Prior Plan Account in one of the following
Investment Funds:
(1) The Equity Fund has a principal investment goal of capital
appreciation primarily through investment in Bank Stock.
(2) A Bond Fund has a principal investment goal of the production of
income through ownership of corporate and governmental debt
instruments.
(3) The Money Market Fund has a principal investment goal of the
preservation of principal and the production of high current
income with liquidity, primarily through government and other
money market fixed income securities.
(4) The Mutual Fund has a principal investment goal of a balanced
mixture of income and capital appreciation through ownership of
interest and regulated investment companies.
Notwithstanding the principal investment goal of each Investment Fund,
the Trustee may make temporary short-term investment of assets in a
Money Market Fund. Investment direction shall normally be made in
twenty-five percent (25%) increments with the exception that any
<PAGE>
percentage up to fifty percent (50%) of such Accounts may be invested
in Bank Stock.
Separate Accounts shall be established to reflect each Participant's
interest under the Plan.
RESOLVED, that the Officers of Coast Commercial Bank are hereby authorized
and directed to do any and all things necessary and appropriate to the Plan and
to carry out the intent of the foregoing resolution.
- - --------------------------------------------------------------------------------
SECRETARY'S ACKNOWLEDGMENT
I, Sandra Anderson, hereby certify that I am the duly appointed and acting
secretary of Coast Commercial Bank and that the above resolutions are a true and
correct copy of resolutions adopted at a meeting of the Board of Directors of
said Bank on August 18, 1993, at which meeting a quorum was at all times present
and acting, and that said resolutions are still in full force and effect.
Dated: August, 1993 /s/Sandra Anderson
-------------- ------------------
Secretary
<PAGE>
COAST COMMERCIAL BANK
RESOLUTIONS RELATING TO AMENDMENT OF
EMPLOYEE STOCK OWNERSHIP PLAN
WITH 401(k) PROVISIONS
AMENDMENT NO. 3
_____________, 1994
- - --------------------------------------------------------------------------------
WHEREAS, Coast Commercial Bank (the "Bank") desires to amend the Coast
Commercial Bank Employee Stock Ownership Plan with 401(k) Provisions (the
"Plan") in order to provide that employment as of the anniversary date (December
31) is required in order to receive any Employer Contributions; and
WHEREAS, the Bank recognizes that such Amendment will serve the interests
of the Bank and its shareholders by increasing the opportunity for Bank
personnel to share in the profitability of the Bank as a result of their efforts
and receive greater value from investments of their own contributions.
W I T N E S S E T H:
RESOLVED, pursuant to Section 21 of the Plan, Section 3(b) of the Plan is
deleted in its entirety and is replaced with the following, effective for the
Plan Year beginning January 1, 1995:
(b) A Participant is generally entitled to share in the allocations of
Employer Contributions and Forfeitures only for a Plan Year in which he is
employed (or on Approved Absence) on the Anniversary Date (December 31). A
Participant shall also share in the allocations of Employer Contributions for
the Plan Year of his retirement, disability or death (as provided in Section
12).
RESOLVED, that the Officers of Coast Commercial Bank are hereby authorized
and directed to do any and all things necessary and appropriate to the Plan and
to carry out the intent of the foregoing resolution.
- - --------------------------------------------------------------------------------
SECRETARY'S ACKNOWLEDGMENT
I, Sandra Anderson, hereby certify that I am the duly appointed and acting
Secretary of Coast Commercial Bank and that the above resolution is a true and
correct copy of the resolution adopted at a meeting of the Board of Directors of
said Bank on August 17, 1994, at which meeting a quorum was at all times present
and acting, and that said resolution is still in full force and effect.
Dated: Sept 19, 1994 /s/ Sandra Anderson
------------- -------------------
Secretary
<PAGE>
AMENDMENT NUMBER 4
TO THE
COAST COMMERCIAL BANK
EMPLOYEE STOCK OWNERSHIP PLAN (WITH 401(K) PROVISIONS)
Coast Commercial Bank, a banking association organized and operated under
the laws of the state of California and a banking association hereby adopts the
following amendment to the Coast Commercial Bank Employee Stock Ownership Plan
(with 401(k) Provisions) ("Plan"):
1. Section 2 of the Plan is hereby amended to add the following
definition:
" IN ADDITION TO OTHER APPLICABLE LIMITATIONS SET FORTH IN THE PLAN, AND
NOTWITHSTANDING ANY OTHER PROVISION OF THE PLAN TO THE CONTRARY, FOR PLAN
YEARS BEGINNING ON OR AFTER JANUARY 1, 1994, THE ANNUAL COMPENSATION AND
ANNUAL ADJUSTED COMPENSATION OF EACH EMPLOYEE TAKEN INTO ACCOUNT UNDER THE
PLAN SHALL NOT EXCEED THE OBRA 93 ANNUAL COMPENSATION LIMIT. THE OBRA 93
ANNUAL COMPENSATION LIMIT IS $150,000, AS ADJUSTED BY THE COMMISSIONER FOR
INCREASES IN THE COST OF LIVING IN ACCORDANCE WITH SECTION 401(A)(17)(B) OF
THE INTERNAL REVENUE CODE. THE COST-OF-LIVING ADJUSTMENT IN EFFECT FOR A
CALENDAR YEAR APPLIES TO ANY PERIOD, NOT EXCEEDING 12 MONTHS, OVER WHICH
COMPENSATION AND ADJUSTED COMPENSATION ARE DETERMINED (DETERMINATION
PERIOD) BEGINNING IN SUCH CALENDAR YEAR. IF A DETERMINATION PERIOD
CONSISTS OF FEWER THAN 12 MONTHS, THE OBRA 93 ANNUAL COMPENSATION LIMIT
WILL BE MULTIPLIED BY A FRACTION, THE NUMERATOR OF WHICH IS THE NUMBER OF
MONTHS IN THE DETERMINATION PERIOD, AND THE DENOMINATOR OF WHICH IS 12.
FOR PLAN YEARS BEGINNING ON OR AFTER JANUARY 1, 1994, ANY REFERENCE IN
THIS PLAN TO THE LIMITATION UNDER SECTION 401(A)(17) OF THE CODE SHALL MEAN
THE OBRA 93 ANNUAL COMPENSATION LIMIT SET FORTH IN THIS PROVISION.
IF COMPENSATION OR ADJUSTED COMPENSATION FOR ANY PRIOR DETERMINATION
PERIOD IS TAKEN INTO ACCOUNT IN DETERMINING AN EMPLOYEE'S BENEFITS ACCRUING
IN THE CURRENT PLAN YEAR, THE COMPENSATION OR ADJUSTED COMPENSATION FOR
THAT PRIOR DETERMINATION PERIOD IS SUBJECT TO THE OBRA 93 ANNUAL
COMPENSATION LIMIT IN EFFECT FOR THAT PRIOR DETERMINATION PERIOD. FOR THIS
PURPOSE, FOR DETERMINATION PERIODS BEGINNING BEFORE THE FIRST DAY OF THE
FIRST PLAN YEAR BEGINNING ON OR AFTER JANUARY 1, 1994, THE OBRA 93 ANNUAL
COMPENSATION LIMIT IS $150,000.."
1
<PAGE>
IN WITNESS WHEREOF, the undersigned, a duly authorized officer Coast
Commercial Bank, hereby adopts this Amendment Number 4 to the Coast Commercial
Bank Employee Stock Ownership Plan (with 401(k) Provisions) on this 21st day of
December, 1994.
COAST COMMERCIAL BANK
By: /s/ Sandra Anderson
-------------------
As Its: Secretary
----------------
2
<PAGE>
COAST COMMERCIAL BANK
RESOLUTIONS RELATING TO AMENDMENT OF
EMPLOYEE STOCK OWNERSHIP PLAN
WITH 401(k) PROVISIONS
AMENDMENT NO. 5
______________, 1995
- - --------------------------------------------------------------------------------
WHEREAS, Coast Commercial Bank (the "Bank") desires to amend the
Coast Commercial Bank Employee Stock Ownership Plan and Trust Agreement
(the "Plan") to reflect the current Trustees and Committee of the Plan.
W I T N E S S E T H:
RESOLVED, that the Plan is amended to reflect the current
Trustees of the Plan to be as follows:
Harvey J. Nickelson
David V. Heald
RESOLVED, that the Plan is amended to reflect the current
Committee members of the Plan to be as follows:
Brenda Pannell
Maria Ruiz-Gonzalez
RESOLVED, that the Officers of the Bank are hereby authorized and
directed to do any and all things necessary and appropriate to carry
out the intent of the foregoing resolution.
- - --------------------------------------------------------------------------------
SECRETARY'S ACKNOWLEDGMENT
I, Sandra Anderson, hereby certify that I am the duly appointed
and acting secretary of Coast Commercial Bank and that the above
resolutions are a true and correct copy of resolutions adopted at a
meeting of the Board of Directors of said Bank on Feb 15, 1995, at
which meeting a quorum was at all times present and acting, and that
said resolutions are still in full force and effect.
2-15-95 /s/ Sandra Anderson
- - ---------- -------------------
Date Secretary
<PAGE>
COAST COMMERCIAL BANK
RESOLUTIONS RELATING TO AMENDMENT OF
EMPLOYEE STOCK OWNERSHIP PLAN
WITH 401(k) PROVISIONS
AMENDMENT NO. 6
______________, 1995
- - --------------------------------------------------------------------------------
WHEREAS, Coast Commercial Bank (the "Bank") desires to amend the
Coast Commercial Bank Employee Stock Ownership Plan and Trust Agreement
(the "Plan") to reflect the current Trustees of the Plan.
W I T N E S S E T H:
RESOLVED, that the Plan is amended to reflect the current
Trustees ofthe Plan to be as follows:
Harvey J. Nickelson
David V. Heald
Bruce H. Kendall
RESOLVED, that the Officers of the Bank are hereby authorized and
directed to do any and all things necessary and appropriate to carry
out the intent of the foregoing resolution.
- - --------------------------------------------------------------------------------
SECRETARY'S ACKNOWLEDGMENT
I, Sandra Anderson, hereby certify that I am the duly appointed
and acting secretary of Coast Commercial Bank and that the above
resolutions are a true and correct copy of resolutions adopted at a
meeting of the Board of Directors of said Bank on March 22, 1995, at
which meeting a quorum was at all times present and acting, and that
said resolutions are still in full force and effect.
March 22, 1995 /s/ Sandra Anderson
- - ------------------ -------------------
Date Secretary
<PAGE>
COAST COMMERCIAL BANK
1995 STOCK OPTION PLAN
INDEX
ARTICLE DESCRIPTION COMMENCING
NO. ON PAGE
1. PURPOSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. ADMINISTRATION. . . . . . . . . . . . . . . . . . . . . . . . . 1
3. PARTICIPANTS. . . . . . . . . . . . . . . . . . . . . . . . . . 3
4. THE SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5. GRANTS, TERMS AND CONDITIONS OF OPTIONS . . . . . . . . . . . . 4
6. ADJUSTMENT OF AND CHANGES IN THE SHARES . . . . . . . . . . . .13
7. LISTING OR QUALIFICATION OF SHARES. . . . . . . . . . . . . . .16
8. AMENDMENT AND TERMINATION OF THE PLAN . . . . . . . . . . . . .17
9. BINDING EFFECT OF CONDITIONS. . . . . . . . . . . . . . . . . .18
10. EFFECTIVENESS OF THE PLAN . . . . . . . . . . . . . . . . . . .18
11. PRIVILEGES OF STOCK OWNERSHIP; SECURITIES LAW
COMPLIANCE; NOTICE OF SALE. . . . . . . . . . . . . . . . . . .19
12. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . .19
13. INFORMATION TO OPTIONEES. . . . . . . . . . . . . . . . . . . .20
i
<PAGE>
COAST COMMERCIAL BANK
1995 STOCK OPTION PLAN
___________ oOo ____________
1. PURPOSE
The purpose of this 1995 Stock Option Plan (the "Plan") of Coast Commercial
Bank and its Affiliates (hereinafter collectively referred to as the "Company"),
is to secure for the Company and its stockholders the benefits of the incentive
inherent in the ownership of Common Stock of Coast Commercial Bank by those key,
full-time employees and officers of the Company who will share responsibility
with management of the Company for its future growth and success. Options may
also be granted to non-employee directors of the Company.
The word "Affiliate", as used in this Plan, means any bank or corporation
in an unbroken chain of banks or corporations beginning or ending with the
Company, if at anytime, each such bank or corporation other than the last in
that chain owns stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one or the other banks or
corporations in the chain.
2. ADMINISTRATION
The following provisions shall govern the administration of the Plan:
(a) The Plan shall be administered by a committee of the Board of
Directors duly appointed by the Board (the
1
<PAGE>
"Committee") composed of two (2) or more directors, each of whom is a
"disinterested person" within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934, as amended (the "1934 Act"), or successor rule or
regulation, i.e. each Committee member has not, during the one year prior to
service as a Committee member, received the grant of an option under the Plan or
any other plan of the Company, except that participation in a formula plan
meeting the conditions of Rule 16b-3 under the 1934 Act shall not disqualify a
director from being a "disinterested person". The Board of Directors may from
time to time remove members from or add members to the Committee. Vacancies on
the Committee, however caused, shall be filled by the Board of Directors. The
Board of Directors shall designate a Chairman of the Committee from among the
Committee members. Acts of the Committee (i) at a meeting, held at a time and
place and in accordance with rules adopted by the Committee, at which a quorum
of the Committee is present and acting, or (ii) reduced to and approved in
writing by a majority of the members of the Committee, shall be the valid acts
of the Committee.
(b) The Company shall effect the grant of options under the Plan by
execution of instruments in writing in a form approved by the Committee.
Subject to the express terms and conditions of the Plan and the terms of any
option outstanding under the Plan, the Committee shall have full
2
<PAGE>
power to construe the Plan and the terms of any option granted under the Plan,
to prescribe, amend and rescind rules and regulations relating to the Plan or
such options and to make all other determinations necessary or advisable for the
Plan's administration, including, without limitation, the power to (i) determine
which persons meet the requirements of Section 3 hereof for selection as
participants in the Plan and which persons are considered to be "employees" for
purposes of the Internal Revenue Code of 1986, as amended (the "Code"), and
therefore eligible to receive incentive stock options under the Plan; (ii)
determine to whom of the eligible persons, if any, options shall be granted
under the Plan; (iii) establish the terms and conditions required or permitted
to be included in every option agreement or any amendments thereto, including
whether options to be granted thereunder shall be "incentive stock options", as
defined in the Code, or "nonstatutory stock options"; (iv) specify the number of
shares to be covered by each option; (v) in the event a particular option is to
be an incentive stock option, determine and incorporate such terms and
provisions, as well as amendments thereto, as shall be required in the judgement
of the Board of Directors or the Committee, so as to provide for or conform such
option to any change in any law, regulation, ruling or interpretation applicable
thereto; and (vi) to make all other determinations deemed necessary or
3
<PAGE>
advisable for administering the Plan. The Committee's determination on the
foregoing matters shall be conclusive.
3. PARTICIPANTS
Participants in the Plan shall be those, non-employee directors, officers
and key, full-time, salaried employees of the Company to whom options may be
granted from time to time by the Committee.
4. THE SHARES
The shares of stock initially subject to options authorized to be granted
under the Plan shall consist of four hundred thousand (400,000) shares of Common
Stock (the "Shares") of the Company, or the number and kind of shares of stock
or other securities which shall be substituted for such shares or to which such
shares shall be adjusted as provided in Section 6. The Shares subject to the
Plan may be set aside out of the authorized but unissued shares of Common Stock
of the Company not reserved for any other purpose or out of shares of Common
Stock subject to an option which, for any reason, terminates unexercised as to
the Shares.
5. GRANTS, TERMS AND CONDITIONS OF OPTIONS
Options may be granted at any time prior to the termination of the Plan to
non-employee directors, officers and other key, full-time, salaried employees of
the Company who, in the judgment of the Committee, contribute to the successful
conduct of the Company's operation through their judgment, interest, ability and
special efforts; provided,
4
<PAGE>
however, that: (i) for incentive stock options, the aggregate fair market value
of the stock (determined as of the date the option is granted) which is
exercisable for the first time in any calendar year (under all stock option
plans of the Company, its Affiliates or any predecessor of any such corporation)
shall not exceed $100,000; (ii) except in the case of termination by death or
disability or cause or cessation of status as a director, as set forth in
Section 5(c) below, the granted option must be exercised by optionee no later
than three (3) months after any termination of employment or status as a
director with the Company and said employment or status as a director must have
been continuous since the granting of the option. Further, incentive stock
options may only be granted to full-time, salaried employees of the Company.
In addition, options granted pursuant to the Plan shall be subject to the
following terms and conditions:
(a) Number of Shares.
(i) Each agreement evidencing an option granted under the Plan shall
state the number of Shares subject to the option.
(ii) Each person who is a non-employee Director of the Company
("Director") on the date of adoption of the Plan by the Board of Directors of
the Company (the "Commencement Date") shall be entitled to a grant of an option
to purchase two thousand (2,000) Shares (an "Initial Grant"). On or
5
<PAGE>
after the Commencement date, options may be granted to Directors (the "Date of
Grant"), which grant shall become effective as of the day following approval of
the Plan by the Shareholders of the Company at the Company's 1995 Annual Meeting
of Shareholders and compliance with applicable securities laws; and which shall
thereafter vest as provided in Section 5(d) hereof.
(iii) on each anniversary date of the Date of Grant (the "Anniversary
Grant Date"), each Director who has been a Director continuously for the
preceding calendar year shall be entitled to a grant of an option to purchase an
additional two thousand (2,000) Shares (an "Annual Grant"). Notwithstanding the
foregoing, the maximum number of Shares for which options may be granted under
the Plan to any Director shall be ten thousand (10,000) Shares.
(iv) In the event a Director who is entitled to an Initial Grant or
Annual Grant on the Date of Grant or Anniversary of Grant Date, respectively,
ceases to be a Director for any reason other than by reason of death of said
Director prior to the Date of Grant or Anniversary Grant Date, such Director
shall not be entitled to receive such Initial Grant or Annual Grant.
(v) In the event of the death, prior to the Date of Grant or
Anniversary Grant Date, of a Director who is entitled to an Initial Grant or
Annual Grant on the Date of Grant or Anniversary Grant Date, respectively, the
personal
6
<PAGE>
representative of said Director shall be entitled to receive the Initial Grant
of Annual Grant to which said Director was entitled on such Date of Grant or
Anniversary Grant Date, but shall not be entitled to receive any further grants
under the Plan.
(vi) No proration of an Annual Grant shall be made to any Director
based on a partial year of service as a Director.
(b) Vesting Period of options. With respect to each option granted
pursuant to Section 5(a) above, each optionee shall agree to remain as a
director and to render his or her services for a period of at least six (6)
months from the respective Date of Grant or Anniversary Grant Date, but such
agreement shall not impose upon the Company any obligation to retain the
optionee as a director for any period. No option may be exercised by any
optionee unless and until the optionee has served continuously as a director,
officer or employee for a period of six (6) months from the date of grant of
such option (the "Vesting Period"), except as set forth in Sections 5(e) and 6
hereof. Upon the expiration of six (6) months from each respective Date of
Grant or Anniversary Grant Date, each option granted pursuant to Section
5(a)(ii) thru (iv) shall become immediately exercisable in full.
