<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 22, 1997
FILE NO.: 333-39941
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
UNITED PANAM FINANCIAL CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
DELAWARE 6162 95-3211687
<S> <C> <C>
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
1300 SOUTH EL CAMINO REAL
SAN MATEO, CALIFORNIA 94402
(650) 345-1800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
LAWRENCE J. GRILL
PRESIDENT AND CHIEF EXECUTIVE OFFICER
1300 SOUTH EL CAMINO REAL
SAN MATEO, CALIFORNIA 94402
(650) 345-1800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<CAPTION>
<S> <C>
PAUL H. IRVING, ESQ. TODD H. BAKER, ESQ.
MANATT, PHELPS & PHILLIPS, LLP GIBSON, DUNN & CRUTCHER LLP
11355 WEST OLYMPIC BOULEVARD ONE MONTGOMERY STREET, SUITE 3100
LOS ANGELES, CALIFORNIA 90064 SAN FRANCISCO, CALIFORNIA 94104
(310) 312-4196 (415) 393-8200
</TABLE>
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement has become effective.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED DECEMBER 22, 1997
SHARES
[LOGO OF UNITED PANAM FINANCIAL CORP.]
COMMON STOCK
All of the shares of Common Stock offered hereby (the "Offering") are being
sold by United PanAm Financial Corp., a Delaware corporation (the "Company").
Prior to the Offering, there has been no public market for the Common Stock. It
currently is anticipated that the initial public offering price will be between
$ and $ per share. See "Underwriting" for a discussion of factors to be
considered in determining the initial public offering price.
The Company has applied for quotation of the Common Stock on the Nasdaq
National Market under the symbol "UPFC."
SEE "RISK FACTORS" COMMENCING ON PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY POTENTIAL PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share..................................... $ $ $
- --------------------------------------------------------------------------------
Total(3)...................................... $ $ $
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) See "Underwriting" for information relating to indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company estimated to be $750,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
additional shares of Common Stock on the same terms and conditions as
set forth above, solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discount and
Proceeds to Company will be $ , $ and $ , respectively. See
"Underwriting."
The shares of Common Stock are offered by the Underwriters named herein,
subject to receipt and acceptance by them and subject to their right to reject
any order in whole or in part. It is expected that delivery of the certificates
representing such shares will be made against payment therefor at the offices
of NationsBanc Montgomery Securities, Inc. on or about , 1997.
-----------
NationsBanc Montgomery Securities, Inc. Piper Jaffray inc.
The date of this Prospectus is , 1997
<PAGE>
[MAP OF THE UNITED STATES SHOWING THE LOCATION OF THE COMPANY'S OFFICES.]
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by independent certified public
accountants and quarterly reports containing unaudited financial information
for each of the first three quarters of each fiscal year.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE,
PURCHASES OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE
COMMON STOCK MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY
BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and the financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. Except as
otherwise specified, all information in this Prospectus (i) reflects a 1,875-
for-1 stock split effected in November 1997, (ii) assumes no exercise of the
Underwriters' over-allotment option and (iii) excludes 2,287,500 shares of
Common Stock reserved for issuance under the Company's 1997 Employee Stock
Incentive Plan (the "Stock Incentive Plan"). See "Management--Stock Incentive
Plan" and "Underwriting." Unless the context indicates otherwise, all
references herein to the "Company" refer to United PanAm Financial Corp. and
its subsidiaries on a consolidated basis.
This Prospectus contains forward-looking statements, including statements
regarding the Company's strategies, plans, objectives, expectations and
intentions, which are subject to a variety of risks and uncertainties. The
Company's actual results could differ materially from those anticipated in
these forward-looking statements as a result of certain factors, including
those set forth under "Risk Factors" and elsewhere in this Prospectus. The
cautionary statements made in this Prospectus should be read as being
applicable to all related forward-looking statements wherever they appear in
this Prospectus.
THE COMPANY
The Company is a diversified specialty finance company engaged primarily in
originating and acquiring for investment or sale residential mortgage loans,
personal automobile insurance premium finance contracts and retail automobile
installment sales contracts. The Company targets customers who generally cannot
obtain financing from traditional lenders. These customers usually pay higher
loan origination fees and interest rates than those charged by traditional
lenders to gain access to consumer financing. The Company believes that
management's experience in originating, assessing, pricing and managing credit
risk enables the Company to earn attractive risk-adjusted returns. The Company
has funded its operations to date principally through retail deposits, Federal
Home Loan Bank ("FHLB") advances and whole loan sales at its federal savings
bank subsidiary, Pan American Bank, FSB (the "Bank"), and expects to complete
its first securitization of mortgage loans in December 1997. The Company's
strategy is to undertake controlled geographic expansion of its existing
businesses, with particular emphasis in the near term on the national expansion
of its mortgage finance operations, and to evaluate possible entry into other
specialty finance businesses which provide the opportunity for attractive risk-
adjusted returns.
The Company believes that the Bank currently is the largest Hispanic-
controlled savings association in California. The Company commenced operations
in 1994, as a Hispanic-controlled financial institution, by purchasing from the
Resolution Trust Corporation (the "RTC") certain assets and assuming certain
liabilities of the Bank's predecessor, Pan American Federal Savings Bank. The
Company has used the Bank as a base for expansion into its current specialty
finance businesses. In 1995, the Company commenced its insurance premium
finance business through a joint venture with BPN Corporation ("BPN"), which
the Company believes to be the second largest provider of financing for
consumer automobile insurance premiums in California. In 1996, the Company
commenced its current mortgage and automobile finance businesses.
Mortgage Finance. The Company originates and sells subprime mortgage loans
secured primarily by first mortgages on single family residences through its
subsidiary, United PanAm Mortgage Corporation, and the Bank (such business,
together with the Bank's mortgage finance activities, "UPAM"). UPAM's targeted
mortgage customers are considered "subprime" because of factors such as
impaired credit history or high debt-to-income ratios compared to customers
targeted by traditional mortgage lenders. UPAM's customers use the proceeds of
the mortgage loans primarily to finance home purchases and improvements, debt
consolidation, education and other consumer needs, and may benefit from
consolidating existing consumer debt through mortgage loans with lower
3
<PAGE>
monthly payments. The Company believes that the subprime residential mortgage
market is highly fragmented and that success in this market depends primarily
on the ability to provide superior customer service and competitive pricing.
UPAM seeks to (i) locate experienced loan officers in geographic proximity to
large population centers, (ii) issue conditional loan approvals promptly,
generally within 24 hours after receipt of an application, (iii) avoid imposing
unnecessarily restrictive conditions on loan approvals, (iv) fund loans on a
timely basis, generally within 15 to 20 days following conditional approval,
and in accordance with approved terms, and (v) competitively price loans
according to market conditions.
UPAM's mortgage loan originations have grown from $36.7 million for the nine
months ended September 30, 1996 to $336.9 million for the nine months ended
September 30, 1997. The average loan-to-value ratio ("LTV") on mortgage loans
originated by UPAM during the nine months ended September 30, 1997 was
approximately 75%, as compared to 72% during the comparable period of 1996.
UPAM's operating strategy is to maintain a balance between retail and wholesale
origination of mortgage loans. Approximately 41% of the mortgage loans
originated by UPAM during the nine months ended September 30, 1997 were
originated through the direct solicitation of borrowers by mail and
telemarketing (retail loan originations), with the balance originated through
independent loan brokers (wholesale loan originations). At September 30, 1997,
UPAM had six retail loan offices and five wholesale loan centers originating
mortgage loans in 19 states, and intends to balance its future growth between
retail offices (four of which are forecasted to be opened in the fourth quarter
of 1997) and wholesale loan centers. UPAM currently sells substantially all of
its loan originations to mortgage companies and investors through whole loan
packages offered for bid several times each month. During the nine months ended
September 30, 1997, UPAM sold $273.1 million of mortgage loans at a weighted
average sales price equal to 105.9% of the unpaid principal balance of the
loans sold. The Company expects to complete its first securitization of
mortgage loans in December 1997 and, thereafter, to sell or securitize mortgage
loans on a periodic basis. See "Risk Factors--General--Securitizations."
Insurance Premium Finance. In May 1995, the Company entered into a joint
venture with BPN under the name "ClassicPlan" (such business, "IPF"). BPN was
founded in 1982. Under this joint venture, which commenced operations in
September 1995, (i) the Bank underwrites and finances automobile insurance
premiums in California and (ii) BPN markets this financing primarily to
independent insurance agents that sell personal automobile insurance in
California and, thereafter, services such loans for the Bank. The Bank lends to
individuals for the purchase of single premium automobile insurance policies.
The Bank's collateral is the unearned insurance premium, which is held by the
insurance company and refundable to IPF in the event the underlying insurance
policy is canceled. The Company does not sell or have the risk of underwriting
the underlying insurance policy. The Company's portfolio of insurance premium
finance contracts has grown from 66,247 contracts in the aggregate gross amount
of $31.3 million at September 30, 1996 to 123,371 contracts in the aggregate
gross amount of $47.3 million at September 30, 1997, primarily as a result of
changes in California's automobile insurance laws. During the nine months ended
September 30, 1997, IPF originated 99,555 insurance premium finance contracts
in the aggregate gross amount of $117.1 million, as compared to 63,533 such
contracts in the aggregate gross amount of $73.4 million during the nine months
ended September 30, 1996. The Company believes that success in the insurance
premium finance business depends on developing relationships with independent
insurance agents and efficient and accurate servicing and collection systems.
The Company has an option to purchase BPN, commencing on April 29, 1999 at an
agreed price. See "Business--Insurance Premium Finance--Relationship with BPN."
Automobile Finance. The Company acquires, holds for investment and services
subprime retail automobile installment sales contracts ("auto contracts")
generated by franchised and independent dealers of used automobiles through the
Bank and its subsidiary, United Auto Credit Corporation (such business,
"UACC"). UACC's customers are considered "subprime" because of factors such as
impaired credit history or high debt-to-income ratios compared to customers of
traditional automobile lenders. The Company believes that success in the
subprime automobile finance business depends upon controlled growth,
disciplined underwriting, strong
4
<PAGE>
internal audit procedures and focused servicing and collection efforts at each
of its local branches. The Company's portfolio of auto contracts has grown from
651 contracts in the aggregate gross amount (excluding unearned financing
charges) of $6.4 million at September 30, 1996 to 3,619 contracts in the
aggregate gross amount of $32.0 million at September 30, 1997. During the nine
months ended September 30, 1997, the Company acquired 2,843 auto contracts in
the aggregate gross amount of $29.4 million, as compared to 664 auto contracts
in the aggregate gross amount of $6.9 million during the nine months ended
September 30, 1996. At September 30, 1997, the Company marketed its automobile
finance program from seven branch offices in California and one each in Arizona
and Utah. During the nine months ended September 30, 1997, UACC approved 13.7%
and funded 12.2% of the applications for auto contracts it received.
The Bank. The Bank has been the principal funding source to date for the
Company's residential mortgage, insurance premium and automobile finance
businesses, primarily through the Bank's deposits, FHLB advances and whole loan
sales. In addition, the Bank holds a portfolio of primarily traditional
residential mortgage loans acquired from the RTC in 1994 and 1995 at a discount
from the unpaid principal balance of such loans, which loans aggregated $87.2
million (before unearned discounts and premiums) at September 30, 1997. The
Bank maintains four branches in Northern California and one in Southern
California, and has focused its branch marketing efforts on building a middle
income customer base, including efforts targeted at local Hispanic communities.
As of September 30, 1997, deposits totaled $210.8 million with a weighted
average interest rate of 5.20%. In the future, the Company intends to operate
its mortgage finance business principally through United PanAm Mortgage
Corporation. The Company intends to continue funding its insurance premium and
automobile finance businesses entirely through the Bank for the foreseeable
future.
BUSINESS STRATEGY
Growth Strategy. The Company intends to capitalize on its competitive
strengths by expanding its core businesses and entering other specialty finance
businesses which provide the opportunity for attractive risk- adjusted returns.
The Company's growth strategy includes the following key elements.
. Geographic Expansion of Existing Businesses. The Company intends to
expand its residential mortgage and automobile finance businesses into
new geographic areas, principally by opening offices staffed by
experienced local marketing and management personnel. The Company
believes that an emphasis on management with local experience, coupled
with comprehensive underwriting standards and financial controls, will
permit growth in loan originations without compromising loan
performance. The Company also may expand its insurance premium finance
business as opportunities arise outside of California. See "Risk
Factors--General--Management of Growth."
. Entry into New Specialty Finance Businesses. The Company continually
evaluates expansion into other specialty finance businesses which
provide the opportunity for attractive risk-adjusted returns in markets
(i) which it believes are underserved by traditional lenders or are
undergoing change, (ii) which are highly fragmented with no participant
having significant market share, or (iii) in which it can attract the
required management experience to assess, price and manage the credit
risk and, thereby, generate attractive risk-adjusted returns. The
Company may enter such new businesses on a de novo basis or through
acquisitions. See "Risk Factors--General--Management of Growth."
Operating Strategy. The Company's operating strategy includes the following
key elements.
. Centralized Risk Management Controls. For each of its businesses, the
Company has implemented comprehensive risk management policies and
portfolio parameters which are designed to identify the types and amount
of risk that can prudently be taken in each business. The Company
continually monitors the performance of each of its businesses against
these policies and parameters.
5
<PAGE>
. Decentralized Management. The management of each of the Company's
businesses is responsible for its day-to-day operations, subject to
centralized risk management controls and individualized, goal oriented
incentive compensation programs that support the achievement of credit
quality, growth and profitability objectives. The Company believes that
the delegation of responsibility to the management of each business has
enabled the Company to attract, promote and retain experienced managers,
to provide high levels of customer service and to respond promptly to
changes in market conditions.
. Diversified Funding Sources. The Company has funded its lending
businesses to date primarily through the Bank's deposits, as well as
FHLB advances and whole loan sales. The Company believes that bank
deposits are a stable and cost-effective funding source which provide it
with a competitive advantage. To further diversify its funding sources,
in October 1997 the Company obtained a $100 million master repurchase
facility to finance the anticipated growth in its mortgage lending
operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources--
Master Repurchase Agreement." The Company expects to complete its first
securitization of mortgage loans in December 1997 and, thereafter, to
sell or securitize mortgage loans on a periodic basis. The Company will,
in the future, consider the sale or securitization of other financial
assets. See "Risk Factors--General--Securitizations" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--General--Mortgage Finance."
The Company was incorporated in Delaware on August 31, 1989. The Company's
principal executive offices are located at 1300 South El Camino Real, San
Mateo, California 94402, and its telephone number is (650) 345-1800.
6
<PAGE>
THE OFFERING
Common Stock offered by the Company... shares
Common Stock to be outstanding after
the Offering.......................... shares(1)
Use of proceeds....................... To repay certain indebtedness to
existing stockholders and for general
corporate purposes, including financing
the growth of the Company's existing
businesses, with particular emphasis on
the expansion of UPAM and the
development or acquisition of other
specialty finance businesses. See "Use
of Proceeds."
Proposed Nasdaq National Market
symbol................................ UPFC
- --------
(1) Excludes 2,287,500 shares reserved for issuance under the Stock Incentive
Plan, of which (i) 1,580,000 shares were subject to options outstanding as
of November 7, 1997, at a weighted average exercise price of $4.55 per
share, and (ii) 140,000 shares are subject to options to be granted to
certain directors and officers concurrently with the completion of the
Offering, at an exercise price equal to either the initial public offering
price or 110% of the initial public offering price. See "Management--Stock
Incentive Plan."
7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
APRIL 29, 1994 AT OR FOR THE AT OR FOR THE
(INCEPTION) YEAR ENDED NINE MONTHS
THROUGH DECEMBER 31, ENDED SEPTEMBER 30,
DECEMBER 31, ------------------ --------------------
1994 1995 1996 1996 1997
-------------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA
Interest income......... $ 6,882 $ 13,533 $ 16,561 $ 12,116 $ 18,314
Interest expense........ 3,573 7,727 7,853 5,752 8,193
-------- -------- -------- --------- ---------
Net interest income... 3,309 5,806 8,708 6,364 10,121
Provision for loan
losses................. 50 120 194 98 445
-------- -------- -------- --------- ---------
Net interest income
after provision for
loan losses.......... 3,259 5,686 8,514 6,266 9,676
-------- -------- -------- --------- ---------
Non-interest income
Gain on sale of
loans................ 3 90 2,333 854 15,260
Other non-interest
income............... 95 228 443 314 523
-------- -------- -------- --------- ---------
Total non-interest
income............. 98 318 2,776 1,168 15,783
-------- -------- -------- --------- ---------
Non-interest expense
Compensation and
benefits............. 1,564 2,750 5,248 3,365 12,195
Savings Association
Insurance Fund
special assessment... -- -- 820 -- --
Other expense......... 1,579 2,412 3,581 2,441 7,090
-------- -------- -------- --------- ---------
Total non-interest
expense............ 3,143 5,162 9,649 5,806 19,285
-------- -------- -------- --------- ---------
Income before income
taxes.................. 214 842 1,641 1,628 6,174
Income taxes............ 98 384 691 698 2,580
-------- -------- -------- --------- ---------
Net income.............. $ 116 $ 458 $ 950 $ 930 $ 3,594
======== ======== ======== ========= =========
Net income per common
share (pro forma)(1) .. $ 0.01 $ 0.04 $ 0.09 $ 0.09 $ 0.32
======== ======== ======== ========= =========
Weighted average common
shares outstanding
(pro forma)(1) ........ 10,886 10,886 10,886 10,886 11,334
======== ======== ======== ========= =========
BALANCE SHEET DATA
Total assets............ $180,024 $159,581 $187,598 $ 173,983 $ 283,262
Loans................... 53,176 131,794 134,821 140,882 152,500
Loans held for sale..... -- -- 20,766 9,605 70,241
Allowance for loan
losses................. (378) (5,250) (5,356) (5,313) (6,203)
Deposits................ 163,114 141,924 159,061 147,979 210,783
Notes payable........... 10,930 10,930 10,930 10,930 12,870
FHLB advances........... -- -- 4,000 4,000 35,000
Stockholders' equity.... 5,270 5,811 6,761 6,740 10,355
OPERATING DATA
Return on average
assets(2).............. 0.11% 0.27% 0.56% 0.75% 2.09%
Return on average
stockholders'
equity(2).............. 3.44% 8.51% 16.10% 21.38% 62.85%
Net interest margin..... 3.24% 3.61% 5.44% 5.41% 6.36%
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
APRIL 29, 1994 AT OR FOR THE AT OR FOR THE
(INCEPTION) YEAR ENDED NINE MONTHS
THROUGH DECEMBER 31, ENDED SEPTEMBER 30,
DECEMBER 31, ---------------- ---------------------
1994 1995 1996 1996 1997
-------------- ------- ------- --------- ----------
<S> <C> <C> <C> <C> <C>
Stockholders' equity to
assets................. 2.93% 3.64% 3.60% 3.87% 3.66%
Tangible capital ratio
of Bank................ 8.50% 9.89% 8.85% 9.55% 7.06%
Core capital ratio of
Bank................... 8.50% 9.89% 8.85% 9.55% 7.06%
Risk-based capital ratio
of Bank................ 27.53% 17.19% 16.36% 16.82% 13.20%
ASSET QUALITY DATA
Nonaccrual loans,
net(3)................. $1,439 $ 5,240 $ 5,835 $ 5,221 $ 4,668
Real estate owned....... -- 298 988 714 637
Total non-performing
assets................. 1,439 5,538 6,823 5,935 5,305
Non-performing assets to
total assets........... 0.80% 3.47% 3.64% 3.41% 1.87%
Allowance for credit
losses to net loans.... 0.71% 3.98% 3.97% 3.77% 4.07%
General allowance for
credit losses to non-
performing loans(4).... 26.27% 82.80% 74.90% 82.34% 110.70%
SUBPRIME MORTGAGE FI-
NANCE DATA
Loan origination
activities(5)
Wholesale
originations......... -- -- $58,456 $ 34,818 $ 198,854
Retail originations... -- -- 13,055 1,899 138,025
------ ------- ------- --------- ----------
Total loan
originations....... -- -- 71,511 36,717 336,879
Percent of loans
secured by first
mortgages............ -- -- 95% 94% 97%
Weighted average
initial loan-to-value
ratio................ -- -- 72% 72% 75%
Originations by
product type
Adjustable-rate
mortgages.......... -- -- 85% 78% 87%
Fixed-rate
mortgages.......... -- -- 15% 22% 13%
Weighted average
interest rate
Adjustable-rate
mortgages.......... -- -- 9.55% 9.74% 9.42%
Fixed-rate
mortgages.......... -- -- 10.76% 10.64% 10.76%
Average balance per
loan................. -- -- $ 100 $ 100 $ 112
Loans sold through whole
loan transactions(6)... -- -- $50,142 $21,557 $273,080
Number of sales
offices................ -- -- 5 3 11
INSURANCE PREMIUM FI-
NANCE DATA
Loans originated........ -- $21,676 $99,012 $ 73,449 $ 117,119
Number of loans
originated............. -- 21,137 83,839 63,533 99,555
Average net yield on
loans originated....... -- 15.77% 13.62% 13.73% 14.04%
Average loan size at
origination............ -- $ 1.03 $ 1.18 $ 1.16 $ 1.18
Net charge-offs to
average loans(2)(7).... -- -- 0.38% 0.38% 0.27%
AUTOMOBILE FINANCE DATA
Gross contracts
purchased.............. -- -- $12,216 $ 6,865 $ 29,442
Number of contracts
purchased.............. -- -- 1,175 664 2,843
Average discount on
contracts purchased.... -- -- 10.00% 10.00% 10.00%
Number of sales
offices................ -- -- 4 2 6
Gross amount financed
per contract........... -- -- $ 10.42 $ 10.37 $ 10.43
Net charge-offs to
average contracts(8)... -- -- 1.50% 0.20% 4.97%
</TABLE>
9
<PAGE>
- --------
(1) Net income per common share is based on the weighted average shares of
Common Stock and Common Stock equivalents outstanding during the period
adjusted for a 1,875-for-1 stock split effected in November 1997 and
includes all options issued below the estimated initial public offering
price within one year prior to the filing of the Registration Statement
calculated using the treasury stock method.
(2) Information for the nine months ended September 30, 1996 and 1997 and for
the period from April 29, 1994 (Inception) through December 31, 1994 is
annualized for comparability with year end information.
(3) Nonaccrual loans are net of specific loss allowances.
(4) General allowances represent provisions for losses not specifically
identified in the loan portfolio.
(5) Does not include conforming loans purchased from the RTC in the aggregate
principal amount of $75.9 million and $57.2 million in the year ended
December 31, 1995 and from April 29, 1994 (Inception) through December 31,
1994, respectively, and conforming loan originations of $4.5 million in the
year ended December 31, 1995.
(6) Does not include $3.5 million in conforming loan sales in the year ended
December 31, 1995.
(7) See "Business--Insurance Premium Finance--Servicing and Collection."
(8) See "Business--Automobile Finance--Servicing and Collection."
10
<PAGE>
ORGANIZATIONAL STRUCTURE
The following chart illustrates the relationship between the Company and its
principal operating subsidiaries and divisions prior to the Offering and
certain sources of financing.
LOGO
- ------------------- ---------------------------
$2.0 million ---- United PanAm
Capital Loan(1) Financial Corp.
- ------------------- ---------------------------
100% Owned 100% Owned
----------------- ------------------ -------------------
United PanAm PanAmerican ------- $10.9 million
Mortgage Corp. Financial, Inc. RTC Interim
----------------- ------------------ Capital Assistance
Notes Payable(2)
100% Owned -------------------
-------------------
---------------------- $100 million
------- Master Repurchase
Pan American Bank, FSB Agreement(3)
-------------------
-------------------
------- Deposits and
---------------------- FHLB Advances
100% Owned(4) -------------------
-------------------- ---------------------
United Auto Credit Insurance Premium
Corporation Finance Division
-------------------- ---------------------
- --------
(1) See "Use of Proceeds" and Note 10 of Notes to Consolidated Financial
Statements.
(2) See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources--RTC Notes Payable."
(3) See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources--Master Repurchase
Agreement."
(4) United Auto Credit Corporation has granted to certain key employees the
right to purchase up to a 13.5% ownership interest in that corporation,
subject to certain performance standards, and may, in the future, grant
options to purchase an additional 1.5% interest. See "Management--Executive
Compensation--Employment Agreements" and "--Certain Transactions."
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RISK FACTORS
This Prospectus contains forward-looking statements, including statements
regarding the Company's strategies, plans, objectives, expectations and
intentions, which are subject to a variety of risks and uncertainties. The
Company's actual results could differ materially from those anticipated in
these forward- looking statements as a result of certain factors, including
those set forth in these "Risk Factors" and elsewhere in this Prospectus. The
cautionary statements made in this Prospectus should be read as being
applicable to all related forward-looking statements wherever they appear in
this Prospectus.
Prospective investors should consider carefully the following factors,
together with the other information contained in this Prospectus, in
evaluating an investment in the Common Stock offered hereby.
GENERAL
LIMITED OPERATING HISTORY
The Company purchased certain assets and assumed certain liabilities of Pan
American Federal Savings Bank from the RTC in 1994. In 1995, the Company
commenced its insurance premium finance business through a joint venture with
BPN, and in 1996 the Company commenced its subprime mortgage and automobile
finance businesses. Accordingly, the Company has only a limited operating
history upon which an evaluation of the Company and its prospects can be
based. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
CREDIT-IMPAIRED BORROWERS
Loans made to borrowers who cannot obtain financing from traditional lenders
generally entail a higher risk of delinquency and default and higher losses
than loans made to borrowers with better credit. Such loans also have a more
limited secondary market than traditional loans. The actual rate of
delinquencies, defaults and losses on such loans could be more dramatically
affected by an economic slowdown or recession than those experienced in the
financial services industry generally. Substantially all of the Company's
mortgage and auto loans are made to individuals with impaired or limited
credit histories, limited documentation of income or higher debt-to-income
ratios than are permitted by traditional lenders. Although delinquencies,
defaults and losses to date have not had a material adverse effect on the
Company's financial condition, results of operations or business prospects, no
assurance can be given that the Company's underwriting criteria and collection
methods will continue to afford adequate protection against the higher risks
associated with loans to such borrowers. If the Company experiences higher
losses than anticipated, the Company's financial condition, results of
operations and business prospects would be materially and adversely affected.
NEED FOR ADDITIONAL FINANCING
The Company's ability to maintain or expand its current level of lending
activity will depend on the availability and terms of its sources of
financing. The Company has funded its operations to date principally through
deposits, FHLB advances and whole loan sales at the Bank. The Bank competes
for deposits primarily on the basis of interest rates and, accordingly, the
Bank could experience difficulty in attracting deposits if it does not
continue to offer rates that are competitive with other financial
institutions. Certificate of deposit accounts ("CDs") constituted $177.7
million or 84.3% of the Bank's total deposits at September 30, 1997, of which
amount $139.4 million matures in one year or less. Increases in short-term
CDs, which tend to be more sensitive to interest rate movements than core
deposits, may cause the Bank's deposit base to be less stable than if it had a
large amount of core deposits. Federal regulations restrict the Bank's ability
to lend to affiliated companies and limit the amount of non-mortgage consumer
loans that may be held by the Bank. Accordingly, the growth of the Company's
mortgage, insurance premium and automobile finance businesses will depend to a
significant extent on the availability of additional sources of financing.
There can be no assurance that the Company will be able to develop additional
financing sources on acceptable terms or at all. To the extent the Bank is
unable to maintain its deposits and the Company is unable to develop
additional sources of financing, the Company will have to restrict its lending
activities which would materially and adversely affect the
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Company's financial condition, results of operations and business prospects.
In addition, the Company's ability to raise additional equity financing may be
limited by the requirement that the Company repay the $10.9 million RTC
interim capital assistance loan (the "RTC Notes Payable") if the Bank ceases
to be a "minority-owned" business, as defined by the OTS, or Pan American
Financial, Inc. ("PAFI") obtains a material portion of its permanent
financing. Pursuant to the Company's loan agreement with the RTC, the Bank
would cease to be a "minority-owned business" if 50% or more of its capital
stock were owned or controlled by one or more non-minorities. Upon completion
of the Offering (whether or not the underwriters' over-allotment option is
exercised), 50% or more of the outstanding Common Stock is expected to be
owned by minorities, assuming that no shares in the Offering are purchased by
minorities. Therefore, the Company believes that, upon completion of the
Offering, it will be a minority-owned business. However, there can be no
assurances that the RTC will not view the Offering as permanent financing and
require repayment of the RTC Notes Payable. In addition, because all of the
shares offered hereby will be sold by the Company, and no portion of the net
proceeds is anticipated to be used to finance PAFI or the Bank, the Company
believes that the Offering will not constitute permanent financing of PAFI. In
addition, the Company has pledged the shares of the Bank as collateral for the
RTC interim capital assistance loan. In the event the Offering is deemed to
constitute the permanent financing of PAFI, the Company will use $10.9 million
of the net proceeds to repay the RTC Notes Payable. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources--RTC Notes Payable."
CONCENTRATION OF BUSINESS IN CALIFORNIA
The Company's lending activities are concentrated primarily in California
and are likely to remain so for the foreseeable future. At September 30, 1997,
82.0% of the dollar amount of the Company's loans were related to collateral
or borrowers located in California. The performance of these loans may be
affected by changes in California's economic and business conditions,
including its residential real estate market. In the recent past, the
California economy has experienced a significant recession with a resulting
decline in employment and the value of residential property. A decline in the
value of residential real estate may adversely affect the value of the
Company's collateral. In addition, California real estate is subject to
certain natural disasters, such as earthquakes and erosion-caused mudslides,
which are typically not covered by the standard hazard insurance policies
maintained by borrowers. Uninsured disasters may render borrowers unable to
repay loans made by the Company. The occurrence of adverse economic conditions
or natural disasters in California could have a material adverse effect on the
Company's financial condition, results of operations and business prospects.
RELIANCE ON SYSTEMS AND CONTROLS
The Company depends heavily upon its systems and controls, some of which
have been designed specifically for a particular business, to support the
evaluation, acquisition, monitoring, collection and administration of that
business. There can be no assurance that these systems and controls, including
those specially designed and built for the Company, are adequate or will
continue to be adequate to support the Company's growth. A failure of the
Company's automated systems, including a failure of data integrity or
accuracy, could have a material adverse effect upon the Company's financial
condition, results of operations and business prospects.
RELIANCE ON KEY EMPLOYEES
The Company is dependent upon the continued services of its key employees,
including Guillermo Bron, the Chairman of the Board, Lawrence J. Grill,
President and Chief Executive Officer, John T. French, President and Chief
Executive Officer of United PanAm Mortgage Corporation, and Ray C. Thousand,
President and Chief Executive Officer of United Auto Credit Corporation. The
loss of the services of any such employee, or the failure of the Company to
attract and retain other qualified personnel, could have a material adverse
effect on the Company's financial condition, results of operations and
business prospects. Although the Company has entered into employment
agreements with certain key employees, including Messrs. Bron, Grill, French
and Thousand, there can be no assurance that these agreements will be
effective in retaining their services. See "Management."
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<PAGE>
COMPETITION
Each of the Company's businesses is highly competitive. Competition in the
Company's markets can take many forms, including convenience in obtaining a
loan, customer service, marketing and distribution channels, amount and terms
of the loan, loan origination fees and interest rates. Many of the Company's
competitors are substantially larger and have considerably greater financial,
technical and marketing resources than the Company. The Company's competitors
in subprime mortgage finance include other consumer finance companies,
mortgage banking companies, commercial banks, credit unions, savings
associations and insurance companies. The Company competes in the insurance
premium finance business with other specialty finance companies, independent
insurance agents who offer premium finance services, captive premium finance
affiliates of insurance companies and direct bill plans established by
insurance companies. The Company competes in the subprime automobile finance
industry with commercial banks, the captive finance affiliates of automobile
manufacturers, savings associations and companies specializing in subprime
automobile finance, many of which have established relationships with
automobile dealerships and may offer dealerships or their customers other
forms of financing, including dealer floor plan financing and lending, which
are not offered by the Company. In attracting deposits, the Bank competes
primarily with other savings institutions, commercial banks, brokerage firms,
mutual funds, credit unions and other types of investment companies.
The profitability of the Company's lending activities and the low barriers
to entry could attract additional competitors. Certain large, national finance
companies and mortgage originators have announced their intention to adapt
their mortgage loan origination programs and allocate resources to the
origination of subprime loans. The Company and its competitors may also face
increasing competition from government-sponsored entities, such as the Federal
National Mortgage Association ("FNMA") and the Federal Home Loan Mortgage
Corporation ("FHLMC"). FHLMC currently purchases what it terms "Alternative-A"
mortgage loans and has announced its intention to purchase what it terms "A-"
mortgage loans by the end of 1997. In addition, FHLMC has expressed its
intention to purchase so-called "B" and "C" mortgage loans in the future.
FHLMC also has purchased securities backed by subprime mortgage loans and has
re-securitized them for resale. Additional competition may lower the rates the
Company can charge borrowers, reduce the volume of the Company's loan
originations and increase demand for the Company's key employees and the
potential that such employees will leave the Company for its competitors.
Fluctuations in interest rates and general and localized economic conditions
also may affect the competition the Company faces. Competitors with lower
costs of capital have a competitive advantage over the Company. During periods
of declining interest rates, competitors may solicit the Company's customers
to refinance their loans. In addition, during periods of economic slowdown or
recession, the Company's borrowers may face financial difficulties and be more
receptive to offers of the Company's competitors to refinance their loans.
As the Company expands into new geographic markets, it will face additional
competition from lenders already established in these markets. There can be no
assurance that the Company will be able to compete successfully with these
lenders.
CHANGES IN INTEREST RATES
The Company's results of operations depend to a large extent upon its net
interest income, which is the difference between interest income on interest-
earning assets, such as loans and investments, and interest expense on
interest-bearing liabilities, such as deposits and other borrowings. When
interest-bearing liabilities mature or reprice more quickly than interest-
earning assets in a given period, a significant increase in market rates of
interest could have a material adverse effect on the Company's net interest
income. Further, a significant increase in market rates of interest could
adversely affect demand for the Company's financial products and services.
Interest rates are highly sensitive to many factors, including governmental
monetary policies and domestic and international economic and political
conditions, which are beyond the Company's control. The Company's liabilities
generally have shorter terms and are more interest rate sensitive than its
assets. Accordingly, changes in interest rates could have a material adverse
effect on the profitability of the Company's lending activities.
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<PAGE>
Adjustable-rate mortgage loans ("ARMs") totaled $293.3 million of the $336.9
million of mortgage loans originated by the Company during the nine months
ended September 30, 1997. The market values of ARMs are less sensitive to
changes in market interest rates than are the market values of fixed-rate
loans. The Company's ARMs generally are offered at an initial interest rate
below the fully indexed interest rate at origination. There can be no
assurance that the interest rate on these loans will reach the fully indexed
rate if the loans are pre-paid or in the case of foreclosure. Further,
although these loans are underwritten at the fully indexed rate at
origination, borrowers may encounter financial difficulties as a result of
increases in the interest rate over the life of the loan. Certain ARMs also
may be subject to periodic or lifetime payment caps that result in a portion
of the accrued interest being deferred and added to the outstanding principal.
This could result in receipt by the Company of less cash income on its ARMs
than it is required to pay on its related borrowings which do not have such
payment caps. Because the Company does not believe that hedging against
interest rate risks is cost-effective and because the Company sells a
substantial portion of its loans on a regular basis, the Company currently
does not use hedging strategies to mitigate interest rate risk. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Management of Interest Rate Risk."
MANAGEMENT OF GROWTH
The Company has experienced rapid growth in each of its businesses and
intends to pursue growth for the foreseeable future, particularly in its
mortgage and automobile finance businesses. In addition, the Company intends
to broaden its product offerings to include additional types of consumer or,
in the case of IPF, commercial loans. Further, the Company may enter other
specialty finance businesses. This growth strategy will require additional
capital, systems development and human resources. There can be no assurance
that the Company will continue to (i) manage effectively its funding sources,
information and operating systems and human resources, (ii) expand
successfully and operate such businesses profitably, (iii) identify and hire
qualified employees to support its expansion plans, or (iv) accomplish such
expansion in a timely and cost-effective manner or, if achieved, that such
expansion will result in profitable operations. The failure of the Company to
implement its planned growth strategy would have a material adverse effect on
the Company's financial condition, results of operations and business
prospects.
SECURITIZATIONS
The Company expects to complete its first securitization of mortgage loans
in December 1997 and, thereafter, to sell or securitize mortgage loans on a
periodic basis. The Company will, in the future, consider the securitization
of other financial assets. The Company believes that the gain on sale from
such securitizations could represent a significant portion of the Company's
future revenues and net income. The Company's ability to complete
securitizations will depend on a number of factors, including conditions in
the securities markets generally, conditions in the asset-backed securities
market specifically, the performance of the Company's portfolio of securitized
loans and the Company's ability to obtain credit enhancement for its
securitized loans. If the Company were unable to securitize profitably a
sufficient number of its loans in a particular quarter, then the Company's
revenues for the quarter could decline, which could result in lower earnings
or a loss reported for the quarter. In addition, delays in closing a
securitization could require the Company to seek additional and alternative
funding under current and future credit facilities in order to finance
additional loan originations and purchases and could increase the Company's
interest rate risk by increasing the period during which newly originated
loans are held prior to sale.
In a securitization, the Company would sell loans that it has originated or
purchased to a trust for a cash purchase price and an interest in the loans
securitized called "residual interests." The cash portion of the purchase
price in many cases will be less than the carrying value of the related loan.
The Company will estimate the present value of the residual interests on its
balance sheet, and will project the expected cash flows over the life of the
residual interests, using prepayment and default assumptions that market
participants would use for similar financial instruments that are subject to
prepayment, credit and interest rate risks. The Company then will determine
the present value of these cash flows using an interest rate commensurate with
the risks involved. If the Company's actual experience differs materially from
the assumptions used in the determination of the
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<PAGE>
present value of the residual interests, future cash flows and earnings could
be adversely affected. Furthermore, because the Company does not have
meaningful loan performance data, the Company's assumptions will not be based
on the actual performance of its loans but on available historical loss data
for comparable portfolios of loans and the specific characteristics of the
loans included in the Company's securitizations. To the Company's knowledge,
there currently is no active market for the sale of these residual interests.
No assurance can be given that the residual interests could be sold at their
stated value, if at all.
The Company may rely on credit enhancements to guarantee senior certificates
in the securitization trusts. If the Company is unable to obtain credit
enhancement to guarantee the senior certificates, the Company might be unable
to securitize its loans, which could have a material adverse effect on the
Company's results of operations, financial condition and business prospects.
Although alternative structures to securitization trusts may be available,
there can be no assurance that the Company will be able to use these
structures or that these structures will be economically viable for the
Company. The Company's ability to obtain credit enhancement for its
securitizations also may be adversely affected by poor performance of the
Company's securitization trusts or the securitization trusts of others. The
inability of the Company to complete securitizations for any reason could have
a material adverse effect on the Company's results of operations, financial
condition and business prospects.
CHANGES IN GENERAL ECONOMIC CONDITIONS
Each of the Company's businesses is affected directly by changes in general
economic conditions, including changes in employment rates, prevailing
interest rates and real wages. During periods of economic slowdown or
recession, the Company may experience a decrease in demand for its financial
products and services, an increase in its servicing costs, a decline in
collateral values and an increase in delinquencies and defaults. A decline in
collateral values and an increase in delinquencies and defaults increase the
possibility and severity of losses. Because substantially all of the Company's
loans are made to borrowers who generally cannot obtain financing from
traditional lenders, its actual rates of delinquency, default and loss could
be more dramatically affected by an economic slowdown or recession than those
experienced in the financial services industry generally. Although the Company
believes that its underwriting criteria and collection methods enable it to
manage the higher risks inherent in loans made to such borrowers, no assurance
can be given that such criteria or methods will afford adequate protection
against such risks. Any sustained period of increased delinquencies, defaults
or losses would materially and adversely affect the Company's financial
condition, results of operations and business prospects.
RISKS ASSOCIATED WITH MORTGAGE FINANCE
DEPENDENCE ON WHOLE LOAN SALES FOR FUTURE EARNINGS
The gain on sale generated by whole loan sales has represented and will
continue to represent a significant source of the Company's earnings. During
the nine months ended September 30, 1997, UPAM sold substantially all of its
loan originations in the secondary market. Such loan sales were to a limited
number of institutional purchasers and the Company plans to sell a significant
number of loans it originates through whole loan sales in the future. There
can be no assurance that such purchasers will continue to purchase UPAM's
loans, and UPAM's failure to replace successfully such loan purchasers, would
have a material adverse effect on the Company's financial condition, results
of operations and business prospects. Further, adverse conditions in the
asset-backed securitization market could adversely affect the Company's
ability to complete whole loan sales, as many of UPAM's whole loan purchasers
securitize loans purchased from UPAM. During the nine months ended September
30, 1997, UPAM sold loans to 13 institutional purchasers, three of which
purchased approximately 76% of the total loans sold by UPAM in that period.
CONTINGENT RISKS
During the period that mortgage loans are held for sale, UPAM is subject to
various risks associated with its lending business, including borrower
default, foreclosure and the risk that a rapid increase in interest rates
would result in a decline in the value of loans held for sale, thus reducing
or eliminating any gain on sale on such loans.
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<PAGE>
RISK OF DECLINING VALUE OF COLLATERAL
The Company's mortgage finance business may be materially and adversely
affected by declining real estate values. Any material decline in real estate
values reduces the ability of borrowers to use home equity to support
borrowings and increases the LTV of loans previously made by the Company,
thereby weakening collateral coverage and increasing the possibility of a loss
in the event of a default. Further, delinquencies, foreclosures and losses
generally increase during an economic slowdown or recession. Because UPAM
targets borrowers who generally are unable to obtain mortgage financing from
traditional lenders, the actual rates of delinquency, foreclosure and loss on
such loans could be higher under adverse economic conditions than those
experienced in the mortgage finance industry in general. Any sustained period
of increased delinquencies, foreclosures or losses could materially and
adversely affect the Company's financial condition, results of operations and
business prospects.
DEPENDENCE ON INDEPENDENT MORTGAGE BROKERS
UPAM depends primarily on independent mortgage brokers for the origination
and purchase of its wholesale mortgage loans, which constitute the largest
portion of its total loan production. These independent mortgage brokers deal
with multiple lenders for each prospective borrower. UPAM competes with these
lenders for the independent brokers' business on price, service, loan fees,
costs and other factors. UPAM's competitors also seek to establish
relationships with such brokers who are not obligated by contract or otherwise
to do business with it. The Company's financial condition, results of
operations and business prospects could be adversely affected by changes in
the volume and profitability of UPAM's wholesale loans resulting from, among
other things, competition with other lenders and purchasers of such loans.
ELIMINATION OF LENDER PAYMENTS TO BROKERS
Class-action lawsuits have been filed against a number of mortgage lenders
alleging that such lenders have violated the federal Real Estate Settlement
Procedures Act of 1974 ("RESPA") and engaged in unfair practices by making
certain payments to independent mortgage brokers. These lawsuits generally
have been filed on behalf of a purported nationwide class of borrowers and
allege that payments made by a lender to a broker in addition to payments made
by the borrower to a broker are prohibited by RESPA and, therefore, illegal.
If these cases are resolved against the lenders, it may cause an industry-wide
change in the way independent mortgage brokers are compensated. UPAM's broker
compensation arrangements permit such payments. Future regulatory
interpretations or judicial decisions may require UPAM to change its broker
compensation programs or subject it to material monetary judgments or other
penalties. Any such changes or penalties may have a material adverse effect on
the Company's financial condition, results of operations and business
prospects. Although UPAM has not been named in any such class-action lawsuit,
there can be no assurance that UPAM will not subsequently be named in these or
similar lawsuits.
ENVIRONMENTAL LIABILITIES
The Company may acquire real property securing mortgage loans that are in
default, and there is a risk that hazardous substances or waste, contaminants
or pollutants could be discovered on such properties after the Company
acquires them. The Company may be required to remove such substances from the
affected properties at its expense, and the cost of such removal may
substantially exceed the value of the affected properties or the loans secured
by such properties. Furthermore, the Company may not have adequate remedies
against the prior owners or other responsible parties to recover its costs.
Finally, the Company may find it difficult or impossible to sell the affected
properties either prior to or following any such removal.
GOVERNMENT REGULATION
The subprime mortgage industry is highly regulated. UPAM is subject to
extensive and complex rules and regulations of, and examinations by, various
federal, state and local government authorities. These rules and regulations
impose obligations and restrictions on UPAM's loan originations, credit
activities and secured
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<PAGE>
transactions. In addition, these rules may limit the interest rates, finance
charges and other fees UPAM may assess, mandate extensive disclosure to its
customers, prohibit discrimination and impose multiple qualification and
licensing obligations on UPAM. Certain of UPAM's loan origination activities
may be subject to the laws and regulations of the states in which those
activities are conducted. UPAM's lending activities are also subject to
various federal laws, including the Truth in Lending Act ("TILA"), the
Homeownership and Equity Protection Act of 1994 ("High Cost Mortgage Act"),
the Equal Credit Opportunity Act ("ECOA"), the Fair Credit Reporting Act
("FCRA"), RESPA and the Home Mortgage Disclosure Act ("HMDA"). Failure to
comply with any of these laws may result in, among other things, demands for
indemnification or mortgage loan repurchases, certain rights of rescission for
mortgage loans, class action lawsuits, administrative enforcement actions and
civil and criminal liability.
The laws, rules and regulations applicable to the Company's mortgage finance
business are subject to change. In addition, various laws, rules and
regulations currently are proposed, which, if adopted, could affect UPAM.
There can be no assurance that these proposed laws, rules and regulations, or
other such laws, rules or regulations, will not be adopted in the future. Such
adoption could make compliance more difficult or expensive, restrict UPAM's
ability to originate, broker, purchase or sell loans, further limit or
restrict the amount of commissions, interest and other charges earned on loans
originated, brokered, purchased or sold by UPAM, or otherwise materially and
adversely affect the Company's financial condition, results of operations and
business prospects. See "Business--Supervision and Regulation--Regulation of
Mortgage Finance Operation."
UPAM's loans currently are originated and funded by the Bank. Under current
federal statutes and regulations, the Bank generally is not subject to state
law limits on its lending operations, other than certain California limits on
interest charges. It is contemplated that the Company's mortgage lending
operations in the future will be conducted by United PanAm Mortgage
Corporation. At such time, the Company's mortgage lending operations will
become subject to state law limits in each state in which it originates
mortgage loans.
EFFECT OF ELIMINATION OF MORTGAGE INTEREST DEDUCTION
Government officials, including members of Congress, have from time to time
suggested the elimination of the mortgage interest deduction for federal
income tax purposes. Because many of UPAM's loans are made to borrowers for
the purpose of consolidating consumer debt or financing other consumer needs,
the competitive advantages of tax deductible interest, when compared with
alternative sources of consumer financing, could be eliminated or seriously
impaired by such government action. Accordingly, the reduction or elimination
of these tax benefits could have a material adverse effect on the demand for
loans of the kind offered by UPAM.
RISKS ASSOCIATED WITH INSURANCE PREMIUM FINANCE
DEPENDENCE ON INDEPENDENT INSURANCE AGENTS
IPF depends primarily on independent insurance agents for the origination of
insurance premium finance contracts. These independent insurance agents deal
with multiple lenders for each prospective borrower. IPF competes with these
lenders for the independent agents' business on price, service, loan fees,
costs and other factors. IPF's competitors also seek to establish
relationships with such agents, who are not obligated by contract or otherwise
to do business with IPF. For the nine months ended September 30, 1997, two
insurance agents located in Southern California accounted for approximately
19.2% and 12.3%, respectively, of the aggregate number of insurance premium
finance contracts entered into by IPF. The loss of a substantial portion of
the business of either of these agents would have a material adverse effect on
the Company's financial condition, results of operations and business
prospects. In addition, the Company's financial condition, results of
operations and business prospects could be adversely affected by changes in
the volume and profitability of IPF resulting from, among other things,
competition from other lenders for business from independent insurance agents.
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<PAGE>
RISK OF CONTRACT LOSSES
Each insurance premium finance contract is designed to ensure that at any
point during the term of the underlying insurance policy, the unearned premium
under the policy exceeds the unpaid principal under the contract. However, in
the event of a default, the unearned premium may not provide IPF full
reimbursement of interest, fees and other charges. In addition, the insurance
company may default and fail to remit the unearned premium, and a delay in
processing a claim for the return of the unearned premium may cause IPF to
incur a loss. Moreover, any delay in IPF's cancellation of a policy would
result in declining collateral protection and an increase in IPF's risk of
loss. Although contract losses to date have not had a material adverse effect
on the Company's financial condition, results of operations or business
prospects, no assurance can be given that IPF will not suffer material losses
in the future as a result of defaults under insurance premium finance
contracts. See "Business--Insurance Premium Finance--Operating Summary."
GOVERNMENT REGULATION
IPF is subject to California regulation. This regulatory structure requires
certain disclosures, notices and collection procedures with respect to loans
made to finance insurance premiums. Such state regulations also require that
certain disclosures be delivered by the insurance agent or broker or other
person arranging for such credit. IPF's activities also are subject to certain
federal statutes, including TILA. Any failure of the Company or BPN to comply
with any of the laws and regulations to which they are subject, or any change
in the regulatory structure or the applicable statutes, regulations or
interpretations of such laws and regulations, could have a material adverse
effect on the Company's and BPN's respective financial condition, results of
operations and business prospects. See "Business--Supervision and Regulation--
Regulation of Insurance Premium Finance Companies."
RELIANCE ON BPN
IPF is dependent upon the continued services of BPN and its key employees.
The loss by IPF of the services of BPN or of the services of any such
employee, or the failure of BPN to attract and retain other qualified
personnel, could have a material adverse effect on the Company's financial
condition, results of operations and business prospects. See "Business--
Insurance Premium Finance--Relationship with BPN."
RISKS ASSOCIATED WITH AUTOMOBILE FINANCE
RISK OF DECLINING VALUE OF COLLATERAL
The value of the collateral securing UACC's auto contracts is subject to
various risks, including uninsured damage, change in location or decline in
value caused by use or age. Any material decline in the value of the
collateral could result in a loss to UACC in the event of a default on the
auto contract.
DEPENDENCE ON DEALER RELATIONSHIPS
The ability of UACC to expand into new geographic markets and to maintain or
increase its volume of auto contracts is dependent upon maintaining and
expanding the network of automobile dealers from which it purchases contracts.
UACC's loss of any of its branch managers could materially and adversely
affect its relationships with dealers doing business with that branch and,
thereby, result in fewer opportunities to purchase contracts. Increased
competition, including competition from captive finance affiliates of
automobile manufacturers, could have a material adverse effect on UACC's
ability to maintain or expand its dealer network. See "Business--Automobile
Finance--Subprime Automobile Finance Industry," "--Sales and Marketing" and
"Business--Competition."
GOVERNMENT REGULATION AND LITIGATION
UACC is subject to numerous federal and state consumer protection laws and
regulations which are subject to change. An adverse change in or
interpretation of existing laws or regulations, the promulgation of any new
19
<PAGE>
laws or regulations, or the failure to comply with any of such laws and
regulations could have a material adverse effect on the Company's financial
condition, results of operations and business prospects. See "Business--
Supervision and Regulation--Regulation of Subprime Automobile Lending."
Given the consumer-oriented nature of the subprime automobile finance
industry, industry participants from time to time are named as defendants in
litigation involving alleged violations of federal and state consumer
protection or other similar laws and regulations. A judgment against the
Company in connection with any such litigation could have a material adverse
effect on the Company's financial condition, results of operations and
business prospects. In addition, the determination that an automobile dealer
failed to comply with applicable laws or that any auto contracts purchased by
UACC involved violations of applicable law could have a material adverse
effect on the Company's financial condition, results of operations and
business prospects. See "Business--Supervision and Regulation--Regulation of
Subprime Automobile Lending."
RISKS ASSOCIATED WITH THE BANK
FINANCIAL INSTITUTION REGULATION
Both the Company, as a savings and loan holding company, and the Bank, as a
federal savings bank, are subject to significant regulation by the federal
government. Statutes and regulations now affecting the Company or the Bank may
be changed at any time, and the interpretation of these statutes and
regulations by federal regulatory authorities also is subject to change.
Changes in federal statutes and regulations affecting federal savings banks
and their holding companies could, among other matters, materially alter the
powers of and opportunities available to the Bank and the Company. There can
be no assurance that future changes in such statutes and regulations or in
their interpretation will not adversely affect the Company's financial
condition, results of operations and business prospects. As a savings and loan
holding company, the Company is subject to supervision and examination from
time to time by the Office of Thrift Supervision ("OTS"). As a federal savings
bank, the Bank is subject to supervision and examination from time to time by
the OTS, its primary regulator, and by the Federal Deposit Insurance
Corporation ("FDIC"), as administrator of the Savings Association Insurance
Fund ("SAIF"), of which the Bank is a member. Any failure by the Company or
the Bank to comply with any of the laws and regulations to which it is
subject, or any change in the regulatory structure or the applicable statutes,
regulations or interpretations of such laws and regulations, by the OTS, the
FDIC or the Congress, could have a material adverse effect on the Company or
the Bank, and on the Company's financial condition, results of operations and
business prospects. See "Business--Supervision and Regulation--Holding Company
Regulation" and "--Federal Savings Bank Regulation."
RISKS ASSOCIATED WITH THE COMPANY AND THE OFFERING
CONTROL BY EXISTING STOCKHOLDERS
Upon completion of the Offering, Pan American Financial, L.P. ("PAFLP") will
own an aggregate of approximately % of the outstanding shares of Common Stock
(approximately % assuming the exercise of the Underwriters' over-allotment
option in full). Accordingly, PAFLP will have the ability to approve any
matter submitted to a vote of the stockholders (including mergers,
consolidations and sales of assets) and to elect all members of the Board of
Directors. See "Principal Stockholders" and "Management."
ANTI-TAKEOVER PROVISIONS
The Company's Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation") and Bylaws (the "Bylaws") include provisions
that could delay, defer or prevent a takeover attempt that may be in the best
interests of stockholders. These provisions include the ability of the Board
of Directors to issue up to 2,000,000 shares of Preferred Stock without any
further stockholder approval and requirements that (i) stockholders give
advance notice with respect to nomination of candidates for election as
directors and certain proposals they may wish to present for a stockholder
vote, (ii) stockholders act only at annual or special meetings and (iii)
special meetings of stockholders may only be called by the Company's Board of
Directors, Chairman of
20
<PAGE>
the Board, President or Chief Executive Officer, or at the written request of
holders of not less than 25% of the Company's voting shares. In addition, the
Bylaws and certain provisions of the Certificate of Incorporation, including
provisions denying cumulative voting, prohibiting stockholder action by
written consent, and setting forth the procedures for calling special
meetings, can only be amended by the affirmative vote of the holders of 75% or
more of the voting shares. The issuance of Preferred Stock in certain
circumstances may have the effect of delaying, deferring or preventing a
change in control of the Company, may discourage bids for the Common Stock at
a premium over the current market price of the Common Stock and may adversely
affect the market price, and the voting and other rights of the holders, of
Common Stock. In addition, under certain conditions, Section 203 of the
Delaware General Corporation Law (the "DGCL") would prohibit the Company from
engaging in a "business combination" with an "interested stockholder" (in
general, a stockholder owning 15% or more of the Company's outstanding voting
stock) for a period of three years after becoming an interested stockholder,
unless the business combination is approved in a prescribed manner. See
"Description of Capital Stock."
ABSENCE OF PUBLIC MARKET
There currently is no trading market for the Common Stock. Although the
Company has applied for quotation of the Common Stock on the Nasdaq National
Market ("Nasdaq"), there can be no assurance that an active public trading
market for the Common Stock will develop after the Offering or that, if
developed, will be sustained. The initial public offering price of the Common
Stock offered hereby will be determined by negotiations among the Company and
representatives of the Underwriters and may not be indicative of the price at
which the Common Stock will trade after the Offering. See "Underwriting."
Accordingly, there can be no assurance that the market price for the Common
Stock will not fall below the initial public offering price.
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of the Common Stock may experience fluctuations that are
unrelated to the operating performance of the Company. In particular, the
price of the Common Stock may be affected by general market price movements as
well as developments specifically related to the consumer finance industry and
the financial services sector, including interest rate movements, quarterly
variations or changes in financial estimates by securities analysts and a
significant reduction in the price of the stock of another participant in the
consumer finance industry. In addition, the Company's quarterly operating
income depends significantly upon the successful completion of sales by UPAM
of its loans, and the Company's inability to complete these transactions in a
particular quarter may have a material adverse effect on the Company's results
of operations for that quarter and, accordingly, could materially and
adversely affect the price of the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding shares
of Common Stock. The shares of Common Stock offered hereby ( shares if
the Underwriters' over-allotment option is exercised in full) will be
immediately eligible for sale in the public market without restriction
beginning on the date of this Prospectus. Future sales of substantial amounts
of Common Stock after the Offering, or the perception that such sales could
occur, could have a material adverse effect on the market price of the Common
Stock. No prediction can be made as to the effect, if any, that future sales
of shares, or the availability of shares for further sale, will have on the
market price of the Common Stock. Additionally, 2,287,500 shares of Common
Stock are reserved for issuance under the Stock Incentive Plan of which
1,580,000 were subject to options outstanding as of November 7, 1997 and
140,000 shares are subject to options to be granted concurrently with the
completion of the Offering. The Company intends to file a registration
statement under the Securities Act of 1933, as amended (the "Securities Act"),
to register such shares of Common Stock reserved for issuance under the Stock
Incentive Plan, thus permitting the resales of such shares by non-affiliates
in the public market without restriction under the Securities Act.
21
<PAGE>
The remaining 10,950,000 shares of Common Stock held by existing
stockholders are "restricted securities," as that term is defined in Rule 144
promulgated under the Securities Act, and are eligible for sale subject to the
holding period, volume and other limitations imposed thereby. See "Description
of Capital Stock--Shares Eligible for Future Sale."
The Company, certain existing stockholders of the Company and the executive
officers and directors of the Company have agreed with the Underwriters that,
subject to certain exceptions, for a period of 180 days following the
commencement of the Offering, they will not sell, contract to sell or
otherwise dispose of any shares of Common Stock or rights to acquire such
shares (other than pursuant to employee plans) without the prior written
consent of NationsBanc Montgomery Securities, Inc. on behalf of the
Underwriters. See "Underwriting."
SUBSTANTIAL AND IMMEDIATE DILUTION
The initial public offering price will be substantially higher than the net
tangible book value per share of the Common Stock. Investors purchasing shares
of Common Stock in the Offering will be subject to immediate dilution of $
per share in net tangible book value assuming an initial public offering price
of $ per share (the mid-point of the filing range set forth on the cover of
this Prospectus). See "Dilution."
ABSENCE OF DIVIDENDS
The Company has never paid a cash dividend on the Common Stock. The Company
currently intends to retain any future earnings to provide funds for the
operation and expansion of its businesses and does not anticipate paying cash
dividends on the Common Stock in the foreseeable future. The payment of
dividends is within the discretion of the Company's Board of Directors and
will depend upon, among other things, the Company's earnings, financial
condition, capital requirements, level of indebtedness, contractual
restrictions on the payment of dividends and general business conditions. See
"Dividend Policy." Federal regulations restrict the Bank's ability to declare
or pay any dividends to the Company. See "Business--Supervision and
Regulation--Federal Savings Bank Regulation--Limitation on Capital
Distributions." In addition, certain interim capital assistance loan
agreements among the Bank, PAFI and the RTC prohibit the Bank from declaring
or paying any dividends, except under limited circumstances, until all of the
obligations of the Bank and PAFI to the RTC have been discharged. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources--RTC Notes Payable."
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
shares of Common Stock offered hereby (after deducting the estimated
underwriting discount and Offering expenses) are estimated to be $ million
($ million if the Underwriters' over-allotment option is exercised in
full), assuming an initial public offering price of $ per share (the mid-
point of the filing range set forth on the cover of this Prospectus).
The Company intends to use $2.0 million of the net proceeds of the Offering
to repay the Company's indebtedness to its existing stockholders, which
indebtedness was incurred subsequent to July 1, 1997 to finance the
establishment and operations of United PanAm Mortgage Corporation. Such
indebtedness bears interest at 8% per year (payable semiannually) and is
payable on June 30, 1999. See "Management--Certain Transactions." The
remaining net proceeds of the Offering will be used for general corporate
purposes, including financing the growth of the Company's existing businesses,
with particular emphasis on the expansion of UPAM and the development or
acquisition of other specialty finance businesses. See "Business--Business
Strategy." In the event the Offering is deemed to constitute the permanent
financing of PAFI for purposes of the RTC loan agreements, the Company will
use $10.9 million of the net proceeds to repay the RTC Notes Payable. All of
the shares offered hereby will be sold by the Company, and no portion of the
net proceeds is anticipated to be used to finance PAFI or the Bank. Therefore,
the Company believes that the Offering will not constitute permanent financing
of PAFI. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources--RTC Notes Payable."
22
<PAGE>
DIVIDEND POLICY
The Company has never paid a cash dividend on the Common Stock. The Company
currently intends to retain any future earnings to provide funds for the
operation and expansion of its businesses and does not anticipate paying cash
dividends on the Common Stock in the foreseeable future. The payment of
dividends is within the discretion of the Company's Board of Directors and
will depend upon, among other things, the Company's earnings, financial
condition, capital requirements, level of indebtedness, contractual
restrictions on the payment of dividends and general business conditions.
Federal regulations restrict the Bank's ability to declare or pay any
dividends to the Company. See "Business--Supervision and Regulation--Federal
Savings Bank Regulation--Limitation on Capital Distributions." In addition,
certain interim capital assistance loan agreements among the Bank, PAFI and
the RTC prohibit the Bank from declaring or paying any dividends, except under
limited circumstances, until all of the obligations of the Bank and PAFI to
the RTC have been discharged. See "Risk Factors--Risks Associated With the
Company and the Offering--Absence of Dividends" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources--RTC Notes Payable."
DILUTION
At September 30, 1997, the net tangible book value of the Company was
approximately $9.9 million, or $0.93 per share of Common Stock. Net tangible
book value per share represents the amount of the Company's total tangible
assets less total liabilities divided by the number of shares of Common Stock
outstanding. Net tangible book value dilution represents the difference
between the amount per share paid by purchasers in the Offering and the net
tangible book value per share after the Offering. Without taking into account
any changes in net tangible book value after September 30, 1997, other than to
give effect to the sale by the Company of the shares of Common Stock
offered hereby, assuming an initial public offering price of $ per share
(the mid-point of the filing range set forth on the cover of this Prospectus)
and after deducting the estimated underwriting discount and Offering expenses,
the net tangible book value of the Company at September 30, 1997 would have
been approximately $ million, or $ per share. This represents an
immediate increase in net tangible book value of $ per share to the
existing stockholders and an immediate net tangible book value dilution of
$ per share to purchasers in the Offering, as illustrated by the following
table.
<TABLE>
<S> <C> <C>
Assumed initial public offering price............................... $
Net tangible book value per share at September 30, 1997............ $0.93
Increase in net tangible book value per share attributable to new
investors.........................................................
-----
Net tangible book value per share after the Offering................
----
Dilution to new investors........................................... $
====
</TABLE>
The following table summarizes as of September 30, 1997 the differences
between the number of shares of Common Stock purchased from the Company, the
total cash consideration paid and the average price per share paid by the
existing stockholders and to be paid by the investors purchasing shares of
Common Stock in the Offering assuming the sale of shares by the Company
at an assumed initial public offering price of $ per share (the mid-point of
the filing range set forth on the cover of this Prospectus) and before
deducting the estimated underwriting discount and Offering expenses.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------ ----------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------------------- ---
<S> <C> <C> <C> <C> <C> <C>
Existing stockholders.. 10,668,750 % $ 5,237,000 % $0.49
New investors.......... % %
---------- ----- ------------ -------
Total.............. 100.0% $ 100.0%
========== ===== ============ =======
</TABLE>
23
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization and certain
ratios of the Company and the Bank's regulatory capital ratios at September
30, 1997, and as adjusted to give effect to the sale of Common Stock offered
hereby.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
----------------------------
AS
ACTUAL ADJUSTED
------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Long-term borrowings
Stockholder notes payable due 1999.............. $ 1,940 $
RTC notes payable due 1999...................... 10,930
------------- -----------
Total long-term borrowings........................ 12,870
------------- -----------
Stockholders' equity
Common Stock ($0.01 par value).................. 107
Additional paid-in capital...................... 5,130
Retained earnings............................... 5,118 5,118
------------- -----------
Total stockholders' equity........................ 10,355
------------- -----------
Total capitalization.............................. $ 23,225 $
============= ===========
Ratio of equity to assets......................... 3.66% %
Regulatory capital ratios of the Bank(1)
Leverage........................................ 7.06% 7.06%
Tier 1 risk-based............................... 11.93% 11.93%
Total risk-based................................ 13.20% 13.20%
</TABLE>
- --------
(1) For regulatory capital purposes, the Bank includes the $10.9 million of
RTC Notes Payable as equity capital. As adjusted numbers assume no capital
contribution of net Offering proceeds to the Bank.
24
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected consolidated financial and other data
of the Company at the dates and for the periods indicated. Financial
information at September 30, 1996 and 1997 and for the nine months then ended
is derived from unaudited financial data, but in the opinion of management
reflects all adjustments (consisting only of normal recurring adjustments)
which are necessary to present fairly the results for such interim periods.
Interim results at and for the nine months ended September 30, 1997 are not
necessary indicative of the results that may be expected for the year ending
December 31, 1997. The selected consolidated financial and other data should
be read in conjunction with, and is qualified in its entirety by reference to,
the information in the consolidated financial statements and related notes set
forth elsewhere herein.
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
APRIL 29, 1994 AT OR FOR THE AT OR FOR THE
(INCEPTION) YEAR ENDED NINE MONTHS
THROUGH DECEMBER 31, ENDED SEPTEMBER 30,
DECEMBER 31, ------------------ --------------------
1994 1995 1996 1996 1997
-------------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA
Interest income......... $ 6,882 $ 13,533 $ 16,561 $ 12,116 $ 18,314
Interest expense........ 3,573 7,727 7,853 5,752 8,193
-------- -------- -------- --------- ---------
Net interest income... 3,309 5,806 8,708 6,364 10,121
Provision for loan
losses................. 50 120 194 98 445
-------- -------- -------- --------- ---------
Net interest income
after provision for
loan losses.......... 3,259 5,686 8,514 6,266 9,676
-------- -------- -------- --------- ---------
Non-interest income
Gain on sale of
loans................ 3 90 2,333 854 15,260
Other non-interest
income............... 95 228 443 314 523
-------- -------- -------- --------- ---------
Total non-interest
income............. 98 318 2,776 1,168 15,783
-------- -------- -------- --------- ---------
Non-interest expense
Compensation and
benefits............. 1,564 2,750 5,248 3,365 12,195
SAIF special
assessment........... -- -- 820 -- --
Other expense......... 1,579 2,412 3,581 2,441 7,090
-------- -------- -------- --------- ---------
Total non-interest
expense............ 3,143 5,162 9,649 5,806 19,285
-------- -------- -------- --------- ---------
Income before income
taxes.................. 214 842 1,641 1,628 6,174
Income taxes............ 98 384 691 698 2,580
-------- -------- -------- --------- ---------
Net income.............. $ 116 $ 458 $ 950 $ 930 $ 3,594
======== ======== ======== ========= =========
Net income per common
share (pro forma)(1)... $ 0.01 $ 0.04 $ 0.09 $ 0.09 $ 0.32
======== ======== ======== ========= =========
Weighted average common
shares outstanding
(pro forma)(1)......... 10,886 10,886 10,886 10,886 11,334
======== ======== ======== ========= =========
BALANCE SHEET DATA
Total assets............ $180,024 $159,581 $187,598 $ 173,983 $ 283,262
Loans................... 53,176 131,794 134,821 140,882 152,500
Loans held for sale..... -- -- 20,766 9,605 70,241
Allowance for loan
losses................. (378) (5,250) (5,356) (5,313) (6,203)
Deposits................ 163,114 141,924 159,061 147,979 210,783
Notes payable........... 10,930 10,930 10,930 10,930 12,870
FHLB advances........... -- -- 4,000 4,000 35,000
Stockholders' equity.... 5,270 5,811 6,761 6,740 10,355
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
APRIL 29, 1994 AT OR FOR THE AT OR FOR THE
(INCEPTION) YEAR ENDED NINE MONTHS
THROUGH DECEMBER 31, ENDED SEPTEMBER 30,
DECEMBER 31, ---------------- ---------------------
1994 1995 1996 1996 1997
-------------- ------- ------- --------- ----------
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Return on average
assets(2).............. 0.11% 0.27% 0.56% 0.75% 2.09%
Return on average
stockholders'
equity(2).............. 3.44% 8.51% 16.10% 21.38% 62.85%
Net interest margin..... 3.24% 3.61% 5.44% 5.41% 6.36%
Stockholders' equity to
assets................. 2.93% 3.64% 3.60% 3.87% 3.66%
Tangible capital ratio
of Bank................ 8.50% 9.89% 8.85% 9.55% 7.06%
Core capital ratio of
Bank................... 8.50% 9.89% 8.85% 9.55% 7.06%
Risk-based capital ratio
of Bank................ 27.53% 17.19% 16.36% 16.82% 13.20%
ASSET QUALITY DATA
Nonaccrual loans,
net(3)................. $1,439 $ 5,240 $ 5,835 $ 5,221 $ 4,668
Real estate owned....... -- 298 988 714 637
Total non-performing
assets................. 1,439 5,538 6,823 5,935 5,305
Non-performing assets to
total assets........... 0.80% 3.47% 3.64% 3.41% 1.87%
Allowance for credit
losses to net loans.... 0.71% 3.98% 3.97% 3.77% 4.07%
General allowance for
credit losses to non-
performing loans(4).... 26.27% 82.80% 74.90% 82.34% 110.70%
SUBPRIME MORTGAGE
FINANCE DATA
Loan origination
activities(5)
Wholesale
originations......... -- -- $58,456 $ 34,818 $ 198,854
Retail originations... -- -- 13,055 1,899 138,025
------ ------- ------- --------- ----------
Total loan
originations....... -- -- 71,511 36,717 336,879
Percent of loans
secured by first
mortgages............ -- -- 95% 94% 97%
Weighted average
initial loan-to-value
ratio................ -- -- 72% 72% 75%
Originations by
product type
Adjustable-rate
mortgages.......... -- -- 85% 78% 87%
Fixed-rate
mortgages.......... -- -- 15% 22% 13%
Weighted average
interest rate
Adjustable-rate
mortgages.......... -- -- 9.55% 9.74% 9.42%
Fixed-rate
mortgages.......... -- -- 10.76% 10.64% 10.76%
Average balance per
loan................. -- -- $ 100 $ 100 $ 112
Loans sold through whole
loan transactions(6)... -- -- $50,142 $ 21,557 $ 273,080
Number of sales
offices................ -- -- 5 3 11
INSURANCE PREMIUM
FINANCE DATA
Loans originated........ -- $21,676 $99,012 $ 73,449 $ 117,119
Number of loans
originated............. -- 21,137 83,839 63,533 99,555
Average net yield on
loans originated....... -- 15.77% 13.62% 13.73% 14.04%
Average loan size at
origination............ -- $ 1.03 $ 1.18 $ 1.16 $ 1.18
Net charge-offs to
average loans(2)(7).... -- -- 0.38% 0.38% 0.27%
AUTOMOBILE FINANCE DATA
Gross contracts
purchased.............. -- -- $12,216 $ 6,865 $ 29,442
Number of contracts
purchased.............. -- -- 1,175 664 2,843
Average discount on
contracts purchased.... -- -- 10.00% 10.00% 10.00%
Number of sales
offices................ -- -- 4 2 6
Gross amount financed
per contract........... -- -- $ 10.42 $ 10.37 $ 10.43
Net charge-offs to
average contracts(8) .. -- -- 1.50% 0.20% 4.97%
</TABLE>
26
<PAGE>
- --------
(1) Net income per common share is based on the weighted average shares of
Common Stock and Common Stock equivalents outstanding during the period
adjusted for a 1,875-for-1 stock split effective in November 1997 and
includes all options issued below the estimated initial public offering
price within one year prior to the filing of the Registration Statement
for the initial public offering calculated using the treasury stock
method.
(2) Information for the nine months ended September 30, 1996 and 1997 and for
the period from April 29, 1994 (Inception) to December 31, 1994 is
annualized for comparability with year end information.
(3) Nonaccrual loans are net of specific loss allowances.
(4) General allowances represent provisions for losses not specifically
identified in the loan portfolio.
(5) Does not include conforming loans purchased from the RTC in the aggregate
principal amount of $75.9 million and $57.2 million in the year ended
December 31, 1995 and from April 29, 1994 (Inception) through December 31,
1994, respectively, and conforming loan originations of $4.5 million in
the year ended December 31, 1995.
(6) Does not include $3.5 million in conforming loan sales in the year ended
December 31, 1995.
(7) See "Business--Insurance Premium Finance--Servicing and Collection."
(8) See "Business--Automobile Finance--Servicing and Collection."
The following table presents summary consolidated financial and other data
of the Company for the quarters indicated.
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
-----------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1996 1996 1997 1997 1997
------------- ------------ --------- -------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA
Net interest income.... $ 2,317 $ 2,344 $ 2,766 $ 3,511 $ 3,844
Provision for loan
losses................ 98 96 94 285 66
------- ------- ------- -------- --------
Net interest income
after provision for
loan losses........... 2,219 2,248 2,672 3,226 3,778
------- ------- ------- -------- --------
Non-interest income
Gain on sale of
loans................ 729 1,479 2,380 4,697 8,183
Other non-interest
income............... 123 129 143 179 201
------- ------- ------- -------- --------
Total non-interest
income.............. 852 1,608 2,523 4,876 8,384
------- ------- ------- -------- --------
Non-interest expense... 2,280 3,843 4,800 6,496 7,989
------- ------- ------- -------- --------
Income before income
taxes................. 791 13 395 1,606 4,173
Income taxes........... 329 (7) 162 666 1,752
------- ------- ------- -------- --------
Net income............. $ 462 $ 20 $ 233 $ 940 $ 2,421
======= ======= ======= ======== ========
Net income per common
share
(pro forma)(1)........ $ 0.04 $ -- $ 0.02 $ 0.08 $ 0.22
======= ======= ======= ======== ========
Weighted average common
shares outstanding
(pro forma)(1)........ 10,886 10,886 11,316 11,344 11,344
======= ======= ======= ======== ========
OTHER DATA
Mortgage loan
originations.......... $16,646 $34,796 $67,337 $108,481 $161,061
Insurance premium
finance loan
originations.......... $23,888 $25,563 $43,304 $ 41,951 $ 31,864
Automobile installment
contracts purchased... $ 4,022 $ 5,351 $ 7,686 $ 9,520 $ 12,236
</TABLE>
- --------
(1) Net income per common share is based on the weighted average shares of
Common Stock and Common Stock equivalents outstanding during the period
adjusted for a 1,875-for-1 stock split effective in November 1997 and
includes all options issued below the estimated initial public offering
price within one year prior to the filing of the Registration Statement
for the initial public offering calculated using the treasury stock
method.
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This Prospectus contains forward-looking statements, including statements
regarding the Company's strategies, plans, objectives, expectations and
intentions, which are subject to a variety of risks and uncertainties. The
Company's actual results could differ materially from those anticipated in
these forward-looking statements as a result of certain factors, including
those set forth under "Risk Factors" and elsewhere in this Prospectus. The
cautionary statements made in this Prospectus should be read as being
applicable to all related forward-looking statements wherever they appear in
this Prospectus.
GENERAL
The Company is a diversified specialty finance company engaged primarily in
originating and acquiring for investment or sale residential mortgage loans,
personal automobile insurance premium finance contracts and retail automobile
installment sales contracts. The Company targets customers who generally
cannot obtain financing from traditional lenders. These customers usually pay
higher loan origination fees and interest rates than those charged by
traditional lenders to gain access to consumer financing. The Company believes
that management's experience in originating, assessing, pricing and managing
credit risk enables the Company to earn attractive risk-adjusted returns.
Finance companies generate income from a combination of (i) "spread" or "net
interest" income (i.e., the difference between the yield on loans, net of loan
losses, and the cost of funding) and (ii) "non-interest" income (i.e., the
fees paid for various services and gain on the sale of loans). Income is used
to cover operating expenses incurred (i.e., compensation and benefits,
occupancy and other expenses) in generating that income. Each of the Company's
businesses, as described below, reflects a combination of spread and non-
interest income.
MORTGAGE FINANCE
From its inception in January 1996 to July 1997, the Company's residential
mortgage finance business was conducted solely through the Bank. As a
federally chartered savings bank, the Bank's residential mortgage finance
business is generally exempt from state licensing requirements. In January
1997, the Company organized United PanAm Mortgage Corporation. Pending receipt
of its requisite state licenses, this subsidiary, as agent of the Bank,
markets loans made by the Bank under the Company's mortgage finance program
pursuant to an operating agreement between the subsidiary and the Bank.
However, the Company does not anticipate that the failure to obtain such
licensing would have a material effect on the conduct of its mortgage finance
business because in such event the Bank will continue to conduct the Company's
mortgage lending operations. After obtaining all required licensing, the
mortgage operations will be operated entirely by United PanAm Mortgage
Corporation. The Company has funded its mortgage finance business to date
primarily through the Bank's deposits, FHLB advances and the sale of
substantially all of its mortgage loan originations to mortgage companies and
investors through whole loan packages offered for bid several times per month.
In October 1997, the Bank obtained a $100 million master repurchase agreement
to supplement the Bank's existing financing sources and fund the anticipated
growth of its mortgage lending business. The Company expects to complete its
first securitization of mortgage loans in December 1997 and, thereafter, to
sell or securitize mortgage loans on a periodic basis.
The Company has sold substantially all of its mortgage loan originations to
date on a servicing released basis. Therefore, its mortgage lending income has
been generated almost entirely from gain on sale of loans, with only a small
spread component resulting from loans held prior to sale. Income generated
from this mortgage finance business covers operating costs including
compensation, occupancy, loan origination and administrative expenses.
INSURANCE PREMIUM FINANCE
In May 1995, the Bank entered into a joint venture with BPN. Under this
joint venture, which commenced operations in September 1995, the Bank
underwrites and finances automobile insurance premiums in California and BPN
markets the financing program and services the loans for the Bank. The Company
has an option to
28
<PAGE>
purchase BPN exercisable commencing on April 29, 1999 at an agreed price. For
a description of the fees paid by the Bank to BPN and the allocation of
interest, fees, losses and recoveries experienced on the loan portfolio and
the purchase option, see "Business--Insurance Premium Finance--Relationship
with BPN."
As a result of BPN performing substantially all marketing and servicing
activities, the Company's role is primarily that of an underwriter and funder
of loans. Therefore, IPF's income is generated primarily on a spread basis,
supplemented by non-interest income generated from late payment and returned
check fees. The Bank uses this income to cover the costs of underwriting and
loan administration, including compensation, occupancy and data processing
expenses.
AUTOMOBILE FINANCE
In 1996, the Bank commenced its automobile finance business through its
subsidiary, United Auto Credit Corporation. Unlike UPAM and IPF, UACC provides
all marketing, origination, underwriting and servicing activities for its
loans. Therefore, income is generated from a combination of spread and non-
interest income and is used to cover all operating costs, including
compensation, occupancy and systems expense.
THE BANK
The Company has funded its operations to date primarily through the Bank's
deposits, FHLB advances and whole loan sales. As of September 30, 1997, the
Bank was a five-branch federal savings bank with $210.8 million in deposits.
The loans generated by the Company's mortgage, insurance premium and
automobile finance businesses currently are funded and held by the Bank. In
addition, the Bank holds a portfolio of primarily traditional residential
mortgage loans acquired from the RTC in 1994 and 1995 at a discount from the
unpaid principal balance of such loans, which loans aggregated $87.2 million
in principal amount (before unearned discounts and premiums) at September 30,
1997.
The Bank generates spread income not only from loans originated or purchased
by each of the Company's principal businesses, but also from (i) loans
purchased from the RTC, (ii) its securities portfolio and (iii) consumer loans
originated by its branches. This income is supplemented by non-interest income
from its branch banking activities (e.g., deposit service charges, safe
deposit box fees), and is used to cover operating costs and other expenses.
29
<PAGE>
AVERAGE BALANCE SHEETS
The following tables set forth information relating to the Company for the
nine months ended September 30, 1996 and 1997 and for the years ended December
31, 1995 and 1996 and for the period from April 29, 1994 (Inception) to
December 31, 1994. The yields and costs are derived by dividing income or
expense by the average balance of assets or liabilities, respectively, for the
periods shown. The yields and costs include fees which are considered
adjustments to yields.
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1997
--------------------------- ---------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE(1) INTEREST COST BALANCE(1) INTEREST COST
---------- -------- ------- ---------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets
Investment
securities........... $ 10,731 $ 531 6.62% $ 9,772 $ 447 6.12%
Mortgage loans,
net(2)............... 116,890 8,368 9.55% 143,715 10,378 9.63%
IPF loans, net(3)..... 27,920 2,931 13.99% 44,591 4,735 14.16%
Automobile installment
contracts, net(4).... 1,386 286 27.59% 14,113 2,754 26.09%
-------- ------ -------- -------
Total interest
earning assets..... 156,927 12,116 10.29% 212,191 18,314 11.51%
------ ----- ------- -----
Non-interest earning as-
sets(3)................ 8,119 17,485
-------- --------
Total assets(4)..... $165,046 $229,676
======== ========
Liabilities and Equity
Interest bearing liabil-
ities
Customer deposits..... 143,756 5,330 4.96% 183,134 6,710 4.89%
Notes payable......... 10,930 388 4.75% 11,124 482 5.79%
FHLB advances......... 754 34 6.03% 20,334 1,001 6.38%
-------- ------ -------- -------
Total interest
bearing
liabilities........ 155,440 5,752 4.95% 214,592 8,193 5.10%
------ ----- ------- -----
Non-interest bearing li-
abilities.............. 3,805 7,459
-------- --------
Total liabilities... 159,245 222,051
Equity.................. 5,801 7,625
-------- --------
Total liabilities
and equity......... $165,046 $229,676
======== ========
Net interest income be-
fore provision for loan
losses................. $6,364 $10,121
====== =======
Net interest rate
spread(5).............. 5.34% 6.41%
Net interest margin(6).. 5.41% 6.36%
Ratio of interest earn-
ing assets to interest
bearing liabilities.... 100.9% 98.8%
</TABLE>
- --------
(1) Average balances are measured on a month-end basis.
(2) Net of deferred loan origination fees, unamortized discounts, premiums and
allowance for estimated loan losses; includes loans held for sale and non-
performing loans.
(3) Net of allowances for estimated losses; includes non-performing loans.
(4) Net of unearned finance charges, allowances for estimated losses; includes
non-performing loans.
(5) Net interest rate spread represents the difference between the yield on
interest earning assets and the cost of interest bearing liabilities.
(6) Net interest margin represents net interest income divided by average
interest earning assets.
30
<PAGE>
<TABLE>
<CAPTION>
APRIL 29, 1994
(INCEPTION)
THROUGH YEAR ENDED DECEMBER 31,
DECEMBER 31, -------------------------------------------------------
1994 1995 1996
------------------------------ --------------------------- ---------------------------
AVERAGE AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE(1) INTEREST(2) COST BALANCE(1) INTEREST COST BALANCE(1) INTEREST COSTS
---------- ----------- ------- ---------- -------- ------- ---------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets
Investment Securities.. $ 97,501 $3,753 5.71% $ 52,363 $3,205 6.12% $ 11,050 $ 706 6.39%
Mortgage loans,
net(3)................ 55,661 3,129 8.43% 105,833 10,028 9.48% 117,877 11,150 9.46%
IPF loans, net(4)...... -- -- -- 2,591 300 11.58% 28,795 4,026 13.98%
Automobile installment
contracts, net(5)..... -- -- -- -- -- -- 2,488 679 27.29%
-------- ------ -------- ------ -------- ------
Total interest earning
assets................ 153,162 6,882 6.74% 160,787 13,533 8.42% 160,210 16,561 10.34%
------ ------ ------
Non-interest earning
assets(5).............. 2,260 6,106 8,124
-------- -------- --------
Total assets........... $155,422 $166,893 $168,334
======== ======== ========
LIABILITIES AND EQUITY
Interest bearing
liabilities
Customer deposits...... 140,265 3,385 3.58% 148,582 7,240 4.87% 146,160 7,225 4.94%
Notes payable.......... 8,984 188 3.10% 10,930 487 4.46% 10,930 556 5.09%
FHLB advances.......... -- -- -- -- -- -- 1,170 72 6.15%
-------- ------ -------- ------ ----- -------- ------
Total interest bearing
liabilities........... 149,249 3,573 3.55% 159,512 7,727 4.85% 158,260 7,853 4.96%
------ ----- ------ ----- ------ -----
Non-interest bearing
liabilities............ 1,120 1,998 4,173
-------- -------- --------
Total liabilities...... 150,369 161,510 162,433
Equity.................. 5,053 5,383 5,901
-------- -------- --------
Total liabilities and
equity................ $155,422 $166,893 $168,334
======== ======== ========
Net interest income
before provision for
loan losses............ $3,309 $5,806 $8,708
====== ====== ======
Net interest rate
spread(6).............. 3.19% 3.57% 5.38%
Net interest margin(7).. 3.24% 3.61% 5.44%
Ratio of interest
earning assets to
interest bearing
liabilities............ 102.6% 101.8% 101.2%
</TABLE>
- --------
(1) Average balances are measured on a month-end basis.
(2) Interest income and interest expense for the period from April 29, 1994
(Inception) through December 31, 1994 were annualized for comparability
with the years ended December 31, 1995 and 1996.
(3) Net of deferred loan origination fees, unamortized discounts, premiums and
allowance for estimated loan losses; includes loans held for sale and non-
performing loans.
(4) Net of allowance for estimated loans; includes non-performing loans.
(5) Net of unearned finance charges, allowance for estimated losses; includes
non-performing loans.
(6) Net interest rate spread represents the difference between the yield on
interest earning assets and the cost of interest bearing liabilities.
(7) Net interest margin represents net interest income divided by average
interest earning assets.
31
<PAGE>
RATE AND VOLUME ANALYSIS
The following table presents the extent to which changes in interest rates
and changes in the volume of interest earning assets and interest bearing
liabilities have affected the Company's interest income and interest expense
during the periods indicated. Information is provided in each category with
respect to: (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate); (ii) changes attributable to changes in rate
(changes in rate multiplied by prior volume); and (iii) the net change. The
changes attributable to the combined impact of volume and rate have been
allocated proportionately to the changes due to volume and the changes due to
rate.
<TABLE>
<CAPTION>
APRIL 29, 1994
(INCEPTION) TO YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1994 DECEMBER 31, 1995 SEPTEMBER 30, 1996
COMPARED TO COMPARED TO COMPARED TO
YEAR ENDED YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------------- ---------------------- --------------------
INCREASE
INCREASE (DECREASE) INCREASE (DECREASE) (DECREASE)
DUE TO DUE TO DUE TO
----------------------- ---------------------- --------------------
VOLUME RATE NET VOLUME RATE NET VOLUME RATE NET
------- ----- ------- ------- ---- ------- ------ ---- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest earning assets
Investment
securities............ $(2,797) $ 433 $(2,364) $(2,639) $140 $(2,499) $ (46) $(38) $ (84)
Mortgage loans,
net(1)................ 4,690 645 5,335 1,138 (16) 1,122 1,936 74 2,010
IPF loans, net......... 300 -- 300 3,652 74 3,726 1,769 35 1,804
Automobile installment
contracts, net........ -- -- -- 679 -- 679 2,483 (15) 2,468
------- ----- ------- ------- ---- ------- ------ ---- ------
Total interest
earning assets...... 2,193 1,078 3,271 2,830 198 3,028 6,142 56 6,198
Interest bearing
liabilities
Customer deposits...... 313 1,904 2,217 (133) 118 (15) 1,442 (62) 1,380
Notes payable.......... 69 139 208 -- 69 69 7 87 94
FHLB advances.......... -- -- -- 72 -- 72 963 4 967
------- ----- ------- ------- ---- ------- ------ ---- ------
Total interest
bearing
liabilities......... 382 2,043 2,425 (61) 187 126 2,412 29 2,441
------- ----- ------- ------- ---- ------- ------ ---- ------
Change in net interest
income................. $ 1,811 $(965) $ 846 $ 2,891 $ 11 $ 2,902 $3,730 $ 27 $3,757
======= ===== ======= ======= ==== ======= ====== ==== ======
</TABLE>
- --------
(1) Includes interest on loans held for sale.
(2) Interest income and interest expense for April 29, 1994 (Inception)
through December 31, 1994 were annualized for comparability with the year
ended December 31, 1995 amounts.
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND SEPTEMBER 30, 1997
GENERAL
Net income increased from $930,000 for the nine months ended September 30,
1996 to $3.6 million for the nine months ended September 30, 1997. This
increase was due primarily to the expansion of the Company's mortgage,
insurance premium and auto finance businesses, all of which showed improved
operating results in 1997. Also contributing to the favorable operating
results was an increase of $14.4 million in gain on sales of loans from the
Company's mortgage finance operations offset by an increase in non-interest
expense of $13.5 million which also resulted primarily from the expansion of
mortgage finance and other lending operations.
As a result of the expansion of the Company's lending operations, mortgage
loan originations increased from $36.7 million for the nine months ended
September 30, 1996 to $336.9 million for the nine months ended September 30,
1997, while insurance premium financing originations increased from $73.4
million to $117.1 million, respectively, and auto contracts purchased
increased from $6.9 million to $29.4 million, respectively. Sales of mortgage
loans were $21.6 million for the nine months ended September 30, 1996 and
$273.0 million for the comparable period in 1997.
32
<PAGE>
INTEREST INCOME
Interest income increased from $12.1 million for the nine months ended
September 30, 1996 to $18.3 million for the nine months ended September 30,
1997 due primarily to a $55.3 million increase in average earning assets and a
1.22% increase in the average yield on earning assets. The largest components
of growth in average earning assets were mortgage loans, insurance premium
finance loans and auto contracts, which increased $26.8 million, $16.7 million
and $12.7 million, respectively. The increase in the average yield on earning
assets was attributable to an increase in the origination or purchase of
higher yielding loans during 1997 principally related to the expansion and
growth of the mortgage, insurance premium and automobile finance businesses.
The increase in mortgage loan receivables was a result of an increase in loans
held for sale, which increased from $9.6 million at September 30, 1996 to
$70.2 million at September 30, 1997. Generally, these loans are originated for
sale in the secondary mortgage market. The growth in IPF loans was primarily a
result of new loan originations associated with changes in California's
automobile insurance laws effective January 1, 1997, while the increase in
auto contracts principally resulted from the opening of new branch offices and
the purchasing of additional dealer contracts in these new markets.
INTEREST EXPENSE
Interest expense increased from $5.8 million for the nine months ended
September 30, 1996 to $8.2 million for the nine months ended September 30,
1997, due to a $59.1 million increase in average interest bearing liabilities
and a 0.15% increase in the weighted average interest rate on interest bearing
liabilities. The largest component of growth in interest bearing liabilities
was deposits with the Bank, which increased from an average balance of $143.8
million for the nine months ended September 30, 1996 to $183.1 million for the
nine months ended September 30, 1997. The average yield on deposits decreased
from 4.96% for the nine months ended September 30, 1996 to 4.89% for the nine
months ended September 30, 1997.
The increase in deposits resulted from the use of retail and wholesale CDs
to finance the Company's lending operations, and the decrease in the average
yield on the Bank's deposits reflects the repricing of accounts to lower
rates.
The second largest component of growth in interest bearing liabilities was
FHLB advances to the Bank, which increased from an average balance of $754,000
for the nine months ended September 30, 1996 to $20.3 million for the
comparable period in 1997. This increase reflects the use of short-term
borrowings to support the growth of its lending businesses.
PROVISION FOR LOAN LOSSES
Provision for loan losses increased from $98,000 for the nine months ended
September 30, 1996 to $445,000 for the nine months ended September 30, 1997.
The increase in the provision reflects management's decision to increase
general valuation allowances as a result of the increase in loans made by the
Company. The total allowance for loan losses was $5.3 million at September 30,
1996 compared to $6.2 million at September 30, 1997. The increase is
attributable to the additional provision for losses recorded during the nine
months ended September 30, 1997 and $1.3 million in acquisition discounts
related to the Company's purchase of auto contracts. The Company allocates the
estimated amount of discounts attributable to credit risk to the allowance for
loan losses. Loan charge-offs were $227,000 in the nine months ended September
30, 1996 compared to $912,000 in the nine months ended September 30, 1997.
A provision for loan losses is charged to operations based on the Company's
regular evaluation of its loan portfolio and the adequacy of its allowance for
loan losses. While management believes it has adequately provided for losses
and does not expect any material loss on its loans in excess of allowances
already recorded, no assurance can be given that economic or real estate
market conditions or other circumstances will not result in increased losses
in the loan portfolio.
33
<PAGE>
NON-INTEREST INCOME
Non-interest income increased $14.6 million, from $1.2 million for the nine
months ended September 30, 1996 to $15.8 million for the nine months ended
September 30, 1997. This increase resulted from gain on sale of mortgage loans
and is due primarily to a substantial increase in the volume of loans sold by
UPAM. During the nine months ended September 30, 1996, the Company sold $21.6
million in mortgage loans compared to $273.1 million during the comparable
period in 1997. Net gains on sales of loans, as a percentage of loans sold,
were 3.96% for the nine months ended September 30, 1996 compared to 5.59% for
the nine months ended September 30, 1997. All loans sold during the nine
months ended September 30, 1996 and 1997 were sold as whole loans with
servicing released to the investor. The Company expects to complete its first
securitization of mortgage loans in December 1997 and, thereafter, to sell or
securitize mortgage loans on a periodic basis.
Other components of non-interest income include fees and charges for Bank
services and miscellaneous other income. The total of all of these items
increased $209,000, from $314,000 for the nine months ended September 30, 1996
to $523,000 for the nine months ended September 30, 1997.
NON-INTEREST EXPENSE
Non-interest expense increased $13.5 million, from $5.8 million for the nine
months ended September 30, 1996 to $19.3 million for the nine months ended
September 30, 1997. This increase primarily reflects an increase in salaries,
loan commissions, employee benefits and other personnel costs of $8.8 million
associated with the expansion of the Company's mortgage and automobile finance
operations. In addition, occupancy expense increased $1.3 million, reflecting
an increase in the number of mortgage and automobile lending offices.
Marketing expense was $932,000 for the nine months ended September 30, 1997,
compared to $100,000 for the nine months ended September 30, 1996. This
increase is attributable to the Company's retail mortgage lending operations
which use extensive direct mail and telemarketing campaigns to target
prospective borrowers. Also, as a result of growth in the Company's mortgage
finance and automobile lending operations, other operating expense, including
stationery and supplies, data processing, insurance, telephone and postage,
increased $2.5 million during the nine months ended September 30, 1997
compared to the same period in 1996.
The Company significantly expanded its mortgage and automobile finance
operations, resulting in an increase from 34 employees in three offices and 20
employees in three offices, respectively, as of September 30, 1996 to 260
employees in 11 offices and 54 employees in nine offices, respectively, as of
September 30, 1997.
INCOME TAXES
Income taxes increased $1.9 million, from $698,000 for the nine months ended
September 30, 1996 to $2.6 million for the nine months ended September 30,
1997. This increase occurred as a result of a $4.5 million increase in income
before income taxes between the two periods offset by a decrease in the
effective tax rate from 42.9% for 1996 to 41.8% for 1997.
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1997
Total assets increased $109.3 million, from $174.0 million at September 30,
1996 to $283.3 million at September 30, 1997. This increase occurred primarily
as a result of a $72.2 million increase in loans receivable, from $150.5
million at September 30, 1996 to $222.7 million as of September 30, 1997. The
increase in loans was comprised of a $60.6 million increase in mortgage loans
held for sale, a $19.0 million increase (net of unearned finance charges) in
auto contracts and a $16.0 million increase in insurance premium finance
loans, offset by a $36.4 million decrease in loans purchased from the RTC as a
result of scheduled principal amortizations and prepayments.
Cash and cash equivalents increased $31.5 million, from $14.3 million at
September 30, 1996 to $45.8 million at September 30, 1997, as a result of
increased liquidity from the Company's sale of mortgage loans.
34
<PAGE>
Premises and equipment increased from $662,000 at September 30, 1996 to $2.3
million at September 30, 1997 as a result of purchases of furniture and
equipment for the Company's new lending branch offices and the overall growth
in lending operations.
Deposit accounts increased $62.8 million, from $148.0 million at September
30, 1996 to $210.8 million at September 30, 1997, due primarily to an increase
in CDs of $53.6 million, from $124.1 million at September 30, 1996 to $177.7
million at September 30, 1997. Included in deposits at September 30, 1997 are
$7.5 million in brokered CDs. There were no brokered CDs outstanding at
September 30, 1996.
Other interest bearing liabilities include the RTC notes payable which
remained unchanged at $10.9 million between period ends, FHLB advances which
increased from $4.0 million as of September 30, 1996 at a weighted average
interest rate of 5.58% to $35.0 million at September 30, 1997 at a weighted
average interest rate of 6.43% and notes payable from stockholders which
increased $1.9 million between period ends.
Net deferred tax assets were $2.1 million at September 30, 1997 due
principally to temporary differences in the recognition of gain on sale of
loans for federal and state income tax reporting and financial statement
reporting purposes. For income tax purposes, loans held for sale are marked-
to-market.
Stockholders' equity increased from $6.7 million at September 30, 1996 to
$10.4 million at September 30, 1997, solely as a result of the Company's net
income.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1995 AND
DECEMBER 31, 1996
GENERAL
Net income increased from $458,000 for the year ended December 31, 1995 to
$950,000 for the year ended December 31, 1996. This increase was due primarily
to the expansion of the Company's insurance premium and mortgage finance
businesses which commenced in the later part of 1995 and early 1996,
respectively. Partially offsetting this increase in net income was an increase
in operating costs incurred by UPAM as well as those incurred as a result of
the commencement in early 1996 of UACC's operations.
INTEREST INCOME
Interest income increased from $13.5 million for the year ended December 31,
1995 to $16.6 million for the year ended December 31, 1996 due primarily to a
1.9% increase in the average yield on earning assets. While average earning
assets decreased $577,000, the components of this balance changed
significantly with the average balance of insurance premium finance loans
increasing from $2.6 million for the year ended December 31, 1995 to $28.8
million for the comparable period in 1996, and mortgage loans increasing from
$105.8 million to $117.9 million, respectively. These increases in average
earning assets were offset by a decline in average investments from $52.4
million for the year ended December 31, 1995 to $11.1 million for the year
ended December 31, 1996. The changes in average earning assets resulted from
the Company's strategy of reinvesting in higher yielding loans, such as
subprime mortgage and insurance premium finance loans, rather than investment
securities and traditional mortgage loans which dominated the Company's
balance sheet in the early years of its operations.
INTEREST EXPENSE
Interest expense increased from $7.7 million for the year ended December 31,
1995 to $7.9 million for the year ended December 31, 1996 due primarily to a
$1.3 million decrease in average interest bearing liabilities, offset by a
0.11% increase in the weighted average interest rate on interest bearing
liabilities. The largest component of change in interest bearing liabilities
was deposits, which decreased from an average balance of $148.6 million for
the year ended December 31, 1995 to $146.2 million for the year ended December
31, 1996. The average cost of deposits increased from 4.87% for the year ended
December 31, 1995 to 4.94% for the year ended December 31, 1996.
35
<PAGE>
Other interest bearing liabilities include the RTC Notes Payable, which
remained unchanged at $10.9 million at both December 31, 1995 and 1996, and
FHLB advances which increased to $4.0 million at December 31, 1996 with a
weighted average interest rate of 5.70%. The Bank had no FHLB advances at
December 31, 1995.
PROVISION FOR LOAN LOSSES
Provision for loan losses increased from $120,000 for the year ended
December 31, 1995 to $194,000 for the year ended December 31, 1996. This
increase was due primarily to the growth in 1996 of the Company's insurance
premium finance business. The total allowance for loan losses was $5.3 million
at December 31, 1995 compared to $5.4 million at December 31, 1996. The
increase is attributable to the additional provision for losses recorded
during the year ended December 31, 1996 and $356,000 in acquisition discounts
related to the Company's purchase of auto contracts. The Company allocated the
estimated amount of discounts attributable to credit risk to the allowance for
loan losses. Net loan charge-offs were $108,000 in the year ended December 31,
1995 compared to $444,000 in the year ended December 31, 1996.
A provision for loan losses is charged to operations based on the Company's
regular evaluation of its loan portfolio and the adequacy of its allowance for
loan losses. While management believes it has adequately provided for losses
and does not expect any material loss on its loans in excess of allowances
already recorded, no assurance can be given that economic or real estate
market conditions or other circumstances will not result in increased losses
in the loan portfolio.
NON-INTEREST INCOME
Non-interest income increased $2.5 million, from $318,000 for the year ended
December 31, 1995 to $2.8 million for the year ended December 31, 1996. This
increase resulted from gain on sale of loans and is due primarily to a
substantial increase in the volume of mortgage loans sold by the Company.
During the year ended December 31, 1995, the Company sold $3.5 million in
mortgage loans compared to $50.1 million during the comparable period in 1996.
Net gains on sales of loans, as a percentage of loans sold, were 2.57% for the
year ended December 31, 1995 compared to 4.65% for the year ended December 31,
1996. All loans sold during the year ended December 31, 1995 and 1996 were
sold as whole loans with servicing released to the investor.
Other components of non-interest income include fees and charges for Bank
services and miscellaneous other income. The total of all of these items
increased $215,000 from $228,000 for the year ended December 31, 1995 to
$443,000 for the year ended December 31, 1996.
NON-INTEREST EXPENSE
Non-interest expense increased $4.4 million, from $5.2 million for the year
ended December 31, 1995 to $9.6 million for the year ended December 31, 1996.
This increase primarily reflects an increase in salaries, loan commissions,
employee benefits and other personnel costs of $2.5 million associated with
the Company's mortgage and automobile finance operations which commenced in
early 1996. In addition, occupancy expense increased $402,000 also reflecting
an increase in the number of mortgage and automobile finance offices. As a
result of growth in mortgage and automobile finance operations, other
operating expenses, including stationery and supplies, data processing,
insurance, telephone and postage increased $800,000 during the year ended
December 31, 1996 compared to the same period in 1995.
As stated above, the Company commenced its subprime mortgage finance and
automobile finance businesses in early 1996, and by December 31, 1996 these
operations grew to 64 employees in five offices and 25 employees in four
offices, respectively.
36
<PAGE>
Also included in 1996 non-interest expense is a one-time special assessment
in the amount of $820,000 to recapitalize the SAIF. This assessment of 0.657%
of the Bank's assessment base as of March 31, 1995 was enacted through federal
legislation and paid by SAIF insured institutions. As a result of this
recapitalization, the Bank's future deposit insurance assessments will
decrease significantly.
INCOME TAXES
Income taxes increased $307,000 from $384,000 for the year ended December
31, 1995 to $691,000 for the year ended December 31, 1996. This increase
occurred as a result of a $799,000 increase in income before income taxes
between the two years offset by a decrease in the effective tax rate from
45.6% in 1995 to 42.1% in 1996.
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1995 AND DECEMBER 31, 1996
Total assets increased $28.0 million, from $159.6 million as of December 31,
1995 to $187.6 million as of December 31, 1996. This increase occurred
primarily as a result of a $23.8 million increase in loans, from $131.8
million for the year ended December 31, 1995 to $155.6 million for the year
ended December 31, 1996. The increase in loans was comprised of a $20.8
million increase in mortgage loans held for sale, a $7.6 million increase (net
of unearned finance charges) in auto contracts and a $15.1 million increase in
insurance premium finance loans, offset by a $21.8 million decrease in loans
purchased from the RTC, resulting from scheduled principal amortization and
prepayments.
Cash and cash equivalents increased $2.5 million, from $23.6 million as of
December 31, 1995 to $26.1 million as of December 31, 1996, as a result of
increased liquidity from the Company's sale of mortgage loans.
Deposit accounts increased $17.2 million, from $141.9 million as of December
31, 1995 to $159.1 million as of December 31, 1996 due primarily to an
increase in CDs of $15.6 million, from $115.8 million as of December 31, 1995
to $131.4 million as of December 31, 1996. The Company uses CDs, in part, to
finance the growth of its lending operations.
Other interest-bearing liabilities include the RTC Notes Payable which
remained unchanged at $10.9 million at December 31, 1995 and 1996, and FHLB
advances which increased to $4.0 million at December 31, 1996 with a weighted
average interest rate of 5.70%. There were no FHLB advances at December 31,
1995.
Stockholders' equity increased $950,000, from $5.8 million as of December
31, 1995 to $6.8 million as of December 31, 1996, solely as a result of the
Company's net income for the year.
COMPARISON OF OPERATING RESULTS FOR THE PERIOD FROM APRIL 29, 1994 (INCEPTION)
THROUGH DECEMBER 31, 1994 AND THE YEAR ENDED DECEMBER 31, 1995
GENERAL
Net income increased from $116,000 for the period from April 29, 1994
(Inception) to December 31, 1994 to $458,000 for the year ended December 31,
1995. This increase was due primarily to (i) completion of the Bank's
purchases of loans from the RTC thereby converting assets from lower yielding
investment securities into higher yielding loans, and (ii) the inclusion of
twelve months of operations in 1995 as opposed to eight months in 1994. The
Bank acquired certain assets and assumed certain liabilities from the RTC on
April 29, 1994.
INTEREST INCOME
Interest income increased from $6.9 million for the period from April 29,
1994 (Inception) to December 31, 1994 to $13.5 million for the year ended
December 31, 1995 due primarily to (i) the inclusion of twelve months of
operations in 1995 as opposed to eight months in 1994, and (ii) a $7.6 million
increase in average earning
37
<PAGE>
assets and a 1.68% increase in the average yield on earning assets. The
largest component of growth in average earning assets was mortgage loans,
which increased $50.2 million. Loans totaling $133.1 million were purchased
from the RTC from April 1994 through December 1995, and these higher yielding
loans resulted in a significant increase in interest income.
INTEREST EXPENSE
Interest expense increased from $3.6 million for the period from April 29,
1994 (Inception) to December 31, 1994 to $7.7 million for the year ended
December 31, 1995 due primarily to (i) the inclusion of twelve months of
operations in 1995 as opposed to eight months in 1994, (ii) a $10.3 million
increase in average interest bearing liabilities and (iii) a 1.30% increase in
the weighted average interest rate on interest bearing liabilities. The
largest component of growth in interest bearing liabilities was deposits,
which increased from an average balance of $140.3 million for the period from
April 29, 1994 (Inception) to December 31, 1994 to $148.6 million for the year
ended December 31, 1995. This growth resulted from the Bank's purchase of
deposits from the RTC offset by the sale of deposits by the Bank in the same
period and deposit outflows. The average cost of deposits increased from 3.58%
for the period from April 29, 1994 (Inception) to December 31, 1994 to 4.87%
for the year ended December 31, 1995 primarily as a result of deposits
repricing to higher interest rate accounts.
Other interest-bearing liabilities include the RTC Notes Payable, the
average balance of which increased $1.9 million between years as a result of
an additional loan provided to the Bank as part of its purchase of deposits
from the RTC.
PROVISION FOR LOAN LOSSES
Provision for loan losses increased from $50,000 for the period from April
29, 1994 (Inception) to $120,000 for the year ended December 31, 1995. The
total allowance for loan losses was $378,000 at December 31, 1994 compared to
$5.3 million at December 31, 1995. This increase was attributable to the
additional provision for losses recorded during the year ended December 31,
1995 and $4.9 million in acquisition discounts related to the Company's
purchase of loans from the RTC. The Company allocated the estimated amount of
discounts attributable to credit risk to the allowance for loan losses. Loan
charge-offs were $108,000 in the year ended December 31, 1995. There were no
charge-offs in the period from April 29, 1994 (Inception) to December 31,
1994.
NON-INTEREST INCOME
Non-interest income increased $220,000, from $98,000 for the period from
April 29, 1994 (Inception) through December 31, 1994 to $318,000 for the year
ended December 31, 1995. This increase was due primarily to (i) the inclusion
of twelve months of operations in 1995 as opposed to eight months in 1994, and
(ii) an increase in gain on sale of loans from $3,000 for the period from
April 29, 1994 (Inception) through December 31, 1994 to $90,000 for the year
ended December 31, 1995.
Other components of non-interest income include fees and charges for Bank
services and miscellaneous other income. The total of all of these items
increased $133,000 from $95,000 for the period from April 29, 1994 (Inception)
through December 31, 1994 to $228,000 for the year ended December 31, 1995.
NON-INTEREST EXPENSE
Non-interest expense increased $2.1 million, from $3.1 million for the
period from April 29, 1994 (Inception) through December 31, 1994 to $5.2
million for the year ended December 31, 1995. This increase was due primarily
to (i) the inclusion of twelve months of operations in 1995 as opposed to
eight months in 1994, and (ii) increases in compensation and benefits
occurring from increased staffing in the Bank.
38
<PAGE>
INCOME TAXES
Income taxes increased $286,000 from $98,000 for the period from April 29,
1994 (Inception) through December 31, 1994 to $384,000 for the year ended
December 31, 1995. This increase occurred as a result of a $628,000 increase
in income before income taxes between the two years, offset by a decrease in
the average tax rate from 45.8% in 1994 to 45.6% in 1995.
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1994 AND DECEMBER 31, 1995
Total assets decreased $20.5 million, from $180.0 million at December 31,
1994 to $159.6 million at December 31, 1995. This decrease occurred primarily
as a result of a $95.8 million decrease in short-term investments offset by a
$79.0 million increase in loans. The increase in loans was comprised primarily
of a $75.9 million increase in mortgage loans purchased from the RTC under the
Minority Preference Resolution Program in 1994 and 1995.
Cash and cash equivalents decreased $96.0 million, from $119.6 million at
December 31, 1994 to $23.6 million at December 31, 1995, resulting from the
purchase of loans from the RTC in 1995.
Deposits decreased $21.2 million, from $163.1 million at December 31, 1994
to $141.9 million at December 31, 1995 due primarily to outflows in the Bank's
deposits resulting from the acquisition by the Bank of certain assets and
liabilities from the RTC and the resultant lowering of deposit rates to
reflect market conditions and reduce excess liquidity held by the Bank.
Other interest-bearing liabilities include the RTC Notes Payable, which
remained unchanged at $10.9 million between December 31, 1994 and 1995.
Stockholders' equity increased $500,000, from $5.3 million at December 31,
1994 to $5.8 million at December 31, 1995, solely as a result of the Company's
net income for the year.
MANAGEMENT OF INTEREST RATE RISK
The principal objective of the Company's interest rate risk management
activities is to evaluate the interest rate risk inherent in the Company's
business activities, determine the level of appropriate risk given the
Company's operating environment, capital and liquidity requirements and
performance objectives and manage the risk consistent with guidelines approved
by the Board of Directors. Through such management, the Company seeks to
reduce the exposure of its operations to changes in interest rates. The Board
of Directors reviews on a quarterly basis the asset/liability position of the
Company, including simulation of the effect on capital of various interest
rate scenarios.
The Company's profits depend, in part, on the difference, or "spread,"
between the effective rate of interest received on the loans it originates and
the interest rates paid on deposits and other financing facilities which can
be adversely affected by movements in interest rates. In addition, between the
time the Company originates loans and investors' sales commitments are
received, the Company may be exposed to interest rate risk to the extent that
interest rates move upward or downward during the time the loans are held for
sale. The Company mitigates these risks somewhat by purchasing or originating
ARMs that reprice frequently in an increasing or declining interest rate
environment. Also, the Company sells substantially all of its loans held for
sale on a regular basis, thereby reducing significantly the amount of time
these loans are held by the Company.
The Bank's interest rate sensitivity is monitored by the Board of Directors
and management through the use of a model which estimates the change in the
Bank's net portfolio value ("NPV") over a range of interest rate scenarios.
NPV is the present value of expected cash flows from assets, liabilities and
off-balance sheet instruments, and NPV Ratio is defined as the NPV in that
scenario divided by the market value of assets in the same scenario. The
Company reviews a market value model prepared quarterly by the OTS (the "OTS
NPV model"), based on the Bank's quarterly Thrift Financial Reports filed with
the OTS. The OTS NPV model
39
<PAGE>
measures the Bank's interest rate risk by approximating the Bank's NPV under
various scenarios which range from a 400 basis point increase to a 400 basis
point decrease in market interest rates. The interest rate risk policy of the
Company provides that the maximum permissible change at a 400 basis point
increase or decrease in market interest rates is a 30% change in NPV. The OTS
has incorporated an interest rate risk component into its regulatory capital
rule for thrifts. Under the rule, an institution whose sensitivity measure, as
defined by the OTS, in the event of a 200 basis point increase or decrease in
interest rates exceeds 20% would be required to deduct an interest rate risk
component in calculating its total capital for purpose of the risk-based
capital requirement.
At June 30, 1997, the most recent date for which the relevant OTS NPV model
is available, the Bank's sensitivity measure resulting from (i) a 200 basis
point decrease in interest rates was six basis points and would result in a
$11,000 increase in the NPV of the Bank and (ii) a 200 basis point increase in
interest rates was 51 basis points and would result in a $1.7 million decrease
in the NPV of the Bank. At June 30, 1997, the Bank's sensitivity measure was
below the threshold at which the Bank could be required to hold additional
risk-based capital under OTS regulations.
Although the NPV measurement provides an indication of the Bank's interest
rate risk exposure at a particular point in time, such measurement is not
intended to and does not provide a precise forecast of the effect of changes
in market interest rates on the Bank's net interest income and will differ
from actual results. Management monitors the results of this modeling, which
are presented to the Board of Directors on a quarterly basis.
The following table shows the NPV and projected change in the NPV of the
Bank at June 30, 1997 assuming an instantaneous and sustained change in market
interest rates of 100, 200, 300 and 400 basis points ("bp"). This table is
based on data prepared by the OTS. The Company makes no representation as to
the accuracy of this data.
INTEREST RATE SENSITIVITY OF NET PORTFOLIO VALUE ("NPV")
<TABLE>
<CAPTION>
NPV AS % OF PORTFOLIO
NET PORTFOLIO VALUE VALUE OF ASSETS
--------------------------- ------------------------
$ AMOUNT $ CHANGE % CHANGE NPV RATIO % CHANGE
CHANGE IN RATES -------- -------- -------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
+400 bp.................... $28,596 $(7,519) -21% 11.37% -253 bp
+300 bp.................... $31,928 $(4,187) -12% 12.53% -137 bp
+200 bp.................... $34,451 $(1,664) -5% 13.39% -51 bp
+100 bp.................... $35,883 $ (232) -1% 13.85% -5 bp
0 bp....................... $36,115 -- -- 13.90% --
- -100 bp.................... $35,956 $ (159) -- 13.81% -9 bp
- -200 bp.................... $36,126 $ 11 -- 13.84% -6 bp
- -300 bp.................... $36,900 $ 785 +2% 14.07% +17 bp
- -400 bp.................... $38,167 $ 2,052 +6% 14.46% +56 bp
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
The Company's primary sources of funds are deposits with the Bank, FHLB
advances, principal and interest payments on loans, cash proceeds from the
sale of loans and, to a lesser extent, interest payments on securities and
proceeds from the maturation of securities. While maturities and scheduled
amortization of loans are a predictable source of funds, deposit flows and
loan prepayments are greatly influenced by general interest rates, economic
conditions and competition. However, the Company has continued to maintain the
required minimum levels of liquid assets as defined by OTS regulations. This
requirement, which may be varied at the direction of the OTS depending upon
economic conditions and deposit flows, is based upon a percentage of deposits
and
40
<PAGE>
short-term borrowings. The required ratio is currently 5%, and the Company has
always met or exceeded this requirement. Management, through its Asset and
Liability Committee, which meets monthly or more frequently if necessary,
monitors rates and terms of competing sources of funds to use the most cost-
effective source of funds wherever possible.
Sales of loans have been a primary source of funds for the Company. During
the nine months ended September 30, 1996 and 1997, cash flows from sales of
loans were $22.2 million and $298.5 million, respectively, and, during the
year ended December 31, 1996, loans sales produced $52.2 million in cash
flows.
Another source of funds consists of deposits obtained through the Bank's
five retail branches in California. The Bank offers checking accounts, various
money market accounts, regular passbook accounts, fixed interest rate
certificates with varying maturities and retirement accounts. Deposit account
terms vary by interest rate, minimum balance requirement and the duration of
the account. Interest rates paid, maturity terms, service fees and withdrawal
penalties are established by the Bank periodically based on liquidity and
financing requirements, rates paid by competitors, growth goals and federal
regulations. At September 30, 1997, such retail deposits were $174.3 million
or 82.7% of total deposits.
The Bank uses wholesale and broker-originated deposits to supplement its
retail deposits and, at September 30, 1997, wholesale deposits were $29.0
million or 13.7% of total deposits while broker-originated deposits were $7.5
million or 3.6% of total deposits. The Bank solicits wholesale deposits by
posting its interest rates on a national on-line service which advertises the
Bank's wholesale products to investors. Generally, most of the wholesale
deposit account holders are institutional investors, commercial businesses or
public sector entities. The weighted average maturity of wholesale and broker-
originated deposits at September 30, 1997 was five months.
The Company believes that wholesale and broker-originated deposits provide a
supplemental short-term source of funding which can be more flexible than
retail sources of funds for matching asset maturities, especially the
Company's loans held for sale. While the Company believes its primary source
of deposits will continue to be originated from the Bank's retail branches,
wholesale and broker-originated deposits will be used to provide additional
sources of funds to finance lending growth.
Although the Bank has a significant amount of deposits maturing in less than
one year, the Company believes that the Bank's current pricing strategy will
enable it to retain a significant portion of these accounts at maturity and
that it will continue to have access to sufficient amounts of CDs which,
together with other funding sources, will provide the necessary level of
liquidity to finance its lending businesses. However, as a result of these
shorter-term deposits, the rates on these accounts may be more sensitive to
movements in market interest rates which may result in a higher cost of funds.
The following table sets forth the average balances and rates paid on each
category of deposits for the years ended December 31, 1995 and 1996 and for
the nine months ended September 30, 1996 and 1997.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------- ---------------------------------
1995 1996 1996 1997
---------------- ---------------- ---------------- ----------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE BALANCE RATE
-------- ------- -------- ------- -------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Passbook accounts....... $ 16,612 2.12% $ 14,665 2.39% $ 14,248 2.77% $ 19,972 3.30%
Checking accounts....... 12,091 1.48% 10,060 1.33% 9,927 1.33% 9,966 1.32%
Certificates of deposit
Under $100,000......... 112,342 5.67% 117,063 5.55% 115,698 5.58% 131,494 5.52%
$100,000 and over...... 7,537 6.36% 4,372 5.88% 3,883 5.88% 21,702 5.90%
-------- -------- -------- --------
Total................. $148,582 4.87% $146,160 4.94% $143,756 4.96% $183,134 4.89%
======== ======== ======== ========
</TABLE>
41
<PAGE>
The following table sets forth the time remaining until maturity for all CDs
at December 31, 1995 and 1996 and September 30, 1997.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1995 1996 1997
------------ ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Maturity within one year................ $ 76,879 $103,369 $139,415
Maturity within two years............... 36,316 26,819 37,831
Maturity within three years............. 1,681 1,177 500
Maturity within four years.............. 957 -- --
-------- -------- --------
Total certificates of deposit........... $115,833 $131,365 $177,746
======== ======== ========
</TABLE>
At September 30, 1997, the Bank exceeded all of its regulatory capital
requirements (and was deemed to be "well capitalized") with (i) tangible
capital of $19.7 million, or 7.06% of total adjusted assets, which is above
the required level of $4.2 million, or 1.50%; (ii) core capital of $19.7
million, or 7.06% of total adjusted assets, which is above the required level
of $8.4 million, or 3.00%; and (iii) risk-based capital of $21.8 million, or
13.20% of risk-weighted assets, which is above the required level of $13.2
million, or 8.00%.
The Company has other sources of liquidity, including FHLB advances and
securities maturing within one year. Through the Bank, the Company obtains
advances from the FHLB, collateralized by its portfolio of mortgage loans
purchased from the RTC and the Bank's FHLB stock. The FHLB functions as a
central reserve bank providing credit for thrifts and certain other member
financial institutions. Advances are made pursuant to several programs, each
of which has its own interest rate and range of maturities. Limitations on the
amount of advances are based generally on a fixed percentage of net worth or
on the FHLB's assessment of an institution's credit-worthiness. The Bank's
available borrowing capacity under this credit facility was $40.9 million at
September 30, 1997.
Other borrowings of the Company consist of the RTC Notes Payable which
mature in 1999, and notes payable from stockholders which mature in 1999. See
"--Liquidity and Capital Resources--RTC Notes Payable" for a discussion of the
Company's RTC Notes Payable and "Management--Certain Transactions" for
discussion of the notes payable from stockholders.
The following table sets forth certain information regarding the Company's
short-term borrowed funds (consisting solely of FHLB advances) at or for the
periods ended on the dates indicated.
<TABLE>
<CAPTION>
AT OR FOR AT OR FOR
YEARS ENDED NINE MONTHS
DECEMBER 31, ENDED
------------- SEPTEMBER 30,
1995 1996 1997
----- ------ ------------- ---
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
FHLB advances
Maximum month-end balance.................... $ -- $4,000 $35,000
Balance at end of period..................... -- 4,000 35,000
Average balance for period................... -- 1,170 20,334
Weighted average interest rate on
Balance at end of period..................... -- % 5.70% 6.43%
Average balance for period................... -- % 6.15% 6.38%
</TABLE>
The Company had no material contractual obligations or commitments for
capital expenditures at September 30, 1997. However, the Company is in the
process of expanding its mortgage and auto finance operations, which will
entail lease commitments and expenditures for leasehold improvements and
furniture, fixtures and equipment. At September 30, 1997, the Company had
outstanding commitments to originate loans of $116.0 million, compared to
$19.1 million at December 31, 1996. The Company anticipates that it will have
sufficient funds available to meet its current loan origination commitments.
42
<PAGE>
MASTER REPURCHASE AGREEMENT
In October 1997, the Bank entered into a $100 million master repurchase
agreement under which it may sell and repurchase at a set price mortgage loans
pending the sale or securitization of such loans. The arrangement provides for
an advance rate approximating 100% of the outstanding principal balance of
qualifying mortgage loans and a rate of interest to be determined by the
parties upon each such sale of mortgage loans, but which shall not exceed
LIBOR plus 0.70%. Qualifying mortgage loans consist of first and second
mortgage loans with an LTV that does not exceed 90%, subject to certain
restrictions. This agreement may be terminated at any time at the option of
either party.
RTC NOTES PAYABLE
In connection with its acquisition of certain assets from the RTC, the Bank
obtained loans from the RTC in the aggregate amount of $10.9 million under the
RTC's Minority Interim Capital Assistance Program provided for in Section
21A(u) of the Federal Home Loan Bank Act, as amended (the "FHLBA"). The FHLBA
gives the RTC authority to provide interim capital assistance to minority-
owned institutions, defined in the FHLBA as more than fifty percent (50%)
owned or controlled by one or more minorities. The Bank, PAFI and the RTC
entered into an Interim Capital Assistance Agreement on April 29, 1994 with
respect to a loan of $6,930,000 and a second Interim Capital Assistance
Agreement on September 9, 1997 with respect to a loan of $4,000,000 (together,
the "RTC Agreements"). The RTC Agreements provide for repayment of the entire
principal amount, plus any accrued, previously unpaid interest thereon, in a
single lump sum installment on April 28, 1999 and September 8, 1999,
respectively. The RTC Notes Payable may be prepaid at the option of the Bank
and must be prepaid in the event that PAFI obtains all or any material portion
of its permanent financing prior to maturity of the RTC Notes Payable. The RTC
is entitled to declare the entire unpaid principal amount of the RTC Notes
Payable, plus all interest accrued and unpaid thereon, immediately due and
payable upon the occurrence of certain events of default.
The rate at which interest accrues on the RTC Notes Payable is based on the
RTC's "Cost of Funds," defined in the RTC Agreements as the end of the
calendar quarter Monday auction yield price for 13 week United States Treasury
Bills plus 12.5 basis points, and adjusts annually, in the case of the $6.9
million loan due April 1999, and quarterly, in the case of the $4 million loan
due September 1999. Interest accrues on any amount of principal or interest
not paid when due at the rate of the RTC's Cost of Funds (5.375% at September
30, 1997) plus 300 basis points, beginning on the date such unpaid amount
became due.
Until all of the obligations of PAFI and the Bank have been discharged, the
Bank has agreed, pursuant to the RTC Agreements, among other things, not to:
(i) declare or pay any dividends, except under certain limited circumstances,
and not to issue any capital stock or any options or other rights in respect
thereto, or repurchase, redeem, retire or otherwise acquire for value any of
its capital stock; (ii) make any loan or advance to PAFI or any other
affiliate, except to United PanAm Mortgage Corporation and United Auto Credit
Corporation, as long as such transactions do not require the Bank to
repurchase any loans which would result in a loss to the Bank; (iii) increase
the compensation of, or pay any bonuses to, any of its officers, directors or
key employees unless such increases are approved by the RTC; or (iv) sell or
otherwise dispose of all or substantially all of its assets, enter into any
merger or consolidation or enter into any agreement providing for a change of
control of the Bank, unless such transaction is conditioned upon the prior or
simultaneous repayment in full of all amounts due under the RTC Agreements.
In connection with the RTC Agreements, PAFI and the RTC have entered into
Stock Pledge Agreements pursuant to which PAFI has pledged to the RTC all of
the issued and outstanding shares of the capital stock of the Bank as security
for the repayment of the RTC Notes Payable.
LENDING ACTIVITIES
To date, the Company has sold substantially all of its loan originations to
mortgage companies and other investors through whole loan packages on a non-
recourse, servicing released basis. As a result, upon sale, all
43
<PAGE>
risks and rewards of ownership, including those associated with loan payments,
transfer to the buyer. Accordingly, to date, prepayments have not had a
significant effect on the Company's operations.
Summary of Loan Portfolio. At September 30, 1997, the Company's loan
portfolio constituted $222.7 million or 78.6% of the Company's total assets,
of which $152.5 million or 68.5% were held for investment and $70.2 million or
31.5% were held for sale. Loans held for investment are reported at cost, net
of unamortized discounts or premiums and allowance for losses. Loans held for
sale are reported at the lower of cost or market value.
The following table sets forth the composition of the Company's loan
portfolio at the dates indicated.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1995 1996 1997
------------ ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
MORTGAGE LOANS
Mortgage loans (purchased primarily
from RTC)............................ $124,483 $102,733 $ 87,157
-------- -------- --------
Subprime mortgage loans
Held for sale....................... -- 20,766 70,241
Held for investment................. -- 1,294 3,840
-------- -------- --------
Total subprime mortgage loans....... -- 22,060 74,081
-------- -------- --------
Total mortgage loans................ 124,483 124,793 161,238
-------- -------- --------
CONSUMER LOANS
Automobile installment contracts...... -- 10,830 32,037
Insurance premium financing........... 16,975 32,058 47,287
Other consumer loans.................. 31 230 327
-------- -------- --------
Total consumer loans................ 17,006 43,118 79,651
-------- -------- --------
Total loans......................... 141,489 167,911 240,889
Unearned discounts and premiums....... (4,445) (3,697) (3,135)
Unearned finance charges.............. -- (3,271) (8,810)
Allowance for loan losses............. (5,250) (5,356) (6,203)
-------- -------- --------
Total loans, net.................... $131,794 $155,587 $222,741
======== ======== ========
</TABLE>
Loan Maturities. The following table sets forth the dollar amount of loans
maturing in the Company's loan portfolio at September 30, 1997 based on
scheduled contractual amortization. Loan balances are reflected before
unearned discounts and premiums, unearned finance charges and allowance for
losses.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1997
----------------------------------------------------------------------------
MORE THAN MORE THAN MORE THAN MORE THAN
ONE YEAR 1 YEAR TO 3 3 YEARS TO 5 YEARS TO 10 YEARS TO MORE THAN
OR LESS YEARS 5 YEARS 10 YEARS 20 YEARS 20 YEARS TOTAL LOANS
-------- ----------- ---------- ---------- ----------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans held for
investment............. $ 116 $ 328 $ 2,208 $7,411 $22,903 $ 58,031 $ 90,997
Mortgage loans held for
sale................... -- -- -- -- 3,697 66,544 70,241
Consumer loans.......... 47,511 15,833 16,307 -- -- -- 79,651
------- ------- ------- ------ ------- -------- --------
Total................. $47,627 $16,161 $18,515 $7,411 $26,600 $124,575 $240,889
======= ======= ======= ====== ======= ======== ========
</TABLE>
44
<PAGE>
The following table sets forth, at September 30, 1997, the dollar amount of
loans receivable that were contractually due after one year and indicates
whether such loans have fixed or adjustable interest rates.
<TABLE>
<CAPTION>
DUE AFTER SEPTEMBER 30, 1998
------------------------------
FIXED ADJUSTABLE TOTAL
-------- ---------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Mortgage loans held for investment........... $ 16,884 $ 74,001 $ 90,885
Mortgage loans held for sale................. 11,326 58,915 70,241
Consumer loans............................... 31,813 326 32,139
-------- --------- ---------
Total...................................... $ 60,023 $ 133,242 $ 193,265
======== ========= =========
</TABLE>
CLASSIFIED ASSETS AND ALLOWANCE FOR LOAN LOSSES
The Company maintains an asset review and classification process for
purposes of assessing loan portfolio quality and the adequacy of its loan loss
allowances. The Company's Asset Review Committee reviews for classification
all problem and potential problem assets and reports the results of its review
to the Board of Directors quarterly. The Company has incorporated the OTS
internal asset classifications as a part of its credit monitoring systems and
in order of increasing weakness, these designations are "substandard,"
"doubtful" and "loss." Substandard assets have one or more defined weaknesses
and are characterized by the distinct possibility that some loss will be
sustained if the deficiencies are not corrected. Doubtful assets have the
weaknesses of substandard assets with the additional characteristic that the
weaknesses make collection or liquidation in full, on the basis of currently
existing facts, condition and values, questionable and there is a high
possibility of loss. Loss assets are considered uncollectible and of such
little value that continuance as an asset is not warranted. Assets which do
have weaknesses but do not currently have sufficient risk to warrant
classification in one of the categories described above are designated as
"special mention."
At September, 30, 1997, the Company had $3.7 million in assets classified as
special mention, $5.2 million of assets classified as substandard, $127,000 in
assets classified as doubtful and no assets classified as loss.
The following table sets forth the remaining balances of all loans in the
Bank's combined loan portfolio (before specific reserves for losses) that were
more than 30 days delinquent at December 31, 1995 and 1996 and September 30,
1997.
<TABLE>
<CAPTION>
LOAN DECEMBER 31, % OF TOTAL DECEMBER 31, % OF TOTAL SEPTEMBER 30, % OF TOTAL
DELINQUENCIES 1995 LOANS 1996 LOANS 1997 LOANS
- ------------- ------------ ---------- ------------ ---------- ------------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
30 to 59 days........... $1,753 1.3% $1,866 1.3% $ 938 0.6%
60 to 89 days........... 842 0.6% 109 0.1% 332 0.2%
90+ days................ 6,507 4.7% 6,422 4.6% 5,231 3.3%
------ --- ------ --- ------ ---
Total................... $9,102 6.6% $8,397 6.0% $6,501 4.1%
====== === ====== === ====== ===
</TABLE>
Nonaccrual and Past Due Loans. The Company's general policy is to
discontinue accrual of interest on a mortgage loan when it is delinquent 90
days or more, and on a non-mortgage loan when it is delinquent for 120 days or
more. When a loan is reclassified from accrual to nonaccrual status, all
previously accrued interest is reversed. Interest income on nonaccrual loans
is subsequently recognized only to the extent that cash payments are received
or the borrower's ability to make periodic interest and principal payments is
in accordance with the loan terms, at which time the loan is returned to
accrual status. Accounts which are deemed fully or partially uncollectible by
management are generally fully reserved or charged off for the amount that
exceeds the estimated fair value (net of selling costs) of the underlying
collateral. The Company does not generally modify, extend or rewrite loans and
at September 30, 1997 had no troubled debt restructured loans. The following
table sets forth the aggregate amount of nonaccrual loans (net of unearned
discounts and premiums, unearned finance charges and specific allowances) at
December 31, 1995 and 1996 and September 30, 1997.
45
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
-------------- -------------
1995 1996 1997
------ ------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Nonaccrual loans
Single-family residential.................. $5,086 $5,044 $3,523
Multi-family residential................... 154 81 81
Consumer and other loans................... -- 710 1,064
------ ------ ------
Total.................................... $5,240 $5,835 $4,668
====== ====== ======
Nonaccrual loans as a percentage of
Total loans held for investment............ 3.85% 4.19% 2.96%
Total assets............................... 3.28% 3.11% 1.65%
General allowance for loan losses as a
percentage of
Total loans held for investment............ 3.19% 3.14% 3.28%
Nonaccrual loans........................... 82.80% 74.90% 110.70%
</TABLE>
For the years ended December 31, 1995 and 1996 and for the nine months ended
September 30, 1997, the amount of interest income that would have been
recognized on nonaccrual loans if such loans had continued to perform in
accordance with their contractual terms was $296,000, $370,0000 and $248,000,
respectively. The total amount of interest income recognized on nonaccrual
loans was $327,000, $364,000 and $138,000 for the years ended December 31,
1995 and 1996 and the nine months ended September 30, 1997, respectively.
Accruing loans over 90 days past due were $38,000 at September 30, 1997. There
were no accruing loans over 90 days past due at December 31, 1995 and 1996.
Real Estate Owned. Real estate acquired through foreclosure or by deed in
lieu of foreclosure ("REO") is recorded at the lower of cost or fair value at
the time of foreclosure. Subsequently, an allowance for estimated losses is
established when the recorded value exceeds fair value less estimated selling
costs. Holding and maintenance costs related to real estate owned are recorded
as expenses in the period incurred.
At December 31, 1995 and 1996 and September 30, 1997, real estate owned was
$298,000, $988,000 and $637,000, respectively, and consisted entirely of one
to four family residential properties. For the nine months ended September 30,
1997, real estate owned expenses were $147,000 and gains of $149,000 were
reported on the sale of real estate owned.
46
<PAGE>
Allowance for Loan Losses. The following is a summary of the changes in the
consolidated allowance for loan losses of the Company for each of the years
ended December 31, 1995 and 1996 and the nine months ended September 30, 1997.
<TABLE>
<CAPTION>
AT OR FOR THE
YEARS ENDED AT OR FOR THE NINE
DECEMBER 31, MONTHS ENDED
-------------- SEPTEMBER 30,
1995 1996 1997
------ ------ ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ALLOWANCE FOR LOAN LOSSES
Balance at beginning of period.............. $ 378 $5,250 $ 5,356
Provision for loan losses................. 120 194 445
Charge-offs
Mortgage loans held for investment...... (108) (285) (319)
Mortgage loans held for sale............ -- -- --
Consumer loans.......................... -- (433) (1,372)
------ ------ -------
(108) (718) (1,691)
Recoveries
Mortgage loans held for investment...... -- -- 77
Mortgage loans held for sale............ -- -- --
Consumer loans.......................... -- 274 702
------ ------ -------
-- 274 779
------ ------ -------
Net charge-offs........................... (108) (444) (912)
Acquisition discounts allocated to loss
allowance................................ 4,860 356 1,314
------ ------ -------
Balance at end of period.................... $5,250 $5,356 $ 6,203
====== ====== =======
Allowance as a percent of net principal
balance
Mortgage loans held for investment........ 4.23% 4.28% 4.18%
Consumer loans............................ 1.00% 2.66% 2.97%
Net charge-offs to average loans.......... 0.10% 0.30% 0.45%
Ending allowance to period end loans,
net...................................... 3.98% 3.97% 4.07%
</TABLE>
<TABLE>
<CAPTION>
AT OR FOR THE
YEARS ENDED
DECEMBER 31, AT OR FOR THE
----------------------------------------------- NINE MONTHS ENDED
1995 1996 SEPTEMBER 30, 1997
----------------------- ----------------------- -----------------------
PERCENT OF LOANS PERCENT OF LOANS PERCENT OF LOANS
IN EACH CATEGORY IN EACH CATEGORY IN EACH CATEGORY
AMOUNT TO TOTAL LOANS AMOUNT TO TOTAL LOANS AMOUNT TO TOTAL LOANS
------ ---------------- ------ ---------------- ------ ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Distribution of end of
period allowance by
loan type
Mortgage loans held
for investment....... $5,080 87.9% $4,295 70.7% $3,672 53.3%
Consumer loans........ 170 12.1% 1,061 29.3% 2,105 46.7%
Unallocated........... -- -- -- -- 426 --
------ ----- ------ ----- ------ -----
$5,250 100.0% $5,356 100.0% $6,203 100.0%
====== ===== ====== ===== ====== =====
</TABLE>
The Company's policy is to maintain an allowance for loan losses to absorb
future losses which may be realized on its loan portfolio. These allowances
include specific reserves for identifiable impairments of individual loans and
general valuation allowances for estimates of probable losses not specifically
identified.
47
<PAGE>
The determination of the adequacy of the allowance for loan losses is based
on a variety of factors, including an assessment of the credit risk inherent
in the portfolio, prior loss experience, the levels and trends of non-
performing loans, the concentration of credit, current and prospective
economic conditions and other factors.
The Company's management uses its best judgment in providing for possible
loan losses and establishing allowances for loan losses. However, the
allowance is an estimate which is inherently uncertain and depends on the
outcome of future events. In addition, regulatory agencies, as an integral
part of their examinations process, periodically review the Bank's allowance
for loan losses. Such agencies may require the Bank to increase the allowance
based upon their judgment of the information available to them at the time of
their examination.
CASH EQUIVALENTS AND SECURITIES PORTFOLIO
The Company's cash equivalents and securities portfolios are used primarily
for liquidity purposes and secondarily for investment income. Cash equivalents
and securities, which generally have maturities of less than 90 days, satisfy
regulatory requirements for liquidity.
The following is a summary of the Company's cash equivalents and securities
portfolios as of December 31, 1995 and 1996 and September 30, 1997.
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, AS OF
---------------- SEPTEMBER 30,
1995 1996 1997
------- ------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance at end of period
Fed funds..................................... $ 8,500 $ -- $ --
Overnight deposits............................ 1,507 21,000 22,000
U.S. agency securities........................ -- -- 2,002
Commercial paper.............................. 2,986 -- --
FHLB certificates of deposit.................. 9,000 -- --
------- ------- ---------
Total......................................... $21,993 $21,000 $ 24,002
======= ======= =========
Weighted average yield at end of period
Fed funds..................................... 5.29% -- --
Overnight deposits............................ 5.67% 5.02% 5.50%
U.S. agency securities........................ -- -- 6.15%
Commercial paper.............................. 5.62% -- --
FHLB certificates of deposit.................. 5.61% -- --
Weighted average maturity at end of period
Fed funds..................................... 1 day -- --
Overnight deposits............................ 1 day 1 day 1 day
U.S. agency securities........................ -- -- 25 months
Commercial paper.............................. 26 days -- --
FHLB certificates of deposit.................. 3 days -- --
</TABLE>
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and notes thereto presented herein have been
prepared in accordance with Generally Accepted Accounting Principles ("GAAP"),
which require the measurement of financial position and operating results in
terms of historical dollar amounts without considering the changes in the
relative purchasing power of money over time due to inflation. The impact of
inflation is reflected in the increased cost of the Company's operations.
Unlike industrial companies, nearly all of the assets and liabilities of the
Company are monetary in nature. As a result, interest rates have a greater
impact on the Company's performance than do the effects of general levels of
inflation. Interest rates do not necessarily move in the same direction or to
the same extent as the price of goods and services.
48
<PAGE>
ACCOUNTING CONSIDERATIONS
In June 1996, the Financial Accounting Standards Board (the "FASB") issued
FASB No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities" ("FASB 125"), which addresses the accounting
for all types of securitization transactions, securities lending and
repurchase agreements, collateralized borrowing arrangements and other
transactions involving the transfer of financial assets. FASB 125
distinguishes transfers of financial assets that are sales from transfers that
are secured borrowings. FASB 125 is generally effective for transactions that
occur after December 31, 1996, and it is to be applied prospectively. FASB 125
requires the Company to allocate its basis in mortgage loans between the
portion of the mortgage loans sold through mortgage-backed securities and the
portion retained (the "residual interest") based on the relative fair values
of those portions on the date of sale. FASB 125 requires the Company to
account for residual interests as "held-for-trading" securities which are to
be recorded at fair value in accordance with SFAS No. 115. The Company adopted
FASB 125 on January 1, 1997, and there has been no material impact on the
Company's financial position or results of operations.
In February 1997, the FASB issued FASB No. 128, "Earnings Per Share" ("FASB
128"). FASB 128 supersedes APB Opinion No. 15, "Earnings Per Share" ("APB No.
15"), and specifies the computation, presentation and disclosure requirements
for earnings per share for entities with publicly held common stock or
potential common stock. FASB 128 was issued to simplify the computation of
earnings per share and to make the U.S. standard more compatible with the
earnings per share standards of other countries and that of the International
Accounting Standards Committee. It replaces the presentation of primary
earnings per share with a presentation of basic earnings per share and fully
diluted earnings per share with diluted earnings per share.
Basic earnings per share, unlike primary earnings per share, excludes
dilution and is computed by dividing income available to common stockholders
by the weighted-average number of common shares outstanding for the period.
Diluted earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock.
Diluted earnings per share is computed similarly to fully diluted earnings per
share under APB No. 15.
FASB 128 is effective for financial statements for both interim and annual
periods ending after December 15, 1997. Earlier application is not permitted.
After adoption, all prior-period earnings per share data presented must be
restated to conform with FASB 128. The Company has determined that the effect
of applying FASB 128 will be to increase earnings per share as compared to the
primary earnings per share calculation under the existing method due to
options outstanding.
FASB No. 129, "Disclosure on Information about Capital Structure" ("FASB
129") is effective for financial statements for periods ending after December
15, 1997. It is not expected that FASB 129 will require significant revision
of prior disclosures since FASB 129 lists required disclosures that had been
included in a number of previously existing separate statements and opinions.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
("SFAS 130"), which establishes standards for reporting and displaying
comprehensive income and its components in the consolidated financial
statements. SFAS 130 does not, however, require a specific format for
presenting such information, but requires the Company to display an amount
representing total comprehensive income for the period in that financial
statement. The Company is in the process of determining its preferred format.
SFAS 130 is effective for fiscal years beginning after December 15, 1997.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" ("SFAS 131"), which establishes
standards for the way that public business enterprises are to report
information about operating segments in annual financial statements and
requires those enterprises to report selected information about operating
segments in interim financial reports issued to shareholders. SFAS 131 is
effective for financial statements for periods beginning after December 31,
1997.
49
<PAGE>
BUSINESS
GENERAL
The Company is a diversified specialty finance company engaged primarily in
originating and acquiring for investment or sale residential mortgage loans,
personal automobile insurance premium finance contracts and retail automobile
installment sales contracts. The Company targets customers who generally
cannot obtain financing from traditional lenders. These customers usually pay
higher loan origination fees and interest rates than those charged by
traditional lenders to gain access to consumer financing. The Company believes
that management's experience in originating, assessing, pricing and managing
credit risk enables the Company to earn attractive risk-adjusted returns. The
Company has funded its operations to date principally through retail deposits,
FHLB advances and whole loan sales at the Bank, and expects to complete its
first securitization of mortgage loans in December 1997. The Company's
strategy is to undertake controlled geographic expansion of its existing
businesses, with particular emphasis in the near term on the national
expansion of its mortgage finance operations, and to evaluate possible entry
into additional specialty finance businesses which provide the opportunity for
attractive risk-adjusted returns.
The Company believes that the Bank currently is the largest Hispanic-
controlled savings association in California. The Company commenced operations
in 1994, as a Hispanic-controlled financial institution, by purchasing from
the RTC certain assets and assuming certain liabilities of the Bank's
predecessor, Pan American Federal Savings Bank. The Company has used the Bank
as a base for expansion into its current specialty finance businesses. In
1995, the Company commenced its insurance premium finance business through a
joint venture with BPN, which the Company believes to be the second largest
provider of financing for consumer automobile insurance premiums in
California. In 1996, the Company commenced its current mortgage and automobile
finance businesses.
BUSINESS STRATEGY
GROWTH STRATEGY
The Company intends to capitalize on its competitive strengths by expanding
its core businesses and entering other specialty finance businesses which
provide the opportunity for attractive risk-adjusted returns. The Company's
growth strategy includes the following key elements.
. Geographic Expansion of Existing Businesses. The Company intends to
expand its residential mortgage and automobile finance businesses into
new geographic areas, principally by opening offices staffed by
experienced local marketing and management personnel. The Company
believes that an emphasis on management with local experience, coupled
with comprehensive underwriting standards and financial controls, will
permit growth in loan originations without compromising loan
performance. The Company also may expand its insurance premium finance
business as opportunities arise outside of California. See "Risk
Factors--General--Management of Growth."
. Entry into New Specialty Finance Businesses. The Company continually
evaluates expansion into other specialty finance businesses which
provide the opportunity for attractive risk-adjusted returns in markets
(i) which it believes are underserved by traditional lenders or are
undergoing change, (ii) which are highly fragmented with no participant
having significant market share, or (iii) in which it can attract the
required management experience to assess, price and manage the credit
risk and, thereby, generate attractive risk-adjusted returns. The
Company may enter such new businesses on a de novo basis or through
acquisitions. See "Risk Factors--General--Management of Growth."
OPERATING STRATEGY
The Company's operating strategy includes the following key elements.
. Centralized Risk Management Controls. For each of its businesses, the
Company has implemented comprehensive risk management policies and
portfolio parameters which are designed to identify the types and amount
of risk that can prudently be taken in each business. The Company
continually monitors the performance of each of its businesses against
these policies and parameters.
50
<PAGE>
. Decentralized Management. The management of each of the Company's
businesses is responsible for its day-to-day operations, subject to
centralized risk management controls and individualized, goal oriented
incentive compensation programs that support the achievement of credit
quality, growth and profitability objectives. The Company believes that
the delegation of responsibility to the management of each business has
enabled the Company to attract, promote and retain experienced managers,
to provide high levels of customer service and to respond promptly to
changes in market conditions.
. Diversified Funding Sources. The Company has funded its lending
businesses to date primarily through the Bank's deposits, as well as
FHLB advances and whole loan sales. The Company believes that bank
deposits are a stable and cost-effective funding source which provide it
with a competitive advantage. To further diversify its funding sources,
in October 1997 the Company obtained a $100 million master repurchase
facility to finance the anticipated growth in its mortgage lending
operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources--
Master Repurchase Agreement." The Company expects to complete its first
securitization of mortgage loans in December 1997 and, thereafter, to
sell or securitize mortgage loans on a periodic basis. The Company will,
in the future, consider the sale or securitization of other financial
assets. See "Risk Factors--General--Securitizations" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--General--Mortgage Finance."
MORTGAGE FINANCE
BUSINESS OVERVIEW
UPAM's loan production generally consists of subprime residential mortgage
loans which are made to borrowers whose borrowing needs may not be met by
traditional financial institutions due to credit history or other factors.
UPAM's customers use the proceeds of the mortgage loans primarily to finance
home purchases and improvements, debt consolidation, education and other
consumer needs, and may benefit from consolidating existing consumer debt
through mortgage loans with lower monthly payments.
UPAM generally targets borrowers who have substantial equity in the property
securing the loan, but may have (i) impaired or limited credit profiles, (ii)
higher debt-to-income ratios than traditional mortgage lenders allow or (iii)
difficulty verifying their income due to employment or other circumstances.
These borrowers are generally willing to pay higher loan origination fees and
interest rates than those charged by traditional lenders. The Company believes
that the amount of equity present in the real estate securing UPAM's loans,
together with the fact that approximately 86% of UPAM's loans are secured by
borrowers' primary residences and approximately 97% are secured by first
mortgages, mitigates certain risks inherent in subprime lending. The average
LTV ratio on loans originated by UPAM during the nine months ended September
30, 1997 was approximately 75%.
UPAM's strategy emphasizes a more balanced retail and wholesale origination
approach than many of its competitors. The retail division originates loans
through the direct solicitation of borrowers by mail and telemarketing and
accounted for $138.0 million, or 41%, of UPAM's total loan production during
the nine months ended September 30, 1997. The wholesale division originates
loans through independent loan brokers and accounted for $199.0 million, or
59%, of UPAM's total loan production during the same period.
UPAM currently sells substantially all of its loan originations with
servicing released to other mortgage companies and investors through whole
loan packages offered for bid several times per month. During the nine months
ended September 30, 1997, UPAM sold $273.1 million of loans through whole loan
sales at a weighted average sales price equal to 105.9% of the original
principal balance of the loans sold. UPAM expects to complete its first
securitization of mortgage loans in December 1997 and, thereafter, to sell or
securitize its loans on a periodic basis. No assurances can be given that UPAM
will securitize its mortgage loans in the future or that any such
securitizations will prove to be profitable if commenced. See "Risk Factors--
General--Securitizations."
51
<PAGE>
SUBPRIME MORTGAGE INDUSTRY
The residential mortgage market can be separated into two major segments:
"prime" and "subprime." Prime borrowers comprise greater than 80% of the
market and have credit quality and documentation that satisfy the requirements
of the Government National Mortgage Association ("GNMA"), FNMA or FHLMC.
Historically, the subprime mortgage loan market has been a highly fragmented
niche market dominated by local brokers with direct ties to investors who
owned and serviced this relatively higher margin, riskier product. Although
there recently have been numerous new entrants into the subprime mortgage loan
business, the Company believes that the subprime mortgage market is still
highly fragmented.
BUSINESS STRATEGY
UPAM's strategic objective is to develop a national subprime residential
mortgage business. In order to achieve this objective, UPAM intends to (i)
continue to originate subprime mortgage loans through a balanced retail and
wholesale network, (ii) develop the capability to securitize these loans and
(iii) over time develop an in-house collection capability to complement third-
party sub-servicing. UPAM currently sells substantially all of its loan
originations with servicing released to mortgage companies and investors
through whole loan packages offered for bid several times per month. The
Company expects to complete its first securitization of mortgage loans in
December 1997 and, thereafter, to sell or securitize mortgage loans on a
periodic basis.
The Company believes that the subprime residential mortgage market is highly
fragmented and that success in this market depends primarily on the ability to
provide superior customer service and competitive pricing. UPAM seeks to (i)
locate experienced loan officers in geographic proximity to large population
centers, (ii) issue conditional loan approvals promptly, generally within 24
hours after receipt of an application, (iii) avoid imposing unnecessarily
restrictive conditions on loan approvals, (iv) fund loans on a timely basis,
generally within 15 to 20 days following conditional approval, and in
accordance with approved terms, and (v) competitively price loans according to
market conditions.
52
<PAGE>
OPERATING SUMMARY
The following table presents a summary of UPAM's key operating and
statistical results on a quarterly basis for the year ended December 31, 1996
and the nine months ended September 30, 1997.
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
--------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1996 1996 1996 1996 1997 1997 1997
--------- -------- ------------- ------------ --------- -------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
LOAN ORIGINATION
STATISTICS
Loans originated........ $4,901 $15,168 $16,646 $34,796 $67,337 $108,481 $161,061
Number of loans
originated............. 51 144 171 345 606 933 1,466
Average principal
balance per loan....... $ 96 $ 105 $ 97 $ 101 $ 111 $ 116 $ 110
Weighted average
interest rate
Fixed-rate loans....... 10.21% 10.46% 11.61% 11.11% 10.60% 10.83% 10.78%
Adjustable-rate loans.. 9.46% 10.00% 9.6% 9.38% 9.27% 9.38% 9.51%
Weighted average loan-
to-value ratio......... 70% 72% 72% 72% 73% 74% 76%
First mortgage loans.... 91% 94% 96% 96% 97% 97% 97%
Fixed-rate loans........ 42% 29% 10% 8% 11% 10% 16%
Owner occupied.......... 92% 93% 92% 86% 86% 88% 85%
Retail origination...... 7% 1% 8% 32% 35% 41% 44%
California.............. 21% 16% 36% 46% 53% 58% 50%
BORROWER QUALITY
STATISTICS(1)
AA or A-................ 55% 67% 69% 67% 73% 71% 71%
B or C.................. 40% 28% 28% 31% 23% 25% 25%
C- or D................. 5% 5% 3% 2% 4% 4% 4%
LOAN SALES STATISTICS
Loans sold ($).......... $1,097 $ 4,226 $16,234 $28,585 $40,254 $ 92,463 $140,363
Average sales price
(% of principal
balance)............... -- 105.69% 105.32% 106.13% 106.15% 105.60% 105.73%
OPERATING STATISTICS
States loans originated
in..................... 4 7 7 7 10 14 19
Retail loan offices..... -- -- 2 3 6 6 6
Retail loan officers.... -- -- 7 17 41 59 79
Wholesale loan centers.. 1 1 1 2 2 4 5
Wholesale account
executives............. 3 3 5 10 33 34 38
</TABLE>
- --------
(1)See "--Loan Production by Borrower Risk Classification."
LOAN ORIGINATION
Retail Division. UPAM's retail origination growth strategy emphasizes
geographic expansion and focused consumer marketing efforts through both
direct mail and telemarketing. Although retail loan originations entail
significantly higher operating costs than wholesale originations, the benefits
of retail origination result from (i) greater fee retention to compensate for
these costs and (ii) direct relationships with borrowers which create a more
sustainable loan origination franchise and increased control over the lending
process. During the nine months ended September 30, 1997, the retail division
originated $138.0 million in loans, or 41%, of UPAM's total loan production.
As of September 30, 1997, the retail division employed 79 loan officers,
located in six retail locations. Three of these offices are located in
California, and one each in Arizona, Colorado and Washington. UPAM intends to
continue its retail geographic expansion by opening four additional retail
locations during the remainder of 1997 in Albuquerque, Las Vegas, Portland and
San Diego, and increasing the total number of its loan officers to
approximately 100 by the end of 1997.
The retail division has implemented an expansion plan designed to control
the significant operating expenses associated with establishing new branch
office locations. Under this plan, UPAM has housed several marketing
53
<PAGE>
groups responsible for specific geographic areas in one centrally located
retail office, thereby reducing overhead while retaining locally-focused
marketing efforts. As an example, only one greater Los Angeles retail office
exists (in Orange), but it houses five distinct marketing groups responsible
for the Pasadena, Orange, Long Beach, West Los Angeles and Riverside areas.
UPAM targets markets for expansion based on demographics and its ability to
recruit experienced sales office managers and other qualified personnel in
particular markets. Retail marketing activities include direct mail, followed
by outbound telemarketing calls from the local retail office. Telemarketing
activities are aimed at identifying potential borrowers with subprime credit
characteristics.
The following table sets forth selected information relating to UPAM's
retail loan originations during the periods shown.
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1996 1996 1997 1997 1997
------------- ------------ --------- -------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Loans originated........ $1,391 $11,158 $23,616 $44,151 $70,258
Number of loans
originated............. 19 102 222 372 604
Average principal
balance per loan....... $ 73 $ 109 $ 106 $ 118 $ 116
Weighted average loan-
to-value ratio......... 63% 72% 74% 75% 77%
First mortgage loans.... 97% 98% 98% 98% 98%
Property securing loan
Owner occupied........ 74% 72% 77% 83% 86%
Non-owner occupied.... 26% 28% 23% 17% 14%
Weighted average
interest rate
Fixed-rate loans...... 10.11% 10.50% 10.28% 10.47% 10.48%
Adjustable-rate
loans................ 8.65% 8.73% 8.95% 8.99% 9.03%
</TABLE>
Wholesale Division. UPAM's wholesale origination growth strategy emphasizes
(i) geographic expansion, (ii) expanding relationships with existing brokers
through quality service, (iii) concentrating marketing efforts on a smaller
number of high-volume brokers and (iv) developing correspondent relationships.
The benefits of wholesale origination result from brokers conducting their own
marketing and employing their own personnel to complete loan applications,
allowing UPAM to quickly increase its loan origination volume through
increased leverage of fixed costs. The wholesale division funded $199.0
million in loans, or 59% of UPAM's total loan production, during the nine
months ended September 30, 1997. At September 30, 1997, the wholesale division
had five loan centers located in Washington, Utah, California, Florida and
Ohio, and employed 38 account executives. These loan centers maintain
relationships with brokers that provide loans to UPAM. During the nine months
ended September 30, 1997, UPAM originated loans through approximately 450
independent mortgage brokers, with the top 20 brokers generating 38% of those
loans and the largest broker accounting for 8.0%.
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<PAGE>
The following table sets forth selected information relating to wholesale
loan originations during the periods shown.
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1996 1996 1997 1997 1997
------------- ------------ --------- -------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Loans originated........ $15,255 $23,637 $43,721 $64,330 $90,803
Number of loans
originated............. 152 243 384 561 862
Average principal
balance per loan....... $ 100 $ 97 $ 113 $ 114 $ 105
Weighted average loan-
to-value ratio......... 73% 72% 73% 74% 75%
First mortgage loans.... 96% 95% 96% 97% 96%
Property securing loan
Owner occupied....... 93% 93% 91% 92% 85%
Non-owner occupied... 7% 7% 9% 8% 15%
Weighted average
interest rate
Fixed-rate loans..... 11.93% 11.49% 10.83% 11.22% 10.99%
Adjustable-rate
loans................ 9.67% 9.69% 9.44% 9.63% 9.89%
</TABLE>
PRODUCTS AND PRICING
UPAM offers both fixed-rate loans and ARMs, as well as loans with an
interest rate that is initially fixed for a period of time and subsequently
converts to an adjustable-rate. Most of the ARMs originated by UPAM are
offered at a lower initial interest rate and are subject to lifetime interest
rate caps. At each interest rate adjustment date, UPAM adjusts the rate,
subject to certain limitations on the amount of any single adjustment, until
the rate charged equals the lower of the fully indexed rate or the lifetime
interest rate cap. There can be no assurance, however, that the interest rate
on these loans will reach the fully indexed rate if interest rates rise
rapidly, to the level of the cap, the loans are pre-paid or in cases of
foreclosure. UPAM's borrowers are classified under one of six subprime risk
classifications, and loan products are available at different interest rates
and with different origination points and fees depending on the particular
borrower's risk classification. UPAM's maximum loan amount is generally
$400,000 with an LTV of 90%, $500,000 with an LTV of 85% and $750,000 with an
LTV of 75%. Loans over $750,000 are made on a case-by-case basis. Loans
originated by UPAM during the nine months ending September 30, 1997 had an
average loan amount of approximately $112,000 and an average LTV of
approximately 75%. Unless prohibited by law or otherwise waived by UPAM upon
the payment by the borrower of higher origination fees and a higher interest
rate, UPAM generally imposes a prepayment penalty on the borrower. As of
September 30, 1997, approximately 90% of UPAM's loans included a prepayment
penalty.
UNDERWRITING STANDARDS
UPAM originates loans in accordance with underwriting criteria that
generally do not satisfy traditional underwriting standards, such as those
utilized by GNMA, FNMA or FHLMC, and therefore may result in rates of
delinquencies and foreclosures that are higher, and may be substantially
higher, than those rates experienced by loans underwritten in a more
traditional manner. UPAM's underwriting guidelines are intended to evaluate
the applicant's credit history and capacity to repay the loan, the value of
the proposed collateral and the adequacy of such collateral for the loan. UPAM
determines the loan terms, including interest rate and maximum LTV based upon
the underwriting guidelines.
Underwriters are required to have had either substantial subprime
underwriting experience or substantial experience with UPAM in other aspects
of the Company's subprime mortgage finance business before becoming part of
UPAM's underwriting department. Underwriters are not given approval authority
until their work has been reviewed by the Chief Credit Officer for a period of
time and deemed satisfactory. No branch-based underwriter has an approval
limit greater than $250,000. Two branch-based underwriters must approve loans
55
<PAGE>
over $250,000, with all loans over $400,000 requiring approval of the Chief
Credit Officer or a designated corporate-based underwriter. Exceptions from
these established guidelines are also subject to approvals, often at the
corporate level. This approval process is reviewed periodically by the Board
of Directors. The Chief Credit Officer periodically re-evaluates the authority
levels of all underwriting personnel.
UPAM's underwriting guidelines require a credit report on each applicant
from a credit reporting company. UPAM's underwriters review the applicant's
credit history based on the information contained in the application and
reports available from credit reporting bureaus in order to determine if the
applicant's credit history meets UPAM's underwriting guidelines. A number of
factors determine a loan applicant's creditworthiness, including debt ratios,
payment history and the combined LTV for all existing mortgages on a property.
Based on this review, the underwriter assigns a preliminary rating to the
application.
Assessment of the applicant's ability to pay is one of the principal
elements differentiating UPAM's underwriting process from methods employed by
traditional lenders that may rely heavily on automated credit scoring tools.
UPAM's underwriters review the applicant's credit profile to evaluate whether
an impaired credit history is a result of previous adverse circumstances or a
continuing inability or unwillingness to meet credit obligations in a timely
manner.
All mortgaged properties are appraised by qualified independent appraisers
prior to funding of the loan. All appraisals are required to conform to the
Uniform Standards of Professional Appraisal Practice. Review appraisals are
required on substantially all wholesale loans (consistent with industry
standards since the appraiser involved on a wholesale origination would
generally not be on a list of approved appraisers maintained by UPAM) and
retail loans where the appraisal was prepared by an appraiser who has not been
approved by UPAM.
UPAM has implemented a loan quality control process designed to ensure
compliance with its policies and procedures. Prior to funding a loan, UPAM
performs a pre-funding quality control audit which consists of verifying a
loan applicant's credit and employment. UPAM also ensures that the
documentation is complete once the loan is originated in order to facilitate
its subsequent sale.
The underwriting guidelines set forth in the following table, and the letter
grades applied to each sub-prime borrower category, reflect solely the
Company's internal standards, and may not be comparable to those used by other
subprime mortgage lenders. UPAM continually evaluates its underwriting
guidelines and periodically modifies the underwriting guidelines as required.
56
<PAGE>
<TABLE>
<CAPTION>
CREDIT CRITERIA MATRIX (LTV'S UP TO 85%)
--------------------------------------------------------------
AA A- B
-------------------- -------------------- --------------------
<S> <C> <C> <C>
MORTGAGE Maximum one 30-day Maximum two 30-day Maximum four 30-day
RATING late payment and no late payments and no late payments and
LAST 12 MONTHS 60-day late payments 60-day late payments one 60-day late
within last 12 within last 12 payment within last
months. Rolling 30- months. Rolling 30- 12 months if LTV is
day lates NOT day lates okay. Not 80% or less; no 60-
allowed. Not more more than 29 days day late payments if
than 29 days delinquent at LTV over 80%.
delinquent at closing. Rolling 30-day lates
closing. okay. Not more than
59 days delinquent
at closing.
<CAPTION>
EXCELLENT GOOD SATISFACTORY
CONSUMER CREDIT -------------------- -------------------- --------------------
24-MONTH HISTORY 12-MONTH HISTORY 12-MONTH HISTORY
-------------------- -------------------- --------------------
<S> <C> <C> <C>
All open and/or active - Excellent credit - Good credit prior - Reasonably good
accounts in the review prior 24 months. 12 months. credit last 2
period, are considered Isolated Isolated months. Isolated
when calculating the incidences of incidences of incidences of
ratio of derogatory ac- minor minor credit
counts to total ac- delinquencies delinquencies delinquencies
counts. greater than 30 greater than 60 greater than 90
days will be days will be days will be
considered. considered. considered.
-Sufficient number -Sufficient number -Demonstrate
of accounts paid of accounts paid ability/
as agreed to as agreed to willingness to pay
offset isolated offset isolated majority of
incidences of incidences of accounts as
delinquencies delinquencies agreed.
greater than 30 greater than 60 -Evidence of
days. days. significant
-Evidence of -Evidence of delinquencies
significant significant greater than 90
delinquencies delinquencies days or 90 days
greater than 30 greater than 60 overdue are not
days not allowed. days not allowed. allowed.
-< 25% of credit -< 35% of credit -< 50% of credit
report items report items report items
derogatory in last derogatory in last derogatory in last
24 months. 12 months. 12 months.
-Minimum of 3 -Minimum of 3 -Minimum 3
accounts open for accounts open for accounts open for
6 months. 6 months. 6 months. If no
minimum consumer
credit,
satisfactory "B"
mortgage rating or
VOR last 12 months
required.
BANKRUPTCY 3 years since 2 years since 1 year since
FORECLOSURE discharge/dismissal. discharge--Chapter discharge--Chapter
Re-established 7. 7.
excellent ("A") 2 years since filing 1 year since filing
credit since Chapter 13. Chapter 13.
discharge/dismissal. Must be discharged Must be discharged
Minimum of 3 prior to loan prior to loan
accounts open at application. application.
least 6 months. No Re-established good Re-established good
delinquency credit ("A") credit since ("B") credit since
report items since discharge/dismissal. discharge/dismissal;
discharge/dismissal. Minimum of 3 or 18 months, if no
accounts open at re-established
least 6 months. No credit since
delinquent credit discharge/dismissal.
items since
discharge/dismissal.
No foreclosures last No foreclosures last No foreclosures last
3 years. 2 years. 2 years.
COLLECTION No collections, Generally, there Generally, there
CHARGE-OFF charge-offs allowed should be no should be no
in last 24 months. collections or collections or
charge-offs in the charge-offs in the
last 12 months. last 12 months.
TAX LIENS No liens, judgments No liens, judgments No liens, judgments
JUDGMENTS last 24 months last 12 months last 12 months
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
CREDIT CRITERIA MATRIX (LTV'S UP TO 85%)
-------------------------------------------------------------
C C- D
------------------- ------------------- -------------------
<S> <C> <C> <C>
MORTGAGE Maximum six 30-day, Unlimited number of Greater than one
RATING two 60-day and one 30-day and 60-day 120-day late
LAST 12 MONTHS 90-day late late payments and payment within last
payments within one 90-day or 120- 12 months. Current
last 12 months. day late payment NOD allowed.
Rolling 30-day within last 12
lates okay. Not months. Current NOD
more than 89 days allowed. Not more
delinquent at than 119 days
closing. delinquent at
closing.
<CAPTION>
FAIR POOR POOR
CONSUMER CREDIT ------------------- ------------------- -------------------
12-MONTH HISTORY 24-MONTH HISTORY 12-MONTH HISTORY
------------------- ------------------- -------------------
<S> <C> <C> <C>
All open and/or active - Moderate to - Majority of - Majority of
accounts in the review significant credit report credit report
period, are considered credit items derogatory items derogatory
when calculating the derogatories in in last 12 months in last 12
ratio of derogatory ac- the past. -Percentage of months.
counts to total ac- -Currently derogatory credit -Percentage of
counts. delinquent items are not a derogatory credit
accounts. factor. items are not a
-< 100% of credit factor.
report items
derogatory in
last 12 months.
This category
applies to
Borrowers who do
not have at least
3 accounts open
for a minimum of
6 months.
BANKRUPTCY 1 year since Bankruptcy filed Current bankruptcy
FORECLOSURE bankruptcy filing within last 12 or recent Chapter 7
date with some re- months. Must be dismissal or
established credit. discharged prior to discharge.
Must be discharged loan application. Current bankruptcy
prior to loan must be paid
application. through loan.
No foreclosures in Foreclosures cured N/A
last 12 months. in last 12 months.
COLLECTION Collections, Collections, Collections,
CHARGE-OFF charge-offs last 12 charge-offs last 12 charge-offs last 12
months allowed. months allowed. months allowed.
Unpaid collections Unpaid collections Unpaid collections
in last 12 months in last 12 months in last 12 months
must be paid must be paid must be paid
through closing, or through closing, or through closing, or
a monthly payment a monthly payment a monthly payment
calculated and calculated and calculated and
included in the included in the included in the
borrower's DTI. borrower's DTI. borrower's DTI.
Unpaid charge-offs Unpaid charge-offs Unpaid charge-offs
may remain, no may remain, no may remain, no
monthly payment monthly payment monthly payment
calculation calculation calculation
required. required. required.
TAX LIENS Liens, judgments Liens, judgments Liens, judgments
JUDGMENTS last 12 months last 12 months last 12 months
</TABLE>
58
<PAGE>
LOAN PRODUCTION BY BORROWER RISK CLASSIFICATION
The following table sets forth information concerning UPAM's loan production
by subprime borrower risk classification for the periods shown. The letter
grades applied to each subprime borrower category reflect solely the Company's
internal standards, and may not be comparable to those used by other subprime
mortgage lenders.
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
-----------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1996 1996 1997 1997 1997
------------- ------------ --------- -------- -------------
<S> <C> <C> <C> <C> <C>
AA Risk Grade
Percent of total
originations......... 15% 14% 20% 27% 32%
Weighted average loan-
to-value ratio....... 74% 74% 75% 75% 75%
Weighted average
interest rate........ 8.91% 9.65% 8.88% 9.06% 9.22%
A- Risk Grade
Percent of total
originations......... 54% 53% 53% 44% 39%
Weighted average loan-
to-value ratio....... 71% 71% 74% 76% 76%
Weighted average
interest rate........ 9.48% 9.19% 9.28% 9.15% 9.55%
B Risk Grade
Percent of total
originations......... 24% 26% 21% 21% 21%
Weighted average loan-
to-value ratio....... 75% 73% 72% 75% 78%
Weighted average
interest rate........ 10.43% 9.69% 9.56% 9.77% 10.17%
C Risk Grade
Percent of total
originations......... 4% 5% 2% 4% 4%
Weighted average loan-
to-value ratio....... 66% 69% 70% 69% 70%
Weighted average
interest rate........ 11.53% 10.94% 10.81% 10.33% 10.61%
C- Risk Grade
Percent of total
originations......... 1% 2% 1% 2% 2%
Weighted average loan-
to-value ratio....... 55% 66% 68% 64% 69%
Weighted average
interest rate........ 12.23% 11.54% 11.58% 11.17% 10.89%
D Risk Grade
Percent of total
originations......... 2% -- 3% 2% 2%
Weighted average loan-
to-value ratio....... 54% 53% 64% 59% 64%
Weighted average
interest rate........ 13.25% 13.25% 12.61% 11.95% 12.88%
</TABLE>
LOAN PRODUCTION BY GEOGRAPHIC DISTRIBUTION
The following table sets forth the percentage of UPAM's loans (based upon
dollar amounts) originated by state for the periods shown.
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
-----------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1996 1996 1997 1997 1997
------------- ------------ --------- -------- -------------
<S> <C> <C> <C> <C> <C>
California.............. 36% 46% 53% 58% 50%
Washington.............. 31% 27% 19% 12% 17%
Utah.................... 22% 23% 13% 11% 5%
Colorado................ 6% 1% 6% 5% 6%
Arizona................. -- -- 5% 5% 6%
Florida................. -- -- -- -- 5%
Oregon.................. 2% 1% 1% 5% 2%
Ohio.................... -- -- -- -- 2%
All others combined..... 3% 2% 3% 4% 7%
--- --- --- --- ---
Total................. 100% 100% 100% 100% 100%
=== === === === ===
</TABLE>
59
<PAGE>
LOAN SALES AND SECURITIZATIONS
Whole Loan Sales. During the nine months ended September 30, 1997, UPAM sold
$273.1 million of mortgage loans through whole loan sales at a weighted
average sales price equal to 105.9% of the original principal balance of the
loans sold.
Whole loan sales are made on a non-recourse basis pursuant to a purchase
agreement containing customary representations and warranties by UPAM
regarding the underwriting criteria applied by UPAM in the origination
process. In the event of a breach of such representations and warranties, UPAM
may be required to repurchase or substitute loans. In addition, UPAM sometimes
commits to repurchase or substitute a loan if a payment default occurs within
the first month following the date the loan is funded, unless other
arrangements are made between UPAM and the purchaser. UPAM also is required in
some cases to repurchase or substitute a loan if the loan documentation is
alleged to contain fraudulent misrepresentations made by the borrower. UPAM's
repurchase history to date has been minimal.
UPAM seeks to maximize its premium on whole loan sales revenue by closely
monitoring institutional purchasers' requirements and focusing on originating
the types of loans that meet those requirements and for which institutional
purchasers tend to pay higher premiums. During the nine months ended September
30, 1997, UPAM sold loans to 13 institutional purchasers, three of which
purchased approximately 76% of the loans sold by UPAM in this period.
Securitizations. UPAM expects to complete its first securitization of
mortgage loans in December 1997 and, thereafter, to sell or securitize loans
on a periodic basis. Whether, when and how significantly UPAM enters the
securitization market will depend upon economic and secondary market
conditions and available financial resources. See "Risk Factors--General--
Securitizations."
LOAN SERVICING AND DELINQUENCIES
UPAM currently sells substantially all of its loans on a servicing released
basis. All loans held for sale, and those loans that cannot be sold, are
serviced and held by the Bank. The Bank subcontracts with a third-party sub-
servicer to conduct its servicing operations, and monitors the sub-servicer's
activities to ensure that they comply with its guidelines. As UPAM begins the
securitization of its mortgage loans, it expects to continue to use a third
party sub-servicer to perform payment processing, account maintenance, tax and
insurance escrow accounting and other primary servicing activities, but may
develop expanded in-house capabilities for delinquency, foreclosure and REO
activities management.
UPAM began receiving applications for mortgage loans under its regular
lending programs in January 1996 and to date has sold substantially all of its
loans on a whole loan, servicing released basis. Accordingly, UPAM does not
have representative historical delinquency, bankruptcy, foreclosure or default
experience that may be referred to for purposes of estimating future
delinquency, loss and prepayment data with respect to its loans.
INSURANCE PREMIUM FINANCE
BUSINESS OVERVIEW
In May 1995, the Company entered a joint venture with BPN under the name
"ClassicPlan." Under this joint venture, which commenced operations in
September 1995, (i) the Bank underwrites and finances automobile insurance
premiums in California and (ii) BPN markets this financing primarily to
independent insurance agents that sell automobile insurance in California and,
thereafter, services such loans for the Bank. IPF targets drivers who are
classified by insurance companies as non-standard or high risk for a variety
of reasons, including age, driving record, a lapse in insurance coverage or
ownership of high value or high performance automobiles. Insurance companies
that underwrite insurance for such drivers, including those participating in
the assigned risk programs established by California law, generally either do
not offer financing of insurance premiums or do not offer terms as flexible as
those offered by IPF.
60
<PAGE>
Customers are directed to BPN through a non-exclusive network of insurance
brokers and agents who sell automobile insurance and offer financing through
programs like those offered by IPF. On a typical twelve-month insurance
policy, the borrower makes a cash down payment of 15% or 20% of the premium
(plus certain fees) and the balance is financed under a contract that contains
a payment period of shorter duration than the policy term. In the event that
the insured defaults on the loan, the Bank has the right to obtain directly
from the insurance company the unearned insurance premium held by the
insurance company, which can then be applied to the outstanding loan balance
(premiums are earned by the insurance company over the life of the insurance
policy). Each contract is designed to ensure that, at any point during the
term of the underlying policy, the unearned premium under the insurance policy
exceeds the unpaid principal amount due under the contract. Under the terms of
the contract, the insured grants IPF a power of attorney to cancel the policy
in the event the insured defaults under the contract. Upon cancellation, the
insurance company is required by California law to remit the unearned premium
to IPF which, in turn, offsets this amount against any amounts due from the
insured. IPF does not sell or have the risk of underwriting the underlying
insurance policy. IPF seeks to minimize its credit risk by (i) perfecting a
security interest in the unearned premium, (ii) avoiding concentrations of
policies with insurance companies that are below certain industry ratings and
(iii) doing business to date only in California which maintains an insurance
guaranty fund which protect consumers and insurance premium finance companies
against losses from failed insurance companies.
In addition to insurance premiums, IPF will also finance broker fees (i.e.,
fees paid by the insured to the agent). If a policy cancels, the agent repays
any unearned broker fee financed by IPF. Broker fee financing represents
approximately 2% of total loans outstanding. At September 30, 1997,
approximately 75% of all broker fee financing was to a single insurance
agency. When IPF agrees to finance an agent's broker fees, a credit limit is
established for the agent. Generally, agents are required to deposit with the
Bank an amount equal to 25% of its credit limit to mitigate IPF's losses on
broker fees financed. To date, the Bank has not charged-off a broker fee
balance.
The Company's portfolio of insurance premium finance contracts has grown
from 66,247 contracts in the aggregate gross amount of $31.3 million at
September 30, 1996 to 123,371 contracts in the aggregate gross amount of $47.3
million at September 30, 1997, primarily as a result of the adoption in
California of mandatory automobile insurance. These contracts were originated
solely in California by over 450 agents and were secured by policies
underwritten by over 200 insurance companies.
RELATIONSHIP WITH BPN
BPN is headquartered in Chino, California, and markets the Company's
insurance premium finance program under the trade name "ClassicPlan." The
Company believes that IPF is the second largest provider of financing for
consumer automobile insurance premiums in California. On a very limited basis,
IPF also finances insurance premiums for businesses purchasing property,
casualty and liability insurance. At September 30, 1997, BPN had two
stockholders and 47 employees.
BPN solicits insurance agents and brokers to submit their clients' financing
requests to the Bank. BPN is responsible for monitoring the agents'
performance and IPF's compliance with applicable consumer protection,
disclosure and insurance laws, and providing customer service, data processing
and collection services to IPF. The Bank pays fees to BPN for these services.
The amount of these fees is based on fixed charges, which include a loan
service fee per contract and cancellation fees charged by the Bank, and the
earnings of the loan portfolio, which include (i) 50% of the interest earned
on portfolio loans after the Bank subtracts a specified floating portfolio
interest rate and (ii) 50% of late fees and returned check fees charged by the
Bank. Additionally, BPN and the Bank share equally (i) certain collection and
legal expenses which may occur from time-to-time, (ii) all net loan losses
experienced on the insurance premium loan portfolio and (iii) all net losses
up to $375,000 experienced on the broker fees loan portfolio. BPN bears losses
over $375,000 experienced on the broker fees loan portfolio.
The stockholders of BPN have entered into certain guaranty agreements in
favor of the Bank whereby they agree to pay any sums owed to the Bank and not
paid by BPN. The total potential liability of the guarantors to
61
<PAGE>
the Bank is limited to $1,250,000 plus any amounts by which BPN is obligated
to indemnify the Bank. Under these guaranties, all debts of BPN to the
guarantors are subordinated to the full payment of all obligations of BPN to
the Bank.
The Company has entered into an option agreement with BPN and its
stockholders whereby the Company may purchase all of the issued and
outstanding shares of BPN (the "Share Option") and all additional shares of
any BPN affiliate which may be organized outside of California (the "Affiliate
Share Option"). The option period expires March 31, 2005. The Company has
agreed not to exercise the Share Option prior to April 29, 1999 unless BPN or
its stockholders have breached their outstanding agreements with the Company.
Until the date occurring 90 days after delivery to the Company of a notice
stating that BPN has had $30,000,000 or more in loans outstanding for the six
months preceding delivery of such notice, which notice cannot be delivered
prior to October 29, 1999, the Company may exercise the Share Option for
$3,250,000 and must pay a $750,000 noncompete payment to certain stockholders
and key employees of BPN (the "Noncompete Payment"). If the Share Option is
exercised any time thereafter, the Noncompete Payment will be made and the
option exercise price shall be the greater of (a) $3,250,000 or (b) four times
BPN's pre-tax earnings for the twelve complete consecutive calendar months
immediately preceding the date of exercise less the Noncompete Payment. The
Affiliate Share Option may not be exercised independently of the Share Option.
The exercise price of the Affiliate Share Option will equal the sum of four
times BPN Affiliate's pre-tax earnings for the twelve month period prior to
exercise.
AUTOMOBILE INSURANCE PREMIUM FINANCE INDUSTRY
Insurance Finance. The private passenger automobile insurance industry in
the United States is estimated by A.M. Best Company ("A.M. Best"), a provider
of independent ratings on the financial strength and claims payment ability of
insurance companies, to have been a $109 billion market in annual premium
volume during 1996, with nonstandard automobile insurance comprising $23
billion of this market. Although reliable data concerning the size and
composition of the personal lines premium finance market is not available, the
Company believes that the industry is highly fragmented with no independent
insurance premium finance company accounting for a significant share of the
market.
The Company believes that the insurance premium finance industry is
attractive for the following reasons: (i) the nonstandard automobile insurance
premium market has grown rapidly in recent years, growing 56.7% over the past
five years; (ii) the insurance premium finance industry is consolidating
nationwide as both producers and insurance companies reduce the number of
their relationships with insurance premium finance companies; and (iii)
additional states may follow California in legislating mandatory insurance
coverage for all motorists. The Company believes that the insurance premium
finance industry in California is somewhat more concentrated than elsewhere in
the nation, with several long-established competitors.
California Insurance Laws. Under current law, automobiles in the state of
California cannot be registered without providing proof of automobile
insurance or posting required bonds with the Department of Motor Vehicles.
In California, as in most states, insurance companies fall into one of two
categories, admitted or non- admitted. All insurance companies licensed to do
business in California are required to be members of the California Insurance
Guarantee Association ("CIGA"), and are classified as "admitted" companies.
CIGA was established to protect insurance policyholders in the event the
company that issued a policy fails financially, and to establish confidence in
the insurance industry. Should an insurance company fail, CIGA is empowered to
raise money by levying member companies. CIGA pays off claims against
insurance companies, which protects both the customer and the premium
financiers should an admitted insurance company fail. In such event, CIGA will
refund any unearned premiums. This provides protection to companies, such as
IPF, that provide insurance premium financing. As a result, IPF's policy is to
limit financing of insurance policies issued by non-admitted carriers to less
than 5% of its total portfolio. At September 30, 1997, policies issued by non-
admitted carriers comprised 1.04% of IPF's total portfolio.
Because insurance companies will not voluntarily insure drivers whom they
consider to be excessively high risk, California has a program called the
California Automobile Assigned Risk Program ("CAARP"), to which all admitted
companies writing private passenger automobile insurance policies must belong.
This 43-year-old
62
<PAGE>
program is an insurance plan for high-risk, accident-prone drivers who are
unable to purchase insurance coverage from regular insurance carriers. CAARP
policies are distributed to the admitted companies in proportion to their
share of California's private passenger automobile insurance market. The
companies participating in CAARP do not have any discretion in choosing the
customers they insure under the program. The customers are arbitrarily
assigned to them by CAARP. Although CAARP offers financing of its policy
premiums, its terms are not as competitive as the insurance premium finance
companies and, therefore, many CAARP policies are financed by others. At
September 30, 1997, approximately 32.8% of the insurance policies financed by
IPF were issued under CAARP.
BUSINESS STRATEGY
IPF's business strategy is to profitably increase the volume of contracts
originated and maintained in its portfolio by expanding its relationships with
insurance brokers and agents and insurance companies in California and,
potentially, in other states. IPF intends to implement this strategy by:
. Strengthening its relationships with insurance brokers and agents by
offering a variety of high-quality support services (e.g., computer
hardware and software and customer reports) designed to enable them to
better serve their customers;
. Investing additional resources to ensure IPF's ability to continue to
provide technologically advanced and efficient contract origination and
servicing systems and support services;
. Expanding its other insurance lines of business (e.g., commercial,
property, casualty and liability insurance); and
. Expanding the Company's operations into new states either through the
joint venture with BPN or the acquisition of existing insurance premium
finance businesses in those states.
OPERATING SUMMARY
The following table presents a summary of IPF's key operating and
statistical results for the year ended December 31, 1996 and the nine months
ended September 30, 1997.
<TABLE>
<CAPTION>
AT OR FOR THE
AT OR FOR THE NINE
YEAR ENDED MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
(DOLLARS IN THOUSANDS,
EXCEPT PORTFOLIO AVERAGES)
<S> <C> <C>
OPERATING DATA
Loan originations........................ $99,012 $117,119
Loans outstanding at period end.......... $32,058 $ 47,287
Average gross yield(1)................... 19.18% 19.84%
Average net yield(1)..................... 13.62% 14.04%
Allowance for loan losses................ $ 504 $ 605
LOAN QUALITY DATA
Allowance for loan losses (% of loans
outstanding)............................ 1.57% 1.28%
Net charge-offs (% of average loans
outstanding)(2)......................... 0.38% 0.27%
Delinquencies (% of loans
outstanding)(3)......................... 1.18% 1.76%
PORTFOLIO DATA
Average monthly loan originations (number
of loans)............................... 6,986 11,061
Average loan size at origination......... $ 1,180 $ 1,176
Commercial insurance policies (% of loans
outstanding)............................ 1.6% 1.5%
CAARP policies (% of loans outstanding).. 19.8% 32.8%
Cancellation rate (% of premiums
financed)............................... 45.0% 44.0%
</TABLE>
- --------
(1) Gross yield represents total rates and fees paid by the borrower. Net
yield represents the yield to the Bank after interest and fee sharing with
BPN.
(2) Includes only the Bank's 50% share of charge-offs. Information for the
nine months ended September 30, 1997 is annualized for comparability with
year end information.
(3) This statistic measures delinquencies on canceled policy balances. Since
IPF seeks recovery of unearned premiums from the insurance companies,
which can take up to 90 days, loans are not considered delinquent until
more than 90 days past due.
63
<PAGE>
PRODUCTS AND PRICING
IPF charges 18% to 20% annualized interest (depending on the amount
financed) and a $40 processing fee per contract, which the Company believes is
competitive in IPF's industry. In addition, contracts provide for the payment
by the insured of a delinquency charge and, if the default results in
cancellation of any insurance policy listed in the contract, for the payment
of a cancellation charge. Certain of these finance charges and fees are shared
with BPN. See "--Relationship with BPN." The insured makes a minimum 15% down
payment on an annual policy and pays the remainder in a maximum of ten monthly
payments.
IPF designs its programs so that the unearned premium is equal to or greater
than the remaining principal amount due on the contract by requiring a down
payment and having a contract term shorter than the underlying policy term.
SALES AND MARKETING
IPF currently markets its insurance premium finance program through a
network of over 450 agents, primarily located in Los Angeles, Orange and San
Bernardino counties. Relationships with agents are established by BPN's
marketing representatives. The Company believes that IPF has been able to
attract and maintain its relationship with agents by offering a higher level
of service than its competitors. IPF focuses on providing each agent with up-
to-date information on its customers' accounts, which allows the agent to
service customers' needs and minimize the number of policies that are
canceled. Many of IPF's largest agents have computer terminals provided by BPN
in their offices which allow on-line access to customer information. Agents
for IPF receive their producer fees ($20, equal to 50% of the aforementioned
$40 processing fee per contract) in 30 days, as opposed to some of IPF's
competitors, who hold back 50% of the fee as collateral against early
cancellations. IPF does not require return of this $20 producer fee for early
policy cancellation unless the policy pays off in the first 30 days.
To minimize its exposure to reliance on a limited number of agents, the
Company has instituted portfolio guidelines generally limiting the dollar
amount of contracts originated by any agent to 15% of IPF's total portfolio.
The Company performs a quarterly analysis of all agents based on information
provided by BPN. At September 30, 1997, IPF had one agent that exceeded the
15% portfolio parameter, accounting for 19.2% of IPF's total portfolio.
UNDERWRITING STANDARDS
IPF is a secured lender, and upon default, relies on its security interest
in the unearned premium held by the insurance company. IPF can, however,
suffer a loss on an insurance premium finance contract for four reasons: (i)
loss of all or a portion of the unearned premium due to its failure to cancel
the contract on a timely basis; (ii) an insolvency of the insurance company
holding the unearned premium not otherwise covered by CIGA; (iii) inadequacy
of the unearned premium to cover charges in excess of unpaid principal amount;
and (iv) cost of collection and administration, including the time value of
money, exceeding the unpaid principal and other charges due under the
contract. For the nine months ended September 30, 1997, IPF canceled for
nonpayment contracts representing approximately 44% of all premiums financed.
Careful administration of contracts is critical to protecting IPF against
loss.
Credit applications are taken at the insurance agent's office. Given the
secondary source of repayment on unearned premiums due from the insurance
company on a canceled policy, and in most cases, access to CIGA, IPF does not
carry out a credit investigation of a borrower on loans under $25,000. At
September 30, 1997, IPF had no insurance premium finance loans with an
original principal amount over $25,000.
SERVICING AND COLLECTION
The Company believes that an efficient and accurate servicing and collection
system is the most important management tool that an insurance premium
financing company can use to protect itself from losses as a result
64
<PAGE>
of an insured's default on a contract. The insurance premium finance industry
is acutely time sensitive because insurance premiums are earned each day that
an insurance policy remains in effect, thus reducing, on a daily basis, the
collateral support provided by the unearned premium.
BPN's current computer system is an Advisor 216x, manufactured by Computer
Design Systems, Inc. of Minneapolis. The system uses a UNIX operating system
and is based on RISC architecture. Although this system satisfies IPF's
current requirements for (i) application processing, (ii) payment processing
and collections and (iii) monitoring and reporting, and has significant
capacity remaining, BPN is developing a new generation of Oracle-based
management information system software which will provide complete online,
real-time information processing services. In addition, the system will
provide direct electronic processing of many processing functions that
currently are paper intensive.
Billing Process. A customer's monthly payments are recorded in BPN's
computer system on the date of receipt. BPN's computer system is designed to
provide protection against principal loss by automatically canceling a policy
no later than 18 days after the customer's latest payment due date. If a
payment is not received on its due date, BPN's computer system automatically
prints a notice of intent to cancel and assesses a late fee which is mailed to
the insured and his or her insurance agent stating that payment must be
received within 18 days after the due date or IPF will cancel the insurance
policy. If payment is received within the 18 day period, BPN's computer system
returns the account to normal status.
Collections Process. If IPF does not receive payment within the statutory
period set forth in the notice of intent to cancel, BPN's computer system will
automatically generate a cancellation notice on the next business day,
instructing the insurance company to cancel the insured's insurance policy and
refund any unearned premium directly to IPF for processing.
Although California law requires the insurance company to refund unearned
premiums within 30 days of the cancellation date, most insurance companies pay
on more extended terms. After cancellation, IPF charges certain allowable fees
and continues to earn interest. Although the gross return premium may not
fully cover the fees and accrued interest owed to IPF by the insured,
principal generally is fully covered. Policies which are canceled in the first
two months generally have a greater risk of loss of fees.
IPF charges against income a general provision for possible losses on
finance receivables in such amounts as management deems appropriate. Case-by-
case direct write-offs, net of recoveries on finance receivables, are charged
to IPF's allowance for possible losses. This allowance amount is reviewed
periodically in light of economic conditions, the status of the outstanding
contracts and other factors.
Insurance Company Failure. One of the principal risks involved in financing
insurance premiums is the possible insolvency of an insurance company. Another
risk is that an insurance company's financial circumstances cause it to delay
its refunds of unearned premiums. Either event can adversely affect the yield
to an insurance premium finance company on a contract. Despite the protection
afforded by CIGA, IPF also reviews the ratings assigned to the insurance
companies by A.M. Best or their financial statements. To minimize its exposure
to risks resulting from the insolvency of an insurance company, IPF limits the
number of policies financed that are issued by insurance companies rated "B"
or lower by A.M. Best.
AUTOMOBILE FINANCE
BUSINESS OVERVIEW
The Company entered the subprime automobile finance business in February
1996 through the establishment of United Auto Credit Corporation, as a
subsidiary of the Bank. UACC purchases auto contracts primarily from dealers
in used automobiles, approximately 75% of which are independent dealers and
25% of which are franchisees of automobile manufacturers. The borrowers on
contracts purchased by UACC are classified as subprime because they typically
have limited credit histories or credit histories that preclude them from
obtaining
65
<PAGE>
loans through traditional sources. UACC maintains seven branch offices located
in California and one each in Arizona and Utah. At September 30, 1997, UACC's
portfolio contained 3,619 auto contracts in the aggregate gross amount of
$32.0 million, excluding unearned finance charges of $8.8 million.
SUBPRIME AUTOMOBILE FINANCE INDUSTRY
Automobile financing is one of the largest consumer finance markets in the
United States. In general, the automobile finance industry can be divided into
two principal segments: a prime credit market and a subprime credit market.
Traditional automobile finance companies, such as commercial banks, savings
institutions, thrift and loan companies, credit unions and captive finance
companies of automobile manufacturers, generally lend to the most
creditworthy, or so-called prime, borrowers. The subprime automobile credit
market, in which UACC operates, provides financing to borrowers who generally
cannot obtain financing from traditional lenders.
Historically, traditional lenders have not serviced the subprime market or
have done so only through programs that were not consistently available.
Recently, however, independent companies specializing in subprime automobile
financing and subsidiaries of larger financial services companies have entered
this segment of the automobile finance market, but it remains highly
fragmented, with no company having a significant share of the market.
BUSINESS STRATEGY
UACC's business strategy includes controlled growth at the branch level,
with limited volume goals and the gradual addition of new branches. Each
branch is targeted to generate between $650,000 and $750,000 in gross
contracts per month within four months of opening. The Company believes that
UACC's strategy of (i) controlled growth, (ii) disciplined underwriting, (iii)
strong internal audit procedures and (iv) focused servicing and collection
efforts at the branch level, will result in sustainable profitability and
lower levels of delinquency and loss than those experienced by many of its
competitors, whose rapid growth has resulted in portfolio quality problems.
The Company believes that the subprime automobile finance market is
inconsistently or poorly serviced by the consumer finance industry. As a
result, UACC's strategy is to differentiate itself by providing dealers with
consistent, same day decisions and rapid funding of approved contracts. The
Company believes that UACC is also more flexible than some of its competitors
in financing older, higher mileage vehicles and maintenance warranties. During
the nine months ended September 30, 1997, UACC approved 13.7% and funded 12.2%
of the applications for auto contracts it received.
66
<PAGE>
OPERATING SUMMARY
The following table presents a summary of UACC's key operating and
statistical results for the year ended December 31, 1996 and the nine months
ended September 30, 1997.
<TABLE>
<CAPTION>
AT OR FOR THE
AT OR FOR THE YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
------------------------- ----------------------
(DOLLARS IN THOUSANDS, EXCEPT PORTFOLIO DATA)
<S> <C> <C>
OPERATING DATA
Gross contracts
purchased................ $ 12,216 $ 29,442
Gross contracts
outstanding.............. $ 10,830 $ 32,037
Unearned finance charges.. $ 3,271 $ 8,810
Net contracts
outstanding.............. $ 7,559 $ 23,227
Average purchase
discount................. 10.0% 10.0%
APR to customers.......... 21.0% 21.1%
Allowance for loan
losses................... $ 557 $ 1,500
LOAN QUALITY DATA
Allowance for loan losses
(% of net contracts)..... 7.37% 6.46%
Delinquencies (% of net
contracts)
31-60 days............... 0.38% 0.66%
61-90 days............... 0.34% 0.11%
90+ days................. -- 0.30%
Net charge-offs (% of
average net
contracts)(3)............ 1.50% 4.97%
Repossessions (net) (% of
average net contracts)...... 3.24% 0.92%
PORTFOLIO DATA
Used vehicles............. 98.7% 99.0%
Vehicle age at time of
contract (years)......... 6.4 6.5
Original contract term
(months)................. 37.0 38.2
Gross amount financed to
WSBB(1).................. 119% 116%
Net amount financed to
WSBB(2).................. 109% 104%
Net amount financed per
contract................. $ 7,399 $ 7,413
Down payment.............. 22% 21%
Monthly payment........... $ 269 $ 269
OTHER DATA
Number of offices......... 4 9
Percent of contracts
funded to applications
received................. 15.9% 12.2%
</TABLE>
- --------
(1) WSBB represents Kelly Wholesale Blue Book for used vehicles.
(2) Net amount financed equals the gross amount financed less unearned
finance charges or discounts.
(3) Information for the nine months ended September 30, 1997 is annualized for
comparability to year end information.
PRODUCTS AND PRICING
UACC targets transactions which involve (i) a used automobile with an
average age of five to eight years, (ii) an average original contract term of
38 to 42 months and (iii) an average liquidation period of 24 to 28 months.
The financial profile of the target transaction includes (i) an amount
financed (before taxes, license, warranty and discount) equal to 95% to 100%
of invoice for new vehicles or current WSBB for used vehicles (after tax,
license, warranty and discount, the amount financed is targeted at 105% to
110%), (ii) a contract rate and discount which yields 28.5%, (iii) an amount
financed of $7,000 to $10,000, with a down payment of 15% to 20%, and (iv) a
monthly payment from $225 to $325.
67
<PAGE>
The target profile of a UACC borrower includes (i) time on the job of three
to five years, (ii) time at current residence of three to five years, (iii) a
ratio of total debt to total income of 33% to 37% and (iv) a ratio of total
monthly automobile payments to total monthly income of 12% to 15%.
The application for an auto contract is taken by the dealer. UACC purchases
the auto contract from the dealer at a discount which increases the effective
yield on such contract. For the quarter ended September 30, 1997, the Company
allocated 70% of the discount to the allowance for loan losses, representing
7% of the gross contract amount. Management periodically reviews the portion
of the discount allocated to the allowance for loan losses in light of the
Company's operations.
SALES AND MARKETING
UACC markets its financing program to both independent used and franchised
automobile dealers. UACC's marketing approach emphasizes scheduled calling
programs, marketing materials and consistent follow-up. The Company uses
facsimile software programs to send marketing materials to established dealers
and potential dealers on a twice weekly basis in each branch market. UACC's
experienced local staff seeks to establish strong relationships with dealers
in their vicinity.
UACC solicits business from dealers through its branch managers who meet
with dealers and provide information about UACC's programs, train dealer
personnel in UACC's program requirements and assist dealers in identifying
consumers who qualify for UACC's programs. In order to both promote asset
growth and achieve required levels of credit quality, UACC compensates its
branch managers on a salary with a bonus (up to 20% of base salary per year)
that requires the achievement of delinquency, charge-off, volume and return on
average assets targets established for the branch, as well as satisfactory
audit results.
As of September 30, 1997, UACC directly marketed its programs to dealers
through its nine branch offices in California, Utah and Arizona.
<TABLE>
<CAPTION>
GROSS NUMBER OF CONTRACTS
CONTRACTS PURCHASED
OUTSTANDING OVER THE NINE MONTHS
AT SEPTEMBER 30, ENDED SEPTEMBER 30,
BRANCH LOCATION DATE ESTABLISHED 1997 1997
- --------------- ---------------- ---------------- --------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Irvine, CA............... March 1996 $ 9,841 675
San Diego, CA............ June 1996 6,436 542
Riverside, CA............ September 1996 5,918 629
San Jose, CA............. November 1996 3,920 375
Los Angeles, CA.......... March 1997 3,035 307
San Fernando, CA......... May 1997 1,938 208
Upland, CA............... July 1997 615 67
Salt Lake City, UT....... August 1997 268 31
Phoenix, AZ.............. September 1997 66 9
------- -----
$32,037 2,843
======= =====
</TABLE>
When a UACC branch decides to begin doing business with a dealer, a dealer
profile and investigation worksheet are completed. UACC and the dealer enter
into an agreement that provides UACC with recourse to the dealer in cases of
dealer fraud or a breach of the dealer's representations and warranties. When
UACC holds auto contracts aggregating $50,000 or more from a dealer, UACC
obtains a Dun and Bradstreet Analysis Report for such dealer. Branch
management periodically monitors each dealer's overall performance and
inventory to ensure a satisfactory quality level, and regional managers
regularly conduct audits of the dealer's performance.
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<PAGE>
The following table sets forth certain data for auto contracts purchased by
UACC for the periods indicated.
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
--------------------------------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1996 1996 1996 1997 1997 1997
-------- ------------- ------------ --------- -------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER CONTRACT AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Gross amount of
contracts.............. $2,628 $4,022 $5,351 $7,686 $9,520 $12,236
Average original term of
contracts (months)..... 36.9 36.9 37.0 36.1 38.0 38.2
</TABLE>
At September 30, 1997, 99.0% of UACC's auto contracts were written by
California branch locations. In the quarter ended September 30, 1997, UACC
expanded into Salt Lake City and Phoenix, and UACC intends to open an office
in Portland by the end of 1997. In addition to diversifying its geographic
concentrations, UACC intends to maintain a broad dealer base to avoid
dependence on a limited number of dealers. At September 30, 1997, no dealer
accounted for more than 2.8% of UACC's portfolio and the ten dealers from
which UACC purchased the most contracts accounted for approximately 20.7% of
the portfolio in the aggregate.
UNDERWRITING STANDARDS AND PURCHASE OF CONTRACTS
Underwriting Standards and Purchase Criteria. Dealers submit credit
applications directly to UACC's branches. UACC uses credit bureau reports in
conjunction with information on the credit application to make a final credit
decision or a decision to request additional information. Only credit bureau
reports that have been obtained by UACC are acceptable.
UACC's credit policy places specific accountability for credit decisions
directly within the branches. The branch manager or assistant branch manager
reviews all credit applications. In general, no branch manager will have
credit approval authority for contracts greater than $15,000. Any transaction
that exceeds a branch manager's approval limit must be approved by UACC's
Regional Manager, Operations Manager or President.
Verification. Upon approving or conditioning any application, all required
stipulations are presented to the dealer and must be satisfied before funding.
All dealers are required to provide UACC with written evidence of insurance
in force on a vehicle being financed when submitting the contract for
purchase. Prior to funding a contract, the branch must verify by telephone
with the insurance agent the customer's insurance coverage with UACC as loss
payee. If UACC receives notice of insurance cancellation or non-renewal, the
branch will notify the customer of his or her contractual obligation to
maintain insurance coverage at all times on the vehicle. However, UACC will
not "force place" insurance on an account if insurance lapses and,
accordingly, UACC bears the risk of an uninsured loss in these circumstances.
Post-Funding Quality Reviews. UACC's Regional Manager and Operations Manager
complete quality control reviews of the newly originated auto contracts. These
reviews focus on compliance with underwriting standards, the quality of the
credit decision and the completeness of auto contract documentation.
Additionally, UACC's Regional Manager and Operations Manager complete regular
branch audits that focus on compliance with UACC's policies and procedures and
the overall quality of branch operations and credit decisions.
SERVICING AND COLLECTION
UACC services at the branch level all of the auto contracts it purchases.
Billing Process. UACC sends each borrower a coupon book. All payments are
directed to the customer's respective UACC branch. UACC also accepts payments
delivered to the branch by a customer in person.
69
<PAGE>
Collection Process. UACC's collection policy calls for the following
sequence of actions to be taken with regard to all problem loans: (i) call the
borrower at one day past due; (ii) immediate follow-up on all broken promises
to pay; (iii) branch management review of all accounts at ten days past due;
and (iv) Regional Manager or Operations Manager review of all accounts at 45
days past due.
UACC will consider extensions or modifications in working a collection
problem. All extensions and modifications require the prior approval of the
branch manager, and are monitored by the Operations Manager.
Repossessions. It is UACC's policy to repossess the financed vehicle only
when (i) payments are substantially in default, (ii) the customer demonstrates
an intention not to pay or (iii) the customer fails to comply with material
provisions of the contract. All repossessions require the prior approval of
the branch manager. In certain cases, the customer is able to pay the balance
due or bring the account current, thereby redeeming the vehicle.
When a vehicle is repossessed and sold at an automobile auction or through a
private sale, the sale proceeds are subtracted from the net outstanding
balance of the loan with any remaining amount recorded as a loss. UACC
generally pursues all customer deficiencies.
Allowance for Loan Losses. UACC's policy is to place on nonaccrual status
accounts delinquent in excess of 120 days on a contractual basis, and to
reverse all previously accrued but unpaid interest on such accounts. Accounts
that have had their collateral repossessed are placed on nonaccrual by the end
of the month in which they are repossessed regardless of delinquency status.
Accounts are not returned to accrual status until they are brought current.
UACC's policy is to charge-off accounts delinquent in excess of 120 days.
The remaining balance of accounts where the collateral has been repossessed
and sold is charged-off by the end of the month in which the collateral is
sold and the proceeds collected.
Loss reserves based on expected losses over the life of the contract are
established when each contract is purchased from the dealer. The reserve is
deducted from the discount that is taken on each transaction. Loss reserve
analyses are performed regularly to determine the adequacy of current reserve
levels. For the quarter ended September 30, 1997, the Company allocated 70% of
the acquisition discount on each loan to the allowance for loan losses. The
loss allowances recorded at the time of purchase represent an estimate of
expected losses for these loans. If actual experience exceeds estimates, an
additional provision for losses is established as a charge against earnings.
Accordingly, management believes that the allowance for UACC's loan losses at
September 30, 1997 is adequate to provide for future anticipated losses.
70
<PAGE>
The following table reflects UACC's losses (i.e., net charge-offs as a
percent of original net contract balances) for each contract pool (defined as
the total dollar amount of net contracts purchased in a given quarter)
purchased since UACC's inception.
<TABLE>
<CAPTION>
QUARTER OF PURCHASE
--------------------------------------------------------------------------------------
1996 1997
------------------------------------------- ------------------------------------------
NUMBER OF
MONTHS SECOND QUARTER THIRD QUARTER FOURTH QUARTER FIRST QUARTER SECOND QUARTER THIRD QUARTER
OUTSTANDING -------------- ------------- -------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
1....................... 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
2....................... 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
3....................... 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
4....................... 0.0% 0.0% 0.1% 0.1% 0.2%
5....................... 0.0% 0.2% 0.1% 0.3% 0.2%
6....................... 0.1% 0.5% 0.3% 0.6% 0.5%
7....................... 0.6% 1.6% 0.8% 0.9%
8....................... 1.0% 2.1% 1.0% 1.3%
9....................... 1.7% 3.1% 1.4% 1.9%
10...................... 1.9% 3.7% 2.2%
11...................... 3.8% 3.9% 3.2%
12...................... 4.5% 4.9% 3.4%
13...................... 5.3% 5.6%
14...................... 6.8% 6.2%
15...................... 7.4% 7.0%
16...................... 7.4%
17...................... 7.7%
18...................... 7.8%
Original Pool ($000).... $2,030 $2,855 $3,792 $5,505 $6,794 $8,781
====== ====== ====== ====== ====== ======
Remaining Pool ($000)... $ 982 $1,573 $2,434 $4,264 $5,758 $8,145
====== ====== ====== ====== ====== ======
(%).................... 48% 55% 64% 77% 85% 93%
====== ====== ====== ====== ====== ======
</TABLE>
UACC purchased its first auto contracts in March 1996 and, accordingly, a
maximum of 18 months loss history is available at September 30, 1997.
THE BANK
BUSINESS OVERVIEW
The Bank is a federally chartered stock savings bank formed in 1994 to
purchase from the RTC certain assets and to assume certain liabilities of the
Bank's predecessor, Pan American Federal Savings Bank. The Bank has been the
principal funding source to date for the Company's residential mortgage,
insurance premium and automobile finance businesses primarily through its
deposits, FHLB advances and whole loan sales. In addition, the Bank holds a
portfolio of primarily traditional residential mortgage loans acquired from
the RTC in 1994 and 1995 at a discount from the unpaid principal balance of
such loans, which loans aggregated $87.2 million (before unearned discounts
and premiums) at September 30, 1997. The Bank has focused its branch marketing
efforts on building a middle income customer base, including efforts targeted
at local Hispanic communities. The Bank has bilingual employees in each of its
branches, and key members of the Company's and the Bank's Board of Directors
and management are of Hispanic heritage and are active in communities served
by the Bank. In addition to operating its retail banking business at four
branches located in Northern California and one in Southern California, the
Bank provides, subject to appropriate cost sharing arrangements, compliance,
risk
71
<PAGE>
management, executive, financial, facilities and human resources management to
other business units of the Company. The business of the Bank is subject to
substantial governmental supervision and regulatory requirements. See "--
Supervision and Regulation--Federal Savings Bank Regulation."
COMPETITION
Each of the Company's businesses is highly competitive. Competition in the
Company's markets can take many forms, including convenience in obtaining a
loan, customer service, marketing and distribution channels, amount and terms
of the loan, loan origination fees and interest rates. Many of the Company's
competitors are substantially larger and have considerably greater financial,
technical and marketing resources than the Company. The Company's competitors
in subprime mortgage finance include other consumer finance companies,
mortgage banking companies, commercial banks, credit unions, savings
associations and insurance companies. The Company competes in the insurance
premium finance business with other specialty finance companies, independent
insurance agents who offer premium finance services, captive premium finance
affiliates of insurance companies and direct bill plans established by
insurance companies. The Company competes in the subprime automobile finance
industry with commercial banks, the captive finance affiliates of automobile
manufacturers, savings associations and companies specializing in subprime
automobile finance, many of which have established relationships with
automobile dealerships and may offer dealerships or their customers other
forms of financing, including dealer floor plan financing and lending, which
are not offered by the Company. In attracting deposits, the Bank competes
primarily with other savings institutions, commercial banks, brokerage firms,
mutual funds, credit unions and other types of investment companies.
The profitability of the Company's lending activities and the low barriers
to entry could attract additional competitors. Certain large, national finance
companies and mortgage originators have announced their intention to adapt
their mortgage loan origination programs and allocate resources to the
origination of subprime loans. The Company and its competitors may also face
increasing competition from government-sponsored entities, such as FNMA and
FHLMC. FHLMC currently purchases what it terms "Alternative-A" mortgage loans
and has announced its intention to purchase what it terms "A-" mortgage loans
by the end of 1997. In addition, FHLMC has expressed its intention to purchase
so-called "B" and "C" mortgage loans in the future. FHLMC also has purchased
securities backed by subprime mortgage loans and has re-securitized them for
resale. Additional competition may lower the rates the Company can charge
borrowers, reduce the volume of the Company's loan originations and increase
demand for the Company's key employees with the potential that such employees
will leave the Company for its competitors.
Fluctuations in interest rates and general and localized economic conditions
also may affect the competition the Company faces. Competitors with lower
costs of capital have a competitive advantage over the Company. During periods
of declining interest rates, competitors may solicit the Company's customers
to refinance their loans. In addition, during periods of economic slowdown or
recession, the Company's borrowers may face financial difficulties and be more
receptive to offers of the Company's competitors to refinance their loans.
As the Company seeks to expand into new geographic markets, it will face
additional competition from lenders already established in these markets.
There can be no assurance that the Company will be able to compete
successfully with these lenders.
SUPERVISION AND REGULATION
Set forth below is a brief description of various laws and regulations
affecting the operations of the Company and its subsidiaries. The description
of laws and regulations contained herein does not purport to be complete and
is qualified in its entirety by reference to applicable laws and regulations.
Any change in applicable laws, regulations or regulatory policies may have a
material effect on the business, operations, and prospects of the Company.
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HOLDING COMPANY REGULATION
The Company is a savings and loan holding company within the meaning of the
Home Owners' Loan Act, as amended ("HOLA"). For purposes of this discussion,
the description of holding company regulation also applies to Pan American
Financial, Inc., a direct subsidiary of the Company and the parent of the
Bank. The Company has registered with the OTS and is subject to OTS
regulation, examination, supervision, and reporting requirements. In addition,
the OTS has enforcement authority over the Company and its non-savings
institution subsidiaries. Among other things, this authority permits the OTS
to restrict or prohibit activities that are determined to be a serious risk to
the Bank. In addition, the Bank must notify the OTS at least 30 days before
making any distribution to the Company and the OTS has the authority to
preclude a savings association from paying a dividend under certain
circumstances. See "--Federal Savings Bank Regulations--Limitations on Capital
Distributions."
HOLA prohibits a savings and loan holding company, directly or indirectly
through one or more subsidiaries, from (i) acquiring another savings
institution or holding company thereof, without prior written approval of the
OTS, (ii) acquiring or retaining, with certain exceptions, more than 5% of the
voting shares of a nonsubsidiary savings institution, a nonsubsidiary holding
company, or a nonsubsidiary company engaged in activities other than those
permitted by HOLA, or (iii) acquiring or retaining control of a savings
institution that is not federally insured. In evaluating applications by
holding companies to acquire savings institutions, the OTS must consider the
financial and managerial resources and future prospects of the Company and
institution involved, the effect of the acquisition on the risk to the
insurance funds, the convenience and needs of the community, and competitive
factors.
As a holding company that controls only one savings association, the Company
generally is not restricted under existing laws as to the types of business
activities in which it may engage, provided that the Bank continues to be a
"qualified thrift lender" under HOLA ("QTL"). Upon any nonsupervisory
acquisition by the Company of another savings association or savings bank that
meets the QTL test and is deemed to be a savings institution by OTS, the
Company would become a multiple savings and loan holding company (if the
acquired institution is held as a separate subsidiary) and would be subject to
extensive limitations on the types of business activities in which it could
engage. HOLA generally limits the activities of a multiple savings and loan
holding company and its uninsured institution subsidiaries primarily to
activities permissible for bank holding companies under Section 4(c)(8) of the
Bank Holding Company Act of 1956, as amended (the "BHC Act"), subject to the
prior approval of the OTS, and activities authorized by OTS regulation.
Legislation has been proposed that would impose limits on the non-banking
activities of companies that acquire savings associations. It is anticipated
that the Company's holding company status would be "grandfathered" under such
legislation, but there can be no assurance that the Company would be exempt
from such limits. Furthermore, any available grandfathering might not continue
to be available to the Company as a result of a possible merger of the federal
banking agencies. Several proposals have been introduced in Congress over the
past several years. If the OTS and Office of the Comptroller of the Currency
(the "OCC") were merged, as one proposal would require, the federal thrift
charter would be eliminated. If adopted, such a proposal would require that
the Bank become a national bank and would subject it to regulation as such.
One effect of such a requirement would be that the Bank could not engage in
activities not permitted for national banks unless such activities were
grandfathered. In addition, the ability to branch interstate would become
subject to the restrictions of the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 ("Riegle Act"). Accordingly, any out-of-state
branches of the Bank in existence upon the effectiveness of such a proposal
that are not permissible under the Riegle Act and, if not grandfathered, could
be required to be divested. There are also some benefits to such a charter
conversion. For example, the Bank would not, under regulations currently
applicable to national banks, be subject to the QTL test described below.
Federal law generally provides that no company may acquire control of a
federally insured savings institution without obtaining the approval of the
OTS. Such acquisitions of control may be disapproved if it is determined,
among other things, that the acquisition would substantially lessen
competition or the financial and managerial resources and further prospects of
the acquiror and savings institution involved or that the acquisition would be
detrimental to the institution or present enhanced insurance risk to the SAIF
or Bank Insurance Fund ("BIF").
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REGULATION OF MORTGAGE FINANCE OPERATION
The consumer financing industry is a highly regulated industry. UPAM's
business is subject to extensive and complex rules and regulations of, and
examinations by, various federal, state and local government authorities.
These rules and regulations impose obligations and restrictions on UPAM's loan
origination, credit activities and secured transactions. In addition, these
rules limit the interest rates, finance charges and other fees UPAM may
assess, mandate extensive disclosure to UPAM's customers, prohibit
discrimination and impose multiple qualification and licensing obligations on
UPAM. Failure to comply with these requirements may result in, among other
things, demands for indemnification or mortgage loan repurchases, certain
rights of rescission for mortgage loans, class action lawsuits, administrative
enforcement actions and civil and criminal liability. Management of UPAM
believes that UPAM is in compliance with these rules and regulations in all
material respects.
UPAM's loan origination activities are subject to the laws and regulations
in each of the states in which those activities are conducted. For example,
state usury laws limit the interest rates UPAM can charge on its loans. UPAM
presently is in the process of applying for licenses in California and other
states in which such licenses are required to conduct UPAM's activities. Until
such licenses are obtained, all such activities are being conducted by the
Bank or, to the extent permitted by such licensing laws, by UPAM as agent of
the Bank. UPAM's lending activities are also subject to various federal laws,
including those described below.
UPAM is subject to certain disclosure requirements under TILA and the
Federal Reserve Board's Regulation Z promulgated thereunder. TILA is designed
to provide consumers with uniform, understandable information with respect to
the terms and conditions of loan and credit transactions. TILA also guarantees
consumers a three-day right to cancel certain credit transactions, including
loans of the type originated by UPAM. Such three-day right to rescind may
remain unexpired for up to three years if the lender fails to provide the
requisite disclosures to the consumer.
UPAM is also subject to the High Cost Mortgage Act, which makes certain
amendments to TILA. The High Cost Mortgage Act generally applies to consumer
credit transactions secured by the consumer's principal residence, other than
residential mortgage transactions, reverse mortgage transactions or
transactions under an open-end credit plan, in which the loan has either (i)
total points and fees upon origination in excess of the greater of eight
percent of the loan amount or $400 or (ii) an annual percentage rate of more
than ten percentage points higher than United States Treasury securities of
comparable maturity ("Covered Loans"). The High Cost Mortgage Act imposes
additional disclosure requirements on lenders originating Covered Loans. In
addition, it prohibits lenders from, among other things, originating Covered
Loans that are underwritten solely on the basis of the borrower's home equity
without regard to the borrower's ability to repay the loan and including
prepayment fee clauses in Covered Loans to borrowers with a debt-to-income
ratio in excess of 50% or Covered Loans used to refinance existing loans
originated by the same lender. The High Cost Mortgage Act also restricts,
among other things, certain balloon payments and negative amortization
features. UPAM commenced originating Covered Loans during 1996.
UPAM is also required to comply with ECOA and the Federal Reserve Board's
Regulation B promulgated thereunder, FCRA, RESPA and HMDA. Regulation B
restricts creditors from requesting certain types of information from loan
applicants. FCRA requires lenders, among other things, to supply an applicant
with certain disclosures concerning settlement fees and charges and mortgage
servicing transfer practices. It also prohibits the payment or receipt of
kickbacks or referral fees in connection with the performance of settlement
services. In addition, beginning with loans originated in 1994, UPAM must file
an annual report with the Department of Housing and Urban Development pursuant
to HMDA, which requires the collection and reporting of statistical data
concerning loan transactions.
In the course of its business, UPAM may acquire properties securing loans
that are in default. There is a risk that hazardous or toxic waste could be
found on such properties. In such event, UPAM could be held responsible for
the cost of cleaning up or removing such waste, and such cost could exceed the
value of the underlying properties.
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Because UPAM's business is highly regulated, the laws, rules and regulations
applicable to UPAM are subject to regular modification. There are currently
proposed various laws, rules and regulations which, if adopted, could
materially affect UPAM's business. There can be no assurance that these
proposed laws, rules and regulations, or other such laws, rules or
regulations, will not be adopted in the future which could make compliance
much more difficult or expensive, restrict UPAM's ability to originate, broker
or sell loans, further limit or restrict the amount of commissions, interest
and other charges earned on loans originated, brokered or sold by UPAM, or
otherwise adversely affect the business or prospects of UPAM.
REGULATION OF INSURANCE PREMIUM FINANCE COMPANIES
The auto insurance premium finance industry is subject to state regulation.
The regulatory structure of each state places certain restrictions on the
terms of loans made to finance insurance premiums. These restrictions, among
other things, generally provide that the lender must provide certain
cancellation notices to the insured and the insurer in order to exercise an
assigned right to cancel an automobile insurance policy in the event of a
default under an insurance premium finance agreement and to obtain in
connection therewith a return from the insurer of any unearned premiums that
have been assigned by the insured to the lender. Such state laws also require
that certain disclosures be delivered by the insurance agent or broker
arranging for such credit to the insured regarding the amount of compensation
to be received by such agent or broker from the lender.
REGULATION OF SUBPRIME AUTOMOBILE LENDING
UACC's automobile lending activities are subject to various federal and
state consumer protection laws, including TILA, ECOA, FCRA, the Federal Fair
Debt Collection Practices Act, the Federal Trade Commission Act, the Federal
Reserve Board's Regulations B and Z, and state motor vehicle retail
installment sales acts, retail installment sales acts and other similar laws
regulate the origination and collection of consumer receivables and impact
UACC's business. These laws, among other things, (i) require UACC to obtain
and maintain certain licenses and qualifications, (ii) limit the finance
charges, fees and other charges on the contracts purchased, (iii) require UACC
to provide specified disclosures to consumers, (iv) limit the terms of the
contracts, (v) regulate the credit application and evaluation process, (vi)
regulate certain servicing and collection practices and (vii) regulate the
repossession and sale of collateral. These laws impose specific statutory
liabilities upon creditors who fail to comply with their provisions and may
give rise to defense to payment of the consumer's obligation. In addition,
certain of the laws make the assignee of a consumer installment contract
liable for the violations of the assignor. See "--Regulation of Mortgage
Finance Operation."
Each dealer agreement contains representations and warranties by the dealer
that, as of the date of assignment, the dealer has compiled with all
applicable laws and regulations with respect to each contract. The dealer is
obligated to indemnify UACC for any breach of any of the representations and
warranties and to repurchase any non-conforming contracts. UACC generally
verifies dealer compliance with usury laws, but does not audit a dealer's full
compliance with applicable laws. There can be no assurance that UACC will
detect all dealer violations or that individual dealers will have the
financial ability and resources either to repurchase contracts or indemnify
UACC against losses. Accordingly, failure by dealers to comply with applicable
laws, or with their representations and warranties unless the dealer
agreement, could have a material adverse effect on UACC.
UACC believes it is currently in compliance in all material respects with
applicable laws, but there can be no assurance that UACC will be able to
maintain such compliance. The failure to comply with such laws, or a
determination by a court that UACC's interpretation of any such law was
erroneous, could have a material adverse effect upon UACC. Furthermore, the
adoption of additional laws, changes in the interpretation and enforcement of
current laws or the expansion of UACC's business into jurisdictions that have
adopted more stringent regulatory requirements than those in which UACC
currently conducts business, could have a material adverse effect upon UACC.
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If a borrower defaults on a contract, UACC, as the servicer of the contract,
is entitled to exercise the remedies of a secured party under the Uniform
Commercial Code (the "UCC"), which typically includes the right to
repossession by self-help unless such means would constitute a breach of
peace. The UCC and other state laws regulate repossession and sales of
collateral by requiring reasonable notice to the borrower of the date, time
and place of any public sale of collateral, the date after which any private
sale of the collateral may be held and the borrower's right to redeem the
financed vehicle prior to any such sale, and by providing that any such sale
must be conducted in a commercially reasonable manner. Financed vehicles
repossessed generally are resold by UACC through unaffiliated wholesale
automobile networks or auctions which are attended principally by used
automobile dealers.
FEDERAL SAVINGS BANK REGULATION
Business Activities. The activities of savings associations are governed by
HOLA and, in certain respects, the Federal Deposit Insurance Act, as amended
("FDI Act"). HOLA and the FDI Act were amended by the Financial Institutions
Reform, Recovery and Enforcement Act of 1989, as amended ("FIRREA"), and the
Federal Deposit Insurance Corporation Act of 1991 ("FDICIA"). FIRREA was
enacted to resolve issues relating to problem institutions, including thrifts,
establish a new thrift insurance fund, reorganize the regulatory structure
applicable to savings associations and impose bank-like standards on savings
associations. FDICIA, among other things, requires that federal banking
agencies intervene promptly when a depository institution experiences
financial difficulties, mandates the establishment of a risk-based deposit
insurance assessment system, and requires imposition of numerous additional
safety and soundness operational standards and restrictions. Both FIRREA and
FDICIA contain provisions affecting numerous aspects of the operations and
regulations of federally insured savings associations and empower the OTS and
the FDIC, among other agencies, to promulgate regulations implementing their
provisions.
Provisions of the federal banking statutes, as amended by FIRREA and FDICIA,
among other matters (i) restrict the use of brokered deposits by savings
associations that are not well capitalized, (ii) prohibit the acquisition of
any corporate debt security that is not rated in one of the four highest
rating categories, (iii) subject to OTS waiver, restrict the aggregate amount
of loans secured by non-residential real estate property to 400% of total
capital, (iv) permit savings and loan holding companies to acquire up to 5% of
the voting shares of non- subsidiary savings associations or savings and loan
holding companies without prior approval, (v) permit bank holding companies to
acquire healthy savings associations, (vi) require the federal banking
agencies to establish by regulation standards for extensions of credit secured
by real estate and (vii) restrict transactions between a savings association
and its affiliates.
Loans to One Borrower. Under HOLA, savings associations are generally
subject to the national bank limits on loans to one borrower. Generally, a
savings institution may not make a loan or extend credit to a single or
related group of borrowers in excess of 15% of the institution's unimpaired
capital and surplus. An additional amount may be lent, equal to 10% of
unimpaired capital and surplus, if such loan is fully secured by readily
marketable collateral, which is defined to include certain securities and
bullion, but generally does not include real estate.
QTL Test. Savings associations that do not meet a QTL test are subject to
certain restrictions. Any savings institution is a QTL if (i) it qualifies as
a domestic building and loan association under Section 7701(a)(19) of the
Internal Revenue Code (which generally requires that at least 60% of the
institution's assets constitute loans secured by residential real estate or
deposits, educational loans, cash or certain governmental obligations) or (ii)
at least 65% of its "portfolio assets" (total assets less (a) specified liquid
assets up to 20% of total assets, (b) intangibles, including goodwill, and (c)
the value of property used to conduct business) consist of certain "qualified
thrift investments" (primarily residential mortgages and related investments,
including certain mortgage-backed and related securities) on a monthly basis
in nine out of every 12 months.
A savings association that fails the QTL test for four or more months out of
the prior 12-month period must either convert to a bank charter or operate
under certain restrictions. If the savings association does not convert
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to a national bank charter, generally it will be prohibited from: (i) making
any new investment or engaging in any new activity not permissible for a
national bank; (ii) paying dividends not permissible under national bank
statutes and regulations; (iii) obtaining any new advances from any FHLB; and
(iv) establishing any new branch office in a location not permissible for a
national bank with its head office located in the association's home state.
Any bank chartered as a result of failure of the QTL test must pay exit and
entrance fees as a consequence of leaving the SAIF and entering the BIF as
further described below. In addition, beginning three years after the
association fails the QTL test, the association will be prohibited from
engaging in any activity or retaining any investment not permissible for a
national bank and will have to repay any outstanding advances from the FHLB as
promptly as possible consistent with safety and soundness. One year from the
date the association fails the QTL test, any holding company that controls the
association must register as and be deemed to be a bank holding company,
subject to the restrictions and limitations of the BHC Act, and to the
regulations of the Federal Reserve. The Company believes that the Bank met the
QTL test at September 30, 1997.
Limitation on Capital Distributions. OTS regulations impose limitations upon
all capital distributions by savings associations, such as cash dividends,
payments to repurchase or otherwise acquire its shares, payments to
shareholders of another institution in a cash-out merger and other
distributions charged against capital. The rule establishes three tiers of
associations that are based primarily on an institution's capital level. An
institution that has capital which is equal to or exceeds all capital
requirements before and after a proposed capital distribution ("Tier I
Institution") and has not been advised by the OTS that it is in need of more
than normal supervision, could, after prior notice but without the approval of
the OTS, make capital distributions during a calendar year equal to the
greater of (i) 100% of its net income to date during the calendar year plus
the amount that would reduce by one-half its "surplus capital ratio" (the
excess capital over its risk based capital requirements) at the beginning of
the calendar year or (ii) 75% of its net income for the previous four
quarters. Any additional capital distributions would require prior regulatory
approval. If the Bank's capital falls below its capital requirements or the
OTS notifies it that it is in need of more than normal supervision, the Bank's
ability to make capital distributions could be restricted. In addition, the
OTS could prohibit a proposed capital distribution by any institution, that
would otherwise be permitted by the regulation, if the OTS determines that
such distribution would constitute an unsafe or unsound practice. At September
30, 1997, the Bank was a Tier I Institution. See "Risk Factors--Risks
Associated With the Company and the Offering--Absence of Dividends" and
"Dividend Policy."
Liquidity. The Bank must maintain an average daily balance of liquid assets
and short-term liquid assets equal to a monthly average of not less than
specified percentages of its net withdrawable deposit accounts plus short-term
borrowings. This liquidity requirement may be changed from time to time by the
OTS. Monetary penalties may be imposed for failure to meet these liquidity
requirements. The Bank has never failed to meet its liquidity requirements.
Classification of Assets. Savings institutions are required to classify
their assets on a regular basis, establish appropriate allowances for losses
and report the results of such classification quarterly to the OTS. A savings
institution is also required to set aside adequate valuation allowances and
establish liabilities for off-balance sheet items, such as letters of credit,
when a loss becomes probable and estimable. The OTS has the authority to
review the institution's classification of its assets and to determine whether
additional assets must be classified or the institution's valuation allowances
must be increased.
Community Reinvestment. Under the Community Reinvestment Act (the "CRA"), as
implemented by OTS regulations, a savings institution has a continuing and
affirmative obligation consistent with its safe and sound operation to help
meet the credit needs of its entire community, including low- and moderate-
income neighborhoods. The CRA does not establish specific lending requirements
or programs for financial associations nor does it limit an institution's
discretion to develop the types of products and services that it believes are
best- suited to its particular community. The CRA requires the OTS, in
connection with its examination of a savings institution, to assess the
institution's record of meeting the credit needs of its community and to take
such record
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into account in evaluating certain applications by such institution. The CRA
also requires all associations to publicly disclose their CRA rating. The Bank
received a CRA rating of "satisfactory" in its most recent examination.
Insurance of Accounts and Regulation by the FDIC. The Bank is a member of
the SAIF, which is administered by the FDIC. Savings deposits are insured up
to $100,000 by the FDIC per insured member (as defined by law and regulation).
Such insurance is backed by the full faith and credit of the United States. As
insurer, the FDIC imposes deposit insurance assessments and is authorized to
conduct examinations of, and to require reporting by, FDIC-insured
institutions. It also may prohibit any FDIC-insured institution from engaging
in any activity the FDIC determines by regulation or order to pose a serious
risk to the FDIC. The FDIC also may initiate enforcement actions against
savings associations and may terminate the deposit insurance if it determines
that the institution has engaged or is engaging in unsafe or unsound
practices, or is in an unsafe or unsound condition.
FDICIA required the FDIC to implement a risk-based deposit insurance
assessment system. Pursuant to this requirement, the FDIC has adopted a risk-
based assessment system under which all SAIF-insured depository associations
are placed into one of nine categories and assessed insurance assessments
based upon their level of capital and supervisory evaluation. Under this
system, associations classified as well capitalized and considered healthy pay
the lowest assessment while associations that are less than adequately
capitalized and considered of substantial supervisory concern pay the highest
assessment. In addition, under FDICIA, the FDIC may impose special assessments
on SAIF members to repay amounts borrowed from the United States Treasury or
for any other reason deemed necessary by the FDIC. The FDIC may increase
assessment rates, on a semiannual basis, if it determines that the reserve
ratio of the SAIF will be less than the designated reserve ratio of 1.25% of
SAIF insured deposits. In setting these increased assessments, the FDIC must
seek to restore the reserve ratio to that designated reserve level, or such
higher reserve ratio as established by the FDIC. Presently, well capitalized
institutions, such as the Bank, are not required to pay these special
assessments.
By contrast, financial institutions that are members of the BIF, which had
higher reserves and previously did not have an obligation to pay interest on
debt to the Financial Corporation ("FICO"), had certain competitive
advantages. The disparity in deposit insurance assessments between SAIF and
BIF members was exacerbated by the statutory requirement that both the SAIF
and the BIF funds be recapitalized to a 1.25% reserved deposits ratio and that
a portion of most thrifts' deposit insurance assessments be used to service
bonds issued by FICO.
To address this rate disparity, on September 30, 1996, the President signed
legislation intended to enable the SAIF to reach the designated reserve ratio.
The legislation provided for a one-time special assessment of 0.657% to be
imposed upon all SAIF deposits as of March 31, 1995. Based on the Bank's SAIF
deposits as of March 31, 1995, the cost of the one-time special assessment was
approximately $820,000 (pre-tax). This amount was accrued in December 1996 and
paid in June 1997.
The legislation also provides for BIF members to service a growing portion
of the FICO bond payments. Until January 1, 2000, annual assessments of 0.013%
of BIF deposits and 0.0648% of SAIF deposits will service the annual payments
due on the FICO bonds. Accordingly, the Bank's assessment rate on the FICO
bonds is 0.0648% of the deposits. This legislation provides for subsequent
full pro rata sharing of FICO bond payments by BIF and SAIF institutions.
Accordingly, the effect of this legislation has been to lessen the competitive
advantage of BIF members over SAIF members because of the disparity in deposit
insurance assessments and FICO payments. The legislation called for a merger
of the SAIF and BIF as of January 1, 1999, but only if the thrift charter has
been eliminated.
The financing corporations created by FIRREA and the Competitive Equality
Banking Act of 1987 are also empowered to assess premiums on savings
associations to help fund the liquidation or sale of troubled associations.
Such premiums cannot, however, exceed the amount of SAIF assessments and are
paid in lieu thereof.
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Transactions With Related Parties. The Bank's authority to engage in
transactions with related parties or "affiliates" (i.e., any company that
controls or is under common control with an institution with certain
exceptions) is limited by Sections 23A and 23B of the Federal Reserve Act
("FRA") and Section 11 of HOLA. Section 23A limits the aggregate amount of
covered transactions with any individual affiliate to 10% of the capital and
surplus of the savings institution and also limits the aggregate amount of
transactions with all affiliates to 20% of the savings institution's capital
and surplus. Certain transactions with affiliates are required to be secured
by collateral in an amount and of a type described in Section 23A and the
purchase of low-quality assets from affiliates is generally prohibited.
Section 23B generally requires that certain transactions with affiliates,
including loans and asset purchases, must be on terms and under circumstances,
including credit standards, that are substantially the same or at least as
favorable to the institution as those prevailing at the time for comparable
transactions with non-affiliated companies. Notwithstanding Sections 23A and
23B, Section 11 of HOLA prohibits savings institutions from lending to any
affiliate that is engaged in activities that are not permissible for bank
holding companies under Section 4(c) of the BHC Act. Further, no savings
institution may purchase the securities of any affiliate other than a
subsidiary.
Enforcement. Under the FDI Act, the OTS has primary enforcement
responsibility over savings associations such as the Bank and has the
authority to bring enforcement action against all "institution-related
parties," including shareholders, attorneys, appraisers and accountants who
knowingly or recklessly participate in wrongful action that caused or is
likely to cause more than a minimal financial loss to, or a significant
adverse effect on, an insured depository institution. Civil penalties cover a
wide range of violations and actions and range up to $25,000 per day unless a
finding of reckless disregard is made, in which case fines of up to $1 million
per day are permitted. Criminal penalties for most financial institution
crimes include fines of up to $1 million and imprisonment for up to 30 years.
In addition, regulators have substantial discretion to take enforcement action
against an institution that fails to comply with its regulatory requirements,
particularly with respect to the capital requirements. Possible enforcement
action ranges from the imposition of a capital plan and capital directive to
receivership, conservatorship or the termination of deposit insurance. Under
the FDI Act, the FDIC has the authority to recommend to the Director of the
OTS that enforcement action be taken with respect to a particular savings
institution. If action is not taken by the Director, the FDIC has authority to
take such action under certain circumstances. The Bank is not presently
subject to any of the foregoing enforcement actions.
Standards for Safety and Soundness. FDICIA requires each federal banking
agency to prescribe for all insured depository institutions and, to some
extent, their holding companies standards relating to internal controls,
information systems and audit systems, loan documentation, credit
underwriting, interest rate risk exposure, asset growth, and compensation,
fees and benefits, and such other operational and managerial standards as the
agency deems appropriate. In addition, federal banking regulatory agencies are
required to prescribe by regulation: (i) maximum classified assets to capital
ratios; (ii) minimum earnings sufficient to absorb losses without impairing
capital; (iii) to the extent feasible, a minimum ratio of market value to book
value for publicly traded shares of depository institutions or the depository
institution holding companies; (iv) standards for extensions of credit secured
by real estate or made for the purpose of financing the construction of
improvements on real estate; and (v) such other standards relating to asset
quality, earnings, and valuation as the agency deems appropriate. Finally,
each federal banking agency is required to prescribe standards for employment
contracts and other compensation arrangements of executive officers,
employees, directors, and principal shareholders of insured depository
associations that would prohibit compensation, benefits and arrangements that
are excessive or that could lead to a material financial loss for the
institution. If an insured depository institution or its holding company fails
to meet any of the standards described above, it must submit to the
appropriate federal banking agency a plan specifying the steps that will be
taken to cure the deficiency. If an institution fails to submit an acceptable
plan or fails to implement the plan, the appropriate federal banking agency
will require the institution or holding company to correct the deficiency and,
until corrected, may impose restrictions on the institution or the holding
company, including any of the restrictions applicable under the prompt
corrective action provisions of FDICIA. See "--Prompt Corrective Action."
Capital Requirements. FDICIA added a provision establishing "capital
categories" in order to facilitate prompt corrective action by federal banking
regulators. The purpose of this amendment is to impose more
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scrutiny and restrictions on institutions, and to prohibit savings
institutions from making capital distributions or paying certain management
fees that would leave the institution undercapitalized. FDICIA established
five capital categories for this purpose:
. An institution will be deemed to be well-capitalized if it (i) has a
total risk-based capital ratio of 10% or more, (ii) has a Tier 1 risk-
based capital ratio of 6% or more, (iii) has a leverage ratio of 5% or
more and (iv) is not subject to any regulatory order or directive
regarding capital.
. An institution will be deemed to be adequately capitalized if it (i) has
a total risk-based capital ratio of at least 8%, (ii) has a Tier I risk-
based capital ratio of at least 4% and (iii) subject to certain
exceptions, has a leverage ratio of at least 4%.
. An institution will be deemed to be undercapitalized if it (i) has a
total risk-based capital ratio of less than 8%, (ii) has a Tier I risk-
based capital ratio that is less than 4%, or (iii) subject to certain
exceptions, has a leverage ratio of less than 4%.
. An institution will be deemed to be significantly undercapitalized if it
(i) has a total risk-based capital ratio of less than 6%, (ii) has a
Tier I risk-based capital ratio of less than 3%, or (iii) has a leverage
ratio of less than 3%.
. An institution will be deemed to be critically undercapitalized if it
has a ratio of tangible equity to total assets of less than 2%.
Rechartering Legislation. Legislation enacted in 1996 provides that the BIF
and SAIF will merge on January 1, 1999, if there are no savings associations,
as defined, in existence on that date. Pursuant to that legislation, the
Department of Treasury in May 1997 recommended in a report to Congress that
the separate charters for thrifts and banks be abolished. Various proposals to
eliminate the federal thrift charter, create a uniform financial institutions
charter, conform holding company regulation and abolish the OTS have been
introduced in Congress. The House Committee on Banking and Financial Services
(the "Banking Committee") has considered and reported H.R. 10, the Financial
Services Competition Act of 1997, including Title III, the "Thrift Charter
Transition Act of 1997" ("Title III"). If enacted, Title III will require
federal savings associations to convert to national banks or some type of
state charter within two years of enactment or they would automatically become
national banks. On the earlier of January 1, 2000, or two years after the date
of enactment, the BIF and SAIF will merge. Two years after enactment, HOLA
will be repealed and the OTS will be abolished. Within nine months of
enactment, the Secretary of the Treasury will adopt a plan for the combination
of the OTS and the OCC into a single agency. Converted federal thrifts
generally will be permitted to continue to engage in any activity, including
the holding of any asset, lawfully conducted on the date prior to enactment. A
federal savings association converted to a national bank may retain all
branches established or proposed in a pending application as of enactment and
establish new branches in any state in which it has a branch. Otherwise, it
may establish new branches only under national bank rules. In addition,
beginning two years after enactment, national banks will be authorized to
exercise all powers formerly authorized for federal savings associations.
Under Title III, holding companies for converted savings associations
generally will become subject to the same regulation as holding companies that
control commercial banks, with a grandfather provision for former unitary
savings and loan holding companies. Such grandfathered companies will be
permitted to maintain and establish affiliations with any type of company and
to acquire additional depository institutions, as long as any acquired
depository institution is merged into its converted savings association and
such institution continues to comply with both the qualified thrift lender
test and certain asset and investment limitations to which it was subject as a
federal savings association. Such a converted holding company would be subject
to the same capital requirements, if any, applicable under OTS regulation if
it were a savings and loan holding company on June 19, 1997, and for three
years would be subject to substantially similar regulation, reporting and
examination as implemented by the OTS as of January 1, 1997.
Title III provides for the continuation of adjustable rate mortgage indices
used by converted savings associations, including cost-of-funds indices, if
calculation of the index could not be made by the terms of the governing
instrument as a result of changes made by Title III. Title III also makes
significant changes in the
80
<PAGE>
operation of the FHLB system, including the types of stock that may be issued
by FHLBs to members and borrowers and FHLB capitalization, management,
investments and lending. Effective January 1, 1999, federal savings
associations will be permitted to be voluntary members and stockholders of a
FHLB.
The Company is unable to predict whether Title III or any other such
legislation will be enacted, what the provisions of any such final legislation
may be, or the extent to which the legislation would restrict, disrupt or
otherwise have a material effect on the Company's operations.
Under House rules, the House Commerce Committee (the "Commerce Committee")
was also given jurisdiction over H.R. 10 and, on October 30, 1997, reported
its version of that Bill. As noted below, the Commerce Committee largely
retained the Banking Committee language, but renumbered Title III as Title IV
and made certain material changes to the thrift rechartering legislation
("Title IV"). Title IV provides grandfather treatment only to a company that
was a savings and loan holding company as of September 16, 1997, or had an
application to become such a holding company on file as of that date. Second,
a grandfathered company will lose its grandfather treatment if it acquires
control of another insured bank. Third, Title IV restricts affiliate
transactions between a grandfathered bank and its nonfinancial affiliates. In
addition, the Commerce Committee deleted the entire FHLB subtitle from H.R.
10.
H.R. 10 is now pending in the House Rules Committee (the "Rules Committee").
A Republican leadership working group has been delegated responsibility to
review the Banking and Commerce Committees' respective versions and to propose
a single bill for consideration by the Rules Committee.
Prompt Corrective Action. FDICIA establishes a system of prompt corrective
action to resolve the problem of undercapitalized associations. Under that
system, banking regulators must take certain supervisory actions against
undercapitalized associations, the severity of which depends upon the
institution's level of capitalization. Generally, subject to a narrow
exception, FDICIA requires the appropriate federal banking regulator to
appoint a receiver or conservator for an institution that is critically
undercapitalized. FDICIA authorizes banking regulators to specify the ratio of
tangible capital to assets at which an institution becomes critically
undercapitalized and requires that ratio to be no less than 2% of assets.
A savings association may be reclassified to an even lower category than is
indicated by its current capital position if the OTS determines the
institution to be otherwise in an unsafe or unsound condition or to be engaged
in an unsafe or unsound practice. This could include a failure by the
institution to correct deficiencies following receipt of a less-than-
satisfactory rating on its most recent examination report. Among other things,
undercapitalized institutions are subject to growth limitations and are
required to submit capital restoration plans. If an institution fails to
submit an acceptable plan or fails in any material respect to implement an
approved plan, it is treated as significantly undercapitalized.
Pan American Bank's Capital Ratios. The following table indicates the Bank's
regulatory capital ratios at September 30, 1997.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
-------------------------------------
RISK-
CORE CAPITAL BASED
TANGIBLE CAPITAL (LEVERAGE) CAPITAL
---------------- ------------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Stockholder's equity/GAAP capital... $20,274 $20,274 $20,274
Reductions to capital
Goodwill and other intangibles.... (489) (489) (489)
Disallowed portion of deferred
taxes............................ (83) (83) (83)
Additions to capital
General valuation allowances...... -- -- 2,100
------- ------- -------
Regulatory capital as reported to
the OTS............................ 19,702 19,702 21,802
Minimum capital requirements as
reported to the OTS................ 4,184 8,369 13,217
------- ------- -------
Regulatory capital-excess........... $15,518 $11,333 $ 8,585
======= ======= =======
Capital ratios...................... 7.06% 7.06% 13.20%
Well-capitalized requirement........ 3.00% 5.00% 10.00%
</TABLE>
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<PAGE>
Federal Home Loan Bank System. The Bank is a member of the FHLB system,
which consists of twelve regional FHLBs. The FHLB system provides a central
credit facility primarily for member associations and administers the home
financing credit function of savings associations. FHLB advances must be
secured by specified types of collateral and may only be obtained for the
purpose of providing funds for residential housing finance. The FHLB funds its
operations primarily from proceeds derived from the sale of consolidated
obligations of the FHLB system. The Bank, as a member of the FHLB system, must
acquire and hold shares of capital stock in its regional FHLB in an amount at
least equal to the greater of 1% of the aggregate principal amount of its
unpaid residential mortgage loans and similar obligations at the beginning of
each year, or 1/20 of its advances (borrowings) from the FHLB. The Bank was in
compliance with this requirement, having an investment in FHLB stock at
September 30, 1997 of $1.8 million.
The FHLBs must provide funds to service the FICO bonds and contribute funds
for affordable housing programs. These requirements have affected adversely
the level of FHLB dividends paid and could continue to do so. Such
requirements could also result in the FHLB imposing a higher rate of interest
on advances to their members and could have an adverse effect on the value of
FHLB stock in the future, with a corresponding reduction in the Bank's
capital. For the years ended December 31, 1995 and 1996, and for the nine
months ended September 30, 1997, dividends from the FHLB to the Bank amounted
to $38,000, $72,000, and $74,000, respectively. If dividends were reduced, the
Bank's income would likely also be reduced.
Federal Reserve System. Federal Reserve regulations require savings
associations to maintain non-interest earning reserves against their
transaction accounts (primarily regular checking and NOW accounts). The Bank
is in compliance with these regulations. The balances maintained to meet the
reserve requirements imposed by the Federal Reserve may be used to satisfy
liquidity requirements imposed by the OTS. Because required reserves must be
maintained in the form of vault cash, a non-interest-bearing account at a
Federal Reserve Bank or a pass-through account as defined by the Federal
Reserve, the effect of this reserve requirement is to reduce the Bank's
interest-earning assets. FHLB system members are also authorized to borrow
from the Federal Reserve, but applicable regulations require associations to
exhaust all FHLB sources before borrowing from a Federal Reserve Bank.
LEGAL PROCEEDINGS
The Company is from time to time involved in litigation incidental to the
conduct of its businesses. The Company currently is not a party to any
material pending litigation.
PROPERTIES
The Company's principal executive offices occupy approximately 8,881 square
feet of office space located at 1300 South El Camino Real, San Mateo,
California 94402. As of September 30, 1997, the Company maintained five
branches for its banking business, 11 branches for its mortgage finance
business, nine branches for its automobile finance business and one branch for
its insurance premium finance business. The size of the branches typically
range from 250 square feet to 19,081 square feet. All of the Company's leased
properties are leased for terms expiring on dates ranging from the date hereof
to March 2006, many with options to extend the lease term. The Company
believes that no single lease is material to its operations, its facilities
are adequate for the foreseeable future and alternative sites presently are
available at market rates.
EMPLOYEES
At September 30, 1997, the Company had 376 full-time equivalent employees.
The Company believes its relations with its employees are satisfactory.
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<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth information regarding the directors,
executive officers and key employees of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Directors and Executive Officers
Guillermo Bron.................. 46 Chairman of the Board and a director of the Company
and the Bank
Lawrence J. Grill............... 61 President, Chief Executive Officer, Secretary and a
director of the Company and the Bank
John T. French.................. 66 Director of the Company and Chairman of the Board,
President and Chief Executive Officer of United
PanAm Mortgage Corporation
Ray C. Thousand................. 40 President and Chief Executive Officer of United Auto
Credit Corporation
Carol M. Bucci.................. 40 Senior Vice President, Treasurer and Chief Financial Officer
of the Company and the Bank
Edmund M. Kaufman(1)(2)......... 67 Director of the Company and the Bank
Luis Maizel(2).................. 47 Director of the Company
Daniel L. Villanueva(1)(2)...... 38 Director of the Company and the Bank
Key Employees
Stephen W. Haley................ 44 Senior Vice President--Compliance and Risk
Management of the Company and the Bank
Sharon Macchiarella............. 48 Vice President of the Bank
</TABLE>
- --------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
DIRECTORS AND EXECUTIVE OFFICERS
Guillermo Bron has served as Chairman of the Board and a director of the
Company and the Bank since April 1994. Mr. Bron is President of BVG West
Corp., the sole general partner of Pan American Financial, L.P. Mr. Bron
founded the Company and organized an Hispanic investor group that acquired
certain assets and assumed certain liabilities of the Bank's predecessor from
the RTC in April 1994. Since July 1994, Mr. Bron has been an officer, director
and principal stockholder of the corporate general partner of Bastion
Partners, L.P., a private equity investment fund and, since 1991, President of
Bastion Capital Corporation. Previously, Mr. Bron was a Managing Director of
Corporate Finance and Mergers and Acquisitions at Drexel Burnham Lambert.
Mr. Bron is a director of Telemundo Group, Inc.
Lawrence J. Grill has served as the President, Chief Executive Officer,
Secretary and a director of the Company and the Bank since April 1994. From
1984 through 1994, Mr. Grill was President of Lawrence J. Grill & Associates,
a consulting firm specializing in business strategy and operations improvement
for financial institutions, and in connection therewith served as a director,
officer and consultant to various thrifts and banks. Previously, Mr. Grill
held senior executive positions with Kaufman and Broad, Wickes Companies and
AM International and practiced corporate law in California and Illinois. Mr.
Grill is a CPA in Illinois and is licensed to practice law in California and
Illinois.
John T. French has served as a director of the Bank since October 1996 and
as a director of the Company and Chairman of the Board, President and Chief
Executive Officer of United PanAm Mortgage Corporation since October 1997.
From 1986 through March 1995, he served as Chief Executive Officer of Plaza
Home Mortgage, and also founded and was Chairman of Option One Mortgage
Corporation. From 1977 through 1985, Mr. French
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<PAGE>
served as President of the General Loan Brokerage division of Western Real
Estate Financial, a general loan brokerage company and an affiliate of
American Mortgage Bankers. Mr. French has over 38 years of experience in the
mortgage industry.
Ray C. Thousand has served as President, Chief Executive Officer and a
director of United Auto Credit Corporation since February 1996. Previously,
Mr. Thousand held executive positions in consumer and commercial lending with
Norwest Financial (from 1979 to 1985), Bank of America/Security Pacific Credit
(from 1985 to 1993), TransAmerica Business Credit (1994) and Fidelity Funding
Financial Group (from 1994 to 1995) with emphasis on lending to consumer
finance companies engaged in indirect automobile lending.
Carol M. Bucci has served as Senior Vice President and Controller of the
Bank since January 1997 and as Senior Vice President and the Chief Financial
Officer of the Company since October 1997. She served as Vice President and
Controller of the Bank from December 1995 to December 1996. From February 1995
to December 1995, she served as Vice President and Controller of Home Federal
Savings and Loan in San Francisco, California. She served as Vice President
and Chief Financial Officer of American Liberty Mortgage Corp. from April 1992
through December 1994, as First Vice President and Assistant Controller of
First Nationwide Bank from January 1990 to April 1992 and as Executive Vice
President and Chief Financial Officer of Cal American Savings and Loan from
May 1987 to April 1989. Ms. Bucci is a CPA in California.
Edmund M. Kaufman has served as a director of the Bank since August 1996 and
of the Company since October 1997. Mr. Kaufman is a partner in the Los Angeles
law firm of Irell & Manella, where he has specialized for 37 years in
financial, industrial and technical business law. Mr. Kaufman also serves as a
director of the Los Angeles Music Center Opera Company and of Structural
Research and Analysis, a software corporation.
Luis Maizel has served as a director of the Company since October 1997.
Since 1984, Mr. Maizel has been President of LM Capital Management and LM
Advisors Inc., pension funds management and financial consulting firms of
which he is the principal stockholder. From 1980 to 1984, he was President of
Industrias Kuick, S.A. and Blount Agroindustras, S.A., manufacturers of
agribusiness equipment.
Daniel L. Villanueva has served as a director of the Bank since August 1994
and of the Company since October 1997. Mr. Villanueva is President of the Los
Angeles Galaxy Soccer Team and was a co-founder of Moya, Villanueva &
Associates, a marketing and public relations firm which is now part of
Manning, Selvage & Lee, where he worked from 1986 until 1996.
The Board of Directors of the Company is divided into three classes, with
the directors of one class to be elected annually and serve until the third
succeeding annual meeting of stockholders or until their successors have been
elected and qualified. Officers serve at the discretion of the Board of
Directors. None of the directors or executive officers were selected pursuant
to any arrangement or understanding, other than with the directors and
executive officers of the Company acting within their capacity as such.
KEY EMPLOYEES
Stephen W. Haley has served as Senior Vice President--Compliance and Risk
Management of the Bank and the Company since August 1997. From November 1996
to August 1997, he was a management consultant with Coopers & Lybrand LLP.
From April 1991 to November 1996, Mr. Haley was a self-employed management
consultant and from July 1981 to April 1991, he was a management consultant
with KPMG Peat Marwick LLP's financial services group, where he was a partner
for the last four years.
Sharon Macchiarella has served as Vice President of the Bank since January
1997. From November 1995 to December 1996, she served as IPF Administrator of
the Company. From January 1995 to October 1995, Ms. Macchiarella served as an
insurance premium finance consultant with the Bank and Rancho Vista National
Bank. Previously, Ms. Macchiarella held executive positions in insurance
premium financing with World Trade Bank, N.A. (from March 1988 to July 1992),
First Deposit National Corporation (from July 1992 to September 1992) and
First National Bank of Marin (from September 1992 to September 1994).
84
<PAGE>
COMMITTEES OF THE BOARD
The Board of Directors has an Audit Committee and a Compensation Committee,
each of which consists of two or more independent directors who serve at the
pleasure of the Board of Directors.
The Audit Committee is chaired by Mr. Maizel, and its members are Messrs.
Kaufman, Maizel and Villanueva. The primary purposes of the Audit Committee
are (i) to review the scope of the audit and all non- audit services performed
by the Company's independent certified public accountants and the fees
incurred by the Company in connection therewith, (ii) to review the results of
such audit, including the independent accountants' opinion and letter of
comment to management and management's response thereto, (iii) to review with
the Company's independent accountants, the Company's internal accounting
principles, policies and practices and financial reporting, (iv) to make
recommendations regarding the selection of the Company's independent
accountants and (v) to review the Company's quarterly financial statements
prior to public issuance.
The Compensation Committee is chaired by Mr. Kaufman, and its members are
Messrs. Kaufman and Villanueva. The primary purposes of the Compensation
Committee are (i) to review and recommend to the Board of Directors the
salaries, bonuses and perquisites of the Company's executive officers, (ii) to
determine the individuals to whom, and the terms upon which, awards under the
Company's Stock Incentive Plan, management incentive plans and 401(k) plan are
granted, (iii) to make periodic reports to the Board of Directors as to the
status of such plans and (iv) to review and recommend to the Board of
Directors additional compensation plans.
DIRECTOR COMPENSATION
The Company pays each director who is not employed by the Company $500 for
each meeting of the Board of Directors attended and $300 for each meeting of a
committee of the Board of Directors attended (other than a telephonic
meeting). In addition, each Committee Chairman receives a $500 quarterly fee.
The Company reimburses directors for all reasonable and documented expenses
incurred as a director. Directors who are also employees of the Company,
including Messrs. Bron, Grill and French, are not compensated for their
services as directors. The Board of Directors may change such compensation in
the future.
85
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth the compensation
paid or accrued by the Company for services rendered in all capacities during
the fiscal year ended December 31, 1996 to the President and Chief Executive
Officer and the Company's four other most highly compensated executive
officers during 1996 (the "Named Executives").
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------ ----------------------- -------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
BONUS COMPENSATION RESTRICTED OPTIONS/ LTIP COMPENSATION
NAME AND PRINCIPAL POSITION SALARY ($) ($) ($)(1) STOCK AWARDS SARS(2) PAYOUTS ($)
- --------------------------- ---------- ------ ------------ ------------ ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Lawrence J. Grill....... 150,000 30,000 2,844 -- -- -- --
President and Chief
Executive Officer
Guillermo Bron.......... 100,076 -- -- -- -- -- --
Chairman of the Board
John T. French.......... 15,082 -- -- -- 131,250 -- --
Chairman of the Board,
President and Chief
Executive Officer of
United PanAm Mortgage
Corporation(3)
Ray C. Thousand......... 134,879 -- 2,355 -- -- -- --
President and Chief
Executive Officer of
United Auto Credit
Corporation
Carol M. Bucci.......... 85,276 5,000 -- -- 56,250 -- --
Senior Vice President,
Treasurer and Chief
Financial Officer
</TABLE>
- --------
(1) Consists primarily of an automobile allowance.
(2) Consists of shares issuable pursuant to options granted under the Stock
Incentive Plan.
(3) Mr. French was a consultant to United PanAm Mortgage Corporation and the
Bank, and in that capacity was acting President and Chief Executive
Officer of United PanAm Mortgage Corporation from March 11, 1997 until
October 1, 1997 when he became the Chairman of the Board, President and
Chief Executive Officer of United PanAm Mortgage Corporation.
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<PAGE>
Stock Option Grants. The following table sets forth certain information
concerning the grant of stock options during fiscal 1996 to the Named
Executives pursuant to the Stock Incentive Plan.
OPTION GRANTS IN FISCAL YEAR 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------
SHARES OF POTENTIAL REALIZABLE VALUE
COMMON PERCENT OF AT ASSUMED ANNUAL RATES
STOCK TOTAL OPTIONS OF STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM(1)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION ----------------------------
NAME GRANTED FISCAL YEAR PRICE(4) DATE 5% 10%
---- ---------- ------------- -------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
John T. French(2)....... 131,250 70% $0.80 April 30, 2006 $ 62,606 $ 156,975
Carol M. Bucci(3)....... 56,250 30% $0.80 April 30, 2006 $ 28,013 $ 70,819
</TABLE>
- --------
(1) The Potential Realizable Value is the product of (a) the difference
between (i) the product of the market price per share at the date of grant
and the sum of (A) 1 plus (B) the assumed rate of appreciation of the
Common Stock compounded annually over the term of the option and (ii) the
per share exercise price of the option and (b) the number of shares of
Common Stock underlying the option at December 31, 1996. These amounts
represent certain assumed rates of appreciation only. Actual gains, if
any, on stock option exercises are dependent on a variety of factors,
including market conditions and the price performance of the Common Stock.
There can be no assurance that the rate of appreciation presented in this
table can be achieved.
(2) The options vest in four equal annual installments commencing on October
1, 1996.
(3) The options vest in four equal annual installments, with the first
installment vesting on June 1, 1996 and the three remaining installments
on March 1, 1997, 1998 and 1999.
(4) The Company believes that the exercise price is equal to or greater than
the fair market value of the Common Stock on the date of grant, based upon
the book value of the Common Stock and the early stage of the Company's
development.
Option Exercises and Holdings. The following table sets forth certain
information with respect to the Named Executives concerning the exercise of
options during fiscal 1996 and unexercised options held by the Named
Executives as of December 31, 1996.
AGGREGATE OPTION EXERCISES IN FISCAL YEAR 1996
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT YEAR-END AT YEAR-END(1)
SHARES ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Lawrence J. Grill....... -- -- 187,500 187,500 -- --
John T. French.......... -- -- 32,813 98,437 -- --
Carol M. Bucci.......... -- -- 14,063 42,187 -- --
</TABLE>
- --------
(1) The value of unexercised "in-the-money" options is the difference between
the market price of the Common Stock on December 31, 1996 and the exercise
price of the option, multiplied by the number of shares subject to the
option.
Management Incentive Plans. Key management employees of the Bank and its
subsidiaries and divisions who are not covered under separate employment
agreements are eligible to participate in a management incentive plan. Under
this plan, a bonus pool is established for the payment of bonuses. These
bonuses are established based on the achievement of corporate, divisional and
personal goals. A minimum level of pre-tax profits must be achieved for the
payment of any bonus under this plan. Bonuses earned during the calendar year
are paid out subsequent to the certified audit of the fiscal year during which
the bonus was earned. The Company intends to establish similar plans for each
of its businesses.
87
<PAGE>
Employment Agreements. The Company has entered into employment agreements
with Messrs. Bron, Grill, French and Thousand. All other executive officers
are employed on an "at will" basis.
The Company has entered into an employment agreement with Guillermo Bron
under which Mr. Bron has been employed as the Chairman of the Board of the
Company and the Bank for the term commencing on October 1, 1997 and ending on
December 31, 2000, unless extended by the Company to December 31, 2001. Under
this agreement, Mr. Bron is entitled to (i) an annual base salary of $150,000,
(ii) an annual cash bonus of up to 100% of his base salary, in an amount
determined by the Board of Directors, (iii) $500,000 of term life insurance
above the amount normally provided to employees under the Company's group term
life insurance, (iv) a monthly car allowance of $500 and (v) the premium cost
under the Company's plan for family medical, dental, vision, long-term
disability and accidental death and dismemberment insurance. In addition, Mr.
Bron has been granted a ten-year option to purchase 60,000 shares of Common
Stock at an exercise price of equal to 110% of the initial Offering price,
which options vest 25% per year. In the event the Company terminates his
employment without cause, or Mr. Bron terminates his employment as the result
of a reduction in authority due to certain changes in control of the Bank or
the Company, Mr. Bron shall be entitled to receive (i) a lump sum payment
equal to his base salary from the date of termination to the next to occur of
December 31, 1999, 2000 or 2001, but in no event less than six months salary,
(ii) a lump sum payment equal to the bonus received by him in the prior year
prorated for that portion of the current year for which Mr. Bron was employed
by the Company and (iii) any additional benefits accrued through the date of
termination. In the event the Company terminates Mr. Bron's employment with
cause, the Company is obligated to pay the compensation required by the
agreement only through the date of termination.
The Bank has entered into a salary continuation agreement with Mr. Bron
pursuant to which Mr. Bron is entitled to receive an annual benefit of up to
$100,000 payable over a period of 15 years upon either (i) the termination of
his employment by the Bank for any reason other than termination for cause
after attaining 65 years of age or (ii) his death if he is actively employed
by the Bank at such time. Upon the termination of his employment for any of
the following reasons, Mr. Bron is entitled to receive reduced annual benefits
before 2003 which increase to $100,000 if such termination occurs in or after
2003: (i) the termination of his employment by the Bank without cause or after
the occurrence of a change of control of the Bank or the Company, (ii) the
termination of his employment due to disability, (iii) the termination of his
employment as the result of a reduction in authority or (iv) the voluntary
termination of his employment prior to attaining 65 years of age. The Bank may
purchase insurance on the life of Mr. Bron to fund payments to Mr. Bron under
this agreement. Any such insurance policy will be an asset of the Bank in
which Mr. Bron will have no rights. The Bank is not required to make any
payments under this agreement if Mr. Bron is terminated for cause.
The Company has entered into an employment agreement with Lawrence J. Grill
under which Mr. Grill has been employed as the President, Chief Executive
Officer and Secretary of the Company and the Bank for the term commencing on
October 1, 1997 and ending on December 31, 2000, unless extended by the
Company to December 31, 2001. Under this agreement, Mr. Grill is entitled to
(i) an annual base salary of $190,000, (ii) an annual cash bonus of up to 50%
of his base salary based upon the satisfaction of performance goals relating
to pre-tax net income, return on stockholders' equity and such other factors
as may be established by the Board of Directors, (iii) $500,000 of term life
insurance above the amount normally provided to employees under the Company's
group term life insurance, (iv) a monthly car allowance of $500 and (v) the
premium cost under the Company's plan for family medical, dental, vision,
long-term disability and accidental death and dismemberment insurance. In
addition, Mr. Grill has been granted a ten-year option to purchase 60,000
shares of Common Stock at an exercise price equal to the initial Offering
price, which options vest 25% per year. In the event the Company terminates
his employment without cause, or Mr. Grill terminates his employment as the
result of a reduction in authority due to certain changes in control of the
Bank or the Company, Mr. Grill shall be entitled to receive (i) a lump sum
payment equal to his base salary from the date of termination to the next to
occur of December 31, 1999, 2000 or 2001, but in no event less than six months
salary, (ii) a lump sum payment equal to the bonus received by him in the
prior year prorated for that portion of the current year for which Mr. Grill
was employed by the Company, (iii) any additional benefits accrued through the
date of termination and (iv) continuation of
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group medical, disability and life insurance coverage for up to the balance of
the stated term. In the event the Company terminates Mr. Grill's employment
with cause, the Company is obligated to pay the compensation required by the
agreement only through the date of termination.
The Bank has entered into a salary continuation agreement with Mr. Grill
pursuant to which Mr. Grill is entitled to receive an annual benefit of up to
$100,000 payable over a period of 15 years upon either (i) the termination of
his employment by the Bank for any reason other than termination for cause
after attaining 67 years of age or (ii) his death if he is actively employed
by the Company at such time. Upon the termination of his employment for any of
the following reasons, Mr. Grill is entitled to receive reduced annual
benefits before 2003 which increase to $100,000 if such termination occurs in
or after 2003: (i) the termination of his employment by the Bank without cause
or after the occurrence of a change of control of the Bank or the Company,
(ii) the termination of his employment due to disability, (iii) the
termination of his employment as the result of a reduction in authority or
(iv) the voluntary termination of his employment prior to attaining 67 years
of age. The Bank may purchase insurance on the life of Mr. Grill to fund
payments to Mr. Grill under this agreement. Any such insurance policy will be
an asset of the Bank in which Mr. Grill will have no rights. The Bank is not
required to make any payments under this agreement if Mr. Grill is terminated
for cause.
United PanAm Mortgage Corporation has entered into an employment agreement
with John T. French under which Mr. French has been employed as Chairman of
the Board, President and Chief Executive Officer for the term commencing on
October 1, 1997 and ending on September 30, 1999. Under this agreement, Mr.
French is entitled to (i) a monthly base salary of $16,667, (ii) an annual
cash bonus in an amount determined by the Board of Directors, but in no event
less than $100,000 if Mr. French reasonably performs his obligations under the
agreement, (iii) participate in all benefits made generally available by the
company to its executives and (iv) the assumption by the company of an office
lease in an amount not to exceed $1,500 per month for a term expiring on
October 31, 1998. In addition, Mr. French has been granted a ten-year option
to purchase 60,000 shares of Common Stock at an exercise price of $10.50 per
share, which options vest in four equal annual installments commencing on
October 15, 1997. Notwithstanding the option period described above, the
options will fully vest on September 30, 1999 if Mr. French is an employee of
the company on that date and the company and Mr. French neither renew this
agreement nor enter into a new employment agreement. In the event the company
terminates his employment without cause, or Mr. French terminates his
employment for specified causes, Mr. French shall make himself available to
perform such consulting services as the company deems reasonable and, in
consideration thereof, shall be entitled to receive a monthly consulting fee
of $10,000, all for the period from the date of termination to the later of
the first anniversary of such termination or September 30, 1999, unless such
consulting term is extended by the company for one additional year. In the
event the company terminates Mr. French's employment with cause, the company
is obligated to pay only the base salary through the date of termination.
The Company has entered into an employment agreement with Ray C. Thousand
under which Mr. Thousand has been employed as the President and Chief
Executive Officer of United Auto Credit Corporation for the three years
commencing on December 7, 1995. Under this agreement, Mr. Thousand is entitled
to (i) an annual base salary of $135,000, (ii) an annual cash bonus of up to
100% of his base salary based upon the satisfaction of specified performance
goals relating to loan volume, pre-tax profit, delinquencies and charge-offs
and (iii) a monthly automobile allowance of $200. In addition, Mr. Thousand
has been granted an option to purchase up to a 7.5% ownership interest in
United Auto Credit Corporation at an exercise price equal to the book value of
such interest (subject to certain adjustments), which option vests 20% per
year based upon the satisfaction of specified performance goals and is
exercisable only upon an initial public offering or the sale of United Auto
Credit Corporation. The performance goal was satisfied for 1996. Although the
Company anticipates that the goal will not be satisfied for 1997 and,
accordingly, no portion of the option will vest for 1997, the unearned portion
may be earned in the subsequent five years. In the event the Company
terminates his employment before the end of the stated term without cause, Mr.
Thousand shall be entitled to receive the base salary until the earlier to
occur of the end of the stated term or the first anniversary of the date of
termination, all compensation required by the agreement accrued to the date of
termination and a prorated bonus. In the event the Company terminates Mr.
Thousand's employment before the end of the stated term as a result of the
failure of United Auto Credit Corporation to achieve specified performance
goals, he shall be entitled to receive 15% of the remaining base
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salary that would have been paid under the agreement. In the event the Company
terminates Mr. Thousand's employment before the end of the stated term with
cause, the Company is obligated to pay the compensation required by the
agreement only through the date of termination, and any accrued but unpaid
bonus is forfeited.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
All decisions involving executive officer compensation are made by the
Company's Compensation Committee, consisting of Messrs. Bron, Kaufman and
Villanueva.
STOCK INCENTIVE PLAN
General. In 1994, the Company adopted a stock option plan and, on November
5, 1997, amended and restated such plan as the United PanAm Financial Corp.
1997 Employee Stock Incentive Plan. Pursuant to the Stock Incentive Plan,
officers, directors, employees and consultants of the Company are eligible to
receive shares of Common Stock or other securities or benefits with a value
derived from the value of the Common Stock.
The purpose of the Stock Incentive Plan is to enable the Company to attract,
retain and motivate officers, directors, employees and consultants by
providing for or increasing their proprietary interests in the Company and, in
the case of non-employee directors, to attract such directors and further
align their interests with those of the Company's stockholders by providing
for or increasing their proprietary interests in the Company.
The maximum number of shares of Common Stock that may be issued pursuant to
awards granted under the Stock Incentive Plan currently is 2,287,500 (subject
to adjustment to prevent dilution).
Administration. The Stock Incentive Plan is administered by a committee of
two or more directors appointed by the Board of Directors of the Company (the
"Committee"). The Committee has full and final authority to select the
recipients of awards and to grant such awards. Subject to the provisions of
the Stock Incentive Plan, the Committee has a wide degree of flexibility in
determining the terms and conditions of awards and the number of shares to be
issued pursuant thereto, including conditioning the receipt or vesting of
awards upon the achievement by the Company of specified performance criteria.
The expenses of administering the Stock Incentive Plan are borne by the
Company.
Terms of Awards. The Stock Incentive Plan authorizes the Committee to enter
into any type of arrangement with an eligible recipient that, by its terms,
involves or might involve the issuance of Common Stock or any other security
or benefit with a value derived from the value of Common Stock. Awards are not
restricted to any specified form or structure and may include, without
limitation, sales or bonuses of stock, restricted stock, stock options, reload
stock options, stock purchase warrants, other rights to acquire stock,
securities convertible into or redeemable for stock, stock appreciation
rights, phantom stock, dividend equivalents, performance units or performance
shares. An award may consist of one such security or benefit or two or more of
them in tandem or in the alternative.
An award granted under the Stock Incentive Plan may include a provision
accelerating the receipt of benefits upon the occurrence of specified events,
such as a change of control of the Company or a dissolution, liquidation,
merger, reclassification, sale of substantially all of the property and assets
of the Company or other significant corporate transactions. The Committee may
grant options that either are intended to be "incentive stock options" as
defined under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), or are not intended to be incentive stock options ("non-
qualified stock options"). Awards to consultants and non-employee directors
may only be non-qualified stock options.
An award may permit the recipient to pay all or part of the purchase price
of the shares or other property issuable pursuant thereto by (i) delivering
previously owned shares of capital stock of the Company or other property,
(ii) reducing the amount of shares or other property otherwise issuable
pursuant to the award or (iii) delivering a promissory note, the terms and
conditions of which will be determined by the Committee. If an option permits
the recipient to pay for the shares issuable pursuant thereto with previously
owned shares, the
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recipient would be able to exercise the option in successive transactions,
starting with a relatively small number of shares and, by a series of
exercises using shares acquired from each such transaction to pay the purchase
price of the shares acquired in the following transaction, to exercise an
option for a large number of shares with no more investment than the original
share or shares delivered. The exercise price is payable in cash by
consultants and non-employee directors, although the Committee at its
discretion may permit such payment by delivery of shares of Common Stock, or
by delivery of broker instructions authorizing a loan secured by the shares
acquired upon exercise or payment of proceeds from the sale of such shares.
Subject to limitations imposed by law, the Board of Directors may amend or
terminate the Stock Incentive Plan at any time and in any manner. However, no
such amendment or termination may deprive the recipient of an award previously
granted under the Stock Incentive Plan of any rights thereunder without his
consent.
Pursuant to Section 16(b) of the Exchange Act, directors, certain officers
and ten percent stockholders of the Company are generally liable to the
Company for repayment of any "short-swing" profits realized from any non-
exempt purchase and sale of Common Stock occurring within a six-month period.
Rule 16b-3, promulgated under the Exchange Act, provides an exemption from
Section 16(b) liability for certain transactions by an officer or director
pursuant to an employee benefit plan that complies with such Rule.
Specifically, the grant of an option under an employee benefit plan that
complies with Rule 16b-3 will not be deemed a purchase of a security for
purposes of Section 16(b). The Stock Incentive Plan is designed to comply with
Rule 16b-3.
Awards may not be granted under the Stock Incentive Plan after the tenth
anniversary of the adoption of the Stock Incentive Plan. Although any award
that was duly granted on or prior to such date may thereafter be exercised or
settled in accordance with its terms, no shares of Common Stock may be issued
pursuant to any award after the twentieth anniversary of the adoption of the
Stock Incentive Plan.
The business criteria on which performance goals are based under the Stock
Incentive Plan will be determined on a case-by-case basis, except that with
respect to stock options and stock appreciation rights compensation is based
on increases in value of the Common Stock after the date of grant or award.
Similarly, the maximum amount of compensation that could be paid to any
participant or the formula used to calculate the amount of compensation to be
paid to the participant if a performance goal is obtained will be determined
on a case-by-case basis, except that in the case of stock options maximum
possible compensation will be calculated as the difference between the
exercise price of the option and the fair market value of the Common Stock on
the date of option exercise, times the maximum number of shares for which
grants may be made to any participant (200,000 shares per year under the Stock
Incentive Plan).
Recent Awards. Since 1994, options have been granted to (i) Lawrence J.
Grill, the President and Chief Executive Officer of the Company, to purchase
up to 375,000 shares of Common Stock at an exercise price of $0.80 per share,
(ii) Carol M. Bucci, Senior Vice President, Treasurer and Chief Financial
Officer of the Company, to purchase up to 56,250 shares of Common Stock at an
exercise price of $0.80 per share and up to an additional 40,000 shares at
$10.50 per share, (iii) Stephen W. Haley, the Senior Vice President-Compliance
and Risk Management of the Company, to purchase up to 60,000 shares of Common
Stock at an exercise price of $10.50 per share, (iv) Daniel L. Villanueva, a
director of the Company, to purchase up to 18,750 shares of Common Stock at an
exercise price of $0.80 per share, (v) Edmund M. Kaufman, a director of the
Company, to purchase up to 18,750 shares of Common Stock at an exercise price
of $0.80 per share, (vi) John T. French, a director of the Company and the
Chairman of the Board, President and Chief Executive Officer of United PanAm
Mortgage Corporation, to purchase up to 131,250 shares of Common Stock at an
exercise price of $0.80 per share and up to an additional 60,000 shares at an
exercise price of $10.50 per share, and (vii) 21 current or former employees
or consultants of the Company to purchase up to an aggregate of 1,101,250
shares at an average exercise price of $4.77 per share. Such options vest in
installments before October 15, 2001 and expire on or before October 15, 2007.
Concurrently with the sale of the shares of Common Stock offered hereby,
options will be granted to (i) Guillermo Bron, the Chairman of the Board of
the Company, to purchase up to 60,000 shares of Common Stock at an exercise
price equal to 110% of the initial public offering price, (ii) Mr. Grill to
purchase up to 60,000 shares of Common Stock at an exercise price equal to the
initial public offering price and (iii) Mr. Maizel to
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purchase up to 20,000 shares of Common Stock at an exercise price equal to the
initial public offering price. These options will become exercisable in four
equal annual installments commencing on the first anniversary of the date of
grant and will expire on the tenth anniversary of the date of grant.
The Company intends to register under the Securities Act the shares of
Common Stock issuable pursuant to the Stock Option Plans. See "Description of
Capital Stock--Shares Eligible For Future Sale."
PROFIT SHARING PLAN
The Bank maintains the Pan American Bank 401(k) Profit Sharing Plan (the
"401(k) Plan"), initially effective as of April 1, 1995, for the benefit of
all eligible employees of the Company. The purpose of the 401(k) Plan is to
provide participating employees a vehicle for deferring a part of their pre-
tax salary to provide security for their retirement.
All employees of the Company who have completed six months of service are
eligible to participate in the 401(k) Plan on the first day of the month
following completion of the service requirement. The 401(k) Plan provides for
two types of contributions: employee elective deferrals and employer profit
sharing contributions. Participating employees can contribute, by way of
payroll deductions, up to the lesser of 15% of their pre-tax salary or the
annual dollar limit of $9,500 for 1997 as an elective deferral, subject to
certain legal limits. In addition, the 401(k) Plan permits participating
employees to make rollover contributions. The 401(k) Plan does not permit
participants to make voluntary after-tax contributions.
The 401(k) Plan provides for discretionary profit sharing contributions.
Each plan year (which is the calendar year), the Board of Directors of the
Bank will determine whether or not to make a contribution to the 401(k) Plan
and, if so, in what amount. If the Bank determines to make a contribution to
the 401(k) Plan, the amounts contributed by each affiliated employer will be
allocated to the accounts of participating employees who are employed on the
last day of the plan year on a pro rata basis. The Bank has not elected to
make a discretionary profit sharing contribution for any of the plan years
that the 401(k) Plan has been in existence. Effective January 1, 1998, the
Company may commence matching contributions to the 401(k) Plan.
Participating employees have the right to invest all contributions allocated
to their accounts under one or more of the six investment options offered. A
participating employee is always 100% vested in elective deferrals.
Participating employees become vested in their employer contributions 20%
after the completion of one year of service and 20% for each year thereafter,
with 100% vesting after the completion of five or more years of service.
Upon a participating employee's retirement, death, total and permanent
disability, attainment of age 59 1/2 or other termination of employment with
the Company, he is entitled to receive a distribution of vested benefits. The
participating employee will receive these benefits in the form of a lump sum.
While a participating employee is still in the employ of the Company, he may
withdraw benefits only from his elective deferral account and only upon a
showing of financial hardship. A participating employee may also borrow
against his vested benefits, but those benefits must be repaid.
Tax law limits deductible contributions in 1998 to the lesser of 15% of the
total amount of pre-tax salary paid during the plan year or $10,000 to
participating employees. The 401(k) Plan is designed to qualify under Section
401(k) of the Code and, therefore, contributions by the Company and the
participating employees are deductible by the Company and not includible in
the income of participating employees for federal income tax purposes.
The Internal Revenue Service has determined that the 401(k) Plan is a
qualified plan within the meaning of Section 401(a) and 401(k) of the Code as
of September 20, 1996.
The Bank, through its Board of Directors, appoints one or more
administrators to administer the 401(k) Plan. Pursuant to the terms of the
401(k) Plan, the plan administrator will operate the 401(k) Plan so as not to
discriminate in favor or participating employees who are officers,
stockholders or highly compensated employees of the Company. All trust assets
are held in trust by the trustee for the exclusive benefit of the
participating employees and their beneficiaries under the 401(k) Plan.
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The account balances of the Named Executives under the 401(k) Plan,
consisting solely of such officers' electing deferrals as of September 30,
1997, are as follows.
<TABLE>
<CAPTION>
NAME ACCOUNT BALANCE
---- ---------------
<S> <C>
Lawrence J. Grill............................................ $36,477.41
Guillermo Bron............................................... $10,187.70
John T. French............................................... $ 9,594.49
Ray C. Thousand.............................................. -0-
Carol M. Bucci............................................... $16,193.73
</TABLE>
CERTAIN TRANSACTIONS
Subsequent to July 1, 1997, the stockholders of the Company loaned the
Company an aggregate of $2.0 million, each substantially in proportion to the
number of shares of Common Stock held by him. The amount borrowed was used to
finance the establishment and initial operations of United PanAm Mortgage
Corporation. These loans are unsecured, bear interest at an annual rate of 8%
payable in semiannual installments and are due and payable on June 30, 1999.
The Company intends to use a portion of the net proceeds of the Offering to
repay this indebtedness. See "Use of Proceeds."
On October 15, 1997, the Company loaned $225,000 to Lawrence J. Grill to
finance his exercise of an option to purchase 281,250 shares of Common Stock.
This loan is secured by the shares purchased, bears interest at an annual rate
of 5.81% payable annually and is due and payable on the earlier of October 15,
2000 or the termination of Mr. Grill's employment by the Company.
United Auto Credit Corporation has granted to certain of its key employees
the right to purchase up to a 13.5% ownership interest in that company, and
may, in the future, grant options to purchase an additional 1.5%. These
options are exercisable only upon an initial public offering or the sale of
United Auto Credit Corporation, at an exercise price equal to the book value
of such interest (subject to certain adjustments). These options vest based
upon the satisfaction of specified performance goals generally related to the
pre-tax profit of United Auto Credit Corporation.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the shares of
Common Stock beneficially owned as of November 7, 1997, and as adjusted to
reflect the sale of the shares offered hereby, by (i) each person known to the
Company to be the beneficial owner of more than five percent of the
outstanding Common Stock, (ii) each director and Named Executive and (iii) all
directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING(2) AFTER OFFERING(2)(3)
----------------------------- -----------------------------
NUMBER OF PERCENT OF NUMBER OF PERCENT OF
NAME AND ADDRESS(1) SHARES CLASS(4) SHARES CLASS(4)
------------------- --------------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
Pan American Financial,
L.P.(5)
1999 Avenue of the Stars,
Suite 2960
Los Angeles, California
90067.................... 8,681,250 79.3% 8,681,250
BVG West Corp.(6)......... 1,368,750 12.5% 1,368,750
1999 Avenue of the Stars,
Suite 2960
Los Angeles, California
90067
Lawrence J. Grill(7)...... 521,250 4.8% 521,250
Guillermo Bron(8)......... -- -- --
John T. French(9)......... 80,625 * 80,625
Ray C. Thousand........... -- -- --
Carol M. Bucci(10)........ 28,125 * 28,125
Stephen W. Haley(11)...... 15,000 * 15,000
Edmund M. Kaufman(12)..... 9,375 * 9,375
Daniel L. Villanueva(13).. 14,063 * 14,063
Luis Maizel(14)........... -- -- --
All directors and
executive officers as a
group (nine
persons)(15)............. 668,438 6.1% 668,438
</TABLE>
- --------
* Less than one percent.
(1) The business address of each director and executive officer of the Company
is 1300 South El Camino Real, San Mateo, California 94402.
(2) Each person has sole voting and investment power over the shares of Common
Stock shown as beneficially owned, subject to community property laws
where applicable.
(3) Assumes no exercise of the Underwriters' over-allotment option.
(4) Shares of Common Stock which the person (or group) has the right to
acquire within 60 days after November 7, 1997 are deemed to be outstanding
in calculating the percentage ownership of the person (or group), but are
not deemed to be outstanding as to any other person or group.
(5) PAFLP is a Delaware limited partnership, the sole general partner of which
is BVG West Corp. BVG West Corp. is wholly owned by Mr. Bron. Mr. Bron and
members of his family hold 59.0% of the Class A Limited Partnership Units
and 52.2% of the Class B Limited Partnership Units of PAFLP. Mr. Bron and
BVG West Corp. each disclaims beneficial ownership of the shares of Common
Stock held by PAFLP.
(6) BVG West Corp. is the sole general partner of PAFLP and is wholly owned by
Mr. Bron. Mr. Bron disclaims beneficial ownership of the shares of Common
Stock held by BVG West Corp.
(7) Excludes (i) 93,750 shares issuable upon the exercise of stock options
granted pursuant to the Stock Incentive Plan, which options are not
exercisable within 60 days after November 7, 1997, (ii) 37,500 shares held
by Mr. Grill's adult children and 1,875 shares held by Mr. Grill's father-
in-law, as to which shares he disclaims beneficial ownership, and (iii)
60,000 shares issuable upon the exercise of stock options to be granted
pursuant to the Stock Incentive Plan concurrently with the completion of
the Offering. See "Management--Stock Incentive Plan." Mr. Grill holds
10.2% of the Class B Limited Partnership Units of PAFLP. Mr. Grill
disclaims beneficial ownership of the shares of Common Stock held by
PAFLP.
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(8) Excludes (i) 1,368,750 shares held by BVG West Corp., a corporation owned
by Mr. Bron, (ii) 8,681,250 shares held by PAFLP the sole general partner
of which is BVG West Corp., and (iii) 60,000 shares issuable upon the
exercise of stock options to be granted pursuant to the Stock Incentive
Plan concurrently with the completion of the Offering. See "Management--
Stock Incentive Plan."
(9) Consists of shares issuable upon the exercise of stock options granted
pursuant to the Stock Incentive Plan. Excludes 110,625 shares issuable
upon the exercise of stock options granted pursuant to the Stock Incentive
Plan, which options are not exercisable within 60 days of November 7,
1997. See "Management--Stock Incentive Plan." Mr. French holds 12.4% of
the Class B Limited Partnership Units of PAFLP. Mr. French disclaims
beneficial ownership of the shares of Common Stock held by PAFLP.
(10) Consists of shares issuable upon the exercise of stock options granted
pursuant to the Stock Incentive Plan. Excludes 68,125 shares issuable
upon the exercise of stock options granted pursuant to the Stock
Incentive Plan, which options are not exercisable within 60 days after
November 7, 1997. See "Management--Stock Incentive Plan."
(11) Consists of shares issuable upon the exercise of stock options granted
pursuant to the Stock Incentive Plan. Excludes 45,000 shares issuable
upon the exercise of stock options granted pursuant to the Stock
Incentive Plan, which options are not exercisable within 60 days after
November 7, 1997. See "Management--Stock Incentive Plan."
(12) Consists of shares issuable upon the exercise of stock options granted
pursuant to the Stock Incentive Plan. Excludes 9,375 shares issuable upon
the exercise of stock options granted pursuant to the Stock Incentive
Plan, which options are not exercisable within 60 days after November 7,
1997. See "Management--Stock Incentive Plan." Mr. Kaufman holds 1.8% of
the Class B Limited Partnership Units of PAFLP. Mr. Kaufman disclaims
beneficial ownership of the shares of Common Stock held by PAFLP.
(13) Consists of shares issuable upon the exercise of stock options granted
pursuant to the Stock Incentive Plan. Excludes (i) 4,687 shares issuable
upon the exercise of stock options granted pursuant to the Stock
Incentive Plan, which options are not exercisable within 60 days after
November 7, 1997 and (ii) 150,000 shares and warrants to purchase an
additional 75,000 shares held by Villanueva Management Inc., an
investment company owned by Daniel D. Villanueva. See "Management--Stock
Incentive Plan." Daniel L. Villanueva holds 2.8% of the Class B Limited
Partnership Units by PAFLP. Mr. Villanueva disclaims beneficial ownership
of the shares of Common Stock held by Villanueva Management Inc. or
PAFLP.
(14) Excludes 20,000 shares issuable upon the exercise of stock options to be
granted pursuant to the Stock Incentive Plan concurrently with the
completion of the Offering. See "Management--Stock Option Plan."
(15) Includes 147,188 shares issuable upon the exercise of stock options
granted pursuant to the Stock Incentive Plan. Excludes (i) 331,562 shares
issuable upon the exercise of stock options granted pursuant to the Stock
Incentive Plan, which options are not exercisable within 60 days after
November 7, 1997 and (ii) 140,000 shares issuable upon the exercise of
stock options to be granted pursuant to the Stock Incentive Plan
concurrently with the completion of the Offering. See "Management--Stock
Incentive Plan."
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 20,000,000 shares of
Common Stock, $0.01 par value, and 2,000,000 shares of Preferred Stock, $0.01
par value. At November 7, 1997, there were 10,950,000 shares of Common Stock
outstanding, held of record by nine persons.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share in all matters to
be voted on by the stockholders. Subject to preferences that may be applicable
to any Preferred Stock outstanding at the time, holders of Common Stock are
entitled to receive ratably such dividends, if any, as may be declared from
time to time by the Board of Directors out of funds legally available
therefor. See "Dividend Policy." In the event of a liquidation, dissolution or
winding up of the Company, holders of Common Stock are entitled to share
ratably in all assets remaining after payment of the Company's liabilities and
the liquidation preference, if any, of any outstanding shares of Preferred
Stock. Holders of Common Stock have no preemptive rights and no rights to
convert their Common Stock into any other securities, and there are no
redemption provisions with respect to such shares. All of the outstanding
shares of Common Stock are fully paid and non-assessable. The rights,
preferences and privileges of holders of Common Stock are subject to, and may
be adversely affected by, the rights of the holders of shares of any series of
Preferred Stock which the Company may designate and issue in the future.
PREFERRED STOCK
The Board of Directors has the authority, without any further vote or action
by the stockholders, to issue up to 2,000,000 shares of Preferred Stock from
time to time in one or more series, to establish the number of shares to be
included in each such series, to fix the designations, preferences,
limitations and relative, participating, optional or other special rights and
qualifications or restrictions of the shares of each series, and to determine
the voting powers, if any of, such shares. The issuance of Preferred Stock
could adversely affect, among other things, the rights of existing
stockholders or could delay or prevent a change in control of the Company
without further action by the stockholders. The issuance of Preferred Stock
could decrease the amount of earnings and assets available for distribution to
holders of Common Stock. In addition, any such issuance could have the effect
of delaying, deferring or preventing a change in control of the Company and
could make the removal of the present management of the Company more
difficult. The Company has no current plans to issue any Preferred Stock.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
Certain provisions of Delaware law and the Company's Certificate of
Incorporation could make more difficult the acquisition of the Company by
means of a tender offer, a proxy contest or otherwise and the removal of
incumbent officers and directors. These provisions are expected to discourage
certain types of coercive takeover practices and inadequate takeover bids and
to encourage persons seeking to acquire control of the Company to first
negotiate with the Company. The Company believes that the benefits of
increased protection of the Company's potential ability to negotiate with the
proponent of an unfriendly or unsolicited proposal to acquire or restructure
the Company outweigh the disadvantages of discouraging such proposals because,
among other things, negotiation of such proposals could result in an
improvement of their terms.
The Company will be subject to the provisions of Section 203 of the DGCL. In
general, this section prohibits a publicly-held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date that the person became an interested
stockholder unless (with certain exceptions) the business combination or the
transaction in which the person became an interested stockholder is approved
in a prescribed manner. Generally, a "business combination" includes a merger,
asset or stock sale, or other transaction resulting in a financial benefit to
the stockholder. Generally, an "interested stockholder" is a person who,
together with affiliates and associates, owns (or within three years prior,
did own) 15% or more of the corporation's voting stock. This provision may
have the effect of delaying, deferring or preventing a change in control of
the Company without further action by the stockholders.
96
<PAGE>
The Company's Certificate of Incorporation provides that stockholder action
can be taken only at an annual or special meeting of stockholders and may not
be taken by written consent. The Certificate of Incorporation provides that
special meetings of stockholders can be called only by the Company's Board of
Directors, Chairman of the Board, President or Chief Executive Officer, or at
the written request of holders of not less than 25% of the voting shares. The
Bylaws set forth an advance notice procedure with regard to the nomination,
other than by or at the direction of the Board of Directors, of candidates for
election as directors and with regard to business to be brought before an
annual meeting of stockholders of the Company. The Company's Certificate of
Incorporation and Bylaws provide that the Board of Directors is authorized to
amend the Bylaws only by the affirmative vote of 60% or more of the entire
Board of Directors, and the Company's stockholders may amend the Bylaws only
upon the affirmative vote of the holders of 75% or more of the voting shares.
In addition, the Company's Certificate of Incorporation provides that certain
articles of the Certificate of Incorporation may be amended only upon the
affirmative vote of the holders of 75% or more of the voting shares, including
articles containing provisions dealing with, among other things: (i) the
aforementioned voting requirements for amending the Bylaws; (ii) the
directors' indemnification contained in the Certificate of Incorporation; and
(iii) denial of cumulative voting and stockholder action by written consent
and the procedures for calling special meetings.
TRANSFER AGENT AND REGISTRAR
The Company has appointed U.S. Stock Transfer Corporation, Glendale,
California as the transfer agent and registrar for the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no market for the Common Stock. Future
sales of substantial amounts of the Common Stock in the public market could
adversely affect prevailing market prices.
Upon completion of the Offering, there will be shares of Common Stock
outstanding. Of these shares, the shares sold in the Offering will be
freely tradable without restriction or further registration under the
Securities Act, except for any such shares held by an "affiliate" of the
Company. The remaining 10,950,000 shares (the "Restricted Shares"), and any
shares purchased in the Offering by an "affiliate" of the Company, may not be
sold without registration under the Securities Act or pursuant to an
applicable exemption therefrom.
In general, under Rule 144 promulgated under the Securities Act, as
currently in effect, a person (or persons whose shares are aggregated) who has
beneficially owned Restricted Shares for at least one year (including the
holding period of any prior owner other than an "affiliate" of the Company),
or who is an "affiliate" of the Company, is entitled to sell within any three-
month period a number of such Restricted Shares or, in the case of an
"affiliate," a number of such Restricted Shares and shares purchased in the
public market, that does not exceed the greater of (i) 1% of the then
outstanding shares of the Common Stock (approximately shares immediately
after the Offering) or (ii) the average weekly trading volume of the Common
Stock in the public market during the four calendar weeks immediately
preceding such sale. Sales under Rule 144 are also subject to certain
requirements as to the manner of sale, notice and availability of current
public information regarding the Company. A person who has not been an
"affiliate" of the Company at any time during the 90 days preceding a sale,
and who has beneficially owned Restricted Shares for at least two years, is
entitled to sell such shares under Rule 144 without regard to the volume
limitations, manner of sale provisions or notice requirements. As of November
7, 1997, 10,668,750 of the Restricted Shares may be deemed to have been held
for more than one year.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 under the Securities Act ("Rule
701") may be relied upon with respect to the resale of securities originally
purchased from the Company by its employees, directors, officers, consultants
or advisers prior to the closing of the Offering, pursuant to written
compensatory benefit plans or written contracts relating to the compensation
of such persons. In addition, the Commission has indicated that Rule 701 will
apply to stock options granted by the
97
<PAGE>
Company under its employee benefit plans before the Offering, along with the
shares of Common Stock acquired upon exercise of such options. Securities
issued in reliance on Rule 701 are deemed to be restricted securities and,
beginning 90 days after the date of this Prospectus (unless subject to the
lock-up agreements described below), may be sold by persons other than
affiliates of the Company subject only to the manner-of-sale provisions of
Rule 144 and by affiliates of the Company under Rule 144 without compliance
with its minimum holding period requirement.
All of the Company's officers and directors and certain of its other
stockholders have agreed that they will not, without the prior written consent
of NationsBanc Montgomery Securities, Inc. (which consent may be withheld in
its sole discretion) and subject to certain limited exceptions, directly or
indirectly, sell, offer, contract or grant any option to sell, make any short
sale, pledge, transfer, establish an open "put equivalent position" within the
meaning of Rule 16a-1(h) under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), or otherwise dispose of any shares of Common Stock,
options or warrants to acquire Common Stock, or securities exchangeable or
exercisable for or convertible into Common Stock currently owned either of
record or beneficially by them or announce the intention to do any of the
foregoing, for a period commencing on the date of this Prospectus and
continuing to a date 180 days after such date. NationsBanc Montgomery
Securities, Inc. may, in its sole discretion and at any time without notice,
release all or any portion of the securities subject to these lock-up
agreements. In addition, the Company has agreed that, for a period of 180 days
after the date of this Prospectus, it will not, without the consent of
NationsBanc Montgomery Securities, Inc., issue, offer, sell or grant options
to purchase or otherwise dispose of any equity securities or securities
convertible into or exchangeable for equity securities except for (i) the
issuance of shares of Common Stock offered hereby and (ii) the grant of
options to purchase shares of Common Stock pursuant to the Stock Incentive
Plan and shares of Common Stock issued pursuant to the exercise of such
options, provided that such options shall not vest, or the Company shall
obtain the written consent of the grantee not to transfer such shares, until
the end of such 180-day period. See "Underwriting."
The Company has granted options to purchase up to 1,580,000 shares of Common
Stock pursuant to the Stock Incentive Plan. Concurrently with the sale of the
shares offered hereby, the Company will grant options to purchase an
additional 140,000 shares of Common Stock pursuant to the Stock Incentive
Plan. An additional 567,500 shares currently are reserved for issuance under
the Stock Incentive Plan. The Company intends to register the sale of such
shares under the Securities Act. See "Management--Stock Incentive Plan."
Accordingly, as awards under the Stock Incentive Plan vest, shares issued
pursuant thereto will be freely tradable, except such shares as may be
acquired by an "affiliate" of the Company.
98
<PAGE>
UNDERWRITING
The Underwriters named below represented by NationsBanc Montgomery
Securities, Inc. and Piper Jaffray Inc. (the "Representatives") have severally
agreed, subject to the terms and conditions set forth in the Underwriting
Agreement, to purchase from the Company the number of shares of Common Stock
indicated below opposite their respective names at the initial public offering
price less the underwriting discount set forth on the cover page of this
Prospectus:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
NationsBanc Montgomery Securities, Inc.........................
Piper Jaffray Inc..............................................
----
Total........................................................
====
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters are
committed to purchase all of such shares if any are purchased.
The Representatives have advised the Company that the Underwriters propose
initially to offer the shares of Common Stock to the public on the terms set
forth on the cover page of this Prospectus. The Underwriters may allow to
selected dealers a concession of not more that $ per share, and the
Underwriters may allow, and such dealers may reallow, a concession of not more
than $ per share to certain other dealers. After the Offering, the offering
price and other selling terms may be changed by the Representatives. The
shares of Common Stock are offered subject to receipt and acceptance by the
Underwriters and to certain other conditions, including the right to reject
orders in whole or in part.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a
maximum of additional shares of Common Stock to cover over-allotments, if
any, at the offering price less the underwriting discount set forth on the
cover page of this Prospectus. To the extent the Underwriters exercise this
option, each of the Underwriters will be committed, subject to certain
conditions, to purchase such additional shares in approximately the same
proportion as set forth in the above table. The Underwriters may purchase such
shares only to cover over-allotments made in connection with the Offering.
The Underwriting Agreement provides that the Company and certain of its
stockholders will indemnify the Underwriters against certain liabilities,
including liabilities under the Securities Act, or will contribute to payments
that the Underwriters may be required to make in respect thereof.
All of the Company's officers and directors and certain of its other
stockholders have agreed that they will not, without the prior written consent
of NationsBanc Montgomery Securities, Inc. (which consent may be withheld in
its sole discretion) and subject to certain limited exceptions, directly or
indirectly, sell, offer, contract or grant any option to sell, make any short
sale, pledge, transfer, establish an open "put equivalent position" within the
meaning of Rule 16a-1(h) under the Exchange Act, or otherwise dispose of any
shares of Common Stock, options or warrants to acquire Common Stock, or
securities exchangeable or exercisable for or convertible into Common Stock
currently owned either of record or beneficially by them or announce the
intention to do any of the foregoing, for a period commencing on the date of
this Prospectus and continuing to a date 180 days after such date. NationsBanc
Montgomery Securities, Inc. may, in its sole discretion and at any time
without notice, release all or any portion of the securities subject to these
lock-up agreements. In addition, the Company has agreed that, for a period of
180 days after the date of this Prospectus, it will not, without the consent
of
99
<PAGE>
NationsBanc Montgomery Securities, Inc., issue, offer, sell or grant options
to purchase or otherwise dispose of any equity securities or securities
convertible into or exchangeable for equity securities except for (i) the
issuance of shares of Common Stock offered hereby and (ii) the grant of
options to purchase shares of Common Stock pursuant to the Stock Incentive
Plan and shares of Common Stock issued pursuant to the exercise of such
options, provided that such options shall not vest, or the Company shall
obtain the written consent of the grantee not to transfer such shares, until
the end of such 180-day period. See "Management--Stock Incentive Plan" and
"Description of Capital Stock--Shares Eligible for Future Sale."
Prior to the Offering, there has been no public market for the Common Stock.
Consequently, the initial public offering price will be determined by
negotiations among the Company and the Representatives. Among the factors to
be considered in such negotiations are the history of, and prospects for, the
Company and the industry in which it competes, an assessment of the Company's
management, its past and present operations and financial performance, the
prospects for further earnings of the Company, the present state of the
Company's development, the general condition of the securities markets at the
time of the Offering, the market prices of and demand for the publicly traded
common stock of comparable companies in recent periods and other factors
deemed relevant.
The Representatives have advised the Company that, pursuant to Regulation M
under the Securities Act, certain persons participating in the Offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, which may have the effect of
stabilizing or maintaining the market price of the Common Stock at a level
above that which might otherwise prevail in the open market. A "stabilizing
bid" is a bid for or the purchase of the Common Stock on behalf of the
Underwriters for the purpose of fixing or maintaining the price of the Common
Stock. A "syndicate covering transaction" is the bid for or the purchase of
the Common Stock on behalf of the Underwriters to reduce a short position
incurred by the Underwriters in connection with the Offering. A "penalty bid"
is an arrangement permitting the Representatives to reclaim the selling
concession otherwise accruing to an Underwriter or syndicate member in
connection with the Offering if the Common Stock originally sold by such
Underwriter or syndicate member is purchased by a Representative in a
syndicate covering transaction and has, therefore, not been effectively placed
by such Underwriter or syndicate member. The Representatives have advised the
Company that such transactions may be effected on Nasdaq or otherwise and, if
commenced, may be discontinued at any time.
The Representatives have informed the Company that the Underwriters do not
expect to make sales to accounts over which they exercise discretionary
authority in excess of 5% of the number of shares of Common Stock offered
hereby.
LEGAL MATTERS
Certain matters relating to the offering are being passed upon for the
Company by Manatt, Phelps & Phillips, LLP, Los Angeles, California. Certain
legal matters will be passed upon for the Underwriters by Gibson, Dunn &
Crutcher LLP, San Francisco, California.
EXPERTS
The consolidated financial statements of the Company as of December 31, 1995
and December 31, 1996, for the years then ended and for the period from April
29, 1994 (inception) to December 31, 1994 have been included herein and in the
Registration Statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
100
<PAGE>
ADDITIONAL INFORMATION
The Company has filed a Registration Statement under the Securities Act with
the Commission with respect to the Common Stock offered hereby. This
Prospectus, which constitutes part of the Registration Statement, omits
certain of the information contained in the Registration Statement and the
exhibits thereto on file with the Commission pursuant to the Securities Act
and the rules and regulations of the Commission. Statements contained in this
Prospectus, such as the contents of any contract or other document referred
to, are not necessarily complete and in each instance reference is made to the
copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. Upon completion of the Offering, the Company will be subject
to the information reporting requirements of the Exchange Act and, in
accordance therewith, will file reports and other information with the
Commission. A copy of the Registration Statement, including the exhibits
thereto, may be inspected without charge at the Commission's principal office
at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and at the
Commission's regional offices at Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade Center, New
York, New York 10048. Copies of such materials may be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 upon the payment of certain fees prescribed by the Commission. The
Commission also maintains a World Wide Web site that contains reports, proxy
and information statements and other information regarding registrants, such
as the Company, that file electronically with the Commission. The address of
the site is http://www.sec.gov.
101
<PAGE>
UNITED PANAM FINANCIAL CORP.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report.............................................. F-2
Consolidated Statements of Financial Condition
as of September 30, 1997 (unaudited) and
December 31, 1996 and 1995............................................... F-3
Consolidated Statements of Operations for the
nine months ended September 30, 1997 and 1996
(unaudited) and for the years ended December 31,
1996 and 1995 and for the period from April 29,
1994 (Inception) through December 31, 1994............................... F-4
Consolidated Statements of Stockholders' Equity for
the nine months ended September 30, 1997
(unaudited) and for the years ended December 31,
1996 and 1995 and for the period from April 29, 1994
(Inception) through December 31, 1994.................................... F-5
Consolidated Statements of Cash Flows
for the nine months ended September 30, 1997
and 1996 (unaudited) and for the years ended
December 31, 1996 and 1995 and for the period from
April 29, 1994 (Inception) through December 31, 1994..................... F-6
Consolidated Statements of Cash Flows, Continued
for the nine months ended September 30, 1997
and 1996 (unaudited) and for the years ended
December 31, 1996 and 1995 and for the period from
April 29, 1994 (Inception) through December 31, 1994..................... F-7
Notes to Consolidated Financial Statements................................ F-8
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
United PanAm Financial Corp.:
We have audited the accompanying consolidated statements of financial
condition of United PanAm Financial Corp. and subsidiaries (the Company) as of
December 31, 1996 and 1995, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the years ended December
31, 1996 and 1995 and the period from April 29, 1994 (inception), through
December 31, 1994. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of United
PanAm Financial Corp. and subsidiaries as of December 31, 1996 and 1995, and
the results of their operations and their cash flows for the years ended
December 31, 1996 and 1995, and for the period from April 29, 1994
(inception), through December 31, 1994 in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
San Francisco, California
August 22, 1997
F-2
<PAGE>
UNITED PANAM FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(INFORMATION AS OF SEPTEMBER 30, 1997 IS UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -----------------
1997 1996 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) ------------- -------- --------
(UNAUDITED)
ASSETS
<S> <C> <C> <C>
Cash and due from banks........................ $ 23,791 $ 5,063 $ 1,580
Short term investments......................... 22,000 21,000 21,993
-------- -------- --------
Cash and cash equivalents...................... 45,791 26,063 23,573
Securities available for sale, at fair value... 2,002 -- --
Loans, net..................................... 152,500 134,821 131,794
Loans, held for sale........................... 70,241 20,766 --
Federal Home Loan Bank stock, at cost.......... 1,769 1,288 766
Accrued interest receivable.................... 927 845 1,169
Real estate owned, net......................... 637 988 298
Premises and equipment, net.................... 2,282 822 208
Deferred tax assets............................ 2,105 247 --
Intangible assets.............................. 489 584 716
Other assets................................... 4,519 1,174 1,057
-------- -------- --------
Total assets................................. $283,262 $187,598 $159,581
======== ======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C>
Deposits....................................... $210,783 $159,061 $141,924
Notes Payable.................................. 12,870 10,930 10,930
Federal Home Loan Bank advances................ 35,000 4,000 --
Deferred tax liabilities....................... -- -- 173
Accrued expenses and other liabilities......... 14,254 6,846 743
-------- -------- --------
Total liabilities............................ 272,907 180,837 153,770
-------- -------- --------
Commitments and contingencies.................. -- -- --
Common stock (par value $0.01 per share):
Authorized, 20,000,000 shares.................
Issued and outstanding, 10,668,750 shares at
September 30, 1997, December 31, 1996 and
1995......................................... 107 107 107
Additional paid-in capital..................... 5,130 5,130 5,130
Retained earnings.............................. 5,118 1,524 574
-------- -------- --------
Total stockholders' equity................... 10,355 6,761 5,811
-------- -------- --------
Total liabilities and stockholders' equity... $283,262 $187,598 $159,581
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
UNITED PANAM FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(INFORMATION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS YEARS APRIL 29, 1994
ENDED ENDED (INCEPTION)
SEPTEMBER 30, DECEMBER 31, THROUGH
--------------- -------------- DECEMBER 31,
(DOLLARS IN THOUSANDS. EXCEPT 1997 1996 1996 1995 1994
PER SHARE DATA) ------- ------- ------- ------ --------------
(UNAUDITED)
INTEREST INCOME:
<S> <C> <C> <C> <C> <C>
Loans....................... $17,329 $11,008 $15,159 $9,207 $1,868
Accretion of discount on
loans purchased............ 538 576 696 873 127
RTC interest................ -- -- -- 248 1,134
Short term investments and
securities available
for sale................... 447 532 706 3,205 3,753
------- ------- ------- ------ ------
Total interest income....... 18,314 12,116 16,561 13,533 6,882
------- ------- ------- ------ ------
INTEREST EXPENSE:
Deposits.................... 6,710 5,330 7,225 7,240 3,385
Federal Home Loan Bank
advances................... 1,001 34 72 -- --
Notes payable............... 482 388 556 487 188
------- ------- ------- ------ ------
Total interest expense...... 8,193 5,752 7,853 7,727 3,573
------- ------- ------- ------ ------
Net interest income....... 10,121 6,364 8,708 5,806 3,309
Provision for loan losses... 445 98 194 120 50
------- ------- ------- ------ ------
Net interest income after
provision for loan
losses................... 9,676 6,266 8,514 5,686 3,259
------- ------- ------- ------ ------
NON-INTEREST INCOME:
Gain on sale of loans, net.. 15,260 854 2,333 90 3
Loan related charges and
fees....................... 360 201 116 48 11
Service charges and fees.... 123 93 272 121 51
Other income................ 40 20 55 59 33
------- ------- ------- ------ ------
Total non-interest income... 15,783 1,168 2,776 318 98
------- ------- ------- ------ ------
NON-INTEREST EXPENSE:
Compensation and benefits... 12,195 3,365 5,248 2,750 1,564
Occupancy expense........... 1,847 529 809 407 371
SAIF special assessment..... -- -- 820 -- --
Marketing................... 932 100 171 78 103
Telephone................... 599 107 185 71 --
Professional fees........... 554 246 339 224 190
Travel and entertainment.... 535 89 170 88 --
Stationary and supplies..... 448 123 217 115 78
Postage and delivery........ 348 90 167 51 --
Data processing............. 354 281 364 284 214
Deposit insurance premiums.. 278 275 371 395 218
Loan servicing expense...... 212 122 168 84 --
Insurance premiums.......... 160 72 93 102 100
Amortization of intangible
assets..................... 95 98 132 169 --
Other expenses.............. 728 309 395 344 305
------- ------- ------- ------ ------
Total non-interest
expenses................... 19,285 5,806 9,649 5,162 3,143
------- ------- ------- ------ ------
Income before income
taxes...................... 6,174 1,628 1,641 842 214
Income taxes................ 2,580 698 691 384 98
------- ------- ------- ------ ------
Net income.................. $ 3,594 $ 930 $ 950 $ 458 $ 116
======= ======= ======= ====== ======
Earnings per share (pro
forma) (unaudited)......... $ .32 $ .09
======= =======
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE>
UNITED PANAM FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(INFORMATION AS OF SEPTEMBER 30, 1997 AND THE NINE
MONTHS ENDED SEPTEMBER 30, 1997 IS UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
NUMBER COMMON PAID-IN RETAINED STOCKHOLDERS'
OF SHARES STOCK CAPITAL EARNINGS EQUITY
(DOLLARS IN THOUSANDS) ---------- ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance, April 29, 1994,
Inception................ -- $ -- $ -- $ -- $ --
Issuance of common stock.. 10,668,750 107 5,130 -- 5,237
Net income................ -- -- -- 116 116
---------- ---- ------ ------ -------
Balance, December 31,
1994..................... 10,668,750 107 5,130 116 5,353
Net income................ -- -- -- 458 458
---------- ---- ------ ------ -------
Balance, December 31,
1995..................... 10,668,750 107 5,130 574 5,811
Net income................ -- -- -- 950 950
---------- ---- ------ ------ -------
Balance, December 31,
1996..................... 10,668,750 107 5,130 1,524 6,761
Net income (unaudited).... -- -- -- 3,594 3,594
---------- ---- ------ ------ -------
Balance, September 30,
1997 (unaudited)......... 10,668,750 $107 $5,130 $5,118 $10,355
========== ==== ====== ====== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
UNITED PANAM FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(INFORMATION AS OF SEPTEMBER 30, 1997 AND THE NINE MONTHS
ENDED SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS YEARS APRIL 29, 1994
ENDED ENDED (INCEPTION)
SEPTEMBER 30, DECEMBER 31, THROUGH
-------------------- -------------------- DECEMBER 31,
(DOLLARS IN THOUSANDS, 1997 1996 1996 1995 1994
EXCEPT PER SHARE DATA) --------- --------- --------- --------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income.............. $ 3,594 $ 930 $ 950 $ 458 $ 116
Adjustments to reconcile
net income to net cash
(used in) provided by
operating activities:
Gain on sale of loans.. (15,261) (854) (2,333) (90) (3)
Origination of mortgage
loans held for sale... (339,014) (37,603) (71,796) -- --
Sales of mortgage loans
held for sale......... 298,454 22,159 52,224 -- --
Provision for loan
losses................ 445 98 194 120 50
Accretion of discount
on loans.............. (538) (576) (696) (873) (127)
Depreciation and
amortization.......... 504 184 270 142 5
FHLB stock dividend.... (74) (51) (74) (37) (19)
Deferred loan fees,
net................... 801 419 (52) -- --
Decrease (increase) in
accrued interest
receivable............ (82) 177 324 669 (1,838)
Decrease (increase) in
other assets.......... (3,345) 207 (117) 3,181 (5,046)
Deferred income taxes.. (1,858) (164) (420) 93 80
Increase in accrued
expenses and other
liabilities........... 7,408 3,537 6,127 114 690
--------- --------- --------- --------- ---------
Net cash (used in)
provided by operating
activities............ (48,966) (11,537) (15,399) 3,777 (6,092)
--------- --------- --------- --------- ---------
Cash flows from
investing activities:
Proceeds from
maturities of
investment
securities............ -- -- -- -- 9,857
Originations, net of
repayments, of
mortgage loans........ 16,859 15,434 19,538 10,728 4,651
Purchase of mortgage
loans................. -- -- -- (75,878) (57,176)
Sales of mortgage
loans................. -- -- -- 3,470 --
Originations, net of
repayments, of non-
mortgage loans........ (30,346) (18,715) (22,485) (16,771) (235)
Purchase of securities
available for sale.... (2,002) (3,999) -- -- (9,857)
Purchase of premises
and equipment......... (1,869) (557) (776) (212) (51)
Purchase of FHLB
stock................. (407) (451) (448) -- (729)
Proceeds from sale of
real estate owned..... 1,797 528 923 -- --
--------- --------- --------- --------- ---------
Net cash used in
investing activities.. (15,968) (7,760) (3,248) (78,663) (53,540)
--------- --------- --------- --------- ---------
Cash flows from
financing activities:
Purchase of deposits... -- -- -- -- 179,904
Sale of deposits....... -- -- -- -- (16,031)
Net increase (decrease)
in deposits........... 51,722 6,055 17,137 (21,190) (759)
Proceeds from ICA
note.................. -- -- -- -- 10,930
Issuance of common
stock and additional
capital
contribution.......... -- -- -- -- 5,237
Proceeds from notes
payable from
shareholders.......... 1,940 -- -- -- --
Proceeds, net of
repayments, from FHLB
advances.............. 31,000 4,000 4,000 -- --
--------- --------- --------- --------- ---------
Net cash provided by
(used in) financing
activities............ 84,662 10,055 21,137 (21,190) 179,281
--------- --------- --------- --------- ---------
Net increase (decrease)
in cash and cash
equivalents............ 19,728 (9,242) 2,490 (96,076) 119,649
Cash and cash
equivalents at
beginning of period.... 26,063 23,573 23,573 119,649 --
--------- --------- --------- --------- ---------
Cash and cash
equivalents at end of
period................. $ 45,791 $ 14,331 $ 26,063 $ 23,573 $ 119,649
========= ========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
UNITED PANAM FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(INFORMATION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED)
<TABLE>
<CAPTION>
APRIL 29, 1994
NINE MONTHS ENDED YEARS ENDED (INCEPTION)
SEPTEMBER 30, DECEMBER 31, THROUGH
(Dollars in thousands) ----------------- ------------- DECEMBER 31
1997 1996 1996 1995 1994
-------- -------- ------ ------ --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Supplemental disclosures of cash
flow information:
Cash paid for:
Interest...................... $ 8,055 $ 5,763 $7,856 $7,720 $3,569
======== ======== ====== ====== ======
Taxes......................... $ 1,500 $ 745 $1,512 $ 763 $ 10
======== ======== ====== ====== ======
Supplemental schedule of non-
cash investing and financing
activities:
Acquisition of real estate
owned through
foreclosure of related
mortgage loans............... $ 1,446 $ 944 $1,613 $ 298 $ --
======== ======== ====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
UNITED PANAM FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
AND THE YEARS ENDED DECEMBER 31, 1996, 1995 AND FOR THE PERIOD FROM
APRIL 29, 1994 (INCEPTION) THROUGH DECEMBER 31, 1994
1. BUSINESS
ORGANIZATION
United PanAm Financial Corp. (the "Company"), was organized as a holding
company for Pan American Financial, Inc. ("PAFI") and Pan American Bank, FSB
(the "Bank") to purchase certain assets and assume certain liabilities (the
"Purchase Agreement") of Pan American Federal Savings Bank from the Resolution
Trust Corporation (the "RTC") on April 29, 1994. The Company, PAFI and the
Bank are considered by the RTC to be minority owned. The Company is owned
substantially by Pan American Financial, LP. PAFI is a wholly-owned subsidiary
of the Company and the Bank is a wholly-owned subsidiary of PAFI.
These financial statements have been prepared in conformity with generally
accepted accounting principles. In preparing these financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the financial
statements and the reported amount of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
In 1997, the Company changed its fiscal year end from June 30 to December
31.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of United PanAm
Financial Corp., Pan American Financial, Inc., United PanAm Mortgage
Corporation and Pan American Bank, FSB. Substantially all of the Company's
revenues are derived from the operations of the Bank and United PanAm Mortgage
Corporation and they represent substantially all of the Company's consolidated
assets and liabilities as of September 30, 1997 and December 31, 1996 and
1995. Significant inter-company accounts and transactions have been eliminated
in consolidation.
CASH AND CASH EQUIVALENTS
For financial statement purposes, cash and cash equivalents include cash on
hand, non-interest-bearing deposits, certificates of deposit, Federal funds
sold, commercial paper and highly liquid interest-bearing deposits with
maturities of three months or less.
In accordance with regulations, the Bank must maintain an amount equal to 5%
of the sum of total deposits and short-term borrowings in cash and U.S.
Government and other approved securities that are readily convertible to cash.
The Bank exceeded these requirements at September 30, 1997 and December 31,
1996 and 1995.
SECURITIES
Securities are classified in one of three categories: held to maturity,
trading, or available for sale. Investments classified as held to maturity are
carried at amortized cost because management has both the intent and ability
to hold these investments to maturity. Investments classified as trading are
carried at fair value with any gains and losses reflected in earnings. All
other investments are classified as available for sale and are carried at fair
value with any unrealized gains and losses included as a separate component of
stockholders' equity, net of applicable taxes.
F-8
<PAGE>
UNITED PANAM FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
LOANS
The Company originates and purchases loans for investment as well as for
sale in the secondary market. At the date of acquisition, mortgage loans are
designated as either held for sale or held for investment, and accounted for
accordingly. Loans held for sale are reported at the lower of cost or market
value applied on an aggregate basis. Market values of loans held for sale are
based upon prices available in the secondary market for similar loans. Loans
which are held for investment are reported at cost, net of unamortized
discounts or premiums, unearned loan origination fees and allowances for
losses. Transfers of loans from the held for sale portfolio to the held for
investment portfolio are recorded at the lower of cost or market value on the
transfer date.
INTEREST INCOME
Interest income is accrued as it is earned. Loan origination fees and
certain direct loan origination costs are deferred and recognized in interest
income over the contractual lives of the related loans using the interest
method. When a loan is paid-off or sold, the unamortized balance of these
deferred fees and costs is recognized in income. The Company ceases to accrue
interest on loans that are delinquent 90 days or more, or earlier, if the
ultimate collectibility of the interest is in doubt. Interest income deemed
uncollectible is reversed. The Company ceases to amortize deferred fees on
non-performing loans. Income is subsequently recognized only to the extent
cash payments are received, until in management's judgment, the borrower's
ability to make periodic interest and principal payments is in accordance with
the loan terms, at which time the loan is returned to accrual status.
GAIN ON SALE OF LOANS
Gains or losses resulting from sales of mortgage loans are recognized at the
date of settlement and are based on the difference between the selling price
and the carrying value of the related loans sold. Non-refundable fees and
direct costs associated with the origination of mortgage loans are deferred
and recognized when the loans are sold. Loan sales have been completed on a
whole loan, nonrecourse basis with servicing rights released to the
purchasers.
ALLOWANCE FOR LOAN LOSSES
The Company charges current earnings with a provision for estimated losses
on loans. The provision consists of losses identified specifically with
certain problem loans and a general provision for losses not specifically
identified in the loan portfolio. Management's analysis takes into
consideration numerous factors, including an assessment of the credit risk
inherent in the portfolio, prior loss experience, the levels and trends of
non-performing loans, the concentration of credit, current and prospective
economic conditions and other factors. In addition, the allowance for loan
losses includes a portion of acquisition discounts from the Company's purchase
of automobile installment contracts. Additionally, regulatory authorities, as
an integral part of their examination process, review the Company's allowance
for estimated losses based on their judgment of information available to them
at the time of their examination and may require the recognition of additions
to the allowance.
PREMISES AND EQUIPMENT
Premises and equipment are carried at cost, less accumulated depreciation
and amortization. Depreciation and amortization are computed on the straight-
line method over the shorter of the estimated useful lives of the related
assets or terms of the leases. Furniture, equipment, computer hardware,
software and data processing equipment are currently depreciated over 3-5
years.
F-9
<PAGE>
UNITED PANAM FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
PURCHASE ACCOUNTING
The Company applied business combinations purchase accounting principles to
its acquisition of assets and liabilities from the RTC. The purchase price was
allocated primarily to the assets acquired by the Company. The fair value was
determined based on management's best estimates in conformity with Accounting
Principles Board Opinion ("APB") No. 16 "Business Combinations."
Loan discount resulting from the valuation of the Company's loan portfolio
under purchase accounting requirements at the acquisition date is netted
against loans. The discount is being amortized over the contractual terms of
the related loans using the interest method.
INTANGIBLE ASSETS
Intangible assets consist of the difference between the estimated fair
values of the liabilities assumed over the amount paid to the RTC to acquire
the Company's Panorama City branch.
At September 30, 1997, December 31, 1996 and 1995, intangible assets
totaling $489,000, $584,000 and $716,000, respectively, are being amortized
over seven years, the estimated life of the acquired assets, using the
straight-line method.
REAL ESTATE OWNED
Real estate owned consists of properties acquired through foreclosure and is
recorded at the lower of cost or fair value at the time of foreclosure.
Subsequently, allowances for estimated losses are established when the
recorded value exceeds fair value less estimated costs to sell. As of
September 30, 1997, December 31, 1996 and 1995, there were no such allowances.
Real estate owned at September 30, 1997 and December 31, 1996 and 1995
consisted of one to four unit residential real estate.
INCOME TAXES
The Company uses the asset/liability method of accounting for income taxes.
Under the asset/liability method, deferred tax assets and liabilities are
recognized for the future consequences of differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases (temporary differences). Deferred tax assets and
liabilities are measured using tax rates expected to apply to taxable income
in the years in which those temporary differences are recovered or settled.
The effect of deferred tax assets and liabilities from a change in tax rate is
recognized in income in the period of enactment. For income tax return
purposes, the Company files as part of a consolidated group. Income taxes are
allocated to the group members in accordance with an income tax allocation
agreement adopted by each party in the group.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities" ("SFAS 125"). SFAS 125 provides accounting and
reporting standards for transfers and servicing of financial assets, and
distinguishes transfers of financial assets that are sales from transfers that
are secured borrowings. In December 1996, SFAS No. 127, "Deferral of the
Effective Date of Certain Provisions of FASB Statement No. 125" ("SFAS 127")
was issued as an amendment to SFAS No. 125. Implementation of SFAS 125 and
SFAS 127 has not had a material effect on the Company's financial condition or
results of operations.
F-10
<PAGE>
UNITED PANAM FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. SECURITIES AVAILABLE FOR SALE
Securities available for sale are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
------------------ -------------------------------------
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE COST VALUE
(DOLLARS IN THOUSANDS) ----------- ------ ---------- ----------------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
U. S. Agency
securities.............. $2,002 $2,002 $ -- $ -- $ -- $ --
</TABLE>
The weighted average yield on U. S. agency securities was 6.15% at September
30, 1997. At September 30, 1997 there were no gross unrealized gains or
losses.
The following is a summary of the contractual terms to maturity of
securities at their fair value as of September 30, 1997 (unaudited):
<TABLE>
<CAPTION>
CONTRACTUAL MATURITY
---------------------------------------
AFTER ONE AFTER THREE
WITHIN THROUGH THROUGH
ONE YEAR THREE YEARS FOUR YEARS TOTAL
(DOLLARS IN THOUSANDS) -------- ----------- ----------- ------
<S> <C> <C> <C> <C>
U. S. Agency securities................ $-- $2,002 $-- $2,002
</TABLE>
4. LOANS
Loans are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ------------------
1997 1996 1995
(DOLLARS IN THOUSANDS) ------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Mortgage loans:
Fixed rate.................................. $ 16,996 $ 19,505 $ 26,787
Adjustable rate............................. 74,001 84,522 97,696
-------- -------- --------
90,997 104,027 124,483
-------- -------- --------
Consumer loans:
Insurance premium financing................. 47,287 32,058 16,975
Automobile installment contracts............ 32,037 10,830 --
Other....................................... 327 230 31
-------- -------- --------
79,651 43,118 17,006
-------- -------- --------
Total loans................................ 170,648 147,145 141,489
Less:
Unearned discounts and premiums............. (3,135) (3,697) (4,445)
Unearned finance charges.................... (8,810) (3,271) --
Allowance for loan losses................... (6,203) (5,356) (5,250)
-------- -------- --------
Total loans, net........................... $152,500 $134,821 $131,794
======== ======== ========
Contractual weighted average interest rate... 12.51% 10.20% 9.19%
-------- -------- --------
</TABLE>
At September 30, 1997 and December 31, 1996, approximately 99% of the
Company's mortgage loans were collateralized by first deeds of trust on one-
to-four family residences. At September 30, 1997 and December 31, 1996,
approximately 82% and 81%, respectively, of the Company's loan portfolio
related to collateral or borrowers located in California. Adjustable rate
loans comprise approximately 83% and 81% of total real estate loans at
September 30, 1997 and December 31, 1996, respectively.
F-11
<PAGE>
UNITED PANAM FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The activity in the allowance for loan losses consists of the following:
<TABLE>
<CAPTION>
YEARS APRIL 29, 1994
NINE MONTHS ENDED ENDED (INCEPTION)
SEPTEMBER 30, DECEMBER 31, THROUGH
------------------ -------------- DECEMBER 31,
1997 1996 1996 1995 1994
(DOLLARS IN THOUSANDS) -------- -------- ------ ------ --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Balance at beginning of
period..................... $ 5,356 $ 5,250 $5,250 $ 378 $ --
Provision for loan losses.. 445 98 194 120 50
Purchase discounts
allocated to the allowance
for loan losses, net...... 1,314 192 356 4,860 328
Charge-offs................ (1,691) (427) (718) (108) --
Recoveries................. 779 200 274 -- --
-------- -------- ------ ------ ----
Net charge-offs........... (912) (227) (444) (108) --
-------- -------- ------ ------ ----
Balance at end of period... $ 6,203 $ 5,313 $5,356 $5,250 $378
======== ======== ====== ====== ====
</TABLE>
The discounts allocated to the allowance for loan losses in 1997 and 1996
are comprised primarily of acquisition discounts on the Company's purchase of
automobile installment contracts. The discounts allocated to the allowance for
loan losses in 1995 and 1994 primarily relate to the purchase of loan
portfolios from the RTC. The Company allocated the estimated amount of
discounts attributable to credit risk to the allowance for loan losses.
The following table sets forth information with respect to the Company's
non-performing assets:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, --------------
1997 1996 1995
(DOLLARS IN THOUSANDS) ------------- ------ ------
(UNAUDITED)
<S> <C> <C> <C>
Nonaccrual loans................................ $4,668 $5,835 $5,240
Real estate owned, net.......................... 637 988 298
------ ------ ------
Totals........................................ $5,305 $6,823 $5,538
====== ====== ======
Percentage of non-performing assets to total
assets.......................................... 1.87% 3.64% 3.47%
====== ====== ======
</TABLE>
At September 30, 1997, the aggregate investment in loans considered to be
impaired was $5,336,000 of which $4,613,000 were on a nonaccrual basis. At
December 31, 1996 the aggregate investment in loans considered to be impaired
was $7,298,000 of which $6,196,000 were on a nonaccrual basis. At December 31,
1995, the Company had $6,745,000 in impaired loans of which $6,149,000 were on
a nonaccrual basis. An allowance for loan losses was provided for all impaired
loans at September 30, 1997 and December 31, 1996 and 1995; the related
allowances were $1,035,000, $984,000 and $913,000, respectively. For the years
ended December 31, 1996 and 1995, the Company recognized interest income on
impaired loans of $408,000 and $367,000, respectively. The average recorded
investment in impaired loans during the nine months ended September 30, 1997
and the years ended December 31, 1996 and 1995 was approximately $6,317,000,
$7,022,000 and $3,373,000, respectively.
F-12
<PAGE>
UNITED PANAM FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A loan is impaired when, based on current information and events, management
believes it will be unable to collect all amounts contractually due under the
applicable loan agreement. Loans are evaluated for impairment as part of the
Company's normal internal asset review process. When a loan is determined to
be impaired, a valuation allowance is established based upon the difference
between the Company's investment in the loan and the fair value of the
collateral securing the loan.
Under Federal regulations, the Company may not make real estate loans to one
borrower in an amount exceeding 15% of its unimpaired capital and surplus,
plus an additional 10% for loans secured by readily marketable collateral. At
September 30, 1997 and December 31, 1996, such limitation would have been
approximately $2.9 million and $2.5 million, respectively, or $4.9 million and
$4.1 million if secured by readily marketable collateral. There are no loans
in excess of these limitations.
5. FEDERAL HOME LOAN BANK STOCK
The Bank is a member of the Federal Home Loan Bank System ("FHLB") and as
such is required to maintain an investment in capital stock of the FHLB of San
Francisco. At September 30, 1997, December 31, 1996 and 1995, the Bank owned
17,690, 12,880 and 7,660 shares, respectively, of the FHLB's $100 par value
capital stock. The amount of stock required is adjusted annually based on a
determination made by the FHLB. The determination is based on the balance of
the Bank's outstanding residential loans and advances from the FHLB.
6. INTEREST RECEIVABLE
Interest receivable is as follows:
<TABLE>
<CAPTION>
DECEMBER
31,
SEPTEMBER 30, -----------
1997 1996 1995
(DOLLARS IN THOUSANDS) ------------- ---- ------
(UNAUDITED)
<S> <C> <C> <C>
Loans................................................. $854 $824 $1,109
Investment securities................................. 73 21 60
---- ---- ------
Total............................................... $927 $845 $1,169
==== ==== ======
</TABLE>
7. PREMISES AND EQUIPMENT
Premises and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, --------------
1997 1996 1995
(DOLLARS IN THOUSANDS) ------------- ------ ------
(UNAUDITED)
<S> <C> <C> <C>
Furniture and equipment........................... $2,657 $ 867 $ 220
Leasehold improvements............................ 252 173 43
------ ------ -----
2,909 1,040 263
Less accumulated depreciation and amortization.... (627) (218) (55)
------ ------ -----
$2,282 $ 822 $ 208
====== ====== =====
</TABLE>
Depreciation and amortization expense was $410,000, $104,000, $163,000,
$50,000 and $5,000 for the nine months ended September 30, 1997 and 1996 and
for the years ended December 31, 1996, 1995, and for the period from April 29,
1994 (Inception) through December 31, 1994, respectively.
F-13
<PAGE>
UNITED PANAM FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. DEPOSITS
Deposits are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -------------------------------------------
1997 1996 1995
--------------------- --------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
AMOUNT AVERAGE RATE AMOUNT AVERAGE RATE AMOUNT AVERAGE RATE
(DOLLARS IN THOUSANDS) -------- ------------ -------- ------------ -------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Deposits with no stated
maturity:
Regular and money
market passbook....... $ 23,200 3.57% $ 17,054 2.84% $ 14,877 2.18%
NOW accounts........... 7,260 .83 7,757 .88 7,814 .88
Money market checking.. 2,577 2.67 2,885 2.49 3,400 2.42
-------- -------- --------
33,037 2.90 27,696 2.25 26,091 1.82
-------- -------- --------
Time deposits:
Less than one year..... 40,290 5.46 24,162 5.01 24,800 4.92
One year to two years.. 76,183 5.56 86,318 5.41 71,615 5.76
Two years to three
years................. 21,524 5.70 12,333 6.67 14,867 6.41
Three years and over... 1,442 6.56 1,101 6.70 976 6.69
Certificates $100,000
and over.............. 38,307 5.88 7,451 5.89 3,575 6.12
-------- -------- --------
177,746 5.63 131,365 5.49 115,833 5.68
-------- -------- --------
Total deposits........ $210,783 5.20% $159,061 4.68% $141,924 4.97%
======== ======== ========
</TABLE>
A summary of certificate accounts by remaining maturity is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -----------------
1997 1996 1995
(DOLLARS IN THOUSANDS) ------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Maturity within one year....................... $139,415 $103,369 $ 76,879
Maturity within two years...................... 37,831 26,819 36,316
Maturity within three years.................... 500 1,177 1,681
Maturity within four years..................... -- -- 957
-------- -------- --------
Total........................................ $177,746 $131,365 $115,833
======== ======== ========
</TABLE>
Broker-originated deposits totaled $7.5 million at September 30, 1997. There
were no broker-originated deposits at December 31, 1996 and 1995.
9. FEDERAL HOME LOAN BANK ADVANCES
The Company had short term FHLB advances of $35.0 million and $4.0 million
at September 30, 1997 and December 31, 1996, respectively. The advances
outstanding at September 30, 1997 and December 31, 1996 had a weighted average
interest rate of 6.43% and 5.70%, respectively, and were secured by the
Company's stock in the FHLB of San Francisco and by pledges of certain
mortgages with an aggregate balance of $88.0 million at December 31, 1996.
F-14
<PAGE>
UNITED PANAM FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ---------------
1997 1996 1995
(DOLLARS IN THOUSANDS) ------------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
RTC notes payable................................ $ 10,930 $10,930 $10,930
Notes payable from stockholders.................. 1,940 -- --
-------- ------- -------
$ 12,870 $10,930 $10,930
======== ======= =======
</TABLE>
The RTC notes payable were issued in connection with the Company's
acquisition of certain assets and assumption of certain liabilities from the
RTC. See note 14 for a description of the terms and conditions of these notes.
The notes payable from stockholders are unsecured loans bearing interest at
8% per year with interest payable semi-annually and principal maturing on June
30, 1999. The proceeds from the notes payable were contributed to United PanAm
Mortgage Corporation, a wholly-owned subsidiary of United PanAm Financial
Corp., for working capital purposes. The notes payable may be prepaid at any
time, without penalty.
The maturities of notes payable at December 31, 1996 are as follows:
<TABLE>
<S> <C>
Due in 1 year or less........................................... $ --
Due in 1 to 3 years............................................. 12,870
--------
$ 12,870
========
</TABLE>
11. INCOME TAXES
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
NINE MONTHS APRIL 29, 1994
ENDED YEARS ENDED (INCEPTION)
SEPTEMBER 30, DECEMBER 31, THROUGH
-------------- -------------- DECEMBER 31,
1997 1996 1996 1995 1994
(DOLLARS IN THOUSANDS) ------- ----- ------ ------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Federal taxes:
Current........................... $ 3,323 $ 633 $ 807 $ 233 $24
Deferred.......................... (1,445) (120) (302) 55 50
------- ----- ------ ----- ---
1,878 513 505 288 74
------- ----- ------ ----- ---
State taxes:
Current........................... 1,115 229 304 58 (6)
Deferred.......................... (413) (44) (118) 38 30
------- ----- ------ ----- ---
702 185 186 96 24
------- ----- ------ ----- ---
Total........................... $ 2,580 $ 698 $ 691 $ 384 $98
======= ===== ====== ===== ===
</TABLE>
F-15
<PAGE>
UNITED PANAM FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The tax effects of significant items comprising the Company's net deferred
taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -------------
1997 1996 1995
(DOLLARS IN THOUSANDS) ------------- ------ ------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets:
Franchise taxes.................................. $ 386 $ 76 $ 26
Loans marked to market for tax purposes.......... 1,894 415 --
Intangible assets................................ 88 67 38
Other............................................ 14 1 1
------ ----- ------
Total gross deferred tax assets................. 2,382 559 65
------ ----- ------
Deferred tax liabilities:
Loan loss allowances............................. (191) (238) (212)
FHLB stock dividends............................. (85) (54) (26)
Other............................................ (1) (20) --
------ ----- ------
Total gross deferred tax liabilities............ (277) (312) (238)
------ ----- ------
Net deferred tax assets (liabilities)............. $2,105 $ 247 $ (173)
====== ===== ======
</TABLE>
The Company believes a valuation allowance is not needed to reduce the net
deferred tax assets as it is more likely than not that the deferred tax assets
will be realized through recovery of taxes previously paid or future taxable
income.
The Company's effective income tax rate differs from the federal statutory
rate due to the following:
<TABLE>
<CAPTION>
NINE MONTHS YEARS APRIL 29, 1994
ENDED ENDED (INCEPTION)
SEPTEMBER 30, DECEMBER 31, THROUGH
-------------- -------------- DECEMBER 31,
1997 1996 1996 1995 1994
------ ------ ------ ------ --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Expected statutory rate........ 34.0% 34.0% 34.0% 34.0% 34.0%
State taxes, net of federal
benefits....................... 7.5 7.5 7.5 7.5 7.4
Other, net..................... .3 1.4 .6 4.1 4.4
------ ------ ------ ------ ----
Effective tax rate............. 41.8% 42.9% 42.1% 45.6% 45.8%
====== ====== ====== ====== ====
</TABLE>
The Company files its income tax returns using a fiscal year end of June 30.
Accordingly, the amounts reflected in this footnote are management's estimates
of income tax expenses and deferred income taxes at the dates presented.
12. REGULATORY CAPITAL REQUIREMENTS
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") established new capital standards for savings institutions,
requiring the Office of Thrift Supervision ("OTS") to promulgate regulations
to prescribe and maintain uniformly applicable capital standards for savings
institutions. Such regulations include three capital requirements: a tangible
capital requirement equal to 1.5% of adjusted total assets, a leverage limit
or core capital requirement equal to 3.0% of adjusted total assets, and a
risk-based capital
F-16
<PAGE>
UNITED PANAM FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
requirement equal to 8.0% of risk-weighted assets. At December 31, the Bank
had the following regulatory capital requirements and capital position:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1997 1996 1995
-------------------------- ------------------------- -------------------------
ACTUAL REQUIRED EXCESS ACTUAL REQUIRED EXCESS ACTUAL REQUIRED EXCESS
(DOLLARS IN THOUSANDS) ------- -------- ------- ------- -------- ------- ------- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Tangible capital........ $19,702 $ 4,184 $15,518 $16,499 $2,795 $13,704 $15,654 $2,374 $13,280
Tangible capital ratio.. 7.06% 1.50% 5.56% 8.85% 1.50% 7.35% 9.89% 1.50% 8.39%
Core capital............ $19,702 $ 8,369 $11,333 $16,499 $5,590 $10,909 $15,654 $4,747 $10,907
Core capital (leverage)
ratio.................. 7.06% 3.00% 4.06% 8.85% 3.00% 5.85% 9.89% 3.00% 6.89%
Risk-based capital...... $21,802 $13,217 $ 8,585 $17,893 $8,751 $ 9,142 $15,654 $7,286 $ 8,368
Percent of risk-weighted
assets................. 13.20% 8.00% 5.20% 16.36% 8.00% 8.36% 17.19% 8.00% 9.19%
</TABLE>
The FDIC Improvement Act of 1991 ("FDICIA") required each federal banking
agency to implement prompt corrective actions for institutions that it
regulates. In response to these requirements, the OTS adopted final rules,
effective December 19, 1992, based upon FDICIA's five capital tiers: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized.
The rules provide that a savings association is "well capitalized" if its
leverage ratio is 5% or greater, its Tier 1 risk-based capital ratio is 6% or
greater, its total risk-based capital ratio is 10% or greater, and the
institution is not subject to a capital directive.
As used herein, leverage ratio means the ratio of core capital to adjusted
total assets, Tier 1 risk-based capital ratio means the ratio of core capital
to risk-weighted assets, and total risk-based capital ratio means the ratio of
total capital to risk-weighted assets, in each case as calculated in
accordance with current OTS capital regulations. Under these new regulations,
the Bank is deemed to be "well capitalized."
The Bank had the following regulatory capital calculated in accordance with
FDICIA's capital standards for a "well capitalized" institution:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------------------- ------------------------- -------------------------
ACTUAL REQUIRED EXCESS ACTUAL REQUIRED EXCESS ACTUAL REQUIRED EXCESS
(DOLLARS IN THOUSANDS) ------- -------- ------ ------- -------- ------ ------- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Leverage................ $19,702 $13,948 $5,754 $16,499 $ 9,316 $7,183 $15,654 $7,912 $ 7,742
Leverage ratio.......... 7.06% 5.00% 2.06% 8.85% 5.00% 3.85% 9.89% 5.00% 4.89%
Tier 1 risk-based....... $19,702 $ 9,913 $9,789 $16,499 $ 6,563 $9,936 $15,654 $5,465 $10,189
Tier 1 risk-based
ratio.................. 11.93% 6.00% 5.93% 15.08% 6.00% 9.08% 17.19% 6.00% 11.19%
Total risk-based........ $21,802 $16,521 $5,281 $17,893 $10,939 $6,954 $15,654 $9,108 $ 6,546
Total risk-based ratio.. 13.20% 10.00% 3.20% 16.36% 10.00% 6.36% 17.19% 10.00% 7.19%
</TABLE>
At periodic intervals, both the OTS and Federal Deposit Insurance
Corporation ("FDIC") routinely examine the Bank's financial statements as part
of their legally prescribed oversight of the savings and loan industry. Based
on these examinations, the regulators can direct that the Bank's financial
statements be adjusted in accordance with their findings.
On September 30, 1996, the Economic Growth and Regulatory Paperwork
Reduction Act ("Act") of 1996 was enacted. The Act included a Special
Assessment ("Special SAIF Assessment") related to the recapitalization of the
SAIF, which was levied based on a rate of 65.7 cents per $100 of SAIF-insured
domestic deposits held as of March 31, 1995. As a result of the Act, the
Company recorded a pre-tax charge of $820,000 in the year ended December 31,
1996.
F-17
<PAGE>
UNITED PANAM FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. COMMITMENTS AND CONTINGENCIES
Certain branch and office locations are leased by the Company under
operating leases expiring at various dates through the year 2006. Rent expense
was $970,000, $310,000, $475,000, $227,000 and $170,000 for the nine months
ended September 30, 1997 and 1996 and the years ended December 31, 1996, 1995
and for the period from April 29, 1994 (Inception) through December 31, 1994,
respectively.
Future minimum rental payments as of December 31, 1996 under existing leases
are set forth as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
YEAR ENDING DECEMBER 31:
<S> <C>
1997............................................................ $ 540
1998............................................................ 580
1999............................................................ 508
2000............................................................ 507
2001............................................................ 257
Thereafter...................................................... 487
------
Total......................................................... $2,879
======
</TABLE>
Under the RTC Minority Preference Resolution Program, the Company's Mission
Street branch is subject to a rent-free lease and purchase option. This lease
and purchase option is available to minority owned institutions for branches
located in a predominantly minority neighborhood. The term of the lease is
five years with an option to purchase the branch at a price equal to 95% of
the appraised value at the time of the purchase and can be exercised anytime
during the term of the lease. The lease was effective as of April 30, 1994.
In order to meet the borrowing needs of its customers, the Company is a
party to certain commitments to extend credit which have specified interest
rates and fixed expiration dates. These commitments, substantially all of
which are to fund mortgages on one-to-four family residences, are considered
off-balance sheet financial instruments. These instruments involve elements of
credit risk and interest rate risk in excess of amounts recognized in the
accompanying statements of financial condition. The Company's exposure to
credit loss from these commitments to extend credit, in the event of borrower
nonperformance, is represented by the contractual amount of these commitments.
Certain of the commitments are expected to expire without being drawn upon
and, accordingly, the total commitment amounts do not necessarily represent
future cash requirements.
At September 30, 1997 and December 31, 1996, the Company had outstanding
commitments to originate loans of approximately $116.0 million and $19.1
million, respectively. Commitments outstanding included $96.4 million and
$17.1 million of adjustable rate loans at September 30, 1997 and December 31,
1996 and $19.6 million and $2.0 million of fixed rate loans at September 30,
1997 and December 31, 1996. The fixed rate loan commitments have interest
rates ranging from 8.38% to 15.75% at September 30, 1997 and 8.88% to 14.90%
at December 31, 1996. At September 30, 1997 and December 31, 1996, the Company
had outstanding commitments to sell loans on a nonrecourse basis of $25.8
million and $1.3 million, respectively.
The Company has entered into loan sale agreements with investors in the
normal course of business which include standard representations and
warranties customary to the mortgage banking industry. Violations of these
representations and warranties may require the Company to repurchase loans
previously sold or to reimburse investors for losses incurred. In the opinion
of management, the potential exposure related to the Company's loan sale
agreements will not have a material effect on the financial condition and
results of operations of the Company.
F-18
<PAGE>
UNITED PANAM FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company is involved in various claims or legal actions arising in the
normal course of business. In the opinion of management, the ultimate
disposition of such matters will not have a material effect on the financial
condition and results of operations of the Company.