(c) Option Price. The purchase price (the "Option Price") under each
option shall be not less than one hundred
7
<PAGE>
percent (100%) of the fair market value of the Shares subject thereto on the
date the option is granted, as such value is determined by the Committee. The
fair market value of such stock shall be determined in accordance with any
reasonable valuation method, including the valuation methods described in
Treasury Regulation Section 20.2031-2. If, however, an employee owns stock of
the Company possessing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company, the option price of any incentive
stock option granted to such optionee shall be not less than one hundred ten
percent (110%) of such fair market value at the time such option is granted.
(d) Duration and Exercise of options. Each option shall vest in such
manner and at such time at the rate of at least 20% per year up to but not
exceeding five (5) years from the date the option is granted for all
Participants as the Committee shall determine in its sole discretion; provided,
however, that the Committee may, in its sole discretion, accelerate the time of
exercise of any option; provided, further, that if an incentive stock option is
granted to an employee owning stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company, such
option by its terms is not exercisable after the expiration of five (5) years
from the date such option is granted. Each option may be exercised for a period
of up to one hundred twenty (120)
8
<PAGE>
months from the date of grant, subject to the vesting provisions set forth
herein and to a determination of the Committee that an option may expire in such
lesser period of time as they may determine in their sole discretion. The
termination of the Plan shall not alter the maximum duration, the vesting
provisions, or any other term or condition of any option granted prior to the
termination of the Plan.
To the extent the right to purchase Shares has vested under a Participant's
stock option agreement, options may be exercised from time to time by delivering
payment in full at the option Price for the number of Shares being purchased by
either: (i) cash, certified check, official bank check or the equivalent thereof
acceptable to the Company; or (ii) shares of the Company's Common Stock with a
fair market value on the date of exercise equal to the Option Price; or (iii) a
combination of (i) and (ii) above; together with written notice to the Secretary
of the Company identifying the option or part thereof being exercised and
specifying the number of Shares for which payment is being tendered. The
Company shall deliver to the Optionee, which delivery shall be not less than
fifteen (15) days and not more than thirty (30) days after the giving of such
notice, without transfer or issue tax to the Optionee (or other person entitled
to exercise the option) at the principal office of the Company, or such other
place as shall be mutually acceptable, a certificate or certificates for such
Shares dated the date
9
<PAGE>
the options were validly exercised; provided, however, that the time of such
delivery may be postponed by the Company for such period as may be required for
it with reasonable diligence to comply with any requirements of law. If an
option covers incentive and non-statutory stock options, separate stock
certificates shall be issued; one or more for stock acquired upon exercise of
the incentive stock options and one or more for the stock acquired upon exercise
of the non-statutory stock options.
(e) Termination of Employment, or Director or Officer Status. Upon the
termination of an Optionee's status as an employee, director or officer of the
Company, his or her rights to exercise an option then held shall be only as
follows:
DEATH OR DISABILITY: If an Optionee's employment or status as an
officer or director is terminated by death or disability, such Optionee or such
Optionee's qualified representative (in the event of the Optionee's mental
disability) or the Optionee's estate (in the event of the Optionee's death)
shall have the right for a period of twelve (12) months following the date of
such death or disability to exercise the option to the extent the Optionee was
entitled to exercise such option on the date of the Optionee's death or
disability, provided the actual date of exercise is in no event after the
expiration of the term of the option.
10
<PAGE>
An Optionee's "estate" shall mean the Optionee's legal representative
or any person who acquires the right to exercise an option by reason of the
Optionee's death.
CAUSE: If an employee or officer is determined by the Board of
Directors to have committed an act of embezzlement, fraud, dishonesty, breach of
fiduciary duty to the Company, or to have deliberately disregarded the rules of
the Company which resulted in loss, damage or injury to the Company, or if an
Optionee (other than a director) makes any unauthorized disclosure of any of the
secrets or confidential information of the Company, induces any client or
customer of the Company to break any contract with the Company or induces any
principal for whom the Company acts as agent to terminate such agency relations,
or engages in any conduct which constitutes unfair competition with the Company,
or if an Optionee is removed from any office of the Company by any bank
regulatory agency or by judicial process, the Optionee or the Optionee's estate
shall be entitled to exercise any option with respect to any Shares for a period
of thirty (30) days after termination of employment or status as a director or
officer. The Optionee may receive payment from the Company for vacation pay,
for services rendered prior to termination, for services for the day on which
termination occurred, for salary in lieu of notice, or for other benefits. In
making such determination, the Board of Directors shall act fairly and shall
give the Optionee an
11
<PAGE>
opportunity to appear and be heard at a hearing before the full Board of
Directors and present evidence on the Optionee's behalf. For the purpose of
this paragraph, termination of employment or officer status shall be deemed to
occur when the Company dispatches notice or advice to the Optionee that the
Optionee's employment or status as an officer is terminated and not at the time
of Optionee's receipt thereof.
OTHER REASONS: If an Optionee's employment or status as a director or
officer is terminated for any other reason other than those mentioned above
under "Death or Disability" and "Cause", the Optionee may, within three (3)
months following such termination, exercise the option to the extent such option
was exercisable by the Optionee on the date of termination of the Optionee's
employment or status as a director or officer, provided the date of exercise is
in no event after the expiration of the term of the option.
(f) Transferability of option. Each option shall be transferable only by
will or the laws of descent and distribution or pursuant to a qualified domestic
relations order as defined by the Code and shall be exercisable during the
Optionee's lifetime only by the Optionee.
(g) Other Terms and Conditions. Options may also contain such other
provisions, which shall not be inconsistent with any of the foregoing terms, as
the Committee shall deem appropriate. No option, however, nor
12
<PAGE>
anything contained in the Plan, shall confer upon any Optionee any right to
continue in the employ or in the status as an officer of the Company, nor limit
in any way the right of the Company to terminate an Optionee's employment or
status as an officer at any time.
Nor shall any option, nor anything contained in the Plan, obligate the
Company or any Affiliate to continue any Optionee's status as a director or to
vote any shares held by the Company's proxy holders in favor of any Optionee at
any shareholders, meeting of the Company at which directors are to be elected.
(h) Use of Proceeds from Stock. Proceeds from the sale of Shares pursuant
to the exercise of options granted under the Plan shall constitute general funds
of the Company.
(i) Rights as a Shareholder. The Optionee shall have no rights as a
shareholder with respect to any Shares until the date of issuance of a stock
certificate for such Shares. No adjustment shall be made for dividends or other
rights for which the record date is prior to the date of such issuance, except
as provided in Section 6 hereof.
(j) Exercisability of Incentive Stock Options. The aggregate fair market
value (determined at the time the option is granted) of the stock with respect
to which incentive stock options are exercisable for the first time by an
optionee during any calendar year (under all such plans of the Company) shall
not exceed $100,000. Any option not
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<PAGE>
complying with this Section 5(j) shall be a non-qualified stock option.
(k) Tax Withholding. The Company may determine that is required to
withhold taxes relating to the exercise of any option and that such tax
withholding shall be satisfied in a manner satisfactory to the Company before
Shares pursuant to the exercise of an option are delivered to an Optionee. The
Optionee may elect to pay such tax upon the exercise of a stock option by
surrendering a sufficient number of previously issued shares. The value of
Shares surrendered shall be the fair market value of such Shares on the date the
exercise becomes taxable. The election to withhold shares otherwise deliverable
upon exercise of the option, or to surrender previously issued shares, shall be
subject to the approval of the Committee and must be made pursuant to rules
established by the Committee.
6. ADJUSTMENT OF AND CHANGES IN THE SHARES
In the event the shares of Common Stock of the Company, as presently
constituted, shall be changed into or exchanged for a different number or kind
of shares of stock or other securities of the Company or of another corporation
(whether by reason of reorganization, merger, consolidation, recapitalization,
reclassification, split-up, combination of shares or otherwise), or if the
number of shares of Common Stock of the Company shall be increased through the
payment of a stock dividend or increased or decreased through a stock
14
<PAGE>
split, the Board of Directors shall substitute for or add to each share of
Common Stock of the Company theretofore appropriated or thereafter subject or
which may become subject to an option under the Plan, the number and kind of
shares of stock or other securities into which each outstanding share of Common
Stock of the Company shall be so changed, or for which each share shall be
exchanged, or to which each such share shall be entitled, as the case may be.
In addition, the Committee shall make appropriate adjustment in the number and
kind of shares as to which outstanding options, or portions thereof then
unexercised, shall be exercisable so that any Optionee's proportionate interest
in the Company by reason of his rights under unexercised portions of such
options shall be maintained as before the occurrence of such event. Such
adjustment in outstanding options shall be made without change in the total
price of the unexercised portion of the option and with a corresponding
adjustment in the option price per share.
In the event of sale, dissolution or liquidation of the Company or a merger
or consolidation in which the Company is not the surviving or resulting
corporation, the Committee shall have the power to cause the termination of
every option outstanding hereunder, except that the surviving or resulting
corporation may, in its absolute and uncontrolled discretion, tender an option
or options to purchase its shares on its terms and conditions, both as to the
number of shares and
15
<PAGE>
otherwise; provided, however, that in all events the Optionee shall have the
right immediately prior to such sale, dissolution, liquidation, or merger or
consolidation in which the Company is not the surviving or resulting corporation
to notification thereof as soon as practicable and, thereafter, to exercise the
Optionee's option to purchase Shares subject thereto to the extent of any
unexercised portion of the option, regardless of the vesting provision of
Section 5(b) hereof. This right of exercise shall be conditioned upon the
execution of a final plan of dissolution or liquidation or a definitive
agreement of merger or consolidation.
In the event of an offer by any person or entity to all shareholders of the
Company to purchase any or all shares of Common Stock of the Company (or shares
of stock or other securities which shall be substituted for such shares or to
which such shares shall be adjusted as provided in Section 6 hereof), any
Optionee under this Plan shall have the right upon the commencement of such
offer to exercise the option and purchase shares subject thereto subject to the
vesting provisions of Section 5(b) and (d) hereof.
No right to purchase fractional shares shall result from any adjustment in
options pursuant to this Section 6. In case of any such adjustment, the shares
subject to the option shall be rounded down to the nearest whole share. Notice
of any adjustment shall be given by the Company to each holder of an option
which was in fact so adjusted and such
16
<PAGE>
adjustment (whether or not such notice is given) shall be effective and binding
for all purposes of the Plan.
To the extent the foregoing adjustments relate to stock or securities of
the Company, such adjustments shall be made by the Committee, whose
determination in that respect shall be final, binding and conclusive. Any issue
by the Company of shares of stock of any class, or securities convertible into
shares of any class, shall not affect the number or price of shares of Common
Stock subject to the option, and no adjustment by reason thereof shall be made.
The grant of an option pursuant to the Plan shall not affect in any way the
right or power of the Company to make adjustments, reclassification,
reorganizations or changes of its capital or business structure or to merge or
to consolidate or to dissolve, liquidate or sell, or transfer all or any part of
its business or assets.
7. LISTING OR QUALIFICATION OF SHARES
All options granted under the Plan are subject to the requirement that if
at any time the Board of Directors or the Committee shall determine in its
discretion that the listing or qualification of the Shares subject thereto on
any securities exchange or under any applicable law, or the consent or approval
of any governmental regulatory body, is necessary or desirable as a condition of
or in connection with the issuance of Shares under the option, the option may
not be exercised in whole or in part unless such listing,
17
<PAGE>
qualification, consent or approval shall have been effected or obtained free of
any condition not acceptable to the Board of Directors or the Committee.
8. AMENDMENT AND TERMINATION OF THE PLAN
The Board of Directors shall have complete power and authority to terminate
or amend the Plan; provided, however, that the Board of Directors shall not,
without the approval of the shareholders of the Company, (i) materially increase
the benefits accruing to Participants under the Plan; (ii) increase the number
of securities which may be issued under the Plan; or (iii) modify the
requirements as to eligibility for participation in the Plan; and provided
further that the terms set forth in Section 5 of the Plan shall not be amended
more than once every six months, other than to comport with changes in the
Internal Revenue Code, the Employee Retirement Income Security Act, or the rules
thereunder. Except as provided in Section 6, no termination, modification or
amendment of the Plan may, without the consent of an employee, director or
officer to whom such option shall theretofore have been granted, adversely
affect the rights of such employee, director or officer under such option.
Unless the Plan shall have been terminated by action of the Board of Directors
prior thereto, it shall terminate ten (10) years from the earlier of its
adoption by the Board of Directors or approval by the Company's shareholders,
unless earlier terminated by the Board of Directors.
18
<PAGE>
Unless the Plan shall have been terminated by action of the Board of
Directors prior thereto, the Plan shall terminate on ______, 2005 (ten years
from its adoption).
9. BINDING EFFECT OF CONDITIONS
The conditions and stipulations herein contained, or in any option granted
pursuant to the Plan shall be, and constitute, a covenant running with all of
the Shares acquired by the optionee pursuant to this Plan, directly or
indirectly, whether the same have been issued or not, and those Shares owned by
the optionee shall not be sold, assigned or transferred by any person save and
except in accordance with the terms and conditions herein provided, and the
optionee shall agree to use best efforts to cause the officers of the Company to
refuse to record on the books of the Company any assignment or transfer made or
attempted to be made except as provided in the Plan and to cause said officers
to refuse to cancel old certificates or to issue or deliver new certificates
therefor where the purchaser or assignee has acquired certificates or the Shares
represented thereby, except strictly in accordance with the provisions of the
Plan.
10. EFFECTIVENESS OF THE PLAN
The Plan shall become effective only upon approval by the Board of
Directors. The grant of any options pursuant to the Plan shall be conditioned
upon the registration of the
19
<PAGE>
Shares with the Securities and Exchange Commission and Qualification of the
offer and sale of the Shares pursuant to the Plan with the Commissioner of
Corporations of the State of California, unless in the opinion of counsel to the
Company such registration or qualification is not necessary.
11. PRIVILEGES OF STOCK OWNERSHIP; SECURITIES LAW COMPLIANCE;
NOTICE OF SALE
-------------------------------------------------------------------------
No optionee shall be entitled to the privileges of stock ownership as to
any Shares not actually issued and delivered to the optionee. No Shares shall
be purchased upon the exercise of any option unless and until any applicable
requirements of any regulatory agencies having jurisdiction, and of any
exchanges upon which the Common Stock of the Company may be listed, shall have
been satisfied. The Company shall diligently endeavor to comply with all
applicable securities laws before any options are granted under the Plan and
before any Shares are issued pursuant to the exercise of such options. The
optionee shall give the Company notice of any sale or other disposition of any
such Shares not more than five (5) days after such sale or other disposition.
12. INDEMNIFICATION
The Company shall indemnify its "agents", as defined in Section 317 of the
California Corporations Code, to the full extent permitted by Section 317, as
amended from time to
20
<PAGE>
time, or as permitted by any successor statute to Section 317, and by the
Company's Articles of Incorporation.
21
<PAGE>
13. INFORMATION TO OPTIONEES
The Company shall provide to each optionee during the period for which he
or she has one or more options outstanding, copies of all annual reports and
other information which are provided to all shareholders of the Company. The
Company shall not be required to provide such information to directors or key
employees whose duties in connection with the Company assure their access to
equivalent information.
Adopted: ______, 1995.
22
<PAGE>
DEFERRED COMPENSATION AGREEMENT
COAST COMMERCIAL BANK
This Agreement is entered into this Second day of November 1992 between Coast
Commercial, a state bank organized under the laws of the State of California
("Bank") and Richard Alderson, a Director of the Bank.
WHEREAS, the Director has contributed to the success and profitability of the
Bank and the Bank wishes to provide additional incentive for the Director to
continue such contribution; and
WHEREAS, the Bank and the Director desire to set forth their agreement as to
deferring a portion of Director's compensation as a deferred compensation plan
and to provide Director certain additional benefits in the case of Director's
death while serving as a Director of the Bank,
NOW THEREFORE, in consideration of the mutual agreements contained herein, Bank
and Director agree as follows:
1. Director will agree to a reduction of the current payment of compensation by
$10,800.00 annually, or such other amount as shall be elected by Director in a
signed writing delivered to the Bank prior to January 1 of the year to which the
election applies, and to defer receipt of such amount until paid to him pursuant
to later provisions of this Agreement.
Compensation reductions under this Agreement shall cease at the end of the month
in which Director attains age sixty-five (65) even if Director is still serving
as a Director at that time.
2. The Bank will record amounts deferred pursuant to Section 1 in a separate
account ("Account") on the books by the Bank.
3. (a) Until all amounts held in the Account are fully paid out pursuant to
later provisions of this Agreement, the Bank will credit interest to the Account
at a rate, except as set forth in section 3(b), determined by a resolution of
the Board of Directors not less than annually.
The amount at which interest is credited to the Account effective October 1,
1992, is 7%.
Interest on amounts held in the Account will be compounded daily compatible with
the Bank's formula for interest calculation.
4. The Account will be segregated from other assets owned by the Bank only by
way of its identification on the books and records of the Bank as a liability of
the Bank to Director, and will be subject to the claims of general creditors of
the Bank.
5. Amounts held in the Account will be payable to Director or his beneficiary
upon the first to occur of the following events:
(i) Termination of Director service as a Director of the Bank; or
(ii) Attainment of age sixty-five (65); or
(iii) Termination of this Agreement pursuant to section 16.
<PAGE>
6. Upon the occurrence of an event described in section 5 the Bank will pay to
Director or his beneficiary pursuant to section 7 amounts held in the Account.
However, if Employee dies prior to termination of his service with the Bank and
prior to attainment of age sixty-five (65), then, if Director's Projected
Benefit exceeds the amount held in the Account, the amount payable to Director's
beneficiary shall be the Projected Benefit.
Projected Benefit means the amount that would have been deemed credited to the
Account as of the first day of the month during which Director would have
attained age sixty-five (65). The Projected Benefit shall be determined solely
by the Bank which may from time to time modify the Projected Benefit. The
initial Projected Benefit is $20,914.00.
CLAIMS AND REVIEW PROCEDURES
6.1 Claims Procedure. The Company shall notify the Executive's beneficiary in
writing, within ninety (90) days of his or her written application for benefits,
of his or her eligibility or noneligibility for benefits under the Agreement.
If the Company determines that the beneficiary is not eligible for benefits or
full benefits, the notice shall set forth (1) the specific reasons for such
denial, (2) a specific reference to the provisions of the Agreement on which the
denial is based, (3) a description of any additional information or material
necessary for the claimant to perfect his or her claim, and a description of why
it is needed, and (4) an explanation of the Agreement's claims review procedure
and other appropriate information as to the steps to be taken if the beneficiary
wishes to have the claim reviewed. If the Company determines that there are
special circumstances requiring additional time to make a decision, the Company
shall notify the beneficiary of the special circumstances and the date by which
a decision is expected to be made, and may extend the time for up to an
additional ninety-day period.
6.2 Review Procedure. If the beneficiary is determined by the Company not to
be eligible for benefits, or if the beneficiary believes that he or she is
entitled to greater or different benefits, the beneficiary shall have the
opportunity to have such claim reviewed by the Company by filing a petition for
review with the Company within sixty (60) days after receipt of the notice
issued by the Company. Said petition shall state the specific reasons which the
beneficiary believes entitle him or her to benefits or to greater or different
benefits. Within sixty (60) days after receipt by the Company of the petition,
the Company shall afford the beneficiary (and counsel, if any) an opportunity to
present his or her position to the Company orally or in writing, and the
beneficiary (or counsel) shall have the right to review the pertinent documents.