14. NOTES PAYABLE, RESTRICTION ON DIVIDEND PAYMENTS AND PLEDGE OF BANK STOCK.
In accordance with Federal Regulation 12 CFR 563.134, federal savings banks
which meet fully phased-in capital requirements may distribute dividends up to
100% of their net income to date plus the amount that would reduce by one-half
their surplus capital ratio at the beginning of the calendar year. The Bank
exceeds the fully phased-in capital requirements. In connection with the April
29, 1994 purchase of assets and assumption of certain liabilities from the
RTC, the Bank and the Company, entered into a five year Interim Capital
Assistance Loan Agreement ("ICA") with the RTC (the Bank is not a direct or
indirect obligor, or a guarantor, of the loan) for $6,930,000 at a fixed
interest rate of 3.69% for two years and 0.125% above the 13-week Treasury
Bill auction rate for the remaining three years, adjusted annually. On
September 9, 1994, the Bank acquired deposits from the RTC totaling
approximately $65,000,000 located in Panorama City in Southern California. In
connection with this acquisition, the RTC provided the Bank's Holding Company,
Pan American Financial, Inc., $4,000,000 in the form of an additional ICA loan
for a term of five years with interest at 0.125% above the 13 week Treasury
Bill auction rate, adjusted quarterly. The entire amount was invested by the
Company in the Bank and qualifies as regulatory capital for the Bank. In
addition, the OTS required $750,000 of additional capital from the
shareholders to be invested in the Bank in connection with the Panorama City
branch acquisition.
These Agreements, as amended, provide among other things, that the Bank may
not declare or pay any dividends until the loan is repaid by the Company.
Dividends may be paid to the Company if the funds are used exclusively for
payment of principal or interest on the obligation of PAFI to the RTC or the
Bank has provided the FDIC with 30 days prior written notice of its intent to
declare or pay such dividends and the Bank is in compliance with certain
conditions as required under the Agreements. The stock of the Bank was pledged
by PAFI to the RTC as collateral for the loan.
15. STOCK OPTIONS
In 1994, the Company adopted the United PanAm Financial Corp. 1994 Stock
Option Plan (the "Plan"). The Plan authorizes the granting of options equal to
1,312,500 shares of common stock for issuance to executives, key employees,
officers, directors and independent contractors. Options granted under the
Plan are made at an exercise price of not less than the fair market value on
the date of grant. Any stock issued under the Plan is considered "Restricted
Stock" and subject to a shareholder's agreement which limits sales or
transfers of such stock. Options vest over a four year period commencing on
the grant date at a rate of 25% per year.All options granted prior to December
31, 1996 were issued at an exercise price of $0.80 per share, estimated fair
value at the date of grant, and have terms of five years.
F-19
<PAGE>
UNITED PANAM FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Stock option activity is as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-----------------
1996 1995
--------- -------
<S> <C> <C>
Balance at beginning of period......................... 900,000 900,000
Granted................................................ 243,750 --
Canceled or expired.................................... -- --
Exercised.............................................. -- --
--------- -------
Balance at end of period............................... 1,143,750 900,000
========= =======
Options exercisable.................................... 511,875 225,000
========= =======
Weighted average fair value per share of options
granted during the year............................... $0.23 --
========= =======
</TABLE>
The Company applies APB Opinion No. 25 in accounting for its plan and
accordingly, no compensation cost has been recognized for its stock option
plan in the consolidated financial statements. Had the Company determined
compensation cost based on the fair value at the grant date for its stock
options under Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation," the Company's net earnings and earnings per
share would have been reduced to the pro-forma amounts indicated below for the
year ended December 31:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) ------------
<S> <C>
Net income to common stockholders:
As reported................................................ $950
Pro forma.................................................. $918
Net income per common share:
As reported (pro forma)(unaudited)......................... $0.09
Pro forma (unaudited)...................................... $0.08
</TABLE>
The fair value of options granted under the Plan was estimated on the date
of grant using the Black-Scholes option-pricing model with the following
weighted average assumptions used: no dividend yield, no volatility, risk-free
interest rate of 7% and expected lives of 5 years.
The Company's auto finance subsidiary has granted options to certain of its
key employees to purchase up to 13.5% of that subsidiary. These options are
exercisable only upon an initial public offering or sale of such subsidiary.
These options vest based upon the satisfaction of specified performance goals.
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments are as
follows at the dates indicated:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------------- ------------------- -------------------
CARRYING FAIR VALUE CARRYING FAIR VALUE CARRYING FAIR VALUE
VALUE ESTIMATE VALUE ESTIMATE VALUE ESTIMATE
(DOLLARS IN THOUSANDS) -------- ---------- -------- ---------- -------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Cash and cash
equivalents........... $45,780 $45,780 $ 26,063 $ 26,063 $ 23,573 $ 23,573
Securities............. 2,002 2,002 -- -- -- --
Loans receivable, net.. 222,741 210,159 155,587 165,693 131,794 141,603
Federal Home Loan Bank
Stock................. 1,769 1,769 1,288 1,288 766 766
Accrued interest....... 927 927 845 845 845 845
Liabilities:
Deposits............... 210,783 210,689 $159,061 $159,506 $141,924 $142,745
Notes payable.......... 12,870 12,870 10,930 10,930 10,930 10,930
Federal Home Loan Bank
advances.............. 35,000 35,000 4,000 4,000 -- --
</TABLE>
F-20
<PAGE>
UNITED PANAM FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following summary presents a description of the methodologies and
assumptions used to estimate the fair value of the Company's financial
instruments. Because no ready market exists for a significant portion of the
Company's financial instruments, fair value estimates are based on judgments
regarding future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and, therefore, cannot be determined with precision. The
use of different assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts.
Cash and cash equivalents: Cash and cash equivalents are valued at their
carrying amounts included in the consolidated statements of financial
condition, which are reasonable estimates of fair value due to the relatively
short period to maturity of the instruments.
Securities: Securities are valued at quoted market prices where available.
If quoted market prices are not available, fair values are based on quoted
market prices of comparable instruments.
Loans receivable, net: For real estate loans, fair values were estimated
using quoted prices for equivalent yielding loans as adjusted for interest
rates, margin differences and other factors. For non-mortgage loans, fair
values, were estimated at carrying amounts due to their short-term maturity
and portfolio interest rates that are equivalent to present market interest
rates.
Federal Home Loan Bank Stock: Since no secondary market exists for FHLB
stock and the stock is bought and sold at par by the FHLB, fair value of these
financial instruments approximates the carrying value.
Accrued interest: The carrying amounts of accrued interest approximate their
fair values.
Deposits: The fair values of demand deposits, passbook accounts, money
market accounts, and other deposits immediately withdrawable, by definition,
approximate carrying values for the respective financial instruments. For
fixed maturity deposits, the fair value was estimated by discounting expected
cash flows by the current offering rates of deposits with similar terms and
maturities.
Federal Home Loan Bank advances: The fair value of FHLB advances are valued
at their carrying amounts included in the consolidated statements of financial
condition, which are reasonable estimates of fair value due to the relatively
short period to maturity of the advances.
Notes payable: The fair value of notes payable is considered to approximate
carrying value as their note rates are consistent with present market rates.
Financial Instruments With Off-Balance Sheet Risk: No fair value is ascribed
to the Company's outstanding commitments to fund loans since commitment fees
are not significant and predominantly all such commitments are variable-rate
loan commitments. There were no significant unrealized gains and losses on
commitments to sell loans.
F-21
<PAGE>
UNITED PANAM FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
17. HOLDING COMPANY FINANCIAL INFORMATION
Following are the financial statements of United PanAm Financial Corp.
(holding company only):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1997 1996 1995
(DOLLARS IN THOUSANDS) ------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
STATEMENTS OF FINANCIAL CONDITION
Cash.................................. $ 277 $ 32 $ 27
Other assets.......................... 40 29 36
Investment in subsidiary.............. 12,012 6,700 5,748
------- ------ ------
Total assets......................... $12,329 $6,761 $5,811
======= ====== ======
Notes payable......................... 1,940 -- --
Other liabilities..................... 34 -- --
------- ------ ------
Total liabilities.................... 1,974 -- --
Stockholders' equity.................. 10,355 6,761 5,811
------- ------ ------
Total liabilities and stockholders'
equity.............................. $12,329 $6,761 $5,811
======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
YEARS
ENDED APRIL 29, 1994
DECEMBER (INCEPTION)
NINE MONTHS ENDED 31, THROUGH
SEPTEMBER 30, ---------- DECEMBER 31,
1997 1996 1995 1994
----------------- ---- ---- --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
Equity in income of subsidiary... $3,610 $952 $470 $111
Interest income.................. 9 1 1 55
------ ---- ---- ----
Total income................... 3,619 953 471 166
------ ---- ---- ----
Interest expense................. 34 -- -- --
Other expense.................... 2 4 22 47
------ ---- ---- ----
Total expense.................. 36 4 22 47
------ ---- ---- ----
Income before income taxes....... 3,583 949 449 119
Income tax benefit (expense)..... 11 1 9 (3)
------ ---- ---- ----
Net income..................... $3,594 $950 $458 $116
====== ==== ==== ====
STATEMENTS OF CASH FLOWS
Cash flows from operating
activities:
Net income...................... $3,594 $950 $458 $116
Equity in earnings of
subsidiary..................... (3,610) (952) (470) (111)
(Increase) decrease in other
assets......................... (11) 7 (35) 17
Increase in other liabilities... 34 -- -- 52
------ ---- ---- ----
Net cash provided by (used in)
operating activities.......... 7 5 (47) 74
------ ---- ---- ----
Cash flows from financing
activities:
Capital contributed to
subsidiary..................... (1,702) -- -- --
Increase in notes payable from
shareholders................... 1,940 -- -- --
------ ---- ---- ----
Net cash provided by financing
activities..................... 238 -- -- --
------ ---- ---- ----
Net increase (decrease) in cash
and cash equivalents........... 245 5 (47) 74
Cash and cash equivalents at
beginning of period............ 32 27 74 --
------ ---- ---- ----
Cash and cash equivalents at end
of period...................... $ 277 $ 32 $ 27 $ 74
====== ==== ==== ====
</TABLE>
F-22
<PAGE>
UNITED PANAM FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
18. UNAUDITED PRO FORMA EARNINGS PER SHARE
Earnings per share is based on the weighted average number of combined
common shares and common stock equivalents outstanding. Common stock
equivalents consist of unexercised stock options. Pursuant to Securities and
Exchange Commission Staff Accounting Bulletin No. 83, common stock and common
stock equivalents issued below the estimated initial public offering price
during the twelve month period prior to the date of the initial filing of the
Company's Registration Statement have been included in the calculation of
earnings per share, using the treasury stock method, as if they were
outstanding for all periods presented.
Weighted average shares outstanding were 11,334,000 for the nine months
ended September 30, 1997 and 10,886,000 for the year ended December 31, 1996.
The number of shares used in all calculations has been adjusted to reflect a
1,875-for-1 stock split effected in November 1997. Historical earnings per
share is not presented because it is not indicative of the on-going entity.
19. SUBSEQUENT EVENTS (UNAUDITED)
In October 1997, the Company issued 605,000 stock options at an exercise
price of $10.50 per share based upon the estimated fair market value of the
Company at the time of grant. The options have various vesting schedules over
a four to five year period. In November 1997, the Company also effected a
1,875-for-1 stock split.
The Bank entered into a $100 million master repurchase agreement in October
1997 under which it may sell and repurchase, at a set price, mortgage loans
pending the sale or securitization of such loans. The facility provides for an
advance rate approximating 100% of the outstanding principal balance of
qualifying mortgage loans and an interest rate of LIBOR plus 0.70%.
F-23
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No dealer, salesperson or any other person has been authorized to given any
information or to make any representations other than those contained in this
Prospectus in connection with the offer made in this Prospectus and, if given
or made, such information or representations must not be relied upon as having
been authorized by the Company or any of the Underwriters. This Prospectus
does not constitute an offer to sell or a solicitation of any offer to buy any
securities other than the shares of Common Stock to which it relates or an of-
fer to, or a solicitation of, any person in any jurisdiction where such an of-
fer or solicitation would be unlawful. Neither the delivery of this Prospectus
nor any sale made hereunder shall, under any circumstances, create any impli-
cation that the information contained herein is correct as of any time subse-
quent to the date hereof.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 12
Use of Proceeds.......................................................... 22
Dividend Policy.......................................................... 23
Dilution................................................................. 23
Capitalization........................................................... 24
Selected Consolidated Financial Data..................................... 25
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 28
Business................................................................. 50
Management............................................................... 83
Principal Stockholders................................................... 94
Description of Capital Stock............................................. 96
Underwriting............................................................. 99
Legal Matters............................................................ 100
Experts.................................................................. 100
Additional Information................................................... 101
Index to Consolidated Financial Statements............................... F-1
</TABLE>
---------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDI-
TION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UN-
DERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SHARES
[LOGO OF UNITED PANAM FINANCIAL CORP.]
COMMON STOCK
---------------
PROSPECTUS
---------------
NationsBanc Montgomery Securities, Inc.
Piper Jaffray inc.
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses in connection with the Offering are as follows:
<TABLE>
<S> <C>
SEC registration fee............................................... $ 24,394
NASD filing fee.................................................... 8,550
Nasdaq National Market filing fee.................................. 58,641
Blue Sky filing fees and expenses.................................. 15,000
Printing and engraving expenses.................................... 150,000
Legal fees and expenses............................................ 275,000
Accounting fees and expenses....................................... 160,000
Registrar and transfer agent fees.................................. 15,000
Miscellaneous...................................................... 43,415
--------
Total............................................................ $750,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Delaware law, the directors and officers of the Registrant are
entitled, under certain circumstances, to be indemnified by the Registrant
against all expenses and liabilities incurred or imposed upon them as a result
of suits brought against them in their capacities as directors and officers,
if they act in good faith and in a manner they reasonably believe to be in or
not opposed to the best interests of the Registrant, and, with respect to any
criminal action or proceeding, have no reasonable cause to believe their
conduct was unlawful, except that no indemnification shall be made against
expenses in respect of any claim, issue or matter as to which they have been
adjudged to be liable to the Registrant, unless and only to the extent that
the court in which such action or suit was brought has determined upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, they are fairly and reasonably entitled to be
indemnified for such expenses which such court shall deem proper. Any such
indemnification may be made by the Registrant only as authorized in each
specific case upon a determination by the stockholders or disinterested
directors that indemnification is proper because the indemnitee has met the
applicable statutory standard of conduct.
Article Thirteenth of the Registrant's Certificate of Incorporation, as
amended, provides that a director shall not be liable to the Registrant or its
stockholders for monetary damages for a breach of fiduciary duty as a
director, except for liability: (i) for any breach of the director's duty of
loyalty to the Registrant or its stockholders; (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation
of law; (iii) under the Delaware statutory provisions making directors
personally liable for unlawful dividends or unlawful stock repurchases or
redemptions; or (iv) for any transaction from which the director derived an
improper personal benefit.
The Registrant's Bylaws provide that the Registrant shall indemnify its
directors and officers to the fullest extent permitted by Delaware law. The
Registrant has also entered into indemnification agreements with its directors
and officers, a copy of which agreement is filed as Exhibit 10.44 hereto. The
indemnification agreements may require the Registrant, among other things, to
indemnify its directors and officers against certain liabilities that may
arise by reason of their status or service as directors or officers (other
than liabilities arising from willful misconduct of a culpable nature) and to
advance their expenses incurred as a result of any proceedings against them as
to which they could be indemnified.
The Registrant maintains a standard policy of officers' and directors'
liability insurance.
II-1
<PAGE>
The Underwriting Agreement, a copy of which is filed as Exhibit 1.1 hereto,
provides for the indemnification of directors, officers, employees, agents and
controlling persons of the Registrant by the Underwriters under certain
circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since November 1, 1994, the Registrant has issued and sold (without payment
of any selling commission to any person) the following securities, which were
not registered under the Securities Act of 1933, as amended (the "Securities
Act"), in reliance on Section 4(2) of the Securities Act as not involving a
public offering.
On October 18, 1994, the Registrant granted Lawrence J. Grill an option, as
partial consideration for his employment by the Registrant, to purchase
375,000 shares of Common Stock at $0.80 per share pursuant to the Stock
Incentive Plan. On October 15, 1997, Lawrence J. Grill exercised the option to
purchase 281,250 shares of Common Stock for an aggregate purchase price of
$225,000. The balance of the option will vest on May 1, 1998 and will expire
on October 18, 2004.
On June 1, 1996, the Registrant granted Ron R. Duncanson an option, as
partial consideration for his services as a director of the Registrant, to
purchase 18,750 shares of Common Stock at $0.80 per share pursuant to the
Stock Incentive Plan. Fifty percent of the option vested on June 1, 1996 and
25% on May 1, 1997, and 25% will vest on May 1, 1998. The option expires on
April 30, 2006.
On June 1, 1996, the Registrant granted Daniel L. Villanueva an option, as
partial consideration for his services as a director of the Registrant, to
purchase 18,750 shares of Common Stock at $0.80 per share pursuant to the
Stock Incentive Plan. Fifty percent of the option vested on June 1, 1996 and
25% on May 1, 1997, and 25% will vest on May 1, 1998. The option expires on
April 30, 2006.
On June 1, 1996, the Registrant granted Carol M. Bucci an option, as partial
consideration for her services as an officer of the Registrant, to purchase
56,250 shares of Common Stock at $0.80 per share pursuant to the Stock
Incentive Plan. Twenty-five percent of the option vested on June 1, 1996 and
25% on March 1, 1997, and 25% will vest on March 1, 1998 and 25% on March 1,
1999. The option expires on April 30, 2006.
On August 1, 1996, the Registrant granted Edmund M. Kaufman an option, as
partial consideration for his services as a director of the Registrant, to
purchase 18,750 shares of Common Stock at $0.80 per share pursuant to the
Stock Incentive Plan. Twenty-five percent of the option vested on August 1,
1996 and 25% on October 16, 1997, and 25% will vest on October 16, 1998 and
25% on October 16, 1999. The option expires on April 30, 2006.
On October 1, 1996, the Registrant granted John T. French an option, as
partial consideration for his services as a consultant to the Registrant, to
purchase 131,250 shares of Common Stock at $0.80 per share pursuant to the
Stock Incentive Plan. Twenty-five percent of the option vested on October 1,
1996 and 25% on October 1, 1997, and 25% will vest on October 1, 1998 and 25%
on October 1, 1999. The option expires on April 30, 2006.
On March 5, 1997, the Registrant granted Robert Wilson an option, in
connection with the termination of his employment by the Registrant, to
purchase 112,500 shares of Common Stock at $1.33 per share pursuant to the
Stock Incentive Plan. This option vested on the date of grant and will expire
on the third anniversary of the date of grant.
On October 15, 1997, the Registrant granted John T. French an option, as
partial consideration for his services as a director of the Registrant, to
purchase 60,000 shares of Common Stock at $10.50 per share. Twenty-five
percent of the option vested on the date of grant, and 25% will vest on the
first three anniversaries of the date of grant. The option expires on the
tenth anniversary of the date of grant.
Concurrently with the sale of the shares of Common Stock offered hereby, the
Registrant will grant Luis Maizel an option, as partial consideration for his
services as a director of the Registrant, to purchase 20,000 shares of Common
Stock at an exercise price equal to the initial offering price. This option
will become
II-2
<PAGE>
exercisable in four equal annual installments commencing on the first
anniversary of the date of grant and will expire on the tenth anniversary of
the date of grant.
Concurrently with the sale of the shares of Common Stock offered hereby, the
Registrant will grant Lawrence J. Grill an option, as partial consideration
for his services as a director of the Registrant, to purchase 60,000 shares of
Common Stock at an exercise price equal to the initial offering price. This
option will become exercisable in four equal annual installments commencing on
the first anniversary of the date of grant and will expire on the tenth
anniversary of the date of grant.
Concurrently with the sale of the shares of Common Stock offered hereby, the
Registrant will grant Guillermo Bron an option, as partial consideration for
his services as a director of the Registrant, to purchase 60,000 shares of
Common Stock at an exercise price equal to 110% of the initial offering price.
This option will become exercisable in four equal annual installments
commencing on the first anniversary of the date of grant and will expire on
the tenth anniversary of the date of grant.
On October 15, 1997, the Registrant granted Carol Bucci an option, as
partial consideration for her services as an officer of the Registrant, to
purchase 40,000 shares of Common Stock at $10.50 per share. This option will
become exercisable in four equal annual installments commencing on the first
anniversary of the date of grant and will expire on the tenth anniversary of
the date of grant.
On October 15, 1997, the Registrant granted Stephen W. Haley an option, as
partial consideration for his services as an officer of the Registrant, to
purchase 60,000 shares of Common Stock at $10.50 per share. Twenty-five
percent of the option vested on the date of grant, and 25% will vest on the
first three anniversaries of the date of grant. The option will expire on the
tenth anniversary of the date of the grant.
On October 15, 1997, the Registrant granted 17 current employees options, as
partial consideration for their employment with the Registrant, to purchase up
to an aggregate of 445,000 shares of Common Stock at $10.50 per share. These
options will become exercisable in installments before October 15, 2001 and
will expire on the tenth anniversary of the date of grant.
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
a. Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1* Amended and Restated Certificate of Incorporation of the Registrant.
3.2* Bylaws of the Registrant.
4.1** Form of stock certificate.
5.1** Opinion of Manatt, Phelps & Phillips, LLP.
10.1* Insurance Premium Financing Management Agreement dated May 17, 1995,
between Pan American Bank, FSB and BPN Corporation.
10.2* First Amendment to Insurance Premium Financing Management Agreement
and Guaranties dated October , 1995, between Pan American Bank, FSB
and BPN Corporation.
10.3* Second Amendment to Insurance Premium Financing Management Agreement
and Guaranties dated February 28, 1996, among Pan American Bank, FSB,
BPN Corporation, Cornelius J. O'Shea, Peter Walski and Barbara Walski.
10.4* Guaranty dated May 17, 1995 by Peter Walski and Barbara Walski to Pan
American Bank, FSB.
10.5* Guaranty dated May 17, 1995 by Cornelius J. O'Shea to Pan American
Bank, FSB.
10.6* Stock Option Agreement dated May 17, 1995, among BPN Corporation, Pan
American Group, Inc., Peter A. Walski, Barbara R. Walski, Cornelius J.
O'Shea and The Walski Family Trust.
10.7* First Amendment to Stock Option Agreement dated October 1, 1997, among
BPN Corporation, Pan American Group, Inc., Peter A. Walski, Barbara R.
Walski, Cornelius J. O'Shea and The Walski Family Trust.
10.8* Interim Capital Assistance Agreement dated September 9, 1994, among
Pan American Financial, Inc., Pan American Bank, FSB and the
Resolution Trust Corporation.
10.9* Amendment No. 1 to Interim Capital Assistance Agreement dated May 1,
1997, among Pan American Financial, Inc., Pan American Bank, FSB and
the Federal Deposit Insurance Corporation.
10.10* Interim Capital Assistance Agreement dated April 29, 1994, among Pan
American Financial, Inc., Pan American Bank, FSB and the Resolution
Trust Corporation.
10.11* Letter agreement dated March 2, 1995, between Pan American Bank, FSB
and the Resolution Trust Corporation.
10.12* Promissory Note dated September 9, 1994 in the amount of $4 million by
Pan American Financial, Inc. to the Resolution Trust Corporation.
10.13* Stock Pledge Agreement dated September 9, 1994, between Pan American
Financial, Inc. and the Resolution Trust Corporation.
10.14 Limited Branch Purchase and Assumption Agreement dated September 9,
1994, between the Resolution Trust Corporation as receiver of Western
Federal Savings Bank and Pan American Bank, FSB.
10.15 Lead Acquiror Waiver and Reimbursement Agreement dated September 9,
1994, between Home Savings of America, FSB and Pan American Bank, FSB.
10.16 Indemnity Agreement September 9, 1994, between the Resolution Trust
Corporation and Pan American Bank, FSB.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.17 Whole Purchase and Assumption Agreement dated April 29, 1994, between
the Resolution Trust Corporation and Pan American Bank, FSB.
10.18 Indemnity Agreement dated April 29, 1994, between the Resolution Trust
Corporation and Pan American Bank, FSB.
10.19* Promissory Note dated April 29, 1994 in the amount of $6,930,000 by
Pan American Financial, Inc. to the Resolution Trust Corporation.
10.20* Stock Pledge Agreement dated April 29, 1994, between Pan American
Financial, Inc. and the Resolution Trust Corporation.
10.21 Advances and Security Agreement dated January 29, 1996, between the
Federal Home Loan Bank of San Francisco and Pan American Bank, FSB.
10.22 Retail CD Brokerage Agreement dated April 30, 1996, between Pan
American Bank, FSB and Merrill Lynch, Pierce, Fenner & Smith,
Incorporated.
10.23 Fixed Rate Interest bearing--3 Months and Longer Retail Certificate of
Deposit of Pan American, FSB, Master Certificate No. 2 dated May 12,
1997.
10.24 Fixed Rate Interest bearing--3 Months and Longer Retail Certificate of
Deposit of Pan American Bank, FSB, Master Certificate No. 3 dated May
12, 1997.
10.25 License, Services, and Purchase Agreement dated December , 1996,
between Associated Software Consultants, Inc. and Pan American, FSB
and all addendums thereto.
10.26 Agreement for Remote Computing Services dated April 4, 1995, between
Pan American Bank, FSB and Fiserv Fresno, Inc.
10.27 Amendment to Computer Operating Agreement between Pan American Bank,
FSB and Fiserv Fresno, Inc.
10.28 Addendum No. 2 to Agreement for Remote Computing Services effective as
of April 1, 1996, between Pan American Bank, FSB and Fiserv Fresno,
Inc.
10.29 Item Processing Agreement dated April 26, 1993, between Systematics
Financial Services, Inc. and Pan American Savings Bank, FSB.
10.30 Support Services Agreement dated October 31, 1995, between Alan King
and Company, Inc. and Pan American Savings Bank, FSB.
10.31 Technical Support Services Agreement dated May 1, 1995, between Alan
King and Company, Inc. and Pan American Savings Bank, FSB.
10.32 License Agreement dated May 1, 1995, between Alan King and Company,
Inc. and Pan American Savings Bank, FSB.
10.33 Subservicing Agreement dated March 2, 1995, between Pan American Bank,
FSB and Dovenmuehle Mortgage, Inc.
10.34* Interim Operating Agreement dated July 1, 1997, between United PanAm
Mortgage Corporation and Pan American Bank, FSB.
10.35 Inter-Company Agreement dated May 1, 1994, between Pan American
Financial, Inc. and Pan American Bank, FSB.
10.36 Inter-Company Agreement dated August 1, 1994, between Pan American
Group, Inc. and Pan American Bank, FSB.
10.37* Employment Agreement dated May 7, 1996, between Pan American Bank, FSB
and Ray C. Thousand.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.38 Employment Agreement dated May 1, 1994, between Pan American Bank, FSB
and Lawrence J. Grill.
10.39* Employment Agreement dated October 1, 1997, among the Registrant, Pan
American Bank, FSB and Lawrence J. Grill.
10.40* Employment Agreement dated October 1, 1997, between the Registrant and
Guillermo Bron.
10.41* Employment Agreement dated October 1, 1997, between United PanAm
Mortgage Corporation and John T. French.
10.41.1 First Amendment to Employment Agreement dated November 14, 1997
between United PanAm Mortgage Corporation and John T. French.
10.42* Salary Continuation Agreement dated October 1, 1997, between Pan
American Bank, FSB and Lawrence J. Grill.
10.43* Salary Continuation Agreement dated October 1, 1997, between Pan
American Bank, FSB and Guillermo Bron.
10.44* Form of Indemnification Agreement between the Registrant and Ms. Bucci
and each of Messrs. Bron, French, Grill, Haley, Kaufman, Maizel,
Thousand and Villanueva.
10.45 Agreement and Mutual General Release dated March 5, 1997, between Pan
American Bank, FSB and Robert Wilson.
10.46** Pan American Group, Inc. 1994 Stock Option Plan, together with forms
of incentive stock option and non-qualified stock option agreements.
10.47* Pan American Group, Inc. 1997 Stock Incentive Plan, together with
forms of incentive stock option, non-qualified stock option and
restricted stock agreements.
10.48 Pan American Bank, FSB Management Incentive Plan.
10.49** Pan American Bank, FSB 401(k) Profit Sharing Plan, as amended.
10.50 Income Tax Allocation Agreement dated October 19, 1994, between Pan
American Bank, FSB, Pan American Financial, Inc. and the Registrant.
10.51 Lease Agreement dated September 26, 1994, between the Resolution Trust
Corporation and Old Stone Bank of California and Pan American Bank,
FSB.
10.52 First Amendment to Lease Agreement dated November 19, 1995, between
the Resolution Trust Corporation and Old Stone Bank of California and
Pan American Bank, FSB.
10.53 Office Lease dated March 4, 1997, between Spieker Properties, L.P. and
Pan American Bank, FSB.
10.54 Office Space Lease dated January 18, 1996, between The Irvine Company
and Pan American Bank, FSB.
10.55 First Amendment to Office Space Lease dated July 2, 1996, between The
Irvine Company and Pan American Bank, FSB.
10.56 Standard Office Lease dated April 25, 1997, between CAL Portfolio VI,
L.L.C. and Pan American Bank, FSB.
10.57 Office Lease Agreement dated February 28, 1997, between P.R.A.
Biltmore Investments, L.L.C. and Pan American Bank, FSB.
10.58 Office Lease dated December 9, 1996, between Bernal Corporate Park and
Pan American Bank, FSB.
10.59 Bernal Corporate Park Lease First Amendment to Lease dated January 27,
1997.
10.60 Shopping Center Sublease dated September 22, 1995, between Panorama
Towne Center, L.P. and Pan American Bank, FSB.
10.61 Promissory Note in the principal amount of $225,000 dated October 15,
1997 by Lawrence J. Grill to the Registrant.
10.62 Loan and Stock Pledge Agreement dated October 15, 1997, between
Lawrence J. Grill and the Registrant.
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.63* Promissory Note in the principal amount of $1,628,000 dated July 1,
1997 by the Registrant to Pan American Financial, L.P.
10.64* Promissory Note in the principal amount of $258,000 dated July 1, 1997
by the Registrant to BVG West Corporation.
10.65* Promissory Note in the principal amount of $52,500 dated July 1, 1997
by the Registrant to Lawrence J. Grill.
10.66* Promissory Note in the principal amount of $33,000 dated July 1, 1997
by the Registrant to Robert Wilson.
10.67* Promissory Note in the principal amount of $28,500 dated July 1, 1997
by the Registrant to Villanueva Management, Inc.
10.68*+ Master Repurchase Agreement Governing Purchases and Sales of Mortgage
Loans dated as of October 31, 1997, between Lehman Commercial Paper
Inc. and Pan American Bank, FSB.
10.69* Custodial Agreement dated November 6, 1997, among Lehman Commercial
Paper Inc., Pan American Bank, FSB and Bankers Trust Company of
California, N.A.
10.70* Loan Purchase and Sale Agreement dated April 1, 1997, among Aames
Capital Corporation, Aames Funding Corporation and Pan American Bank,
FSB.
10.71* Continuing Loan Purchase Agreement dated February 27, 1997, between
AMRESCO Residential Capital Markets, Inc. and Pan American Bank, FSB.
10.72* Mortgage Loan Purchase Agreement dated May 28, 1997, between Saxon
Mortgage, Inc. and Pan American Bank, FSB.
21.1* Subsidiaries.
23.1 Consent of KPMG Peat Marwick LLP.
23.2** Consent of Manatt, Phelps & Phillips, LLP (see Exhibit 5.1).
27.1 Financial Data Schedule.
</TABLE>
- --------
*Previously filed.
**To be filed by amendment.
+Confidential treatment requested.
b. Financial Statement Schedules.
The schedules are omitted because they are not applicable or the required
information is shown in the Registrant's financial statements or the related
notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(i) That for the purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in the form of prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this Registration Statement as of the time it was declared
effective.
II-7
<PAGE>
(ii) That for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new Registration Statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified n the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
II-8
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF SAN MATEO, STATE OF CALIFORNIA, ON DECEMBER 22, 1997.
United PanAm Financial Corp.
/s/ Lawrence J. Grill
By __________________________________
LAWRENCE J. GRILL, PRESIDENT,
CHIEF EXECUTIVE OFFICER AND
SECRETARY
PURSUANT TO THE SECURITIES ACT OF 1933, THIS AMENDMENT NO. 1 TO THE
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chairman of the December 22, 1997
- ------------------------------------- Board
GUILLERMO BRON
/s/ Lawrence J. Grill President, Chief December 22, 1997
- ------------------------------------- Executive Officer,
LAWRENCE J. GRILL Secretary and
Director (Principal
Executive Officer)
/s/ Carol Bucci Senior Vice December 22, 1997
- ------------------------------------- President,
CAROL BUCCI Chief Financial
Officer and
Treasurer
(Principal
Financial and
Accounting Officer)
/s/ Stephen W. Haley Senior Vice December 22, 1997
- ------------------------------------- President--
STEPHEN W. HALEY Compliance and Risk
Management
* Director December 22, 1997
- -------------------------------------
JOHN T. FRENCH
* Director December 22, 1997
- -------------------------------------
EDMUND M. KAUFMAN
* Director December 22, 1997
- -------------------------------------
DANIEL L. VILLANUEVA
* Director December 22, 1997
- -------------------------------------
LUIS MAIZEL
*By: /s/ Lawrence J. Grill
---------------------------------
Lawrence J. Grill,
Attorney-in-fact
</TABLE>
II-9
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1* Amended and Restated Certificate of Incorporation of the Registrant.
3.2* Bylaws of the Registrant.
4.1** Form of stock certificate.
5.1** Opinion of Manatt, Phelps & Phillips, LLP.
10.1* Insurance Premium Financing Management Agreement dated May 17, 1995,
between Pan American Bank, FSB and BPN Corporation.
10.2* First Amendment to Insurance Premium Financing Management Agreement
and Guaranties dated October , 1995, between Pan American Bank, FSB
and BPN Corporation.
10.3* Second Amendment to Insurance Premium Financing Management Agreement
and Guaranties dated February 28, 1996, among Pan American Bank, FSB,
BPN Corporation, Cornelius J. O'Shea, Peter Walski and Barbara Walski.
10.4* Guaranty dated May 17, 1995 by Peter Walski and Barbara Walski to Pan
American Bank, FSB.
10.5* Guaranty dated May 17, 1995 by Cornelius J. O'Shea to Pan American
Bank, FSB.
10.6* Stock Option Agreement dated May 17, 1995, among BPN Corporation, Pan
American Group, Inc., Peter A. Walski, Barbara R. Walski, Cornelius J.
O'Shea and The Walski Family Trust.
10.7* First Amendment to Stock Option Agreement dated October 1, 1997, among
BPN Corporation, Pan American Group, Inc., Peter A. Walski, Barbara R.
Walski, Cornelius J. O'Shea and The Walski Family Trust.
10.8* Interim Capital Assistance Agreement dated September 9, 1994, among
Pan American Financial, Inc., Pan American Bank, FSB and the
Resolution Trust Corporation.
10.9* Amendment No. 1 to Interim Capital Assistance Agreement dated May 1,
1997, among Pan American Financial, Inc., Pan American Bank, FSB and
the Federal Deposit Insurance Corporation.
10.10* Interim Capital Assistance Agreement dated April 29, 1994, among Pan
American Financial, Inc., Pan American Bank, FSB and the Resolution
Trust Corporation.
10.11* Letter agreement dated March 2, 1995, between Pan American Bank, FSB
and the Resolution Trust Corporation.
10.12* Promissory Note dated September 9, 1994 in the amount of $4 million by
Pan American Financial, Inc. to the Resolution Trust Corporation.
10.13* Stock Pledge Agreement dated September 9, 1994, between Pan American
Financial, Inc. and the Resolution Trust Corporation.
10.14 Limited Branch Purchase and Assumption Agreement dated September 9,
1994, between the Resolution Trust Corporation as receiver of Western
Federal Savings Bank and Pan American Bank, FSB.
10.15 Lead Acquiror Waiver and Reimbursement Agreement dated September 9,
1994, between Home Savings of America, FSB and Pan American Bank, FSB.
10.16 Indemnity Agreement September 9, 1994, between the Resolution Trust
Corporation and Pan American Bank, FSB.
10.17 Whole Purchase and Assumption Agreement dated April 29, 1994, between
the Resolution Trust Corporation and Pan American Bank, FSB.
10.18 Indemnity Agreement dated April 29, 1994, between the Resolution Trust
Corporation and Pan American Bank, FSB.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.19* Promissory Note dated April 29, 1994 in the amount of $6,930,000 by
Pan American Financial, Inc. to the Resolution Trust Corporation.
10.20* Stock Pledge Agreement dated April 29, 1994, between Pan American
Financial, Inc. and the Resolution Trust Corporation.
10.21 Advances and Security Agreement dated January 29, 1996, between the
Federal Home Loan Bank of San Francisco and Pan American Bank, FSB.
10.22 Retail CD Brokerage Agreement dated April 30, 1996, between Pan
American Bank, FSB and Merrill Lynch, Pierce, Fenner & Smith,
Incorporated.
10.23 Fixed Rate Interest bearing--3 Months and Longer Retail Certificate of
Deposit of Pan American, FSB, Master Certificate No. 2 dated May 12,
1997.
10.24 Fixed Rate Interest bearing--3 Months and Longer Retail Certificate of
Deposit of Pan American Bank, FSB, Master Certificate No. 3 dated May
12, 1997.
10.25 License, Services, and Purchase Agreement dated December , 1996,
between Associated Software Consultants, Inc. and Pan American, FSB
and all addendums thereto.
10.26 Agreement for Remote Computing Services dated April 4, 1995, between
Pan American Bank, FSB and Fiserv Fresno, Inc.
10.27 Amendment to Computer Operating Agreement between Pan American Bank,
FSB and Fiserv Fresno, Inc.
10.28 Addendum No. 2 to Agreement for Remote Computing Services effective as
of April 1, 1996, between Pan American Bank, FSB and Fiserv Fresno,
Inc.
10.29 Item Processing Agreement dated April 26, 1993, between Systematics
Financial Services, Inc. and Pan American Savings Bank, FSB.
10.30 Support Services Agreement dated October 31, 1995, between Alan King
and Company, Inc. and Pan American Savings Bank, FSB.
10.31 Technical Support Services Agreement dated May 1, 1995, between Alan
King and Company, Inc. and Pan American Savings Bank, FSB.
10.32 License Agreement dated May 1, 1995, between Alan King and Company,
Inc. and Pan American Savings Bank, FSB.
10.33 Subservicing Agreement dated March 2, 1995, between Pan American Bank,
FSB and Dovenmuehle Mortgage, Inc.
10.34* Interim Operating Agreement dated July 1, 1997, between United PanAm
Mortgage Corporation and Pan American Bank, FSB.
10.35 Inter-Company Agreement dated May 1, 1994, between Pan American
Financial, Inc. and Pan American Bank, FSB.
10.36 Inter-Company Agreement dated August 1, 1994, between Pan American
Group, Inc. and Pan American Bank, FSB.
10.37* Employment Agreement dated May 7, 1996, between Pan American Bank, FSB
and Ray C. Thousand.
10.38 Employment Agreement dated May 1, 1994, between Pan American Bank, FSB
and Lawrence J. Grill.
10.39* Employment Agreement dated October 1, 1997, among the Registrant, Pan
American Bank, FSB and Lawrence J. Grill.
10.40* Employment Agreement dated October 1, 1997, between the Registrant and
Guillermo Bron.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.41* Employment Agreement dated October 1, 1997, between United PanAm
Mortgage Corporation and John T. French.
10.41.1 First Amendment to Employment Agreement dated November 14, 1997
between United PanAm Mortgage Corporation and John T. French.
10.42* Salary Continuation Agreement dated October 1, 1997, between Pan
American Bank, FSB and Lawrence J. Grill.
10.43* Salary Continuation Agreement dated October 1, 1997, between Pan
American Bank, FSB and Guillermo Bron.
10.44* Form of Indemnification Agreement between the Registrant and Ms. Bucci
and each of Messrs. Bron, French, Grill, Haley, Kaufman, Maizel,
Thousand and Villanueva.
10.45 Agreement and Mutual General Release dated March 5, 1997, between Pan
American Bank, FSB and Robert Wilson.
10.46** Pan American Group, Inc. 1994 Stock Option Plan, together with forms
of incentive stock option and non-qualified stock option agreements.
10.47* Pan American Group, Inc. 1997 Stock Incentive Plan, together with
forms of incentive stock option, non-qualified stock option and
restricted stock agreements.
10.48 Pan American Bank, FSB Management Incentive Plan.
10.49** Pan American Bank, FSB 401(k) Profit Sharing Plan, as amended.
10.50 Income Tax Allocation Agreement dated October 19, 1994, between Pan
American Bank, FSB, Pan American Financial, Inc. and the Registrant.
10.51 Lease Agreement dated September 26, 1994, between the Resolution Trust
Corporation and Old Stone Bank of California and Pan American Bank,
FSB.
10.52 First Amendment to Lease Agreement dated November 19, 1995, between
the Resolution Trust Corporation and Old Stone Bank of California and
Pan American Bank, FSB.
10.53 Office Lease dated March 4, 1997, between Spieker Properties, L.P. and
Pan American Bank, FSB.
10.54 Office Space Lease dated January 18, 1996, between The Irvine Company
and Pan American Bank, FSB.
10.55 First Amendment to Office Space Lease dated July 2, 1996, between The
Irvine Company and Pan American Bank, FSB.
10.56 Standard Office Lease dated April 25, 1997, between CAL Portfolio VI,
L.L.C. and Pan American Bank, FSB.
10.57 Office Lease Agreement dated February 28, 1997, between P.R.A.
Biltmore Investments, L.L.C. and Pan American Bank, FSB.
10.58 Office Lease dated December 9, 1996, between Bernal Corporate Park and
Pan American Bank, FSB.
10.59 Bernal Corporate Park Lease First Amendment to Lease dated January 27,
1997.
10.60 Shopping Center Sublease dated September 22, 1995, between Panorama
Towne Center, L.P. and Pan American Bank, FSB.
10.61 Promissory Note in the principal amount of $225,000 dated October 15,
1997 by Lawrence J. Grill to the Registrant.
10.62 Loan and Stock Pledge Agreement dated October 15, 1997, between
Lawrence J. Grill and the Registrant.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.63* Promissory Note in the principal amount of $1,628,000 dated July 1,
1997 by the Registrant to Pan American Financial, L.P.
10.64* Promissory Note in the principal amount of $258,000 dated July 1, 1997
by the Registrant to BVG West Corporation.
10.65* Promissory Note in the principal amount of $52,500 dated July 1, 1997
by the Registrant to Lawrence J. Grill.
10.66* Promissory Note in the principal amount of $33,000 dated July 1, 1997
by the Registrant to Robert Wilson.
10.67* Promissory Note in the principal amount of $28,500 dated July 1, 1997
by the Registrant to Villanueva Management, Inc.
10.68*+ Master Repurchase Agreement Governing Purchases and Sales of Mortgage
Loans dated as of October 31, 1997, between Lehman Commercial Paper
Inc. and Pan American Bank, FSB.
10.69* Custodial Agreement dated November 6, 1997, among Lehman Commercial
Paper Inc., Pan American Bank, FSB and Bankers Trust Company of
California, N.A.
10.70* Loan Purchase and Sale Agreement dated April 1, 1997, among Aames
Capital Corporation, Aames Funding Corporation and Pan American Bank,
FSB.
10.71* Continuing Loan Purchase Agreement dated February 27, 1997, between
AMRESCO Residential Capital Markets, Inc. and Pan American Bank, FSB.
10.72* Mortgage Loan Purchase Agreement dated May 28, 1997, between Saxon
Mortgage, Inc. and Pan American Bank, FSB.
21.1* Subsidiaries.
23.1 Consent of KPMG Peat Marwick LLP.
23.2** Consent of Manatt, Phelps & Phillips, LLP (see Exhibit 5.1).
27.1 Financial Data Schedule.
</TABLE>
- --------
*Previously filed.
**To be filed by amendment.
+Confidential treatment requested.
<PAGE>
EXHIBIT 10.14
LIMITED BRANCH PURCHASE AND ASSUMPTION AGREEMENT
THIS LIMITED BRANCH PURCHASE AND ASSUMPTION AGREEMENT ("Agreement")
dated as of September 9, 1994, is made and entered into by and between the
Resolution Trust Corporation, in its capacity as receiver of the failed savings
association referred to in Paragraph 1(d) below (in such capacity, the
"Receiver") and Pan American Bank FSB, a federal thrift organized under the laws
of the United States of America and having its principal place of business in
San Mateo, California (the "Assuming Institution").
RECITALS
A. Pursuant to Section 5(d) of the Home Owners' Loan Act, as
amended, 12 U.S.C. Section 1464(d), the Office of Thrift Supervision has closed
the savings association referred to in Paragraph 1(d) below (the "Failed
Association") and has appointed the Resolution Trust Corporation as receiver of
the Failed Association.
B. The Receiver has determined pursuant to Section 11(d)(2)(G) of
the Federal Deposit Insurance Act, as amended (the "FDI Act"), 12 U.S.C. Section
1821(d)(2)(G), that it is appropriate and necessary to transfer certain assets
and liabilities of the Failed Association to the Assuming Institution.
C. The Chief Executive Officer of the Resolution Trust Corporation
has determined (i) pursuant to Sections 13(c)(2)(B) and 13(k)(1)(A)(i) of the
FDI Act, 12 U.S.C. Sections 1823(c)(2)(B) and 1823(k)(1)(A)(i), that severe
financial conditions threaten the stability of a significant number of insured
savings associations and of insured savings associations possessing significant
financial resources, and that the risk to the Resolution Trust Corporation in
its corporate capacity (in such capacity, the "Corporation") posed by the Failed
Association would be lessened if the Corporation approves the transfer to the
Assuming Institution of certain assets and liabilities of the Failed Association
and if the Corporation provides assistance to the Assuming Institution to
facilitate such transfer, and (ii) pursuant to Section 13(c)(4)(A) of the FDI
Act, as amended, 12 U.S.C. Section 1823(c)(4)(A), that the exercise of the
Corporation's authority under subsections (c), (d), (f), (h), (i), or (k) of
Section 13 of the FDI Act, as amended, 12 U.S.C. Section 1823, in providing
assistance pursuant to the Agreement
<PAGE>
Page C-2
is necessary to meet the obligation of the Corporation to provide insurance
coverage for the insured deposits in such Failed Association and the total
amount of the expenditures by, and the obligations incurred by, the Corporation
in connection with the exercise of any such authority is the least costly to the
deposit insurance fund of all possible methods for meeting that obligation.
D. The parties intend that such transfer be made on the terms and
conditions set forth in the RTC's Standard Purchase and Assumption Terms and
Conditions (Iota version dated December 25, 1993) (the "Standard Terms") as
herein supplemented, modified or amended.
NOW, THEREFORE, in consideration of the mutual promises herein set
forth and other valuable consideration, the Receiver and the Assuming
Institution agree as follows:
1. Certain Defined Terms. As used in this Agreement, the following
---------------------
terms shall have the following meanings (such meanings to be equally applicable
to both the singular and plural forms of the terms defined):
(a) "Acquiror" shall mean any transferee of any Asset or
--------
Liability pursuant to an agreement of even date herewith who is listed on
Schedule I, including the Assuming Institution.
(b) "Association Closing" shall mean the close of business of
-------------------
the Failed Association on September 9, 1994.
(c) "Branch" shall mean the branch office or offices of the
------
Failed Association at the locations described on Schedule H hereto.
(d) "Failed Association" shall mean Western Federal Savings
------------------
Bank, formerly a [federal savings association under the Home Owners' Loan Act,
as amended, 12 U.S.C. Section 1461, et seq.,] [__________ under the laws of the
-------
United States of America] and having its principal place of business in Marina
Del Rey, California, which was closed pursuant to Order No. _____ of the Office
of Thrift Supervision.
(e) "Lead Acquiror" shall mean either the Assuming Institution
-------------
or one of the Other Acquirors, as designated by the Receiver.
<PAGE>
Page C-3
(f) "Other Acquiror" shall mean any Acquiror other than the
--------------
Assuming Institution.
(g) "Other Branch Agreement" shall mean any Purchase and
----------------------
Assumption Agreement of even date herewith by and between the Receiver and any
Other Acquiror and related to any branch office or offices (other than the
Branch) of the Failed Association.
(h) "Premium" shall mean a premium in the amount of $808,026.00.
-------
(i) "Pro Rata Share" shall have the meaning set forth in Section
--------------
1.53, Alternative B, of the Standard Terms.
(j) "Related Agreements" shall mean the Indemnity Agreement,
------------------
Interim Capital Assistance Agreement, Promissory Note, and Stock Pledge
Agreement.
2. Purchase and Assumption. On the terms and conditions set forth
-----------------------
in the Standard Terms, incorporated herein by this reference, in each case as
the Standard Terms are herein supplemented, modified or amended,
(a) the Assuming Institution hereby assumes, and agrees to pay,
perform and discharge, all of the liabilities described in Section 2.1 of the
Standard Terms; provided, that liabilities assumed pursuant to Section 2.1(a)
--------
shall be limited to liabilities directly attributable to the Branch,
(b) the Receiver hereby sells, assigns, transfers, conveys and
delivers to the Assuming Institution, and the Assuming Institution hereby
purchases and accepts from the Receiver, all right, title and interest of the
Receiver in and to all of the assets described in Section 3.1 of the Standard
Terms directly attributable to the Branch,
(c) the Receiver hereby sells, assigns, transfers, conveys and
delivers to the Assuming Institution, and the Assuming Institution hereby
purchases and accepts from the Receiver, all right, title and interest of the
Receiver in and to each business described in Section 4.2 of the Standard Terms
directly attributable to the Branch,
(d) the Receiver hereby grants to the Assuming Institution each
option described in Section 4.1, Section 4.3 and
<PAGE>
Page C-4
Section 4.5 of the Standard Terms; provided that, the options set forth in
-------------
Sections 4.1(a), 4.1(b), 4.3 and 4.5 are limited to assets and businesses that
are directly attributable to the Branch, and
(e) the Receiver and the Assuming Institution each hereby agree
to be bound by all of the other terms and conditions set forth in the Standard
Terms.
3. Determination of Assets, Liabilities and Businesses Attributable
----------------------------------------------------------------
to the Branch.
- -------------
(a) The Receiver, in its sole discretion, shall determine which
assets, liabilities and businesses of the Failed Association are attributable to
the Branch.
(b) In the event of a conflict between the provisions of this
Agreement, on the one hand, and the provisions of any Other Branch Agreement, on
the other, the Receiver, in its sole discretion, shall determine which Acquiror
shall purchase or assume the assets or liabilities in question.
4. Alternative and Optional Provisions. For purposes of this
-----------------------------------
Agreement, the Standard Terms are hereby supplemented, modified or amended as
follows:
(a) Deposits. The transfer of Deposits under Paragraph 2(a)
--------
above shall include all of the Deposits (other than Withheld Deposits) of the
Failed Association directly attributable to the Branch, as provided in Section
2.1, Alternative A, of the Standard Terms. The definition of "Insured Deposit"
in Section 1.34 of the Standard Terms, clause (f) in the definition of "Withheld
Deposit" in Section 1.68 of the Standard Terms, clause (v) of Section 3.4(a) of
the Standard Terms, and Section 7.2(b) of the Standard Terms are hereby deleted
in their entirety and reserved.
(b) Assets.
------
(i) Sections 3.1(b), (c) and (d) of the Standard Terms are
hereby deleted in their entirety and reserved.
(ii) Section 3.1(g), Section 3.2(b), and Section 3.2(c) of
the Standard Terms are hereby deleted in their entirety and reserved.
<PAGE>
Page C-5
(iii) Section 3.2(d) and Section 4.1(c) of the Standard
Terms are hereby deleted in their entirety and reserved.
(c) Credit Card Business. The Assuming Institution shall neither
--------------------
acquire nor obtain an option to acquire the Failed Association's credit card
business. Section 4.2(a)(iv) of the Standard Terms is hereby deleted in its
entirety and reserved.
(d) Mortgage Loan Servicing. The Assuming Institution shall
-----------------------
neither acquire nor obtain an option to acquire the Failed Association's
mortgage loan servicing business. Section 4.2(a)(v), Section 4.2(d) and the
bracketed material in Section 4.2(b) and Section 11.6 of the Standard Terms are
hereby deleted in their entirety and reserved.
(e) Trust Business. The Assuming Institution shall neither
--------------
acquire nor obtain an option to acquire the Failed Association's Trust Business.
Section 4.3(a)(i) and Section 4.3(c)(iii) of the Standard Terms are hereby
deleted in their entirety and reserved.
(f) Subsidiaries. The Assuming Institution shall neither acquire
------------
nor obtain an option to acquire any capital stock in any of the Failed
Association's Subsidiaries. Section 4.4 and all references to Schedule E
contained in the Standard Terms are hereby deleted in their entirety and
reserved.
(g) Tax Reporting. The Assuming Institution's obligations under
-------------
Section 4.6 of the Standard Terms with respect to Deposit Accounts Processed
shall be limited to any such accounts directly attributable to the Branch.
(h) Consideration. As consideration for the assets, rights and
-------------
purchase options acquired by the Assuming Institution under this Agreement, and
in order to provide to the Assuming Institution assets equal to the liabilities
assumed under this Agreement, the Receiver shall pay to the Assuming Institution
the amount specified in Section 6.1, Alternative A of the Standard Terms.
5. Transition Period.
-----------------
(a) During the Transition Period, the Assuming Institution shall
cooperate with the Receiver and with each Other
<PAGE>
Page C-6
Acquiror in connection with the servicing of Assets and Liabilities as
contemplated by Article IX of the Standard Terms.
(b) If the Assuming Institution is not designated the Lead
Acquiror, notwithstanding Section 9.3 and Section 9.7(a) of the Standard Terms,
(i) one of the Other Acquirors shall be designated the Lead Acquiror and shall
hire or contract through a temporary employment agency and manage the Transition
Personnel, (ii) the Assuming Institution shall promptly remit to the Lead
Acquiror any and all monies received by the Assuming Institution during the
Transition Period in respect of Assets not purchased by the Assuming Institution
(including, without limitation, Assets purchased by any Other Acquiror and
Assets retained by or repurchased by the Receiver), and (iii) the Assuming
Institution shall arrange with the Lead Acquiror mutually acceptable terms
(consistent with the intent of this Agreement) for the provision of services and
other matters referred to in paragraph (c)(iii) below, which shall include a
waiver by the Assuming Institution of any claims it may have against the Lead
Acquiror relating to servicing of the Assets and Liabilities by the Transition
Personnel (other than any claims arising out of or relating to the Lead
Acquiror's failure to make good faith efforts to ensure that such servicing is
performed in accordance with the practices and procedures referred to in Section
9.3(g) of the Standard Terms), and an agreement by the Assuming Institution to
pay and reimburse the Lead Acquiror for the following:
(A) the Assuming Institution's Pro Rata Share of all out-
of-pocket costs and expenses directly attributable to
the Transition Personnel, including without limitation,
(A) if such Transition Personnel are hired directly,
all salaries, employment-related taxes, and out-of-
pocket costs and expenses for health care benefits, or
(B) if such Transition Personnel are hired through a
temporary employment agency, the fees charged by such
temporary employment agency to provide such personnel;
and
(B) in the event that the Lead Acquiror has hired the
Transition Personnel directly, and not through a
temporary employment agency, an administrative fee
equal to twelve per cent (12%) of the Assuming
Institution's Pro Rata Share of the sum of the
following amounts
<PAGE>
Page C-7
paid by the Lead Acquiror in accordance with Article
IX: (1) the total base salary (exclusive of overtime,
bonuses, incentives and severance pay) paid to
Transition Personnel and (2) the total reimbursable
out-of-pocket costs and expenses of providing health
care benefits (but not any other benefits) to such
Transition Personnel, and
(C) the Assuming Institution's Pro Rata Share of all other
out-of-pocket costs and expenses directly attributable
to the provision of data processing services pursuant
to Section 9.5 of the Standard Terms.
(c) If the Assuming Institution is designated the Lead Acquiror,
the Assuming Institution as Lead Acquiror (i) shall hire or contract through a
temporary employment agency such Transition Personnel as are required by the
Receiver, the Assuming Institution and the Other Acquirors to service their
respective Assets and Liabilities as provided in Section 9.3 of the Standard
Terms, (ii) shall remit to the Receiver on each Reimbursement Date any and all
monies received by the Assuming Institution in respect of Assets of the Receiver
(including, without limitation, Assets retained by or repurchased by the
Receiver), together with interest thereon as provided in Section 9.7(a) of the
Standard Terms, and (iii) shall arrange with each Other Acquiror mutually
acceptable terms (consistent with the intent of this Agreement) for (A) clearing
of checks and other cash items by the Assuming Institution on behalf of such
Other Acquiror, (B) daily remittance to such Other Acquiror of any additional
deposits received by the Assuming Institution in respect of Deposits assumed by
such Other Acquiror, (C) periodic remittance to such Other Acquiror of any
monies received by the Assuming Institution in respect of Assets purchased by
such other Acquiror and not repurchased by the Receiver, (D) the reimbursement
to the Assuming Institution by the Other Acquirors of their respective Pro Rata
Shares of (i) all out-of-pocket costs and expenses directly attributable to the
salaries, employment-related taxes, and health care benefits of the Transition
Personnel, or if the Transition Personnel are hired through a temporary
employment agency, the fees charged by such temporary employment agency to
provide such personnel, and (ii) all out-of-pocket costs and expenses directly
attributable to the provision of data processing services pursuant to Section
9.5 of the Standard Terms, (E) payment of the twelve per cent (12%)
<PAGE>
Page C-8
administrative fee described in Paragraph 5(b)(iii)(B) above, if applicable, and
(F) such other matters as are deemed necessary or appropriate by the Assuming
Institution or such Other Acquiror in connection with the provision of services
by the Transition Personnel. All settlements between the Assuming Institution
and any Other Acquiror shall be made directly between the Assuming Institution
and such Other Acquiror independent of the Receiver.
(d) Records that pertain both to Assets and Liabilities
transferred to the Assuming Institution as well as Assets and Liabilities
retained by the Receiver or transferred to any Other Acquiror shall either be
separated by the Receiver or assigned to the Lead Acquiror, in accordance with
Section 8.1(b) of the Standard Terms. If it is designated the Lead Acquiror, the
Assuming Institution shall permit the Receiver and any Other Acquiror access to
all such Records which pertain to any Asset or Liability transferred to the
Receiver or such Other Acquiror, and to use, inspect, make extracts from or
request copies of such Records, and shall further allow such party the temporary
possession, custody and use of original Records which pertain to any Asset or
Liability transferred to such party, for any lawful purpose and upon reasonable
terms and conditions; provided, that storage, retrieval and duplication costs
--------
for such Records shall be shared among the parties in accordance with Section
8.1(b) and Section 8.4(d) of the Standard Terms.
(e) The Assuming Institution shall hold any and all information
it may obtain regarding Assets and Liabilities not purchased or assumed by the
Assuming Institution (including, without limitation, Assets and Liabilities
purchased or assumed by any Other Acquiror and Assets and Liabilities
repurchased by the Receiver) in strict confidence and shall not use such
information in any manner except as contemplated by this Agreement.
6. Additional Representation. In addition to the representations
-------------------------
and warranties set forth in Article XI of the Standard Terms, the Assuming
Institution represents and warrants to the Receiver that it has received and
reviewed a copy of the Standard Terms.
7. Additional Closing Condition. In addition to the conditions set
----------------------------
forth in Sections 10.1 and 10.3 of the Standard Terms, the obligations of the
Receiver under this Agreement are subject to the satisfaction of the following
condition: Each of the Other Acquirors shall have entered into its respective
Other
<PAGE>
Page C-9
Branch Agreement and all of the conditions to the Receiver's and each such Other
Acquiror's obligations set forth in Article X of the Standard Terms (as
incorporated by reference in each such Agreement) shall have been satisfied or
waived.
8. Notices. As provided in Section 13.7 of the Standard Terms,
-------
addresses for notices shall be as follows:
RECEIVER
- --------
Resolution Trust Corporation
Receiver of Western Federal Savings Bank
4000 MacArthur Blvd.
Newport Beach, CA 92660-2516
Attention: Vice President (RTC)
with a copy to:
- ---------------
Resolution Trust Corporation
Receiver of Western Federal Savings Bank
4000 MacArthur Blvd.
Newport Beach, CA 92660-2516
Attention: Assistant General Counsel (RTC)
and further additional copies to such Resolution Trust Corporation offices as
the Receiver may reasonably request from time to time,
ASSUMING INSTITUTION
- --------------------
Pan American Bank, FSB
1300 South El Camino Real, P.O. Box 2079
San Mateo, California 94401-0986
Attention: President
9. Schedules. The following schedules contemplated by the Standard
---------
Terms are attached hereto and incorporated herein by this reference:
SCHEDULE A-1 Certain Other Assets
SCHEDULE A-2 Certain Assets Subject to Call
SCHEDULE B PSA Expected Prepayment Rates
SCHEDULE C Other Excluded Assets
<PAGE>
Page C-10
SCHEDULE D Certain Services Provided by the
Failed Association
SCHEDULE E Certain Subsidiaries
SCHEDULE F Certain Services Provided to the Failed
Association
SCHEDULE G Other Withheld Deposits
SCHEDULE H Branch or Branches (Branch
transactions only)
SCHEDULE I Acquirors (Branch transactions only)
SCHEDULE J Allocation of Assets to Branches (Limited
branch transactions only)
10. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS
-------------
UNDER THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
FEDERAL LAW OF THE UNITED STATES OF AMERICA, AND IN THE ABSENCE OF CONTROLLING
FEDERAL LAW, IN ACCORDANCE WITH THE LAWS OF THE STATE IN WHICH THE BRANCH IS
LOCATED.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized representatives as of the date first above
written.
RESOLUTION TRUST CORPORATION AS
RECEIVER OF WESTERN FEDERAL SAVINGS BANK
MARINA DEL REY, CALIFORNIA
ATTEST:
By: /s/[SIGNATURE ILLEGIBLE] /s/[SIGNATURE ILLEGIBLE]
------------------------- -------------------------
PAN AMERICAN BANK, FSB
SAN MATEO, CALIFORNIA
ATTEST:
By: /s/LAWRENCE J. GRILL /s/[SIGNATURE ILLEGIBLE]
------------------------- -------------------------
<PAGE>
EXHIBIT 10.15
LEAD ACQUIROR WAIVER AND REIMBURSEMENT AGREEMENT
(ACQUISITION OF WESTERN FEDERAL SAVINGS BANK)
THIS WAIVER AND REIMBURSEMENT AGREEMENT (this "Agreement") is entered
into as of September 9, 1994 between Home Savings of America, FSB, a federal
savings association (the "Lead Acquiror"), and Pan American Bank, FSB, a federal
savings association (the "Other Acquiror"), in connection with the acquisition
of certain assets and assumption of certain liabilities of Western Federal
Savings Bank (the "Failed Association") by the Lead Acquiror and the Other
Acquiror.
RECITALS
WHEREAS, the Lead Acquiror has entered into a Core Branch Purchase and
Assumption Agreement dated as of September 9, 1994 (the "Core Branch Agreement")
with the Resolution Trust Corporation (the "Corporation"), in its capacity as
receiver for the Failed Association (in such capacity, the "Receiver");
WHEREAS, pursuant to the Core Branch Agreement, the Lead Acquiror has
agreed to acquire from the Receiver, and the Receiver has agreed to transfer to
the Acquiror, certain assets and liabilities relating to the branch of the
Failed Association identified on Schedule H to the Core Branch Agreement (the
"Core Branches"), such acquisition and transfer to be made on the terms and
conditions set forth in the Corporation's Standard Purchase and Assumption Terms
and Conditions, Iota Version, dated December 25, 1993 (the "Standard Terms"), as
modified, supplemented or amended by the Core Branch Agreement;
WHEREAS, the Other Acquiror has entered into a Limited Branch Purchase
and Assumption Agreement dated as of September 9, 1994 (the "Other Branch
Agreement") with the Receiver;
WHEREAS, pursuant to the Other Branch Agreement, the Other Acquiror
has agreed to acquire from the Receiver, and the Receiver has agreed to transfer
to the Acquiror, certain assets and liabilities relating to the branch of the,
Failed Association identified on Schedule H to the Other Branch Agreement (the
"Other Branch"), such acquisition and transfer to be made on the terms and
conditions set forth in the Standard Terms, as modified, supplemented or amended
by the Other Branch Agreement;
WHEREAS, Clauses (c) and (d) of Paragraph 5 of both the Core Branch
Agreement and the Other Branch Agreement (collectively, the "Branch Agreements")
provide that, during the Transition Period (as defined in the Standard Terms)
and for a period thereafter, the Lead Acquiror shall undertake certain
obligations and incur certain expenses with respect to all of the assets and
liabilities of the Failed Institution (all such obligations and expenses, the
"Transition Period Obligations"), including without limitation the obligations
and expenses contemplated by Article IX of the Standard Terms;
<PAGE>
WHEREAS, the Other Branch Agreement provides that the Other Acquiror
shall (i) promptly remit to the Lead Acquiror certain monies described in Clause
(b) (ii) of Paragraph 5 thereof, (ii) waive certain claims it may have against
the Lead Acquiror as described in Clause (b) (iii) of Paragraph 5 thereof, and
(iii) pay and reimburse the Lead Acquiror for certain amounts described Clause
(b) (iii) of Paragraph 5 thereof; and
WHEREAS, both of the Branch Agreements provide that the Lead Acquiror
and the Other Acquiror shall arrange mutually acceptable terms (consistent with
the intent of the Branch Agreements) for certain remittances, settlements and
other activities described in Clause (c) (iii) of Paragraph 5 thereof;
NOW, THEREFORE, in consideration of their respective obligations in
the Core Branch Agreement and the Other Branch Agreement, the mutual promises
herein set forth and other valuable consideration (the receipt and sufficiency
of which are hereby acknowledged), the Lead Acquiror and the Other Acquiror
hereby agree as follows:
1. Incorporation of Documents and Definitions.
------------------------------------------
(a) Standard Terms and Branch Agreements. The terms of the Standard
------------------------------------
Terms and the Branch Agreements are hereby incorporated by reference into
this Agreement. Any capitalized term used but not otherwise defined herein
shall have the meaning ascribed to such term in the Core Branch Agreement,
unless the context requires otherwise.
(b) Definition of "Transition Period Claims". For the purposes of
----------------------------------------
this Agreement, "Transition Period Claims" shall mean any and all claims,
rights, entitlements, actions, demands, costs, contracts, allegations,
liabilities, Obligations, damages, and causes of actions arising out of or
relating to the servicing of the Assets and Liabilities by the Transition
Personnel or the performance of the Transition Period Obligations by the
Lead Acquiror; provided, however, that "Transition Period Claims" shall not
-------- -------
include any such claims or obligations arising out of or relating to (i)
the Lead Acquiror's failure to make good faith efforts to ensure that the
servicing of the Assets and Liabilities by the Transition Personnel is
performed in accordance with the practices and procedures referred to in
Section 9.3(g) of the Standard Terms, or (ii) the gross negligence or
wilful misconduct by the Lead Acquiror.
2. Agreement Regarding Transition Period Activities.
------------------------------------------------
Each of the Lead Acquiror and the Other Acquiror shall negotiate
in good faith with the other to reach agreement as to mutually acceptable
arrangements, and thereafter shall cooperate with the other to implement
such arrangements, regarding the following: (i) the clearing of checks and
other cash items by the Lead Acquiror on behalf of the Other Acquiror, (ii)
daily remittance by the Lead
-2-
<PAGE>
Acquiror to the Other Acquiror of additional deposits, if any, received by
the Lead Acquiror in respect of Deposits assumed by the Other Acquiror, and
(iii) such other matters as are deemed necessary or appropriate by the Lead
Acquiror or the Other Acquiror in connection with the Transition Period or
the Transition Period Obligations.
3. Covenants of the Other Acquiror.
-------------------------------
The Other Acquiror hereby covenants to and agrees with the Lead
Acquiror as follows:
(a) Remittance of Monies Received. The Other Acquiror shall remit to
-----------------------------
the Lead Acquiror, by wire transfer of immediately available funds, the
monies described in Clause (b) (ii) of Paragraph 5 of the Other Branch
Agreement promptly after such monies, if any, are received by the Other
Acquiror.
(b) Payment and Reimbursement of the Lead Acquiror. The Other
----------------------------------------------
Acquiror shall, upon demand by the Lead Acquiror, promptly pay and
reimburse the Lead Acquiror, by wire transfer of immediately available
funds, for the following amounts: (i) the amounts described in Clause (b)
(iii) of Paragraph 5 of the Other Branch Agreement (including without
limitation the 12% administrative fee described in Paragraph 5 (b) (iii)
(B) of the Other Branch Agreement); (ii) its share of the storage,
retrieval and duplication costs with respect to Records described in Clause
(d) of Paragraph 5 of the Other Branch Agreement, in accordance with
Sections 8.1(b) and 8.4(d) of the Standard Terms; (iii) unless paid
directly to the Receiver, its Pro Rata Share of the rent and operating
costs for Transition Personnel use of Owned Association Premises, Leased
Association Premises or Furniture and Equipment pursuant to Section 9.2(c)
of the Standard Terms; and (iv) its Pro Rata Share of all other costs and
expenses incurred by the Lead Acquiror (for which it is not otherwise
reimbursed by the Receiver and which do not constitute general
administrative or overhead expenses) and directly related to the Transition
Period Obligations, including costs (including without limitation legal
fees and amounts paid in settlement) relating to any Transition Period
Claims filed or otherwise asserted against the Lead Acquiror by any third
party.
4. Waiver and Release of Claims by the Other Acquiror.
--------------------------------------------------
(a) Waiver and Release of Transition Period Claims. The Other
----------------------------------------------
Acquiror hereby waives, releases, acquits, and discharges the Lead Acquiror
from any and all Transition Period Claims, whether known, suspected or
unknown, now arisen or arising in the future, that the Other Acquiror may
have or acquire, now or in the future. The Other Acquiror hereby covenants
to the Lead Acquiror that it shall not in the future sue upon or otherwise
assert any such Transition Period Claims.
-3-
<PAGE>
(b) Waiver of California Civil Code Section 1542. The Other Acquiror
--------------------------------------------
expressly waives and relinquishes all rights and benefits afforded by
Section 1542 of the Civil Code of the State of California, if any, which
are applicable to the waiver and release set forth in the foregoing clause
(a), and does so understanding and acknowledging the significance and
consequences of such specific waiver of Section 1542. Section 1542 of the
Civil Code of the State of California provides as follows:
A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor.
Thus, the Other Acquiror expressly acknowledges that the foregoing waiver
and release is intended to and does include in its effect, without
limitation, all of the Transition Period Claims, including matters which
the Other Acquiror does not know or suspect to exist in its favor at the
time of execution hereof. The Other Acquiror acknowledges and agrees that
it has been advised by its legal counsel as to the significance and legal
effect of the waiver of their rights under Section 1542 of the Civil Code
of the State of California.
5. Miscellaneous Provisions.
------------------------
(a) Successors and Assigns. All terms and provisions of this
----------------------
Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective transferees, successors and permitted
assigns; provided, however, this Agreement and all rights, privileges,
-------- -------
duties and obligations of the parties hereto may not be assigned or
delegated by any party hereto without the written consent of the other
party to this Agreement.
(b) Third Party Beneficiaries. Except as expressly provided in this
-------------------------
Agreement, each party hereto intends that this Agreement shall not benefit
or create any right or cause of action in or on behalf of any person other
than the parties hereto.
(c) Enforceability and Validity. If any provision of this Agreement,
---------------------------
as applied to any party or to any circumstance, shall be adjudged by a
court or other tribunal to be void, invalid or unenforceable, the same
shall in no way affect any other provision of this Agreement, the
application of any such provision in any other circumstances or the
validity or enforceability of the other provisions of this Agreement,
except where the provision(s) are an essential part of the intent of this
Agreement.
-4-
<PAGE>
(d) Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original and all of which
taken together shall constitute one instrument.
(e) Governing Law. This Agreement is made and entered into in the
-------------
State of California and the laws of that state shall govern the validity
and interpretation hereof and the performance of the parties hereto of
their respective duties and obligations hereunder.
(f) Captions. The captions in this Agreement are for convenience of
--------
reference only and do not form a part of this Agreement. References to
paragraphs by number include subparagraphs thereof, unless the context
dictates otherwise.
(g) Entire Agreement. The making, execution and delivery of this
----------------
Agreement by the parties hereto have been induced by no representations,
statements, warranties or agreements other than those herein expressed.
This Agreement, and the related obligations of the parties under the Branch
Agreements and the Standard Terms, embody the entire understanding of the
parties and there are no further or other agreements or understandings,
written or oral, in effect among the parties relating to the subject matter
hereof, unless expressly referred to herein. This Agreement and the
agreements contained herein may be amended or modified only by an
instrument of equal formality signed by the parties or their duly
authorized agents.
(h) No Diminution of Rights and Obligation Under the Branch
-------------------------------------------------------
Agreements. Nothing in this Agreement shall diminish or otherwise modify
----------
the respective rights and obligations of the Lead Acquiror or the Other
Acquiror under the Branch Agreements.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
PAN AMERICAN BANK, FSB, HOME SAVINGS OF AMERICA, FSB,
Other Acquiror Lead Acquiror
By: /s/ Lawrence J. Grill By: /s/ Mark Joseph
-------------------------- --------------------------
Mark Joseph
Name: Lawrence J. Grill Vice President
------------------------
Title: President
-----------------------
-5-
<PAGE>
EXHIBIT 10.16
[LOGO OF RTC APPEARS HERE]
INDEMNITY AGREEMENT
BETWEEN
RESOLUTION TRUST CORPORATION
and
PAN AMERICAN BANK FSB
SAN MATEO, CALIFORNIA
DATED AS OF
SEPTEMBER 9, 1994
<PAGE>
TABLE OF CONTENTS
-----------------
page i
<TABLE>
<CAPTION>
Page
----
<S> <C>
RECITALS.............................................................. 1
ARTICLE I............................................................. 2
DEFINITIONS...................................................... 2
1.1 Certain Defined Terms.................................. 2
1.2 Other Capitalized Terms................................ 3
ARTICLE II............................................................ 3
INDEMNIFICATION OF AI INDEMNITEES................................ 3
2.1 General Indemnity...................................... 3
2.2 Limited Indemnity...................................... 4
2.3 Exclusions............................................. 5
2.4 Limited Guaranty....................................... 7
2.5 Third Party Beneficiaries.............................. 7
ARTICLE III........................................................... 7
INDEMNIFICATION OF RTC INDEMNITEES............................... 7
3.1 General Indemnity...................................... 7
3.2 Third Party Beneficiaries.............................. 8
ARTICLE IV............................................................ 8
INDEMNIFICATION PROCEDURES....................................... 8
4.1 All Indemnitees........................................ 8
4.2 AI Indemnitees......................................... 8
4.3 Advance of Defense Costs............................... 9
ARTICLE V............................................................. 10
TERMINATION...................................................... 10
ARTICLE VI............................................................ 10
MISCELLANEOUS.................................................... 10
6.1 No Warranty............................................ 10
6.2 Entire Agreement....................................... 10
6.3 Headings............................................... 10
6.4 Counterparts........................................... 10
6.5 GOVERNING LAW.......................................... 11
6.6 Successors............................................. 11
6.7 Modification; Assignment............................... 11
6.8 Notice................................................. 11
6.9 Waiver................................................. 12
6.10 Severability........................................... 12
6.11 Corporation Obligation................................. 13
6.12 Costs of Duplication................................... 13
6.13 Effectiveness.......................................... 13
</TABLE>
<PAGE>
INDEMNITY AGREEMENT
THIS INDEMNITY AGREEMENT dated as of this 9th day of September, 1994, is
made by and between the RESOLUTION TRUST CORPORATION, a corporation organized
and existing under the laws of the United States of America and having its
principal office in Washington, D.C. (the "Corporation") and Pan American Bank
FSB, organized and existing under the laws of the United States of America and
having its principal place of business in San Mateo, California (the "Assuming
Institution").
RECITALS
--------
A. Pursuant to Section 5(d) of the Home Owners' Loan Act, as amended, 12
U.S.C. Section 1464(d) (the "HOLA"), the Office of Thrift Supervision of the
Department of the Treasury ("OTS") has issued its Order No. _____ providing for
the closing of Western Federal Savings Bank, formerly an insured savings
association within the meaning of the FDI Act, organized as a federal
association under Section 21A of the Federal Home Loan Bank Act, as amended, 12
U.S.C. Section 1441a and having its principal place of business in Marina Del
Rey, California (the "Failed Association").
B. Pursuant to Section 5(d)(2) of the HOLA, 12 U.S.C. Section l464(d)(2),
and Section 11(c)(6)(B) of the FDI Act, 12 U.S.C. Section 1821(c)(6)(B), the OTS
has appointed the Resolution Trust Corporation as Receiver of the Failed
Association (in such capacity, the "Receiver") and the Resolution Trust
Corporation has accepted the appointment.
C. Pursuant to the Purchase and Assumption Agreement of even date herewith
by and between the Receiver and the Assuming Institution (as the same may be
modified or amended from time to time, the "Purchase and Assumption Agreement"),
the Assuming Institution has assumed the deposit and certain other liabilities
and purchased certain assets of the Failed Association.
D. Pursuant to 12 U.S.C. Section 1823(c)(2)(A), the Corporation may
provide assistance to the Assuming Institution to facilitate the transactions
contemplated by the Purchase and Assumption Agreement, which assistance may
include indemnification of the AI Indemnitees (as hereinafter defined) upon the
determination of the Corporation's Chief Executive Officer ("CEO") that any one
of the requisite conditions set forth in 12 U.S.C. Section 1823(c)(4)(A) as
amended exists.
E. The CEO has determined pursuant to 12 U.S.C. Section 1823(c)(4)(A)
that providing indemnification pursuant to this Indemnity Agreement is necessary
to meet the obligation of the Corporation to provide insurance coverage for the
insured deposits in such Failed Association and the total amount of the
<PAGE>
Page 2
expenditures by, and obligations incurred by, the Corporation in connection with
the exercise of such authority is the least costly to the deposit insurance fund
of all possible methods for meeting that obligation.
F. The Assuming Institution would not enter into the Purchase and
Assumption Agreement without the indemnification provided under this Indemnity
Agreement.
NOW, THEREFORE, in consideration of the mutual promises herein set forth
and other valuable consideration, the Corporation and the Assuming Institution
hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Certain Defined Terms. As used in this Agreement, the following terms
---------------------
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
(a) "Agreement" shall mean this Indemnity Agreement, as the same may
---------
be amended or supplemented from time to time. References to Articles, Sections,
subsections and the like refer to the Articles, Sections and subsections and the
like of this Agreement unless otherwise indicated.
(b) "AI Indemnitees" shall mean (i) the Assuming Institution and its
--------------
Affiliates, and (ii) the respective directors, officers, employees and agents of
the Assuming Institution and its Affiliates; provided, however, that
-------- -------
notwithstanding anything to the contrary contained herein, "AI Indemnitees"
shall not include (x) any Affiliate of the Assuming Institution that was at any
time an Affiliate of either the Failed Association or any Predecessor Thrift,
(y) any entity (including, without limitation, any Affiliate of the Assuming
Institution) that is a successor-in-interest (whether by merger, consolidation,
reorganization or otherwise) to any Affiliate of either the Failed Association
or any Predecessor Thrift, or (z) any director, officer, employee or agent of
the Assuming Institution or any Affiliate of the Assuming Institution that was
at any time a director, officer, employee or agent of the Failed Association,
<PAGE>
any Predecessor Thrift, or any Affiliate of the Failed Association or any
Predecessor Thrift.
(c) "Costs" shall mean, with respect to any claim (or potential claim
-----
under Section 2.2(c)), any and all costs, losses, liabilities, expenses
(including attorneys' fees), judgments, fines and settlement amounts incurred in
connection with such claim or potential claim, provided, however, that the
amount of any indemnification provided to any AI Indemnitee hereunder for any
such Costs shall be determined on an after-tax basis so as to reflect any
reduction in taxes attributable to the payment by such AI Indemnitee of any such
Costs.
(d) "FA Affiliated Person" shall mean (i) the Failed Association, (ii)
--------------------
any Predecessor Thrift, (iii) any Affiliate of either the Failed Association or
any Predecessor Thrift, or (iv) any director, officer, employee or agent as such
of any of the entities specified in subsections (i) through (iii) above.
(e) "Indemnitee" shall mean any AI Indemnitee or any RTC Indemnitee,
----------
as the context may require.
(f) "Indemnitor" shall mean the Corporation or the Assuming
----------
Institution, as the context may require.
(g) "RTC Indemnitees" shall mean (a) the Corporation, (b) the
---------------
Receiver, and (c) the respective directors, officers, employees and agents of
the Corporation and the Receiver.
(h) "Standard Terms" shall mean the RTC Standard Purchase and
--------------
Assumption Terms and Conditions, incorporated by reference, in (and expressly
made a part of) the Purchase and Assumption Agreement.
(i) "Third Party Claim" shall mean, with respect to any Indemnitee, a
-----------------
claim against such Indemnitee by a Person that is not an Affiliate of such
Indemnitee.
1.2 Other Capitalized Terms. Capitalized terms used in this Agreement and
-----------------------
not otherwise defined herein shall have the respective meanings assigned to them
in the Purchase and Assumption Agreement.
ARTICLE II
INDEMNIFICATION OF AI INDEMNITEES
2.1 General Indemnity. On the terms and conditions hereinafter set forth,
-----------------
the Corporation shall indemnify and hold harm-
<PAGE>
Page 4
less each AI Indemnitee against any and all Costs actually and reasonably
incurred by any such AI Indemnitee in connection with any and all claims based
upon any of the following:
(a) any liability of the Failed Association not assumed by the
Assuming Institution pursuant to the Purchase and Assumption Agreement on or
after Association Closing;
(b) the determination or appointment of a conservator or receiver by
the appropriate regulatory authority for the Failed Association or any
Predecessor Thrift or the acceptance of the Assuming Institution's bid to
purchase certain assets and assume certain liabilities of the Failed
Association;
(c) any act or omission of any AI Indemnitee on behalf of the Receiver
or the Corporation which is taken or omitted upon the specific written direction
of the Receiver or the Corporation; and
(d) any act or omission of any Dedicated Personnel which is (i) taken
or omitted at the direction or upon the approval of the Receiver (whether
written or verbal) pursuant to Article IX of the Standard Terms, or (ii) within
the scope of the employment of such Dedicated Personnel as it relates to the
services provided under Article IX of the Standard Terms.
2.2 Limited Indemnity.
-----------------
(a) All assets purchased by the Assuming Institution pursuant to the
Purchase and Assumption Agreement, whether on or after Association Closing, are
transferred "as is," "where is," without any warranties, express or implied.
Notwithstanding anything to the contrary contained in this Agreement, no
indemnification shall be provided hereunder to any AI Indemnitee for any claim
based upon, arising out of or relating to any such asset, including, without
limitation, any Third Party Claims, except as expressly set forth in this
Section 2.2.
(b) Subject to subsections (c), (d) and (e) below, the Corporation
shall indemnify and hold harmless each AI Indemnitee against any and all Costs
actually and reasonably incurred by any such AI Indemnitee in connection with
any Third Party Claim arising out of or relating to any asset of the Failed
Association purchased by the Assuming Institution pursuant to the Purchase and
Assumption Agreement to the extent such claims is based upon any act or omission
prior to Association Closing by any FA Affiliated Person.
<PAGE>
Page 5
(c) In the case of any Third Party Claim or potential Third Party
Claim based upon, arising out of or relating to an interest overcharge on any
adjustable rate First Mortgage Loan, the indemnification provided under Section
2.2(b) (i) shall apply to potential Third Party Claims identified by the
Assuming Institution, whether or not an actual Third Party Claim has been made
or threatened, (ii) shall not in any event exceed the purchase price (as set
forth in the Purchase and Assumption Agreement) of such First Mortgage Loan, and
(iii) shall be limited to indemnification for Costs that are directly
attributable to net interest overcharges received by the Failed Association
prior to Association Closing. As used herein, "net interest overcharge" means,
with respect to any First Mortgage Loan, the difference between total interest
overpayments and total interest underpayments received by the Failed Association
in respect of such First Mortgage Loan prior to Association Closing.
(d) No indemnification shall be provided to any AI Indemnitee under
Section 2.2(b) for any Third Party Claim (other than any Third Party Claim
relating to an interest overcharge on any adjustable rate First Mortgage Loan)
unless the Costs actually and reasonably incurred by such AI Indemnitee in
connection with such claim exceed the sum of (i) the purchase price (as set
forth in Article III or Article IV of the Standard Terms) of the asset to which
such claim relates, plus (ii) any and all amounts (other than principal
----
payments) recovered by such AI Indemnitee in connection with any claim by such
AI Indemnitee arising out of or relating to such asset. The Corporation shall
provide indemnification only in the amount of any such excess.
(e) No indemnification shall be provided under Section 2.2(b) for any
Third Party Claim (or potential Third-Party Claim under Section 2.2(c)) based
upon, arising out of or relating to any act or omission by any AI Indemnitee.
If any claim or potential claim for which indemnification is sought under
Section 2.2(b) is attributable in part to any act or omission by any AI
Indemnitee, the Corporation shall provide indemnification only to the extent
that such claim or potential claim is attributable to acts or omissions by any
FA Affiliated Person. The Corporation, in its sole discretion, shall determine
which, if any, Costs incurred in connection with any such Third Party Claim (or
potential Third Party Claim) are attributable to acts or omissions by any AI
Indemnitee.
2.3 Exclusions. Notwithstanding anything to the contrary contained in this
----------
Agreement, no indemnification shall be provided hereunder to any AI Indemnitee
for any claims or potential claim is based upon, arising out of or relating to
any of the following:
<PAGE>
Page 6
(a) any liability assumed by the Assuming Institution pursuant to the
Purchase and Assumption Agreement on or after Association Closing;
(b) any gross negligence or intentional misconduct of any AI
Indemnitee, whether before or after Association Closing and, except as expressly
provided in Section 2.1(c) above, any act or omission by any AI Indemnitee or
any Transition Personnel on or after Association Closing, including, without
limitation, any act or omission by any AI Indemnitee or any Transition Personnel
with respect to any asset purchased by the Assuming Institution under the
Purchase and Assumption Agreement and subsequently repurchased by the Receiver
in accordance with the terms of the Purchase and Assumption Agreement;
(c) any violation by any AI Indemnitee of any laws of the United
States of America or any state thereof, including, without limitation, any
antitrust, branching, employee benefit, banking or bank holding company or
securities laws;
(d) any claim or potential claim which could have been enforced
against any AI Indemnitees had the Assuming Institution not entered into the
Purchase and Assumption Agreement;
(e) any alleged breach by any director of any AI Indemnitee of such
director's fiduciary duty or duty of care to the shareholders of such AI
Indemnitee, including, without limitation, any shareholder derivative suit;
(f) any claim or potential claim based upon, arising out of or
relating to any asset purchased by the Assuming Institution pursuant to any
Mortgage Loan Sale Agreement; and
(g) with respect to any asset purchased by the Assuming Institution
pursuant to the Purchase and Assumption Agreement on or after Association
Closing, any claim or potential claim based upon, arising out of or relating to
(i) title to, or the value, collectibility, enforceability or condition of, or
the existence of liens or encumbrances affecting, any such asset, (ii)
conditions of, or generated by, any such asset arising from or related to the
generation, storage, manufacturing, refining, transportation, treatment,
disposal, deposit, dumping, placing, spilling, discharge, or release or other
presence of any hazardous substance or toxic substance, or any pollutant or
contaminant, (iii) the presence of asbestos or other toxic substance used in
construction of, or rehabilitation of, or on any such asset, (iv) the presence
of radon or petroleum or petroleum byproducts or gases or pesticide products or
nuclear materials on any such asset, or (v) conditions of any such asset
<PAGE>
Page 7
which violate any applicable Federal, state or local law or regulation for
environmental protection.
2.4 Limited Guaranty. The Corporation hereby guarantees performance
----------------
of the Receiver's obligation to repurchase certain assets from the Assuming
Institution upon the exercise of the Assuming Institution's right (if any) to
resell certain assets to the Receiver pursuant to Section 3.3(b) of the Standard
Terms. It is a condition to the Corporation's obligation hereunder that the
Assuming Institution shall comply in all respects with the applicable provisions
of the Purchase and Assumption Agreement. The Corporation shall be liable
hereunder only for such amounts, if any, as the Receiver is obligated to pay
under the terms of the Purchase and Assumption Agreement but shall fail to pay.
2.5 Third Party Beneficiaries. Each AI Indemnitee is an intended
-------------------------
third party beneficiary of this Agreement (other than the Assuming Institution,
which is a party hereto). Each AI Indemnitee (including the Assuming
Institution) may enforce the Corporation's obligations to such AI Indemnitee
hereunder directly and without any need for any consent, assistance or
intervention of any other AI Indemnitee.
ARTICLE III
INDEMNIFICATION OF RTC INDEMNITEES
3.1 General Indemnity. On the terms and conditions hereinafter set
-----------------
forth, the Assuming Institution shall indemnify and hold harmless each RTC
Indemnitee from and against any and all Costs incurred in connection with any
and all claims based upon, arising out of or relating to any of the following:
(a) any liability assumed by the Assuming Institution pursuant to the
Purchase and Assumption Agreement on or after Association Closing;
(b) any act or omission of any AI Indemnitee (including, by way of
example only and expressly without limitation, any act or omission by any AI
Indemnitee with respect to any asset of the Failed Association purchased by the
Assuming Institution under the Purchase and Assumption Agreement and
subsequently repurchased by the Receiver), other than any act or omission
subject to Section 2.l(c) of this Agreement;
(c) any reliance on, or use of, any "Phase I" environmental report or
similar environmental audit report provided to the Assuming Institution pursuant
to Section 4.9(b) of the Standard Terms; and
<PAGE>
Page 8
(d) the Assuming Institution's notice to depositors required by
Section 5.3 of the Standard Terms.
3.2 Third Party Beneficiaries. Each RTC Indemnitee (other than the
-------------------------
Corporation, which is a party hereto) is an intended third party beneficiary of
this Agreement. Each RTC Indemnitee (including the Corporation) may enforce the
Assuming Institution's obligations to such RTC Indemnitees hereunder directly
and without the need for any consent, assistance or intervention of any other
RTC Indemnitee.
ARTICLE IV
INDEMNIFICATION PROCEDURES
4.1 All Indemnitees. Subject to Article V, and with respect to (i) any
---------------
claim made or threatened against any Indemnitee for which such Indemnitee is or
may be entitled to indemnification under this Agreement, and (ii) any potential
claim for which indemnification may be sought under Section 2.2(c), it shall be
a condition to such indemnification that such Indemnitee shall:
(a) give written notice to the Indemnitor of such claim as soon as
practicable after such claim is made or threatened (or, in the case of any such
potential claim, as soon as practicable after such Indemnitee becomes aware of
any facts or circumstances on which such potential claim may be based), which
notice shall specify in reasonable detail the nature of the claim or potential
claim and the amount (or an estimate of the amount) of the claim or potential
claim;
(b) provide to the Indemnitor such information and cooperation with
respect to such claim or potential claim as the Indemnitor may reasonably
require, including, without limitation, making appropriate personnel available
to the Indemnitor at such times as the Indemnitor shall request (provided, that
--------
such personnel are under the employ of the Indemnitee at such time) and
providing copies of invoices or other evidence of expense incurred;
(c) cooperate and take all such steps as the Indemnitor may reasonably
request to preserve and protect any defense to such claim or potential claim;
and
(d) upon reasonable prior notice, afford to the Indemnitor the right,
which the Indemnitor may exercise in its sole discretion and at its expense, to
participate in the investigation, defense and settlement of such claim or
potential claim.
<PAGE>
Page 9
4.2 AI Indemnitees. With respect to any claim made or threatened against
--------------
any AI Indemnitee for which such AI Indemnitee is or may be entitled to
indemnification under this Agreement, and with respect to any potential claim
for which indemnification may be sought under Section 2.2(c), it shall be a
further condition to such indemnification that such AI Indemnitee, in addition
to complying with the provisions of Section 4.1, shall:
(a) neither incur any material expense to defend against nor settle
or compromise such claim or potential claim or make any admission with respect
thereto (other than routine or incontestable admissions or factual admissions
the failure to make which would expose such AI Indemnitee to unindemnified
liability) without the prior written consent of the Corporation (which consent
shall not be unreasonably withheld); and
(b) upon reasonable prior notice, afford to the Corporation the right,
in its sole discretion and at its expense, to control the defense of such claim
or potential claim, including, without limitation, the right to designate
counsel and to control all negotiations, litigation, arbitration, settlements,
compromises and appeals of any such claim or potential claim; provided, however,
-------- -------
that the Corporation shall have advised such AI Indemnitee that, to the best of
the Corporation's knowledge at such time, such AI Indemnitee is entitled to be
indemnified hereunder with respect to such claim or potential claim; and
provided further, that prior to entering into a final settlement or compromise,
- -------- -------
(i) the Corporation shall use its best efforts in the light of the then
prevailing circumstances (including, without limitation, any express or implied
time constraint on any pending settlement offer) to consult with such AI
Indemnitee as to the terms of settlement or compromise and shall use its best
efforts to incorporate suggested modifications if such modifications (A) would
reduce the risk to such AI Indemnitee of liability not indemnified hereunder and
(B) would not materially adversely affect the Corporation, (ii) the Corporation
shall obtain the relevant AI Indemnitee's consent (which consent shall not be
unreasonably withheld) to such settlement or compromise if, and only if, (A)
such settlement or compromise would result in a Cost to such AI Indemnitee for
which it is not indemnified hereunder solely because of the limitation set forth
in Section 2.2(c) hereof, and (B) the Corporation would not be required to pay
any indemnity amounts hereunder in respect of such settlement or compromise; and
(iii) the Corporation shall obtain the relevant AI Indemnitee's consent (which
consent shall not be unreasonably withheld) to such settlement or compromise if
such settlement or compromise would result in injunctive relief against such AI
Indemnitee.
<PAGE>
Page 10
4.3 Advance of Defense Costs. The Corporation, in its sole discretion,
------------------------
may reimburse any AI Indemnitee for any Costs actually and reasonably incurred
by such AI Indemnitee in the defense of any claim or potential claim for which
indemnification may be sought hereunder in advance of the final disposition of
such claim or potential claim; provided, that such AI Indemnitee shall undertake
--------
in writing to repay any such amounts to the Corporation at such time as it is
determined that such AI Indemnitee is not entitled to indemnification hereunder
with respect to such claim or potential claim.
ARTICLE V
TERMINATION
Any notice given under Section 4.1(a) above with respect to any
request for indemnification made under this Indemnity Agreement must be received
on or before the date seven (7) years after Association Closing (the
"Termination Date"); no indemnification shall be provided under this Agreement
with respect to any such notice or claim or request for indemnification received
after the Termination Date.
ARTICLE VI
MISCELLANEOUS
6.1 No Warranty. Nothing in this Indemnity Agreement shall be construed
-----------
or deemed to (a) expand or otherwise alter any warranty or disclaimer thereof
provided under the Purchase and Assumption Agreement with respect to, among
other matters, title to, the value, collectibility, genuineness, enforceability
or condition of, or the existence of any liens or encumbrances affecting, any
asset of the Failed Association purchased by the Assuming Institution pursuant
to such Purchase and Assumption Agreement on or after the date of Association
Closing, or (b) create any warranty not expressly provided under the Purchase
and Assumption Agreement with respect to any such asset.
6.2 Entire Agreement. This Agreement, the Purchase and Assumption
----------------
Agreement and the other Related Agreements embody the entire agreement of the
parties in relation to the subject matter hereof and thereof and supersede all
prior understandings or agreements, oral or written, between the parties hereto
and thereto.
6.3 Headings. The headings and subheadings of the Table of Contents,
--------
Articles and Sections contained in this Agreement, except the terms identified
for definition in Article I, are
<PAGE>
Page 11
inserted for convenience only and shall not affect the meaning or interpretation
of this Agreement or any provision hereof.
6.4 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by a different party hereto on separate counterparts, each of
which when so executed shall be deemed to be an original and all of which when
taken together shall constitute one and the same Agreement.
6.5 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS
-------------
HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE FEDERAL LAW
OF THE UNITED STATES OF AMERICA, AND IN THE ABSENCE OF CONTROLLING FEDERAL LAW,
IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
6.6 Successors. Subject to the limitations of Section 6.7, all terms and
----------
conditions of this Agreement shall be binding on the successors and assignees of
the Corporation and the Assuming Institution. Except as otherwise specifically
provided in this Agreement, nothing expressed or referred to in this Agreement
is intended or shall be construed to give any Person other than the Corporation,
the Receiver and the Indemnitees any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provisions contained herein, it
being the intention of the parties hereto that this Agreement, the obligations
and statements of responsibilities hereunder, and all other conditions and
provisions hereof are for the sole and exclusive benefit of the Corporation, the
Receiver and the other Indemnitees and for the benefit of no other Person.
6.7 Modification; Assignment. No amendment or other modification,
------------------------
rescission, release, annulment or assignment of any part of this Agreement shall
be effective except pursuant to a written agreement subscribed by the duly
authorized representatives of the Corporation and the Assuming Institution. No
assignment of this Agreement or any portion hereof shall be effective as a
discharge or release unless specifically provided for in an instrument of
consent to such assignment.
6.8 Notice. Any notice, request, demand, consent, approval or other
------
communication to any party hereto or the Receiver shall be effective when
received and shall be given in writing, and delivered in person against receipt
therefor, or sent by registered mail, postage prepaid or courier service to its
address set forth below or at such other address as it shall hereafter furnish
in writing to the others. All such notices and other com-
<PAGE>
Page 12
munications shall be deemed given on the date received by the addressee.
CORPORATION
- -----------
Resolution Trust Corporation
801 17th Street, N.W.
Washington, D.C. 20434
Attention: Senior Vice President
and General Counsel
with a copy to:
Resolution Trust Corporation
4000 McArthur Blvd.
Newport Beach, CA 92660-2516
Attention: Assistant General Counsel (RTC)
ASSUMING INSTITUTION
- --------------------
Pan American Bank FSB
1300 South El Camino Real
P.O. Box 2079
San Mateo, California 94401-0986
Attention: President
6.9 Waiver. The Corporation, the Assuming Institution and any other
------
Indemnitee may waive its respective rights, powers or privileges under this
Agreement; provided, that any such waiver shall be in writing; and provided
-------- --------
further, that no failure or delay on the part of the Corporation, the Assuming
- -------
Institution or any other Indemnitee to exercise any right, power or privilege
under this Agreement will operate as a waiver thereof, nor will any single or
partial exercise of any right, power or privilege under this Agreement preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege by the Corporation, the Assuming Institution or any other
Indemnitee under the terms of this Agreement, nor will any such waiver operate
or be construed as a future waiver of such right,, power or privilege under this
Agreement.
6.10 Severability. If any provision of this Agreement is invalid or
------------
unenforceable then, to the extent possible, all of the remaining provisions of
this Agreement shall remain in full force and effect and shall be binding upon
the parties hereto.
<PAGE>
Page 13
6.11 Corporation Obligation. Nothing in this Agreement is intended or
----------------------
shall be construed to create in any way any liability or obligation on the part
of the United States of America or any department or agency thereof (other than
the Corporation) under or in respect of this Agreement, or any provision hereof,
it being the intention of the parties hereto that the obligations undertaken by
the Corporation hereunder are the sole and exclusive responsibility of the
Corporation and no other Person or entity.
6.12 Costs of Duplication. The costs of duplication of documents provided
--------------------
in connection with the matters contemplated hereunder shall be paid in the
manner provided in Sections 8.4(c) and 8.4(d) of the Standard Terms by the party
requesting copies of such documents.
6.13 Effectiveness. This Agreement shall become effective at such time
-------------
as the conditions set forth in the Purchase and Assumption Agreement shall have
been satisfied or waived.
IN WITNESS WHEREOF, the Corporation and the Assuming Institution on behalf
of all of the Indemnitees have caused this Agreement to be executed by their
duly authorized representatives on the date first above written.
RESOLUTION TRUST CORPORATION
Attest:
By: /s/ [SIGNATURE ILLEGIBLE] /s/ [SIGNATURE ILLEGIBLE]
-------------------------- --------------------------
PAN AMERICAN BANK FSB
SAN MATEO, CALIFORNIA
Attest:
By: /s/ LAWRENCE J. GRILL /s/ [SIGNATURE ILLEGIBLE]
-------------------------- --------------------------
President
<PAGE>
EXHIBIT 10.17
WHOLE PURCHASE AND ASSUMPTION AGREEMENT
THIS WHOLE PURCHASE AND ASSUMPTION AGREEMENT
("Agreement") dated as of April 29, 1994, is made and entered into by and
between the Resolution Trust Corporation, in its capacity as receiver of the
failed savings association referred to in Paragraph 1(b) below (in such
capacity, the "Receiver") and Pan American Bank, FSB, a federal savings bank
organized under the laws of the United States of America and having its
principal place of business in San Mateo, California (the "Assuming
Institution").
RECITALS
A. Pursuant to Section 5(d) of the Home Owners' Loan Act, as amended, 12
U.S.C. Section 1464(d), the Office of Thrift Supervision has closed the savings
association referred to in Paragraph 1(b) below (the "Failed Association") and
has appointed the Resolution Trust Corporation as receiver of the Failed
Association.
B. The Receiver has determined pursuant to Section 11(d) (2) (G) of the
Federal Deposit Insurance Act, as amended (the "FDI Act"), 12 U.S.C. Section
1821(d)(2)(G), that it is appropriate and necessary to transfer certain assets
and liabilities of the Failed Association to the Assuming Institution.
C. The Chief Executive Officer of the Resolution Trust Corporation has
determined (i) pursuant to Sections 13(c)(2)(B) and 13(K)(1)(A)(i) or the FDI
Act, 12 U.S.C. Sections 1823(c)(2)(B) and 1823(k)(l)(A)(i), that severe
financial conditions threaten the stability of a significant number of insured
savings associations and of insured savings associations possessing significant
financial resources, and that the risk to the Resolution Trust Corporation in
its corporate capacity (in such capacity, the "Corporation") posed by the Failed
Association would be lessened if the Corporation approves the transfer to the
Assuming Institution of certain assets and liabilities of the Failed Association
and if the Corporation provides assistance to the Assuming Institution to
facilitate such transfer, and (ii) pursuant to Section 13(c)(4)(A) of the FDI
Act, as amended, 12 U.S.C. Section 1823(c)(4)(A), that the exercise of the
Corporation's authority under subsections (c), (d), (f), (h), (i), or (k) of
Section 13 of the FDI Act, as amended, 12 U.S.C. Section 1823, in providing
assistance pursuant to the Agreement is necessary to meet the obligation of the
Corporation to provide insurance coverage for the insured deposits in such
Failed
A-1
<PAGE>
Association and the total amount of the expenditures by, and the obligations
incurred by, the Corporation in connection with the exercise of any such
authority is the least costly to the deposit insurance fund of all possible
methods for meeting that obligation.
D. The parties intend that such transfer be made on the terms and
conditions set forth in the RTC's Standard Purchase and Assumption Terms and
Conditions (Theta version dated July 26, 1993) (the "Standard Terms") as herein
supplemented, modified or amended.
NOW, THEREFORE, in consideration of the mutual promises herein set forth and
other valuable consideration, the Receiver and the Assuming Institution agree as
follows:
1. Certain Defined Terms As used in this Agreement, the following terms
---------------------
shall have the following meanings:
(a) "Association Closing" shall mean the close of business of the
-------------------
Failed Association on April 29, 1994.
(b) "Failed Association" shall mean Pan American Federal Savings Bank,
------------------
formerly a federal savings association under the Home Owners' Loan Act, as
amended, 12 U.S.C. Section 1461, et seg., and having its principal place of
-------
business in San Mateo, California, which was closed pursuant to Order No. ____
of the Office of Thrift Supervision.
(c) "Premium" shall mean a premium in the amount of $808,000.00.
-------
(d) "Pro Rata Share" shall have-the meaning set forth in Section 1.52,
--------------
Alternative A of the Standard Terms.
(e) "Related Agreements" shall mean the Indemnity Agreement and the
------------------
following minority assistance documents: (i) Application for Interim Capital
Assistance dated September 7, 1993 submitted by Pan American Bank FSB and Pan
American Financial, Inc.; (ii) Minority Ownership Affidavit dated September 7,
1993 submitted by Pan American Bank, FSB and Pan American Financial, Inc. (iii)
Interim Capital Assistance Agreement dated April 29, 1994 made and entered into
by Pan American Financial, Inc., Pan American Bank, FSB and the Resolution Trust
Corporation, in its corporate capacity; (iv) Stock Pledge Agreement dated April
29, 1994 made between Pan American Financial, Inc. and the Resolution Trust
Corporation in its corporate capacity; (v) Promissory Note made by Pan American
Financial, Inc. dated April 29, 1994 in the amount of six million nine hundred
thirty thousand dollars ($6,930,000.00); (vi) Stock Power executed in blank by
Pan American Financial, Inc. with
A-2
<PAGE>
Signature Guarantee; and (vii) Interim Capital Assistance Agreement Officer's
Certificate dated April 29, 1994 signed by the Chairman of the Board of Pan
American Financial, Inc. and Pan American Bank, FSB.
2. Purchase and Assumption. On the terms and conditions set forth in the
-----------------------
Standard Terms, incorporated herein by this reference, in each case as the
Standard Terms are herein supplemented, modified or amended,
(a) the Assuming Institution hereby assumes, and agrees to pay, perform
and discharge, all of the liabilities described in Section 2.1 of the Standard
Terms,
(b) the Receiver hereby sells, assigns, transfers, conveys and delivers
to the Assuming Institution, and the Assuming Institution hereby purchases and
accepts from the Receiver, all right, title and interest of the Receiver in and
to all of the assets described in Section 3.1 of the Standard Terms,
(c) the Receiver hereby sells, assigns, transfers, conveys and delivers
to the Assuming Institution, and the Assuming Institution hereby purchases and
accepts from the Receiver, all right, title and interest of the Receiver in and
to each business described in Section 4.2 of the Standard Terms,
(d) the Receiver hereby grants to the Assuming Institution each option
described in Section 4.1, Section 4.3, Section 4.4 and Section 4.5 of the
Standard Terms, and
(e) the Receiver and the Assuming Institution each hereby agree to be
bound by all of the other terms and conditions set forth in the Standard Terms.
3. Alternative and Optional Provisions. For purposes of this Agreement,
-----------------------------------
the Standard Terms are hereby supplemented, modified or amended as follows:
(a) Deposits. The transfer of Deposits under Paragraph 2(a) above
--------
shall include all of the Deposits (other than Withheld Deposits) of the Failed
Association, as provided in Section 2.1, Alternative A of the Standard Terms.
The definition of "Insured Deposit" in Section 1.33 of the Standard Terms,
clause (f) in the definition of "Withheld Deposit" in Section 1.67 of the
Standard Terms, clause (v) of Section 3.5(a) of the Standard Terms, and Section
7.2(b) of the Standard Terms are hereby deleted in their entirety and reserved.
A-3
<PAGE>
(b) Description of Schedule A Assets. Assets transferring under
--------------------------------
Section 3.1(h) of the Standard Terms are described on Schedule A by reference to
the Failed Association's ledger account titles or specific asset identification
codes as shown on the Failed Association's Books as of Association Closing, as
provided in Section 3.2(c), Alternative A of the Standard Terms. As set forth in
Section 3.2(c) of the Standard Terms, if no putback period is specified in
Schedule A for an asset portfolio, the Assuming Institution must notify the
Receiver within thirty (30) days of Association Closing of any misclassified
assets in such asset portfolio for which the Assuming Institution requests
reclassification.
(c) Credit Card Business. The Assuming Institution shall neither
--------------------
acquire nor obtain an option to acquire the Failed Association's credit card
business. Section 4.2(a) (iv) of the Standard Terms is hereby deleted in its
entirety and reserved.
(d) Mortgage Loan Servicing. The Assuming Institution shall neither
-----------------------
acquire nor obtain an option to acquire the Failed Association's mortgage loan
servicing business. Section 4.2(a)(v), Section 4.2(d) and the bracketed material
in Section 4.2(b) and Section 11.6 of the Standard Terms are hereby deleted in
their entirety and reserved.
(e) Consideration. As consideration for the assets, putback rights and
-------------
purchase options acquired by the Assuming Institution pursuant to this
Agreement, and in order to provide to the Assuming Institution assets equal to
the liabilities assumed under this Agreement, the Receiver shall pay to the
Assuming Institution the amount specified in Section 6.1, Alternative A of the
Standard Terms.
(f) Businesses Engaged in Through Certain Subsidiaries. The first
--------------------------------------------------
sentence of Section 4.4 of the Standard Terms is hereby modified to read: "The
Receiver hereby grants to the Assuming Institution an exclusive option for the
period set forth below to purchase all of the Receiver's right, title and
interest in and to all (but not less than all) capital stock of any Subsidiary
of the Failed Association listed on Schedule G, at the percentage of Book Value
as of Association Closing set forth on Schedule G." The remaining provisions of
Section 4.4 of the Standard Terms shall remain unmodified.
4. Additional Representation. In addition to the representations and
-------------------------
warranties set forth in Article XI of the Standard Terms, the Assuming
Institution represents and warrants to the Receiver that it has received and
reviewed a copy of the Standard Terms.
A-4
<PAGE>
5. Notices. As provided in Section 12.7 of the Standard Terms, addresses
-------
for notices shall be as follows:
Receiver
- --------
Resolution Trust Corporation
Receiver of Pan American Federal Savings Bank
Room 424
801 17th Street, N.W.
Washington, D.C. 20434-0001
Attention: H. Ronald Hoch
Director, Office of Field Resolutions
with a copy to:
- --------------
Resolution Trust Corporation
Receiver of Pan American Federal Savings Bank
P.0. Box 6210
Newport Beach, CA 92658-6210
Attention: Assistant General Counsel (RTC)
(for express mail delivery only: 4000 MacArthur Boulevard Newport Beach, CA
92660)
Resolution Trust Corporation
Receiver of Pan American Federal Savings Bank
P. 0. Box 6220
Newport Beach, CA 92658-6220
Attention: Claims/Settlements
(for express mail delivery only: 4000 MacArthur Boulevard Newport Beach, CA
92660)
and further additional copies to such Resolution Trust
Corporation offices as the Receiver may reasonably request from time to time,
A-5
<PAGE>
Assuming Institution
- --------------------
Pan American Bank, FSB
1300 South El Camino Real
P.O. Box 2079
San Mateo, California 94402
Attention: Lawrence J. Grill, President
with a copy to:
Pan American Financial, Inc.
c/o Bastion Capital
1999 Avenue of the Stars, Suite 2800
Los Angeles, California 90067
Attention: Mr. Guillermo Bron
6. Schedules. The following schedules contemplated by the Standard Terms
---------
are attached hereto and incorporated herein by this reference:
Schedule A Certain Other Assets
Schedule A-l Certain Investment Grade Securities and
Government-Backed Mortgage Securities
Schedule B Certain First Mortgage Loans
Schedule C PSA Expected Prepayment Rates
Schedule D Certain Derivative Mortgage Securities
Schedule E Other Excluded Assets
Schedule F Certain Services Provided by the Failed Association
Schedule G Certain Subsidiaries
Schedule H Certain Services Provided to the Failed Association
Schedule I Other Withheld Deposits
7. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS UNDER
-------------
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE FEDERAL
LAW OF THE UNITED STATES OF AMERICA AND, IN THE ABSENCE OF CONTROLLING FEDERAL
LAW, IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
A-6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the date first above
written.
RESOLUTION TRUST CORPORATION AS
RECEIVER OF PAN AMERICAN FEDERAL SAVINGS BANK
SAN MATEO, CALIFORNIA
Attest:
By: /s/ [SIGNATURE ILLEGIBLE] /s/ [SIGNATURE ILLEGIBLE]
--------------------------- -----------------------------
PAN AMERICAN BANK, FSB
SAN MATEO, CALIFORNIA
Attest:
By: /s/ GUILLERMO BRON /s/ LAWRENCE J. GRILL
--------------------------- -----------------------------
A-7
<PAGE>
PAN AMERICAN FEDERAL SAVINGS BANK
SAN MATEO CALIFORNIA
SCHEDULE A
CERTAIN OTHER ASSETS TRANSFERRED UNDER P & A AGREEMENT
<TABLE>
<CAPTION>
Includes (In Thousands)
Delinquent Estimated Principal Yield/Price Yield/Price Acquiror
Title of Asset Portfolio and/or Advances Balance to Acquiror Put Period As of Closing As of Closing Will Purchase
Charge-off(s) Allowed (A:s of 03/31/93) (90 Days) Whole Portfolio "Selected Asset Yes/No
(1) (2) (3) (4) (5) (6) (7) (8)
- ------------------------ ------------- -------- -------------------- ---------- ---------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
FIRST MORTGAGES-FIXED RATE: Neither No $14,328 90 FNMA+279.8b.p. FNMA+279.8 b.p. Yes
-----------
Delinquent No $ 1,203 90 78.128% 96% Yes
-----------
FIRST MORTGAGES-VARIABLE RATE: Neither No $48,102 90 92.711% 98% Yes
-----------
Delinquent No $ 2,733 90 80.010% 96% Yes
-----------
JUNIOR MORTGAGE LOANS/OLI Both No $ 279 60 91.190% N/A Yes
-----------
CONSUMER LOANS/OLI:
Closed-End:
1. Mobile Home Loan: Both No $ 2 60 97.000% N/A Yes
-----------
ALL OTHER LOANS/OLI:
Mortgage Loans:
1.5 or More Dwelling Units Neither No $33,553 90 89.357% 98% Yes
Non-Residential: -----------
2. Office Buildings Neither No $ 8,643 90 89.174 96% Yes
-----------
3. Warehouse Buildings Neither No $ 4,187 90 85.945 96% Yes
-----------
4. Restaurants/Bars Neither No $ 1,038 90 89.353 96% Yes
-----------
</TABLE>
<PAGE>
Open-End:
1. Revolving Loans Secured by 1-4 Dwelling Units
2. Loans made pursuant to Credit Card Plans
3. Loans made pursuant to Overdraft Protection Plans
4. ________________
ALL OTHER LOANS/OTHER LOAN INTERESTS:
MORTGAGE LOANS:
1. Construction
2. 5 or More Dwelling Units
3. Non-Residential
4. Land
5. ________________
NONMORTGAGE LOANS:
1. Commercial
2. ________________
MORTGAGE SERVICING BUSINESS
2
<PAGE>
Title of Description of Asset Portfolio
Asset Portfolio (Ledger accounts/specific asset identification
codes)
(1) (1)
- --------------------------------------------------------------------------------
FIRST MORTGAGE LOANS/OTHER LOAN
INTERESTS - FIXED RATE:
FIRST MORTGAGE LOANS/OTHER LOAN
INTERESTS - VARIABLE RATE:
JUNIOR MORTGAGE LOANS/OTHER LOAN
INTERESTS:
CONSUMER LOANS/OTHER LOAN
INTERESTS:
CLOSED-END:
1. Home Improvement Loans
2. Education Loans
3. Auto Loans
4. Mobile Home Loans
5. ________________
OPEN-END:
1. Revolving Loans Secured by 1-4 Dwelling Units
2. Loans made pursuant to Credit Card Plans
3. Loans made pursuant to Overdraft Protection Plans
4. ________________
ALL OTHER LOANS/OTHER LOAN
INTERESTS:
3
<PAGE>
MORTGAGE LOANS:
1. Construction
2. 5 or More Dwelling Units
3. Non-Residential
4. Land
5. ________________
NONMORTGAGE LOANS:
1. Commercial
2. ________________
MORTGAGE SERVICING BUSINESS
4
<PAGE>
Footnotes to Schedule A:
(1) The asset portfolio titles in Column 1 are for convenience only and shall
not affect the determination of which assets are transferred to the
Assuming Institution. The actual composition of each portfolio is
determined by reference to ledger accounts and/or specific asset
identification codes on the Failed Association's Books and Records as of
the date specified in Agreement (i.e., the Alternative and Optional
Provision Sections in Exhibit A, B, or C to the Standard Terms) as detailed
in Column 2 of Schedule A. The Assuming Institution shall purchase all
assets in each of the asset portfolios described in Column 2 of Schedule A,
subject to adjustment and/or reclassification as set forth in Section 3.2
of the Standard Terms; provided, however, that notwithstanding anything to
-----------------
the contrary contained herein, these asset portfolios do not include any
assets which are transferred under Section 3.1(a)-3.1(g) or which are
excluded under Section 3.6. Unless otherwise expressly provided herein,
the unfunded portion of any loans listed or described on this Schedule A
and wholly unfunded loans are not transferred to the Assuming Institution.'
(2) NEITHER: Asset portfolio does NOT include either Delinquent or
wholly charged-off (as of Association Closing) assets.
Delinquent: Asset portfolio includes Delinquent assets, but NOT any
asset that is wholly charged off the Books of the
Failed Association as of Association Closing.
Both: Asset portfolio includes both Delinquent AND wholly
charged-off (as of Association Closing) assets.
(3) "Yes" - An advance of funds or credit with respect to any Loan or Other
Loan Interest in this asset portfolio will not be deemed a "Disqualifying
Event" if such advance is made in accordance with Section 1.18(b)(i) and
(ii) of the Standard Terms.
"No" - Any advance of funds or credit with respect to any Loan or Other
Loan Interest in this asset portfolio will be deemed a "Disqualifying
Event" in accordance with Section 1.18 of the Standard Terms.
(4) Book Value indicated is an estimate only. Actual Book Value and
composition of this asset portfolio as of Association Closing may differ
due to generation of new loans, prepayments, change in delinquency status,
maturities and the like, and is subject to adjustment as set forth in
Article VII of the Standard Terms. Mortgage Servicing Business-Figure
provided is an estimate of the unpaid principal balance of the loans
serviced for others.
(5) "No Put"-No put option available for this asset portfolio.
5
<PAGE>
(6) For assets passing at the Book Value Purchase Price, this column indicates
the applicable percentage of Book Value; for assets passing at the Mortgage
Purchase Price, this column indicates the applicable additional yield
requirement. If the mortgage servicing business is being offered, this
column indicates the applicable percentage of the principal balance of
loans serviced for others. See definitions of "Book Value Purchase Price"
---
and "Mortgage Purchase Price" in Article I of the Standard Terms; see also
--- ----
Section 4.2(a)(v) of the Standard Terms regarding the mortgage servicing
business.
(7) "N/A"-- Not available. The option to choose selected assets from this asset
portfolio is not available. The Assuming Institution may either keep the
entire portfolio at the "whole portfolio" price, or exercise its put
option, in which case ALL assets in this portfolio must be put back to the
Receiver. See Section 3.1(h) and Section 3.2(b) of the Standard Terms.
---
6
<PAGE>
EXHIBIT 10.18
[LOGO OF RTC APPEARS HERE]
INDEMNITY AGREEMENT
BETWEEN
RESOLUTION TRUST CORPORATION
and
PAN AMERICAN BANK, FSB
SAN MATEO, CALIFORNIA
DATED AS OF
APRIL 29, 1994
<PAGE>
page 1
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
RECITALS.................................................................. 1
ARTICLE I................................................................. 2
DEFINITIONS.......................................................... 2
1.1 Certain Defined Terms .................................... 2
1.2 Other Capitalized Terms .................................. 3
ARTICLE II................................................................ 3
INDEMNIFICATION OF AI INDEMNITEES.................................... 3
2.1 General Indemnity.......................................... 3
2.2 Limited Indemnity.......................................... 4
2.3 Exclusions................................................. 5
2.4 Limited Guaranty........................................... 7
2.5 Third Party Beneficiaries.................................. 7
ARTICLE III............................................................... 7
INDEMNIFICATION OF RTC INDEMNITEES .................................. 7
3.1 General Indemnity.......................................... 7
3.2 Third Party Beneficiaries.................................. 8
ARTICLE IV................................................................ 8
INDEMNIFICATION PROCEDURES........................................... 8
4.1 All Indemnitees............................................ 8
4.2 Al Indemnitees............................................. 8
4.3 Advance of Defense Costs .................................. 9
ARTICLE V................................................................. 10
TERMINATION.......................................................... 10
ARTICLE VI................................................................ 10
MISCELLANEOUS........................................................ 10
6.1 No Warranty................................................ 10
6.2 Entire Agreement........................................... 10
6.3 Headings................................................... 10
6.4 Counterparts............................................... 10
6.5 GOVERNING LAW.............................................. 11
6.6 Successors................................................. 11
6.7 Modification; Assignment.................................. 11
6.8 Notice..................................................... 11
6.9 Waiver..................................................... 12
6.10 Severability............................................... 12
6.11 Corporation Obligation .................................... 13
6.12 Costs of Duplication....................................... 13
6.13 Effectiveness.............................................. 13
</TABLE>
<PAGE>
INDEMNITY AGREEMENT
THIS INDEMNITY AGREEMENT dated as of this 29th day of April, 1994, is made
by and between the RESOLUTION TRUST CORPORATION, a corporation organized and
existing under the laws of the United States of America and having its principal
office in Washington, D.C. (the "Corporation") and Pan American Bank, FSB,
organized and existing under the laws of the United States of America and having
its principal place of business in San Mateo, California (the "Assuming
Institution").
RECITALS
--------
A. Pursuant to Section 5(d) of the Home Owners' Loan Act, as amended, 12
U.S.C. Section 1464(d) (the "HOLA"), the Office of Thrift Supervision of the
Department of the Treasury ("OTS") has issued its Order No. _____ providing for
the closing of Pan American Federal Savings Bank, formerly an insured savings
association within the meaning of the FDI Act, organized as a federal
association under Section 21A of the Federal Home Loan Bank Act, as amended, 12
U.S.C. Section 1441a and having its principal place of business in San Mateo,
California (the "Failed Association").
B. Pursuant to Section 5(d) (2) of the HOLA, 12 U.S.C. Section
1464(d)(2), and Section 11(c)(6)(B) of the FDI Act, 12 U.S.C. Section
1821(c)(6)(B), the OTS has appointed the Resolution Trust Corporation as
Receiver of the Failed Association (in such capacity, the "Receiver") and the
Resolution Trust Corporation has accepted the appointment.
C. Pursuant to the Purchase and Assumption Agreement of even date
herewith by and between the Receiver and the Assuming Institution a the same may
be modified or amended from time to time, the "Purchase and Assumption
Agreement"), the Assuming Institution has assumed the deposit and certain other
liabilities and purchased certain assets of the Failed Association.
D. Pursuant to 12 U.S.C. Section 1823(c)(2)(A), the Corporation may
provide assistance to the Assuming Institution to facilitate the transactions
contemplated by the Purchase and Assumption Agreement, which assistance may
include indemnification of the Al Indemnitees (as hereinafter defined) upon the
determination of the Corporation's Chief Executive Officer ("CEO") that any one
of the requisite conditions set forth in 12 U.S.C. Section 1823(c)(4)(A) as
amended exists.
E. The CEO has determined pursuant to 12 U.S.C. Section 1823(c) (4)(A)
that providing indemnification pursuant to this Indemnity Agreement is necessary
to meet the obligation of the Corporation to provide insurance coverage for the
insured deposits in such Failed Association and the total amount of the
<PAGE>
page 2
expenditures by, and obligations incurred by, the Corporation in connection with
the exercise of such authority is the least costly to the deposit insurance fund
of all possible methods for meeting that obligation.
F. The Assuming Institution would not enter into the Purchase and
Assumption Agreement without the indemnification provided under this Indemnity
Agreement.
NOW, THEREFORE, in consideration of the mutual promises herein set forth
and other valuable consideration, the Corporation and the Assuming Institution
hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Certain Defined Terms. As used in this Agreement, the following terms
---------------------
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
(a) "Agreement" shall mean this Indemnity Agreement, as the same may
---------
be amended or supplemented from time to time. References to Articles, Sections,
subsections and the like refer to the Articles, Sections and subsections and the
like of this Agreement unless otherwise indicated.
(b) "AI Indemnitees" shall mean (i) the Assuming Institution and its
--------------
Affiliates, and (ii) the respective directors, officers, employees and agents of
the Assuming Institution and its Affiliates; provided, however, that
--------- -------
notwithstanding anything to the contrary contained herein, "Al Indemnitees"
shall not include (x) any Affiliate of the Assuming Institution that was at any
time an Affiliate of either the Failed Association or any Predecessor Thrift,
(y) any entity (including, without limitation, any Affiliate of the Assuming
Institution) that is a successor-in-interest (whether by merger, consolidation,
reorganization or otherwise) to any Affiliate of either the Failed Association
or any Predecessor Thrift, or (z) any director, officer, employee or agent of
the Assuming Institution or any Affiliate of the Assuming Institution that was
at any time a director, officer, employee or agent of the Failed Association,
any Predecessor Thrift, or any Affiliate of either the Failed Association or any
Predecessor Thrift, to the extent that the Costs for which indemnification is
sought are based upon, arise out of or relate to acts or omissions of, or
liability incurred by, such person during his or her tenure or in his or her
capacity as a director, officer, employee or agent of the Failed Association,
<PAGE>
page 3
any Predecessor Thrift, or any Affiliate of the Failed Association or any
Predecessor Thrift.
(c) "Costs" shall mean, with respect to any claim (or potential claim
-----
under Section 2.2(c)), any and all costs, losses, liabilities, expenses
(including attorneys' fees), judgments, fines and settlement amounts incurred in
connection with such claim or potential claim, provided, however, that the
--------- -------
amount of any indemnification provided to any Al Indemnitee hereunder for any
such Costs shall be determined on an after-tax basis so as to reflect any
reduction in taxes attributable to the payment by such Al Indemnitee of any such
Costs.
(d) "FA Affiliated Person" shall mean (i) the Failed Association,
--------------------
(ii) any Predecessor Thrift, (iii) any Affiliate of either the Failed
Association or any Predecessor Thrift, or (iv) any director, officer, employee
or agent as such of any of the entities specified in subsections (i) through
(iii) above.
(e) "Indemnitee" shall mean any Al Indemnitee or any RTC Indemnitee,
----------
as the context may require.
(f) "Indemnitor" shall mean the Corporation or the Assuming
----------
Institution, as the context may require.
(g) "RTC Indemnitees" shall mean (a) the Corporation,
---------------
(b) the Receiver, and (c) the respective directors, officers, employees and
agents of the Corporation and the Receiver.
(h) "Standard Terms" shall mean the RTC Standard Purchase and
--------------
Assumption Terms and Conditions, incorporated by ref erence in (and expressly
made a part of) the Purchase and Assumption Agreement.
(i) "Third Partv Claim" shall mean, with respect to any Indemnitee, a
-----------------
claim against such Indemnitee by a Person that is not an Affiliate of such
Indemnitee.
1.2 Other Capitalized Terms. Capitalized terms used in this Agreement and
-----------------------
not otherwise defined herein shall have the respective meanings assigned to them
in the Purchase and Assumption Agreement.
ARTICLE II
INDEMNIFICATION OF Al INDEMNITEES
2.1 General Indemnity. On the terms and conditions hereinafter set
-----------------
forth, the Corporation shall indemnify and hold harmless each Al Indemnitee
against any and all Costs actually and
<PAGE>
page 4
reasonably incurred by any such Al Indemnitee in connection with any and all
claims based upon any of the following:
(a) any liability of the Failed Association not assumed by the
Assuming Institution pursuant to the Purchase and Assumption Agreement on or
after Association Closing;
(b) the determination or appointment of a conservator or receiver by
the appropriate regulatory authority for the Failed Association or any
Predecessor Thrift or the acceptance of the Assuming Institution's bid to
purchase certain assets and assume certain liabilities of the Failed
Association;
(c) any act or omission of any Al Indemnitee on behalf of the
Receiver or the Corporation which is taken or omitted upon the specific written
direction of the Receiver or the Corporation; and
(d) any act or omission of any Dedicated Personnel which is (i) taken
or omitted at the direction or upon the approval of the Receiver (whether
written or verbal) pursuant to Article IX of the Standard Terms, or (ii) within
the scope of the employment of such Dedicated Personnel as it relates to the
services provided under Article IX of the Standard Terms.
2.2 Limited Indemnity.
-----------------
(a) All assets purchased by the Assuming Institution pursuant to the
Purchase and Assumption Agreement, whether on or after Association Closing, are
transferred "as is," "where is," without any warranties, express or implied.
Notwithstanding anything to the contrary contained in this Agreement, no
indemnification shall be provided hereunder to any Al Indemnitee for any claim
based upon, arising out of or relating to any such asset, including, without
limitation, any Third Party Claims, except as expressly set forth in this
Section 2.2.
(b) Subject to subsections (c), (d) and (e) below, the Corporation
shall indemnify and hold harmless each Al Indemnitee against any and all Costs
actually and reasonably incurred by any such Al Indemnitee in connection with
any Third Party Claim arising out of or relating to any asset of the Failed
Association purchased by the Assuming Institution pursuant to the Purchase and
Assumption Agreement to the extent such claim is based upon any act or omission
prior to Association Closing by any FA Affiliated Person.
(c) In the case of any Third Party Claim or potential Third Party
Claim based upon, arising out of or relating to an
<PAGE>
page 5
interest overcharge on any adjustable rate First Mortgage Loan, the
indemnification provided under Section 2.2(b) (i) shall apply to potential Third
Party Claims identified by the Assuming Institution, whether or not an actual
Third Party Claim has been made or threatened, (ii) shall not in any event
exceed the purchase price (as set forth on Schedule A to the Purchase and
Assumption Agreement) of such First Mortgage Loan, and (iii) shall be limited to
indemnification for Costs that are directly attributable to net interest
overcharges received by the Failed Association prior to Association Closing. As
used herein, "net interest overcharge" means, with respect to any First Mortgage
Loan, the difference between total interest overpayments and total interest
underpayments received by the Failed Association in respect of such First
Mortgage Loan prior to Association Closing .
(d) No indemnification shall be provided to any Al Indemnitee under
Section 2.2(b) for any Third Party Claim (other than any Third Party Claim
relating to an interest overcharge on any adjustable rate First Mortgage Loan)
unless the Costs actually and reasonably incurred by such Al Indemnitee in
connection with such claim exceed the sum of (i) the purchase price (as set
forth in Article III or Article IV of the Standard Terms) of the asset to which
such claim relates, plus (ii) any and all amounts (other than principal
----
payments) recovered by such Al Indemnitee in connection with any claim by such
Al Indemnitee arising out of or relating to such asset. The Corporation shall
provide indemnification only in the amount of any such excess.
(e) No indemnification shall be provided under Section 2.2(b) for any
Third Party Claim (or potential Third Party Claim under Section 2.2(c)) based
upon, arising out of or relating to any act or omission by any Al Indemnitee.
If any claim or potential claim for which indemnification is sought under
Section 2.2(b) is attributable in part to any act or omission by any Al
Indemnitee, the Corporation shall provide indemnification only to the extent
that such claim or potential claim is attributable to acts or omissions by any
FA Affiliated Person. The Corporation, in its sole discretion, shall determine
which, if any, Costs incurred in connection with any such Third Party Claim (or
potential Third Party Claim) are attributable to acts or omissions by any Al
Indemnitee.
2.3 Exclusions. Notwithstanding anything to the contrary contained in
----------
this Agreement, no indemnification shall be provided hereunder to any Al
Indemnitee for any claims or potential claims based upon, arising out of or
relating to any of the following:
<PAGE>
page 6
(a) any liability assumed by the Assuming Institution pursuant to the
Purchase and Assumption Agreement on or after Association Closing;
(b) any gross negligence or intentional misconduct of any Al
Indemnitee, whether before or after Association Closing and, except as expressly
provided in Section 2.1(c) above, any-act or omission by any Al Indemnitee or
any Transition Personnel on or after Association Closing, including, without
limitation, any act or omission by any Al Indemnitee or any Transition Personnel
with respect to any asset purchased by the Assuming Institution under the
Purchase and Assumption Agreement and subsequently put back to the Receiver in
accordance with the terms of the Purchase and Assumption Agreement;
(c) any violation by any Al Indemnitee of any laws of the United
States of America or any state thereof, including, without limitation, any
antitrust, branching, banking or bank holding company or securities laws;
(d) any claim or potential claim which could have been enforced
against any Al Indemnitee had the Assuming Institution not entered into the
Purchase and Assumption Agreement;
(e) any alleged breach by any director of any Al Indemnitee of such
director's fiduciary duty or duty of care to the shareholders of such Al
Indemnitee, including, without limitation, any shareholder derivative suit;
(f) any claim or potential claim based upon, arising out for
relating to any asset purchased by the Assuming Institution pursuant to any
Mortgage Loan Sale Agreement; and
(g) with respect to any asset purchased by the Assuming Institution
pursuant to the Purchase and Assumption Agreement on or after Association
Closing, any claim or potential claim based upon, arising out of or relating to
(i) title to, or the value, collectibility, enforceability or condition of, or
the existence of liens or encumbrances affecting, any such asset,
(ii) conditions of or generated by any such asset arising from or related to the
generation, storage, manufacturing, refining, transportation, treatment,
disposal, deposit, dumping, placing, spilling, discharge, or release or other
presence of any hazardous substance or toxic substance, or any pollutant or
contaminant, (iii) the presence of asbestos or other toxic substance used in
construction of, or rehabilitation of, or on any such asset, (iv) the presence
of radon or petroleum or petroleum byproducts or gases or pesticide products or
nuclear materials on any such asset, or (v) conditions of any such asset
<PAGE>
page 7
which violate any applicable Federal, state or local law or regulation for
environmental protection.
2.4 Limited Guaranty. The Corporation hereby guarantees performance of
----------------
the Receiver's obligation to repurchase certain assets from the Assuming
Institution upon the exercise of the Assuming Institution's putback rights (if
any) under Section 3.1, Section 3.3(b) and Section 4.2(a) (iv) of the Standard
Terms. It is a condition to the Corporation's obligation hereunder that the
Assuming Institution shall comply in all respects with the applicable provisions
of the Purchase and Assumption Agreement. The Corporation shall be liable
hereunder only for such amounts, if any, as the Receiver is obligated to pay
under the terms of the Purchase and Assumption Agreement but shall fail to pay.
2.5 Third Party Beneficiaries. Each AI Indemnitee is an intended third
-------------------------
party beneficiary of this Agreement (other than the Assuming Institution, which
is a party hereto). Each AI Indemnitee (including the Assuming Institution)
may enforce the Corporation's obligations to such AI Indemnitee hereunder
directly and without any need for any consent, assistance or intervention of any
other AI Indemnitee.
ARTICLE III
INDEMNIFICATION OF RTC INDEMNITEES
3.1 General Indemnity. On the terms and conditions hereinafter set forth,
-----------------
the Assuming Institution shall indemnify and hold harmless each RTC Indemnitee
from and against any and all Costs incurred in connection with any and all
claims based upon, arising out of or relating to any of the following:
(a) any liability assumed by the Assuming Institution pursuant to the
Purchase and Assumption Agreement on or after Association Closing;
(b) any act or omission of any AI Indemnitee (including, by way of
example only and expressly without limitation, any act or omission by any AI
Indemnitee with respect to any asset of the Failed Association purchased by the
Assuming Institution under the Purchase and Assumption Agreement and
subsequently put back to the Receiver), other than any act or omission subject
to Section 2.1(c) of this Agreement;
(c) any "Phase I" environmental report or similar environmental audit
report provided to the Assuming Institution pursuant to Section 4.9(b) of the
Standard Terms; and
<PAGE>
page 8
(d) the Assuming Institution's notice to depositors required by
Section 5.3 of the Standard Terms.
3.2 Third Partv Beneficiaries. Each RTC Indemnitee (other than the
-------------------------
Corporation, which is a party hereto) is an intended third party beneficiary of
this Agreement. Each RTC Indemnitee (including the Corporation) may enforce the
Assuming Institution's obligations to such RTC Indemnitees hereunder directly
and without the need for any consent, assistance or intervention of any other
RTC Indemnitee.
ARTICLE IV
INDEMNIFICATION PROCEDURES
4.1 All Indemnitees. Subject to Article V, and with respect to (i) any
---------------
claim made or threatened against any Indemnitee for which such Indemnitee is or
may be entitled to indemnification under this Agreement, and (ii) any potential
claim for which indemnification may be sought under Section 2.2(c), it shall be
a condition to such indemnification that such Indemnitee shall:
(a) give written notice to the Indemnitor of such claim as soon as
practicable after such claim is made or threatened (or, in the case of any such
potential claim, as soon as practicable after such Indemnitee becomes aware of
any facts or circumstances on which such potential claim may be based), which
notice shall specify in reasonable detail the nature of the claim or potential
claim and the amount (or an estimate of the amount) of the claim or potential
claim;
(b) provide to the Indemnitor such information and cooperation with
respect to such claim or potential claim as the Indemnitor may reasonably
require, including, without limitation, making appropriate personnel available
to the Indemnitor at such times as the Indemnitor shall request (provided, that
--------
such personnel are under the employ of the Indemnitee at such time) and
providing copies of invoices or other evidence of expense incurred;
(c) cooperate and take all such steps as the Indemnitor may
reasonably request to preserve and protect any defense to such claim or
potential claim; and
(d) upon reasonable prior notice, afford to the Indemnitor the right,
which the Indemnitor may exercise in its sole discretion and at its expense, to
participate in the investigation, defense and settlement of such claim or
potential claim.
<PAGE>
page 9
4.2 AI Indemnitees. With respect to any claim made or threatened against
--------------
any AI Indemnitee for which such AI Indemnitee is or may be entitled to
indemnification under this Agreement, and with respect to any potential claim
for which indemnification may be sought under Section 2.2(c), it shall be a
further condition to such indemnification that such Al Indemnitee, in addition
to complying with the provisions of Section 4.1, shall:
(a) neither incur any material expense to defend against nor settle
or compromise such claim or potential claim or make any admission with respect
thereto (other than routine or incontestable admissions or factual admissions
the failure to make which would expose such AI Indemnitee to unindemnified
liability) without the prior written consent of the Corporation (which consent
shall not be unreasonably withheld); and
(b) upon reasonable prior notice, afford to the Corporation the
right, in its sole discretion and at its expense, to control the defense of such
claim or potential claim, including, without limitation, the right to designate
counsel and to control all negotiations, litigation, arbitration, settlements,
compromises and appeals of any such claim or potential claim; provided, however,
-------- -------
that the Corporation shall have advised such AI Indemnitee that, to the best of
the Corporation's knowledge at such time, such AI Indemnitee is entitled to be
indemnified hereunder with respect to such claim or potential claim; and
provided further, that prior to entering into a final settlement or compromise,
- -------- -------
(i) the Corporation shall use its best efforts in the light of the then
prevailing circumstances (including, without limitation, any express or implied
time constraint on any pending settlement offer) to consult with such AI
Indemnitee as to the terms of settlement or compromise and shall use its best
efforts to incorporate suggested modifications if such modifications (A) would
reduce the risk to such AI Indemnitee of liability not indemnified hereunder and
(B) would not materially adversely affect the Corporation, (ii) the Corporation
shall obtain the relevant AI Indemnitee's consent (which consent shall not be
unreasonably withheld) to such settlement or compromise if, and only if, (A)
such settlement or compromise would result in a Cost to such AI Indemnitee for
which it is not indemnified hereunder solely because of the limitation set forth
in Section 2.2(c) hereof, and (B) the Corporation would not be required to pay
any indemnity amounts hereunder in respect of such settlement or compromise; and
(iii) the Corporation shall obtain the relevant AI Indemnitee's consent (which
consent shall not be unreasonably withheld) to such settlement or compromise if
such settlement or compromise would result in injunctive relief against such AI
Indemnitee.
<PAGE>
page 10
4.3 Advance of Defense Costs. The Corporation, in its sole discretion, may
------------------------
reimburse any AI Indemnitee for any Costs actually and reasonably incurred by
such AI Indemnitee in the defense of any claim or potential claim for which
indemnification may be sought hereunder in advance of the final disposition of
such claim or potential claim; provided, that such AI Indemnitee shall undertake
--------
in writing to repay any such amounts to the Corporation at such time as it is
determined that such AI Indemnitee is not entitled to indemnification hereunder
with respect to such claim or potential claim.
ARTICLE V
TERMINATION
Any notice given under Section 4.1(a) above with respect to any request for
indemnification made under this Indemnity Agreement must be received on or
before the date seven (7) years after Association Closing (the "Termination
Date"); no indemnification shall be provided under this Agreement with respect
to any such notice or claim or request for indemnification received after the
Termination Date.
ARTICLE VI
MISCELLANEOUS
6.1 No Warranty. Nothing in this Indemnity Agreement shall be construed or
-----------
deemed to (a) expand or otherwise alter any warranty or disclaimer thereof
provided under the Purchase and Assumption Agreement with respect to, among
other matters, title to, the value, collectibility, genuineness, enforceability
or condition of, or the existence of any liens or encumbrances affecting, any
asset of the Failed Association purchased by the Assuming Institution pursuant
to such Purchase and Assumption Agreement on or after the date of Association
Closing, or (b) create any warranty not expressly provided under the Purchase
and Assumption Agreement with respect to any such asset.
6.2 Entire Agreement. This Agreement, the Purchase and Assumption
----------------
Agreement and the other Related Agreements embody the entire agreement of the
parties in relation to the subject matter hereof and thereof and supersede all
prior understandings or agreements, oral or written, between the parties hereto
and thereto.
6.3 Headings. The headings and subheadings of the Table Contents, Articles
--------
and Sections contained in this Agreement, except the terms identified for
definition in Article I, are inserted for convenience only and shall not affect
the meaning interpretation of this Agreement or any provision hereof.
<PAGE>
page 11
6.4 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by a different party hereto on separate counterparts, each of
which when so executed shall be deemed to be an original and all of which when
taken together shall constitute one and the same Agreement.
6.5 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS HEREUNDER
-------------
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE FEDERAL LAW OF THE
UNITED STATES OF AMERICA, AND IN THE ABSENCE OF CONTROLLING FEDERAL LAW, IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
6.6 Successors. Subject to the limitations of Section 6.7, all terms and
----------
conditions of this Agreement shall be binding on the successors and assignees of
the Corporation and the Assuming Institution. Except as otherwise specifically
provided in this Agreement, nothing expressed or referred to in this Agreement
is intended or shall be construed to give any Person other than the Corporation,
the Receiver and the Indemnitees any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provisions contained herein, it
being the intention of the parties hereto that this Agreement, the obligations
and statements of responsibilities hereunder, and all other conditions and
provisions hereof are for the sole and exclusive benefit of the Corporation, the
Receiver and the other Indemnitees and for the benefit of no other Person.
6.7 Modification; Assignment. No amendment or other modification,
------------------------
rescission, release, annulment or assignment of any part of this Agreement shall
be effective except pursuant to a written agreement subscribed by the duly
authorized representatives of the Corporation and the Assuming Institution. No
assignment of this Agreement or any portion hereof shall be effective as a
discharge or release unless specifically provided for in an instrument of
consent to such assignment.
6.8 Notice. Any notice, request, demand, consent, approval or other
------
communication to any party hereto or the Receiver shall be effective when
received and shall be given in writing, and delivered in person against receipt
therefor, or sent by registered mail, postage prepaid or courier service to its
address set forth below or at such other address as it shall hereafter furnish
in writing to the others. All such notices and other com-
<PAGE>
page 12
munications shall be deemed given on the date received by the addressee.
CORPORATION
- -----------
Resolution Trust Corporation
801 17th Street, N.W.
Washington, D.C. 20434
Attention: Senior Vice President
and General Counsel
with a copy to:
Resolution Trust Corporation
P. O. Box 6210
Newport Beach, CA 92658-6210
Attention: Assistant General Counsel (RTC)
ASSUMING INSTITUTION
- --------------------
Pan American Bank, FSB
1300 South El Camino Real
P.O. Box 2079
San Mateo, California 94402
Attention: Lawrence J. Grill, President
with a copy to:
Pan American Financial, Inc.
c/o Bastion Capital
1999 Avenue of the Stars, Suite 2800
Los Angeles, California 90067
Attention: Mr. Guillermo Bron
6.9 Waiver. The Corporation, the Assuming Institution and any other
------
Indemnitee may waive its respective rights, powers or privileges under this
Agreement; provided, that any such waiver shall be in writing; and provided
-------- --------
further, that no failure or delay on the part of the Corporation, the Assuming
- -------
Institution or any other Indemnitee to exercise any right, power or privilege
under this Agreement will operate as a waiver thereof, nor will any single or
partial exercise of any right, power or privilege under this Agreement preclude
any other or further exercise thereof or the exercise of any other right, power-
or privilege by the Corporation, the Assuming Institution or any other
Indemnitee
<PAGE>
page 13
under the terms of this Agreement, nor will any such waiver operate or be
construed as a future waiver of such right, power or privilege under this
Agreement.
6.10 Severability. If any provision of this Agreement is invalid or
------------
unenforceable then, to the extent possible, all of the remaining provisions of
this Agreement shall remain in full force and effect and shall be binding upon
the parties hereto.
6.11 Corporation Obligation. Nothing in this Agreement is intended or
----------------------
shall be construed to create in any way any liability or obligation on the part
of the United States of America or any department or agency thereof (other than
the Corporation) under or in respect of this Agreement, or any provision hereof,
it being the intention of the parties hereto that the obligations undertaken by
the Corporation hereunder are the sole and exclusive responsibility of the
Corporation and no other Person or entity.
6.12 Costs of Duplication. The costs of duplication of documents provided
--------------------
in connection with the matters contemplated hereunder shall be paid in the
manner provided in Sections 8.4(c) and 8.4(d) of the Standard Terms by the party
requesting copies of such documents.
6.13 Effectiveness. This Agreement shall become effective at such time as
-------------
the conditions set forth in the Purchase and Assumption Agreement shall have
been satisfied or waived.
IN WITNESS WHEREOF, the Corporation and the Assuming Institution on behalf
of all of the Indemnitees have caused this Agreement to be executed by their
duly authorized representatives on the date first above written.
RESOLUTION TRUST CORPORATION
ATTEST:
By: /s/ [SIGNATURE ILLEGIBLE] /s/ [SIGNATURE ILLEGIBLE]
-------------------------- ----------------------------
PAN AMERICAN BANK, FSB
SAN MATEO, CALIFORNIA
ATTEST:
By: /s/ GUILLERMO BRON /s/ LAWRENCE J. GRILL
-------------------------- ----------------------------
<PAGE>
EXHIBIT 10.21
FEDERAL HOME LOAN BANK
of SAN FRANCISCO ADVANCES AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
This Advances and Security Agreement ("Agreement") is made as of January 29,
1996, between the Federal Home Loan Bank of San Francisco (Bank,) and Pan
American Bank, FSB ("Member"), which has its principal office at San Mateo,
California.
WHEREAS, the Member desires from time to time to apply for extensions of credit
from the Bank in accordance with the terms and conditions of this Agreement; and
WHEREAS, the Bank requires that all existing indebtedness of the Member to the
Bank and all extensions of credit by the Bank to the Member pursuant to this
Agreement be secured pursuant to this Agreement, and the Member is willing to
provide such security:
NOW THEREFORE, the Member and the Bank agree as follows:
I. DEFINITIONS
As used herein, the following terms shall have the following meanings:
A. "ACT" means the Federal Home Loan Bank Act, as amended.
B. "ADVANCE" or "ADVANCES" means any and all loans or other extensions of
credit by the Bank to the Member, including all loans or extensions of
credit by the Bank to the Member prior to the date hereof.
C. "BANK'S CREDIT PROGRAM" means the credit program established by the
Bank as it is described in the Bank's "Guide to the Credit Program"
and "Collateral Guidelines," as the same may be amended or
supplemented from time to tune.
D. "BOARD" means the Federal Housing Finance Board, or any successor
agency thereto.
E. "BORROWING CAPACITY" means the aggregate dollar amount that the Bank
shall from time to time, in its sole discretion, ascribe to the
various types of Collateral for determining the Member's compliance
with the Member's obligations pursuant to Section III.D.
F. "CAPITAL STOCK" means all of the capital stock of the Bank held by the
Member now or hereafter and all payments that have been or hereafter
are made on account of subscription to and all unpaid dividends on
such capital stock.
Page 1 of 32
<PAGE>
G. "COLLATERAL" means all property, including the proceeds thereof,
heretofore assigned, transferred, and pledged to the Bank by the
Member as collateral for Advances, all deposit accounts maintained by
the Member at the Bank, all Capital Stock, and all Mortgage
Collateral, Multifamily Mortgage Collateral, Government and Agency
Securities Collateral, Other Securities Collateral, and Other
Collateral, including the proceeds thereof, that is now or hereafter
pledged to the Bank pursuant to Section III.A., Section III.B. or
otherwise.
H. "COLLATERAL CONFIRMATION" means a writing or machine-readable
electronic transmission in such form or forms as shall be prescribed
by the Bank from time to time, confirming the receipt by the Bank of a
Collateral Update Report.
I. "COLLATERAL MAINTENANCE LEVEL" means the aggregate dollar amount equal
to such percentage(s) as the Bank may specify from time to time of the
aggregate outstanding amount of (1) Advances, (2) Outstanding
Commitments, (3) with respect to each outstanding Swap Transaction,
the amount for which the Member is required to maintain Collateral,
and (4) any additional obligations and liabilities of the Member to
the Bank. The Bank may increase or decrease the Collateral Maintenance
Level at any time.
J. "COLLATERAL UPDATE REPORT" means a schedule, embodied on computer tape
or on such other media as may be prescribed by the Bank, and in such
form as may be prescribed by the Bank, specifying and describing the
Mortgage Collateral, Multifamily Mortgage Collateral and Other
Collateral -Commercial Mortgage Loans pledged by the Member to the
Bank as of the date thereof and specified in accordance with Section
III.E.(1).
K. "COMMITMENTS" means any and all agreements under which the Bank is
obligated to make Advances to the Member or payments On behalf of or
for the account of the Member, existing on the date hereof or
hereafter, including without limitation, letters of credit, firm
commitments, guarantees or other arrangements intended to facilitate
transactions between the Member and third parties (but excluding any
obligations that the Bank may now or hereafter have to honor item or
transfer orders under a depository or similar agreement between the
Member and the Bank), and irrespective of whether the Bank's
obligation under such agreement is contingent upon the occurrence or
nonoccurrence of a condition subsequent.
L. "CONFIRMATION OF ADVANCE" means a writing or machine-readable
electronic transmission, in such form or forms as shall be prescribed
by the Bank from time to time, confirming an Advance.
M. "ELIGIBLE COLLATERAL" means Collateral, other than Capital Stock, that
at the time it becomes Collateral and at all times thereafter (i)
qualifies as security to support the origination of advances under the
terms and conditions of the Act and the
Page 2 of 32
<PAGE>
Regulations; (ii) satisfies the requirements that may be established
by the Bank pursuant to the Bank's Credit Program or otherwise; (iii)
is owned by the Member free and dear of any liens, encumbrances or
other interests other than the assignment to the Bank hereunder and
(iv) in the case of Other Collateral, Government and Agency Securities
Collateral and Other Securities Collateral, has been tendered by the
Member to the Bank and specifically accepted by the Bank as Eligible
Collateral.
N. "FEDERAL BANKING AGENCY" means the appropriate Federal banking agency
(the Office of Thrift Supervision, the Office of Comptroller of the
Currency, the Federal Deposit Insurance Corporation, or the Board of
Governors of the Federal Reserve System) as defined in the Federal
Deposit Insurance Act.
O. "GOVERNMENT AND AGENCY SECURITIES COLLATERAL" means mortgage backed
securities (including participation certificates) issued by the
Federal Home Loan Mortgage Corporation or the Federal National
Mortgage Association, obligations guaranteed by the Government
National Mortgage Association, and other obligations of or guaranteed
by the United States or an agency thereof.
P. "INDEBTEDNESS" means all indebtedness of the Member to the Bank
hereunder, whether now outstanding or hereafter incurred, including
all Advances and any other sums owed by the Member to the Bank
pursuant to any provision hereof, and all other obligations and
liabilities of the Member to the Bank.
Q. "MORTGAGE COLLATERAL" means Mortgage Documents (excluding
participation or other fractional interests therein) and all ancillary
security agreements, policies, and certificates of insurance or
guarantees, evidences of recordation, applications, underwriting
materials, appraisals, approvals, permits, notices, opinions of
counsel, and loan servicing data, and all other electronically stored
and written records or materials relating to the loans covered by the
Mortgage Documents.
R. "MORTGAGE DOCUMENTS" means mortgages -and deeds of trust (herein
"mortgages") representing a first lien on a one- to four-unit
residential dwelling and the single parcel of real estate on which it
is located, and all notes, bonds, or other instruments evidencing
loans secured thereby (herein "mortgage notes"), and any endorsements
and assignments thereof to the Member.
S. "MULTIFAMILY MORTGAGE COLLATERAL" means Multifamily Mortgage Documents
(excluding participation or other fractional interests therein) and
all ancillary security agreements, policies, and certificates of
insurance or guarantees, evidences of recordation, applications,
underwriting materials, appraisals, approvals, permits, notices,
opinions of counsel, and loan servicing data, and all other
electronically stored and written records or materials relating to the
loans covered by the Multifamily Mortgage Documents.
Page 3 of 32
<PAGE>
T. "MULTIFAMILY MORTGAGE DOCUMENTS" means first mortgages and deeds of
trust (herein "mortgages") representing a lien on a multifamily
residential dwelling of five or more units and the single parcel of
real estate on which it is located, and all notes, bonds, or other
instruments evidencing loans secured thereby (herein "multifamily
mortgage notes") and any endorsements and assignments thereof to the
Member.
U. "OTHER COLLATERAL" means such items of property, other than Capital
Stock, Mortgage Collateral, Multifamily Mortgage Collateral,
Government and Agency Securities Collateral and Other Securities
Collateral, that are tendered by the Member to the Bank and are
specifically accepted by the Bank as collateral for Indebtedness or
Outstanding Commitments.
V. "OTHER COLLATERAL-COMMERCIAL MORTGAGE LOANS" means first mortgages and
deeds of trust (herein "mortgages) and all notes, bonds, or other
instruments evidencing loans secured thereby and made for commercial,
corporate, or business purposes (including Multifamily Mortgage
Collateral), and all ancillary security agreements, policies, and
certificates of insurance or guarantees, evidences of recordation,
applications, underwriting materials, appraisals, approvals, permits,
notices, opinions of counsel, and loan servicing data, and all other
electronically stored and written records or materials relating to
such loans.
W. "OTHER SECURITIES COLLATERAL" means securities (other than Government
and Agency Securities Collateral) representing unsubordinated
interests in, or collateralized by first priority security interests
in, both the interest and principal payments on fully-disbursed first
residential mortgage loans.
X. "OUTSTANDING COMMITMENTS" means, at any point in time, the maximum
aggregate principal amount of Advances or payments that the Bank may
be obligated to make under Commitments that are then in effect.
Y. "REGULATIONS" means the regulations of the Board, as amended from time
to time.
Z. "SWAP TRANSACTION" means an interest rate swap, interest rate cap,
floor or collar, currency exchange transaction or similar transaction
entered into between the Bank and the Member.
II. ADVANCES AGREEMENT
A. APPLICATION AND PROCEDURES FOR ADVANCES
From time to time, the Member may apply to the Bank for Advances or
Commitments in accordance with the procedures established in writing
by the Bank from time to time. Each Advance or
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Commitment shall be evidenced by a Confirmation of Advance or other
writing issued by the Bank. Each Advance or Commitment shall be
governed by the terms of this Agreement and the Confirmation of
Advance or other writing applicable thereto. Unless otherwise agreed
to in writing by the Bank, each Advance shall be made by crediting the
Member's demand deposit account(s) with the Bank. The Bank's
obligation to fund any Commitment shall be subject to compliance by
the Member with the terms and provisions of this Agreement, including
without limitation the Collateral maintenance requirements set forth
in Section III.D., as well as satisfaction by the Member of the
applicable credit considerations and other eligibility requirements
and policies prescribed in the Bank's Credit Program. In the event
that the member's access to Advances is subsequently restricted
pursuant to any provision of federal law, the Bank shall not be
required to fund outstanding Commitments for Advances not funded prior
to the effective date of such restriction. If the Bank shall so
request, the Member shall sign and deliver to the Bank a promissory
note or notes in such form as the Bank may reasonably require to
evidence any Advance.
B. REPAYMENT OF ADVANCES
The Member agrees to repay each Advance or any other amount due in
accordance with this Agreement and the applicable term and provisions
of the Bank's Credit Program and, where relevant, the terms and
conditions of the Confirmation of Advance issued in connection with
such Advance. A payment shall be deemed delinquent if such payment is
not received by the Bank on or before the applicable payment due date
as provided in the Confirmation of Advance or otherwise. The Member
shall maintain in the Member's demand deposit account(s) with the Bank
an amount at least equal to the amounts then currently due and payable
to the Bank on outstanding Advances or otherwise due hereunder, and
the Member here-by authorizes the Bank to debit the Member's demand
deposit account(s) in an amount equal to all such then due and payable
amounts. The Member agrees that, in the event any such debit results
in the Member's demand deposit account being overdrawn, the Member
shall pay overdraft charges thereon at the rate that the Bank normally
assesses for overdrafts on general deposit accounts; or, in the sole
discretion of the Bank, the Bank may fund an Advance to the Member in
the amount of the overdraft, which Advance shall bear interest from
the date the same shall be made until paid at the rate in effect and
being charged by the Bank from time to time under its Other Cash
Needs-Variable-Rate Credit option. Upon maturity of any Advance or
any portion thereof, either by its terms or by acceleration, or if any
interest on any Advance or any other sum owed hereunder shall be due
and payable, the Bank may without notice to the Member apply any
credits, deposits, monies, or other property of the Member then in
possession of the Bank (and not held by the Bank as bailee for a third
party) to the payment of such principal and interest or any amount
owed to the Bank.
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C. AMORTIZATION PAYMENTS
In the event that the Bank determines that the creditworthiness of the
Member, as determined from time to time by the Bank, does not meet the
requirements of the Bank, the Bank may require amortization by means
of monthly payments of principal on all or part of the Member's
Advances. Such amortization payments may also, but need not, be
required if such reduction in the level of the Member's
creditworthiness or such determination by the Bank with respect
thereto also constitutes, in the Bank's judgment, an Event of Default
hereunder. The Member agrees to begin making such monthly
amortization payments upon thirty (30) days' written notice from the
Bank in such amounts, not to exceed ten percent of the original
principal balance of the subject Advances, as shall be specified in
writing by the Bank. The Member shall make such payments while any
amount remains unpaid on the subject Advances or until notified
otherwise by the Bank. Amortization payments required pursuant to this
Section II.C. shall be in addition to all other payments of principal
and interest with respect to Advances. Notwithstanding any other
provision of this Agreement or any Confirmation of Advance, in the
event that the aggregate amount of outstanding Advances secured by
"other real estate related collateral" within the meaning of Section
10(a) of the Act (12 U.S.C. (S)1430(a)) (and not by other Eligible
Collateral) at any time shall exceed 30 percent of the Member's
capital, the Member shall immediately prepay, subject to the terms and
provisions of this Agreement and the Bank's Credit Program, the amount
of such outstanding Advances which shall be in excess of such amount
of the Member's, capital or shall immediately provide sufficient
additional Eligible Collateral to the Bank with respect to such
Advances so that the Collateral Maintenance Level requirements herein
provided for shall be satisfied.
D. ESTOPPEL
Failure of the Member, within two business days of the Member's
receipt of a Confirmation of Advance, to deliver, written notice to
the Bank specifying any disputed term or condition of such Advance
shall constitute the agreement and acknowledgment by the Member that
the terms and conditions of the Advance are valid and are those that
the Member requested and by which the Member agreed to be bound, and
the Member shall thereafter be estopped from asserting any claim or
defense with respect to the repayment of such Advance and all
interest, fees, and other charges thereon or in connection therewith.
E. RIGHT OF BANK TO MAKE ADVANCES WITH RESPECT TO OUTSTANDING COMMITMENTS
In the event that one or more Commitments are outstanding at the time
of an Event of Default, the Bank may at its option, and without notice
to or request from the Member, make an Advance by crediting a special
account of the Member with the Bank in an amount equal to the
Outstanding Commitments. The Bank shall have a first priority
perfected security interest in any such special account, and amounts
credited to such special account may not be withdrawn by the
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Member for so long as there shall be outstanding Commitments. The
funds in such special account shall be utilized by the Bank for the
purpose of satisfying the Bank's obligations under the Commitments.
When all such obligations have expired or have been satisfied, the
Bank shall disburse the balance, if any, in such account first to the
satisfaction of any amounts then due and owing by the Member to the
Bank and then to the Member or its successors in interest. Advances
made pursuant to this Section II.E. shall be payable on demand and
shall bear interest from the date the same shall be made until paid at
the rate in effect and being charged by the Bank from time to time
under its Other Cash Needs-Variable-Rate Credit option.
F. INTEREST
The Member agrees to pay interest on each Advance at a rate per annum
determined on the base described in the Confirmation of Advance
pertaining thereto and otherwise as specified herein. Interest with
respect to a given type of Advance as specified in the relevant
Confirmation of Advance shall be determined on the basis described in
the Bank's Credit Program for such type of Advance. Accrued interest
on each Advance shall be due and payable at the times specified in the
Bank's Credit Program, Confirmation of Advance, or otherwise as
specified by the Bank for the type of Advance in question.
G. COMMITMENT AND CANCELLATION FEES
The Member agrees to pay when due any fees applicable to any
Commitments issued by the Bank hereunder, or any fees applicable to
the cancellation of such Commitments, as prescribed by the Bank's
Credit Program.
H. PREPAYMENT FEES
Upon a permitted prepayment of any Advance, the Member agrees to pay
when due any applicable prepayment fees pertaining to such Advance, as
prescribed in the Bank's Credit Program for the type of Advance in
question. Prepayments shall be permitted only in accordance with the
terms and provisions of the Bank's Credit Program.
I. COMPLIANCE WITH THE BANK'S CREDIT PROGRAM
The Member hereby agrees to comply with the terms and provision of the
Bank's Credit Program, including, without limitation, any reporting
requirements, application procedures or eligibility requirements
imposed by the Bank's Credit Program with respect to particular types
of Advances. In the event that the Bank's Credit Program is amended,
the Member agrees to comply with the terms and provisions of the
Bank's Credit Program as so amended from time to time, provided that
any outstanding Advances or Commitments existing at the time of any
such amendment shall continue to be governed by the terms and
provisions of the Confirmation of Advance pertaining thereto.
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J. DESIGNATION FOR BLANKET LIEN STATUS
If the Member shall meet the criteria for blanket lien status
established by the Bank from time to time in the Bank's Credit
Program, the Member may apply to the Bank in writing to be designated
for blanket lien status for securing its Indebtedness and Outstanding
Commitments hereunder with (i) all, or such portion as is specifically
described in writing in the Member's blanket lien designation, of the
Mortgage Collateral now owned or hereafter acquired by the Member, all
proceeds thereof, and all other Collateral pledged by the Member
pursuant to Section III.A. or (ii) all, or such portion as is
specifically described in writing in the Member's blanket lien
designation, of the Mortgage Collateral and Multifamily Mortgage
Collateral now owned or hereafter acquired by the Member, all proceeds
thereof, and all other Collateral pledged by the Member pursuant to
Section III.A. The Bank, in its sole discretion, shall determine
whether Advances may by extended safely and soundly to the Member on
the basis of a blanket lien, and if so, shall designate the Member for
blanket lien status in a writing which adequately describes the
portion of Mortgage Collateral or the portion of Mortgage Collateral
and Multifamily Mortgage collateral pledged to the Bank by the Member
pursuant to the blanket lien. If the Member is designated for blanket
lien status by the Bank, the Member shall pledge Collateral in the
manner described in Section III.B. To maintain such designation for
blanket lien status, the Member shall satisfy the requirements for
blanket lien status as set forth in the Bank's Credit Program, as
amended from time to time. If any event has occurred that may cause
the Member to fail to meet the blanket lien criteria established by
the Bank or if the Member shall have been notified or deemed notified
by its Federal Banking Agency of a change in its capital category, the
Member Shall deliver written notice thereof to the Bank within two
business days following the earlier of the date of the event or the
date the Member is deemed to have received such notice from its
Federal Banking Agency. At any time that the Bank determines, in its
sole discretion, that the Member does not meet the requirements for
blanket lien status established by the Bank from time to time, the
Bank may, by written notice to the Member, require the Member to
pledge specifically identified Collateral to the Bank as set forth in
Section III.A. and to deliver a Collateral Update Report or other
report as set forth in Section III.E. Upon receipt of such notice by
the Member, the Member shall pledge such Collateral and deliver such
Collateral Update Report or other report in the manner and time
specified by the Bank.
K. ADDITIONAL COVENANTS BY THE MEMBER
The Member will, maintain a copy of this Agreement in its official
records at all times. The Member will use the proceeds from all
Advances constituting long-term Advances, as defined in the Bank's
Credit Program, only for the purpose of providing funds for
residential housing finance. The Member will give the Bank notice of
any material event that would cause the Member to be ineligible to
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become a member of the Bank or ineligible to obtain Advances, pursuant
to the provisions of the Act and the regulations promulgated
thereunder.
III SECURITY AGREEMENT
A. CREATION OF SECURITY INTEREST IF MEMBER IS NOT DESIGNATED FOR BLANKET
LIEN STATUS
As security for all Indebtedness and Outstanding Commitments, to the
extent the Member is not designated by the Bank in writing for blanket
lien status as set forth in Section II.J., the Member hereby assigns,
transfers, and pledges to the Bank, and grants to the Bank a security
interest in: (1) all of the Capital Stock; (2) all of the Mortgage
Collateral, Multifamily Mortgage Collateral, Government and Agency
Securities Collateral, Other Securities Collateral and Other
Collateral, and all proceeds thereof, which is specified pursuant to
Section III.E. or delivered pursuant to Section III.F.; and (3) all
deposit accounts now or hereafter maintained by the Member with the
Bank. Without limiting the foregoing all property heretofore
assigned, transferred or pledged by the Member to the Bank as
Collateral securing Indebtedness and other obligations of the Member
to the Bank prior to the date hereof is hereby assigned, transferred
and pledged to the Bank as Collateral hereunder.
B. CREATION OF SECURITY INTEREST IF MEMBER IS DESIGNATED FOR BLANKET LIEN
STATUS
To the extent the Member is designated by the Bank in writing for
blanket lien status for (i) all or a portion of its Mortgage
Collateral or (ii) all or a portion of its Mortgage Collateral and
Multifamily Mortgage Collateral, as set forth in Section II.J., the
Member shall pledge Collateral to the Bank as set forth in this
Section III.B.
(1) As security for all Indebtedness and Outstanding commitments, the
Member hereby assigns, transfers, and pledges to the Bank, and
grants to the Bank a security interest in: (1) all of the Capital
Stock, (2) all of the Government and Agency Securities
Collateral, Other Securities Collateral and Other Collateral, and
all proceeds thereof, which is specified pursuant to Section
III.E. or delivered pursuant to Section III.F.; and (3) all
deposit accounts now or hereafter maintained by the Member with
the Bank.
(2) To the extent the Member is designated by the Bank in writing for
blanket lien status, the Member, as security for all Indebtedness
and Outstanding Commitments, hereby assigns, transfers, and
pledges to the Bank, and grants to the Bank a security interest
in:
(i) the Mortgage Collateral or
(ii) the Mortgage Collateral and Multifamily Mortgage
Collateral now owned or hereafter acquired by the Member which is
described in the Member's designation for blanket lien status and
forms identified in the
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Bank's Credit Program reflecting the release or reinstatement of
blanket lien collateral, and all proceeds thereof. The Member, as
additional security for all Indebtedness and Outstanding
Commitments, hereby assigns, transfers, and pledges to the Bank,
and grants to the Bank a security interest in, the Mortgage
Collateral and Multifamily Mortgage Collateral, and all proceeds
thereof, which is specified pursuant to Section III.E. or
delivered pursuant to Section III.F.
(3) Without limiting the foregoing, all property heretofore assigned,
transferred or pledged by the Member to the Bank as Collateral
securing Indebtedness and other obligations of the Member to the
Bank prior to the date hereof is hereby assigned, transferred and
pledged to the Bank as Collateral hereunder.
C. MEMBER'S REPRESENTATIONS AND WARRANTIES CONCERNING COLLATERAL
The Member represents and warrants to the Bank, as of the date hereof
and as of each date on which there shall be an outstanding Advance or
Commitment, as follows:
(1) The Member owns and has marketable title to the Collateral and
has the right and authority to grant a security interest to the
Bank in the Collateral and to subject all of the Collateral to
this Agreement;
(2) The information given from time to time by the Member to the Bank
as to each item of Collateral is true, accurate, and complete in
all material respects;
(3) All the Collateral meets the standards and requirements with
respect thereto from time to time established by the Bank, the
Act, and the Regulations. The Member hereby agrees to permit the
Bank, or its designees, upon request, to inspect the real
property and any improvements thereon that are subject to the
lien of the Collateral and to pay to the Bank such reasonable
fees and charges as may be assessed by the Bank to cover the
costs of appraisals, inspections, or other actions relating to
the Bank's evaluation of the Collateral;
(4) The lien of the Collateral consisting of Mortgage Collateral or
Multifamily Mortgage Collateral on the real property securing the
same is a first, prior, and perfected lien under applicable state
law;
(5) The Member has not conveyed or otherwise created, and there does
not otherwise exist, any participation interest or other direct,
indirect legal, or beneficial interest in any Collateral
consisting of Multifamily Mortgage
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Collateral or Other Collateral-Commercial Mortgage Loans on the
part of anyone other than the Bank and the Member;
(6) All signatories to any and all writings that constitute any
Collateral are and will be bound as they appear to be by their
signatures and have the requisite authority and capacity
(corporate or other) to execute such writings;
(7) Except as may be approved in writing by the Bank, no account
debtor or other obligor owing any obligation to the Member with
respect to any item of Collateral consisting of Multifamily
Mortgage Collateral or Other Collateral-Commercial Mortgage Loans
has or will have any defenses, offsetting claims, or other
condition affecting the right of the Member or the Bank to
enforce the writings constituting any such Multifamily Mortgage
Collateral or Other Collateral-Commercial Mortgage Loans in
accordance with the express term of such writings, and no
defaults (or conditions that, with the passage of time or the
giving of notice or both, would constitute a default) exist or
will exist under any such writings; and
(8) Any and all real property or interest in real property that is
the subject of and included in the Collateral consisting of
Mortgage Collateral, Multifamily Mortgage Collateral or Other
Collateral-Commercial Mortgage Loans or that otherwise
constitutes Collateral contains no toxic or hazardous wastes or
other toxic or hazardous substance the presence of which could
subject the Bank to any liability under applicable state or
federal law or local ordinance ether at any time that such
property is pledged to the Bank or upon enforcement by the Bank
of its security interest therein. The Member hereby agrees to
indemnify and hold the Bank harmless against all costs, claims,
expenses, damages, and liabilities resulting in any way from the
presence on any real property or interest in real property that
is subject to or included in any Collateral consisting of
Mortgage Collateral, Multifamily Mortgage Collateral or Other
Collateral-Commercial Mortgage Loans or that otherwise
constitutes Collateral, of toxic or hazardous wastes or
substances.
D. COLLATERAL MAINTENANCE REQUIREMENT
(1) The Member shall at all times maintain hereunder as Collateral an
amount of Eligible Collateral that has a Borrowing Capacity that
is at least equal to the then current Collateral Maintenance
Level. In addition, the Member agrees to maintain in pledge with
the Bank such additional amounts of Collateral (which may, if the
Bank shall so determine, be collateral which is not Eligible
Collateral) as may be required by the Bank in order to protect
its Security position with respect to Indebtedness and
Outstanding Commitments. In the event that any Collateral
specified pursuant to
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Section III.E. or delivered pursuant to Section III.F. that was
Eligible Collateral ceases to be Eligible Collateral, the Member
will promptly notify the Bank in writing of the reason that such
Collateral has ceased to be Eligible Collateral and will request
delivery or reassignment of such Collateral pursuant to Section
III.G. The Member shall not assign, pledge, transfer, create any
Security interest in, sell, or otherwise dispose of any
Collateral, nor shall the Member foreclose any Collateral
specified pursuant to Section III.E. or delivered pursuant to
Section III.F. that consists of Mortgage Collateral Multifamily
Mortgage Collateral or Other Collateral constituting a lien on
real property, without the prior written consent of the Bank.
(2) Subject to Section III.E.(6) and Section III.F., all Collateral
shall be held by the Member in trust for the benefit of, and
subject to the direction and control of, the Bank, and will be
physically safeguarded by the Member with reasonable care. The
Member shall take all action necessary or desirable to protect
and preserve the Collateral and the Bank's interest therein,
including without limitation, assuring that the mortgage loan
comprising the Collateral consisting of Mortgage Collateral,
Multifamily Mortgage Collateral or Other Collateral-Commercial
Mortgage Loans are serviced in accordance with the standards of a
reasonable and prudent mortgage.
(3) The form and sufficiency of all documents pertaining to the
Collateral shall be satisfactory to the Bank. Any Collateral that
is not satisfactory to the Bank may be rejected by the Bank or
may have a value ascribed thereto that shall be less than the
value normally ascribed thereto under the Bank's Credit Program,
as the Bank may specify. The Bank may require, before any Advance
shall be made to the Member, that the Member make any or all
documents pertaining to the Collateral available to the Bank for
its inspection and approval.
E. SPECIFICATION AND SEGREGATION OF COLLATERAL
(1) To the extent the Member pledges Collateral to the Bank of a type
for which the Member is not designated for blanket lien status
pursuant to Section II.J., the Member shall prepare and deliver
to the Bank a Collateral Update Report as specified in this
Section III.E. From time to time hereafter as shall be necessary
to satisfy the requirements of Section III.D.(1), but at least
quarterly, the Member shall deliver to the Bank a Collateral
Update Report (or, if the Bank shall so agree, a written
schedule) specifying and describing such amount of Mortgage
Collateral, Multifamily Mortgage Collateral, or Other Collateral-
Commercial Mortgage Loans pledged to the Bank (other than under a
blanket lien pursuant to Section III.B.) that, together with
other Eligible Collateral pledged to the
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Bank, has a Borrowing Capacity as of the date of such Collateral
Update Report at least equal to the Collateral Maintenance Level.
The format of the Collateral Update Report shall be in accordance
with such requirements as may be prescribed by the Bank from time
to time. Notwithstanding any other provision hereof, the
Collateral Update Report (or any written schedule specifying and
describing any Collateral) shall not be effective until the same
shall be accepted by the Bank. Unless the Bank otherwise advises
the Member, acceptance of a Collateral Update Report (or other
schedule) shall be deemed to occur upon the issuance by the Bank
of a Collateral Confirmation with respect thereto pursuant to
Section III.E.(2). The Bank shall have no obligation to accept
any Collateral Update Report (or other schedule) if it would
result in the failure of the Member to maintain the Collateral
Maintenance Level or if the Bank shall determine, in its sole
discretion, that the same is irregular or deficient in any
respect. If so directed by the Bank, the Member shall endorse
each mortgage note evidencing Mortgage Collateral, Multifamily
Mortgage Collateral, or Other Collateral-Commercial Mortgage
Loans as follows: "Pay to the order of the Federal Home Loan Bank
of San Francisco." The Member shall be liable to the Bank for any
deficiency remaining after the exercise by the Bank of its
remedies in respect of the Collateral as provided in Section
IV.B. All other Mortgage Documents and Multifamily Mortgage
Documents and each document evidencing Securities Collateral or
Other Collateral that is part of the Collateral shall be endorsed
and assigned to the Bank in such manner as shall be specified by
the Bank. The specification and description of all Collateral
shall be effected pursuant to the delivery by the Member to the
Bank of such writings pertaining thereto as the Bank shall from
time to time prescribe.
(2) To the extent delivery of a Collateral Update Report is required
pursuant to Section III.E.(1), following the receipt thereof the
Bank shall generate a written record of the contents thereof and
the Bank shall deliver, at the Member's expense, a copy of such
record, together with a Collateral Confirmation, to the Member.
Failure of the Member to deliver written notice to the Bank
within seven days of the date of a Collateral Confirmation,
objecting to the information set forth in such Collateral
Confirmation or the accompanying written record prepared by the
Bank with respect to the Collateral Update Report and setting
forth in reasonable detail the basis for such objection, shall
constitute the agreement and acknowledgment by the Member of the
validity and accuracy of the information contained therein, and
the Member shall thereafter be estopped from asserting any claim
or defense based upon or with respect to the accuracy or validity
of any information contained in the Collateral Confirmation or
accompanying record. If the Member shall deliver a timely
objection to the Bank with respect to any Collateral Confirmation
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or the accompanying record, the parties shall promptly consult
with one another with a view to resolving the matter. However,
the Borrowing Capacity ascribed to the Collateral that is the
subject of such consultation shall be in the sole discretion of
the Bank pending the resolution of the matter. Nothing contained
herein or in any Collateral Confirmation or accompanying record
or other documents delivered with any Collateral Confirmation
shall be construed as an agreement or commitment on the part of
the Bank to make an Advance to the Member and the right and power
of the Bank either to grant or to deny a request by the Member
for an Advance is expressly reserved.
(3) To the extent the Member pledges Collateral subject to a blanket
lien created pursuant to Section III.B., the Member shall deliver
to the Bank from time to time as directed by the Bank a written
statement in such form as the Bank may require of duly authorized
signers for the Member certifying as to the aggregate amounts of
Collateral that is subject to the blanket lien of the Bank and
eligible to receive Borrowing Capacity (as determined by the
Bank), and further certifying that the Collateral subject to the
lien of the Bank has a Borrowing Capacity as of the date of such
certification at least equal to the Collateral Maintenance Level.
(4) Notwithstanding anything to the contrary, the Member shall be
solely responsible for the accuracy and adequacy of all
information and data in: (i) each Collateral Update Report (or
other writing specifying and describing any Collateral) submitted
to the Bank and the written record thereof generated by the Bank,
regardless of the form in which submitted; (ii) any report or
information provided by the Member to its Federal Borrowing
Agency from which the Bank obtains information related to
Collateral; and (iii) any other report or certification relating
to Collateral which is provided by the Member to the Bank. The
Bank shall have no duty to make any independent examination or
calculation with respect to the information submitted in a
Collateral Update Report (or in any other written report,
schedule, or certification that may be submitted by the Member)
and, without limiting the generality of the foregoing, the Bank
makes no representation or warranty, as to the validity,
accuracy, or completeness of any information contained in any
Collateral Confirmation or accompanying record or other document
delivered with any Collateral Confirmation.
(5) The Member hereby authorizes the Bank to maintain any and all
information contained in each Collateral Update Report in
microfiche or microfilm form or in any other physical or
electronic medium as may be prescribed by the Bank. However, the
Member agrees that the Bank shall not be required to retain any
such information, including information
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generated pursuant to subsection (2) of this Section III.E., in
written form. To the extent the Bank has obtained a Collateral
Update Report from the Member, the Bank will maintain on computer
tape or other machine-readable media the information set forth an
the Member's current Collateral Update Report. To enable the Bank
to regenerate any files or data previously furnished to the Bank
with respect to any Collateral or any information contained in
any Collateral Update Reports, the Member shall at all times
maintain complete and accurate records and materials supporting
and/or relating to any of the Collateral Update Reports and shall
make the same available, on request, to the Bank. The parties
hereto agree that the maintenance and retention of such
supporting records and materials shall be the sole responsibility
of the Member and that the Bank shall not be liable for any loss
of such data.
(6) If so requested by the, Bank, the Member shall physically
segregate the Mortgage Collateral or Multifamily Mortgage
Collateral described in each Collateral Update Report delivered
pursuant to subsection (1) of this Section III.E. and any
Collateral that has been pledged to the Bank other than by means
of a Collateral Update Report from all other property of the
Member in a manner satisfactory to the Bank. The Member shall
hold each package of Mortgage Documents or Multifamily Mortgage
Documents that is a part of such segregated Collateral in a
separate file folder with each file folder clearly labeled with
the loan Identification number and the name of the mortgagor.
(7) If so requested, the Member will provide, at its own cost and
expense, such certifications by an independent certified public
accountant, or by another party acceptable to the Bank, as the
Bank may request with respect to the Member's compliance with the
terms of this Section III.E.
F. DELIVERY OF COLLATERAL
(1) Within two business days of the Bank's written request, or
immediately at any time that the Member becomes subject to any
mandatory Collateral delivery requirements that may be
established in writing by the Bank, and in either case from time
to time thereafter, the Member shall deliver to the Bank, or to a
bailee designated by the Bank, such Eligible Collateral as may be
necessary so that the Borrowing Capacity of Eligible Collateral
held by the Bank, or such bailee, equals or exceeds the
Collateral Maintenance Level at all times. For the purpose of
verifying the accuracy of the Bank's records, the Member hereby
authorizes the Bank, upon receipt of Mortgage Documents or
Multifamily Mortgage Documents, to affix or otherwise attach to
each mortgage note, multifamily mortgage note, or other writings
included therein labels or stickers containing identification
codes. In all cases, Collateral delivered to the Bank shall be
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endorsed or assigned by the Member to the Bank in the manner
required pursuant to Section III.E.(1) and otherwise as the Bank
may require. Concurrently with the initial delivery of Collateral
and within 30 days of each subsequent valuation date established
by the Bank (and at such other times as the Bank may request),
the Member shall deliver to the Bank a Collateral Update Report
dated as of the then most recent valuation date, describing the
Mortgage Collateral or Multifamily Mortgage Collateral held by
the Bank and any of its bailees (or, in this case of Collateral
other than Mortgage Collateral or Multifamily Mortgage
Collateral, a writing in such form as may be prescribed from time
to time by the Bank). In addition, the Member shall, upon request
of the Bank, forthwith take such other actions as the Bank shall
deem necessary or appropriate to perfect its security interest in
the Collateral.
(2) With respect to any uncertificated securities pledged to the Bank
as Collateral hereunder, the delivery requirements herein
contained shall be satisfied by the transfer of a security
interest in such securities to the Bank, such transfer to be
effected in such manner and to be evidenced by such documents as
the Bank shall specify.
(3) The Member shall, upon request of the Bank, immediately take such
other actions as the Bank shall deem necessary or appropriate to
create and perfect the Bank's security interest in the Collateral
or otherwise to obtain, preserve protect enforce or collect the
Collateral.
(4) The Member agrees to pay upon demand to the Bank such reasonable
fees and charges as may be assessed by the Bank to cover overhead
and other costs relating to the receipt, holding, and redelivery
of Collateral and otherwise relating to the perfection of the
Bank's security interest therein and to reimburse the Bank upon
request for all recording fees and other reasonable expenses,
disbursements, and advances incurred or made by the Bank in
connection therewith (including the reasonable compensation and
the expenses and disbursements of any bailee that may be
appointed by the Bank hereunder, and the agents and legal counsel
of the Bank and of such bailee). Any sums owed to the Bank under
this Section III.F.(4) may be collected by the Bark, at its
option by debiting the Member's demand deposit account(s) with
the Bank.
G. REDELIVERY OF COLLATERAL
Upon receipt by the Bank from the Member of (i) a written request from
the Member requesting the redelivery or reassignment of Collateral
specified pursuant to Section III.E. or delivered pursuant to Section
III.F.(1), or as to which the Bank has otherwise perfected its
security interest, (ii) a Collateral Update Report (and any other
writings required by the Bank in respect of any Collateral) and a
listing
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of the Collateral to be redelivered, and (iii) a certificate of duly
authorized signers for the Member certifying that the Borrowing
Capacity of the Eligible Collateral in respect of which the Bank will
have a first, prior, and (if the Bank shall so require) perfected lien
immediately after such redelivery would not be less than the
Collateral Maintenance Level then applicable, the Bank shall promptly
reassign or redeliver to the Member, at the Member's expense, the
Collateral specified in said request. Notwithstanding anything to the
contrary herein contained, while an Event of Default hereunder shall
have occurred and be continuing, or at any time that the Bank's
records indicate that such redelivery would reduce the Borrowing
Capacity of the Member's Eligible Collateral below the Collateral
Maintenance Level, or at any time that the Bank reasonably and in good
faith deems itself insecure, the Member may not obtain any such
redelivery.
H. COLLATERAL AUDITS AND REPORTS
All Collateral and the satisfaction by the Member of the Collateral
Maintenance Level shall be subject to audit and verification by or on
behalf of the Bank. Such audits and verifications may occur without
notice during the Member's normal business hours or upon reasonable
notice at such other times as the Bank may reasonably request. The
Member shall provide access to, and shall make adequate working
facilities available to, the representatives or agents of the Bank for
purposes of such audits and verifications. The Member agrees to pay
to the Bank such reasonable fees and charges as may be assessed by the
Bank to cover overhead and other costs relating to such audit and
verification. In addition, if the Member becomes aware or has any
reason to believe that the Borrowing Capacity of the Eligible
Collateral has fallen below the Collateral Maintenance Level, or that
a contingency exists which, with the lapse of time, could result in
the Member failing to meet the Collateral Maintenance Level, the
Member shall immediately notify the Bank. If so requested by the
Bank, the Member shall promptly report to the Bank any event which
reduces the principal balance of any mortgage or security or other
item of Collateral by five percent or more, whether by prepayment,
foreclosure sale, insurance or guarantee payment or otherwise.
I. ADDITIONAL DOCUMENTATION
The Member shall make, execute, and deliver to the Bank such
assignments, listings, powers, financing statements, or other
instruments and documents with respect to the Collateral and the
Bank's security interest therein and in such form as the Bank may
require.
J. BANK'S RESPONSIBILITY AS TO COLLATERAL
In the event that the Bank shall take possession of any Collateral
hereunder, the Bank's duty as to such Collateral shall be solely to
use reasonable care in the custody and preservation of the Collateral
in its possession, which shall not include any steps necessary to
preserve rights against prior parties nor the duty to send notices,
perform services, or take any action in connection with the management
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of the Collateral. The Bank shall not have any responsibility or
liability for the form, sufficiency, correctness, genuineness, or
legal effect of any instrument or document constituting a part of the
Collateral, or any signature thereon or the description or
misdescription, or value of property represented, or purported to be
represented, by any such document or instrument, or for any error or
omission or delay in the liquidation of any Collateral, including the
sale, assignment, or delivery of the Collateral or any part thereof,
including the settlement, collection or payment of any Collateral, or
any damage resulting therefrom. The Member agrees that any and all
Collateral may be removed by the Bank from the state or location where
situated, and may thereafter be dealt with by the Bank as provided in
this Agreement.
K. BANK'S RIGHTS AS TO COLLATERAL; POWER OF ATTORNEY
At any time or times or times, at the expenses of the Member, the Bank
may in its discretion, before or after the occurrence of an Event of
Default, in its own name or in the name of its nominee or of the
Member, do any or all things and take any and all actions that are
pertinent to the protection of the Bank's interest hereunder and, if
such actions are subject to the laws of a state, are lawful under the
laws of the State of California, including without limitation the
following:
(1) Terminate any consent given hereunder;
(2) Notify obligors on any Collateral to make payments thereon
directly to the Bank;
(3) Endorse any Collateral that is in the Member's name or that has
been endorsed by others to the Member's name;
(4) Enter into any extension, compromise, settlement, or other
agreement relating to or affecting any Collateral;
(5) Take any action the Member is required to take or that is
otherwise necessary: (i) to sign and record a financing statement
or otherwise perfect a security interest in any or all of the
Collateral; or (ii) to obtain, preserve, protect, enforce, or
collect the Collateral;
(6) Take control of any funds or other proceeds generated by or
arising from the Collateral and use the same to reduce
Indebtedness as it becomes due; and
(7) Cause the Collateral to be transferred to its name or the name of
its nominee.
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The Member hereby appoints the Bank as its true and lawful attorney,
for and on behalf of the Member and in its name, place, and stead, to
prepare, execute, and record endorsements and assignments to the Bank
of all or any item of Collateral (including the identification and
listing, by exhibit prepared by the Bank or otherwise, of mortgage
loans constituting such Collateral), giving or granting to the Bank,
as such attorney, full power and authority to do or perform every
lawful act necessary or proper in connection therewith as fully as the
Member could or might do. The Member hereby ratifies and confirms all
that the Bank shall lawfully do or cause to be done by virtue of this
special power of attorney. This special power of attorney is granted
for a period commencing on the date hereof and continuing until the
discharge of all Indebtedness and all obligations of the Member
hereunder regardless of any default by the Member, is coupled with an
interest, and is irrevocable for the period granted. As the Member's
true and lawful attorney-in-fact, the Bank shall have no
responsibility to take any steps necessary to preserve rights against
prior parties nor the duty to send notices, perform services, or take
any action in connection with the management of the Collateral.
L. SUBORDINATION OF OTHER LOANS TO COLLATERAL
The Member hereby agrees that all mortgage notes, multifamily mortgage
notes, and other notes that are part of the Collateral consisting of
Mortgage Collateral, Multifamily Mortgage Collateral or Other
Collateral-Commercial Mortgage Loans or Other Collateral and any notes
secured by personal property ("personalty notes") that become part of
the Other Collateral shall have priority in right and remedy over any
claims, however evidenced, for other loans, whether made before or
after the date of such mortgage notes, multifamily mortgage notes,
personalty notes or other notes, that are secured by the mortgages or
security agreements securing such mortgage notes, multifamily mortgage
notes, personalty notes or other notes but are not part of the
Collateral, and shall be satisfied out of the property covered by such
mortgages or security agreements before recourse to such property may
be obtained for the repayment of such other loans. To this end, the
Member hereby subordinates the lien of such mortgages and security
agreements with respect to such other loans to the lien of such
mortgages and security agreements with respect to such mortgage notes,
multifamily mortgage notes, personalty notes and other notes. The
Member further agrees to retain possession of any promissory notes
evidencing such other loans and not to pledge, assign, or transfer the
same, or any interest therein, except that (if otherwise qualified)
the same may be pledged to the Bank as part of the Collateral.
M. APPLICATION OF PAYMENTS
The Bank may, in its sole discretion, apply any payments by or
recovery from the Member, which shall be received by the Bank without
any designation from the Member (at the time of such payment or
recovery) as to the intended application
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thereof, at such time and in such manner and order of priority as the
Bank shall deem fit.
N. INITIAL USE OF COLLATERAL UPDATE REPORTS
The Member acknowledges and agrees that if it has heretofore granted a
security interest to the Bank in Collateral under a predecessor
agreement to this Agreement by means other that through the use of a
Collateral Update Report, the initial utilization of a Collateral
Update Report hereunder that shall list thereon any such previously
pledged Collateral shall not under any circumstances be deemed to be a
new pledge of such Collateral but instead shall be deemed solely to be
a confirmation of the previous pledge thereof.
O. COVENANTS AS TO MULTIFAMILY MORTGAGE COLLATERAL AND OTHER COLLATERAL-
COMMERCIAL MORTGAGE LOANS
The Member covenants and agrees as to any Multifamily Mortgage
Collateral or Other Collateral-Commercial Mortgage Loans that may be
pledged hereunder and accepted by the Bank as Collateral hereunder:
(1) The Member shall cause its borrowers to pay when due (or shall
pay if such borrowers are unable or cannot be made to pay) all
taxes and assessments on the real property and improvements that
are subject to the lien of the Multifamily Mortgage Collateral or
Other Collateral-Commercial Mortgage Loans or the use thereof.
Unless otherwise agreed by the Member and the Bank, the Member
shall perform each of its obligations as a lender, secured party,
or otherwise, under all loan or other agreements pertaining to
the Multifamily Mortgage Collateral or Other Collateral-
Commercial Mortgage Loans.
(2) In the event that the Member discovers, through audit or
otherwise, exceptions to statements or representations previously
made to the Bank with respect to any of the Multifamily Mortgage
Collateral or Other Collateral-Commercial Mortgage Loans or any
real property or improvements covered by the lien thereof or any
other matter covered by this Agreement, the Member shall
immediately notify the Bank thereof in writing. The Member also
shall immediately notify the Bank in writing of any legal process
levied against any such Collateral or any other event that
affects the value of such Collateral or any of the rights,
interests, or remedies of the Bank in relation thereto.
(3) The Member agrees to take any action necessary to preserve the
rights against any prior or other parties (including without
limitation endorsers) on and any guarantors or sureties with
respect to any and all of the chattel paper, documents, or
instruments constituting all or any part of the Multifamily
Mortgage Collateral or Other Collateral-Commercial Mortgage
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Loans and to preserve redemption, conversion, warrant,
preemptive, or other rights concerning all or any part of such
Collateral. The Bank may, but need not, take any action that in
its reasonable judgment will assist in the preservation of such
rights. The Bank's failure to act hereunder shall not relieve the
Member of the Member's duties under this Section III.O.(3) or in
any way impair or discharge any Indebtedness or result in any
liability to the Member on the part of the Bank. The Bank shall
have no duty to take any steps necessary to preserve the rights
of the Member against prior or other parties or to initiate any
action to protect against the possibility of a decline in the
market value or other impairment of such Collateral. Furthermore,
the Bank shall not be obligated to take any action with respect
to such Collateral requested by the Member unless such request is
made in writing, and the Bank determines, in its reasonable
discretion, that the requested action would not jeopardize the
value of such Collateral as security for indebtedness or
otherwise adversely affect any right or interest of the Bank.
(4) To the extent a Collateral Update Report is required, the Member
shall update and provide to the Bank schedules showing, with
respect to any Multifamily Mortgage Loan or Other Collateral-
Commercial Mortgage Loans, in addition to the data required by
the Collateral Update Report, the results of any reappraisal, any
significant changes in leasing (affecting more than 20 percent of
the rentable area), and such other information as the Bank may
prescribe. In any event, the Member shall immediately identify to
the Bank any Multifamily Mortgage Collateral or Other Collateral-
Commercial Mortgage Loans classified as nonperforming,
nonaccrual, scheduled or criticized, special mention,
substandard, doubtful, loss, or the like and the value thereof.
Unless otherwise requested by the Bank, the Member may make the
foregoing classifications according to its own loan criteria.
(5) Except where failure to do so would not adversely affect the
Member's overall ability to value, monitor, and collect
Multifamily Mortgage Collateral or Other Collateral-Commercial
Mortgage Loan, the Member shall obtain and maintain current
financial statements, documents, appraisals, rent rolls, and
other information as may be requested by the Bank supporting or
relating to such Collateral and the real property and
improvements subject to the lien thereof, and the Member shall
use its best efforts to cause all persons obligated under such
Collateral to make the same available, upon request, to the Bank.
(6) The Member hereby agrees to save, hold harmless, indemnify, and
defend the Bank against any and all damages, liabilities, losses,
claims, causes of action, and expenses (including attorneys' fees
and expenses of the Bank's
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counsel) that the Bank may directly or indirectly suffer or incur
as a result or consequence of any claim by any person arising out
of or connected with the use or creation of any Multifamily
Mortgage Collateral or Other Collateral Commercial Mortgage Loans
or any real properties subject to the lien thereof. The aforesaid
claims include any arising with respect to any loan transaction
involving the Member, or any default or wrongdoing by the Member
with respect to any third party, including any nonperformance by
the Member of any of its obligations as a lender or otherwise in
connection with any such Collateral. Under no circumstances shall
the Bank be obligated to assume, perform or fulfill any
obligation of the Member as a lender or otherwise.
(7) If so requested by the Bank, the Member shall furnish to the Bank
opinions of counsel concerning the Multifamily Mortgage
Collateral or Other Collateral Commercial Mortgage Loans and the
transactions relating thereto or contemplated thereby in form and
substance (and by such counsel as are) acceptable to the Bank and
its counsel.
P. RIGHT TO CURE DEFAULTS ON MULTIFAMILY MORTGAGE COLLATERAL OR OTHER
COLLATERAL COMMERCIAL MORTGAGE LOANS
In the event that the Member fails (i) to procure or maintain
insurance, or to maintain or cause the maintenance of any real
property or improvements covered by the lien of any Collateral
consisting of Multifamily Mortgage Collateral or Other Collateral
Commercial Mortgage Loans, or to pay or procure the payment of any
fees, assessments, charges, or taxes arising with respect to any real
property or improvements covered by the lien of such Collateral, or to
perform any other obligation to the Bank, all as herein specified; or
(ii) to make any other advances or take any other actions necessary or
advisable to preserve or protect any of such Collateral, the value
thereof, or the Bank's security interest therein, the Bank shall have
the right to effect such insurance, or cause such real property or
improvements to be maintained, or to pay such fees, assessments,
charges, or taxes, or perform such obligations, or make such advances
or take such actions, as the case may be. In any such event, the
Member agrees to pay the cost thereof immediately upon demand by the
Bank. All liabilities owing by the Member to the Bank under this
Section III.P. shall bear interest from the date when first due at a
rate prescribed by the Bank or, if no such rate is prescribed, at the
highest rate of interest in effect on any Indebtedness of the Member
to the Bank from time to time, changing with each change in such rate.
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Q. PROCEDURES FOR OBTAINING RELEASE OF, THE BANK'S SECURITY INTEREST IN
COLLATERAL SUBJECT TO BLANKET LIEN
The Member my apply to the Bank for the release of any Mortgage
Collateral or Multifamily Mortgage Collateral which is subject to the
Bank's security interest pursuant to the blanket lien provisions of
Section III.B. as set forth in this Section III.Q. Upon receipt by the
Bank of (i) a written request from the Member for the release of
Collateral subject to the blanket lien of the Bank in which the Member
specifically identifies the Collateral to be released by submitting a
listing in the form prescribed by the Bank, and (ii) a certificate in
such form as the Bank may require of duly authorized signers for the
Member certifying that the Borrowing Capacity of the Eligible
Collateral which will remain subject to the security interest of the
Bank under Section III.B. after such release would not be less than
the Collateral Maintenance Level then applicable, the Bank shall
promptly execute and deliver a release of the Collateral specified in
said written request, whereupon the release of the specified
Collateral (but no other Collateral) shall be effective. If so
requested by the Bank, the Member shall physically segregate the
Mortgage Collateral or multifamily Mortgage Collateral pledged to the
Bank from any mortgage note or Multifamily mortgage note released by
the Bank pursuant to this Section III.Q. Notwithstanding anything to
the contrary herein, while an Event of Default hereunder shall have
occurred and be continuing, or at any time that the Bank determines
that such release would reduce the Borrowing Capacity of the Member's
Eligible Collateral below the Collateral Maintenance Level, or at any
time that the Bank reasonably and in good faith deems itself insecure,
the Bank shall not be required to execute and deliver such a release
of any such Collateral.
IV. DEFAULT, REMEDIES
A. EVENTS OF DEFAULT; ACCELERATION
Upon the occurrence of and during the continuation of any of the
following events or conditions of default ("Event of Default"), the
Bank may at its option and notwithstanding any other provision hereof,
by a notice to the Member, declare all Indebtedness (including, but
not limited to, any accrued interest) and any prepayment charges that
are provided for payment of an Advance before the date(s) scheduled
for repayment, to be immediately due and payable, without presentment,
demand, protest, or any further retire and/or terminate any obligation
on the part of the Bank in respect of any Commitment or to make or
continue any Advances under any revolving credit facility:
(1) Failure of the Member to pay when due the interest on or the
principal of any Advance; or
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(2) Failure of the Member to perform any promise or obligation or to
satisfy any condition or liability contained herein, in any
Confirmation of Advance, or in any other agreement to which the
Member and the Bank are parties; or
(3) Credible evidence coming to the attention of the Bank that any
representation, statement, or warranty made or furnished in any
manner to the Bank by or on behalf of the Member in connection
with any Advance, any Commitment, any specification of Eligible
Collateral, any matter related to designation for blanket lien
status, or any certification of Borrowing Capacity is false,
misleading or incomplete in any material respect; or
(4) Failure of the Member to maintain adequate Eligible Collateral
free of any encumbrances or claim as required herein; or
(5) The issuance of any tax, levy, seizure, attachment, garnishment,
levy of execution, or other process with respect to the
Collateral; or
(6) Any suspension of payment by the Member to any creditor of sums
due or the occurrence of any event that results (or which with
the giving of notice or passage of time, or both, will result) in
acceleration of the maturity of any indebtedness of the Member to
others under any security agreement, indenture, loan agreement,
or other undertaking; or
(7) Appointment of a trustee, conservator, receiver, liquidator,
custodian, or similar official for the Member or any subsidiary
(direct or indirect) of the Member or the Member's property,
notice of a judgment, decree, or administrative decision
adjudicating the Member or any subsidiary of the Member insolvent
or bankrupt or an assignment by the Member or any subsidiary of
the Member for the benefit of creditors or the appointment of a
trustee, conservator, receiver, liquidator, custodian, or similar
official for any parent (direct or indirect) of the Member or the
filing of a petition or application by any person for the
appointment of any such official for any such parent of the
Member or the transfer of any of the Member's assets or
liabilities (whether by purchase and assumption by any third
party or merger or otherwise) in connection with or as a result
of any event heretofore described in this Section IV.A.(7); or
(8) Sale by the Member of all or a material part of the Member's
assets or the taking of any other action by the Member to
liquidate or dissolve; or
(9) Termination of the Member's membership in the Bank or the
Member's ceasing to be a type of financial institution that is
eligible under the Act
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to become a member of the Bank or the Member's failure to satisfy
any requirement under the Act for obtaining or holding an
Advance; or
(10) Merger, consolidation, or other combination of the Member with an
entity that is not a member of the Bank if the nonmember entity
is the surviving entity in such transaction; or
(11) If an Advance is made pursuant to Section 11(g)(4) of the Act,
and if the creditor liabilities of the Member, excepting
liabilities to the Bank, exceed or are increased in any manner to
an amount exceeding five percent of the Member's net assets; or
(12) The Bank reasonably and in good faith determines that a material
adverse change has occurred in the financial condition of the
Member or in the Collateral from that disclosed previously to the
Bank; or
(13) The Bank reasonably and in good faith deems itself insecure even
though the Member is not otherwise in default; or
(14) The Member has borrowed, or committed to borrow, from any source
an amount that is greater than the amount the Member is permitted
to borrow under applicable law.
B. REMEDIES
Upon the occurrence of any Event of Default, the Bank shall have all
of the rights and remedies provided by applicable law, which shall
include, but not be limited to, all of the remedies of a secured party
under the Uniform Commercial Code as in effect in the State of
California. In addition, the Bank may take immediate possession of any
of the Collateral or any part thereof wherever the same may be found.
The Bank may sell, assign, and deliver the Collateral or any part
thereof at public or private sale for such price as the Bank deems
appropriate without any liability for any loss due to decrease in the
market value of the Collateral during the period held. The Bank shall
have the right to purchase all or part of the Collateral at such sale.
If the Collateral includes instruments or securities that will be
redeemed by the issuer upon surrender, or any accounts or deposits in
the possession of the Bank, the Bank may realize upon such Collateral
without notice to the Member. If any notification of intended
disposition of any of the Collateral is required by applicable law,
such notification shall be deemed reasonable and properly given if
mailed, postage prepaid, at least five days before any such
disposition to the address of the Member appearing on the records of
the Bank. Upon the occurrence of any Event of Default, the Bank may,
in its sole discretion, apply any payment by or recovery from the
Member or any sum realized from Collateral, at such time and in such
manner and order of priority, as the Bank shall deem fit, irrespective
of any manifestation of any contrary intention or desire on
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the part of the Member or the provisions of any other agreement
between the Bank and the Member. The Member agrees that the Bank may
exercise its rights of setoff upon the occurrence of an Event of
Default in the same manner as if the Advances and Commitments were
unsecured. Notwithstanding any other provision hereof, upon the
occurrence of any Event of Default at any time when all or part of the
obligations of the Member to the Bank hereunder shall be the subject
of any guarantee by a third party for the Bank's benefit and there
shall be other outstanding obligations of the Member to the Bank that
are not so guaranteed but that are secured by the Collateral, then any
sums realized by the Bank from the Collateral, or from any other
collateral pledged or furnished to the Bank by the Member under any
other agreement, shall be applied first to the satisfaction of such
other nonguaranteed obligations and then to the Member's guaranteed
obligations hereunder. The Member agrees to pay all the costs and
expenses of the Bank in the collection of the Indebtedness and
enforcement and preservation of the Bank's rights and remedies in case
of default, including, without limitation, reasonable attorneys' fees.
The Bank, at its discretion, may apply any surplus after payment of
the Indebtedness, provision for repayment to the Bank of any amounts
to be paid or advanced under Outstanding Commitments, and all costs of
collection and enforcement to third parties claiming a secondary
security interest in the Collateral, with any remaining surplus paid
to the Member. The Member shall be liable to the Bank for any
deficiency remaining.
C. PAYMENT OF PREPAYMENT CHARGES
Any prepayment few or charges for which provision is made, whether
under the Confirmation of Advance, the Bank's Credit Program or
otherwise, with respect to any Advance shall be payable at the time of
any voluntary or involuntary payment of the principal of such Advance
prior to the originally scheduled maturity thereof, including without
limitation, payments that are made in connection with the liquidation
of the Member or that become due as a result of an acceleration by the
Bank pursuant to Section IV.A., whether such payment is made by the
Member, by a trustee, conservator, receiver, liquidator, custodian, or
similar official, of or for the Member, or by any successor to or any
assignee of the Member.
D. DEFAULT RATE
Any payment of principal or interest or any other sum due hereunder if
not made when due (whether at stated maturity, by acceleration or
otherwise) shall bear interest, to the maximum extent permitted by
applicable law, at a rate per annum, for each day during the period
commencing on the due date thereof until such amount shall be paid in
full; equal to one percentage point above the interest rate that
otherwise will be applicable to any such payment of principal or if
such payment shall not constitute the principal sum, then at a rate
equal to one percentage point above the rate in effect and being
charged by the Bank from time to time under its Other Cash Needs-
Variable-Rate Credit option.
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E. CERTAIN PROVISIONS AS TO SALE OF COLLATERAL
In view of the possibility that federal and state securities laws and
other applicable federal and state laws may impose certain
restrictions on the method by which a sale of the Collateral may be
effected, the Bank and the Member agree that any sale of the
Collateral as a result of an Event of Default shall be deemed
"commercially reasonable" irrespective of whether the notice or manner
of such sale contains provisions, or imposes, or is subject to,
conditions or restrictions deemed appropriate to comply with the
Securities Act of 1933 or any other applicable federal or state
securities law or other applicable federal or state law. It is further
agreed that from time to time the Bank may attempt to sell the
Collateral by means of private placement. In so doing, the Bank may
restrict the bidders and prospective purchasers to those who will
represent and agree that they are purchasing for investment only and
not for distribution or otherwise impose restrictions deemed
appropriate by the Bank for the purpose of complying with the
requirements of applicable securities laws. The Bank may solicit
offers to buy such Collateral, for cash or otherwise, from a limited
number of investors deemed by the Bank to be responsible parties who
might be interested in purchasing such Collateral. If the Bank
solicits offers from not less than three such investors, then the
acceptance by the Bank of the highest offer obtained therefrom
(whether or not three offers are obtained) shall be deemed to be a
commercially reasonable method of disposing of the Collateral.
V. GENERAL, REPRESENTATIONS AND WARRANTIES BY THE MEMBER
The Member hereby represents and warrants that, as of the date hereof and
as of each date on which there shall be outstanding an Advance or
Commitment:
A. The Member is not now, and neither the execution of nor the
performance of any of the transactions or obligations of the Member
under this Agreement shall, with the passage of time, the giving of
notice, or otherwise, cause the Member to be: (i) in violation of its
charter or articles of incorporation by-laws, the Act, or the
Regulations, any other law or administrative regulation, any court
decree, or any order of a regulatory authority; or (ii) in default
under or in breach of any indenture, contract, or other instrument or
agreement to which the Member is a party or by which the Member or any
of its property may be bound.
B. The Member has full corporate power and authority and has received all
corporate and governmental authorizations and approvals (including the
approval of its board of directors, which approval is reflected in the
minutes of said board) as may be required to enter into and perform
its obligations under this Agreement, to borrow each Advance and to
obtain each Commitment.
C. The information given by the Member in any document provided, or in
any oral statement made, in connection with an application or request
for an Advance or
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<PAGE>
a Commitment, a pledge, specification, or delivery of Collateral, is
true, accurate, and complete in all material respects.
D. Each Advance for which the Member applies hereunder will be authorized
by the terms and provisions of the Act and the Regulations. Any
application for an Advance hereunder shall be deemed to be a
representation by the Member that, as of the date of such application,
the Member will be in compliance with the Collateral maintenance
requirements specified pursuant to Section III.D.(1) after the funding
of such Advance.
VI. ASSIGNMENT OF INDEBTEDNESS AND SALE OF PARTICIPATIONS
The Member hereby gives the Bank the full right, power, and authority to
pledge or assign to any party all or part of the Indebtedness, together
with all or any part of the Collateral, as security for Consolidated
Federal Home Loan Bank Obligations issued pursuant to the provisions of the
Act or for any other purpose authorized by the Act, the Regulations, or the
Board. In the case of any such pledge assignment, the Bank shall have no
further responsibility with respect to Collateral transferred to the
pledgee or assignee, and all references herein to the "Bank" shall be read
to refer also to the pledgee or assignee. The Member may not (voluntarily
or involuntarily or by operation of law or otherwise) assign or transfer
any of its rights or obligations hereunder or with respect to any Advances
or Commitments without the express prior written consent of the Bank. The
Bank may at any time sell, assign, grant participations in, or otherwise
transfer to any other person, firm or corporation, including without
limitation another Federal Home Loan Bank (a "participant"), all or part of
the Indebtedness of the Member outstanding hereunder. The Member hereby
acknowledges and agrees that any such disposition will give rise to a
direct obligation of the Member to the participant. The Member hereby
authorizes the Bank and each participant, in case of default by the Member
hereunder, to proceed directly, by right of set off, banker's lien, or
otherwise, against any assets of the Member which may at the time of such
default be in the respective hands of the Bank or any such participant The
Member further agrees that the Bank may furnish any information pertaining
to the Member which is in the possession of the Bank to any prospective
participant to assist it in evaluating such participation provided that any
non-public information reasonably designated in writing to the Bank by the
Member as constituting non-public information shall be furnished to such
prospective participant on a confidential basis.
VII. DISCRETION OF BANK TO GRANT OR DENY ADVANCES
Nothing contained herein or in any documents describing or setting forth
the Bank's Credit Program or credit policies shall be construed as an
agreement or commitment on the part of the Bank to grant Advances or extend
Commitments hereunder, or to enter into any other transaction, the right
and power of the Bank in its discretion to either grant (with or without
conditions) or deny any Advance or to extend any Commitment or enter
Page 28 of 32
<PAGE>
into any other transaction requested hereunder being expressly reserved.
Any determination by the Bank of the Borrowing Capacity of Collateral
pledged hereunder shall not constitute a determination by the Bank that
the Member may obtain Advances or Commitments in amounts up to such
Borrowing Capacity or otherwise.
VIII. AMENDMENT; WAIVERS
No modification, amendment, or waiver of any provision of this Agreement
or consent to any departure therefrom shall be effective unless executed
by the party against which such change is asserted and shall be effective
only in the specific instance and for the purpose for which given. No
notice to or demand on the Member in any case shall entitle the Member to
any other or further notice or demand in the same or similar or other
circumstances. Any forbearance, failure, or delay by the Bank in
exercising any right, power, or remedy hereunder shall not be deemed to
be a waiver thereof, and any single or partial exercise by the Bank of
any right, power, or remedy hereunder shall not preclude the further
exercise thereof. Every right, power, and remedy of the Bank shall
continue in full force and effect until specifically waived by the Bank
in writing.
IX. JURISDICTION; LEGAL FEES
In any action or proceeding brought by the Bank or the Member in order to
enforce any right or remedy under this Agreement, the parties hereby
consent to, and agree that they will submit to, the jurisdiction of the
United States District Court for the Northern District of California or,
if such action or proceeding may not be brought in federal court, the
jurisdiction of the Superior Court of the City and County of San
Francisco to the exclusion of all other courts. The Member agrees that,
if any action or proceeding is brought by the Member seeking to obtain
any legal or equitable relief against the Bank under or arising out of
this Agreement or any transaction contemplated hereby, and such relief is
not granted by the final decision, after any and all appeals, of a court
of competent jurisdiction, the Member will pay all attorneys' fees and
other costs incurred by the Bank in connection therewith. The Member
agrees to reimburse the Bank for all costs and expenses (including
reasonable fees and out-of-pocket expenses of counsel for the Bank)
incurred by the Bank in connection with the enforcement or preservation
of the Bank's rights under this Agreement including, but not limited to,
its rights in respect of any Collateral and the audit or possession
thereof.
X. APPLICABLE LAW; SEVERABILITY
This Agreement and all Advances granted under this Agreement shall be
governed by the statutory and common law of the United States and, to the
extent federal law incorporates or defers to state law, the laws of the
State of California (excluding however, the conflict of laws rules of
such state). Notwithstanding the foregoing, the Uniform Commercial Code
as in effect in the State of California shall be deemed applicable to
this Agreement and to any Advance hereunder. In the event that any
portion of this Agreement conflicts
Page 29 of 32
<PAGE>
with applicable law, such conflict shall not
affect other provisions of this Agreement that can be given effect without
the conflicting provision, and to this end the provisions of this Agreement
are declared to be severable.
XI. SUCCESSORS AND ASSIGNS
This Agreement shall be binding upon and inure to the benefit of the
successors and permitted assigns of the Member and the Bank.
XII. NOTICES
Any notice, advice, request, consent, or direction given, made, or
withdrawn pursuant to this Agreement shall be in writing or by machine-
readable electronic transmission, and shall be deemed to have been duly
given to and received by a party hereto when it shall have been mailed to
such party at its address given by first-class mail, or if given by hand or
by machine-readable electronic transmission, when actually received by such
party at its principal office.
\\\\\\
\\\\\\
Page 30 of 32
<PAGE>
XIII. ENTIRE AGREEMENT
This Agreement embodies the entire agreement and understanding between
the parties hereto relating to the subject matter hereof and supersedes
all prior agreements between such parties that relate to such subject
matter. Notwithstanding the above, Advances and Commitments made by the
Bank to the Member prior to the execution of this Agreement shall
continue to be governed by the terms of the Confirmation of Advance
pursuant to which such Advances and Commitments were made, and otherwise
by the terms and conditions of this Agreement.
IN WITNESS WHEREOF, the Member and the Bank have caused this Agreement to be
signed in their names by their duly authorized officers as of the date first
above-mentioned.
Pan American Bank, FSB San Mateo, California
________________________________________________________________________________
Full Corporate Name of Member Location of Member
/s/ LAWRENCE J. GRILL Lawrence J. Grill, President
________________________________________________________________________________
Authorized Signature and Title Name of Signer (Print or Type)
/s/ ROBERT WILSON Robert B. Wilson, EVP
________________________________________________________________________________
Authorized Signature and Title Name of Signer (Print or Type)
FEDERAL HOME LOAN BANK OF SAN FRANCISCO
________________________________________________________________________________
By Title
/s/ [SIGNATURE ILLEGIBLE] VP
________________________________________________________________________________
By Title
/s/ [SIGNATURE ILLEGIBLE AVP
________________________________________________________________________________
Note: This form must be signed on behalf of the Member by one or two authorized
signers, in accordance with the Member's authorizations on file with the Bank,
and the accompanying acknowledgment form must be completed by a Notary Public.
Send to: Federal Home Loan Bank of San Francisco
600 California Street
San Francisco, California 94108.
or
P.O. Box 7948
San Francisco, California 94120
Page 31 of 32
<PAGE>
EXHIBIT 10.22
Pan American Bank, FSB 1
------------------------------------------------
RETAIL CD BROKERAGE AGREEMENT
BROKERAGE AGREEMENT ("the Agreement") dated as of this 30th day of
----
April, 1996, between Pan American Bank, FSB, /1/ organized under
- ----- -
the laws of the United States /2/ (the "Depository") and Merrill Lynch,
-----------------
Pierce, Fenner & Smith Incorporated, a Delaware corporation ("Merrill").
WHEREAS, the Depository desires to offer to Merrill customers from time to
time its certificates of deposit with terms and conditions as may be agreed upon
by the parties (hereinafter called the "CDs");
WHEREAS, Merrill is willing to effect sales of CDs offered by the
Depository from time to time to (1) Merrill's customers consisting of (a)
individual retirement accounts and self-employed retirement plans qualified
under Sections 408 and 401, respectively, of the Internal Revenue Code of 1986
(the "Code") (the "Plans"), who have sole discretion to direct their investments
in the Plans and for which Merrill acts as custodian, (b) other investors,
including Plans for which Merrill does not act as custodian, (c) brokers for
whose customer accounts Merrill acts as clearing agent, and (2) at Merrill's
option, to other broker/dealers ("Brokers") which have entered into a standard
CD selling group agreement with Merrill.
NOW THEREFORE, in consideration of the promises and the mutual covenants
herein contained, the Depository and Merrill agree as follows:
1. Appointment of Merrill as Broker. The Depository hereby appoints
--------------------------------
Merrill as its broker for the purpose of selling CDs as hereinabove set forth;
provided that Merrill may, at its option, act as principal in effecting sales of
CDs hereunder, in which case all provisions hereof will remain in effect.
2. Terms of CDs. Each CD shall be issued by the Depository on such terms
------------
and conditions as are indicated in a master certificate, as agreed upon by the
Depository and Merrill prior to the offering of the CD.
3. Procedures for Effecting Sales of CDs.
-------------------------------------
(a) Prior to the "Settlement Date" as defined below, applicable to the
initial offering of CDs, the Depository will submit to Merrill (i) for
forwarding to The Depository Trust Company ("DTC"), a letter which sets forth
the procedures for settling CDs and making payments thereon, through DTC (the
"DTC Letter"), (ii) a certificate listing the Depository's employees authorized
to enter into transactions under this Agreement, and (iii) one executed copy of
this Agreement.
(b) Prior to any offering of CDs, the Depository and Merrill will
establish the amount, term and effective interest rate on the CDs proposed to be
offered by the Depository on the trade date ("Trade Date") for settlement on a
date agreed upon by the Depository and Merrill (the "Settlement Date"); provided
--------
that Merrill shall have the right to refuse to purchase and pay for any CD on
the terms and conditions originally agreed upon by the Depository and Merrill,
if (i) there has been, since Trade Date, any material adverse change in the
condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Depository and its affiliates considered as one
enterprise, whether or not arising in the ordinary course of business, or (ii)
there shall have occurred since Trade Date, any outbreak or escalation of
hostilities or other national or international calamity or crisis, the effect of
which is such as to make it, in the judgment of such person impracticable or
inadvisable to purchase the CD, or (iii) since Trade Date, trading in securities
of the Depository or its parent corporation on any national securities exchange
shall have been suspended, or minimum or maximum prices for trading have been
fixed, or maximum ranges for prices for securities have been required, by said
exchanges or by order of the Securities and Exchange Commission or any other
governmental authority, or (iv) since Trade Date, if a banking moratorium shall
have been declared by either federal, New York or state authorities in the state
in which
- ------------------------------
/1/ Insert the name of your institution.
/2/ Insert applicable state or "the United States."
<PAGE>
the Depository's headquarters is located, or (v) since Trade Date, the
rating assigned by any nationally recognized securities rating agency to any
debt securities or deposits of the Depository as of the date on which the terms
and conditions of the CD were originally agreed to by the Depository and
Merrill, shall have been lowered or if any such rating agency shall have
publicly announced that it has under surveillance or review, with possible
negative implications, its rating of any deposits or debt securities of the
Depository.
(c) Merrill will advise the Depository on or before 2.00 p.m. New York
time at least two Business Days (as defined below) prior to Settlement Date,
with respect to the aggregate principal amount of CDs the sale of which was
effected during the preceding week.
(d) Merrill will effect transfer to the Depository of the aggregate
purchase price for the CDs sold, on or before 5:00 p.m., New York time, on the
Settlement Date, by remitting to the Depository's pre-designated bank account,
federal funds in an amount equal to the aggregate purchase price of such CDs
(less an amount equal to the compensation payable to Merrill in respect of such
CDs), provided, however, that such deduction from the proceeds of the sale of
--------
the CDs remitted hereunder shall not affect the aggregate principal amount of
such CDs reflected on the Depository's records. Merrill's obligation to
transfer the funds to the Depository in accordance with this Section 3(d) is
conditioned upon the delivery by the Depository to Merrill of the executed
master certificate in proper form, on or before 10:30 a.m., New York time, on
the Settlement Date.
In the event that the funds are not delivered to the Depository by the
time indicated in this Section 3(d), so that the Depository will be unable to
invest the funds overnight, Merrill will compensate the Depository for an amount
equal to interest calculated on the amount of funds which should have been so
delivered to the Depository, at the "Federal Funds (Effective)" rate of interest
as published by the Board of Governors of the Federal Reserve System in the H.15
(519) publication entitled "Selected Interest Rates" for the applicable day or
as mutually agreed by Merrill and the Depository.
(e) Each CD shall be deemed established (i) on the date when the
Depository receives payment of the purchase price therefore from Merrill in
accordance with clause (d) of this Section 3, and (ii) in the Depository's
office in which the CD is booked. Receipt by the Depository of payment for the
purchase price of any CD shall constitute acceptance of such payment by the
Depository.
(f) If payment by the Depository of any amount due on a CD hereunder
falls on a day which is not a Business Day, the payment will be made on the
Business Day immediately following such day and will include interest accrued at
the applicable stated rate to, but not including, the day on which the payment
was originally due; such payment will not include interest to the Business Day
on which the payment is made. For the purpose of this Agreement, a "Business
Day" shall mean a day on which the Depository and banks in The City of New York
are open for business.
4. Certain Obligations of the Parties.
----------------------------------
(a) Except as provided below, the CDs will be held by The Depository
Trust Company ("DTC"). Each master certificate and the Depository's records
maintained in respect of each master certificate evidencing CDs will reflect
that CDs are registered in the name of CEDE & CO., as nominee of DTC, as
custodian for Merrill Lynch, Pierce, Fenner & Smith Incorporated and other DTC
participants, each acting for itself and as nominee or custodian for others,
including trusts, pension and retirement plans and accounts, fiduciaries,
custodians and nominees, or registered assigns. If CDs arc issued in maturities
of less than three months, they will be held in book-entry form at Merrill and
registered in the name of Merrill Lynch, Pierce, Fenner & Smith Incorporated
acting for itself and as nominee or custodian for others, including trusts,
pension and retirement plans and accounts, fiduciaries, custodians and nominees,
or registered assigns.
(b) CDs will be issued in book entry form only and no individual
certificates of deposits will be provided to purchasers. Notwithstanding the
above, in the event a CD purchaser terminates the agency relationship with
Merrill and does not elect to continue to hold the CD through another DTC
participant, upon the purchaser's request, Merrill will furnish to the
Depository the necessary information for the Depository to establish a direct
depository relationship with the CD purchaser. Such depository relationship
will be evidenced in the same manner as the Depository evidences its direct
depository relationship with purchasers of Comparable CDs, as that term is
defined in Section 15 herein. Further, the
2
<PAGE>
aggregate amount of CDs, evidenced by a master certificate, issued on the same
terms as the CD now directly held with the Depository, will be adjusted by
following the procedures applicable to early withdrawal of CDs and the issuance
of individual certificates of deposit, set forth in the master certificate.
5. Amounts Due on CDs. Not later than 12:00 noon, New York time, on any
------------------
interest payment or maturity date, the Depository shall deposit federal funds in
a special purpose account indicated in item 6 of the DTC Letter, except that for
CDs with an original maturity of less than three months, the Depository shall
deposit federal funds in a special purpose account established by Merrill at
Morgan Guaranty, New York City, Merrill Lynch, Pierce, Fenner and Smith Acct.
041-56-101, Subaccount No. 03200701.
6. Representations, Warranties and Covenants of Merrill. Merrill
----------------------------------------------------
represents, warrants and covenants to the Depository as follows:
(a) Merrill is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Delaware.
(b) Merrill has full corporate power to execute, deliver and perform
this Agreement.
(c) This Agreement constitutes a legal, valid and binding obligation
of Merrill enforceable against Merrill in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency, liquidation or other
similar laws generally affecting the enforcement of creditors' rights.
(d) Merrill agrees to comply with any federal tax reporting
requirements applicable to the Depository in connection with CDs held by its
customers (including such federal income tax withholding provisions as may be
required by TEFRA).
(e) Merrill agrees to comply with federal and state securities laws
and regulations applicable to its performance hereunder as seller of CDs.
(f) Merrill agrees to maintain records of its customers who arc
purchasers of CDs, including their names, addresses, tax identification numbers
and dollar amounts of CDs owned by them.
(g) Merrill has fully complied with all requirements of 12 C.F.R. (S)
337 applicable to deposit brokers, including filing a notification with the FDIC
in respect of its status as a deposit broker.
7. Representations, Warranties and Covenants of the Depository. The
-----------------------------------------------------------
Depository represents, warrants and covenants to Merrill as follows:
(a) The Depository is a Federal Savings & Loan Association /3/
----------------------------------
duly organized, validly existing and in good standing under the laws of its
organization.
(b) The Depository has full corporate power to execute, deliver and
perform this Agreement and to issue and perform its obligations with respect to
the CDs.
(c) This Agreement constitutes a legal, valid and binding obligation
of the Depository enforceable against the Depository in accordance with its
terms, except as enforcement may be limited by bankruptcy, insolvency,
liquidation or other similar laws generally affecting the enforcement of
creditors' rights.
(d) Each CD issued as contemplated hereby will not be subject to any
right, charge, security interest, lien or claim of any kind against Merrill in
favor of the Depository or any person claiming through the Depository.
- --------------------------------
/3/ Insert type of institution.
3
<PAGE>
(e) The obligation of the Depository in respect of each CD is entitled
to the priority provided to "deposit liabilities" by Section 11(d)(11) of the
Federal Deposit Insurance Act.
(f) Each CD issued as contemplated hereby will be entitled to deposit
insurance of the Federal Deposit Insurance Corporation ("FDIC") subject to the
maximum limits on such insurance afforded to a depositor and further subject to
Merrill and the Brokers being able to satisfy applicable rules and regulations
with respect to the identities of Purchasers of CDs and the total dollar amount
of the CDs.
(g) If the deposit insurance on the outstanding CDs is compromised due
to subsequent judicial, legislative or regulatory action, the Depository will
either (i) redeem the CDs, to the extent permitted by applicable regulations, or
(ii) exchange the CDs for like certificates of deposit directly with the
Depository if this action would result in the CDs having continuous insurance
coverage.
(h) No applicable law or regulation of the state in which the
Depository's headquarters is located or any political subdivision thereof
imposes any state or local income or franchise tax with respect to any CD
purchased by a non-resident of the above-named state.
(i) Neither the execution and delivery of the Agreement, the
consummation of the transactions herein contemplated, the fulfillment of, or
compliance with, the terms and provisions hereof, nor the issuance and
performance of its obligations under the CDs will conflict with, or result in a
breach of any of the terms, conditions or provisions of any federal law,
regulation or rule of any government instrumentality governing the Depository or
of any law, rule or regulation governing the acceptance of deposits of the state
in which the Depository's headquarters is located, or the charter or bylaws of
the Depository or of any agreement to which the Depository is now a party or by
which it may be bound.
(j) Prior to offering any CDs pursuant to this Agreement, the
Depository will have obtained and/or made any consent, approval, waiver or other
authorization of or by, or filing or registration with, any court,
administrative or regulatory agency or other governmental authority which is
required to be obtained by the Depository in connection with the execution,
delivery or performance by the Depository, or the consummation by the
Depository, of the transactions contemplated by this Agreement including,
without limitation, the issuance, offer and sale of the CDs.
(k) Prior to offering the CDs as contemplated hereby, the Depository
will be either (i) "well capitalized" or (ii) "adequately capitalized," as such
terms are defined in 12 C.F.R. (S) 337, or in any amendments or revisions to
such regulations. If the Depository is "adequately capitalized" pursuant to
(ii) above, prior to issuing CDs as contemplated hereby, the Depository will
have obtained a waiver from the FDIC waiving the prohibition on accepting
brokered deposits, provided, however, that the Depository will not be deemed to
-------- -------
be in breach of this representation if it has filed an application with the FDIC
for a waiver and has been granted a temporary order waiving the prohibition on
accepting brokered deposits.
(l) On any date on which a CD shall be established, the Depository
will furnish a representation in accordance with 12 C.F.R. (S) 330.12(h)(2), on
the Master Certificate evidencing such CD, (i) as to the Depository's capital
category as of such date and (ii) that deposits evidenced by such Master
Certificate made by employee benefit plans would be eligible for "pass-through"
deposit insurance.
(m) On any date on which (i) Merrill informs the Depository that
Merrill has received a request from an employee benefit plan depositor, the
Depository will furnish the notice required under 12 C.F.R. (S) 330.12(h)(1),
and (ii) any deposit made by an employee benefit plan would no longer be
eligible for "pass-through" deposit insurance, the Depository will furnish a
notice to that effect to Merrill pursuant to 12 C.F.R. (S) 330.12(h)(3).
(n) The Depository shall notify Merrill of any material change
affecting the Depository, including, but not limited to, changes of its
ownership, name, and location or acquisitions of other depository institutions.
The Depository will notify Merrill of any such change as soon as possible, but
in no event later than seven calendar days after the change occurred.
8. Indemnification.
---------------
4
<PAGE>
(a) Either party shall indemnify and hold the other harmless from
any loss, cost, damages and expense (including court costs and attorneys' fees
and disbursements), excluding loss of anticipated profits arising out of the
transactions herein contemplated resulting from the breach by either party of
any of its representations, warranties or agreements contained in this
Agreement.
(b) The standard CD selling group agreement entered into by
Merrill and each of the unaffiliated Brokers who make CDs available to their
customers, shall include the Broker's undertaking to indemnify and hold Merrill
and the Depository harmless from any loss, cost, damages and expense (including
court costs and attorneys' fees and disbursements) incurred by Merrill or the
Depository, as the case may be, and resulting from the acts or omissions of the
Broker in carrying out the transactions contemplated by such agreement or from
the breach by the Broker of any of its representations or warranties contained
therein or from the nonperformance of any of its obligations thereunder.
9. Notice of Legal Action. Each party will promptly advise the
----------------------
other of any legal or administrative action of which it obtains knowledge by any
state or federal court, agency or authority, taken or threatened to be taken,
which would preclude, limit or otherwise restrict the offering of the CDs.
10. Secondary Market. Merrill will endeavor to maintain a secondary
----------------
market for the CDs sold through Merrill, provided that Merrill shall not be
--------
required to, and shall incur no liability for failure to maintain such a market.
It is understood and agreed that Merrill shall be entitled to the dealer spread
in connection with such secondary market transactions effected with or through
Merrill.
11. Disclosure.
----------
(a) The Depository agrees to furnish to Merrill all disclosures
that are required to be distributed by the Depository to holders of CDs sold
pursuant to this Agreement pursuant to applicable law or regulation. Merrill
shall riot have any responsibility for any omission on the Depository's part to
notify Merrill, or for any delay in notification, of any disclosure which is
required to be distributed by the Depository to holders of CDs at the time of,
or subsequent to, the date of this Agreement. Merrill will then distribute all
such disclosures to its customers who purchase CDs. The Depository agrees to
furnish to Merrill, on a quarterly basis, its and its parent's financial
information, which information should reflect correctly and fairly the
Depository's and its parent's financial condition and be prepared in conformity
with (i) generally accepted accounting principles and practices, where
available, or (ii) regulatory, accounting principles. applied on a consistent
basis. The financial information will be provided by the Depository within 60
days after the end of each quarter for as long as the Depository is eligible for
the issuance of CDs hereunder, to Merrill Lynch Corporate Credit Department,
World Financial Center -- South Tower, 225 Liberty Street, 7th Floor, New York,
NY 10080-6107.
(b) Merrill intends to furnish to its customers who purchase CDs
a descriptive fact sheet which describes certificates of deposit generally and
does not mention the Depository by name. Prior to using any descriptive
materials which actually identify the Depository by name and which are not
intended solely for internal use, Merrill will submit such materials to the
Depository for prompt review and approval.
(c) Merrill will comply with the regulations applicable to the
advertising of deposits by deposit brokers contained in Regulation DD. 12 C.F.R.
Part 230.
12. Duration of Agreement. This Agreement shall continue in full
---------------------
force and effect until terminated by either party hereto by giving prior written
notice to the other party. Notwithstanding any such termination, the provisions
of this Agreement shall continue to apply to any CDs established by the
Depository prior to such termination and the provisions of Sections 6, 7, 8 and
9 hereof shall survive any such termination.
13. Expenses. Each party hereto shall pay any costs or expenses
--------
incurred by it in connection with the preparation, execution and performance of
this Agreement, except as otherwise provided in Section 8 hereof.
5
<PAGE>
14. Nonexclusive Operation. The Depository recognizes and agrees
----------------------
that Merrill may offer to purchase or otherwise market certificates of deposits,
time deposits, savings accounts or other instruments or accounts on behalf of or
for the account of any other dealer, bank, savings bank, savings association or
any other financial institution.
15. Sales of Comparable Instruments. The Depository shall notify
-------------------------------
Merrill before it commences to offer, either directly or through another deposit
broker, Comparable CDs during the period from Trade Date through Settlement Date
at a higher yield than the yield on CDs to be paid for on such Settlement Date.
If Merrill has agreed with the Depository to purchase CDs as principal, the
Depository shall not offer or issue Comparable CDs (as defined below) during the
period from Trade Date through Settlement Date. For purposes of this Section
15, a "Comparable CD" is defined as a certificate of deposit, time deposit or
other deposit instrument offered during any week if it is offered generally to
the same type of investor, in similar denominations and for a similar term as
any CD.
16. Notice and Places of Payment. All notices, requests, and demands
----------------------------
given to or made upon the Depository or Merrill shall be made in writing by
certified or registered mail, postage prepaid, or telex, and addressed as
follows: If to the Depository, to Pan American Bank, FSB, 1300 S. El
----------------------------------
Camino /4/ Real, San Mateo, CA 94402 4 Attention: Carol M. Bucci /5/ and if to
- --------------------------------------- --------------
Merrill, to Merrill Lynch, Pierce, Fenner & Smith Incorporated, World Financial
Center, North Tower, 10th Floor, New York, NY 10281, Attention: Product
Management - Banks. Such notices, requests, and demands may also be made to such
other persons or places as either party shall advise the other party in writing
in the manner aforesaid.
17. Performance through Subsidiaries or Affiliates. It is understood
----------------------------------------------
and agreed that the services required to be performed by Merrill hereunder may,
at Merrill's option, be performed by a subsidiary or an affiliate of Merrill;
provided, however, that notwithstanding the provisions of this Section 17,
- -------- -------
Merrill shall remain accountable to the Depository for the services required to
be performed by Merrill hereunder.
18. Counterparts. This Agreement may be executed in separate
------------
counterparts, each of which shall be considered one and the same Agreement.
19. Amendments. This Agreement may not be changed orally but only by
----------
an instrument in writing signed by the party against whom enforcement of any
waiver, change, modification or discharge is sought.
20. Governing Law and Venue. This Agreement shall be governed by and
-----------------------
construed in accordance with the laws of the State of New York and any legal
suit, action or proceedings arising under this Agreement will be instituted in a
state or federal court of appropriate jurisdiction located in the State of New
York.
IN WITNESS WHEREOF, the Depository and Merrill have executed this Agreement as
of the day and year first above written.
Pan American Bank, FSB /6/ MERRILL LYNCH, PIERCE, FENNER
--------------------------- & SMITH INCORPORATED
By /s/ CAROL M. BUCCI By /s/ [SIGNATURE ILLEGIBLE]
----------------------------------- -------------------------------------
Carol M. Bucci, Vice President
------------------------------
- ------------------------------
/4/ Insert name and complete address of Depository.
/5/ Insert name of individual to whom notices should be directed.
/6/ Insert name of your institution.
6
<PAGE>
EXHIBIT 10.23
FIXED RATE INTEREST BEARING - 3 Months and Longer
RETAIL CERTIFICATE OF DEPOSIT
Pan American Bank, FSB/1/
----------------------
MASTER CERTIFICATE NUMBER 2 CUSIP 69783NAB3
---
Account Numbers: 1-2500
This certifies that $2,500,000 ,/2/ constituting 2,500 /3/ transferable
------------ -----------
individual time deposit accounts represented by the Account Numbers stated above
(the "Deposit Accounts"), each in the principal amount of $1,000, has been
deposited with Pan American Bank, FSB 1, a Federal
----------------------------------------------- ----------
Savings Bank /4/ organized under the laws of United States /5/ (the
- --------------- -------------------
"Depository") payable to the order of CEDE & CO., as nominee of The Depository
Trust Company ("DTC"), 55 Water Street, New York, New York, as custodian for
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill") and other DTC
participants, each acting for itself and as nominee or custodian for others,
including trusts, pension and retirement plans and accounts, fiduciaries,
custodians and nominees, or registered assigns. The Depository promises to pay
all amounts in respect of the Deposit Accounts as provided herein. Each of the
Deposit Accounts constitutes a separate account on the books and records of the
Depository. This Master Certificate arises out of the Brokerage Agreement dated
April 30 , 199 6 (the "Agreement") between the Depository and Merrill.
- ----------- ---
Unless defined otherwise herein, all terms used in this Master Certificate will
have the same meaning as assigned thereto in the Agreement.
The Deposit Accounts are issued in accordance with the following terms:
<TABLE>
<S> <C> <C> <C> <C> <C>
Aggregate
Issue May 14, 1997 Maturity Nov. 12, 1997 Amount $2,500,000
Date: Date: Deposited:
Annual 5.5% Term: 182 days Amount
Interest Deposited
Rate: Per Account: $1,000
</TABLE>
INTEREST
- --------
Interest on Deposit Accounts will be payable at a simple interest rate computed
on the basis of the actual number of days elapsed divided by 365. Interest on
Deposit Accounts will accrue from and including the issue date to but excluding
the next interest payment date and, thereafter, from and including such interest
payment date to but excluding the next interest payment or Maturity Date, as the
case may be. Interest on Deposit Accounts with maturities of more than one year
shall be paid by the Depository on each semi-annual anniversary of the issue
date, and interest on Deposit Accounts with maturities of one year or less shall
be paid by the Depository on the Maturity Date.
NO INTEREST WILL BE EARNED AFTER MATURITY.
REPRESENTATIONS
- ---------------
By accepting the deposits evidenced by this Master Certificate, the Depository,
pursuant to 12 C.F.R. (S) 330.12(h)(2), hereby represents as of the Issue Date
that (i) the Depository's capital category is "well capitalized" and (ii)
deposits
- --------------------
/1/ Depository's name.
/2/ Insert the aggregate amount.
/3/ Divide the aggregate amount by 1,000.
/4/ Type of institution.
/5/ United States or state of organization.
<PAGE>
evidenced by this Master Certificate made by employee benefit plans are
eligible for "pass-through" deposit insurance.
PAYMENT OF AMOUNTS DUE
- ----------------------
Interest earned on the Deposit Account balances evidenced by this Master
Certificate will be remitted to the order of CEDE & CO., as nominee as
aforesaid, in federal or other immediately available funds on each interest
payment date and, upon presentation of this Master Certificate, interest earned
on the Deposit Account balances together with the principal balances evidenced
by this Master Certificate will be remitted to the order of CEDE & CO., in the
manner set forth above, on the Maturity Date. If payment by the Depository of
any amount due on a Deposit Account falls on a day which is not a Business Day,
the payment will be made on the Business Day immediately following such day and
will include interest at the applicable stated rate to, but not including, the
day on which payment was originally due; such payment will not include interest
to the Business Day on which the payment is made. For purposes hereof, a
"Business Day" shall mean a day on which the Depository and banks in The City of
New York are open for business.
EARLY WITHDRAWAL
- ----------------
There shall be no early withdrawal of any Deposit Account prior to its stated
maturity, except if any beneficial owner thereof has died, has been determined
to be legally incompetent by a court or other administrative body of competent
jurisdiction, or is a participant in a Plan and has become disabled, as that
term is defined in 26 U.S.C. 72(m)(7) or any successor regulation. In such
cases, there shall be no early withdrawal penalty upon a withdrawal of a Deposit
Account.
NOTATION ON OR REISSUANCE OF MASTER CERTIFICATES
- ------------------------------------------------
In the event of any early withdrawal of a Deposit Account or Accounts, or the
issuance by the Depository (with the concurrence of the registered holder of
this Master Certificate) of an individual certificate of deposit in respect of a
Deposit Account or Accounts, the Depository will issue in lieu hereof (but in
the same form) a new Master Certificate to evidence the aggregate number and
amount of Deposit Accounts evidenced hereby then outstanding or, at the election
of the registered holder of this Master Certificate and in lieu of the
presentment of this Master Certificate and the issuance of any such new Master
Certificate, the registered holder of this Master Certificate shall make an
appropriate notation on the reverse hereof showing the date and amounts of each
such withdrawal or issuance, the number or numbers of the Deposit Account or
Accounts so withdrawn or affected by such issuance, and the aggregate dollar
amount of Deposit Accounts then still outstanding after giving effect thereto.
NO ADDITIONS OR RENEWALS
- ------------------------
No additions may be made to any Deposit Accounts evidenced by this Master
Certificate. This Master Certificate and Deposit Accounts evidenced hereby will
not be automatically renewed at maturity.
Pan American Bank, FSB /6/
----------------------------------------
Dated: May 12, 1997 By: /s/ CAROL M. BUCCI
------------------------ -------------------------------------
- --------------------
/6/ Depository's name.
2
<PAGE>
EXHIBIT 10.24
FIXED RATE INTEREST BEARING - 3 Months and Longer
RETAIL CERTIFICATE OF DEPOSIT
Pan American Bank, FSB/1/
MASTER CERTIFICATE NUMBER 3 CUSIP 69783NAC1
Account Numbers: 1-2500
This certifies that $2,500,000 ,/2/ constituting 2,500 /3/ transferable
------------ -----------
individual time deposit accounts represented by the Account Numbers stated above
(the Deposit Accounts"), each in the principal amount of $1,000, has been
deposited with Pan American Bank, FSB , a Federal
----------------------------------------------- ----------
Savings Bank /4/ organized under the laws of United States /5/ (the
- --------------- -------------------
"Depository") payable to the order of CEDE & CO., as nominee of The Depository
Trust Company ("DTC"), 55 Water Street, New York, New York, as custodian for
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill") and other DTC
participants, each acting for itself and as nominee or custodian for others,
including trusts, pension and retirement plans and accounts, fiduciaries,
custodians and nominees, or registered assigns. The Depository promises to pay
all amounts in respect of the Deposit Accounts as provided herein. Each of the
Deposit Accounts constitutes a separate account on the books and records of the
Depository. This Master Certificate arises out of the Brokerage Agreement dated
April 30 , 199 6 (the "Agreement") between the Depository and Merrill.
- ------------- ---
Unless defined otherwise herein, all terms used in this Master Certificate will
have the same meaning as assigned thereto in the Agreement.
The Deposit Accounts are issued in accordance with the following terms:
<TABLE>
<S> <C> <C>
Aggregate
Issue May 14, 1997 Maturity Aug. 13, 1997 Amount
Date: Date: Deposited: $2,500,000
Annual 5.20% Term: 91 days Amount
Interest Deposited
Rate: Per Account: $1,000
</TABLE>
INTEREST
- --------
Interest on Deposit Accounts will be payable at a simple interest rate computed
on the basis of the actual number of days elapsed divided by 365. Interest on
Deposit Accounts will accrue from and including the issue date to but excluding
the next interest payment date and, thereafter, from and including such interest
payment date to but excluding the next interest payment or Maturity Date, as the
case may be. Interest on Deposit Accounts with maturities of more than one year
shall be paid by the Depository on each semi-annual anniversary of the issue
date, and interest on Deposit Accounts with maturities of one year or less shall
be paid by the Depository on the Maturity Date.
NO INTEREST WILL BE EARNED AFTER MATURITY.
REPRESENTATIONS
- ---------------
By accepting the deposits evidenced by this Master Certificate, the Depository,
pursuant to 12 C.F.R. (S) 330.12(h)(2), hereby represents as of the Issue Date
that (i) the Depository's capital category is "well capitalized" and (ii)
deposits
_______________________________
/1/ Depository's name.
/2/ Insert the aggregate amount.
/3/ Divide the aggregate amount by 1,000.
/4/ Type of institution.
/5/ United States or state of organization.
<PAGE>
evidenced by this Master Certificate made by employee benefit plans are eligible
for "pass-through" deposit insurance.
PAYMENT OF AMOUNTS DUE
- ----------------------
Interest earned on the Deposit Account balances evidenced by this Master
Certificate will be remitted to the order of CEDE & CO., as nominee as
aforesaid, in federal or other immediately available funds on each interest
payment date and, upon presentation of this Master Certificate, interest earned
on the Deposit Account balances together with the principal balances evidenced
by this Master Certificate will be remitted to the order of CEDE & CO., in the
manner set forth above, on the Maturity Date. If payment by the Depository of
any amount due on a Deposit Account falls on a day which is not a Business Day,
the payment will be made on the Business Day immediately following such day and
will include interest at the applicable stated rate to, but not including, the
day on which payment was originally due; such payment will not include interest
to the Business Day on which the payment is made. For purposes hereof, a
"Business Day" shall mean a day on which the Depository and banks in The City of
New York are open for business.
EARLY WITHDRAWAL
- ----------------
There shall be no early withdrawal of any Deposit Account prior to its stated
maturity, except if any beneficial owner thereof has died, has been determined
to be legally incompetent by a court or other administrative body of competent
jurisdiction, or is a participant in a Plan and has become disabled, as that
term is defined in 26 U.S.C. 72(m)(7) or any successor regulation. In such
cases, there shall be no early withdrawal penalty upon a withdrawal of a Deposit
Account.
NOTATION ON OR REISSUANCE OF MASTER CERTIFICATES
- ------------------------------------------------
In the event of any early withdrawal of a Deposit Account or Accounts, or the
issuance by the Depository (with the concurrence of the registered holder of
this Master Certificate) of an individual certificate of deposit in respect of a
Deposit Account or Accounts, the Depository will issue in lieu hereof (but in
the same form) a new Master Certificate to evidence the aggregate number and
amount of Deposit Accounts evidenced hereby then outstanding, or, at the
election of the registered holder of this Master Certificate and in lieu of the
presentment of this Master Certificate and the issuance of any such new Master
Certificate, the registered holder of this Master Certificate shall make an
appropriate notation on the reverse hereof showing the date and amounts of each
such withdrawal or issuance, the number or numbers of the Deposit Account or
Accounts so withdrawn or affected by such issuance, and the aggregate dollar
amount of Deposit Accounts then still outstanding after giving effect thereto.
NO ADDITIONS OR RENEWALS
- ------------------------
No additions may be made to any Deposit Accounts evidenced by this Master
Certificate. This Master Certificate and Deposit Accounts evidenced hereby will
not be automatically renewed at maturity.
Pan American Bank, FSB /6/
-------------------------------------
Dated: May 12, 1997 By: /s/ CAROL M. BUCCI
---------------------- ----------------------------------
_______________________________
/6/ Depository's name.
2
<PAGE>
EXHIBIT 10.25
LICENSE, SERVICES, AND PURCHASE AGREEMENT
BETWEEN
ASSOCIATED SOFTWARE CONSULTANTS, INC.
AND
Pan American Bank, FSB
-----------------------------------------
a(n) California Corporation ("Customer")
-----------------
<TABLE>
<S> <C>
VARIABLE TERMS OF THE AGREEMENT:
1. Notice Information:
If intended for ASC, to: If intended for Customer, to:
ASSOCIATED SOFTWARE CONSULTANTS, INC. PAN AMERICAN BANK, FSB
------------------------------------
7251 ENGLE ROAD, SUITE 300 1300 SOUTH EL CAMINO REAL, SUITE 320
------------------------------------
MIDDLEBURG HEIGHTS, OH 44130 SAN MATEO, CA 94402-2962
------------------------------------
CONTACT: RICK BACCHUS, PRESIDENT CONTACT: MR. ROBERT B. WILSON
---------------------------
TELEPHONE: (216) 826-1010 TELEPHONE: (415) 345-1888
-------------------------
</TABLE>
2. Applicable Attached Parts:
<TABLE>
<CAPTION>
ASC INITIALS: CUSTOMER INITIALS:
<C> <S> <C>
N/A N/A
__________ Part B Beta Test Software (with Exhibit B) ________
N/A N/A
__________ Part C Custom Software (with Exhibit C, Exhibit P) ________
__________ Part L Software License (with Exhibit L) ________
__________ Part E System Support (with Exhibit A, Exhibit E) ________
__________ Part S Service (with Exhibit S, Exhibit P) ________
__________ Part H Hardware Purchase (with Exhibit H) ________
__________ Part G General Terms and Conditions ________
</TABLE>
3. Number of Pages in this Agreement including attached Exhibits: *twenty-six*
------------
BOTH PARTIES ACKNOWLEDGE THAT THEY HAVE READ AND FULLY UNDERSTAND THIS AGREEMENT
AND HEREBY AGREE TO THE TERMS HEREOF. CUSTOMER EXPRESSLY ACKNOWLEDGES THAT NO
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS AGREEMENT HAVE BEEN MADE
REGARDING THE GOODS AND SERVICES TO BE PROVIDED HEREUNDER, AND THAT CUSTOMER HAS
NOT RELIED ON ANY REPRESENTATION NOT EXPRESSLY SET OUT HEREIN.
SIGNED for and on behalf of ASC: SIGNED for and on behalf of Customer:
By: /s/ TIMOTHY W. LISTON By: /s/ ROBERT WILSON
------------------------------- -----------------------------------
<PAGE>
Print Name: Timothy W. Liston Print Name: Robert Wilson
----------------------- ---------------------------
Title: Vice President Title: EVP
---------------------------- --------------------------------
Date: 12/30/96 Date: 12/20/96
----------------------------- ---------------------------------
<PAGE>
Part L -- SOFTWARE LICENSE
1. DEFINITIONS
1.1 "Licensed Software." Computer programs in machine executable form
only and related documentation and data files, as described in the Software
License Order attached hereto as Exhibit L, together with any additional
software modules that may be licensed in the future under Section 2.2 below.
1.2 "Licensee Premises." The office space and other facilities occupied
by Customer at the location shown on the attached Software License Order.
1.3 "Computer System." The combination of a single central processing
unit ("CPU") and its monitor, input device(s), output device(s), and auxiliary
storage device(s).
1.4 "LAN." A limited-distance distributed processing network that
comprises the CPUs, monitors, input devices, output devices, storage devices,
communications facilities, and other components thereof, and which is situated
wholly within Licensee Premises."
1.5 "Authorized Operating System(s)." The operating system(s) specified
on the attached Software License Order.
1.6 "Authorized Use." Use of the Licensed Software on a single Computer
System or LAN, on no more than the maximum number of workstations on the
Authorized Operating System(s) specified on the Software License Order, only for
purposes of processing Customer's own internal data (and not on a timeshared or
service bureau basis), only by Customer personnel, and only on Customer premises
or on computer hardware owned by Customer. Authorized Use shall include the
generation and preparation of reports for Customer and its affiliates, provided
that such activities are in strict compliance with the foregoing.
1.7 "Proprietary Rights." All rights in and to copyrights, rights to
register copyrights, trade secrets, inventions, patents, patent rights,
trademarks, trademark rights, confidential and proprietary information protected
under contract or otherwise under law, and other similar rights or interests in
intellectual or industrial property.
1.8 "Effective Date." The date specified on the attached Software License
Order.
2. GRANT OF LICENSE
2.1 Licensed Software. Customer recognizes that the license fee paid
hereunder for the Licensed Software does not fully reimburse ASC for ASC's total
expense in developing the Licensed Software. Accordingly, as of the Effective
Date and subject to the terms and conditions hereof, ASC hereby grants to the
Customer, and Customer hereby accepts, a non-exclusive license to use the
Licensed Software and the Proprietary Rights embodied therein, only for purposes
of the Authorized Use. Customer shall not have the right to relicense or sell
the Licensed Software or to transfer or assign the Licensed Software, except as
expressly provided herein.
2.2 Additional Authorized Use. Licensee may increase the scope of the
Authorized Use by purchasing additional license rights from ASC for additional
Computer Systems, additional LANs, or additional workstations on a licensed
Computer System or LAN, and such additional Authorized Use shall be governed by
the terms and conditions hereof. Customer agrees that, absent ASC's express
written acceptance thereof, the terms and conditions contained in any purchase
order or other document issued by Customer to ASC for the purchase of rights for
additional Authorized Use shall not be binding on ASC to the extent that such
terms and conditions are in addition to, or inconsistent with, the terms and
conditions contained in this Agreement.
2.3 Substitutions and Modifications By ASC. ASC reserves the right to
make substitutions and/or modifications to the Licensed Software, providing that
such substitutions or modifications will not materially affect the performance
thereof.
2.4 Requests for Modifications By Customer. ASC will consider requests
from Customer for modifications to the Licensed Software, but ASC is under no
obligation to develop any such modifications. ASC reserves the right to charge
additional license fees and/or development fees for any modification to the
Licensed
<PAGE>
Software. Such modifications shall automatically become a part of the Licensed
Software and subject to the terms and conditions of this Agreement.
2.5 Installation and Acceptance. ASC shall install the Licensed Software
at Customer's premises at a mutually agreed-upon time, which date shall be
considered the "date of software acceptance" for the purposes of this Agreement.
ASC shall demonstrate that the Licensed Software conforms to ASC's accompanying
documentation, whereupon Customer shall be deemed to have accepted the Licensed
Software.
2.6 Payment. Software license fees for the Licensed Software shall be
paid by Customer as follows:
2.6.1 One-Time License Fees. The total software license fee for the
Licensed Software requires the payment of one-time license fees, as shown in the
attached Software License Order. A non-refundable deposit of twenty percent
(20%) of the one-time software license fees for the Licensed Software is due
immediately upon the signing of this Agreement by Customer, and the deposit will
be credited to the total one-time license fee for the Licensed Software. The
final payment of one-time license fees for the Licensed Software shall be due
and payable on the date of software acceptance pursuant to Section 2.5 hereof.
2.6.2 Ongoing License Fees. In addition to the one-time license fees
indicated above, and only if indicated in the attached Software License Order,
the total software license fee for the Licensed Software also includes ongoing
license fees, which shall be paid by Customer to ASC according to the payment
schedule shown therein.
2.7 Ownership. Customer shall not acquire title to the Licensed Software.
Customer's only interest in the Licensed Software is that of a licensee under
this Agreement. Except for certain portions of the Licensed Software that are
owned by third parties and which are sublicensed herein, title to the
Proprietary Rights embodied in the Licensed Software shall remain in and be the
sole and exclusive property of ASC.
2.8 Copying. Customer is authorized to make no more than three (3) back-
up copies of the computer programs and data files that comprise the Licensed
Software. Except for such back-up copies, Customer shall not copy, duplicate,
or print the Licensed Software including the accompanying documentation, in
whole or in part, without the prior written consent of ASC.
2.9 Modification; Disassembly. Customer shall not modify, disassemble, or
decompile the Licensed Software for any purpose.
2.10 Proprietary Notices. Customer shall not alter, change or remove any
proprietary notices or confidentiality legends placed on or contained within the
Licensed Software. Customer shall include such notices and legends in all
copies of any part of the Licensed Software made pursuant to this Agreement.
2.11 Right of Access by ASC. Customer shall provide the necessary
passwords and protocols to permit ASC to access the Licensed Software by modem
for purposes of providing technical support services and/or for determining
whether the Licensed Software is being used in accordance with the terms and
conditions hereof.
2.12 Notice of Infringement; Misappropriation. In the event either party
becomes aware of any action that may infringe or misappropriate the Proprietary
Rights of the other party, such party shall promptly notify the other party of
such action.
2.13 No Encumbrances. Customer shall keep the Licensed Software free and
clear of all claims, liens, and encumbrances.
2.14 Reserved Rights. All rights not expressly granted to Customer herein
are expressly reserved by ASC.
3. TERM AND TERMINATION
3.1 License Term. The license for the Licensed Software shall commence
upon the Effective Date, and continue in perpetuity unless terminated as
provided herein.
<PAGE>
3.2 Termination for Convenience. Customer may terminate the license for
the Licensed Software by giving thirty (30) days written notice to ASC.
3.3 Obligations Upon Expiration or Termination. Upon the termination
hereof, Customer shall immediately cease all use of the Licensed Software and
otherwise cease exercise of all other rights granted herein. Customer shall
within ten (10) days of termination, return all existing copies of the Licensed
Software to ASC and certify to ASC that all copies or partial copies of same
have been returned or destroyed.
4. CONFIDENTIALITY
4.1 Licensed Software. Customer acknowledges ASC's claim that the
Licensed Software embodies valuable trade secrets proprietary to ASC. Customer
shall use the Licensed Software only for purposes authorized herein. Customer
shall safeguard the confidentiality of the Licensed Software, using at least
reasonable care. Such care shall include, but not be limited to, taking
reasonable precautions to ensure that (i) the Licensed Software is made
available only to Customer's employees, and (ii) Customer and its employees do
not make unauthorized use, disclosure, or transfer of the Licensed Software.
4.2 Customer Information. All Customer information submitted to ASC or
prepared for or in connection with the performance of this Agreement that is
marked "confidential" or "proprietary" shall be held in confidence by ASC and
shall not, without the prior written consent of Customer, be disclosed or be
used for any purposes other than the performance of this Agreement. ASC shall
safeguard the confidentiality of such Customer information, using at least
reasonable care.
5. WARRANTIES AND LIMITATION OF LIABILITY
5.1 Limited Warranty for the Licensed Software. For a period commencing
with the date of software acceptance and continuing for a period of ninety (90)
days, ASC warrants that the Licensed Software (i) will conform to all material
operational features and performance characteristics of the accompanying
documentation supplied by ASC, and (ii) will be free of errors and defects that
materially affect the performance of such features; provided, however, that (i)
the Licensed Software is implemented and operated in accordance with all written
instructions supplied by ASC, (ii) Customer notifies ASC in writing of such
nonconformity, error, or defect within ten (10) days of the appearance thereof,
and (iii) Customer has promptly and properly installed all corrections and
updates made available by ASC to Customer. If Customer notifies ASC in writing
in a timely manner of any such nonconformity, error, or defect, ASC shall at its
sole and exclusive option repair or replace the Licensed Software. THE REMEDIES
SET OUT IN THIS SECTION 5.1 ARE THE SOLE AND EXCLUSIVE REMEDIES FOR BREACH OF
THE WARRANTY PROVIDED. THIS WARRANTY GIVES CUSTOMER SPECIFIC LEGAL RIGHTS, AND
CUSTOMER MAY ALSO HAVE OTHER RIGHTS WHICH VARY FROM STATE TO STATE. ASC DOES
NOT WARRANT THAT THE LICENSED SOFTWARE WILL MEET CUSTOMER'S REQUIREMENTS, THAT
THE LICENSED SOFTWARE WILL OPERATE IN THE COMBINATIONS WHICH CUSTOMER MAY SELECT
FOR USE, THAT THE OPERATION OF THE LICENSED SOFTWARE WILL BE UNINTERRUPTED OR
ERROR-FREE, OR THAT ALL LICENSED SOFTWARE ERRORS WILL BE CORRECTED.
5.2 Warranty Exclusions. Notwithstanding any other provisions of this
Agreement to the contrary, the limited warranty provided in Section 5.1 shall
not apply to nonconformities, errors, or defects due to any of the following:
(i) misuse of the Licensed Software, (ii) modification of the Licensed Software
by Customer, (iii) failure by Customer to utilize compatible computer and
networking hardware and software, (iv) interaction with software or firmware not
provided by ASC, or (v) any change in applicable operating system software.
5.3 Warranty Disclaimer for Licensed Software. EXCEPT FOR THE LIMITED
WARRANTY PROVIDED ABOVE, TO THE EXTENT ALLOWED BY LAW, ASC HEREBY DISCLAIMS ALL
WARRANTIES, BOTH EXPRESS AND IMPLIED, INCLUDING IMPLIED WARRANTIES RESPECTING
MERCHANTABILITY, TITLE, AND FITNESS FOR A PARTICULAR PURPOSE. SOME STATES DO
NOT ALLOW DISCLAIMERS OF IMPLIED WARRANTIES, SO THE ABOVE LIMITATION MAY NOT
APPLY TO CUSTOMER.
5.4 Proprietary Rights Warranty and Indemnification. ASC represents and
warrants that ASC has the authority to license the rights to the Licensed
Software that are granted herein. ASC shall defend, indemnify, and hold
Customer harmless from any final award of costs and damages against Customer for
any action based on (i) the lack of right or authority to license the Licensed
Software, or (ii) infringement of any U.S. copyright, trade secret, or patent
known to ASC as a result of the use of a current copy of the Licensed Software,
unmodified by Customer; provided, however, that ASC is promptly notified in
writing of any such suit or claim, and further provided
<PAGE>
that Customer permits ASC to defend, compromise, or settle same, and provides
all available information and reasonable assistance to enable ASC to do so. The
foregoing is exclusive and states the entire liability of ASC with respect to
infringements or misappropriation of any Proprietary Rights by the Licensed
Software.
5.5 Limitation of Damages. ASC'S ENTIRE LIABILITY FOR MONEY DAMAGES
ARISING OUT OF THIS AGREEMENT AND/OR THE LICENSING OF THE LICENSED SOFTWARE
SHALL BE LIMITED TO LICENSE FEES PAID BY CUSTOMER UNDER THIS AGREEMENT, AND IF
SUCH DAMAGES ARISE OUT OF CUSTOMER'S USE OF THE LICENSED SOFTWARE OR SERVICES
PROVIDED HEREUNDER SUCH LIABILITY SHALL BE LIMITED TO THE FEES PAID FOR THE
RELEVANT PORTION OF THE LICENSED SOFTWARE OR SERVICES GIVING RISE TO THE
LIABILITY PRORATED OVER A FIVE (5) YEAR TERM FROM THE EFFECTIVE DATE OF THIS
AGREEMENT.
5.6 Disclaimer of Incidental and Consequential Damages. IN NO EVENT SHALL
ASC BE LIABLE TO CUSTOMER UNDER ANY THEORY INCLUDING CONTRACT AND TORT
(INCLUDING NEGLIGENCE AND STRICT PRODUCT LIABILITY) FOR ANY INDIRECT, SPECIAL OR
INCIDENTAL OR CONSEQUENTIAL DAMAGES, INCLUDING, BUT NOT LIMITED TO, COSTS OF
PROCUREMENT OF SUBSTITUTE GOODS AND SERVICES, DAMAGES FOR LOSS OF DATA, LOSS OF
USE OF COMPUTER HARDWARE, DOWNTIME, LOSS OF GOODWILL, LOSS OF BUSINESS OR
COMPUTER HARDWARE MALFUNCTION, EVEN IF ASC HAS BEEN ADVISED OF THE POSSIBILITY
OF SUCH DAMAGES. SOME STATES DO NOT ALLOW THE EXCLUSION OR LIMITATION OF
INCIDENTAL OR CONSEQUENTIAL DAMAGES, SO THE ABOVE LIMITATION OR EXCLUSION MAY
NOT APPLY TO CUSTOMER.
5.7 Limitation on Actions. No action, regardless of form, arising out of
or relating to this Agreement may be brought by either party more than one (1)
year after the cause of action has occurred.
5.8 Allocation of Risks. This Agreement allocates fairly between ASC and
Customer the risks of defects in, or failure of, the Licensed Software. This
allocation is the result of negotiation between the parties, is accepted by both
parties, and is reflected in the pricing for the Licensed Software, other fees
payable, the limited warranties provided, the limited remedies provided, the
disclaimer of liability for certain damages including without limitation,
incidental and consequential damages, the limitation of liability, and the
limitation on actions. The parties hereby stipulate that in any proceeding
regarding any dispute under this Agreement, all of these provisions should be
recognized and enforced.
<PAGE>
Part E -- SYSTEM SUPPORT
1. DEFINITIONS
1.1 "Supported Software." Computer programs in machine executable form
only and related documentation and data files, as described in the System
Support Order which is attached hereto as Exhibit E.
2. SERVICES RENDERED
ASC will support the Supported Software shown in the System Support Order,
subject to the terms and conditions of the System Support Agreement, which is
attached hereto as Exhibit A.
3. SERVICES EXCLUDED
Services which are not provided by way of this Part E of this Agreement
include, but are not limited to, those services shown in the attached System
Support Agreement.
4. TERM
ASC will provide system support for one (1) "contract" year beginning on
the date of software acceptance (per Section 2.5 of Part L) for the Supported
Software. Unless Customer provides written notice thirty (30) or more days
prior to the expiration of the then current contract year, system support shall
be automatically renewed at the then current fee. ASC must provide Customer
written notice sixty (60) or more days prior to the expiration of the then
current contract year in order to terminate system support, or in order to
change system support fees.
5. FEE PAYMENT TERMS
Payment for system support shall be due and payable four times each year,
in advance, as shown in the System Support Order. The first payment shall be an
amount prorated from the date of software acceptance to the end of the same
calendar quarter, so that all subsequent payments will coincide with calendar
quarters. System support fees are in addition to any software license fees
required by ASC to authorize Customer use of Supported Software.
<PAGE>
Part S -- SERVICE
1. SERVICES
Customer shall receive the services of ASC in areas Customer shall
designate and in which ASC has expertise, including those items shown in the
Service Order which is attached hereto as Exhibit S. ASC shall extend its best
professional effort in the performance of same.
2. PRICE
Customer shall pay ASC, as compensation for services performed and expenses
incurred, according to its then current Professional Rate Schedule, a current
copy of which is shown in Exhibit P of this Agreement. All charges, rate
classifications and minimum hours are subject to change by ASC upon thirty (30)
days notice to Customer. Customer will be invoiced from time to time by ASC for
services rendered and expenses incurred to date, at which time such payment is
considered due and payable.
3. DEPOSIT
If applicable, a one-time service deposit in the amount shown in the
attached Service Order shall be due and payable upon the execution of this
Agreement, and will be credited to the billing for services rendered and
expenses incurred upon the completion of said services or expenses.
4. REPORTING
ASC shall provide Customer with a written summary of the findings gathered
and/or the services rendered during the term of this Agreement. Complete
payment for services rendered shall be due and payable upon tender of such
summary to Customer.
5. USE
ASC retains all ownership and marketing rights to all programs, data files,
technical information, specifications, reports, drawings, models, and other
software developed hereunder. By this Agreement, Customer obtains only the non-
exclusive right to use the software developed hereunder. Customer hereby agrees
not to make copies of this information without the express written consent of an
authorized officer of ASC, unless said copies are for backup purposes only. It
is further specifically agreed that Customer may not sell, lease, transfer,
sublicense and/or license any programs, data files, technical information,
specifications, reports, drawings, models, and/or the like to any third party
without prior written consent from an officer of ASC.
<PAGE>
Part H -- HARDWARE PURCHASE
1. DEFINITIONS
"Hardware." The computer hardware and/or third-party (non-ASC) software as
described in the Hardware Purchase Order which is attached hereto as Exhibit H.
2. PRICE
The purchase price for the Hardware shall be as specified in the attached
Hardware Purchase Order.
3. TERMS OF SHIPMENT
All Hardware will be shipped F.O.B. ASC's loading dock, with shipping
charges and transit insurance to be paid by Customer. ASC reserves the right to
make partial shipments, in which case each shipment shall be a separate
transaction and payment will be made accordingly. Settlement of all claims will
be made on the basis of repair or replacement at ASC's option.
4. HARDWARE INSTALLATION AND ACCEPTANCE
The date on which the Hardware is shipped by ASC to Customer shall be
considered the "date of Hardware acceptance" for the purposes of this Agreement.
Customer shall be responsible for the installation of each item of Hardware in
the Customer specified location.
5. PAYMENT
A deposit of twenty percent (20%) of the Hardware purchase price is due and
payable immediately upon the signing of this Agreement by Customer, and will be
credited to the purchase price of the Hardware. In the event Customer cancels
any unshipped Hardware, ASC shall retain the Hardware deposit as liquidated
damages. Final payment for the Hardware shall be due and payable on the date of
Hardware acceptance.
6. SECURITY INTEREST
Customer hereby grants to ASC a security interest in all Hardware to secure
all Customer Hardware and other payment obligations hereunder. Upon demand by
ASC, Customer agrees to immediately execute any security agreement, financing
statement, applications for registration and/or other documents evidencing such
security interest in a form satisfactory for filing with the appropriate
government authorities. Customer agrees to take any other action deemed
necessary by ASC in order to perfect ASC's security interest hereunder. ASC
agrees to terminate its security interest in the Hardware when all Customer
payments required hereunder have been made.
7. WARRANTIES AND LIMITATION OF LIABILITY
7.1 No Warranty. THE HARDWARE IS PROVIDED "AS-IS," AND WITHOUT ANY
WARRANTY OF ANY KIND FROM ASC. ALL WARRANTIES BOTH EXPRESS AND IMPLIED, ARE
HEREBY DISCLAIMED INCLUDING WITHOUT LIMITATION THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
7.2 Limitation of Liability. ASC ASSUMES NO LIABILITY REGARDING THE
HARDWARE. CUSTOMER AGREES TO LOOK SOLELY TO THE MANUFACTURER(S) OF THE HARDWARE
FOR SATISFACTION REGARDING THE HARDWARE. ASC SHALL PASS-THROUGH ANY WARRANTIES
REGARDING THE HARDWARE THAT ARE PROVIDED BY HARDWARE MANUFACTURER(S).
7.3 Disclaimer of Incidental and Consequential Damages. IN NO EVENT SHALL
ASC BE LIABLE TO CUSTOMER UNDER ANY THEORY INCLUDING CONTRACT AND TORT
(INCLUDING NEGLIGENCE AND STRICT PRODUCT LIABILITY) FOR ANY INDIRECT, SPECIAL OR
INCIDENTAL OR CONSEQUENTIAL DAMAGES, INCLUDING, BUT NOT LIMITED TO, COSTS OF
PROCUREMENT OF SUBSTITUTE GOODS AND SERVICES, DAMAGES FOR LOSS OF DATA, LOSS OF
USE OF COMPUTER HARDWARE, DOWNTIME, LOSS OF GOODWILL, LOSS OF BUSINESS OR
COMPUTER HARDWARE MALFUNCTION, EVEN IF ASC HAS BEEN ADVISED OF THE POSSIBILITY
OF SUCH DAMAGES. SOME STATES DO NOT ALLOW THE EXCLUSION OR LIMITATION OF
INCIDENTAL OR CONSEQUENTIAL DAMAGES, SO THE ABOVE LIMITATION OR EXCLUSION MAY
NOT APPLY TO CUSTOMER.
<PAGE>
8. HARDWARE MAINTENANCE
Each manufacturer reserves the right to determine whether or not
maintenance will be provided to each installation. Customer is solely
responsible for securing maintenance services for Hardware.
<PAGE>
Part G -- GENERAL TERMS AND CONDITIONS
1. ASC EXPENSES
Unless otherwise specifically stated in this Agreement, charges for all
products delivered and services rendered are exclusive of any incidental
expenses which may be incurred by ASC. Customer shall reimburse ASC for all
usual and ordinary expenses, including but not limited to travel, hotel
accommodations, meals, tips, telephone, local transportation, parking, supplies,
data media, shipping charges, insurance and the like, incurred by ASC in the
course of performance of its duties under the terms of this Agreement. All
expenses shall be justified as actually and necessarily expended in connection
with products and/or services acquired by Customer under the terms of this
Agreement, and evidenced by receipts or other documentation upon request by
Customer.
2. ACCESS TO CUSTOMER
Customer agrees to designate one person satisfactory to ASC to represent
Customer and to coordinate materials and personnel during the term of this
Agreement. Customer shall allow ASC access to sufficient competent source
personnel and any source materials necessary to carry out its obligations, which
source materials shall remain the property of Customer. ASC shall regard any
Customer source data it receives as confidential, and will not make Customer
source materials available to third parties without the prior written consent of
Customer.
3. ACCESS TO CUSTOMER PREMISES
Customer agrees to provide ASC sufficient space at Customer premises during
normal working hours so that ASC may carry out its obligations under the terms
and conditions of this Agreement. Customer also agrees that ASC personnel may
enter Customer premises periodically with prior notice to Customer to inspect
the Licensed Software and the hardware on which the Licensed Software is
installed, for the purposes of testing, modifying, updating, monitoring
confidentiality and the like. Further, Customer agrees to allow ASC to
demonstrate the Licensed Software installed on Customer computer at Customer
premises from time to time, provided that ASC shall provide reasonable prior
notice to Customer, and that said demonstration shall take place at times which
will not unreasonably interfere with Customer use of ASC products and services.
4. ACCESS TO ASC
ASC agrees to designate one person satisfactory to Customer to represent
ASC and to help coordinate materials and personnel during the term of this
Agreement. ASC shall assign its personnel to fulfill its obligations under the
terms of this Agreement consistent with the best interest of Customer and with
the then current availability of ASC and/or subcontractor personnel. ASC shall
endeavor at all times to perform in a timely manner. However, ASC shall not be
liable for non-performance or delays due to fire, strike, lockout, governmental
order or regulation, delay in transportation, delay by manufacturer, or any
other cause which is beyond the reasonable control of ASC.
5. TAXES
All charges are exclusive of all federal, state, municipal, or other
political subdivision, excise, sales, use, property, occupational, or like taxes
now in force or enacted in the future, and are therefore subject to an increase
equal in the amount of any such tax ASC may be required to collect or pay upon
the sale or delivery of the products or service purchased or licensed hereunder.
If a certificate of exemption or similar document or proceeding is to be made in
order to exempt the transaction from any tax liability, Customer will provide
ASC such certificate or document or initiate such proceeding. Customer shall
not be responsible for payment of taxes based on ASC net income.
6. PAYMENT TERMS
Unless otherwise notified by ASC, Customer will make all payments directly
to ASC. If Customer fails to pay any charge within thirty (30) days of when
said charge becomes due and payable, it agrees that ASC will have the right to
invoice and Customer will pay a late payment charge of the lesser of (i) one and
one-half percent (1.5%) of the outstanding balance per month, or (ii) the
maximum interest rate allowed at law. If delivery of any ASC product or service
is delayed by Customer, payment shall become due and payable from the date when
ASC is prepared to make delivery. In the event of such delay, ASC shall be free
to invoice Customer, and Customer agrees to pay for any additional expenses
incurred by ASC, including but not limited to increased costs of labor,
<PAGE>
materials, equipment, and the like. Products held for Customer because of such
delay by Customer shall be at the risk and expense of Customer. Customer shall
reimburse ASC for all costs and expenses, including reasonable attorney's fees
incurred by ASC to enforce collection of any monies due from Customer. Payments
may be made by a third party leasing company with written permission of ASC,
whose permission will not be unreasonably withheld.
7. TERMINATION
This Agreement shall terminate immediately and automatically upon the
occurrence of any one of the following: (i) Customer assigns this Agreement or
any of its rights hereunder without the prior written consent of ASC, or (ii) if
any assignment is made of Customer business for the benefit of creditors, or if
a receiver, trustee in bankruptcy or similar officer is appointed to take charge
of all or part of Customer property, or if Customer is adjudicated a bankrupt.
Further, ASC shall have the right to terminate this Agreement if Customer shall
neglect or fail to perform any of its obligations to ASC, including but not
limited to the timely payment of license fees and any other sums due ASC, and
said Customer breach remains uncured for thirty (30) days after written notice
from ASC of said breach. The obligations and remedies of the parties regarding
proprietary rights and confidentiality which are set forth in this Agreement
shall survive termination or expiration of this Agreement.
8. MERGER
This Agreement, and any specified attachment, or exhibits attached,
constitute the entire agreement between ASC and Customer. All promises,
representations, understandings, and agreements with respect to the subject
matter hereof, and inducements to the making of this Agreement relied upon by
either party, have been expressed herein, and may be altered, amended, modified
only in writing executed by the parties hereto.
9. JURISDICTION
This Agreement shall be interpreted and enforced pursuant to the laws of
the State of Ohio. In the event any party retains legal counsel to enforce any
of the provisions of this Agreement, the party against whom judgment is made
agrees to pay all reasonable costs and attorney's fees and expenses, including
but not limited to costs, fees, and expenses of collecting such judgment.
10. ARBITRATION
Any dispute or question arising hereunder which the parties are unable to
settle between themselves shall be submitted to binding arbitration according to
the rules of the American Arbitration Association as then established and
practiced in Cleveland, Ohio. Judgment upon any award made in such arbitration
may be entered and enforced in any court of competent jurisdiction.
11. SEVERABILITY
If any term, covenant, condition or provision, or portion thereof, of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remaining provisions of this Agreement shall be in full force
and effect and shall in no way be affected, impaired or invalidated.
12. ASSIGNMENT
This Agreement shall inure to the benefit of, and be binding upon, any
successor to all, or substantially all, of the business and assets of such
party, whether by merger, sale of assets, or other agreements or operation of
law. Except as provided herein, neither party shall assign this Agreement or
any right or interest under this Agreement, nor delegate any work or obligation
to be performed under this Agreement, without the other party's prior written
consent. Any attempted assignment or delegation in contravention of this
Section shall be void and ineffective.
13. NO IMPLIED WAIVERS
The failure of either party to enforce at any time any of the provisions
hereof shall not be a waiver of such provision, or any other provision, or of
the right of such party thereafter to enforce any provision hereof.
<PAGE>
14. FORCE MAJEURE
Neither party shall be liable for damages for any delay or failure of
delivery arising out of causes beyond their reasonable control and without their
fault or negligence, including, but not limited to, Acts of God, acts of civil
or military authority, fires, riots, wars, or embargoes.
<PAGE>
ADDENDUM
This Addendum, entered into on this 20th day of December, 1996, amends the
License, Services, and Purchase Agreement ("the Agreement") of even date
herewith made by and between Pan American Bank, FSB ("Customer"), and Associated
Software Consultants, Inc. ("ASC"). All terms of the Agreement remain in full
force and effect and this Addendum serves to modify the Agreement only as shown
herein. Where the terms of this Addendum conflict with the terms of the
Agreement, the terms of this Addendum supersede the terms of the Agreement.
Part L -- Software License
A) Delete "ninety (90) days" from Section 5.l and replace it with the
following:
"one (1) year"
B) Delete "not provided by ASC" from Section 5.2 and replace it with the
following:
"not provided or approved by ASC"
C) Delete Section 5.4 in its entirety and replace it with the following:
"5.4 Proprietary Rights Warranty and Indemnification. ASC represents and
warrants that ASC has the authority to license the rights to the Licensed
Software that are granted herein. ASC shall defend, indemnify, and hold
Customer harmless from any final award of costs and damages against
Customer for any action based on (i) the lack of right or authority to
license the Licensed Software, or (ii) infringement of any copyright, trade
secret, or patent as a result of the use of a current copy of the Licensed
Software, unmodified by Customer (however Customer may use the Licensed
Software to modify the contents of associated data files). ASC's
performance of the above shall be at ASC's expense. The foregoing is
provided that ASC is promptly notified in writing of any such suit or
claim, and further provided that Customer permits ASC to defend,
compromise, or settle same, and provides all available information and
reasonable assistance to enable ASC to do so. The foregoing is exclusive
and states the entire liability of ASC with respect to infringements or
misappropriation of any Proprietary Rights by the Licensed Software."
D) Delete Section 5.5 in its entirety and replace it with the following:
"5.5 Limitation of Damages. ASC'S ENTIRE LIABILITY FOR MONEY DAMAGES
ARISING OUT OF THIS AGREEMENT AND/OR THE LICENSING OF THE LICENSED SOFTWARE
SHALL BE LIMITED TO THE LICENSE AND OTHER FEES PAID BY CUSTOMER UNDER THIS
AGREEMENT."
(cont'd on next page)
<PAGE>
(Addendum, Page Two of Two)
Part G -- General Terms and Conditions
A) Delete the last sentence of Section 3 and replace it with the following:
"Further, ASC desires to demonstrate the Licensed Software installed on
Customer computer at Customer premises from time to time. Customer is
solely authorized to permit such demos, but will not unreasonably withhold
its permission. Further, Such demonstrations shall take place at times
which will not unreasonably interfere with Customer use of ASC products and
services."
B) Delete the first sentence of Section 7 and replace it with the following:
"This Agreement shall terminate immediately and automatically if any
assignment is made of Customer business for the benefit of Creditors, or if
a receiver, trustee in bankruptcy or similar officer is appointed to take
charge of all or part of Customer property, or if Customer is adjudicated a
bankrupt."
ALL PARTIES ACKNOWLEDGE THAT THEY HAVE READ AND FULLY UNDERSTAND THIS ADDENDUM
AND HEREBY AGREE TO THE TERMS HEREOF.
for Customer: for ASC:
Pan American Bank, FSB Associated Software Consultants, Inc.
/s/ ROBERT WILSON /s/ TIMOTHY W. LISTON
________________________________ ___________________________________
Timothy W. Liston, Vice President
Robert Wilson/EVP
________________________________
print name and title
<PAGE>
EXHIBIT 10.26
Agreement For Remote Computing Services
Pan American Bank, F.S.B.
April 4, 1995
FIserv Fresno, Inc.
885 S. Village Oaks Drive
Covina, CA 91724
<PAGE>
AGREEMENT FOR REMOTE COMPUTING SERVICES
FIserv Fresno, Inc.
885 South Village Oaks Drive
Covina, CA 91724
- --------------------------------------------------------------------------------
Client's Name: Pan American Bank, F.S.B.
- --------------------------------------------------------------------------------
Street Address: 1300 S. El Camino Real, 6th Floor, San Mateo, CA 94402-9957
- --------------------------------------------------------------------------------
Mailing Address: 1300 S. El Camino Real, 6th Floor
- --------------------------------------------------------------------------------
City: San Mateo State: CA Zip: 94402-9957
- --------------------------------------------------------------------------------
Agreement No.: Effective Date: April 1, 1995
- --------------------------------------------------------------------------------
Agreement Term: 1 Year Est. Conversion Date: NA
- --------------------------------------------------------------------------------
Agreement for Remote Computing Services
THIS AGREEMENT, CONSISTING OF THIS SUMMARY PAGE AND ALL ATTACHMENTS LISTED
ABOVE, CONSTITUTES THE COMPLETE AND EXCLUSIVE UNDERSTANDING OF THE PARTIES WITH
RESPECT TO THE SUBJECT MATTER COVERED BY ITS CONTENTS AND SUPERSEDES ANY PRIOR
UNDERSTANDINGS OR AGREEMENTS WITH RESPECT THERETO. THIS AGREEMENT MAY NOT BE
MODIFIED OR AMENDED EXCEPT BY A WRITTEN INSTRUMENT DULY EXECUTED BY BOTH
PARTIES. BY THEIR EXECUTION BELOW, EACH PARTY SIGNIFIES THAT IT HAS READ THIS
AGREEMENT IN FULL, UNDERSTANDS IT AND ACCEPTS ALL TERMS AND CONDITIONS CONTAINED
HEREIN.
PAN AMERICAN BANK, F.S.B.: FISERV FRESNO, INC.:
/s/ LAWRENCE J. GRILL /s/ [SIGNATURE ILLEGIBLE]
_______________________________ _____________________________
By By
President Vice President
_______________________________ _____________________________
Title Title
/s/ [SIGNATURE ILLEGIBLE]
_______________________________
By
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<PAGE>
Senior Vice President
_______________________________
Title
ATTACHMENTS:
(1) Terms & Conditions-
3
<PAGE>
1. SERVICES
--------
(a) FIserv Fresno, Inc. agrees to furnish to Client and Client agrees to obtain
from FIserv Fresno, Inc. all of Client's requirements for remote computing
services as initially selected by Client from the Product and Price
Schedule. Additional services may be selected upon prior written notice to
FIserv Fresno, Inc. at FIserv Fresno, Inc.'s then current list price by
executing an amended Summary Page and revised Product and Price Schedule.
(b) FIserv Fresno, Inc. will provide conversion and training services for the
fees specified on the Summary Page. Classroom training in the use and
operation of the system for the number of Student/days designated on the
Summary Page will be provided at a training facility designated by FIserv
Fresno, Inc. Fees for training do not include travel, lodging and like
expenses of Client personnel at the training facility. Conversion services
are those activities designed to transfer the processing of Client's data
from its present data processing servicer to the FIserv Fresno, Inc.
system. Conversion services are provided pursuant to a written conversion
plan executed by FIserv Fresno, Inc. and Client and which is hereby
incorporated by reference into this Agreement. The Conversion Plan shall be
based upon the allocation of responsibilities contained in the Conversion
and Training Activities Schedule.
(c) FIserv Fresno, Inc. will also provide Network Support Service consisting of
communication line monitoring and diagnostic equipment and support
personnel to discover, diagnose, repair or report line problems to the
appropriate telephone company. The fee for this service is also listed on
the Summary Page.
(d) FIserv Fresno, Inc. shall upon request act as Client's designated
representative to arrange for the purchase and installation of data lines
necessary to access the FIserv Fresno, Inc. system. Where requested,
additional dial-up lines and equipment to be utilized as a back up to the
regular data lines may also be ordered. FIserv Fresno, Inc. shall bill
Client for the actual charges incurred for the data lines and for the
maintenance of the modems and other interface devices. FIserv Fresno, Inc.
shall add to these charges an administrative fee of eight percent (8%).
2. TERM
----
The Agreement Term shall commence on the Effective Date listed on the Summary
Page and shall continue for the number of months listed on the Summary Page
beginning at the Estimated Conversion Date or on the actual date of conversion,
whichever occurs last. Upon expiration, the Agreement will automatically renew
for successive terms of twelve (12) months unless either party shall have
provided
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<PAGE>
written notice to the other one-hundred eighty (180) days prior to expiration of
its intent not to renew.
3. EQUIPMENT
---------
(a) If Client is purchasing equipment from FIserv Fresno, Inc., such equipment
shall be described on the Equipment List. Client understands that FIserv
Fresno, Inc. is acting as an independent sales organization representing
each manufacturer or supplier ("Manufacturer") identified on the Equipment
List.
(b) Client also understands and agrees that FIserv Fresno, Inc.'s ability to
obtain the Equipment may be subject to availability and to delays due to
causes beyond FIserv Fresno, Inc.'s reasonable control. FIserv Fresno,
Inc. shall promptly place any orders submitted under this Agreement with
each Manufacturer and shall, at Client's direction, request expedited
delivery whenever available.
4. SOFTWARE/FIRMWARE
-----------------
Third party software or firmware ("Software") may also be supplied as part of
this Agreement. Where so noted, FIserv Fresno, Inc. agrees to sublicense to
Client the Software products described on the Equipment List on any Third Party
Software Licenses attached to this Agreement.
5. PRICE AND PAYMENT
-----------------
(a) Fees for FIserv Fresno, Inc. services and for any Equipment or Software are
set forth on the Product and Price Schedule, including where applicable
minimum monthly charges and payment schedules for one time fees. Client
shall make payment to FIserv Fresno, Inc. by check or wire transfer
received by FIserv Fresno, Inc. within fifteen (15) days of FIserv Fresno,
Inc.'s invoice date. Overdue invoices are subject to a late charge of one
and one-half percent (1-1/2%) per month.
(b) Estimated Standard Fees shall be invoiced in advance on the first of each
month. Adjustments will be made based upon actual transaction volumes on
successive monthly invoices.
(c) The Standard Services Fees listed on the Product and Price Schedule may be
changed annually after the first anniversary of the Conversion Date upon
sixty (60) days written notice to Client. Each change shall be limited to
three percent (3%). It is also agreed and understood that FIserv Fresno,
Inc. may increase its price in excess of this limit when it implements
major system enhancements to comply with changes in government regulation.
5
<PAGE>
(d) The above limitation shall not apply to Optional Services Fees, Network
Support Fees, Communications Management Fees or to microfiche, courier or
Pass-through Expenses. A Pass-through Expense is a charge for goods or
services obtained by FIserv Fresno, Inc. on Client's behalf which are to be
billed to Client at cost plus FIserv Fresno, Inc. administrative fee. Fees
referenced in this paragraph 5(d) may be changed upon ninety (90) days
written notice.
(e) FIserv Fresno, Inc. shall add to each invoice and Client shall pay any
Federal, State or local sales, use, excise or similar taxes applicable to
the services provided to Client. In no event shall Client be responsible
for taxes based upon the net income of FIserv Fresno, Inc.
(f) The fees listed on the Summary Page and on the Product and Price Schedule
do not include and Client is responsible for furnishing transportation or
transmission of information between FIserv Fresno, Inc. data center,
Client's site and any applicable clearing house, regulatory agency or
Federal Reserve Bank. Where Client has elected to have FIserv Fresno, Inc.
provide Communications Management Services, the price for the Services will
be provided on the Summary Page.
(g) Network Support Service Fees and Local Network Fees are based upon services
rendered from FIserv Fresno, Inc.'s premises. Off-premise support will be
provided upon Client's request on an as available bases at FIserv Fresno,
Inc.'s then current charges for time and materials, plus reasonable travel
and living expenses.
6. DELIVERY AND INSTALLATION
-------------------------
FIserv Fresno, Inc. shall arrange for delivery of the Equipment to the
Installation Site designated on the Equipment List on or about the Delivery Date
requested by Client. In the absence of shipping instructions, FIserv Fresno,
Inc. shall select a common carrier on behalf of Client. FIserv Fresno, Inc.
shall arrange for the installation of the items of Equipment in consideration of
the Installation Fees listed on the Summary Page. Client shall not perform any
installation activities without the written consent of FIserv Fresno, Inc.
FIserv Fresno, Inc. or its designee shall have full and free access to the
Equipment and the Installation Site until installation has been completed. If a
suitable installation environment has not been provided by Client, then FIserv
Fresno, Inc. shall be required to perform only as many normal installation
procedures as it deems to be practicable within the available facilities.
Installation of Equipment will take place during FIserv Fresno, Inc.'s normal
business hours, Monday through Friday, exclusive of FIserv Fresno, Inc.
holidays, unless otherwise agreed by FIserv Fresno, Inc.
6
<PAGE>
7. SHIPMENT AND RISK OF LOSS
-------------------------
All prices shown on the Equipment List are F.O.B. at the Manufacturer's plant.
All transportation, rigging, drayage, insurance, and other costs of delivery of
the Equipment to the Installation Site shall be itemized on FIserv Fresno,
Inc.'s invoice and shall be paid by Client. Risk of loss shall pass to Client
upon shipment.
8. TITLE TO EQUIPMENT
------------------
(a) Title to the Equipment shall remain with the Manufacturer until all
payments for the Equipment have been made by Client and, until such time,
Client agrees that it shall not sell, transfer, pledge or otherwise dispose
of the Equipment without the prior written consent of FIserv Fresno, Inc.
(b) Client grants to FIserv Fresno, Inc. a security interest in all the
Equipment and the proceeds thereof until the purchase price due FIserv
Fresno, Inc. shall have been paid in full. Client shall execute any
instruments or documents FIserv Fresno, Inc. deems appropriate to protect
the security interest and, in any event, a copy of this Agreement may be
filed at any time after signature by FIserv Fresno, Inc. as a financing
statement for that purpose. In the event of default in payment or other
breach by Client, FIserv Fresno, Inc. shall have all rights and remedies of
a secured creditor upon default as provided by applicable law. FIserv
Fresno, Inc. shall, at its sole expense, file releases for any financing
statements recorded pursuant to this Agreement promptly upon receipt of
final payment.
9. CLIENT OBLIGATIONS
------------------
(a) Client shall be solely responsible for the input, transmission or delivery
of all information and data required by FIserv Fresno, Inc. to perform the
services except where Client has retained FIserv Fresno, Inc. to handle
such responsibilities on its behalf. The data shall be provided in a
format and manner approved by FIserv Fresno, Inc. Client will provide at
its own expense or procure from FIserv Fresno, Inc. all equipment, computer
software, communication lines and interface devices required to access the
FIserv Fresno, Inc. System. If Client has elected to provide such items
itself, FIserv Fresno, Inc. shall provide Client with a list of compatible
equipment and software.
(b) Client shall designate appropriate Client personnel for training in the use
of the FIserv Fresno, Inc. System, shall supply FIserv Fresno, Inc. with
reasonable access to Client's site during normal business hours for
conversion and shall cooperate with FIserv Fresno, Inc. personnel in the
conversion and implementation of the services.
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<PAGE>
(c) Client shall comply with any operating instructions on the use of the
FIserv Fresno, Inc. system provided by FIserv Fresno, Inc., shall review
all reports furnished by FIserv Fresno, Inc. for accuracy and shall work
with FIserv Fresno, Inc. to reconcile any out of balance conditions. Client
shall determine and be responsible for the authenticity and accuracy of all
information and data submitted to FIserv Fresno, Inc.
(d) Client shall furnish, or if FIserv Fresno, Inc. agrees to so furnish,
reimburse FIserv Fresno, Inc. for any special forms, supplies, microfiche
or courier services applicable to the services requested.
(e) Client's shall provide a suitable installation environment for the
Equipment as specified in the applicable installation manual and any and
all other specifications provided to Client by the Manufacturer or FIserv
Fresno, Inc. Client shall also be responsible for furnishing all labor
required for unpacking and placing each item of Equipment in the desired
location for installation. Client shall be responsible for physical
planning including, but not limited to, floor planning, cable requirements
and safety requirements in accordance with the installation manual and any
and all applicable building, electrical or other codes, regulations or
requirements. All such physical planning shall be completed on or before
the delivery date for the Equipment.
10. GENERAL ADMINISTRATION
----------------------
FIserv Fresno, Inc. is continually reviewing and modifying the FIserv Fresno,
Inc. system to improve service and to comply with federal government regulations
applicable to the data utilized in providing services to Client. FIserv Fresno,
Inc. reserves the right to make changes in the service, including but not
limited to operating procedures, security procedures, the type of equipment
resident at and the location of FIserv Fresno, Inc.'s data center. FIserv
Fresno, Inc. will provide Client with written notice of changes which materially
affect Client's procedures, reporting or service costs at a reasonable time
prior to implementation of the change.
11. CLIENT CONFIDENTIAL INFORMATION
-------------------------------
(a) FIserv Fresno, Inc. shall treat all information and data relating to
Client's business provided to FIserv Fresno, Inc. by Client, or information
relating to Client's Customers, as confidential and shall safeguard
Client's information with the same degree of care used to protect FIserv
Fresno, Inc. confidential information. FIserv Fresno, Inc. and Client
agree that master and transaction data files are owned by and constitute
property of Client. Client data and records
8
<PAGE>
shall, be subject to regulation and examination by State and Federal
supervisory agencies to the same extent as if such information were on
Client's premises.
(b) FIserv Fresno, Inc. shall maintain adequate backup procedures including
storage of duplicate record files as necessary to reproduce Client's
records and data. In the event of a service disruption due to reasons
beyond FIserv Fresno, Inc.'s control, FIserv Fresno, Inc. shall use
diligent efforts to mitigate the effects of such an occurrence.
12. FISERV FRESNO, INC. CONFIDENTIAL INFORMATION
--------------------------------------------
(a) Client shall not use or disclose to any third persons any confidential
information concerning FIserv Fresno, Inc. FIserv Fresno, Inc.
confidential information is that which relates to FIserv Fresno, Inc.'s
software, systems, research, development, trade secrets or business affairs
(or that of FIserv Fresno, Inc.'s customers, suppliers or affiliates)
including, but not limited to, the terms and conditions of this Agreement
but does not include information in the public domain through no fault of
Client. Client's obligations under this Section 12 shall survive the
termination or expiration of this Agreement.
(b) FIserv Fresno, Inc.'s system contains information and computer software
which is proprietary and confidential information of FIserv Fresno, Inc.,
its suppliers and licensors. Client agrees not to attempt to circumvent
the devices employed by FIserv Fresno, Inc. to prevent unauthorized access
to FIserv Fresno, Inc. system.
13. ACCEPTANCE
----------
The Equipment or Software shall be deemed to have been accepted when it has
passed FIserv Fresno, Inc. or the Manufacturer's standard post-installation test
procedures at the Installation Site.
14. WARRANTIES
----------
(a) FIserv Fresno, Inc. warrants that (i) it will accurately process Client's
work provided that Client supplies accurate data and follows the procedures
described in FIserv Fresno, Inc. user manuals, notices and advises, and
(ii) FIserv Fresno, Inc. personnel will exercise due care in the processing
of Client's work, and (iii) FIserv Fresno, Inc.'s system will comply in all
material respects with all applicable Federal regulations governing the
Services. In the event of an error or other default caused by FIserv
Fresno, Inc.'s personnel, systems or equipment, FIserv Fresno, Inc. shall
correct the data and/or reprocess the affected report at no additional cost
to Client. Client agrees to supply FIserv Fresno, Inc. with a written
9
<PAGE>
request for correction of the error within seven (7) business days after
Client's receipt of the work containing the error. Work reprocessed due to
errors in data supplied by Client or by Client's failure to follow FIserv
Fresno, Inc. procedures shall be billed to Client at FIserv Fresno, Inc.'s
then current time and material rates.
(b) FIserv Fresno, Inc. warrants that it is the owner of or has a license to
furnish all Equipment or software comprising FIserv Fresno, Inc.'s system.
FIserv Fresno, Inc. shall indemnify Client and hold it harmless against any
claim or action which alleges that the use of FIserv Fresno, Inc.'s system
infringes a United States patent, copyright or other proprietary right of a
third party. Client agrees to notify FIserv Fresno, Inc. promptly of any
such claim and grants to FIserv Fresno, Inc. sole right to control the
defense and disposition of all such claims. Client shall provide FIserv
Fresno, Inc. with reasonable cooperation and assistance in the defense of
any such claim.
(c) FIserv Fresno, Inc. warrants that Client will acquire good and clear title
to the Equipment free and clear of all liens and encumbrances. FIserv
Fresno, Inc. hereby assigns to Client all warranties which the Manufacturer
has granted to FIserv Fresno, Inc. with respect to the Equipment or
Software as set forth on the Equipment List. Client hereby agrees to all
of the terms and conditions applicable to those warranties and acknowledges
that:
(i) neither the Manufacturer or FIserv Fresno, Inc. warrants that the use
of the Equipment or Software will be uninterrupted or error free; and
(ii) Manufacturer's warranties, and the assignment of such warranties by
FIserv Fresno, Inc. to Client, shall not impose any liability on FIserv Fresno,
Inc. due to the services or assistance provided to Client by FIserv Fresno, Inc.
with respect thereto.
(d) THERE ARE NO OTHER WARRANTIES WITH RESPECT TO ANY OF THE SERVICES OR
PRODUCTS AND FISERV FRESNO, INC. DISCLAIMS ALL OTHER WARRANTIES, EXPRESS
OR IMPLIED, INCLUDING BUT NOT LIMITED TO ANY IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
(e) Client shall indemnify and hold harmless FIserv Fresno, Inc. against any
claims or action arising out of (i) the use by Client of the FIserv Fresno,
Inc. System in a manner other than that provided in this Agreement or in
the operating instructions supplied by FIserv Fresno, Inc. to Client, and
(ii) any and all claims by third parties through Client arising out of the
performance or non-performance of services by FIserv Fresno, Inc. provided
--------
that the indemnity listed
----
10
<PAGE>
in (ii) hereof shall not preclude Client's recovery of direct damages
pursuant to the terms and subject to the limitations of this Agreement.
15. LIMITATION OF LIABILITY
-----------------------
IN NO EVENT SHALL FISERV FRESNO, INC. BE LIABLE FOR LOSS OF GOODWILL, OR FOR
SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING FROM CLIENT'S USE
OF FISERV FRESNO, INC.'S SERVICES OR FISERV FRESNO, INC.'S SUPPLY OF EQUIPMENT
OR SOFTWARE, REGARDLESS OF WHETHER SUCH CLAIM ARISES IN TORT OR IN CONTRACT.
CLIENT MAY NOT ASSERT ANY CLAIM AGAINST FISERV FRESNO, INC. MORE THAN TWO (2)
YEARS AFTER SUCH CLAIM ACCRUED. FISERV FRESNO, INC.'S AGGREGATE LIABILITY FOR
ANY AND ALL CAUSES OF ACTION RELATING TO SERVICES SHALL BE LIMITED TO THE TOTAL
FEES PAID BY CLIENT TO FISERV FRESNO, INC. IN THE SIX (6) MONTH PERIOD PRECEDING
THE DATE THE CLAIM ACCRUED. FISERV FRESNO, INC.'S AGGREGATE LIABILITY FOR A
DEFAULT RELATING TO EQUIPMENT OR SOFTWARE SHALL BE LIMITED TO THE AMOUNT PAID
FOR THE EQUIPMENT OR SOFTWARE.
16. PERFORMANCE STANDARDS
---------------------
(a) ON-LINE AVAILABILITY - FIserv Fresno, Inc.'s standard of performance shall
be on-line availability of the system (exclusive of telecommunications and
terminals) 98% of the time that it is scheduled to be so available over a
three month period (the "Measurement Period"). Actual on-line performance
will be calculated monthly by comparing the number of hours which the
system was scheduled to be operational on an on-line basis exclusive of
preventive maintenance and scheduled maintenance, with the number of hours,
or a portion thereof, it was actually operational on an on-line basis.
Hours of on-line operation are listed for reference on the Product and
Price Schedule. Downtime may be caused by operator error, hardware
malfunction or failure, or environmental failures such as loss of power or
air conditioning. Downtime caused by reasons beyond FIserv Fresno, Inc.'s
control should not be considered in the statistics.
(b) REPORT AVAILABILITY - FIserv Fresno, Inc.'s standard of performance for
report availability shall be that, over a three month period, 95% of all
Critical Daily Reports shall be available for remote printing on time
without significant errors. A Critical Daily Report shall mean priority
group reports which FIserv Fresno, Inc. and Client have mutually agreed in
writing are necessary to properly account for the previous day's activity
and properly notify Client of overdraft, NSF or return items. The agreed
upon Critical Reports shall be listed on an exhibit attached to the Final
conversion plan. A significant error is one which impacts Client's ability
to properly account for the previous days activity and/or properly
11
<PAGE>
account for overdraft, NSF or return items. Actual performance will be
calculated monthly by comparing the total number of Client reports
scheduled to be available from FIserv Fresno, Inc. to the number of reports
which were available on time and without error.
(c) RESPONSE TIME - FIserv Fresno, Inc.'s standard of performance for response
time shall be that the average total response time for the central
processor to receive a transaction from the communications controller at
FIserv Fresno, Inc.'s data center, process that transaction and return the
answer to the controller shall be two (2) seconds or less as determined
from measurements taken over a three month period. A transaction shall
mean a basic deposit, withdrawal or single inquiry application. The
measurement shall begin when the last data element has been transmitted
from and shall end when the first data element has been received at the
controller. FIserv Fresno, Inc. will log and retain a record of response
time maintaining appropriate analytical reports.
(d) PERFORMANCE TARGET FOR RESPONSE TIME - FIserv Fresno, Inc. and Client shall
work toward the establishment of a standard for "end user" response time
which will measure the total elapsed clock time from the entry of a
transaction (as defined and measured above) at a teller terminal to the
first response from the host processor to the teller terminal.
Transmission shall be made using telecommunications lines and terminals
which meet FIserv Fresno, Inc.'s specifications. The target standard shall
be four seconds or less. Notwithstanding that this standard is merely a
target, if transactions so measured regularly exceed six seconds, FIserv
Fresno, Inc. shall identify the cause and utilize reasonable efforts to
bring performance back within the target standard. Client shall provide
its reasonable assistance and cooperation to FIserv Fresno, Inc. in
implementing and measuring this performance target.
(e) EXCLUSIVE REMEDY - In the event that FIserv Fresno, Inc.'s performance
fails to meet the standards listed in this Section 16 and such failure is
not the result of Client's error or omission, Client's sole and exclusive
remedy for such default shall be the right to terminate this Agreement in
accordance with the provisions of this paragraph. In the event that FIserv
Fresno, Inc. fails to achieve any Performance Standard, alone or in
combination, for the proscribed measurement period, Client shall notify
FIserv Fresno, Inc. of its intent to terminate this Agreement if FIserv
Fresno, Inc. fails to restore performance to the committed levels. FIserv
Fresno, Inc. shall advise Client promptly upon correction of the system
deficiencies (in no event shall corrective action exceed sixty (60) days
from the notice date) and shall begin an additional measurement period.
Should FIserv Fresno, Inc. fail to achieve the required Performance
Standard during the remeasurement period, Client may terminate this
Agreement and FIserv Fresno, Inc. shall cooperate with Client to achieve an
orderly transition to Client's
12
<PAGE>
replacement processing system. Client may also terminate this Agreement if
FIserv Fresno, Inc.'s performance for the same standard is below the
relevant performance standard for more than two measurement periods in any
consecutive twelve months or for more than five measurement periods during
the term of this Agreement. During the period of transition, Client shall
pay only such charges as are incurred for monthly fees until the date of
deconversion. FIserv Fresno, Inc. shall not charge Client for services
relating to Client's deconversion. In no event shall FIserv Fresno, Inc. be
liable to Client for damages of any nature arising solely from FIserv
Fresno, Inc.'s failure to meet the Performance Standards required under
this Agreement.
17. DISASTER RECOVERY
-----------------
(a) A Disaster shall mean any unplanned interruption of the operations of or
inaccessibility to FIserv Fresno, Inc.'s data center which appears in
FIserv Fresno, Inc.'s reasonable judgment to require relocation of
processing to an alternative site. FIserv Fresno, Inc. shall notify Client
as soon as possible after it deems a service outage to be a Disaster.
FIserv Fresno, Inc. shall move the processing of Client's standard on line
services to an alternative processing center as expeditiously as possible
and shall coordinate the cutover to back up data lines with the appropriate
carriers. Client shall maintain adequate records of all transactions
during the period of service interruption and shall have personnel
available to assist FIserv Fresno, Inc. in implementing the switchover to
the alternative processing site. During a Disaster, optional or on-request
services shall be provided by FIserv Fresno, Inc. only to the extent that
there is adequate capacity at the alternate center and only after
stabilizing the provision of base on-line services.
(b) FIserv Fresno, Inc. shall work with Client to establish a plan for
alternative data communications in the event of a Disaster. Client shall
be responsible for furnishing any additional communications equipment and
data lines required under the adopted plan.
(c) FIserv Fresno, Inc. shall test its Disaster Recovery Services Plan by
conducting one annual test, which shall be a surprise test. Client agrees
to participate in and assist FIserv Fresno, Inc. with such testing. Test
results will be made available to Client's regulators, internal and
external auditors, and (upon request) to Client's insurance underwriters.
(d) Client understands and agrees that the FIserv Fresno, Inc. Disaster
Recovery Plan is designed to minimize but not eliminate risks associated
with a Disaster affecting FIserv Fresno, Inc.'s data center. FIserv
Fresno, Inc. does not warrant that service will be uninterrupted or error
free in the event of a Disaster.
13
<PAGE>
Client maintains responsibility for adapting a disaster recovery plan
relating to disasters affecting Client's facilities and for securing
business interruption insurance or other insurance as necessary to properly
protect Client's revenues in the event of a disaster.
18. TERMINATION OR EXPIRATION
-------------------------
(a) In the event that Client is either thirty (30) days in arrears in making
any payment required or in the event Client deconverts any Core Service
without the prior written consent of FIserv, or in the event of any other
material default by either FIserv Fresno, Inc. or Client in the performance
of their obligations, the affected party shall have the right to give
written notice to the other of the default and its intent to terminate this
Agreement stating with reasonable particularity the nature of the claimed
default. This Agreement shall terminate if the default has not been cured
within a reasonable time with a minimum being thirty (30) days from the
effective date of the notice.
(b) Client understands and agrees that FIserv Fresno, Inc.'s losses resulting
from a Client default or early termination of the Agreement would be
difficult or impossible to calculate as of the Effective Date since they
will vary based upon, among other things, the number of clients using the
FIserv Fresno, Inc. system on the date the Agreement terminates. Client
therefore agrees to pay and FIserv Fresno, Inc. agrees to accept as
liquidated damages (and not as a penalty) for any such Client default or
early termination, a sum computed by multiplying (i) the average of the
Total Monthly Fees payable by Client in the three months prior to the
default or termination and (ii) the number of months remaining in the
unexpired Term and (iii) seventy five percent (75%).
(c) Upon the expiration of this Agreement, or its termination due to FIserv
Fresno, Inc.'s business termination, FIserv Fresno, Inc. shall furnish to
Client such copies of Client's data files as Client may request in machine
readable format form along with such other information and assistance as or
is reasonable and customary to enable Client to deconvert from the FIserv
Fresno, Inc. system. Client shall reimburse FIserv Fresno, Inc. for the
production of data records and other services at FIserv Fresno, Inc.'s
current fees for such services.
19. ARBITRATION
-----------
(a) Except with respect to disputes arising from the disclosure of Confidential
Information of either party, or from a misappropriation or infringement of
FIserv Fresno, Inc.'s proprietary rights in its systems and software, all
disputes or controversies arising out of or relating to this agreement, or
the breach thereof, shall be settled by arbitration to be held in the City
of Los Angeles, California in
14
<PAGE>
accordance with the Commercial Rules of the American Arbitration
Association. Judgment upon the award rendered by the Arbitrator(s) may be
entered in any court having jurisdiction over the parties.
(b) The prevailing party in any action brought to enforce any provision of this
Agreement, whether or not such action is brought under this Section 19,
shall, in addition is any other remedy available at law or in equity, be
entitled to reimbursement of all costs and expenses related to such action
including, but not limited to, its reasonable attorneys fees.
20. INSURANCE
---------
FIserv Fresno, Inc. carries Comprehensive General Liability insurance with
primary limits of one million dollars, Commercial Crime insurance covering
Employee Dishonesty in the amount of one million dollars, all-risk replacement
cost coverage on all equipment used at FIserv Fresno, Inc.'s data center and
Workers Compensation coverage on FIserv Fresno, Inc. employees wherever located
in the United States.
21. GENERAL
-------
(a) This Agreement is binding upon the parties and their respective successors
and permitted assigns. Neither party may assign this Agreement in whole or
in part without the consent of the other, provided that FIserv Fresno, Inc.
may subcontract any or all of the services to be performed under this
Agreement. Any such subcontractors shall be required to comply with all of
the applicable terms and conditions of this Agreement.
(b) The parties agree that, in connection with the performance of their
obligations hereunder, they will comply with all applicable Federal, State,
and local laws including the laws and regulations regarding Equal
Employment Opportunities.
(c) FIserv Fresno, Inc. agrees that the Office of Thrift Supervision, FDIC, or
other regulatory agencies having authority over Client's operations shall
have the authority and responsibility provided to the regulatory agencies
pursuant to the Bank Service Corporation Act, 12 U.S.C. 1867 (C) relating
to service performed by contract or otherwise.
(d) If any part or parts of this Agreement are held to be invalid, the
remaining parts of the Agreement shall continue to be valid and
enforceable.
15
<PAGE>
(e) This Agreement and performance hereunder shall be governed by and construed
in accordance with the laws in which Client's principal place of business
is located.
(f) FIserv Fresno, Inc. provides for periodic SAS 70, Type 1 independent audits
of its operations. FIserv Fresno, Inc. shall provide each client serviced
from the audited data center with a copy of the audit within a reasonable
time after its completion and shall charge each client a prorated share of
the cost of such audit. FIserv Fresno, Inc. shall also provide a copy of
the audit to the appropriate OTS District Director and/or to such other
regulators having jurisdiction over FIserv Fresno, Inc.'s provision of
services hereunder.
(g) Neither party shall be liable for any errors, delays or non-performance due
to events beyond its reasonable control including, but not limited to, acts
of God, failure or delay of power or communications, changes in law or
regulation or other acts of governmental authority, strike, weather
conditions or transportation.
(h) All written notices required to be given under this Agreement shall be sent
by Registered or Certified Mail, Return Receipt Requested, postage prepaid,
or by confirmed facsimile to the persons and at the addresses listed on the
Summary Page or to such other address or person as a party shall have
designated in writing.
(i) The failure of either party to exercise in any respect any right provided
for herein shall not be deemed a waiver of any rights.
(j) Each party acknowledges that it has read this Agreement, understands it,
and agrees that it is the complete and exclusive statement of the Agreement
between the parties and supersedes and merges any prior or simultaneous
proposals, understandings and all other agreements with respect to the
subject matter. This Agreement may not be modified or altered except by a
written instrument duly executed by both parties.
(k) FIserv Fresno, Inc. shall provide to Client and to the appropriate OTS
District Director and/or to such other regulators who so require them a
copy of the audited financial statement of FIserv, Inc.
16
<PAGE>
EXHIBIT 10.27
AMENDMENT TO COMPUTER OPERATING AGREEMENT
BETWEEN PAN AMERICAN BANK, F.S.B.
AND FISERV FRESNO INC.
In consideration for Pan American Bank, F.S.B. entering into a one (1) year term
contract, with a five (5) year option, with FIserv Fresno, Inc., prior to April
1, 1995, FIserv Fresno, Inc., hereby provides the following:
. First year contract term shall include a core systems discount of fifteen
percent (15%) and additional miscellaneous discounts as defined in Schedule
A, page 3. If the five (5) year contract extension option is exercised by
October 1, 1995, a total discount of thirty percent (30%) on core services
will become effective immediately.* (See Below)
. Pan American, F.S.B. may outsource the service of its Loans at any time
during the term of the contract with three months written notice. A
discount of fifty percent (50%) will be applied to the standard
deconversion fee.
An increase of .0100 per Deposit account will apply with a total loan
deconversion.
. FIserv shall provide five days onsite training. Client will pay trainer's
travel expenses only.
. FIserv shall waive 50% of the implementation fees for new products
purchased through 1995.
In the event that there is a conflict between the terms of the agreement and the
amendment, this amendment shall take precedence.
- --------------------------------------------------------------------------------
Signature Provision
PAN AMERICAN BANK, F.S.B. FISERV FRESNO, INC.
/s/ LAWRENCE J. GRILL /s/ [SIGNATURE ILLEGIBLE]
- ------------------------- -------------------------
Signature Signature
President Vice President
- ------------------------- -------------------------
Title Title
/s/ [SIGNATURE ILLEGIBLE]
- -------------------------
Signature
Senior Vice President
- -------------------------
Title
<PAGE>
EXHIBIT 10.28
ADDENDUM NO. 2
TO
AGREEMENT FOR REMOTE COMPUTING SERVICES
BETWEEN Pan American Bank, F.S.B. ("Client") and Fiserv Fresno, Inc. ("FISERV").
1.0 PURPOSE:
Fiserv and Client wish to amend the Agreement for Remote Computing Services
which has an Effective Date of April 1, 1995, ("Agreement"). Notwithstanding
anything in the Agreement to the contrary, in the event of a conflict between
the terms of the Agreement and the provisions of this Addendum, the provisions
of this Addendum shall take precedence.
2.0 EXTENSION OF TERM:
The stated term of the Agreement shall be extended three (3) years with an
effective date of April 1, 1996 and an expiration date of March 31, 1999.
3.0 PRICING:
Pricing reflected in the revised Attachment 2, Schedule A includes a "core
systems" discount of twenty two percent (22%) and additional miscellaneous
discounts as defined in Attachment 2, Schedule A on page 3.
Line of Credit, Revolving Line of Credit and Equity Line of Credit shall be
billed at $1.15 per loan with a minimum monthly charge of $50.00 effective
September 1, 1996.
Fiserv shall waive 50% of the implementation fee for the Integral Financial
Systems.
Fiserv shall waive 50% of the implementation fee for the ACH Origination System.
Fiserv shall offer a 10% discount towards the OKRA Total Marketer Product.
TELECOMMUNICATION NON - BISYNC LINES cost on page 3 of Attachment 2, Schedule A
reflects an increase. Zone 6, currently invoiced at $445.65 per drop, will
increase to $470.00 per drop and Zone 7, currently invoiced at $611.44 per drop,
will increase to $646.00 per drop. This pricing will be in effect for the first
year of the Agreement, however, AT&T increases that may occur in years two and
three of this Agreement will be passed through to the Client.
4.0 NETWORK:
Client-requested new Network design and implementation will be invoiced to the
Client.
________________________________________________________________________________
Signature Provision
PAN AMERICAN BANK, F.S.B. FISERV FRESNO, INC.
/s/ LAWRENCE J. GRILL /s/ [SIGNATURE ILLEGIBLE]
- -------------------------------- --------------------------
Signature Signature
President Vice President
- -------------------------------- --------------------------
Title Title
/s/ [SIGNATURE ILLEGIBLE] 7-12-96
- -------------------------------- --------------------------
Signature Date
Vice President--Operations
- --------------------------------
Title
7-9-96
- --------------------------------
Date
<PAGE>
ATTACHMENT 2
SCHEDULE A
REVISED AS OF JUNE 21, 1996
<TABLE>
<CAPTION>
Est. Mthly Est. Mthly
Volume Price Fee
<S> <C> <C> <C>
DEPOSIT PER ACCOUNT CHARGE (CORE SERVICE)
Open Accounts ( 1 - 20,000) 11,780 @ 0.70570 8,313.15
Open Accounts (20,001 - 30,000) @ 0.63513
Open Accounts (30,001 - 40,000) @ 0.59985
Open Accounts (40,001 - 50,000) @ 0.56456
LOAN PER ACCOUNT CHARGE
Open Accounts ( 1 - 25,000) 8 @ 2.86218 22.90
Open Accounts (25,001 - 45,000) @ 2.57596
Open Accounts (45,001 and Over) @ 2.43285
</TABLE>
PER ACCOUNT CHARGES INCLUDE THE FOLLOWING EXISTING SERVICES:
DEPOSIT SYSTEMS
Deposit Accounts
Closed Deposit Accounts
Deposit Dummy Accounts
Deposit Online History
Commercial Checking Service Charge
Accounts Analyzed and/or Reconciled
Expanded Retirement Accounts (IRA/KEOGH)
Advanced Safe Deposit Accounting
TRANSACTION PROCESSING
Transaction Processing
Check Printing Charge
UNIVERSAL LOAN SYSTEMS
Collection Accounts
Mortgage/Consumer Loan Accounts
Savings Account Loans
A.M.L. Accounts
Impound Accounts
Participation Packages
Closed Loan Accounts
Loan/Collection Dummy Accounts
Loan Online History
Loan Coupon Service Charges
Page 1
<PAGE>
ATTACHMENT 2
SCHEDULE A
REVISED AS OF JUNE 21, 1996
GENERAL LEDGER SYSTEM
Loan and Deposit Accounts
Page 2
<PAGE>
ATTACHMENT 2
SCHEDULE A
REVISED AS OF JUNE 21, 1996
AD HOC REPORT WRITER
User Maintenance Fees (1 user)
Ad Hoc Reports (1 - 5)
AUTOMATED TELLER MACHINES:
MONTHLY ATM FEES
Back-end Processing Fee
Gateways (2)
ATM TRANSACTIONS (1)
Inbound ATM Transactions (1 - 1,500)
ADDITIONAL SERVICES:
DISASTER RECOVERY
Disaster Recovery and Third Party Review
DISTRIBUTED PROCESSING SERVICES
File Transfers (1 - 3)
MULTIPLE REPORT RUNS
Reports Generated (1 - 4)
FORMS CHARGES (2)
NOW Statement Forms
Service Charge Debit Memos
Combined Statement Forms
Dividend/Interest Checks
Bill & Receipts
Late Notice Forms
Adjustable Loan Notification Forms
MICROFICHE CHARGES
Original Fiche
Copies
DELIVERY CHARGES (3)
NOTE: (1) ATM transaction fee will be billed at $0.1326 for transactions
over 1,500.
(2) Customized forms, year-end forms and mailing cost are not included
in the per account charges.
(3) Only for weekly loan coupon tape delivered to vendor. Client-
requested services will be charged at cost plus 20%.
Page 3
<PAGE>
ATTACHMENT 2
SCHEDULE A
REVISED AS OF JUNE 21, 1996
<TABLE>
<CAPTION>
Est. Mthly Est. Mthly
Volume Price Fee
<S> <C> <C> <C>
SERVICES NOT INCLUDED IN BASE CHARGE:
TELECOMMUNICATION:
TERMINAL CONNECT FEE *
Non-Bisync Input/Output Devices 50 @ 10.10 505.00
Total Terminal Connect Fees 505.00
NON-BISYNC LINES
Drop in Zone 1 1 @ 191.00 191.00
Drops in Zone 6 5 @ 470.00 2,350.00
Drop in Zone 7 1 @ 646.00 646.00
Total Zone Charges 3,187.00
TERMINAL CONTROLLER SUPPORT *
Terminal Controllers 6 @ 35.00 210.00
TELECOM EQUIPMENT LEASE/MAINTENANCE
Codex Equip, Panorama City - T# 166308 171.65
TOTAL ESTIMATED TELECOMMUNICATION FEES 4,073.65
</TABLE>
----------------------------------------------------------------
TOTAL ESTIMATED SERVICES $12,409.70
----------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
OTHER ADDITIONAL SERVICES:
AD HOC REPORT WRITER
User Maintenance Fees (Over 1) @ 136.00
Ad Hoc Reports (Over 5) @ 40.00
JOB REQUEST HANDLING FEE
Per Job Request @ 75.00
PROFESSIONAL SERVICES BID
Per Hour @ 100.00
</TABLE>
* NOTE: Fee Discounted.
Page 4
<PAGE>
EXHIBIT 10.29
ITEM PROCESSING AGREEMENT
BY AND BETWEEN
SYSTEMATICS FINANCIAL SERVICES, INC.
AND
PAN AMERICAN SAVINGS BANK
APRIL 20, 1993
<PAGE>
Systematics Financial Services, Inc.
- --------------------------------------------------------------------------------
ITEM PROCESSING AGREEMENT
This Item Processing Agreement ("Agreement") dated 26th day of April 1993
("Effective Date") is by and between SYSTEMATICS FINANCIAL SERVICES, INC, an
Arkansas corporation, having its principal place of business at 4001 Rodney
Parham Road, Little Rock, Arkansas, 72212-2496 (hereinafter "Systematics") and
PAN AMERICAN SAVINGS BANK, A CALIFORNIA CORPORATION, having its principal place
of business, at 1300 South El Camino Real, San Mateo, California 94402
(hereinafter "Client").
In consideration of the payments to be made and the services to be provided
pursuant to this Agreement, as well as the mutual promises and covenants of the
parties, Systematics and Client agree as follows:
1. SERVICES.
Systematics will provide for Client the item processing and related
services described in this Agreement and the attached exhibits, each of
which is made a part hereof and is incorporated herein by reference.
2. TERM.
The term of this Agreement is five (5) years (60 months), beginning the
Effective Date stated above. The end of such term shall be the "Expiration
Date". At least nine (9) months prior to the Expiration Date, Systematics
will submit to Client a Written proposal for renewal of this Agreement.
Client will respond to such proposal within 90 days following receipt
thereof.
This Agreement may be terminated by Client before the Expiration Date
twelve (12) months after the Effective Date without penalty and with no
increase in the fees specified in Exhibit B-1 "SERVICE FEES" if Client is
acquired (as defined below); provided that Client notifies Systematics at
least ninety (90) days prior to the date of its intention to terminate this
Agreement. If such notice is not given to Systematics by the date
specified, this Agreement will continue in full force and effect until
Expiration Date. Client shall be deemed to have been acquired if it shall
merge with and into, consolidate with, or sell substantially all of its
assets and/or stock to, one or more financial institutions, acting in
concert.
- --------------------------------------------------------------------------------
April 20, 1993 Item Processing Agreement
1
<PAGE>
Systematics Financial Services, Inc.
- --------------------------------------------------------------------------------
3. SERVICE FEES.
Service fees for the services provided by Systematics to Client under this
Agreement are as stated in Exhibit B - Service Fees and shall be paid in
accordance with Section 11 below.
4. AUDIT.
4.1 ANNUAL AUDIT. Systematics will provide an annual audit of its
operations at the Systematics IP Site (as described in Section 6.1) by
an independent accounting firm.
4.2 REGULATORY AGENCIES. Systematics will cooperate fully with Client with
regard to examinations by regulatory authorities relating to services
performed under this agreement.
5. CONFIDENTIALITY.
All information concerning Client, its business or customers submitted to
Systematics pursuant to this Agreement shall be held in confidence by
Systematics and shall not be disclosed to third parties.
6. FACILITY.
6.1 PREMISES. Systematics will provide adequate item processing premises
at a location of its choice for the discharge of its responsibilities
under this Agreement. Such premises are hereinafter referred to as the
"IP Site".
6.2 SECURITY. Systematics will use prudent safeguards to prevent access
to Client's data and the IP Site by unauthorized persons.
6.3 INSPECTION OF RECORDS. Systematics will not permit any person or
entity other than Systematics' employees to have access to Client's
data without written authorization from Client. All of Client's data
shall be available for examination by Client at any reasonable time.
- --------------------------------------------------------------------------------
April 20, 1993 Item Processing Agreement
2
<PAGE>
Systematics Financial Services, Inc.
- --------------------------------------------------------------------------------
7. TIME OF PERFORMANCE.
7.1 SUBMISSION OF INPUT. Client agrees that Systematics' time to perform
the services described in this Agreement and the exhibits hereto shall
be enlarged to the extent reasonably necessary if Client does not
submit items and data to Systematics for processing at the times and
in the condition required by this Agreement and its exhibits.
Systematics is responsible for safekeeping Client's documents while in
Systematics' possession in the IP Site.
7.2 SPECIAL REQUESTS. Special requests by Client or any governmental
agency authorized to regulate or supervise Client which impact
Systematics' normal servicing schedule shall result in an enlargement
of Systematics' time of performance if and to the extent reasonably
necessary. Systematics will notify Client of the estimated impact on
its service schedule, if any.
7.3 CORRECTION OF PROCESSING ERRORS. In the event of an error in
processing Client's data, Systematics will promptly correct such
error. Such correction of error shall be without charge to Client
unless caused by the nature of the data submitted by Client.
7.4 CLIENT REVIEW. Client will review and inspect carefully all reports
prepared by Systematics, Client agrees to promptly notify Systematics
of any erroneous processing. If Client fails to so notify Systematics,
it shall be deemed to have waived its rights in respect of such error
and to have assumed all risks in respect thereof.
8. BACKUP, STORAGE, FILES AND PROGRAMS.
8.1 FILES AND PROGRAMS. Systematics agrees to provide and maintain
adequate backup files on magnetic media of Client data and all
programs and documentation utilized to process Client's data.
8.2 STORAGE. Systematics will provide off-site storage for backup data
files and programs. Systematics will deliver the data files and
programs to its off-site storage location, and retain for a period of
time consistent with published Systematics operating standards and
applicable regulatory requirements. Such standards will be furnished
to the Client upon request. Systematics is responsible for the
physical security of such files.
- --------------------------------------------------------------------------------
April 20, 1993 Item Processing Agreement
3
<PAGE>
Systematics Financial Services, Inc.
- --------------------------------------------------------------------------------
8.3 DISASTER RECOVERY. Systematics will maintain Disaster Recovery backup
agreements as described herein. Such arrangements are intended to deal
with circumstances which are reasonably expected to render a
substantial portion of the item processing services unavailable for a
period of 72 consecutive hours ("Disaster"). Declaration of a.
Disaster shall be at the sole discretion of Systematics.
8.3.1 DISASTER RECOVERY PLAN. Systematics agrees to maintain a
specific written plan for dealing with its item processing
obligations during a Disaster. Systematics will maintain
current copies of its plan at off-site locations, and will
provide Client with documentation of such plan sufficient for
Client's use in developing an associated plan of its actions
during a Disaster.
8.3.2 DISASTER RECOVERY TESTING. Systematics agrees to test its
Disaster Recovery Plan at least annually.
8.3.3 PROCESSING FREQUENCY. Systematics does not guarantee that all
applications will be processed as frequently during a Disaster
as they are normally processed under the Item Processing
Agreement. The applications processed will be consistent with
the priorities set forth by Client.
8.3.4 TIME OF PERFORMANCE. Systematics will use diligence to provide
the item processing services set forth hereunder at the times
required herein. Client acknowledges, however, that the
circumstances of a Disaster are likely, to adversely impact
Systematics' time of performance and that the provisions of the
Time of Performance section shall not continue to be applicable
during a Disaster.
9. EFFECTIVE PLANNING AND COMMUNICATION.
Systematics and Client agree that effective planning and communication are
necessary to provide overall direction for Client's item processing, and
that each will work to promote a free and open exchange of information
between Systematics personnel, Client senior management and Client user
departments. Member of Systematics' IP Site management will participate
actively with Client's management and users to review, discuss and track
quality of performance, service reliability and availability for Client's
item processing.
- --------------------------------------------------------------------------------
April 20, 1993 Item Processing Agreement
4
<PAGE>
Systematics Financial Services, Inc.
- --------------------------------------------------------------------------------
10. TERMINATION.
10.1 RIGHT TO TERMINATE. In addition to any other rights which either party
may have in law or equity, either Systematics or Client may terminate
this Agreement if the defaulting party fails to cure any material
default hereunder within thirty (30) days of written notice from the
other party, specifying the nature and extent of any such default.
10.2 METHOD OF TERMINATION. Exercise of the right to terminate under this
Section must be accomplished by written notice to the defaulting
party, specifying the basis for such termination and fixing a date, on
the last day of a month, not less than 90 days following the date of
receipt of such notice for cessation of services hereunder (the
"Termination date").
10.3 TRANSITIONAL COOPERATION. Upon any termination or expiration of this
Agreement, Systematics will cooperate fully and provide additional
assistance at standard rates then in effect with a view to assuring a
smooth transition to whatever method (s) of item processing Client may
select.
11. PAYMENT AND BILLING.
Client agrees to pay Systematics for the services performed hereunder in
accordance with the fees set forth in Exhibit B - Service Fees, pursuant to
invoices prepared and delivered to Client. All fees shall be payable on
the first business day of each month, for services rendered during the
prior month.
12. NO INTERFERENCE WITH CONTRACTUAL RELATIONSHIP.
Client warrants that, as of the date hereof, it is not subject to any
contractual obligation that would prevent Client from entering into this
Agreement, and that Systematics' offer to provide such services in no way
caused or induced Client to breach any contractual obligation.
13. NO WAIVER OF DEFAULT.
The failure of either party to exercise any right of termination hereunder
shall not constitute a waiver of the rights granted herein with respect to
any subsequent default.
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April 20, 1993 Item Processing Agreement
5
<PAGE>
Systematics Financial Services, Inc.
- --------------------------------------------------------------------------------
14. MERGERS AND ACQUISITIONS.
Upon written request by Client, Systematics will process additional volumes
resulting from any merger or acquisition involving Client; subject, however
to a mutually agreeable adjustment to the fees payable in respect thereof.
Client will notify Systematics of any such proposed merger or acquisition
as soon as reasonably practicable.
15. ENTIRE AGREEMENT.
Expiration or termination of any part of this Agreement shall terminate the
entire Agreement except for any portion hereof which expressly remains in
force and in effect notwithstanding such termination or expiration.
Modification or amendment of this Agreement or any part thereof may be made
only be written instrument executed by both parties. If any provision, or
any part or application of any provision of this Agreement shall be held to
be invalid, illegal, or unenforceable, the validity, legality and
enforceability of the remainder of this Agreement or other parts or
applications of such provisions, shall not be affected or impaired thereby.
If any portion of this Agreement are held by a court of competent
jurisdiction to conflict with any federal, state or local law or
regulation, such portion or portions of this Agreement are hereby declared
to be of such force and effect as is permissible in such jurisdiction.
16. ASSIGNMENT.
Neither party hereto shall assign or otherwise convey or delegate its
rights or duties hereunder to any other party without the prior written
consent of the other party to this Agreement, which consent shall provide
that it is subject to all the terms and conditions of this Agreement. No
such consent shall be required in the event of a merger, consolidation,
sale of substantially all of the assets, or any other change of control of
either party hereto, in which event, this Agreement shall apply to, inure
to the benefit of, and be binding upon the parties hereto and upon their
respective successors in interest.
17. CONFIDENTIAL AGREEMENT.
This Agreement is a confidential agreement between Systematics and Client.
In no event may this Agreement be reproduced or copies shown to any third
parties by either Client or Systematics without the prior written consent
of the other party, except as may be necessary by reason of legal,
accounting or regulatory requirements beyond the reasonable control of
Systematics or Client, as the case may be, in which event Systematics and
- --------------------------------------------------------------------------------
April 20, 1993 Item Processing Agreement
6
<PAGE>
Systematics Financial Services, Inc.
- --------------------------------------------------------------------------------
Client agree to exercise diligence in limiting such disclosure to the
minimum necessary under the particular circumstances.
18. INCREASE FOR TAXES.
Client will pay directly or reimburse Systematics for all sales, use or
excise taxes, however designated, levied or based, on amounts payable
pursuant to this Agreement including state and local privilege or excise
taxes based on gross revenues under this Agreement or taxes on services
rendered. Client shall not be responsible for any taxes levied on the
personal property or net income of Systematics.
19. INDEPENDENT CONTRACTOR.
It is agreed that Systematics is an independent contractor and that Client
has no power to supervise, give directions or otherwise regulate
Systematics' operations to employees, except as herein provided for
security of Client's data and detection of errors in processing.
20. CLIENT AND SYSTEMATICS EMPLOYEES.
Client and Systematics agree not to offer employment to any employee of the
other without the prior written consent of the other.
21. PREVIOUS LIABILITIES.
The parties hereto agree to indemnify the other and hold the other harmless
against any loss (including attorney's fees and expenses) arising out of
any claims or lawsuits filed or subsequently filed as a result of the acts
of the other party which occurred prior to the Effective Date of this
Agreement.
22. NOTICES.
All notices, requests and demands, other than routine operational
communication under this Agreement, shall be in writing and shall be deemed
to have been duly given when deposited in the United States mail,
registered or certified postage prepaid, and addressed to the other party
at the address first shown above and to the attention of the president of
said party. Notice of changes of address, if any shall be given in like
manner.
- --------------------------------------------------------------------------------
April 20, 1993 Item Processing Agreement
7
<PAGE>
Systematics Financial Services, Inc.
- --------------------------------------------------------------------------------
23. COVENANT OF GOOD FAITH.
Systematics and Client agree that, in their respective dealings arising out
of or related to this Agreement, they shall act fairly and in good faith.
24. STANDARD OF CARE.
Systematics shall use reasonable and diligent efforts to make the services
provided hereunder available and operational at all necessary times and in
so doing shall take reasonable steps to safeguard against events which
would adversely impact the delivery thereof. SYSTEMATICS MAKES NO OTHER
WARRANTIES, EITHER EXPRESSED OR IMPLIED, WITH REGARD TO THE SERVICES
PROVIDED HEREUNDER.
25. LIMITATION OF LIABILITY.
Systematics shall not be liable to Client or any other person:
(i) for claims, damages, loss, destruction, or delay which result from
any failure, delay or interruption beyond Systematics' control
including, but not limited to, floods, tornados, snowstorms, or other
weather related disasters, earthquakes, acts of God, fires, national
emergencies, acts of any federal, state or local government, labor
difficulties insurrection, war, riot, rebellion, equipment failure,
disruption of communications, utility outages, or any events, whether
of a similar or dissimilar nature to the foregoing, that are beyond
the control of Systematics.
(ii) for any items while such items are in transit to or from Systematics'
IP Site or while such items are in the possession, custody or control
of any other party;
(iii) when the negligence, misconduct or default of any third party
including, but not limited to, Client or Client's agent,
correspondent banks, clearing houses, the Federal Reserve System or
any other endorsing institution contributed to the loss;
(iv) for the nonpayment of any item unless such nonpayment results solely
from the negligence or willful misconduct of Systematics;
(v) when Systematics performed the services hereunder in accord with
Client's procedures or pursuant to Client's direction;
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April 20, 1993 Item Processing Agreement
8
<PAGE>
Systematics Financial Services, Inc.
- --------------------------------------------------------------------------------
(vi) for any amount in excess of direct damages actually incurred,
resulting from the breach of any covenant, agreement or undertaking
required under this Agreement; or
(vii) for any incidental, special or consequential damages or any claim or
demand made by any third party.
26. SECTION TITLES.
Section titles as to the subject matter of particular sections herein are
for convenience only and are in no way to be construed as part of this
Agreement or as a limitation of the scope of the particular sections to
which they refer.
27. COUNTERPARTS.
This Agreement may be executed in several Counterparts, each of which shall
be deemed to be an original, but all of which shall constitute one and the
same instrument.
IN WITNESS WHEREOF, this Agreement has been executed by the undersigned
officers, thereunto duly authorized, as of the Effective Date.
SYSTEMATICS FINANCIAL PAN AMERICAN SAVINGS BANK
SERVICES, INC.
By: /s/ F. JOSEPH REID By: /s/ LOUIS E. BAUMERT
---------------------------- ----------------------------
Name: F. Joseph Reid Name: Louis E. Baumert
---------------------------- ----------------------------
Title: General Manager Title: Managing Agent
---------------------------- ----------------------------
Date: 4/29/93 Date: April 26, 1993
---------------------------- ----------------------------
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April 20, 1993 Item Processing Agreement
9
<PAGE>
Systematics Financial Services, Inc.
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EXHIBIT B1 - SERVICE FEES
In consideration for the services to be provided herein, Client shall pay to
Systematics the fees set out as follows:
For the period beginning upon the date on which Systematics begins providing
services described herein at its California DMS Item Processing Center and
continuing for the term of the Agreement, the Service Fees will be as follows,
except for the annual CPI inflation adjustment shown in Exhibit B-2.
<TABLE>
<CAPTION>
SERVICE PER ITEM FEES
- ------- -------------
TRANSIT PROCESSING:
<S> <C>
Minimum Monthly Charge $400.00
Item Capture .015 per item
Encoding .02 per item
Cash Ltr/Brch Dep Tickets 1.00 each
Transit Return Items/Reclear 1.75 each
End-Point Analysis Reports 40.00 per month (As Requested)
Presentment Points 50.00 each
INCLEARING SERVICES:
Minimum Monthly Charge $500.00
Capture, Finesort, Microfilm .015 per item
Return Item Processing 2.00 per item
Large Dollar Returns 4.25 per item
Late Returns 5.00 per item
Photocopies/Facsimile 2.00 per item
Original Item Retrieval 6.00 per item
Finesort Microfilm 10.45 per cycle - .005 per item
</TABLE>
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April 20, 1993 Item Processing Agreement
<PAGE>
Systematics Financial Services, Inc.
- --------------------------------------------------------------------------------
EXHIBIT B1 - SERVICE FEES (CONTINUED)
<TABLE>
<CAPTION>
SERVICE PER ITEM FEES
- ------- -------------
COMPREHENSIVE:
<S> <C> <C>
Minimum Monthly Charge $750.00
Stdrd Stmts Bar Coded .50 each
Stdrd Stmts non-Bar Coded .55 each
Inserts .03 each
Truncated (Checking) .35 each
Truncated (Savings) .16 each
Avg. # of cks over 25 per stmt. .025 per item
Non Stdrd Stmts Individually priced
On-Us (Over-the-Counter) items .25 each
OTHER CHARGES:
Research $35.00 per hour in 1/2 hour increments
Postage Passthrough + 15% Surcharge or Fund Monthly
Supplies Passthrough + 15% Surcharge
Courier Service Passthrough + 15% Surcharge or Client
makes own transit/lockbox arrangement
Courier Service Passthrough + $45 (inclearings)
Signature Verification Pricing Upon Request
Statement Laser Printer Pricing Upon Request
</TABLE>
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April 20, 1993 Item Processing Agreement
<PAGE>
Systematics Financial Services, Inc.
- --------------------------------------------------------------------------------
EXHIBIT B
SERVICE FEES
MONTHLY ITEM PROCESSING SCHEDULE
PAN AMERICAN SAVINGS BANK
MAY 1997
In consideration of the services provided herein, for the period beginning May
1, 1997, Client shall pay to Fiserv the fees set out as follows:
<TABLE>
<CAPTION>
SERVICE PER ITEM FEE
- ------- ------------
<S> <C>
TRANSIT PROCESSING
Minimum Monthly Charge 432.5351
Item Capture 0.0162
Encoding 0.0216
Cash Ltr/Brh Dep Tickets 1.0813
Transit Return Items/Reclear 1.8923
End-Point Analysis Report (per month) 43.2535
Presentment Points 54.0669
INCLEARING SERVICES
Minimum Monthly Charge 540.6689
Capture, Finesort, Microfilm 0.0162
Return item processing 2.1627
Large dollar returns 4.5957
Late Returns 5.4067
Photocopies/Facsimiles 2.1627
Original item retrieval 6.4880
Finesort Microfilm 11.3000
Additional Items 0.0054
</TABLE>
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April 20, 1993 Item Processing Agreement
<PAGE>
Systematics Financial Services, Inc.
- --------------------------------------------------------------------------------
EXHIBIT B
<TABLE>
<S> <C>
COMPREHENSIVE
Minimum Monthly Charge 811.0033
Stdrd stmts bar coded 0.5407
Stdrd stmts non-bar coded 0.5947
Inserts 0.0324
Truncated (Checking) 0.3785
Truncated (Savings) 0.1730
Avg. # or cks over 25 per stmt. 0.0270
Non Stndrd Stmts. Individually priced
On-Us (Over-the-Counter) items 0.2703
OTHER ADDITIONAL CHARGES
Research per hour - 1/2 hour increments) 37.8468
Postage Pass-thru + 15% or client funds postage meters
Supplies Pass-through plus 15%
Courier Service
Depository/Lockbox Pass-thru + 15% or client makes own arrangements
Inclearings Pass-thru + $48.6602 or client makes own arrangements
Statement laser printing Pricing upon request
Signature Verification Pricing upon request
</TABLE>
CPI - INFLATION ADJUSTMENT
The fees and prices shown in this Agreement will be increased, but not
decreased, based on the effects of inflation. Effective with the monthly
billing for the thirteenth contract month, and annually thereafter, such fees
and prices will be adjusted using the Consumer Price Index for All Urban
Consumers - Other Goods and Services (the "CPI-U") as published by the US
Department of Labor, Bureau of Labor Statistics. The percentage increase in the
CPI-U used in computing the inflation adjustment that is to become effective
with the thirteenth month shall be the percentage increase in such index over
the one-year period ended with the eighth contractual month. The percentage
------------------
increase in the index used in computing the inflation adjustments that are
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April 20, 1993 Item Processing Agreement
<PAGE>
Systematics Financial Services, Inc.
- --------------------------------------------------------------------------------
to become effective in subsequent annual periods shall be the percentage
increase for the corresponding annual periods commencing with the ninth, twenty-
first, thirty-third, etc. contract months. (2.6% for the San Francisco region -
December 1996)
Accounting Approval ANW
---
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April 20, 1993 Item Processing Agreement
<PAGE>
EXHIBIT 10.30
SUPPORT SERVICES AGREEMENT
This Support Services Agreement dated this 31st day of October, 1995 is entered
into by and between Alan King and Company, Inc., a California Corporation
("COMPANY"), and Pan American Savings Bank, a federal savings bank ("BANK")
This Support Services Agreement, including any Addendum, any referenced
exhibits, and any other signed amendments or agreements (collectively the
"Agreement"), constitute the entire agreement between the parties relating to
the subject matter herein. Any statements or promises made between the parties
which are not contained herein regarding the subject matter hereof shall not be
binding.
1. RECITALS
WHEREAS, COMPANY is engaged in the business of developing, licensing, installing
and servicing the proprietary software known as SBO 90 Master Servicing Software
("Program"): and
WHEREAS, BANK desires the COMPANY to provide services as described more fully in
Paragraph 3 for the benefit of BANK.
NOW, THEREFORE, for the reasons set forth above, and in consideration of the
mutual promises and agreements hereinafter set forth, COMPANY and BANK hereby
agree as follows:
2. NOTICES
Notices and documents to be given hereunder by one party to the other party must
be in writing and may be given either by personal delivery or prepaid by first
class mail or nationally recognized overnight carrier to the following
addresses:
BANK: Mr. Bob Wilson, EVP
Pan American Savings Bank, FSB
1300 S. El Camino Real, Third Floor
San Mateo, CA 94402
(415) 345-1800 x222
1
<PAGE>
COMPANY: Mr. Alan King, President
Alan King and Company, Inc.
4066 Dunbarton Circle
San Ramon, CA 94583
(510) 551-8057
This address to which or the person to whom notice is to be given may be changed
from time to time by either party by written Notice to the other party as set
forth herein. Such change shall be effective upon notification of such change
in the manner set forth above. Notices sent as set forth above shall be
effective on the earlier of receipt or one (1) business day following mailing.
3. SCOPE OF SERVICE
COMPANY will continue to use the SBO 90 master servicing software that BANK
currently uses. COMPANY will process all remittances through the system in the
exact same fashion as is currently performed in house.
COMPANY will identify and report to BANK short remittances which are in excess
of $10.00. COMPANY will also report outstanding arm adjustment problems.
COMPANY will bring the problems to the servicer's attention and COMPANY will
attempt to recover all funds due BANK.
COMPANY will produce all accounting reports, pledge files and regulatory
reports. COMPANY will also track, monitor, reconcile and report all key events,
such as foreclosure if this option is purchased. COMPANY will work closely with
BANK accounting department to ensure that all accounts are properly reconciled
each month. COMPANY will also recommend cash processing procedures and controls
to BANK'S accounting department.
If BANK chooses, COMPANY will also manage BANK'S defaults. Under this option,
COMPANY will follow BANK guidelines and review and approve standard SBO items
such as pre-approved sales, assumptions, modifications, deed-in-lieus, etc.
BANK will specify limits on COMPANY authority. COMPANY will send those items,
for approval, to BANK that exceed BANK'S specified limit.
COMPANY will update BANK'S data base at the beginning of each month to reflect
prior month activity and loan additions. The updated data base will contain
sufficient information to allow BANK to take over processing at any time. This
data base can be used for ad hoc reports through out the month. COMPANY will
also provide a lotus file containing key master file fields for each active
loan.
2
<PAGE>
4. TERM AND TERMINATION
BANK'S obligation to use COMPANY'S service is limited to four months starting
from the first day of operation. BANK may terminate at any time with 60 days
written notice. BANK will pay a $5,000.00 termination fee if notification is
given during the first 60 days of the contract. BANK may terminate after 60
days without paying a termination fee.
COMPANY will, at BANK'S option, retrain your personnel on the use of SBO 90.
The cost for on-site training is 500 dollars per day. Most organizations require
five days training.
COMPANY agrees to perform for a period of two years at the current price
schedule. COMPANY may terminate at any time during the first two years with 60
days written notice and payment of a $5,000.00 termination fee. COMPANY may
terminate after two years with 60 days written notice and without payment of a
termination fee. COMPANY will retrain BANK on the use of SBO 90 at no cost to
BANK if COMPANY terminates this agreement.