The Company shall notify the beneficiary of its decision in writing within the
sixty-day period, stating specifically the basis of its decision, written in a
manner calculated to be understood by the beneficiary and the specific
provisions of the Agreement on which the decision is based. If, because of the
need for a hearing, the sixty-day period is not sufficient, the decision may be
deferred for up to another sixty-day period at the election of the Company, but
notice of this deferral shall be given to the beneficiary.
7.(a) Amounts payable to Director upon the occurrence of an event described in
section 5 shall be paid promptly to Director or his beneficiary in one oft the
following methods, as elected by Director in a signed writing delivered to the
Bank prior to the occurrence of the event:
(i) In a lump sum; or
<PAGE>
(ii) In substantially equal monthly, quarterly or annual installments
over a five (5) year period; or
(iii) In substantially equal monthly, quarterly or annual installments
over a ten (10) year period.
(iv) In substantially equal monthly, quarterly or annual installments
over a fifteen (15) year period.
7.(b) If Director has not elected a method of payment in the manner set forth
in the preceding section 7(a) prior to the occurrence of an event described in
section 5, then the Bank, in its sole discretion, will select the method of
payment from among those set forth in section 7(a).
7.(c) If Director's service with the Bank is terminated prior to attaining age
sixty-five (65) due to disability or retirement, Director may request the Bank,
in a signed writing delivered to the Bank prior to Director's termination, not
to pay any amounts otherwise payable to Director until Director attains age
sixty-five (65) or Director dies prior to attaining age sixty-five (65). The
Bank, in its sole discretion shall elect whether or not to grant such a request.
8. After attaining age sixty (60) or five (5) years of service with the Bank,
Director may request in a signed writing delivered to the Bank, that the Bank
pay a hardship distribution to Director from amounts held in the Account.
Hardship means an unforeseen event or situation that creates an extraordinary
financial need that cannot reasonably be met by other resources of the Director.
The Bank shall elect in its sole discretion whether or not to grant such
request.
9. Amounts paid to Director or his beneficiary pursuant to this Agreement will
be subject to taxes and charges to the extent required by law.
10. Any amount payable to Director's beneficiary pursuant to this Agreement
will be paid to the beneficiary designated by Director in a signed writing
delivered to the Bank. Director has the right to change his beneficiary
designation by delivering to the Bank a subsequent signed writing. If Director
does not designate a beneficiary in the manner described in this section, or if
the designated beneficiary has predeceased Director, then amounts payable
hereunder will be payable first to Director's surviving spouse. If Director has
no surviving spouse, amounts will then be payable to Director's estate.
No one other than the Director shall have any right to designate a beneficiary.
11. The Bank will acquire an insurance policy on the life of Director. The
Bank will be the owner and beneficiary of the policy. Director will have no
interest in or right to the policy.
12. Director hereby agrees that he has answered, or will answer, truthfully and
completely, any question or request for information in connection with the
issuance of any insurance policy on his life for the purpose of assisting the
Bank in meeting its obligations under this Agreement. If the issuing life
insurance company refuses to pay a claim as a result of a material
misrepresentation or other act by Director, no amounts shall be payable under
this Agreement.
<PAGE>
13. The right to receive payments under this Agreement shall not be assigned or
encumbered, or subject to anticipation, garnishment, attachment, or any other
legal process of creditors of Director or any designated beneficiary. If
Director or a designated beneficiary attempts to assign such right the Bank, in
its sole discretion, may suspend, reduce or terminate any or all rights created
by this Agreement as to Director or the designated beneficiary attempting said
assignment.
14. Director status as a member of the Board of Directors of the Bank shall be
subject to termination at any time and to the same extent as if this Agreement
had not been executed.
The Bank does not assure or guarantee the tax consequences of payments provided
hereunder or matters beyond its control, and Director certifies that his
decision to reduce and defer receipt of compensation is not due to any reliance
upon financial, tax or legal advice given by the Bank or any of its employees.
15. This Agreement may be amended at any time by the Bank in writing. However,
no amendment may be made which will reduce amounts payable to Director or his
designated beneficiary without such person's written consent.
16. This Agreement may be terminated by the Bank upon 180 days advance written
notice to Director.
17. This Agreement constitutes the entire agreement between the Bank and
Director as to the subject matter hereof. No rights are granted to Director by
virtue of this Agreement other than those specifically set forth herein.
This Agreement shall be binding upon Director and the Bank, the successors and
assigns of the Bank, and the beneficiaries, heirs and legal representatives of
Director.
18. This Agreement shall be interpreted according to the laws of the State of
California.
IN WITNESS WHEREOF, the parties hereof have entered into this Agreement as of
the date first above written.
BANK DIRECTOR
By /s/ /s/
----------------------------------- ------------------------------------
Its Corporate Secretary
<PAGE>
DEFERRED COMPENSATION AGREEMENT
COAST COMMERCIAL BANK
This Agreement is entered into this Second day of November 1992 between Coast
Commercial, a state bank organized under the laws of the State of California
("Bank") and Douglas Austin, a Director of the Bank.
WHEREAS, the Director has contributed to the success and profitability of the
Bank and the Bank wishes to provide additional incentive for the Director to
continue such contribution; and
WHEREAS, the Bank and the Director desire to set forth their agreement as to
deferring a portion of Director's compensation as a deferred compensation plan
and to provide Director certain additional benefits in the case of Director's
death while serving as a Director of the Bank,
NOW THEREFORE, in consideration of the mutual agreements contained herein, Bank
and Director agree as follows:
1. Director will agree to a reduction of the current payment of compensation by
$12,000.00 annually, or such other amount as shall be elected by Director in a
signed writing delivered to the Bank prior to January 1 of the year to which the
election applies, and to defer receipt of such amount until paid to him pursuant
to later provisions of this Agreement.
Compensation reductions under this Agreement shall cease at the end of the month
in which Director attains age sixty-five (65) even if Director is still serving
as a Director at that time.
2. The Bank will record amounts deferred pursuant to Section 1 in a separate
account ("Account") on the books by the Bank.
3. (a) Until all amounts held in the Account are fully paid out pursuant to
later provisions of this Agreement, the Bank will credit interest to the Account
at a rate, except as set forth in section 3(b), determined by a resolution of
the Board of Directors not less than annually.
The amount at which interest is credited to the Account effective October 1,
1992, is 7%.
Interest on amounts held in the Account will be compounded daily compatible with
the Bank's formula for interest calculation.
4. The Account will be segregated from other assets owned by the Bank only by
way of its identification on the books and records of the Bank as a liability of
the Bank to Director, and will be subject to the claims of general creditors of
the Bank.
5. Amounts held in the Account will be payable to Director or his beneficiary
upon the first to occur of the following events:
(I) Termination of Director service as a Director of the Bank; or
(ii) Attainment of age sixty-five (65); or
(iii) Termination of this Agreement pursuant to section 16.
<PAGE>
6. Upon the occurrence of an event described in section 5 the Bank will pay to
Director or his beneficiary pursuant to section 7 amounts held in the Account.
However, if Employee dies prior to termination of his service with the Bank and
prior to attainment of age sixty-five (65), then, if Director's Projected
Benefit exceeds the amount held in the Account, the amount payable to Director's
beneficiary shall be the Projected Benefit.
Projected Benefit means the amount that would have been deemed credited to the
Account as of the first day of the month during which Director would have
attained age sixty-five (65). The Projected Benefit shall be determined solely
by the Bank which may from time to time modify the Projected Benefit. The
initial Projected Benefit is $42,125.00 for 10 years.
CLAIMS AND REVIEW PROCEDURES
6.1 Claims Procedure. The Company shall notify the Executive's beneficiary in
writing, within ninety (90) days of his or her written application for benefits,
of his or her eligibility or noneligibility for benefits under the Agreement.
If the Company determines that the beneficiary is not eligible for benefits or
full benefits, the notice shall set forth (1) the specific reasons for such
denial, (2) a specific reference to the provisions of the Agreement on which the
denial is based, (3) a description of any additional information or material
necessary for the claimant to perfect his or her claim, and a description of why
it is needed, and (4) an explanation of the Agreement's claims review procedure
and other appropriate information as to the steps to be taken if the beneficiary
wishes to have the claim reviewed. If the Company determines that there are
special circumstances requiring additional time to make a decision, the Company
shall notify the beneficiary of the special circumstances and the date by which
a decision is expected to be made, and may extend the time for up to an
additional ninety-day period.
6.2 Review Procedure. If the beneficiary is determined by the Company not to
be eligible for benefits, or if the beneficiary believes that he or she is
entitled to greater or different benefits, the beneficiary shall have the
opportunity to have such claim reviewed by the Company by filing a petition for
review with the Company within sixty (60) days after receipt of the notice
issued by the Company. Said petition shall state the specific reasons which the
beneficiary believes entitle him or her to benefits or to greater or different
benefits. Within sixty (60) days after receipt by the Company of the petition,
the Company shall afford the beneficiary (and counsel, if any) an opportunity to
present his or her position to the Company orally or in writing, and the
beneficiary (or counsel) shall have the right to review the pertinent documents.
The Company shall notify the beneficiary of its decision in writing within the
sixty-day period, stating specifically the basis of its decision, written in a
manner calculated to be understood by the beneficiary and the specific
provisions of the Agreement on which the decision is based. If, because of the
need for a hearing, the sixty-day period is not sufficient, the decision may be
deferred for up to another sixty-day period at the election of the Company, but
notice of this deferral shall be given to the beneficiary.
7.(a) Amounts payable to Director upon the occurrence of an event described in
section 5 shall be paid promptly to Director or his beneficiary in one oft the
following methods, as elected by Director in a signed writing delivered to the
Bank prior to the occurrence of the event:
(i) In a lump sum; or
<PAGE>
(ii) In substantially equal monthly, quarterly or annual installments
over a five (5) year period; or
(iii) In substantially equal monthly, quarterly or annual installments
over a ten (10) year period.
(iv) In substantially equal monthly, quarterly or annual installments
over a fifteen (15) year period.
7.(b) If Director has not elected a method of payment in the manner set forth
in the preceding section 7(a) prior to the occurrence of an event described in
section 5, then the Bank, in its sole discretion, will select the method of
payment from among those set forth in section 7(a).
7.(c) If Director's service with the Bank is terminated prior to attaining age
sixty-five (65) due to disability or retirement, Director may request the Bank,
in a signed writing delivered to the Bank prior to Director's termination, not
to pay any amounts otherwise payable to Director until Director attains age
sixty-five (65) or Director dies prior to attaining age sixty-five (65). The
Bank, in its sole discretion shall elect whether or not to grant such a request.
8. After attaining age sixty (60) or five (5) years of service with the Bank,
Director may request in a signed writing delivered to the Bank, that the Bank
pay a hardship distribution to Director from amounts held in the Account.
Hardship means an unforeseen event or situation that creates an extraordinary
financial need that cannot reasonably be met by other resources of the Director.
The Bank shall elect in its sole discretion whether or not to grant such
request.
9. Amounts paid to Director or his beneficiary pursuant to this Agreement will
be subject to taxes and charges to the extent required by law.
10. Any amount payable to Director's beneficiary pursuant to this Agreement
will be paid to the beneficiary designated by Director in a signed writing
delivered to the Bank. Director has the right to change his beneficiary
designation by delivering to the Bank a subsequent signed writing. If Director
does not designate a beneficiary in the manner described in this section, or if
the designated beneficiary has predeceased Director, then amounts payable
hereunder will be payable first to Director's surviving spouse. If Director has
no surviving spouse, amounts will then be payable to Director's estate.
No one other than the Director shall have any right to designate a beneficiary.
11. The Bank will acquire an insurance policy on the life of Director. The
Bank will be the owner and beneficiary of the policy. Director will have no
interest in or right to the policy.
12. Director hereby agrees that he has answered, or will answer, truthfully and
completely, any question or request for information in connection with the
issuance of any insurance policy on his life for the purpose of assisting the
Bank in meeting its obligations under this Agreement. If the issuing life
insurance company refuses to pay a claim as a result of a material
misrepresentation or other act by Director, no amounts shall be payable under
this Agreement.
<PAGE>
13. The right to receive payments under this Agreement shall not be assigned or
encumbered, or subject to anticipation, garnishment, attachment, or any other
legal process of creditors of Director or any designated beneficiary. If
Director or a designated beneficiary attempts to assign such right the Bank, in
its sole discretion, may suspend, reduce or terminate any or all rights created
by this Agreement as to Director or the designated beneficiary attempting said
assignment.
14. Director status as a member of the Board of Directors of the Bank shall be
subject to termination at any time and to the same extent as if this Agreement
had not been executed.
The Bank does not assure or guarantee the tax consequences of payments provided
hereunder or matters beyond its control, and Director certifies that his
decision to reduce and defer receipt of compensation is not due to any reliance
upon financial, tax or legal advice given by the Bank or any of its employees.
15. This Agreement may be amended at any time by the Bank in writing. However,
no amendment may be made which will reduce amounts payable to Director or his
designated beneficiary without such person's written consent.
16. This Agreement may be terminated by the Bank upon 180 days advance written
notice to Director.
17. This Agreement constitutes the entire agreement between the Bank and
Director as to the subject matter hereof. No rights are granted to Director by
virtue of this Agreement other than those specifically set forth herein.
This Agreement shall be binding upon Director and the Bank, the successors and
assigns of the Bank, and the beneficiaries, heirs and legal representatives of
Director.
18. This Agreement shall be interpreted according to the laws of the State of
California.
IN WITNESS WHEREOF, the parties hereof have entered into this Agreement as of
the date first above written.
BANK DIRECTOR
By /s/ /s/
----------------------------------- ------------------------------------
Its Corporate Secretary
<PAGE>
DEFERRED COMPENSATION AGREEMENT
COAST COMMERCIAL BANK
This Agreement is entered into this Second day of November 1992 between Coast
Commercial, a state bank organized under the laws of the State of California
("Bank") and BUD W. CUMMINGS, a Director of the Bank.
WHEREAS, the Director has contributed to the success and profitability of the
Bank and the Bank wishes to provide additional incentive for the Director to
continue such contribution; and
WHEREAS, the Bank and the Director desire to set forth their agreement as to
deferring a portion of Director's compensation as a deferred compensation plan
and to provide Director certain additional benefits in the case of Director's
death while serving as a Director of the Bank,
NOW THEREFORE, in consideration of the mutual agreements contained herein, Bank
and Director agree as follows:
1. Director will agree to a reduction of the current payment of compensation by
$4,800.00 annually, or such other amount as shall be elected by Director in a
signed writing delivered to the Bank prior to January 1 of the year to which the
election applies, and to defer receipt of such amount until paid to him pursuant
to later provisions of this Agreement.
Compensation reductions under this Agreement shall cease at the end of the month
in which Director attains age sixty-five (65) even if Director is still serving
as a Director at that time.
2. The Bank will record amounts deferred pursuant to Section 1 in a separate
account ("Account") on the books by the Bank.
3. (a) Until all amounts held in the Account are fully paid out pursuant to
later provisions of this Agreement, the Bank will credit interest to the Account
at a rate, except as set forth in section 3(b), determined by a resolution of
the Board of Directors not less than annually.
The amount at which interest is credited to the Account effective October 1,
1992, is 7%.
Interest on amounts held in the Account will be compounded daily compatible with
the Bank's formula for interest calculation.
4. The Account will be segregated from other assets owned by the Bank only by
way of its identification on the books and records of the Bank as a liability of
the Bank to Director, and will be subject to the claims of general creditors of
the Bank.
5. Amounts held in the Account will be payable to Director or his beneficiary
upon the first to occur of the following events:
(I) Termination of Director service as a Director of the Bank; or
(ii) Attainment of age sixty-five (65); or
(iii) Termination of this Agreement pursuant to section 16.
<PAGE>
6. Upon the occurrence of an event described in section 5 the Bank will pay to
Director or his beneficiary pursuant to section 7 amounts held in the Account.
However, if Employee dies prior to termination of his service with the Bank and
prior to attainment of age sixty-five (65), then, if Director's Projected
Benefit exceeds the amount held in the Account, the amount payable to Director's
beneficiary shall be the Projected Benefit.
Projected Benefit means the amount that would have been deemed credited to the
Account as of the first day of the month during which Director would have
attained age sixty-five (65). The Projected Benefit shall be determined solely
by the Bank which may from time to time modify the Projected Benefit. The
initial Projected Benefit is $11,858.00 FOR 8 YEARS.
CLAIMS AND REVIEW PROCEDURES
6.1 Claims Procedure. The Company shall notify the Executive's beneficiary in
writing, within ninety (90) days of his or her written application for benefits,
of his or her eligibility or noneligibility for benefits under the Agreement.
If the Company determines that the beneficiary is not eligible for benefits or
full benefits, the notice shall set forth (1) the specific reasons for such
denial, (2) a specific reference to the provisions of the Agreement on which the
denial is based, (3) a description of any additional information or material
necessary for the claimant to perfect his or her claim, and a description of why
it is needed, and (4) an explanation of the Agreement's claims review procedure
and other appropriate information as to the steps to be taken if the beneficiary
wishes to have the claim reviewed. If the Company determines that there are
special circumstances requiring additional time to make a decision, the Company
shall notify the beneficiary of the special circumstances and the date by which
a decision is expected to be made, and may extend the time for up to an
additional ninety-day period.
6.2 Review Procedure. If the beneficiary is determined by the Company not to
be eligible for benefits, or if the beneficiary believes that he or she is
entitled to greater or different benefits, the beneficiary shall have the
opportunity to have such claim reviewed by the Company by filing a petition for
review with the Company within sixty (60) days after receipt of the notice
issued by the Company. Said petition shall state the specific reasons which the
beneficiary believes entitle him or her to benefits or to greater or different
benefits. Within sixty (60) days after receipt by the Company of the petition,
the Company shall afford the beneficiary (and counsel, if any) an opportunity to
present his or her position to the Company orally or in writing, and the
beneficiary (or counsel) shall have the right to review the pertinent documents.
The Company shall notify the beneficiary of its decision in writing within the
sixty-day period, stating specifically the basis of its decision, written in a
manner calculated to be understood by the beneficiary and the specific
provisions of the Agreement on which the decision is based. If, because of the
need for a hearing, the sixty-day period is not sufficient, the decision may be
deferred for up to another sixty-day period at the election of the Company, but
notice of this deferral shall be given to the beneficiary.
7.(a) Amounts payable to Director upon the occurrence of an event described in
section 5 shall be paid promptly to Director or his beneficiary in one oft the
following methods, as elected by Director in a signed writing delivered to the
Bank prior to the occurrence of the event:
(i) In a lump sum; or
<PAGE>
(ii) In substantially equal monthly, quarterly or annual installments
over a five (5) year period; or
(iii) In substantially equal monthly, quarterly or annual installments
over a ten (10) year period.
(iv) In substantially equal monthly, quarterly or annual installments
over a fifteen (15) year period.
7.(b) If Director has not elected a method of payment in the manner set forth
in the preceding section 7(a) prior to the occurrence of an event described in
section 5, then the Bank, in its sole discretion, will select the method of
payment from among those set forth in section 7(a).
7.(c) If Director's service with the Bank is terminated prior to attaining age
sixty-five (65) due to disability or retirement, Director may request the Bank,
in a signed writing delivered to the Bank prior to Director's termination, not
to pay any amounts otherwise payable to Director until Director attains age
sixty-five (65) or Director dies prior to attaining age sixty-five (65). The
Bank, in its sole discretion shall elect whether or not to grant such a request.
8. After attaining age sixty (60) or five (5) years of service with the Bank,
Director may request in a signed writing delivered to the Bank, that the Bank
pay a hardship distribution to Director from amounts held in the Account.