5. PRICING
BANK will pay a fee each month based on the number of active loans at the
beginning of the month in the portfolio and the option selected. The following
chart list the monthly per loan fee for each option:
Option 1 Accounting, remittance processing, regulatory reporting, and
servicer error corrections:
<TABLE>
<CAPTION>
Monthly Number of
Fee Loans
<S> <C>
$1.90 per loan less than 2500
$1.75 per loan 2501-5000
$1.60 per loan greater than 5000
</TABLE>
Option 2 Everything in option 1 plus default management, payoff
administration, and handling of any SBO related correspondence:
3
<PAGE>
<TABLE>
<CAPTION>
Monthly Number of
Fee Loans
<S> <C>
$2.90 per loan less than 2500
$2.75 per loan 2501-5000
$2.60 per loan greater than 5000
</TABLE>
In addition to the monthly fee, there are the following potential additional
charges:
. New loan set up fee ($6.00 per loan no monthly fee for first month)
. Loan removal for REOs and loan sales ($1.50 per loan)
. Reconveyance ($10.00 per loan if COMPANY does the paper work)
COMPANY will not charge its normal Program rental fee during those times in
which COMPANY is providing the services as described in this Agreement.
6. PERFORMANCE STANDARDS
COMPANY will process each report within seven days of receipt. All reports
received by the 27th of the month plus all reports received from Dovenmuehle
Mortgage by month end will be posted before month end is run. Month end reports
will be delivered to BANK by the third business day of the month. BANK'S data
base will be updated by the tenth of each month. COMPANY will pay a $500.00
penalty for each day after the third business day, up to the regular monthly
fee, whenever COMPANY is late delivering reports.
7. PAYMENT TERMS
Invoices shall be payable within thirty (30) days after BANK'S receipt of such
invoice. In the event of any disputed amount(s) on any invoice, BANK shall pay
any amounts not in dispute, and shall pay the remaining amount as mutually
agreed, to be due within twenty (20) days after resolution of such dispute. The
failure of BANK to pay any amount in dispute shall not be deemed a default
hereunder.
8. GOVERNING LAW
This Agreement shall be governed for all purposes by the laws of the State of
California.
9. ATTORNEYS' FEES PROVISION
4
<PAGE>
If any action (lawsuit or arbitration) is filed or proceeding is brought in
connection with this Agreement or for the enforcement or declaration of any
rights, obligations, or remedies arising under the Agreement or otherwise
granted, permitted or imposed by law or in equity, then the prevailing party
therein shall be entitled to recover from the other party all costs and
expenses, including reasonable attorneys' fees, arbitration costs and court
costs sustained or incurred by the prevailing party.
10. FORCE MAJEURE
Neither party shall be liable for delays or failure to perform due to causes
beyond its reasonable control, including delays in transportation. In the event
of any such delay, the date of performance shall be extended for a period equal
to the time lost by reason of the delay. If any such delay by COMPANY extends
for thirty (30) days or more, BANK may terminate this agreement upon twenty (20)
days written notice.
ACCEPTED
Alan King and Company, Inc.
BY: /s/ ALAN KING
------------------------
Printed Name: Alan King
Title: President Date: 10/31/95
---------
Pan American Savings Bank, FSB
BY: /s/ ROBERT WILSON
---------------------------
Printed Name: Robert Wilson
Title: EVP Date: 10/31/95
---------
5
<PAGE>
EXHIBIT 10.31
TECHNICAL SUPPORT SERVICES AGREEMENT
This Technical Support Services Agreement dated this first day of May,
1995 is entered into by and between Alan King and Company, Inc., a
California Corporation ("LICENSOR") and Pan American Savings Bank, a
federal savings bank ("LICENSEE").
This Technical Support Services Agreement, including any Addendum, any
referenced exhibits, and any other signed amendments or agreements
(collectively the "Agreement"), constitute the entire agreement between the
parties relating to the subject matter herein. Any statements or promises
made between the parties which are not contained herein or not contained in
a related agreement as referenced herein regarding the subject matter
hereof shall not be binding.
The parties hereto shall concurrently herewith enter into that certain
agreement entitled the License Agreement (the "License Agreement"). This
Technical Support Services Agreement is made part of and shall be subject
to the terms and conditions found in the License Agreement, the terms of
which are supplemented as stipulated hereunder.
Any disputes not resolvable between LICENSOR and LICENSEE will be settled
by an arbitrator agreeable by both LICENSOR and LICENSEE, under the rules
of the American Arbitration Association then in effect.
1. RECITALS
WHEREAS, LICENSOR is engaged in the business of developing, licensing,
installing and servicing the proprietary software known as SBO 90 Master
Servicing Software ("Program");
WHEREAS, LICENSEE has licensed such Program under the License Agreement,
and desires to obtain maintenance services ("Services") as defined more
fully hereunder;
WHEREAS, LICENSOR desires to provide such Services to LICENSEE;
NOW, THEREFORE, for the reasons set forth above, and in consideration of
the mutual promises and agreements hereinafter set forth, LICENSOR and
LICENSEE hereby agree as follows:
Technical Support Services Agreement page 1 of 5
<PAGE>
2. SERVICES
LICENSOR agrees to provide to LICENSEE, at no additional cost or expense to
LICENSEE, maintenance and enhancements for the Program, and other such
maintenance Services as follows:
A. Correct, in a prompt, efficient, and businesslike manner pursuant to the
standards set forth in the attached EXHIBIT A, which is attached hereto and
------- -
incorporated herein by this reference, any and all errors, defects, and
malfunctions in the Program discovered by or brought to the attention of
LICENSOR. Such errors, defects, or malfunctions shall include but shall
not be limited to any failure of code to operate successfully.
B. Provide reasonable telephone support during LICENSORS'S regular business
hours of 9 am to 5 pm Pacific Standard Time, Monday through Friday except
holidays.
C. Provide for all enhancements, modifications or fixes, at no additional
expense, that would apply to the Program product as provided to LICENSOR'S
regular customer base and to satisfy all legal and regulatory requirements.
LICENSEE specific enhancements will be completed at a mutually agreed upon
price quoted in advance by LICENSOR upon LICENSEE'S request for such
enhancements. All LICENSEE specific enhancements must be compatible with
and must allow for all future enhancements, modifications, and fixes
normally provided by LICENSOR to it's regular customer base, without
additional expense to LICENSEE.
3. ACCEPTANCE
This Agreement shall be binding on both parties upon authorized signatures
hereto.
4. TERM AND TERMINATION
This Agreement shall be coterminous with the term of the License Agreement,
and in accordance with the terms of the License Agreement.
5. PREVENTIVE MAINTENANCE
LICENSOR may perform at its discretion, and if pre authorized by LICENSEE
upon reasonable notice to LICENSEE, inspection and
Technical Support Services Agreement page 2 of 5
<PAGE>
preventative maintenance visits during LICENSEE'S normal working hours or
during off hours as agreed upon by both parties.
6. ASSIGNED EMPLOYEES
LICENSEE, without stating cause therefore, may direct LICENSOR to remove
from assignment to LICENSEE'S account a LICENSOR employee assigned to
perform Services under this Agreement. In the event of such removal,
LICENSOR shall replace, in a timely manner, the individual removed with
another qualified LICENSOR employee. LICENSOR'S employees assigned to
provide Services under the Agreement shall, at all times, remain under the
exclusive direction and control of LICENSEE for any purpose whatsoever.
LICENSOR, shall be solely responsible for the payment of each employee's
entire compensation including employment taxes, workmen's compensation and
any similar taxes or other costs payable in connection with such person's
employment. LICENSOR is and shall be deemed for all purposes an
independent contractor, and not an agent of LICENSEE. For the purposes of
this provision, employees include subcontractors.
ACCEPTED:
Alan King and Company, Inc. Pan American Savings Bank.
BY: /s/ ALAN KING BY: /s/ ROBERT WILSON
---------------------- ------------------------
PRINTED NAME: Alan King PRINTED NAME: Robert Wilson
--------------
TITLE: President TITLE: E.V.P.
---------------------
DATE: 5/1/95 DATE: 4/13/95
-------------------- ----------------------
Technical Support Services Agreement page 3 of 5
<PAGE>
EXHIBIT A
TO THE TECHNICAL SUPPORT SERVICES AGREEMENT
ERROR CORRECTION STANDARDS
--------------------------
Errors, defects, and malfunctions in SBO 90 Code shall be classified by
LICENSEE at its sole discretion in accordance to the following table, and
the classification shall determine the type of required response by
LICENSOR:
CLASSIFICATION CRITERIA
-------------- --------
A. Severe Impact: errors which disable major functions and management
reporting from being performed in a timely and accurate manner.
B. Degraded Operations: errors disabling only certain nonessential functions.
C. Minimal Impact: all other errors.
Upon learning of the error, defect or malfunction, LICENSOR shall take
corrective actions to remedy the error, defect, or malfunction within the
following time schedule:
CLASSIFICATION LICENSOR'S REMEDY
-------------- -----------------
<TABLE>
<CAPTION>
1ST LEVEL 2ND LEVEL FINAL LEVEL
--------- --------- -----------
<S> <C> <C> <C>
A 8 hours* Constant effort Within 3 days
until relief
provided
B 24 hours* 12 days 30 days**
C 5 days------------------------45-days**
</TABLE>
* If discovered during the hours of 9:00 a.m. - 5:00 p.m. Pacific Standard
Time, otherwise, time commences next business day.
Technical Support Services Agreement page 4 of 5
<PAGE>
** The time period indicated or as mutually agreed to by the parties. The
required LICENSOR remedies for each error classification at each level
specified above shall require that LICENSOR perform the following within
the period of time shown above:
REMEDY LEVEL
------------
1ST LEVEL Acknowledgment of receipt of error report and begin
corrective action.
2ND LEVEL Patch, work around, or temporary fix, update release.
FINAL LEVEL Official fix, update, or major release. LICENSOR shall
conduct tests and performance measurements acceptable to
LICENSEE to sufficiently demonstrate that LICENSOR has
remedied each error reported to it and that with such
modifications the error, defect, or malfunction of SBO 90
has been corrected. The results of such tests and
performance standards shall be delivered to LICENSEE.
Technical Support Services Agreement page 5 of 5
<PAGE>
EXHIBIT 10.32
LICENSE AGREEMENT
This License Agreement dated this first day of May, 1995 is entered into by and
between Alan King and Company, Inc., a California Corporation ("LICENSOR") and
Pan American Savings Bank, a federal savings bank ("LICENSEE").
This License Agreement, including any Addendum, any referenced exhibits, and any
other signed amendments or agreements (collectively the "Agreement"), constitute
the entire agreement between the parties relating to the subject matter herein.
Any statements or promises made between the parties which are not contained
herein regarding the subject matter hereof shall not be binding.
1. RECITALS
WHEREAS, LICENSOR is engaged in the business of developing, licensing,
installing and servicing the proprietary software known as SBO 90 Master
Servicing Software ("Program"); and
WHEREAS, LICENSEE desires to license such Program, as defined more fully
hereunder:
NOW, THEREFORE, for the reasons set forth above, and in consideration of the
mutual promises and agreements hereinafter set forth, LICENSOR and LICENSEE
hereby agree as follows:
2. NOTICES
Notices and documents to be given hereunder by one party to the other party must
be in writing and may be given either by personal delivery or prepaid by first
class mail or nationally recognized overnight carrier to the following
addresses:
LICENSEE: Pan American Savings Bank
1300 S. El Camino Real, 6th Floor
San Mateo, CA 94402
(415) 345-1800
Attention: Dennis A. Byasse
LICENSOR: Alan King and Company, Inc.
4066 Dunbarton Circle
San Ramon, CA 94583
(510) 551-8057
- --------------------------------------------------------------------------------
SBO 90 License Agreement Page 1 of 10
- --------------------------------------------------------------------------------
<PAGE>
This address to which or the person to whom notice is to be given may be changed
from time to time by either party by written Notice to the other party as set
forth herein. Such change shall be effective upon notification of such change
in the manner set forth above. Notices sent as set forth above shall be
effective on the earlier of receipt or one (1) business day following mailing.
3. LICENSE
This Agreement allows LICENSEE to use the Program (which reference shall include
documentation) solely for the internal data processing operations of LICENSEE
and its subsidiary and affiliated entities for its own benefit or for the
benefit of any investor for whom it services loans. LICENSEE may not use the
Program for commercial timesharing, rental, or service bureau use. The Program
may not be transferred, sold, assigned, or otherwise conveyed to another party
without LICENSOR's prior written consent. This Agreement is for up to 48
copy(s) of the Program and may only be used on up to 48 workstation(s).
Backup and contingency planning copies may be made as deemed necessary by
LICENSEE, but only the number of copies of the Program as stated above may be
installed at any one time.
Only one database may be used by LICENSEE under this Agreement.
4. PRICING
LICENSEE will pay a fee each quarter based an the loan count on the last
business day of the quarter. The fee per loan will be based on the following
table
QUARTERLY LICENSE FEES
<TABLE>
<CAPTION>
Number of Loans Quarterly Per Loan Fee*
<S> <C>
1-409 ** Minimum of $450/quarter
410-499 $1.10
500-999 $.95
1000-1999 $.825
2000-4999 $.6875
5000 or more $.55
</TABLE>
* Total fee for each category will not exceed minimum fee for next category
** If fewer than 410 loans reside on the Program, a minimum fee of $450 per
quarter will be charged in lieu of a per loan fee
- --------------------------------------------------------------------------------
SBO 90 License Agreement Page 2 of 10
- --------------------------------------------------------------------------------
<PAGE>
Payment of the Quarterly License Fee shall entitle LICENSEE to (1) day of on-
site (at location of LICENSEE) training per year, plus ongoing technical
support, maintenance and enhancements as defined in the Technical Support
Services Agreement. LICENSEE will reimburse LICENSOR for actual travel, lodging
and food expenses associated with on-site training visit.
The Quarterly License Fee shall be invoiced following the end of each calendar
quarter based on the loan count on the last business day of the quarter. In the
event that the Quarterly License commences on other than the first day or
terminates on other than the last day of a calendar quarter, the Quarterly
License Fee for that period will be prorated accordingly. For this purpose,
loan count is defined as those loans which the servicer continues to include on
its reports and where the principal balance is greater than zero.
The Quarterly License Fee may be increased once each year, the resulting fee may
be no higher than the lesser of the current fee charged by LICENSOR to similar
clients, or a maximum of ten percent (10%) over the previous year's fee.
5. PAYMENT TERMS
Invoices shall be payable within thirty (30) days after LICENSEE'S receipt of
such invoice. In the event of any disputed amount(s) on any invoice, LICENSEE
shall pay any amounts not in dispute, and shall pay the remaining amount as
mutually agreed, to be due within twenty (20) days after resolution of such
dispute. The failure of LICENSEE to pay any amount in dispute shall not be
deemed a default hereunder.
6. PROPRIETARY PRODUCT; COPYING RESTRICTIONS
LICENSEE acknowledges that LICENSOR advises that the Program as delivered by
LICENSOR or as modified by either party is the proprietary property of LICENSOR
and is protected by copyright law, and that LICENSOR shall at all times retain
right, title and interest (including copyrights and trade secret rights) in and
to Program, including all revisions, enhancements, and improvements. LICENSEE
may make one copy of the Program for backup purposes; no other copies shall be
made without the prior written consent of LICENSOR.
7. TECHNICAL SUPPORT SERVICES
Technical support, maintenance, updates and enhancements ("Maintenance
Services") shall be provided for as defined in the Technical Support Services
Agreement ("TSSA") between the parties.
- --------------------------------------------------------------------------------
SBO 90 License Agreement Page 3 of 10
- --------------------------------------------------------------------------------
<PAGE>
Payment of the license fee as defined in Section 4 herein shall entitle LICENSEE
to Maintenance Services, as provided for in the TSSA at no additional cost.
8. OTHER SOFTWARE
In the event LICENSEE purchases single user license, LICENSOR will acquire and
provide necessary oracle license to LICENSEE at no additional cost to LICENSEE.
Otherwise, LICENSEE will purchase required oracle licenses at the current
LICENSOR'S price as published in LICENSOR'S current price schedule.
LICENSOR hereby represents and warrants that it is authorized to license Oracle
software products to LICENSEE.
9. TERM; TERMINATION
This Agreement will continue from quarter to quarter, so long as LICENSEE
continues to pay the appropriate license fees. LICENSEE may terminate the
Agreement by providing LICENSOR with at least thirty (30) days advance written
notice.
Notwithstanding the above, the provisions found under Sections 2, 10, 12, and 17
hereunder shall survive any termination of this Agreement.
10. CONFIDENTIAL INFORMATION; NON-DISCLOSURE
LICENSOR acknowledges that LICENSOR, its employees and agents may produce or
have access to confidential information, records, files, documents, data,
specifications, trade secrets, customer lists, and secret inventions and
processes of LICENSEE and confidential customer information (collectively
"Information"). All records, files, drawings, documents or copies thereof,
relating to LICENSEE'S Information, which LICENSOR shall prepare or use, or come
in contact with, shall be and remain the sole property of LICENSEE, and shall
not be reproduced, transmitted, or removed from LICENSEE'S premises without its
written consent and LICENSOR agrees that it will not use or permit others to use
or disclose to any persons or business entity without the prior written consent
of LICENSEE. LICENSOR shall hold all such Information contained in or derived
from any of the sources described above in trust and confidence for LICENSEE
except as authorized in advance by LICENSEE in writing. LICENSOR agrees to
adopt and maintain procedures reasonably calculated to ensure that only such
employees or agents of LICENSOR that have need to know such Information in order
to discharge LICENSOR'S obligations hereunder have access to such Information
and that such employees or agents are bound by the
- --------------------------------------------------------------------------------
SBO 90 License Agreement Page 4 of 10
- --------------------------------------------------------------------------------
<PAGE>
terms hereof. Upon termination of this Agreement, LICENSOR shall take all
reasonable steps necessary to protect LICENSEE'S rights hereunder and to assist
LICENSOR in protecting its rights hereunder. In the event of a breach hereunder
by LICENSOR or its employees or agents, LICENSEE shall be entitled to all
available legal and equitable relief including injunction, temporary or
permanent.
The obligation of non-disclosure and cooperation shall survive any termination
of this Agreement.
11. LIMITED WARRANTY; LIMITATION OF LIABILITY
A. LICENSOR warrants the diskettes to be free of defects in material and
workmanship under normal use. LICENSOR will replace promptly any defective
diskette without charge if the defective diskette is returned to LICENSOR.
LICENSOR further warrants that the Program, unless modified by LICENSEE,
will substantially perform the functions described in the documentation
provided by LICENSOR when operated on the designated hardware and operating
system as defined herein.
B. The Program warranty does not cover any Program that has been altered or
changed in any way by anyone other than LICENSOR. LICENSOR is not
responsible for problems caused by changes in the operating characteristics
of computer hardware or computer operating systems which are made after
installation of the Program, nor for problems in the interaction of the
Program with NON-LICENSOR software, except for changes made with the prior
knowledge and approval of LICENSOR and software in use prior to the date
hereof. LICENSOR represents and warrants that the Program and the software
described under Section 8 herein are compatible with LICENSEE'S current
operating environment and with LICENSEE'S current software and hardware,
and that the Program will perform to standards set forth in the Program
documentation.
C. If LICENSEE reports a defect in the Program, LICENSOR shall, at its option,
promptly correct such defect or provide LICENSEE a reasonable procedure to
circumvent the defect.
THESE WARRANTIES ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER WARRANTIES OF
MERCHANTABILITY OR OF ANY OTHER WARRANTY, WHETHER EXPRESSED OR IMPLIED
REGARDING PROGRAM FUNCTIONALITY
LICENSOR shall not in any case be liable for special, incidental,
consequential, indirect, or other similar damages arising from any breach
of the above warranties even if
- --------------------------------------------------------------------------------
SBO 90 License Agreement Page 5 of 10
- --------------------------------------------------------------------------------
<PAGE>
LICENSOR or its agent has been advised of the possibility of such damages.
LICENSOR'S liability for damages hereunder shall in no event exceed the
aggregate of the fees paid by LICENSEE under this Agreement.
Notwithstanding anything to the contrary herein, the above limitation of
liability shall not apply to any claims or damages caused by or arising out
of LICENSOR'S negligence, willful misconduct, breach of patent, copyright,
trademark, or other intellectual property right, or violation of Section 10
herein, including, without limit, personal injury and property damage.
These warranties allocate the risks of Program failure between LICENSOR and
LICENSEE. LICENSOR'S pricing reflects this allocation of risk and the
limitation of liability contained in this warranty.
12. PATENT AND COPYRIGHT INDEMNITY
Notwithstanding the above, LICENSOR warrants that it holds title and/or
copyright rights to the Program, and is authorized to license the Program
to LICENSEE as stipulated hereunder.
LICENSOR will defend at its own expense and indemnify LICENSEE and its
subsidiaries and affiliates from and against any claim or action brought
against LICENSEE or its affiliates to the extent it is based an a claim
that the Program supplied by LICENSOR infringes a United States patent,
copyright or other proprietary right, and will pay any costs, liabilities,
damages or LOSSES, including attorney, consulting or arbitration fees in
any such action which are attributable to any such claim. However, such
defense and payments are subject to the conditions that:
A. LICENSEE will notify LICENSOR in writing of any such claim;
B. LICENSOR will have control of the defense and negotiation for settlement or
compromise; and
C. LICENSEE will reasonably assist LICENSOR in the defense of any such claim,
at no cost to LICENSEE.
Should the Program become (or in LICENSOR'S'S opinion be likely to become)
the subject of any claim, LICENSEE will permit LICENSOR at LICENSOR'S
option and expense to (i) procure for LICENSEE the right to continue using
the Program; or (ii) replace or modify the Program so that it
- --------------------------------------------------------------------------------
SBO 90 License Agreement Page 6 of 10
- --------------------------------------------------------------------------------
<PAGE>
becomes non infringing while providing equivalent performance within
LICENSEE'S then existing environment. LICENSOR assures LICENSEE the right
to on-going, uninterrupted use of the Program.
13. EXPORT ADMINISTRATION
If the Program is for use outside the United States, LICENSEE agrees to
comply fully with the U.S. Export Administration Act to assure that the
Program and media are not exported in violation or United States Law.
14. GOVERNING LAW
This Agreement shall be governed for all purposes by the laws of the State of
California.
15. ATTORNEYS' FEES PROVISION
If any action (lawsuit or arbitration) is filed or proceeding is brought in
connection with this Agreement or for the enforcement or declaration of any
rights, obligations, or remedies arising under the Agreement or otherwise
granted, permitted or imposed by law or in equity, then the prevailing party
therein shall be entitled to recover from the other party all costs and
expenses, including reasonable attorneys' fees, arbitration costs and court
costs sustained or incurred by the prevailing party.
16. REGULATORY COMPLIANCE
LICENSOR will abide by all regulatory agency policies, bulletins or
announcements that pertain to LICENSEE and assure licensed material allows
LICENSEE to comply with all applicable laws and regulations to the extent
relevant thereto, to include, without limit, the Office of Thrift Supervision
(OTS), Federal Deposit Insurance Corporation (FDIC), Federal Financial
Institution Examination Counsel, the office of the Comptroller of the Currency
(OCC), the Federal Reserve Board (FRB), the National Credit Union Association
(NCUA) and the Internal Revenue Service (IRS). On request, LICENSOR will
provide copies or reasonable access to plans, procedures or other evidence of
regulatory compliance to LICENSEE.
17. ARBITRATION
Any disputes not resolvable between LICENSOR and LICENSEE will be settled by an
arbitrator agreeable by both LICENSOR and LICENSEE, under the rules of the
American Arbitration Association then in effect.
- --------------------------------------------------------------------------------
SBO 90 License Agreement Page 7 of 10
- --------------------------------------------------------------------------------
<PAGE>
18. COMPLETE AGREEMENT
This Agreement, and the TSSA constitute the complete agreement between the
parties regarding the subject matter herein. The terms of these agreements
shall supersede the terms of any purchase order or other instrument issued by
LICENSEE for the Program. No modification, amendment, supplement to or waiver
of this Agreement or any of its provisions shall be binding upon the parties
hereto unless made in writing and duly signed by the party to be bound. A
failure or delay of either party to this Agreement to enforce at any time any of
the provisions of this Agreement or to require at any time timely performance of
any of the provisions hereof, shall in no way be construed to be a waiver of
such provision.
19. FORCE MAJEURE
Neither party shall be liable for delays or failure to perform due to causes
beyond its reasonable control, including delays in transportation. In the event
of any such delay, the date of performance shall be extended for a period equal
to the time lost by reason of the delay. If any such delay by LICENSOR extends
for thirty (30) days or more, LICENSEE may terminate this agreement upon twenty
(20) days written notice.
20. DEFAULT
In the event of the LICENSOR'S breach of this Agreement, which breach remains
uncured after ten (10) days notice, LICENSEE shall have the right to terminate
this Agreement and pursue its legal rights of law and equity, subject to the
limitation of liability provided in Section 11 hereunder.
21. ASSIGNMENT
Except as provided herein, LICENSEE may not assign this Agreement without the
prior written consent of LICENSOR. LICENSOR may not assign or subcontract any
part of this Agreement without the prior written consent of LICENSEE. Neither
party will withhold its consent unreasonably.
22. COMPLIANCE WITH LAWS
Both parties shall comply with and conform to all laws and regulations to the
possession, use, and maintenance of the products and services provided under
this Agreement and the TSSA.
LICENSOR agrees that (i) in the provision Of products and services to LICENSEE
under this Agreement, LICENSOR shall comply with all applicable federal, state,
and local laws, executive orders and
- --------------------------------------------------------------------------------
SBO 90 License Agreement Page 8 of 10
- --------------------------------------------------------------------------------
<PAGE>
regulations thereunder and amendments thereto including without limitation,
Executive Order No. 11375 of October 13, 1967, relating to equal employment
opportunity. The Federal Occupational Safety Health Act of 1970, The Federal
Hazardous Substances Act, The Transportation Safety Act of 1974, The Clear Air
Act, The Toxic Substances Control Act, and The Federal Water Pollution Control
Act; (ii) the products and services provided by the LICENSOR to LICENSEE shall
conform to the requirements of such laws, orders, and regulations; and (iii)
this Agreement shall be deemed to incorporate by reference all of the clauses
required by the provisions of said laws, orders, and regulations.
23. SOURCE CODE
LICENSOR will provide Program source code to an escrow agent upon signing of
contract. LICENSOR will provide source code updates to escrow agent as changes
to source code are made. The source code will remain with the escrow agent as
long as LICENSEE rents Program or maintains technical support if and when
LICENSEE upgrades to a perpetual license. Escrow agent will provide source code
to LICENSEE if a default by LICENSOR occurs. A default is any of the following
events:
LICENSOR commences a voluntary case under the Federal bankruptcy laws or has
filed a petition seeking to take advantage of any other laws relating to
bankruptcy.
LICENSOR has ceased its on-going business operations, or sale, licensing,
maintenance or other support of the Program.
Any other event or circumstance occurs which demonstrate with reasonable
certainty the inability or unwillingness of LICENSOR to fulfill its obligations
to LICENSEE.
24. TRAINING
As of the Commencement Date of this Agreement, LICENSEE shall be entitled to
three (3) days of onsite training/consulting time. LICENSEE shall be responsible
for all travel and lodging expenses incurred by LICENSOR during this trianing
period.
25. MISCELLANEOUS
A. This agreement may be simultaneously executed in counterparts each of which
shall be deemed an original, but all of which shall constitute one and the
same agreement.
B. If any provision of this Agreement as applied to any party or to any
circumstances shall be deemed by a court of law to be
- --------------------------------------------------------------------------------
SBO 90 License Agreement Page 9 of 10
- --------------------------------------------------------------------------------
<PAGE>
void or unenforceable, the same shall in no way affect any other provision
in this Agreement, the application of such provision in any other
circumstance or the validity or enforceability of the Agreement as a whole.
C. Each party represents and warrants that the person or persons executing
this Agreement on its behalf is authorized to execute this Agreement on
behalf of that party.
ACCEPTED
Alan King and company, Inc.
BY: /s/ ALAN KING
-------------------------------
Printed Name: Alan King
Title: President Date: May 1, 1995
--------------
Pan American Savings Bank
BY: /s/ ROBERT WILSON
-------------------------------
Printed Name: Robert Wilson
Title: E.V.P Date: April 13, 1995
---------- --------------
- --------------------------------------------------------------------------------
SBO 90 License Agreement Page 10 of 10
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 10.33
SUBSERVICING AGREEMENT
----------------------
This SUBSERVICING AGREEMENT ("this SA") is made as of March 2, 1995,
between:
PAN AMERICAN, FSB BANK, whose principal office is located at 1300 South El
Camino Real, 6th Floor, San Mateo, California 94550 ("Lender"); and
DOVENMUEHLE MORTGAGE, INC. a Delaware corporation, whose address is 1501
Woodfield Road, Suite 400 East, Schaumburg, Illinois 60173-4982 ("Subservicer").
RECITALS:
--------
A. Subservicer is engaged in the business of servicing and subservicing
real estate mortgage loans evidenced by promissory notes and secured by
mortgages, deeds of trust, trust deeds, security deeds, deeds to secure debt and
like security instruments.
B. Subservicer has the capacity to service or subservice for Lender the
residential mortgage loans or pools of residential mortgage loans identified on
SCHEDULE I attached hereto and made a part hereof by this reference (which,
together with any mortgage loans or pools of mortgage loans hereafter added with
the consent of the Parties, are collectively referred to herein as the "Mortgage
Loans"). In each instance, Lender is or will be either (1) the owner of the
related Mortgage Loans to be serviced by Subservicer hereunder or (2) the owner
of the right to service the related Mortgage Loans to be subserviced by
Subservicer hereunder.
C. Lender desires that Subservicer service or subservice the Mortgage
Loans and Subservicer is agreeable to doing so, all on the terms and conditions
hereinafter provided. For ease of reference and to avoid repetition, both the
servicing of Mortgage Loans owned by Lender and the subservicing of Mortgage
Loans for which Lender is the owner of the Servicing Rights are referred to
herein as "subservicing" by the Subservicer.
NOW, THEREFORE, in consideration of the Recitals and of the mutual and
several agreements of Lender and the Subservicer (collectively, the "Parties")
herein, and intending to be legally bound hereby, the Parties hereby agree as
follows with respect to the subservicing of each Mortgage Loan or group of
Mortgage Loans now or hereafter covered and governed by this SA.
-1-
<PAGE>
ARTICLE I - DEFINITIONS
------------------------
1.1 For purposes of this SA, each of the following terms shall have the meaning
specified with respect thereto.
"Advances" is defined in Section 3.5 below.
--------
"Agencies" means FHLMC, FNMA and GNMA, as the context may indicate, each an
--------
"Agency."
"Ancillary Income" means all fees, administrative fees and other income
----------------
collected by Subservicer from Mortgagors or in respect of Optional Insurance,
including without limitation late charges, bad check charges, assumption fees,
fees for releases of liability, partial release fees, release deed and
satisfaction fees and any other incidental fees permissible under Applicable
Requirements, but does not include: (i) Servicing Fees; (ii) reimbursement of
Advances or certain expenses as herein provided; (iii) the fees and charges
described in Sections I.A, I.B., I.D., I.E., I.F., I.H., II and III of SCHEDULE
II attached hereto and made a part hereof by this reference; nor (iv) collection
of T&I and P&I payments from Mortgage Loan Mortgagors.
"Applicable Requirements" means and includes, as of the time of reference,
-----------------------
all of the following: (i) all Mortgage Loan-related contractual obligations of
any Prior Servicer, of the Lender and of the Subservicer, as the case may be,
including without limitation those contractual obligations of Prior Servicer and
the Lender or the Subservicer contained in this SA or in the Mortgage Loan
Documents for which the Lender or Subservicer is responsible or for which any
Prior Servicer was at any time responsible; (ii) all applicable Mortgage Loan-
related federal, state and local legal and regulatory requirements (including
statutes, rules, regulations and ordinances) binding upon Lender or the
Subservicer or any Prior Servicer; (iii) all other applicable Mortgage Loan-
related requirements and guidelines of (1) each governmental agency, board,
commission, instrumentality and other governmental body or officer having
jurisdiction [including without limitation those of FHA, FHLMC, FNMA, GNMA, HUD
and VA and their respective Guides]; and (2) the PMI Companies (if any),
including without limitation their respective Guides; and (iv) all other
applicable judicial and administrative judgments, orders, stipulations, awards,
writs and injunctions.
"ARM" means an adjustable-rate Mortgage Loan which allows the holder of the
---
promissory note secured thereby to periodically adjust the interest rate on the
basis of the movement in a specified index.
"Balloon" refers to a Mortgage Loan the principal of which will not fully
-------
amortize before the scheduled maturity of that Mortgage Loan.
-2-
<PAGE>
"Business Day" means any day other than (i) a Saturday or Sunday, or (ii) a
------------
day on which insured depository institutions in Illinois or California are
authorized or obligated by law or executive order to be closed.
"C.P.I." means Computer Power, Inc., the computer service bureau which
------
provides Subservicer's C.P.I. System.
"C.P.I. System" means the Subservicer's automated loan servicing system
-------------
provided by C.P.I.
"C.P.I." is defined in SCHEDULE II.
-----
"Escrow Accounts" means all funds and accounts at the time of reference
---------------
held under the related Mortgage Loans by or for the Lender on behalf of the
Mortgagors; Investors or others, including but not limited to: (i) Mortgage Loan
trust funds and impound accounts maintained or controlled by or for the Lender
for the purpose of paying, when due, Mortgage Loan related real estate taxes and
special assessments, Hazard Insurance premiums, special hazard insurance
premiums, mortgage insurance premiums and ground rents; (ii) P&I collections
(including payoff amounts) not yet remitted to the appropriate Investors; (iii)
undisbursed loss draft proceeds arising from insured losses to Mortgage Loan
collateral, Optional Insurance premiums, buydown funds and other unapplied
payments; and (iv) all other Mortgage Loan funds held by or for the Lender in
connection with the Mortgage Loans which do not constitute corporate funds of
the Lender.
"FDIC" means Federal Deposit Insurance Corporation and any successor
----
corporation.
"FHLMC" or "Freddie Mac" means the Federal Home Loan Mortgage Corporation
----- -----------
and any successor corporation.
"FHA"means the Federal Housing Administration within HUD and any successor
---
agency or department.
"FNMA" or "Fannie Mae" means the Federal National Mortgage Association and
---- ----------
any successor corporation.
"GNMA" or "Ginnie Mae" means the Government National Mortgage Association
---- ----------
and any successor corporation.
"Guides" means and includes, as of the time of reference, all Mortgage
------
Loan-related published guidance of FHA, FHLMC, FNMA, GNMA, HUD, VA and any PMI
Companies, including without limitation mortgage letters, announcements,
circulars, handbooks and
-3-
<PAGE>
manuals which establish requirements or procedures applicable to the
origination, administration, pooling, servicing or subservicing of the Mortgage
Loans or claims against FHA, VA or a PMI Company in connection therewith.
"HUD" means the U.S. Department of Housing and Urban Development and any
---
successor agency or department.
"Investor" means, as of the time of reference: (i) FNMA with respect to
--------
Mortgage Loans owned or securitized by FNMA; (ii) FHLMC with respect to Mortgage
Loans owned or securitized by FHLMC; (iii) with respect to Mortgage Loans
collateralizing securities guaranteed by GNMA, either the Party having Issuer
Responsibility or the holders of related GNMA-guaranteed certificates or GNMA,
as the context shall indicate; (iv) Lender, with respect to portfolio Mortgage
Loans owned by Lender and serviced by Subservicer hereunder, other than an owner
and holder referred to in the preceding clauses (i), (ii), (iii) or (iv).
"Lender" means the Party identified as such at the top of Page 1 of this
------
SA.
"Mortgage," "Mortgages" and "Mortgage Loans" refer to fixed-rate or
-------- --------- --------------
adjustable-rate mortgage loans and the security deeds, trust deeds, deeds of
trust and other documents securing those fixed-rate or adjustable-rate loans
which comprise the residential mortgage loans or pools of residential mortgage
loans identified on SCHEDULE I, together with any such pools or loans hereafter
subserviced hereunder by mutual agreement of Lender and Subservicer.
"Mortgaged Premises" is a reference to the real estate encumbered by a
------------------
Mortgage to secure a Mortgage Loan.
"Mortgagor" means the one or more mortgagors, trustors of trust deeds and
---------
deeds of trust, the grantors of any Mortgages securing a Mortgage Loan and the
owners of the Mortgaged Premises at the time of reference.
"Optional Insurance" means Mortgage/credit life insurance, accidental death
------------------
insurance, disability insurance, unemployment insurance or any similar optional
insurance covering a Mortgagor for which premiums are collected by Subservicer.
"Parties" means the Lender and the Subservicer, each a "Party."
-------
"Person" means and includes a human individual, partnership (general or
-------
limited), corporation, trust, joint venture, joint stock company, association,
unincorporated organization, government or agency or political subdivision
thereof, or other entity.
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<PAGE>
"P&I" means principal and interest.
---
"PMI" means private mortgage insurance.
---
"PMI Companies" is a generic reference to the insurance companies offering
-------------
PMI.
"Prime Rate" means the fluctuating prime rate published each Business Day
----------
under the "MONEY RATES" column in The Wall Street Journal.
--- ---- ------ -------
"Prior Servicers" is a collective reference to all individuals and entities
---------------
(except Subservicer) who at any time originated, serviced or subserviced any of
the Mortgage Loans.
"Servicing Rights" means the rights and responsibilities with respect to
----------------
servicing and supervising the Mortgage Loans and the associated Escrow Accounts
and Mortgage Loan Files.
"Subservicer" means the Party identified as such at the top of Page 1 of
-----------
this SA.
"T&I" means taxes and insurance.
---
"Transfer Date" is defined in Section 6.3.
-------------
"VA" means the U.S. Department of Veterans Affairs and successor agency or
--
department.
ARTICLE II - AGREEMENTS OF SUBSERVICER
--------------------------------------
2.1 In General.
----------
(a) The foregoing Recitals are incorporated herein an made a part hereof as
though restated at length at this point. Subservicer hereby agrees to
subservice the Mortgage Loans pursuant and subject to the terms of this SA.
(b) If any Investor requires consolidated reporting and remittances, then
Subservicer shall have no duty to report and remit to that Investor on behalf of
the Lender unless Subservicer subservices Lender's entire portfolio of mortgage
loans owned and securitized by that Investor.
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<PAGE>
2.2 Compliance.
----------
(a) Subservicer will comply with, and Subservicer will endeavor to cause
each Mortgagor to comply with, all applicable state and federal rules and
regulations and requirements of PMI Companies, including those requiring the
giving of notices.
(b) Where applicable, Subservicer will comply with the National Housing
Act, as amended, and with the Servicemen's Readjustment Act of 1944, as amended,
and with all rules and regulations issued under each of those statues, and with
requirements of PMI Companies, including requirements concerning the giving of
notices and submitting of claims required to be given or submitted to FHA, VA or
to PMI Companies, to the end that the full benefit of any applicable FHA
insurance, the guaranty of the United States of America, or PMI will inure to
the benefit of Lender and Investors as their interests may appear. Subservicer
will forward copies of all such notices or claims to Investor if requested in
writing by Investor.
2.3 Duties of Subservicer with respect to Mortgage Loans. Until the P&I of
----------------------------------------------------
each Mortgage Loan is paid in full, unless sooner terminated pursuant to the
terms hereof, but subject always to Applicable Requirements and Lender's
performance of its obligations under Section 3.5 below, Subservicer shall:
(a) Collect applicable payments of principal, interest and applicable
deposits for taxes, assessments and other public charges that are generally
impounded, hazard insurance premiums, FHA insurance or PMI premiums, and all
other items, as they become due;
(b) Accept payments of P&I and Escrow Account deposits only in accordance
with the Mortgage Loan Documents. Deficiencies in or excess in payments or
deposits shall be accepted and applied, or accepted and unapplied, or rejected
in accordance with the requirements of HUD and VA with respect to FHA and VA
Mortgages respectively, and in accordance with the provisions of FNMA, FHLMC and
other conventional Mortgage Loan instruments with respect to conventional
Mortgage Loans;
(c) Apply all installments and Escrow Account deposits collected by it from
the Mortgagor, and maintain permanent mortgage account records which shall
accurately reflect (and be capable of generating a paper "hard copy"): (i) at
any time in chronological order the date, amount, distribution, installment due
date and other transactions affecting the amounts due from or to the Mortgagor;
and (ii) the latest outstanding balances of principal, Escrow Account deposits,
advances and unapplied payments;
(d) Pending disbursements, segregate and hold Escrow Accounts in an
institution designated by Lender whose deposits are insured by the FDIC, meeting
the requirements of
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<PAGE>
FHLMC, FNMA or GNMA, as appropriate, in such manner as to show the custodial
nature thereof, and so that the Investor, and each separate Mortgagor whose
funds have been contributed to such account or accounts will be individually
protected, to the extent permitted by law, under the rules of FDIC. To the
extent permitted by Applicable Requirements, Lender may designate itself as the
depository institution for such Escrow Accounts. Subservicer's records shall
show the respective interest of the Investor and each Mortgager in all such
Escrow Accounts. All funds collected for P&I shall be held by and carried in
records of the Subservicer "as trustee" and the Lender "as trustee" for the
Investor, and shall be established in such a manner as to comply with all
applicable rules and regulations of any governmental agency insuring or
guaranteeing the Mortgage Loan. Subservicer shall:
(i) deposit funds into Escrow Accounts within two (2) Business Days
after Subservicer's receipt of related funds, it being understood and agreed
that:
(1) all transfers to and from Escrow Accounts will be
accomplished through ACH or Fedwire transfers;
(2) Lender will establish and maintain all Escrow Accounts in
accordance with Agency or other Applicable Requirements and cooperate with
Subservicer to facilitate appropriate draws on such Escrow Accounts;
(3) Lender will honor (or if Lender is not bank or thrift, to
direct the banks or thrifts holding Lender's Escrow Accounts to honor) all ACH
transfer requests initiated by Subservicer;
(4) Subservicer will initiate the ACH or Fedwire fund transfer
process referred to in Section 2.2(d)(i)(1) above within one (1) Business Day
following Subservicer's receipt of such funds; and
(ii) notify Lender, not later than one (1) Business Day before any
Investor P&I remittance is due, if P&I funds are required to be wire-transferred
to Subservicer for remittance to such Investor;
(e) Maintain deposits received from Mortgagors for the payment of recurring
obligations in custodial accounts as specified in Subsection (d) of this
Section. If any federal or state statute or rule of law requires the payment of
interest on such deposits, Subservicer will pay such interest on Escrow Accounts
which it maintains or controls, subject to Subservicer's rights under Section
3.5. Subservicer will determine the amount of deposits to be made by Mortgagors
and will furnish to each Mortgagor, at least once a year, an analysis of the
Escrow Account;
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<PAGE>
(f) Maintain accurate records reflecting the status of taxes, ground rents
and other recurring charges generally accepted by the mortgage servicing
industry which would become a lien on the Mortgaged Premises. For all Mortgage
Loans providing for the payment to and collection by Subservicer of Escrow
Account deposits for taxes, ground rents or such other charges, Subservicer
shall pay such charges before any penalty date and, whenever possible and when
required by Applicable Requirements, in time to secure maximum discounts
allowable. Subservicer assumes responsibility for the timely payment of all
such items and will hold harmless and indemnify Lender and Investor from all
penalties, loss or damage resulting from Subservicer's failure to discharge said
responsibility (subject to Lender's performance of its obligations under Section
3.5 below, as aforesaid);
(g) For any Mortgage Loan for which Escrow Account deposits have
theretofore been waived or suspended, upon (i) notification to Subservicer by
Subservicer's tax service of non-payment of real estate taxes, or (ii)
notification to Subservicer of non-payment of other items customarily paid from
escrow, or (iii) the failure of any Mortgagor to timely supply to Subservicer
renewal policies of fire and extended coverage insurance, endeavor to obtain the
necessary funds of policies from the Mortgagor. If the Mortgagor fails timely
to cure his or her default, then Subservicer will: (1) make an Advance to pay
any delinquent taxes and such other delinquent items; (2) if necessary, "force
place" lapsed fire and extended insurance; (3) request reimbursement from Lender
in accordance with Section 3.5; and (4) take appropriate steps to collect the
Advances as quickly as possible and (if permitted to do so under Applicable
Requirements) establish a fully funded Escrow Account at the earliest
practicable time;
(h) If funds held in a Mortgagors's Escrow Account are insufficient to
timely pay, when due and in full, related real estate taxes and assessments,
mortgage insurance premiums, hazard or flood insurance premiums, or other items
customarily paid from an Escrow Account: (1) make Advances to pay such items;
(2) endeavor to collect the Advances from the Mortgagor in the shortest
practicable time; and (3) request reimbursement from Lender in accordance with
Section 3.5;
(i) Assure that improvements on the Mortgaged Premises securing each
Mortgage Loan are insured by hazard insurance issued by companies acceptable to
Investor in an amount at least equal to the unpaid principal balance of the
Mortgage Loan or the full insurable value of the improvements, whichever is
less, of a type at least as protective as fire and extended coverage, and
containing a "standard" mortgagee clause (without contribution) in the form
customarily used in the area in which the Mortgaged Premises are located. In
all events, the provisions of the underlying Mortgage Loan Documents shall
prevail. During the course of subservicing, the mortgagee clause under the
hazard insurance will name the party insured as follows:
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<PAGE>
Lender, its successors and/or assigns
C/O DOVENMUEHLE MORTGAGE, INC.
1501 Woodfield Road, Suite 400 East
Schaumburg, Illinois 60173-4982
2.4 Other. Subservicer shall be responsible for further safeguarding each
-----
Investor's interest in the Mortgaged Premises and rights under the Mortgaged
Loan by:
(a) Inspecting the Mortgaged Premises in accordance with Applicable
Requirements, and performing such other inspections as prudence and sound
business judgment dictate;
(b) To the extent possible, security any Mortgaged Premises found to be
vacant or abandoned, and advising Investor of the status thereof;
(c) Notifying Investor if Subservicer receives notice or otherwise becomes
aware of any lien, bankruptcy, condemnation, probate proceeding, tax sale,
partition, local ordinance violation, condemnation in the nature of eminent
domain or similar event that would, in Subservicer's judgment, impair Investor's
security; and Subservicer shall assist Investor in undertaking appropriate
action to preserve its security;
(d) Advising Investor and Lender (and thereafter, if appropriate, FHA, VA
or a PMI Company) promptly upon receipt of any request for a partial release,
easement grant, substitution, subdivision or resubdivision, subordination,
alteration, or waiver of security instrument terms, and (if required by
applicable Requirements or if approved by the related Investor) seeking
necessary consents to such request;
(e) (1) Advising the Lender promptly in all cases (and advising the
related Investor, if requested) of any change in ownership of the Mortgaged
Premises subject to a Mortgage Loan, and (subject always to Applicable
Requirements) complying with all instructions of the Lender and Investors with
respect to the acceleration or modification of the indebtedness. Subservicer
will contact Lender immediately upon inquiry from a Mortgagor of the possibility
of assumption. If Lender (and, if applicable, the related Investor) shall
authorize assumption subject to qualification of the assumptors and receipt of
further documentation, then Subservicer shall, upon receipt of a signed contract
and an application fee from the Mortgagor and proposed assumptors, provide a
blank application form for completion by the Mortgagor and assumptors, with
applicable verification forms to be signed by the proposed assumptors. Upon
receipt of the completed application and signed verification forms from the
Mortgagor and proposed assumptors, as applicable, Subservicer will process the
application (i.e., request credit reports and verify all information on the
completed application) and forward the completed assumptions package to the
Lender
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<PAGE>
and/or Investor for further processing. Lender and/or Investor will then
underwrite the requested assumption, request any required mortgage insurer's
approval, and forward approved assumption to Subservicer for final transfer and
assumption. If consent to assumption is denied, Lender and/or Investor will
prepare a proper denial letter and forward the original denial letter to the
Mortgagor and deliver a copy to the Subservicer.
(2) Notifying the Lender within one (1) Business Day following
Subservicer's receipt of a request for approval of an assumption and supplying
all information in the possession of Subservicer which is requested by the
Lender to facilitate the preparation by Lender of any required disclosures.
Lender and/or Investor will prepare and forward all disclosures to the
assumptors within time frames set by Applicable Requirements and send a copy set
of all disclosures to Subservicer. With respect to an assumption, Subservicer
shall have no responsibility or liability regarding disclosures required from
the Investor or the Lender or the accuracy of the same, except as set forth in
this Section 2.4(e).
(f) Maintaining in force all times a policy of errors and omissions
insurance coverage at Subservicer's sole expense, with appropriate deductibles.
One of the purposes of such coverage is to provide Lender and Investor
protection in liquidating a Mortgage Loan against the net loss that can be
attributed to damage to the Mortgaged Premises from a hazard or peril required
by the Investor to be insured and that otherwise would be insured but for
Subservicer's negligence in allowing insurance coverage to lapse or failing to
keep a sufficient amount of insurance in force. Subservicer shall also maintain
at all times a policy of general liability insurance in amounts satisfactory to
comply with all Applicable Requirements.
(g) The disbursing of insurance loss settlements, including:
(1) the receiving of reports of hazard insurance losses and assuring
that proof of loss statements are properly filed;
(2) authorizing the restoration and rehabilitation of the Mortgaged
Premises;
(3) collecting, endorsing and disbursing the insurance loss proceeds
and arranging for progress inspection and payments, if necessary;
(4) complying with all applicable FHA, VA or PMI Company requirements
pertaining to settlement of mortgage insurance losses; and
(5) endeavoring to preserve the priority of the Mortgage lien by
complying with applicable mechanics' lien laws, to the extent commercially
reasonable and in
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<PAGE>
accordance with Subservicer's present practices and disbursement practices
customary in the mortgage servicing industry;
(h) Processing insurance loss drafts in the following manner:
(1) Provided that the Mortgage Loan is current in all respects,
Subservicer may endorse and deliver to Mortgagor without prior inspection of the
Mortgaged Premises and completion or repairs settlement drafts for losses up to
the amount of Two Thousand Five Hundred Dollars ($2,500.00);
(2) With respect to settlement drafts for losses in excess of Two
Thousand Five Hundred Dollars ($2,500.00), but no more than Five Thousand
Dollars ($5,000.00), Subservicer may exercise its discretion as to the necessity
of inspection and completion of repairs prior to endorsement and delivery of the
draft. Subservicer's discretion will be based on factors such as extent of the
loss, location of the Mortgaged Premises, Mortgage Loan payment history, extent
of Mortgage Loan amortization, probable equity in the Mortgaged Premises, and
any other relevant factors.
(3) Prior to endorsement and delivery of settlement of drafts or
losses in excess of Five Thousand Dollars ($5,000.00), Subservicer shall have an
inspection of the Mortgaged Premises performed to ensure that the repairs have
been completed.
(i) Preparing and filing all necessary federal and state tax reports and
returns with appropriate Investors, Mortgagors and the Internal Revenue Service,
in accordance with Applicable Requirements, covering the period of Subservicer's
subservicing of the related Mortgage Loans.
2.5 Investor Accounting. Subject always to Applicable Requirements,
-------------------
Subservicer shall:
(a) Make and implement interest rate adjustments in compliance with
applicable regulatory adjustable-rate mortgage loan requirements and the
Mortgage Loan Documents, which adjustments reflect the applicable movements of
the applicable Mortgage Loan rate index. Subservicer shall execute and deliver
all appropriate notices required by applicable adjustable-rate mortgage loan
regulations and the Mortgage Loan Documents regarding such interest rate
adjustments including but not by way of limitation, timely notification to
Investor or to Investor's successors or assigns, of applicable date and
information regarding such interest rate adjustments, and methods of
implementation of such interest rate adjustments, new schedules of Investors'
shares of collections of P&I, and of all prepayments of any Mortgage Loan
hereunder by Mortgagor.
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<PAGE>
(b) Perform such other customary duties, furnish copies of reports
available as standard reports through Subservicer's C.P.I. System, and execute
such other documents in connection with its duties hereunder as Lender and
Investor from time to time reasonably may require. Customized reports and
computer tapes requested by Lender will be at Lender's expense.
(c) Not accept any prepayment of any Mortgage Loan except as required or
permitted under Applicable Requirements, nor waive, modify, release or consent
to postponement on the part of the Mortgagor of any term or provision of the
Mortgage Loan Documents without the written consent of the Investor.
(d) Upon payment of the Mortgage Loan in full, Subservicer shall: (i)
request the promissory note and original recorded documents from the Lender,
Agency or document custodian, as appropriate; (ii) prepare and send to Lender
for required execution and acknowledgment any documents required by law to be
executed by Lender to effectuate release, satisfaction or reconveyance of the
related Mortgage; (iii) for so-called "reconveyance states," prepare and send to
the Trustee any necessary request for reconveyance, release, satisfaction or
reconveyance documents, together with any applicable fees and charges in
connection therewith; (iv) for non-reconveyance states and in accordance with
Applicable Requirements, either (A) prepare and send to the public officer
responsible for the recording of real estate documents any necessary release or
satisfaction documents, together with any required fees, or (B) prepare and send
to the Mortgagor any necessary release or satisfaction documents, for further
processing at the behest of the Mortgagor; and (v) refund any unapplied
Mortgagor deposits. Lender (or the Mortgagor to the extent permissible under
Applicable Requirements) shall bear the Subservicer's out-of-pocket costs to
complete release, satisfaction or reconveyance process.
(e) Where Investors require interest paid through the end of the month
although interest due from the Mortgagor is to the actual date of the pay-off,
advance funds to cover any uncollected interest due the Investor, as provided in
Section 3.5.
(f) Remit and report to Investors as follows:
(i) within ten (10) Business Days after the end of each month, remit
by check to Lender: (1) all P&I payments due Lender on warehouse or portfolio
Mortgage Loans; (2) all service fees due Lender with respect to Agency-owned or
third-party-owned Mortgage Loans; (3) all recoveries of Advances theretofore
reimbursed to Subservicer by Lender; and (4) all other sums (if any) then due
Lender from Subservicer under this SA; except that Subservicer may deduct from
(1), (2), (3) and (4): (A) compensation then due Subservicer, as set forth in
SCHEDULE II; and (B) any other sums then due Subservicer in accordance with
Section 4.1;
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<PAGE>
(ii) remit to the applicable Agencies P&I payments and guaranty fee
payments and render reports due from Subservicer in accordance with Applicable
Requirements; and
(iii) deliver to Lender reports on P&I payments and net service fees
as soon as the same are available, but not later than ten (10) Business Days
after the month in question; and Subservicer shall also send to Lender a copy of
all Investor-required "hard copy" paper reports, including each monthly FHLMC
MidaNet Reconciliation Report, within four (4) Business Days after the related
Investor Cut-Off Date.
(g) If Lender requires that Subservicer report and remit directly to any
Agency with respect to all mortgage loans servicing-related by Lender for that
Agency, then Subservicer must service one hundred percent (100%) of mortgage
loans which are servicing-retained by Lender for that Agency; and Subservicer
will submit all reports and make all remittances to that Agency under Lender's
assigned "seller/servicer" number or under such other number that Lender and
that Agency may designate in writing to Subservicer.
(h) If the Investor instructs Lender to service release or subservice
release any Mortgage Loan(s) and Lender shall deliver such notice to
Subservicer, then Subservicer shall immediately acknowledge, in writing to
Lender, the Investor's request and proceed in accordance with the Investor's
instructions. If Lender determines and instructs Subservicer not to proceed
with the Investor's instruction, Lender agrees to hold Subservicer harmless from
any action taken against Subservicer by the Investor, and from any loss or
damage, including reasonable attorney's fees, resulting therefrom.
(i) Manage Escrow Accounts and related deposit accounts as directed by
Lender, hold any related custodial deposit accounts associated with receipt,
disbursement and accumulation of principal, interest, taxes, hazard insurance,
mortgage insurance, etc. as "trustee" for Lender and/or Investor and/or
Mortgagors with the exception of GNMA servicing. Pursuant to GNMA's
regulations, Subservicer, as subservicer, is not permitted to withdraw/disburse
funds from "P&I" custodial accounts. Any benefit or value derived from Escrow
Account deposits shall accrue to the exclusive benefit of Lender.
2.6 Delinquency Control. Subservicer shall:
-------------------
(a) Be responsible for protecting the Investor's investment in the Mortgage
Loans by endeavoring to maintain the maximum possible number of Mortgage Loans
in a current status, dealing quickly and effectively with Mortgagors who are
delinquent or in default. Subservicer's delinquent Mortgage Loan subservicing
program shall include: (i) an adequate accounting system which will immediately
and positively indicate the existence of delinquent
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Mortgage Loans; (ii) a procedure that provides for sending delinquent notices,
assessing late charges and returning inadequate payments; and (iii) procedures
for the individual analysis of distressed or chronically delinquent Mortgage
Loans and counseling of the related Mortgagors.
(b) Provide Lender and Investor with month-end collection and delinquency
report within three (3) Business Days following the end of each month,
identifying and describing the status of any delinquent Mortgage Loans, and will
from time to time as need may arise, provide Lender and Investor with Mortgage
Loan service reports relating to any items of information which Subservicer is
otherwise required to provide hereunder, or detailing any matters the
Subservicer believes should be brought to the special attention of Lender and
Investor.
(c) Upon the request and under the direction of Lender and Investor, assist
in the foreclosure or other acquisition of the Mortgaged Premises securing any
Mortgage Loan, the transfer or the Mortgaged Premises to the FHA or VA and the
collection of any applicable mortgage insurance or guaranties and, pending
completion of these steps, protect the Mortgaged Premises from waste and
vandalism. At the option of the Investor, Investor may assign such Mortgage
Loan to the Subservicer which will then conduct all such proceedings in its own
name, promptly thereafter assigning and conveying to the Investor any title,
equity or other property or right acquired by such proceedings. Subservicer
will have title to the Mortgaged Premises conveyed in the name designated by
Investor. Subservicer shall be entitled to promptly recoup all of its actual
expenses incurred under this Section 2.6, including court costs and attorney's
fees, in the manner described in Sections 2.5(f) and 4.1.
2.7 Books and Records. Subservicer shall provide to Lender, not later than
-----------------
ninety (90) days after the close of Subservicer's fiscal year, a statement of
Subservicer financial condition as of the close of Subservicer fiscal year,
certified by Subservicer's independent auditors, together with a report of
Subservicer's independent auditors on the Uniform Single Audit Program for
Mortgage Bankers. Subservicer will cooperate in all reasonable ways with
Lender's auditors. Any additional requests for Mortgage Loan audit or
confirmations to be performed by Subservicer's audit firm on Lender's Mortgage
Loans shall be at Lender's sole expense. Subservicer will keep records
satisfactory to Lender and Investor pertaining to each Mortgage Loan, and
subject to Applicable Requirements: (i) such records shall be the property of
Lender; and (ii) upon termination of this SA, such records shall be delivered to
Lender or Lender's designee at Lender's expense.
2.8 Insurance. Subservicer will maintain in effect at all times and at its
---------
cost, a blanket fidelity bond and an errors and omission policy acceptable to
FHLMC, FNMA and GNMA. If so requested by Lender, Subservicer shall cause
certificates evidencing the existence of such coverage to be delivered to
Lender.
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2.9 Optional Services. Lender shall have the right, at the inception of this
-----------------
SA, to elect the following two optional services now provided by Lender:
2.9.1 Private Label Servicing.
-----------------------
(a) If the related box appearing immediately after the
signature blocks of the Parties on page 22 of this SA contains an "X" at the
time of execution of this SA by Lender, then Lender has elected to utilize the
Private Label Servicing Option ("the PLS Option") offered by Subservicer. If
Lender elects the PLS Option, Subservicer will:
(1) provide payment coupon books to be affected
mortgagors customized with the Lender's logo and other camera-ready customized
graphic designs and paid for by Lender; and
(2) the payee on the Mortgagor's checks will be the
Lender, c/o Subservicer.
(b) The additional cost to Lender of the PLS Option is
specified in Part I of SCHEDULE II.
2.9.2 Payoff Alert.
------------
(a) If the related box appearing immediately after the signature
blocks of the Parties on page 22 of this SA contains an "X" at the time of
execution of this SA by Lender, then Lender has elected to utilize the Payoff
Alert Service Option ("the PAS Option") offered by Subservicer. If PAS Option
is elected, then in addition to the duties of Subservicer set forth in Section
2.3 with respect to the Mortgage Loans, Subservicer shall, on each Business Day
during the Term of his SA, unless the use of offering of PAS is sooner
terminated by Lender or Subservicer in accordance with Section 2.9.2(c):
(1) identify and place in a special temporary file (and log into a
special log book maintained by Subservicer for this purpose) those written
requests for Mortgage Loan verifications and payoff statements received by
Subservicer by any means; and
(2) at the end of the next Business Day, deliver to Lender, by
facsimile transmission to a telephone number and marked for the attention of an
individual as specified in writing by Lender to Subservicer from time to time, a
copy of each such payoff or verification request received by Subservicer but not
theretofore delivered to Lender.
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(b) The fixed monthly flat fee for PAS shall be determined in
accordance with Part I of SCHEDULE II.
(c) Lender may terminate its election to use the PAS at any time
during the Term of this SA by written notice of termination delivered to
Subservicer not less than thirty (30) days before the effective date of
termination. Subservicer may terminate the PAS by written notice of termination
delivered to Lender not less than sixty (60) days before the effective date of
termination of the PAS.
ARTICLE III - AGREEMENTS OF LENDER
----------------------------------
3.1 Documentation. Lender shall provide (or cause any transferor servicer or
-------------
subservicer of any Mortgage Loans to provide) to Subservicer, at no cost to
Subservicer:
(a) prior to commencement of subservicing hereunder, all files, documents
and records which are necessary or appropriate for Subservicer to receive in
order to conduct the subservicing of the Mortgage Loans, as indicated in
SCHEDULE III attached hereto and made a part hereof by this reference, it being
understood that (i) every item listed on SCHEDULE III is not absolutely required
to properly subservice each Mortgage Loan, and that (ii) Subservicer will notify
Lender of any instances of deficiency, when discovered, and request from Lender
any documents not theretofore supplied which Subservicer believes it needs to
properly subservice the related Mortgage Loan.
(b) applicable documentation for each Mortgage Loan to be subserviced
hereunder, to enable Subservicer to convert all required database fields and
continue the Mortgage Loan on Subservicer C.P.I., System, without necessity of
special enhancements, optional subsystems or special programming. All such
documentation must be delivered to the Subservicer promptly after the related
Transfer Date, and in all events in a reasonable amount of time before any
Investor reporting is due from Subservicer;
(c) if applicable and as soon as possible, a complete listing of any
Mortgage Loans where the Mortgage Loan payment is inclusive of a personal or
group insurance premium. This list will also provide; the name of the insurance
company; type of premium coverage; premium amount; and the name and telephone
number of the individual at Lender's firm or affiliate knowledgeable of such
coverage. Furthermore, should Lender misrepresent, misinform, provide
inadequate information or no information regarding the status of personal or
group insurance coverages (i.e. mortgage life insurance) which would cause
Subservicer to incur a loss or damage, Lender agrees to hold Subservicer
harmless from, and defined Subservicer against, any and all claims, liabilities,
damages and loss, including reasonable attorneys' fees, resulting therefrom;
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(d) physical evidence that a hazard insurance policy is in force for each
Mortgage Loan delivered to Subservicer for subservicing and allowing Subservicer
sufficient time to receive evidence in house that all notifications shall be
forwarded to Subservicer. Further, Lender agrees to hold Subservicer harmless
from any loss or damage caused by insufficient evidence of hazard insurance
coverage delivered to Subservicer or any loss or damage which occurred during a
lapsed policy prior to delivery of subservicing to Subservicer;
(e) complete credit files and any files associated with required or
optional quality control audits and any associated record keeping validating
required random sampling; and
(f) for each Mortgage Loan to be subserviced hereunder, all at Lender's
cost, the transfer of any existing real estate tax service contracts to
Subservicer; see the provisions of Part I of SCHEDULE II concerning real estate
tax service contracts not then in existence.
3.2 Further Notification. Lender shall:
--------------------
(a) Advise Subservicer upon delivery of each Mortgage Loan submitted for
subservicing, as to whether the Mortgage Loan is in a warehouse (unsold) status
or, if sold, specific information regarding the intended permanent Investor. If
a Mortgage Loan which has been delivered to Subservicer in a warehouse (unsold)
status is sold, Lender will immediately notify Subservicer of the sale by phone
and will deliver a written copy of the permanent Investor's purchase advice for
funding detailed report immediately thereafter. If the Investor charges a
penalty for late reporting, remittances, etc., which were caused by Lender's
delay in notifying Subservicer of the Investor's purchase of the Mortgage
Loan(s), Lender agrees to promptly pay the penalty and Subservicer shall have no
liability on account thereof; and
(b) Discharge Subservicer from all liability for all Advances which are
related to any Mortgage Loan included in any pool that has been created through
"Mortgage-backed pass-through certificates" or securities, including Advances
due to negative amortization. Subservicer will reimburse Lender as recoveries
are made from Mortgagors, as provided in Section 3.5.
3.3 Default. If: (i) Lender shall fail to pay to Subservicer any sums as and
-------
when due and payable to Subservicer under this SA, whether as compensation,
reimbursement or otherwise; or (ii) any secured party holding a security
interest granted by Lender as debtor shall demand that Subservicer pay over to
that secured party any sums otherwise payable to Lender under this SA; or (iii)
Lender shall be in default hereunder in any other respect; then Subservicer
shall: (A) be entitled to set off, against its damages, all sums due from
Subservicer to Lender hereunder; and (B) have and may exercise all other
remedies permitted by law for breach of contract.
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3.4 Compliance. During the Term of this SA, including any extensions hereof,
----------
Lender agrees to comply with those Applicable Requirements relating to the
Mortgage Loans which are the responsibility of Lender.
3.5 Advances.
--------
(a) The Lender has agreed: (i) to bear the risk of credit losses inherent
in the Mortgage Loan servicing and subservicing portfolios hereunder, except for
those losses caused by Subservicer's failure to comply with Applicable
Requirements (including failure to comply with the provisions of this SA) and
except as explicitly agreed to be borne by FHA, VA or any PMI Companies; and
(ii) to allow Subservicer to deduct, from service fees due Lender hereunder as
provided in Section 2.5(f), the amount of all advances required to be made by
Subservicer (collectively, the "Advances") to third parties (A) under the terms
of this SA, or (B) under any applicable Servicing Agreements by which
Subservicer is or may be bound, or (C) otherwise under Applicable Requirements.
If at any time the total amount of service fees due Lender (but not yet
remitted to Lender) under Section 2.5(f) is insufficient to fully fund
Subservicer's Advance obligations hereunder, Lender will provide funding or
reimburse Subservicer therefor within two (2) Business Days after Lender's
receipt of Subservicer's written request therefor, except that Subservicer shall
not request funding or reimbursement: (i) for P&I Advances, more often than
once per month per Investor; nor (ii) for T&I or other required Advances, more
often than once per week.
In general, but without limiting the generality of the term "Advances",
Advances may be triggered by the need to pay any of the following: principal
and/or interest to an Investor; FHA mortgage insurance premiums or PMI, ground
rents, taxes, special assessments or Hazard Insurance premiums over and above
the amounts held in the related Escrow Accounts for such purposes; costs,
expenses and fees of foreclosure or of acquiring title to the Mortgaged Premises
by deed in lieu of foreclosure; and costs, fees and expenses of conveyance of
any Mortgaged Premises to the FHA or VA or a PMI Company or to inspect or
protect or repair the Mortgaged Premises; and recording charges and trustees'
fees incident to release, reconveyance or satisfaction of any paid in full
Mortgage Loan.
(b) Subservicer shall diligently endeavor to collect and recover from the
Mortgagors all Advances made by Subservicer which are not timely paid by, but
which are the ultimate obligations of, the Mortgagors. If and when Subservicer
is required to pay interest to any Investor through the end of a month, even
though interest on an underlying Mortgage Loan ceased to accrue as of the date
of payoff, the interest not collected as a consequence of the payoff before the
end of such month shall be treated as an Advance to
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be paid by or reimbursed by Lender, except to the extent the loss is
attributable to the Subservicer's failure to apply timely related payments
actually received by Subservicer.
(c) Upon any collection of Advances by Subservicer from time to time, such
collections shall be promptly applied in full, to the extent thereof, in the
following order of priority: (i) to reimburse Subservicer for any unrecouped
Advances disbursed by Subservicer from Subservicer's corporate resources if
Subservicer has elected in any instance to fund Advances from its own corporate
resources; and (ii) any excess shall be refunded to the Lender.
(d) Subservicer shall utilize funds received from Lender under this Section
3.5 solely to fund Advances required to be made by Subservicer under this SA or
otherwise under Applicable Requirements, and FOR NO OTHER PURPOSES WHATSOEVER.
Subservicer will provide complete supporting documentation to Lender within two
(2) Business Days following receipt from Lender of funds under this Section 3.5,
detailing the Subservicer's uses of the funds so received.
3.6 Document Custodians; Expenses. Lender will bear the entire cost of
-----------------------------
establishment and maintenance of each document custodian regime required by
FNMA, FHLMC or GNMA with respect to any of the Mortgage Loans.
ARTICLE IV - COMPENSATION
-------------------------
4.1 Compensation to Subservicer. For providing the services contained in this
---------------------------
SA, the Parties agree that:
(a) Subservicer shall be paid the fees and funded for Advances and certain
expenses as provided in SCHEDULE II, in Sections 2.5(f) and 3.5 and in this
Section 4.1, during the Term of this SA and after termination or expiration of
this SA, but only: (i) if Subservicer is continuing to provide the services
required of it hereunder with respect to the Mortgage Loans; and (ii) until
completion of transfer of subservicing to Lender or its designee.
(b) Subservicer reserves the right to charge Lender: (i) for any
additional out-of-pocket costs which Subservicer expects to incur for the set-up
and subservicing of any Mortgage Loan which is not then compatible with, and
therefore cannot be subserviced on, Subservicer's C.P.I. System without special
enhancements, optional subsystems or special programming; and (ii) a monthly
administrative fee for each Investor not now specified in SCHEDULE II (to take
account of special servicing requirements and guidelines specified by such
Investor), and a monthly fee for each bank account required to be maintained to
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service that Investor, all to be mutually agreed upon by both Parties in advance
and in a writing which may be made a part of SCHEDULE II.
(c) Any miscellaneous costs incurred by Subservicer from extraordinary
requests by Lender shall be billed to Lender at cost and promptly paid by Lender
upon receipt of billing.
4.2 Solicitation.
------------
(a) Lender and Subservicer and their respective affiliates reserve the
right to solicit individual Mortgagors for Optional Insurance. Any resulting
income will be allocated in accordance with SCHEDULE II. Subservicer agrees to
designate Lender or its designee as agent of record for all such policies in
force at the time of transfer of subservicing, on the condition that Lender has
provided Subservicer with the required state, Agency, Investor, insurer or any
other regulatory or applicable approvals.
(b) Except upon the prior written request or consent of Lender, Subservicer
shall never, and hereby agrees not to: (i) solicit a refinancing of any
Mortgage Loan; nor (ii) sell or rent to anyone a list of the Mortgage Loan
Mortgagors; nor (iii) supply a list of Mortgage Loan Mortgagors to any Person
except as permitted elsewhere in this SA or as required by law or to comply with
legal process.
ARTICLE V - TERM; TRANSFERS
---------------------------
5.1 Term. The Term of this SA shall be for five (5) years, commencing as of
----
the first Transfer Date and ending on the day before the fifth (5th) anniversary
of that first Transfer Date [or the last day of the month in which the day
before the fifth (5th) anniversary occurs if the first Transfer Date was not the
first day of a month].
5.2 Reimbursement. Subservicer's right to funding or reimbursement for actual
-------------
expenses, and funding or reimbursement for any Advances made on behalf of Lender
in accordance with terms of this SA shall not be abrogated nor impaired even if
the Investor to which Lender has sold Mortgage Loans instructs Subservicer in
writing to service release or subservice release any Mortgage Loans to Lender or
Investor's designee.
5.3 Notice of Subservicing Transfers. Lender shall give to Subservicer at
--------------------------------
least one-hundred twenty (120) days prior written notice of the intended
effective date of any transfer of subservicing by Subservicer to Lender or to
any third party, to permit orderly scheduling of subservicing transfers.
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5.4 Transfers; Accounting. Upon cessation of subservicing of any Mortgage Loan
---------------------
or any group of Mortgage Loans, Subservicer will: (i) account for and turn
over, as appropriate, to Lender, Lender's designee, the Investors or Investors'
designees, all funds collected under the related Mortgage Loan or group of
Mortgage Loans, less all sums then due Subservicer; (ii) deliver to Lender,
Lender's designee, Investors or Investors' designees all records and documents
relating to each Mortgage Loan no longer subserviced; (iii) advise the related
Mortgagors that their Mortgage Loans will henceforth be serviced by Lender,
Lender's designee, Investor or Investors' designees; and (iv) otherwise comply
with Applicable Requirements.
ARTICLE VI - REPRESENTATIONS, WARRANTIES
----------------------------------------
AND COVENANTS OF LENDER
-----------------------
6.1 Assistance. Lender warrants and represents to, and covenants and agrees
----------
with Subservicer that, to the extent possible, Lender shall cooperate with and
assist Subservicer as requested by Subservicer, in carrying out Subservicer's
covenants, agreements, duties and responsibilities under this SA and in
connection therewith shall execute and deliver all such papers, documents and
instruments as may be necessary and appropriate in furtherance thereof. Lender
agrees to comply with all Applicable Requirements binding upon it.
6.2 Notice of Breach. Lender shall immediately notify Subservicer of any
----------------
failure or anticipated failure on Lender's part to observe and perform any
warranty, presentation, covenant or agreement required to be observed and
performed by it as Lender under this SA.
6.3 Tax and Insurance Premium Payments Before a Transfer Date.
---------------------------------------------------------
6.3.1 Tax Payments. Lender warrants that, as of each "Transfer Date"
------------
(i.e., as of each date of delivery of the subservicing of related Mortgage Loans
to Subservicer for subservicing hereunder): (i) all real estate taxes for those
related Mortgage Loan shall be current; and (ii) all related real estate taxes
which will become delinquent within thirty (30) days after the Transfer Date in
question shall be paid before the related Transfer Date. Lender will indemnify
and hold Subservicer harmless of and from any tax penalties and interest which
arose or accrued prior to the delivery of the related subservicing to
Subservicer or on account of any breach by Lender under this Section 6.3.1.
6.3.2 Insurance Premiums. Lender warrants that, as of each Transfer
------------------
Date: (i) all insurance premiums for the related Mortgage Loans shall be
current; and (ii) all related insurance premiums which will become delinquent
within thirty (30) days after the Transfer Date in question shall be paid before
the related Transfer Date. Lender will indemnify and
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hold Subservicer harmless of and from all loss, damage and expense (including
reasonable attorneys' fees) on account of any breach by Lender under this
Section 6.3.2.
6.4 Authority. Lender is a corporation, duly organized, validly existing and
---------
in good standing under the laws of the United States of America, and has all
requisite power and authority to enter into and perform its obligations under
this SA. The individuals executing this SA on behalf of the Lender are duly
authorized so to do.
6.5 Prior Compliance with Applicable Requirements. Lender warrants to
---------------------------------------------
Subservicer that to the best of Lender's knowledge each Mortgage Loan was, prior
to its subservicing Transfer Date hereunder, underwritten, originated, closed,
serviced, and (if applicable) assigned or securitized or sold in compliance with
all Applicable Requirements, except as otherwise disclosed (i) in SCHEDULE IV
attached hereto and made a part hereof by this reference or (ii) to Subservicer
in writing before the related Transfer Date. To the best of Lender's knowledge,
as of its subservicing Transfer Date, there is no default of any Prior Servicer
of any Mortgage Loan.
ARTICLE VII - REPRESENTATIONS, WARRANTIES
-----------------------------------------
AND COVENANTS OF SUBSERVICER
----------------------------
Subject to the provisions of ARTICLE VIII below, Subservicer warrants and
represents to, and covenants and agrees with, Lender as follows:
7.1 Notice of Breach. Subservicer shall immediately notify Lender of any
----------------
failure or anticipated failure on its part to observe and perform any warranty,
representation, covenant or agreement required to be observed and performed by
it as Subservicer. For any breach by Subservicer hereunder, Subservicer shall
have the cure rights specified in Paragraph (1) of Part II of SCHEDULE II.
7.2 Agency Approvals. Subservicer is an approved servicer for FHLMC and FNMA,
----------------
an approved issuer/servicer for GNMA and a lender approved by FHA and VA.
7.3 Authority. Subservicer is a duly organized and validly existing
---------
corporation in good standing under the law of Delaware and has all requisite
power and authority to enter into this SA and the individuals executing this SA
on behalf of Subservicer are duly authorized so to do.
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ARTICLE VII - INDEPENDENCE OF PARTIES;
--------------------------------------
INDEMNIFICATION; SURVIVAL
-------------------------
8.1 Independence of Parties. The following terms shall govern the relationship
-----------------------
between Lender and Subservicer:
(a) Subservicer shall have the status of and act as an independent
contractor. Nothing herein contained shall be construed to create a partnership
or joint venture between Lender [or any of them if Lender consists of more than
one Person] and Subservicer.
(b) Subservicer shall not be responsible for representations, warranties or
contractual obligations in connection with (1) the sale to or by FHLMC, FNMA or
GNMA of any of the Mortgage Loans, or (2) the servicing or subservicing of any
of the Mortgage Loans prior to the related Transfer Date and assumption of
subservicing of the related Mortgage Loans by Subservicer pursuant to this SA.
(c) Anything herein contained in this ARTICLE VIII or elsewhere in this SA
to the contrary notwithstanding, the representations and warranties of
Subservicer contained in this SA shall not be construed as a warranty or
guarantee by Subservicer as to future payments by any Mortgagor.
(d) Anything herein contained in this ARTICLE VIII or elsewhere in this SA
to the contrary notwithstanding, Subservicer shall not be responsible for
performance or compliance under any loan repurchase agreements, representations
or warranties of an origination nature, or those servicing representations and
warranties directly or indirectly related to the origination process made
between Lender and any Investor either prior or subsequent to this SA.
8.2 Indemnification by Subservicer. Except as otherwise stated herein,
------------------------------
Subservicer hereby agrees to, and shall, indemnify, defend and hold Lender
harmless from any liability, claim, loss or damage, including reasonable
attorneys' fees, resulting from or arising out of Subservicer's failure to
observe or perform any or all of Subservicer's covenants, agreements, warranties
or representations contained in this SA, EXCLUDING HOWEVER any failure by
Subservicer:
(a) to make any payment of money to a third party which failure is
attributable to a default of Lender hereunder, including without limitation a
failure of Lender to provide funding for that payment or to timely reimburse
Subservicer in accordance with Section 3.5; or
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(b) which is a result of Subservicer's compliance with a directive of the
Lender or any Investor or with Applicable Requirements; or
(c) which is attributable to a failure of Lender or any Investor or Prior
Servicer to comply with Applicable Requirements.
8.3 Indemnification by Lender. Lender hereby agrees to, and shall, indemnify,
-------------------------
defend and hold the Subservicer harmless from any liability, claim, loss or
damage, including reasonable attorneys' fees, directly or indirectly resulting
from or arising out of Lender's failure to observe or perform any of Lender's
covenants, agreements, warranties or representations contained in this SA.
Further, Lender will indemnify Subservicer and hold it harmless of and from any
liability, claim, loss or damage, including reasonable attorneys' fees, directly
or indirectly resulting from or arising out of:
(a) any failure of Lender or any Investor or Prior Servicer to comply with
Applicable Requirements; or
(b) Subservicer's compliance with a directive of the Lender or any
Investor.
8.4 Survival. The indemnifications, representations and warranties set forth
--------
herein shall survive the expiration or termination of this SA.
ARTICLE IX - MISCELLANEOUS
--------------------------
9.1 Due Date of Payments; Interest Rate on Delayed Payments due Subservicer.
-----------------------------------------------------------------------
All fees, payments, charges, expenses, Advances and any other sums payable to
Subservicer by Lender hereunder, shall be due and payable as provided for
herein. Upon any failure of Lender to timely comply with its funding
obligations hereunder and without waiving any such default of Lender, all sums
optionally advanced by Subservicer from its own resources shall bear interest on
a per diem basis, based upon an annual interest rate of two percent (2%) over
the Prime Rate.
9.2 Changes in Practices. The Parties acknowledge that the standard practices
--------------------
and procedures of the mortgage servicing industry change or may change over a
period of time. To accommodate these changes, Subservicer may from time to time
notify Lender of such changes in practices and procedures. Should any such
proposed changes, made in good faith by Subservicer, be unacceptable to Lender,
then Subservicer shall have no further obligation to continue subservicing under
the terms of this SA, and may terminate this SA in accordance with ARTICLE V.
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9.3 Assignment. This SA may be assigned only after written consent of both
----------
Lender and Subservicer.
9.4 Prior Agreements. If any provision of this SA is inconsistent with any
----------------
prior agreements between the Parties, oral or written, the terms of this SA
shall prevail; and after the effective date of this SA, the relationship and
agreements between Lender and Subservicer shall be governed entirely in
accordance with the terms of this SA.
9.5 Annual Financial Statements
---------------------------
(a) Lender agrees to furnish to the Subservicer, within ninety (90) days
following the end of each of its fiscal years during the Term, a copy of its
audited financial statements for the fiscal year then ended, including a balance
sheet and supporting schedules and containing a detailed statement of income and
expenses.
(b) Subservicer agrees to furnish to Lender, within ninety (90) days
following the end of each of its fiscal years during the Term, a copy of
Subservicer's audited financial statements for the fiscal year then ended,
including a balance sheet and supporting schedules and containing a detailed
statement of income and expenses.
9.6 Entire Agreement. This SA contains the entire agreement between the
----------------
Parties with respect to its subject matter and cannot be modified in any respect
except by an amendment in writing signed by both Parties.
9.7 Invalidity. The invalidity of any portion of this SA shall in no way
----------
affect the remaining portion hereof.
9.8 Effect. Except as otherwise stated herein, this SA shall remain in effect
------
until Lender's's interest in all of Mortgage Loans referred to, including the
underlying security, are liquidated completely, unless sooner terminated or
expired pursuant to the terms hereof.
9.9 Applicable Law. This SA shall be governed by and construed in accordance
--------------
with the laws of Illinois.
9.10 Notices. All notices, requests, demands and other communications which are
-------
required or permitted to be given to a Party under this SA shall be in writing
and shall be deemed to have been duly given: (i) upon the receipt thereof
by the recipient Party; or (ii) upon the sending thereof (A) by registered
or certified mail, postage prepaid, return receipt requested, or (B) by a
recognized overnight courier service marked in each instance for the
attention of the President of the Subservicer or the Loan Servicing
Manager of the Lender, as the case may be and addressed to the recipient
Party at that Party's address set forth on the first page
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hereof or to such other address in the United States of America as the recipient
shall specify in a notice delivered to the other Party in accordance with this
Section.
9.11 Waivers. Either Party may, with written consent of both Parties, by
-------
written notice to the other:
(a) Waive compliance with any of the terms, conditions or covenants
required to be complied with by the other hereunder; and
(b) Waive or modify performance of any of the obligations of the other
hereunder.
The waiver by either Party of a breach of any provision of this SA shall
not operate or be construed as a waiver of any other or subsequent breach.
9.12 Binding Effect. This SA shall inure to the benefit of and be binding upon
--------------
the Parties and their successors and permitted assigns.
9.13 Headings. Headings of the ARTICLES and Sections in this SA are for
--------
reference purposes only and shall not be deemed to have any substantive effect.
IN WITNESS WHEREOF, each Party has caused this SA to be signed in its
corporate name by its proper officers duly authorized, as of the day, month and
year first above written.
Subservicer Lender:
----------- ------
DOVENMUEHLE MORTGAGE, INC., a PAN AMERICAN BANK, FSB
Delaware corporation
By: /s/ WILLIAM A. MYNATT, JR. By: /s/ ROBERT B. WILSON
---------------------------- ---------------------------
William A. Mynatt, Jr. Robert B. Wilson
Its President Its Executive Vice President
ATTEST: ATTEST:
By: /s/ RICHARD F. KOHN By: /s/ BLAIR F. KENNY
---------------------------- ---------------------------
Richard F. Kohn Blair F. Kenny
Its Assistant Secretary Vice President
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[X] If the box at the left margin of this line contains an "X" at the time of
execution of this SA by Lender, then Lender has elected to utilize the Private
Label Servicing Option offered by Subservicer and more fully described in
Section 2.9.1.
[X] If the box at the left margin of this line contains an "X" at the time of
execution of this SA by Lender, then Lender has elected to utilize the Payoff
Service Option offered by Subservicer and more fully described in Section 2.9.2.
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EXHIBIT 10.35
INTER-COMPANY AGREEMENT
-----------------------
BETWEEN
-------
PAN AMERICAN FINANCIAL, INC.,
-----------------------------
AND
---
PAN AMERICAN BANK, FSB
----------------------
THIS INTER-COMPANY AGREEMENT (the "Agreement") is entered into as of May 1,
1994, by and between PAN AMERICAN FINANCIAL, INC.("PA Financial") a Delaware
---------------------------
corporation, and PAN AMERICAN BANK, FSB, (the "Bank"), a federal savings bank.
----------------------
W I T N E S S E T H:
WHEREAS, in the ordinary course of the Bank's business, the Bank conducts
data processing services, general administrative and office support services,
personnel services, depository accounts and other bank type services, and has
available office space, office equipment and data processing time; and
WHEREAS, PA Financial and the Bank are affiliated entities in that PA
Financial is the parent and sole shareholder of the Bank; and
WHEREAS, PA Financial desires to retain the Bank to render services as
provided below, and the Bank is willing to render such services:
NOW, THEREFORE, the parties agree as follows:
1. Effective Date and Term of Agreement.
------------------------------------
1.1 Term. This Agreement shall become effective, without further action,
----
as of May 1, 1994 (the "Effective Date"). This Agreement shall remain in effect
until April 30, 1995, and shall thereupon be automatically renewed for
successive one-year terms until terminated in accordance with Section 4.
1.2 Survival of Certain Obligations. Expiration or earlier termination of
-------------------------------
this Agreement for any reason shall not terminate the obligations described in
subsection (a) below, Section 3.1 and any other sections which expressly so
provide.
(a) Obligations Arising Prior to Termination. Expiration or earlier
----------------------------------------
termination of this Agreement for any reason shall not
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terminate either party's obligations or rights arising out of any act or
omission of such party occurring prior to such termination or expiration.
2. Administrative, Management and Other Services.
---------------------------------------------
2.1 Services To Be Rendered. Commencing on the Effective Date, and for
-----------------------
the period provided in Section 1.1, the Bank shall provide administrative,
management and other services to PA Financial, including but not limited to the
following services:
(a) Accounting, Financial and Bookkeeping. The Bank shall provide PA
-------------------------------------
Financial with accounting, financial and bookkeeping services to such extent as
mutually agreed from time to time between parties.
(i) Cooperation With Audits. The Bank shall provide for the
-----------------------
inspection of the financial statements, books and records of PA Financial
at all reasonable times during business hours of the Bank, by PA Financial
or its representatives (including, without limitation, independent
certified public accountants engaged by PA Financial to permit compliance
with reporting and disclosure requirements of federal and state regulatory
agencies and federal and state laws. Furthermore, the Bank shall coordinate
and cooperate with all internal audits of PA Financial and with all
independent audits of PA Financial by independent auditing firms.
(b) Office Support Services. The Bank shall provide PA Financial with
-----------------------
office space and clerical and technical support services to such extent as
mutually agreed from time to time between the parties. These services may
include, without limitation, the provision of:
(i) Space. The Bank shall provide PA Financial with executive,
-----
administrative and clerical office space, and filing and records storage
space, to such extent as mutually agreed from time to time between the
parties.
(ii) Office Support. The Bank shall provide secretarial and other
--------------
clerical support services, local and long distance telephone and other
telecommunications and data processing lines (including WATS lines), and
such other services as mutually agreed from time to time between the
parties.
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<PAGE>
(c) Banking Services. To the extent permitted by law, the Bank shall
----------------
provide PA Financial with depository accounts, access to the Bank's federal
wire, and access to an Automated Clearing House. The Bank shall provide other
banking services as mutually agreed from time to time between the parties.
(d) Regulatory Filings. The Bank shall provide PA Financial with
------------------
assistance in preparation and filing of regulatory filings as mutually agreed
from time to time between the parties.
(e) Human Resources. The Bank shall provide PA Financial with personnel
---------------
services to such extent as mutually agreed from time to time between the
parties. Services provided under this subsection (e) may include, without
limitation, the provision of executive and staff recruiting services, training
services, employee benefits management, and employee records management. In
providing training services to the employees of PA Financial, the Bank shall
educate PA Financial's employees as to the Policies and procedures described in
Section 2.2(b) of this Agreement.
2.2 Employees of the Bank and PA Financial.
--------------------------------------
(a) Staff. In carrying out its obligations under this Agreement, each
-----
party shall at all times maintain, either in its employ or through contract
employees of another company, a staff of trained personnel sufficient to enable
the party to perform its obligations under this Agreement.
(b) Employee Policies. Each party shall adopt such appropriate policies
-----------------
(the "Policies") to maintain the integrity and security of both parties'
records, data and separate office areas in accordance with Section 2.3 of this
Agreement. The Policies shall require employees of each party to abide by the
regulations and policies of the Office of Thrift Supervision and the Federal
Deposit Insurance Corporation. Both parties shall educate and require their
employees to abide by the Policies.
(c) Dual Employees. The parties acknowledge that the performance of
--------------
obligations under this Agreement may entail from time to time the employment of
individuals who are joint employees of both the Bank and PA Financial ("Dual
Employees"). Dual Employees shall abide by the policies and procedures of the
Bank when acting as employees of the Bank, and shall abide by the policies and
procedures of PA Financial when acting as employees of PA Financial. Dual
employees shall be subject to the provisions of subsection (b) above to the same
extent as other employees of the parties when acting as an employee of such
party.
-3-
<PAGE>
2.3 Access and Security of Each Party's Premises and Property. The Bank
---------------------------------------------------------
shall implement adequate controls to assure the integrity of its records,
computers, currency, checks, safes and vaults. Employees of PA Financial (other
than Dual Employees performing services for the Bank) shall have no access to
the Bank's restricted office areas without the consent of an executive officer
of the Bank (i.e., vaults and teller counters) or records or equipment for which
no security controls have been provided, unless such access is also available to
the general public. Each party shall have the unconditional right to make
security inspections of the other party's operations related to the services
discussed herein at any time with reasonable notice to the other party. If a
party shall request any additional security provisions, the other party shall
not unreasonably delay or refuse to implement the same, provided they are
reasonable in scope. Any additional costs incurred by the Bank pursuant to
requests by PA Financial under the preceding sentence shall be borne by PA
Financial.
(a) Access and Security of Records. The Bank shall maintain separate
------------------------------
records of the Bank and, to the extent that the Bank prepares or maintains
records for PA Financial. The parties shall not commingle those records with
the records of the other party. Each party will implement reasonable security
measures and procedures to protect its records and other documents from
unauthorized access by the other party's employees (other than Dual Employees)
and third parties; provided, however, that employees of each party shall have
authorized access to the records and documents of the other party as required
for the performance of services for the other party.
(b) Access and Security of Premises. Each party shall maintain premises
-------------------------------
separate and distinct from the premises of the other party.
(c) Access and Security of Equipment. Each party will implement
--------------------------------
reasonable security controls for its equipment which is commingled with the
equipment of the other party or which is utilized by the other party.
3. Limitation of Liability.
-----------------------
3.1 Indemnification of the Bank. PA Financial agrees (i) not to hold the
---------------------------
Bank or any of its directors, officers or employees liable for, and (ii) to
indemnify or insure the Bank and its directors, officers and employees
("Indemnified Parties") from and against, any costs and liabilities the
Indemnified Parties may incur as a result of any claim against the Indemnified
Parties arising from the good faith exercise of their
-4-
<PAGE>
duties hereunder (excepting matters as to which the Indemnified Parties shall be
finally adjudged to have been guilty of willful misconduct or gross negligence,
or in violation of applicable law). PA Financial further agrees to indemnify the
Indemnified Parties from and against all costs and liabilities arising from the
negligence, recklessness, or intentional misconduct of PA Financial, or its
employees or agents. PA Financial's obligation to indemnify any Indemnified
Party will survive the expiration or termination of this Agreement by either
party for any reason.
4. Termination.
-----------
4.1 Termination by Mutual Agreement: Termination Without Cause. This
-----------------------------------------------------------
Agreement shall be terminated:
(a) immediately upon mutual agreement of the parties; or
(b) by either party without cause upon thirty (30) days' written
notice to the other party.
4.2 Termination Upon Default. The occurrence of any breach by either
------------------------
party of a material term or condition of this Agreement shall constitute an
Event of Default. If an Event of Default specified in this Section 4.2 is not
cured by the defaulting party within fifteen (15) days after delivery of written
notice describing the Event of Default, then the nondefaulting party shall be
entitled, at its sole election, to terminate this Agreement upon not less than
fifteen (15) days' written notice to the other party. Notwithstanding the
foregoing, if the Event of Default in question is neither knowing, intentional
nor willful, and if the cure of such Event of Default cannot be completed within
fifteen (15) days using best efforts, then either party shall have such
additional time to cure such Event of Default as shall be reasonably necessary.
4.3 Termination by Reason of Bankruptcy. In the event of the occurrence
-----------------------------------
of any of the following events, a party shall have the right to terminate this
Agreement immediately upon providing written notice to the other party:
(a) the commencement of any bankruptcy, insolvency, reorganization,
readjustment of debt, dissolution, liquidation of debt, Federal Deposit
Insurance Corporation or Office of Thrift Supervision conservatorship or
receivership proceeding or other proceeding under federal or state
bankruptcy, debtors relief or other law by or against the other party; or
-5-
<PAGE>
(b) the suspension or termination of business or dissolution of, or
the appointment of a receiver, conservator, trustee or similar officer to
take charge of, a substantial part of the property of the other party.
4.4 Termination by Reason of Regulatory Action. If action by a federal or
------------------------------------------
state regulator materially affects the obligations hereunder, either party shall
have the right to terminate this Agreement upon written notice to the other
party.
5. Consideration.
-------------
5.1 Fees. PA Financial shall pay the Bank for the services rendered, and
----
associated expenses incurred, under this Agreement by the Bank, including
overhead, at the Bank's cost as determined in accordance with the Bank's
internal accounting principles (the "Cost Factor") plus an additional amount
equal to a mutually agreed upon percentage of the Cost Factor.
5.2 Expenses. Except as otherwise provided in this Agreement, PA
--------
Financial shall reimburse the Bank for expenses incurred by the Bank pursuant to
this Agreement in rendering services to PA Financial, including, without
limitation, the following:
(a) Fees and costs of independent auditors and income tax
preparation;
(b) Fees and costs of outside legal counsel and any legal counsel
directly employed by PA Financial;
(c) Costs (including postage) of printing and mailing;
(d) Data transmission expenses; and
(e) Costs for telephone WATS lines.
5.3 Payment. Within thirty (30) days after the end of each month, the
-------
Bank shall provide PA Financial with an itemized report (in a form reasonably
satisfactory to PA Financial), setting forth for that month all services
provided and associated charges and expenses therefor. All payments due
pursuant to such report shall be remitted by PA Financial within thirty (30)
days of receipt by PA Financial of such report.
-6-
<PAGE>
6. Taxes.
-----
6.1 Reimbursement of Taxes. PA Financial shall reimburse the Bank for all
----------------------
taxes, however designated and levied, upon the fees under this Agreement, or
upon the services or materials provided hereunder, or their use, including state
and local privilege or excise taxes based on gross revenue, and any taxes or
amounts in lieu thereof paid by the Bank in respect of the foregoing, exclusive
of franchise taxes based on the net income of the Bank.
7. Miscellaneous.
-------------
7.1 Notices. Any written notice required or permitted to be given to the
-------
parties hereunder shall be addressed as follows:
If to the Bank: Lawrence J. Grill
President
Pan American Bank, FSB
1300 South El Camino Real
San Mateo, CA 94401
If to PA Financial: Lawrence J. Grill
President
Pan American Financial, Inc.
1300 S. El Camino Real
San Mateo, CA 94402
All written notices shall be delivered in person or shall be sent by certified
mail, return receipt requested, and shall be effective, except as otherwise
provided herein, when deposited with the United States Postal Service, postage
pre-paid and addressed and posted as above. The parties to this Agreement, by
notice in writing, may designate another to whom notices shall be given pursuant
to this Agreement.
7.2 Independent Contractor Status of the Bank. The relationship of the
-----------------------------------------
Bank to PA Financial under this Agreement is that of independent contractor.
Nothing herein contained shall be construed as constituting a partnership, joint
venture or agency between the parties hereto.
7.3 Assignment. This Agreement shall not be assignable in whole or in
----------
part by the Bank or PA Financial without the other party's prior written
consent, which consent shall not unreason ably be withheld, and any attempted
assignment without such consent shall be void; except that the Bank, upon notice
to PA Financial, may assign this Agreement to any subsidiary or affiliate of the
Bank which will provide the services under this
-7-
<PAGE>
Agreement, except the Bank shall remain secondarily liable under this Agreement
after any such assignment.
7.4 Authority. Each party to this Agreement hereby represents and
---------
warrants to the other that it has the full right, power and authority to enter
into and perform this Agreement in accordance with all the terms, provisions,
covenants and conditions hereof, and that the execution and delivery of this
Agreement have been duly authorized by proper corporate action.
7.5 Waiver. No term or provision hereof will be deemed waived, and no
------
variation of terms or provisions hereof shall be deemed consented to, unless
such waiver or consent shall be in writing and signed by the party against whom
such waiver or consent is sought to be enforced. Any delay, waiver or omission
by the Bank or PA Financial to exercise any right or power arising from any
breach or default of the other party in any of the terms, provisions or
covenants of this Agreement shall not be construed to be a waiver by the Bank or
PA Financial of any subsequent breach or default of the same or other terms,
provisions or covenants on the part of the other party.
7.6 Successors. Subject to the restrictions on assignment contained
----------
herein, this Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and assigns.
7.7 Compliance with Laws and Regulations. Each party agrees that it will
------------------------------------
obtain all licenses and other governmental authorizations and approvals required
for the performance of its obligations under this Agreement and will perform its
obligations hereunder in accordance with all applicable federal, state and local
laws, rules and regulations now or hereafter in effect.
7.8 Arbitration. Except as otherwise provided herein, any dispute between
-----------
the Bank and PA Financial which cannot be amicably settled shall be resolved by
binding arbitration in accordance with the commercial arbitration rules of the
American Arbitration Association. Such disputes shall be heard by a board of
three arbitrators selected as provided herein, and the decision of any two such
arbitrators on any issue shall be final. The arbitration proceedings shall be
held in San Francisco, California.
(a) Notice and Selection of Arbitrators. Either party may request such
-----------------------------------
arbitration by written notice to the other, specifying the name and address of
the arbitrator selected by the requesting party and a brief description of the
dispute which such party wishes to have arbitrated. The other party shall, by
-8-
<PAGE>
written notice to the requesting party, within twenty (20) days of receipt of
such request, specify the name and address of the arbitrator selected by such
other party. If the other party does not do so within such twenty (20)-day
period, the requesting party may, upon notice to the other party, select a
second arbitrator. The two arbitrators appointed shall select a third
arbitrator within twenty (20) days of the appointment of the second arbitrator.
If they fail to do so within a twenty (20)-day period, the third arbitrator
shall be selected by the American Arbitration Association.
(b) Conduct of Arbitration. Until such time as three arbitrators are
----------------------
appointed, either party shall have the right, by written notice to the other and
to the arbitrators selected, to specify further disputes under this Agreement to
be determined through such arbitration. The arbitration shall interpret this
Agreement in accordance with the ordinary meaning of language and commercial
customs, usage, and practices as they may be applicable. The arbitrators in
hearing and deciding any matter presented pursuant to this Agreement shall have
no power to amend, modify, or ignore any portion of this Agreement, and the
arbitrators shall render any decision strictly in accordance with the terms of
this Agreement. The parties shall be entitled to such discovery as the
arbitrators deem appropriate to permit a party to properly present its case.
(c) Arbitration Awards. Awards made pursuant to such arbitration shall be
------------------
in writing, setting forth findings of fact and conclusions of law, and may
include costs, and reasonable attorneys' fees, and judgment may be entered on
any award made in any court having jurisdiction.
(d) Legal Proceedings In the event that the amount of claims involved in
-----------------
such unsettled disputes exceeds, in the aggregate for all events of alleged
violations, one million dollars, either party may institute legal proceedings,
notwithstanding this Section 7.8. Upon the commencement of such legal
proceedings, any arbitration of the subject dispute shall be canceled.
7.9 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of California, except where federal law is
applicable.
7.10 Headings Not Controlling. Headings used in this Agreement are for
------------------------
reference purposes only and shall not be deemed a part of this Agreement.
-9-
<PAGE>
7.11 Entire Agreement. This Agreement constitutes the only agreement
----------------
between the parties hereto relating to the subject matter hereof, and all prior
negotiations, agreements and understandings, whether oral or written, are
superseded or canceled hereby.
7.12 Arm's Length Agreement. The parties hereto acknowledge that the terms
----------------------
of this Agreement are substantially the same as, or at least as favorable to the
Bank, as those prevailing as of the Effective Date for comparable transactions
with or involving other nonaffiliated companies and, in the absence of
comparable transactions, on terms that the parties in good faith would offer to
nonaffiliated companies.
7.13 Modification. No modifications or amendments of this Agreement shall
------------
be effective unless and until set forth in writing and signed by duly authorized
representatives of both parties.
7.14 Severability. If any provision of this Agreement is declared or found
------------
to be illegal, unenforceable or void, this Agreement shall be construed as if
not containing that provision, the rest of the Agreement shall remain in full
force and effect, and the rights and obligations of the parties hereto shall be
construed and enforced accordingly.
7.15 Force Majeure. Neither party shall be liable for a delay in
-------------
performance or failure to perform any obligation under this Agreement to the
extent such delay is due to causes beyond the control of that party and is
without its fault (with respect to PA Financial, as determined in accordance
with the standard of care specified in Section 3.1), including, but not limited
to, acts of God, labor disputes, governmental regulations or orders, civil
disturbance, war conditions, fires, or due to a failure by the other party to
satisfy its obligations under this Agreement. Any dispute as to the cause of any
delay shall be submitted to arbitration pursuant to Section 7.8 of this
Agreement.
-10-
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
signed and delivered by its duly authorized officer, all as of the date
indicated above.
PAN AMERICAN FINANCIAL, INC., a Delaware
corporation
By /s/ LAWRENCE J. GRILL
-------------------------------
Title Pres.
----------------------------
PAN AMERICAN BANK, FSB, a federal savings bank
By /s/ LAWRENCE J. GRILL
-------------------------------
Title Pres.
----------------------------
-11-
<PAGE>
EXHIBIT 10.36
INTER-COMPANY AGREEMENT
-----------------------
BETWEEN
-------
PAN AMERICAN GROUP, INC.,
-------------------------
AND
---
PAN AMERICAN BANK, FSB
----------------------
THIS INTER-COMPANY AGREEMENT (the "Agreement") is entered into as of August
1, 1994, by and between PAN AMERICAN GROUP, INC.("PA Group") a Delaware
-----------------------
corporation, and PAN AMERICAN BANK, FSB, (the "Bank"), a federal savings bank.
----------------------
W I T N E S S E T H:
WHEREAS, in the ordinary course of the Bank's business, the Bank conducts
data processing services, general administrative and office support services,
personnel services, depository accounts and other bank type services, and has
available office space, office equipment and data processing time; and
WHEREAS, PA Group and the Bank are affiliated entities in that PA Group is
the parent and sole shareholder of Pan American Financial, Inc., the parent and
sole shareholder of the Bank; and
WHEREAS, PA Group desires to retain the Bank to render services as provided
below, and the Bank is willing to render such services:
NOW, THEREFORE, the parties agree as follows:
1. Effective Date and Term of Agreement.
------------------------------------
1.1 Term. This Agreement shall become effective, without further action,
----
as of May 1, 1994 (the "Effective Date"). This Agreement shall remain in effect
until April 30, 1995, and shall thereupon be automatically renewed for
successive one-year terms until terminated in accordance with Section 4.
1.2 Survival of Certain Obligations. Expiration or earlier termination of
-------------------------------
this Agreement for any reason shall not terminate the obligations described in
subsection (a) below, Section 3.1 and any other sections which expressly so
provide.
(a) Obligations Arising Prior to Termination. Expiration or earlier
----------------------------------------
termination of this Agreement for any reason shall not
-1-
<PAGE>
terminate either party's obligations or rights arising out of any act or
omission of such party occurring prior to such termination or expiration.
2. Administrative, Management and Other Services.
---------------------------------------------
2.1 Services To Be Rendered. Commencing on the Effective Date, and for
-----------------------
the period provided in Section 1.1, the Bank shall provide administrative,
management and other services to PA Group, including but not limited to the
following services:
(a) Accounting, Financial and Bookkeeping. The Bank shall provide PA
-------------------------------------
Group with accounting, financial and bookkeeping services to such extent as
mutually agreed from time to time between parties.
(i) Cooperation With Audits. The Bank shall provide for the
-----------------------
inspection of the financial statements, books and records of PA Group at
all reasonable times during business hours of the Bank, by PA Group or its
representatives (including, without limitation, independent certified
public accountants engaged by PA Group to permit compliance with reporting
and disclosure requirements of federal and state regulatory agencies and
federal and state laws. Furthermore, the Bank shall coordinate and
cooperate with all internal audits of PA Group and with all independent
audits of PA Group by independent auditing firms.
(b) Office Support Services. The Bank shall provide PA Group with office
-----------------------
space and clerical and technical support services to such extent as mutually
agreed from time to time between the parties. These services may include,
without limitation, the provision of:
(i) Space. The Bank shall provide PA Group with executive,
-----
administrative and clerical office space, and filing and records storage
space, to such extent as mutually agreed from time to time between the
parties.
(ii) Office Support. The Bank shall provide secretarial and other
--------------
clerical support services, local and long distance telephone and other
telecommuni cations and data processing lines (including WATS lines), and
such other services as mutually agreed from time to time between the
parties.
(c) Banking Services. To the extent permitted by law, the Bank shall
----------------
provide PA Group with depository accounts, access to
-2-
<PAGE>
the Bank's federal wire, and access to an Automated Clearing House. The Bank
shall provide other banking services as mutually agreed from time to time
between the parties.
(d) Regulatory Filings. The Bank shall provide PA Group with assistance
------------------
in preparation and filing of regulatory filings as mutually agreed from time to
time between the parties.
(e) Human Resources. The Bank shall provide PA Group with personnel
---------------
services to such extent as mutually agreed from time to time between the
parties. Services provided under this subsection (e) may include, without
limitation, the provision of executive and staff recruiting services, training
services, employee benefits management, and employee records management. In
providing training services to the employees of PA Group, the Bank shall educate
PA Group's employees as to the Policies and procedures described in Section
2.2(b) of this Agreement.
2.2 Employees of the Bank and PA Group.
----------------------------------
(a) Staff. In carrying out its obligations under this Agreement, each
-----
party shall at all times maintain, either in its employ or through contract
employees of another company, a staff of trained personnel sufficient to enable
the party to perform its obligations under this Agreement.
(b) Employee Policies. Each party shall adopt such appropriate policies
-----------------
(the "Policies") to maintain the integrity and security of both parties'
records, data and separate office areas in accordance with Section 2.3 of this
Agreement. The Policies shall require employees of each party to abide by the
regulations and policies of the Office of Thrift Supervision and the Federal
Deposit Insurance Corporation. Both parties shall educate and require their
employees to abide by the Policies.
(c) Dual Employees. The parties acknowledge that the performance of
--------------
obligations under this Agreement may entail from time to time the employment of
individuals who are joint employees of both the Bank and PA Group ("Dual
Employees"). Dual Employees shall abide by the policies and procedures of the
Bank when acting as employees of the Bank, and shall abide by the policies and
procedures of PA Group when acting as employees of PA Group. Dual employees
shall be subject to the provisions of subsection (b) above to the same extent as
other employees of the parties when acting as an employee of such party.
2.3 Access and Security of Each Party's Premises and Property. The Bank
---------------------------------------------------------
shall implement adequate controls to assure the integrity of its records,
computers, currency, checks, safes
-3-
<PAGE>
and vaults. Employees of PA Group (other than Dual Employees performing services
for the Bank) shall have no access to the Bank's restricted office areas without
the consent of an executive officer of the Bank (i.e., vaults and teller
counters) or records or equipment for which no security controls have been
provided, unless such access is also available to the general public. Each party
shall have the unconditional right to make security inspections of the other
party's operations related to the services discussed herein at any time with
reasonable notice to the other party. If a party shall request any additional
security provisions, the other party shall not unreasonably delay or refuse to
implement the same, provided they are reasonable in scope. Any additional costs
incurred by the Bank pursuant to requests by PA Group under the preceding
sentence shall be borne by PA Group.
(a) Access and Security of Records. The Bank shall main tain separate
------------------------------
records of the Bank and, to the extent that the Bank prepares or maintains
records for PA Group. The parties shall not commingle those records with the
records of the other party. Each party will implement reasonable security
measures and procedures to protect its records and other documents from
unauthorized access by the other party's employees (other than Dual Employees)
and third parties; provided, however, that employees of each party shall have
authorized access to the records and documents of the other party as required
for the performance of services for the other party.
(b) Access and Security of Premises. Each party shall maintain premises
-------------------------------
separate and distinct from the premises of the other party.
(c) Access and Security of Equipment. Each party will implement
--------------------------------
reasonable security controls for its equipment which is commingled with the
equipment of the other party or which is utilized by the other party.
3. Limitation of Liability.
-----------------------
3.1 Indemnification of the Bank. PA Group agrees (i) not to hold the Bank
---------------------------
or any of its directors, officers or employees liable for, and (ii) to indemnify
or insure the Bank and its directors, officers and employees ("Indemnified
Parties") from and against, any costs and liabilities the Indemnified Parties
may incur as a result of any claim against the Indemnified Parties arising from
the good faith exercise of their duties hereunder (excepting matters as to which
the Indemnified Parties shall be finally adjudged to have been guilty of willful
misconduct or gross negligence, or in violation of applicable
-4-
<PAGE>
law). PA Group further agrees to indemnify the Indemnified Parties from and
against all costs and liabilities arising from the negligence, recklessness, or
intentional misconduct of PA Group, or its employees or agents. PA Group's
obligation to indemnify any Indemnified Party will survive the expiration or
termination of this Agreement by either party for any reason.
4. Termination.
-----------
4.1 Termination by Mutual Agreement: Termination Without Cause. This
-----------------------------------------------------------
Agreement shall be terminated:
(a) immediately upon mutual agreement of the parties; or
(b) by either party without cause upon thirty (30) days' written
notice to the other party.
4.2 Termination Upon Default. The occurrence of any breach by either
------------------------
party of a material term or condition of this Agreement shall constitute an
Event of Default. If an Event of Default specified in this Section 4.2 is not
cured by the defaulting party within fifteen (15) days after delivery of written
notice describing the Event of Default, then the nondefaulting party shall be
entitled, at its sole election, to terminate this Agreement upon not less than
fifteen (15) days' written notice to the other party. Notwithstanding the
foregoing, if the Event of Default in question is neither knowing, intentional
nor willful, and if the cure of such Event of Default cannot be completed within
fifteen (15) days using best efforts, then either party shall have such
additional time to cure such Event of Default as shall be reasonably necessary.
4.3 Termination by Reason of Bankruptcy. In the event of the occurrence
-----------------------------------
of any of the following events, a party shall have the right to terminate this
Agreement immediately upon providing written notice to the other party:
(a) the commencement of any bankruptcy, insolvency, reorganization,
readjustment of debt, dissolution, liquidation of debt, Federal Deposit
Insurance Corporation or Office of Thrift Supervision conservatorship or
receivership proceeding or other proceeding under federal or state
bankruptcy, debtors relief or other law by or against the other party; or
(b) the suspension or termination of business or dissolution of, or
the appointment of a receiver, conservator, trustee or similar officer to
take charge
-5-
<PAGE>
of, a substantial part of the property of the other party.
4.4 Termination by Reason of Regulatory Action. If action by a federal or
------------------------------------------
state regulator materially affects the obliga tions hereunder, either party
shall have the right to terminate this Agreement upon written notice to the
other party.
5. Consideration.
-------------
5.1 Fees. PA Group shall pay the Bank for the services rendered, and
----
associated expenses incurred, under this Agreement by the Bank, including
overhead, at the Bank's cost as determined in accordance with the Bank's
internal accounting principles (the "Cost Factor") plus an additional amount
equal to a mutually agreed upon percentage of the Cost Factor.
5.2 Expenses. Except as otherwise provided in this Agreement, PA Group
--------
shall reimburse the Bank for expenses incurred by the Bank pursuant to this
Agreement in rendering services to PA Group, including, without limitation, the
following:
(a) Fees and costs of independent auditors and income tax
preparation;
(b) Fees and costs of outside legal counsel and any legal counsel
directly employed by PA Group;
(c) Costs (including postage) of printing and mailing;
(d) Data transmission expenses; and
(e) Costs for telephone WATS lines.
5.3 Payment. Within thirty (30) days after the end of each month, the
-------
Bank shall provide PA Group with an itemized report (in a form reasonably
satisfactory to PA Group), setting forth for that month all services provided
and associated charges and expenses therefor. All payments due pursuant to such
report shall be remitted by PA Group within thirty (30) days of receipt by PA
Group of such report.
6. Taxes.
-----
6.1 Reimbursement of Taxes. PA Group shall reimburse the Bank for all
----------------------
taxes, however designated and levied, upon the fees under this Agreement, or
upon the services or materials provided
-6-
<PAGE>
hereunder, or their use, including state and local privilege or excise taxes
based on gross revenue, and any taxes or amounts in lieu thereof paid by the
Bank in respect of the foregoing, exclusive of franchise taxes based on the net
income of the Bank.
7. Miscellaneous.
-------------
7.1 Notices. Any written notice required or permitted to be given to the
-------
parties hereunder shall be addressed as follows:
If to the Bank: Lawrence J. Grill
President
Pan American Bank, FSB
1300 South El Camino Real
San Mateo, CA 94401
If to PA Group: Guillermo Bron
Chairman of the Board
Pan American Group, Inc.
1300 South El Camino Real
San Mateo, CA 94401
All written notices shall be delivered in person or shall be sent by certified
mail, return receipt requested, and shall be effective, except as otherwise
provided herein, when deposited with the United States Postal Service, postage
pre-paid and addressed and posted as above. The parties to this Agreement, by
notice in writing, may designate another to whom notices shall be given pursuant
to this Agreement.
7.2 Independent Contractor Status of the Bank. The relationship of the
-----------------------------------------
Bank to PA Group under this Agreement is that of independent contractor.
Nothing herein contained shall be construed as constituting a partnership, joint
venture or agency between the parties hereto.
7.3 Assignment. This Agreement shall not be assignable in whole or in
----------
part by the Bank or PA Group without the other party's prior written consent,
which consent shall not unreason ably be withheld, and any attempted assignment
without such consent shall be void; except that the Bank, upon notice to PA
Group, may assign this Agreement to any subsidiary or affiliate of the Bank
which will provide the services under this Agreement, except the Bank shall
remain secondarily liable under this Agreement after any such assignment.
7.4 Authority. Each party to this Agreement hereby represents and
---------
warrants to the other that it has the full right, power and authority to enter
into and perform this Agreement in
-7-
<PAGE>
accordance with all the terms, provisions, covenants and conditions hereof, and
that the execution and delivery of this Agreement have been duly authorized by
proper corporate action.
7.5 Waiver. No term or provision hereof will be deemed waived, and no
------
variation of terms or provisions hereof shall be deemed consented to, unless
such waiver or consent shall be in writing and signed by the party against whom
such waiver or consent is sought to be enforced. Any delay, waiver or omission
by the Bank or PA Group to exercise any right or power arising from any breach
or default of the other party in any of the terms, provisions or covenants of
this Agreement shall not be construed to be a waiver by the Bank or PA Group of
any subsequent breach or default of the same or other terms, provisions or
covenants on the part of the other party.
7.6 Successors. Subject to the restrictions on assignment contained
----------
herein, this Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and assigns.
7.7 Compliance with Laws and Regulations. Each party agrees that it will
------------------------------------
obtain all licenses and other governmental authorizations and approvals required
for the performance of its obligations under this Agreement and will perform its
obligations hereunder in accordance with all applicable federal, state and local
laws, rules and regulations now or hereafter in effect.
7.8 Arbitration. Except as otherwise provided herein, any dispute between
-----------
the Bank and PA Group which cannot be amicably settled shall be resolved by
binding arbitration in accordance with the commercial arbitration rules of the
American Arbitration Association. Such disputes shall be heard by a board of
three arbitrators selected as provided herein, and the decision of any two such
arbitrators on any issue shall be final. The arbitration proceedings shall be
held in San Francisco, California.
(a) Notice and Selection of Arbitrators. Either party may request such
-----------------------------------
arbitration by written notice to the other, specifying the name and address of
the arbitrator selected by the requesting party and a brief description of the
dispute which such party wishes to have arbitrated. The other party shall, by
written notice to the requesting party, within twenty (20) days of receipt of
such request, specify the name and address of the arbitrator selected by such
other party. If the other party does not do so within such twenty (20)-day
period, the requesting party may, upon notice to the other party, select a
second arbitrator. The two arbitrators appointed shall select a third
-8-
<PAGE>
arbitrator within twenty (20) days of the appointment of the second arbitrator.
If they fail to do so within a twenty (20)-day period, the third arbitrator
shall be selected by the American Arbitration Association.
(b) Conduct of Arbitration. Until such time as three arbitrators are
----------------------
appointed, either party shall have the right, by written notice to the other and
to the arbitrators selected, to specify further disputes under this Agreement to
be determined through such arbitration. The arbitration shall interpret this
Agreement in accordance with the ordinary meaning of language and commercial
customs, usage, and practices as they may be applicable. The arbitrators in
hearing and deciding any matter presented pursuant to this Agreement shall have
no power to amend, modify, or ignore any portion of this Agreement, and the
arbitrators shall render any decision strictly in accordance with the terms of
this Agreement. The parties shall be entitled to such discovery as the
arbitrators deem appropriate to permit a party to properly present its case.
(c) Arbitration Awards. Awards made pursuant to such arbitration shall be
------------------
in writing, setting forth findings of fact and conclusions of law, and may
include costs, and reasonable attorneys' fees, and judgment may be entered on
any award made in any court having jurisdiction.
(d) Legal Proceedings In the event that the amount of claims involved in
-----------------
such unsettled disputes exceeds, in the aggregate for all events of alleged
violations, one million dollars, either party may institute legal proceedings,
notwithstanding this Section 7.8. Upon the commencement of such legal
proceedings, any arbitration of the subject dispute shall be canceled.
7.9 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of California, except where federal law is
applicable.
7.10 Headings Not Controlling. Headings used in this Agreement are for
------------------------
reference purposes only and shall not be deemed a part of this Agreement.
7.11 Entire Agreement. This Agreement constitutes the only agreement
----------------
between the parties hereto relating to the subject matter hereof, and all prior
negotiations, agreements and understandings, whether oral or written, are
superseded or canceled hereby.
-9-
<PAGE>
7.12 Arm's Length Agreement. The parties hereto acknowledge that the terms
----------------------
of this Agreement are substantially the same as, or at least as favorable to the
Bank, as those prevailing as of the Effective Date for comparable transactions
with or involving other nonaffiliated companies and, in the absence of
comparable transactions, on terms that the parties in good faith would offer to
nonaffiliated companies.
7.13 Modification. No modifications or amendments of this Agreement shall
------------
be effective unless and until set forth in writing and signed by duly authorized
representatives of both parties.
7.14 Severability. If any provision of this Agreement is declared or found
------------
to be illegal, unenforceable or void, this Agreement shall be construed as if
not containing that provision, the rest of the Agreement shall remain in full
force and effect, and the rights and obligations of the parties hereto shall be
construed and enforced accordingly.
7.15 Force Majeure. Neither party shall be liable for a delay in
-------------
performance or failure to perform any obligation under this Agreement to the
extent such delay is due to causes beyond the control of that party and is
without its fault (with respect to PA Group, as determined in accordance with
the standard of care specified in Section 3.1), including, but not limited to,
acts of God, labor disputes, governmental regulations or orders, civil
disturbance, war conditions, fires, or due to a failure by the other party to
satisfy its obligations under this Agreement.
Any dispute as to the cause of any delay shall be submitted to arbitration
pursuant to Section 7.8 of this Agreement.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
signed and delivered by its duly authorized officer, all as of the date
indicated above.
PAN AMERICAN GROUP, INC., a Delaware corporation
By /s/ WILLIAM BRON
-------------------------------
Title Chairman
----------------------------
PAN AMERICAN BANK, FSB, a federal savings bank
By /s/ LAWRENCE J. GRILL
-------------------------------
Title Pres.
----------------------------
-10-
<PAGE>
EXHIBIT 10.38
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is entered into as of May 1,
1994 by and between Pan American Bank, FSB, a federally chartered savings bank
("Employer"), and Lawrence J. Grill ("Employee").
WITNESSETH:
WHEREAS, Employer desires to obtain the services of Employee and
Employee desires to render services to Employer;
WHEREAS, the Board of Directors of Employer (the "Board") has
determined that it is in Employer's best interest and that of its stockholders
to secure services of Employee, to secure certain additional commitments from
Employee and to provide Employee certain additional benefits; and
WHEREAS, Employer and Employee desire to set forth in this Agreement
all the terms and conditions of Employee's employment with Employer.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, the parties agree as follows:
1. Term. Employer agrees to employ Employee and Employee agrees to serve
----
Employer, in accordance with the terms of this Agreement, for a term of three
(3) years, commencing May 1, 1994 and ending May 1, 1997 (the "Term"), unless
this Agreement is earlier terminated in accordance with the provisions which
follow.
2. Services and Exclusivity of Services.
------------------------------------
(a) Employee Time. So long as this Agreement shall continue in
-------------
effect, Employee shall devote his full business time, energy and ability
exclusively to the business, affairs and interests of Employer and its
subsidiaries and matters related thereto, shall use Employee's best efforts and
abilities to promote Employer's interests, and shall perform the services
contemplated by this Agreement in accordance with policies established by and
under the direction of the Board.
(b) Service to Affiliates; Promoting Business. Employee agrees to
-----------------------------------------
serve without additional remuneration in such executive capacities for one or
more direct or indirect subsidiaries of Employer as the Board may from time to
time request, subject to
1
<PAGE>
appropriate authorization by the subsidiary or subsidiaries involved and any
limitations under applicable law. Employee agrees to faithfully and diligently
promote the business, affairs and interests of Employer and its subsidiaries.
(c) Exclusivity of Services. Employee may make and manage personal
-----------------------
business investments of his choice and serve in any capacity with any civic,
educational or charitable organization without seeking or obtaining approval by
the Board, provided that such activities and services do not substantially
interfere or conflict with the performance of duties hereunder or create any
conflict of interest with such duties. An investment that exceeds 5% of the
equity securities or capitalization of a competitor, supplier or customer of
Employer shall be deemed to constitute such a conflict. Employee shall not
serve in any capacities for any business enterprise unless such service is
expressly authorized by the Board in advance. Employer consents to Employee
serving on the Board of Directors of Southern California Savings & Loan
Association during the term of this Agreement provided that the total time
devoted by Employee to fulfilling his duties as a director of such entity does
not exceed the equivalent of two business days during any calendar month.
Employee will only be permitted to devote more than two business days to such
duties in any calendar month upon the express approval of Employer's board of
directors.
(d) No Conflicts. Employee represents to Employer that Employee has
------------
no other outstanding commitments inconsistent with any of the terms of this
Agreement or the services to be rendered hereunder.
3. Specific Position; Duties and Responsibilities.
----------------------------------------------
(a) Positions, Duties and Authority. Employer and Employee agree
-------------------------------
that, subject to the provisions of this Agreement, Employer will employ Employee
and Employee will serve Employer as its President, Chief Executive Officer and
Secretary. Employee agrees to observe and comply with the rules and regulations
of Employer as adopted by the Board respecting the performance of Employee's
duties and agrees to carry out and perform orders, directions and policies of
Employer and its Board as they may be, from time to time, stated either orally
or in writing. Employee shall have such corporate power and authority as shall
reasonably be required to enable the discharge of duties commensurate with the
offices he holds.
(b) Supervision of Employee. For the term of this Agreement, Employee
-----------------------
shall report to (i) Employer's Chairman of the Board (the "Chairman of the
Board"), and (ii) Employer's Board of Directors.
2
<PAGE>
4. Compensation.
------------
(a) Base Compensation. During the term of this Agreement, Employer
-----------------
agrees to pay Employee a base salary at the rate of One Hundred Fifty Thousand
Dollars ($150,000) per year, payable in equal installments consistent with the
Bank's normal payroll practices applicable to salaried Bank employees (the "Base
Salary").
(b) Additional Benefits. Except for benefits expressly listed in
-------------------
Schedule 4(b) to this Agreement (the "Additional Benefits"), Employee shall not
participate in or be eligible to participate in any bonus, pension, profit, or
incentive compensation plan of Employer or any of its affiliates or to receive
any perquisites, except to the extent Employee meets eligibility requirements
applicable to employees generally, in any health and welfare benefit plan of
Employer or its affiliates available to employees generally. Notwithstanding
anything else contained in this Agreement to the contrary, all rights of
Employer and Employee with respect to stock options granted to Employee pursuant
to any Employer stock option plan shall be governed solely by such plan,
including all rights as to the vesting of options thereunder.
Notwithstanding the foregoing, this Agreement shall not be deemed to
amend or otherwise affect the provisions, including the limitations, of any
other compensation, retirement or other benefit program or plan of Employer or
its subsidiaries or affiliates, but in no event shall Employee be entitled to
benefits under both an Employer (or affiliate) plan and a comparable plan of any
other entity affiliated with Employer and in no event shall Employee be entitled
to duplicative benefits under any plans of Employer and/or its affiliates or
such other entities.
(c) Periodic Review/Adjustment. Not less frequently than every twelve
--------------------------
months, the Board shall review Employee's Base Salary and Additional Benefits
then being paid to him in the light of additional or reduced responsibilities,
if any, which may have been assigned or assumed, the results of operations and
prospects of Employer, and current salaries and benefits then being paid to
other persons holding similar positions. Following such review, subject to
subparagraph (f) below, Employer may increase (but shall not be required to
increase) the salary or any other benefits.
(d) Vacation. Employee shall be entitled to fifteen (15) days of paid
--------
vacation each twelve-month period, which shall accrue on a pro rata basis from
--- ----
the date employment commences under this Agreement. Vacation time will continue
to accrue so long as Employee's total accrued vacation does not exceed 20 days.
Should Employee's accrued vacation time reach 20 days, Employee will cease to
accrue further vacation time until Employee's accrued vacation time falls below
this level.
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<PAGE>
(e) Modification of Benefits. Except with respect to the Additional
------------------------
Benefits, during the term of this Agreement, Employer reserves the right to
modify, suspend or discontinue any and all benefits, plans, practices, policies
and programs at any time (whether before or after termination of employment)
without notice to or recourse by Employee so long as such action is taken with
respect to Employer's employees generally and does not single out Employee.
(f) RTC Restrictions. Notwithstanding anything else contained in this
----------------
Agreement to the contrary, pursuant to the terms of Section 8(c) of that certain
Interim Capital Assistance Agreement (the "ICAA") dated as of April 29, 1994,
between Pan American Financial, Inc., Employer and the Resolution Trust
Corporation (the "Corporation"), Employee understands and agrees that Employer
may not increase the compensation of or pay any bonuses to Employee during the
first year of operations of Employer and such increases shall only be permitted
in the second year of operations of Employer and in each year thereafter, so
long as the ICAA is in effect, if (i) such increases are pre-approved in writing
by the Corporation and (ii) neither Employee nor any of his immediate family
members own 5% or more of the voting stock (excluding unexercised stock options)
of Pan American Financial, Inc. or Pan American Group, Inc or any Affiliate of
Employer (as such term is defined in the ICAA).
5. Termination.
-----------
(a) For Cause.
---------
(i) Employer may terminate this Agreement and Employee's
employment hereunder at any time for cause without further obligation or
liability to Employee, including without limitation, any obligation to pay Base
Salary and Additional Benefits following such termination, effective upon
delivery of notice of such termination to Employee or at such other future time
as may be specified in such notice. Employer and Employee agree that the term
"for cause" shall mean the following: Employee's personal dishonesty,
incompetence, willful misconduct, breach of fiduciary duty involving personal
profit, intentional failure to perform stated duties, willful violation of any
law, rule or regulation (other than traffic violations or similar offenses) or
final cease and desist order, or material breach of any provision of this
Agreement or any other grounds specified in Section 563.39(b)(1) of the Office
of Thrift Supervision (the "OTS") Rules and Regulations (and any subsequent
regulations of OTS and the Federal Deposit Insurance Corporation (the "FDIC")
governing employment agreements).
(ii) If Employee is suspended and/or temporarily prohibited from
participating in the conduct of Employer's affairs by reason of a notice served
under section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act (12 U.S.C.
Section 1818 (e)(3) and (g)(1)), all obligations of Employer under this
Agreement shall be suspended as of the date of service of the notice, unless
stayed by appropriate proceedings. If the charges in the notice are dismissed,
Employer may in its discretion (i) pay Employee all or part of the compensation
withheld while this Agreement was suspended, and (ii) reinstate (in whole or in
part) any of its obligations which were suspended.
4
<PAGE>
(iii) If Employee is removed and/or permanently prohibited from
participating in the conduct of Employer's affairs by reason of an order issued
under section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act (12 U.S.C.
Section 1818 (e)(4) or (g)(1)), all obligations of Employer under this Agreement
shall terminate as of the effective date of that order, but vested rights of
Employee and Employer shall not be affected.
(iv) If Employer is in default (as defined in section 3(x)(1) of
the Federal Deposit Insurance Act), all obligations under this Agreement shall
terminate as of the date of default, but vested rights of Employee and Employer
shall not be affected.
(v) All obligations of Employer under this Agreement shall be
terminated (except to the extent determined that continuation of this Agreement
is necessary for the continued operation of Employer) by the OTS (i) at the time
the FDIC or the Corporation enters into an agreement to provide assistance to or
on behalf of Employer under the authority contained in Section 13(c) of the
Federal Deposit Insurance Act, or (ii) at the time the OTS approves a
supervisory merger to resolve problems related to the operation of Employer, or
when Employer is determined by the OTS to be in an unsafe or unsound condition;
provided, however, that vested rights of Employee and Employer shall not be
affected by such action.
(b) Without Cause. Notwithstanding any other provision of this
-------------
Section 5, Employee hereby agrees that Employer may terminate Employee's
employment hereunder at will for any reason without any liability or obligation
to Employee whatsoever, except for any termination payment expressly provided
for in this Agreement, at any time upon written notice of termination to
Employee, such termination to become effective upon such future date as may be
specified in such notice of termination. As consideration for Employee's
agreement to this subparagraph (b), Employer agrees that in the event Employer
elects to terminate the employment of Employee pursuant to the provisions of
this subparagraph (b) prior to the completion of the Term, Employer shall
provide a formal written notice of such termination and Employee shall be
entitled to a termination payment equal to (a) that specified in Schedule 5(b)
attached hereto, and (b) any and all Additional Benefits and vacation accrued
through the date of termination. Termination payment shall be payable in a lump
sum.
(c) Disability. In the event Employee shall fail, because of illness,
----------
incapacity or injury which is determined to be total and permanent by a
physician selected by Employer or its insurers and acceptable to Employee or
Employee's legal representative (such agreement as to acceptability not to be
withheld unreasonably) to render for three consecutive months or for shorter
periods aggregating 75 or more business days in any twelve month period, the
services contemplated by this Agreement, Employee's employment hereunder may be
terminated by written notice of termination from Employer to Employee.
Thereafter, Employer shall continue to pay Base Salary to Employee at a rate and
time and in a manner equal to 100% of the Base Salary payable immediately prior
to the termination, until the earliest to occur of the following: (i) Employee
dies, (ii) Employee recovers from such disability and returns to full-time
service, (iii) six (6) months after the date of such notice, or (iv) the waiting
period, if any, under Employer's long term disability
5
<PAGE>
insurance or other disability plan purchased for Employee is satisfied.
Thereafter, no further salary or benefits shall be paid.
(d) Death. If Employee's employment is terminated by reason of
-----
Employee's death, this Agreement shall terminate without further obligations to
Employee (or Employee's heirs or legal representatives) under this Agreement,
other than for (1) payment of the sum of (A) Employee's Base Salary through the
date of termination to the extent not theretofore paid, (B) any compensation
previously deferred by Employee, including compensation that Employee would
otherwise be entitled to under any bonus plan (together with any accrued
interest or earnings thereon), and (C) any accrued vacation pay, in each case to
the extent not theretofore paid (the sum of the amounts described in clauses
(A), (B) and (C) shall be hereinafter referred to as the "Accrued Obligations"),
which shall be paid to Employee or Employee's estate or beneficiary, as
applicable in a lump sum in cash within thirty (30) days after the date of
termination or any earlier time required by applicable law; and (2) payment to
Employee or Employee's estate or beneficiary, as applicable, any amount due
pursuant to the terms of any applicable welfare benefit plan.
(e) Termination by Employee.
-----------------------
(i) Employee may terminate his employment for a "reduction in
authority" (as defined below) at any time two (2) months after a notice of
intent to terminate pursuant to this Section 5(e) has been delivered to the
Board of Directors and Chairman of the Board, provided such condition continues
for the duration of such two (2) month period, after written notice to Employer.
Upon such termination, Employee shall receive a lump sum termination payment in
an amount equal to that specified in subparagraph (b) above.
For purposes of this Section 5(e)(i), the term "reduction in
authority" shall mean (A) the continuing assignment to Employee by the Chairman
of the Board and Board of Directors of duties materially and adversely
inconsistent with Employee's position as President and Chief Executive Officer;
(B) a material, adverse and continuing change in the nature of Employee's
responsibilities; (C) the requirement that Employee must regularly report to
persons other than the Chairman of the Board and the Board of Directors; or (D)
other than as a result of grounds for termination of employment for cause under
Section 5(a), for disability under Section 5(c) or the termination of employment
by Employee for any other reason, the removal of Employee from, or failure to
re-elect Employee as, the President and Chief Executive Officer of Employer, or
as a member of the Board of Directors.
(ii) Employee may terminate his employment hereunder at any time
upon not less than thirty (30) days written notice to Employer. In such event,
Employee shall be entitled to all Accrued Obligations under this Agreement
through the effective date of such termination.
(f) No Limitation. Employer's exercise of its right to terminate
-------------
shall be without prejudice to any other right or remedy to which it or any of
its affiliates may be entitled at law, in equity or under this Agreement.
6
<PAGE>
(g) Exclusive Remedy. Employee agrees that the payments expressly
----------------
provided and contemplated by this Agreement shall constitute the sole and
exclusive obligation of Employer in respect of Employee's employment with and
relationship to Employer and that the payment thereof shall be the sole and
exclusive remedy for any termination of Employee's employment. Employee
covenants not to assert or pursue any other remedies, at law or in equity, with
respect to any termination of employment.
6. Change in Control. In the event of a merger, consolidation, transfer
-----------------
of all or substantially all the assets of Employer or the parent corporation of
Employer (Pan American Financial, Inc.) or the parent corporation Pan American
Financial, Inc. (Pan American Group, Inc.), or any other corporate
reorganization or transaction or series of transactions, which results in any
person, group of related persons, or any other organization or entity acquiring
50% or more of the outstanding voting securities as calculated either before or
after the acquisition of Employer or a transferee of all or substantially all
the assets of Employer. Employee may, upon 30 days written notice to Employer
within 2 months after first receiving written notice of such event, elect to
terminate this Agreement. In the event of such election by Employee, Employee
shall receive a lump sum termination payment in an amount equal to that
specified in Section 5(b) above.
7. Business Expenses. During the term of this Agreement, to the extent
-----------------
that such expenditures satisfy the criteria under the Internal Revenue Code for
deductibility by Employer (whether or not fully deductible by Employer) for
federal income tax purposes as ordinary and necessary business expenses.
Employer shall reimburse Employee promptly for reasonable business expenditures,
including travel, entertainment, parking, business meetings, and professional
dues but not the costs of (or dues associated with) maintaining club
memberships, made and substantiated in accordance with policies, practices and
procedures established from time to time by Employer generally and incurred in
pursuit and furtherance of Employer's business and good will.
8. Indemnification.
---------------
(a) Indemnification by Employer. Pursuant to the terms of Section
---------------------------
545.121 of the OTS Rules and Regulations ("Section 545.121"), Employer agrees to
indemnify, defend and hold harmless, Employee, from and against (a) the amount
of any judgment for which Employee becomes liable as a result of any Action (as
defined in Section 545.121) brought against Employee in his capacity as an
officer or director of Employer, and (b) if he attains a favorable judgment in
such Action, reasonable costs and expenses, including reasonable attorneys'
fees, actually paid or incurred by Employee in defending or settling such
Action, or in enforcing his rights under Section 545.121; provided, however,
that Employer shall have no obligation to indemnify Employee hereunder unless
(a) Final Judgment (as defined in Section 545.121) on the merits is in
Employee's favor, or (b) in the case of Settlement (as defined in Section
545.121), Final Judgment against him, or Final Judgment in his favor other than
on the merits, the disinterested directors of Employer determine that Employee
was acting in good faith within the scope of his employment or authority as a he
could reasonably have perceived it under the circumstances and for a purpose he
could reasonably have believed under the circumstances was in the best interests
of Employer. If the disinterested directors of Employer reasonably conclude
that, in connection with an action, Employee may be entitled to indemnification,
7
<PAGE>
the directors shall authorize Employer to advance to Employee reasonable costs
and expenses, including reasonable attorneys' fees, arising from the defense or
settlement of such Action, subject to an undertaking by Employee to repay such
amounts in the of a final nonappealable determination that Employee is not
entitled to indemnification, and the provisions of this Section 8.
(b) Notification of Claims. After receipt of notice of commencement
----------------------
of any Action giving rise to a right of indemnification hereunder, Employee
shall promptly notify Employer in writing of such Action and, when known, the
facts constituting the basis for such Action (in reasonable detail). Failure by
Employee to so notify Employer shall not relieve Employer of any liability
hereunder unless such failure materially prejudices Employer.
(c) Indemnification Procedure. After receipt of the notice required
-------------------------
by Section 8(b), if Employer undertakes to defend any such Action, then Employer
shall be entitled, if it so elects, to take control of the defense and
investigation with respect to such Action and to employ and engage attorneys of
its own choice to handle and defend the same, upon written notice to Employee of
such election which notice acknowledges Employer's obligation to provide
indemnification hereunder. Employer shall not settle any Action that is the
subject of indemnification without the written consent of Employee, which
consent shall not be unreasonably withheld; provided, however, that Employer may
-------- -------
settle an Action without Employee's consent if such Settlement (i) makes no
admission or acknowledgment of liability or culpability with respect to
Employee, (ii) includes a complete release of Employee and (iii) does not
require Employee to make any payment or forego, relinquish or take any action or
right. Employee shall cooperate in all reasonable respects with Employer and
its attorneys in the investigation, trial and defense of any Action (including
the filing in Employee's name of appropriate cross claims and counterclaims).
Employee may, at his own cost, participate in any investigation, trial and
defense of such Action controlled by Employer. If, after receipt of a claim
notice pursuant to Section 8(b), Employer does not undertake to defend any such
Action, Employee may, but shall have no obligation to, contest such Action and
Employer shall be bound by the result obtained with respect thereto by Employee
(including, but not limited to, any Settlement thereof without the consent of
Employer). If Employee reasonably believes that there may be a conflict of
interest between himself and Employer in the conduct of the defense of any
Action, Employee shall have the right, at the expense of Employer, to select his
own counsel and assume the defense of the Action; provided, however, that
-------- -------
Employee may not settle such Action without the consent of Employer, which
consent shall not be unreasonably withheld; provided further, that Employee
----------------
shall may settle an Action without Employer's consent if such Settlement (i)
makes no admission or acknowledgment of liability or culpability, (ii) includes
a complete release of Employer and (iii) does not require Employer to make any
payment or forego, relinquish or take any action or right. At any time after
the commencement of defense of any Action, Employer may request Employee to
agree in writing to the abandonment of such contest or to the payment or
compromise by Employer of such claim, whereupon such action shall be taken
unless Employee determines that the contest should be continued and so notifies
Employer in writing within 15 days of such request from Employer. If Employee
determines that the contest should be continued, Employer shall be liable
hereunder only to the extent of the lesser of (i) the amount which the other
party(ies) to the contested claim have agreed to accept in payment or compromise
as of the time Employer made its request therefor to Employee less any
additional expenses incurred by
8
<PAGE>
Employer subsequent to such event or (ii) such amount for which Employer would
otherwise be liable with respect to such Action by reason of the provisions
hereof.
9. Miscellaneous.
-------------
(a) Succession; Survival. This Agreement shall inure to the
--------------------
benefit of and shall be binding upon Employer, its successors and assigns, but
without the prior written consent of Employee this Agreement may not be assigned
other than in connection with a merger or sale of substantially of all the
assets of Employer or a similar transaction in which the successor or assignee
assumes (whether by operation of law or express assumption) all the obligations
of Employer hereunder. The obligations and duties of Employee hereunder are
personal and otherwise not assignable.
(b) Notices. Any notice or other communication provided for in
-------
this Agreement shall be in writing and sent if to Employer to its office at:
Mr. William Bron
Chairman of the Board
Pan American Bank, FSB
c/o Bastion Capital Corp.
1999 Avenue of the Stars, Suite 2800
Los Angeles, California 90067
Facsimile: (310) 277-7582
Attention: William Bron
or at such other address as Employer may from time to time in writing designate,
and if to Employee at such address as Employee may from time to time in writing
designate (or Employee's business address of record in the absence of such
designation). Each such notice or other communication shall be effective (i) if
given by mail, three days after such communication is deposited in the mails
with first class postage prepaid, addressed as aforesaid or (ii) if given by any
other means, when actually delivered at such address.
(c) Entire Agreement; Amendments. This Agreement contains the
----------------------------
entire agreement of the parties relating to the subject matter hereof and it
supersedes any prior agreements, undertakings, commitments and practices
relating to Employee's employment by Employer or its affiliates. No amendment or
modification of the terms of this Agreement shall be valid unless made in
writing and signed by Employee and, on behalf of Employer, by the Chairman of
the Board.
(d) Waiver. No failure on the part of any party to exercise or
------
delay in exercising any right hereunder shall be deemed a waiver thereof or of
any other right, nor shall any single or partial exercise preclude any further
or other exercise of such right or any other right.
(e) Choice of Law. This Agreement, the legal relations between
-------------
the parties and any action, whether contractual or non-contractual, instituted
by any party with respect to matters
9
<PAGE>
arising under or growing out of or in connection with or in respect of this
Agreement, the relationship of the parties or the subject matter hereof shall be
governed by and construed in accordance with the laws of the State of California
applicable to contracts made and performed in such State and without regard to
conflicts of law doctrines, to the extent permitted by law and applicable
regulations.
(f) Arbitration. Any dispute, controversy or claim arising out of or
-----------
in respect of this Agreement (or its validity, interpretation or enforcement),
the employment relationship or the subject matter hereof shall at the request of
either party be submitted to and settled by arbitration conducted at a mutually
convenient office of the Judicial Arbitration & Mediation Services, Inc.
("JAMS"). Employer and Employee may agree on a retired judge from the JAMS
panel. If they are unable to agree upon a retired judge, JAMS will provide a
list of three available judges and each party may strike one. If two of the
three judges are stricken, the remaining judge will serve as arbitrator. If two
arbitrators remain, the first judge listed shall serve as arbitrator. Employer
and Employee agree that arbitration must be initiated within two years after the
claimed breach occurred and that the failure to initiate arbitration within the
two-year period constitutes an absolute bar to the institution of any new
proceedings related to such alleged breach. The aggrieved party can initiate
arbitration by sending written notice of any intention to arbitrate by
registered or certified mail to all parties and to JAMS. The notice must
contain a description of the dispute, the amount involved and the remedy sought.
Exhibit A sets forth the rights of Employer and Employee if the dispute is
arbitrated and the rules and procedures to be followed at the arbitration
hearing; provided, however, that the party or parties prevailing in such
proceeding will be entitled to the reasonable attorneys' fees and expenses of
counsel and costs incurred by reason of such arbitration.
(g) Confidentiality; Proprietary Information. Employee agrees to not
----------------------------------------
make use of, divulge or otherwise disclose, directly or indirectly confidential
or proprietary information concerning the business (including but not limited to
its products, employees, services, practices or policies) of Employer or any of
its affiliates of which Employee may learn or be aware as a result of Employee's
employment during the Term or prior thereto as stockholder, employee, officer or
director of or consultant to Pan American Bank, FSB, or any of its affiliates,
except to the extent such use or disclosure is (i) required by applicable law,
(ii) lawfully obtainable from other sources, or (iii) authorized in writing by
Employer. The provisions of this subsection (g) shall survive the expiration,
suspension or termination, for any reason, of this Agreement.
(h) Severability. If this Agreement shall for any reason be or become
------------
unenforceable in any material respect by any party, this Agreement shall
thereupon terminate and become unenforceable by the other party as well. In all
other respects, if any provision of this Agreement is held invalid or
unenforceable, the remainder of this Agreement shall nevertheless remain in full
force and effect, and if any provision is held invalid or unenforceable with
respect to particular circumstances, it shall nevertheless remain in full force
and effect in all other circumstances, to the fullest extent permitted by law.
(i) Withholding; Deductions. All compensation payable hereunder,
-----------------------
including salary and other benefits, shall be subject to applicable taxes,
withholding and other required, normal or elected employee deductions.
10
<PAGE>
(j) Section Headings. Section and other headings contained in this
----------------
Agreement are for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement.
(k) Non-Solicitation. Employee agrees that for a period of 1 year
----------------
after the termination of employment, except in the case of a termination
pursuant to Section 5(b) or 5(e)(i) hereof, Employee will not, on behalf of
Employee or on behalf of any other individual, association or entity, call on
any of the customers of Employer for the purpose of soliciting or inducing any
of such customers to acquire (or providing to any of such customers) any product
or service provided by Employer, nor will Employee in any way, directly or
indirectly, as agent or otherwise, in any other manner solicit, influence or
encourage such customers to take away or to divert or direct their business to
Employee or any other person or entity by or with which Employee is employed,
associated, affiliated or otherwise related ("Employee Related Entity");
-----------------------
provided, however, that during the 1 year period referred to above, Employee
will be permitted to be involved in advertising and marketing deposit products
and residential loans in communities served by Employer in its residential loan
and deposit business.
(l) Employees. Employee agrees that for a period of 2 years after the
---------
termination of Employee's employment, Employee will not, directly or indirectly,
disrupt, damage, impair, or interfere with Employer's business by soliciting,
influencing, encouraging or recruiting any employee of Employer to work for
Employee or any Employee Related Entity.
(m) Counterparts. This Agreement and any amendment hereto may be
------------
executed in one or more counterparts. All of such counterparts shall constitute
one and the same agreement and shall become effective when a copy signed by each
party has been delivered to the other party.
(n) Representation By Counsel; Interpretation. Employer and Employee
-----------------------------------------
each acknowledge that each party to this Agreement has been represented by
counsel in connection with this Agreement and the matters contemplated by this
Agreement. Accordingly, any rule of law, including but not limited to Section
1654 of the California Civil Code, or any legal decision that would require
interpretation of any claimed ambiguities in this Agreement against the party
that drafted it has no application and is expressly waived. The provisions of
this Agreement shall be interpreted in a reasonable manner to effect the intent
of the parties.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
"EMPLOYER"
PAN AMERICAN BANK, FSB
By /s/ WILLIAM BRON
------------------------------
11
<PAGE>
Its Chairman
-----------------------------
"EMPLOYEE"
/s/ LAWRENCE J. GRILL
_________________________________
Lawrence J. Grill
Pan American Bank, FSB
1300 South El Camino
6th Floor
San Mateo, California 94402
Facsimile: (415) 349-8504
12
<PAGE>
Schedule 4(b)
ADDITIONAL BENEFITS
1. STOCK OPTION PLAN
Concurrently upon execution of the Agreement, Employer and Employee
shall enter into a Stock Option Agreement pursuant to Employer's 1994 Stock
Option Plan. Employer shall grant Employee stock options to purchase 200 shares
of Employer's Common Stock upon the terms and conditions described in such Plan
and Agreement.
2. EMPLOYEE INCENTIVE COMPENSATION
Subject to the restrictions of Section 4(f) of this Agreement,
Employer shall pay Employee Incentive Compensation on terms that Employer and
Employee shall agree upon in good faith at a future date.
3. PERQUISITES - See the schedule of additional benefits attached to this
schedule.
13
<PAGE>
SCHEDULE 5(B)
TERMINATION PAYMENTS
<TABLE>
<CAPTION>
Termination Payment at Current
Time Employed* Base Salary Rate
-------------------------- ----------------------------------
<S> <C>
Less than six months Three months Base Salary
More than six months but Six months Base Salary
less than twelve months
More than twelve months Nine months Base Salary
but less than eighteen months
More than eighteen months Twelve months Base Salary
but less than twenty-four months
More than twenty-four months Base Salary for the remainder of the
term of the Agreement
</TABLE>
* Calculated from the period beginning the date of commencement of the Term
as such Term is specified in Section 1 of the Agreement
14
<PAGE>
SCHEDULE 4(b)
ADDITIONAL BENEFITS
(1) CAR ALLOWANCE- During the term of the Agreement, Employer provides Employee
-------------
a vehicle allowance not to exceed $200 commencing August 1, 1994.
(2) TEMPORARY LIVING ALLOWANCE- Until October 31, 1994, Employer shall provide
--------------------------
Employee a temporary living allowance to be used solely for the purpose of
paying food, rental of an apartment and furniture, for telephone and
utilities for the apartment and incidental living expenses of Employee, in
an amount not to exceed on average $2000 per month over the eight month
period, excluding reimbursable business expenses.
(3) AIR TRAVEL- Until October 31, 1994, Employer shall reimburse Employee
----------
and/or his spouse for all their round trip coach class air travel expense
between San Francisco and Los Angeles and related transportation to and
from the airport. Employee and/or his spouse shall be reimbursed only for
four (4) round trip flights per month between San Francisco and Los
Angeles, other than those in connection with Bank business.
(4) MOVING ASSISTANCE- Employer shall provide Employee a one-time moving
-----------------
assistance allowance covering:
a. Actual packing and moving costs for furniture and household
goods upon Employee's permanent move from Los Angeles to
San Francisco,
b. Brokers fees and closing costs paid by Employee in connection
with the sale of his home not to exceed $30,000, which are
payable only when, and at the time of, the purchase of a home
in Northern California, provided Employee is still employed by
the Bank when the home is purchased at an amount which exceeds
the gross selling price of the home sold.
(5) ATTORNEYS FEE- Employer shall pay all Employees attorneys fees for
-------------
reviewing the Employment Contract, Shareholder Agreement, Stock Option and
Pact Agreement not to exceed $5,000.
(6) TERM LIFE INSURANCE- Employer shall pay for an individual Term Life
-------------------
Insurance Policy for Employee equal to two times Employee's base salary,
from time to time, less any amount of group term insurance furnished by
Employer, not to exceed $1,500 a year.
(7) DISABILITY INSURANCE- Employer shall provide or reimburse to Employee for
--------------------
group or individual term disability insurance up to 80% of Employee's base
salary from time to time less the amount of individual disability insurance
personally presently carried by Employee (currently $6,500), the cost of
which to Employer shall not exceed $1,500 a year.
15
<PAGE>
EXHIBIT 10.41.1
FIRST AMENDMENT
TO
EMPLOYMENT AGREEMENT
This First Amendment to Employment Agreement is entered into as of
November 14, 1997, by and between United PanAm Mortgage Corp. (the "Company")
and John T. French ("Employee").
WITNESSETH:
WHEREAS, Employee and the Company are parties to that certain
Employment Agreement dated as of October 1, 1997 (the "Employment Agreement").
WHEREAS, Employer and Employee desire to amend the terms of such
Employment Agreement as provided herein.
NOW, THEREFORE, the parties hereto agree as follows:
1. Stock Options. Section 4 of the Employment Agreement is hereby
-------------
amended by replacing the last sentence thereof with the following:
"On the execution hereof, Employee shall receive options to purchase
60,000 shares of the common stock of United PanAm Financial Corp., the
parent corporation of the Company, formerly known as Pan American
Group, Inc., which options shall (a) have an exercise price per share
of $10.50; (b) vest and become exercisable 25% on October 15, 1997,
and 25% on each of October 15, 1998, 1999 and 2000; provided,
--------
however, that such options shall be completely vested and exercisable
on September 30, 1999 if Employee is an employee of the Company on
that date and the Company and Employee neither renew this Agreement
nor enter into a new Employment Agreement; and (c) be in addition to
any other options to purchase share of the common stock of United
PanAm Financial Corp. which Employee has received before the date of
this Agreement."
2. No Other Changes. Except as set forth herein, the Employment
----------------
Agreement shall remain in full force and effect without further amendment or
modification.
<PAGE>
Executed as of the date first above written.
EMPLOYER: UNITED PANAM MORTGAGE CORP.
By: /s/ LAWRENCE J. GRILL
-----------------------------------
EMPLOYEE: /s/ JOHN T. FRENCH
-----------------------------------
JOHN T. FRENCH
<PAGE>
EXHIBIT 10.45
AGREEMENT AND MUTUAL GENERAL RELEASE
This Agreement and Mutual General Release ("Agreement") is made and entered
into this 5th day of March, 1997, by and between Pan American Bank, FSB, a
federally chartered savings bank (the "Company"), and Robert Wilson, an
individual ("Wilson"), with reference to the following:
RECITALS
A. Wilson has served as an executive officer of the Company, pursuant to
that certain Employment Agreement between Wilson and the Company, dated May 1,
1994, including all schedules and exhibits thereto (collectively, the
"Employment Agreement");
B. Wilson and the Company have determined that it is in their respective
mutual best interests: (i) to terminate the Employment Agreement, effective
March 1, 1997 (the "Effective Date"); (ii) for each party to release the other
and their respective directors, officers, employees, agents and assigns, as
applicable (collectively, "agents and assigns"), from and against all claims and
causes of action that either may have against the other or their respective
agents and assigns relating to Wilson's service to the Company and the Company's
obligations to Wilson under the Employment Agreement; and (iii) to provide that
Wilson will serve as a consultant for the Company for a period of twelve (12)
months from and after the Effective Date on the terms set forth in this
Agreement.
NOW, THEREFORE, IN CONSIDERATION OF the foregoing recitals, which are
incorporated as an integral part of this Agreement, the mutual promises of the
parties and other good and valuable consideration the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
AGREEMENT
1. TERMINATION OF EMPLOYMENT AGREEMENT. The Employment Agreement shall
be terminated as of the Effective Date, and all obligations of any party
thereunder shall thereby be forever released and discharged. Upon termination
of the Employment Agreement, Wilson shall be entitled to receive from the
Company the sum of $112,500, less any amounts required to be deducted by the
Company for federal and state taxes or other applicable requirements, which
payment shall be made in twenty-four (24) equal bimonthly installments
commencing March 15, 1997.
2. STOCK OPTIONS. The parties hereto expressly acknowledge and agree
that this Agreement constitutes a termination of Wilson's employment, but does
not terminate the outstanding options to purchase 200 shares of Pan American
Group, Inc. ("PAGI") common stock, at the price of $1,500 per share, which were
previously granted to Wilson (the "Outstanding Options"). On the Effective
Date, pursuant to Section 3.3(cc) of the PAGI 1994 Stock Option Plan, the
Outstanding Options shall immediately vest and be amended to extend
<PAGE>
the period thereof so that the Outstanding Options shall be exercisable for
three (3) years from and after the Effective Date. In addition, on the Effective
Date, Wilson shall be granted nonqualified options to purchase 60 shares of
common stock of PAGI, at the price of $2,500 per share (the "Options"). The
Options shall immediately vest and shall be exercisable for three (3) years from
and after the Effective Date.
3. NEW CONSULTING TERMS. Beginning on the Effective Date and for a
period of twelve (12) months thereafter (the "Term"), the Company shall hire the
Wilson as a consultant at a salary of $37,500 per annum, payable in twenty-four
(24) equal bimonthly installments commencing March 15, 1997, consistent with the
Company's general policies relating to the payment of consultants. As a
consultant, Wilson shall make himself reasonably available to advise and assist
the Company regarding, among related matters, the Company's mortgage lending
programs and the Company's activities in the secondary mortgage market.
4. NO OTHER BENEFITS. After the Effective Date except as provided
herein, Wilson shall not be considered as having employee status or be entitled
to participate in any plans, arrangements or distributions by Company pertaining
to or in connection with any pension, stock, bond or profit sharing plan or any
other fringe benefit for Company's regular employees, except that Wilson will
have the rights to stock options set forth in Section 2 of this Agreement.
5. INDEPENDENT CONTRACTOR STATUS. Wilson shall be retained by the
Company as a consultant only for the purposes and to the extent set forth in
this Agreement, and Wilson's relationship to the Company shall at all times
during the Term shall be that of an independent contractor. Wilson and the
Company acknowledge and agree that, during the Term, Wilson shall be free to
dispose of such portion of Wilson's time, energy and skill, in such manner as
Wilson sees fit, and to such person, firm or entity as Wilson deems advisable
and that Wilson may seek to organize an independent mortgage company, or
otherwise engage in business activities in addition to the duties to be
performed for the Company hereunder; provided, however, that in connection with
any such independent business activities, without the prior written consent of
the Company (i) Wilson shall not employ or solicit for employment, directly or
indirectly, the services of any employee of the Company or its affiliates, and
(ii) Wilson shall not use or disclose any nonpublic, confidential or proprietary
information of the Company or its affiliates in any manner whatsoever. Wilson
acknowledges that confidential or proprietary information of the Company or its
affiliates is of substantial value to the Company's business and that disclosure
or misuse of same may violate certain laws and could result in serious injury to
the Company for which the remedy of damages would be inadequate, and that the
remedies for any such breach would properly include injunctive relief.
6. TAXES. Wilson acknowledges that no federal or California withholding
taxes, FICA, SDI or other employee payroll taxes or deductions are made with
respect to compensation paid to Wilson under the portion of this Agreement
relating to Wilson's service as a consultant. Wilson is responsible for all such
taxes, and agrees to report for federal and California income and Franchise tax
purposes all such compensation, and to pay all taxes due thereon and to
indemnify, defend and hold the Company harmless in the event that any claim is
made against
2
<PAGE>
the Company, including but not limited to claims made by any taxing authority,
by reason of Wilson's failure to properly pay any and all taxes which are due in
relation to the services provided pursuant to this Agreement.
7. MUTUAL GENERAL RELEASE. In further consideration of the promises and
agreements made hereunder, Wilson agrees unconditionally and forever to release
and discharge the Company and its respective agents and assigns, and the Company
agrees unconditionally and forever to release and discharge Wilson and his
respective agents and assigns, from any and all claims, actions, causes of
action, demands, liabilities, rights or damages of any kind or nature which any
of them may now have, or ever have, whether known or unknown, against the other,
including any claims, causes of action or demands of any nature arising out of
or in any way relating to Wilson's service to the Company and the Company's
obligations to Wilson under the Employment Agreement.
This release specifically includes, but is not limited to, any claims for
discrimination and/or violation of any statutes, rules, regulations or
ordinances, whether federal, state or local, including, but not limited to,
Title VII of the Civil Rights Act of 1964, as amended, age claims under the Age
Discrimination in Employment Act of 1967, as amended by the Older Workers
Benefits Protection Act of 1990, Section 1981 of Title 42 of the United States
Code, and the California Fair Employment and Housing Act.
The parties further agree knowingly to waive the provisions and protections
of Section 1542 of the California Civil Code, which reads:
A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release, which, if known by him, must have materially affected his
settlement with the debtor.
Wilson represents and agrees that, prior to the execution of this
Agreement, Wilson has had the opportunity to discuss the terms of this Agreement
with legal counsel of his choosing. Wilson affirms that no promise or inducement
was made to cause him to enter into this Agreement, other than the severance and
other benefits described herein. Wilson further confirms that he has not relied
upon any other statement or representation by anyone other than what is in this
Agreement as a basis for his agreement.
8. COOPERATION IN LITIGATION. Upon reasonable notice from the Company,
during the Term and thereafter (but only so long as any matter based upon
circumstances arising during the period of Wilson's employ by the Company or the
Term is pending), Wilson shall make himself reasonably available to assist and
otherwise cooperate with the Company in connection with any litigation matters
involving the Company.
9. ARBITRATION. Any and all disputes or claims arising out of or in any
way related to this Agreement, including without limitation, fraud in the
inducement of this Agreement, or
3
<PAGE>
relating to the general validity or enforceability of this Agreement, shall be
submitted to final and binding arbitration before an arbitrator of the American
Arbitration Association in San Mateo, California in accordance with the rules of
that body governing commercial disputes, and the prevailing party shall be
entitled to reasonable costs and attorneys' fees. Judgment on the award rendered
by the arbitrator may be entered in any court having jurisdiction thereof.
10. GOVERNING LAW. This Agreement shall be construed under the laws of
the State of California, both procedural and substantive, except as may be
required under federal laws and regulations applicable to federally chartered
savings associations or their subsidiaries or affiliates.
11. REVOCATION RIGHT. Wilson acknowledges that he has been advised that
he has twenty-one (21) days to consider this Agreement and that he has been
informed that he has the right to consult with counsel regarding this Agreement.
To the extent that Wilson has taken less than twenty-one (21) days to consider
this Agreement, Wilson acknowledges that he has had sufficient time to consider
the Agreement and to consult with counsel and that he does not desire additional
time. This Agreement is revocable by Wilson for a period of seven (7) days
following Wilson's execution of this Agreement. The revocation by Wilson of
this Agreement must be in writing, must specifically revoke this Agreement, and
must be received by the Company prior to the eighth (8th) day following the
execution of this Agreement by Wilson. This Agreement becomes effective,
enforceable and irrevocable on the eighth (8th) day following Wilson's execution
of the Agreement.
12. MISCELLANEOUS. This Agreement sets forth the entire agreement between
Wilson and the Company relating to the subject matter hereof and, except as
expressly set forth herein, supersedes all prior oral or written agreements
relating thereto, including, without limitation, the Employment Agreement. This
Agreement shall be binding upon all parties' respective heirs, representatives,
successors and assigns. Wilson may not assign or delegate his rights or
responsibilities under this Agreement without the prior written consent of the
Company. If any portion of this Agreement is found to be illegal or
unenforceable, such action shall not affect the validity or enforceability of
the remaining paragraphs or subparagraphs of this Agreement. No amendments to
this Agreement will be valid unless written and signed by Wilson and an
authorized representative of the Company. This Agreement may be executed in one
or more counterparts, all of which, taken together, shall
4
<PAGE>
constitute one original document. The undersigned agree to the terms of this
Agreement and voluntarily enter into it with the intent to be bound thereby.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first written above.
WILSON: PAN AMERICAN BANK, FSB
/s/ ROBERT WILSON By: /s/ LAWRENCE J. GRILL
- ------------------------------- ---------------------------------
Robert Wilson Lawrence J. Grill
President and Chief Executive Officer
5
<PAGE>
EXHIBIT 10.48
PAN AMERICAN BANK, FSB
MANAGEMENT INCENTIVE PLAN
INTRODUCTION
The purposes of the Pan American Bank, FSB ("PAB") Management Incentive Plan
("MICP") described herein are as follows:
. To provide an annual incentive for those key executives who have the
ability to make an impact on the financial results of the
organization.
. To reinforce the Bank's annual financial objectives.
. To provide competitive rewards to key executives commensurate with the
Bank's financial success.
EFFECTIVE DATE
- --------------
The original effective date of the Plan is June 30, 1996 and the Plan will
initially cover fiscal year 1996 (July 1, 1996 to June 30, 1997). The Plan has
no termination date, but the Company reserves the right to change the provisions
of the Plan at any time.
ADMINISTRATION
- --------------
The plan shall be administered by the President, subject to the concurrence of
the Chairman of the Board. The Board of Directors will approve the Plan and any
changes and all compensation actions proposed for officers of the Bank.
Approval of all awards, other than his own, shall be made by the President
subject to first being submitted to the Board of Directors for final approval.
ELIGIBILITY
- -----------
Eligibility for the Plan is to include key PAB executives, who by the nature of
their responsibilities have the ability to make a significant impact on
profitability and are selected for participation in the plan by the President
and approved by the Board.
OVERVIEW OF THE PLAN
The Plan will work essentially as follows:
. Each year, plan participants will be assigned a Target Bonus
represented as a percentage of salary and based on full achievement of
approved financial and management objectives.
1
<PAGE>
. Financial and management objectives will be established that reflect
goals critical to the success of the Bank. Income Before Taxes will
always be a primary goal, but other financial goals and management
objectives may vary from year to year. A weighting is established for
each of these goals dependent on their importance to the Bank.
Financial objectives may or may not be the same as the approved
budget.
. Entry level and maximum financial performance targets will be
established as well.
1997 - MIN = 50% MAX = 150%
. The total of the Target Bonus values for all participants in the
program will constitute the Target Bonus Pool for the Bank.
. The Attainment Percent, represented as a percentage of target shall be
calculated based upon the actual results compared to entry level,
target and maximum values described in the plan schedule for the year.
The Attainment Percent will be the extrapolated results, rounded to
the nearest tenth of a percent, using either the entry level and
target values or target level and maximum values.
. Actual Bonus Earned for participants is calculated based on the
Attainment Percent for each of the established goals, the Weighting of
the goal, and the Target bonus for each of the participants.
. No bonus is payable on management and other financial objectives if
the entry level is not attained for Income Before Taxes. This means
that even if objectives are met for other objectives, no bonus will be
payable on these objectives, and no bonus will be payable under the
plan, until at least the entry level goal for Income Before Taxes is
attained.
. The remaining bonus due will be calculated and awarded subsequent to
the certified audit of the fiscal year during which the bonus was
earned.
SIZE OF TARGET BONUS
A Target Bonus will be assigned to each position according to competitive market
conditions, salary surveys and internal relationships of jobs within the Bank.
Base salary used in calculating the Target Bonus is typically defined as the
current annual salary in effect subsequent to salary reviews for officers each
year, but that may be modified given a promotion of a participant and the
approval of both the President and the Board. In the event that an individual's
Target Bonus Level changes during the course of the year, the assigned Target
Bonus will be recalculated on a pro-rata basis according to the amount of time
spent at each bonus level.
2
<PAGE>
ENTRY INTO THE PLAN, CHANGE OF ASSIGNMENT -- TRANSFER
If an employee enters the plan mid-year, he will participate in the plan on a
pro-rata basis dependent on the number of months, rounded to the nearest half
month, in the plan. In the event of a change of assignment which would result
in a change of Target Bonus during the course of the year, the assigned Target
Bonus(es) will be computed on the base salary figure received at each position.
TERMINATION PROVISIONS
RELEASE, REDUCTION IN WORK FORCE OR RESIGNATION
- -----------------------------------------------
If a participant in the Plan is not on the payroll at the end of the Fiscal
Year, a bonus will not be paid regardless of length of service or reason for
termination or resignation, except as provided for under the next section.
TERMINATION DUE TO DEATH OR RETIREMENT, AND EMPLOYEES ON TOTAL AND PERMANENT
- ----------------------------------------------------------------------------
DISABILITY OR APPROVED LEAVES OF ABSENCE
- ----------------------------------------
A pro-rata bonus based on active employment is payable under these circumstances
and will be based upon the assigned Target Bonus and corresponding base salary
received while covered under the Plan.
DISCHARGE BY THE COMPANY FOR WILLFUL AND DELIBERATE OR GROSS MISCONDUCT
- -----------------------------------------------------------------------
Any right of the employee to a bonus under the Bonus Program shall be forfeited
even if the employee is on the payroll at the end of the Fiscal Year.
DEFINITIONS
GOALS
- -----
Income Before Tax
- -----------------
Income before tax is defined as the dollar amount shown on the PAB Certified
Financials in each fiscal year. This amount should include a provision for the
accrual of bonus at the targeted amounts.
PLAN TERMS
- ----------
Entry Level
- -----------
This is defined as the minimum performance, as approved by the Board of
Directors, expected to be achieved for any bonus to be awarded.
3
<PAGE>
Target Level
- ------------
This is the bonus target level as approved by the Board of Directors on which
target bonuses may be awarded to participants.
Maximum Level
- -------------
This is the level against which a maximum award would be paid if the amount or
greater is achieved.
Target Percentage of Salary
- ---------------------------
This is the target amount, represented as a percentage of salary that will be
awarded the participant if the Bank is to meet all of its financial and
management objectives at the target level.
Attainment Percent
- ------------------
This shall be calculated based upon the actual results compared to entry level,
target and maximum values described in the plan schedule for the year. The
Attainment Percent will be the extrapolated results, rounded to the nearest
tenth of a percent, using either the entry level and target values or target
level and maximum values.
Weighting of Goals
- ------------------
Shall be the weighting as represented in a whole percent that has been
established for each of the financial and management goals.
Total Bonus Percent Earned
- --------------------------
This represents the sum of PAB's performance against goals and is to be
calculated for each goal by multiplying the Attainment Percent by the Weighting
that has been established for each goal. This should be expressed to the
nearest tenth of a percent. The result for each of the goals is then totaled to
represent the Total Bonus Percent Earned.
Total Bonus Earned
- ------------------
Total Bonus Percent Earned represents the bonus due a participant and is to be
calculated by multiplying the Total Bonus Percent Earned by the Participants
Target Percentage. That result is then multiplied by the salary of the
participant and may be further reduced by the percentage of the year that the
participant was not employed if he was not with the Bank at the beginning of the
year.
4
<PAGE>
EXHIBIT 10.50
INCOME TAX ALLOCATION AGREEMENT
This Income Tax Allocation Agreement is entered into as of October 17, 1994 for
the purpose of establishing an understanding and procedures to be followed for
allocating taxes based on income and related tax benefits among the following
parties: Pan American Bank, FSB ("PAB"), Pan American Financial, Inc. ("PAFI")
and Pan American Group, Inc. ("PAGI"). The parties are members ("Members") of
an affiliated group ("the Affiliated Group") within the meaning of the Internal
Revenue Code and file a consolidated return for federal income tax purposes and
file a single combined report for California franchise tax purposes. This
agreement assumes in all cases that the amount of taxes paid by PAB will not
exceed the amount that would have been due and currently payable to taxing
authorities if PAB was filing its tax return on a separate-entity basis.
The parties hereto agree as follows:
I. FEDERAL INCOME TAXES
--------------------
A. REGULAR TAX
-----------
The consolidated Federal income tax liability of the Affiliated Group based
only on current tax payments and not on deferred taxes, will be allocated
to Members included in consolidated Federal income tax returns as follows:
(1) Total federal income tax liability will be allocated to the Members
based on the ratio that each Member's separate return tax liability for
the taxable year bears to the sum of the separate return tax liability
of each of the Members. Moreover, the parties agree to reimburse any
Member which has tax losses or credits in an amount equal to 100% of
the tax benefits realized by the Affiliated Group as a result of the
utilization of such Member's tax losses or credits.
(2) If the Group has a consolidated net operating loss or excess tax
credits for a year, the amounts determinable in (1) above will be based
on the current year tax rate and the amount determinable in (1) above
shall include the taxes recoverable from prior years resulting from the
carryback of the consolidated return years and, where applicable, to
the separate return years (as defined in the consolidated tax return
regulations).
(3) Under the provisions of paragraph 1 and 2, a Member whose tax losses or
credits resulted in a reduction of the consolidated tax liability for
the taxable year shall be entitled to a payment for the use by the
Affiliated Group of its tax losses or credits. The amount of such
payment shall be determined on the basis of the
Page 1
<PAGE>
utilization of such Member's losses and credits in making estimated tax
payments and a final reconciliation shall be made when the consolidated
return is filed. If PAB reports a loss that would have resulted in a
refund from the taxing authorities on a separate-entity basis, PAGI
will promptly refund PAB the amount owed.
B. ALTERNATIVE MINIMUM TAX ("AMT")
-------------------------------
The difference between the AMT and the regular tax ("AMT Allocation") will
be allocated as follows: each Member will be allocated the lesser of 1)
its separate company AMT/1/, or 2) its portion of the AMT Allocation
based on the ratio of its separate company AMT to total AMT due if each
Member of the Group were to file a separate federal return. Any excess of
consolidated AMT over the total separate company AMT will be allocated to
Members having a tax loss based on the ratio of their separate company loss
to the total loss of all Members. The amount of taxes paid by PAB may not
exceed the amount that would have been due and currently payable to taxing
authorities if PAB was filing its tax return on a separate-entity basis.
When a credit for a prior minimum tax liability reduced the consolidated
regular tax for a year, such benefit will be allocated to the Members that
were allocated AMT in accordance with the preceding paragraph.
II. STATE INCOME TAXES
------------------
The parties acknowledge that they file a single combined report for California
franchise tax purposes. The parties agree to a tax allocation method for
California franchise tax purposes comparable to that described in this agreement
for federal income tax purposes.
III AMENDED RETURNS AND AUDIT ADJUSTMENTS
-------------------------------------
In the event of any adjustment of tax returns of the Members as filed by reason
of filing an amended return or claim for refund, or arising out of an audit by
the Internal Revenue Service, the liability of the Members to each other and to
the Internal Revenue Service for any period covered by this Agreement shall be
redetermined after fully giving effect to any such adjustments as if such
adjustments had been made as part of original computations. Payment or credits
between the Members shall be made at the time of any payment of tax or receipt
of refund or credit from the Internal Revenue Service with respect to such
adjustments, and such payments, refunds or credits shall include any interest
attributable to such adjustments. Any change in the
- --------------------
/1/ Separate company AMT is defined as the AMT that would be due if the
Member were to file a separate federal income tax return.
--------
Page 2
<PAGE>
tax liability due to the filing of an amended return or any audit by a taxing
authority will be allocated among the Members in accordance with the above
rules.
IV. TAX PAYMENTS
------------
The parties agree that PAGI will be responsible for making payments to the
Internal Revenue Service and the Franchise Tax Board. At such time as PAGI
makes payments to the Internal Revenue Service or Franchise Tax Board for any
taxes (including estimated taxes), each Member will pay to PAGI an amount equal
to its share of such payments as determined under paragraph 1. Any overpayment
of tax of the Affiliated Group shall be paid or credited by the Internal Revenue
Service or Franchise Tax Board to PAGI and PAGI will pay such amount to the
appropriate member immediately upon receipt. Any adjustment by the Internal
Revenue Service or Franchise Tax Board which affects either the consolidated tax
liability or the relative tax liabilities of members shall be made among the
Members immediately after the amount of the adjustment is determined. If there
are any penalties (including penalty for failure to pay estimated taxes) with
respect to the filing of any consolidated return, the penalty shall be shared
appropriately among those parties whose action or inaction (such as understating
taxable income) contributed to the penalty.
V. OTHER
-----
The parties acknowledge that any disputes between and among the members will be
arbitrated by PAB's independent auditors (presently KPMG Peat Marwick) and all
parties agree that the independent auditor's findings will be accepted.
PAB will not pay any deferred taxes to PAGI and PAGI will not "forgive" any
portion of PAB's deferred tax liability.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
dates indicated below:
Date: October 17, 1994 /s/ LAWRENCE J. GRILL
------------------------------------------
For: Pan American Group, Inc.
Date: October 17, 1994 /s/ ROBERT WILSON
------------------------------------------
For: Pan American Financial, Inc.
Date: October 17, 1994 /s/ CAROL M. BUCCI
------------------------------------------
For: Pan American Bank, FSB
Page 3
<PAGE>
EXHIBIT 10.51
LEASE AGREEMENT
BETWEEN
RESOLUTION TRUST CORPORATION AS RECEIVER
FOR PAN AMERICAN FEDERAL SAVINGS BANK
OLD STONE BANK OF CALIFORNIA,
A FEDERAL SAVINGS BANK
AS "LANDLORD"
AND
PAN AMERICAN BANK (FSB)
AS "TENANT"
<PAGE>
THIS LEASE is made as of September 26, 1994, by and between RESOLUTION
TRUST CORPORATION AND OLD STONE BANK OF CALIFORNIA, Owners (50% Ownership - The
Resolution Trust Corporation as Receiver for Pan American Federal Savings Bank
and Old Stone Bank of California, A Federal Savings Bank), ("Landlord"), and PAN
AMERICAN BANK (FSB) ("Tenant"). Landlord and Tenant hereby agree as follows:
1. PREMISES. Landlord hereby leases to Tenant, and Tenant hereby leases
--------
from Landlord, upon the terms and subject to the conditions of this Lease,
approximately 7,720 rentable square feet of office space including Suite 310 and
300 (the "Premises"), as shown on Exhibit A attached hereto and made a part
hereof. The Premises are located on the third (3) floor of the building known
as the 1300 S. El Camino Real Building and located at 1300 S. El Camino Real,
San Mateo, California (the "Building"). The Building contains a total of
approximately 84,955 rentable square feet of office space. The Building, the
Parking Facility, the parcel(s) of land on which the Building and Parking
Facility are situated (the "Land"), the other improvements on the Land and the
personal property used by Landlord in the operation of the Building are
sometimes collectively referred to in this Lease as the "Property".
2. TERM; POSSESSION. The term of this Lease (the "Term") shall commence
----------------
on the "Commencement Date" specified below and, unless sooner terminated
pursuant to the provisions of this Lease, shall expire on the last day of the
month following the fifth (5th) anniversary of the Commencement Date of Suite
300, ("Expiration Date"). Such Expiration Date for this Lease shall be March
31, 2000.
The parties agree that the Commencement Date will occur on October 1,
1994 ("Scheduled Commencement Date") for Suite 310 which includes 2,365 rentable
square feet, the parties also agree that the Commencement Date will occur on
April 1, 1995 ("Scheduled Commencement Date") for Suite 300 which includes 5,355
rentable square feet.
1
<PAGE>
3. RENT.
----
3.1 Base Rent. During the Term, Tenant shall pay to Landlord, as
---------
monthly base rent for the Premises ("Base Rent"), without offset, deduction,
prior notice or demand the following amounts:
Suite 310 Suite 300
1 month at $0.00 1 month at $0.00
2-26 months at $1.51 2-20 months at $1.51
27-46 months at $1.54 21-40 months at $1.54
47-66 months at $1.64 41-60 months at $1.64
Base Rent for the first month of the Term for which Base Rent is
payable shall be payable in advance upon the execution of this Lease.
Thereafter, Base Rent shall be payable in advance on the first day of each
calendar month during the Term that follows the first month of the Term for
which Base Rent is payable. Base Rent for any partial month during the Term
shall be prorated, based upon the daily Base Rent then in effect (calculated on
the basis of a 365-day year).
3.2 Payment of Rent. All amounts payable or reimbursable by Tenant
---------------
to Landlord under this Lease, including amounts payable as late charges or
interest, shall constitute "Rent" and shall be payable and recoverable as Rent
in the manner provided in this Lease. All sums payable to Landlord on demand
under the terms of this Lease shall be payable within ten (10) days after
written notice from Landlord of the amounts due. All Rent shall be paid to
Landlord in lawful money of the United States at the address specified in
Section 24 - "Notices" or at such other place as Landlord may from time to time
designate in writing. Tenant shall pay rent herein reserved to:
1300 S. El Camino Building
c/o Cornish & Carey Commercial
5201 Great America Parkway, Suite 532
Santa Clara, CA 95054
2
<PAGE>
4. ADDITIONAL RENT: INCREASES IN OPERATING COSTS AND TAXES.
--------------------------------------------------------
4.1 Definitions. For purposes of this Lease the following terms
-----------
shall be defined as follows:
(a) "Base Operating Costs" means the Gross Operating Costs
incurred for the calendar year 1994 (excluding, therefrom, however, any
gross operating costs of a nature that would not be ordinarily and
regularly incurred in each and every calendar year);
(b) "Base Operating Taxes" means the Gross Operating Taxes
incurred for the calendar 1994;
(c) "Gross Operating Costs" means all direct costs of managing,
operating, maintaining and repairing the Property including the parking
facility and common area, including, but not limited to: (1) costs of
maintenance and repair of the Property, including the repair or replacement
of glass and the repair of the roof covering or membrane; (2) costs of
maintenance and replacement of landscaping in the Property; (3) costs of
providing utilities and services, including costs and charges for water,
gas electricity, sewage disposal, rubbish removal, security services,
cleaning and janitorial services, window washing and supplies and
materials; (4) charges for the service of independent contractors and
compensation (including employment taxes and fringe benefits) for persons
who perform duties in connection with the operation, maintenance and repair
of the Building, such compensation to be appropriately allocated for
persons who perform duties unrelated to the Building; (5) premiums for
property (including coverage for earthquake and flood if carried by
Landlord), liability, rental income and other insurance relating to the
Property, and deductible amounts under such insurance paid in connection
with the repair or restoration of the Property (including the common areas)
after damage or destruction of the Property; (6) fees and charges for
licenses, permits and inspections; (7) amortized costs of capital
improvements required to meet changed governmental regulations or which are
intended to reduce Gross Operating Costs, such costs,
3
<PAGE>
together with interest on the unamortized balance at the rate of fifteen
percent (15%) per annum or any higher rate paid by Landlord on funds
borrowed for the purpose of, constructing such capital improvements, to be
amortized over such reasonable periods as Landlord shall determine; (8) any
costs associated with the maintenance of the Building management offices or
related facilities in the Building, including the rental value of any space
occupied for such purposes, the cost of furnishing such space (such costs
to be depreciated in accordance with generally accepted accounting
principles if such costs are of a capital nature); and supplies and
materials used in connection with management of the building; (9) fair
market property management fees; (10) costs for accounting, legal and other
professional services incurred in connection with the operation of the
Building and the calculation of Gross Operating Costs and Gross Taxes (as
defined below); (11) a reasonable allowance for depreciation on machinery
and equipment used to maintain the property and on other personal property
used by Landlord in the Building (including window covers and carpeting in
public corridors and common areas); (12) the reasonable cost of contesting
the validity or applicability of any governmental enactments that may
affect the Property; (13) the Building's share of common area maintenance
fees and expenses; (14) any costs associated with, related to, or arising
in connection with telecommunications for the Property, including, without
limitation, telephone, facsimile, video conferencing and computer
communications costs incurred in connection with the operation, maintenance
or management of the Property and any maintenance or repair costs including
service contracts and insurance policies in connection with Landlord's
obligation to maintain or repair telephone cabling and inside wiring
connected with the Property; and Lessee shall not be charged for other
tenants' communication needs; and (15) any other expense or charge, whether
or not herein-before described, which in accordance with generally accepted
property management practices would be considered an expense of managing,
operating, maintaining and repairing the Property.
Gross Operating Costs shall not include (i) capital improvements
subsequent to the initial construction and development of the Building,
other than those specifically enumerated above in the definition of Gross
Operating Costs; (ii) costs of special services
4
<PAGE>
rendered to individual tenants (including Tenant) for which a special
charge is made; (iii) interest and principal payments on loans or
indebtedness secured by the Building; (iv) costs of improvements for other
tenants of the Building; (v) costs of services or other benefits of a type
which are not available to Tenant but which are available to other tenants
or occupants, and costs for which Landlord is reimbursed by other tenants
of the Building other than through payment of tenants' shares of Operating
Costs and Taxes; (vi) leasing commissions, attorneys' fees and other
expenses incurred in connection with negotiations or disputes with other
tenants, prospective tenants or occupants of the Property, or in connection
with the enforcement or violation by Landlord or such tenant or occupant of
any lease; (vii) depreciation or amortization, other than as specifically
enumerated above in the definition of Gross Operating Costs; (viii) costs,
fines or penalties incurred due to Landlord's violation of any law or
governmental regulation; and (ix) the excess of the cost of supplies and
services provided by subsidiaries and affiliates of Landlord over
competitive costs by independent suppliers and contractors of comparable
buildings in the vicinity of the Property.
(d) "Gross Taxes" means all real property taxes and general,
special or district assessments or other governmental impositions, of
whatever kind, nature or origin, imposed on or by reason of the Ownership
or use of the Property; governmental charges, fees or assessments for
transit (including without limitation, area wide traffic improvement
assessments and transportation system management fees), housing, police,
fire or other governmental service or purported benefits to the Property;
personal property taxes assessed on the personal property of the Landlord
used in the operation of the Property; service payments in lieu of taxes
and taxes and assessments of every kind and nature whatsoever levied or
assessed in addition to, in lieu of or in substitution for existing or
additional real or personal property taxes on the Property or the personal
property described above; taxes and assessments on the gross or net rental
receipts of Landlord derived from the Building (excluding, however, state
and federal personal or corporate income taxes measured by the income of
the Landlord from all sources); and the reasonable cost of contesting by
appropriate proceedings the amount of validity of any taxes, assessments or
charges described
5
<PAGE>
above. The term "Gross Taxes" shall not include any "Tenant's Taxes" as
defined in Section 9 - "Tenant's Taxes."
(e) "Operating Costs" means the total Gross Operating Costs for
any calendar year divided by the number of rentable square feet of office
space in the Building. Operating Costs for any year during which average
occupancy of the Building is less than ninety-five percent (95%) shall be
calculated based upon the Gross Operating Costs that would have been
incurred if the Building were so occupied during the entire calendar year.
Tenant's Share of Operating Costs shall not be reduced as a result of
Tenant's performing for itself any of the services that Landlord provides
for the Property or the tenants of the Property.
(f) "Taxes" means the total Gross Taxes for any calendar year
divided by the number of rentable square feet in the Building. Taxes for
any year during which average occupancy of the Building is less than
ninety-five percent (95%) shall be calculated based upon the Gross Taxes
that would have been incurred if the Building were so occupied during the
entire calendar year.
(g) "Tenant's Share" means an amount equal to the number of
rentable square feet of office space in the Premises divided by the total
number of rentable square feet of office space in the Building, multiplied
by any increases in Operating Costs and Taxes over Base Operating Costs and
Taxes.
4.2 Additional Rent. If Operating Costs and Taxes for any calendar
---------------
year during the term of this Lease exceed Base Operating Costs and Taxes, Tenant
shall pay Landlord, as "Additional Rent," Tenant's Share of such increase in
Operating Costs and Taxes (whether such increase, in the case of Taxes, is
caused by changes in valuation, rate or other factors or circumstance).
6
<PAGE>
4.3 Notice and Payment. As close as reasonably possible to the end
------------------
of each calendar year, Landlord shall notify Tenant of any increases in
Operating Costs and Taxes over Base Operating Costs and Taxes estimated by
Landlord for the following calendar year. Commencing on the first day of January
of each calendar year and on the first day of every month thereafter in such
year, Tenant shall pay to Landlord, as Additional Rent, one-twelfth (1/2th) of
Tenant's Share of increases in Operating Costs and Taxes as estimated by
Landlord. If at any time during any such calendar year, it appears to Landlord
that Operating Costs or Taxes for such year will vary from Landlord's estimate,
Landlord may, by written notice to Tenant, revise its estimate for such year and
the Additional Rent payments by Tenant for such year shall thereafter be based
upon such revised estimate.
As soon as possible, however, in no event later than ninety (90) days
after the end of each calendar year for which Tenant has made estimated payments
or is liable for increases in Operating Costs and Taxes, Landlord shall furnish
Tenant a statement with respect to such year, certified by Landlord's
controller, showing Gross Operating Costs and Gross Taxes, Operating Costs and
Taxes, the increase in Operating Costs and Taxes over Base Operating Costs and
Taxes, Tenant's Share of such increase, and the total payments made by Tenant on
the basis of any previous estimate of such increases. Unless Tenant raises any
objections to Landlord's statement within three (3) months after receipt of the
same, such statement, shall conclusively be deemed correct and Tenant shall have
no right thereafter to dispute such statement or any item therein or the
computation of increases of Operating Costs or Taxes. If Tenant does object to
such statement, Landlord shall provide Tenant with reasonable verification of
the figures shown on the statement and the parties agree to negotiate in good
faith to resolve any disputes. Any amounts due Landlord or Tenant shall be paid
in the manner set forth below. Any objection of Tenant to Landlord's statement
and resolution of any dispute shall not postpone the time for payment of any
amounts due Tenant or Landlord based on Landlord's statement, nor shall any
failure of Landlord to deliver Landlord's statement in a timely manner relieve
Tenant of its obligation to pay any amounts due Landlord based on Landlord's
statement.
7
<PAGE>
If Tenant's Share for the year as finally determined exceeds the total
payments made by Tenant based on Landlord's estimates, Tenant shall pay Landlord
the deficiency within ten (10) days of Tenant's receipt of Landlord's statement.
If the total payments made by Tenant based on Landlord's estimate of the
increases in Operating Costs and Taxes exceed Tenant's Share of the increases,
as determined by Landlord, Tenant's excess payment shall be credited towards the
next payments by Tenant of Rent or estimated increases in Operating Costs and
Taxes.
For any partial calendar year at the commencement or termination of
this Lease, Tenant's Share of any increases in Operating Costs and Taxes over
Base Operating Costs and Taxes for such year shall be prorated on the basis of a
365-day year by computing Tenant's Share of the increases in Operating Costs and
Taxes for the entire year and then prorating such amount for the number of days
the term of this Lease was in effect during such year. Notwithstanding the
termination of this Lease, and within ten (10) days of Tenant's receipt of
Landlord's statement regarding the determination of increases in Operating Costs
and Taxes for the calendar year in which this Lease terminates, Tenant shall pay
to Landlord or Landlord shall pay to Tenant, as the case may be, an amount equal
to the difference between Tenant's Share (as prorated) of the increases in
Operating Costs and Taxes for such year, as finally determined by Landlord, and
the amount previously paid by Tenant toward such increases.
5. USE OF PREMISES. The Premises shall be used for general office
---------------
purposes and banking/lending operations and for no other business or purpose
without the written consent of Landlord.
Tenant shall comply with all present and future governmental laws,
ordinances, rules and regulations relating to Tenant's use or occupancy of the
Premises and shall observe the Building Rules, as defined in Section 30 - "Rules
and Regulations." Tenant shall; not do, bring, keep or sell anything in or
about the Premises that is prohibited by the standard form of fire insurance
policy or that will cause a cancellation of, or an increase in the existing
premium for, any insurance policy covering the Property or any part thereof.
Any breach of this covenant shall constitute a default
8
<PAGE>
under this Lease and in addition shall obligate Tenant to pay to Landlord any
and all increases in insurance premiums resulting from such breach.
Tenant shall not occupy or use the Premises, or permit the Premises to
be occupied or used, in any manner that will constitute waste or nuisance or
will disturb the quiet enjoyment of or otherwise annoy other tenants in the
Building. Tenant shall not, without the prior consent of Landlord, bring into
the Building or the Premises or use or incorporate in the Premises any
apparatus, equipment or supplies that may cause substantial noise, odor or
vibration or overload the Premises or the Building or any of its utility or
elevator systems or jeopardize the structural integrity of the Building or any
part thereof. If, after ten (10) days written notice to Tenant, any of Tenants
office machines or equipment disturb any other tenant in the Building, then
Tenant shall provide adequate insulation or take such other action as may be
necessary to eliminate the disturbance.
Tenant shall not, without the prior consent of Landlord, connect to
the utility systems of the Building any apparatus, machinery or the equipment
except typical office machines and devices such as electric typewriters, word
processors; mini and micro-computers and office-size photocopiers. Tenant shall
pay the cost of all utilities and services supplied to Tenant in connection with
Tenant's use of additional office equipment approved by Landlord hereunder, as
provided in Section 10.2 - "Payment for Additional Utilities and Services."
Tenant shall not, without the prior consent of Landlord, connect to any
dedicated electrical circuit in the Premises electrical apparatus or equipment
of any type having in the aggregate electrical power requirements in excess of
two amps per outlet. Notwithstanding Landlord's consent to such excess loading
of circuits, Tenant shall pay the cost of any additional or above-standard
capacity electrical circuits necessitated by such excess loading circuits and
the installation thereof.
6. ALTERATIONS. All alterations, improvements or changes to the Premises
-----------
desired by Tenant ("Alterations") shall be made at Tenant's expenses and all
improvements in excess of $4,000 shall require Landlord's prior approval which
approval shall not be unreasonably withheld. If Tenant desires any Alteration in
excess of $4,000, Tenant shall submit to Landlord for its prior
9
<PAGE>
approval (which approval shall not, provided such Alteration does not affect the
structural portions or the mechanical or utility systems of the Property, and
subject to other terms of this Lease, be unreasonably withheld or delayed)
reasonably detailed final plans and specifications and the name of the
contractor proposed by Tenant to make the Alteration. Tenant shall obtain all
applicable permits, authorizations and governmental approvals before
commencement of the Alterations, and the Alterations shall be completed with due
diligence in compliance with the plans and specifications approved by Landlord.
In making any Alteration, Tenant shall comply in all respects with the "Building
Rules" (as defined in Section 30 - "Rules and Regulations") and with Section 5 -
"Use of Premises."
All Alterations shall be made at such times and in such manner as
Landlord may designate, only by such contractors or mechanics as are reasonably
approved by Landlord, and subject to all other reasonable conditions which
Landlord may in its discretion impose. Tenant shall reimburse Landlord upon
demand for any expenses incurred by Landlord in connection with any Alterations
made by Tenant, including any fees charged by Landlord's contractors or
consultants to review plans and specification prepared by Tenant and the cost of
updating the existing as-built plans and specifications of the Building to
reflect the Alterations, not to exceed $200.00 per occurrence.
All Alterations shall be the property of Landlord, and upon expiration
or termination of this Lease, all Alterations shall be surrendered with the
premises at the end of the term of this Lease in accordance with Section 20.1 -
"Surrender"; provided, however, that Landlord may elect, at time of approval, to
require Tenant, at Tenant's expense, to remove any Alterations and to restore
the Premises to the condition designated by Landlord.
Tenant shall obtain liability insurance, in form and amount and from
an insurance company acceptable to Landlord, insuring Tenant against damage to
person and property arising out of the construction of the Alteration. If the
cost of any Alteration exceeds $30,000, then Tenant shall obtain a completion
bond for the work, which bond shall be issued by a company acceptable to
Landlord. Tenant shall keep the Premises and the Property free and clear of all
liens arising out of
10
<PAGE>
any work performed, materials furnished or obligations incurred by Tenant.
Tenant shall give Landlord at least five (5) days' notice prior to the
commencement of any Alterations. Landlord may post and record an appropriate
notice of non-responsibility with respect to any Alteration or the installation
of any "Trade Fixtures" (as defined in Section 8 -"Trade Fixtures"), and Tenant
shall maintain any such notices posted by Landlord in or on the Premises. In the
event any such lien attaches to the Premises or the Property, and Tenant does
not cause the same to be released by payment, bonding or otherwise, within ten
(10) days after the attachment thereof, Landlord shall have the right but not
the obligation to cause the same to be released by such means as it shall deem
property, and any sums expended by Landlord in connection therewith shall be
payable by Tenant on demand with interest thereon from the date of expenditure
by Landlord at the rate specified in Section 17.2 -"Interest" hereof.
7. MAINTENANCE AND REPAIRS. By taking possession of the Premises Tenant
-----------------------
agrees that the Premises are then in a rentable and good condition. During the
term of this Lease Tenant shall take good care of the Premises and, at Tenant's
expense, but under the direction of Landlord, shall repair and maintain the
Premises, including the interior walls and ceilings of the Premises, those
portions of the "Building Systems" (as defined below) located within the
Premises, the Suite Improvements, and the Alterations on the Premises, in a
first class condition, and keep the Premises in a clean and orderly condition,
so as to return Premises to Landlord in the same condition as when taking
possession, except for reasonable wear and tear. As a material part of the
consideration for this Lease, Tenant hereby waives the provisions of California
Civil Code Sections 1932(1), 1941 and 1942 or any other applicable existing or
future law, ordinance or governmental regulation permitting Tenant to make
repairs at the Landlord's expense.
Landlord shall maintain or cause to be maintained in reasonably good
order, condition and repair, the structural portions of the roof, foundations,
floors and exterior walls of the Building, the equipment and facilities by which
utilities and services are provided and the public and common areas of the
Building, such as elevators, stairs, corridors and restrooms; provided, however,
that Tenant shall pay the cost of repairs for damage occasioned by Tenant's mis-
use of the Premises or
11
<PAGE>
the Building or any act or omission of Tenant or Tenant's employees, agents,
contractors and licensees (collectively Tenant's "Representatives") or Tenant's
customers, guests or invitee (collectively Tenant's "Visitors"). Landlord shall
be under no obligation to inspect the Premises. Tenant shall promptly report in
writing to Landlord any obvious and apparent defective condition known to it
which Landlord is required to repair, and failure to so report such defect shall
make Tenant responsible to Landlord for any liability incurred by Landlord by
reason of such condition. Landlord shall use all reasonable efforts to repair as
soon as deemed reasonable.
Landlord hereby reserves the right, at any time and from time to time,
without the same constituting an actual or constructive eviction, to make
alterations, additions, repairs, improvements to or in or to decrease the size
of area of, all or any part of the Building, the fixtures and equipment therein,
the heating, ventilation, air-conditioning, plumbing, electrical, fire
protection, life safety, security and mechanical systems of the Building
("Building Systems"), the common areas and all other parts of the Building, and
to change the arrangement and/or location of entrances or passageways, doors and
doorways, corridors, elevators, stairs, toilets and other public parts of the
Building. Landlord shall use reasonable effort to minimize interference with
Tenant's use of the Premises or Building.
8. TRADE FIXTURES. Subject to the provisions of Section 5 - "Use of
--------------
Premises" and Section 6 - "Alterations", Tenant may install and maintain
furnishings, equipment, movable partitions, business machines and other trade
fixtures ("Trade Fixtures") in the premises, provided that the Trade Fixtures do
not become permanently attached to the Premises or the Building, Tenant, if not
then in default under this Lease, may alter or remove any of its Trade Fixtures
at any time during the term of this Lease or upon its expiration or termination.
Tenant shall promptly repair any damage to the Premises or the Building caused
by such removal. If Tenant falls to make such repairs, Landlord may do so at
Tenant's expense.
9. TENANT'S TAXES.
--------------
12
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9.1 Definition. For purposes of this Section, "Tenant's Taxes" shall
----------
mean all taxes, assessments, license fees and other governmental charges or
impositions levied or assessed against or with respect to Tenant's personal
property or Trade Fixtures installed, located or attached to the Premises,
whether levied directly against Tenant or levied against Landlord or the
Property.
9.2 Payment. Tenant shall pay all Tenant's Taxes before delinquency
-------
and, at Landlord's request, shall furnish Landlord satisfactory evidence
thereof. If Tenant fails timely to pay any Tenant's Taxes levied directly
against Tenant, if any Tenant's Taxes are levied against Landlord or the
Property, or if the assessed value of the Building is increased by the inclusion
of a value placed on Tenant's personal property, Trade Fixtures or Alterations,
Landlord may pay the portion of Tenant's Taxes that is not paid by Tenant or
that is levied or assessed against Landlord or the Property. Landlord may pay
such Tenant's Taxes regardless of the validity of their levy or assessment and
whether or not Tenant elects to contest the same if, in the reasonable judgement
of Landlord, the failure to pay such taxes will jeopardize the interest of
Landlord in the Property. If Landlord pays Tenants Taxes or any portion
thereof, Tenant shall, immediately upon demand by Landlord, reimburse Landlord
for the amount of such payment, together with interest and the rate specified in
Section 17.2 - "Interest" from the date of Landlord's payment to the date of
Tenant's reimbursement.
10. UTILITIES AND SERVICES.
----------------------
10.1 Description of Services. During the hours of 8:00 a.m. to 6:00
-----------------------
p.m. ("Business Hours") on weekdays except public holidays ("Business Days"),
and subject to the rules and regulations of the Building, Landlord shall furnish
to the Premises "Building Standard" amounts of electricity, water, heat, air
conditioning and elevator service consisting of either attended or non-attended
automatic elevators. On Business Days, subject to the rules and regulations of
the Building, Landlord shall furnish to the Premises and its attendant restrooms
and other common areas, "Building Standard" janitorial service, window washing,
fluorescent tube replacement and toilet room supplies; provided, however, that
Landlord shall not be required to provide janitorial services required due to
the sum of portions of the Premises for preparation or consumption of food or
beverages or for
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similar purposes. During non-Business Hours, Landlord shall furnish the Premises
with water and elevator service and, subject to the provisions of Section 10.2 -
"Payment for Additional Utilities and Services", electricity and, upon twenty-
four (24) hours notice from Tenant, reasonable heat and air conditioning. Any
additional utilities or services that Landlord may agree to provide at Tenant's
request shall be at Tenant's sole expense.
10.2 Payment for Additional Utilities and Services. Tenant shall pay
---------------------------------------------
for heat and air conditioning furnished at Tenant's request during non-Business
Hours on an hourly basis at the then prevailing rate established for the
Building by Landlord. If the service requested by Tenant is not a continuation
of service furnished during Business Hours, Tenant shall pay for such service at
such rate for a period of two (2) hours preceding the commencement of service.
The current cost of after-hours HVAC is $30.00 per hour.
If the temperature otherwise maintained in any portion of the Premises
by the heating, ventilating and air conditioning ("HVAC") systems of the
Building is affected as a result of (a) any lights, machines or equipment used
by Tenant in the Premises; or (b) the occupancy of the Premises by more than one
person per 115 square feet of rentable area; then Landlord shall have the right
to install any machinery or equipment that Landlord reasonably deems necessary
to restore temperature balance, including modifications to the standard air
conditioning equipment. The cost of any such equipment and modifications,
including the cost of installation and any additional cost of operation and
maintenance of the same, shall be paid by Tenant or Landlord upon demand.
In the event the Tenant's usage of electricity, water or any other
utility exceeds the Building Standard use of such utility, after notice to
Tenant of such excess use, Landlord may determine the amount of such excess use
by any reasonable means (including, but not limited to, the installation at
Landlord's request but at Tenant's expense of a separate meter or other
measuring device) and charge Tenant for the cost thereof. Building Standard
electrical usage has been determined by Landlord to be .632 kilowatt hours per
month per rentable square foot in the Premises. In addition, Landlord may
impose a reasonable charge for the use of any additional or unusual
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janitorial services required by Tenant because of any unusual Suite Improvements
or Alterations, the carelessness of Tenant or the nature of Tenant's business
(including hours of operation).
All sums payable hereunder by Tenant for additional services or for
excess utility usage shall be payable within ten (10) days after notice from
Landlord of the amounts due; except that Landlord may require Tenant to pay
monthly for the estimated cost of Tenant's excess utility usage if such usage
occurs on a regular basis, and such estimated amounts shall be payable in
advance on the first day of each month.
10.3 Interpretation of Services. In the event of an interruption in,
--------------------------
or failure or inability to provide any of the services or utilities described in
section 10.1 - "Description of Services" (a "Service Failure"), such Service
Failure shall not, regardless of its duration, constitute an eviction of tenant,
constructive or otherwise, or impose upon Landlord any liability whatsoever,
including, but not limited to, liability for consequential damages or loss of
business by Tenant or, except as provided herein, entitle Tenant to an abatement
of rent or to terminate this Lease.
(a) If any Service Failure not caused by Tenant or its
Representatives or Visitors prevents Tenant from reasonably using a
material portion of the Premises and Tenant in fact ceases to use such
portion of the Premises, Tenant shall be entitled to an abatement of Base
Rent and Additional Rent with respect to the portion of the Premises that
Tenant is prevented from using by reason of such Service Failure in the
following circumstances: (i) if Landlord fails to commence reasonable
efforts to remedy the Service Failure within three (2) Business Days
following the occurrence of the Service Failure or falls thereafter to
pursue diligently reasonable action to remedy the Service Failure, the
abatement of Rent shall commence on the third Business Day following the
Service Failure and continue for the balance of the period during which
Tenant is so prevented from using such portion of the Premises; and (ii) if
the Service Failure in all events is not remedied within ten (10) days
following the occurrence of the Service Failure and Tenant in fact does not
use such portion of the Premises for an uninterrupted period of ten (10)
days or more by reason of such
15
<PAGE>
Service Failure, the abatement of Rent shall commence no later than the
eleventh day following the occurrence of the Service Failure and continue
for the balance of the period during which Tenant is so prevented from
using such portion of the Premises.
(b) If a Service Failure is caused by Tenant or its
Representatives or Visitors, Landlord shall nonetheless remedy the Service
Failure, at the expense of Tenant, pursuant to Landlord's maintenance and
repair obligations under Section 7 - "Maintenance and Repair" or Section
13.1 - "Landlord's Duty to Repair," as the case may be, but Tenant shall
not be entitled to an abatement of Rent or to terminate this Lease as a
result of such Service Failure.
11. EXCULPATION AND INDEMNIFICATION. Landlord shall not be liable to
-------------------------------
Tenant for any loss, injury or other damage to any person or property
(including, but no limited to, Tenant or Tenant's property) in or about the
Premises or the Property from any cause (including, but no limited to: defects
in the Property or in any equipment in the Property, fire, explosion or other
casualty; bursting, rupture, leakage or overflow of any plumbing or other pipes
or lines, sprinklers, tanks, drains, drinking fountains or washstand in, above,
or about the Premises or the Property; or acts of other tenants in the
Building), unless caused by Landlord's willful misconduct. Tenant hereby waives
all claims against Landlord for such damage and the cost and expense of
defending against claims relating to such damage, except that Landlord shall
indemnify and hold Tenant harmless from and against any claims, liability,
damages, costs or expenses, including reasonable attorneys' fees and costs
incurred in defending against the same ("Claims"), to the extent the same are
caused by the willful or negligent acts or omissions of Landlord or its
authorized representatives. In no event, however, shall Landlord be liable to
Tenant for punitive or consequential damages or damages for loss of business by
Tenant.
Tenant shall indemnify and hold Landlord harmless from and against any
Claims arising from (a) the acts or omissions of Tenant or its Representatives
or Visitors in or about the Property from and after the date hereof, or (b) any
construction or other work undertaken by Tenant
16
<PAGE>
on the Premises from and after the date hereof, or (c) from any breach or
default under this Lease by Tenant from and after the date hereof, or (d) any
accident, injury or damage, howsoever and by whosoever caused, to any person or
property, occurring in or about the Premises during the Term; excepting only
such Claims to the extent they are caused by the negligent or willful acts or
omissions of Landlord or its authorized representatives.
The obligations of the parties under this Section 11 shall survive the
expiration or termination of this Lease.
12. INSURANCE.
---------
12.1 Tenant's Insurance. Tenant, at its expense, shall maintain in
------------------
full force during the term of this Lease, a policy or policies of commercial
general liability insurance with a combined single limit of at least One Million
Dollars ($1,000,000) for each occurrence, insuring against all liability of
Tenant and its Representatives and Visitors for personal or bodily injury or
property damage arising out of or incurred in connection with Tenant's use or
occupancy of the Premises or the Property. Such policy or policies shall
further insure the indemnification obligations of Tenant under this Lease.
Tenant shall at all times maintain in effect insurance with respect to
its Alterations and Trade Fixtures providing coverage against fire, extended
coverage perils and vandalism and malicious mischief, to the extent of at least
eighty percent (80%) of the full replacement cost thereof. Tenant may carry
such insurance under a blanket policy, provided that such policy provide
equivalent coverage to a separate policy. During the term of this Lease the
proceeds from any such policies of insurance shall be used for the repair or
replacement of the Alterations and Trade Fixtures so insured. Landlord shall
have no interest in such insurance and shall sign all documents reasonably
necessary or proper in connection with the settlement of any claims or loss by
Tenant. Landlord will not carry insurance on Tenant's personal property or
Trade Fixtures.
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<PAGE>
Each policy of insurance required under this Section 12.1 shall be in
a form, in an amount, and with an insurer acceptable to Landlord, and shall
require at least fifteen (15) days' written notice to Landlord prior to any
termination or alteration of the policy. Each policy of liability insurance
shall name Landlord, its partners and its property manager and mortgagees as
additional insured and provide that it is primary to, and not contributing with,
any policy carried by Landlord covering the same loss. Tenant shall provide to
Landlord, upon request, evidence that the insurance required to be carried by
Tenant pursuant to this Section 12.1 is in full force and effect and the
premiums therefor have been paid.
Not more frequently than once every year, Tenant shall increase the
amounts of insurance as recommended by Landlord's tender or insurance broker if,
in the opinion of either of them, the amount of insurance then required under
this Lease is not adequate. Any limits set forth in this Lease on the amount or
type of coverage required by Tenant's insurance shall not limit the liability of
Tenant under this Lease.
12.2 Landlord's Insurance. During the term of this Lease Landlord
--------------------
shall maintain in effect insurance on the Building against fire, extended
coverage perils and vandalism and malicious mischief (to the extent such
coverage are available), with responsible insurers licensed to do business in
the state in which the Building is located, insuring the Building and the Suite
Improvements in an amount equal to at least eight percent (80%) of the
replacement cost thereof, excluding foundations., footings and underground
installations. Landlord may, but shall not be obligated to, carry insurance
against additional perils and/or in greater amounts.
12.3 Waiver of Subrogation. To the extent permitted by their
---------------------
respective policies of insurance, Landlord and Tenant each hereby waive any
right of recovery against the other and the authorized representatives of the
other for any loss or damage that is covered by any policy of insurance
maintained by either party with respect to the Premises or the Property or any
operation therein. If any policy of insurance relating to this Lease or to the
Premises or the Property does not permit the foregoing waiver or if the coverage
under any such policy would be invalidated as a result
18
<PAGE>
of such waiver, the party maintaining such policy shall, if possible, obtain
from the insurer under such policy a waiver of all right of recovery by way of
subrogation against either party in connection with any claim, loss or damage
covered by such policy. If either party is not able to obtain such waiver, then
such parties shall have the other party named as an additional insured on all
such policies of insurance.
13. DAMAGE OR DESTRUCTION.
---------------------
13.1 Landlord's Duty to Repair. If all or a substantial part of the
-------------------------
Premises are rendered untenantable or inaccessible by damage to all or any part
of the Property from fire or other casualty then, unless either party is
entitled to and elects to terminate this Lease pursuant to Sections 13.2 -
"Landlord's Right to Terminate" and 13.3 "Tenant's Right to Terminate" Landlord
shall, at its expense, use reasonable efforts to repair and restore the Premises
and/or the Property, as the case may be, to substantially their former condition
to the extent permitted by the then applicable codes, laws and regulations;
provided, however, that in no event shall Landlord have any obligation to repair
or replace the Suite Improvements beyond the extent of insurance proceeds
received for the repair or restoration thereof or any of Tenant's personal
property, Trade Fixtures or Alterations. Notwithstanding the above, if
Landlord, at Tenant's request, has insured Tenant's Alterations as provided in
Section 12.2 - "Landlord's Insurance," Landlord's obligation to repair or
restore shall also include such Alterations, but only to the extent Landlord
receives insurance proceeds covering the cost of such repair or restoration.
If Landlord is required or elects to repair damage to the premises
and/or the Property this Lease shall continue in effect but Tenant's Base Rent
and Additional Rent from the date of the casualty through the date of
substantial completion of the repair shall be abated with regard to any portion
of the Premises that Tenant is prevented from using by reason of such damage or
its repair; provided, however, that if the casualty is the result of the willful
misconduct or negligence of Tenant or Tenant's Representatives or Tenant's
Visitors, there will be no such rental abatement. The amount and period of
rental abatement shall be determined by Landlord in the exercise of its good
faith
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<PAGE>
reasonable judgement. In no event shall Landlord be liable to Tenant by reason
of any injury to or interference with Tenants business or property arising from
fire or other casualty or by reason of any repairs to any part of the Property
made necessary by such casualty.
13.2 Landlord's Right to Terminate. Landlord may elect to terminate
-----------------------------
this Lease, effective as of the date of the casualty, under the following
circumstances:
(a) Where, in the reasonable judgement of Landlord, the damage
cannot be substantially repaired and restored under applicable laws and
governmental regulations within nine (9) months from the date of the
casualty;
(b) Where, in the reasonable Judgement of Landlord, adequate
proceeds are not, for any reason, made available to Landlord from
Landlord's insurance policies (and/or from Landlord's funds made available
for such purpose, at Landlord's sole option) to make the required repairs;
or
(c) Where the Property is damaged or destroyed to the extent that
the cost to repair and restore the Property exceeds fifty percent (50%) of
the full replacement cost of the Property, whether or not the Premises are
at all damaged or destroyed.
If any of the circumstances described in subparagraphs (a), (b)
or (C) of this subsection occur or arise, Landlord must notify Tenant in
writing of that fact within one hundred twenty (120) days after the date of
the casualty and in such notice Landlord must also advise Tenant whether
Landlord has elected to terminate this Lease as of the date of casualty.
13.3 Tenant's Right to Terminate. If all or a substantial part of the
---------------------------
Premises are rendered untenantable or inaccessible by damage to all or any part
of the Property from fire or other casualty, then Tenant may elect to terminate
this Lease under the following circumstances:
20
<PAGE>
(a) Where Landlord has the right under Section 13.2 - "Landlord's
Right to Terminate" to terminate this Lease but has not elected to so
terminate and Landlord falls to. commence the required repair within ninety
(90) days after the date of the casualty, in which event Tenant may elect
to terminate this Lease upon notice to Landlord given within ten (10) days
after such ninety (90) - day period, effective as of the next calendar
month following such notice to Landlord.
(b) In the circumstances described in Subsection 13.2 (a) above;
in which event Tenant may elect to terminate this Lease as of the date. of
the casualty by giving Landlord notice of such election to terminate within
fifteen (15) days after Landlord's notice to Tenant pursuant to Section
13.2.
(c) In the event any such casualty is the result of the willful
misconduct or negligence of Tenant, Tenant's Representatives or Tenant's
Visitors, the termination. rights described in Subsection 13.3(a) and
13.3(b) shall not be available to Tenant.
13.4 Waiver of Statutory Provisions. Landlord and Tenant each hereby
------------------------------
waive the provisions of California Civil Code Section 1932(2), 1933(4) and any
other applicable existing or future law, ordnance or regulation with respect to
damage or destruction of leased premises or with respect to the termination of a
lease agreement in the event of such damage or destruction under any
circumstances other than as provided in Section 13.2 - "Landlord's Right to
Terminate" and 13.3 - "Tenant's Right to Terminate."
14. CONDEMNATION.
------------
14.1 Definitions. For purposes of this Section, the following terms
-----------
shall be defined as follows:
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(a) "Award" shall mean all compensation, sums, or anything of
value awarded, paid or received on a total of partial Condemnation.
(b) "Condemnation" shall mean (i) a permanent or temporary taking
pursuant to the exercise by a Condemnor of the power of condemnation or
eminent domain, whether by legal proceedings or otherwise, or (ii) a
voluntary sale or transfer by Landlord to any Condemnor, either under
threat of condemnation or while legal proceedings for condemnation are
pending.
(c) "Condemnor" shall mean any public or quasi-public authority,
private corporation or individual having the power of Condemnation or
eminent domain.
(d) "Date of Condemnation" shall mean the earlier of the date
that title to the property taken by the Condemnor is vested in the
Condemnor or the date the Condemnor has the right to possession of the
property being condemned.
14.2 Condemnation. If the Premises are totally taken by a permanent
------------
Condemnation, this Lease shall terminate as of the Date of Condemnation. If a
portion but not all of the Premises is taken by a permanent Condemnation, this
Lease shall remain in effect; provided, however, that if Landlord and Tenant
agree that the portion of the Premises remaining after the Condemnation will be
unsuitable for Tenant's continued use, then upon notice to Landlord within
fifteen (15) days after Landlord notifies Tenant of the Condemnation, Tenant may
terminate this Lease effective as of the Date of Condemnation.
If twenty-five percent (25%) or more of the Land or of the floor area
in the Building is taken by Condemnation, whether or not any portion of the
Premises is so taken, Landlord may elect to terminate this Lease at any time up
to thirty (30) days after to the Date of Condemnation. If Landlord so
terminates this Lease, the termination shall be effective as of the Date of
Condemnation.
22
<PAGE>
If all or a portion of the Premises is taken by a temporary
Condemnation, this Lease shall remain in full force and effect.
14.3 Restoration. If this Lease is not terminated as provided in
-----------
Section 14.2 "Condemnation" following a Condemnation, Landlord, at its expense,
shall diligently proceed to repair and restore the Premises to substantially its
former condition (to the extent permitted by the then applicable codes, laws and
regulations) and/or repair and restore the Building to an architecturally
complete office building; provided, however, that Landlord's obligations to so
repair and restore shall be limited to the amount of any Award received by
Landlord and no required to be paid to any lender holding a mortgage or deed of
trust on the Property. In no event shall Landlord have any obligation to repair
or replace any Suite Improvements beyond the amount of any Award received by
Landlord for such repair or replacement or any of Tenant's personal property,
Trade Fixtures, or Alterations.
14.4 Abatement and Reduction of Rent. If any portion of the Premises
-------------------------------
is permanently taken in a Condemnation or is rendered permanently untenantable
by repairs necessitated by the Condemnation, and this Lease is not terminated,
the Base Rent and Additional Rent payable under this Lease shall be
proportionally reduced as of the Date of Condemnation based upon the percentage
of rentable square feet in the Premises to taken or rendered permanently
untenantable. In addition, if this Lease remains in effect following a
permanent Condemnation and Landlord proceeds to repair and restore the Premises,
the Base Rent and Additional Rent payable under this Lease shall be abated
during the period of such repair or restoration to the extent such repairs
prevent Tenant's use of the Premises.
14.5 Awards. Any Award made shall be paid to Landlord, and Tenant
------
hereby assigns to Landlord, and waives all interest in or claim to, any such
Award, including any claim for the value of the unexpired term of this Lease;
provided, however, that Tenant shall be entitled to receive, or to prosecute a
separate claim for, an Award for a temporary Condemnation where this Lease is
not terminated, or an Award or portion thereof separately designated for
relocation expenses
23
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or the interruption of or damage to Tenant's business or as compensation for
Tenant's personal property, Trade Fixtures or Alterations.
Landlord and tenant each hereby waive the provisions of California
Code of Civil Procedure Section 1254.120 and any other applicable existing or
future law, ordinance or governmental regulation providing for, or allowing
either party to petition the courts of the state in which the Property is
located for, a termination of this Lease upon a partial taking of the Premises
and/or the Property.
15. ASSIGNMENT AND SUBLETTING.
-------------------------
15.1 Landlord's Consent Required. Tenant shall not assign, transfer,
---------------------------
mortgage, pledge, hypothecate or encumber this Lease or. any interest therein
(each a "Transfer"), and shall not sublet the Premises or any part thereof,
without the prior written consent of Landlord, which consent shall not be
unreasonably withheld and any attempt to do so without such consent being first
had and obtained shall be wholly void and shall constitute a breach of this
Lease.
15.2 Reasonable Consent.
------------------
(a) If Tenant complies with the following conditions, Landlord
shall not unreasonably withhold its consent to the subletting of the
Premises or any portion thereof or the assignment of this Lease. Tenant
shall submit in writing to Landlord (i) the name and legal composition of
the proposed subtenant or assignee; (ii) the nature of the business
proposed to be carried on in the Premises; (iii) the terms and provisions
of the proposed sublease; (iv) such reasonable financial information as
Landlord may request concerning the proposed subtenant or assignee; and (v)
the form of the proposed sublease or assignment. Within three (3) business
days after Landlord receives all such information it shall notify Tenant
whether it approves such assignment or subletting or If it elects to
proceed under Section 15.8 below.
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(b) The parties hereto agree and acknowledge that, among other
circumstances for which Landlord could reasonably withhold its consent to a
sublease or assignment, it shall be reasonable for Landlord to withhold its
consent where (i) the assignee or subtenant (a "Transferee") does not
itself occupy the entire portion of the Premises assigned or sublet, (ii)
Landlord reasonably disapproves of the Transferee's reputation or
creditworthiness or the character of the business to be conducted by the
Transferee at the Premises, (iii) the assignment or subletting would
increase the burden on the Building services or the number of people
occupying the Premises, or (iv) Landlord otherwise determines that the
assignment or sublease would have the effect of increasing the expenses
associated with operating the Property without reimbursement of the excess
costs by Tenant. In no event may Tenant publicly advertise all or any
portion of the Premises for assignment or sublease at a rental less than
that then sought by Landlord for comparable space in the Property.
15.3 Excess Consideration. If Landlord consents to the assignment or
--------------------
sublease, Landlord shall be entitled to receive as additional Rent hereunder any
consideration paid by the Transferee for the assignment or sublease and, in the
case of a sublease, fifty percent (50%) of the excess of the rent and other
consideration payable by the subtenant over the amount of Base Rent and
Additional Rent payable hereunder applicable to the subleased space.
15.4 No Release of Tenant. No consent by Landlord to any assignment
--------------------
or subletting by Tenant shall relieve Tenant of any obligation to be performed
by Tenant under this Lease, whether occurring before or after such consent,
assignment or subletting, and the Transferee shall be jointly and severally
liable with Tenant for the payment of Rent (or that portion applicable to the
subleased space in the case of a sublease) and for the performance of all other
terms and provisions of the Lease. The consent by Landlord to any assignment or
subletting shall not relieve Tenant and any such Transferee from the obligation
to obtain Landlord's express written consent to any subsequent assignment or
subletting. The acceptance of rent by Landlord from any other person shall not
be deemed to be a waiver by Landlord of any provision of this Lease or to be a
consent to
25
<PAGE>
any assignment, subletting or other transfer. Consent to one assignment,
subletting or other transfer shall not be deemed to constitute consent to any
subsequent assignment, subletting or other transfer.
15.5 Attorneys' Fees. Tenant shall pay Landlord's reasonable
---------------
attorneys' fees incurred in connection with reviewing the proposed assignment or
sublease.
15.6 Transfer of Ownership Interest. If Tenant is a business entity,
------------------------------
any direct or indirect transfer of more than fifty percent (50%) or more of the
Ownership interest of the entity (whether all at one time or over the term of
the Lease) shall be deemed a Transfer.
15.7 Effectiveness of Transfer. No permitted assignment (whether or
-------------------------
not requiring Landlord's consent) shall be effective until Landlord has received
a counterpart of the assignment and in instrument in recordable form executed by
the assignee in which the assignee assumes all of Tenants obligations under this
Lease arising on or after the date of assignment. No permitted subletting
(whether or not requiring Landlord's consent) by Tenant shall be effective until
there has been delivered to Landlord a counterpart of the sublease and an
instrument in recordable form executed by the subtenant in which the subtenant
agrees to be and remain jointly and severally liable with Tenant for the payment
of Rent and for the performance of all of the terms and provisions of this
Lease; provided, however, that the subtenant shall be liable to Landlord for
Rent only in the amount set forth in the sublease. The failure or refusal of an
assignee or subtenant to execute any such instrument shall not release or
discharge the assignee or subtenant from its liability set forth above. The
voluntary, involuntary or other surrender of this Lease by Tenant, or a mutual
cancellation by Landlord and Tenant, shall not work a merger, and any such
surrender or cancellation shall, at the option of Landlord, either terminate all
or any existing subleases or operate as an assignment to Landlord of any or all
of such subleases.
15.8 Landlord's Right to Space. Notwithstanding any of the above
-------------------------
provisions of this Section 15 to the contrary, if Tenant notifies Landlord that
it desires to assign this Lease or sublet all of any part of the premises,
Landlord, in lieu of consenting to such assignment or sublease, may
26
<PAGE>
elect to terminate this Lease (in the case of an assignment or a sublease of the
entire Premises), or to terminate this Lease as it relates to the space proposed
to be subleased by Tenant (in the case of a sublease of less than the entire
Premises). In such event, this lease (or portion thereof) will terminate on the
date the assignment or sublease was to be effective, and Landlord may lease such
space to any party, including the prospective Transferee identified by Tenant.
15.9 Transfer to Affiliate. Tenant may assign this Lease or sublet
---------------------
the Premises or any portion thereof, without Landlord's consent, to any
corporation or other entity which controls, is controlled by, or is under common
control with Tenant, or to any corporation or other entity resulting from a
merger or consolidation with Tenant, or to any person or entity which acquires
substantially all the assets of Tenant as a going concern (collectively, an
"Affiliate"), provided that the Affiliate assumes in writing all of Tenant's
obligations under this Lease.
15.10 Involuntary Assignment. In the event that Landlord consents,
----------------------
pursuant to Section 365 of the Federal Bankruptcy Code, to any assumption,
assignment or sublease ("transfer") of the rights or interest of Tenant under
this Lease, "adequate assurance of future performance" of this Lease by the
transferee shall include, but not be limited to, establishment by the transferee
of an impound account into which the transferee shall deposit, subject to
withdrawal solely by Landlord from time to time as the same becomes due, an
amount equal to the aggregate amount of all Rent which shall become due under
this Lease during the remainder of the term of this Lease.
16. DEFAULT AND REMEDIES.
--------------------
16.1 Events of Default. The occurrence of any of the following shall
-----------------
constitute an "Event of Default" by Tenant:
(a) Tenant fails to make any payment of Rent when due and such
failure is not cured within five (5) days after written notice to Tenant
thereof.
27
<PAGE>
(b) Tenant falls to timely make payments of Rent when due under
this Lease three (3) or more times during any twelve (12) month period
during the term of this Lease.
(c) Tenant fails to deliver any estoppel certificate requested by
Landlord within the period described in Section 23 - "Estoppel
Certificates."
(d) Tenant fails to comply with any of the provisions of Section
35 -"Hazardous Materials."
(e) Tenant ceases doing business as a going concern, makes an
assignment for the benefit of creditors, is adjudicated an insolvent, files
a petition (or files an answer admitting the material allegations of such
petition) seeking relief under any reorganization, arrangement,
consolidation, readjustment, liquidation, dissolution or similar
arrangement or proceeding under any state or federal bankruptcy or other
statute, law or regulation, or Tenant consents to or acquiesces in the
appointment, pursuant to any state or federal bankruptcy or other statute,
law or regulation, of a trustee, receiver or liquidator for the Premises,
for Tenant or for all or any substantial part of Tenant's assets.
(f) Tenant fails, within ninety (90) days after the commencement
of any proceedings against Tenant seeking relief under any reorganization,
arrangement, consolidation, readjustment, liquidation, dissolution or
similar arrangement or proceeding under any state or federal bankruptcy or
other statute, law or regulation, to have such proceedings dismissed, or
Tenant fails, within ninety (90) days after an appointment pursuant to any
state or federal bankruptcy or other statutes, law or regulation, without
Tenant's consent or acquiescence, of any trustee, receiver or liquidator
for the Premises, for Tenant or for all or any substantial part of Tenant's
assets, to have such appointment vacated.
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(g) Tenant fails to use reasonable efforts to perform or comply
with any provisions of this Lease other than those described in (a) through
(g) above, and such failure is not cured within fifteen (15) days after
notice to Tenant or, if such failure cannot be cured within such fifteen
(15) - day period, Tenant fails within such fifteen (15) day period to
commence, and thereafter diligently proceed with, all actions necessary to
cure such failure as soon as reasonably possible but in all events within
ninety (90) days of such notice; provided, however, that if Landlord in its
reasonable judgment and in good faith determines that such failure cannot
or will not be cured by Tenant within such ninety days, then such failure
shall constitute an Event of Default immediately upon such notice to
Tenant.
16.2 Remedies. Upon the occurrence of an Event of Default Landlord
--------
shall have the following remedies, which shall not be exclusive but shall be
cumulative and shall be in addition to any other remedies now or hereafter
allowed by law:
(a) Landlord may terminate Tenant's right to possession of the
Premises at any time by written notice to Tenant. Tenant expressly
acknowledges that in the absence of such written notice from Landlord, no
other act of Landlord, including, but not limited to, its re-entry into the
Premises, its efforts to relet the Premises, its reletting of the Premises
for Tenant's account, its storage of Tenant's personal property and Trade
Fixtures, its acceptance of keys to the Premises from Tenant or its
exercise of any other rights and remedies under this Section 16.2., shall
constitute an acceptance of Tenant's surrender of the Premises or
constitute a termination of this Lease or of Tenant's right to possession
of the Premises.
Upon such termination in writing of Tenant's right to possession
of the premises, as herein provided, this Lease shall terminate and
Landlord shall be entitled to recover damages from Tenant as provided in
California Civil Code Section 1951.2 or any other applicable existing or
future law, ordinance or regulation providing for recovery of damages for
such breach, including but not limited to the following:
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(1) The reasonable cost of recovering the Premises; plus
(2) The reasonable cost of removing Tenant's Alterations,
Trade Fixtures and Suite Improvements; plus
(3) All unpaid Rent due or earned hereunder prior to the
date of termination, less the proceeds of any reletting or any rental
received from subtenants prior to the date of termination applied as
provided in subsection (b) below, together with interest at the rate
specified in Section 17.2 - "Interest" of this Lease, on such sums
from the date such Rent is due and payable until the date of the award
of damages; plus
(4) The amount by which the Rent which would be payable by
Tenant hereunder, including Tenant's Share of increases in Operating
Costs and Taxes, as reasonably estimated by Landlord, from the date of
termination until the date of the award of damages exceeds the amount
of such rental loss as Tenant proves could have been reasonably
avoided together with interest at the rate specified in Section 17.2 -
"Interest" on such sums from the date such Rent is due and payable
until the date of the award of damages; plus
(5) The amount by which the Rent which would be payable by
Tenant hereunder, including Tenant's Share of increases in Operating
Costs and Taxes, as reasonably estimated by Landlord, for the
remainder of the then term, after the date of the award of damages
exceeds the amount of such rental loss as Tenant proves could have
been reasonably avoided, discounted at the discount rate published by
the Federal Reserve Bank of San Francisco for member banks at the time
of the award plus one percent (1%); plus
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(6) Such other amounts in addition to or in lieu of the
foregoing as may be permitted from time to time by applicable law.
(b) Landlord may continue this Lease in full force and effect and
may enforce all its rights and remedies under this Lease, including, but
not limited to, the right to recover Rent as it becomes due. During the
continuance of an Event of Default, Landlord may enter the Premises without
terminating this Lease and sublet all or any part of the Premises for
Tenant's account to any person, for such term (which may be a period beyond
the remaining term of this Lease), at such rents and on such other terms
and conditions as Landlord deems advisable. In the event of any such
subletting, rents received by Landlord from such subletting shall be
applied (i) first, to the payment of the costs of maintaining, preserving,
altering and preparing the premises for subletting and other costs of
subletting, including but not limited to brokers' commissions, reasonable
attorneys' fees and reasonable expense of removal of Tenant's personal
property, Trade Fixtures, Alterations and Suite Improvements; (ii) second,
to the payment of Rent then due and payable; (iii) third, to the payment of
future Rent as the same may become due and payable hereunder; and (iv)
fourth, the balance, if any, shall be paid to Tenant upon (but not before)
expiration of the term of this Lease. If the rents received by Landlord
from such subletting, after application as provided above, are insufficient
in any month to pay the Rent due and payable hereunder for such month,
Tenant shall pay such deficiency to Landlord monthly upon demand.
Notwithstanding any such subletting for Tenant's account without
termination, Landlord may at any time thereafter, by written notice to
Tenant, elect to terminate this Lease by virtue of a previous Event of
Default.
During the continuance of an Event of Default, for so long as
Landlord does not terminate Tenant's right to possession of the Premises
and subject to Section 15 -"Assignment and Subletting" and the options
granted to Landlord thereunder, Landlord shall not unreasonably withhold
its consent to an assignment or sublease of Tenant's interest in the
premises or in this Lease.
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(c) During the continuance of an Event of Default, Landlord may
enter the Premises without terminating this Lease and remove all Tenant's
personal property, Alterations and Trade Fixtures from the premises. If
Landlord removes such property from the Premises and stores it at Tenant's
risk and expense, and if Tenant falls to pay the cost of such removal and
storage after written demand therefor and/or to pay any Rent then due,
after the property has been stored for a period of thirty (30) days or more
Landlord may sell such property at public or private sale, in the manner
and at such times and places as Landlord in its sole discretion deems
commercially reasonable following reasonable notice to Tenant of the time
and place of such sale. The proceed of any such sale shall be applied
first to the payment of the expenses for removal and storage of the
property, preparation for and conducting such sale, and attorneys' fees and
other legal expenses incurred by Landlord in connection therewith, and the
balance shall be applied as provided in subsection (b) above.
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 Tenant's personal property pursuant to this Section, and Tenant
shall hold Landlord harmless from and against any loss, cost or damage
resulting from any such act, excepting Landlord's negligence or willful
misconduct. No reentry by Landlord shall constitute or be construed as a
forcible entry by Landlord.
(d) Landlord may require Tenant to remove any and all Suite
Improvements from the Premises or, if Tenant fails to do so within ten (10)
days after Landlord's request, Landlord may do so at Tenant's expense.
(e) Landlord may cure the Event of Default at Tenant's expense.
If Landlord pays any sum or incurs any expense in curing the Event of
Default, Tenant shall reimburse Landlord upon demand for the amount of such
payment or expense with interest at the rate specified in Section 17.2 -
"Interest" from the date the sum is paid or the expense is incurred until
Landlord is reimbursed by Tenant.
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17. LATE CHARGE; INTEREST.
---------------------
17.1 Late Charge. Tenant acknowledges that the late payment of any
-----------
Rent due hereunder will cause Landlord to incur expense not contemplated by this
Lease and that the exact amount of such expenses would be extremely difficult
and impracticable to fix. Such expenses include, but are not limited to,
processing and accounting charges, late charges that may be imposed on Landlord
by the terms of any encumbrance or note secured by the Property and the loss of
the use of delinquent Rent. Therefore, if any payment of Rent is not received
by Landlord when due, Tenant shall pay to Landlord on demand as a late charge an
additional amount equal to two percent (2%) of the overdue sum, which amount
represents a fair and reasonable estimate of the costs that Landlord will incur
by reason of late payment. Acceptance of any late charge shall not constitute a
waiver of Tenant's default with respect to the overdue sum or prevent Landlord
from exercising any of its other rights and remedies under this Lease.
17.2 Interest. In addition to the late charges referred to above,
--------
which are intended to defray Landlord's costs resulting from late payments, any
late payment of Rent shall, at Landlord's option, bear interest from the due
date of any such payment to the date same is paid at a fifteen percent (15%) per
annum or the maximum lawful rate that Landlord may charge to Tenant under
applicable laws, whichever is less.
18. WAIVER. No provisions of this Lease shall be deemed waived by
------
Landlord unless such waiver is in a writing signed by Landlord. The waiver by
Landlord of any breach of any provision of this Lease shall not be deemed a
waiver of such provision or of any subsequent breach of the same or any other
provision of this Lease. No delay or omission in the exercise of any right or
remedy of Landlord upon any default by Tenant shall impair such right or remedy
or be construed as a waiver. Landlord's acceptance of any payments of Rent due
under this Lease shall not be deemed a waiver of any default by Tenant under
this Lease (including Tenant's recurrent failure to timely pay Rent) other than
Tenant's nonpayment of the accepted sums, and no endorsement or statement on any
check or accompanying any check or payment shall be deemed an accord and
satisfaction. Landlord's
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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.
19. ENTRY AND INSPECTION. Only upon reasonable verbal or written notice
--------------------
to Tenant (except where in Landlord's judgment the existence of an emergency
necessitates an immediate entry into the Premises without notice to avoid
damage, loss or injury to persons or property or any part of the Property),
Landlord and its authorized representatives may enter the Premises at all
reasonable times to determine whether the Premises are in good condition, to
determine whether Tenant is complying with its obligations under this Lease, to
perform any maintenance or repair of the Premises or the Property that Landlord
has the right or obligations to perform, to install or repair improvements for
other tenants that require access to the Premises for such installation or
repair, to serve, post or keep posted any notices required or allowed under the
provisions of this Lease, to show the Premises to prospective brokers, agents,
buyers, transferee, mortgagees or tenants, or to do any other act or thing.
necessary for the safety or preservation of the Premises of the Property.
Landlord shall not be liable in any manner for any inconvenience, loss
of business or other damage to Tenant or other persons arising out of Landlord's
entry on the Premises as provided in this Section unless caused by Landlord's
willful misconduct. Landlord shall conduct its activities under this Section in
a manner that will minimize inconvenience to Tenant without incurring additional
expense to Landlord. When reasonably necessary Landlord with reasonable notice
to Tenant, except in the case of an emergency, may temporarily close entrances,
doors, corridors, elevators or other facilities in the Property without
liability to Tenant by reason of such closure and without such action being
construed as an eviction of Tenant or a release of Tenant from its obligations
under this Lease. In no event shall Tenant be entitled to an abatement of rent
on account of any entry by the Landlord.
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20. SURRENDER, HOLDING OVER.
-----------------------
20.1 Surrender. Upon the expiration or termination of this Lease,
---------
Tenant shall surrender the Premises and all Suite Improvements and Alterations
to Landlord broom-clean and in their original condition, except for reasonable
wear and tear, damage from casualty or condemnation and any changes resulting
from approved Alterations; provided, however, that prior to the expiration or
termination of this Lease Tenant shall remove from the premises all Tenant's
personal property, Trade Fixtures, Alterations and Suite Improvements that
Tenant has the right or is required by Landlord to remove under the provisions
of this Lease. If such removal is not completed at the expiration or
termination of this Lease, Landlord may remove the same at Tenant's expense.
Any damage to the Premises or the Building caused by such removal shall be
repaired promptly by Tenant or, if Tenant fails to do so, Landlord may do so at
Tenant's expense. Tenant's obligations under this Section shall survive the
expiration or termination of this Lease. Upon expiration or termination of this
Lease or of Tenant's possession, Tenant shall surrender all keys to the Premises
or any other part of the Building and shall make known to Landlord the
combination of locks on all safes, cabinets and vaults that may be located in
the Premises.
20.2 Holding Over. If Tenant remains in possession of the Premises
------------
after the expiration or termination of this Lease, Tenant's continued possession
shall be on the basis of a tenancy at the sufferance of Landlord, and Tenant
shall continue to comply with or perform all the terms and obligations of the
Tenant under this Lease, except that the Base Rent during Tenant's holding over
shall be one hundred and twenty five percent (125%) the Base Rent payable in the
last month prior to the termination hereof Tenant shall indemnify and hold
Landlord harmless from and against all claims, liability, damages, costs or
expenses, including reasonable attorneys fees and costs of defending the same,
incurred by Landlord and arising directly or indirectly from Tenant's failure to
timely surrender the Premises, including (i) any rent payable by or any loss,
cost, or damages, including lost profits, claimed by any prospective tenant of
the Premises, and (ii) Landlord's damages as a result of such prospective tenant
rescinding or refusing to enter into the prospective lease of the Premises by
reason of such failure to timely surrender the Premises.
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21. SUBORDINATION; ATTORNMENT; NONDISTURBANCE. This Lease is expressly
-----------------------------------------
made subject and subordinate to any mortgage, deed of trust, ground lease,
underlying lease or like encumbrance affecting any part of the Property or any
interest of Landlord therein which is now existing or hereafter executed or
recorded ("Encumbrance"), and any memorandum of this Lease, whether or not
recorded in the public records of the county in which the Property is located,
shall so state; provided, however, that such subordination shall only be
effective, as to future Encumbrances, if the holder of the Encumbrance agrees
that this Lease shall survive the termination of the Encumbrance by lapse of
time, foreclosure or otherwise so long as Tenant is not in default under this
Lease. Provided the conditions of the preceding sentence are satisfied, Tenant
covenants and agrees to execute and deliver, upon request by Landlord and in a
form reasonably requested by Landlord, any additional documents evidencing the
subordination of this Lease with respect to any such Encumbrance and the
nondisturbance agreement of the holder of any such Encumbrance. If the interest
of Landlord in the Property is transferred to any person ("Purchaser") pursuant
to or in lieu of proceedings for enforcement of any Encumbrance, Tenant shall
immediately and automatically attorn to the Purchaser, and this Lease shall
continue in full force and effect as a direct lease between the Purchaser and
Tenant on the terms and conditions set forth in this Lease.
22. MORTGAGE PROTECTION. Tenant agrees to give any holer of any
-------------------
Encumbrance covering any part of the Property ("Mortgagee"), by registered mail,
a copy of any notice of default served upon the Landlord, provided that prior to
such notice Tenant has been notified in writing (by way of notice of assignment
of rents and leases, or otherwise) of the address of such Mortgagee. If
Landlord shall have failed to cure such default within thirty (30) days from the
effective date of such notice of default, then the Mortgagee shall have an
additional thirty (30) days within which to cure such default or if such default
cannot be cured within that time, then such additional time as may be necessary
to cure such default (including the time necessary to foreclose or otherwise
terminate its Encumbrances, if necessary to effect such cure), and this Lease
shall not be terminated so long as such remedies are being diligently pursued.
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23. ESTOPPEL CERTIFICATES. Upon ten (10) days' notice from Landlord,
---------------------
Tenant shall execute and deliver to Landlord, in form provided by or
satisfactory to Landlord, a certificate stating that this Lease is in full force
and effect, describing any amendments or modifications hereto, acknowledging
that this Lease is subordinate or prior, as the case may be, to any Encumbrance
and stating any other information Landlord may reasonably request, including the
term of this Lease, the monthly Base Rent, the date to which Rent has been paid,
the amount of any security deposit or prepaid Rent, whether either party hereto
is in default under the terms of the Lease, whether Landlord has completed its
construction obligation hereunder and any other information reasonably requested
by Landlord. Any person or entity purchasing, acquiring an interest in or
extending financing with respect to the Property shall be entitled to rely upon
any such certificate. Tenant shall be liable to Landlord for any damages
incurred by Landlord including any profits or other benefits from any financing
of the Property or any interest therein which are lost or made unavailable as a
result, directly or indirectly, of Tenant's failure or refusal to timely execute
or deliver such estoppel certificates.
24. NOTICES. Any notice, demand, request, consent, approval or
-------
communication that either party desires or is required to give to the other
party under this Lease shall be in writing and shall be served personally,
delivered by independent messenger or courier service, or sent by U.S.
registered or certified mail, return receipt requested, postage prepaid,
addressed to the other party at the address set forth below:
To Tenant at: PAN AMERICAN BANK (FSB)
1300 S. El Camino Real, 3rd Floor
San Mateo, CA 94402
Attn: Mr. Lawrence J. Grill, President
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<PAGE>
To Landlord at: Old Stone Bank of California
A Federal Savings Bank
24970 Hesperian Blvd.
Hayward, CA 94545
Attn: George C. Hale, CEO/President
and
To Landlord at: The Resolution Trust Corporation
as Receiver for
Pan American Federal Savings Bank
4000 MacArthur Blvd.
Newport Beach, CA 92660
Attn: Melinda Magee
and
To Property Mgr: Cornish & Carey Commercial
5201 Great American Parkway
Santa Clara CA 95054
Attn: Ms. Katy Jessup
Either party may change its address by a notice to the other party
complying with this Section. In the event Tenant sublets the Premises in
accordance with Section 15 -"Assignment and Subletting", notices from Landlord
shall be effective on the subtenant when given to Tenant pursuant to this
Section.
Notices sent by independent messenger or courier service will be
effective one (1) day after acceptance by the independent service for delivery;
notices sent by mail in accordance with this Section will be effective two (2)
days after mailing. In the event Tenant requests dual notices
38
<PAGE>
hereunder, Tenant will be bound by such notice from the earlier of the effective
times of the dual notices.
25. ATTORNEYS FEES.
--------------
25.1 If Tenant or Landlord brings any action for the enforcement or
interpretation of this Lease, including any suit by Landlord for the recovery of
Rent or possession of the Premises, the losing party shall pay to the prevailing
party a reasonable sum for attorneys fees. The "prevailing party" will be
determined by the court before whom the action was brought based upon an
assessment of which party's major arguments or positions taken in the suit or
proceeding could fairly be said to have prevailed over the other party's major
arguments or positions on major disputed issues in the court's decision.
25.2 If Landlord, without fault on Landlord's part, is made a party
to any litigation institute by Tenant or by a third party against Tenant, or by
or against any person holding under or using the Premises by license of Tenant
or otherwise arising out of or resulting rom any act or transaction of Tenant or
of any such other person, Tenant covenants to hold Landlord harmless from any
judgment rendered against Landlord or the Premises or any part thereof, and
reimburse Landlord upon demand for all costs and expenses, including reasonable
attorneys' fees, incurred by Landlord in or in connection with such litigation.
26. SECURITY DEPOSIT. On execution of this Lease, Tenant shall deposit
----------------
with Landlord $11,657.20 as security deposit for the performance by Tenant of
the provisions of this Lease. Landlord may use the security deposit or any
portion thereof to cure any Event of Default under this Lease or to compensate
Landlord for any damage it incurs as a result of Tenant's failure to perform any
of its obligations hereunder. In such event Tenant shall immediately pay to
Landlord an amount sufficient to replenish the security deposit to the sum
initially deposited with Landlord. If Tenant is not in default at the
expiration or termination of this Lease, Landlord shall return to Tenant the
security deposit or the balance thereof then held by Landlord. Landlord may
commingle
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the security deposit with Landlord's general and other funds, and Landlord shall
not be required to pay interest on the security deposit to Tenant. Upon
termination of Landlord's interest in the Property, whether by sale of the
Property or otherwise, Landlord shall have no further obligation to Tenant with
respect to the security deposit or any other sums due hereunder and prepaid by
Tenant upon transfer of the security deposit to Landlord's successor in
interest.
27. QUIET POSSESSION. Subject to Tenant's full and timely performance of
----------------
all its obligations under this Lease and subject of the terms of this Lease,
including Section 21 -"Subordination; Attornment; Nondisturbance," Tenant shall
have the quiet possession of the Premises throughout the term of this Lease as
against any persons or entities lawfully claiming by, through or under Landlord.
28. SECURITY MEASURES. Landlord may, but shall be under no obligation to,
-----------------
implement security measures for the Building or the Property, such as the
registration or search of all persons entering or leaving the Building,
requiring identification for access to the Building, evacuation of the Building
for cause, suspected cause, or for drill purposes, the issuance of magnetic pass
cards or keys for the Building or elevator access and other actions that
Landlord deems necessary or appropriate to prevent any threat of property loss
or damage, bodily injury or business interruption; provided, however that such
measures shall be implemented in a way as not to unreasonably inconvenience
tenants of the Building. Tenant shall cooperate and comply with, and cause its
Representatives and Visitors to cooperate and comply with, such security
measures. Landlord, its agents and employees shall have no liability to Tenant
or its Representatives or Visitors for the implementation or exercise of, or the
failure to implement or exercise, any such security measures or for any
resulting disturbance of Tenant's use or enjoyment of the Premises.
29. FORCE MAJEURE. In the event Landlord is delayed, interrupted or
-------------
prevented from performing any of its obligations under this Lease, including its
obligations under the Construction Rider, and such delay, interruption or
prevention is due to fire, act of God, governmental act, or any other cause
outside the reasonable control of Landlord, then the time for performance of the
affected
40
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obligations of Landlord shall be extended for a period equivalent to the period
of such delay, interruption or prevention.
30. RULES AND REGULATIONS. Tenants shall be bound by and shall comply
---------------------
with the rules and regulations attached to and made a part of this Lease as
Exhibit C to the extent those rules and regulations are not in conflict with the
terms of this Lease, as well as any reasonable rules and regulations hereafter
adopted by Landlord for all tenants of the Building, upon notice to Tenant
thereof (collectively, the "Building rules"). Tenant's failure to comply with
such Building Rules shall constitute a failure to fully perform all the
provisions of this Lease. Landlord shall not be responsible to Tenant or to any
other person for any violation of, or failure to observe, the Building Rules by
any other tenant or other person.
31. LANDLORD'S LIABILITY. The term "Landlord" as used in this Lease,
--------------------
shall mean only the owner or owners of the Property at the time in question.
Notwithstanding any other term or provision of this Lease, the liability of
Landlord for obligations under this Lease is limited solely to Landlord's
interest in the Property as the same may from time to time be encumbered, and no
personal liability shall at any time be asserted or enforceable against any
other assets of Landlord or against Landlord's stockholders, directors, officers
or partners on account of any of Landlord's obligations or actions under this
Lease. In addition, in the event of any conveyance of title to the Building or
the Property, then from and after the date of such conveyance, Landlord shall be
relieved of all liability with respect to Landlord' obligations to be performed
under this Lease after the date of such conveyance. Upon any conveyance of
title to the Building or the Property, the grantee or transferee, by accepting
such conveyance, shall be deemed to have assumed Landlord's obligations to be
performed under this Lease from and after the date of transfer, subject to the
limitations on liability set forth above in this Section 31.
32. CONSENTS AND APPROVALS. Wherever the consent, approval, judgment or
----------------------
determination of Landlord is required or permitted under this Lease, Landlord
may exercise its good faith business judgment in granting or withholding such
consent or approval or in making such
41
<PAGE>
judgment or determination without reference to any extrinsic standard of
reasonableness, unless the provision providing for such consent, approval,
judgment or determination specifies that Landlord's consent or approval is not
to be unreasonably withheld, or that such judgment or determination is to be
reasonable, or otherwise specifies the standards under which Landlord may
withhold its consent. If it is determined that Landlord failed to give its
consent where it was required to do so under this Lease, Tenant shall be
entitled to specific performance but not to monetary damages for such failure.
The review and/or approval by Landlord of any items to be reviewed or
approved by Landlord under the terms of this Lease or any Exhibits hereto shall
not impose upon Landlord any liability for accuracy or sufficiency of any such
item or the quality or suitability of such item for its intended use. Any such
review or approval is for the sole purpose of protecting Landlord's interest in
the Property under this Lease, and no third parties, including Tenant or the
Representatives and Visitors of Tenant or any person or entity claiming by,
through or under Tenant, shall have any rights hereunder.
33. BROKERS. Tenant and Landlord warrant and represent to each other that
-------
in the negotiating or making of this Lease neither Tenant nor Landlord nor
anyone acting on their behalf has dealt with any real estate broker or Finder
who might be entitled to a fee or commission for this Lease. Tenant and
Landlord agree to indemnify and hold each other harmless from any claim or
claims, including costs, expenses and attorney's fees incurred by Tenant or
Landlord asserted by any other broker or finder for a fee or commission based
upon any dealings with or statements made by Tenant or Landlord or its
Representatives.
34. RELOCATION OF PREMISES AND OTHER RIGHTS RESERVED BY LANDLORD.
------------------------------------------------------------
34.1 Relocation of Premises.
----------------------
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(a) Conditions. For the purpose of maintaining an economical and
----------
proper distribution of tenants acceptable to Landlord throughout the
Property, Landlord shall have the right from time to time during the Term
to relocate the Premises within the Property, subject to the following
terms and conditions:
(i) The rented and usable areas of the new Premises must be
of equal size to the existing Premises (subject to a variation of up
to ten percent (10%) provided the amount of Base Rent payable under
this Lease is not increased);
(ii) If the then prevailing rental rate for the new Premises
is less than the amount being paid for the existing Premises, Base
Rent shall be reduced to equal the then prevailing rent for the new
Premises;
(iii) Landlord shall pay the cost of providing tenant
improvements in the new Premises comparable to the tenant improvements
in the existing Premises; and
(iv) Landlord shall pay the expenses reasonably incurred by
Tenant in connection with such substitution of Premises, including but
not limited to costs of moving, door lettering, telephone relocation
and reasonable quantities of new stationery.
(b) Notices. Landlord shall deliver to Tenant written notice of
-------
Landlord's election to relocate the Premises, specifying the new location
and the amount of rent payable therefore at least sixty (60) days prior to
the date the relocation is to be effective. If the relocation of the
Premises is not acceptable to Tenant, Tenant for a period of ten (10) days
after receipt of Landlord's notice shall have the right to cancel the
relocation by Landlord and this Lease shall remain in full force and effect
(by delivering written notice to Landlord). If
43
<PAGE>
Tenant so notifies Landlord to cancel relocation, Landlord will withdraw
relocation notice, in which event this Lease shall continue and Tenant
shall not be relocated.
34.2 Other Rights Reserved by Landlord. In addition to the foregoing
---------------------------------
rights, Landlord retains and shall have the rights set forth below, exercisable
with notice (for those items below which affect Tenant's Premises) and without
liability to Tenant for damage or injury to property, person or business and
without effecting an eviction, constructive or actual, or disturbance of
Tenant's use or possession of the Premises or giving rise to any claim for set-
off or abatement of Rent.
(a) To change the Building's name or street address or to change
the room number or numbers of the Premises.
(b) To install, affix and maintain any and all signs on the
exterior and interior of the Building.
(c) To grant to anyone the exclusive right to conduct any
business or render any service in or to the Building and its tenants,
provided such exclusive right shall not operate to require Tenant to use or
patronize such business or service or to exclude Tenant from its use of the
Premises expressly permitted herein.
(d) To prohibit the placing of vending or dispensing machines of
any kind in or about the Premises without the prior written permission of
the Landlord.
(e) To reduce, increase, enclose or otherwise change at any time
and from time to time the size, number, location, layout and nature of the
common areas and facilities and other tenancies and premises in the
Property and to create additional rentable areas through use or enclosure
of common areas.
44
<PAGE>
35. HAZARDOUS MATERIALS.
-------------------
a. Definitions.
-----------
(1) "Hazardous Materials" shall mean any substance: (A) that now
or in the future is regulated or governed by, requires investigation or
remediation under, or is defined as a hazardous waste, hazardous substance,
pollutant or contaminant under any governmental statute, code, ordinance,
regulation, rule or order, and any amendment thereto, including for example
only and without limitation, the Comprehensive Environmental Response
Compensation and Liability Act, 42 U.S.C. Section 9601 et seq., and the
Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq., or
(B) that is toxic, explosive, corrosive, flammable, radioactive,
carcinogenic, dangerous or otherwise hazardous, including for example only
and without limitation, gasoline, diesel, petroleum, hydrocarbons,
polychlorinate biphenyl (CBs), asbestos, radon and urea formaldehyde foam
insulation.
(2) "Environmental Requirements" shall mean all present and
future governmental statutes, codes, ordinances, regulations, rules,
orders, permits, licenses, approvals, authorizations and other requirements
of any kind applicable to Hazardous Materials.
(3) "Handle," "Handled," or "Handling" shall mean any
installation, handling, generation, storing, treatment, use, disposal,
discharge, release, manufacture, refinement, presence, migration, emission,
abatement, removal, transportation, or any other activity of any type in
connection with or involving Hazardous Materials by Tenant or its officers,
employees, contractors, assignees, sublessee, agents or invites.
(4) "Environmental Losses" shall mean all costs and expense s of
any kind, damages, foreseeable and unforeseeable consequential damages,
fines and penalties incurred in connection with any violation of and
compliance with Environmental Requirements and all
45
<PAGE>
losses of any kind attributable to the diminution of value, loss of use or
adverse effects on marketability or use of any portion of the Premises or
Property.
b. Tenant's Covenants. No Hazardous Materials shall be handled at
------------------
or about the Premises or Property without Landlord's prior written consent,
which consent may be granted, denied, or conditioned upon compliance with
Landlord's requirements, all in Landlord's absolute discretion. Notwithstanding
the foregoing, normal quantities and use of those Hazardous Materials
customarily used in the conduct of general office activities, for example,
copier fluids and cleaning supplies, may be used and stored at the Premises
without Landlord's prior written consent. Tenant's activities at or about the
Premises and Property and the handling of Hazardous Materials shall comply at
all times with all Environmental Requirements. At the expiration or termination
of the Lease, Tenant shall promptly remove from the Premises and Property all
Hazardous Materials Handled at the Premises or the Property. Tenant shall keep
Landlord fully and promptly informed of all Handling of Hazardous Materials,
other than normal quantities of Hazardous Materials customarily used in the
conduct of general office activities.
c. Compliance. Tenant covenants and warrants that it shall, at its
----------
own expense, promptly take all actions required by any governmental agency or
entity in connection with the handling of Hazardous Materials at or about the
Premises or Property, including without limitation, inspection and testing,
performing all cleanup, removal and remediation work required with respect to
those Hazardous Materials, complying with all closure requirements and post
closure monitoring, and filing all required reports or plans. All of the
foregoing work and all Handling of all Hazardous Materials shall be performed in
a good, safe and workmanlike manner by consultants qualified and licensed to
undertake such work and in manner that will not interfere with Landlord's use,
operation, leasing and sale of the Property and other tenants' quiet enjoyment
of their premises in the Property. Tenant shall deliver to Landlord prior to
delivery to any governmental agency, or promptly after receipt from any such
agency, copies of all permits, manifests, closure or remedial action plans,
notices, and all other documents relating to the handling of Hazardous materials
at or about the Premises or Property. Tenant shall remove at its own expense,
by bond or otherwise, all liens or
46
<PAGE>
charges of any kind filed or recorded against the Premises or Property in
connection with the Handling of Hazardous Materials, within ten (16) days after
the filing or recording of such lien or charge, and if Tenant fails to do so,
Landlord shall have the right, but not the obligation, to remove the lien or
charge at Tenant's expense in any manner Landlord deems expedient.
d. Landlord's Rights. Landlord shall have the right, but not the
-----------------
obligation, to enter the Premises at any reasonable time, with reasonable notice
to Tenant (i) to confirm Tenant's compliance with the provisions of this
Section, and (ii) to perform Tenant's obligations under this Section if Tenant
has failed to do so. Landlord shall also-have the right to engage qualified
Hazardous Materials consultants to inspect the Premises and review the Handling
of Hazardous Materials, including review of all permits, reports, plans, and
other documents regarding same. Tenant shall pay the costs of Landlord's
consultants' fees and all costs incurred by Landlord in performing Tenant's
obligations under this Section Landlord shall use reasonable efforts to minimize
any interference with Tenants business caused by Landlord's entry into the
Premises, but Landlord shall not be responsible for any interference caused
thereby.
e. Tenant's Indemnification. Tenant agrees to indemnify, defend and
------------------------
hold harmless Landlord and its partners and their directors, officers,
shareholders, employees and agents from all Environmental Losses and all other
claims, losses, damages liabilities, costs and expenses of every kind, including
without limitation, reasonable attorneys' and consultants' fees and costs,
incurred at any time by Landlord arising from or in collection with the Handling
of Hazardous Materials at or about the Premises or Property by Tenant or
Tenant's failure to comply in full with all Environmental Requirements with
respect to the Premises.
f. Tenant's obligations under this Section shall survive the
expiration or termination of this Lease.
36. ENTIRE AGREEMENT. This Lease, including the Exhibits and any addenda
----------------
attached hereto and the documents referred to herein, if any, constitute the
entire agreement between
47
<PAGE>
Landlord and Tenant with respect to the leasing of space by Tenant in the
Building, and supersede all prior or contemporaneous agreements, understandings,
proposals and other representations by or between Landlord and Tenant, whether
written or oral. Neither Landlord nor Landlord's agents have made any
representations or warranties with respect to the Premises, the Building, the
Property or this Lease except as expressly set forth herein, and no rights,
easements or licenses shall be acquired by Tenant by implication or otherwise
unless expressly set forth herein. The submission of this Lease for examination
does not constitute an option for the Premises and this Lease shall become
effective as a binding agreement only upon execution and delivery thereof by
Landlord to Tenant.
37. MISCELLANEOUS. This Lease may not be amended or modified except by a
-------------
writing signed by Landlord and Tenant. Subject to Section 15 - "Assignment and
Subletting" and Section 31 - "Landlord's Liability," this Lease shall be binding
on and shall inure to the benefit of the parties and their respective
successors, assigns and legal representatives. The determination that any
provisions hereof may be void, invalid, illegal or unenforceable shall not
impair any other provisions hereof and all such other provisions of this Lease
shall remain in full force and effect. The unenforceability, invalidity or
illegality of any provision of this Lease under particular circumstances shall
not render unenforceable, invalid or illegal other provisions of this Lease or
the same provisions under other circumstances. So as to avoid the rule against
perpetuities, in all events if the Commencement Date has not occurred within two
(2) year from the date this Lease is signed, all rights and obligations of the
parties hereunder shall terminate. This Lease shall be construed and interpreted
in accordance with the laws of the state in which the Property is located. The
provisions of this Lease shall be construed in accordance with the fair meaning
of the language used and shall not be strictly construed against either party.
When required by the contents of this Lease, the singular includes the plural.
Wherever the term "including" is used in this Lease, it shall be interpreted as
meaning "including, but not limited to," the matter or matters thereafter
enumerated. The captions contained in this Lease are for purposes of
convenience only and are not to be used to interpret or construe this Lease. If
there be more than one person or entity as Tenant hereunder, the obligations
imposed hereunder shall be joint and several. Time is of the essence with
respect to this Lease,
48
<PAGE>
except as to the conditions relating to the delivery of possession of the
Premises to Tenant. Neither Landlord nor Tenant shall record this Lease.
38. AUTHORITY. If the Tenant is it corporation or a partnership, each of
---------
the person executing this Lease on behalf of Tenant warrants and represents that
Tenant is a daily organize and validly existing entity, that Tenant has full
right and authority to enter into this Lease and that the persons signing on
behalf of Tenant are authorized to do so and have the power to bind Tenant to
this Lease. Tenant shall provide Landlord upon request, with evidence
reasonably satisfactory to Landlord confirming the foregoing representations.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of
the day and year first above written.
LANDLORD: TENANT:
Resolution Trust Corporation as PAN AMERICAN BANK (FSB)
Receiver for Pan American
Federal Savings Bank
By By /s/ LAWRENCE J. GRILL
------------------------------- -------------------------------
Its Its President
------------------------------ ------------------------------
Date Date September 27, 1994
----------------------------- -----------------------------
OLD STONE BANK OF CALIFORNIA By
A Federal Savings Bank -------------------------------
Its
------------------------------
By /s/ [Signature Illegible] Date
------------------------------- -----------------------------
Its Property Mgr.
------------------------------
By
-------------------------------
Date September 26, 1994
-----------------------------
Its
------------------------------
49
<PAGE>
Date
-----------------------------
50
<PAGE>
EXHIBIT 10.52
FIRST AMENDMENT TO LEASE
------------------------
This First Amendment to Lease ("Amendment") is made as of November 19, 1995
by 1300 El Camino Associates, L.P., a California limited partnership
("Landlord") and Pan American Bank (FSB), ("Tenant").
A. Pursuant to the terms of the written lease Agreement between Tenant as
Tenant and Landlord's predecessor-in-interest, "RESOLUTION TRUST CORPORATION AND
OLD STONE BANK OF CALIFORNIA, Owners (50% ownership - The Resolution Trust
Corporation as Receiver for Pan American Federal Savings Bank and Old Stone Bank
of California, a Federal Savings Bank)," as Landlord, dated September 26, 1994
(the "Lease"), Tenant leases from Landlord approximately 7,720 rentable square
feet of office space on the third floor of the building known as the 1300 S. El
Camino Real Building, at 1300 South El Camino Real, San Mateo, California (the
"Building"). Capitalized terms not defined in this Amendment shall have the
meanings given them in the Lease.
B. Landlord and Tenant desire to amend the Lease to provide for, among
other things: (i) lease by Tenant of certain additional office space on the
third floor of the Building, (ii) extension of the Lease term, and (iii)
construction of certain improvements in the additional space, all upon and
subject to the terms and conditions set forth in this Amendment.
NOW THEREFORE, in consideration of the foregoing recitals and the mutual
agreements of the parties herein, Landlord and Tenant hereby agree as follows:
1. Lease of Additional Space. In addition to the approximately 2,365
-------------------------
rentable square feet of office space designated as Suite 310 and the
approximately 5,355 rentable square feet of office space designated as Suite 300
originally leased by Tenant pursuant to the Lease (the "Original Premises"),
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord on the
terms and conditions hereinafter set forth, approximately 1,161 rentable square
feet of additional office space on the third floor of the Building, commonly
known as Suite 330, as shown on Amended Exhibit A attached hereto (the
-----------------
"Additional Space"). During the term of the Lease with respect to the Additional
Space, the Additional Space shall be included in the "Premises" for all purposes
under the Lease as amended by this Amendment.
2. Term of Lease. The term of the Lease with respect to the Additional
-------------
Space shall commence on (a) the later of (i) March 1, 1996 (the "Scheduled
Commencement Date") or (ii) the date on which Landlord has "Substantially
Completed" Landlord's construction obligations with respect to the improvements
(the "Improvements") to be constructed and installed in the Additional Space by
Landlord (or, in the event of any "Tenant Delay", the date on which Landlord
could have done so had there been no such "Tenant Delay"), or (b) any earlier
date upon which Tenant, with Landlord's written permission, actually occupies
and conducts business in any portion of the Additional Space (the "Additional
Space Commencement Date"). The parties anticipate that the Additional Space
Commencement Date will occur on or about the Scheduled Commencement Date. When
the Additional Space Commencement Date has been established, Landlord and Tenant
shall confirm the same in writing. Notwithstanding any provision to the contrary
in Section 2 of the Lease, the Expiration Date shall be December 31, 2000
(instead of March 31, 2000), and the Term of the Lease (with respect to all of
the Premises, including both the Original Premises and the Additional Space),
shall expire on December 31, 2000 (instead of March 31, 2000).
3. Base Rent. Tenant shall pay Base Rent for the entire Premises as set
---------
forth on Exhibit B attached hereto and incorporated herein by reference.
---------
4. Additional Rent: Commencing on the Additional Space Commencement Date,
---------------
"Tenant's Share" as defined in Section 4 of the Lease ("Additional Rent:
Increase in Operating
1
<PAGE>
Costs and Taxes") shall be increased to reflect the increased rentable area of
the Premises resulting from Tenant's leasing of the Additional Space. For the
calendar year in which the Additional Space Commencement Date falls, Tenant's
Share of increases in Operating Costs and Taxes over Base Operating Costs and
Taxes shall be prorated as provided in Section 4.3 of the Lease, based on the
7,720 square foot rentable area of the Original Premises for the portion of such
year prior to the Additional Space Commencement Date, and based on the 8,881
square foot total rentable area of the Premises (including the Additional Space
as well as the Original Premises) from (and including) the Additional Space
Commencement Date through the end of such year.
5. Remodeling of the Additional Space
----------------------------------
(a) Improvements. Landlord shall with reasonable diligence, using
------------
Commercial Interior Contractors ("CIC") as its general contractor, perform
remodeling work in the Additional Space in accordance with the "Final
Construction Documents" approved by Tenant and Landlord pursuant to Paragraph
(b) below ("Improvements").
(b) Construction Documents. A preliminary space plan for the
----------------------
Improvements (the "Space Plan") dated September 20, 1995 and attached hereto as
Exhibit C, has previously been prepared by S.J. Sung & Associates (the
"Architect") and delivered to Tenant. By January 15, 1995, Tenant shall furnish
to the Architect such information as may be necessary to finalize the Space
Plan. Landlord shall cause the Architect to prepare and deliver the final Space
Plan to Tenant within three (3) business days after the Architect has received
all information from Tenant necessary for the preparation of the Space Plan.
Tenant shall review and respond to the final Space Plan within three (3)
business days after receipt thereof, specifying any changes or modifications
Tenant desires in the Space Plan. If necessary, the Architect will then revise
and resubmit the revised final Space Plan to Tenant for its approval within two
(2) business days after receiving Tenant's comments. Tenant shall review and
approve any such revised final Space Plan within two (2) business days of
receipt thereof. After the Space Plan is finalized, Landlord shall cause to be
prepared and submitted to Tenant a preliminary cost estimate and detailed plans
and specifications sufficient to permit the construction of the Improvements
("Construction Documents"). Tenant shall review and respond to the Construction
Documents within five (5) business days after receipt thereof, specifying any
changes or modifications Tenant desires in the Construction Documents. If
necessary, the Architect will then revise and resubmit the Construction
Documents to Tenant for its approval. Tenant shall review and approve any such
revised Construction Documents within three (3) business days of receipt
thereof. If necessary, Landlord will provide Tenant with a revised cost
estimate. Tenant shall approve or disapprove the same within three (3) business
days after receipt. The revised Construction Documents and cost estimate, as
approved by Tenant, are hereinafter referred to as the "Final Construction
Documents" and "Final Cost Estimate" (respectively). If Tenant fails to furnish
information and give its written approval of any of the foregoing items within
the time periods provided above, Tenant shall be responsible for all additional
costs and delays arising from its failure to so timely approve or disapprove
such items, as provided below.
(c) Construction. Upon approval by Tenant of the Final Construction
------------
Documents and the Final Cost Estimate, Landlord shall direct CIC to proceed with
reasonable diligence to cause the Improvements to be Substantially Completed in
accordance with the Final Construction Documents.
The Improvements shall be deemed to be "Substantially Completed" when
they have been completed in accordance with the Final Construction Documents
except for finishing details, minor omissions, decorations and mechanical
adjustments of the type normally found on an architectural "punch list". (The
definition of Substantially Completed shall also define the terms "Substantial
Completion" and "Substantially Complete.") The date on which the Improvements
are Substantially Completed shall be termed the "Substantial Completion Date."
2
<PAGE>
Within five (5) business days following Substantial Completion of the
Improvements, and prior to Tenant's occupancy of the Additional Space, Landlord
and Tenant shall inspect the Improvements and jointly prepare a "punch list" of
agreed items of construction remaining to be completed. Tenant shall cooperate
with and accommodate Landlord, the contractor and its workers in the
construction of the Improvements and completion of the items on the punch list.
Landlord shall use reasonable efforts to complete the punch list items within 45
days of such inspection.
Any additional alterations or improvements to the Additional Space
desired by Tenant other than the Improvements shall be made after Substantial
Completion of the Improvements and shall be subject to the provisions of the
Lease relating to alterations.
(d) Cost of Suite lmprovements. Landlord shall pay for the preparation
--------------------------
by the Architect of the preliminary Space Plan and up to one revision of the
preliminary Space Plan. In addition, Landlord shall contribute an allowance (the
"Allowance") of up to $23,220.00 ($20.00/rsf) toward the cost of the
Improvements. The Allowance shall be used for the cost of the construction and
installation of the Improvements pursuant to the Final Construction Documents
(including without limitation, permit fees in connection therewith, the usual
markups consisting of 8% for costs of overhead and profit, and actual costs of
supervision up to a maximum of 5%, and costs of preparation of the Construction
Documents). If the total cost of the Improvements (including all the costs
described above) exceeds the Allowance, the balance, if any, of the cost of the
Improvements ("Additional Cost") shall be paid by Tenant to Landlord within 30
days after receipt of Landlord's invoice or other billing therefor after
Substantial Completion of the Improvements.
Landlord will use reasonable care in preparing the cost estimates, but
they are estimates only and do not limit Tenant's obligation to pay for the
actual Additional Cost of the Improvements, if the actual costs of the
improvements exceeds the estimated amounts.
(e) Changes. If Tenant requests any change, addition or alteration in or
-------
to any Final Construction Documents subsequent to the approval of the Final
Construction Documents ("Changes"), Landlord shall prepare additional
Construction Documents implementing such Change. As soon as practicable after
the completion of such additional Construction Documents, Landlord shall notify
Tenant of the estimated cost of the Changes. Within three (3) business days
after receipt of such cost estimate, Tenant shall notify Landlord in writing
whether Tenant approves the Change. If Tenant approves the Change, Landlord
shall proceed with the Change and the cost of the Change shall be included in
the total cost of the Improvements for purposes of paragraph (d) above. If
Tenant fails to approve, or disapproves, the Change within such period,
construction of the Improvements shall proceed as provided in accordance with
the original Construction Documents.
(f) Delays. Tenant shall be responsible for, and shall pay to Landlord,
------
any and all costs and expenses incurred by Landlord in connection with any
Tenant Delay in the commencement or completion of any Improvements and any
increase in the cost of Improvements above the Allowance caused by any Tenant
Delays, as defined in the Construction Rider to the Lease, provided that Tenant
is notified by Landlord of any such Tenant Delay (which notice may be delivered
via facsimile) and fails to cure such delay within one business day of receipt
of such notice.
(g) Substantial Completion. Neither Landlord nor its representatives
----------------------
shall be liable to Tenant for any damage resulting from any delay in completing
Landlord's construction obligations hereunder. If any delays in Substantially
Completing the Improvements are attributable to Tenant Delays, then the
Substantial Completion Date shall be deemed to be the date on which Landlord
could have Substantially Completed the Improvements but for such Tenant Delays.
3
<PAGE>
(h) Access to Premises. Landlord shall allow Tenant or Tenant's
------------------
Representatives to enter the Additional Space prior to Substantial Completion,
without any obligation to pay Base Rent or Additional Rent, to permit Tenant to
make the Additional Space ready for its use and occupancy; provided, however,
that prior to such entry of the Additional Space, Tenant shall provide evidence
reasonably satisfactory to Landlord that Tenant's insurance, as described in
Section 12.l - "Tenant's Insurance" of the Lease, shall be in effect as of the
time of such entry. Landlord may revoke such permission, for parties other than
Tenant's contractors, at any time upon twenty-four (24) hours notice. Tenant and
its Representatives shall not interfere with Landlord or Landlord's contractor
in completing the Improvements.
Tenant agrees that Landlord shall not be liable in any way for any injury,
loss or damage which may occur to any of Tenant's property placed upon or
installed in the Additional Space prior to Substantial Completion of the
Improvements in such Additional Space, the same being at Tenant's sole risk, and
Tenant shall be liable for all injury, loss or damage to persons or property
arising as a result of such entry of the Additional Space by Tenant or its
Representatives.
(i) Ownership of Improvements. All Improvements, whether installed by
-------------------------
Landlord or Tenant, shall become a part of the Premises, shall be the property
of Landlord and shall be surrendered by Tenant with the Premises, without any
compensation to Tenant, at the expiration or termination of the Lease, in
accordance with the provisions of the Lease.
(j) No Fee to Landlord. Landlord shall receive no fee for supervision,
------------------
profit, overhead or general conditions in connection with the Improvements.
(k) No Miscellaneous Charges. Tenant shall not be charged for parking
------------------------
(to the extent parking is available) or for the use of electricity, water or
HVAC in the Additional Space during the construction of the Improvements.
6. Signage. As soon after execution of this Amendment as may be
-------
reasonably practicable, Landlord shall proceed with commercially reasonable
efforts to seek the requisite governmental approvals for construction of a
monument sign at the Project (the "Monument Signage") substantially as shown on
the plan, as shown on Exhibit D attached hereto (the "Sign Plan"). If Landlord
obtains all requisite consents, approvals and permits, Landlord shall proceed
with reasonable diligence to construct the Monument Signage (including Tenant's
name, substantially as shown on the Sign Plan, as the same may be modified or
revised in the course of the review, consent, approval and permitting process).
Tenant shall bear a proportionate share of the cost of the Monument Signage, as
follows: All costs incurred by Landlord in connection with the design, approval
and construction of the Monument Signage shall be amortized by Landlord over 120
months (ten years) on a straight line basis with an interest factor of 12% (or
in such other manner as Landlord in good faith may elect). Tenant shall pay to
Landlord monthly (or at such other interval or intervals not more frequent than
monthly as Landlord may from time to time elect) Tenant's proportionate share of
the costs incurred by Landlord in connection with the Monument Signage,
including costs of design, approval and construction of the Monument Signage
(amortized as provided above), costs of maintenance, repair and replacement of
the Monument Signage, and all other costs incurred by Landlord in connection
with the Monument Signage. Tenant's proportionate share shall be based on the
total number of names of tenants displayed on the Monument Signage from time to
time. If, for example, there are initially names of four tenants (including
Tenant) displayed, Tenant's proportionate share initially would be 1/4 (or 25%).
If instead at some time there are names of five tenants (including Tenant)
displayed on the Monument Signage, Tenant's proportionate share then would be
1/5 (or 20%). Tenant understands and agrees: (x) that Landlord cannot provide
Tenant with any assurance or guaranty that the Monument Signage will be approved
or permitted and (y) that all other provisions of this Amendment shall remain in
full force and effect notwithstanding any inability by Landlord or failure of
Landlord to obtain the requisite consents, approvals and permits to construct
the Monument Signage. Tenant also understands and agrees that display of
Tenant's name on any Monument Signage shall be subject to all applicable
governmental conditions and requirements and that if
4
<PAGE>
for any reason Landlord is required to remove any such Monument Signage or is
prohibited from maintaining, repairing or restoring it, Tenant's rights with
respect to such Monument Signage shall terminate and Landlord shall have no
liability with respect thereto. All rights of Tenant with respect to any such
Monument Signage are strictly personal to the original Tenant executing this
Amendment to Lease and may not be assigned or transferred to or utilized any
manner by any other person or entity. Upon expiration or other termination of
the term of the Lease or any vacation of the Premises by Tenant, Tenant shall
pay to Landlord the cost of removing Tenant's name from any such Monument
Signage.
7. Additional Security Deposit. Upon execution of this Amendment, Tenant
---------------------------
shall deposit with Landlord an additional $1,973.00 to increase the security
deposit pursuant to Section 26 of the Lease by $1,973.00 (to a total of
$13,630.20).
8. Brokers. Landlord and Tenant each warrants and represents for the
-------
benefit of the other that it has had no dealings with any real estate broker or
agent in connection with the negotiation of this Amendment, and that it knows of
no other real estate broker or agent other than Broker who is or might be
entitled to a real estate brokerage commission or finder's fee in connection
with this Amendment. Each party shall indemnify and hold harmless the other from
and against any and all liabilities or expenses arising out of claims made by
any broker or individual for commissions or fees resulting from the actions of
the indemnifying party in connection with this Amendment.
9. General Provisions. All terms and provisions of the Lease, as modified
------------------
by this Amendment, shall continue in full force and effect and the parties
hereby ratify the same. The terms of this Amendment are binding upon and shall
inure to the benefit of Landlord and Tenant and their respective legal
representatives, successors and assigns.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as of
the date first written above.
LANDLORD TENANT
1300 EL CAMINO ASSOCIATES, L.P. PAN AMERICAN BANK (FSB)
a California limited partnership
By: Office Opportunity Capital
Partners II, LLC, a California
limited liability company
By: /s/ R. Matthew Moran By: /s/ Lawrence J. Grill
------------------------------ ---------------------------
Name: R. Matthew Moran Name: Lawrence J. Grill
----------------------------- --------------------------
Title: Manager Title: Pres
------------------------------ -------------------------
By: /s/ John Hamilton
--------------------------------
Name: John Hamilton
------------------------------
Title: Manager
-----------------------------
5
<PAGE>
EXHIBIT B
BASE RENT SCHEDULE
<TABLE>
<CAPTION>
Original Premises Original Premises Additional Space Total Monthly Base Rent
Suite 300 Suite 310 Suite 330
5,355 rentable square feet 2,365 rentable square feet 1,l61 rentable square feet
<S> <C> <C> <C>
4/1/96 $8,086.05 $3,571.15 $1,973.70 $13,630.90
l1/30/96
12/1/96 - $8,246.70 $3,642.10 $2,031.75 $13,920.55
11/30/97
12/1/97 - $8,246.70 $3,642.10 $2,147.85 $14,036.65
7/31/98
8/1/98 - $8,782.20 $3,878.60 $2,147.85 $14,808.65
11/30/98
12/1/98 - $8,782.20 $3,878.60 $2,205.90 $14,866.70
11/30/99
12/1/99 - $8,782.20 $3,878.60 $2,263.95 $14,924.75
3/31/00
4/1/00 - $10,442.25 $4,611.75 $2,263.95 $17,317.95
12/31/00
</TABLE>
<PAGE>
EXHIBIT 10.53
<TABLE>
<CAPTION>
OFFICE LEASE
BASIC LEASE INFORMATION
<S> <C> <C>
Lease Date: March 4, 1997
Landlord: Spieker Properties, L.P., a California limited
partnership
Address: 2150 River Plaza Drive, Suite 160
Sacramento, California 95833
Tenant: Pan American Bank, FSB
a Federally Chartered Institution
Address of Tenant: 1300 S. El Camino Real, Suite 320
San Mateo, CA 94402
Contact: Rick Burns Telephone: 800/694-1800 ext. 206
415/345-1800
Paragraph 1 Premises: Approximately 3,595 rentable square feet (which
includes a portion of the building's common area) on
the 1st floor, shown outlined in red on the
attached Exhibit "B", in the two story office
building known as 2295 Gateway Oaks Drive,
Sacramento, California.
Paragraph 2 Lease Term: Three years, commencing on May 1, 1997, and ending on
----------- -----------
April 30, 2000.
--------------
Paragraph 3 Rent: Months 01-18: $5,932.00 per month.
Month 19-36: $6,112.00 per month.
First Month's Rent: $5,932.00, due upon Lease execution.
---------
Paragraph 27 Base Year for Adjustments for Operating Expenses: 1997
Paragraph 27 Tenant's Percentage Share of Operating Expenses: 7.93%
Paragraph 27 Tenant's Percentage Share of Taxes: 7.93%
Paragraph 27 Base Year for Adjustments for Taxes: 1997
Paragraph 33 Security Deposit: $5,932.00,* due upon Lease execution.
---------
*$1,000.00 shall be transferred from existing lease.
The foregoing Basic Lease Information is hereby incorporated into and made a part of this
Lease. Each reference in this Lease to any of the Basic Lease Information shall mean the
respective information hereinabove set forth and shall be construed to incorporate all of the
terms provided under the particular Lease paragraph pertaining to such information. In the
event of any conflict between any Basic Lease Information and the Lease, the latter shall
control.
</TABLE>
LANDLORD: TENANT:
Spieker Proporties, L.P., Pan American Bank, FSB
a California Limited Partnership a Federally Chartered Institution
BY: Spieker Properties, Inc., BY: /s/ Lawrence J. Grill
a Maryland corporation, ---------------------------
Lawrence J. Grill
ITS: General Partner
ITS: President & CEO
BY: /s/ Peter H. Schnugg
------------------------------- DATED: 3-5-97
Peter H. Schnugg --------------------------
ITS: Senior Vice President
DATED: 4-7-97
----------------------------
<PAGE>
TABLE OF CONTENTS
l. Premises and Occupancy
2. Term and Possession
3. Rent
4. Restrictions on Use
5. Compliance with Laws
6. Alterations
7. Repair
8. Liens
9. Assignment and Subletting
10. Insurance and Indemnification
11. Waiver of Subrogation
12. Services and Utilities
13. Estoppel Certificate
14. Holding Over
15. Subordination
16. Rules and Regulations
l7. Re-Entry by Landlord
18. Insolvency of Bankruptcy
19. Default
20. Damage by Fire, etc.
21. Eminent Domain
22. Sale by Landlord
23. Right of Landlord to Perform
24. Surrender of Premises
25. Waiver
26. Notices
27. Rental Adjustments
28. Taxes Payable by Tenant
29. Abandonment
30. Substitution
3l. Successors and Assigns
32. Attorneys' Fees
33. Security Deposit
34. Corporate Authority
35. Miscellaneous
36. Lease Effective Date
37. Flood Zone
38. Inducement Recapture In The Event Of Breach
39. After Hours Heating, Ventilation, and Air Conditioning
40. Transportation Management Association
41. Cancellation of Lease
--------------------------
42. Parking
-----------
Exhibit "A".........................................Rules and Regulations
Exhibit "B"...........................................Outline of Premises
Exhibit "C".........................................Improvement Agreement
Exhibit "D"....................................Form of Tenant Certificate
Exhibit "E"..........................................Property Description
<PAGE>
LEASE
THIS LEASE, made as of this 4/th/ day of March, 1997, between
------ -----
Spieker Properties L.P., A CALIFORNIA LIMITED Partnership
(hereinafter called "Landlord") and Pan American Bank, FSB, a
-------------------------
Federally Chartered Institution, hereinafter called ("Tenant").
-------------------------------
WITNESSETH:
PREMISES AND OCCUPANCY
1. Landlord hereby leases to Tenant and Tenant hereby hires from
Landlord those Premises hereinafter called "Premises" outlined in
red on Exhibit "B" attached hereto and made a part hereof
specified in the Basic Lease Information attached hereto.
Tenant shall use and occupy the Premises for general office
purposes and for no other use or purpose without the prior
written consent of Landlord.
TERM AND POSSESSION
2. (a) The parties project that the Term shall commence on the Scheduled
Term Commencement Date and, except as otherwise provided herein
or in any exhibit or addendum hereto, shall continue in full
force until the Term Expiration Date. If the Premises are not
delivered by Landlord by the Scheduled Term Commencement Date for
any reason, Landlord shall not be liable to Tenant for any loss
or damage resulting from such delay. The Term Commencement Date
shall be the first day of the calendar month next following the
earlier of (i) the day when the Premises are substantially
complete, or (ii) the date on which Tenant takes possession of,
or commences the operation of its business in some or all of the
Premises. If substantial completion occurs prior to the Scheduled
Term Commencement Date, Tenant shall take occupancy, and Landlord
shall provide Tenant with as much prior notice as circumstances
allow of the date when Landlord expects to achieve substantial
completion based upon the progress of work. Should the Term
Commencement Date be a date other than the Scheduled Term
Commencement Date, either Landlord or Tenant, at the request of
the other shall execute a declaration specifying the Term
Commencement Date and the rent commencement date which shall be
binding upon the parties to the matters, herein stated. Tenant's
obligation to pay Rent and its other obligations for payment
under this Lease shall commence upon the earlier of (i) the day
when the Premises are substantially complete or (ii) the date on
which Tenant takes possession of or commences the operation of
its business in some or all the Premises.
(b) Landlord shall perform the Tenant Improvement Work in the
Premises as provided in the separate Office Lease Improvement
Agreement attached hereto as Exhibit "C" and made a part hereof,
with diligence, subject to events and delays due to causes beyond
its reasonable control.
(c) The Premises shall be substantially complete and possession shall
be delivered when (i) installation of Building Standard Work
(which shall not include installation of telephone and other
communication facilities or equipment finish work and decoration
to be performed by Tenant) has occurred, (ii) Tenant has direct
access from the street to the elevator lobby on the floor where
the Premises are located (iii) Landlord is in a position to
furnish Building services to the Premises, and (iv). Substantial
completion shall be deemed to have occurred notwithstanding a
requirement to complete "punchlist" or similar corrective work.
RENT
3. (a) Tenant shall pay to Landlord throughout the term of this Lease
rent as specified in the Basic Lease Information, payable in
monthly installments in advance on the first day of each month
during every year of the Term hereby demised in lawful money of
the United States, without deduction or offset whatsoever, to
Landlord at the address specified in the Basic Lease Information
or to such other firm or to such other place as Landlord may from
time to time designate in writing. Said rental is subject to
adjustment as provided in Paragraph 27 hereof. If this Lease
commences on a day other than the first day of a calendar month
or ends on a day other than the last day of a calendar month, the
monthly rental for the fractional month shall be appropriately
prorated.
(b) Tenant recognizes that late payment of any rent or other sum due
hereunder from Tenant to Landlord will result in administrative
expense to Landlord, the extent of which additional expense is
extremely difficult and economically impractical to ascertain.
Tenant therefore agrees that if rent or any other payment due
hereunder from Tenant to Landlord remains unpaid ten (10) days
after said amount is due, the amount of such unpaid rent or other
payment shall be increased by a late charge to be paid Landlord
by Tenant in an amount equal to ten percent (l0%) of the amount
of the delinquent rent or other payment. The amount of the late
charge to be paid to Landlord by Tenant on any unpaid rent or
other payment shall be reassessed and added to Tenant's
obligation for each successive monthly period accruing after the
date on which the late charge is initially imposed. Tenant agrees
that such amount is a reasonable estimate of the loss and expense
to be suffered by Landlord as a result of such late payment by
Tenant and may be charged by Landlord to defray such loss and
expense. The provisions of this paragraph in no way relieve
Tenant of the obligation to pay rent or other payments on or
<PAGE>
before the date on which they are due, nor do the terms of this
paragraph in any way affect Landlord's remedies pursuant to
Paragraph 19 of this lease in the event said rent or other
payment is unpaid after the date due.
RESTRICTIONS ON USE
4. Tenant shall not do or permit anything to be done in or about
the Premises which will in any way obstruct or interfere with
the rights of other tenants or occupants of the Building
or injure or annoy them, nor use or allow the Premises to be used
for any improper, immoral, unlawful or objectionable purpose, nor
shall Tenant cause or maintain or permit any nuisance in, on, or
about the Premises. Tenant shall not commit or suffer the
commission of any waste in, on, or about the Premises.
COMPLIANCE WITH LAWS
5. 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, statute, ordinance or governmental rule or
regulation now in force which may hereafter be enacted or
promulgated; provided, however, that Tenant shall be allowed to
--------------------------------------------------
use the Premises for general office purposes. Tenant shall not
--------------------------------------------
do or permit anything to be done on or about the Premises or
bring or keep anything therein which will in any way increase
the rate of any insurance upon the Building in which the
Premises are situated or any of its contents or cause a
cancellation of said insurance or otherwise affect said insurance
in any manner, and Tenant 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 alterations or improvements made by or
for Tenant or Tenant's acts. The judgment of any court of
competent jurisdiction or the admission of Tenant in an action
against Tenant, whether Landlord be a party thereto or not,
that Tenant has so violated any such law, statute, ordinance,
rule, regulation or requirement shall be conclusive of such
violation as between Landlord and Tenant.
ALTERATIONS
6. Tenant shall not make or suffer to be made any alterations,
additions, or improvements in, on, 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 any such alterations, additions or improvements in, on or to
said Premises, except for Tenant's movable furniture and
equipment, shall become Landlord's property at the end of the
Term hereof and shall remain on the Premises without compensation
to Tenant. In the event Landlord consents to the making of any
such alteration, addition or improvement by Tenant, the same
shall be made by Tenant, at Tenant's sole cost and expense, in
accordance with plans and specifications approved by Landlord,
and any contractor or person selected by Tenant to make the same
must first be approved in writing by Landlord which approval
--------------
shall not be unreasonably withheld or delayed.
---------------------------------------------
Notwithstanding the foregoing, at Landlord's option, all or any
portion of the alteration, addition or improvement work shall be
performed by Landlord for Tenant's account and Tenant shall pay
Landlord's estimate of the cost thereof (including a reasonable
charge for Landlord's overhead and profit) prior to
commencement of the work. Overhead and profit allowances shall
not exceed fifteen percent (15%). Upon the expiration or
----------
sooner termination of the Term, Tenant shall upon demand by
Landlord, at Tenant's sole cost and expense, with all due
diligence remove all those alterations, additions or
improvements made by or for the account of Tenant, other than
----------
the Tenant Improvement Work, designated by Landlord to be
---------------------------
removed, and Tenant shall with all due diligence, at its sole
cost and expense, repair and restore the Premises to their
original condition, normal wear and tear excepted. At Landlord's
election and notwithstanding the foregoing, however, Tenant
shall pay to Landlord the cost of removing any such
alterations, additions or improvements and restoring the
Premises to their original condition, normal wear and tear
excepted, such cost to include a reasonable charge for
Landlord's overhead and profit as provided above, and such amount
may be deducted from the Security Deposit or any other sums or
amounts held by Landlord under this Lease.
REPAIR
7. By taking possession of the Premises, Tenant accepts the
Premises as being in the condition in which Landlord is
obligated to deliver them, subject to punch list items and
--------------------------------
latent defects, and otherwise in good order, condition and
--------------
repair. Except as provided in Paragraph 12(a), Tenant shall, at
-------------------------------------
all times during the term hereof at Tenant's sole cost and
expense, keep the Premises and every part thereof in good order,
condition and repair, excepting damage thereto by fire,
earthquake, Act of God or the elements, Tenant hereby waiving all
rights under and benefits of subsection l of Section 1932, and
Sections 1941 and 1942 of the Civil Code of California and any
similar law, statute or ordinance now or hereafter in effect.
Tenant shall upon the expiration or sooner termination of the
Term hereof, unless Landlord demands otherwise as in Paragraph 6
hereof provided, surrender to Landlord the Premises and all
repairs, changes, alterations, additions, and improvements
thereto in the same condition as when received, or when first
installed, damage by fire, earthquake, Act of God, or the
elements and reasonable wear and tear excepted. It is hereby
----------------------------
understood and agreed that Landlord has no obligation to alter,
remodel, improve, repair, decorate, or paint the Premises or any
part thereof except as specified in Exhibit "C" attached hereto
and made a part hereof, and
<PAGE>
that no representations respecting the condition of the Premises
or the Building have been made by Landlord to Tenant, except as
specifically herein set forth.
LIENS
8. Tenant shall keep the Premises free from any liens arising out of
any work performed, material furnished, or obligations incurred
by Tenant. In the event that Tenant shall not, within ten (10)
days following the imposition of any such lien, cause the same to
be released of record by payment or provide adequate protection
---------------------------
by the posting of a proper bond, Landlord shall have, in addition
------
to all other remedies provided herein and by law, the right, but
no obligation, to cause the same to be released by such means as
it shall deem proper, including payment of the claim giving rise
to such lien, having given Tenant prior written notice of
-------------------------------------------
Landlord's intent. All such sums paid by Landlord and all
-----------------
expenses incurred by it in connection therewith shall be
considered additional rent and shall be payable to it by Tenant
on demand with interest at the rate payable of eighteen percent
(18%) per annum or the maximum rate permitted by law, whichever
is more. Landlord shall have the right at all times to post and
keep posted on the Premises any notices permitted or required by
law, or which Landlord shall deem proper, for the protection of
Landlord, the Premises, the Building, and any other party having
an interest therein, from mechanics' and materialmen's liens, and
Tenant shall give to Landlord at least five (5) business days
prior notice of commencement of any construction on the Premises.
ASSIGNMENT
AND SUBLETTING
9. Without Landlord's consent, which shall not be unreasonably
-----------------------------------------------------------
withheld, Tenant shall not sell, assign, encumber or otherwise
--------
transfer this Lease or any interest therein (by operation of law
or otherwise), sublet the Premises or any part thereof or suffer
any other person to occupy or use the Premises or any portion
thereof, nor shall Tenant permit any lien to be placed on
Tenant's interest under this Lease by operation of law except in
accordance with the provisions of this Paragraph 9 For purposes
hereof, sales, transfers or assignments of (i) a controlling
interest in the stock of Tenant, if Tenant is a corporation, or
of (ii) the general partnership interests sufficient to control
management decisions if Tenant is a partnership, or of (iii) the
majority or controlling underlying beneficial interest, if Tenant
is any other form of business entity, shall constitute an
assignment subject to the terms of this Paragraph 9.
(a) In the event that Tenant should desire to sublet the Premises
or any part thereof, Tenant shall provide Landlord with written
notice of such desire at least forty-five (45) days in advance of
---------------
the date on which Tenant desires to make such sublease. Landlord
shall then have a period of thirty (30) days following receipt of
such notice within which to notify Tenant in writing that
Landlord elects either (i) to terminate this Lease as to the
space so affected as of the date so specified by Tenant, in which
event Tenant shall be relieved of all further obligations
hereunder as to such space from and after that date, or (ii) to
permit Tenant to sublet such space, subject however, to the prior
written approval of the proposed sublessee by Landlord, which
said consent shall not be unreasonably withheld. If Landlord
should fail to notify Tenant in writing of its election within
said thirty (30) day period, Landlord shall be deemed to have
waived option (i) above, but written approval of the proposed
sublessee shall still be required. Refusal by Landlord to approve
a proposed sublessee shall not constitute a termination of this
Lease. In exercising its right of consent to a sublessee, it
shall be reasonable for Landlord to withhold consent to any
sublessee who (aa) does not agree to assume the obligations of
the Lease with respect to the space to be so sublet, (bb) does
not agree to utilize the space so sublet for the Permitted Use,
(cc) is of unsound financial condition as reasonably determined
----------
by Landlord, or (dd) will, in Landlord's reasonable opinion
----------
increase the occupant density in the Leased Premises. If Tenant
proposes to sublease less than all of the Premises, election by
Landlord of termination of this Lease with respect to space to be
so sublet shall leave this Lease in full force and effect with
respect to the remainder of the space, the Rent and Tenant's
Proportionate Share of Operating Expenses and taxes shall be
adjusted on a prorata basis to reflect the reduction in Net
Rentable Area of the Premises as retained by Tenant. This Lease
as so amended shall continue thereafter in full force and effect
and references herein to the Premises shall mean that portion
thereof as to which the Lease has not been terminated.
(b) Tenant shall not enter into any other transaction subject to
this Paragraph 9 without Landlord's prior written consent, which
said consent shall not be unreasonably withheld. It shall be
reasonable for Landlord to withhold consent to any proposed
transaction described in this Paragraph 9 on any of the grounds
specified in Paragraph 9 (a) with respect to sublessees or any
other reasonable grounds.
(c) Any rent or other consideration realized by Tenant under
any such sublease or assignment to which Landlord has consented
hereunder, in excess of the Rent payable hereunder, after
amortization of the reasonable cost of the improvements over the
remainder of the Term for which Tenant has paid and reasonable
subletting and assignment costs, shall be divided and paid ninety
percent (90%) to Landlord and ten percent (10%) to Tenant.
(d) Any subletting hereunder by Tenant shall not result in
Tenant being released or discharged from any liability under this
Lease. Any purported assignment, subletting or other transaction
to which Paragraph 9 applies, which occurs contrary to the
provisions hereof, shall be void. Landlord's consent to any
assignment, subletting or other
<PAGE>
transaction to which this Paragraph 9 applies shall not release
Tenant from any of Tenant's obligations hereunder or constitute a
consent with respect to any subsequent transaction to which this
paragraph applies.
INSURANCE AND INDEMNIFICATION
10. (a) Landlord shall not be liable to Tenant and Tenant hereby
waives all claims against Landlord 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 from
the roof, walls, basement, or other portion of the Premises or
the Building, or caused by gas, fire, or the complex of which it
is a part hereof, except for Landlord's gross negligence or
willful acts or omissions.
(b) Tenant shall hold Landlord harmless from and defend Landlord
against any and all claims or liability for any injury or damage
to any person or property whatsoever (i) occurring in, on, or
about the Premises or any part thereof, (ii) occurring in, on, or
about any facilities (including, without prejudice to the
generality of the term "facilities", elevators, stairways,
passageways or hallways), the use of which Tenant may have in
conjunction with other tenants of the Building, when such injury
or damage shall be caused in part or in whole by the act,
neglect, fault of, or omission of any duty with respect to the
same by Tenant, its agents, servants, employees, or invitees.
Tenant further agrees to indemnify and save harmless the Landlord
against and from any and all claims by or on behalf of any
person, firm or corporation, arising from the conduct or
management of any work or thing whatsoever done by the Tenant in
or about or from transactions of the Tenant concerning the
Premises, and will further indemnify and save the Landlord
harmless against and from any and all claims arising from any
breach or default on the part of the Tenant in the performance of
any covenant or agreement on the part of the Tenant to be
performed pursuant to the terms of this Lease, or arising from
any act or negligence of the Tenant, or any of its agents,
contractors, servants, employees or licensees, and from and
against all costs, counsel fees, expenses and liabilities
incurred in connection with any such claim or action proceeding
brought thereon. Furthermore, in case any action or proceeding be
brought against Landlord by reason of any claims or liability,
Tenant agrees to defend such action or proceeding at Tenant's
sole expense by counsel reasonably satisfactory to Landlord. The
provisions of this Paragraph 10 shall survive the expiration or
termination of this Lease with respect to any claims or liability
occurring prior to such expiration or termination.
Landlord shall indemnify, defend by counsel reasonably acceptable
-----------------------------------------------------------------
to Tenant, protect and hold Tenant harmless from and against any
----------------------------------------------------------------
and all liabilities, losses, costs, damages, injuries or
--------------------------------------------------------
expenses, including reasonable attorneys' fees and court costs,
---------------------------------------------------------------
arising out of or related to the sole negligence or willful
-----------------------------------------------------------
misconduct of Landlord. Landlord shall not be liable to Tenant
---------------------------------------------------------------
for any loss or damage to person or property caused by theft,
-------------------------------------------------------------
fire, acts of God, acts of public enemy, riot, strike,
------------------------------------------------------
insurrection, war, court order, requisition or order of
-------------------------------------------------------
governmental body or authority or for any damage or inconvenience
-----------------------------------------------------------------
which may arise through repair, except as expressly otherwise
-------------------------------------------------------------
provided in Paragraph 10.
-------------------------
(c) Tenant agrees to purchase at its own expense and to keep in
force during the term of this Lease a policy or policies of
workmen's compensation and comprehensive general liability
insurance, including personal injury and property damage, in the
amount of Five Hundred Thousand Dollars ($500,000) for property
damage and Five Hundred Thousand Dollars ($500,000) per person
and One Million Dollars ($l,000,000) per occurrence for personal
injuries or deaths of persons occurring in or about the Premises.
Said policies shall: (i) name Landlord as an additional insured
and insure Landlord's contingent liability under this Lease, (ii)
be issued by an insurance company which is acceptable to Landlord
and licensed to do business in the State of California, and (iii)
provide that said insurance shall not be cancelled unless ten
(10) days' prior written notice shall have been given to
Landlord. Said policy or policies or certificates thereof shall
be delivered to Landlord by Tenant upon commencement of the term
of the Lease and upon each renewal of said insurance.
WAIVER OF SUBROGATION
ll. Landlord and Tenant hereby waive any right that each may have
against the other on account of any loss or damage arising in
any manner which is covered by policies of insurance for fire
and extended coverage, theft, public liability, workmen's
compensation or other insurance now or hereafter existing during
the term hereof, provided, however, the parties each shall first
have their respective insurance companies waive any rights of
subrogation that such companies may have against Landlord or
Tenant, as the case may be.
SERVICES AND UTILITIES
12. (a) Landlord shall maintain the public and common areas of the
Building, including lobbies, stairs, elevators, corridors and
restrooms, the windows in the Building, the mechanical, plumbing
and electrical equipment serving the Building, and the structure
itself, in reasonably good order and condition except for damage
occasioned by the act of Tenant, which damage shall be repaired
by Landlord at Tenant's expense.
(b) Provided the Tenant shall not be in default hereunder, and
subject to the provisions elsewhere herein contained and to the
rules and regulations of the Building, Landlord
<PAGE>
agrees to furnish to the Premises during ordinary business hours
of generally recognized business days, to be determined by
Landlord (but exclusive, in any event, of Saturdays, Sundays and
legal holidays), water and electricity suitable for the intended
use of the Premises, heat and air conditioning required in
Landlord's reasonable judgment for the comfortable use and
----------
occupation of the Premises, janitorial services during the times
and in the manner that such services are, in Landlord's
reasonable judgment customarily furnished in comparable office
----------
buildings in the immediate market area, and elevator service
which shall mean service either by nonattended automatic
elevators or elevators with attendants, or both, at the option of
the Landlord. Landlord shall provide additional or after-hours
heating or air conditioning, at Tenant's request, and Tenant
---
shall pay to Landlord a reasonable charge for such services as
-----------
determined by Landlord as set forth in Paragraph 39. Tenant
----------------------------
agrees to keep and cause to be kept closed all window coverings
when necessary because of the sun's position, and Tenant also
agrees at all times to cooperate fully with Landlord and to abide
by all the reasonable regulations and requirements which Landlord
----------
may prescribe for the proper functioning and protection of said
heating, ventilating, and air-conditioning system. Wherever heat-
generating machines, excess lighting or equipment are used in the
Premises which affect the temperature otherwise maintained by the
air-conditioned 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. Landlord shall in no event be
liable for any interruption or failure of utility services on the
Premises unless caused by the gross negligence or willful act of
-------------------------------------------------------
Landlord.
--------
(c) Tenant will not without the written consent of Landlord use
any apparatus or device in the Premises, including without
limitation, electronic data processing machines, punch card
machines, and machines using excess lighting or current which
will in any way increase the amount of electricity or water
usually furnished or supplied for use of the Premises as general
office space; nor connect with electric current, except through
existing electrical outlets in the Premises, or water pipes, any
apparatus or device, for the purposes of using electrical current
or water. If Tenant shall require water or electric current or
any other resource in excess of that usually furnished or
supplied for use of the Premises as general office space, Tenant
shall first procure the consent of Landlord which Landlord may
refuse, to the use thereof, and Landlord may cause a special
meter to be installed in the Premises so as to measure the amount
of water, electric current or other resource consumed for any
such other use. The cost of any such meters and of installation,
maintenance, and repair thereof shall be paid for by Tenant, and
Tenant agrees to pay Landlord promptly upon demand by Landlord
for all such water, electric current or other resource consumed,
as shown by said meters, at the rates charged by the local public
utility furnishing the same, plus any additional expense incurred
in keeping account of the water, electric current or other
resource so consumed. Landlord shall not be in default hereunder
or be liable for any damages directly or indirectly resulting
from, nor shall the rental herein reserved be abated by reason of
(i) the installation, use or interruption of use of any equipment
in connection with the furnishing of any of the foregoing
utilities and services, (ii) failure to furnish or delay in
furnishing any such utilities or services when such failure or
delay is caused by Acts of God or the elements, labor
disturbances of any character, any other accidents or other
conditions beyond the reasonable control of Landlord, or by the
making of repairs or improvements to the Premises or to the
Building, or (iii) the limitation, curtailments, rationing or
restriction on use of water or electricity, gas or any other form
of energy or any other service or utility whatsoever serving the
Premises or the Building. Furthermore Landlord shall be entitled
to cooperate voluntarily in a reasonable manner with the efforts
of national, state or local governmental agencies or utilities
suppliers in reducing energy or other resources consumption,
provided that doing so does not unreasonably interfere with
-----------------------------------------------------------
Tenant's use of the Premises.
----------------------------
(d) Any sums payable under this Paragraph 12 shall be considered
additional rent and may be added to any installment of Rent
thereafter becoming due, and Landlord shall have the same
remedies for a default in payment of such sum as for a default in
the payment of Rent.
ESTOPPEL CERTIFICATE
13. (a) Within ten (10) days following any written request which
Landlord may make from time to time, Tenant shall execute and
deliver to Landlord a certificate substantially in the form
attached hereto as Exhibit "D" and made a part hereof, indicating
thereon any exceptions thereto which may exist at that time.
Failure of the Tenant to execute and deliver such certificate
shall constitute an acceptance of the Premises and
acknowledgement by Tenant that the statements included in Exhibit
"D" are true and correct without exception. Landlord and Tenant
intend that any statement delivered pursuant to this paragraph
may be relied upon by any mortgagee, beneficiary, purchaser or
prospective purchaser of the Building or any interest therein.
(b) Within ten (10) days following any written request from
Landlord, Tenant shall furnish current financial statements to
Landlord.
HOLDING OVER
14. If Tenant shall retain possession of the Premises or any portion
thereof without Landlord's consent following the expiration of
the Lease or sooner termination for any
<PAGE>
reason, then Tenant shall pay to Landlord for each day of such
retention 200% the amount of daily rental for the last
----
month prior to the date of expiration or termination. Tenant
shall also indemnify and hold Landlord harmless from any loss or
liability resulting from delay by Tenant in surrendering the
Premises, including, without limitation, any claims made by any
succeeding tenant founded on such delay. Alternatively, if
Landlord gives notice of Landlord's consent to Tenant's holding
over, such holding over shall constitute renewal of the Lease on
whatever terms are specified in such notice. Acceptance of Rent
by Landlord following expiration or termination shall not
constitute a renewal of this Lease, and nothing contained in this
paragraph shall waive Landlord's right of reentry or any other
right. Unless Landlord exercises the option hereby given to it,
Tenant shall be only a Tenant at sufferance, whether or not
Landlord accepts any Rent from Tenant while Tenant is holding
over without Landlord's written consent. Additionally, in the
event that upon termination of the Lease, Tenant has not
fulfilled its obligation with respect to repairs and cleanup of
the Premises or any other Tenant obligations as set forth in this
Lease, then Landlord shall have the right to perform any such
obligations as it deems necessary at Tenant's sole cost and
expense, and any time required by Landlord to complete such
obligations shall be considered a period of holding over and the
terms of this paragraph shall apply.
SUBORDINATION
15. Without the necessity of any additional document being executed
by Tenant for the purpose of effecting a subordination, this
Lease shall be subject and subordinate at all times to (a) all
ground leases or underlying leases which may now exist or
hereafter be executed affecting the Building or the land upon
which the Building is situated or both, and (b) the lien of any
mortgage or deed of trust which may now exist or hereafter be
executed in any amount for which said Building, land, ground
leases or underlying leases, or Landlord's interest or estate in
any of said items, is specified as security. Notwithstanding the
foregoing, Landlord shall have the right to subordinate or cause
to be subordinated any such ground lease or underlying leases or
any such liens to this Lease. In the event that any ground lease
or underlying lease terminates for any reason or any mortgage or
deed of trust is foreclosed or a conveyance in lieu of
foreclosure is made for any reason, Tenant shall, notwithstanding
any subordination, attorn to and become the Tenant of the
successor in interest to Landlord at the option of such successor
in interest. Tenant covenants and agrees to execute and deliver,
upon demand by Landlord and in the form requested by Landlord,
any additional documents evidencing the priority or subordination
of this Lease with respect to any such ground leases or
underlying leases or the lien of any such mortgage or deed of
trust. Tenant hereby irrevocably appoints Landlord as attorney-
in-fact of Tenant to execute, deliver and record any such
documents in the name and on behalf of Tenant.
RULES AND REGULATIONS
16. Tenant shall faithfully observe and comply with the rules and
regulations printed on or annexed to this Lease and all
reasonable modifications thereof and additions thereto from time
to time put into effect by Landlord. Landlord shall not be
responsible for the nonperformance by any other Tenant or
occupant of the Building of any said rules and regulations.
RE-ENTRY BY
LANDLORD
17. Landlord reserves and shall at all times during normal business
----------------------
hours and upon prior notice to Tenant, other than in an
-------------------------------------------------------
emergency, have the right to re-enter the Premises to inspect the
----------
same, to supply janitor service and any other service to be
provided by Landlord to Tenant hereunder, to show said Premises
to prospective purchasers, mortgagees or tenants, to post notices
of nonresponsibility, and to alter, improve, or repair the
Premises and any portion of the Building of which the Premises
are a part, without abatement of rent, and may for that purpose
erect, use, and maintain scaffolding, pipes, conduits, and other
necessary structures in and through the Premises where reasonably
required by the character of the work to be performed, provided
that entrance to the Premises shall not be blocked thereby, and
further provided that the business of Tenant shall not be
interfered with unreasonably. Tenant hereby waives any claim for
damages 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, except to
---------
the extent caused by the gross negligence or willful misconduct
---------------------------------------------------------------
of Landlord. 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 and safes, or special security areas (designated in
advance), and Landlord shall have the right to use any and all
means which Landlord may deem necessary or proper to open said
doors in an emergency, in order to obtain entry to any portion of
the Premises and any entry to the Premises, or portions thereof
obtained by Landlord by any 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, actual or constructive, of Tenant from the Premises or
any portions thereof. Landlord shall also have the right at any
time, without the same constituting an actual or constructive
eviction and without incurring any liability to Tenant therefor,
to change the arrangement and/or location of entrances or
passageways doors and doorways, and corridors, elevators, stairs,
toilets or other public parts of the Building and to change the
name, number or designation by which the Building is commonly
known.
<PAGE>
INSOLVENCY
OR BANKRUPTCY
18. The appointment of a receiver to take possession of all or
substantially all of the assets of Tenant, or an assignment of
Tenant for the benefit of creditors, or any action taken or
suffered by Tenant under any insolvency, bankruptcy or
reorganization act, shall at Landlord's option, constitute a
breach of this Lease by Tenant. Upon the happening of any such
event or at any time thereafter, this Lease shall terminate five
(5) days after written notice of termination from Landlord to
Tenant. In no event shall this Lease be assigned or assignable by
operation of law or by voluntary or involuntary bankruptcy
proceedings or otherwise and in no event shall this Lease or any
rights or privileges hereunder be an asset of Tenant under any
bankruptcy insolvency or reorganization proceedings.
DEFAULT
19. The failure to perform or honor any covenant condition or
representation made under this Lease shall constitute a default
hereunder by Tenant upon expiration of the appropriate grace
period hereinafter provided. Tenant shall have a period of three
(3) days from the date of written notice from Landlord within
which to cure any default in the payment of rental or adjustment
thereto. Tenant shall have a period of ten (10) days from the
date of written notice from Landlord within which to cure any
other default under this Lease; provided however that with
respect to any default which cannot reasonably be cured within
ten (10) days the default shall not be deemed to be uncured if
Tenant commences to cure within ten (10) days from Landlord's
notice and continues to prosecute diligently the curing thereof.
Upon an uncured default of this Lease by Tenant Landlord shall
have the following rights and remedies in addition to any or the
rights or remedies available to Landlord by law or in equity;
(a) The rights and remedies provided by a California Civil Code,
Section 195l.2 including but not limited to, recovery of 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 rent any loss for the same period that the Tenant
proves could be reasonably avoided as computed pursuant to
subsection (6) of said Section 1951.2;
(b) The rights and remedies provided by California Civil Code,
Section l95l.4 which allows Landlord to continue the Lease in
effect and to enforce all of its rights and remedies under this
Lease, including the right to recover rent as it becomes due, for
so long as Landlord does not terminate Tenant's right to
possession; acts of maintenance or preservation, efforts to relet
the Premises, or the appointment of a receiver upon Landlord's
initiative to protect its interest under this Lease shall not
constitute a termination of Tenant's right to possession;
(c) The right to terminate this Lease by giving notice to Tenant
in accordance with applicable law;
(d) The right and power, as attorney-in-fact for Tenant, to enter
the Premises and remove therefrom all persons and property, to
store such property in a public warehouse or elsewhere at the
cost of and for the account of Tenant, and to sell such property
and apply such proceeds therefrom pursuant to applicable
California law. Landlord, as attorney-in-fact for Tenant, may
from time to time sublet the Premises or any part thereof for
such term or terms (which may exceed beyond the Term of this
Lease) and at such rent and such other terms as Landlord in its
sole discretion may deem advisable, with the right to make
alterations and repairs to the Premises. Upon each subletting (i)
Tenant shall be immediately liable to pay to Landlord, in
addition to indebtedness other than Rent due hereunder, the cost
of such subletting and such alterations and repairs incurred by
Landlord and the amount, if any, by which the Rent hereunder for
the period of such subletting (to the extent such period does not
exceed the term hereof) exceeds the amount to be paid as Rent for
the Premises for such period, or (ii) at the option of Landlord,
Rents received from such subletting shall be applied first to
payment of any indebtedness other than Rent due hereunder from
Tenant to Landlord; second to the payment of any costs of such
subletting and of such alterations and repairs; third to payment
of Rent due and unpaid hereunder; and the residue, if any, shall
be held by Landlord and applied in payment of future Rent as the
same becomes due hereunder. If Tenant has been credited with any
Rent to be received by such subletting under option (i) and such
Rent shall not be promptly paid to Landlord by the subtenant(s),
or if such rentals received from such subletting under option
(ii) during any month be less than that to be paid during that
month by Tenant hereunder, Tenant shall pay any such deficiency
to Landlord. Such deficiency shall be calculated and paid
monthly. For all purposes set forth in this subparagraph (d),
Landlord is hereby irrevocably appointed attorney-in-fact for
Tenant, with power of substitution. No taking possession of the
Premises by Landlord, as attorney-in-fact for Tenant, shall be
construed as an election on its part to terminate this Lease
unless a written notice of such intention be given to Tenant.
Notwithstanding any such subletting without termination, Landlord
may at any time thereafter elect to terminate this Lease for
such previous breach; and
(e) The right to have a receiver appointed for Tenant, upon
application by Landlord, to take possession of the Premises and
to apply any rental collected from the Premises and to exercise
all other rights and remedies granted to Landlord as attorney-in-
fact for Tenant pursuant to subparagraph (d) above.
<PAGE>
DAMAGE BY FIRE, ETC.
20. If the Premises are damaged by fire or other casualty, Landlord
shall forthwith repair the same, provided such repairs can be
made within one hundred and eighty (180) days from the date of
----------------------------
such damage under the laws and regulations of the federal, state,
and local governmental authorities having jurisdiction thereof.
In such event this Lease shall remain in full force and effect
except that Tenant shall be entitled to a proportionate reduction
of Rent while such repairs to be made hereunder by Landlord are
being made. Such proportionate reduction shall be based upon the
extent to which the making of such repairs to be made hereunder
by Landlord shall interfere with the business carried on by
Tenant in the Premises. Within twenty (20) days from the date of
such damage, Landlord shall notify Tenant whether or not such
repairs can be made within one hundred and eighty (180) days from
----------------------------
the date of such damage and Landlord's determination thereof
shall be binding on Tenant. If such repairs cannot be made within
one hundred and eighty (180) days from the date of such damage
----------------------------
either party shall have the option within thirty (30) days of
the date of such damage to terminate this Lease as of a date
specified in such notice, which date shall be not less than
thirty (30) nor more than sixty (60) days after notice is given.
In the event that such notice to terminate is given, this Lease
shall terminate on the date specified in such notice. In case of
termination, the Rent shall be reduced by a proportionate amount
based upon the extent to which said damage interfered with the
business carried on by the Tenant in the Premises, and the Tenant
shall pay such reduced rent up to the date of termination.
Landlord agrees to refund to Tenant any Rent previously paid for
any period of time subsequent to such date of termination. The
repairs to be made hereunder by Landlord shall not include, and
Landlord shall not be required to repair, any damage by fire or
other cause to the property of Tenant or any repairs or
replacements of any paneling, decorations, railings, floor
coverings, or any alterations, additions, fixtures or
improvements installed on the Premises by or at the expense of
Tenant.
EMINENT
DOMAIN
21. If any part of the Premises shall be taken or appropriated under
the power of eminent domain or conveyed in lieu thereof, either
party shall have the right to terminate this Lease at its option.
If any substantial part of the Building shall be taken or
-----------
appropriated under power of eminent domain or conveyed in lieu
thereof, Landlord may terminate this Lease at its option. In
either of such events, Landlord shall receive (and Tenant shall
assign to Landlord upon demand from Landlord) any income, rent,
award or any interest therein which may be paid in connection
with the exercise of such power of eminent domain, and Tenant
shall have no claim against Landlord for any part of the sums
paid by virtue of such proceedings, whether or not attributable
to the value of the unexpired Term. If a part of the Premises
shall be so taken or appropriated or conveyed and neither party
hereto shall elect to terminate this Lease and the Premises have
been damaged as a consequence of such partial taking or
appropriation or conveyance, Landlord shall restore the Premises
continuing under this Lease at Landlord's cost and expense;
provided, however, that Landlord shall not be required to repair
or restore any injury or damage to the property of Tenant or to
make any repairs or restoration of any alterations, additions,
fixtures or improvements installed on the Premises by or at the
expense of Tenant. Thereafter, the Rent for the remainder of the
Term shall be proportionately reduced, such reduction to be based
upon the extent to which the partial taking or appropriation of
conveyance shall interfere with the business carried on by Tenant
in the Premises. Notwithstanding anything to the contrary
contained in this paragraph, if the temporary use or occupancy of
any part of the Premises shall be taken or appropriated under
power of eminent domain during the Term, this Lease shall be and
remain unaffected by such taking or appropriation and Tenant
shall continue to pay in full all Rent payable hereunder by
Tenant during the Term; in the event of any such temporary
appropriation or taking, Tenant shall be entitled to receive that
portion of any award which represents compensation for the use of
or occupancy of the Premises during the Term, and Landlord shall
be entitled to receive that portion of any award which represents
the cost of restoration of the Premises and the use and occupancy
of the Premises after the end of the Term.
In the event of any taking, appropriation or conveyance described
-----------------------------------------------------------------
in this Paragraph, the entire award will be paid to Landlord and
----------------------------------------------------------------
Tenant will have no right or claim to any part of it; however,
--------------------------------------------------------------
Tenant will have the right to assert a separate claim against
--------------------------------------------------------------
the condemning authority so long as Landlord's award is not
-----------------------------------------------------------
reduced by the claim, for (i) Tenant's moving expenses; (ii)
------------------------------------------------------------
leasehold improvements, fixtures, and personal property owned by
----------------------------------------------------------------
Tenant; and (iii) Tenant's leasehold estate.
--------------------------------------------
SALE BY
LANDLORD
22. In the event of a sale or conveyance by Landlord of the Building,
and the Purchaser assumes Landlord's obligations under this
-----------------------------------------------------------
Lease, then the same shall operate to release Landlord from any
-----------
future liability upon any of the covenants or conditions, express
or implied, herein contained in favor of Tenant, and in such
event Tenant agrees to look solely to the responsibility of the
successor in interest of Landlord in and to this Lease. This
Lease shall not be affected by any such sale, and Tenant agrees
to attorn to the purchaser or assignee.
<PAGE>
RIGHT OF LANDLORD
TO PERFORM
23. All covenants and agreements to be performed by the Tenant under
any of the terms of this Lease shall be performed by Tenant at
Tenant's sole cost and expense and without any abatement of Rent.
If the Tenant shall fail to pay any sum of money, other than
Rent, required to be paid by it hereunder or shall fail to
perform any other act on its part to be performed hereunder, and
such failure shall continue for ten (10) days after notice
thereof by the Landlord, the Landlord may, but shall not be
obligated to do so, and without waiving or releasing the Tenant
from any obligations of the Tenant, make any such payment or
perform any such act on the Tenant's part to be made or performed
as in this Lease provided. All sums so paid by the Landlord and
all necessary incidental costs together with interest thereon at
the rate of eighteen percent (l8%) per annum or the maximum rate
permitted by law, whichever is more per annum from the date of
such payment by the Landlord shall be payable as additional Rent
to the Landlord on demand, and the Tenant covenants to pay any
such sums, and the Landlord shall have, in addition to any other
right or remedy of the Landlord, the same rights and remedies in
the event of the nonpayment thereof by the Tenant as in the case
of default by the Tenant in the payment of the Rent.
SURRENDER
OF PREMISES
24. (a) Tenant shall, at least ninety (90) days before the last day
of the Term hereof, give to Landlord a written notice of
intention to surrender the Premises on that date, but nothing
contained herein shall be construed as an extension of the Term
hereof or as consent of Landlord to any holding over by Tenant.
(b) At the end of the Term or any renewal hereof or other sooner
termination of this Lease, the Tenant will peaceably deliver up
to the Landlord possession of the Premises, together with all
improvements or additions upon or belonging to the same, by
whomsoever made, in the same condition as received, or first
installed, damage by fire, earthquake, Acts of God, reasonable
wear and tear or the elements alone excepted. Tenant may, upon
the termination of this Lease, remove all movable furniture and
equipment belonging to Tenant, at Tenant's sole cost, title to
which shall be in Tenant until such termination, repairing any
damage caused by such removal. Property not so removed shall be
deemed abandoned by the Tenant, and title to the same shall
thereupon pass to Landlord. Upon request by Landlord, unless
otherwise agreed to in writing by Landlord, Tenant shall remove,
at Tenant's sole cost, any or all permanent improvements or
additions to the Premises, exclusive of the Tenant Improvement
-----------------------------------
Work, installed by or at the expense of Tenant and all movable
-----
furniture and equipment belonging to Tenant which may be left by
Tenant and repair any damage resulting from such removal.
(c) The voluntary or other surrender of this Lease by Tenant, or
a mutual cancellation thereof, shall not work a merger, and
shall, at the option of Landlord, terminate all or any existing
subleases or subtenancies, or may, at the option of Landlord,
operate as an assignment to it of any or all such subleases or
subtenancies.
WAIVER
25. If either Landlord or Tenant waives the performance of any term,
covenant or condition contained in this Lease, such waiver shall
not be deemed to be a waiver of any subsequent breach of the same
or any other term, covenant or condition contained herein.
Furthermore, the acceptance of Rent by Landlord shall not
constitute a waiver of any preceding breach by Tenant of any
term, covenant or condition of this Lease, regardless of
Landlord's knowledge of such preceding breach at the time
Landlord accepted such Rent. Failure by Landlord to enforce any
of the terms, covenants or conditions of this Lease for any
length of time shall not be deemed to waive or to decrease the
right of Landlord to insist thereafter upon strict performance by
Tenant. Waiver by Landlord of any term, covenant or condition
contained in this Lease may only be made by a written document
signed by Landlord.
NOTICES
26. All notices and demands which may or are required 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 certified or registered mail, postage prepaid,
hand delivered or delivered by reputable overnight courier
----------------------------------------------------------
service addressed to the Tenant at Pan American Bank, FSB,
------- -----------------------
1300 S. El Camino Real, Suite 320, San Mateo, California,
--------------------------------------------------------
94402, or to such other place as the 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 certified or registered mail, postage prepaid, addressed
to the Landlord at the address specified in the Basic Lease
Information, or to such other firm or to such other place as
Landlord may from time to time designate in a written notice to
-------
the Tenant.
RENTAL
ADJUSTMENTS
27. (i) The Rental payable during each year of the Term hereof
subsequent to the 31st day of December of the base year as
specified in the Basic Lease Information (the base year l997),
shall be increased or decreased as the case may be by Tenant's
percentage share, as specified in the Basic Lease Information, of
the amount of any increase or decrease in operating expenses paid
or incurred by Landlord over the amount paid during the base
year. During December of each year during the Term of this Lease
or as soon thereof as practicable, Landlord shall give Tenant
written notice of Landlord's estimate of the additional rent (or
the decreased rent), if any, payable by Tenant under this
paragraph for the ensuing year. In the case of an estimated
increase in Rental payable hereunder by Tenant, Tenant shall pay
to Landlord the full amount thereof in twelve equal monthly
installments payable on the first day of each month beginning
with the month following
<PAGE>
the receipt of such notice. In the case of an estimated decrease
in Rental payable hereunder, Tenant shall receive a credit for
such estimated decrease against the Rental next becoming due. If
at any time it appears to Landlord that the additional rent
payable under this paragraph for the current year will vary from
its estimate by more than ten percent (10%), Landlord shall, by
written notice to Tenant, review its estimate for such year and
Tenant shall pay to Landlord the amount of any estimated
increases for such year within twenty (20) days from receipt of
Landlord's notice thereof.
(ii) Within one hundred twenty (120) days after the end of each
base year or as soon after such base year as practicable,
Landlord shall deliver to Tenant a statement of additional rent
payable under this paragraph for such year based upon actual
operating expenses. If such statement shows an amount owing by
Tenant that is less than the estimated payment for such year
previously made by Tenant, then (provided Tenant is not then in
default under this Lease) Tenant shall receive a credit for the
amount of such excess payment against the Rental next becoming
due. If such statement shows an amount owing by Tenant that is
more than that estimated for such year previously made by Tenant,
Tenant shall pay the deficiency to Landlord within twenty (20)
days after delivery of such statement, notwithstanding whether or
not this Lease has been terminated.
(iii) If this lease ends on any date other than the last day of
December, the amount of increase in rental payable by Tenant, if
any, shall be prorated on the basis which the number of days from
January l of the prior year, to and including said date on which
this Lease ends, bears to 365 and shall be due and payable when
rendered notwithstanding the termination of this Lease.
(iv) The term "operating expenses" as used herein shall include
all direct costs of operation, maintenance and management of the
Building as determined by generally accepted accounting
practices. By way of illustration but not limitation, operating
expenses shall include the cost or charges for the following
items: heat, light, water, power, steam, and other utilities
(including without limitation any temporary or permanent utility
surcharge or other exaction, whether now or hereafter imposed),
waste disposal, janitorial services, guard services, window
cleaning, air conditioning, materials and supplies, equipment and
tools, service agreements on equipment, insurance, licenses,
permits and inspections, wages and salaries, employee benefits
and payroll taxes, accounting and legal expenses, management
fees, Building office rent or rental value, depreciation on
personal property, including without limitation, window coverings
provided by Landlord and carpeting in public corridors and common
areas, and the cost of contesting the validity or applicability
of any governmental enactments which may affect operating
expenses. For the purposes of this Lease, operating expenses
shall not include direct taxes, interest expense, advertising
costs, leasing commissions, depreciation on Building itself; or
the cost of capital expenditures, provided, however, that in the
event Landlord makes capital improvements which have the effect
of reducing operating expenses, Landlord may amortize its
investment in said improvements (together with interest at the
rate of nine percent (9%) per annum on the unamortized balance)
as an operating expense in accordance with standard accounting
practices provided that such amortization is not at a rate
greater than the anticipated savings in the operating expenses.
All operating expenses on the statements provided by Landlord
shall be both for the base year and each subsequent year to equal
Landlord's reasonable estimate of operating expense had ninety-
five (95%) of the total rentable area of the Building been
occupied for the entire year. Statements of operating expenses
provided by Landlord shall be final and binding upon both
Landlord and Tenant.
(v) Tenant shall have the right, at Tenant's expense, upon forty-
eight (48) hours prior written notice to Landlord and at
reasonable times, to review Landlord's books and records for any
operating expense year for which Rent is increased or decreased
under this paragraph. In the event Tenant shall dispute the
amount set forth in the statement provided by Landlord under (ii)
above, Tenant shall have the right not later than ninety (90)
-----------
days following receipt of such statement, and subject to Tenant
first depositing with Landlord the full amount in dispute, to
cause Landlord's books and records with respect to such year to
be audited by certified public accountants mutually acceptable to
Landlord and Tenant; and the amounts payable under this paragraph
by Landlord to Tenant or Tenant to Landlord, as the case may be,
shall be appropriately adjusted on the basis of such audit. If
such audit discloses a liability for further refund by Landlord
to Tenant in excess of ten percent (l0%) of the estimated
payments previously made by Tenant for such year, the cost of
such audit shall be borne by Landlord; otherwise the cost of such
audit shall be borne by Tenant. If Tenant shall not request an
audit in accordance with the provisions of this paragraph (v)
within ninety (90) days of receipt of Landlord's statement, such
-----------
statement shall be conclusively binding upon Landlord and Tenant.
(b) Adjustment for Taxes.
(i) Tenant shall pay to Landlord an amount equal to Tenant's
percentage share, as specified in the Basic Lease Information, of
any increase in direct taxes paid or incurred by Landlord in any
tax year over the base year. In the event of an increase in such
direct taxes, Tenant shall pay its share, as specified in the
Basic Lease Information, of such increase to Landlord within
twenty (20) days following said notice. The determination and
statement of the direct taxes payable by Tenant shall be made and
certified by
<PAGE>
Landlord, and such statement shall be final and binding upon both
Landlord and Tenant. In the event this Lease begins or ends on
any date other than the last day of June, the amount of any
increase in direct taxes payable by Tenant shall be prorated on
the basis which the number of days this Lease was in effect
during said tax year bears to 365 days. Tenant agrees to pay its
proportionate share, as specified in the Basic Lease Information,
of the direct tax expenses for such prorated period within
twenty (20) days from the receipt of the statement therefor from
Landlord, notwithstanding the termination of this Lease. In the
event the Building is not assessed for the base year on the basis
of its substantially completed value, the amount of direct taxes
for the base year shall be appropriately adjusted based upon
Landlord's estimate of what the assessed value of the Building
would be if the Building were then substantially completed.
(ii) The term "direct taxes" as used herein shall include all
real property taxes on the Building, the land on which the
Building is situated, and the various estates in the Building.
Direct taxes shall also include all personal property taxes
levied on the property used in the operation of the Building;
taxes of every kind and nature whatsoever levied and assessed in
lieu of; in substitution for, or in addition to existing or
additional real or personal property taxes on said Building, land
or personal property, whether or not now customary or within the
contemplation of the parties hereto, other than taxes covered by
Paragraph 28 to the extent that Landlord is reimbursed therefor
by Tenant or by any other tenant of the Building; and the cost to
Landlord of contesting the amount or validity or applicability of
any of the aforementioned taxes. Net recoveries through protest,
appeals or other actions taken by Landlord in its discretion, a
Rent deduction of all costs and expenses, including counsel and
other fees, shall be deducted from direct taxes for the year of
receipt.
(c) Notwithstanding anything contained in this Paragraph 27, the
rental payable by Tenant shall in no event be reduced to an
amount less than the rent specified in the Basic Lease
Information.
TAXES PAYABLE BY TENANT
28. Tenant shall pay before delinquency any and all taxes levied or
assessed and which become payable by Landlord (or Tenant) during
the Term of this Lease (excluding, however, state and federal
personal or corporate income taxes measured by the income of
Landlord from all sources, capital stock taxes, and estate and
inheritance taxes), whether or not now customary or within the
contemplation of the parties hereto, which are based upon,
measured by or otherwise calculated with respect to: (a) the
gross or net rent payable under this Lease, including, without
limitation, any gross receipts tax levied by any taxing
authority, or any other gross income tax or excise tax levied by
any taxing authority with respect to the receipt of the Rental
hereunder, (b) the value of Tenant's equipment, furniture,
fixtures or other personal property located in the Premises, (c)
the possession, lease, operation, management, maintenance,
alteration, repair, use or occupancy by Tenant of the Premises or
any portion thereof, (d) the value of any leasehold improvements,
alterations or additions made in or to the Premises, regardless
of whether title to such improvements, alterations or additions
shall be in Tenant or Landlord, or (e) this transaction or any
document to which Tenant is a party creating or transferring an
interest or an estate in the Premises. In the event that it shall
not be lawful for Tenant so to reimburse Landlord, the Rent
payable to Landlord under this Lease shall be revised to net
Landlord the same net Rent after imposition of any such tax upon
Landlord as would have been payable to Landlord prior to the
imposition of any such tax. All taxes payable by Tenant under
this Paragraph 28 shall be deemed to be, and shall be paid as,
additional Rent.
ABANDONMENT
29. Tenant shall not abandon the Premises at any time during the
term, and if Tenant shall abandon, or surrender said Premises or
be dispossessed by process of law, or otherwise, any personal
property belonging to Tenant and left on the Premises shall, at
the option of Landlord, be deemed to be abandoned and title
thereto shall thereupon pass to Landlord, except such property as
may be mortgaged to Landlord.
30. At any time after execution of this Lease, Landlord may
substitute for the Premises other premises in the Building (the
New Premises) upon not less than ninety (90) days prior written
notice, in which event the new Premises shall be deemed to be the
Premises for all purposes hereunder, provided, however, that: (a)
The Net Rentable Area in the Premises is less than five thousand
(5,000) square feet; (b) The New Premises shall be similar in
area and in appropriateness for Tenant's purposes; (c) Any such
substitution is effected for the purpose of accommodating a
tenant who will occupy all or a substantial portion of the Net
Rentable Area of the floor on which the Premises are located, and
(d) If Tenant is occupying the Premises at the time of such
substitution. Landlord shall pay the expense of moving Tenant,
its property and equipment to the New Premises and shall, at its
sole cost, improve the New Premises with improvements
substantially similar to those Landlord has committed to provide
or has provided in the Premises.
SUCCESSORS AND ASSIGNS
3l. Subject to the provisions of Paragraph 9 hereof; the terms,
covenants and conditions contained herein shall be binding upon
and inure to the benefit of the heirs, successors, executors,
administrators and assigns of the parties hereto.
<PAGE>
ATTORNEYS'
FEES
32. In the event that any action or proceeding is brought to enforce
any term, covenant or condition of this Lease on the part of
Landlord or Tenant, the prevailing party in such litigation shall
be entitled to reasonable attorneys fees to be fixed by the court
in such action or proceeding.
SECURITY
DEPOSIT
33. By execution of this Lease, Landlord acknowledges receipt of
Tenant's security deposit for the faithful performance of all
terms, covenants and conditions of this Lease. The sum of said
deposit is specified in the Basic Lease Information. Tenant
agrees that Landlord may apply said security deposit to remedy
any failure by Tenant to repair or maintain the Premises or to
perform any other terms, covenants or conditions contained
herein. If Tenant has kept and performed all terms, covenants or
conditions of this Lease during the term hereof, Landlord will on
the termination hereof promptly return said sum to Tenant or the
last permitted assignee of Tenants interest hereunder at the
expiration of the Lease Term. Should Landlord use any portion of
said sum to cure any default by Tenant hereunder, Tenant shall
forthwith replenish said sum to such original amount. Landlord
shall not be required to keep any security deposit separate from
its general funds, and Tenant shall not be entitled to interest
on any such deposit. Upon the occurrence of any events of default
described in Paragraph 19 of this Lease, said security deposit
shall become due and payable to Landlord.
CORPORATE AUTHORITY
34. If Tenant signs as a corporation each of the persons executing
this Lease on behalf of Tenant does hereby covenant and warrant
that Tenant is a duly authorized and existing corporation, that
Tenant has and is qualified to do business in California, that
the corporation has full right and authority to enter into this
Lease, and that each and both of the persons signing on behalf of
the corporation were authorized to do so. Upon Landlord's
request, Tenant shall provide Landlord with evidence reasonably
satisfactory to Landlord confirming the foregoing covenants and
warranties.
MISCELLANEOUS
35. (a) The term Premises wherever it appears herein includes and
shall be deemed or taken to include (except where such meaning
would be clearly repugnant to the context) the office space
demised and improvements now or at any time hereinafter
comprising or built in the space hereby demised. The paragraph
headings herein are for convenience of reference and shall in no
way define, increase, limit, or describe the scope or intent of
any provision of this Lease. The term Landlord in these presents
shall include the Landlord, its successors, and assigns. In any
case where this Lease is signed by more than one person, the
obligations hereunder shall be joint and several. The term Tenant
or any pronoun used in place thereof shall indicate and include
the masculine or feminine, the singular or plural number,
individuals, firms or corporations, and their and each of their
respective successors, executors, administrators, and permitted
assigns, according to the context hereof.
(b) Time is of the essence of this Lease and all of its
provisions. This Lease shall in all respects be governed by the
laws of the State of California. This Lease, together with its
exhibits, contains all the agreements of the parties hereto and
supersedes any previous negotiations. There have been no
representations made by the Landlord or understandings made
between the parties other than those set forth in this Lease and
its exhibits. This Lease may not be modified except by a written
instrument by the parties hereto.
(c) If for any reason whatsoever any of the provisions hereof
shall be unenforceable or ineffective, all of the other
provisions shall be and remain in full force and effect.
(d) Any sums called for under this Lease shall be considered
additional rent and may be added to any installment of Rent
thereafter becoming due, and Landlord shall have the same
remedies for a default in payment of such sum as for a default in
the payment of Rent.
LEASE EFFECTIVE
DATE
36. (a) Submission of this instrument for examination or signature by
Tenant does not constitute a reservation of or option for lease,
and it is not effective as a lease or otherwise until execution
and delivery by both Landlord and Tenant.
FLOOD ZONE
37. Tenant acknowledges that the Premises may be subject to flooding
hazards due to the location of the building within a one hundred
year flood plain. The boundaries of the flood plain are described
in the Preliminary Flood Insurance Map dated May 1, 1989 prepared
by the Federal Emergency Management Agency ("FEMA") and the
Preliminary Working Map dated January 1989 prepared by the U.S.
Army Corps of Engineers (collectively, "Flood Maps"). The Flood
Maps indicate that the majority of the City and parts of the
County of Sacramento lie within the one hundred year flood plain.
Property in the flood plain may be inundated in the event
flooding occurs at a level reached on the average once every one
hundred years (a one percent chance of occurring in any given
year). Under the provisions of the National Flood Insurance
Program, such property is deemed subject to special flood
hazards. Tenant expressly acknowledges and assumes the risk that
the Premises may be subject to flooding due to their location in
a one hundred year flood plain. Tenant unconditionally waives any
flood related property damage claim
<PAGE>
asserting liability on the part of the County of Sacramento or
its officers, agents, or employees premised on the issuance of a
permit for the construction of tenant improvements within the
Premises, whether or not the issuance of such a permit is due to
the negligence of the County or its officers, agents, or
employees. Further, Tenant unconditionally waives any flood-
related property damage claim against Landlord. The term "claim"
as used in this paragraph shall include all direct or class
actions or subrogation or inverse condemnation lawsuits brought
by any person.
INDUCEMENT
RECAPTURE IN EVENT
OF BREACH
38. Any agreement provided by Landlord to Tenant for charges
applicable to the Premises, or for the giving or paying by
Landlord to or for Tenant of any cash, overstandard or
specialized tenant improvement, or other bonus, inducement or
consideration for Tenant's entering into this Lease, all of which
concessions are hereinafter referred to as "Inducement
Provisions", shall be deemed conditioned upon Tenant's full and
faithful performance of all of the terms, covenants and
conditions of this Lease to be performed or observed by Tenant
during the Term hereof as the same may be extended. Upon the
occurrence of a Breach of this Lease by Tenant, as defined in
Paragraph 19, any such Inducement Provision shall automatically
be deemed deleted from this Lease and of no further force or
effect, and any charge, bonus, inducement or consideration
heretofore given or paid by Landlord under such an Inducement
Provision shall be immediately due any payable by Tenant to
Landlord, and recoverable by Landlord as additional rent due
under the operation of this Lease, notwithstanding any subsequent
cure of said Breach by Tenant. The acceptance by Landlord of rent
or the cure of the Breach which initiated the operation of this
Paragraph shall not be deemed a waiver by Landlord of the
provisions of this Paragraph unless specifically so stated in
writing by Landlord at the time of such acceptance.
Nothing in this Paragraph 38 shall authorize Landlord to recover
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more than once any rent or other charges applicable to the
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Premises.
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AFTER HOURS
HEATING AND
AIR CONDITIONING
39. Landlord, at Landlord's expense, shall furnish normal heating,
ventilation, and air conditioning (HVAC), electrical power and
use of all other building services and amenities Monday through
Friday, 7:00 a.m. to 6:00 p.m. during generally recognized
business days, as determined by Landlord.
Tenant acknowledges and agrees that Tenant's use of Premises
outside of generally recognized business days and hours, imposes
additional burden on the project's janitorial services,
fluorescent light tubes, HVAC and electrical services, and other
common area amenities. Accordingly, after hours use of services
will be made available and will be billed as an after hours rent
assessment. After hours use will be metered by Tenant's use of a
bypass timer located within Tenant's Premises and such costs plus
an administrative fee will be payable by Tenant to Landlord upon
demand. Such costs shall not exceed $15.00 per hour during the
initial year of the Lease Term.
TRANSPORTATION
MANAGEMENT
ASSOCIATION
40. Tenent hereby agrees to designate one (1) of its employees to act
as a liason with Landlord to facilitate and coordinate such
programs as may be required by governmental agencies to reduce
the traffic generated by Gateway Oaks office projects as required
by the City of Sacramento's Trip Reduction Ordinance and to
facilitate the use of public transportation. Tenant further
agrees to become a member of, and participate in the programs
initiated by, the South Natomas Transportation Management
Association. Memebership dues for the South Natornas
Transportation Management Association are $.06 pen rentable
square foot or a minimum of $250.00 per year.
CANCELLATION OF
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LEASE
- -----
41. It is hereby agreed and understood that, after full execution and
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upon its commencement, this Lease Agreement shall cancel and
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supercede that certain Lease Agreement between Pan American Bank
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FSB, a Federally Chartered Institution, as Tenant, and Spieker
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Properties, L.P., a California Limited Partnership, as Landlord,
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for the Premises located at 2151 River Plaza Drive, Suite 170,
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Sacramento, California, dated February 27, 1997, provided that
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Tenant is not, and has not been, in default of the terms and
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conditions of that Lease Agreement and provided that Tenant
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delivers the Premises to Landlord in the condition required by our
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Lease Agreement.
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PARKING
- -------
42. Tenant shall have the non-exclusive use with other tenants of the
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building of on-site parking at a ratio of not more than 3.8 cars
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per 1,000 square feet of rentable area. Special parking,
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including, without limitation, car and vanpool parking, and
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handicap parking will be provided by Landlord in accordance with
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the current requirements of the City of Sacramento and other
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governmental authorities.
-------------------------
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Lease the day and
year first above written.
LANDLORD: TENANT:
Spieker Properties, L.P., Pan American Bank, FSB
a California limited partnership a Federally Chartered Institution
BY: Spieker Properties, Inc., BY: /s/ Lawrence J. Grill
a Maryland corporation, ---------------------------
Lawrence J. Grill
ITS: General Partner ITS: President & CEO
BY: /s/ Peter H. Schnugg
--------------------------
Peter H. Schnugg
ITS: Senior Vice President
<PAGE>
EXHIBIT 10.54
OFFICE SPACE LEASE
BETWEEN
THE IRVINE COMPANY
AND
PAN AMERICAN BANK, FSB
<PAGE>
OFFICE SPACE LEASE
THIS LEASE is made as of the 18th day of January, 1996, by and between the
Irvine Company, a Michigan corporation, hereafter called "Landlord," and PAN
AMERICAN BANK, FSB, a Delaware corporation, hereinafter called "Tenant."
ARTICLE I. BASIC LEASE PROVISIONS
Each reference in this Lease to the "Basic Lease Provisions" shall mean and
refer to the following collective terms, the application of which shall be
governed by the provisions in the remaining Articles of this Lease.
1. Tenant's Trade Name: N/A.
2. Premises: Suite No. 160 (the Premises are more particularly described in
Section 2.1).
Address of Building: 17752 Skypark Circle, Irvine, CA 92714
Project Description (if applicable): Skypark
3. Use of Premises: General office and for no other use.
4. Commencement Date: January 22, 1996
5. Lease Term: Six (6) months, plus such additional days as may be required
to cause this Lease to terminate on the final day of the calendar month.
6. Basic Rent: Three Thousand Two Hundred One Dollars ($3,201.00) per month.
Rental Adjustments: None.
7. Property Tax Base: N/A
Building Cost Base: N/A
8. Floor Area of Premises: approximately 3,201 rentable square feet
9. Security Deposit: $3,500.00
10. Broker(s): Grubb & Ellis
11. Plan Approval Date: N/A
12. Address for Payments and Notices:
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<PAGE>
LANDLORD TENANT
The Irvine Company PAN AMERICAN BANK, FSB
c/o PM Realty Group 17752 Skypark Circle
20 Executive Park, Suite 140 Suite 160
Irvine, CA 92714 Irvine, CA 92714
Attn: Property Manager
with a copy of notices to:
THE IRVINE COMPANY
P.O. Box 6370
Newport Beach, CA 92658-6370
Attn: Vice President, Operations - Office Properties
2
<PAGE>
ARTICLE II. PREMISES
SECTION 2.1. LEASED PREMISES. Landlord leases to Tenant and Tenant rents
from Landlord the premises shown in Exhibit A (the "Premises"), containing
approximately the floor area set forth in Item 8 of the Basic Lease Provisions
and known by the suite number identified in Item 2 of the Basic Lease
Provisions. The Premises are located in the building identified in Item 2 of the
Basic Lease Provisions (which together with the underlying real property, is
called the "Building"), and is a portion of the project described in Item 2 (the
"Project"). If, upon completion of the space plans for the Premises, Landlord's
architect or space planner determines that the rentable square footage of the
Premises differs from that set forth in the Basic Lease Provisions, then
Landlord shall so notify Tenant and the Basic Rent (as shown in Item 6 of the
Basic Lease Provisions) shall be promptly adjusted in proportion to the change
in square footage. Within five (5) days following Landlord's request, the
parties shall memorialize the adjustments by executing an amendment to this
Lease prepared by Landlord.