Hardship means an unforeseen event or situation that creates an extraordinary
financial need that cannot reasonably be met by other resources of the Director.
The Bank shall elect in its sole discretion whether or not to grant such
request.
9. Amounts paid to Director or his beneficiary pursuant to this Agreement will
be subject to taxes and charges to the extent required by law.
10. Any amount payable to Director's beneficiary pursuant to this Agreement
will be paid to the beneficiary designated by Director in a signed writing
delivered to the Bank. Director has the right to change his beneficiary
designation by delivering to the Bank a subsequent signed writing. If Director
does not designate a beneficiary in the manner described in this section, or if
the designated beneficiary has predeceased Director, then amounts payable
hereunder will be payable first to Director's surviving spouse. If Director has
no surviving spouse, amounts will then be payable to Director's estate.
No one other than the Director shall have any right to designate a beneficiary.
11. The Bank will acquire an insurance policy on the life of Director. The
Bank will be the owner and beneficiary of the policy. Director will have no
interest in or right to the policy.
12. Director hereby agrees that he has answered, or will answer, truthfully and
completely, any question or request for information in connection with the
issuance of any insurance policy on his life for the purpose of assisting the
Bank in meeting its obligations under this Agreement. If the issuing life
insurance company refuses to pay a claim as a result of a material
misrepresentation or other act by Director, no amounts shall be payable under
this Agreement.
<PAGE>
13. The right to receive payments under this Agreement shall not be assigned or
encumbered, or subject to anticipation, garnishment, attachment, or any other
legal process of creditors of Director or any designated beneficiary. If
Director or a designated beneficiary attempts to assign such right the Bank, in
its sole discretion, may suspend, reduce or terminate any or all rights created
by this Agreement as to Director or the designated beneficiary attempting said
assignment.
14. Director status as a member of the Board of Directors of the Bank shall be
subject to termination at any time and to the same extent as if this Agreement
had not been executed.
The Bank does not assure or guarantee the tax consequences of payments provided
hereunder or matters beyond its control, and Director certifies that his
decision to reduce and defer receipt of compensation is not due to any reliance
upon financial, tax or legal advice given by the Bank or any of its employees.
15. This Agreement may be amended at any time by the Bank in writing. However,
no amendment may be made which will reduce amounts payable to Director or his
designated beneficiary without such person's written consent.
16. This Agreement may be terminated by the Bank upon 180 days advance written
notice to Director.
17. This Agreement constitutes the entire agreement between the Bank and
Director as to the subject matter hereof. No rights are granted to Director by
virtue of this Agreement other than those specifically set forth herein.
This Agreement shall be binding upon Director and the Bank, the successors and
assigns of the Bank, and the beneficiaries, heirs and legal representatives of
Director.
18. This Agreement shall be interpreted according to the laws of the State of
California.
IN WITNESS WHEREOF, the parties hereof have entered into this Agreement as of
the date first above written.
BANK DIRECTOR
By /s/ /s/
----------------------------------- ------------------------------------
Its Corporate Secretary
<PAGE>
DEFERRED COMPENSATION AGREEMENT
Coast Commercial Bank
This Agreement is entered into this Second day of November 1992 between Coast
Commercial, a state bank organized under the laws of the State of California
("Bank") and RON ISRAEL, a Director of the Bank.
WHEREAS, the Director has contributed to the success and profitability of the
Bank and the Bank wishes to provide additional incentive for the Director to
continue such contribution; and
WHEREAS, the Bank and the Director desire to set forth their agreement as to
deferring a portion of Director's compensation as a deferred compensation plan
and to provide Director certain additional benefits in the case of Director's
death while serving as a Director of the Bank,
NOW THEREFORE, in consideration of the mutual agreements contained herein, Bank
and Director agree as follows:
1. Director will agree to a reduction of the current payment of compensation by
$4,800.00 annually, or such other amount as shall be elected by Director in a
signed writing delivered to the Bank prior to January 1 of the year to which the
election applies, and to defer receipt of such amount until paid to him pursuant
to later provisions of this Agreement.
Compensation reductions under this Agreement shall cease at the end of the month
in which Director attains age sixty-five (65) even if Director is still serving
as a Director at that time.
2. The Bank will record amounts deferred pursuant to Section 1 in a separate
account ("Account") on the books by the Bank.
3. (a) Until all amounts held in the Account are fully paid out pursuant to
later provisions of this Agreement, the Bank will credit interest to the Account
at a rate, except as set forth in section 3(b), determined by a resolution of
the Board of Directors not less than annually.
The amount at which interest is credited to the Account effective October 1,
1992, is 7%.
Interest on amounts held in the Account will be compounded daily compatible with
the Bank's formula for interest calculation.
4. The Account will be segregated from other assets owned by the Bank only by
way of its identification on the books and records of the Bank as a liability of
the Bank to Director, and will be subject to the claims of general creditors of
the Bank.
5. Amounts held in the Account will be payable to Director or his beneficiary
upon the first to occur of the following events:
(I) Termination of Director service as a Director of the Bank; or
(ii) Attainment of age sixty-five (65); or
(iii) Termination of this Agreement pursuant to section 16.
<PAGE>
6. Upon the occurrence of an event described in section 5 the Bank will pay to
Director or his beneficiary pursuant to section 7 amounts held in the Account.
However, if Employee dies prior to termination of his service with the Bank and
prior to attainment of age sixty-five (65), then, if Director's Projected
Benefit exceeds the amount held in the Account, the amount payable to Director's
beneficiary shall be the Projected Benefit.
Projected Benefit means the amount that would have been deemed credited to the
Account as of the first day of the month during which Director would have
attained age sixty-five (65). The Projected Benefit shall be determined solely
by the Bank which may from time to time modify the Projected Benefit. The
initial Projected Benefit is $7,412.00 FOR 13 YEARS.
Claims and Review Procedures
6.1 Claims Procedure. The Company shall notify the Executive's beneficiary in
writing, within ninety (90) days of his or her written application for benefits,
of his or her eligibility or noneligibility for benefits under the Agreement.
If the Company determines that the beneficiary is not eligible for benefits or
full benefits, the notice shall set forth (1) the specific reasons for such
denial, (2) a specific reference to the provisions of the Agreement on which the
denial is based, (3) a description of any additional information or material
necessary for the claimant to perfect his or her claim, and a description of why
it is needed, and (4) an explanation of the Agreement's claims review procedure
and other appropriate information as to the steps to be taken if the beneficiary
wishes to have the claim reviewed. If the Company determines that there are
special circumstances requiring additional time to make a decision, the Company
shall notify the beneficiary of the special circumstances and the date by which
a decision is expected to be made, and may extend the time for up to an
additional ninety-day period.
6.2 Review Procedure. If the beneficiary is determined by the Company not to be
eligible for benefits, or if the beneficiary believes that he or she is entitled
to greater or different benefits, the beneficiary shall have the opportunity to
have such claim reviewed by the Company by filing a petition for review with the
Company within sixty (60) days after receipt of the notice issued by the
Company. Said petition shall state the specific reasons which the beneficiary
believes entitle him or her to benefits or to greater or different benefits.
Within sixty (60) days after receipt by the Company of the petition, the Company
shall afford the beneficiary (and counsel, if any) an opportunity to present his
or her position to the Company orally or in writing, and the beneficiary (or
counsel) shall have the right to review the pertinent documents. The Company
shall notify the beneficiary of its decision in writing within the sixty-day
period, stating specifically the basis of its decision, written in a manner
calculated to be understood by the beneficiary and the specific provisions of
the Agreement on which the decision is based. If, because of the need for a
hearing, the sixty-day period is not sufficient, the decision may be deferred
for up to another sixty-day period at the election of the Company, but notice of
this deferral shall be given to the beneficiary.
7.(a) Amounts payable to Director upon the occurrence of an event described in
section 5 shall be paid promptly to Director or his beneficiary in one oft the
following methods, as elected by Director in a signed writing delivered to the
Bank prior to the occurrence of the event:
(i) In a lump sum; or
<PAGE>
(ii) In substantially equal monthly, quarterly or annual installments
over a five (5) year period; or
(iii) In substantially equal monthly, quarterly or annual installments
over a ten (10) year period.
(iv) In substantially equal monthly, quarterly or annual installments
over a fifteen (15) year period.
7.(b) If Director has not elected a method of payment in the manner set forth in
the preceding section 7(a) prior to the occurrence of an event described in
section 5, then the Bank, in its sole discretion, will select the method of
payment from among those set forth in section 7(a).
7.(c) If Director's service with the Bank is terminated prior to attaining age
sixty-five (65) due to disability or retirement, Director may request the Bank,
in a signed writing delivered to the Bank prior to Director's termination, not
to pay any amounts otherwise payable to Director until Director attains age
sixty-five (65) or Director dies prior to attaining age sixty-five (65). The
Bank, in its sole discretion shall elect whether or not to grant such a request.
8. After attaining age sixty (60) or five (5) years of service with the Bank,
Director may request in a signed writing delivered to the Bank, that the Bank
pay a hardship distribution to Director from amounts held in the Account.
Hardship means an unforeseen event or situation that creates an extraordinary
financial need that cannot reasonably be met by other resources of the Director.
The Bank shall elect in its sole discretion whether or not to grant such
request.
9. Amounts paid to Director or his beneficiary pursuant to this Agreement will
be subject to taxes and charges to the extent required by law.
10. Any amount payable to Director's beneficiary pursuant to this Agreement will
be paid to the beneficiary designated by Director in a signed writing delivered
to the Bank. Director has the right to change his beneficiary designation by
delivering to the Bank a subsequent signed writing. If Director does not
designate a beneficiary in the manner described in this section, or if the
designated beneficiary has predeceased Director, then amounts payable hereunder
will be payable first to Director's surviving spouse. If Director has no
surviving spouse, amounts will then be payable to Director's estate.
No one other than the Director shall have any right to designate a beneficiary.
11. The Bank will acquire an insurance policy on the life of Director. The Bank
will be the owner and beneficiary of the policy. Director will have no interest
in or right to the policy.
12. Director hereby agrees that he has answered, or will answer, truthfully and
completely, any question or request for information in connection with the
issuance of any insurance policy on his life for the purpose of assisting the
Bank in meeting its obligations under this Agreement. If the issuing life
insurance company refuses to pay a claim as a result of a material
misrepresentation or other act by Director, no amounts shall be payable under
this Agreement.
<PAGE>
13. The right to receive payments under this Agreement shall not be assigned or
encumbered, or subject to anticipation, garnishment, attachment, or any other
legal process of creditors of Director or any designated beneficiary. If
Director or a designated beneficiary attempts to assign such right the Bank, in
its sole discretion, may suspend, reduce or terminate any or all rights created
by this Agreement as to Director or the designated beneficiary attempting said
assignment.
14. Director status as a member of the Board of Directors of the Bank shall be
subject to termination at any time and to the same extent as if this Agreement
had not been executed.
The Bank does not assure or guarantee the tax consequences of payments provided
hereunder or matters beyond its control, and Director certifies that his
decision to reduce and defer receipt of compensation is not due to any reliance
upon financial, tax or legal advice given by the Bank or any of its employees.
15. This Agreement may be amended at any time by the Bank in writing. However,
no amendment may be made which will reduce amounts payable to Director or his
designated beneficiary without such person's written consent.
16. This Agreement may be terminated by the Bank upon 180 days advance written
notice to Director.
17. This Agreement constitutes the entire agreement between the Bank and
Director as to the subject matter hereof. No rights are granted to Director by
virtue of this Agreement other than those specifically set forth herein.
This Agreement shall be binding upon Director and the Bank, the successors and
assigns of the Bank, and the beneficiaries, heirs and legal representatives of
Director.
18. This Agreement shall be interpreted according to the laws of the State of
California.
IN WITNESS WHEREOF, the parties hereof have entered into this Agreement as of
the date first above written.
BANK DIRECTOR
By /s/ /s/
------------------------------------ -------------------------------------
Its Corporate Secretary
<PAGE>
DEFERRED COMPENSATION AGREEMENT
COAST COMMERCIAL BANK
This Agreement is entered into this Second day of November 1992 between Coast
Commercial, a state bank organized under the laws of the State of California
("Bank") and MALCOLM D. MOORE, a Director of the Bank.
WHEREAS, the Director has contributed to the success and profitability of the
Bank and the Bank wishes to provide additional incentive for the Director to
continue such contribution; and
WHEREAS, the Bank and the Director desire to set forth their agreement as to
deferring a portion of Director's compensation as a deferred compensation plan
and to provide Director certain additional benefits in the case of Director's
death while serving as a Director of the Bank,
NOW THEREFORE, in consideration of the mutual agreements contained herein, Bank
and Director agree as follows:
1. Director will agree to a reduction of the current payment of compensation by
$4,800.00 annually, or such other amount as shall be elected by Director in a
signed writing delivered to the Bank prior to January 1 of the year to which the
election applies, and to defer receipt of such amount until paid to him pursuant
to later provisions of this Agreement.
Compensation reductions under this Agreement shall cease at the end of the month
in which Director attains age sixty-five (65) even if Director is still serving
as a Director at that time.
2. The Bank will record amounts deferred pursuant to Section 1 in a separate
account ("Account") on the books by the Bank.
3. (a) Until all amounts held in the Account are fully paid out pursuant to
later provisions of this Agreement, the Bank will credit interest to the Account
at a rate, except as set forth in section 3(b), determined by a resolution of
the Board of Directors not less than annually.
The amount at which interest is credited to the Account effective October 1,
1992, is 7%.
Interest on amounts held in the Account will be compounded daily compatible with
the Bank's formula for interest calculation.
4. The Account will be segregated from other assets owned by the Bank only by
way of its identification on the books and records of the Bank as a liability of
the Bank to Director, and will be subject to the claims of general creditors of
the Bank.
5. Amounts held in the Account will be payable to Director or his beneficiary
upon the first to occur of the following events:
(i) Termination of Director service as a Director of the Bank; or
(ii) Attainment of age sixty-five (65); or
(iii) Termination of this Agreement pursuant to section 16.
<PAGE>
6. Upon the occurrence of an event described in section 5 the Bank will pay to
Director or his beneficiary pursuant to section 7 amounts held in the Account.
However, if Employee dies prior to termination of his service with the Bank and
prior to attainment of age sixty-five (65), then, if Director's Projected
Benefit exceeds the amount held in the Account, the amount payable to Director's
beneficiary shall be the Projected Benefit.
Projected Benefit means the amount that would have been deemed credited to the
Account as of the first day of the month during which Director would have
attained age sixty-five (65). The Projected Benefit shall be determined solely
by the Bank which may from time to time modify the Projected Benefit. The
initial Projected Benefit is $7,412.00 FOR 13 YEARS.
CLAIMS AND REVIEW PROCEDURES
6.1 Claims Procedure. The Company shall notify the Executive's beneficiary in
writing, within ninety (90) days of his or her written application for benefits,
of his or her eligibility or noneligibility for benefits under the Agreement.
If the Company determines that the beneficiary is not eligible for benefits or
full benefits, the notice shall set forth (1) the specific reasons for such
denial, (2) a specific reference to the provisions of the Agreement on which the
denial is based, (3) a description of any additional information or material
necessary for the claimant to perfect his or her claim, and a description of why
it is needed, and (4) an explanation of the Agreement's claims review procedure
and other appropriate information as to the steps to be taken if the beneficiary
wishes to have the claim reviewed. If the Company determines that there are
special circumstances requiring additional time to make a decision, the Company
shall notify the beneficiary of the special circumstances and the date by which
a decision is expected to be made, and may extend the time for up to an
additional ninety-day period.
6.2 Review Procedure. If the beneficiary is determined by the Company not to
be eligible for benefits, or if the beneficiary believes that he or she is
entitled to greater or different benefits, the beneficiary shall have the
opportunity to have such claim reviewed by the Company by filing a petition for
review with the Company within sixty (60) days after receipt of the notice
issued by the Company. Said petition shall state the specific reasons which the
beneficiary believes entitle him or her to benefits or to greater or different
benefits. Within sixty (60) days after receipt by the Company of the petition,
the Company shall afford the beneficiary (and counsel, if any) an opportunity to
present his or her position to the Company orally or in writing, and the
beneficiary (or counsel) shall have the right to review the pertinent documents.
The Company shall notify the beneficiary of its decision in writing within the
sixty-day period, stating specifically the basis of its decision, written in a
manner calculated to be understood by the beneficiary and the specific
provisions of the Agreement on which the decision is based. If, because of the
need for a hearing, the sixty-day period is not sufficient, the decision may be
deferred for up to another sixty-day period at the election of the Company, but
notice of this deferral shall be given to the beneficiary.
7.(a) Amounts payable to Director upon the occurrence of an event described in
section 5 shall be paid promptly to Director or his beneficiary in one oft the
following methods, as elected by Director in a signed writing delivered to the
Bank prior to the occurrence of the event:
(i) In a lump sum; or
<PAGE>
(ii) In substantially equal monthly, quarterly or annual installments
over a five (5) year period; or
(iii) In substantially equal monthly, quarterly or annual installments
over a ten (10) year period.
(iv) In substantially equal monthly, quarterly or annual installments
over a fifteen (15) year period.
7.(b) If Director has not elected a method of payment in the manner set forth
in the preceding section 7(a) prior to the occurrence of an event described in
section 5, then the Bank, in its sole discretion, will select the method of
payment from among those set forth in section 7(a).
7.(c) If Director's service with the Bank is terminated prior to attaining age
sixty-five (65) due to disability or retirement, Director may request the Bank,
in a signed writing delivered to the Bank prior to Director's termination, not
to pay any amounts otherwise payable to Director until Director attains age
sixty-five (65) or Director dies prior to attaining age sixty-five (65). The
Bank, in its sole discretion shall elect whether or not to grant such a request.
8. After attaining age sixty (60) or five (5) years of service with the Bank,
Director may request in a signed writing delivered to the Bank, that the Bank
pay a hardship distribution to Director from amounts held in the Account.
Hardship means an unforeseen event or situation that creates an extraordinary
financial need that cannot reasonably be met by other resources of the Director.
The Bank shall elect in its sole discretion whether or not to grant such
request.
9. Amounts paid to Director or his beneficiary pursuant to this Agreement will
be subject to taxes and charges to the extent required by law.
10. Any amount payable to Director's beneficiary pursuant to this Agreement
will be paid to the beneficiary designated by Director in a signed writing
delivered to the Bank. Director has the right to change his beneficiary
designation by delivering to the Bank a subsequent signed writing. If Director
does not designate a beneficiary in the manner described in this section, or if
the designated beneficiary has predeceased Director, then amounts payable
hereunder will be payable first to Director's surviving spouse. If Director has
no surviving spouse, amounts will then be payable to Director's estate.
No one other than the Director shall have any right to designate a beneficiary.
11. The Bank will acquire an insurance policy on the life of Director. The
Bank will be the owner and beneficiary of the policy. Director will have no
interest in or right to the policy.
12. Director hereby agrees that he has answered, or will answer, truthfully and
completely, any question or request for information in connection with the
issuance of any insurance policy on his life for the purpose of assisting the
Bank in meeting its obligations under this Agreement. If the issuing life
insurance company refuses to pay a claim as a result of a material
misrepresentation or other act by Director, no amounts shall be payable under
this Agreement.
13. The right to receive payments under this Agreement shall not be assigned or
encumbered, or subject to anticipation, garnishment, attachment, or any other
legal process of creditors of Director or any designated beneficiary. If
Director or a designated beneficiary attempts to assign such right the Bank, in
its sole discretion, may suspend, reduce or terminate any or all rights created
by this Agreement as to Director or the designated beneficiary attempting said
assignment.
<PAGE>
14. Director status as a member of the Board of Directors of the Bank shall be
subject to termination at any time and to the same extent as if this Agreement
had not been executed.
The Bank does not assure or guarantee the tax consequences of payments provided
hereunder or matters beyond its control, and Director certifies that his
decision to reduce and defer receipt of compensation is not due to any reliance
upon financial, tax or legal advice given by the Bank or any of its employees.
15. This Agreement may be amended at any time by the Bank in writing. However,
no amendment may be made which will reduce amounts payable to Director or his
designated beneficiary without such person's written consent.
16. This Agreement may be terminated by the Bank upon 180 days advance written
notice to Director.
17. This Agreement constitutes the entire agreement between the Bank and
Director as to the subject matter hereof. No rights are granted to Director by
virtue of this Agreement other than those specifically set forth herein.
This Agreement shall be binding upon Director and the Bank, the successors and
assigns of the Bank, and the beneficiaries, heirs and legal representatives of
Director.
18. This Agreement shall be interpreted according to the laws of the State of
California.
IN WITNESS WHEREOF, the parties hereof have entered into this Agreement as of
the date first above written.
BANK DIRECTOR
By /s/ /s/
----------------------------------- -------------------------------------
Its Corporate Secretary
<PAGE>
DEFERRED COMPENSATION AGREEMENT
COAST COMMERCIAL BANK
This Agreement is entered into this Second day of November 1992 between Coast
Commercial, a state bank organized under the laws of the State of California
("Bank") and GUS NORTON, a Director of the Bank.
WHEREAS, the Director has contributed to the success and profitability of the
Bank and the Bank wishes to provide additional incentive for the Director to
continue such contribution; and
WHEREAS, the Bank and the Director desire to set forth their agreement as to
deferring a portion of Director's compensation as a deferred compensation plan
and to provide Director certain additional benefits in the case of Director's
death while serving as a Director of the Bank,
NOW THEREFORE, in consideration of the mutual agreements contained herein, Bank
and Director agree as follows:
1. Director will agree to a reduction of the current payment of compensation by
$4,800.00 annually, or such other amount as shall be elected by Director in a
signed writing delivered to the Bank prior to January 1 of the year to which the
election applies, and to defer receipt of such amount until paid to him pursuant
to later provisions of this Agreement.
Compensation reductions under this Agreement shall cease at the end of the month
in which Director attains age sixty-five (65) even if Director is still serving
as a Director at that time.
2. The Bank will record amounts deferred pursuant to Section 1 in a separate
account ("Account") on the books by the Bank.
3. (a) Until all amounts held in the Account are fully paid out pursuant to
later provisions of this Agreement, the Bank will credit interest to the Account
at a rate, except as set forth in section 3(b), determined by a resolution of
the Board of Directors not less than annually.
The amount at which interest is credited to the Account effective October 1,
1992, is 7%.
Interest on amounts held in the Account will be compounded daily compatible with
the Bank's formula for interest calculation.
4. The Account will be segregated from other assets owned by the Bank only by
way of its identification on the books and records of the Bank as a liability of
the Bank to Director, and will be subject to the claims of general creditors of
the Bank.
5. Amounts held in the Account will be payable to Director or his beneficiary
upon the first to occur of the following events:
(I) Termination of Director service as a Director of the Bank; or
(ii) Attainment of age sixty-five (65); or
(iii) Termination of this Agreement pursuant to section 16.
<PAGE>
6. Upon the occurrence of an event described in section 5 the Bank will pay to
Director or his beneficiary pursuant to section 7 amounts held in the Account.
However, if Employee dies prior to termination of his service with the Bank and
prior to attainment of age sixty-five (65), then, if Director's Projected
Benefit exceeds the amount held in the Account, the amount payable to Director's
beneficiary shall be the Projected Benefit.
Projected Benefit means the amount that would have been deemed credited to the
Account as of the first day of the month during which Director would have
attained age sixty-five (65). The Projected Benefit shall be determined solely
by the Bank which may from time to time modify the Projected Benefit. The
initial Projected Benefit is $12,687.00 FOR 13 YEARS.
CLAIMS AND REVIEW PROCEDURES
6.1 Claims Procedure. The Company shall notify the Executive's beneficiary in
writing, within ninety (90) days of his or her written application for benefits,
of his or her eligibility or noneligibility for benefits under the Agreement.
If the Company determines that the beneficiary is not eligible for benefits or
full benefits, the notice shall set forth (1) the specific reasons for such
denial, (2) a specific reference to the provisions of the Agreement on which the
denial is based, (3) a description of any additional information or material
necessary for the claimant to perfect his or her claim, and a description of why
it is needed, and (4) an explanation of the Agreement's claims review procedure
and other appropriate information as to the steps to be taken if the beneficiary
wishes to have the claim reviewed. If the Company determines that there are
special circumstances requiring additional time to make a decision, the Company
shall notify the beneficiary of the special circumstances and the date by which
a decision is expected to be made, and may extend the time for up to an
additional ninety-day period.
6.2 Review Procedure. If the beneficiary is determined by the Company not to
be eligible for benefits, or if the beneficiary believes that he or she is
entitled to greater or different benefits, the beneficiary shall have the
opportunity to have such claim reviewed by the Company by filing a petition for
review with the Company within sixty (60) days after receipt of the notice
issued by the Company. Said petition shall state the specific reasons which the
beneficiary believes entitle him or her to benefits or to greater or different
benefits. Within sixty (60) days after receipt by the Company of the petition,
the Company shall afford the beneficiary (and counsel, if any) an opportunity to
present his or her position to the Company orally or in writing, and the
beneficiary (or counsel) shall have the right to review the pertinent documents.
The Company shall notify the beneficiary of its decision in writing within the
sixty-day period, stating specifically the basis of its decision, written in a
manner calculated to be understood by the beneficiary and the specific
provisions of the Agreement on which the decision is based. If, because of the
need for a hearing, the sixty-day period is not sufficient, the decision may be
deferred for up to another sixty-day period at the election of the Company, but
notice of this deferral shall be given to the beneficiary.
7.(a) Amounts payable to Director upon the occurrence of an event described in
section 5 shall be paid promptly to Director or his beneficiary in one oft the
following methods, as elected by Director in a signed writing delivered to the
Bank prior to the occurrence of the event:
(i) In a lump sum; or
<PAGE>
(ii) In substantially equal monthly, quarterly or annual installments
over a five (5) year period; or
(iii) In substantially equal monthly, quarterly or annual installments
over a ten (10) year period.
(iv) In substantially equal monthly, quarterly or annual installments
over a fifteen (15) year period.
7.(b) If Director has not elected a method of payment in the manner set forth
in the preceding section 7(a) prior to the occurrence of an event described in
section 5, then the Bank, in its sole discretion, will select the method of
payment from among those set forth in section 7(a).
7.(c) If Director's service with the Bank is terminated prior to attaining age
sixty-five (65) due to disability or retirement, Director may request the Bank,
in a signed writing delivered to the Bank prior to Director's termination, not
to pay any amounts otherwise payable to Director until Director attains age
sixty-five (65) or Director dies prior to attaining age sixty-five (65). The
Bank, in its sole discretion shall elect whether or not to grant such a request.
8. After attaining age sixty (60) or five (5) years of service with the Bank,
Director may request in a signed writing delivered to the Bank, that the Bank
pay a hardship distribution to Director from amounts held in the Account.
Hardship means an unforeseen event or situation that creates an extraordinary
financial need that cannot reasonably be met by other resources of the Director.
The Bank shall elect in its sole discretion whether or not to grant such
request.
9. Amounts paid to Director or his beneficiary pursuant to this Agreement will
be subject to taxes and charges to the extent required by law.
10. Any amount payable to Director's beneficiary pursuant to this Agreement
will be paid to the beneficiary designated by Director in a signed writing
delivered to the Bank. Director has the right to change his beneficiary
designation by delivering to the Bank a subsequent signed writing. If Director
does not designate a beneficiary in the manner described in this section, or if
the designated beneficiary has predeceased Director, then amounts payable
hereunder will be payable first to Director's surviving spouse. If Director has
no surviving spouse, amounts will then be payable to Director's estate.
No one other than the Director shall have any right to designate a beneficiary.
11. The Bank will acquire an insurance policy on the life of Director. The
Bank will be the owner and beneficiary of the policy. Director will have no
interest in or right to the policy.
12. Director hereby agrees that he has answered, or will answer, truthfully and
completely, any question or request for information in connection with the
issuance of any insurance policy on his life for the purpose of assisting the
Bank in meeting its obligations under this Agreement. If the issuing life
insurance company refuses to pay a claim as a result of a material
misrepresentation or other act by Director, no amounts shall be payable under
this Agreement.
<PAGE>
13. The right to receive payments under this Agreement shall not be assigned or
encumbered, or subject to anticipation, garnishment, attachment, or any other
legal process of creditors of Director or any designated beneficiary. If
Director or a designated beneficiary attempts to assign such right the Bank, in
its sole discretion, may suspend, reduce or terminate any or all rights created
by this Agreement as to Director or the designated beneficiary attempting said
assignment.
14. Director status as a member of the Board of Directors of the Bank shall be
subject to termination at any time and to the same extent as if this Agreement
had not been executed.
The Bank does not assure or guarantee the tax consequences of payments provided
hereunder or matters beyond its control, and Director certifies that his
decision to reduce and defer receipt of compensation is not due to any reliance
upon financial, tax or legal advice given by the Bank or any of its employees.
15. This Agreement may be amended at any time by the Bank in writing. However,
no amendment may be made which will reduce amounts payable to Director or his
designated beneficiary without such person's written consent.
16. This Agreement may be terminated by the Bank upon 180 days advance written
notice to Director.
17. This Agreement constitutes the entire agreement between the Bank and
Director as to the subject matter hereof. No rights are granted to Director by
virtue of this Agreement other than those specifically set forth herein.
This Agreement shall be binding upon Director and the Bank, the successors and
assigns of the Bank, and the beneficiaries, heirs and legal representatives of
Director.
18. This Agreement shall be interpreted according to the laws of the State of
California.
IN WITNESS WHEREOF, the parties hereof have entered into this Agreement as of
the date first above written.
BANK DIRECTOR
By /s/ /s/
----------------------------------- ------------------------------------
Its Corporate Secretary
<PAGE>
DEFERRED COMPENSATION AGREEMENT
COAST COMMERCIAL BANK
This Agreement is entered into this Second day of November 1992 between Coast
Commercial, a state bank organized under the laws of the State of California
("Bank") and JAMES C. THOMPSON, a Director of the Bank.
WHEREAS, the Director has contributed to the success and profitability of the
Bank and the Bank wishes to provide additional incentive for the Director to
continue such contribution; and
WHEREAS, the Bank and the Director desire to set forth their agreement as to
deferring a portion of Director's compensation as a deferred compensation plan
and to provide Director certain additional benefits in the case of Director's
death while serving as a Director of the Bank,
NOW THEREFORE, in consideration of the mutual agreements contained herein, Bank
and Director agree as follows:
1. Director will agree to a reduction of the current payment of compensation by
$12,000.00 annually, or such other amount as shall be elected by Director in a
signed writing delivered to the Bank prior to January 1 of the year to which the
election applies, and to defer receipt of such amount until paid to him pursuant
to later provisions of this Agreement.
Compensation reductions under this Agreement shall cease at the end of the month
in which Director attains age sixty-five (65) even if Director is still serving
as a Director at that time.
2. The Bank will record amounts deferred pursuant to Section 1 in a separate
account ("Account") on the books by the Bank.
3. (a) Until all amounts held in the Account are fully paid out pursuant to
later provisions of this Agreement, the Bank will credit interest to the Account
at a rate, except as set forth in section 3(b), determined by a resolution of
the Board of Directors not less than annually.
The amount at which interest is credited to the Account effective October 1,
1992, is 7%.
Interest on amounts held in the Account will be compounded daily compatible with
the Bank's formula for interest calculation.
4. The Account will be segregated from other assets owned by the Bank only by
way of its identification on the books and records of the Bank as a liability of
the Bank to Director, and will be subject to the claims of general creditors of
the Bank.
5. Amounts held in the Account will be payable to Director or his beneficiary
upon the first to occur of the following events:
(I) Termination of Director service as a Director of the Bank; or
(ii) Attainment of age sixty-five (65); or
(iii) Termination of this Agreement pursuant to section 16.
<PAGE>
6. Upon the occurrence of an event described in section 5 the Bank will pay to
Director or his beneficiary pursuant to section 7 amounts held in the Account.
However, if Employee dies prior to termination of his service with the Bank and
prior to attainment of age sixty-five (65), then, if Director's Projected
Benefit exceeds the amount held in the Account, the amount payable to Director's
beneficiary shall be the Projected Benefit.
Projected Benefit means the amount that would have been deemed credited to the
Account as of the first day of the month during which Director would have
attained age sixty-five (65). The Projected Benefit shall be determined solely
by the Bank which may from time to time modify the Projected Benefit. The
initial Projected Benefit is $28,042.00 FOR 13 YEARS.
CLAIMS AND REVIEW PROCEDURES
6.1 Claims Procedure. The Company shall notify the Executive's beneficiary in
writing, within ninety (90) days of his or her written application for benefits,
of his or her eligibility or noneligibility for benefits under the Agreement.
If the Company determines that the beneficiary is not eligible for benefits or
full benefits, the notice shall set forth (1) the specific reasons for such
denial, (2) a specific reference to the provisions of the Agreement on which the
denial is based, (3) a description of any additional information or material
necessary for the claimant to perfect his or her claim, and a description of why
it is needed, and (4) an explanation of the Agreement's claims review procedure
and other appropriate information as to the steps to be taken if the beneficiary
wishes to have the claim reviewed. If the Company determines that there are
special circumstances requiring additional time to make a decision, the Company
shall notify the beneficiary of the special circumstances and the date by which
a decision is expected to be made, and may extend the time for up to an
additional ninety-day period.
6.2 Review Procedure. If the beneficiary is determined by the Company not to
be eligible for benefits, or if the beneficiary believes that he or she is
entitled to greater or different benefits, the beneficiary shall have the
opportunity to have such claim reviewed by the Company by filing a petition for
review with the Company within sixty (60) days after receipt of the notice
issued by the Company. Said petition shall state the specific reasons which the
beneficiary believes entitle him or her to benefits or to greater or different
benefits. Within sixty (60) days after receipt by the Company of the petition,
the Company shall afford the beneficiary (and counsel, if any) an opportunity to
present his or her position to the Company orally or in writing, and the
beneficiary (or counsel) shall have the right to review the pertinent documents.
The Company shall notify the beneficiary of its decision in writing within the
sixty-day period, stating specifically the basis of its decision, written in a
manner calculated to be understood by the beneficiary and the specific
provisions of the Agreement on which the decision is based. If, because of the
need for a hearing, the sixty-day period is not sufficient, the decision may be
deferred for up to another sixty-day period at the election of the Company, but
notice of this deferral shall be given to the beneficiary.
7.(a) Amounts payable to Director upon the occurrence of an event described in
section 5 shall be paid promptly to Director or his beneficiary in one oft the
following methods, as elected by Director in a signed writing delivered to the
Bank prior to the occurrence of the event:
(i) In a lump sum; or
<PAGE>
(ii) In substantially equal monthly, quarterly or annual installments
over a five (5) year period; or
(iii) In substantially equal monthly, quarterly or annual installments
over a ten (10) year period.
(iv) In substantially equal monthly, quarterly or annual installments
over a fifteen (15) year period.
7.(b) If Director has not elected a method of payment in the manner set forth
in the preceding section 7(a) prior to the occurrence of an event described in
section 5, then the Bank, in its sole discretion, will select the method of
payment from among those set forth in section 7(a).
7.(c) If Director's service with the Bank is terminated prior to attaining age
sixty-five (65) due to disability or retirement, Director may request the Bank,
in a signed writing delivered to the Bank prior to Director's termination, not
to pay any amounts otherwise payable to Director until Director attains age
sixty-five (65) or Director dies prior to attaining age sixty-five (65). The
Bank, in its sole discretion shall elect whether or not to grant such a request.
8. After attaining age sixty (60) or five (5) years of service with the Bank,
Director may request in a signed writing delivered to the Bank, that the Bank
pay a hardship distribution to Director from amounts held in the Account.
Hardship means an unforeseen event or situation that creates an extraordinary
financial need that cannot reasonably be met by other resources of the Director.
The Bank shall elect in its sole discretion whether or not to grant such
request.
9. Amounts paid to Director or his beneficiary pursuant to this Agreement will
be subject to taxes and charges to the extent required by law.
10. Any amount payable to Director's beneficiary pursuant to this Agreement
will be paid to the beneficiary designated by Director in a signed writing
delivered to the Bank. Director has the right to change his beneficiary
designation by delivering to the Bank a subsequent signed writing. If Director
does not designate a beneficiary in the manner described in this section, or if
the designated beneficiary has predeceased Director, then amounts payable
hereunder will be payable first to Director's surviving spouse. If Director has
no surviving spouse, amounts will then be payable to Director's estate.
No one other than the Director shall have any right to designate a beneficiary.
11. The Bank will acquire an insurance policy on the life of Director. The
Bank will be the owner and beneficiary of the policy. Director will have no
interest in or right to the policy.
12. Director hereby agrees that he has answered, or will answer, truthfully and
completely, any question or request for information in connection with the
issuance of any insurance policy on his life for the purpose of assisting the
Bank in meeting its obligations under this Agreement. If the issuing life
insurance company refuses to pay a claim as a result of a material
misrepresentation or other act by Director, no amounts shall be payable under
this Agreement.
<PAGE>
13. The right to receive payments under this Agreement shall not be assigned or
encumbered, or subject to anticipation, garnishment, attachment, or any other
legal process of creditors of Director or any designated beneficiary. If
Director or a designated beneficiary attempts to assign such right the Bank, in
its sole discretion, may suspend, reduce or terminate any or all rights created
by this Agreement as to Director or the designated beneficiary attempting said
assignment.
14. Director status as a member of the Board of Directors of the Bank shall be
subject to termination at any time and to the same extent as if this Agreement
had not been executed.
The Bank does not assure or guarantee the tax consequences of payments provided
hereunder or matters beyond its control, and Director certifies that his
decision to reduce and defer receipt of compensation is not due to any reliance
upon financial, tax or legal advice given by the Bank or any of its employees.
15. This Agreement may be amended at any time by the Bank in writing. However,
no amendment may be made which will reduce amounts payable to Director or his
designated beneficiary without such person's written consent.
16. This Agreement may be terminated by the Bank upon 180 days advance written
notice to Director.
17. This Agreement constitutes the entire agreement between the Bank and
Director as to the subject matter hereof. No rights are granted to Director by
virtue of this Agreement other than those specifically set forth herein.
This Agreement shall be binding upon Director and the Bank, the successors and
assigns of the Bank, and the beneficiaries, heirs and legal representatives of
Director.
18. This Agreement shall be interpreted according to the laws of the State of
California.
IN WITNESS WHEREOF, the parties hereof have entered into this Agreement as of
the date first above written.
BANK DIRECTOR
By /s/ /s/
----------------------------------- ------------------------------------
Its Corporate Secretary
<PAGE>
ADDENDUM TO DEFERRED COMPENSATION AGREEMENT
All terms and conditions of the deferred compensation agreement between Coast
Commercial Bank and James Thompson remain the same except for the following:
Director will agree to a reduction of the current payment of compensation by
$24,000 annually and defer receipt of such amound until paid to him pursuant to
later provisions of the agreement.