SECTION 2.2. ACCEPTANCE OF PREMISES. Tenant acknowledges that neither
Landlord nor any representative of Landlord has made any representation or
warranty with respect to the Premises or the Building or the suitability or
fitness of either for any purpose, except as set forth in this Lease. The
taking of possession or use of the Premises by Tenant for any purpose other than
construction shall conclusively establish that the Premises and the Building
were in satisfactory condition and in conformity with the provisions of this
Lease in all respects, except for those matters which Tenant shall have brought
to Landlord's attention on a written punch list. The list shall be limited to
any items required to be accomplished by Landlord under the Work Letter (if any)
attached as Exhibit X, and shall be delivered to Landlord within thirty (30)
days after the term ("Term") of this Lease commences as provided in Article III
below. If there is no Work Letter, or if no items are required of Landlord under
the Work Letter, by taking possession of the Premises Tenant accepts the
improvements in their existing condition, and waives any right or claim against
Landlord arising out of the condition of the Premises. Nothing contained in
this Section shall affect the commencement of the Term or the obligation of
Tenant to pay rent. Landlord shall diligently complete all punch List items of
which it is notified as provided above.
SECTION 2.3. BUILDING NAME AND ADDRESS. Tenant shall not utilize any name
selected by Landlord from time to time for the Building and/or the Project as
any part of Tenant's corporate or trade name. Landlord shall have the right to
change the name, number or designation of the Building or Project without
liability to Tenant.
ARTICLE III. TERM
SECTION 3.1. GENERAL. The Term shall be for the period shown in Item 5 of
the Basic Lease Provisions. The Term shall commence ("Commencement Date") on
the Commencement Date as set forth in Item 4 of the Basic Lease Provisions.
ARTICLE IV. RENT AND OPERATING EXPENSES
SECTION 4.1. BASIC RENT. From and after the Commencement Date, Tenant
shall pay to Landlord without deduction or offset a Basic Rent for the Premises
in the total amount shown (including subsequent adjustments, if any) in Item 6
of the Basic Lease Provisions. Any rental adjustment shown in Item 6 shall be
deemed to occur on the specified monthly anniversary of the Commencement Date,
whether or not that date occurs at the end of a calendar month. The rent shall
be due and payable in advance commencing on the Commencement Date (as prorated
for any partial month) and continuing thereafter on the first day of each
successive calendar month of the Term. No demand, notice or invoice shall be
required. An installment of rent in the amount of one (1) full month's Basic
Rent at the initial rate specified in Item 6 of the Basic
3
<PAGE>
Lease Provisions shall be delivered to Landlord concurrently with Tenant's
execution of this Lease and shall be applied against the Basic Rent first due
hereunder.
4
<PAGE>
SECTION 4.2. OPERATING EXPENSE INCREASE.
(a) Tenant shall reimburse Landlord, as additional rent, for Tenant's
proportionate shares of "Building Costs" and "Property Taxes," as those terms
are defined below, incurred by Landlord in the operation of the Building and
Project. Property Taxes and Building Costs are mutually exclusive and may be
billed separately or in combination as determined by Landlord. Tenant's
proportionate share of Property Taxes shall equal the product of the rentable
floor area of the Premises multiplied by the difference of (i) Property Taxes
per rentable square foot less (ii) the Property Tax Base set forth in Item 7 of
the Basic Lease Provisions. Tenant's proportionate share of Building Costs
shall equal the product of the rentable floor area of the Premises multiplied by
the difference of (i) Building Costs per rentable square foot less (ii) the
Building Cost Base set forth in Item 7 of the Basic Lease Provisions. Tenant
acknowledges Landlord's rights to make changes or additions to the Building
and/or Project from time to time pursuant to Section 6.5 below, in which event
the total rentable square footage within the Building and/or Project may be
adjusted. For convenience of reference, Property Taxes and Building Costs may
sometimes be collectively referred to as "Operating Expenses."
(b) Commencing prior to the start of the first full "Expense Recovery
Period" of the Lease (as defined below), and prior to the start of each full or
partial Expense Recovery Period thereafter, Landlord shall give Tenant a written
estimate of the amount of Tenant's proportionate shares of Building Costs and
Property Taxes for the Expense Recovery Period or portion thereof. Tenant shall
pay the estimated amounts to Landlord in equal monthly installments, in advance,
with Basic Rent. If Landlord has not furnished its written estimate for any
Expense Recovery Period by the time set forth above, Tenant shall continue to
pay cost reimbursements at the rates established for the prior Expense Recovery
Period, if any; provided that when the new estimate is delivered to Tenant,
Tenant shall, at the next monthly payment date, pay any accrued cost
reimbursements based upon the new estimate. For purposes hereof, "Expense
Recovery Period" shall mean every twelve month period during the Term (or
portion thereof for the first and last Lease years) commencing July 1 and ending
June 30; provided that Landlord may from time to time change the Expense
Recovery Period to reflect a calendar year or a new fiscal year of Landlord, in
which event Tenant's share of Operating Expenses shall be equitably prorated for
any partial year.
(c) Within one hundred twenty (120) days after the end of each Expense
Recovery Period, Landlord shall furnish to Tenant a statement showing in
reasonable detail the actual or prorated Property Taxes and Building Costs
incurred by Landlord during the period, and the parties shall within thirty (30)
days thereafter make any payment or allowance necessary to adjust Tenant's
estimated payments, if any, to Tenant's actual proportionate shares as shown by
the annual statement. If Tenant has not made estimated payments during the
Expense Recovery Period, any amount owing by Tenant pursuant to subsection (a)
above shall be paid to Landlord in accordance with Article XVI. If actual
Property Taxes or Building Costs allocable to Tenant during any Expense Recovery
Period are less than the Property Tax Base or the Building Cost Base,
respectively, Landlord shall not be required to pay the differential to Tenant.
Should Tenant fail to object in writing to Landlord's determination of actual
Operating Expenses within sixty (60) days following delivery of Landlord's
expense statement, Landlord's determination of actual Operating Expenses for the
applicable Expense Recovery Period shall be conclusive and binding on the
parties.
(d) Even though the Lease has terminated and the Tenant has vacated
the Premises, when the final determination is made of Tenant's share of Property
Taxes and Building Costs for the Expense Recovery Period in which the Lease
terminates, Tenant shall upon notice pay the entire increase due over the
estimated expenses paid. Conversely, any overpayment made in the event expenses
decrease shall be rebated by Landlord to Tenant.
(e) If, at any time during any Expense Recovery Period, any one or
more of the Operating Expenses are increased to a rate(s) or amount(s) in excess
of the rate(s) or amount(s) used in calculating the estimated expenses for the
year, then Tenant's estimated share of Property Taxes or Building Costs, as
applicable, shall be increased for the month in which the increase becomes
effective and for all succeeding months by an amount equal to Tenant's
5
<PAGE>
proportionate share of the increase. Landlord shall give Tenant written notice
of the amount or estimated amount of the increase, the month in which the
increase will become effective, Tenant's monthly share thereof and the months
for which the payments are due. Tenant shall pay the increase to Landlord as a
part of Tenant's monthly payments of estimated expenses as provided in paragraph
(b) above, commencing with the month in which effective.
(f) The term "Building Costs" shall include all expenses of operation
and maintenance of the Building and the Project, together with all appurtenant
Common Areas (as defined in Section 6.2), and shall include the following
charges by way of illustration but not limitation: water and sewer charges;
insurance premiums or reasonable premium equivalents should Landlord elect to
self-insure any risk that Landlord is authorized to insure hereunder; license,
permit, and inspection fees; heat; light; power; janitorial services; repairs;
air conditioning; supplies; materials; equipment; tools; amortization of capital
investments reasonably intended to produce a reduction in operating charges or
energy conservation; amortization of capital investments necessary to bring the
Building into compliance with applicable laws and building codes enacted
subsequent to the completion of construction of the Building; labor; reasonably
allocated wages and salaries, fringe benefits, and payroll taxes for
administrative and other personnel directly applicable to the Building and/or
Project, including both Landlord's personnel and outside personnel; any expense
incurred pursuant to Sections 6.1, 6.2, 6.4, 7.2, and 10.2 and Exhibits B and C
below; and a reasonable overhead/management fee. It is understood that Building
Costs shall include competitive charges for direct services provided by any
subsidiary or division of Landlord. The term "Property Taxes" as used herein
shall include the
6
<PAGE>
following: (i) all real estate taxes or personal property taxes, as such
property taxes may be reassessed from time to time; and (ii) other taxes,
documentary transfer fees, charges and assessments which are levied with respect
to this Lease or to the Building and/or the Project, and any improvements,
fixtures and equipment and other property of Landlord located in the Building
and/or the Project, except that general net income and franchise taxes imposed
against Landlord shall be excluded; and (iii) any tax, surcharge or assessment
which shall be levied in addition to or in lieu of real estate or personal
property taxes, other than taxes covered by Article VIII; and (iv) costs and
expenses incurred in contesting the amount or validity of any Property Tax by
appropriate proceedings. A copy of Landlord's unaudited statement of expenses
shall be made available to Tenant upon request. The Building Costs may be
extrapolated by Landlord to reflect at least ninety-five percent (95%) occupancy
of the rentable area of the Building.
(g) Notwithstanding the foregoing, Landlord hereby agrees that Tenant
shall not be obligated to reimburse Landlord for Operating Expenses during the
initial six (6) month Lease Term.
SECTION 4.3. SECURITY DEPOSIT. Concurrently with Tenant's delivery of this
Lease, Tenant shall deposit with Landlord the sum, if any, stated in Item 9 of
the Basic Lease Provisions, to be held by Landlord as security for the full and
faithful performance of Tenant's obligations under this Lease (the "Security
Deposit"). Upon any default by Tenant, including specifically Tenant's failure
to pay rent or to abide by its obligations under Sections 7.1 and 15.3 below,
Landlord may apply all or part of the Security Deposit as full or partial
compensation for that default. If any portion of the Security Deposit is so
applied, Tenant shall within five (5) days after written demand by Landlord
deposit cash with Landlord in an amount sufficient to restore the Security
Deposit to its original amount. Landlord shall not be required to keep this
Security Deposit separate from its general funds, and Tenant shall not be
entitled to interest on the Security Deposit. If Tenant fully performs its
obligations under this Lease, 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 in this Lease) within thirty (30) days after the expiration of
the Term.
ARTICLE V. USES
SECTION 5.1. USE. Tenant shall use the Premises only for the purposes
stated in Item 3 of the Basic Lease Provisions. The parties agree that any
contrary use shall be deemed to cause material and irreparable harm to Landlord
and shall entitle Landlord to injunctive relief in addition to any other
available remedy. Tenant shall not do or permit anything to be done in or about
the Premises which will in any way interfere with the rights or quiet enjoyment
of other occupants of the Building or the Project, or use or allow the Premises
to be used for any unlawful purpose, nor shall Tenant permit any nuisance or
commit any waste in the Premises or the Project. Tenant shall not do or permit
to be done anything which will invalidate or increase the cost of any insurance
policy(ies) covering the Building, the Project and/or their contents, and shall
comply with all applicable insurance underwriters rules and the requirements of
the Pacific Fire Rating Bureau or any other organization performing a similar
function. Tenant shall comply at its expense with all present and future laws,
ordinances and requirements of all governmental authorities that pertain to
Tenant or its use of the Premises, including without limitation all federal and
state occupational health and safety and handicap access requirements, whether
or not Tenant's compliance will necessitate expenditures or interfere with its
use and enjoyment of the Premises. Tenant shall not generate, handle, store or
dispose of hazardous or toxic materials (as such materials may be identified in
any federal, state or local law or regulation) in the Premises or Project
without the prior written consent of Landlord; provided that the foregoing shall
not be deemed to proscribe the use by Tenant of customary office supplies in
normal quantities so long as such use comports with all applicable laws. Tenant
agrees that it shall promptly complete and deliver to Landlord any disclosure
form regarding hazardous or toxic materials that may be required by any
governmental agency. Tenant shall also, from time to time upon request by
Landlord, execute such affidavits concerning Tenant's best knowledge and belief
regarding the presence of hazardous or toxic materials in the
7
<PAGE>
Premises. Landlord shall have the right at any time to perform an assessment of
the environmental condition of the Premises and of Tenant's compliance with this
Section. As part of any such assessment, Landlord shall have the right, upon
reasonable prior notice to Tenant, to enter and inspect the Premises and to
perform tests, provided those tests are performed in a manner that minimizes
disruption to Tenant. Tenant will cooperate with Landlord in connection with any
assessment by, among other things, promptly responding to inquiries and
providing relevant documentation and records. The reasonable cost of the
assessment/testing shall be reimbursed by Tenant to Landlord if such
assessment/testing determines that Tenant failed to comply with the requirements
of this Section. In all events Tenant shall indemnify Landlord in the manner
elsewhere provided in this Lease from any release of hazardous or toxic
materials caused by Tenant, its agents, employees, contractors, subtenants or
licensees. The foregoing covenants shall survive the expiration or earlier
termination of this Lease.
SECTION 5.2. SIGNS. Tenant, upon obtaining the approval of Landlord in
writing, may affix a sign (restricted solely to Tenant's name as set forth
herein or such other name as Landlord may consent to in writing) adjacent to the
entry door of the Premises and shall maintain the sign in good condition and
repair during the Term. The sign shall conform to the criteria for signs
established by Landlord. Tenant shall not place or allow to be placed any other
sign, decoration or advertising matter of any kind that is visible from the
exterior of the Premises. Any violating sign or decoration may be immediately
removed by Landlord at Tenant's expense without notice and without the removal
constituting a breach of this Lease or entitling Tenant to claim damages.
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ARTICLE VI. LANDLORD SERVICES
SECTION 6.1. UTILITIES AND SERVICES. Landlord shall furnish to the
Premises the utilities and services described in Exhibit B, subject to the
conditions and payment obligations and standards set forth in this Lease.
Landlord shall not be liable for any failure to furnish any services or
utilities when the failure is the result of any accident or other cause beyond
Landlord's reasonable control, nor shall Landlord be liable for damages
resulting from power surges or any breakdown in telecommunications facilities or
services. Landlord's temporary inability to furnish any services or utilities
shall not entitle Tenant to any damages, relieve Tenant of the obligation to pay
rent or constitute a constructive or other eviction of Tenant, except that
Landlord shall diligently attempt to restore the service or utility promptly.
Tenant shall comply with all rules and regulations which Landlord may reasonably
establish for the provision of services and utilities, and shall cooperate with
all reasonable conservation practices established by Landlord. Landlord shall
at all reasonable times have free access to all electrical and mechanical
installations of Landlord.
SECTION 6.2. OPERATION AND MAINTENANCE OF COMMON AREAS. During the Term,
Landlord shall operate all Common Areas within the Building and the Project.
The term "Common Areas" shall mean all areas within the Building and other
buildings in the Project which are not held for exclusive use by persons
entitled to occupy space, and all other appurtenant areas and improvements
provided by Landlord for the common use of Landlord and tenants and their
respective employees and invitees, including without limitation parking areas
and structures, driveways, sidewalks, landscaped and planted areas, hallways and
interior stairwells not located within the premises of any tenant, common
entrances and lobbies, elevators, and restrooms not located within the premises
of any tenant.
SECTION 6.3. USE OF COMMON AREAS. The occupancy by Tenant of the Premises
shall include the use of the Common Areas in common with Landlord and with all
others for whose convenience and use the Common Areas may be provided by
Landlord, subject, however, to compliance with all rules and regulations as are
prescribed from time to time by Landlord. Landlord shall at all times during the
Term have exclusive control of the Common Areas, and may restrain any use or
occupancy, except as authorized by Landlord's rules and regulations. Tenant
shall keep the Common Areas clear of any obstruction or unauthorized use related
to Tenant's operations. Landlord may temporarily close any portion of the
Common Areas for repairs, remodeling and/or alterations, to prevent a public
dedication or the accrual of prescriptive rights, or for any other reasonable
purpose.
SECTION 6.4. PARKING. Tenant shall have the parking rights set forth in
Exhibit C to this Lease.
SECTION 6.5. CHANGES AND ADDITIONS BY LANDLORD. Landlord reserves the
right to make alterations or additions to the Building or the Project, or to the
attendant fixtures, equipment and Common Areas. No change shall entitle Tenant
to any abatement of rent or other claim against Landlord, provided that the
change does not deprive Tenant of reasonable access to or use of the Premises.
ARTICLE VII. MAINTAINING THE PREMISES
SECTION 7.1. TENANT'S MAINTENANCE AND REPAIR. Tenant at its sole expense
shall make all repairs necessary to keep the Premises in the condition as
existed on the Commencement Data (or on any later date that the improvements may
have been installed), excepting ordinary wear and tear. All repairs shall be at
least equal in quality to the original work, shall be made only by a licensed,
bonded contractor approved in writing in advance by Landlord and shall be made
only at the time or times approved by Landlord. Any contractor utilized by
Tenant shall be subject to Landlord's standard requirements for contractors, as
modified from time to time. Landlord may impose reasonable restrictions and
requirements with
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respect to repairs, as provided in Section 7.3, and the provisions of Section
7.4 shall apply to all repairs. Alternatively, Landlord may elect to make any
such repair on behalf of Tenant and at Tenant's expense, and Tenant shall
promptly reimburse Landlord for all costs incurred upon submission of an
invoice.
SECTION 7.2. LANDLORD'S MAINTENANCE AND REPAIR.
(a) Subject to Section 7.1 and Article XI, Landlord shall provide
service, maintenance and repair with respect to any air conditioning,
ventilating or heating equipment which serves the Premises (exclusive of any
supplemental HVAC equipment installed by or at the request of Tenant) and shall
maintain in good repair the roof, foundations, footings, the exterior surfaces
of the exterior walls of the Building, and the structural, electrical and
mechanical systems, except that Tenant at its expense shall make all repairs
which Landlord deems reasonably necessary as a result of the act or negligence
of Tenant, its agents, employees, invitees, subtenants or contractors. Landlord
shall have the right to employ or designate any reputable person or firm,
including any employee or agent of Landlord or any of Landlord's affiliates or
divisions, to perform any service, repair or maintenance function. Landlord
need not make any other improvements or repairs except as specifically required
under this Lease, and nothing contained in this Section shall limit Landlord's
right to reimbursement from Tenant for maintenance, repair costs and replacement
costs as provided elsewhere in this Lease. Tenant understands that it shall not
make repairs at Landlord's expense or by rental offset.
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(b) Except as provided in Sections 11.1 and 12.1 below, 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 to any portion of the Building, including repairs to
the Premises, nor shall any related activity by Landlord constitute an actual or
constructive eviction; provided, however, that in making repairs, alterations or
improvements, Landlord shall interfere as little as reasonably practicable with
the conduct of Tenant's business in the Premises.
SECTION 7.3. ALTERATIONS. Tenant shall make no alterations additions or
improvements to the Premises without the prior written consent of Landlord,
which consent shall not be unreasonably withheld. Landlord may impose, as a
condition to its consent, any requirements that Landlord in its discretion may
deem reasonable or desirable, including but not limited to a requirement that
all work be covered by a lien and completion bond satisfactory to Landlord and
requirements as to the manner, time, and contractor for performance of the work.
Without limiting the generality of the foregoing, Tenant shall use Landlord's
designated mechanical and electrical contractors for all work affecting the
mechanical or electrical systems of the Building. Tenant shall obtain all
required permits for the work and shall perform the work in compliance with all
applicable laws, regulations and ordinances, and Landlord shall be entitled to a
supervision fee in the amount of five percent (5%) of the cost of the work.
Under no circumstances shall Tenant make any improvement which incorporates
asbestos-containing construction materials into the Premises. Any request for
Landlord's consent shall be made in writing and shall contain architectural
plans describing the work in detail reasonably satisfactory to Landlord. Unless
Landlord otherwise agrees in writing, all alterations, additions or improvements
affixed to the Premises (excluding moveable trade fixtures and furniture) shall
become the property of Landlord and shall be surrendered with the Premises at
the end of the Term, except that Landlord may, by notice to Tenant given at the
time of Landlord's consent to the alteration or improvement, require Tenant to
remove by the Expiration Date, or sooner termination date of this Lease, all or
any alterations, decorations, fixtures, additions, improvements and the like
installed either by Tenant or by Landlord at Tenant's request and to repair any
damage to the Premises arising from that removal. Landlord may require Tenant
to remove an improvement provided as part of the initial build-out pursuant to
Exhibit X, if any, if and only if the improvement is a non-building standard
item and Tenant is notified of the requirement prior to the build-out. Except
as otherwise provided in this Lease or in any Exhibit to this Lease, should
Landlord make any alteration or improvement to the Premises at the request of
Tenant, Landlord shall be entitled to prompt reimbursement from Tenant for all
costs incurred.
SECTION 7.4. MECHANIC'S LIENS. Tenant shall keep the Premises free from
any liens arising out of any work performed, materials furnished, or obligations
incurred by or for Tenant. Upon request by Landlord, Tenant shall promptly
cause any such lien to be released by posting a bond in accordance with
California Civil Code Section 3143 or any successor statute. In the event that
Tenant shall not, within thirty (30) days following the imposition of any lien,
cause the Lien to be released of record by payment or posting of a proper bond,
Landlord shall have, in addition to all other available remedies, the right to
cause the lien to be released by any means it deems proper, including payment of
or defense against the claim giving rise to the lien. All expenses so incurred
by Landlord, including Landlord's attorneys' fees, shall be reimbursed by Tenant
promptly following Landlord's demand, together with interest from the date of
payment by Landlord at the maximum rate permitted by law until paid. Tenant
shall give Landlord no less than twenty (20) days' prior notice in writing
before commencing construction of any kind on the Premises so that Landlord may
post and maintain notices of nonresponsibility on the Premises.
SECTION 7.5. ENTRY AND INSPECTION. Landlord shall at sit reasonable times
have the right to enter the Premises to inspect them, to supply services in
accordance with this Lease, to protect the interests of Landlord in the
Premises, and to submit the Premises to prospective or actual purchasers or
encumbrance holders (or, during the last one hundred and eighty (180) days of
the Term or when an uncured Tenant default exists, to prospective tenants), all
without being deemed to have caused an eviction of Tenant and without abatement
of rent except as provided elsewhere in this Lease. Landlord shall at all times
have and retain a key which unlocks all of the doors in the Premises, excluding
Tenant's vaults and safes, and Landlord shall have the right
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to use any and all means which Landlord may deem proper to open the doors in an
emergency in order to obtain entry to the Premises, and any entry to the
Premises obtained by Landlord shall not under any circumstances be deemed to be
a forcible or unlawful entry into, or a detainer of, the Premises, or any
eviction of Tenant from the Premises.
SECTION 7.6. SPACE PLANNING AND SUBSTITUTION. Landlord shall have the
right, upon providing Tenant sixty (60) days' written notice, to move Tenant to
other space of comparable size in the Building or in the Project. The new space
shall be provided with improvements of comparable quality to those within the
Premises. Landlord shall pay all of Tenant's reasonable out-of-pocket moving
expenses following receipt of invoices from Tenant. If Landlord exercises this
right, this Lease shall remain in effect and be deemed applicable to the new
space except that the Lease shall be appropriately amended to reflect the new
space.
ARTICLE VII. TAXES AND ASSESSMENTS ON TENANT'S PROPERTY
Tenant shall be liable for and shall pay before delinquency, all taxes and
assessments levied against all personal property of Tenant located in the
Premises. When possible Tenant shall cause its personal property to be assessed
and billed separately from the real property of which the Premises form a part.
If any taxes on Tenant's personal property are levied against Landlord or
Landlord's property and if Landlord pays the same, or if the assessed value of
Landlord's property is increased by the inclusion of a value placed upon the
personal property of Tenant and if Landlord pays the taxes based upon the
increased assessment, Tenant shall pay to Landlord the taxes so levied against
Landlord or the proportion of the taxes resulting from the increase in the
assessment.
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ARTICLE IX. ASSIGNMENT AND SUBLETTING
SECTION 9.1. RIGHTS OF PARTIES.
(a) Notwithstanding any provision of this Lease to the contrary,
Tenant will not, either voluntarily or by operation of law, assign, sublet,
encumber, or otherwise transfer all or any part of Tenant's interest in this
lease, or permit the Premises to be occupied by anyone other than Tenant,
without Landlord's prior written consent, which consent shall not unreasonably
be withheld in accordance with the provisions of Section 9.1.(c). No assignment
(whether voluntary, involuntary or by operation of taw) and no subletting shall
be valid or effective without Landlord's prior written consent and, at
Landlord's election, shall constitute a material default of this Lease.
Landlord shall not be deemed to have given its consent to any assignment or
subletting by any other course of action, including its acceptance of any name
for listing in the Building directory. To the extent not prohibited by
provisions of the Bankruptcy Code, 11 U.S.C. Section 101 et seq. (the
"Bankruptcy Code"), including Section 365(f)(1), Tenant on behalf of itself and
its creditors, administrators and assigns waives the applicability of Section
365(e) of the Bankruptcy Code unless the proposed assignee of the Trustee for
the estate of the bankrupt meets Landlord's standard for consent as set forth in
Section 9.1(c) of this Lease. If this Lease is assigned to any person or entity
pursuant to the provisions of the Bankruptcy Code, any and all monies or other
considerations to be delivered in connection with the assignment shall be
delivered to Landlord, shall be and remain the exclusive property of Landlord
and shall not constitute property of Tenant or of the estate of Tenant within
the meaning of the Bankruptcy Code. Any person or entity to which this Lease is
assigned pursuant to the provisions of the Bankruptcy Code shall be deemed to
have assumed all of the obligations arising under this Lease on and after the
date of the assignment, and shall upon demand execute and deliver to Landlord an
instrument confirming that assumption.
(b) If Tenant or any guarantor of Tenant ("Tenant's Guarantor") is a
corporation, or is an unincorporated association or partnership, the transfer of
any stock or interest in the corporation, association or partnership which
results in a change in the voting control of Tenant or Tenant's Guarantor, if
any, shall be deemed an assignment within the meaning and provisions of this
Article. In addition, any change in the status of the entity, such as, but not
limited to, the withdrawal of a general partner, shall be deemed an assignment
within the meaning of this Article.
(c) If Tenant desires to transfer an interest in this Lease, it shall
first notify Landlord of its desire and shall submit in writing to Landlord:
(i) the name and address of the proposed transferee; (ii) the nature of any
proposed subtenant's or assignee's business to be carried on in the Premises;
(iii) the terms and provisions of any proposed sublease or assignment; and (iv)
any other information requested by Landlord and reasonably related to the
transfer. Except as provided in Subsection (d) of this Section, Landlord shall
not unreasonably withhold its consent, provided: (1) the use of the Premises
will be consistent with the provisions of this Lease and with Landlord's
commitment to other tenants of the Building and Project; (2) any profit received
by the Tenant from the assignment or subletting, whether during or after the
Term of this Lease, shall be paid to Landlord when received; (3) any proposed
subtenant or assignee demonstrates that it is financially responsible by
submission to Landlord of all reasonable information as Landlord may request
concerning the proposed subtenant or assignee, including, but not limited to, a
balance sheet of the proposed subtenant or assignee as of a date within ninety
(90) days of the request for Landlord's consent and statements of income or
profit and loss of the proposed subtenant or assignee for the two-year period
preceding the request for Landlord's consent; (4) any proposed subtenant or
assignee demonstrates to Landlord's reasonable satisfaction a record of
successful experience in business; (5) the proposed assignee or subtenant is not
an existing tenant of the Building or Project; and (6) the proposed transfer
will not impose additional burdens or adverse tax effects on Landlord. If
Landlord consents to the proposed transfer, Tenant may within ninety (90) days
after the date of the consent effect the transfer upon the terms described in
the information furnished to Landlord; provided that any material change in the
terms shall be subject to Landlord's consent as set forth in this Section.
Landlord shall approve or disapprove any requested transfer within thirty (30)
days following receipt of Tenant's
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written request and the information set forth above. Tenant shall pay to
Landlord a transfer fee of Five Hundred Dollars ($500.00) if and when any
transfer requested by Tenant is approved.
(d) Notwithstanding the provisions of Subsection (c) above, in lieu of
consenting to a proposed assignment or subletting, Landlord may elect to (i)
sublease the Premises (or the portion proposed to be subleased), or take an
assignment of Tenant's interest in this Lease, upon the same terms as offered to
the proposed subtenant or assignee (excluding terms relating to the purchase of
personal property, the use of Tenant's name or the continuation of Tenant's
business), or (ii) terminate this Lease as to the portion of the Premises
proposed to be subleased or assigned with a Proportionate abatement in the rent
payable under this Lease, effective on the date that the proposed sublease or
assignment would have become effective. Landlord may thereafter, at its option,
assign or re-let any space so recaptured to any third party, including without
limitation the proposed transferee of Tenant.
SECTION 9.2. EFFECT OF TRANSFER. No subletting or assignment, even with
the consent of Landlord, shall relieve Tenant, or any successor-in-interest to
Tenant hereunder, of its obligation to pay rent and to perform all its other
obligations under this Lease. Moreover, Tenant shall indemnify and hold
Landlord harmless, as provided in Section 10.3, for any act or omission by an
assignee or subtenant. Each assignee, other than Landlord, shall be deemed to
assume all obligations of Tenant under this Lease and shall be liable jointly
and severally with Tenant for the payment of all rent, and for the due
performance of all of Tenant's obligations, under this Lease. Such joint and
several liability shall not be discharged or impaired by any subsequent
modification of this Lease. No transfer shall be binding on Landlord unless any
document memorializing the transfer is delivered to Landlord and both the
assignee/subtenant and Tenant deliver to Landlord an executed consent to
transfer instrument prepared by Landlord and consistent with the requirements of
this Article. The acceptance by Landlord of any payment due under this Lease
from any other person shall not be deemed to be a waiver by Landlord of any
provision of this Lease or to be a consent to any transfer. Consent by Landlord
to one or more transfers shall not operate as a waiver or estoppel to the future
enforcement by Landlord of its rights under this Lease.
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SECTION 9.3. SUBLEASE REQUIREMENTS. The following terms and conditions
shall apply to any subletting by Tenant of all or any part of the Premises and
shall be included in each sublease:
(a) Tenant hereby irrevocably assigns to Landlord all of Tenant's
interest in all rentals and income arising from any sublease of the Premises,
and Landlord may collect such rent and income and apply same toward Tenant's
obligations under this Lease; provided, however, that until a default occurs in
the performance of Tenant's obligations under this Lease, Tenant shall have the
right to receive and collect the sublease rentals. Landlord shall not, by
reason of this assignment or the collection of sublease rentals, be deemed
liable to the subtenant for the performance of any of Tenant's obligations under
the sublease. Tenant hereby irrevocably authorizes and directs any subtenant,
upon receipt of a written notice from Landlord stating that an uncured default
exists in the performance of Tenant's obligations under this Lease, to pay to
Landlord all sums then and thereafter due under the sublease. Tenant agrees
that the subtenant may rely on that notice without any duty of further inquiry
and notwithstanding any notice or claim by Tenant to the contrary. Tenant shall
have no right or claim against the subtenant or Landlord for any rentals so paid
to Landlord. In the event Landlord collects amounts from subtenants that exceed
the total amount then due from Tenant hereunder, Landlord shall promptly remit
the excess to Tenant.
(b) In the event of the termination of this Lease, Landlord may, at
its sole option, take over Tenant's entire interest in any sublease and, upon
notice from Landlord, the subtenant shall attorn to Landlord. In no event,
however, shall Landlord be liable for any previous act or omission by Tenant
under the sublease or for the return of any advance rental payments or deposits
under the sublease that have not been actually delivered to Landlord, nor shall
Landlord be bound by any sublease modification executed without Landlord's
consent or for any advance rental payment by the subtenant in excess of one
month's rent. The general provisions of this Lease, including without
limitation those pertaining to insurance and indemnification, shall be deemed
incorporated by reference into the sublease despite the termination of this
Lease.
(c) Tenant agrees that Landlord may, at its sole option, authorize a
subtenant of the Premises to cure a default by Tenant under this Lease. Should
Landlord accept such cure, the subtenant shall have a right of reimbursement and
offset from and against Tenant under the applicable sublease.
ARTICLE X. INSURANCE AND INDEMNITY
SECTION 10.1. TENANT'S INSURANCE. Tenant, at its sole cost and expense,
shall provide and maintain in effect the insurance described in Exhibit D.
Evidence of that insurance must be delivered to Landlord prior to the
Commencement Date.
SECTION 10.2. LANDLORD'S INSURANCE. Landlord may, at its election, provide
any or all of the following types of insurance, with or without deductible and
in amounts and coverages as may be determined by Landlord in its discretion:
"all risk" property insurance, subject to standard exclusions, covering the
Building or Project, and such other risks as Landlord or its mortgagees may from
time to time deem appropriate, and commercial general liability coverage.
Landlord shall not be required to carry insurance of any kind on Tenant's
Leasehold improvements, trade fixtures, furnishings, equipment, interior plate
glass, signs and all other items of personal property, and shall not be
obligated to repair or replace that property should damage occur. All proceeds
of insurance maintained by Landlord upon the Building and Project shall be the
property of Landlord, whether or not Landlord is obligated to or elects to make
any repairs.
SECTION 10.3. TENANT'S INDEMNITY. To the fullest extent permitted by law,
Tenant shall defend, indemnify and hold harmless Landlord, its agents, Lenders,
and any and all affiliates of Landlord, from and against any and all claims,
liabilities, costs or expenses arising either before or after the Commencement
Date from Tenant's use or occupancy of the Premises,
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the Building or the Common Areas, or from the conduct of its business, or from
any activity, work, or thing done, permitted or suffered by Tenant or its
agents, employees, subtenants, invitees or licensees in or about the Premises,
the Building or the Common Areas, or from any default in the performance of any
obligation on Tenant's part to be performed under this Lease, or from any act or
negligence of Tenant or its agents, employees, subtenants, invitees or
Licensees. Landlord may, at its option, require Tenant to assume Landlord's
defense in any action covered by this Section through counsel reasonably
satisfactory to Landlord.
SECTION 10.4. LANDLORD'S NONLIABILITY. Landlord shall not be liable to
Tenant, its employees, agents and invitees, and Tenant hereby waives all claims
against Landlord, its employees and agents for loss of or damage to any
property, or any injury to any person, or loss or interruption of business or
income, resulting from any condition including, but not limited to, fire,
explosion, falling plaster, steam, gas, electricity, water or rain which may
leak or flow from or into any part of the Premises or from the breakage,
leakage, obstruction or other defects of the pipes, sprinklers, wires,
appliances, plumbing, air conditioning, electrical works or other fixtures in
the Building, whether the damage or injury results from conditions arising in
the Premises or in other portions of the Building. It is understood that any
such condition may require the temporary evacuation or closure of all or a
portion of the Building. Neither Landlord nor its agents shall be liable for
interference with light or other similar intangible interests. Tenant shall
immediately notify Landlord in case of fire or accident in the Premises, the
Building or the Project and of defects in any improvements or equipment.
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ARTICLE XI. DAMAGE OR DESTRUCTION
SECTION 11.1. RESTORATION.
(a) If the Building of which the Premises are a part is damaged,
Landlord shall repair that damage as soon as reasonably possible, at its
expense, unless: (i) Landlord reasonably determines that the cost of repair
would exceed ten percent (10%) of the full replacement cost of the Building
("Replacement Cost") and the damage is not covered by Landlord's fire and
extended coverage insurance (or by a normal extended coverage policy should
Landlord fail to carry that insurance); or (ii) Landlord reasonably determines
that the cost of repair would exceed twenty-five percent (25%) of the
Replacement Cost; or (iii) Landlord reasonably determines that the cost of
repair would exceed ten percent (10%) of the Replacement Cost and the damage
occurs during the final twelve (12) months of the Term. Should Landlord elect
not to repair the damage for one of the preceding reasons, Landlord shall so
notify Tenant in writing within sixty (60) days after the damage occurs and this
Lease shall terminate as of the date of that notice.
(b) Unless Landlord elects to terminate this Lease in accordance with
subsection (a) above, this Lease shall continue in effect for the remainder of
the Term; provided that if the damage is so extensive as to reasonably prevent
Tenant's substantial use and enjoyment of the Premises for more than nine (9)
months, then Tenant may elect to terminate this Lease by written notice to
Landlord within the sixty (60) day period stated in subsection (a).
(c) To the extent and for the period that Landlord is entitled to
reimbursement from the proceeds of rental interruption insurance carried by
Landlord as part of Operating Expenses, the rental to be paid under this Lease
shall be abated in the same proportion that the floor area of the Premises that
is rendered unusable by the damage from time to time bears to the total floor
area of the Premises.
(d) Notwithstanding the provisions of subsections (a), (b) and (c) of
this Section, the cost of any repairs shall be borne by Tenant, and Tenant shall
not be entitled to rental abatement or termination rights, if the damage is due
to the fault or neglect of Tenant or its employees, subtenants, invitees or
representatives. In addition, the provisions of this Section shall not be
deemed to require Landlord to repair any improvements or fixtures that Tenant is
obligated to repair or insure pursuant to any other provision of this Lease.
SECTION 11.2. LEASE GOVERNS. Tenant agrees that the provisions of this
Lease, including without limitation Section 11.1, shall govern any damage or
destruction and shall accordingly supersede any contrary statute or rule of law.
ARTICLE XII. EMINENT DOMAIN
SECTION 12.1. TOTAL OR PARTIAL TAKING. If all or a material portion of the
Premises is taken by any lawful authority by exercise of the right of eminent
domain, or sold to prevent a taking, either Tenant or Landlord may terminate
this Lease effective as of the date possession is required to be surrendered to
the authority. In the event title to a portion of the Building or Project, other
than the Premises, is taken or sold in lieu of taking, and if Landlord elects to
restore the Building in such a way as to alter the Premises materially, either
party may terminate this Lease, by written notice to the other party, effective
on the date of vesting of title. In the event neither party has elected to
terminate this Lease as provided above, then Landlord shall promptly, after
receipt of a sufficient condemnation award, proceed to restore the Premises to
substantially their condition prior to the taking, and a proportionate allowance
shall be made to Tenant for the rent corresponding to the time during which, and
to the part of the Premises of which, Tenant is deprived on account of the
taking and restoration. In the event of a taking, Landlord shall be entitled to
the entire amount of the condemnation award without deduction for any estate or
interest of Tenant; provided that nothing in this Section shall be deemed to
give Landlord any interest in, or prevent Tenant from seeking any award against
the taking authority
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for, the taking of personal property and fixtures belonging to Tenant or for
relocation or business interruption expenses recoverable from the taking
authority.
SECTION 12.2. TEMPORARY TAKING. No temporary taking of the Premises shall
terminate this Lease or give Tenant any right to abatement of rent, and any
award specifically attributable to a temporary taking of the Premises shall
belong entirety to Tenant. A temporary taking shall be deemed to be a taking of
the use or occupancy of the Premises for a period of not to exceed ninety (90)
days.
SECTION 12.3. TAKING OF PARKING AREA. In the event there shall be a taking
of the parking area such that Landlord can no longer provide sufficient parking
to comply with this Lease, Landlord may substitute reasonably equivalent parking
in a location reasonably close to the Building; provided that if Landlord fails
to make that substitution within ninety (90) days following the taking and if
the taking materially impairs Tenant's use and enjoyment of the Premises, Tenant
may, at its option, terminate this Lease by written notice to Landlord. If this
Lease is not so terminated by Tenant, there shall be no abatement of rent and
this Lease shall continue in effect.
ARTICLE XIII. SUBORDINATION; ESTOPPEL CERTIFICATE
SECTION 13.1. SUBORDINATION. At the option of Landlord or any of its
mortgagees/deed of trust beneficiaries, this Lease shall be either superior or
subordinate to all ground or underlying leases, mortgages and deeds of trust, if
any, which may hereafter affect the Building, and to all renewals,
modifications, consolidations, replacements and extensions thereof; provided,
that so long as Tenant is not in default under this Lease, this Lease shall not
be terminated or Tenant's quiet enjoyment of
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the Premises disturbed in the event of termination of any such ground or
underlying tease, or the foreclosure of any such mortgage or deed of trust, to
which Tenant has subordinated this Lease pursuant to this Section. In the event
of a termination or foreclosure, Tenant shall become a tenant of and attorn to
the successor-in-interest to Landlord upon the same terms and conditions as are
contained in this Lease, and shall promptly execute any instrument reasonably
required by Landlord's successor for that purpose. Tenant shall also, within
ten (10) days following written request of Landlord (or the beneficiary under
any deed of trust encumbering the Building), execute and deliver all instruments
as may be required from time to time by Landlord or such beneficiary (including
without Limitation any subordination, nondisturbance and attornment agreement in
the form customarily required by such beneficiary) to subordinate this Lease and
the rights of Tenant under this Lease to any ground or underlying Lease or to
the lien of any mortgage or deed of trust; provided, however, that any such
beneficiary may, by written notice to Tenant given at any time, subordinate the
lien of its deed of trust to this Lease. Failure of Tenant to execute any
statements or instruments necessary or desirable to effectuate the provisions of
this Article, within ten (10) days after written request by Landlord, shall
constitute a default under this Lease. In that event, Landlord, in addition to
any other rights or remedies it might have, shall have the right, by written
notice to Tenant, to terminate this Lease as of a date not less than twenty (20)
days after the date of Landlord's notice. Landlord's election to terminate
shall not relieve Tenant of any Liability for its default. Tenant acknowledges
that Landlord' s mortgagees and successors-in-interest and all beneficiaries
under deeds of trust encumbering the Building are intended third party
beneficiaries of this Section.
SECTION 13.2. ESTOPPEL CERTIFICATE. Tenant shall, at any time upon not
less than ten (10) days prior written notice from Landlord, execute, acknowledge
and deliver to Landlord, in any form that Landlord may reasonably require, a
statement in writing in favor of Landlord and/or any prospective purchaser or
encumbrancer of the Building (i) certifying that this Lease is unmodified and in
full force and effect (or, if modified, stating the nature of the modification
and certifying that this Lease, as modified, is in full force and effect) and
the dates to which the rental, additional rent and other charges have been paid
in advance, if any, and (ii) acknowledging that, to Tenant's knowledge, there
are no uncured defaults on the part of Landlord, or specifying each default if
any are claimed, and (iii) setting forth all further information that Landlord
may reasonably require. Tenant's statement may be relied upon by any prospective
purchaser or encumbrancer of all or any portion of the Building or Project.
Tenant's failure to deliver any estoppel statement within the provided time
shall constitute a default under this Lease and shall be conclusive upon Tenant
that (i) this Lease is in full force and effect, without modification except as
may be represented by Landlord, (ii) there are no uncured defaults in Landlord's
performance, and (iii) not more than one month's rental has been paid in
advance.
ARTICLE XIV. DEFAULTS AND REMEDIES
SECTION 14.1. TENANT'S DEFAULTS. In addition to any other event of default
set forth in this Lease, the occurrence of any one or more of the following
events shall constitute a default by Tenant:
(a) The failure by Tenant to make any payment of rent or additional
rent required to be made by Tenant, as and when due, where the failure continues
for a period of three (3) days after written notice from Landlord to Tenant;
provided, however, that any such notice shall be in Lieu of, and not in addition
to, any notice required under California Code of Civil Procedure Section 1161
and 1161(a) as amended. For purposes of these default and remedies provisions,
the term "additional rent" shall be deemed to include all amounts of any type
whatsoever other then Basic Rent to be paid by Tenant pursuant to the terms of
this Lease.
(b) Assignment, sublease, encumbrance or other transfer of the Lease
by Tenant, either voluntarily or by operation of low, whether by judgment,
execution, transfer by intestacy or testacy, or other means, without the prior
written consent of Landlord.
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(c) The discovery by Landlord that any financial statement provided by
Tenant, or by any affiliate, successor or guarantor of Tenant, was materially
false.
(d) The failure or inability by Tenant to observe or perform any of
the covenants or provisions of this Lease to be observed or performed by Tenant,
other than as specified in any other subsection of this Section, where the
failure continues for a period of thirty (30) days after written notice from
Landlord to Tenant; provided, however, that any such notice shall be in lieu of,
and not in addition to, any notice required under California Code of Civil
Procedure Section 1161 and 1161(a) as amended. However, if the nature of the
failure 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 the
cure within thirty (30) days, and thereafter diligently pursues the cure to
completion.
(e) (i) The making by Tenant of any general assignment for the benefit
of creditors; (ii) the filing by or against Tenant of a petition to have Tenant
adjudged a Chapter 7 debtor under the Bankruptcy Code or to have debts
discharged or a petition for 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); (iii) the appointment of a
trustee or receiver to take possession of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease, if possession is
not restored to Tenant within thirty (30) days; (iv) 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 the seizure is not
discharged within thirty (30) days; or (v) Tenant's convening of a meeting of
its creditors for the purpose of effecting a moratorium upon or composition of
its debts. Landlord shall not be deemed to have knowledge of any event
described in this subsection unless notification in writing is received by
Landlord, nor shall there be any presumption attributable to Landlord of
Tenant's insolvency. In the event that any provision of this subsection is
contrary to applicable Law, the provision shall be of no force or effect.
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SECTION 14.2. LANDLORD'S REMEDIES.
(a) In the event of any default by Tenant, then in addition to any
other remedies available to Landlord, Landlord may exercise the following
remedies:
(i) Landlord may 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. Such
termination shall not affect any accrued obligations of Tenant under this Lease.
Upon termination, Landlord shall have the right to reenter the Premises and
remove all persons and property. Landlord shall also be entitled to recover
from Tenant:
(1) The worth at the time of award of the unpaid rent and
additional 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 and additional rent which would have been earned after
termination until the time of award exceeds the amount of such loss that Tenant
proves could have been reasonably avoided;
(3) The worth at the time of award of the amount by which
the unpaid rent and additional rent for the balance of the Term after the time
of award exceeds the amount of such Loss that Tenant proves could be reasonably
avoided;
(4) Any other amount necessary to compensate Landlord for
all the detriment proximately caused by Tenant's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result from Tenant's default, including, but not limited to, the cost
of recovering possession of the Premises, commissions and other expenses of
reletting, including necessary repair, renovation, improvement and alteration of
the Premises for a new tenant, the unamortized portion of any tenant
improvements and brokerage commissions funded by Landlord in connection with
this Lease, reasonable attorneys' fees, and any other reasonable costs; and
(5) At Landlord's election, all other amounts in addition to
or in lieu of the foregoing as may be permitted by law. The term "rent" as used
in this Lease shall be deemed to mean the Basic Rent and all other sums required
to be paid by Tenant to Landlord pursuant to the terms of this Lease. Any sum,
other than Basic Rent, shall be computed on the basis of the average monthly
amount accruing during the twenty-four (24) month period immediately prior to
default, except that if it becomes necessary to compute such rental before the
twenty-four (24) month period has occurred, then the computation shall be on the
basis of the average monthly amount during the shorter period. As used in
subparagraphs (1) and (2) above, the "worth at the time of award" shall be
computed by allowing interest at the rate of ten percent (10%) per annum. As
used in subparagraph (3) above, the "worth at the time of award" shall be
computed by discounting the amount at the discount rate of the Federal Reserve
Bank of San Francisco at the time of award plus one percent (1%).
(ii) Landlord may elect not to terminate Tenant's right to
possession of the Premises, in which event Landlord may continue to enforce all
of its rights and remedies under this Lease, including the right to collect all
rent as it becomes due. Efforts by the Landlord to maintain, preserve or relet
the Premises, or the appointment of a receiver to protect the Landlord's
interests under this Lease, shall not constitute a termination of the Tenant's
right to possession of the Premises. In the event that Landlord elects to avail
itself of the remedy provided by this subsection (ii), Landlord shall not
unreasonably withhold its consent to an assignment or subletting of the Premises
subject to the reasonable standards for Landlord's consent as are contained in
this Lease.
(b) The various rights and remedies reserved to Landlord in this Lease
or otherwise shall be cumulative and, except as otherwise provided by California
law, Landlord may pursue any or all of its rights and remedies at the same time.
No delay or omission of Landlord to exercise any right or remedy shall be
construed as a waiver of the right or remedy or of any
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default by Tenant. The acceptance by Landlord of rent shall not be a (i) waiver
of any preceding breach or default by Tenant of any provision of this Lease,
other than the failure of Tenant to pay the particular rent accepted, regardless
of Landlord's knowledge of the preceding breach or default at the time of
acceptance of rent, or (ii) a waiver of Landlord's right to exercise any remedy
available to Landlord by virtue of the breach or default. The acceptance of any
payment from a debtor in possession, a trustee, a receiver or any other person
acting on behalf of Tenant or Tenant's estate shall not waive or cure a default
under Section 14.1. No payment by Tenant or receipt by Landlord of a lesser
amount than the rent required by this Lease shall be deemed to be other than a
partial payment on account of the earliest due stipulated rent, nor shall any
endorsement or statement on any check or letter be deemed an accord and
satisfaction and Landlord shall accept the check or payment without prejudice to
Landlord's right to recover the balance of the rent or pursue any other remedy
available to it. Tenant hereby waives any right of redemption or relief from
forfeiture under California Code of Civil Procedure Section 1174 or 1179, or
under any other present or future law, in the event this Lease is terminated by
reason of any default by Tenant. No act or thing done by Landlord or Landlord's
agents during the Term shall be deemed an acceptance of a surrender of the
Premises, and no agreement to accept a surrender shall be valid unless in
writing and signed by Landlord. No employee of Landlord or of Landlord's agents
shall have any power to accept the keys to the Premises prior to the termination
of this Lease, and the delivery of the keys to any employee shall not operate as
a termination of the Lease or a surrender of the Premises.
SECTION 14.3. LATE PAYMENTS.
(a) Any rent due under this Lease that is not paid to Landlord within
five (5) days of the date when due shall bear interest at the maximum rate
permitted by law from the date due until fully paid. The payment of interest
shall not cure any default by Tenant under this Lease. In addition, Tenant
acknowledges that the late payment by Tenant to Landlord of rent will cause
Landlord to incur costs not contemplated by this Lease, the exact amount of
which will be extremely difficult and impracticable to ascertain. Those costs
may include, but are not Limited to, administrative,
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processing and accounting charges, and late charges which may be imposed on
Landlord by the terms of any ground lease, mortgage or trust deed covering the
Premises. Accordingly, if any rent due from Tenant shall not be received by
Landlord or Landlord's designee within five (5) days after the date due, then
Tenant shall pay to Landlord, in addition to the interest provided above, a late
charge in the amount of one hundred dollars ($100.00) for each delinquent
payment. Acceptance of a late charge by Landlord shall not constitute a waiver
of Tenant's default with respect to the overdue amount, nor shall it prevent
Landlord from exercising any of its other rights and remedies.
(b) Following each second consecutive installment of rent that is not
paid within five (5) days following notice of nonpayment from Landlord, Landlord
shall have the option (i) to require that beginning with the first payment of
rent next due, rent shall no longer be paid in monthly installments but shall be
payable quarterly three (3) months in advance and/or (ii) to require that Tenant
increase the amount, if any, of the Security Deposit by one hundred percent
(100%). Should Tenant deliver to Landlord, at any time during the Term, two (2)
or more insufficient checks, the Landlord may require that all monies then and
thereafter due from Tenant be paid to Landlord by cashier's check.
SECTION 14.4. RIGHT OF LANDLORD TO PERFORM. All covenants and agreements to
be performed by Tenant under this Lease shall be performed at Tenant's sole cost
and expense and without any abatement of rent or right of set-off. If Tenant
fails to pay any sum of money, or fails to perform any other act on its part to
be performed under this Lease, and the failure continues beyond any applicable
grace period set forth in Section 14.1, then in addition to any other available
remedies, Landlord may, at its election make the payment or perform the other
act on Tenant's part. Landlord's election to make the payment or perform the act
on Tenant's part shall not give rise to any responsibility of Landlord to
continue making the same or similar payments or performing the same or similar
acts. Tenant shall, promptly upon demand by Landlord, reimburse Landlord for all
sums paid by Landlord and all necessary incidental costs, together with interest
at the maximum rate permitted by law from the date of the payment by Landlord.
SECTION 14.5. DEFAULT BY LANDLORD. Landlord shall not be deemed to be in
default in the performance of any obligation under this Lease unless and until
it has failed to perform the obligation within thirty (30) days after written
notice by Tenant to Landlord specifying in reasonable detail the nature and
extent of the failure; 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 commences
performance within the thirty (30) day period and thereafter diligently pursues
the cure to completion.
SECTION 14.6. EXPENSES AND LEGAL FEES. Should either Landlord or Tenant
bring any action in connection with this Lease, the prevailing party shall be
entitled to recover as a part of the action its reasonable attorneys' fees, and
all other costs. The prevailing party for the purpose of this paragraph shall
be determined by the trier of the facts.
SECTION 14.7. WAIVER OF JURY TRIAL/RIGHT TO ARBITRATE.
(a) LANDLORD AND TENANT EACH ACKNOWLEDGES THAT IT IS AWARE OF AND HAS
HAD THE ADVICE OF COUNSEL OF ITS CHOICE WITH RESPECT TO ITS RIGHT TO TRIAL BY
JURY, AND EACH PARTY DOES HEREBY EXPRESSLY AND KNOWINGLY WAIVE AND RELEASE ALL
SUCH RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT
BY EITHER PARTY HERETO AGAINST THE OTHER (AND/OR AGAINST ITS OFFICERS,
DIRECTORS, EMPLOYEES, AGENTS, OR SUBSIDIARY OR AFFILIATED ENTITIES) ON ANY
MATTERS WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE,
TENANT'S USE OR OCCUPANCY OF THE PREMISES, AND/OR ANY CLAIM OF INJURY OR DAMAGE.
(b) SHOULD A DISPUTE ARISE BETWEEN THE PARTIES REGARDING ANY MATTER
DESCRIBED ABOVE, THEN EXCEPT WITH RESPECT TO ACTIONS FOR
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UNLAWFUL OR FORCIBLE DETAINER EITHER PARTY MAY CAUSE THE DISPUTE TO BE SUBMITTED
TO JAMS/ENDISPUTE OR ITS SUCCESSOR ("JAMS") IN ORANGE COUNTY, CALIFORNIA, FOR
BINDING ARBITRATION BEFORE A SINGLE ARBITRATOR. HOWEVER, EACH PARTY RESERVES THE
RIGHT TO SEEK A PROVISIONAL REMEDY BY JUDICIAL ACTION. NO ARBITRATION ELECTION
BY EITHER PARTY PURSUANT TO THIS SUBSECTION SHALL BE EFFECTIVE IF MADE LATER
THAN THIRTY (30) DAYS FOLLOWING SERVICE OF A JUDICIAL SUMMONS AND COMPLAINT BY
OR UPON SUCH PARTY CONCERNING THE DISPUTE. THE ARBITRATION SHALL BE CONDUCTED IN
ACCORDANCE WITH THE RULES OF PRACTICE AND PROCEDURE OF JAMS AND OTHERWISE
PURSUANT TO THE CALIFORNIA ARBITRATION ACT (CODE OF CIVIL PROCEDURE SECTIONS
1280 ET SEQ.). NOTWITHSTANDING THE FOREGOING, THE ARBITRATOR IS SPECIFICALLY
DIRECTED TO LIMIT DISCOVERY TO THAT WHICH IS ESSENTIAL TO THE EFFECTIVE
PROSECUTION OR DEFENSE OF THE ACTION, AND IN NO EVENT SHALL SUCH DISCOVERY BY
EITHER PARTY INCLUDE MORE THAN ONE NON-EXPERT WITNESS DEPOSITION UNLESS BOTH
PARTIES OTHERWISE AGREE. THE ARBITRATOR SHALL APPORTION THE COSTS OF THE
ARBITRATION, TOGETHER WITH THE ATTORNEYS' FEES OF THE PARTIES, IN THE MANNER
DEEMED EQUITABLE BY THE ARBITRATOR, IT BEING THE INTENTION OF THE PARTIES THAT
THE PREVAILING PARTY ORDINARILY BE ENTITLED TO RECOVER ITS REASONABLE COSTS AND
FEES. JUDGMENT UPON ANY AWARD RENDERED BY THE ARBITRATOR MAY BE ENTERED BY ANY
COURT HAVING JURISDICTION.
ARTICLE XV. END OF TERM
SECTION 15.1. HOLDING OVER. This Lease shall terminate without further
notice upon the expiration of the Term, and any holding over by Tenant after the
expiration shall not constitute a renewal or extension of this Lease, or give
Tenant any rights under this Lease, except when in writing signed by both
parties. If Tenant holds over for any period after the expiration (or earlier
termination) of the Term, Landlord may, at its option, treat Tenant as a tenant
at sufferance only, commencing on the first (1st) day following the termination
of this Lease. Any hold-over by Tenant shall be subject to all of the terms of
this Lease, except that the monthly rental shall be two hundred percent (200%)
of the total monthly rental for the month immediately preceding the date of
termination, subject to Landlord's right to modify same upon thirty (30) days
notice to Tenant. If Tenant fails to surrender the Premises upon the expiration
of this Lease despite demand to do so by Landlord Tenant shall indemnify and
hold Landlord harmless from all loss or liability, including without limitation,
any claims made by any succeeding tenant relating to such failure to surrender.
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Acceptance by Landlord of rent after the termination shall not constitute a
consent to a holdover or result in a renewal of this Lease. The foregoing
provisions of this Section are in addition to and do not affect Landlord's right
of re-entry or any other rights of Landlord under this Lease or at law.
SECTION 15.2. MERGER ON TERMINATION. The voluntary or other surrender of
this Lease by Tenant, or a mutual termination of this Lease, shall terminate any
or all existing subleases unless Landlord, at its option, elects in writing to
treat the surrender or termination as an assignment to it of any or all
subleases affecting the Premises.
SECTION 15.3. SURRENDER OF PREMISES; REMOVAL OF PROPERTY. Upon the
Expiration Date or upon any earlier termination of this Lease, Tenant shall quit
and surrender possession of the Premises to Landlord in as good order, condition
and repair as when received or as hereafter may be improved by Landlord or
Tenant, repairs which are Landlord's obligation excepted, and shall, without
expense to Landlord, remove or cause to be removed all voice and/or data
transmission cabling installed by or for Tenant, together with all personal
property and debris, except for any items that Landlord may by written
authorization allow to remain. Tenant shall repair all damage to the Premises
resulting from the removal, which repair shall include the patching and filling
of holes and repair of structural damage, provided that Landlord may instead
elect to repair any structural damage at Tenant's expense. If Tenant shall fail
to comply with the provisions of this Section, Landlord may effect the removal
and/or make any repairs, and the cost to Landlord shall be additional rent
payable by Tenant upon demand. If requested by Landlord, Tenant shall execute,
acknowledge and deliver to Landlord an instrument in writing releasing and
quitclaiming to Landlord all right, title and interest of Tenant in the
Premises. It is understood that Landlord intends to shampoo the carpet in the
Premises and touch-up the paint as necessary following the expiration of the
Term and Tenant's vacation of the Premises. The cost of such work shall be
borne by Tenant and Landlord may, at its option, deduct same from the balance of
the Security Deposit.
ARTICLE XVI. PAYMENTS AND NOTICES
All sums payable by Tenant to Landlord shall be paid, without deduction or
offset, in lawful money of the United States to Landlord at its address set
forth in Item 12 of the Basic Lease Provisions, or at any other place as
Landlord may designate in writing. Unless this Lease expressly provides
otherwise, as for example in the payment of rent pursuant to Section 4.1, all
payments shall be due and payable within five (5) days after demand. All
payments requiring proration shall be prorated on the basis of a thirty (30) day
month and a three hundred sixty (360) day year. Any notice, election, demand,
consent, approval or other communication to be given or other document to be
delivered by either party to the other may be delivered to the other party, at
the address set forth in Item 12 of the Basic Lease Provisions, by personal
service or telegram, telecopier, or electronic facsimile transmission, or by any
courier or "overnight" express mailing service, or may be deposited in the
United States mail, postage prepaid. Either party may, by written notice to the
other, served in the manner provided in this Article, designate a different
address. If any notice or other document is sent by mail, it shall be deemed
served or delivered three (3) business days after mailing or, if sooner, upon
actual receipt. If more than one person or entity is named as Tenant under this
Lease, service of any notice upon any one of them shall be deemed as service
upon all of them.
ARTICLE XVII. RULES AND REGULATIONS
Tenant agrees to comply with the Rules and Regulations attached as Exhibit
E, and any reasonable and nondiscriminatory amendments, modifications and/or
additions as may be adopted and published by written notice to tenants by
Landlord for the safety, care, security, good order, or cleanliness of the
Premises, Building, Project and/or Common Areas. Landlord shall not be liable
to Tenant for any violation of the Rules and Regulations or the breach of any
covenant or
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condition in any lease or any other act or conduct by any other tenant, and the
same shall not constitute a constructive eviction hereunder. One or more waivers
by Landlord of any breach of the Rules and Regulations by Tenant or by any other
tenant(s) shall not be a waiver of any subsequent breach of that rule or any
other. Tenant's failure to keep and observe the Rules and Regulations shall
constitute a default under this Lease. In the case of any conflict between the
Rules and Regulations and this Lease, this Lease shall be controlling.
ARTICLE XVIII. BROKER'S COMMISSION
The parties recognize as the broker(s) who negotiated this Lease the
firm(s), if any, whose name(s) is (are) stated in Item 10 of the Basic Lease
Provisions, and agree that Landlord shall be responsible for the payment of
brokerage commissions to those broker(s) unless otherwise provided in this
Lease. Each party warrants that it has had no dealings with any other real
estate broker or agent in connection with the negotiation of this Lease, and
agrees to indemnify and hold the other party harmless from any cost, expense or
liability (including reasonable attorneys' fees) for any compensation,
commissions or charges claimed by any other real estate broker or agent employed
or claiming to represent or to have been employed by the indemnifying party in
connection with the negotiation of this Lease. The foregoing agreement shall
survive the termination of this Lease.
ARTICLE XIX. TRANSFER OF LANDLORD'S INTEREST
In the event of any transfer of Landlord's interest in the Premises, the
transferor shall be automatically relieved of all obligations on the part of
Landlord accruing under this Lease from and after the date of the transfer,
provided that any funds held by the transferor in which Tenant has an interest
shall be turned over, subject to that interest, to the transferee and Tenant is
notified of the transfer as required by law. No holder of a mortgage and/or
deed of trust to which this Lease is or may be subordinate shall be responsible
in connection with the Security Deposit, unless the mortgage or holder of the
deed of trust or the Landlord actually receives the Security Deposit. It
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is intended that the covenants and obligations contained in this Lease on the
part of Landlord shall, subject to the foregoing, be binding on Landlord, its
successors and assigns, only during and in respect to their respective
successive periods of ownership.
ARTICLE XX. INTERPRETATION
SECTION 20.1. GENDER AND NUMBER. Whenever the context of this Lease
requires, the words "Landlord" and "Tenant" shall include the plural as well as
the singular, and words used in neuter, masculine or feminine genders shall
include the others.
SECTION 20.2. HEADINGS. The captions and headings of the articles and
sections of this Lease are for convenience only, are not a part of this Lease
and shall have no effect upon its construction or interpretation.
SECTION 20.3. JOINT AND SEVERAL LIABILITY. If more than one person or
entity is named as Tenant, the obligations imposed upon each shall be joint and
several and the act of or notice from, or notice or refund to, or the signature
of, any one or more of them shall be binding on all of them with respect to the
tenancy of this Lease, including, but not limited to, any renewal, extension,
termination or modification of this Lease.
SECTION 20.4. SUCCESSORS. Subject to Articles IX and XIX, all rights and
liabilities given to or imposed upon Landlord and Tenant shall extend to and
bind their respective heirs, executors, administrators, successors and assigns.
Nothing contained in this Section is intended, or shall be construed, to grant
to any person other than Landlord and Tenant and their successors and assigns
any rights or remedies under this Lease.
SECTION 20.5. TIME OF ESSENCE. Time is of the essence with respect to the
performance of every provision of this Lease in which time of performance is a
factor.
SECTION 20.6. CONTROLLING LAW. This Lease shall be governed by and
interpreted in accordance with the laws of the State of California.
SECTION 20.7. SEVERABILITY. If any term or provision of this Lease, the
deletion of which would not adversely affect the receipt of any material benefit
by either party or the deletion of which is consented to by the party adversely
affected, shall be held invalid or unenforceable to any extent, the remainder of
this Lease shall not be affected and each term and provision of this Lease shall
be valid and enforceable to the fullest extent permitted by Law.
SECTION 20.8. WAIVER. One or more waivers by Landlord or Tenant of any
breach of any term, covenant or condition contained in this Lease shall not be a
waiver of any subsequent breach of the same or any other term, covenant or
condition. Consent to any act by one of the parties shall not be deemed to
render unnecessary the obtaining of that party's consent to any subsequent act.
No breach of this Lease shall be deemed to have been waived unless like waiver
is in a writing signed by the waiving party.
SECTION 20.9. INABILITY TO PERFORM. In the event that either party shall
be delayed or hindered in or prevented from the performance of any work or in
performing any act required under this Lease by reason of any cause beyond the
reasonable control of that party, then the performance of the work or the doing
of the act shall be excused for the period of the delay and the time for
performance shall be extended for a period equivalent to the period of the
delay. The provisions of this Section shall not operate to excuse Tenant from
the prompt payment of rent.
SECTION 20.10. ENTIRE AGREEMENT. This Lease and its exhibits and other
attachments cover in full each and every agreement of every kind between the
parties concerning the Premises, the Building, and the Project, and all
preliminary negotiations, oral agreements, understandings and/or practices,
except those contained in this Lease, are superseded and of no
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further effect. Tenant waives its rights to rely on any representations or
promises made by Landlord or others which are not contained in this Lease. No
verbal agreement or implied covenant shall be held to modify the provisions of
this Lease, any statute, law, or custom to the contrary notwithstanding.
SECTION 20.11. QUIET ENJOYMENT. Upon the observance and performance of all
the covenants, terms and conditions on Tenant's part to be observed and
performed, and subject to the other provisions of this Lease, Tenant shall
peaceably and quietly hold and enjoy the Premises for the Term without hindrance
or interruption by Landlord or any other person claiming by or through Landlord.
SECTION 20.12. SURVIVAL. All covenants of Landlord or Tenant which
reasonably would be intended to survive the expiration or sooner termination of
this Lease, including without limitation any warranty or indemnity hereunder,
shall so survive and continue to be binding upon and inure to the benefit of the
respective parties and their successors and assigns.
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ARTICLE XXI. EXECUTION AND RECORDING
SECTION 21.1. COUNTERPARTS. This Lease may be executed in one or more
counterparts, each of which shall constitute an original and all of which shall
be one and the same agreement.
SECTION 21.2. CORPORATE AND PARTNERSHIP AUTHORITY. If Tenant is a
corporation or partnership, each individual executing this Lease on behalf of
the corporation or partnership represents and warrants that he is duty
authorized to execute and deliver this Lease on behalf of the corporation or
partnership, and that this Lease is binding upon the corporation or partnership
in accordance with its terms. Tenant shall, at Landlord's request, deliver a
certified copy of its board of directors resolution or partnership agreement or
certificate authorizing or evidencing the execution of this Lease.
SECTION 21.3. EXECUTION OF LEASE; NO OPTION OR OFFER. The submission of
this Lease to Tenant shall be for examination purposes only, and shall not
constitute an offer to or option for Tenant to lease the Premises. Execution of
this Lease by Tenant and its return to Landlord shall not be binding upon
Landlord, notwithstanding any time interval, until Landlord has in fact executed
and delivered this Lease to Tenant, it being intended that this Lease shall only
become effective upon execution by Landlord and delivery of a fully executed
counterpart to Tenant.
SECTION 21.4. RECORDING. Tenant shall not record this Lease without the
prior written consent of Landlord. Tenant, upon the request of Landlord, shall
execute and acknowledge a "short form" memorandum of this Lease for recording
purposes.
SECTION 21.5. AMENDMENTS. No amendment or mutual termination of this
Lease shall be effective unless in writing signed by authorized signatories of
Tenant and Landlord, or by their respective successors in interest. No actions,
policies, oral or informal arrangements, business dealings or other course of
conduct by or between the parties shall be deemed to modify this Lease in any
respect.
ARTICLE XXI. MISCELLANEOUS
SECTION 22.1. NONDISCLOSURE OF LEASE TERMS. Tenant acknowledges and
agrees that the terms of this Lease are confidential and constitute proprietary
information of Landlord. Disclosure of the terms could adversely affect the
ability of Landlord to negotiate other leases and impair Landlord's relationship
with other tenants. Accordingly, Tenant agrees that it, and its partners,
officers, directors, employees and attorneys, shall not intentionally and
voluntarily disclose the terms and conditions of this Lease to any other tenant
or apparent prospective tenant of the Building or Project, either directly or
indirectly, without the prior written consent of Landlord, provided, however,
that Tenant may disclose the terms to prospective subtenants or assignees under
this Lease.
SECTION 22.2. REPRESENTATIONS BY TENANT. The application, financial
statements and tax returns, if any, submitted and certified to by Tenant as an
accurate representation of its financial condition have been prepared, certified
and submitted to Landlord as an inducement and consideration to Landlord to
enter into this Lease. The application and statements are represented and
warranted by Tenant to be correct and to accurately and fully reflect Tenant's
true financial condition as of the date of execution of this Lease by Tenant.
Tenant shall during the Term promptly furnish Landlord with annual financial
statements reflecting Tenant's financial condition upon written request from
Landlord.
SECTION 22.3. CHANGES REQUESTED BY LENDER. If, in connection with
obtaining financing for the Building, the lender shall request reasonable
modifications in this Lease as a condition to the financing, Tenant will not
unreasonably withhold or delay its consent,
29
<PAGE>
provided that the modifications do not materially increase the obligations of
Tenant or materially and adversely affect the leasehold interest created by this
Lease.
SECTION 22.4. MORTGAGEE PROTECTION. No act or failure to act on the part
of Landlord which would otherwise entitle Tenant to be relieved of its
obligations hereunder or to terminate this Lease shall result in such a release
or termination unless (a) Tenant has given notice by registered or certified
mail to any beneficiary of a deed of trust or mortgage covering the Building
whose address has been furnished to Tenant and (b) such beneficiary is afforded
a reasonable opportunity to cure the default by Landlord, including, if
necessary to effect the cure, time to obtain possession of the Building by power
of sale or judicial foreclosure provided that such foreclosure remedy is
diligently pursued.
30
<PAGE>
SECTION 22.5. DISCLOSURE STATEMENT. Tenant acknowledges that it has read,
understands and, if applicable, shall comply with the provisions of Exhibit F to
this Lease, if that Exhibit is attached.
Tenant has been advised that portions of the Office Building incorporate
asbestos-containing materials, and Tenant agrees that it shall not make repairs
or alterations to the Premises without landlord's prior consent.
LANDLORD: TENANT:
THE IRVINE COMPANY, PAN AMERICAN BANK, FSB,
a Michigan corporation a Delaware corporation
By /s/ CLARENCE W. BARKER By /s/ RAY THOUSAND
---------------------------------- -----------------------------------
Clarence W. Barker,
President, Irvine Office Company, Printed Name RAY THOUSAND
a division of The Irvine Company -------------------------
Title DIVISION PRESIDENT
--------------------------------
By /s/ JOHN C. TSU By
---------------------------------- -----------------------------------
John C. Tsu,
Assistant Secretary Printed Name
-------------------------
Title
--------------------------------
31
<PAGE>
EXHIBIT 10.55
FIRST AMENDMENT TO LEASE
------------------------
I. PARTIES AND DATE.
This First Amendment to Lease (the "First Amendment") dated July 2, 1996,
is by and between THE IRVINE COMPANY, a Michigan corporation ("Landlord"), and
PAN AMERICAN BANK, FSB, a Delaware corporation ("Tenant").
II. RECITALS.
On January 18, 1996, Landlord and Tenant entered into an office space lease
("Lease") for space in a building located at 17752 Skypark Circle, Suite 160,
Irvine, California.
Landlord and Tenant each desire to modify the Lease to change the location
of the Premises to space located at 17744 Skypark Circle, Suite 165, Irvine,
California comprising approximately 5,546 rentable square feet ("Suite 165"),
extend the Lease Term, adjust the Basic Rent, and make such other modifications
as are set forth in "III. MODIFICATIONS" next below. For purposes of this First
Amendment, Suite 160 located at 17752 Skypark Circle shall be referred to as the
"Original Premises."
III MODIFICATIONS.
A. Premises. Effective as of the Commencement Date for Suite 165, all
--------
references to the "Premises" under the Lease shall be amended to refer to Suite
165 as described in this First Amendment.
B. Basic Lease Provisions. The Basic Lease Provisions are hereby amended
----------------------
as follows:
1. Effective as of the Commencement Date for Suite 165, Item 2 shall
be deleted in its entirety and the following shall be substituted in
lieu therefor:
"2. Premises: Suite No. 165 (the Premises are more particularly
described in Section 2.1).
Address of Building: 17744 Skypark Circle, Irvine, CA 92174
Project Description: Skypark"
2. Item 4 is hereby amended by adding the following:
"Estimated Commencement Date for Suite 165: August 1, 1996"
3. Item 5 is hereby deleted in its entirety and the following shall be
substituted in lieu thereof:
1
<PAGE>
"5. Lease Term: The Term of this Lease shall expire sixty (60)
months following the Commencement Date for Suite 165."
4. Effective as of the Commencement Date for Suite 165, Item 6 shall
be deleted in its entirety and the following shall be substituted in lieu
thereof:
"6. Basic Rent: Six Thousand Three Hundred Seventy-Eight
Dollars ($6,378.00) per month.
Rental Adjustment: None."
5. Effective as of the Commencement Date for Suite 165, Item 7 shall
be deleted in its entirety and the following shall be substituted in lieu
thereof:
"7. Property Tax Base: The Property Taxes per rentable square
foot actually incurred by Landlord during its fiscal year ending
June 30, 1997.
Building Cost Base: The Building Costs per rentable square foot
actually incurred by Landlord during its fiscal year ending June
30, 1997."
6. Effective as of the Commencement Date for Suite 165, Item 8 shall
be deleted in its entirety and the following shall be substituted in lieu
thereof:
"8. Floor Area of Premises: approximately 5,546 rentable square
feet."
7. Item 9 is hereby deleted in its entirety and the following shall be
substituted in lieu thereof:
"9. Security Deposit: $7,015.00."
8. Effective as of the Commencement Date for suite 165, Item 12 shall
be amended by deleting Tenant's Notice Address therefrom and substituting
the following in lieu thereof:
"United Auto Credit Corporation
17744 Skypark Circle
Suite 165
Irvine, CA 92714"
C. Operating Expenses. Notwithstanding any contrary provision in the
------------------
Lease, Landlord hereby agrees that Tenant shall not be obligated to reimburse
Landlord for
2
<PAGE>
Operating Expenses accruing during the initial twelve (12) months following the
Commencement Date for Suite 165.
D. Security Deposit. Concurrently with Tenant's delivery of this First
----------------
Amendment, Tenant shall deliver the sum of Three Thousand Five Hundred Fifteen
Dollars ($3,515.00) to Landlord, which sum shall be added to the Security
Deposit presently being held by Landlord in accordance with Section 4.3 of the
Lease.
E. Exterior Signage. Tenant shall have the right to install "eyebrow"
----------------
signage on the exterior of the Building facing Skypark Circle, together with a
small monument sign at the location depicted on Exhibit Y hereto, both of which
signs shall consist only of the name "United Auto Credit Corporation." The
type, specifications, location and design of such signage shall be subject to
the prior written approval of Landlord and the City of Irvine and shall be
subject to the Skypark Sign Criteria. Fabrication, installation, insurance, and
maintenance of such signage shall be at Tenant's sole cost and expense. Except
for the foregoing, no sign, advertisement or notice visible from the exterior of
the Premises shall be inscribed, painted or affixed by Tenant on any part of the
Premises without the prior consent of Landlord. Tenant's signage right shall
belong solely to Pan American Bank, FSB, a Delaware corporation and may not be
transferred or assigned without Landlord's prior written consent, which may be
withheld by Landlord in Landlord's sole discretion. In the event Tenant,
exclusive of any subtenant(s), fails to occupy the entire Premises, then Tenant
shall, within thirty (30) days following notice from Landlord, remove the
exterior signage at Tenant's expense, and Tenant shall in any event remove such
signage promptly following the expiration or earlier termination of the Lease.
In addition, should the existence of Tenant's monument sign interfere with
Landlord's ability to obtain Permission from applicable governmental authorities
to install other monument signs for the Project, then Tenant shall promptly
remove its monument sign following notice thereof from Landlord. Any such
removal shall be at Tenant's sole expense, and Tenant shall bear the cost of any
resulting repairs to the Building or Project that are reasonable necessary due
to the removal.
F. Floor Plan of Premises. Effective as of the Commencement Date for
----------------------
Suite 165, Exhibit A attached to the Lease is deleted and is substituted by the
Revised Exhibit A attached to this First Amendment.
G. Parking. Notwithstanding any contrary provision in Exhibit C to the
-------
Lease, "Parking," Landlord hereby agrees that provided Tenant is not in default
under the Lease, the monthly stall charge for the unreserved parking spaces
allotted therein to Tenant's employees shall he waived during the initial sixty
(60) months following the Commencement Date for Suite 165.
H. Tenant Improvements. Landlord shall complete the tenant improvement
-------------------
work for Suite 165 as set forth in Exhibit X, Work Letter, attached hereto.
3
<PAGE>
I. Termination of-the-Original Premises. Landlord and Tenant agree that
------------------------------------
the rights and obligations of the parties under the Lease with respect to the
Original Premises shall terminate in their entirety, effective as of midnight on
the day preceding the Commencement Date for Suite 165, provided that such
termination shall not relieve Tenant of (a) any accrued obligation or liability
under the Lease with respect to the Original Premises as of said termination
date, or (b) any obligation under the Lease with respect to the original
Premises which was reasonably intended to survive the expiration or termination
thereof. Tenant understands and agrees that it shall completely vacate the
Original Premises by midnight on the day preceding the Commencement Date for
Suite 165 and shall remove all property therefrom in accordance with the
provisions of Section 15.3 of the Lease.
J. Contingency. Tenant understands and agrees that the effectiveness of
-----------
this First Amendment is contingent upon the mutual execution and deliver of a
lease surrender and termination agreement between Landlord and Cornelia Dirpes,
an individual, the current tenant in possession of Suite 165.
K. Subtenancy. Landlord acknowledges that all or a portion of the
----------
Premises shall be subleased by Tenant to its subsidiary, United Auto Credit
Corporation.
L. Right to Extend. Provided that Tenant is not in default under any
---------------
provision of the Lease, either at the time of exercise of the extension right
granted herein or at the time of the commencement of such extension, and
provided further that Tenant has not assigned its interest in the Lease, Tenant
may extend the Term of the Lease for one (1) period of sixty (60) months.
Tenant shall exercise its right to extend the Term by and only by (i) delivering
to Landlord, not less than one hundred eighty (180) days or more than two
hundred forty (240) days prior to the expiration date of the Term, Tenant's
written notice of its commitment to extend (the "Commitment Notice") and (ii)
returning to Landlord, within fifteen (15) days after receipt, an executed
amendment to this Lease (to be prepared by Landlord upon receipt of the
Commitment Notice) setting forth the Basic Rent and other charges payable during
the extension term. The Basic Rent payable under the Lease during any extension
of the Term shall be at the rate Landlord is then receiving for recent leases of
comparable and similarly improved space within the Project on the date of the
Commitment Notice, as reasonably determined by Landlord. In no event shall the
Basic Rent payable at the commencement of any extension period be less than the
Basic Rent payable during the month immediately preceding the commencement of
such extension period. If Tenant fails to timely comply with any of the
provisions of this paragraph, Tenant's right to extend the Term shall be
extinguished and the Lease shall automatically terminate as of the expiration
date of the Term, without any extension and without any liability to Landlord.
Any attempt to assign or transfer any right or interest created by this
paragraph shall be void from its inception. Tenant shall have no other right to
extend the Term beyond the single sixty (60) month extension created by this
paragraph. Unless agreed to in a writing signed by Landlord and Tenant, any
extension of the Term, whether created by an amendment to the Lease or by a
holdover of the Premises by Tenant, or otherwise, shall be deemed a part of, and
not in addition to, any duly exercised extension period permitted by this
paragraph.
4
<PAGE>
IV. GENERAL.
A. Effect of Amendments. The Lease shall remain in full force and effect
--------------------
except to the extent that it is modified by this Amendment.
B. Entire Agreement. This Amendment embodies the entire understanding
----------------
between Landlord and Tenant with respect to the modifications set forth in "III.
MODIFICATIONS" above and can be changed only by a writing signed by Landlord and
Tenant.
C. Counterparts. If this Amendment is executed in counterparts, each is
------------
hereby declared to be an original; all, however, shall constitute but one and
the same amendment. In any action or proceeding, any photographic, photostatic,
or other copy of this Amendment may be introduced into evidence without
foundation.
D. Defined Terms. All words commencing with initial capital letters in
-------------
this Amendment and defined in the Lease shall have the same meaning in this
Amendment as in the Lease, unless they are otherwise defined in this Amendment.
E. Corporate and Partnership Authority. If Tenant is a corporation or
-----------------------------------
partnership, or is comprised of either or both of them, each individual
executing this Amendment for the corporation or partnership represents that he
or she is duly authorized to execute and deliver this Amendment on behalf of the
corporation or partnership and that this Amendment is binding upon the
corporation or partnership in accordance with its terms.
F. Attorneys' Fees. The provisions of the Lease respecting payment of
---------------
attorneys' fees shall also apply to this Amendment.
5
<PAGE>
V. EXECUTION.
Landlord and Tenant executed this Amendment on the date as set forth
in "I. PARTIES AND DATE." above.
LANDLORD: TENANT:
THE IRVINE COMPANY, PAN AMERICAN BANK, FSB
a Michigan corporation a Delaware corporation
By /s/ WILLIAM R. HALFORD By /s/ LAWRENCE J. GRILL
---------------------------------- -----------------------------------
William R. Halford, Vice President
and General Manager, Irvine Office Title President
Company, a division of The Irvine --------------------------------
Company
By /s/ JOHN C. TSU By /s/ ANDREE B. MOORE
---------------------------------- -----------------------------------
John C. Tsu,
Assistant Secretary Title Assistant Secretary
--------------------------------
6
<PAGE>
EXHIBIT X
WORK LETTER/BUILD TO SUIT
Landlord hereby agrees to complete the tenant improvement work for Suite
165 as shown in the space plan (the "Plan") prepared by Gensler & Associates,
dated April 26, 1996, with revisions dated May 10, 1996. Landlord's total
contribution for the tenant improvements, inclusive of space planning costs and
Landlord's construction management fee, shall not exceed Seventy-Four Thousand
Three Hundred Forty-Two Dollars (($74,342.00) ("Landlord's Contribution"), and
any additional cost shall be borne solely by Tenant and reimbursed to Landlord
upon demand.
Notwithstanding the foregoing; in the event that the total cost of the
improvement work exceeds the Landlord's Contribution, then Landlord shall fund
the excess up to a total of Twenty-Five Thousand Six Hundred Thirty-Five Dollars
($25,635.00) (the "Advance"). The Advance shall be deemed a loan to Tenant and
shall bear interest at the rate of ten percent (10%) per annum. The Advance
shall be repaid by Tenant as additional rent in equal fully amortized monthly
installments during the sixty (60) month period following the Commencement Date
for Suite 165. The first installment shall be due on the Commencement Date for
Suite 165 with subsequent installments due on the first day of each month
thereafter. If requested by Landlord, the amount of such installments shall be
memorialized on a form provided by Landlord. Should this Lease terminate prior
to the date the Advance is repaid in full, all unpaid principal and interest
shall be immediately due and payable.
At Tenant's request, Landlord shall submit the tenant improvement work to a
competitive bidding process involving three (3) general contractors selected by
Landlord, one of which shall be Parkinson/Hatch. Unless otherwise specified in
the Plan or hereafter agreed in writing by Landlord, all materials and finishes
utilized in constructing the tenant improvements shall be Landlord's building
standard. Should Landlord submit any additional plans, equipment specification
sheets, or other matters to Tenant for approval or completion, Tenant shall
respond in writing, as appropriate, within five (5) working days unless a
shorter period is provided herein. Tenant shall not unreasonably withhold its
approval of any matter, and any disapproval shall be limited to items not
previously approved by Tenant in the Plan or otherwise.
In the event that Tenant requests in writing a revision in the Plan or in
any other plans hereafter approved by Tenant, then provided such change request
is acceptable to Landlord, Landlord shall advise Tenant by written change order
of any additional cost and/or Tenant Delay (as defined below) such change would
cause. Tenant shall approve or disapprove such change order in writing within
two (2) days following its receipt. Tenant's approval of a charge order shall
not be effective unless accompanied by payment in full of the additional cost of
the tenant improvement work resulting from the change order. It is understood
that Landlord shall have no obligation to interrupt or modify the tenant
improvement work pending Tenant's approval of a change order.
1
<PAGE>
Notwithstanding any provision in the First Amendment of this Work Letter to
the contrary, if Tenant fails to comply with any of the time periods specified
in this Work Letter, requests any changes to the work, furnishes inaccurate or
erroneous specifications or other information, or otherwise delays in any manner
the completion of the tenant improvements or the issuance of an occupancy
certificate (any of the foregoing being referred to in this Work Letter as a
"Tenant Delay"), then Tenant shall bear any resulting additional construction
cost or other expenses and the Commencement Date for Suite 165 shall be deemed
to have occurred for all purposes, including Tenant's obligation to pay rent, as
of the date Landlord reasonably determines that it would have been able to
deliver Suite 165 to Tenant but for the collective Tenant Delays. In no event,
however, shall such date be earlier than the Estimated Commencement Date for
Suite 165 as set forth in the First Amendment.
Landlord shall permit Tenant and its agents to enter Suite 165 prior to the
Commencement Date for Suite 165 in order that Tenant may perform any work to be
performed by Tenant hereunder through its own contractors, subject to Landlord's
prior written approval, and in a manner and upon terms and conditions and at
times satisfactory to Landlord's representative. The foregoing license to enter
Suite 165 prior to the Commencement Date for Suite 165 is, however, conditioned
upon Tenant's contractors and their subcontractors and employees working in
harmony and not interfering with the work being performed by Landlord. If at
any time that entry shall cause disharmony or interfere with the work being
performed by Landlord, this license may be withdrawn by Landlord upon twenty-
four (24) hours written notice to Tenant. That license is further conditioned
upon the compliance by Tenant's contractors with all requirements imposed by
Landlord on third party contractors, including without limitation the
maintenance by Tenant and its contractors and subcontractors of workers'
compensation and public liability and property damage insurance in amounts and
with companies and on forms satisfactory to Landlord, with certificates of such
insurance being furnished to Landlord prior to proceeding with any such entry.
The entry shall be deemed to be under all of the Provisions of the Lease except
as to the covenants to pay rent. Landlord shall not be liable in any way for
any injury, loss or damage which may occur to any such work being performed by
Tenant, the same being solely at Tenant's risk. In no event shall the failure
of Tenant's contractors to complete any work in Suite 165 extend the
Commencement Date for Suite 165 beyond the date that Landlord has completed its
tenant improvement work and tendered Suite 165 to Tenant.
Tenant hereby designates Ray Thousand, Telephone No. (714) 224-1900, as its
representative, agent and attorney-in-fact for the purpose of receiving notices,
approving submittals and issuing requests for changes, and Landlord shall be
entitled to rely upon authorizations and directives of such person(s) as if
given by Tenant. Tenant may amend the designation or its construction
representative(s) at any time upon delivery of written notice to Landlord.
2
<PAGE>
EXHIBIT 10.56
STANDARD OFFICE LEASE
1. BASIC LEASE PROVISIONS.
1.1 PARTIES: This Lease, dated for references purposes only April 25,
--------
1997, is made by and between CAL Portfolio, L.L.C., ("Landlord") and
-- ---------------------
Pan American Bank, FSB doing business under the name of Pan American
---------------------- ------------
Bank, FSB ("Tenant").
---------
1.2 PREMISES: Suite Number(s)) 490, as shown on Exhibit "a" attached
---
hereto (the "Premises").
1.3 RENTABLE AREA OF PREMISES: 9,345 square feet.
-----
1.4 BUILDING ADDRESS: 625 The City Drive, Orange, California, 92868.
---------------------------------------------
1.5 USE: General Office.
--------------
subject to the requirements and limitations contained in Section 6.
1.6 TERM: Five (5) years and No (0) months.
-------- ------
1.7 COMMENCEMENT DATE: July 1, 1997. Subject to adjustments in accordance
------------
with section 3 below.
1.8 Base Rent: $14,111.00 per month.
---------
1.9 BASE RENT PAID UPON EXECUTION: $14,111.00 for May 7 through May 31.
--------- --------------------
$17,475.00.
---------
1.10 SECURITY DEPOSIT: $17,475.00.
---------
1.11 TENANT'S SHARE: 6.72%
----
1.12 BASE YEAR: The calendar year 1997.
----
1.13 NUMBER OF PARKING SPACES: Reserved $N/A Unreserved: $Thirty
--- ------
Seven (37).
----------
1.14 INITIAL MONTHLY PARKING RATES PER VEHICLE: Reserved: $N/A
---
Unreserved: $N/A.
---
1.15 REAL ESTATE BROKER:
Landlord: Transwestern Property Company.
-----------------------------
Tenant: None
1.16 ATTACHMENTS TO LEASE IN ADDITION TO EXHIBIT A -"PREMISES," EXHIBIT B -
"VERIFICATION LETTER" AND EXHIBIT C - "RULES AND REGULATIONS":
Addendum.
--------
1.17 ADDRESS FOR NOTICES:
LANDLORD: CAL Portfolio VI, L.L.C.
------------------------------------
c/o Layton-Belling Associates
------------------------------------
4220 Von Karman, Suite 110
------------------------------------
Newport Beach, CA 92660
------------------------------------
WITH A COPY TO: Transwestern Property Company
------------------------------------
625 The City Drive Suite 365
------------------------------------
Orange, CA 92868
------------------------------------
TENANT; Pan American Bank, FSB
------------------------------------
Administrative Offices, 3rd Floor
------------------------------------
1300 South El Camino Real, Suite 320
------------------------------------
San Mateo, CA 94402
------------------------------------
1
<PAGE>
2. PREMISES.
2.1 LEASE OF PREMISES AND DEFINITION OF PROJECT. Landlord hereby leases
to Tenant, and Tenant hereby leases from Landlord, upon all of the conditions
set forth herein the Premises, together with certain rights to the Common Areas
as hereinafter specified. The Premises shall not include an easement for light,
air or view. The building of which the Premises is a part (the "Building"), the
Common Areas (as defined below), the land upon which the same are located, along
with all other buildings and improvements thereon or thereunder, including all
parking facilities, are herein collectively referred to as the "Project."
2.2 CALCULATION OF SIZE OF BUILDING AND PREMISES. The number of rentable
square feet included within the Building has been calculated in accordance with
the methods of measuring rentable square feet, as that method is described in
the American National Institute Publication ANSI 7.65.1 1980, as promulgated by
the Building Owners and Managers Association (the "BOMA Standard"). (The number
of rentable square feet in the Premises has been calculated by measuring the
number of usable square feet within the Premises calculated in accordance with
the BOMA Standard and dividing the number of usable square feet by eight hundred
eighty-five/thousandths percent (.885%).) If the rentable square feet in the
Premises changes after this Lease is executed by Landlord and Tenant, the Base
Rent and any advance rent shall be adjusted by multiplying the new number of
rentable square feet in the Premises by the per square foot rental obtained by
dividing the Base Rent initially set forth in section 1.8 by the number of
rentable square feet initially set forth in section 1.3. If the number of
rentable square feet in the Premises is changed, Tenant's Share shall be
adjusted as provided in section 4.2(a).
2.3 COMMON AREAS DEFINED. The term "Common Areas" is defined as all areas
and facilities outside the Premises and within the exterior boundary line of the
Project that are designated by Landlord from time to time for the general non-
exclusive use of Landlord, Tenant and the other tenants of the Project and their
respective employees, suppliers, customers and invitees, including, but not
limited to, common entrances, lobbies, corridors, stairwells, public restrooms,
elevators, parking areas, loading and unloading areas, roadways and sidewalks.
Landlord may also designate other land and improvements outside the boundaries
of the Project to be a part of the Common Areas, provided that such other land
and improvements have a reasonable and functional relationship to the Project.
3. TERM.
3.1 TERM AND COMMENCEMENT DATE. The term and Commencement Date of this
Lease are as specified in sections 1.6 and 1.7. The Commencement Date set forth
in section 1.7 is an estimated Commencement Date. Subject to the limitations
contained in section 3.3 below, the actual Commencement Date shall be the date
possession of the Premises is tendered to Tenant in accordance with section 3.4
below; provided, however, that the term of this Lease shall be computed from the
first day of the calendar month following the Commencement Date. When the
actual Commencement Date is established by Landlord, Tenant shall, within five
(5) days after Landlord's request, complete and execute the letter attached
hereto as Exhibit "11" and deliver it to Landlord. Tenant's failure to execute
the letter attached hereto as Exhibit "11" within said five (5) day period shall
be a material default hereunder and shall constitute Tenant's acknowledgment of
the truth of the facts contained in the letter delivered by Landlord to Tenant.
3.2 DELAY IN POSSESSION. Notwithstanding the estimated Commencement Date
specified in section 1.7, if for any reason Landlord cannot deliver possession
of the Premises to Tenant on said date, Landlord shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease or
the obligations of Tenant hereunder; provided, however, in such a case, Tenant
shall not be obligated to pay rent or perform any other obligation of Tenant
under this Lease, except as may be otherwise provided in this Lease, until
possession of the Premises is tendered to Tenant as defined in section 3.4. If
Landlord shall not have tendered possession of the Premises to Tenant within
sixty (60) days following the estimated Commencement Date specified in section
1.7, as the same may be adjusted in accordance with section 3.3 or in accordance
with the terms of any work letter agreement entered into by Landlord and Tenant,
Tenant, may, at Tenant's option, by notice in writing to Landlord within ten
(10) days after the expiration of the sixty (60) day period, terminate this
Lease. If Tenant terminates this Lease as provided in the preceding sentence,
the parties shall be discharged from all obligations hereunder, except that
Landlord shall return any money previously deposited with Landlord by Tenant;
and provided further, that if such written notice by Tenant is not received by
Landlord within said ten (10) day period, Tenant shall not have the right to
terminate this Lease as provided above unless Landlord fails to tender
possession of the Premises to Tenant within two hundred forty (240) days
following the estimated Commencement Date specified in section 1.7, as the same
may be adjusted in accordance with section 3.3 or in accordance with the terms
of any work letter agreement entered into by Landlord and Tenant. If Landlord
is unable to deliver possession of the Premises to Tenant on the Commencement
Date due to a "Force Majeure Event," the Commencement Date shall be extended by
the period of the delay caused by the Force Majeure Event. A Force Majeure
Event shall mean fire, earthquake, weather delays or other acts of God, strikes,
boycotts, war, riot, insurrection, embargoes, shortages of equipment, labor or
materials, delays in issuance of governmental permits or approvals, or any other
cause beyond the reasonable control of Landlord.
3.3 DELAYS CAUSED BY TENANT. There shall be no abatement of rent, and the
one hundred twenty (120) day period and the two hundred forty (240) day period
specified in section 3.2 shall be deemed extended, to the extent of any delays
caused by acts or omissions of Tenant, Tenant's agents, employees and
contractors, or for Tenant delays as defined in any work letter agreement
attached to this Lease, if any (hereinafter "Tenant Delays"). Tenant shall pay
to Landlord an amount equal to one thirtieth (1/30th) of the Base Rent due for
the first full calendar month of the Lease term for each day of Tenant Delay.
For purposes of the foregoing calculation, the Base Rent payable for the first
full calendar month of the term of this Lease shall not be reduced by any abated
rent, conditionally waived rent, free rent or similar rental concessions, if
any. Landlord and Tenant agree that the foregoing payment constitutes a fair
and reasonable estimate of the damages Landlord will incur as the result of a
Tenant Delay. Within thirty (30) days after landlord tenders possession of the
Premises to Tenant, Landlord shall notify Tenant of Landlord's reasonable
estimate of the date landlord could have delivered possession of the Premises to
Tenant but for the Tenant Delays. After delivery of said notice, Tenant shall
immediately pay to Landlord the amount described above for the period of Tenant
Delay.
3.4 TENDER OF POSSESSION. Possession of the Premises shall be deemed
tendered to Tenant when Landlord's architect or agent has determined that (a)
the improvements to be provided by Landlord pursuant to a work letter agreement,
if any, are substantially completed, and, if necessary, have been approved by
the appropriate governmental entity, (b) the Project utilities are ready for use
in the Premises, (c) Tenant has reasonable access to the Premises, and (d) three
(3) days shall have expired following advance written notice to Tenant of the
occurrence of the matters described in (a), (b) and (c) above of this section
3.4. If improvements to the Premises are constructed by Landlord, the
improvements shall be deemed "substantially" completed when the improvements
have been completed except for minor items or defects which can be completed or
remedied after Tenant occupies the Premises without causing substantial
interference with Tenant's use of the Premises.
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3.5 EARLY POSSESSION. If Tenant occupies the Premises prior to the
Commencement Date, such occupancy shall be subject to all provisions of this
Lease, such occupancy shall not change the termination date, and Tenant shall
pay Base Rent and all other charges provided for in this Lease during the period
of such occupancy. Provided that Tenant does not interfere with or delay the
completion by Landlord or its agents or contractors of the construction of any
tenant improvements, Tenant shall have the right to enter the Premises up to
fourteen (14) days prior to the anticipated Commencement Date for the purpose of
installing furniture, trade fixtures, equipment, and similar items. Tenant
shall be liable for any damages or delays caused by Tenant's activities at the
Premises. Provided that Tenant has not begun operating its business from the
Premises, and subject to all of the terms and conditions of the Lease, the
foregoing activity shall not constitute the delivery of possession of the
Premises to Tenant and the Lease term shall not commence as a result of said
activities. Prior to entering the Premises Tenant shall obtain all insurance it
is required to obtain by the Lease and shall provide certificates of said
insurance to Landlord. Tenant shall coordinate such entry with Landlord's
building manager, and such entry shall be made in compliance with all terms and
conditions of this Lease and the Rules and Regulations attached hereto.
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4. RENT.
4.1 BASE RENT. Subject to adjustment as hereinafter provided in section
4.3, Tenant shall pay to Landlord the Base Rent for the Premises set forth in
section 1.8, without offset or deduction on the first day of each calendar
month. At the time Tenant execute this Lease it shall pay to Landlord the
advance Bass Rent described in section 1.9. Base 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. Base Rent and all other
amounts payable to Landlord hereunder shall be payable to Landlord in lawful
money of the United States, and Tenant shall be responsible for delivering said
amounts to Landlord at the address stated herein or to such other persons or to
such other places as Landlord may designate in writing.
4.2 OPERATING EXPENSE INCREASES. Tenant shall pay to Landlord during the
term hereof, in addition to the Base Rent, Tenant's Share of the amount by which
all Operating Expenses for each Comparison Year exceeds the amount of all
Operating Expenses for the Base Year. If less than 95% of the rentable square
feet in the Project is occupied by tenants or Landlord is not supplying services
to 95% of the rentable square feet of the Project at any time during any
calendar year (including the Base Year), Operating Expenses for such calendar
year shall be an amount equal to the Operating Expenses which would normally be
expected to be incurred had 95% of the Project's rentable square feet been
occupied and had Landlord been supplying services to 95% of the Project's
rentable square feet throughout such calendar year (hereinafter the "Grossed Up
Operating Expenses"). Landlord's good faith estimate of Grossed Up Operating
Expenses shall not be subject to challenge or recalculation by Tenant. Tenant's
Share of Operating Expense increases shall be determined in accordance with the
following provisions:
(a) "TENANT'S SHARE" is defined as the percentage set forth in
section 1.11, which percentage has been determined by dividing the number of
rentable square feet in the Premises by ninety-five percent (95%) of the total
number of rentable square feet in the Project and multiplying the resulting
quotient by one hundred (100). In the event that the number of rentable square
feet in the Project or the Premises changes, Tenant's Share shall be adjusted in
the year the change occurs, and Tenant's Share for such year shall be determined
on the basis of the days during such year that each Tenant's Share was in
effect.
(b) "COMPARISON YEAR" is defined as each calendar year during the
term of this Lease after the Base Year. Tenant's Share of the Operating Expense
increases for the last Comparison Year of the Lease Term shall be prorated
according to that portion of such Comparison Year to which Tenant is responsible
for a share of such increase.
(c) "OPERATING EXPENSES" shall include all costs, expenses and fees
incurred by Landlord in connection with or attributable to the Project,
including but not limited to, the following items: (i) all costs, expenses and
fees associated with or attributable to the ownership, management, operation,
repair, maintenance, improvement, alteration and replacement of the Project, or
any part thereof, including but not limited to, the following: (A) all
surfaces, coverings, decorative items, carpets, drapes, window coverings,
parking areas, loading and unloading areas, trash areas, roadways, sidewalks,
stairways, walls, structural elements, landscaped areas, striping, bumpers,
irrigation systems, lighting facilities, building exteriors and roofs, fences
and gates; (B) all heating, ventilating and air conditioning equipment ("HVAC")
(including, but not limited to, the cost of replacing or retrofitting HVAC
equipment to comply with laws regulating or prohibiting the use or release of
chlorofluorocarbons or hydrochlorofluorocarbons), plumbing, mechanical,
electrical systems, life safety systems and equipment, telecommunication
equipment, elevators, escalators, tenant directories, fire detection systems
including sprinkler system maintenance and repair; (ii) the cost of trash
disposal, janitorial services and security services and systems; (iii) the cost
of all insurance purchased by Landlord and enumerated in section 8 of this
Lease, including any deductibles; (iv) the cost of water, sewer, gas,
electricity, and other utilities available at the Project and paid by Landlord;
(v) the cost of labor, salaries and applicable fringe benefits incurred by
Landlord; (vi) the cost of materials, supplies and tools used in managing,
maintaining and/or cleaning the Project; (vii) the cost of accounting fees,
management fees, legal fees and consulting fees attributable to the ownership,
operation, management, maintenance and repair of the Project plus the cost of
any space occupied by the property manager and leasing agent (if Landlord is the
property manager, Landlord shall be entitled to receive a fair market management
(cc); (viii) the cost of operating, replacing; modifying and/or adding
improvements or equipment mandated by any law, statute, regulation or directive
of any governmental agency and any repairs or removals necessitated thereby
(including, but not limited to, the cost of complying with the Americans With
Disabilities Act and regulations of the Occupational Safety and Health
Administration); (ix) payments made by Landlord under any easement, license,
operating agreement, declaration, restrictive covenant, or instrument pertaining
to the payment or sharing of costs among property owners including, but not
limited to, all Assessments, as defined in the Declaration of Covenants,
Conditions and Restrictions for the (the "CC&Rs"), and paid by Landlord; (x) any
business property taxes or personal property taxes imposed upon the fixtures,
machinery, equipment, furniture and personal property used in connection with
the operation of the Project; (xi) the cost of all business licenses, any gross
receipt taxes based on rental income or other payments received by Landlord,
commercial rental taxes or any similar taxes or fees; (xii) transportation
taxes, fees or assessments, including but not limited to, mass transportation
fees, metrorail fees, trip fees, regional and transportation district fees,
(xiii) all costs and expenses associated with or related to the implementation
by Landlord of any transportation demand management program or similar program;
(xiv) fees assessed by any air quality management district or other governmental
or quasi-governmental entity regulating pollution; (xv) the cost of installing
intrabuilding network cabling ("INC") and maintaining, repairing, securing and
replacing existing INC; and (xvi) the cost of any other service provided by
Landlord or any cost that is elsewhere stated in this Lease to be an "Operating
Expense." Real Property Taxes shall be paid in accordance with section 10 below
and shall not be included in Operating Expenses. Landlord shall have the right
but not the obligation, from time to time, to equitably allocate some or all of
the Operating Expenses among different tenants of the Project or among the
different buildings which comprise the Project (the "Cost Pools"). Such Cost
Pools may include, but shall not be limited to, the office space tenants of the
Project and the retail space tenants of the Project.
(d) Operating Expenses shall not include any expense paid by any
tenant directly to third parties, or as to which Landlord is otherwise
reimbursed by any third party or by insurance proceeds.
(e) If the cost incurred in making an improvement or replacing any
equipment is not fully deductible as an expense in the year incurred in
accordance with generally accepted accounting principles, the cost shall be
amortized over the useful life of the improvement or equipment, as reasonably
determined by Landlord, together with an interest factor on the unamortized cost
of such item equal to the lesser of (i) twelve percent (12%) per annum or (ii)
the maximum rate of interest permitted by applicable law.
(f) Tenant's Share of Operating Expense increases shall be payable by
Tenant within ten (10) days after a reasonably detailed statement of actual
expenses is presented to Tenant by Landlord. At Landlord's option, however,
Landlord may, from time to time, estimate what Tenant's Share of Operating
Expense increases will be, and the same shall be payable by Tenant monthly
during each Comparison Year of the Lease term, on the same day as the Base Rent
is due hereunder. In the event that
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Tenant pays Landlord's estimate of Tenant's Share of Operating Expense
increases, Landlord shall use its best efforts to deliver to Tenant within one
hundred eighty (180) days after the expiration of each Comparison Year a
reasonably detailed statement (the "Statement") showing Tenant's Share of the
actual Operating Expense increases incurred during such year. Landlord's failure
to deliver the Statement to Tenant within said period shall not constitute
Landlord's waiver of its right to collect said amounts or otherwise prejudice
Landlord's rights hereunder. If Tenant's payments under this section 4.2(f)
during said Comparison Year exceed Tenant's Share as indicated on the Statement,
Tenant shall be entitled to credit the amount of such overpayment against
Tenant's Share of Operating Expense increases next falling due. If Tenant's
payments under this section 4.2(f) during said Comparison Year were less than
Tenant's Share as indicated on the Statement, Tenant shall pay to Landlord the
amount of the deficiency within thirty (30) days after delivery by Landlord to
Tenant of the Statement. Landlord and Tenant shall forthwith adjust between them
by cash payment any balance determined lo exist with respect to that portion of
the last Comparison Year for which Tenant is responsible for Operating Expense
increases, notwithstanding that the Lease term may have terminated before the
end of such Comparison Year; and this provision shall survive the expiration or
earlier termination of the Lease.
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(g) The computation of Tenant's Share of Operating Expense increases
is intended to provide a formula for the sharing of costs by Landlord and Tenant
and will not necessarily result in the reimbursement to Landlord of the exact
costs it has incurred.
(h) If Tenant disputes the amount set forth in the Statement, Tenant
shall have the right, at Tenant's sole expense, not later than sixty (60) days
following receipt of such Statement, to cause Landlord's books and records with
respect to the calendar year which is the subject of the Statement to be audited
by a certified public accountant mutually acceptable to Landlord and Tenant.
The audit shall take place at the offices of Landlord where its books and
records are located at a mutually convenient time during Landlord's regular
business hours. Tenant's Share of Operating Expenses shall be appropriately
adjusted based upon the results of such audit, and the results of such audit
shall be final and binding upon Landlord and Tenant. Tenant shall have no right
to conduct an audit or to give Landlord notice that it desires to conduct an
audit at any time Tenant is in default under the Lease. The accountant
conducting the audit shall be compensated on an hourly basis and shall not be
compensated based upon a percentage of overcharges it discovers. No subtenant
shall have any right to conduct an audit, and no assignee shall conduct an audit
for any period during which such assignee was not in possession of the Premises.
Tenant's right to undertake an audit with respect to any calendar year shall
expire sixty (60) days after Tenant's receipt of the Statement for such calendar
year, and such Statement shall be final and binding upon Tenant and shall, as
between the parties, be conclusively deemed correct, at the end of such sixty
(60) day period, unless prior thereto Tenant shall have given Landlord written
notice of its intention to audit Operating Expenses for the calendar year which
is the subject of the Statement. If Tenant gives Landlord notice of its
intention to audit Operating Expenses, it must commence such audit within sixty
(60) days after such notice is delivered to Landlord, and the audit must be
completed within one hundred twenty (120) days after such notice is delivered to
Landlord. If Tenant does not commence and complete the audit within such
periods, the Statement which Tenant elected to audit shall be deemed final and
binding upon Tenant and shall, as between the parties, be conclusively deemed
correct. Tenant agrees that the results of any Operating Expense audit shall be
kept strictly confidential by Tenant and shall not be disclosed to any other
person or entity.
4.3 BASE RENT INCREASE.
(a) The Base Rent shall be increased each year on the anniversary of
the first day of the calendar month in which the Commencement Date occurs by the
increase, SEE ADDENDUM
5. SECURITY DEPOSIT. Tenant shall deliver to Landlord at the time it executes
this Lease the security deposit set forth in section 1.10 as security for
Tenant's faithful performance of Tenant's obligations hereunder. If Tenant
fails to pay Base Rent or other charges due hereunder, or otherwise defaults
with respect to any provision of this Lease, Landlord may use all or any portion
of said deposit for the payment of any Base Rent or other charge due hereunder,
to pay any other sum to which Landlord may become obligated by reason of
Tenant's default, or to compensate Landlord for any loss or damage which
Landlord may suffer thereby. If Landlord so uses or applies all or any portion
of said deposit, Tenant shall within ten (10) days after written demand
therefore deposit cash with landlord in an amount sufficient to restore said
deposit to its full amount. Landlord shall not be required to keep said
security deposit separate from its general accounts. If Tenant performs all of
Tenant's obligations hereunder, said deposit, or so much thereof as has not
heretofore been applied by Landlord, shall be returned, without payment of
interest or other amount for its use, to Tenant (or, at landlord's option, to
the last assignee, if any, of Tenant's interest hereunder) at the expiration of
the term hereof, and after Tenant has vacated the Premises. No trust
relationship is created herein between Landlord and Tenant with respect to said
security deposit. Tenant acknowledges that the security deposit is not an
advance payment of any kind or a measure of Landlord's damages in the event of
Tenant's default. Tenant hereby waives the provisions of any law which is
inconsistent with this section 5.
6. USE.
6.1 USE. The Premises shall be used and occupied only for the purpose set
forth in section 1.5 and for no other purpose. If section 1.5 gives Tenant the
right to use the Premises for general office use, by way of example and not
limitation, general office use shall not include medical office use or any
similar use, laboratory use, classroom use, an executive site or similar use,
any use not characterized by applicable zoning and land use restrictions as
general office use, any use which would require Landlord or Tenant to obtain a
conditional use permit or variance from any federal, state or local authority,
or any other use not compatible, in Landlord's judgment, with a first class
office building. Notwithstanding any permitted use inserted in section 1.5,
Tenant shall not use the Premises for any purpose which would violate the
Project's certificate of occupancy, any conditional use permit or variance
applicable to the Project or violate any covenants, conditions or other
restrictions applicable to the Project, including, but not limited to, the
CC&Rs. No exclusive use has been granted to Tenant hereunder.
6.2 COMPLIANCE WITH LAW.
(a) Landlord warrants to Tenant that, to the best of Landlord's
knowledge, the Premises, in the state existing on the date this Lease is
executed by Landlord and Tenant, but without regard to alterations or
improvements to be made by Tenant or the use for which Tenant will occupy the
Premises, does not violate any covenants or restrictions of record, or any
applicable building code, regulation or ordinance in effect on such date. If
Tenant occupies the Premises at the time this Lease is executed, this warranty
shall be of no force or effect.
(b) Tenant shall, at Tenant's sole expense, promptly comply with all
applicable laws, ordinances, rules, regulations, orders, certificates of
occupancy, conditional use or other permits, variances, covenants and
restrictions of record, the recommendations of Landlord's engineers or other
consultants, and requirements of any fire insurance underwriters, rating bureaus
or government agencies, 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
or the occupation and use by Tenant of the Premises. Tenant shall, at Tenant's
sole expense, comply with all requirements of the Americans With Disabilities
Act that relate to the Premises, and all federal, state and local laws and
regulations governing occupational safety and health. Tenant shall conduct its
business and use the Premises 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 Project.
Tenant shall obtain, at its sole expense, any permit or other governmental
authorization required to operate its business from the Premises. Landlord
shall not be liable for the failure of any other tenant or person to abide by
the requirements of this section or to otherwise comply with applicable laws and
regulations, and Tenant shall not be excused from the performance of its
obligations under this Lease due to such failure.
6.3 CONDITION OF PREMISES. Except as otherwise provided in this Lease,
Tenant hereby accepts the Premises and the Project in their condition existing
as of the date this Lease is executed by Landlord and Tenant, subject to all
applicable federal, state
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and local laws, ordinances, regulations and permits governing the use of the
Premises, the Project's certificate of occupancy, any applicable conditional use
permits or variances, and any easements, covenants or restrictions affecting the
use of the Premises or the Project. Tenant acknowledges that it has satisfied
itself by its own independent investigation that the Premises and the Project
are suitable for its intended use, and that neither Landlord nor Landlord's
agents has made any representation or warranty as to the present or future
suitability of the Premises, or the Project for the conduct of Tenant's
business.
7. MAINTENANCE, REPAIRS AND ALTERATIONS.
7.1 LANDLORD'S OBLIGATIONS.
Landlord shall keep the Project (excluding the interior of the Premises and
space leased to other occupants of the Project) in good condition and repair.
If plumbing pipes, electrical wiring, HVAC ducts or vents within the Premises
are in need of repair, Tenant shall immediately notify Landlord, and Landlord
shall cause the repairs to be completed within a reasonable time and except as
provided in section 9.3, there shall be no abatement of rent or liability to
Tenant on account of any injury or interference with Tenant's business with
respect to any improvements, alterations or repairs made by Landlord to the
Project or any part thereof. Tenant expressly waives the benefits of any
statute now or hereafter in effect which would otherwise afford Tenant the right
to make repairs at Landlord's expense or to terminate this Lease because of
Landlord's failure to keep the Project in good order, condition and repair, at
Landlord's cost unless caused by Tenant's negligence or willful misconduct.
7.2 TENANT'S OBLIGATIONS.
(a) Subject to the requirements of section 7.3, Tenant shall be
responsible for keeping the Premises in good condition and repair, at Tenant's
sole expense. By way of example, and not limitation, Tenant shall be
responsible, at Tenant's sole expense, for repairing and/or replacing, carpet,
marble, tile or other flooring, paint, wall coverings, corridor and interior
doors and door hardware, telephone and computer equipment, interior glass,
window treatments, ceiling tiles, shelving, cabinets, millwork and other tenant
improvements. In addition, Tenant shall be responsible for the installation,
maintenance and repair of all telephone, computer and related cabling from the
telephone terminal room on the floor on which the Premises is located to and
throughout the Premises, and Tenant shall be responsible for any loss, cost,
damage, liability and expense (including attorneys' fees) arising out of or
related to the installation, maintenance, repair and replacement of such
cabling. If Tenant fails to keep the Premises in good condition and repair,
Landlord may, but shall not be obligated to, make any necessary repairs. If
Landlord makes such repairs, Landlord may bill Tenant for the cost of the
repairs as additional rent, and said additional rent shall be payable by Tenant
within ten (10) days.
(b) On the last day of the term hereof, or on any sooner termination,
Tenant shall surrender the Premises to Landlord in the same condition as
received, ordinary wear and tear and casualty damage execrated, clean and free
of debris and Tenant's personal property. Tenant shall repair any damage to the
Premises occasioned by the installation or removal of Tenant's trade fixtures,
furnishings and equipment. Tenant shall leave the electrical distribution
systems, plumbing systems, lighting fixtures, HVAC ducts and vents, window
treatments, wall coverings, carpets and other floor coverings, doors and door
hardware, millwork, ceilings and other Tenant improvements at the Premises and
in good condition, ordinary wear and tear excepted.
7.3 ALTERATIONS AND ADDITIONS.
(a) Tenant shall not, without Landlord's prior written consent, which
may be given or withheld in Landlord's sole discretion, make any alterations,
improvements, additions, utility installations or repairs (hereinafter
collectively referred to as "Alterations") in, on or about the Premises or the
Project. Alterations shall include, but shall not be limited to, the
installation or alteration of security or fire protection systems, communication
systems, millwork, shelving, file retrieval or storage systems, carpeting or
other floor covering, window and wall coverings, electrical distribution
systems, lighting fixtures, telephone or computer system wiring, HVAC and
plumbing. At the expiration of the term, Landlord may require the removal of
any Alterations installed by Tenant and the restoration of the Premises and the
Project to their prior condition, at Tenant's expense. If a work letter
agreement is entered into by Landlord and Tenant, Tenant shall not be obligated
to remove the tenant improvements constructed in accordance with the work letter
agreement. If, as a result of any Alteration made by Tenant, Landlord is
obligated to comply with the Americans With Disabilities Act or any other law or
regulation and such compliance requires Landlord to make any improvement or
Alteration to any portion of the Project, as a condition to Landlord's consent,
Landlord shall have the right to require Tenant to pay to Landlord prior to the
construction of any Alteration by Tenant, the entire cost of any improvement or
alteration Landlord is obligated to complete by such law or regulation. Should
Landlord permit Tenant to make its own Alterations, Tenant shall use only such
contractors as has been expressly approved by Landlord, and Landlord may require
Tenant to provide to Landlord, at Tenant'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 Alterations, to insure Landlord against any liability for mechanic's and
materialmen's liens and to insure completion of the work. In addition, Tenant
shall pay to Landlord a fee equal to six percent (6%) of the cost of the
Alterations to compensate Landlord for the overhead and other costs it incurs in
reviewing the plans for the Alterations and in monitoring the construction of
the Alterations. Should Tenant make any Alterations without the prior approval
of Landlord, or use a contractor not expressly approved by Landlord, Landlord
may, at any time during the term of this Lease, require that Tenant remove all
or part of the Alterations and return the Premises to the condition it was in
prior to the making of the Alterations. In the event Tenant makes any
alterations, Tenant agrees to obtain or cause its contractor to obtain, prior to
the commencement of any work, "builders all risk" insurance in an amount
approved by Landlord and workers compensation insurance.
(b) Any Alterations in or about the Premises that Tenant shall desire
to make shall be presented to Landlord in written form, with plans and
specifications which are sufficiently detailed to obtain a building permit. If
Landlord consents to an Alteration, the consent shall be deemed conditioned upon
Tenant acquiring a building permit from the applicable governmental agencies,
furnishing a copy thereof to Landlord prior to the commencement of the work, and
compliance by Tenant with all conditions of said permit in a prompt and
expeditious manner. Tenant shall provide Landlord with as-built plans and
specifications for any Alterations made to the Premises.
(c) Tenant shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Tenant 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 or the Project, or any interest therein.
If Tenant shall, in good faith, contest the validity of any such lien, Tenant
shall furnish to Landlord a surety bond satisfactory to Landlord in an amount
equal to not less than one and one half times the amount of such contested lien
claim indemnifying Landlord against liability arising out of such lien or claim.
Such bond shall be sufficient in form and amount to free the Project from the
effect of such lien. In addition, Landlord may require Tenant to pay Landlord's
reasonable attorneys' fees and costs in participating in such action.
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(d) Tenant shall give Landlord not less than ten (10) days' advance
written notice prior to the commencement of any work in the Premises by Tenant,
and Landlord shall have the right to post notices of nonl-responsibility in or
on the Premises or the Project.
(e) All Alterations (whether or not such Alterations constitute trade
fixtures of Tenant) which may be made to the Premises by Tenant shall be paid
for by Tenant, at Tenant's sole expense, and shall be made and done in a good
and workmanlike manner and with new materials satisfactory to Landlord, and such
Alteration shall be the property of Landlord and remain upon and be surrendered
with the Premises at the expiration of the Lease term, unless Landlord requires
their removal pursuant to section 7.3(a). Provided Tenant is not in default,
Tenant'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 Project, shall remain the property of Tenant and may be removed
by Tenant subject to the provisions of section 7.2(b).
7.4 FAILURE OF TENANT TO REMOVE PROPERTY. If this Lease is terminated due
to the expiration of its term or otherwise, and Tenant fails to remove its
property as required by section 7.2(b), in addition to any other remedies
available to Landlord under this Lease, and subject to any other right or remedy
Landlord may have under applicable law, Landlord may remove any property of
Tenant from the Premises and store the same elsewhere at the expense and risk of
Tenant.
8. INSURANCE.
8.1 INSURANCE-TENANT.
(a) Tenant shall obtain and keep in force during the term of this
Lease a commercial general liability policy of insurance with coverages
acceptable to Landlord, in Landlord's sole discretion, which, by way of example
and not limitation, protects Tenant and Landlord (as an additional insured)
against claims for bodily injury, personal injury and property damage based
upon, involving or arising out of the ownership, use, occupancy or maintenance
of the Premises and all areas appurtenant thereto. Such insurance shall be on
an occurrence basis providing single limit coverage in an amount not less than
$2,000,000 per occurence with an "Additional Insured-Managers and Landlords of
Premises Endorsement" and contain the "Amendment of the Pollution Exclusion" for
damage caused by heat, smoke or fumes from a hostile fire. The policy shall not
contain any intra-insured exclusions as between insured persons or
organizations, but shall include coverage for liability assumed under this Lease
as an "insured contract" for the performance of Tenant's indemnity obligations
under this Lease.
(b) Tenant shall obtain and keep in force during the term of this
Lease "all risk" extended coverage property insurance with coverages acceptable
to Landlord, in Landlord's sole discretion. Said insurance shall be written on
a one hundred percent (100%) replaement cost basis on Tenant's personal
property, all tenant improvements installed at the Premises by Landlord or
Tenant, Tenant's trade fixtures and other property. By way of example, and not
limitation, such policies shall provide protection against any peril included
within the classification "fire and extended coverage," against vandalisin and
malicious mischief, theft, and sprinkler leakage. If this Lease is terminated as
the result of a casualty in accordance with section 9, the proceeds of said
insurance attributable to the replacement of all tenant improvements at the
Premises shall be paid to Landlord. If insurance proceeds are available to
repair the tenant improvements, at Landlord's option, all insurance proceeds
Tenant is entitled to receive to repair the tenant improvements shall be paid by
the insurance company directly to Landlord, Landlord shall select the contractor
to repair and/or replace the tenant improvements, and Landlord shall cause the
tenant improvements to be repaired and/or replaced to the extent insurance
proceeds are available.
(c) Tenant shall, at all times during the term hereof, maintain in
effect workers' compensation insurance as required by applicable law and
business interruption and extra expense insurane satisfactory to Landlord.
8.2 INSURANCE-LANDLORD.
(a) Landlord shall obtain and keep in force a policy of general
liability insurance with coverage against such risks and in such amounts as
Landlord deems advisable insuring Landlord against liability arising out of the
ownership, operation and management of the Project.
(b) Landlord shall also obtain and keep in force during the term of
this Lease a policy or policies of insurance covering loss or damage to the
Project in the amount of not less than eighty percent (80%) of the full
replacement cost thereof, as determined by Landlord from time to time. The
terms and conditions of said policies and the perils and risks covered thereby
shall be determined by Landlord, from time ti time, in Landlord's sole
discretion. In addition, at Landlord's option, Landlord shall obtain and keep
in force, during the term of this Lease, a policy of rental interruption
insurance, with loss payable to Landlord, which insurance shall, at Landlord's
option, also cover all Operating Expenses. At Landlord's option, Landlord may
obtain insurance coverages and/or bonds related to the operation of the parking
areas. At Landlord's option, Landlord may obtain coverage for flood and
earthquake damages. In addition, Landlord shall have the right to obtain such
additional insurance as is customarily carried by owners or operators of other
comparable office buildings in the geographical area of the Project. Tenant
will not be named as an additional insured in any insurance policies carried by
Landlord and shall have no right to any proceeds therefrom. The policies
purchased by Landlord shall contain such deductibles as Landlord may determine.
In addition to amounts payable by Tenant in accordance with section 4.2, Tenant
shall pay any increase in the property insurance premiums for the Project over
what was payable immediately prior to the increase to the extent the increase is
specified by Landlord's insurance carrier as being caused by the nature of
Tenant's occupancy or any act or omission of Tenant.
8.3 INSURANCE POLICIES. Tenant shall deliver to Landlord copies of the
insurance policies required under section 8.1 within fifteen (15) days prior to
the Commencement Date of this Lease, and Landlord shall have the right to
approve the terms and conditions of said policies. Tenant's insurance policies
shall not be cancelable or subject to reduction of coverage or other
modification except after thirty (30) days prior written notice to Landlord.
Tenant shall, at least thirty (30) days prior to the expiration of such
policies, furnish Landlord with renewals thereof. Tenant's insurance policies
shall be issued by insurance companies authorized to do business in the state in
which the Project is located, and said companies shall maintain during the
policy term a "General Policyholder's Rating" of at least A and a financial
rating of at least "Class X" (or such other rating as may be required by any
lender having a lien on the Project) as set forth In the most recent edition of
"Best Insurance Reports." All insurance obtained by Tenant shall be primariy to
and not contributory with any similar insurance carried by Landlord, whose
insurance shall be considered excess insurane only. Landlord, and at Landlord's
option, the holder of any mortgage or deed of trust encumbering the Project and
any person or entity managing the Project on behalf of Landlord, shall be named
as an additional insured on all
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insurance policies Tenant is obligated to obtain by section 8.1 above. Tenant's
insurance policies shall not include deductibles in excess of Five Thousand
Dollars ($5,000).
8.4 WAIVER OF SUBROGATION. Landlord waives any and all rights of recovery
against Tenant for or arising out of damage to, or destruction of, the Project
to the extent that Landlord's insurance policies then in force insure against
such damage or destsuction and permit such waiver, and only to the extent of the
insurance proceeds actually received by Landlord for such damage or destruction.
Landlord's waiver shall not relieve Tenant from liability under section 21 below
except to the extent Landlord's insurance company actually satisfies Tenant's
obligations under section 21 in accordance with the requirements of section 21.
Tenant waives any and all rights of recovery against Landlord, Landlord's
employees, clients and contractors for liability or damages if such liability or
damage is covered by Tenant's insurance policies then in force or the insurance
policies Tenant is required to oblain by section 8.1 (whether or not the
insurance Tenant is required to obtain by section 8.1 is then in force and
effect), whichever is broader. Tenant's waiver shall not be limited by the
amount of insurance then carried by Tenant or the deductibles applicable
thereto. Tenant shall cause the insurance policies it obtains in accordance
with this section 8 to provide that the insurance company waives all right of
recovery by subrogation against Landlord in connection with any liability or
damage covered by Tenant's insurance policies.
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8.5 COVERAGE. Landlord makes no representation to Tenant that the limits
or forms of coverage specified above or approved by Landlord are adequate to
insure Tenant's property or Tenant's obligations under this Lease, and the
limits of any Insurance carried by Tenant shall not limit Tenant's obligations
or liability under any indemnity provision included in this Lease or under any
other provision of this Lease.
9. DAMAGE OR DESTRUCTION.
9.1 EFFECT OF DAMAGE OR DESTRUCTION. If all or part of the Project is
damaged by fire, earthquake, flood, explosion, the elements, riot, the release
or existence of Hazardous Substances (as defined below) or by any other cause
whatsoever (hereinafter collectively referred to as "damages"), but the damages
are not material (as defined in section 9.2 below), Landlord shall repair the
damages to the Project as soon as is reasonably possible, and this Lease shall
remain in full force and effect. If all or part of the Project is destroyed or
materially damaged (as defined in section 9.2 below), Landlord shall have the
right, in its sole and complete discretion, to repair or to rebuild the Project
or to terminate this Lease. Landlord shall within one hundred twenty (120) days
after the discovery of such material damage or destruction notify Tenant in
writing of Landlord's intention to repair or to rebuild or to terminate this
Lease. Tenant shall in no event be entitled to compensation or damages on
account of annoyance or inconvenience in making any repairs, or on account of
construction, or on account of Landlord's election to terminate this Lease.
Notwithstanding the foregoing, if Landlord shall elect to rebuild or repair the
Project after material damage or destruction, but in good faith determines that
the Premises cannot be substantially repaired within three hundred sixty (360)
days after the date of the discovery of the material damage or destruction,
without payment of overtime or other premiums, and the damage to the Project
will render the entire Premises unusable during said three hundred sixty (360)
day period, Landlord shall notify Tenant thereof in writing at the time of
Landlord's election to rebuild or repair, and Tenant shall thereafter have a
period of fifteen (15) days within which Tenant may elect to terminate this
Lease, upon thirty (30) days' advance written notice to Landlord. Tenant's
termination right described in the preceding sentence shall not apply if the
damage was caused by the negligent or intentional acts of Tenant or its
employees, agents, contractors or invitees. Failure of Tenant to exercise said
election within said fifteen (15) day period shall constitute Tenant's agreement
to accept delivery of the Premises under this Lease whenever rendered by
Landlord, provided Landlord thereafter pursues reconstruction or restoration
diligently to completion, subject to delays caused by Force Majeure Events. If
Landlord is unable to repair the damage to the Premises or the Project during
such three hundred sixty (360) day period due to Force Majeure Events, the three
hundred sixty (360) day period shall be extended by the period of delay caused
by the Force Majeure Events. Subject to section 9.3 below, if Landlord or
Tenant terminates this Lease in accordance with this section 9.1, Tenant shall
continue to pay all Base Rent, Operating Expense increases and other amounts due
hereunder which arise prior to the date of termination.
9.2 DEFINITION OF MATERIAL DAMAGE. Damage to the Project shall be deemed
material if, in Landlord's reasonable judgment, the uninsured cost of repairing
the damage will exceed Twenty-Five Thousand Dollars ($25,000). If insurance
proceeds are available to Landlord in an amount which is sufficient to pay the
entire cost of repairing all of the damage to the Project, the damage shall be
deemed material if the cost of repairing the damage exceeds One Hundred Thousand
Dollars ($100,000). Damage to the Project shall also be deemed material if (a)
the Project cannot be rebuilt or repaired to substantially the same condition it
was in prior to the damage due to laws or regulations in effect at the time the
repairs will be made, (b) the holder of any mortgage or deed of trust
encumbering the Project requires that insurance proceeds available to repair the
damage in excess of Twenty-Five Thousand Dollars ($25,000) be applied to the
repayment of the indebtedness secured by the mortgage or the deed of trust, or
(c) the damage occurs during the last twelve (12) months of the Lease term.
9.3 ABATEMENT OF RENT. If Landlord elects to repair damage to the Project
and all or part of the Premises will be unusable or inaccessible to Tenant in
the ordinary conduct of its business until the damage is repaired, and the
damage was not caused by the negligence or intentional acts of Tenant or its
employees, agents, contractors or invitees, Tenant's Base Rent and Tenant's
Share of Operating Expense increases shall be abated until the repairs are
completed in proportion to the amount of the Premises which is unusable or
inaccessible to Tenant in the ordinary conduct of its business. Notwithstanding
the foregoing, there shall be no abatement of Base Rent or Tenant's Share of
Operating Expense increases by reason of any portion of the Premises being
unusable or inaccessible for a period equal to five (5) consecutive business
days or less.
9.4 TENANT'S ACTS. If such damage or destruction occurs as a result of
the negligence or the intentional acts of Tenant or Tenant's employees, agents,
contractors or invitees, and the proceeds of insurance which are actually
received by Landlord are not sufficient to pay for the repair of all of the
damage, Tenant shall pay, at Tenant's sole cost and expense, to Landlord upon
demand, the difference between the cost of repairing the damage and the
insurance proceeds received by Landlord.
9.5 TENANT'S PROPERTY. As more fully set forth in section 47, Landlord
shall not be liable to Tenant or its employees, agents, contractors, invitees or
customers for loss or damage to merchandise, tenant improvements, fixtures,
automobiles, furniture, equipment, computers, files or other property
(hereinafter collectively "Tenant's property") located at the Project. Tenant
shall repair or replace all of Tenant's property at Tenant's sole costs and
expense. Tenant acknowledges that it is Tenant's sole responsibility to obtain
adequate insurance coverage to compensate Tenant for damage to Tenant's
property.
9.6 WAIVER. Landlord and Tenant hereby waive the provisions of any
present or future statutes which relate to the termination of leases when leased
property is damaged or destroyed and agree that such event shall be governed by
the terms of this Lease.
10. REAL AND PERSONAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Tenant shall pay to Landlord during the term of
this Lease, in addition to base Rent and Tenant's Share of Operating Expense
increases, Tenant's Share of the amount by which all "Real Property Taxes" (as
defined in section 10.2 below) for each Comparison Year exceeds the amount of
all Real Property Taxes for the Base Year. Tenant's Share of Real Property Tax
increases shall be payable by Tenant at the same time, in the same manner and
under the same terms and conditions as Tenant pays Tenant's Share of Operating
Expense increases as provided in section 4.2(f) of this Lease. Except as
expressly provided in section 10.4 below, if the Real Property Taxes incurred
during any Comparison Year are less than the Real Property Taxes incurred during
the Base Year, Tenant shall not be entitled to receive any credit, offset,
reduction or benefit as a result of said occurrence.
10.2 DEFINITION OF "REAL PROPERTY TAX." As used herein, the term "Real
Property Taxes" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, improvement bond or bonds imposed
on the 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
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interest of Landlord in the Project or in any portion thereof, unless such tax
is defined as an Operating Expense by section 4.3(c). Real Property Taxes shall
not include income, inheritance and gift taxes.
10.3 PERSONAL PROPERTY TAXES. Tenant shall pay prior to delinquency all
taxes assessed against and levied upon trade fixtures, furnishings, equipment
and all other personal property of Tenant contained in the Premises or related
to Tenant's use of the Premises. If any of Tenant's personal property shall be
assessed with Landlord's real or personal property, Tenant shall pay to Landlord
the taxes attributable to Tenant within ten (10) days after receipt of a written
statement from Landlord setting forth the taxes applicable to Tenant's property.
10.4 REASSESSMENTS. From time to time Landlord may challenge the assessed
value of the Project as determined by applicable taxing authorities and/or
Landlord may attempt to cause the Real Property Taxes to be reduced on other
grounds. If Landlord is successful in causing the Real Property Taxes to be
reduced or in obtaining a refund, rebate, credit or similar benefit (hereinafter
collectively referred to
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as a "reduction"), Landlord shall have the option, in its sole discretion, to
(a) retain the benefit of the reduction and to pay, at Landlord's sole expense,
the costs incurred by Landlord in causing the reduction to be made or (b) to the
extent practicable, to credit the reduction(s) to Real Property Taxes for the
calendar year to which a reduction applies and to recalculate the Real Property
Taxes owed by Tenant for years after the year in which the reduction applies
based on the reduced Real Property Taxes (if a reduction applies to Tenant's
Base Year, the Base Year Real Property Taxes shall be reduced by the amount of
the reduction and Tenant's Share of Real Property Tax increases shall be
recalculated for all Comparison Years following the year of the reduction based
on the lower Base Year amount). If Landlord proceeds in accordance with (b)
above, all costs incurred by Landlord in obtaining the Real Property Tax
reductions shall be considered an Operating Expense and Landlord shall
determine, in its sole discretion, to which years any reductions will be
applied. In addition, if Landlord proceeds in accordance with (b) above, all
accounting and related costs incurred by Landlord in calculating new Base Years
for tenants and in making all other adjustments shall be an Operating Expense.
If Landlord proceeds in accordance with (a) above, Landlord shall not be
obligated to refund to Tenant all or any portion of the reduction or to reduce
Real Property Taxes for the years to which any reductions apply.
11. UTILITIES.
11.1 SERVICES PROVIDED BY LANDLORD. Subject to all governmental rules,
regulations and guidelines applicable thereto, Landlord shall use its best
efforts to provide HVAC to the Premises for normal office use during the times
described in section 11.4, reasonable amounts of electricity for normal office
lighting and fractional horsepower office machines, water in the Premises or in
the Common Area for reasonable and normal drinking and lavatory use, replacement
light bulbs and/or fluorescent tubes and ballasts for standard overhead
fixtures, and building standard janitorial services.
11.2 INTRABUILDING NETWORK CABLING. In addition to the items described in
11.1 above, Landlord shall also provide Tenant with access to a reasonable
amount of INC. For purposes of this section 11.2, a reasonable amount of INC
shall not exceed two (2) cable pairs per one thousand (1,000) usable square feet
of space in the Premises. If Tenant requires additional INC capacity, the cost
of providing, maintaining, repairing and replacing such capacity shall be borne
solely by Tenant. Additional INC capacity may only be installed, maintained,
repaired and replaced by a contractor approved by Landlord, in Landlord's sole
discretion. The Building's minimum point of entry ("MPOE") for telephone
service, the INC risers and the telephone terminal rooms located on each floor
of the building may only be accessed with Landlord's prior consent and by
contractors approved by Landlord, in Landlord's sole discretion. Tenant shall
be responsible for any loss, cost, damage, liability and expense (including
attorneys' fees) arising out of or related to the installation, maintenance,
repair and replacement of additional INC capacity.
11.3 SERVICES EXCLUSIVE TO TENANT. Tenant shall pay for all water, gas,
heat, electricity, telephone and other utilities and services supplied and/or
metered exclusively to the Premises or to Tenant, together with any taxes
thereon. If any such services are not separately metered to the Premises,
Tenant shall pay, at Landlord's option, either Tenant's Share or a reasonable
proportion to be determined by Landlord of all charges jointly metered with
other premises in the Project.
11.4 HOURS OF SERVICE. Building services and utilities shall be provided
Monday through Friday from 8:00 a.m. to 6:00 p.m. Janitorial services shall be
provided Monday through Friday. HVAC and other Building services shall not be
provided at other times or on nationally recognized holidays. Tenant
acknowledges that there will be no air circulation or temperature control within
the Premises when the HVAC is not operating and, consequently, during such times
the Premises may not be suitable for human occupation or for the operation of
computers and other heat sensitive equipment. Nationally recognized holidays
shall include, but shall not necessarily be limited to, New Years Day, Martin
Luther King Jr. Day, Presidents' Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. Landlord shall use its best efforts to
provide HVAC to Tenant at times other than those set forth above subject to (a)
the payment by Tenant of Landlord's standard charge, as determined by Landlord
from time to time, in landlord's sole discretion, for after hours HVAC and (b)
Tenant providing to Landlord at least one (1) business day's advance written
notice of Tenant's need for after hours HVAC. As of the date of this Lease, and
subject to future increase, the standard charge for after hours is Twenty-Five
Dollars ($25.00) per hour. Tenant shall pay all after hours HVAC charges to
Landlord within three (3) days after Landlord bills Tenant for said charges.
11.5 EXCESS USAGE BY TENANT. Notwithstanding the use set forth in section
1.5, Tenant shall not use Building utilities or services in excess of those used
by the average office building tenant using its premises for ordinary office
use. Tenant shall not install at the Premises office machines, lighting
fixtures or other equipment which will generate above average heat, noise or
vibration at the Premises or which will adversely affect the temperature
maintained by the HVAC system. If Tenant does use Building utilities or
services in excess of those used by the average office building tenant, Landlord
shall have the right, in addition to any other rights or remedies it may have
under this Lease, to (a) at Tenant's expense, install separate metering devices
at the Premises, and to charge Tenant for its usage, (b) require Tenant to pay
to Landlord all costs, expenses and damages incurred by landlord as a result of
such usage, and (c) require Tenant to stop using excess utilities or services.
11.6 INTERRUPTIONS. Tenant agrees that Landlord shall not be liable to
Tenant for its failure to furnish gas, electricity, telephone service, water,
HVAC or any other utility services or building services when such failure is
occasioned, in whole or in part, by repairs, replacements, or improvements, by
any strike, lockout or other labor trouble, by inability to secure electricity,
gas, water, telephone service or other utility at the Project, by any accident,
casualty or event arising from any cause whatsoever, including the negligence of
Landlord, its employees, agents and contractors, by act, negligence or default
of Tenant or any other person or entity, or by any other cause, and such
failures shall never be deemed to constitute an eviction or disturbance of
Tenant's use and possession of the Premises or relieve Tenant from the
obligation of paying rent or performing any of its obligations under this Lease.
Furthermore, Landlord shall not be liable under any circumstances for loss of
property or for injury to, or interference with, Tenant's business, including,
without limitation, loss of profits, however occurring, through or in connection
with or incidental to a failure to furnish any such services or utilities.
Landlord may comply with voluntary controls or guidelines promulgated by any
governmental entity relating to the use or conservation of energy, water, gas,
light or electricity or the reduction of automobile or other emissions without
creating any Liability of Landlord to Tenant under this Lease.
12. ASSIGNMENT AND SUBLETTING.
12.1 LANDLORD'S CONSENT REQUIRED. Tenant shall not voluntarily or by
operation of law assign, transfer, hypothecate, mortgage, sublet, or otherwise
transfer or encumber all or any part of Tenant's interest in this Lease or in
the Premises (hereinafter collectively a "Transfer"), without Landlord's prior
written consent, which shall not be unreasonably withheld. Landlord shall
respond to Tenant's written requests for consent hereunder within thirty (30)
days after Landlord's receipt of the written request from Tenant. Any attempted
Transfer without such consent shall be void and shall constitute a material
default and breach of this Lease. Tenant's written request for Landlord's
consent shall include, and Landlord's thirty (30) day response period referred
to above shall
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not commence, unless and until Landlord has received from Tenant, all of the
following information: (a) financial statements for the proposed assignee or
subtenant for the past three (3) years prepared in accordance with generally
accepted accounting principles, (b) federal tax returns for the proposed
assignee or subtenant for the past three (3) years, (c) a TRW credit report or
similar report on the proposed assignee or subtenant, (d) a detailed description
of the business the assignee or subtenant intends to operate at the Premises,
(e) the proposed effective date of the assignment or sublease, (f) a copy of the
proposed sublease or assignment agreement which includes all of the terms and
conditions of the proposed assignment or sublease, (g) a detailed description of
any ownership or commercial relationship between Tenant and the proposed
assignee or subtenant and (h) a detailed description of any Alterations the
proposed assignee or subtenant desires to make to the Premises. If the
obligations of the proposed assignee or subtenant will be guaranteed by any
person or entity, Tenant's written request shall not be considered complete
until the information described in (a), (b) and (c) of the previous sentence has
been provided with respect to each proposed guarantor. "Transfer" shall also
include the transfer (a) if Tenant is a corporation, and Tenant's stock is not
publicly traded over a recognized securities exchange, of more than twenty-five
percent (25%) of the voting stock of such corporation during the term of this
Lease (whether or not in one or more transfers) or the
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dissolution, merger or liquidation of the corporation, or (b) if Tenant is a
partnership or other entity, of more than twenty-five percent (25%) of the
profit and loss participation in such partnership or entity during the term of
this Lease (whether or not in one or more transfers) or the dissolution, merger
or liquidation of the partnership. If Tenant is a limited or general
partnership (or is comprised of two mor more persons, individually or as co-
partners), Tenant shall not be entitled to change or convert to (i) a limited
liability company, (ii) a limited liability partnership or (iii) any other
entity which possesses the characteristics of limited liability without the
prior written consent of Landlord, which consent may be given or withheld in
Landlord's sole discretion. Tenant's sole remedy in the event that Landlord
shall wrongfully withhold consent to or disapprove any assignment or sublease
shall be to obtain an order by a court of competent jurisdiction that Landlord
grant such consent; in no event shall landlord be liable for damages with
respect to its granting or withholding consent to any proposed assignment or
sublease. If Landlord shall exercise any option to recapture the Premises, or
shall deny a request for consent to a proposed assignment or sublease. If
Landlord shall exercise any option to recapture the Premises, or shall deny a
request for consent to a proposed assignment or sublease, Tenant shall
indemnify, defend and hold Landlord harmless from and against any and all
losses, liabilities, damages, costs and claims that may be made against Landlord
by the proposed assignee or subtenant, or by any brokers or other persons
claiming a commission or similar compensation in connection with the proposed
assignment or sublease.
12.2 LEVERAGED BUY-OUT. The involvement by Tenant or its assets in any
transaction, or series of transactions (by way of merger, sale, acquisition,
financing, refinancing, transfer, leveraged buy-out or otherwise) whether or not
a formal assignment or hypothecation of this Lease or Tenant's assets occurs,
which results or will result in a reduction of the "Net Worth" of Tenant as
hereinafter defined, by an amount equal to or greater than twenty-five percent
(25%) of such Net Worth of Tenant as it is represented to Landlord at the time
of the execution by landlord of this Lease, or as it exists immediately prior to
said transaction or transactions constituting such reduction, at whichever time
said Net Worth of Tenant was or is greater, shall be considered to be an
assignment of this Lease by Tenant to which Landlord may reasonably withhold its
consent. "Net Worth" of Tenant for purposes of this section 12.2 shall be the
net worth of Tenant (excluding any guarantors) established under generally
accepted accounting principles consistently applied.
12.3 STANDARD FOR APPROVAL. Landlord shall not unreasonably withhold its
consent to a Transfer provided that Tenant has complied with each and every
requirement, term and condition of this section 12. Tenant acknowledges and
agrees that each requirement, term and condition in this section 12 is a
reasonable requirement, term or condition. It shall be deemed reasonable for
Landlord to withhold its consent to a Transfer if any requirement, term or
condition of this section 12 is not complied with or: (a) the Transfer would
cause Landlord to be in violation of its obligations under another lease or
agreement to which Landlord is a party; (b) in Landlord's reasonable judgment, a
proposed assignee or subtenant has a net worth which would make it unable to
financially pay the rents due under this Lease as and when they are due and
payable; (c) a proposed assignee's or subtenant's business will impose a burden
on the Project's parking facilities, elevators, Common Areas or utilities that
is greater than the burden imposed by Tenant, in Landlord's reasonable judgment;
(d) the terms of a proposed assignment or subletting will allow the proposed
assignee or subtenant to exercise a right of renewal, right of expansion, right
of first offer, right of first refusal or similar right held by Tenant; (e) a
proposed assignee or subtenant refuses to enter into a written assignment
agreement or sublease, reasonably satisfactory to Landlord, which provides that
it will abide by and assume all of the terms and conditions of this Lease for
the term of any assignment or sublease and containing such other terms and
conditions as Landlord reasonably deems necessary; (f) the use for the Premises
by the proposed assignee or subtenant will not be identical to the use permitted
by this Lease; (g) any guarantor of this Lease refuses to consent to the
transfer or to execute a written agreement reaffirming the guaranty; (h) Tenant
is in default as defined in section 13.1 at the time of the request; (i) if
requested by Landlord, the assignee or subtenant refuses to sign a non-
disturbance and attornment agreement in favor of Landlord's lender; (j) Landlord
has sued or been sued by the proposed assignee or subtenant or has otherwise
been involved in a legal dispute with the proposed assignee or subtenant; (k)
the assignee or subtenant is involved in a business which is not in keeping with
the then current standards of the Project; (l) the proposed assignee or
subtenant is an existing tenant of the Project or is a person or entity then
negotiating with Landlord for the lease of space in the Project; (m) the
assignment or sublease will result in there being more than one subtenant of the
Premises (e.g., the assignee or subtenant intends to use the Premises as an
executive suite); or (n) the assignee or subtenant is a governmental or quasi-
governmental entity or an agency, department or instrumentality of a
governmental or quasi-governmental agency.
12.4 ADDITIONAL TERMS AND CONDITIONS. The following terms and conditions
shall be applicable to any Transfer:
(a) Regardless of Landlord's consent, no Transfer shall release
Tenant from Tenant's obligations hereunder or alter the primary liability of
Tenant to pay the rent and other sums due Landlord hereunder and to perform all
other obligations to be performed by Tenant hereunder or release any guarantor
from its obligations under its guaranty.
(b) Landlord may accept rent from any person other than Tenant
pending approval or disapproval of an assignment or subletting.
(c) Neither a delay in the approval or disapproval of a Transfer, nor
the acceptance of rent, shall constitute a waiver or estoppel of Landlord's
right to exercise its rights and remedies for the breach of any of the terms or
conditions of this section 12.
(d) The consent by Landlord to any Transfer shall not constitute a
consent to any subsequent Transfer by Tenant or to any subsequent or successive
Transfer by an assignee or subtenant. However, Landlord may consent to
subsequent Transfers or any amendments or modifications thereto without
notifying Tenant or anyone else liable on the Lease and without obtaining their
consent, and such action shall not relieve such persons from liability under
this Lease.
(e) In the event of any default under this Lease, Landlord may
proceed directly against Tenant, any guarantors or anyone else responsible for
the performance of this Lease, including any subtenant or assignee, without
first exhausting Landlord's remedies against any other person or entity
responsible therefor to Landlord, or any security held by Landlord.
(f) Landlord's written consent to any Transfer by Tenant shall not
constitute an acknowledgment that no default then exists under this Lease nor
shall such consent be deemed a wavier of any then existing default.
(g) The discovery of the fact that any financial statement relied
upon by Landlord in giving its consent to an assignment or subletting was
materially false shall, at Landlord's election, tender Landlord's consent null
and void.
(h) Landlord shall not be liable under this Lease or under any
sublease to any subtenant.
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(i) No assignment or sublease may be modified or amended without
Landlord's prior written consent.
(j) The occurrence of a transaction described in section 12.2 shall
give Landlord the right (but not the obligation) to require that Tenant
immediately provide Landlord with an additional security deposit equal to twelve
(12) times the monthly Base Rent payable under the Lease, and Landlord may make
its receipt of such amount a condition to Landlord's consent to such
transaction.
(k) Any assignee of, or subtenant under, this Lease shall, by reason
of accepting such assignment or entering into such sublease, be deemed, for the
benefit of Landlord, to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein to be observed or
performed by Tenant during the term of said assignment or sublease, other than
such obligations as are contrary or inconsistent with provisions of an
assignment or sublease to which Landlord has specifically consented in writing.
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12.5 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Tenant 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) Tenant hereby absolutely and unconditionally assigns and
transfers to Landlord all of Tenant's interest in all rentals and income arising
from any sublease entered into by Tenant, and Landlord may collect such rent and
income and apply same toward Tenant's obligations under this Lease; provided,
however, that until a default shall occur in the performance of Tenant's
obligations under this Lease, Tenant may receive, collect and enjoy the rents
accruing under such sublease. Landlord shall not, by reason of this or any other
assignment of such rents to Landlord nor by reason of the collection of the
rents from a subtenant, be deemed to have assumed or recognized any sublease or
to be liable to the subtenant for any failure of Tenant to perform and comply
with any of Tenant's obligations to such subtenant under such sublease,
including, but not limited to, Tenant's obligation to return any security
deposit. Tenant hereby irrevocably authorizes and directs any such subtenant,
upon receipt of a written notice from Landlord stating that a default exists in
the performance of Tenant's obligations under this Lease, to pay to Landlord the
rents due as they become due under the sublease. Tenant agrees that such
subtenant shall have the right to rely upon any such statement and request from
Landlord, and that such subtenant shall pay such rents to Landlord without any
obligation or right to inquire as to whether such default exists and
notwithstanding any notice from or claim from Tenant to the contrary.
(b) In the event Tenant shall default in the performance of its
obligations under this Lease, Landlord at its option and without any obligation
to do so, may require any subtenant to attorn to Landlord, in which event
Landlord shall undertake the obligations of Tenant under such sublease from the
time of the exercise of said option to the termination of such sublease;
provided, however, Landlord shall not be liable for any prepaid rents or
security deposit paid by such subtenant to Tenant or for any other prior
defaults of Tenant under such sublease.
12.6 TRANSFER PREMIUM FROM ASSIGNMENT OR SUBLETTING. Landlord shall be
entitled to receive from Tenant (as and when received by Tenant) as an item of
additional rent fifty percent (50%) of all amounts received by Tenant from such
assignee or subtenant in excess of the amounts payable by Tenant to Landlord
hereunder (the "Transfer Premium"). The Transfer Premium shall be reduced by
the reasonable brokerage commissions and legal fees actually paid by Tenant in
order to assign the Lease or to sublet a portion of the Premises. "Transfer
Premium" shall mean all Base Rent, additional rent or other consideration of any
type whatsoever payable by the assignee or subtenant in excess of the Base Rent
and additional rent payable by Tenant under this Lease. If less than all of the
Premises is transferred, the Base Rent and the additional rent shall be
determined on a per rentable square foot basis. "Transfer Premium" shall also
include, but not be limited to, key money and bonus money paid by the assignee
or subtenant to Tenant in connection with such Transfer, and any payment in
excess of fair market value for services rendered by Tenant to the assignee or
subtenant or lot assets, fixtures, inventory, equipment, or furniture
transferred by Tenant to the assignee or subtenant in connection with such
Transfer.
12.7 LANDLORD'S OPTION TO RECAPTURE SPACE. Notwithstanding anything to the
contrary contained in this section 12, Landlord shall have the option, by giving
written notice to Tenant within thirty (30) days after receipt of any request by
Tenant to assign this Lease or to sublease space in the Premises, to terminate
this Lease with respect to said space as of the date thirty (30) days after
Landlord's election. In the event of a recapture by Landlord, if this Lease
shall be canceled with respect to less than the entire Premises, the Base Rent,
Tenant's Share of Operating Expense increases and the number of parking spaces
Tenant may use shall be adjusted on the basis of the number of rentable square
feet retained by Tenant in proportion to the number of rentable square feet
contained in the original Premises, and this Lease as so amended shall continue
thereafter in full force and effect, and upon request of either party, the
parties shall execute written confirmation of same. If Landlord recaptures only
a portion of the Premises, it shall construct and erect at its sole cost such
partitions as may be required to sever the space to be retained by Tenant from
the space recaptured by Landlord. Landlord may, at its option, lease any
recaptured portion of the Premises to the proposed subtenant or assignee or to
any other person or entity without liability to Tenant. Tenant shall not be
entitled to any portion of the profit, if any, Landlord may realize on account
of such termination and reletting. Tenant acknowledges that the purpose of this
section 12.7 is to enable Landlord to receive profit in the form of higher rent
or other consideration to be received from an assignee or subtenant, to give
Landlord the ability to meet additional space requirements of other tenants of
the Project and to permit Landlord to control the leasing of space in the
Project. Tenant acknowledges and agrees that the requirements of this section
12.7 are commercially reasonable and are consistent with the intentions of
Landlord and Tenant.
12.8 LANDLORD'S EXPENSES. In the event Tenant shall assign this Lease or
sublet the Premises or request the consent of Landlord to any Transfer, then
Tenant shall pay Landlord's reasonable costs and expenses incurred in connection
therewith, including, but not limited to, attorneys', architects', accountants',
engineers' or other consultants' fees.
13. DEFAULT; REMEDIES.
13.1 DEFAULT BY TENANT. Landlord and Tenant hereby agree that the
occurrence of any one or more of the following events is a material default by
Tenant under this Lease and that said default shall give Landlord the rights
described in section 13.2. Landlord or Landlord's authorized agent shall have
the right to execute and to deliver any notice of default, notice to pay rent or
quit or any other notice Landlord gives Tenant.
(a) Tenant's failure to make any payment of Base Rent, Tenant's Share
of Operating Expense increases, Tenant's Share of Real Property Taxes, parking
charges, charges for after hours HVAC, late charges, 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 from
Landlord to Tenant. In the event that Landlord serves Tenant with a notice to
pay rent or quit pursuant to applicable unlawful detainer statutes, such notice
shall also constitute the notice required by this section 13.1(a).
(b) The abandonment of the Premises by Tenant in which event Landlord
shall not be obligated to give any notice of default to Tenant.
(c) The failure of Tenant to comply with any of its obligations under
sections 6.1, 6.2(b), 7.2, 7.3, 8, 12, 18, 19, 21, 23, 24, 26, 34, 35 and 56
where Tenant fails to comply with its obligations or fails to cure any earlier
breach of such obligation within ten (10) days following written notice from
Landlord to Tenant. In the event Landlord serves Tenant with a notice to quit
or any other notice pursuant to applicable unlawful detainer statutes, said
notice shall also constitute the notice required by this section 13.1(c).
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(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 those referenced in sections 13.1(a), (b) and (c), above), where
such failure shall continue for a period of ten (10) days after written notice
thereof from Landlord to Tenant; provided, however, that if the nature of
Tenant's non-performance is such that more than ten (10) days are reasonably
required for its cure, then Tenant shall not be deemed to be in default if
Tenant commences such cure within said ten (10) day period and thereafter
diligently pursues such cure to completion. In the event that Landlord serves
Tenant with a notice to quit or any other notice pursuant to applicable unlawful
detainer statutes, said notice shall also constitute the notice required by this
section 13.1(d).
(e) (i) The making by Tenant or any guarantor of Tenant's obligations
hereunder of any general arrangement or general assignment for the benefit of
creditors; (ii) Tenant or any guarantor becoming a "debtor" as defined in 11
U.S.C. 101 or any successor statute thereto (unless, in the case of a petition
filed against Tenant or guarantor, the same is dismissed within sixty (60)
days); (iii) the appointment of a trustee or 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; (iv) 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 within thirty (30)
days; or (v) the insolvency of Tenant. In the event that any provision of this
section 13.1(e) is unenforceable under applicable law, such provision shall be
of no force or effect.
(f) The discovery by Landlord that any financial statement,
representation or warranty given to Landlord by Tenant, or by any guarantor of
Tenant's obligations hereunder, was materially false at the time given. Tenant
acknowledges that Landlord has entered into this Lease in material reliance on
such information.
(g) If Tenant is a corporation or a partnership, the dissolution or
liquidation of Tenant.
(h) If Tenant's obligations under this Lease are guaranteed: (i) the
death of a guarantor, (ii) the termination of a guarantor's liability with
respect to this Lease other than in accordance with the terms of such guaranty,
(iii) a guarantor's becoming insolvent or the subject of a bankruptcy filing,
(iv) a guarantor's refusal to honor the guaranty, or (v) a guarantor's breach of
its guaranty obligation on an anticipatory breach basis.
13.2 REMEDIES.
(a) In the event of any material default or breach of this Lease 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:
(i) terminate Tenant's right to possession of the Premises by
any lawful means, in which case this Lease and the term hereof shall terminate
and Tenant shall immediately surrender possession of the Premises to Landlord.
If Landlord terminates this Lease, Landlord may recover from Tenant (A) the
worth at the time of award of the unpaid rent which had been earned at the time
of termination; (B) 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 Tenant proves could have been
reasonably avoided; (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 Tenant proves could be reasonably avoided; and
(D) any other amount necessary to compensate Landlord for all detriment
proximately caused by Tenant's failure to perform its obligations under the
Lease or which in the ordinary course of things would be likely to result
therefrom, including, but not limited to, the cost of recovering possession of
the Premises, expenses of releasing, including necessary renovation and
alteration of the Premises, reasonable attorneys' fees, any real estate
commissions actually paid by Landlord and the unamortized value of any free
rent, reduced rent, tenant improvement allowance or other economic concessions
provided by Landlord. The "worth at time of award" of the amounts referred to in
section 13.2(a)(i)(A) and (B) shall be computed by allowing interest at the
lesser of ten percent (10%) per annum or the maximum interest rate permitted by
applicable law. The worth at the time of award of the amount referred to in
section 13.2(a)(i)(C) shall be 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%). For purposes of this section 13.2(a)(i), "rent" shall be
deemed to be all monetary obligations required to be paid by Tenant pursuant to
the terms of this Lease.
(ii) maintain Tenant's right of possession in which event
Landlord shall have the remedy described in California Civil Code Section 1951.4
which permits Landlord to continue this lease in effect after Tenant's breach
and abandonment and recover rent as it becomes due. In the event Landlord
elects to continue this Lease in effect, Tenant shall have the right to sublet
the Premises or assign Tenant's interest in the Lease subject to the reasonable
requirements contained in section 12 of this Lease and provided further that
Landlord shall not require compliance with any standard or condition contained
in section 12 that has become unreasonable at the time Tenant seeks to sublet or
assign the Premises pursuant to this section 13.2(a)(ii).
(iii) collect sublease rents (or appoint a receiver to collect
such rent) and otherwise perform Tenant's obligations at the Premises, it being
agreed, however, that the appointment of a receiver for Tenant shall not
constitute an election by Landlord to terminate this lease.
(iv) pursue any other remedy now or hereafter available to
Landlord under the laws or judicial decisions of the state in which the Premises
are located.
(b) No remedy or election hereunder shall be deemed exclusive, but
shall, wherever possible, be cumulative with all other remedies at law or in
equity. The expiration or termination of this Lease and/or the termination of
Tenant's right to possession of the Premises shall not relieve Tenant of
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the term of the Lease or by reason of Tenant's occupancy of
the Premises.
(c) If Tenant abandons or vacates the Premises, Landlord may re-enter
the Premises and such re-entry shall not be deemed to constitute Landlord's
election to accept a surrender of the Premises or to otherwise relieve Tenant
from liability for its breach of this Lease. No surrender of the Premises shall
be effective against Landlord unless Landlord has entered into a written
agreement with Tenant in which Landlord expressly agrees to (i) accept a
surrender of the Premises and (ii) relieve Tenant of liability under the Lease.
The delivery by Tenant to Landlord of possession of the Premises shall not
constitute the termination of the Lease or the surrender of the Premises.
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13.3 DEFAULT BY LANDLORD. Landlord shall not be in default under this
Lease unless Landlord fails to perform obligations required of Landlord within
thirty (30) days after written notice by Tenant to Landlord and to the holder of
any mortgage or deed of trust encumbering the Project whose name and address
shall have theretofore been furnished to Tenant in writing, specifying wherein
Landlord has failed to perform such obligation; provided, however, that if the
nature of Landlord's obligation is such that more than thirty (30) days are
required for its cure, then Landlord shall not be in default if Landlord
commences performance within such thirty (30) day period and thereafter
diligently pursues the same to completion. In no event shall Tenant have the
right to terminate this Lease as a result of Landlord's default, and Tenant's
remedies shall be limited to damages and/or an injunction. Tenant hereby waives
its right to recover consequential damages (including, but not limited to, lost
profits) or punitive damages arising out of a Landlord default. This Lease and
the obligations of Tenant hereunder shall not be affected or impaired because
Landlord is unable to fulfill any of its obligations hereunder or is delayed in
doing so, if such inability or delay is caused by reason of a Force Majeure
Event, and the time for Landlord's performance shall be extended for the period
of any such delay. Any claim, demand, right or defense by Tenant that arises
out of this Lease or the negotiations which preceded this Lease shall be barred
unless Tenant commences an action thereon, or interposes a defense by reason
thereof, within six (6) months after the date of the inaction, omission, event
or action that gave rise to such claim, demand, right or defense.
13.4 LATE CHARGES. Tenant hereby acknowledges that late payment by Tenant
to Landlord of Base Rent, Tenant's Share of Operating Expense increases, parking
charges, after hours HVAC charges, 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 on Landlord by the terms of any mortgage or trust deed encumbering the
Project. Accordingly, if any installment of Base Rent, Tenant's Share of
Operating Expense increases, parking charges, after hours HVAC charges or any
other sum due from Tenant shall not be received by Landlord when such amount
shall be due, then, without any requirement for notice or demand to Tenant,
Tenant shall immediately pay to Landlord 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 Landlord will incur by
reason of late payment by Tenant. Acceptance of such late charge by 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 including the assessment of interest under section
13.5.
13.5 INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein
provided, any amount due to Landlord that is not paid when due shall bear
interest at the lesser of ten percent (10%) per annum or the maximum rate
permitted by applicable law. Payment of such interest shall not excuse or cure
any default by Tenant under this Lease; provided, however, that interest shall
not be payable on late charges incurred by Tenant nor on any amounts upon which
late charges are paid by Tenant.
13.6 PAYMENT OF RENT AND SECURITY DEPOSIT AFTER DEFAULT. If Tenant fails
to pay Base Rent, Tenant's Share of Operating Expense increases, parking charges
or any other monetary obligation due hereunder on the date it is due, after
Tenant's third failure to pay any monetary obligation on the date it is due, at
Landlord's option, all monetary obligations of Tenant hereunder shall thereafter
be paid by cashiers check, and Tenant shall, upon demand, provide Landlord with
an additional security deposit equal to three (3) months' Base Rent. If
Landlord has required Tenant to make said payments by cashiers check or to
provide an additional security deposit, Tenant's failure to make a payment by
cashiers check or to provide the additional security deposit shall be a material
default hereunder.
14. LANDLORD'S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT. All covenants and
agreements to be kept or performed by Tenant under this Lease shall be performed
by Tenant at Tenant's sole cost and expense and without any reduction of rent.
If Tenant shall fail to perform any of its obligations under this Lease, within
a reasonable time after such performance is required by the terms of this Lease,
Landlord may, but shall not be obligated to, after three (3) days prior written
notice to Tenant, make any such payment or perform any such act on Tenant's
behalf without waiving its rights based upon any default of Tenant and without
releasing Tenant from any obligations hereunder. Tenant shall pay to Landlord,
within ten (10) days after delivery by Landlord to Tenant of statements
therefore, an amount equal to the expenditures reasonably made by Landlord in
connection with the remedying by Landlord of Tenant's defaults pursuant to the
provisions of this section 14.
15. CONDEMNATION. If any portion of the Premises or the 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 Project are taken by such condemnation as would substantially and
adversely affect the operation and profitability of Tenant's business conducted
from the Premises, and said taking lasts for ninety (90) days or more, Tenant
shall have the option, to be exercised only in writing within thirty (30) days
after Landlord shall have given Tenant 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 a taking lasts for less than
ninety (90) days, Tenant's rent shall be abated during said period but Tenant
shall not have the right to terminate this Lease. If Tenant 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 Tenant's Share of Operating Expenses shall be reduced in the proportion
that the usable floor area of the Premises taken bears to the total usable floor
area of the Premises. Common Areas taken shall be excluded from the Common
Areas usable by Tenant and no reduction of rent shall occur with respect thereto
or by reason thereof. Landlord 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 Tenant of such election within thirty (30) days
after receipt of notice of a taking by condemnation of any part of the Premises
or the Project. Any award for the taking of all or any part of the Premises or
the Project under the power of eminent domain or any payment made under threat
of the exercise of such power shall be the property of Landlord, whether such
award shall be made as compensation for diminution in value of the leasehold,
for good will, for the taking of the fee, as severance damages, or as damages
for tenant improvements; provided, however, that Tenant shall be entitled to any
separate award for loss of or damage to Tenant's removable personal property and
for moving expenses. In the event that this Lease is not terminated by reason
of such condemnation, and subject to the requirements of any lender that has
made a loan to Landlord encumbering the Project, Landlord shall to the extent of
severance damages received by Landlord in connection with such condemnation,
repair any damage to the Project caused by such condemnation except to the
extent that Tenant has been reimbursed therefor by the condemning authority.
Tenant shall pay any amount in excess of such severance damages required to
complete such repair. This section, not general principles of law or California
Code of Civil Procedure sections 1230.010 et seq., shall govern the rights and
-- ---
obligations of Landlord and Tenant with respect to the condemnation of all or
any portion of the Project.
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16. VEHICLE PARKING.
16.1 USE OF PARKING FACILITIES. During the term and subject to the rules
and regulations attached hereto as Exhibit "C," as modified by Landlord from
time to time (the "Rules"), Tenant shall be entitled to use the number of
parking spaces set forth in section 1.13 in the parking facility of the Project
at the monthly rate applicable from time to time for monthly parking as set by
Landlord and/or its licensee. Landlord may, in its sole discretion, assign
tandem parking spaces to Tenant and designate the location of any reserved
parking spaces. For purposes of this Lease, a "parking space" refers to the
space in which one (1) motor vehicle is intended to park (e.g., a tandem parking
stall includes two tandem parking spaces). Landlord reserves the right at any
time to relocate Tenant's reserved and unreserved parking spaces. If Tenant
commits or allows in the parking facility any of the activities prohibited by
the Lease or the Rules, then Landlord 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 and charge the cost to Tenant, which cost shall be
immediately payable by Tenant upon demand by Landlord. Tenant's parking rights
are the personal rights of Tenant and Tenant shall not transfer, assign, or
otherwise convey its parking rights separate and apart from this Lease.
16.2 PARKING CHARGES. The initial monthly parking rate per parking space
is set forth in section 1.14 and is subject to change by Landlord, in Landlord's
sole discretion, upon five (5) days prior written notice to Tenant. Monthly
parking fees shall be payable in advance prior to the first day of each calendar
month. Visitor parking rates shall be determined by Landlord from time to time
in Landlord's sole discretion. The parking rates charged to Tenant or Tenant's
visitors may not be the lowest parking rates charged by Landlord for the use of
the parking facility. Notwithstanding anything to the contrary contained
herein, any tax imposed on the privilege of occupying space in the parking
facility, upon the revenues received by Landlord from the parking facility or
upon the charges paid for the privilege of using the parking facility by any
governmental or quasi-governmental entity may be added by Landlord to the
monthly parking charges paid by Tenant at any time, or Landlord may require
Tenant and other persons using the parking facility to pay said amounts directly
to the taxing authority.
17. BROKER'S FEE. Tenant and Landlord each represent and warrant to the other
that neither has had any dealings or entered into any agreements with any
person, entity, broker or finder other than the persons, if any, listed in
section 1.15, in connection with the negotiation of this Lease, and no other
broker, person, or entity is entitled to any commission or finder's fee in
connection with the negotiation of this Lease, and Tenant and Landlord each
agree to indemnify, defend and hold the other harmless from and against any
claims, damages, 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, actions or agreements of the
indemnifying party.
18. ESTOPPEL CERTIFICATE.
18.1 DELIVERY OF CERTIFICATE. Tenant shall 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 certifying such information as
Landlord may reasonably request including, but not limited to, the following:
(a) 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) (b) the date to which the Base Rent and
other charges are paid in advance and the amounts so payable, (c) that there are
not, to Tenant's knowledge, any uncured defaults or unfulfilled obligations on
the part of Landlord, or specifying such defaults or unfulfilled obligations, if
any are claimed, (d) that all tenant improvements to be constructed by Landlord,
if any, have been completed in accordance with Landlord's obligations and (e)
that Tenant has taken possession of the Premises. Any such statement may be
conclusively relied upon by any prospective purchaser or encumbrancer of the
Project.
18.2 FAILURE TO DELIVER CERTIFICATE. At Landlord's option, the failure of
Tenant to deliver such statement within such time shall constitute a material
default of Tenant hereunder, or it shall be conclusive upon Tenant that (a) this
Lease is in full force and effect, without modification except as may be
represented by Landlord, (b) there are no uncured defaults in Landlord's
performance, (c) not more than one month's Base Rent has been paid in advance,
(d) all tenant improvements to be constructed by Landlord, if any, have been
completed in accordance with Landlord's obligations and (e) Tenant has taken
possession of the Premises.
19. FINANCIAL INFORMATION. From time to time, at Landlord's request, Tenant
shall cause the following financial information to be delivered to Landlord, at
Tenant's sole cost and expense, upon not less than ten (10) days' advance
written notice from Landlord: (a) a current financial statement for Tenant and
Tenant's financial statements for the previous two accounting years, (b) a
current financial statement for any guarantor(s) of this Lease and the
guarantor'(s) financial statements for the previous two accounting years and (c)
such other financial information pertaining to Tenant or any guarantor as
Landlord or any lender or purchaser of Landlord may reasonably request. All
financial statements shall be prepared in accordance with generally accepted
accounting principals consistently applied and, if such is the normal practice
of Tenant, shall be audited by an independent certified public accountant.
Tenant hereby authorizes Landlord, from time to time, without notice to Tenant,
to obtain a credit report or credit history on Tenant from any credit reporting
company.
20. LANDLORD'S LIABILITY. Tenant acknowledges that Landlord shall have the
right to transfer all or any portion of its interest in the Project and to
assign this Lease to the transferee. Tenant agrees that in the event of such a
transfer Landlord shall automatically be released from all liability under this
Lease; and Tenant hereby agrees to look solely to Landlord's transferee for the
performance of Landlord's obligations hereunder after the date of the transfer.
Upon such a transfer, Landlord shall, at its option, return Tenant's security
deposit to Tenant or transfer Tenant's security deposit to Landlord's transferee
and, in either event, Landlord shall have no further liability to Tenant for the
return of its security deposit. Subject to the rights of any lender holding a
mortgage or deed of trust encumbering all or part of the Project, Tenant agrees
to look solely to Landlord's equity interest in the Project for the collection
of any judgment requiring the payment of money by Landlord arising out of (a)
Landlord's failure to perform its obligations under this Lease or (b) the
negligence or wilful misconduct of Landlord, its partners, employees and agents.
No other property or assets of Landlord shall be subject to levy, execution or
other enforcement procedure for the satisfaction of any judgment or writ
obtained by Tenant against Landlord. No partner, employee or agent of Landlord
shall be personally liable for the performance of Landlord's obligations
hereunder or be named as a party in any lawsuit arising out of or related to,
directly or indirectly, this Lease and the obligations of Landlord hereunder.
The obligations under this Lease do not constitute personal obligations of the
individual partners of Landlord, if any, and Tenant shall not seek recourse
against the individual partners of Landlord or their assets.