Signed /s/
-------------------------------------
Date _____________________________________
-------------------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 JUN-30-1996
<CASH> 18,956 13,166
<INT-BEARING-DEPOSITS> 0 0
<FED-FUNDS-SOLD> 7,000 12,500
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 64,888 58,185
<INVESTMENTS-CARRYING> 6,099 6,094
<INVESTMENTS-MARKET> 6,256 6,124
<LOANS> 105,209 117,185
<ALLOWANCE> 2,478 2,969
<TOTAL-ASSETS> 207,668 213,712
<DEPOSITS> 164,046 165,544
<SHORT-TERM> 20,000 24,497
<LIABILITIES-OTHER> 2,638 2,479
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 11,282 11,041
<OTHER-SE> 9,702 10,151
<TOTAL-LIABILITIES-AND-EQUITY> 20,984 21,192
<INTEREST-LOAN> 11,804 6,308
<INTEREST-INVEST> 3,644 2,262
<INTEREST-OTHER> 671 295
<INTEREST-TOTAL> 16,119 8,865
<INTEREST-DEPOSIT> 2,970 1,655
<INTEREST-EXPENSE> 3,753 2,310
<INTEREST-INCOME-NET> 12,366 6,555
<LOAN-LOSSES> 900 450
<SECURITIES-GAINS> (48) 66
<EXPENSE-OTHER> 9,855 2,407
<INCOME-PRETAX> 5,169 3,422
<INCOME-PRE-EXTRAORDINARY> 5,169 3,422
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,149 2,068
<EPS-PRIMARY> 1.38 .92
<EPS-DILUTED> 1.38 .92
<YIELD-ACTUAL> .075 .069
<LOANS-NON> 824 518
<LOANS-PAST> 3 20
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 1,859 2,478
<CHARGE-OFFS> 401 64
<RECOVERIES> 120 105
<ALLOWANCE-CLOSE> 2,478 2,969
<ALLOWANCE-DOMESTIC> 1,672 2,180
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 806 789
</TABLE>
<PAGE>
THE
HOLCOMB
CORPORATION
DEVELOPERS-BUILDERS-REALTORS
SEASCAPE VILLAGE, APTOS, CALIFORNIA 95003, (408) 688-6807,
FAX (408) 688-8568
ADDENDUM TO LEASE
April 4, 1995
Re: Addendum to Lease dated November 27, 1991
For ATM at 14-A Seascape Village, Aptos, Ca.
Tenant: Coast Commercial Bank
Landlord: The Holcomb Corporation
This addendum will serve to confirm the agreement between Coast Commercial
Bank, Tenant and The Holcomb Corporation, Landlord that the current lease for
#14-A Seascape Village, Aptos has been extended effective April 1, 1995 for a
five year period.
All other terms and conditions of the lease will remain the same.
Dated: 4/5/95 Dated: 4/19/95
THE HOLCOMB CORPORATION COAST COMMERCIAL BANK
/s/ /s/
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Mark Holcomb
Landlord Tenant Bruce H. Kendall
Senior Vice President and
Chief Financial Officer
General Contractors License No. 351273
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THE
HOLCOMB
CORPORATION
DEVELOPERS-BUILDERS-REALTORS
SEASCAPE VILLAGE, APTOS, CALIFORNIA 95003, (408) 688-6807, FAX
(408) 688-8568
ADDENDUM TO LEASE
14-A SEASCAPE VILLAGE, APTOS, CA.
This letter will serve to confirm the April 1, 1992 commencement of the
subject lease. Lease term to be three years from date of commencement.
Dated: 3/16/92 Dated: 3/19/92
/s/ /s/
- - ------------------------- --------------------------
Mark Holcomb. Lessor Joe Acconero, Lessee
The Holcomb Corporation Coast Commercial Bank
General Contractors License No. 351273
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LEASE
THIS LEASE made at Santa Cruz, California, as of the 27 day of November,
1991, between THE HOLCOMB CORPORATION, a California corporation, (herein called
"Landlord") and COAST COMMERCIAL BANK (herein called "tenant").
W I T N E S S E T H:
That Landlord hereby leases to Tenant, and Tenant hereby leases from
Landlord, upon the terms and conditions hereinafter set forth, those certain
Premises located on Landlord's real property which is situated at Seascape Blvd.
and Sumner Avenue, Aptos, Santa Cruz, California, which real property is more
particularly described in Exhibit "A" attached hereto and incorporated herein by
this reference. The Premises are shown on that certain diagram attached hereto,
marked Exhibit "B" and incorporated herein by this reference.
1. TERM.
The term of this Lease shall be Three Years and shall commence on the First
day following Landlord's completion of construction of the building and
improvements, pursuant to Paragraph "Construction of Building and Other
Improvements" below, (the "Commencement Date"). Should this event not occur by
April 1, 1992 either party shall have the right to terminate this Lease by
giving written notice to the other by February 15 , 1992 . Failure of either
party to give such written notice shall cause the Commencement Date of the Lease
to be April 1 , 1992. When the Commencement and expiration dates have been
ascertained, the parties shall immediately execute an amendment to this Lease,
confirming the dates of Commencement and expiration of the initial term of this
Lease. The initial term of this lease shall end Three (3) from the date of
Commencement.
So long as this Lease has not previously been terminated, and so long as
Tenant is not is default under any of the provisions of the Lease, Tenant shall
have the right to extend the term of the Lease for Three (3) additional Five (5)
year periods from the expiration date hereof, said extended term(s) being
subject to the same terms and conditions contained in this Lease except that
rent for the extended terms shall be as provided in Paragraph "Rent", below.
Tenant shall exercise its right to extend the term of this Lease by giving
Landlord written notice
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of its intent to extend same for the first additional Five (5) year period, at
least one hundred eighty (180) days, but not earlier than two hundred forty
(240) days, prior to the expiration date of the initial term. So long as the
first Five ( 5 ) year option has been exercised and this Lease has not been
terminated prior to the expiration of the first Five (5) year option period,
Tenant shall exercise its right to extend the term of this Lease for a second
Five ( 5 ) period by giving Landlord written notice of its intent to extend same
at least one hundred eighty (180) days, but not earlier than two hundred forty
(240) days, prior to the expiration date of the first Five ( 5 ) year extended
period.
2. RENT.
Tenant shall pay to Landlord as the base rent for the Premises the sum of
One Hundred Twenty Five ($125.00) per month in advance throughout the term of
this Lease, commencing on the Commencement Date, and payable on the first day of
each and every month thereafter. Rent shall be prorated for the first and last
months of the term of this Lease should the Commencement Date not fall upon the
first day of a calendar month. Tenant shall pay to Landlord, prior to the
Commencement Date of this Lease Agreement, the sum of One Hundred Twenty Five
($125.00 ) which shall constitute advance payment of the first month's rent of
the Lease term. All rental payments shall be in lawful money of the United
States of America, without deduction or offset whatsoever.
Should Tenant exercise its right to extend the Lease term for an additional
Five (5) year period as described in Paragraph "Term", above, rent for each
extended term shall be determined as follows:
Upon receiving Tenant's notice to exercise its option for the extended
term, Landlord and Tenant shall seek to agree on a minimum monthly rent during
the extended term. If the parties reach an agreement as to the minimum monthly
rent, they shall execute an amendment to this Lease reciting said rental sum.
Should the parties not agree on the minimum monthly rent within thirty (30)
days from the date of the notice sent by Tenant to Landlord to extend the term
of this Lease, each party shall, within ten (10) days after expiration of said
thirty (30) day period, appoint a real estate appraiser with at least five (5)
years commercial appraisal experience in the area in which the Premises are
located to appraise and set the minimum monthly rent for the extended term. If a
party does not appoint an appraiser within ten (10) days after the other party
has given
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notice of the name of his or its appraiser, the single appraiser appointed shall
be the sole appraiser and shall set the minimum monthly rent for the extended
term. If the two appraisers are appointed by the parties as stated in this
Paragraph, they shall meet promptly and attempt to set the minimum monthly rent
for the extended term. If they are unable to agree within thirty (30) days after
the second appraiser has been appointed, they shall attempt to elect a third
appraiser meeting the qualifications stated in this Paragraph within ten (10)
days after the last day the two appraisers are given to set the minimum monthly
rent. If they are unable to agree on the third appraiser, either of the parties
of the Lease by giving ten (10) days notice to the other party can apply to the
presiding Judge of the Superior Court of Santa Cruz County for the selection of
a third appraiser who meets the qualifications stated in this Paragraph. Each of
the parties shall bear one-half (1/2) of the cost of appointing the third
appraiser and of paying the third appraiser's fee. The third appraiser, however
selected, shall be a person who has not previously acted in any capacity for
either party. The parties shall each pay for the costs and fees of the appraiser
it has chosen initially.
Within twenty (20) days after the selection of the third appraiser a
majority of the appraisers shall set the minimum monthly rent for the extended
term. If a majority of the appraisers are unable to set the minimum monthly rent
within the stipulated period of time the three (3) appraisals shall be added
together and their total divided by three; the resulting quotient shall be the
minimum monthly rent for the Premises during the extended term. In setting the
minimum monthly rent for the extended term, the appraiser or appraisers shall
consider the use to which the Premises are restricted under this Lease.
After the minimum monthly rent for the extended term has been set, the
appraisers shall immediately notify the parties. Tenant shall have no other
right to extend the term beyond the extended terms provided above.
Notwithstanding the above, the minimum monthly rent shall in no event be
less than the monthly rent payable by Tenant during the last month of the
initial term, for the first extended term, and during the last month of the
immediately preceding extended term for the next extended term.
3. RENT ADJUSTMENT.
The minimum monthly rent provided for in Paragraph "Rent", above, shall be
subject to adjustment at the end of each year during the Lease term, including
any extension thereof, beginning twelve (12) months from the
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Commencement Date of the Lease term, (the "Adjustment Date"), according to the
following computation: The base for computing the adjustment is the Consumer
Price Index (All Items) for All Urban Consumers for the San Francisco-Oakland-
San Jose Area Metropolitan Area based on the standard reference base of 1982-84
equals 100, as published by the U. S. Department of Labor's Bureau of Labor
Statistics, ("CPI") adjusted to the publication date which is the date nearest
the commencement date of this Lease, herein called the "base figure".
The Index for the adjustment date shall be that Index which is published
prior to but nearest the adjustment date.
The increase in the minimum monthly rent, as provided herein, shall be
payable monthly on the first day of each and every month commencing on the
thirteenth month of the Lease term, and ending on the last day of the Lease
term, or any extensions thereto, subject to subsequent adjustments after the
thirteenth month. In no event, however, shall the minimum monthly rent be less
than the monthly rent specified in Paragraph "Rent", above.
If the described Index shall no longer be published, another generally
recognized as authoritative shall be substituted by agreement of the parties. If
they are unable to agree within thirty (30) days after demand by either party,
the substitute index shall on application of either party be selected by the
chief officer of the San Francisco Regional Office of the Bureau of Labor
statistics, or by the Superior Court of Santa Cruz County if no decision is made
by said officer within thirty (30) days from the date application is made by
either party.
4. LATE PAYMENT.
In the event that any monthly payment is delinquent for a period of ten
(10) days or more, Tenant shall pay to Landlord as and for a late payment the
sum of six percent (6%) of the delinquent monthly rental payment, which shall be
payable with the delinquent monthly rental payment.
5. SECURITY DEPOSIT.
Tenant hereby deposits with Landlord the sum of One Hundred Twenty Five
Dollars ($125.00 ) as security for the full and faithful performance of each and
every provision of this Lease to be performed by Tenant. Landlord shall not be
required to keep this security deposit separate from its general funds in a
trust account, and Tenant shall not be entitled to any interest on such deposit.
The
<PAGE>
amount of the security deposit will be increased if the monthly base rent is
increased through the adjustment set forth in Paragraph "Rent Adjustment",
above, or through the adjustment of the base rent at the commencement of any
extension of the lease term. To that end, Landlord shall give Tenant written
notice of the required payment to increase the security deposit, and Tenant
shall have thirty (30) days from receipt of the notice within which to pay the
increased amount to Landlord.
If Tenant defaults with respect to any provision of this Lease, including,
but not limited to the provision relating to the payment of rent, Landlord may
use, apply or retain all or any part of this security deposit for the payment of
any delinquent rent or other sum in default, or for the payment of any other
amount which Landlord may spend or become obligated to spend by reason of
Tenant's default, or to compensate Landlord for any other loss or damage which
Landlord may suffer by reason of Tenant's default. If any portion of this
security deposit is so used or applied, Tenant shall within five (5) days after
written demand therefore, deposit cash with Landlord in an amount sufficient to
restore the security deposit to its original amount and Tenant's failure to do
so shall be a material breach of this Lease. If Tenant shall fully and
faithfully perform every provision of this Lease to be performed by it, the
security deposit or any balance therefore shall be returned to Tenant within
fourteen (14) days from the date of expiration of the Lease term, or any
extension thereof.
Landlord shall not be required to keep the security deposit separate from
its general funds and Tenant shall not be entitled to interest on such deposit.
In the event of termination of Landlord's interest in this Lease, Landlord shall
transfer said deposit to Landlord's successor in interest whereupon Landlord
shall automatically be released from liability for the return of such deposit or
the accounting therefore. Tenant hereby waives any right it may have pursuant to
Section 1950.7 of the California Civil Code, as amended from time to time.
6. TAX ON THE PREMISES.
Tenant hereby agrees to be responsible for and pay to Landlord a sum equal
to .075% Percent (.075%) of any and all real property taxes and assessments
levied by the County of Santa Cruz or any other governmental agency against
Landlord's real property and improvements thereon as described in Exhibit "A",
attached hereto, during the term of this Lease, including extensions. Tenant's
<PAGE>
pro rata share of said real property taxes and assessments shall be payable in
advance on the first day of each month in an amount equal to l/12th of the total
of such real property taxes reasonably estimated by Landlord to be payable
during the calendar year in which such month falls, multiplied by Tenant's pro
rata share. Within 90 days after the end of each calendar year, Landlord will
give to Tenant a written statement of the actual real property taxes and
assessments during the proceeding calendar year. Within 10 days after said
statement is given, an adjustment will be made by payment to Landlord, as the
case may require, so that Tenant shall have paid its pro rata share of the real
property taxes and assessments actually assessed and no more. Notwithstanding
the above, Tenant shall be solely responsible for the payment of any increase in
real property taxes arising out of Tenant's leasehold improvements, whether or
not of a permanent nature.
If this Lease expires prior to the determination of the amount of such
taxes and assessments for the last fiscal year in which the Lease expiration
occurs, Tenant shall nevertheless promptly pay such percentage following proper
notice from Landlord appropriately prorated for the portion of the Lease term
that falls within such last fiscal year.
7. TAX ON TENANT'S PROPERTY.
Tenant shall be liable for all taxes levied against any personal property
or trade fixtures placed by Tenant in or about the Premises. If any such taxes
on Tenant's personal property or trade fixtures are levied against Landlord or
Landlord's property, and if Landlord pays same, which Landlord shall have the
right to do regardless of the validity of such levy, or if the assessed value of
Landlord's Premises is increased by the inclusion therein of a value placed upon
such personal property or trade fixtures of Tenant, and if Landlord pays the
taxes based upon such increased assessment, which Landlord shall have the right
to do regardless of the validity thereof, Tenant, upon demand shall, as the case
may be, repay to Landlord the taxes so levied against Landlord, or the
proportion of such taxes resulting from such increase in the assessment.
Tenant shall be responsible for payment of any business, gross receipts or
similar tax or charge penalties and interest thereon imposed by any governmental
agency that arises as a result of Tenant's use of the Premises.
<PAGE>
8. Use.
The Premises are to be used for Automatic Teller Machine and for no other
purposes without the prior written consent of Landlord. The business conducted
by the Tenant on the Premises shall be of a character and nature that will not
be detrimental to the value of the real property. No use shall be made or
permitted to be made of the Premises, nor acts done in or about the Premises,
which will in any way conflict with any law, ordinance, rule or regulation
affecting the occupancy or use of the Premises, which are or may hereafter be
enacted or promulgated by any public authority, or which will increase the
existing rate of insurance upon the building or cause a cancellation of any
insurance policy covering the building or any part thereof. Nor shall Tenant
permit to be kept, or use in or about the Premises, any article which may be
prohibited by the standard form of fire insurance policy. Tenant shall not
commit, or suffer to be committed, any waste upon the Premises, or any public or
private nuisance, or other act or thing which may disturb the quiet enjoyment of
any other tenant in the building, nor without limiting the generality of the
foregoing shall Tenant allow said Premises to be used for an improper, immoral,
unlawful, or unethical purpose or for a drinking house, or for sleeping
purposes.
9. COMMON AREA.
Certain areas have been or will be constructed by Landlord within the
shopping center for the general use, convenience and benefit of the occupants of
the shopping center and their customers and employees, including the automobile
parking areas, sidewalks, landscaped areas and other areas for pedestrian and
vehicular use (herein called the "Common Area"). Except as may be limited
herein, Tenant shall have the nonexclusive right for itself and for its
customers, invitees, employees, contractors, subtenants and licensees to use the
Common Area in common with Landlord and other persons permitted to use the same
for parking of vehicles and for vehicular and pedestrian ingress, egress and
access.
The Common Area, and all improvements and facilities situated thereon and
required in connection therewith, shall be maintained by Landlord or its
designee. Tenant shall pay .075% Percent (.075%) of all costs paid and incurred
in connection with the operation, maintenance and repair of the Common Area.
<PAGE>
Landlord shall, at or about the time that Tenant's obligation to pay rent
commences and from time to time thereafter, submit to Tenant an estimate of the
monthly payments required to discharge Tenant's obligations with respect to
payment of its share of Common Area Expenses pursuant to this Paragraph.
Landlord shall from time to time revise such estimate in the event that the then
current estimate is not reasonably related to actual amounts then payable by
Tenant hereunder. Tenant shall pay such estimated amounts to Landlord on the
first day of each calendar month during the term. Adjustments shall be made by
Landlord within ninety (90) days after the end of each calendar year, so that if
the total of such estimated amounts paid by Tenant during such year exceeds the
actual amounts payable by Tenant during such year, Landlord shall pay such
deficiency to Tenant forthwith upon demand.
Common Area Expenses incurred in connection with the operation and
maintenance of the Common Area shall include, but are not limited to, all sums
expended in connection with Common Area for all general maintenance and repairs,
resurfacing or painting, restriping, cleaning, sweeping and janitorial services;
maintenance and repair of sidewalks, curbs and shopping center signs; sprinkler
systems, planting and landscaping; lighting, sewer, water, gas and other
utilities; directional signs and other markers and bumpers; maintenance and
repair of any fire protection systems and lighting systems; personnel to
implement such services (except any administrative, clerical and similar office
staff) including, if Landlord deems necessary, the cost of security guards; real
and personal property taxes and assessments on the improvements and land
comprising the Common Area; fees, charges, assessments, payments and other
amounts of any kind or nature levied or collected by any governmental agency for
the use or operation of the Common Area; premiums for public liability, casualty
and other insurance on the Common Area.
Landlord shall also have the right to establish from time to time, change,
alter and amend, and to enforce against Tenant and the users of the automobile
parking areas, such reasonable rules and regulations as may be deemed necessary
or advisable for the proper and efficient operation and maintenance of said
automobile parking areas. Such rules and regulations may include the hours
during which the automobile parking areas shall be open for use, and designated
parking areas for employees of Tenant. Landlord shall not restrict use of
parking areas in any manner which conflicts with normal business hours of the
type of business being conducted by Tenant on the Premises.
<PAGE>
10. CONSTRUCTION OF BUILDING AND OTHER IMPROVEMENTS.
Landlord agrees to cause to be constructed on the real property described
in Exhibit "A", attached hereto, and at Landlord's sole cost and expense,
buildings consisting of approximately Sixty (60) square feet based on outside
dimensions, and other improvements, as set forth in the preliminary plans which
Tenant acknowledges having read, approved and initialed, and which consist of
the site plan showing building and size of same. Construction shall commence as
soon as reasonably possible following execution of this Lease and Landlord shall
continue with construction barring inclement weather, strikes, unavailability of
materials and supplies, and acts of God.
Landlord shall carry out such work or cause same to be carried out in a
good and workmanlike manner and pursuant to any and all applicable building
codes and other local, state and federal regulations.
Tenant acknowledges that during the course of construction certain parts of
the Common Area, including some parking, may be blocked and there will be noise
and dust created through normal construction operations. Landlord agrees to take
all reasonable steps to reduce the impact of construction upon Tenant's business
should Tenant have occupied the Premises prior to completion of the
construction.
11. ASSIGNMENT AND SUBLETTING.
Tenant shall not, either voluntarily or by operation of law, assign, sell,
encumber, pledge or otherwise transfer all or any part of Tenant's leasehold
estate hereunder, or permit the Premises to be occupied by anyone other than
Tenant or Tenant's employees, or sublet the Premises or any portion thereof,
without Landlord's prior written consent. Landlord's consent shall not be
unreasonably withheld provided:
(1) The same quality of business and financial soundness of ownership
and management is maintained and will continue to be maintained in a manner
compatible with the high standards contemplated by this Lease. Landlord has
been induced to enter into this Lease with Tenant in order to obtain for
the benefit of the entire shopping center, the unique attraction of
Tenant's business. It is the intent of Tenant and Landlord that
<PAGE>
Landlord shall have discretion to withhold its consent to any assignment or
subletting if such assignment or subletting would cause a change in the
business to be conducted within the Premises to either a food-related
business, including but not limited to a restaurant, market, or
delicatessen, or to any other business which would be in competition in any
material respect with the businesses being conducted by other tenants
within the shopping center.
(2) That each and every covenant, condition or obligation imposed upon
Tenant by this Lease, and each and every right, remedy or benefit afforded
Landlord by this Lease is not thereby impaired or diminished;
(3) Tenant remains liable for performance of each and every obligation
under this Lease to be performed by Tenant;
(4) As to subletting, Landlord shall receive One Hundred Percent
(100%) of the gross rent in excess of the gross rent otherwise payable to
Landlord pursuant to this Lease.
(5) Tenant reimburses Landlord for Landlord's reasonable costs and
professional fees (legal and/or accounting) incurred in conjunction with
the processing and documentation of any such requested assignment or
subletting of this Lease by Tenant.
If Tenant desires at any time to assign this Lease, or sublet any portion
of the Premises, Tenant shall first notify Landlord of its desire to do so and
shall submit in writing to Landlord, at least thirty (30) days but not more than
sixty (60) days before the intended date of assignment/subletting, the name of
the proposed assignee/subtenant, the nature of the proposed
assignee's/subtenant's business to be carried on in the Premises, the terms and
provisions of the proposed assignment/ subletting, and such reasonable financial
information as Landlord may request, certified by the proposed assignee/
subtenant as being true and correct as of the date of certification.
12. REPAIRS AND ALTERATIONS.
Tenant agrees by taking possession of the Premises that such Premises are
then in a tenantable and good condition. Tenant will take good care of the
Premises and promptly notify the Landlord in writing of any damage caused
<PAGE>
thereto by the Tenant, its employees or invitees and will not make any repairs
or alterations without written permission of Landlord first had and obtained,
and consent for same shall not be unreasonably withheld by Landlord.
Landlord shall be under no obligation to make any repairs, alterations or
improvements to or upon the Premises, or any part thereof, at any time except as
provided in this Lease. Landlord shall at its sole cost and expense, at all
times during the term hereof, repair and maintain the roof and exterior walls
(other than plate glass, store fronts and doors) and foundations of the building
in which the Premises are located; provided that Tenant shall reimburse Landlord
for the cost and expense of repairing any and all damage to the roof, foundation
or exterior walls of the Premises resulting from the acts or omissions of
Tenant, Tenant's agents, employees, customers or other invitees.
Tenant shall, except for the negligent acts or omissions or Landlord, its
agents, or employees, at its sole cost and expense, at all times during the term
hereof, keep and maintain the Premises, the improvements thereof and every part
thereof (including but not limited to plate glass, heating, ventilating, and air
conditioning equipment, store fronts and doors) in good and sanitary order,
condition and repair and in compliance with all laws and regulations applicable
thereto and shall do such reasonable period painting of the interior of the
Premises as may be required and approved by Landlord. Tenant hereby waives the
provisions of subsection 1 of Section 1932 and Sections 1941 and 1942 of the
Civil Code of California and all rights to make repairs at the expenses of
Landlord as provided in Section 1942 of said Civil Code. Tenant covenants
regularly to inspect and maintain in good order and repair all grease traps and
vents, if any, and to provide cleaning of same on a regular basis as reasonably
required.
13. TRADE FIXTURES.
Subject to the provisions of Paragraph "Repairs and Alterations, above,
Tenant may install and maintain its trade fixtures on the Premises, provided
that such fixtures, by reason of the manner in which they are affixed, do not
become an integral part of the building or Premises. Tenant, if not in default
hereunder, may at any time or from time to time during the term hereof, or upon
the expiration or termination of this Lease, alter or remove any such trade
fixtures so installed by Tenant, and any damage to the Premises caused by such
installation, alteration or removal of such trade fixtures shall be promptly
repaired by Tenant at
<PAGE>
the expense of Tenant. If not so removed by Tenant within fifteen (15) days of
the expiration or sooner termination of this Lease, said trade fixtures shall,
at Landlord's option, become the property of Landlord or Landlord, at his
option, may remove said trade fixtures and any damage to the Premises caused by
such installation, alteration or removal of such trade fixtures and the cost of
such removal shall be paid by Tenant to Landlord upon demand.
14. DAMAGE OR DESTRUCTION.
In the event the Premises, or the building or other improvements in which
the Premises are located, shall be damaged by fire, earthquake, the elements or
other casualty and that the cause of said damage is covered by insurance so that
the damage thereto is such that the Premises, or the building and other
improvements in which the Premises are located, may be repaired, reconstructed
or restored within a period of ninety (90) days, Landlord shall promptly
commence the work of repair, reconstruction and restoration, and shall
diligently prosecute the same to completion at Landlord's expense. During this
period of time, this Lease shall continue in full force and effect except that
Tenant shall not be liable for monthly rent if the Premises are totally
destroyed or unusable for health reasons as determined by the applicable
municipal health department, so long as this restriction is not caused by
Tenant. Tenant would be liable only for monthly rent in proportion to usable
space if partially destroyed. If the Premises, or the building or other
improvements in which the Premises are located, could not be restored within
ninety (90) days, either Tenant or Landlord has the option to terminate this
Lease by giving written notice to the other. If the insurance is not sufficient
to fully pay for the repairs, reconstruction or restoration, Landlord shall
notify Tenant in writing of same and Tenant shall have the option to pay the
cost of said repairs, reconstruction or restoration over and above the available
insurance proceeds. Should Tenant not elect to pay said excess costs, either
party may terminate this Lease by giving written notice of same to the other
party.
15. ENTRY AND INSPECTION.
Tenant will permit Landlord and his agents to enter into and upon the
Premises at all reasonable times and upon reasonable notice for the purpose of
inspecting the same, or for the purpose of protecting the interest therein of
Landlord, or to post notices of non-responsibility, or to service or make
<PAGE>
alterations, repairs or additions to the Premises or to any other portion of the
building in which the Premises are situated, including the erection of
scaffolding, props, or other mechanical devices, with rebate of rent to Tenant
for any loss of occupancy or quiet enjoyment of the Premises, or damage, injury
or inconvenience thereby occasioned and will permit Landlord, at any time within
ninety (90) days prior to the expiration of this Lease, to bring upon the
Premises, for purposes of inspection or display, to prospective tenants thereof.
16. HOLD HARMLESS AND-NON-LIABILITY OF LANDLORD.
Tenant agrees to and shall defend and indemnify Landlord against all
claims, liability, loss and expense by reason of injury to person or property or
both, including, without limitation, injury to the person or property of Tenant,
its agents, officers, employees, licensees or invitees arising out of the
condition of the Premises or any portion thereof over which Tenant has control
and a duty to repair and maintain under the terms of this Lease; provided,
however, that this covenant shall not apply to injury to person or property
resulting from acts of Landlord, his agents or employees while in or on the
Premises.
17. UTILITIES.
Tenant shall be responsible for the payment of the cost of all utilities
serving the Premises.
18. NOTICES.
Any notice required to be given pursuant to this Agreement shall be given
in writing to the other party and delivered either personally or by depositing
the same in the United States postal service, registered or certified mail,
return receipt requested, with the postage prepaid, addressed to the parties as
follows:
THE HOLCOMB CORPORATION
19 Seascape Village
Aptos, Ca. 95003
<PAGE>
With copy to:
Lloyd R. Williams
BOSSO, WILLIAMS, LEVIN, SACHS & BOOK
133 Mission Street
Santa Cruz, Ca. 95060
Any notice delivered by mail shall be deemed delivered forty-eight (48) hours
after deposit in the United States postal service mail. The address to which any
notice is to be delivered may be changed by either party by compliance with the
provisions of this Paragraph.
19. BANKRUPTCY AND INSOLVENCY.
The filing or commencement of any proceeding by or against Tenant under the
Federal Bankruptcy Code whether voluntary or involuntary, if not dismissed
within sixty (60) days from the date of filing, shall constitute a default under
this Lease.
20. RECEIVERSHIP.
Either the appointment of a receiver to take possession of all, or
substantially all, of the assets of any Tenant or garnishment of or levy or writ
of execution on, all or substantially all of the assets of any Tenant which
remains in effect for more than sixty (60) days, or a general assignment by any
Tenant for the benefit of creditors, shall constitute a breach of this Lease by
Tenant.
21. DEFAULT AND REMEDIES.
The occurrence of any one or more of the following events shall
constitute a material default and breach of this Lease by Tenant:
(a) The vacating or abandonment of the Premises by Tenant (which shall
be conclusively presumed if Tenant leaves the Premises closed or unoccupied
continuously for thirty (30) days).
(b) The failure by Tenant to make any payment of rent or any other
payment required to be made by Tenant hereunder as and when due and after
five (5) days written notice to Tenant by Landlord to pay same.
<PAGE>
(c) The occurrence of an event described in Paragraphs "Bankruptcy and
Insolvency" and "Receivership", hereof.
(d) The failure by Tenant to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by
Tenant, other than described in subparagraph (b) and (c), above, where such
failure shall continue for a period of thirty (30) days after written
notice thereof from Landlord to Tenant.
In the event of any such material default or breach by Tenant, Landlord may
at any time thereafter, with or without notice or demand and without limiting
Landlord in the exercise of any right or remedy which Landlord may have by
reason of such default or breach:
(a) Terminate Tenant's right to possession of the Premises by any
lawful means, in which case this Lease shall terminate and Tenant shall
immediately surrender possession of the Premises to Landlord. In such
event, Landlord shall be entitled to recover from Tenant all damages
incurred by Landlord by reason of Tenant's default, including, but not
limited to expenses of reletting, reasonable attorney's fees, and any real
estate commission actually paid; the worth at the time of award by a court
having jurisdiction of the unpaid rent which had been earned after
termination until the time of such award exceeds the amount of such rental
loss that the Tenant proves could have been reasonably avoided; the worth
at the time of such award of the amount by which the unpaid rent for the
balance of the term after the time of such award exceeds the amount of such
rental loss that the Tenant proves could be reasonably avoided; and the
portion of any real estate commission payable by Landlord applicable to the
unexpired term of this Lease. Unpaid installments of rent or other sums
shall bear interest from the date due at the rate of ten percent (10%) per
annum. In the event Tenant shall have abandoned the Premises, Landlord
shall have the option of (i) retaking possession of the Premises and
recovering from Tenant the amount specified in this subparagraph (a), or
(ii) proceeding against subparagraph (b). For purposes of this subparagraph
(a), the term "worth at the time of such award" shall have the meaning
provided in Section 1951.2(b) of the California Civil Code.
(b) As provided in Section 1951.4 of the California Civil Code,
maintain Tenant's right to possession, in which case this Lease shall
continue in effect whether or not Tenant shall have abandoned the
<PAGE>
Premises. In such event, Landlord shall be entitled to enforce all of
Landlord's rights and remedies under this Lease, including the right to
recover the rent as it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Landlord
under the laws or judicial decisions of the State of California.
22. REMOVAL OF PROPERTY.
Should Tenant default, as provided in Paragraph "Default and Remedies"
above, Landlord shall, at his option, be entitled to remove any property of
Tenant from the Premises and store the same elsewhere for the account, and at
the expense and risk, of Tenant and should Tenant fail to pay the cost of
storing any such property after it has been stored for a period of ninety (90)
days or more, Landlord, after ten (10) days' written notice to Tenant and
Tenant's failure to pay the required amount, may sell any or all of such
property at public or private sale, in such manner and at such times and places
as Landlord, in his sole discretion, may deem proper, for the payment of any
charges for the removal, storage and sale of such property, and shall apply the
proceeds of such sale: first, to the cost and expenses of such sale, including
reasonable attorneys fees actually incurred; second, to the payment of the cost
of or charges for removing and storing any such property; third; to the payment
of any other sums of money which may then or thereafter be due to Landlord from
Tenant under any of the terms hereof; and fourth, the balance, if any, to
Tenant.
23. WAIVER OF DAMAGES FOR RE-ENTRY.
Tenant hereby waives all claims for damages that may be caused by
Landlord's recentering and taking possession of the Premises or removing and
storing the property of Tenant as herein provided, and will save Landlord
harmless from loss, costs or damages occasioned thereby, and no such re-entry
shall be considered or construed to be a forcible entry.
24. ATTORNEY'S FEES.
In the event suit is brought to enforce or interpret any part of this
Agreement, the prevailing party shall be entitled to recover as an element of
his costs of suit, and not as damages, a reasonable attorney's fee to be fixed
by the
<PAGE>
court. The "prevailing party" shall be the party who is entitled to recover his
costs of suit, whether or not the suit proceeds to final judgment. A party not
entitled to recover his costs shall not recover attorney's fees. No sum for
attorney's fees shall be counted in calculating the amount of a judgment for
purposes of determining whether a party is entitled to recover his costs or
attorney's fees.
25. LITIGATION AGAINST TENANT.
Should Landlord, without fault on Landlord's part, be made a party to any
litigation instituted by or against Tenant, or by or against any person holding
under or using the Premises by license of Tenant, or for the foreclosure of any
lien for labor or material furnished to or for Tenant or for such other person
otherwise arising out of or resulting from any act or transaction of Tenant or
of any such other person, Tenant covenants to pay to Landlord the amount of any
judgment rendered against Landlord of the Premises, or any part thereof, and all
costs and expenses, including reasonable attorney's fees, incurred by Landlord
or in connection with such litigation.
Tenant's obligation under this Paragraph, shall not be applicable to any
action brought by Tenant against Landlord.
26. WAIVER.
The waiver by Landlord of any breach of any term, covenant or condition
herein contained shall not be deemed to be a waiver of such term, covenant, or
condition or of any subsequent breach of the same or any other term, covenant or
condition herein contained. The subsequent acceptance of rent hereunder by
Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of
any term, covenant or condition of this Lease, other than the failure of Tenant
to pay the particular rental so accepted, regardless of Landlord's knowledge of
such preceding breach at the time of acceptance of such rent.
27. LIENS.
Tenant shall keep the Premises and building and the property on which the
Premises are situated, free of any liens arising out of work performed,
materials furnished or obligations incurred by Tenant.
<PAGE>
28. SUBORDINATION AND OFFSET STATEMENT.
Tenant agrees that this Lease shall be subject to any mortgage, trust deed
or like encumbrance heretofore or hereafter placed upon said Premises by
Landlord or his successors in interest to secure the payments of monies loaned,
interest thereon and other obligations. Tenant also agrees to promptly execute
and deliver to Landlord from time to time, as demanded by Landlord, an offset
statement or estoppel certificate containing such facts as are within the
knowledge or are available to Tenant pertaining to this Lease, as a purchaser of
the leased property or a lender may reasonably require if said statement is
prepared for signing by Landlord. Failure to deliver the executed offset
statement or estoppel certificate to Landlord within ten (10) days from receipt
of same, shall be conclusive upon Tenant for the benefit of the party requesting
the statement or certificate, or his successor, that this Lease is in full force
and effect and has not been modified except as may be represented by Landlord in
the statement or certificate delivered to Tenant.
29. INSURANCE.
A. During the Lease term, Tenant shall, at its own expense, maintain in
full force a policy or policies of comprehensive liability insurance, including
property damage, written by one or more responsible insurance companies licensed
to do business in California, and in good standing with the Insurance
Commissioner of California, that will insure Tenant and Landlord (and such other
persons, firms or corporations as are designed by Landlord) against liability
for injury to persons and property and for death of any person or persons
occurring in or about the Premises. The liability under such insurance shall not
be less than One Million Dollars ($1,000,000.00) for bodily injury and Three
Hundred Thousand Dollars ($300,000.00) for property damage.
B. During the Lease term, Tenant shall maintain in full force on all of
its fixtures and equipment in the Premises, a policy or policies of fire
insurance with standard extended coverage endorsement, to the extent of at least
eighty percent (80%) of their insurable value. As long as this Lease is in
effect, the proceeds from any such policy shall be used for the repair or
replacement of the fixtures and equipment so insured. Landlord shall have no
interest in the insurance upon Tenant's equipment and fixtures and will sign all
documents necessary or
<PAGE>
proper in connection with the settlement of any claim or loss by Tenant. Tenant
shall provide Landlord with copies or certificates of all policies, required
under subparagraphs A and B. including in each instance an endorsement providing
that such insurance shall not be canceled except after thirty (30) days written
notice to Landlord.
C. During the Lease term, Landlord shall maintain in full force on the
Premises exclusive of Tenant's fixtures and equipment, a policy or policies of
fire insurance with standard extended coverage endorsement to the extent of at
least the replacement value of the improvements located on the Landlord's real
property described in Exhibit "A", attached hereto, exclusive of Tenant's
fixtures, equipment, furnishings, and other personal property. As long as this
Lease is in effect, the proceeds from any such policy or policies shall be used
for the repair or replacement of the Premises pursuant to Paragraph "Damage or
Destruction", above. Tenant shall pay .075 Percent (.075 %) of the premium cost
for this insurance within ten (10) days of receipt from Landlord of a copy of
the premium statement for the particular. Tenant shall pay a pro rata share of
any premium for insurance which covers a period prior to the Commencement Date
or subsequent to the expiration date of this Lease.
Landlord hereby releases Tenant, and Tenant hereby releases Landlord, from
any and all claims or demands for damages, loss, expense or injury to the
Premises, or to the improvements, fixtures and equipment, or personal property
or other property of either Landlord or Tenant in, about or upon the Premises
adjoining property as the case may be, which is caused by or results from
perils, events or happening which are the subject of insurance carried by the
respective parties and in force at the time of any such loss; provided, however,
that such waiver shall be effective only to the extent permitted by the
insurance covering such loss and to the extent of the insurance recovery.
30. CONDEMNATION.
Should the whole or any part of the Premises be condemned and taken by any
competent authority for any public or quasi-public use or purpose, or should
Landlord make a conveyance in lieu thereof, all awards payable on account of
such condemnation and taking or conveyance shall be payable to Landlord, and
Tenant hereby waives all interest in or claim to said awards, or any part
thereof. Tenant shall be entitled, however, to any award based upon the taking
of or
<PAGE>
damage to Tenant's trade fixtures and improvement to the Premises to the extent
Tenant has the right to remove them at the end of the Lease term. Tenant shall
also be entitled to any award for removal or relocation costs as well as injury
to its business being conducted on the Premises.
If the whole of the Premises shall be so condemned and taken or conveyed,
then this Lease shall terminate.
If a part only of the Premises is so condemned and taken or conveyed, and
the remaining portion thereof is not suitable for the purposes for which Tenant
has leased said Premises, Tenant shall have the right to terminate this Lease.
If by such condemnation and taking a part only of the Premises is taken, and the
remaining part thereof is suitable for the purposes for which Tenant has leased
said Premises, this Lease shall continue, but the rental shall be reduced in an
amount proportionate to the value of the portion taken as it relates to the
total value of the Premises.
31. WAIVER OF REDEMPTION BY TENANT, HOLDING OVER.
Tenant hereby waives for Tenant and for all those claiming under Tenant,
all right now or hereafter existing to redeem by order or judgment of any court
or by any legal process or writ, Tenant's right to occupancy of the leased
Premises after any termination of this Lease. If Tenant holds over the term
hereof, with the express or implied consent of Landlord, such tenancy shall be
from month-to-month only, and not a renewal hereof, or an extension for any
further term, and in such case rent shall be payable in the amount and at the
time specified in Paragraph "Rent", above, including adjustments for real
property, tax and assessments increase and consumer price index change. Such
month-to-month tenancy shall be subject to every other term, covenant, and
agreement contained herein.
32. RULES AND REGULATIONS.
Landlord shall have the right from time to time to adopt reasonable rules
and regulations for the use of the Common Area by Tenant and Tenant's agents,
employees, customers and other invitees. Attached hereto marked Exhibit "C", and
incorporated herein by this reference, is a copy of the initial Rules and
Regulations to which Tenant shall be subject. Tenant, on behalf of itself and
its
<PAGE>
agents, employees, customers and other invitees, agrees to abide by each and
every rule and regulation.
33. HAZARDOUS MATERIALS.
As used in this Lease, the term "hazardous materials" shall mean any
substance or material which has been determined by the State of California, the
federal government, the City of Santa Cruz, or any agency of said governments,
to be capable of posing a risk of injury to health, safety and property
including but not limited to all of those materials and substances designated as
hazardous or toxic by the Environmental Protection Agency, the California Water
Quality Control Board, the U.S. Department of Labor, the California Department
of Industrial Relations, the Department of Transportation, the Department of
Agriculture, the Consumer Products Safety Commission, the Department of Health,
Education & Welfare, the Food & Drug Administration or any other governmental
agency now or hereafter authorized to regulate materials and substances in the
environment. Without limiting the generality of the foregoing, the term
"hazardous materials" shall include all of those materials and substances
defined as "toxic materials" in Sections 66680 through 66685 of Title 22 of the
California Administrative Code, Division 4, Chapter 30, as the same may be
amended from time to time.
Tenant shall promptly comply with all laws related to hazardous materials,
including any and all required monitoring and record keeping, and any orders of
a governmental authority requiring the clean-up and removal of hazardous
materials from the Premises. If the Premises, or any part thereof (including the
soil, surface water, ground water or the air in or about the Premises), becomes
contaminated by any hazardous material, Tenant shall promptly at its sole cost
take all action necessary to clean up and remove such contamination and restore
the Premises to the condition existing immediately prior to the existence of
such hazardous material in or about the Premises. Tenant's obligations under
this Paragraph shall survive Lease termination. Tenant shall immediately notify
Landlord in writing if Tenant causes or permits any hazardous material to be
used or kept in or about the Premises or knows or has reasonable cause to
believe that any hazardous material has come to be located in or about the
Premises or discovers the existence of any hazardous material in or about the
Premises. Tenant shall be solely responsible for the cost of any required clean
up
<PAGE>
and removal of hazardous materials and/or toxic wastes which have been placed or
left upon the Premises by Tenant after the date of execution of this Lease.
Tenant shall indemnify Landlord and his successors and assigns against and
hold them harmless from any and all claims, demands, liabilities, damages,
including punitive damages, costs and expenses, including reasonable attorney's
fees, herein collectively referred to as "Claims":
(1) Any Claim by a federal, state or local governmental agency arising out
of or in any way connected with the environmental condition of the Premises
including, but not limited to, Claims for additional clean-up of the Premises;
and
(2) Any Claim by an successor in interest of Tenant (including a mortgagee
who acquires title to the Premises through foreclosure or by accepting a deed in
lieu of foreclosure), or by any subtenant, licensee, or invitee of Tenant
arising out of or in any way connected with the environmental condition of the
Premises.
34. DEFINED TERMS.
The words "Landlord" and "Tenant" as used herein, shall include the plural
as well as the singular, words used in neuter gender include the masculine and
feminine and words in the masculine or feminine gender include the neuter. If
there be more than one Landlord or Tenant, the obligations hereunder imposed
upon Landlord or Tenant, shall be joint and several. The marginal headings or
titles to the Paragraphs of this Lease are not a part of this Lease and shall
have no effect upon the construction or interpretation of any part thereof.
35. HEIRS.
Subject to the provisions hereof relating to assignment, mortgaging,
pledging and subletting, this Lease is intended to and does bind the heirs,
executors, administrators, successors and assigns of any and all of the parties
hereto.
36. JURISDICTION.
This Agreement shall be governed by and construed in accordance with the
laws of the State of California.
<PAGE>
37. TIME.
Time is of the essence of this Lease.
38. SEVERABILITY.
If any term or provision hereof is illegal or invalid for any reason
whatsoever, such illegality or invalidity shall not affect the validity of the
remainder of this Lease.
39. ENTIRE AGREEMENT.
This Lease contains the sole and entire agreement of the parties, and
correctly sets forth the rights, duties and obligations of each to the other,
and any prior agreements, promises, negotiations, or representations not
expressly set forth in this Agreement are hereby superseded and of no force and
effect. Any changes to this Lease must be in writing, signed by both Landlord
and Tenant.
40. AUTHORIZATION.
Tenant hereby represents to Landlord that the party executing this Lease on
behalf of Tenant, is authorized by Tenant to execute this Lease and thus bind
Tenant to all of the terms, covenants and conditions contained herein.
IN WITNESS WHEREOF, Landlord and Tenant have executed these presents the
day and year first above written.
LANDLORD: TENANT:
THE HOLC0MB CORPORATION COAST COMMERCIAL
BANKING
/s/
---------------------------
By: /s/
---------------------------------- ---------------------------
Title:
------------------------------- ---------------------------
<PAGE>
LEGAL DESCRIPTION OF REAL PROPERTY
(to be attached)
SEASCAPE VILLAGE - Building D
14-A Seascape Village
Aptos, Ca. 95003
<PAGE>
DIAGRAM OF PREMISES
(to be attached)
<PAGE>
RULES AND REGULATIONS
1. No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed, printed or affixed on or to any part of the outside of the
building. All signs, placards, pictures, advertisements, names or notices
inscribed, displayed, printed or affixed on or to any part of the inside of the
building which is observable from the outside of the building, shall be
aesthetically pleasing, shall not appear unsightly from the outside of the
Premises, and the total area used for same shall not exceed ________ percent
(__%) of the total outside window space of the Premises.
Tenant shall not without the prior written consent of Landlord cause
or otherwise sunscreen any window, or install any curtains, blinds, shades,
screens or hanging plants or other similar objects attached to or used in
connection with any window or outside door of the Premises. Further, no awning
shall be permitted on any part of the Premises.
2. Sidewalks, halls, passages, exits, entrances and stairways shall not
be obstructed by any of the tenants or used by them for any purpose other than
for ingress and egress from their respective Premises.
3. Tenant shall not alter any lock or install any new or additional locks
or any bolts on any doors or windows of the Premises without the prior written
consent of Landlord and keys to same having been given to Landlord.
4. The toilet rooms, urinals, wash basins and other apparatus shall not
be used for any purpose other than that for which they were constructed; and no
foreign substance of any kind whatsoever shall be thrown therein and the expense
of any breakage, stoppage or damage resulting from the violation of this rule
shall be borne by the Tenant who or whose employees or invitees shall have
caused it.
5. Tenant shall not overload the floor of the Premises or in any way
deface the Premises or any part thereof.
6. Tenant shall not use, keep, or permit to be used or kept, any foul or
noxious gas or substance in the Premises or permit or suffer the Premises to be
occupied or used in any manner offensive or objectionable to Landlord or other
occupants of the buildings located on Landlord's real property by reason of
noise, odors or vibrations or interfere in any way with other tenants or those
having
<PAGE>
business therein; nor shall any animals or birds be brought in or kept in or
about the Premises or the buildings.
7. Tenant shall not use or keep in the Premises or the buildings any
kerosene, gasoline or inflammable or combustible fluids or materials or use any
method of heating or air conditioning other than that supplied by Landlord.
8. Landlord will direct electricians as to where and how telephone and
telegraph wires are to be introduced. No boring or cutting for wires will be
allowed without the consent of Landlord. The location of telephone call boxes
and other office equipment affixed to the Premises shall be subject to the prior
approval of Landlord.
9. No vending machine or machines of any description shall be installed,
maintained or operated upon the Premises without the prior written consent of
Landlord.
10. Landlord shall have the right, exercisable without notice and without
liability to Tenant, to change the name and a address of the building of which
the Premises are a part.
11. Tenant shall not disturb, solicit or canvas any occupant of the
building and shall cooperate to prevent same.
12. Without the prior written consent of Landlord, Tenant shall not use
the name of the building in connection with or in promoting or advertising the
business of Tenant except as Tenant's address.
13. Landlord shall have the right to control and operate the public
portions of the building and the public facilities and heating and air
conditioning as well as facilities furnished for the common use of the tenants
in such manner as it deems best for the benefit of the tenants generally.
<PAGE>
DEFERRED COMPENSATION AGREEMENT
COAST COMMERCIAL BANK
This Agreement is entered into this Second day of November 1992 between Coast
Commercial, a state bank organized under the laws of the State of California
("Bank") and JOHN C. BURROUGHS, a Director of the Bank.
WHEREAS, the Director has contributed to the success and profitability of the
Bank and the Bank wishes to provide additional incentive for the Director to
continue such contribution; and
WHEREAS, the Bank and the Director desire to set forth their agreement as to
deferring a portion of Director's compensation as a deferred compensation plan
and to provide Director certain additional benefits in the case of Director's
death while serving as a Director of the Bank,
NOW THEREFORE, in consideration of the mutual agreements contained herein, Bank
and Director agree as follows:
1. Director will agree to a reduction of the current payment of compensation by
$10,000.00 annually, or such other amount as shall be elected by Director in a
signed writing delivered to the Bank prior to January 1 of the year to which the
election applies, and to defer receipt of such amount until paid to him pursuant
to later provisions of this Agreement.
Compensation reductions under this Agreement shall cease at the end of the month
in which Director attains age sixty-five (65) even if Director is still serving
as a Director at that time.
2. The Bank will record amounts deferred pursuant to Section 1 in a separate
account ("Account") on the books by the Bank.
3. (a) Until all amounts held in the Account are fully paid out pursuant to
later provisions of this Agreement, the Bank will credit interest to the Account
at a rate, except as set forth in section 3(b), determined by a resolution of
the Board of Directors not less than annually.
The amount at which interest is credited to the Account effective October 1,
1992, is 7%.
Interest on amounts held in the Account will be compounded daily compatible with
the Bank's formula for interest calculation.
4. The Account will be segregated from other assets owned by the Bank only by
way of its identification on the books and records of the Bank as a liability of
the Bank to Director, and will be subject to the claims of general creditors of
the Bank.
5. Amounts held in the Account will be payable to Director or his beneficiary
upon the first to occur of the following events:
(I) Termination of Director service as a Director of the Bank; or
(ii) Attainment of age sixty-five (65); or
(iii) Termination of this Agreement pursuant to section 16.
<PAGE>
6. Upon the occurrence of an event described in section 5 the Bank will pay to
Director or his beneficiary pursuant to section 7 amounts held in the Account.
However, if Employee dies prior to termination of his service with the Bank and
prior to attainment of age sixty-five (65), then, if Director's Projected
Benefit exceeds the amount held in the Account, the amount payable to Director's
beneficiary shall be the Projected Benefit.
Projected Benefit means the amount that would have been deemed credited to the
Account as of the first day of the month during which Director would have
attained age sixty-five (65). The Projected Benefit shall be determined solely
by the Bank which may from time to time modify the Projected Benefit. The
initial Projected Benefit is $45,704.00 FOR 13 YEARS.
CLAIMS AND REVIEW PROCEDURES
6.1 Claims Procedure. The Company shall notify the Executive's beneficiary in
writing, within ninety (90) days of his or her written application for benefits,
of his or her eligibility or noneligibility for benefits under the Agreement.
If the Company determines that the beneficiary is not eligible for benefits or
full benefits, the notice shall set forth (1) the specific reasons for such
denial, (2) a specific reference to the provisions of the Agreement on which the
denial is based, (3) a description of any additional information or material
necessary for the claimant to perfect his or her claim, and a description of why
it is needed, and (4) an explanation of the Agreement's claims review procedure
and other appropriate information as to the steps to be taken if the beneficiary
wishes to have the claim reviewed. If the Company determines that there are
special circumstances requiring additional time to make a decision, the Company
shall notify the beneficiary of the special circumstances and the date by which
a decision is expected to be made, and may extend the time for up to an
additional ninety-day period.
6.2 Review Procedure. If the beneficiary is determined by the Company not to
be eligible for benefits, or if the beneficiary believes that he or she is
entitled to greater or different benefits, the beneficiary shall have the
opportunity to have such claim reviewed by the Company by filing a petition for
review with the Company within sixty (60) days after receipt of the notice
issued by the Company. Said petition shall state the specific reasons which the
beneficiary believes entitle him or her to benefits or to greater or different
benefits. Within sixty (60) days after receipt by the Company of the petition,
the Company shall afford the beneficiary (and counsel, if any) an opportunity to
present his or her position to the Company orally or in writing, and the
beneficiary (or counsel) shall have the right to review the pertinent documents.
The Company shall notify the beneficiary of its decision in writing within the
sixty-day period, stating specifically the basis of its decision, written in a
manner calculated to be understood by the beneficiary and the specific
provisions of the Agreement on which the decision is based. If, because of the
need for a hearing, the sixty-day period is not sufficient, the decision may be
deferred for up to another sixty-day period at the election of the Company, but
notice of this deferral shall be given to the beneficiary.
7.(a) Amounts payable to Director upon the occurrence of an event described in
section 5 shall be paid promptly to Director or his beneficiary in one oft the
following methods, as elected by Director in a signed writing delivered to the
Bank prior to the occurrence of the event:
(i) In a lump sum; or
<PAGE>
(ii) In substantially equal monthly, quarterly or annual installments
over a five (5) year period; or
(iii) In substantially equal monthly, quarterly or annual installments
over a ten (10) year period.
(iv) In substantially equal monthly, quarterly or annual installments
over a fifteen (15) year period.
7.(b) If Director has not elected a method of payment in the manner set forth
in the preceding section 7(a) prior to the occurrence of an event described in
section 5, then the Bank, in its sole discretion, will select the method of
payment from among those set forth in section 7(a).
7.(c) If Director's service with the Bank is terminated prior to attaining age
sixty-five (65) due to disability or retirement, Director may request the Bank,
in a signed writing delivered to the Bank prior to Director's termination, not
to pay any amounts otherwise payable to Director until Director attains age
sixty-five (65) or Director dies prior to attaining age sixty-five (65). The
Bank, in its sole discretion shall elect whether or not to grant such a request.
8. After attaining age sixty (60) or five (5) years of service with the Bank,
Director may request in a signed writing delivered to the Bank, that the Bank
pay a hardship distribution to Director from amounts held in the Account.
Hardship means an unforeseen event or situation that creates an extraordinary
financial need that cannot reasonably be met by other resources of the Director.
The Bank shall elect in its sole discretion whether or not to grant such
request.
9. Amounts paid to Director or his beneficiary pursuant to this Agreement will
be subject to taxes and charges to the extent required by law.
10. Any amount payable to Director's beneficiary pursuant to this Agreement
will be paid to the beneficiary designated by Director in a signed writing
delivered to the Bank. Director has the right to change his beneficiary
designation by delivering to the Bank a subsequent signed writing. If Director
does not designate a beneficiary in the manner described in this section, or if
the designated beneficiary has predeceased Director, then amounts payable
hereunder will be payable first to Director's surviving spouse. If Director has
no surviving spouse, amounts will then be payable to Director's estate.
No one other than the Director shall have any right to designate a beneficiary.
11. The Bank will acquire an insurance policy on the life of Director. The
Bank will be the owner and beneficiary of the policy. Director will have no
interest in or right to the policy.
12. Director hereby agrees that he has answered, or will answer, truthfully and
completely, any question or request for information in connection with the
issuance of any insurance policy on his life for the purpose of assisting the
Bank in meeting its obligations under this Agreement. If the issuing life
insurance company refuses to pay a claim as a result of a material
misrepresentation or other act by Director, no amounts shall be payable under
this Agreement.
<PAGE>
13. The right to receive payments under this Agreement shall not be assigned or
encumbered, or subject to anticipation, garnishment, attachment, or any other
legal process of creditors of Director or any designated beneficiary. If
Director or a designated beneficiary attempts to assign such right the Bank, in
its sole discretion, may suspend, reduce or terminate any or all rights created
by this Agreement as to Director or the designated beneficiary attempting said
assignment.
14. Director status as a member of the Board of Directors of the Bank shall be
subject to termination at any time and to the same extent as if this Agreement
had not been executed.
The Bank does not assure or guarantee the tax consequences of payments provided
hereunder or matters beyond its control, and Director certifies that his
decision to reduce and defer receipt of compensation is not due to any reliance
upon financial, tax or legal advice given by the Bank or any of its employees.
15. This Agreement may be amended at any time by the Bank in writing. However,
no amendment may be made which will reduce amounts payable to Director or his
designated beneficiary without such person's written consent.
16. This Agreement may be terminated by the Bank upon 180 days advance written
notice to Director.
17. This Agreement constitutes the entire agreement between the Bank and
Director as to the subject matter hereof. No rights are granted to Director by
virtue of this Agreement other than those specifically set forth herein.
This Agreement shall be binding upon Director and the Bank, the successors and
assigns of the Bank, and the beneficiaries, heirs and legal representatives of
Director.
18. This Agreement shall be interpreted according to the laws of the State of
California.
IN WITNESS WHEREOF, the parties hereof have entered into this Agreement as of
the date first above written.
BANK DIRECTOR
By /s/ /s/
----------------------------------- ------------------------------------
Its Corporate Secretary