21. INDEMNITY. Tenant hereby agrees to indemnify, defend and hold harmless
Landlord and its employees, partners, agents, contractors, lenders and ground
lessors (said persons and entities are hereinafter collectively referred to as
the "Indemnified Parties")
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from and against any and all liability, loss, cost, damage, claims, loss of
rents, liens, judgments, penalties, fines, settlement costs, investigation
costs, the cost of consultants and experts, attorneys fees, court costs and
other legal expenses, the effects of environmental contamination, the cost of
environmental testing, the removal, remediation and/or abatement of Hazardous
Substances or Medical Waste (as said terms are defined below), insurance policy
deductibles and other expenses (hereinafter collectively referred to as
"Damages") arising out of or related to an "Indemnified Matter" (as defined
below). For purposes of this section 21, an "Indemnified Matter" shall mean any
matter for which one or more of the Indemnified Parties incurs liability or
Damages if the liability or Damages arise out of or involve, directly or
indirectly, (a) Tenant's or its employees, agents, contractors or invitees (all
of said persons or entities are hereinafter collectively referred to as "Tenant
Parties") use or occupancy of the Premises or the Project, (b) any act, omission
or neglect of a Tenant Party, (c) Tenant's failure to perform any of its
obligations under the Lease, (d) the existence, use or disposal of any Hazardous
Substance (as defined in section 23 below) brought on to the project by a Tenant
Party, (e) the existence, use or disposal of any Medical Waste (as defined in
section 24 below) brought on to the Project by a Tenant Party or (f) any other
matters for which Tenant has agreed to indemnify Landlord pursuant to any other
provision of this Lease. Notwithstanding the foregoing, this Indemnity shall not
apply to any Indemnified Party to the extent such damages have resulted from the
gross negligence or intentional misconduct of such Indemnified Party. Tenant's
obligations under this section shall survive the expiration or termination of
this Lease unless with respect to any occurrence action or condition occurring
or existing prior to such expiration or termination specifically waived in
writing by Landlord after said expiration or termination.
22. SIGNS. Tenant shall not place any sign upon the Premises (including on the
inside or the outside of the doors or windows of the Premises) or the Project
without Landlord's prior written consent, which may be given or withheld in
Landlord's sole discretion. Landlord shall have the right to place any sign it
deems appropriate on any portion of the Project except the interior of the
Premises. Any sign Landlord permits Tenant to place upon the Premises shall be
maintained by Tenant, at Tenant's sole expense. If Landlord permits Tenant to
include its name in the Building's directory, the cost of placing Tenant's name
in the directory and the cost of any subsequent modifications thereto shall be
paid by Tenant, at Tenant's sole expense.
23. HAZARDOUS SUBSTANCES.
23.1 DEFINITION AND CONSENT. The term "Hazardous Substance" as used in
this Lease shall mean any product, substance, chemical, material or waste whose
presence, nature, quantity and/or intensity of existence, use, manufacture,
disposal, transportation, spill, release or affect, either by itself or in
combination with other materials expected to be on the Premises, is either: (a)
potentially injurious to the public health, safety or welfare, the environment
or the Premises, (b) regulated or monitored by any governmental entity, (c) a
basis for liability of Landlord to any governmental entity or third party under
any federal, state or local statute or common law theory or (d) defined as a
hazardous material or substance by any federal, state or local law or
regulation. Except for small quantities or ordinary office supplies such as
copier toner, liquid paper, glue, ink and common household cleaning materials,
Tenant shall not cause or permit any Hazardous Substance to be brought, kept, or
used in or about the Premises or the Project by Tenant, its agents, employees,
contractors or invitees.
23.2 DUTY TO INFORM LANDLORD. If Tenant knows, or has reasonable cause to
believe, that a Hazardous Substance, or a condition involving or resulting from
same, has come to be located in, on or under or about the Premises or the
Project, Tenant shall immediately give written notice of such fact to Landlord.
Tenant shall also immediately give Landlord (without demand by Landlord) a copy
of any statement, report, notice, registration, application, permit, license,
given to or received from, any governmental authority or private party, or
persons entering or occupying the Premises, concerning the presence, spill,
release, discharge of or exposure to, any Hazardous Substance or contamination
in, on or about the Premises or the Project.
23.3 INSPECTION; COMPLIANCE. Landlord and Landlord's employees, agent,
contractors and lenders shall have the right to enter the Premises at any time
in the case of an emergency, and otherwise at reasonable times, for the purpose
of inspecting the condition of the Premises and for verifying compliance by
Tenant with this section 23. Landlord shall have the right to employ experts
and/or consultants in connection with its examination of the Premises and with
respect to the installation, operation, use, monitoring, maintenance, or removal
of
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any Hazardous Substance on or from the Premises. The costs and expenses of any
such inspections shall be paid by the party requesting same, unless a
contamination, caused or materially contributed to by Tenant, is found to exist
or be imminent, or unless the inspection is requested or ordered by governmental
authority as the result of any such existing or imminent violation or
contamination. In any such case, Tenant shall upon request reimburse Landlord
for the cost and expenses of such inspection.
24. MEDICAL WASTE.
24.1 DEFINITION. The term "Medical Waste" shall mean the types of waste
described in section 25023.2 of California's Health and Safety Code and any
similar type of waste. Unless specifically permitted by section 6 of this Lease
to use the Premises for medical office uses, Tenant shall not cause or permit
any Medical Waste to be brought, kept or used in or about the Premises or the
Project by Tenant, its employees, agents, contractors or invitees.
24.2 DISPOSAL OF MEDICAL WASTE. Tenant hereby agrees, at Tenant's sole
expense, to dispose of its Medical Waste in compliance with all federal, state
and local laws, rules and regulations relating to the disposal of Medical Waste
and to dispose of the Medical Waste in a prudent and reasonable manner. Tenant
shall not place any Medical Waste in refuse containers emptied by Landlord's
janitorial staff or in the Project's refuse containers. At Landlord's option,
in Landlord's sole discretion, Landlord shall have the right, upon sixty (60)
days' advance written notice to Tenant, at any time and from time to time, to
elect to provide Medical Waste disposal services to Tenant. If Landlord elects
to provide Medical Waste disposal services to Tenant, all costs incurred by
Landlord in providing such services shall be paid by Tenant to Landlord as
additional rent. Landlord may bill Tenant for said costs based upon the actual
cost of providing said services to Tenant, as determined by Landlord, in
Landlord's sole discretion, or Landlord may bill said expenses based upon
Tenant's Share of the total cost of providing said services.
24.3 DUTY TO INFORM LANDLORD. Within ten (10) days following Landlord's
written request, Tenant shall provide Landlord with any information requested by
Landlord concerning the existence, generation or disposal of Medical Waste at
the Premises, including, but not limited to, the following information: (a) the
name, address and telephone number of the person or entity employed by Tenant to
dispose of its Medical Waste, including a copy of any contract with said person
or entity, (b) a list of each type of Medical Waste generated by Tenant at the
Premises and a description of how Tenant disposes of said Medical Waste, (c) a
copy of any laws, rules or regulations in Tenant's possession relating to the
disposal of the Medical Waste generated by Tenant, and (d) copies of any
licenses or permits obtained by Tenant in order to generate or dispose of said
Medical Waste. Tenant shall also immediately provide to Landlord (without
demand by Landlord) a copy of any notice, registration, application, permit, or
license given to or received from any governmental authority or private party,
or persons entering or occupying the Premises, concerning the presence, release,
exposure or disposal of any Medical Waste in or about the Premises or the
Project.
24.4 INSPECTION; COMPLIANCE. Landlord and Landlord's employees, agents,
contractors and lenders shall have the right to enter the Premises at any time
in the case of an emergency, and otherwise at reasonable times, for the purpose
of verifying compliance by Tenant with this section 24. Landlord shall have the
right to employ experts and/or consultants in connection with its examination of
the Premises and with respect to the generation and disposal of Medical Waste on
or from the Premises. The cost and expenses of any such inspection shall be
paid by Landlord, unless it is determined that Tenant is not disposing of its
Medical Waste in a manner permitted by applicable law, in which case Tenant
shall immediately reimburse Landlord for the cost of such inspection.
25. TENANT IMPROVEMENTS. Tenant acknowledges and agrees that Landlord shall
not be obligated to construct any tenant improvements on behalf of Tenant unless
a work letter agreement (the "Work Letter") is attached to this Lease as an
exhibit and the Work Letter is fully completed and executed by Landlord. If a
space plan is attached to the Work Letter, the space plan shall not be binding
on Landlord unless the space plan has been approved by Landlord in writing.
Except as set forth in a Work Letter, it is specifically understood and agreed
that Landlord has no obligation and has made no promises to alter, remodel,
improve, renovate, repair or decorate the Premises, the Project, or any part
thereof, or to provide any allowance for such purposes, and that no
representations respecting the condition of the Premises or the Project have
been made by Landlord to Tenant.
26. SUBORDINATION.
26.1 EFFECT OF SUBORDINATION. This Lease, and any Option (as defined in
section 27 below) granted hereby, upon Landlord's written election, shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or any
other hypothecation or security now or hereafter placed upon the 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, Tenant's right to quiet possession of the
Premises shall not be disturbed if Tenant is not in default and so long as
Tenant 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. At the
request of any mortgagee, trustee or ground lessor, Tenant shall attorn to such
person or entity. 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 Tenant, 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. In the event of the foreclosure of a security
device, the new owner shall not (a) be liable for any act or omission of any
prior landlord or with respect to events occurring prior to its acquisition of
title, (b) be liable for the breach of this Lease by any prior landlord, (c) be
subject to any offsets or defenses which Tenant may have against the prior
landlord or (d) be liable to Tenant for the return of its security deposit.
26.2 EXECUTION OF DOCUMENTS. Tenant agrees to execute and acknowledge any
documents Landlord reasonably requests that Tenant execute 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. Tenant acknowledges that the subordination agreement may give the
lender the right, in the lender's sole discretion, to continue this Lease in
effect or to terminate this Lease in the event of a foreclosure sale. Tenant's
failure to execute such documents within ten (10) days after written demand
shall constitute a material default by Tenant hereunder or, at Landlord's
option, Landlord shall have the right to execute such documents on behalf of
Tenant as Tenant's attorney-in-fact. Tenant does hereby make, constitute and
irrevocably appoint Landlord as Tenant's attorney-in-fact and in Tenant's name,
place and stead, to execute such documents in accordance with this section 26.2.
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27. OPTIONS.
27.1 DEFINITION. As used in this Lease, the word "Option" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease, (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 Project or the right of first offer to
lease other space within the Project, and (3) the right or option to terminate
this Lease prior to its expiration date or to reduce the size of the Premises.
Any Option granted to Tenant by Landlord must be evidenced by a written option
agreement attached to this Lease as a rider or addendum or said option shall be
of no force or effect.
27.2 OPTIONS PERSONAL. Each Option granted to Tenant in this Lease, if
any, is personal to the original Tenant and may be exercised only by the
original Tenant while occupying the entire Premises and may not be exercised or
be assigned, voluntarily or involuntarily, by or to any person or entity other
than Tenant, including, without limitation, any permitted transferee as defined
in section 12. The Options, if any, herein granted to Tenant 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. If at any time an
Option is exercisable by Tenant, the Lease has been assigned, or a sublease
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exists as to any portion of the Premises, the Option shall be deemed null and
void and neither Tenant nor any assignee or subtenant shall have the right to
exercise the Option.
27.3 MULTIPLE OPTIONS. In the event that Tenant has 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.
27.4 EFFECT OF DEFAULT ON OPTIONS. Tenant shall have no right to exercise
an Option (i) during the time commencing from the date Landlord gives to Tenant
a notice of default pursuant to section 13.1 and continuing until the
noncompliance alleged in said notice of default is cured, or (ii) if Tenant is
in default of any of the terms, covenants or conditions of this Lease. The
period of time within which an Option may be exercised shall not be extended or
enlarged by reason of Tenant's inability to exercise an Option because of the
provisions of this section 27.4.
27.5 LIMITATIONS ON OPTIONS. Notwithstanding anything to the contrary
contained in any rider or addendum to this Lease, any options, rights of first
refusal or rights of first offer granted hereunder shall be subject and
secondary to Landlord's right to first offer and lease any such space to any
tenant who is then occupying or leasing such space at the time the space becomes
available for leasing and shall be subject and subordinated to any other
options, rights of first refusal or rights of first offer previously given to
any other person or entity.
27.6 NOTICE OF EXERCISE OF OPTION. Notwithstanding anything to the
contrary contained in section 41, Tenant may only exercise an Option by
delivering its written notice of exercise to Landlord by certified mail, return
receipt and date of delivery requested. It shall be Tenant's obligation to
prove that such notice was so sent in a timely manner and was delivered to
Landlord by the U.S. Postal Service.
28. LANDLORD RESERVATIONS. Landlord shall have the right: (a) to change the
name and address of the Project or Building upon not less than ninety (90) days
prior written notice; (b) to, at Tenant's expense, provide and install Building
standard graphics on or near the door of the Premises and such portions of the
Common Areas as Landlord shall determine, in Landlord's sole discretion; (c) to
permit any tenant the exclusive right to conduct any business as long as such
exclusive right does not conflict with any rights expressly given herein; and
(d) to place signs, notices or displays upon the roof, interior, exterior or
Common Areas of the Project. Tenant shall not use a representation (photographic
or otherwise) of the Building or the Project or their name(s) in connection with
Tenant's business or suffer or permit anyone, except in an emergency, to go upon
the roof of the Building. Landlord reserves the right to use the exterior walls
of the Premises, and the area beneath, adjacent to and above the Premises
together with the right to install, use, maintain and replace equipment,
machinery, pipes, conduits and wiring through the Premises, which serve other
parts of the Project provided that Landlord's use does not unreasonably
interfere with Tenant's use of the Premises.
29. CHANGES TO PROJECT. Landlord shall have the right, in Landlord's sole
discretion, from time to time, to make changes to the size, shape, location,
number and extent of the improvements comprising the Project (hereinafter
referred to as "Changes") including, but not limited to, the Project interior
and exterior, the Common Areas, elevators, escalators, restrooms, HVAC,
electrical systems, communication systems, fire protection and detection
systems, plumbing systems, security systems, parking control systems, driveways,
entrances, parking spaces, parking areas and landscaped areas. In connection
with the Changes, Landlord may, among other things, erect scaffolding or other
necessary structures at the Project, limit or eliminate access to portions of
the Project, including portions of the Common Areas, or perform work in the
Building, which work may create noise, dust or leave debris in the Building.
Tenant hereby agrees that such Changes and Landlord's actions in connection with
such Changes shall in no way constitute a constructive eviction of Tenant or
entitle Tenant to any abatement of rent. Landlord shall have no responsibility
or for any reason be liable to Tenant for any direct or indirect injury to or
interference with Tenant's business arising from the Changes, nor shall Tenant
be entitled to any compensation or damages from Landlord for any inconvenience
or annoyance occasioned by such Changes or Landlord's actions in connection with
such Changes.
30. SUBSTITUTION OF OTHER PREMISES. Landlord shall have the right at any time
to move Tenant to any other leasable space in the Project provided that said
space shall be approximately the same size as the Premises and that Landlord
shall pay the entire cost of moving Tenant's furniture and phone system [and]
equipment to the new space and provide reasonable stationary allowance. The new
space shall include tenant improvements that are substantially equivalent to the
tenant improvements contained in the Premises, and the cost of any required
tenant improvements shall be paid by Landlord. If Landlord elects to relocate
Tenant, Landlord shall give Tenant written notice of its election and Tenant
shall have thirty (30) days thereafter to agree to be relocated in accordance
with the terms and conditions of this section 30 or to elect to terminate this
Lease. If Tenant elects to terminate this Lease within said thirty (30) day
period or fails to respond to Landlord's notice within said thirty (30) day
period, this Lease shall then terminate on the date which is sixty (60) days
after the date Landlord gave Tenant its written notice electing to relocate
Tenant. Landlord shall have no liability to Tenant as a result of Tenant's
election to terminate this Lease. Prior to said termination, Landlord and
Tenant shall perform all of their obligations under this Lease. If Tenant
elects to be relocated, Landlord shall deliver substitute space to Tenant not
more than one hundred eighty (180) days after (a) Tenant agrees to be relocated
and (b) approves plans for the construction of required tenant improvements at
the new space, if any. Tenant shall not unreasonably withhold or delay its
approval of any plans for the construction of tenant improvements. Landlord
shall give Tenant thirty (30) days advance notice of the estimated move in date.
Prior to the date that Tenant is moved to the new space, Tenant shall remain in
the Premises and shall continue to perform all of its obligations under this
Lease. After Tenant moves into the new space, this Lease shall remain in full
force and effect and be deemed applicable to such new space, except as to Base
Rent, Tenant's Share of Operating Expense increases and the number of parking
spaces Tenant shall be entitled to use, all of which shall be adjusted based on
the relationship between the number of rentable square feet in the original
Premises and the number of rentable square feet in the substituted space. Upon
Tenant's election to be relocated, Landlord and Tenant shall amend this Lease to
provide for the relocation of the Premises.
31. HOLDING OVER. If Tenant remains in possession of the Premises or any part
thereof after the expiration or earlier termination of the term hereof with
Landlord's consent, such occupancy shall be a tenancy from month to month upon
all the terms and conditions of this Lease pertaining to the obligations of
Tenant, except that the Base Rent payable shall be the greater of (a) two
hundred percent (200%) of the Base Rent payable immediately preceding the
termination date of this Lease or (b) one hundred twenty-five percent (125%) of
the fair market Base Rent for the Premises as of the date Tenant holds over, and
all Options, if any, shall be deemed terminated and be of no further effect. If
Tenant remains in possession of the Premises or any part thereof after the
expiration of the term hereof without Landlord's consent, Tenant shall, at
Landlord's option, be treated as a tenant at sufferance or a trespasser. Nothing
contained herein shall be construed to constitute Landlord's consent to Tenant
holding over at the expiration or earlier termination of the Lease term or to
give Tenant the right to hold over after the expiration or earlier termination
of the Lease term. Tenant hereby agrees to indemnify, hold harmless and defend
Landlord from any cost, loss, claim or liability (including attorneys'
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fees) Landlord may incur as a result of Tenant's failure to surrender possession
of the Premises to Landlord upon the termination of this Lease.
32. LANDLORD'S ACCESS.
32.1 ACCESS. Landlord and Landlord's agents, contractors and employees
shall have the right to enter the Premises at reasonable times for the purpose
of inspecting the Premises, performing any services required of Landlord,
showing the Premises to prospective purchasers, lenders, or tenants, undertaking
safety measures and making alterations, repairs, improvements or additions to
the Premises or to the Project. In the event of an emergency, Landlord may gain
access to the Premises by any reasonable means, and Landlord shall not be liable
to Tenant for damage to the Premises or to Tenant's property resulting from such
access. Landlord may at any time place on or about the Building for sale or for
lease signs and Landlord may at any time during the last one hundred twenty
(120) days of the term hereof place on or about the Premises for lease signs.
32.2 KEYS. Landlord shall have the right to retain keys to the locks on
the entry doors to the Premises and all interior doors at the Premises. At
Landlord's option, Landlord may require Tenant to obtain all keys to door locks
at the Premises from Landlord's engineering
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staff or Landlord's locksmith and to only use Landlord's engineering staff or
Landlord's locksmith to change locks at the Premises. Tenant shall pay
Landlord's or its locksmith's standard charge for all keys and other services
obtained from Landlord's engineering staff or locksmith.
33. SECURITY MEASURES. Tenant hereby acknowledges that Landlord shall have no
obligation whatsoever to provide guard service or other security measures for
the benefit of the Premises or the Project, and Landlord shall have no liability
to Tenant due to its failure to provide such services. Tenant assumes all
responsibility for the protection of Tenant, its agents, employees, contractors
and invitees and the property of Tenant and of Tenant's agents, employees,
contractors and invitees from acts of third parties. Nothing herein contained
shall prevent Landlord, at Landlord's sole option, from implementing security
measures for the Project or any part thereof, in which event Tenant shall
participate in such security measures and the cost thereof shall be included
within the definition of Operating Expenses, and Landlord shall have no
liability to Tenant and its agents, employees, contractors and invitees arising
out of Landlord's negligent provision of security measures. Landlord shall have
the right, but not the obligation, to require all persons entering or leaving
the Project to identify themselves to a security guard and to reasonably
establish that such person should be permitted access to the Project.
34. EASEMENTS. Landlord reserves to itself the right, from time to time, 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 within ten (10) days after Landlord's
request and Tenant's failure to do so shall constitute a material default by
Tenant. The obstruction of Tenant's view, air, or light by any structure
erected in the vicinity of the Project, whether by Landlord or third parties,
shall in no way affect this Lease or impose any liability upon Landlord.
35. TRANSPORTATION MANAGEMENT. Tenant shall fully comply at its sole expense
with all present or future programs implemented or required by any governmental
or quasi-governmental entity or Landlord to manage parking, transportation, air
pollution, or traffic in and around the Project or the metropolitan area in
which the Project is located.
36. 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.
37. TIME OF ESSENCE. Time is of the essence with respect to each of the
obligations to be performed by Tenant and Landlord under this Lease.
38. DEFINITION OF ADDITIONAL RENT. All monetary obligations of Tenant to
Landlord under the terms of this Lease, including, but not limited to, Base
Rent, Tenant's Share of Operating Expenses, parking charges, late charges and
charges for after hours HVAC shall be deemed to be rent.
39. INCORPORATION OF PRIOR AGREEMENTS. This Lease and the attachments listed
in section 1.16 contain all agreements of the parties with respect to the lease
of the Premises and any other matter mentioned herein. No prior or
contemporaneous agreement or understanding pertaining to any such matter shall
be effective. Except as otherwise stated in this Lease, Tenant hereby
acknowledges that no real estate broker nor Landlord or any employee or agents
of any of said persons has made any oral or written warranties or
representations to Tenant concerning the condition or use by Tenant of the
Premises or the Project or concerning any other matter addressed by this Lease.
40. AMENDMENTS. This Lease may be modified in writing only, signed by the
parties in interest at the time of the modification.
41. NOTICES. Subject to the requirements of section 27.6 of this Lease, all
notices required or permitted by this Lease shall be in writing and may be
delivered (a) in person (by hand, by messenger or by courier service), (b) by
U.S. Postal Service regular mail, (c) by U.S. Postal Service certified mail,
return receipt requested, (d) by U.S. Postal Service Express Mail, Federal
Express or other overnight courier, or (e) by facsimile transmission, and shall
be deemed sufficiently given if served in a manner specified in this section 41.
Any notice permitted or required hereunder, and any notice to pay rent or quit
or similar notice, shall be deemed personally delivered to Tenant on the date
the notice is personally delivered to any employee of Tenant at the Premises.
The addresses set forth in section 1.17 of this Lease shall be the address of
each party of notice purposes. Landlord or Tenant may by written notice to the
other specify a different address for notices purposes, except that upon
Tenant's taking possession of the Premises, the Premises shall constitute
Tenant's address for the purpose of mailing or delivering notices to Tenant. A
copy of all notices required or permitted to be given to Landlord hereunder
shall be concurrently transmitted to such party or parties at such addresses as
Landlord may from time to time hereinafter designate by written notice to
Tenant. Any notice sent by regular mail or by certified mail, return receipt
requested, shall be deemed given three (3) days after deposited with the U.S.
Postal Service. Notices delivered by U.S. Express Mail, Federal Express or
other courier shall be deemed given on the date delivered by the carrier to the
appropriate party's address for notice purposes. If any notice is transmitted
by facsimile transmission, the notice shall be deemed delivered upon telephone
confirmation of receipt of the transmission thereof at the appropriate party's
address for notice purposes. A copy of all notices delivered to a party by
facsimile transmission shall also be mailed to the party on the date the
facsimile transmission is completed. If notice is received on Saturday, Sunday
or a legal holiday, it shall be deemed received on the next business day.
Nothing contained herein shall be construed to limit Landlord's right to serve
any notice to pay rent or quit or similar notice by any method permitted by
applicable law, and any such notice shall be effective if served in accordance
with any method permitted by applicable law whether or not the requirements of
this section have been met.
42. WAIVERS. No waiver by Landlord or Tenant of any provision hereof shall be
deemed a waiver of any other provision hereof or of any subsequent breach by
Landlord or Tenant of the same or any other provision. Landlord's consent to,
or approval of, any act shall not be deemed to render unnecessary the obtaining
of Landlord's consent to or approval of any subsequent act by Tenant. The
acceptance of rent hereunder by Landlord shall not be a waiver of any preceding
breach by Tenant of any provision hereof, other than the failure of Tenant to
pay the particular rent so accepted, regardless of Landlord's knowledge of such
preceding breach at the time of acceptance of such rent. No acceptance by
Landlord of partial payment of any sum due from Tenant shall be deemed a waiver
by Landlord of its right to receive the full amount due, nor shall any
endorsement or statement on any check or accompanying letter from Tenant be
deemed an accord and satisfaction. Tenant hereby waives California Code of
Civil Procedure Section 1179 and Civil Code Section 3275 which allow tenants to
obtain relief from the forfeiture of a lease. Tenant hereby waives for Tenant
and all those claiming under Tenant all rights now or hereafter existing to
redeem by order or judgment of any court or by legal process or writ, Tenant's
right of occupancy of the Premises after any termination of this Lease.
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43. COVENANTS. This Lease shall be construed as though Landlord's covenants
contained herein are independent and not dependent and Tenant hereby waives the
benefit of any statute to the contrary. All provisions of this Lease to be
observed or performed by Tenant are both covenants and conditions.
44. BINDING EFFECT; CHOICE OF LAW. Subject to any provision hereof restricting
assignment or subletting by Tenant, this Lease shall bind the parties, their
heirs, personal representatives, successors and assigns. This Lease shall be
governed by the laws of the state in which the Project is located and any
litigation concerning this Lease between the parties hereto shall be initiated
in the county in which the Project is located.
45. ATTORNEYS' FEES. If Landlord or Tenant brings an action to enforce the
terms hereof or declare rights hereunder, the prevailing party in any such
action, or appeal thereon, shall be entitled to its reasonable attorneys' fees
and court costs to be paid by the losing party as fixed by the court in the same
or separate suit, and whether or not such action is pursued to decision or
judgment. The attorneys' fee award shall not be computed in accordance with any
court fee schedule, but shall be such as to fully reimburse all attorneys' fees
and court costs reasonably incurred in good faith. Landlord shall be entitled
to reasonable attorneys' fees and all other costs and expenses incurred in the
preparation
26
<PAGE>
and service of notices of default and consultations in connection therewith,
whether or not a legal action is subsequently commenced in connection with such
default. Landlord and Tenant agree that attorneys' fees incurred with respect
to defaults and bankruptcy are actual pecuniary losses within the meaning of
Section 365(b)(1)(B) of the Bankruptcy's Code or any successor statute.
46. AUCTIONS. Tenant shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises or the Common Areas.
The holding of any auction on the Premises or Common Areas in violation of this
section 46 shall constitute a material default hereunder.
47. EXEMPTION OF LANDLORD FROM LIABILITY. Tenant hereby agrees that Landlord
shall not be liable for injury to Tenant's business or any loss of income
therefrom or for loss of or damage to the merchandise, tenant improvements,
fixtures, furniture, equipment, computers, files, automobiles, or other property
of Tenant, Tenant's employees, agents, contractors or invitees, or any other
person in or about the Project, nor shall Landlord be liable for injury to the
person of Tenant, Tenant's employees, agents, contractors or invitees, whether
such damage or injury is caused by or results from any cause whatsoever
including, but not limited to, theft, criminal activity at the Project,
negligent security measures, bombings or bomb scares, Hazardous Substances or
Medical Waste (as defined below), fire, steam, electricity, gas, water or rain,
flooding, breakage of pipes, sprinklers, 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 Project, or
from other sources or places, or from new construction or the repair, alteration
or improvements of any part of the Project, and unless the cause of the damage
or injury arises out of Landlord's or its employees, agents or contractors gross
negligent or intentional acts. Landlord shall not be liable for any damages
arising from any act or neglect of any employees, agents, contractors or
invitees of any other tenant, occupant or user of the Project, nor from the
failure of Landlord to enforce the provisions of the lease of any other tenant
of the Project. Tenant, as a material part of the consideration to Landlord
hereunder, hereby assumes all risk of damage to Tenant's property or business or
injury to persons, in, upon or about the Project arising from any cause,
excluding gross Landlord's gross negligence or the gross negligence of its
employees, agents or contractors, and Tenant hereby waives all other claims in
respect thereof against Landlord, its employees, agents and contractors.
48. MERGER. The voluntary or other surrender of this Lease by Tenant, or a
mutual cancellation thereof, or a termination by Landlord, shall not result in
the merger of Landlord's and Tenant's estates, and shall, at the option of
Landlord, terminate all or any existing subtenancies or may, at the option of
Landlord, operate as an assignment to Landlord of any or all of such
subtenancies.
49. QUIET POSSESSION. Subject to the other terms and conditions of this Lease,
and the rights of any lender, and provided Tenant is not in default hereunder,
Tenant shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
50. AUTHORITY. If Tenant is a corporation, trust, or general or limited
partnership, Tenant, and each individual executing this Lease on behalf of such
entity, represents and warrants that such individual is duly authorized to
execute and deliver this Lease on behalf of said entity, that said entity is
duly authorized to enter into this Lease, and that this Lease is enforceable
against said entity in accordance with its terms. If Tenant is a corporation,
trust or partnership, Tenant shall deliver to Landlord upon demand evidence of
such authority satisfactory to Landlord.
51. CONFLICT. Except as otherwise provided herein to the contrary, any
conflict between the printer provisions, exhibits, addenda or riders of this
Lease and the typewritten or handwritten provisions, if any, shall be controlled
by the typewritten or handwritten provisions.
52. MULTIPLE PARTIES. If more than one person or entity is named as Tenant
herein, the obligations of Tenant shall be the joint and several responsibility
of all persons or entities named herein as Tenant. Service of a notice in
accordance with section 41 on one Tenant shall be deemed service of notice on
all Tenants.
53. INTERPRETATION. This Lease shall be interpreted as if it was prepared by
both parties and ambiguities shall not be resolved in favor of Tenant because
all or a portion of this Lease was prepared by Landlord. The captions contained
in this Lease are for convenience only and shall not be deemed to limit or alter
the meaning of this Lease. As used in this Lease the words tenant and landlord
include the plural as well as the singular. Words used in the neuter gender
include the masculine and feminine gender.
54. PROHIBITION AGAINST RECORDING. Neither this Lease, nor any memorandum,
affidavit or other writing with respect thereto, shall be recorded by Tenant or
by anyone acting through, under or on behalf of Tenant. Landlord shall have the
right to record a memorandum of this Lease, and Tenant shall execute,
acknowledge and deliver to Landlord for recording any memorandum prepared by
Landlord.
55. RELATIONSHIP OF PARTIES. Nothing contained in this Lease shall be deemed
or construed by the parties hereto or by any third party to create the
relationship of principal and agent, partnership, joint ventures or any
association between Landlord and Tenant.
56. RULES AND REGULATIONS. Tenant agrees to abide by and conform to the Rules
and to cause its employees, suppliers, customers and invitees to so abide and
conform. Landlord shall have the right, from time to time, to modify, amend and
enforce the Rules in a non-discriminatory manner. Landlord shall not be
responsible to Tenant for the failure of other persons including, but not
limited to, other tenants, their agents, employees and invitees to comply with
the Rules.
57. RIGHT TO LEASE. Landlord reserves the absolute right to effect such other
tenancies in the Project as Landlord in its sole discretion shall determine, and
Tenant is not relying on any representation that any specific tenant or number
of tenants will occupy the Project.
58. SECURITY INTEREST. In consideration of the covenants and agreements
contained herein, and as a material consideration to Landlord for entering into
this Lease, Tenant hereby unconditionally grants to Landlord a continuing
security interest in and to all personal property of Tenant located or left at
the Premises and the security deposit, if any, and any advance rent payment or
other deposit, now in or hereafter delivered to or coming into the possession,
custody or control of Landlord, by or for the account of Tenant, together with
any increase in profits or proceeds from such property. The security interest
granted to Landlord hereunder secures payment and performance of all obligations
of Tenant under this Lease now or hereafter arising or existing, whether direct
or indirect, absolute or contingent, or due or to become due. In the event of a
default under this Lease which is not cured within the applicable grace period,
if any, Landlord is and shall be entitled to all the rights, powers and remedies
granted a secured party under the California Commercial Code and otherwise
available at law or in equity, including, but not limited to, the right to
retain as damages the personal property, security deposit and other funds held
by Landlord, without additional notice or demand regarding
27
<PAGE>
this security interest. Tenant agrees that it will execute such other documents
or instruments as may be reasonably necessary to carry out and effectuate the
purpose and terms of this section, or as otherwise reasonably requested by
Landlord, including without limitation, execution of a UCC-1 financing
statement. Tenant's failure to execute such documents within ten (10) days after
written demand shall constitute a material default by Tenant hereunder and, at
Landlord's option, Landlord shall have the right to execute such documents on
behalf of Tenant as Tenant's attorney-in-fact. Tenant does hereby make,
constitute and irrevocably appoint Landlord as Tenant's attorney-in-fact, and
Landlord shall have the right to execute such documents in Tenant's name. Tenant
hereby waives any rights it may have under Sections 1980 through 1991 of the
California Civil Code which are inconsistent with Landlord's rights under this
section. Landlord's rights under this section are in addition to Landlord's
rights under section 5.
59. SECURITY FOR PERFORMANCE OF TENANT'S OBLIGATIONS. Notwithstanding any
security deposit held by Landlord pursuant to Section 5 and any security
interest held by Landlord pursuant to section 58, Tenant hereby agrees that in
the event of a default by Tenant, Landlord shall be entitled to seek and obtain
a writ of attachment and/or a temporary protective order and Tenant hereby
waives any rights or defenses to contest such a writ of attachment and/or
temporary protective order on the basis of California Code of Civil Procedure
Section 483.010 or any other related statute or rule.
60. ATTACHMENTS. The items listed in section 1.16 are a part of this Lease and
are incorporated herein by this reference.
61. CONFIDENTIALITY. Tenant acknowledges and agrees that the terms of this
Lease are confidential and constitute propriety information of Landlord.
Disclosure of the terms hereof could adversely affect the ability of Landlord to
negotiate other leases with respect to the Project and may impair Landlord's
relationship with other tenants of the Project. Tenant agrees that it and its
partners, officers, directors, employees, brokers, and attorneys, if any, shall
not disclose the terms and conditions of this Lease to any other person or
entity without the prior written consent of Landlord which may be given or
withheld by Landlord, in Landlord's sole discretion. It is understood and
agreed that damages alone would be an inadequate remedy of the breach of this
provision by Tenant, and Landlord shall also have the right to seek specific
performance of this provision and to seek injunctive relief to prevent its
breach or continued breach.
62. WAIVER OF JURY TRIAL. LANDLORD AND TENANT HEREBY WAIVE THEIR RESPECTIVE
RIGHT TO TRIAL BY JURY OF ANY CAUSE OF ACTION, CLAIM, COUNTERCLAIM OR CROSS-
COMPLAINT IN ANY ACTION, PROCEEDING AND/OR HEARING BROUGHT BY EITHER LANDLORD
AGAINST TENANT OR TENANT AGAINST LANDLORD ON ANY MATTER WHATSOEVER ARISING OUT
OF, OR IN ANY WAY CONNECTED WITH, THIS LEASE, THE RELATIONSHIP OF LANDLORD AND
TENANT, TENANT'S USE OR OCCUPANCY OF THE PREMISES, OR ANY CLAIM OF INJURY OR
DAMAGE, OR THE ENFORCEMENT OF ANY REMEDY UNDER ANY LAW, STATUTE, OR REGULATION,
EMERGENCY OR OTHERWISE, NOW OR HEREAFTER IN EFFECT.
LANDLORD AND TENANT ACKNOWLEDGE THAT THEY 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 LANDLORD AND
TENANT WITH RESPECT TO THE PREMISES. TENANT ACKNOWLEDGES THAT IT HAS BEEN GIVEN
THE OPPORTUNITY TO HAVE THIS LEASE REVIEWED BY ITS LEGAL COUNSEL PRIOR TO ITS
EXECUTION. PREPARATION OF THIS LEASE BY LANDLORD OR LANDLORD'S AGENT AND
SUBMISSION OF SAME TO TENANT SHALL NOT BE DEEMED AN OFFER BY LANDLORD TO LEASE
THE PREMISES TO TENANT OR THE GRANT OF AN OPTION TO TENANT TO LEASE THE
PREMISES. THIS LEASE SHALL BECOME BINDING UPON LANDLORD ONLY WHEN FULLY
EXECUTED BY BOTH PARTIES AND WHEN LANDLORD HAS DELIVERED A FULLY EXECUTED
ORIGINAL OF THIS LEASE TO TENANT.
LANDLORD TENANT
CAL Portfolio VI, L.L.C. PAN AMERICAN BANK, FSB
- ----------------------------------- -----------------------------------
By: /s/ [Signature Illegible] By: /s/ LAWRENCE J. GRILL
-------------------------------- --------------------------------
Lawrence J. Grill
(PRINT NAME) (PRINT NAME)
its: its: President
------------------------------- -------------------------------
(PRINT TITLE) (PRINT TITLE)
By: By: /s/ CAROL M. BUCCI
-------------------------------- --------------------------------
Carol M. Bucci
(PRINT NAME) (PRINT NAME)
its: its: Senior Vice President
------------------------------- -------------------------------
(PRINT TITLE) (PRINT TITLE)
28
<PAGE>
ADDENDUM TO OFFICE BUILDING LEASE
DATED APRIL 25, 1997
BY AND BETWEEN CAL PORTFOLIO VI, L.L.C. AS LANDLORD
AND PAN AMERICAN BANK, FSB, AS TENANT
This Addendum is attached to and made a part of that certain Standard
Office Lease dated April 25, 1997 by and between Landlord and Tenant concerning
the Premises described in the Lease located at 625 The City Drive, Orange,
California. Landlord and Tenant hereby agree that, notwithstanding anything
contained in the Lease to the contrary, the provisions set forth below shall be
deemed to be part of the Lease and shall supersede any inconsistent provisions
of the Lease. All references in the Lease and in this Addendum to the "Lease"
shall be construed to mean the Lease (and all exhibits attached thereto), as
amended and supplemented by this Addendum. All capitalized terms not defined in
this Addendum shall have the same meaning as set forth in the Lease except as
otherwise expressly provided.
1. SECTION 1.14(A). PARKING CHARGES: The monthly parking rate for
----------------------------------
the unreserved parking spaces provided for in Section 1.13 of the Lease shall be
zero dollars ($0) for the initial Lease Term.
2. SECTION 4.3(A). BASE RENT INCREASES: The Base Rent per month
-------------------------------------
shall be increased as follows:
Months 01 through 16: $14,111.00 per month
Months 17 through 24: $14,485.00 per month
Months 25 through 36: $15,419.00 per month
Months 37 through 60: $15,887.00 per month
3. SECTION 4; SECTION 25.1. TENANT IMPROVEMENTS: Landlord shall
----------------------------------------------
build out Tenant's Premises in accordance with the specifications of a mutually
agreed upon space plan and budget pricing, using building standard materials, at
a cost not to exceed Fifteen Dollars ($15.00) per usable square foot
("Improvement Allowance") as provided in the Work Letter Agreement attached to
the Lease as Exhibit "D". As provided in the Work Letter Agreement, the
-----------
Improvement Allowance is to be applied towards any and all architectural fees,
engineering fees, permits, contractors overhead, construction management fees,
and costs of demolition of any existing improvements and new construction of the
Premises and any costs of construction in excess of the Improvement Allowance
shall be borne by Tenant.
As provided in the Work Letter Agreement, Landlord shall apply
fifty percent (50%) of any unused portion of the Improvement Allowance, if any,
not to exceed a total of Five Dollars ($5.00) per usable square foot (i.e.,
$15.00-$10.00=$5.00; $2.50 to Tenant and $2.50 to Landlord) as a credit against
Tenant's relocation costs and/or the next rent coming due under the Lease. Any
remaining unused portion of the Improvement Allowance shall accrue to the sole
benefit of Landlord, it being agreed that Tenant shall not be entitled to any
other credit, offset, abatement or payment with respect thereto.
4. BUILDING SIGNAGE: Tenant shall have the right to elect either
-----------------
eyebrow or monument signage as provided for herein. Tenant must make the
election for eyebrow or monument signage prior to the Lease Commencement Date.
Tenant's sign rights are as follows:
a. EYEBROW SIGNAGE: Tenant shall have the non-exclusive
---------------
right to place the name "Pan American Bank" in one (1) location, between the 1st
and 2nd floors of the Building, immediately over Suite 100, currently leased to
Tenant. (See Exhibit "X" for eyebrow sign location.) At any time that Tenant
-----------
is not leasing and occupying Suite 100, Tenant's eyebrow sign rights shall
immediately terminate; OR
--
b. MONUMENT SIGNAGE: Provided Landlord elects to have
----------------
installed and is able to obtain all necessary governmental approvals for a
monument sign prior to the Commencement Date, Tenant shall have the non-
exclusive right to place the name "Pan American Bank" in one (1) place on the
planned project monument sign as designated by Landlord.
Tenant must elect to install Tenant's name on said monument sign,
and pay for same as provided for herein, within thirty (30) days of the date
Landlord provides Tenant with notice of its intent to have the monument sign
constructed. If Tenant does not elect or does not pay for the sign costs, upon
demand by Landlord, Tenant will thereby forfeit its right to place a name on the
monument sign.
c. GENERAL: Landlord shall determine the size, location, type,
-------
material, method of installation and style of said signage in its sole and
absolute discretion. Tenant shall pay all costs of designing, governmental
processing, manufacturing, installation, repair, removal and restoration of
Tenant's signage and Tenant's prorata share of any and all costs associated with
constructing and maintaining any monument sign on which Tenant's sign band
appears. The location size, style and type of sign permitted will be subject to
all applicable laws, regulations and ordinances of the City of Orange and must
also be consistent with the sign criteria of City Centre I, if any. Tenant must
use Landlord's sign consultants/contractors, if any, for the design,
installation, maintenance and removal of any signage. All sign rights granted to
Tenant will be personal to Tenant and may not be assigned, transferred or
otherwise conveyed to any assignee, subtenant or other party without Landlord's
express written consent, which Landlord may withhold in its sole and absolute
discretion. Upon the expiration or earlier termination of the Lease, Tenant
shall, at Tenant's cost, remove all of Tenant's signage and repair any damage to
the Building and the monument resulting from the installation or removal of
Tenant's signage.
5. TERMINATION OF EXISTING LEASE: Provided the Lease for Suite 490
-----------------------------
has commenced and Tenant has paid rent and all other charges then due for Suites
490, 330 and 305, and further provided Tenant has vacated Suites 330 and 305 as
of the Lease Commencement Date for Suite 490 in accordance with the surrender
provisions of the lease for Suites 330 and 305, then Landlord shall accelerate
the Lease Expiration Date for Suites 330 and 305 to the day immediately
preceding the Lease Commencement Date for Suite 490.
6. SECTION 27.7. OPTION TO EXTEND.
-------------------------------
29
<PAGE>
(a) Subject to the terms of this Paragraph 6 and Sections 27.1
through 27.6 of the Lease which pertain to general conditions regarding options,
Landlord hereby grants to Tenant one (1) option (the "Extension Option") to
extend the Term for one (1) additional period of five (5) years (the "Option
Term"), on the same terms, covenants and conditions as provided for in the Lease
during the initial Term, except that all economic terms such as, without
limitation, Base Rent, Operating Expense allowance, parking charges, free rent,
etc., will be established based on the "fair market rental rate" for the
Premises for the Option Term as defined and determined in accordance with the
provisions of Paragraph 8 of this Addendum entitled "Definition of Fair Market
Rental Rate."
(b) The Extension Option must be exercised, if at all, by
written notice ("Extension Notice") delivered by Tenant to Landlord no earlier
than the date which is nine (9) months, and no later than the date which is six
(6) months prior to the expiration of the initial Term.
(c) Notwithstanding the fair market rental rate determined
pursuant to Paragraph 8 of this Addendum, in no event will the Base Rent payable
during the Option Term be less than the Base Rent payable during the last year
of the initial Term.
7. RIGHT TO LEASE ADDITIONAL SPACE.
-------------------------------
(a) Subject to the terms of this Paragraph 7 and Sections 27.1
through 27.6 of the Lease which pertain to general conditions regarding options,
Tenant shall have a continuing right to lease ("Tenant's Right to Lease") that
certain contiguous space containing approximately 3,000 rentable square feet and
identified as "First Offer Space" on Schedule "1" attached hereto to the extent
------------
such space becomes available for lease to third parties after the expiration of
any existing lease for such space during the Lease Term, including the
expiration of all renewal or extension options, and after the existing tenant or
occupant vacates such space ("First Offer Space"). Tenant's Right to Lease is
subject and subordinate to the rights of all other existing tenants of the
Building with prior expansion or lease rights relative to any such First Offer
Space.
(b) If at any time during the Term Landlord receives a bona
fide, written third party offer to lease the First Offer Space containing terms
as to which Landlord is prepared to accept or respond with a good faith written
counter-proposal, Landlord will give Tenant written notice of the availability
of the First Offer Space, the date the existing tenant or occupant, if any, is
expected to vacate such space ("Landlord's Availability Notice") and the basic
economic terms, including, but not limited, to, Landlord's determination of the
Base Rent, tenant improvement allowance, if any, and all other economic terms
and conditions (collectively, the "Economic Terms"), upon which Landlord is
willing to lease the First Offer Space to Tenant based upon Landlord's then
scheduled rent for the space.
(c) Within five (5) business days after receipt of Landlord's
Availability Notice, Tenant must give Landlord written notice pursuant to which
Tenant shall elect to either: (i) lease such First Offer Space upon such
Economic Terms and the same non-Economic Terms as set forth in the Lease with
respect to the Premises or (ii) not to lease such First Offer Space in which
event Landlord may at any time thereafter lease such First Offer Space to any
party upon any terms Landlord deems appropriate; provided such terms are not
substantially more favorable to said party than the Economic Terms originally
proposed by Tenant, Landlord deems appropriate. Tenant's failure to timely
choose either clause (i) or clause (ii) above will be deemed to be Tenant's
choice of clause (ii) above. If Tenant exercises its Right to Lease as provided
herein, the parties will promptly thereafter execute an amendment to this Lease
to include the First Offer Space in the Premises and to document the lease terms
thereof.
(d) As provided above, Tenant's Right to Lease is subject to all
expansion and extension rights and other rights to lease, as applicable, which
Landlord has granted to other tenants prior to the date of this Lease. Thus,
Landlord's Economic Terms will be delivered to Tenant only after Landlord has
appropriately notified and received negative responses from all other tenants
with rights in the First Offer Space superior to Tenant's rights.
8. DEFINITION OF FAIR MARKET RENTAL RATE.
-------------------------------------
(a) The term "fair market rental rate" as used in this Addendum
means the annual amount per rentable square foot, projected during the relevant
period, that a willing, comparable, non-equity tenant (excluding sublease and
assignment transactions) would pay, and a willing , comparable landlord of a
comparable Class "A" quality office building located in the Orange/Anaheim area
of Orange County, California would accept, at arm's length (what Landlord is
accepting in current transactions for the Building may be considered), for space
of comparable size, quality and floor height as the leased area at issue taking
into account the age, quality and layout of the existing improvements in the
leased area at issue and taking into account items that professional real estate
brokers customarily consider, including, but not limited to, rental rates,
office space availability, tenant size, tenant improvement allowances, operating
expenses and allowance parking charges, reduced rent, free rent, reduced rate
parking, free parking and any other lease concessions, if any, then being
charged or granted by Landlord or the lessors of such similar office buildings.
The fair market rental rate will be an effective rate, not specifically
including, but accounting for, the appropriate economic concessions described
above.
(b) If a determination of fair market rental rate is required,
then Landlord will provide written notice of Landlord's determination of the
fair market rental rate not later than thirty (30) days after the date upon
which Tenant timely exercises the right giving rise to the necessity for such
fair market rental rate determination. Tenant will have thirty (30) days
("Tenant's Review Period") after receipt of Landlord's notice of the fair market
rental rate within which to accept such fair market rental rate or to reasonably
object thereto in writing. Tenant's failure to object to the fair market rental
rate submitted by Landlord in writing within Tenant's Review Period will
conclusively be deemed Tenant's approval and acceptance thereof. If Tenant
reasonably objects to the fair market rental rate submitted by Landlord within
Tenant's Review Period, Landlord and Tenant will attempt in good faith to agree
upon such fair market rental rate using their best good faith efforts. If
Landlord and Tenant fail to reach agreement on such fair market rental rate
within fifteen (15) days following the expiration of Tenant's Review Period (the
"Outside Agreement Date"), then each party's determination will be submitted to
appraisal in accordance with the provisions below.
(c) (i) Landlord and Tenant will each appoint one (1)
independent appraiser who by profession must be a real estate broker who has
been active over the five (5) year period ending on the date of such appointment
in the leasing of commercial (including high-rise office) properties located in
the Orange/Anaheim area. The determination of the appraisers will be limited
solely to the issue of whether Landlord's or Tenant's submitted fair market
rental rate for the leased area at issue is the closest to the actual fair
market rental rate for such area as determined by the appraisers, taking into
30
<PAGE>
account the requirements specified in Subparagraphs (a) and (b) above. Each
such appraiser will be appointed within fifteen (15) days after the Outside
Agreement Date.
(ii) The two (2) appraisers so appointed will within
fifteen (15) days of the date of the appointment of the last appointed appraiser
agree upon and appoint a third appraiser who shall be qualified under the same
criteria set forth hereinabove for qualification of the initial two (2)
appraisers.
(iii) The three (3) appraisers will within thirty (30) days
of the appointment of the third appraiser reach a decision as to whether the
parties will use Landlord's or Tenant's submitted fair market rental rate, and
will notify Landlord and Tenant thereof.
(iv) The decision of the majority of the three (3)
appraisers will be binding upon Landlord and Tenant. If either Landlord or
Tenant fails to appoint an appraiser within the time period specified in
Subparagraph (c)(i) hereinabove, the appraiser appointed by one of them will,
within thirty (30) days following the date on which the party failing to appoint
an appraiser could have last appointed such appraiser, reach a decision based
upon the procedures set forth above (i.e., by selecting either Landlord's or
----
Tenant's submitted fair market rental rate) and notify Landlord and Tenant
thereof, and such appraiser's decision will be binding upon Landlord and Tenant:
(v) If the two (2) appraisers fail to agree upon and
timely appoint a third appraiser, both appraisers will be dismissed and the
matter to be decided will be forthwith submitted to arbitration under the
provisions of the American Arbitration Association based upon the procedures set
forth above (i.e., by selecting either Landlord's or Tenant's submitted fair
----
market rental rate).
(vi) The cost of appraisal (and, if necessary, arbitration)
will be shared by Landlord and Tenant equally.
(vii) If the process described in Subparagraph (b) above and
this Subparagraph (c) has not resulted in a selection of Landlord's or Tenant's
fair market rental rate by the commencement of the Option Term, then the fair
market rental rate estimated by Landlord will be used until the appraiser(s)
reach a decision, with an appropriate rental credit and other adjustments for
any overpayments of Base Rent or other amounts if the appraisers select Tenant's
estimate of the fair market rental rate.
"TENANT" "LANDLORD"
PAN AMERICAN BANK, FSB CAL PORTFOLIO VI, L.L.C.,
a California limited liability company
By: /s/ LAWRENCE J. GRILL By: LBA, Inc.,
-------------------------------- its authorized agent
By: /s/ [SIGNATURE ILLEGIBLE]
--------------------------------
Print Name: LAWRENCE J. GRILL Print Name:
------------------ ------------------
Its: Authorized Signatory
Print Title: PRESIDENT
-----------------
31
<PAGE>
EXHIBIT 10.57
OFFICE LEASE AGREEMENT
---------------------------
PAN AMERICAN BANK, F.S.B.
NORTHERN TRUST BANK TOWER
---------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE l. SUMMARY AND DEFINITION OF CERTAIN LEASE PROVISIONS AND EXHIBITS............ 1
ARTICLE 2. PREMISES/RIGHT TO USE COMMON AREAS......................................... 2
ARTICLE 3. TERM....................................................................... 2
ARTICLE 4. MINIMUM MONTHLY RENT....................................................... 2
ARTICLE 5. ADDITIONAL RENT/EXPENSE STOP............................................... 3
ARTICLE 6. PARKING.................................................................... 4
ARTICLE 7. RENT TAX AND PERSONAL PROPERTY TAXES....................................... 4
ARTICLE 8. PAYMENT OF RENT/LATE CHARGES............................................... 4
ARTICLE 9. SECURITY DEPOSIT........................................................... 5
ARTICLE 10. CONSTRUCTION OF THE PREMISES............................................... 5
ARTICLE 11. ALTERATIONS................................................................ 5
ARTICLE 12. FIXTURES/PERSONAL PROPERTY/SURRENDER OF PREMISES........................... 5
ARTICLE 13. LIENS...................................................................... 6
ARTICLE 14. USE OF PREMISES/RULES AND REGULATIONS...................................... 6
ARTICLE 15. RIGHTS RESERVED BY LANDLORD................................................ 7
ARTICLE 16. QUIET ENJOYMENT............................................................ 7
ARTICLE 17. MAINTENANCE AND REPAIR..................................................... 8
ARTICLE 18. UTILITIES AND JANITORIAL SERVICES.......................................... 8
ARTICLE 19. ENTRY AND INSPECTION....................................................... 9
ARTICLE 20. ACCEPTANCE OF THE PREMISES/LIABILITY INSURANCE/INDEMNIFCATION OF LANDLORD.. 9
ARTICLE 21. PROPERTY AND CASUALTY INSURANCE............................................ 10
ARTICLE 22. DAMAGE AND DESTRUCTION OF PREMISES......................................... 10
ARTICLE 23. EMINENT DOMAIN............................................................. 11
ARTICLE 24. ASSIGNMENT AND SUBLETTING.................................................. 11
ARTICLE 25. SALE OF PREMISES BY LANDLORD............................................... 12
ARTICLE 26. SUBORDINATION/ATTORNMENT/MODIFICATION/ASSIGNMENT........................... 12
ARTICLE 27. LANDLORD'S DEFAULT AND RIGHT TO CURE....................................... 12
ARTICLE 28. ESTOPPEL CERTIFICATES...................................................... 12
ARTICLE 29. TENANT'S DEFAULT AND LANDLORD'S REMEDIES................................... 14
ARTICLE 30. TENANT'S RECOURSE.......................................................... 15
ARTICLE 31. HOLDING OVER............................................................... 15
ARTICLE 32. GENERAL PROVISIONS......................................................... 16
ARTICLE 33. NOTICES.................................................................... 17
ARTICLE 34. BROKER'S COMMISSIONS....................................................... 17
</TABLE>
Landlord ______
Tenant ______
<PAGE>
TABLE OF CONTENTS
ADDENDUM TO OFFICE LEASE AGREEMENT
<TABLE>
<S> <C>
ARTICLE 35. AGREEMENT........................................................... ADDENDUM-1
ARTICLE 36. TERM................................................................ ADDENDUM-1
ARTICLE 37. MINIMUM MONTHLY RENT................................................ ADDENDUM-1
ARTICLE 38. ADDITIONAL RENT/EXPENSE STOP........................................ ADDENDUM-1
ARTICLE 39. TAXES............................................................... ADDENDUM-1
ARTICLE 40. SECURITY DEPOSIT.................................................... ADDENDUM-I
ARTICLE 41. HAZARDOUS MATERIALS................................................. ADDENDUM-I
ARTICLE 42. RIGHTS RESERVED BY LANDLORD......................................... ADDENDUM-1
ARTICLE 43. MAINTENANCE AND REPAIR.............................................. ADDENDUM-1
ARTICLE 44. UTILITIES........................................................... ADDENDUM-1
ARTICLE 45. ENTRY AND INSPECTION................................................ ADDENDUM-2
ARTICLE 46. ACCEPTANCE OF THE PREMISES/LIABILITY
INSURANCE/INDEMNIFCATION OF LANDLORD............................... ADDENDUM-2
ARTICLE 47. PROPERTY AND CASUALTY INSURANCE..................................... ADDENDUM-2
ARTICLE 48. SUBORDINATION/ATTORNMENT/MODIFICATION/ASSIGNMENT.................... ADDENDUM-2
ARTICLE 49. LANDLORD'S DEFAULT AND RIGHT TO CURE................................ ADDENDUM-2
ARTICLE 50. ESTOPPEL CERTIFICATES............................................... ADDENDUM-2
ARTICLE 51. TENANT'S DEFAULT AND LANDLORD'S REMEDIES............................ ADDENDUM-3
ARTICLE 52. TENANT'S RECOURSE................................................... ADDENDUM-3
ARTICLE 53. NOTICES............................................................. ADDENDUM-3
ARTICLE 54. BROKER'S COMMISSIONS................................................ ADDENDUM-3
ARTICLE 55. LEASE GUARANTEE..................................................... ADDENDUM-3
ARTICLE 56. LEASEHOLD IMPROVEMENT ALLOWANCE..................................... ADDENDUM-3
ARTICLE 57. SIGNAGE............................................................. ADDENDUM-3
ARTICLE 58. RIGHT OF TERMINATION................................................ ADDENDUM-3
</TABLE>
Landlord ______
Tenant ______
ii
<PAGE>
OFFICE LEASE AGREEMENT
-------------------------
PAN AMERICAN BANK, F.S.B.
NORTHERN TRUST BANK TOWER
-------------------------
THIS OFFICE LEASE AGREEMENT, dated February 28, 1997, is made and entered into
by P.R.A. BILTMORE INVESTMENTS, L.L.C., an Arizona limited liability company
(the "Landlord"), and PAN AMERICAN BANK, F.S.B., a federal savings bank (the
"Tenant"). In consideration of the mutual promises and representations set forth
in this Lease, the Landlord and Tenant agree as follows:
ARTICLE 1. SUMMARY AND DEFINITION OF CERTAIN LEASE PROVISIONS AND EXHIBITS
1.1 The following terms and provisions of this Lease, as amplified and
modified by other terms and provisions hereof, are included in this Section 1.1
-----------
for summary and definitional purposes only. If there is any conflict or
inconsistency between any term or provision in this Section 1.1 and any other
-----------
term or provision of this Lease, the other term or provision of this Lease shall
control:
(a) Landlord: P.R.A. Biltmore Investments, L.L.C., an Arizona limited
--------
liability company.
(b) Address of Landlord for Notices: 2398 East Camelback Road, Suite 270,
-------------------------------
Phoenix, Arizona 85016-9002
with a copy to: Mile High Realty Advisors, L.L.C.,
2398 E. Camelback Road, Ste. 320,
Phoenix, Arizona 85016
Attention: Property Manager
and with a copy to: Murphy & Posner, 300 Biltmore Commerce Center,
3200 East Camelback Road,
Phoenix, Arizona 85018
Attention: Robert N. Briar, Esq.
(c) Tenant: Pan American Bank, F.S.B., a federal savings bank
------
(d) Address of Tenant for Notices: 1300 South El Camino Real
------------------------------ San Mateo, California 94401-0986
Attention: Richard Burns
(e) Lease Term: Three (3) years, plus the remainder of any partial
----------
calendar month in which the Lease Term commences, beginning on the
Commencement Date defined in Section 3.1.
-----------
(f) Building: The office building known as the Northern Trust Bank Tower
--------
located at 2398 East Camelback Road, Phoenix, Arizona 85018 (the
"Building"), which is part of the project (the "Project") known as the
Biltmore Financial Center.
(g) Premises: Suite 310 on the third (3rd) floor of the building, as shown
--------
on Exhibit A, containing 2,518 usable square feet/2,860 Rentable
---------
Square Feet.
(h) Minimum Monthly Rent: $5,839.17 for each full calendar month during
--------------------
the Lease Term commencing on the Commencement Date, which is computed
on the basis of $24.50 per Rentable Square Foot.
(i) Tenant's Pro Rata Share: Ninety-nine hundredths percent (.99%) which
-----------------------
represents the percentage that the Rentable Square Footage of the
Premises (2,860) bears to the Rentable Square Footage of the Building
(288,435). (See Article 5).
---------
(j) Expense Stop: An amount equal to Tenant's Pro Rata Share of the
------------
Operating Costs (as defined in this Lease) for the twelve (12) month
period ending December 31, 1997 (the "Base Year") calculated under the
assumption that throughout the Base Year, the Building is at least
ninety-five percent (95%) occupied. (see Article 5).
---------
(k) Security Deposit: $5,839.17 (See Article 9).
---------------- ---------
(l) Parking: Two (2) reserved parking spaces at $65.00 per month each and
-------
seven (7) unreserved parking spaces at $45.00 per month each.
<PAGE>
(m) Leasehold Improvement Allowance: An amount equal to the product of
-------------------------------
Eight Dollars ($8.00) multiplied by the number of Usable Square Feet of
the Premises (see Article 56).
-----------
1.2 The following exhibits (the "Exhibits") and addends are attached hereto
and incorporated herein by this reference:
Exhibit A Third (3rd) Floor Plan of the Building indicating Premises
---------
Exhibit A-1 Tenant's Leasehold Improvements
-----------
Exhibit B Building Standard Work Letter for Tenant Improvements
---------
Exhibit C Building Rules and Regulations
---------
Exhibit D Telecommunications Lease Rider
---------
Exhibit E Lease Guarantee (None) (See Article 55).
--------- ----------
Addendum to Office Lease Agreement (the "Addendum"), dated of even date
herewith, consisting of four (4) pages.
The Office Lease Agreement, the Addendum and the Exhibits are collectively
referred to herein as the "Lease."
ARTICLE 2. PREMISES/RIGHT TO USE COMMON AREAS
2.1 Landlord leases to Tenant and Tenant leases from Landlord the Premises,
for and subject to the rents, terms, conditions, covenants, and provisions set
forth in this Lease. This Lease is subject to all liens, encumbrances, ground
leases, easements, restrictions, covenants (including the Declaration of
Covenants, Conditions, Restrictions, Assessments, Charges, Servitudes, Liens,
Reservations and Easements for the Project, dated July 20, 1987, as amended
(the "Declaration") and other matters of record, the Building Rules and
Regulations described in Section 14.2, the Parking rules and Regulations
------------
described in Section 6.3, and the Common Areas Rules and Regulations described
-----------
in this Section 2.1, applicable from time to time, together with any
-----------
modifications thereto end amendments thereof, with respect to all or any portion
of the Project.
Tenant and Tenant's agents, contractors, customers, directors, employees,
invitees, officers, and patrons (collectively, the "Tenant's Permittees") have a
nonexclusive privilege and license to use, during the Lease Term, the Building
Common Areas and the Project Common Areas, in common with all other tenants,
occupants, and authorized users thereof and their respective permittees. For
purposes of this Lease, (a) "Land" consists of the parcel of land containing the
Building; (b) "Building Common Areas" consist of those areas within the Building
and Land not leased to any Tenant and which are intended by Landlord to be
available for the use, benefit, and enjoyment of all occupants of the Building;
and (c) "Project Common Areas" consist of those non-building areas within the
Project intended for the use, benefit, and enjoyment of all occupants of the
Project, but excluding the Building Common Areas, subject to the limitations set
forth in the Declaration and any rules and regulations adopted thereunder (the
"Common Areas Rules and Regulations"). It is acknowledged and agreed to by
Tenant that all "Automobile Parking Areas" within the Project are Project Common
Areas, but certain parking areas are restricted to use by certain occupants.
2.2 As used in this Lease, "Interior Common Facilities" means lobbies,
corridors, hallways, elevator foyers, restrooms, mail rooms, mechanical and
electrical rooms, janitor closets, and other similar facilities intended for the
use, benefit and enjoyment of all occupants of the Building.
ARTICLE 3. TERM
3.1 Subject to any adjustments under Article 5 of Exhibit B, the
--------- ---------
"Commencement Date" of the Lease Term shall be that date upon which Landlord
notifies Tenant (or the date Tenant has actual notice) that Landlord's
construction obligations under this Lease have been substantially completed and
that the Premises are ready for occupancy, with or without actual entry by
Tenant. Tenant's occupancy or acceptance of possession of the Premises shall
constitute Tenant's acknowledgement that there has been Substantial Completion
(as defined in Exhibit B) of Tenant's Leasehold Improvements (as defined in
---------
Exhibit B), subject only to any "punchlist" items identified during a
- ----------
walkthrough inspection by the parties and applicable construction warranties.
Even though the Lease Term does not commence until the Commencement Date, this
Lease shall be in full force and effect as a binding obligation of the parties
from and after the date of this Lease.
3.2 Within sixty (60) days after Tenant takes possession of the Premises,
both parties agree to execute a written memorandum setting forth the
Commencement Date and the date on which the Lease Term expires (the "Expiration
Date").
ARTICLE 4. MINIMUM MONTHLY RENT
Tenant shall pay to Landlord, without abatement, deduction, setoff, prior
notice, or demand, for the use and occupancy of the Premises, the Minimum
Monthly Rent, payable in advance on the first day of each and every calendar
month during the Lease Term. If the Lease Term commences on a date other than
the first day of a calendar month, the Minimum Monthly Rent for that month (if
applicable) shall be prorated on a per diem basis and be paid to Landlord within
five (5) days after the Commencement Date. Tenant's obligation to pay the
Minimum Monthly Rent and the additional rent are independent of any other term,
covenant, condition, or provision herein contained.
Landlord ______
Tenant ______
2
<PAGE>
ARTICLE 5. ADDITIONAL RENT/EXPENSE STOP
5.1 Tenant shall pay, as additional rent, Tenant's Pro Rata Share of
Operating Costs during each Operating Year of the Lease Term, less the Expense
Stop. Tenant's Pro Rata Share of Operating Costs shall be the percentage set
forth in Section 1.1(i) of the Operating Costs (as defined in Section 5.4) for
-------------- -----------
the applicable Operating Year (as defined in Section 5.4(c)). If the Lease Term
---------------
begins or ends anytime other than the first or last day of an Operating Year,
Operating Costs and Tenant's Pro Rata Share thereof shall be prorated
appropriately.
5.2 The Minimum Monthly Rent includes an amount equal to one-twelth (1/12)
of the Expense Stop. Prior to the end of each Operating Year, or as soon
thereafter as is reasonably practical, Landlord shall provide Tenant with a
written statement of Landlord's estimate of Tenant's Pro Rata Share of Operating
Costs for the next succeeding Operating Year. If the estimate of Tenant's Pro
Rata Share of the Operating Costs Exceeds the Expense Stop, Tenant shall pay
Landlord, in addition to and concurrently with each payment of the Minimum
Monthly Rent for the next Operating Year, an amount equal to one-twelfth (1/12)
of the amount by which Landlord's estimate of Tenant's Pro Rata Share of
Operating Costs exceeds the Expense Stop. Landlord may provide Tenant with a
revised estimate of Tenant's Pro Rata Share of Operating Costs for the current
Operating Year and adjust the required monthly payment to reflect the revised
estimate.
5.3 Within ninety (90) days after the end of each Operating Year, or as soon
thereafter as is reasonably practical, Landlord shall provide Tenant with a
statement showing the actual Operating Costs for the preceding Operating Year
and any adjustments to Tenant's payments of additional rent for Operating Costs
to be made as a result thereof. If Tenant's Pro Rata Share of the actual
Operating Costs paid or incurred by Landlord during such Operating Year (less
the Expense Stop) exceeds the estimates of Operating Costs paid by Tenant during
the same Operating Year, Tenant shall remit the excess at the time the next
succeeding payment of Minimum Monthly Rent is payable (or within ten (10) days
if the Lease Term has expired or been terminated). If Tenant's Pro Rata Share of
the actual Operating Costs paid or incurred by Landlord during such Operating
Year is less than the estimated amounts paid by Tenant, Landlord shall apply
such excess to payments next falling due under this Article (or refund the same
to Tenant or credit amounts due from Tenant if the Lease Term has expired or
been terminated). In no event shall the Minimum Monthly Rent be reduced below
that set forth in Section 1.1(h).
----------------
5.4 As used herein:
(a) "Operating Costs" means and includes:
(1) Those expenses paid or incurred by Landlord (whether directly or
through independent contractors) for managing, maintaining, operating, and
repairing the Building, the Building Common Areas, the Project Common Areas and
all other portions of the Land, and the personal property used in conjunction
therewith, including, but not limited to, the cost of utilities, (including, but
not limited to, steam, electricity, water, sewer, gas, and other utility
charges); services, supplies, repairs, and replacaments, or other expenses for
managing, maintaining, operating, or repairing the Building, the Building Common
Areas, the Project Common Areas and all other portions of the Land; insurance
(including, without limitation, the coverage described in Section 21.2, and all
------------
other coverage obtained by Landlord pertaining to the Land, Building and/or
Project, whether by separate policy, inclusion in a blanket policy, or self
insurance, in which case the reasonable value of self insurance shall be
included in Operating Costs), amortization (over the reasonable life of the
item) of the cost of installation of capital investment items which are
installed primarily for the purpose of reducing Operating Costs or which may be
required by any governmental authority; trash and rubbish removal; janitorial
services; compensation (including employment taxes, similar government charges,
unemployment insurance costs, vacation allowances, and the cost of providing
disability insurance or benefits, pensions, profit sharing benefits,
hospitalization, retirement, or other fringe benefits and any other expense
imposed on Landlord or its contractors or subcontractors, pursuant to law or
pursuant to any collective bargaining agreement covering such employees) of all
persons who perform duties in connection with the operation, maintenance,
management, and repair of the Building, the Building Common Areas, the Project
Common Areas and the Land; all costs of uniforms, supplies, and materials used
in connection with the operation and maintenance of the Premises, the Building,
the Building Common Areas, the Project Common Areas and all other portions of
the Land; reasonable attorneys' fees and costs (including, but not limited to,
fees and costs in connection with the appeal or contest of real estate or other
taxes or levies), management fees, and accounting expenses as may be ordinarily
incurred in the operation and maintenance of an office building; costs allocated
to Landlord under the Declaration for operation, maintenance, and use of Project
Common Areas servicing the Building and Project, and the costs attributable to
Landlord for the Biltmore Financial Center Association (the "Association")
created under the Declaration; and any other expense or charge whether or not
hereinabove described which, in accordance with consistently applied generally
accepted accounting and management principles would be considered an expense of
managing, maintaining, operating, or repairing the Building and Building Common
Areas and participating in the Project; and
(2) All impositions, taxes, assessments (special or otherwise), and
other governmental levies and charges of any and every kind, ordinary or
extraordinary, foreseen or unforeseen, assessed or imposed, upon or with respect
to the ownership of, or other taxable interest attributable to, the Building,
Building Common Areas, the Land, and any improvements, fixtures, equipment, and
other property of Landlord, real or personal, located in, or used in connection
with, the operation of the Building, the Building Common Areas, and the Land and
any tax which shall be imposed on any interest or excise in addition to or in
lieu of the foregoing real or personal property taxes.
(b) Operating Costs do not include income, estate, and inheritance taxes
levied against Landlord, taxes payable by any tenant, depreciation, capital
investment items (except as provided in Section 5.4(a)(1)) and debt service,
-----------------
costs of leasing space in the Building, including leasing commissions and
leasehold improvements costs, the cost of utilities separately metered to any
tenant or resulting from excess consumption and billed directly to that
tenant, the cost of special services provided to any tenant and billed directly
to that tenant, or repairs and maintenance to the extent paid by proceeds of
insurance or from tenants.
(c) "Operating Year" means a year beginning January 1 and ending December
31.
Landlord ______
Tenant ______
3
<PAGE>
(d) Notwithstanding anything to the contrary contained in Section 5.4(a),
-------------
in the event the Building is not fully occupied during any Operating Year, an
adjustment shall be made by Landlord in calculating the Operating Costs for such
Operating Year so that the Operating Costs shall be adjusted to the amount that
would have been incurred had the Building been ninty-five percent (95%) occupied
during such Operating Year.
5.5 Notwithstanding anything in this Lease to the contrary, no failure by
Landlord to give notices or statements of Operating Costs within the time
specified, and no grant of "free rent" or parking fee concessions, shall waive
Landlord's right to require payment by Tenant of Tenant's Pro Rata Share of
Operating Costs in excess of the Expense Stop.
ARTICLE 6. PARKING
6.1 The Association is obligated to operate and maintain or cause to be
maintained and operated a parking facility (the "Automobile Parking Area") for
the benefit and use of all tenants of the Project, and their permittees, as
provided in the Declaration. The Building's share of the cost of maintenance,
operation, repair, and management of the Automobile Parking Area, whether paid
by or allocated to Landlord, shall be included in the Operating Costs set forth
in Article 5 above. Nothing contained herein shall be deemed to create liability
---------
upon Landlord for any damage to motor vehicles of Tenant or of Tenant's
permittees, or from loss of property from within such motor vehicles, or any
matter relating to the operation, management, and maintenance of the Automobile
Parking Areas by the Association.
6.2 Tenant agrees at all times during the Lease Term to lease parking
rights for the reserved or unreserved spaces desribed in Section 1.1(l) in the
--------------
Automobile Parking Areas. Tenant will receive stickers or cards authorizing
parking equal to the number of vehicles for which parking rights have been
leased. The parking charges described in Section 1.1(l) shall be paid
--------------
concurrently with the Minimum Monthly Rent.
6.3 Landlord and the Association have the right to establish and from time
to time change, alter, and amend, and to enforce against all users of the
Automobile Parking Areas, reasonable rules and regulations (the "Parking Rules
and Regulations"), the exclusion of employee parking from certain areas and the
assignment of spaces to tenants, end other requirements as may be deemed
necessary and advisable for the proper end efficient operation and maintenance
of said Automobile Parking Areas including, without limitation, the hours during
which the Automobile Parking Areas shall be open for use, and Tenant shall
comply therewith and shall cause Tenant's Permittees to comply therewith.
6.4 Landlord or the Association, or both, may establish such reasonable
charges as Landlord deems appropriate for the use of the Automobile Parking
Areas by persons who have not leased space in the Building. Landlord or the
Association may establish a system whereby these persons may present validations
issued by tenants in lieu of payment of the parking charges. If Tenant wishes to
provide Tenant's Permittees with validations as part of the validation system,
Tenant shall pay Landlord or the Association, as additional rent, those charges
established by Landlord or the Association for use of the validation system and
to comply with such system end all Parking Rules and Regulations established by
Landlord or the Association for Tenant's use and the use of Tenant's Permittees
of the validation system.
ARTICLE 7. RENT TAX AND PERSONAL PROPERTY TAXES
7.1 Tenant shall pay to Landlord, in addition to, and simultaneously with,
any other amounts payable to Landlord under this Lease, a sum equal to the
aggregate of any municipal, county, state, or federal excise, sales, use, or
transaction privilege taxes now or hereafter legally levied or imposed against,
or on account of, any or all amounts payable under this lease by Tenant or the
receipt thereof by Landlord (except taxes which are commonly inheritance taxes).
7.2 Tenant shall pay, prior to delinquency, all taxes levied upon fixtures,
furnishings, equipment, and personal property placed on the Premises by Tenant.
If any or all of Tenant's fixtures, furnishings, equipment, or personal property
shall be assessed and taxed with the Landlord's real property, Tenant shall
reimburse Landlord for such taxes within ten (10) days after delivery to Tenant
by Landlord of a statement in writing setting forth the amount of such taxes
applicable to the Tenant's property.
ARTICLE 8. PAYMENT OF RENT/LATE CHARGES
8.1 Tenant shall pay the rent and all other charges herein specified to
Landlord at the address set forth in Section 1.1(b) of this Lease, or to another
-------------
person and at another address as Landlord from time to time designates in
writing.
8.2 Minimum Monthly Rent, additional rent or other charges payable by Tenant
to Landlord under the terms of this Lease not received within ten (10) days
after the due date (the "Delinquency Date") thereof shall automatically (and
without notice) incur a one-time late cherge of five percent (5%) of the
delinquent amount. The parties acknowledge that this is a reasonable fee to
compensate Landlord for its additional costs to process delinquencies, and is
not a penalty. Further, any Minimum Monthly Rent, additional rent, or other
charges payable by Tenant to Landlord and not paid prior to the Delinquency Date
shall bear interest from the Delinquency Date at the "Delinquency Interest Rate"
as that term is defined below. The term "Delinquency Interest Rate" as used in
this Lease means the greater of (i) five percent (5%) over the interest rate
publicly announced from time to time by Bank of America, Arizona (BOA), or its
successor, as its prime rate and if such term is no longer utilized, the
interest rate utilized by BOA, or its successor, to replace the prime rate, or
(ii) fifteen percent (15%) per annum. Notwithstanding the above, if the
Delinquency Interest Rate exceeds the maximum interest rate allowed by law, the
Delinquency Rate shall be reduced to the highest rate allowed by law.
8.3 Landlord's right to receive and receipt of late charges or interest for
delinquent amounts shall not limit or restrict Landlord's other rights and
remedies. Landlord's acceptance of partial payments of amounts due, or payments
without inclusion of late charges or interest, shall not be deemed to limit,
restrict, or waive Landlord's right to collect the full amounts due and all
accrued late charges end interest. Receipt of a
Landlord ______
Tenant ______
4
<PAGE>
check shall not be deemed to constitute payment unless the check is honored by
the bank upon which it is drawn, and late charges and interest shall accrue from
the original due date if a check is dishonored. Landlord may require that all
payments be made by cashier's check if a check from Tenant is dishonored by the
bank upon which it is drawn for any reason whatsoever.
ARTICLE 9. SECURITY DEPOSIT
9.1 Tenant shall, upon execution of this lease, deposit with Landlord the
Security Deposit, as security for the full and faithful performance of each and
every term, condition, covenant, and provision of this Lease.
9.2 If Tenant defaults in any of the terms, conditions, covenants, and
provisions of this Lease, including, but not limited to, the payment of Minimum
Monthly Rent, additional rent, or other charges, Landlord may, but need not,
use, apply, or retain the whole, or any part, of the Security Deposit, not as
liquidated damages, but for the payment of any Minimum Monthly Rent, additional
rent or charge then due or for any other sum which Landlord may spend, or be
required to spend, by reason of Tenant's default. If any portion of the 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. Should Tenant fully and faithfully
comply with all of the terms, conditions, covenants, and provisions of this
Lease, the Security Deposit, or any balance of the Security Deposit, shall be
returned to Tenant or, at the option of Landlord, to the last assignee of
Tenant's interest in this Lease within thirty (30) days after the Expiration
Date and surrender of the Premises by Tenant in full compliance with this Lease.
Landlord's rights regarding the Security Deposit are in addition to and do not
preclude any other rights, remedies, or recoveries available to Landlord by
law or pursuant to this Lease.
9.3 Tenant agrees that, if Landlord sells or exchanges Landlord's interest
in the Premises during the Lease Term, Landlord may pay, transfer, credit or
assign the Security Deposit to any subsequent owner and in that event, Tenant
does hereby agree to release Landlord from all liability for the return of the
Security Deposit. Landlord shall not be required to maintain such funds in a
segregated account, but may deposit such funds in any general account of
Landlord, provided that such commingling in no way affects Landlord's
obligations to Tenant regarding such funds hereunder. Tenant shall not be
entitled to any interest on the Security Deposit.
ARTICLE 10. CONSTRUCTION OF THE PREMISES
10.1 Landlord shall construct Tenant's Leasehold Improvements, as defined in
Exhibit B, in accordance with plans and specifications prepared by Landlord's
- ---------
architect. The respective obligations and covenants of Landlord and Tenant with
respect to construction of the Leasehold Improvements, including the division of
responsibilities and procedures for design and construction and for payment of
costs and expenses, are more specifically set forth in Exhibit B.
---------
10.2 Prior to the Commencement Date, any work performed by Tenant (which
Tenant may do only if and to the extent provided for in Exhibit B and in full
---------
compliance therewith), or any fixtures or personal property moved onto the
Premises (which Tenant may do only with Landlord's prior consent and
satisfaction of such requirements as Landlord may impose), shall be at Tenant's
own risk and neither Landlord nor Landlord's agents or contractors shall be
responsible to Tenant for damage or destruction of Tenant's work or property,
including without limitation damage or destruction occasioned by Landlord's own
negligence. Tenant shall indemnify, defend and hold Landlord harmless from and
against claims, liabilities, losses, damages, expenses, or attorneys' fees
incurred or sustained by Landlord as a result of any actions or work by Tenant,
and any of Tenant's Permittees in the Premises or elsewhere in the Project prior
to the Commencement Date, or with respect to damage or destruction of property
of Tenant, Tenant's Permittees and/or of third persons moved on the Premises
prior to the Commencement Date at Tenant's request. Tenant hereby releases
Landlord from any and all such claims, liabilities, losses, damages, expenses
and attorneys' fees.
ARTICLE 11. ALTERATIONS
After completion of Landlord's construction obligations under Article 10,
----------
Tenant shall not make or cause to be made any further additions to, or
alterations of, the Premises or any part thereof without the prior written
consent of Landlord, and subject to compliance with such requirements as
Landlord may impose.
ARTICLE 12. FIXTURES/PERSONAL PROPERTY/SURRENDER OF PREMISES
12.1 All trade fixtures installed by Tenant and movable furniture that is
not permanently affixed to the Premises shall remain the property of Tenant and
may be removed by Tenant not later than the Expiration Date or the earlier
termination of the Lease Term or Tenant's right to possession, provided that
Tenant is not in default hereunder at the time of the proposed removal and there
is no Minimum Monthly Rent, additional rent or other charges then due hereunder.
Tenant shall promptly repair, at its own expense, any damage resulting from such
removal. If Tenant fails to remove its personal property, trade fixtures, and
movable furniture upon the Expiration Date or the earlier termination of the
Lease Term or Tenant's right to possession, the same shall be deemed abandoned
and shall, at the option of Landlord, be removed and disposed of at Tenant's
sole cost and expense or shall become the property of Landlord. Notwithstanding
the foregoing, at any time during the Lease Term or thereafter Landlord may
require Tenant to remove any personal property placed in the Premises by Tenant
or by others at Tenant's direction or with Tenant's actual or implied consent,
if the same is dangerous, illegal, or actually or potentially an environmental
hazard, and repair any damage caused thereby.
Landlord ______
Tenant ______
5
<PAGE>
12.2 All cabinetry, built-in appliances, wall coverings, floor coverings,
window coverings, electrical and plumbing fixtures and conduits, lighting, and
other special fixtures that may be placed upon, installed in, or attached to the
Premises by Tenant shall, at the Expiraton Date or earlier termination of this
Lease for any reason, be the property of Landlord and remain upon and be
surrendered with the Premises, without disturbance, molestation, or injury
unless designated by Landlord to be removed, in which case Tenant shall, at
Tenant's sole cost and expense, remove the same prior to the Expiration Date or
earlier termination of the Lease Term and repair any damage caused thereby.
12.3 At the Expiration Date or upon the earlier termination of the Lease
Term or Tenant's right to possession, Tenant shall surrender the Premises in
good order and condition, reasonable wear and tear and casualty damage excepted,
and shall deliver all keys to Landlord. Tenant shall further surrender to
Landlord any Automobile Parking Areas cards issued under Article 6.
---------
ARTICLE 13. LIENS
Tenant shall keep the Premises, Building, the Land, and the Project free from
any liens arising out of work performed, material furnished, or obligations
incurred due to Tenant's actions, the actions of Tenant's employees, agents or
contractors or the failure of Tenant to comply with any law excluding, however,
security interests in Tenant's personal property subordinate to Landlord's lien
rights. In the event any such lien does attach against the Premises, Building,
or Land, and Tenant does not discharge the lien or post bond (which in form and
amount would be sufficient under applicable laws to prevent foreclosure or
execution under the lien) within ten (10) days after demand by Landlord, such
event shall be a default by Tenant under this Lease and, in addition to
Landlord's other rights and remedies, Landlord may take any action necessary to
discharge the lien. Tenant shall pay Landlord upon demand all costs or expenses
(including reasonable attorney's fees) incurred by Landlord by reason of
attachment or discharge of such lien and shall indemnify Landlord against any
liability, claims, or losses arising out of attachment of such lien.
ARTICLE 14. USE OF PREMISES/RULES AND REGULATIONS
14.1 Without the prior written approval of Landlord, Tenant shall not use
the Premises for any use other than for general business office purposes.
14.2 Tenant agrees to:
(a) Comply with all statutes, ordinances, rules, regulations, and orders of
all municipal, state, and federal authorities now in force or which may
hereafter be in force pertaining to the use of the Premises. Tenant shall not
use or permit the Premises to be used in whole or in part for any purpose or use
in violation of any of the laws, ordinances, regulations, or rules of any public
authority at any time applicable thereto;
(b) Keep the Premises in a neat, sanitary, and orderly condition, free of
debris, and shall not deposit or allow others to deposit trash, waste, or debris
within Building Common Areas or Project Common Areas except within designated
areas;
(c) Not commit, or allow others to commit, any waste or nuisance in, from
or upon the Premises, Building, Building Common Areas, Land, or Project Common
Areas;
(d) Not engage, or allow others to engage, in any activity which will
increase the existing premium rate of insurance on the Premises, Building,
Building Common Areas, or Project Common Areas or cause a cancellation of any
insurance policy or permit to remain in or about any such area any article that
may be prohibited by standard form fire insurance policies;
(e) Not use, or allow others to use, the Premises, Building, Building
Common Areas, or Project Common Areas for or carry on or permit any offensive,
noisy, or dangerous trade, business, manufacture, or occupation, or any nuisance
or anything against public policy, or interfere with the business of or disturb
the quiet enjoyment of any other tenant in the Building or Project;
(f) Not use the exterior of the roof or walls of the Premises or Building
for any purpose or allow others to do so;
(g) Not display anything in any windows unless and until Landlord has
consented thereto;
(h) Not use or allow others to use the Building Common Areas or Project
Common Areas for purposes other than the purposes intended for such areas; and
(i) Faithfully observe and comply (and cause Tenant's permittees to observe
and comply) with the Declaration, the Rules and Regulations printed on Exhibit C
---------
to this lease (the "Building Rules and Regulations"), the Parking Rules and
Regulations described in Article 6, the Common Areas Rules and Regulations
---------
described in Section 2.1 or put into effect by Landlord or the Association from
-----------
time to time, and all reasonable and non-discriminatory modifications of and
additions thereto.
14.3 Tenant shall not use, generate, manufacture, store, or dispose of, in,
under, or about the Premises, the Building, the Land, or the Project or
transport to or from the Premises, the Building, the Land, or the Project, any
Hazardous Materials. For purposes of this Lease, "Hazardous Materials" includes,
but is not limited to: (i) flammable, explosive, or radioactive materials,
hazardous wastes, toxic substances, or related materials; (ii) all substances
defined as "hazardous substances," "hazardous materials," "toxic substances," or
"hazardous chemical substances or mixtures" in the Comprehensive Environmental
Response Compensation and Liability Act of 1980, as amended, 42 U.S.C.
Landlord ______
Tenant ______
6
<PAGE>
(S) 9601, et seq., as amended by Superfund Amendments and Reauthorization Act of
1986; the Hazardous Materials Transportation Act, 49 U.S.C. (S) 1901, et seq.;
the Resource Conservation and Recovery Act, 42 U.S.C. (S) 8901, et seq.; or the
Toxic Substances Control Act, 15 U.S.C. (S) 2601, et seq.; (iii) those
substances listed in the United States Department of Transportation Table (49
CFR 172.10 and amendments thereto) or by the Environmental Protection Agency (or
any successor agent) as hazardous substances (40 CFR Part 302 and amendments
thereto); (iv) any material, waste, or substance which is (A) petroleum, (B)
asbestos, (C) polychlorinated biphenyls, (D) designated as a "hazardous
substance" pursuant to (S) 311 of the Clean Water Act, 33 U.S.C. (S) 1251 et seq
-- ---
(33 U.S.C. (S) 1321) or listed pursuant to the Clean Water Act (33 U.S.C. (S)
1317); (E) flammable explosives; or (F) radioactive materials; and (v) all
substances defined as "hazardous wastes" in Arizona Revised Statutes (S) 36-35O1
(16).
14.4 Tenant shall be solely responsible for, and shall indemnify, defend and
hold harmless Landlord, its directors, officers, employees, agents, successors,
and assigns from and against, any loss, damage, cost, expense, or liability
directly or indirectly arising out of or attributable to Tenant's and Tenant's
Permittees' use, generation, storage, release, threatened release, discharge,
disposal, or presence of Hazardous Materials on, under, or about the Premises,
the Building, the Land, or the Project, including without limitation: (a) all
foreseeable consequential damages; (b) the costs of any required or necessary
repairs, cleanup or detoxification of the Premises, the Building, the Land, or
the Project, and the preparation and implementation of any closure, remedial, or
other required plans; and (c) all reasonable costs and expenses incurred by
Landlord in connection with clauses (a) and (b) of this Section 14.4 including
------------
but not limited to reasonable attorneys' fees. Notwithstanding the foregoing,
Tenant may use in the Premises those Hazardous Materials which are customarily
used for general office purposes (i.e., copier toner, liquid paper, glue, ink,
and Landlord approved cleaning solvents).
ARTICLE 15. RIGHTS RESERVED BY LANDLORD
In addition to all other rights, Landlord (and the Association and other
owners of property within the Project, as applicable) has the following rights,
exercisable without notice and without liability to Tenant and without effecting
an eviction, constructive or actual, and without giving right to any claim for
set off or abatement of rent:
(a) To decorate and to make repairs, alterations, additions, changes, or
improvements, whether structural or otherwise, in and about the Building, or any
part thereof, and for such purposes to enter upon the Premises and during the
continuance of any of said work to temporarily close doors, entryways, public
space, and corridors in the Building, to interrupt or temporarily suspend
Building services and facilities and to change the number of floors, the size,
dimensions, arrangement, and location of entrances or passageways, doors and
doorways, corridors, elevators, stairs, toilets, or other interior Common
Facilities or Building Common Areas, so long as the Premises are reasonably
accessible;
(b) To change, rearrange, add to, or subtract from the Building Common
Areas or Project Common Areas, provided Tenant shall always have adequate access
to the Premises and the parking rights described in Section 1.1 (l)
----------- -
(c) To grant to anyone the exclusive right to conduct any business or
render any service in or to the Building, provided such exclusive right shall
not operate to exclude Tenant from the use expressly permitted herein;
(d) To approve the weight, size, and location of safes and other heavy
equipment and articles in and about the Premises and the Building, and to
require all such items and furniture and similar items to be moved into and out
of the Building and Premises only at such times and in such manner as Landlord
shall direct in writing. Movements of Tenant's property into or out of the
Building and within the Building are entirely at the risk and responsibility of
Tenant and Landlord reserves the right to require permits before allowing any
such property to be moved into or out of the Building;
(e) To prohibit the placing of vending or dispensing machines of any kind
in or about the Premises without the prior written permission of Landlord;
(f) To take all such reasonable measures as Landlord may deem advisable for
the security of the Building and its occupants, including without limitation,
the search of all persons entering or leaving the Building, the evacuation of
the Building for cause, suspected cause, or for drill purposes, the temporary
denial of access to the Building, and the closing of the Building after regular
working hours;
(g) To relocate the Premises to another location of substantially
equivalent size and location in the Building provided such relocation does not
increase the Minimum Monthly Rent or other costs payable by Tenant under this
Lease. If Landlord elects to move Tenant, Landlord shall build out or renovate
the new location with Leasehold Improvements at the new location substantially
equal to Leasehold Improvements constructed or to be constructed on the original
Premises pursuant to Exhibit B and Landlord will pay Tenant's reasonable costs
---------
of moving to the new location, including incidental costs such as reprinting
stationery and new signage, but Landlord will have no other or additional
liability to Tenant with respect to relocation, including, loss of revenues or
profits. Reservation of the rights set forth in this Article shall impose no
obligation or duty upon Landlord to exercise said rights.
ARTICLE 16. QUIET ENJOYMENT
Landlord agrees that upon Tenant's paying the rentals and keeping and
performing all of the terms, conditions, covenants, and provisions of this
Lease, Landlord will do nothing that will prevent Tenant from peaceably and
quietly enjoying, holding, and occupying the Premises during the Lease Term.
This covenant shall not extend to any disturbance, act, or condition brought
about by any other Tenant or occupant in the Building or Project, the
Association or any other party in control of all or any part of the Project
outside the Building, and shall be subject to the rights of Landlord set forth
in this Lease. Tenant agrees this lease is subordinate to the Declaration and
any amendments thereto hereafter
Landlord ______
Tenant ______
7
<PAGE>
imposed upon that property upon which the Building is located, the Building
Rules and Regulations described in Section 14.2, the Parking Rules and
------------
Regulations described in Section 6.3, and the Common Areas Rules and Regulations
-----------
described in Section 2.1. This subordination agreement shall be self-operative,
-----------
however. Tenant agrees to execute and deliver such further instruments necessary
to subordinate this Lease to the foregoing matters.
ARTICLE 17. MAINTENANCE AND REPAIR
17.1 Subject to Articles 14, 22 and 23 and Tenant's obligations under
----------------------
Sections 17.2 and 17.3 Landlord shall maintain the Premises and Building in
- ----------------------
good and tenantable condition, and repair, reasonable wear and tear excepted.
Tenant waives all rights to make repairs at the expense of Landlord. Landlord's
maintenance and repair costs under this Section 17.1 are deemed to be Operating
------------
Costs. The foregoing notwithstanding, Landlord shall not be liable to Tenant for
failure to make repairs as required herein unless Tenant has previously notified
Landlord, in writing, of the need for such repairs and Landlord has failed to
commence said repairs within fifteen (15) days following receipt of Tenant's
written notification, or such lesser period as shall be reasonable in the event
of a bona fide emergency. Landlord shall have no obligation to alter, remodel,
improve, renovate, decorate, or paint the Premises at any time during the Lease
Term except as set forth in Exhibit B.
17.2 If Landlord would be required to perform any maintenance or make any
repairs under Section 17.1 because of: (a) modifications to the roof, walls,
------------
foundation, and floor of the Building from that set forth in Landlord's plans
and specifications which are required by Tenant's design for improvements,
alterations and additions; (b) installation of Tenant's improvements, fixtures,
or equipment; (c) a negligent or wrongful act of Tenant or Tenant's Permittees;
or, (d) Tenant's failure to perform any of Tenant's obligations under this
Lease, Landlord may perform the maintenance or repairs and Tenant shall pay
Landlord the cost thereof plus a reasonable amount for Landlord's overhead as
additional rent hereunder upon receipt of a statement from Landlord. Landlord's
costs under this Section 17.2 shall not be an Operating Cost for purposes of
------------
Article 5.
- ---------
17.3 Tenant agrees to:
(a) Pay Landlord's cost of maintenance and repair, including additional
janitorial costs of any Non-Building Standard Improvements and Non-Building
Standard materials and finishes, as defined in Exhibit B, and special
---------
leasehold improvements in excess of or in addition to Building Standard, as
defined in Exhibit B. Landlord's costs under this subsection will not be
---------
deemed an Operating Cost;
(b) Repair or replace all ceiling and wall finishes (including painting)
and floor or window coverings which require repair or replacement during the
Lease Term, at Tenant's sole cost;
(c) Indemnify and hold Landlord, the Association and owners of other
portions of the Project harmless from and against any and all liability,
obligations, claims, costs, damages, expenses, or attorneys' fees incurred or
sustained as a result of any damage, injury, or destruction of the Premises,
Building, Building Common Areas, or Project Common Areas arising from the
actions or negligence of Tenant or Tenant's Permittees.
17.4 Notwithstanding anything in this Lease to the contrary, to the
extent the terms and provisions of Articles 20, 21 and/or 22 conflict with, or
-------------------------
are inconsistent with, the terms and provisions of this Article 17, the terms
----------
and provisions of Articles 20, 21 and/or 22 shall control and prevail.
-------------------------
ARTICLE 18. UTILITIES AND JANITORIAL SERVICES
18.1 Landlord agrees to furnish to the Premises during normal business hours
on a five (5) day week, nine (9) hour day basis (the "Business Hours"), and
subject to the Rules and Regulations of the Building, electricity suitable for
the intended use of the Premises, heat and air conditioning required in
Landlord's judgment for normal use and occupation of the Premises and janitorial
services for the Premises and Common Areas. Landlord further agrees to furnish
hot and cold (or "tempered") water to those areas provided for general use of
all tenants in the Building. Landlord will use diligent efforts to provide
continuous elevator service for the Building from at least one (1) passenger
elevator, but Landlord does not guarantee that all elevators will be operational
at all times.
18.2 As used in this Article 18, "Excess Consumption" means the consumption
----------
of electrical current (including current in excess of 120 volts), water, heat,
cooling, or compressed air (if compressed air is furnished by Landlord) in
excess of that which would be provided to the Premises were the Premises to be
(i) built out with Building Standard Improvements only; (ii) used as general
office space during Business Hours; and (iii) equipped only with typewriters,
desk calculators, normal office computer equipment, dictation equipment, and
copying machines with power requirements of 30 amperes or less. Tenant will not,
without the written consent of Landlord, use any apparatus or device in the
Premises, including but without limitation thereto, duplicating machines,
electronic data processing machines, punch card machines, and machines using
electrical current in excess of 110 volts, which will in any way result in
Excess Consumption nor connect, except through existing electrical outlets,
water pipes, ducts or airpipes (if any) in the Premises, any apparatus or
device for the purpose of using electric current, water, heating, cooling, or
air. If Tenant shall require electric current, water, heating, cooling, or air
which will result in Excess Consumption, Tenant shall first procure the consent
of Landlord to the use thereof, and Landlord may cause separate meters to be
installed to measure Excess Consumption or establish another basis for
determining the amount of Excess Consumption. Tenant agrees to pay as additional
rent hereunder for the cost of Excess Consumption at the rate of $5.00 per hour
of Excess Consumption, or if Landlord's actual cost shall exceed $5.00 per hour,
then Tenant shall pay Landlord's actual cost, plus any additional expense
incurred in installing meters or keeping account of the Excess Consumption, at
the same time as payment of the Minimum Monthly Rent is made. Tenant further
agrees to pay as
Landlord _______
Tenant _________
8
<PAGE>
additional rent hereunder Landlord the costs, if any, to upgrade existing
mechanical, electrical, plumbing, and air facilities, if required to provide
Excess Consumption, upon receipt of a statement therefor. Excess Consumption
costs will not be an Operating Cost for purposes of Article 5.
---------
18.3 Landlord shall not be liable for damages nor shall rent or other
charges abate in the event of any failure or interruption of any utility or
service supplied to the Premises or Building by a regulated utility or
municipality, or any failure of a Building system supplying any such service to
the Premises (provided Landlord uses diligent efforts to repair or restore the
same) and no such failure or interruption shall entitle Tenant to terminate this
Lease or be deemed an actual or constructive eviction.
ARTICLE 19. ENTRY AND INSPECTION
19.1 Landlord and Landlord's agents shall have the right to enter into and
upon the Premises at all reasonable times for the purpose of inspecting the
same; performing Landlord's maintenance and repair obligations under this Lease;
maintaining or making repairs, alterations, or additions to any other portion of
the Building and/or other premises therein, including the erection and
maintenance of such scaffolding, canopy, fences and props as may be required;
posting notices of nonliability for alterations, additions, or repairs, or of
the availability of the Premises for lease or sale; or exhibiting the Premises
to potential tenants and purchasers. Tenant shall permit Landlord, at any time
within one hundred fifty (150) days prior to the Expiration Date, to place upon
the Premises any usual or ordinary "For Lease" signs.
19.2 If Tenant shall not be personally present to open and permit an entry
into the Premises, at any time, when for any reason an entry therein shall be
necessary or permissible, Landlord or Landlord's agents may use a master key to
enter, without rendering Landlord or such agents liable therefor, and without in
any manner affecting the obligations and covenants of this Lease, Landlord shall
be permitted to take any action under this Article without causing any abatement
of rent or liability to Tenant for any loss of occupation or quiet enjoyment of
the Premises, nor shall such action by Landlord be deemed an actual or
constructive eviction.
ARTICLE 20. ACCEPTANCE OF THE PREMISES/LIABILITY INSURANCE/INDEMNIFICATION OF
LANDLORD
20.1 All merchandise, furniture, and other personal property and fixtures
belonging to Tenant and all persons claiming by or through Tenant shall be-
placed and remain on the Premises at Tenant's sole risk. Tenant hereby waives
all claims against Landlord for loss, injury, or damage to all persons claiming
or entering by, through or under Tenant while they are in or immediately about
the Premises, and any and all such claims for loss, injury or damage to property
on the Premises or the Common Areas form theft, fire, water, gas, or otherwise,
including without limitation sprinkler leakage or bursting pipes. Subject to
Exhibit B, Tenant accepts the Premises "as is" and Landlord makes no warranty as
- ---------
to the condition of the Premises.
20.2 Tenant hereby agrees to indemnify, defend, and hold Landlord and any
property manager and/or lender of Landlord harmless against all Claims (as
defined below) arising from: Tenant's possession, use, maintenance, and repair
of the Premises or use of the Common Areas; any act or omission of Tenant or
Tenant's Permittees; any default of Tenant under this Lease; or other acts or
omissions which result in personal injury, loss of life, or property damage
sustained in and about the Premises.
20.3 Upon taking possession of the Premises and thereafter during the Lease
Term, the Tenant shall, at Tenant's sole cost and expense, maintain in effect at
all times during the Lease Term insurance coverage with limits not less than
those set forth below with insurers meeting the requirements set forth in
Section 20.4:
- ------------
(a) Worker's Compensation Insurance, minimum limit as defined by the
Worker's Compensation and Occupational Disease Laws of the State of Arizona and
other applicable laws, and as may be amended from time to time.
(b) Employer's Liability Insurance, minimum limit $3,000,000.
(c) Commercial General Liability, Bodily Injury/Property Damage Insurance,
minimum combined single limit $5,000,000. This insurance policy shall include
the following coverages:
(1) Premises/Operations.
(2) Independent Contractors.
(3) Broad Form Contractual in support of the indemnification
obligations of Tenant under this Lease.
(4) Bodily and Personal Injury Liability.
(5) Products/Completed Operations.
(d) Owned, hired and non-owned Automobile Liability Insurance, minimum
limit $3,000,000.
All such policies shall include a waiver of subrogation in favor of Landlord
and shall name Landlord and such other party or parties as Landlord may require
as additional insurance. All such policies of insurance may be carried under a
blanket policy. This insurance will be primary, with any insurance maintained by
Landlord to be considered "excess" for the protection of Landlord.
20.4 Tenant's insurance shall be maintained with an insurance company
qualified to do business in the State of Arizona and having a current A.M. Best
manual rating of at least A-X or better. Tenant's insurance policies will
contain endorsements stating that the insurance shall not be cancelled nor shall
the carrier fail to renew or materially change the policy without first giving
thirty (30) days written notice to Landlord. Before entry into the Premises and
before expiration of any policy, evidence of these coverages represented by
Certificates of Insurance issued
Landlord ________
Tenant __________
9
<PAGE>
by the insurance carrier must be furnished to Landlord, and Tenant must provide
Landlord with evidence that the applicable premiums or renewal premiums have
been paid. Certificates of Insurance should specify the additional insured
status mentioned above, as well as the waiver of subrogation, and that such
insurance is primary, and any insurance by Landlord is excess. The Certificate
of Insurance shall state that Landlord will be notified in writing thirty (30)
days before cancellation, material change, or renewal of insurance. If Tenant
fails to timely perform any of the foregoing obligations, Landlord may do so on
behalf of Tenant without notice to Tenant and Tenant shall pay to Landlord the
premium for this insurance within ten (10) days of demand by Landlord plus
interest at the Delinquency Interest Rate as additional rent hereunder.
20.5 During the entire Lease Term, Landlord agrees to maintain public
liability insurance in such forms and amounts as Landlord shall determine, or
elect to self-insure the same. Landlord's cost of insurance shall be an
Operating Cost under Article 5.
---------
20.6 Landlord shall not be responsible or liable to Tenant for any Claims
for loss or damage caused by the acts or omissions of any persons occupying any
space elsewhere in the Building or Project, the Association, or any other party
in control of all or any part of the Project outside the Building.
20.7 As used in this Article, "Claims" means any claim, suit, proceeding,
action, cause of action, damages, liability, responsibility, demand, judgment
and execution, and attorneys' fees and costs related thereto or arising
therefrom.
ARTICLE 21. PROPERTY AND CASUALTY INSURANCE
21.1 Tenant shall maintain fire and full extended coverage insurance ("all
risk") (full replacement value) with business interruption and extra expense
endorsements, on merchandise, personal property, equipment, and trade fixtures
owned or used by Tenant and other property which Tenant may remove on the
Expiration Date. Tenant shall not maintain insurance on any structural portion
of the Premises, roof, demising or interior walls, or floors. In the event of
violation of this obligation, Tenant agrees all proceeds of Tenant's insurance
policies, except proceeds related to Tenant's personal property or improvements
supplied by Tenant, will be held in trust for the benefit of Landlord.
21.2 Landlord shall maintain fire and full extended coverage insurance
("all risk") including vandalism and malicious mischief, sprinkler leakage
damage, and flood and boiler and machinery endorsements throughout the Lease
Term on the Building (excluding Tenant's trade fixtures and personal property)
and may name the holder of any mortgage or deed of trust and any ground lessor
as additional insured. Landlord may elect to self-insure any portion of the
required insurance. At Landlord's option, the policy of insurance may include a
business interruption insurance endorsement for loss of rents. The cost of the
insurance obtained under this Section 21.2 shall be an Operating Cost under
------------
Article 5 of this Lease. If, however, during the Lease Term premiums for fire
- ---------
and extended coverage insurance are or may be calculated by rating the premises
of individual tenants within the Building and it is determined that the rate for
the Premises, due to Tenant's special fixtures, Non-Building Standard
Improvements, business or otherwise, is in excess of the rate attributable to
the premises having the lowest rate, Tenant agrees to pay Landlord the
difference between the premium attributable to the Premises and that premium
which would be attributable to the Premises were the Premises rated at the
lowest rate. If the Building is rated as a whole and it is determined that the
premium, due to Tenant's special fixtures, Non-Building Standard Improvements or
business, is in excess of the premium which would have been charged, but for
Tenant's fixtures, improvements, or business, Tenant agrees to pay Landlord such
excess. Tenant shall have no rights in said policy procured by Landlord under
this Section 21.1 and shall not be entitled to be named as insured thereunder.
------------
21.3 Subject to the following provisions, Tenant hereby waives any right of
recovery from Landlord and Landlord's partners, agents, officers, directors, and
employees, and Landlord hereby waives any right of recovery from Tenant and
Tenant's Permittees, for any loss or damage (including consequential loss)
resulting from any of the perils required to be insured against by either's fire
and extended coverage policy. The parties shall give their respective insurance
carriers notice of this waiver and shall secure an endorsement from each carrier
to the effect that the waivers given under this Section 21.3 shall not adversely
------------
affect or impair the policies of insurance or prejudice the right of the named
insured on the policy to recover thereunder. A waiver given under this Section
-------
21.3 shall apply only to losses occurring during the time that such an
- ----
endorsement is in effect and to the extent it applies.
ARTICLE 22. DAMAGE AND DESTRUCTION OF PREMISES
22.1 In the event of (a) fire or other casualty damage to the Premises or
the Building during the Lease Term which requires repairs to either the Premises
or the Building, or (b) the Premises or Building being declared unsafe or unfit
for occupancy by any authorized public authority for any reason other than
Tenant's act, use or occupation, which declaration requires repairs to either
the Premises or the Building, Landlord shall commence to make said repairs
within sixty (60) days of written notice by Tenant of the necessity therefor and
diligently proceed therewith to completion, except as provided in Section 22.2.
------------
The Minimum Monthly Rent shall be proportionately reduced while such repairs are
being made, based upon the extent to which the making of such repairs shall
interfere with the business carried on by Tenant in the Premises. Landlord shall
have no obligation to repair, restore, or replace Tenant's trade fixtures or
other personal property and Tenant shall be solely responsible therefor.
Further, Landlord shall not be obligated to make repairs to the extent that the
cost thereof exceeds the insurance proceeds available to Landlord or to the
extent such repairs would exceed Building Standard as defined in Exhibit B.
---------
22.2 Landlord's obligation to repair the Premises shall, however, be
subject to the following provisions of this Section 22.2. If (a) during the
------------
last year of the Lease Term the Premises or the Building is damaged as a result
of fire or any other insured casualty, or (b) the Premises are damaged to the
extent of twenty~five percent (25%) or more of replacement value, or (c) the
Premises or the Building is damaged or destroyed as a result of a casualty not
insured against, or (d) the Building shall be damaged or destroyed by fire or
other cause to the extent of twenty percent (20%) or more of the Building's
replacement value, then Landlord shall have the right, to be exercised by notice
in writing to Tenant
Landlord ________
Tenant __________
10
<PAGE>
given within ninety (90) days from said occurrence, to cancel and terminate this
Lease. Upon notice to Tenant the Lease Term shall expire by lapse of time upon
the third day after such notice is given, and Tenant shall vacate the Premises
and surrender the same to Landlord. If Landlord elects to terminate this Lease
under this Section, all rents shall be prorated as of the date of damage or
destruction and Landlord shall be released from liability or obligation to
Tenant. If Landlord, however, elects to make said repairs, and provided Landlord
uses due diligence in making said repairs, this Lease shall continue in full
force and effect and the Minimum Monthly Rent shall be proportionately reduced
as provided in Section 22.1.
------------
22.3 with respect to any destruction (including any destruction necessary
in order to make repairs) which Landlord is obligated to repair or may elect to
repair under the terms of this Article, Tenant waives any statutory or other
right Tenant may have to cancel this Lease as a result of such destruction and
no such destruction shall annul or void this Lease. The provisions of this
Article shall supersede the obligations of Landlord to make repairs under
Section 17.1 of the Lease.
- ------------
22.4 Unless the Lease is terminated under this Article, upon substantial
completion of Landlord's restoration obligations, the Minimum Monthly Rent shall
be restored to the amounts which would have been in effect but for the damage or
destruction.
22.5 Notwithstanding the provisions of this Article 22, if the Premises or
----------
any other portion of the Building are damaged by fire or other casualty
resulting from the negligent act or omission or willful misconduct of Tenant or
any of Tenant's Permittees, Minimum Monthly Rent shall not be reduced during the
repair of the damage, and Tenant shall be liable to Landlord for the cost and
expense of the repair and restoration of the Premises or the Building caused
thereby to the extent that cost and expense is not covered by insurance
proceeds.
ARTICLE 23. EMINENT DOMAIN
As used in this Article, "Taking" means a taking of or damage to the
Premises or Building or any part thereof by exercise of the power of eminent
domain, condemnation or sale under the threat of or in lieu of eminent domain or
condemnation. If the whole of the Building or the whole of the Premises shall be
acquired by the Taking, or if the whole of the Automobile Parking Area is
acquired by a Taking, then this Lease shall terminate as of the date of taking
of possession by the Taking authority. If more than ten percent (10%) of the
value of the Building is acquired by a Taking, whether or not any portion of the
Premises is so taken, Landlord shall have the right to terminate this Lease as
of the date of the Taking of possession by giving Tenant ninety (90) days
written notice of Landlord's intent to terminate this Lease. If more than
twenty-five percent (25%) of the value of the Premises is acquired in a Taking,
either Landlord or Tenant may terminate this Lease upon notice to the other
within ninety (90) days prior to the effective date of such Taking. If less than
twenty~five percent (25%) of the value of the Premises is acquired in a Taking
and the award required is sufficient to restore the Premises, subject to
Landlord's right to terminate this Lease in this Article 23, Landlord shall
----------
promptly restore the Premises to a condition comparable to its condition at the
time of such condemnation less the portion acquired in the Taking, this Lease
shall continue in full force and effect with respect to that part not acquired,
and the Minimum Monthly Rent shall be reduced in the proportion that the
Rentable Square Footage of the Premises after the taking bears to the Rentable
Square Footage before the Taking. The Taking of a part of the Automobile Parking
Areas shall not affect this Lease so long as Landlord can provide the parking
spaces described in Section 1.1(1), if any, and reasonable visitor parking
--------------
within the previously existing and/or substitute Automobile Parking Area. In the
event of a Taking as hereinbefore provided, whether whole or partial, the Tenant
shall not be entitled to any part of the award, as damages or otherwise, for
diminution in value or loss of the leasehold, reversion or fee, and Landlord is
entitled to receive the full amount of such award. Tenant expressly waives any
right or claim to all or part of any condemnation award or compensation thereof.
Tenant shall have no claim against Landlord or the Taking authority for the
value of the unexpired Lease Term if the Lease is terminated under this Article.
Although all damages in the event of any condemnation belong to the Landlord,
Tenant shall have the right to claim and recover from the condemning authority,
but not from Landlord, such compensation as may be separately awarded or
recoverable by Tenant in Tenant's own right on account of any damage to Tenant's
business by reason of the condemnation and for moving or relocation expenses. If
this Lease is totally or partially terminated under this Article, all rents
shall be prorated as of the date of Taking including refunds for amounts paid in
advance by Tenant.
ARTICLE 24. ASSIGNMENT AND SUBLETTING
24.1 Tenant agrees not to transfer or assign this Lease, or any interest
therein, and shall not sublet the Premises or any part thereof, or any right or
privilege appurtenant thereto, including spaces in the Automobile Parking Area,
or permit any other person or party to use or occupy any portion of the
Premises, either directly or indirectly, by operation of law, merger,
consolidation or otherwise, without Landlord's prior written consent. In the
event Tenant desires to transfer or assign this Lease or any interest therein or
to sublet the Premises or any portion thereof, Tenant shall, by notice in
writing, advise Landlord of Tenant's intention, from, on and after a stated date
(which shall not be less than thirty (30) days after the date of Tenant's
notice), to transfer or assign this Lease or to sublet any portion of the
Premises for the balance or any portion of the Lease Term. Tenant's notice shall
include all the terms of the proposed transfer, assignment or sublease and shall
state the consideration therefor. In such event, Landlord shall have the right,
to be exercised by giving written notice to Tenant within thirty (30) days after
receipt of Tenant's notice, to recapture the space described in Tenant's notice
and such recapture notice shall, if given, cancel and terminate this Lease with
respect to the space therein described as of the date stated in Landlord's
notice. If this Lease is canceled with respect to less than the entire Premises,
the Minimum Monthly Rent shall be equitably adjusted by Landlord with due
consideration of the size, location, type, and quality of the portion of the
Premises so remaining after the "recapture", and this Lease, as so amended,
shall continue thereafter in full force and effect. If Landlord, upon receiving
Tenant's notice with respect to any such space, shall not exercise its right to
recapture such space, Landlord will not unreasonably withhold its consent to
Tenant's assignment of the Lease or subletting such apace to the party
identified in Tenant's notice. Any assignment or subletting hereunder shall not
release or discharge Tenant of or from any liability, whether past, present or
future, under this Lease, and Tenant shall continue to be fully liable
thereunder. Consent by Landlord to one assignment, subletting, occupation, or
use by another person shall not be deemed to be a consent to any subsequent
assignment, subletting,
Landlord _______
Tenant _________
11
<PAGE>
occupation, or use by another person. Any attempted transfer, assignment, or
subletting without the prior written consent of Landlord shall be void. Tenant
shall pay Landlord a processing fee of Seven Hundred and Fifty Dollars ($750.00)
and Landlord's reasonable legal fees incurred in connection with the processing
of any documents necessary to give consent under this Article 24. If Tenant is a
----------
corporation, an unincorporated association, a partnership or a limited liability
company, unless listed on a national stock exchange, the transfer, assignment or
hypothecation of any stock or interest in such corporation, association,
partnership or limited liability company in the aggregate in excess of fifty
percent (50%) shall be deemed an assignment of this Lease. If there is any
change in the ownership of a Tenant which is a corporation, partnership, limited
liability company, trust, or other entity (excluding corporations whose stock is
publicly traded on any United States stock exchange), then within ten (10) days
after the effective date thereof Tenant shall provide notice and a full
description thereof to Landlord, and shall provide such documents or other
materials as Landlord may reasonably request to confirm the then current
ownership of Tenant.
24.2 The voluntary or other surrender of this Lease by Tenant, or a mutual
cancellation thereof, shall not work a merger, and shall, at the option of
Landlord, terminate all or any existing subleases, or may, at the option of
Landlord, operate as an assignment to Landlord of any or all such subleases.
ARTICLE 25. SALE OF PREMISES BY LANDLORD
In the event of any sale of the Building or the property upon which the
Building is located or any assignment of this Lease by Landlord (or a successor
in title), if the assignee or purchaser assumes the obligations of Landlord
herein in writing, Landlord (or such successor) shall automatically be entirely
freed and relieved of all liability under any and all of Landlord's covenants
and obligations contained in or derived from this Lease or arising out of any
act, occurrence, or omission occurring after such sale or assignment; and the
assignee or purchaser shall be deemed, without any further agreement between the
parties, to have assumed and agreed to carry out any and all of the covenants
and obligations of Landlord under this Lease, and shall be substituted as
Landlord for all purposes from and after the sale or assignment.
ARTICLE 26. SUBORDINATION/ATTORNMENT/MODIFICATION/ASSIGNMENT
Tenant's interest under this Lease is subordinate to all terms of and all
liens and interests arising under any ground lease, deed of trust, or mortgage
now or hereafter placed on the Landlord's interest in the Premises, the
Building, or the Land. Tenant agrees to reasonable amendments to this Lease as
may be required by a lender who proposes to fund construction or permanent
financing provided the amendment does not increase Tenant's monetary obligations
under this Lease. Tenant further consents to an assignment of Landlord's
interest in this Lease to Landlord's lender as required under such financing. If
the Premises or the Building is sold as a result of a default under the
mortgage, or pursuant to a transfer in lieu of foreclosure, or a ground lease is
terminated because of the default of the lessee under such ground lease, Tenant
shall, at the mortgagee's, purchaser's or ground lessor's sole election, attorn
to the mortgage, purchaser or ground lessor, and if so requested, enter into a
new lease for the remainder of the Lease Term. This Article is self-operative;
however, Tenant agrees to execute and deliver, if Landlord or any mortgagee,
purchaser, or ground lessor should so request, such further instruments
necessary to subordinate this Lease to a lien of any mortgage, deed of trust, or
ground lease, to acknowledge the consent to assignment and to affirm the
attornment provisions set forth herein.
ARTICLE 27. LANDLORD'S DEFAULT AND RIGHT TO CURE
In the event of breach, default or noncompliance hereunder by Landlord,
Tenant agrees, before exercising any right or remedy available to it under the
Lease, to give Landlord written notice of the claimed breach, default, or
noncompliance. If prior to its giving such notice Tenant has been notified in
writing (by way of Notice of Assignment of Rents and Leases, or otherwise) of
the address of a lender which has furnished financing that is secured by realty
mortgage or deed of trust on the Premises or the Building or of a ground lessor,
concurrently with giving the notice to Landlord, Tenant agrees to also give
notice by registered mail to such lender and/or ground lessor. For the thirty
(30) days following such notice (or such longer period of time as may be
reasonably required to cure a matter which, due to its nature, cannot reasonably
be remedied within thirty (30) days), Landlord shall have the right to cure the
breach, default or noncompliance involved. If Landlord has failed to cure a
default within said period, any such lender and/or ground lessor shall have an
additional thirty (30) days within which to cure the same or, if such default
cannot be cured within that period, such additional time as may be necessary if
within such thirty (30) day period said lender and/or ground lessor has
commenced and is diligently pursuing the actions or remedies necessary to cure
the breach, default or noncompliance involved (including, but not limited to,
commencement and prosecution of proceedings to foreclose or otherwise exercise
its rights under its mortgage or other security instrument or ground lease, if
necessary to effect such cure), in which event Tenant shall not be entitled to
exercise any right or remedy available to it under the Lease so long as such
actions or remedies are being diligently pursued by said lender and/or ground
lessor. In no event shall Tenant have the right to terminate this Lease as a
result of Landlord's default and Tenant's remedies shall be limited to an
injunction and/or damages limited to the amount of Minimum Monthly Rent paid
during such period of default. If Tenant fails to give notice to Landlord and
any lender and/or ground lessor of a default within six (6) months of the
occurrence of the events pursuant to which the default arises or would occur
with notice as provided above, thereafter Tenant shall have no right to deem
the same a default hereunder.
ARTICLE 28. ESTOPPEL CERTIFICATES
Tenant agrees at any time and from time to time upon request by Landlord,
to execute, acknowledge and deliver to Landlord within five (5) calendar days of
demand by Landlord a written estoppel certificate certifying the veracity of and
affirming any or all of the following information as of the date of the
execution of such estoppel certificate:
Landlord __________
Tenant __________
12
<PAGE>
(a) That Tenant executed and exchanged the Lease with Landlord dated
[insert date, of lease] (a copy of the Lease along with any amendments and/or
modifications may be required as an exhibit to the estoppel certificate)
covering the Premises, as shown crosshatched on the plan annexed hereto as
Exhibit A in the Building located at [insert address of building].
(b) That the Lease, consisting of [insert no.] pages, plus Exhibits [insert
----------------
reference letters] (insert no. pages), is in full force and effect and has
- -----------------
not been modified, changed, altered or amended in any respect; or if it has been
modified or amended, Tenant shall certify as true the terms, dates and numbers
of pages of each of such modifications or amendments.
(c) That the Lease Term commenced on [insert date of commencement of
lease], that the rent commencement date, if different from the Commencement
Date, is [insert date of rent commencement], and that the Lease Term shall
expire on [insert expiration date of lease].
(d) Whether Tenant has any option(s) to renew or extend the Lease Term. If
Tenant has any such option(s), Tenant shall certify as true the terms of such
option(s) and whether any option has been exercised.
(e) Whether Tenant has any option(s), right(s) of first refusal, or
right(s) of first offer to expand the Premises or to purchase the Building. If
Tenant has such option(s) or right(s), Tenant must certify as true the terms of
such option(s) or right(s) and whether any such option or right has been
exercised.
(f) Whether Tenant has accepted and is now in full possession of the
Premises and is paying full rent under the Lease; or, if Tenant is not in full
possession, whether Tenant has assigned the Lease, sublet all or any portion of
the Premises, or otherwise transferred any interest in the Lease or the
Premises. Tenant agrees to provide a copy of such assignment, sublease or
transfer upon request.
(g) Whether Tenant has received any notice(s) of prior sale, transfer or
assignment, hypothecation or pledge of the Lease or of the rents payable
thereunder.
(h) The current Minimum Monthly Rent payable under the Lease, the current
additional rent, and the date to which the Minimum Monthly Rent and all
additional rent and other charges required to be paid under this Lease have been
paid.
(i) That no Minimum Monthly Rent or additional rent under the Lease has
been paid for more than thirty (30) days in advance of its due date.
(j) The Base Year for pass-throughs of Operating Costs.
(k) The amount of Security Deposit paid to Landlord.
(1) The total Usable Square Feet and Rentable Square Feet of the Premises.
(m) Whether Tenant is currently receiving any rental concessions, rebates
or abatements, and, if so, the terms of such concession, rebate or abatement,
including, without limitation, the date when this concession, rebate or
abatement shall expire. Tenant will also confirm whether it is entitled to any
future rent concessions, rebates or abatements under the Lease; and, if so, the
terms of the future concessions, rebates or abatements.
(n) That all alterations, improvements, additions, build-outs or
construction required to be performed under the Lease have been completed in
accordance with the plans and specifications in the Building Standard
Workletter attached to Lease as Exhibit B.
(o) The status of any work being performed in the Premises and if there are
any unpaid bills for work performed by any contractors or service people.
(p) That there are no alterations, improvements or fixtures that Tenant has
the right to remove from the Premises except for Tenant's personal property and
trade fixtures.
(q) That there are no defaults existing under the Lease by Landlord and no
circumstances currently exist that would constitute a default solely upon the
service of notice or the passage of time, and there is no existing basis for
Tenant to cancel the Lease or to exercise any other remedies available to it by
virtue of a default by Landlord.
(r) That there are no defaults existing under the Lease by Tenant and no
circumstances currently exist that would constitute a default solely upon the
service of notice or the passage of time, and there is not existing basis for
Landlord to cancel the Lease or to exercise any other remedies available to it
by virtue of a default by Tenant.
(s) That there are currently no valid defenses, counterclaims, offsets,
credits, deductions in rent or claims against the enforcement of any of the
agreements, terms or conditions of the Lease.
(t) That no Hazardous Materials, as defined in Section 14.3 of the Lease,
have been generated, treated, stored or disposed of in the Premises by Tenant
or, to the best of Tenant's knowledge, by any third party.
Landlord _______
Tenant ________
13
<PAGE>
(u) That there has been no material adverse change in Tenant's financial
condition between the date of the execution of the Lease and the date
hereof.
(v) That there are currently no bankruptcy or reorganization actions,
whether voluntary or involuntary, pending against Tenant under the Bankruptcy
Laws of the United States or any state thereof.
(w) Either or both of the following:
(i) That any disputes with Landlord giving rise to claims against
Landlord are claims under the Lease only and are subordinate to the rights of
the holder of any superior mortgage or ground lease and shall be subject to all
of the terms, conditions and provisions thereof; and any such claims are not
offsets to or defenses against enforcement of the Lease.
(ii) That any disputes with Landlord giving rise to claims against
Landlord are claims under the Lease only and are subordinate to the rights of
any purchaser pursuant to any contract of sale; and any such claims are not
offsets to or defenses against enforcement of the Lease.
(x) That any claims pertaining to matters currently in existence which are
known to, or which are readily ascertainable by, Tenant shall be enforced solely
by money judgment and/or specific performance against Landlord named in the
Lease and may not be enforced as an offset to or defense against enforcement of
this Lease.
(y) Either or both of the following:
(i) Tenant acknowledges that Landlord has informed Tenant that
Landlord has entered into a contract to sell the Building to a purchaser and
that no modification, revision or cancellation of the written Lease or
amendments thereto shall be effective unless a written consent thereto of the
purchaser is first obtained.
(ii) That Tenant acknowledges Landlord has informed Tenant that an
assignment of Landlord's interest in the Lease has been, or will be, made to a
mortgagee; and that no modification, revision or cancellation of the Lease or
amendments thereto shall be effective unless a written consent thereof of such
mortgagee is first obtained.
(z) That Tenant acknowledges that the estoppel certificate is made to
induce a purchaser to consummate a purchase of the Building and/or to induce
mortgagee to make and maintain a mortgage loan secured by the Building, as the
case may be, knowing that said purchaser and/or mortgagee as applicable, shall
rely upon the truth of the estoppel certificate in making and/or maintaining
such purchase and/or mortgage as applicable.
(aa) That the person signing the estoppel certificate on behalf of Tenant is
a duly authorized agent of Tenant.
(bb) Any other information as may be requested by Landlord with respect to
the provisions of this Lease or the tenancy created by this Lease.
ARTICLE 29. TENANT'S DEFAULT AND LANDLORD'S REMEDIES
29.1 The following shall constitute a default by Tenant under this Lease:
(a) if Tenant fails to pay any installment of the Minimum Monthly Rent or
additional rent herein provided or any other sum required by this Lease to be
paid to Landlord, or any part thereof, within ten (10) days of the time or in
the manner provided; or (b) if Tenant fails to perform any other covenants or
obligations to be performed by Tenant under this Lease and such failure shall
continue for ten (10) days after notice thereof from Landlord to Tenant; or (c)
if a petition or proceeding under the Federal Bankruptcy Act or any other
applicable state or federal law relating to bankruptcy or reorganization or
other relief for debtors is filed or commenced by or against Tenant or any
guarantor of this Lease, and if against Tenant, said proceedings shall not be
dismissed within ten (10) days following commencement thereof; or (d) if Tenant
or any guarantor of this Lease is adjudged insolvent, makes an assignment for
the benefit of its creditors or enters into an arrangement with its creditors;
or (e) if a writ of attachment or execution is levied on the leasehold estate
hereby created and is not released or satisfied within ten (10) days thereafter;
or (f) if a receiver is appointed in any proceeding or action to which Tenant is
a party with authority to take possession or control of the Premises or the
business conducted thereon by Tenant or the property of any guarantor of this
Lease and such receiver is not discharged within a period of ten (10) days after
his appointment; or (g) if Tenant abandons or vacates the Premises (abandonment
shall be presumed if the Premises are not occupied by at least two (2) employees
of Tenant four (4) days a week, six (6) hours a day).
29.2 Upon a default of Tenant as defined in Section 29.1, Landlord or
------------
Landlord's agents and employees shall have the right and option to:
(a) Prosecute and maintain an action or actions, as often as Landlord deems
advisable, for collection of Minimum Monthly Rent, additional rent, other
charges, and damages as the same accrue, without entering into possession and
without terminating this Lease. No judgment obtained shall constitute a merger
or otherwise bar prosecution of subsequent actions for Minimum Monthly Rent,
additional rent, other charges, and damages as they accrue.
(b) Immediately or at any time thereafter reenter and take possession of
the Premises and remove Tenant or Tenant's Permittees and any or all of their
property from the Premises. Reentry and removal may be effected by summary
proceedings or any other action or proceedings at law, by force or otherwise.
Landlord shall not be liable in any way in connection with any action taken
under this paragraph.
Landlord ________
Tenant __________
14
<PAGE>
No action taken, commenced, or prosecuted by Landlord, no execution on any
judgment and no act or forbearance on the part of Landlord in taking or
accepting possession of the Premises shall be construed as an election to
terminate this Lease unless Landlord expressly exercises this option under
Section 29.2(c). Upon taking possession of the Premises Landlord may from time
- ---------------
to time, without termination of this Lease, relet the Premises or any part
thereof as agent for Tenant for such rental terms and conditions (which may be
for a term extending beyond the Lease Term and/or at a higher rental rate) as
Landlord, in its sole discretion, may deem advisable, with the right to make
alterations and repairs to said Premises required for reletting. The rents
received by Landlord from such reletting shall be applied first to the payment
of any costs of reletting and second to the payment of rent and other charges
due and unpaid hereunder. The residue, if any, shall be held by Landlord and
applied in payment of future rent and other charges as the same may become due
and payable hereunder. If the rents received from such reletting during any
month are insufficient to reimburse Landlord for any costs of reletting or rent
and other charges due and payable hereunder, Tenant shall pay any deficiency to
Landlord as additional rent hereunder. Such deficiency shall be calculated and
paid monthly as additional rent hereunder. Notwithstanding any such reletting
without termination, Landlord may at any time thereafter elect to terminate
this Lease for such previous breach.
(c) Elect to terminate this Lease by written notice to Tenant. In the event
of such termination, Tenant shall immediately surrender possession of the
Premises. If Tenant fails or refuses to surrender the Premises, Landlord may
take possession in accordance with Section 29.2(b). Should Landlord
---------------
terminate this Lease, Tenant shall have no further interest in this Lease or in
the Premises. In addition, whether or not this Lease is terminated, Tenant
agrees to pay Landlord as additional rent all damages Landlord may incur by
reason of Tenant's default, including without limitation (1) the cost of
repairs, alterations, redecorating, leasing commissions, tenant improvement
allowances, rental concessions and Landlord's other expenses incurred in
reletting the Premises to a view tenant, as well as to reimburse Landlord for
the amount of all of said expenses in originally procuring Tenant for occupancy
of the Premises, and (2) the worth at the time of such termination of the
excess, if any, of the amount of rent and charges equivalent to rent reserved in
this Lease for the remainder of the Lease Term over the then reasonable rental
value of the Premises for the remainder of the Lease Term, all of which amounts
shall be immediately due and payable at Landlord's election from Tenant to
Landlord.
(d) Obtain the appointment of a receiver in any court of competent
jurisdiction, and the receiver may take possession of any personal property
belonging to Tenant and used in the conduct of the business of Tenant being
carried on in the Premises. Tenant agrees that the entry upon the Premises or
possession of said personal property by said receiver shall not constitute an
eviction of Tenant from the Premises or any portion thereof, and Tenant agrees
to hold the Landlord safe and harmless from any claim of any character by any
person arising out of or in any way connected with the entry by said receiver in
taking possession of the Premises or said personal property.
29.3 No act or conduct of the Landlord, whether consisting of reentry,
taking possession, or reletting the Premises or obtaining appointment of a
receiver or accepting the keys to the Premises, or otherwise, prior to the
expiration of the Lease Term shall be deemed to be or constitute an acceptance
of the surrender of the Premises by the Landlord or an election to terminate
this Lease unless Landlord exercises its election under Section 29.2(c) of this
--------------
Lease. Such acceptance or election by Landlord shall only be effected, and must
be evidenced, by written acknowledgement of acceptance of surrender or notice of
election to terminate signed by Landlord.
29.4 Tenant agrees that in the event it is due to render performance in
accordance with any term, condition, covenant, or provision of this Lease and it
fails to render such performance within ten (10) days after written notification
from Landlord that such performance is past due, in accordance with the notice
provision hereof or immediately if required for protection of the Premises, in
addition to all of Landlord's other rights and remedies, Landlord shall have the
right, but not the obligation, to render such performance and to charge all
costs and expense incurred in connection therewith to Tenant. All amounts so
charged together with interest thereon at the Delinquency Interest Rate shall be
considered additional rent and shall be due and payable immediately to Landlord
within ten (10) days after presentment of a statement to Tenant indicating the
amount and nature of such cost or expense.
29.5 No remedy herein conferred upon Landlord shall be considered exclusive
of any other remedy, but the same shall be cumulative and shall be in addition
to every other remedy given hereunder or now or hereafter existing at law or in
equity or by statute. Landlord may exercise its remedies in any order or
combination selected by Landlord in its sole discretion. No delay or omission of
Landlord to exercise any right or power arising from any default shall impair
any such right or power, or shall be construed to be a waiver of any such
default or an acquiescence therein.
ARTICLE 30. TENANT'S RECOURSE
Anything in this Lease to the contrary notwithstanding, Tenant agrees to
look solely to the estate and property of Landlord in the Land and the Building,
subject to prior rights of any mortgagee of the Land and Building or any part
thereof, for the collection of any judgment (or other judicial process)
requiring the payment of money by Landlord in the event of any default or breach
by Landlord under this Lease. Tenant agrees that it is prohibited from using any
other procedures for the satisfaction of Tenants' remedies. Neither Landlord nor
any partner thereof nor any of their respective officers, directors, employees,
heirs, successors, or assigns, shall have any personal liability of any kind or
nature, directly or indirectly, under or in connection with this Lease.
ARTICLE 31. HOLDING OVER
If Tenant holds over after the Expiration Date, or any extension thereof,
with the consent of Landlord, Tenant shall become a tenant on a month-to-month
basis at a Minimum Monthly Rent equal to one and one-half times the Minimum
Monthly Rent payable immediately prior to the Expiration Date, which rental
shall be payable in advance on the first day of such holdover period and on the
first day of each month thereafter, upon all the terms, covenants and conditions
herein specified. If Tenant holds over without the consent of Landlord, Tenant
shall be a tenant at
Landlord ________
Tenant __________
15
<PAGE>
sufferance, the Minimum Monthly Rent shall be two times the sum of (i) the
Minimum Monthly Rent payable immediately prior to the Expiration Date, plus,
(ii) any amounts due under Article 5, and the other provisions of the preceding
---------
sentence will apply. Tenant shall further indemnify and hold Landlord harmless
from any and all liability, obligations, claims, losses, expenses, or attorneys'
fees incurred by Landlord as a result of any unauthorized holdover by Tenant or
any other failure of Tenant to deliver the Premises when and as required by this
Lease.
ARTICLE 32. GENERAL PROVISIONS
32.1 This Lease is construed in accordance with the laws of the State of
Arizona, and venue for resolution of any dispute arising under this Lease lies
exclusively in Maricopa County, Arizona. Each party waives the right to a jury
in any action, proceeding or counterclaim brought by either of them against the
other on any matters whatsoever arising under this Lease.
32.2 If Tenant is composed of more than one person or entity, then the
obligations of such entities or parties are joint and several.
32.3 If any term, condition, covenant, or provision of this Lease is held
by a court of competent jurisdiction to be invalid, void, or unenforceable, the
remainder of the terms, conditions, covenants, and provisions hereof shall
remain in full force and effect and shall in no way be affected, impaired, or
invalidated.
32.4 The various headings and numbers herein and the grouping of the
provisions of this Lease into separate articles and sections are for the purpose
of convenience only and are not to be considered a part hereof.
32.5 Time is of the essence of this Lease. All references in this Lease to
"days" shall mean calendar days unless specifically modified herein to be
"business" days.
32.6 Neither Landlord nor Tenant shall record this Lease. In addition,
neither party shall record a short form memorandum of this Lease without the
prior written consent (and signature on the memorandum) of the other, and
provided that prior to recordation Tenant executes and delivers to Landlord, in
recordable form, a property acknowledged quitclaim deed or other instrument
extinguishing all of the Tenant's rights and interest in and to the Land,
Building and Premises, and designating Landlord as the transferee, which deed or
other instrument shall be held by Landlord and may be recorded by Landlord once
the Lease terminates or expires (but not prior thereto). If such short form
memorandum is recorded in accordance with the foregoing, the party requesting
the recording shall pay for all costs of or related to such recording,
including, but not limited to, recording charges.
32.7 In the event either party initiates legal proceedings or retains an
attorney to enforce, protect or establish any right or obligation under this
Lease or to obtain relief for the breach of any covenant hereof, the party
ultimately prevailing in such proceedings or the non-defaulting party shall be
entitled to recover all costs and reasonable attorneys' fees, and in the event
of legal proceedings the same shall be determined by the court and not by a jury
and shall be included in any judgment or award obtained. In addition, Landlord
shall be entitled to all attorneys' fees and all other costs incurred in the
preparation and service of any notice or demand hereunder, whether or not a
legal action is subsequently commenced, and such fees and costs shall constitute
additional rent under this Lease and shall be due and payable with Tenant's
succeeding installment of Minimum Monthly Rent. If Landlord is involuntarily
made a party defendant to any litigation concerning this Lease or the Premises
by reason of any act or omission of Tenant, Tenant shall indemnify and hold
Landlord harmless from all liability by reason thereof, including Landlord's
reasonable costs and attorneys' fees.
32.8 This Lease, and any Exhibit or Addendum attached hereto, set forth all
the terms, conditions, covenants, provisions, promises, agreements, and
undertakings, either oral or written, between the Landlord and Tenant. No
subsequent alteration, amendment, change, or addition to this Lease is binding
upon Landlord or Tenant unless reduced to writing and signed by both parties. If
a term, condition, covenant, or provision of the Addendum and this Lease are in
conflict, the terms, conditions, covenants, and provisions of the Addendum
govern.
32.9 Subject to Article 24, the covenants herein contained shall apply to
----------
and bind the heirs, successors, executors, personal representatives, legal
representatives, administrators, and assigns of all the parties hereto.
32.10 No term, condition, covenant, or provision of this Lease shall be
waived except by written waiver of Landlord, and the forbearance or indulgence
by Landlord in any regard whatsoever shall not constitute a waiver of the term,
condition, covenant, or provision to be performed by Tenant to which the same
shall apply, and until complete performance by Tenant of such term, condition,
covenant, or provision, Landlord shall be entitled to invoke any remedy
available under this Lease or by law despite such forbearance or indulgence. The
waiver by Landlord of any breach or term, condition, covenant, or provision
hereof shall apply to and be limited to the specific instance involved and shall
not be deemed to apply to any other instance or to any subsequent breach of the
same or any other term, condition, covenant, or provision hereof. Acceptance of
rent by Landlord during a period in which Tenant is in default in any respect
other than payment of rent shall not be deemed a waiver of the other default.
Any payment made in arrears shall be credited to the oldest amount outstanding
and no contrary application will waive this right.
32.11 The use of a singular term in this Lease shall include the plural and
the use of the masculine, feminine, or neuter genders shall include all others.
32.12 Within thirty (30) days of receipt of a request from Landlord (which
shall not occur more frequently than annually), Tenant shall provide reasonably
detailed financial statements for Tenant, any parent entities of Tenant and any
guarantors of this Lease, for the most recent fiscal or calendar year, which
shall be audited or accountant prepared, and in any event shall be certified to
be true and correct by Tenant.
Landlord _______
Tenant _________
16
<PAGE>
32.13 Landlord's submission of a copy of this Lease form to any person,
including Tenant, shall not be deemed to be an offer to lease or the creation of
a lease unless and until this Lease has been fully signed and delivered by
Landlord.
32.14 Every term, condition, covenant, and provision of this Lease, having
been negotiated in detail and at length by both parties, shall be construed
simply according to its fair meaning and not strictly for or against Landlord or
Tenant.
32.15 If the time for the performance of any obligation under this Lease
expires on a Saturday, Sunday, or legal holiday, the time for performance shall
be extended to the next succeeding day which is not a Saturday, Sunday, or legal
holiday.
32.16 If requested by Landlord, Tenant shall execute written documentation
with signatures acknowledged by a notary public, to evidence when and if
Landlord or Tenant has met certain obligations under this Lease.
ARTICLE 33. NOTICES
Wherever in this Lease it is required or permitted that notice or demand be
given or served by either party to or on the other, such notice or demand shall
be in written and shall be given or served and shall not be deemed to have been
duly given or served unless (a) in writing; (b) either (1) delivered personally,
(2) deposited with the United States Postal Service, as registered or certified
mail, return receipt requested, begin adequate postage, or (3) sent by
overnight express courier (including, without limitation, Federal Express, DHL
Worldwide Express, Airborne Express, United States Postal Service Express Mail)
with a request that the addressee sign a receipt evidencing delivery; and (o)
addressed to the party at its address in Section 1.1. Either party may change
-----------
such address by written notice to the other. Service of any notice or demand
shall be deemed completed forty-eight (48) hours after deposit thereof, if
deposited with the United States Postal Service, or upon receipt if delivered by
overnight courier or in person.
ARTICLE 34. BROKER'S COMMISSIONS
Tenant represents and warrants that there are no claims for brokerage
commissions or finder's fees in connection with this Lease (excepting
commissions or fees approved or authorized in writing by Landlord). Tenant shall
indemnify Landlord against and hold it harmless from all liabilities arising
from any such claims, including any attorneys' fees incurred by Landlord in
connection therewith.
[Remainder of page intentionally left blank.]
Landlord _______
Tenant _________
17
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Lease as of the day and
year first above written.
LANDLORD
P.R.A. BILTMORE INVESTMENTS, L.L.C.,
an Arizona limited liability company
By: PACIFIC INVESTMENTS LIMITED PARTNERSHIP,
an Arizona limited partnership, as a
Member
By: /s/ Kenneth M. Francis
---------------------------------
Kenneth M. Francis
Its: Sole General Partner
By: /s/ James W. Smith, III
---------------------------------
James W. Smith, III, acting in his
capacity as Vice President and
Designated Representative of Motown
Mall General, Inc., a Delaware
corporation, as a Member, and of
Motown Mall Limited, Inc., a Delaware
corporation, as a Member
TENANT
PAN AMERICAN BANK, F.S.B., a federal
savings bank
By: /s/ Lawrence J. Grill
-----------------------------------
its: President
----------------------------------
State of Arizona )
) ss.
County of Maricopa )
The foregoing instrument was acknowledged before me this 18 day of March
-- -----
1997, by Kenneth M. Francis, the sole general partner of Pacific Investments
Limited Partnership, an Arizona limited partnership, as a Member of P.R.A.
BILTMORE INVESTMENTS, L.L.C., an Arizona limited liability company, on behalf of
the limited liability company.
/s/ R.E. Moore
-----------------------------
Notary Public
My Commission Expires:
May 31, 1997
- ----------------------
State of Georgia )
) ss.
County of Fulton )
The foregoing instrument was acknowledged before me this 17 day of March,
-- -----
1997, by James W. Smith, III, acting in his capacity as Vice President and
Designated Representative of Motown Mall General, Inc., a Delaware corporation,
as a Member, and of Motown Mall Limited, Inc., a Delaware corporation, as a
Member, both of P.R.A. BILTMORE INVESTMENTS, L.L.C., an Arizona limited
liability company, on behalf of the limited liability company.
/s/ [SIGNATURE ILLEGIBLE]
----------------------------
Notary Public
My Commission Expires:
Notary Public, Fulton County, Georgia
My Commission Expires March 7, l999
- --------------------------------------
Landlord _______
Tenant _________
18
<PAGE>
ADDENDUM TO OFFICE LEASE AGREEMENT
ARTICLE 35. AGREEMENT
This Addendum is attached to and incorporated by reference in that certain
Office Lease Agreement, dated February 28, 1997, by P.R.A. BILTMORE INVESTMENTS,
L.L.C., an Arizona limited liability company (the "Landlord"), and PAN AMERICAN
BANK, F.S.B., a federal savings bank (the "Tenant"). The Office Lease Agreement,
the Exhibits thereto, and this Addendum shall constitute one agreement (the
"Lease"). In the event of any conflict or inconsistency between the terms,
conditions, covenants, and provisions of this Addendum and the terms,
conditions, covenants, and provisions of the Office Lease Agreement or its
Exhibits, the terms, conditions, covenants, and provisions of this Addendum
control.
36. TERM
36.1 Notwithstanding anything in this Lease to the contrary, the
Commencement Date of the Lease Term shall be thirty (30) days after the date
that a Certificate of Occupancy for the Premises is obtained.
36.2 Section 3.1 is revised on the sixth lines to add after the word
-----------
"parties" the words, "latent defects,..."
37. MINIMUM MONTHLY RENT
Article 4 is revised on the first line to add after the word "demand," the
---------
words "except as expressly provided herein,..."
38. ADDITIONAL RENT/EXPENSE STOP
38.1 Section 5.3 is revised on the eighth line to add after the words
-----------
"due from Tenant" the words "within ten (10) days,..."
38.2 Section 5.4(a)(1) is revised on the seventh and eighth lines to add
-----------------
after the words "by separate policy," the word "or", and to delete the words "or
self insurance, in which case the reasonable value of self insurance shall be
included in Operating Costs),..."
38.3 Section 5.4(d) is revised on the third line to add after the words
-------------
"the Building been" the words "at least,..."
39. TAXES
Section 7.1 is revised on the last line to add after the words "Inheritance
-----------
taxes" the words "or net income taxes".
40. SECURITY DEPOSIT
Section 9.2 is revised on the eighth line to delete the words "thirty (30)
-----------
days" and to replace them with the words "ten (10) days..."
41. HAZARDOUS MATERIALS
Section 14.3 and Section 14.4 are revised to delete the entire last
------------ ------------
sentence of Section 14.4 and to add it as the last sentence to Section 14.3.
------------ ------------
42. RIGHTS RESERVED BY LANDLORD
Article 15 is revised to add the following sentence at the end of that
----------
Article: "Notwithstanding the foregoing, Landlord shall use reasonable efforts
to minimize the disruption to Tenant's use of the Premises in the exercise of
Landlord's rights contained in Article 15(a), (b), (f) and (g).
-------------
43. MAINTENANCE AND REPAIR
43.1 Section 17.1 shall be revised to add the following words to the
------------
end of that paragraph: "or as otherwise set forth in the Lease."
43.2 Section 17.3(b) is revised to add the following words to the end
---------------
of that sentence: ",ordinary wear and tear excepted."
44. UTILITIES
44.1 Section 18.1 is revised to add the following sentence to the end of
------------
that paragraph: "Landlord agrees to provide electricity and water to the
Premises 24 hours per day, 7 days per week."
44.2 Section 18.3 is revised to add the following sentences to the end of
------------
that paragraph: Notwithstanding anything to the contrary in this Section 18.3,
------------
in the event that the utility services to the Premises described in
Section 18.1 of this Lease are interrupted for a
- ------------
Landlord ________
Tenant __________
ADDENDUM-1
<PAGE>
consecutive period greater than or equal to seven (7) business days as a result
of the gross negligence or willful misconduct of Landlord and such interruption
of utility services substantially interferes with Tenant's use of all or a
substantial portion of the Premises (the "Interruption Period"), then Tenant's
Minimum Monthly Rent and other sums payable by Tenant to Landlord under this
Lease shall be abated or reduced, from the date Tenant delivers written notice
to Landlord of such circumstance until sufficient utility services are restored,
in the proportion that the Rentable Square Footage of the portion of the
Premises that Tenant is prevented from using and does not use, bears to the
total Rentable Square Footage of the Premises. In the event that Landlord
subsequently receives proceeds from any rental interruption insurance policy
which it may maintain on the Premises, Landlord shall promptly provide Tenant
with a credit equal to the amount of rental insurance proceeds that Landlord
received attributable to those days prior to the abatement or reduction provided
herein during which the interruption of utility services substantially
interfered with Tenant's use of all or a substantial portion of the Premises."
45. ENTRY AND INSPECTION
45.1 Section 19.1 is revised on the first line to add after the words "at
------------
all reasonable times the words", upon reasonable prior notice to Tenant except
in the case of an emergency..."
45.2 Section 19.1 is also revised on the fifth line to add the following
------------
sentence as a new second sentence to that paragraph:
"Notwithstanding the foregoing, Landlord shall use reasonable efforts to
minimize the disruption to Tenant's use of the Premises during such entry."
45.3 Section 19.2 is revised on the first line to add after the word "If"
------------
the words "an employee of..."
46. ACCEPTANCE OF THE PREMISES/LIABILITY INSURANCE/INDEMNIFICATION OF LANDLORD
46.1 Section 20.1 is revised on the fifth line to add after the words
------------
"bursting pipes" the words ", except to the extent caused by the gross
negligence or willful misconduct of Landlord."
46.2 Section 20.1 is also revised on the fifth line to add after the words
------------
"Exhibit B," the words "and Section 3.1..."
- ----------- ---------------
46.3 Section 20.2 is revised to add the following to the end of that
------------
paragraph: "Landlord hereby agrees to indemnify, defend and hold Tenant harmless
against all Claims (as defined in Section 20.7) arising from: any grossly
-------------
negligent act or omission or act of willful misconduct of Landlord, its agents,
servants, employees and contractors; any default of Landlord under this Lease;
or other grossly negligent acts or omissions or acts of willful misconduct of
Landlord, its agents, servants, employees and contractors which result in
personal injury, loss of life or property damage sustained in and about the
Premises, the Building, the Land or the Project."
46.4 Section 20.5 is revised to delete the first sentence of that
------------
paragraph and replace it with the following sentence: "During the entire Lease
Term, Landlord agrees to maintain public liability insurance with policy limits
of at least $3,000,000.00 in such forms as Landlord shall determine.
47. PROPERTY AND CASUALTY INSURANCE
47.1 Section 21.2 is revised on the first line to add after the words "(all
------------
risk)" the words "in the amount of ninety percent (90%) of replacement cost..."
47.2 Section 21.2 is also revised on the fourth line to delete the
------------
following sentence: "Landlord may elect to self-insure any portion of the
required insurance.
47.3 Section 21.2 is further revised on the eighth and ninth lines to add
------------
after the words "excess of the" the word "average", and to delete the words
"having the lowest rate" and to replace them with the words "in the
Building,..."
47.4 Section 21.2 is finally revised on the tenth line to delete the word
------------
"lowest" and to replace it with the word "average..."
48. SUBORDINATION/ATTORNMENT/MODIFICATION/ASSIGNMENT
Article 26 is revised on the fourth line to add after the word "monetary"
----------
the words "or other..."
49. LANDLORD'S DEFAULT AND RIGHT TO CURE
49.1 Article 27 is revised on the seventh line to add after the words
----------
"within thirty (30) days" the words ", provided Landlord commences such cure
within thirty (30) days,..."
49.2 Article 27 is also revised on the second to last line to delete the
----------
words "six (6) months" and to replace them with the words "one (1) year..."
50. ESTOPPEL CERTIFICATES
50.1 Article 28 is revised on the first and second lines to delete the
----------
words "five (5) calendar days" and to replace them with the words "ten (10)
calendar days...
Landlord ______
Tenant ________
ADDENDUM-2
<PAGE>
50.2 Article 28(bb) is revised on the first line to add after the words
--------------
"as may be" the word "reasonably..."
51. TENANT'S DEFAULT AND LANDLORD'S REMEDIES
51.1 Section 29.1 is revised on the fourth line to delete the words "ten
------------
(10) days" and to replace them with the words "thirty (30) days..."
51.2 Section 29.1 is also revised on the fourth line to add after the word
------------
"Tenant" the words ", unless such failure cannot be cured within such thirty
(30) day period, in which case Tenant shall fail to commence such cure within
thirty (30) days and thereafter diligently prosecute such cure to
completion;..."
51.3 Section 29.1 is further revised on the seventh, ninth and eleventh
------------
lines to delete the words "ten (10} days" and to replace them with the words
"thirty (30) days..."
51.4 Section 29.1(g) is deleted and replaced with the following words:
---------------
"or (g) if Tenant abandons the Premises (abandonment shall be presumed if the
Premises are not occupied by any employees of Tenant or open for business for
thirty (30) consecutive days."
51.5 Section 29.4 is revised on the second line to delete the words "ten
------------
(10) days" and to replace them with the words "twenty (20) days..."
52. TENANT'S RECOURSE
Article 30 is revised on the second line to add after the words "and the
----------
Building," the words "and any insurance or condemnation proceeds relating
thereto, if applicable,..."
53. NOTICES
Article 33 is revised to delete the last sentence in that paragraph and to
----------
replace it with the following sentence: "Service of any notice or demand shall
be deemed completed upon receipt."
54. BROKER'S COMMISSIONS
Article 34 is deleted in its entirety and replaced with the following
----------
sentences: "Tenant and Landlord represent and warrant to each other that there
are no claims for brokerage commissions or finder's fees in connection with this
Lease (excepting commissions or fees approved or authorized in writing by
Landlord). Tenant and Landlord shall indemnify each other and hold the other
harmless from all liabilities arising from any such claims, including any
attorneys' fees incurred in connection therewith. Tenant and Landlord agree that
Cushman & Wakefield of Arizona, Inc. is the only party entitled to a commission
in connection with procuring the Tenant under this Lease, which commission shall
be paid by Landlord pursuant to separate agreement."
55. LEASE GUARANTEE
No Lease Guarantee shall be required for this Lease. Exhibit E of the Lease
---------
entitled "Continuing Lease Guarantee" is hereby intentionally deleted.
56. LEASEHOLD IMPROVEMENT ALLOWANCE
To the extent the entire Leasehold Improvement Allowance is not utilized in
connection with constructing Tenant's Leasehold Improvements, Tenant shall
receive a credit against its Minimum Monthly Rent obligation in the amount of
the unused portion of the Leasehold Improvement Allowance. In addition, in the
event Landlord agrees to construct Tenant's Leasehold Improvements in an amount
in excess of Tenant's Leasehold Improvement Allowance for which Landlord does
not require immediate reimbursement from Tenant, which decision may be made by
Landlord in its sole and absolute discretion, any amount expended by Landlord in
excess of the Leasehold Improvement Allowance shall be amortized into Tenant's
Minimum Monthly Rent obligation together with interest on such excess amount at
the rate of twelve percent (12%) per annum. In this event, Tenant agrees to
promptly execute an amendment to the Lease to reflect the increase in its
Minimum Monthly Rent obligation.
57. SIGNAGE
Landlord shall provide Tenant with Building Standard entry signage and panel
locations on the Building's directories located in the lobby and visitor parking
level in the parking garage.
58. RIGHT OF TERMINATION
Provided Tenant shall not have ever been in default under any provision of
the Lease beyond any applicable cure period, Tenant shall have a one (1)-time
right to terminate this Lease (the "Termination Right") upon the expiration of
the twenty-fourth (24th) month from the Commencement Date (the "Termination
Date"). In order to exercise its Termination Right, Tenant shall provide written
notice of its election to Landlord ("Termination Exercise Notice") at least
three (3) months before the Termination Date, or else such right shall be
waived. Tenant shall pay to Landlord a fee for the Termination Right (the
"Termination Fee") consisting of (a) six (6) full installments of Minimum
Monthly Rent and
Landlord ________
Tenant __________
ADDENDUM-3
<PAGE>
Operating Costs (in excess of the Expense Stop) at the rate in effect at the
time of the Termination Date, (b) "Unamortized Leasehold Improvement Costs" (as
defined below), (c) "Unamortized Broker's Commissions" (as defined below), plus
(d) any applicable taxes on any of the amounts. "Unamortized Leasehold
Improvement Costs" shall mean the product obtained when multiplying (i) the sum
of any Leasehold Improvement Allowance plus any other costs provided, paid or
incurred by Landlord in connection with the design and construction of the
Leasehold Improvements installed in the Premises prior to the Commencement Date
pursuant to Exhibit B by (ii) the fraction, the numerator of which is the number
---------
of months of the Term of this Lease not yet elapsed as of the Termination Date
(excluding any unexercised renewal option), and the denominator of which is the
total number of months of the Term of this Lease (excluding any unexercised
renewal option). "Unamortized Broker's Commissions" shall mean the product
obtained when multiplying (i) the sum of any Broker's Commissions paid or
incurred by Landlord in connection with procuring Tenant for the Premises by
(ii) the fraction, the numerator of which is the number of months of the Term of
this Lease not yet elapsed as of the Termination Date (excluding any unexercised
renewal option), and the denominator of which is the total number of months the
Term of this Lease (excluding any unexercised renewal option). For example, if
the total costs paid or incurred by Landlord with respect to the Leasehold
Improvements (or Broker's Commissions) is $50,000.00, the Lease Term is
thirty-six (36) months, and the Lease is terminated at the end of twenty-four
(24) months, the Unamortized Leasehold Improvement Costs (or Unamortized
Broker's Commissions) would be $16,666.67 (i.e., $16,666.67 equals $50,000.00 x
12/36). If Tenant exercises its Termination Right, Tenant shall pay to Landlord
the Termination Fee and peaceably vacate the Premises and deliver possession
thereof to Landlord at or before the Termination Date, and, as of such
Termination Date, neither party shall have any further liability or obligation
to the other under this Lease, except as set forth in this Article 58, and
----------
further except for the then accrued liabilities under the Lease as of said
Termination Date, including, but not limited to, all monetary amounts due and
owing, the obligations of indemnification for acts or omissions occurring prior
to the Termination Date and as otherwise stated in the Lease, which amounts and
obligations shall expressly survive the termination of this Lease.
[Remainder of page intentionally left blank.]
<PAGE>
EXHIBIT 10.58
BERNAL CORPORATE PARK
---------------------
BIRCH LAKES
-----------
OFFICE LEASE
BETWEEN
BERNAL CORPORATE PARK
("LANDLORD")
AND
PAN AMERICAN BANK, FSB
a California Corporation
("TENANT")
December 9, 1996
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
ARTICLE PAGE
- ------- ----
<S> <C>
1. TERM 1
- --------------
2. POSSESSION 2
- --------------------
3. BASIC RENT 2
- --------------------
4. RENTAL ADJUSTMENT 3
- ---------------------------
5. SECURITY DEPOSIT 6
- --------------------------
6. USE 6
- -------------
7. NOTICES 7
- -----------------
8. BROKERS 8
- -----------------
9. HOLDING OVER 8
- ----------------------
10. TAXES ON TENANT'S PROPERTY 8
- ------------------------------------
11. CONDITION OF PREMISES 9
- -------------------------------
12. ALTERATIONS 9
- ---------------------
13. REPAIRS 10
- -----------------
14. LIENS 11
- ---------------
15. ENTRY BY LANDLORD 11
- ---------------------------
16. UTILITIES AND SERVICES 12
- --------------------------------
17. BANKRUPTCY 12
- --------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
18. INDEMNIFICATION 13
- -------------------------
19. DAMAGE TO TENANT'S PROPERTY 14
- -------------------------------------
20. TENANT'S INSURANCE 14
- ----------------------------
21. DAMAGE OR DESTRUCTION 15
- -------------------------------
22. EMINENT DOMAIN 17
- ------------------------
23. DEFAULTS AND REMEDIES 17
- -------------------------------
24. ASSIGNMENT AND SUBLETTING 20
- -----------------------------------
25. SUBORDINATION 21
- -----------------------
26. ESTOPPLE CERTIFICATE 22
- ------------------------------
27. SIGNAGE 23
- -----------------
28. RULES AND REGULATIONS 23
- -------------------------------
29. CONFLICT OF LAWS 23
- --------------------------
30. SUCCESSORS AND ASSIGNS 23
- --------------------------------
31. SURRENDER OF PREMISES 24
- -------------------------------
32. ATTORNEY'S FEES 24
- -------------------------
33. PERFORMANCE BY TENANT 24
- -------------------------------
34. MORTGAGEE PROTECTION 25
- ------------------------------
35. DEFINITION OF LANDLORD 25
- --------------------------------
36. WAIVER 25
- ----------------
37. INDENTIFICATION OF TENANT 26
- -----------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
38. PARKING 26
- -----------------
39. TERMS AND HEADINGS 26
- ----------------------------
40. EXAMINATION OF LEASE 27
- ------------------------------
41. TIME 27
- --------------
42. PRIOR AGREEMENT AMENDMENTS 27
- ------------------------------------
43. SEPARABILITY 27
- ----------------------
44. RECORDING 27
- -------------------
45. CONSENTS 27
- ------------------
46. LIMITATION ON LIABILITY 28
- ---------------------------------
47. RIDERS 28
- ----------------
48. EXHIBITS 28
- ------------------
49. MODIFICATION FOR LENDER 29
- ---------------------------------
50. PROJECT PLANNING 29
- --------------------------
51. AVAILABILITY OF APPROX. 1019 RSF 29
- ------------------------------------------
52. OPTION TO RENEW 29
- -------------------------
</TABLE>
<PAGE>
LIST OF EXHIBITS
----------------
EXHIBIT A The Premises
EXHIBIT A-1 The Project
EXHIBIT B Tenant Improvements
EXHIBIT C Standards for Utilities and Services
EXHIBIT D Rules and Regulations
EXHIBIT E Parking Rules and Regulations
<PAGE>
BERNAL CORPORATE PARK
BIRCH LAKES
THIS LEASE is made as of the 9th day of December, 1996, by and between
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY, an Iowa Corporation, a California
partnership, tenants-in-common operating as a joint venture under the name
BERNAL CORPORATE PARK ("Landlord"), and PAN AMERICAN BANK, FSB, a California
Corporation ("Tenant").
Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord Suite Number 135 (the "Premises") outlined on the floor plan attached
hereto and marked EXHIBIT A, the Premises being agreed, for the purposes of this
---------
Lease, to have an area of approximately 5,402 rentable square feet and being
situated on the first floor of that certain office building located at 7041 Koll
Center Parkway, Pleasanton, California (the "Building"), and part of a four
building complex (the "Project") more particularly described in EXHIBIT A-1
-----------
attached hereto. The Project contains approximately one hundred sixty one
thousand eight (161,008) square feet of space. Tenant acknowledges that
Landlord may elect to sell one or more of the buildings within the Project and
that upon any such sale Tenant's pro-rata share of those Direct Expenses
allocated to the outside areas of the Project may be adjusted accordingly.
The parties hereto agree that said letting and hiring is upon and
subject to the terms, covenants and conditions herein set forth. Tenant
covenants, as a material part of the consideration for this Lease to keep and
perform each and all of said terms, covenants and conditions for which Tenant is
liable and that this Lease is made upon the condition of such performance.
Prior to the commencing of the term of this Lease the Premises shall
be improved by the Tenant Improvements described in the Work Letter marked
EXHIBIT B attached hereto.
- ---------
ARTICLE 1
---------
TERM
----
The term of this Lease shall be for five (5) years, unless sooner
terminated as hereinafter provided, commencing upon the earlier of:
(i) Substantial completion of the Tenant Improvements described in
the Work Letter (subject to the provisions of Paragraph 7 of the Work Letter)
and the tender of possession of the Premises to Tenant or
(ii) The date that Tenant opened for business in the Premises, and
ending on the last day of the last month in the term of this Lease, unless such
term shall be sooner terminated as hereinafter provided. As soon as the
commencement date is determined, the parties shall enter into an amendment of
this Lease setting forth the precise commencement and termination dates of this
Lease. Failure to enter into such an amendment, however, shall not affect
Tenant's liability hereunder. Reference in this Lease to a "Lease Year" shall
mean each successive twelve month period commencing with the commencement date.
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<PAGE>
Landlord and Tenant estimate that the commencement date shall be August 18,
1997, or sooner if available.
ARTICLE 2
---------
POSSESSION
----------
Tenant agrees that, if Landlord is unable to deliver possession of the
Premises to Tenant on the scheduled commencement of the term of this Lease, this
Lease shall not be void or voidable, nor shall Landlord be liable to Tenant for
any loss or damage resulting therefrom, but in such event the Term of this Lease
shall not commence until Landlord tenders possession of the Premises to Tenant
with the Tenant Improvements substantially completed. If Landlord completes
construction of the Tenant Improvements prior to the date scheduled in the Work
Letter, Landlord shall deliver possession of the Premises to Tenant upon such
completion and the term of this Lease shall thereupon commence. If Landlord is
unable to deliver the Premises to Tenant by December 31, 1997 this Lease shall
be void.
ARTICLE 3
---------
BASIC RENT
----------
(a) Tenant agrees to pay Landlord Basic Rent for the Premises
(subject to adjustment as hereinafter provided) as follows:
<TABLE>
<CAPTION>
Months of Term Basic Rent/Per Month
-------------- --------------------
<S> <C>
01-36 $10,263.80
37-60 $10,804.00
</TABLE>
The Basic Rent shall be paid monthly, in advance on the first (1st) day of each
calendar month during the term, commencing on the first (1st) month of the Lease
term and continuing on the first day of each month thereafter, except that the
first (1st) month's rent shall be paid on execution hereof. If Tenant's
obligation to pay rent commences or ends on a day other than the first day of a
calendar month, then the rental for such period shall be prorated in the
proportion that the number of days this Lease is in effect during such period
bears to thirty. In addition to the Basic Rent, Tenant agrees to pay as
additional rental the amount of rental adjustments and other charges required by
this Lease. All rental shall be paid to Landlord, without prior demand and
without any deduction or offset, in lawful money of the United States of
America, at the address of Landlord designated on the signature page of this
Lease or to such other person or at such other place as Landlord may from time
to time designate in writing.
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<PAGE>
(b) Late Charges. In the event Tenant fails to pay any installment of rent
------------
within ten days of when due or in the event Tenant fails to make any other
payment for which Tenant is obligated under this Lease when due, then Tenant
shall pay to Landlord a late charge equal to 5% of the amount due to
compensate Landlord for the extra costs incurred as a result of such late
payment.
ARTICLE 4
---------
RENTAL ADJUSTMENT
-----------------
(a) For the purpose of this Article 4, the following terms are defined as
follows:
(i) Tenant's Percentage. That portion of the Project occupied by Tenant
-------------------
divided by the total rental square footage of the Project, which result is the
following: 3.355%.
(ii) Direct Expenses Base. The amount of annual Direct Expenses which
--------------------
Landlord has included in Annual Basic Rent, which amount is Tenant's Percentage
of the actual Direct Expenses for 1997. If the Project is less than ninety-five
percent (95%) occupied during any calendar year of the term, an adjustment shall
be made in computing the Direct Expenses for such year so that Direct Expenses
shall be computed as though the Project were ninety-five percent (95%) occupied.
(iii) Direct Expenses. The term "Direct Expenses" shall include:
---------------
(A) All real and personal property taxes and assessments
(excluding those assessments described in Paragraph 4(a)(iii)(D)) imposed by any
governmental authority or agency on the Project and the land on which the
Project is located (including a pro-rata portion of any taxes levied on any
common areas); any assessments levied in lieu of taxes; any non-progressive tax
on or measured by gross rentals received from the rental of space in the
Project; and any other costs levied or assessed by, or at the direction of, any
federal, state, or local government authority in connection with the use or
occupancy of the Premises or the parking facilities serving the Premises; any
tax on this transaction or any document to which Tenant is a party creating or
transferring an interest in the Premises, and any expenses, including cost of
attorneys or experts, reasonably incurred by Landlord in seeking reduction by
the taxing authority of the above-referenced taxes, less tax refunds obtained as
a result of an application for review thereof; but shall not include any net
income, franchise, capital stock, estate or inheritance taxes.
(B) Operating costs consisting of costs incurred by Landlord in
maintaining and operating the Project, exclusive of costs required to be
capitalized for federal income tax purposes, and including (without limiting the
generality of the foregoing) the following: costs of
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utilities, supplies and insurance, cost of services of independent contractors,
managers and other suppliers, the fair rental value of the Project office, cost
of compensation (including employment taxes and fringe benefits) of all persons
who perform regular and recurring duties connected with the management,
operation, maintenance, and repair of the Project, its equipment, parking
facilities and the common areas, including, without limitation, engineers,
janitors, foremen, floor waxers, window washers, watchmen and gardeners, but
excluding persons performing services not uniformly available to or performed
for substantially all Project tenants; cost of maintaining, repairing and
replacing landscaping, sprinkler systems, concrete walkways, paved parking
areas, signs, and site lighting.
(C) Amortization of such capital improvements as Landlord may have
installed: (a) for the purpose of reducing operating costs, but only to the
extent costs are actually reduced (b) to comply with governmental rules and
regulations promulgated after commencement of the Lease and (d) any costs
required by the CC&R's, as defined in Article 6, affecting the Premises or by
any corporation, committee or association formed in connection therewith,
provided that such cost together with interest at the maximum rate allowed by
law shall be amortized over such reasonable period as Landlord shall determine,
and only the monthly amortized cost shall be included in Direct Expenses.
(D) Assessments.
-----------
(1) Tenant acknowledges that the Premises are subject to
assessments made under the assessment districts described below. Such
assessments shall be Landlord's responsibility throughout the term of this
Lease.
(2) Assessment District Nos. 1986-4, 1986-6 and 1987-1. The
--------------------------------------------------
Premises are currently subject to assessments levied to secure bonds sold by the
City of Pleasanton pursuant to:
(a) Assessment proceedings for North Pleasanton Fire
Protection Reflinding District - City of Pleasanton Improvement Bonds Assessment
District No. 1986-4;
(b) Assessment proceedings for the City of Pleasanton
Improvement Bonds Koll Center Refunding District No.1986-6; and
(c) Assessment proceedings for the City of Pleasanton Koll
Center Pleasanton Improvement Bonds Assessment District 1987-1.
(3) Tenant hereby consents to the formation of any other
districts formed for maintenance, utilities, landscaping, lighting, special
service zones, fire district, water district, road extensions freeway on-ramp
traffic mitigation, sports facilities or other
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<PAGE>
improvements in the Premises or Koll Center Pleasanton and to the re-financing
of any assessment districts. Tenant hereby waives any right of notice and
protest in connection with the formation and continued existence of the
assessment districts. Tenant shall execute all documents, including, but not
limited to, petitions and formal waivers of notice and protest of formation,
evidencing such consent and waiver upon request of Landlord or the City of
Pleasanton.
(b) Payment of Direct Expenses.
--------------------------
(i) If Tenant's Percentage of the Direct Expenses paid or
incurred by Landlord for any calendar year exceeds the Direct Expenses Base
included in Tenant's rent, then Tenant shall pay such excess as additional rent.
(ii) In addition, for each year after the first calendar year,
or portion thereof, Tenant shall pay Tenant's Percentage of Landlord's estimate
of the amount by which Direct Expenses for that year shall exceed the Direct
Expenses Base ("Landlord's Estimate"). This estimated amount shall be divided
into twelve equal monthly installments. Tenant shall pay to Landlord,
concurrently with the regular monthly rent payment next due following the
receipt of such statement, an amount equal to one monthly installment multiplied
by the number of months from January in the calendar year in which said
statement is submitted to the month of such payment, both months inclusive.
Subsequent installments shall be payable concurrently with the regular monthly
rent payments for the balance of that calendar year and shall continue until the
next calendar year's statement is rendered.
(iii) As soon as possible after the end of each calendar year,
Landlord shall provide Tenant with a statement showing the amount of Tenant's
Percentage of Direct Expenses, the amount of Landlord's Estimate actually paid
by Tenant and the amount of the Direct Expenses Base. Thereafter, Landlord shall
reconcile the above amounts and shall either bill Tenant for the balance due
(payable on demand by Landlord) or credit any overpayment by Tenant towards the
next monthly installment of Landlord's Estimate falling due, as the case may be.
For purposes of making these calculations, in no event shall Tenant's Percentage
of the Direct Expenses be deemed to be less than the Direct Expenses Base.
(c) Even though the term has expired and Tenant has vacated the
Premises, when the final determination is made of Tenant's Percentage of Direct
Expenses for the year in which this Lease terminates, Tenant shall immediately
pay any increase due over the estimated expenses paid and, conversely, any
overpayment made in the event said expenses decrease shall be rebated by
Landlord to Tenant.
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<PAGE>
ARTICLE 5
---------
SECURITY DEPOSIT
----------------
Tenant has deposited with Landlord the sum of Ten Thousand Four
Hundred Eighty and 00/100ths Dollars ($10,480.00). Said sum shall be held by
Landlord as security for the faithful performance by Tenant of all of Tenant's
obligations hereunder. 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 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 the deposit is so used or applied, Tenant
shall, upon demand, deposit cash with Landlord in an amount sufficient to
restore the security deposit to its original amount. Tenant's failure to do so
shall be a material breach of this Lease. Landlord shall not be required to
keep this security deposit separate from its general funds, and Tenant shall not
be entitled to interest on such deposit. If Tenant shall fully and faithfully
perform all of its obligations under this Lease, the security deposit or any
balance thereof shall be returned to Tenant (or, at Landlord's option, to the
last assignee of Tenant's interests hereunder) at the expiration of the Lease
term, provided that Landlord may retain the security deposit until such time as
any amount due from Tenant in accordance with Article 4 hereof has been
determined and paid in full.
ARTICLE 6
---------
USE
---
Tenant shall use the Premises for general office use and shall not use
or permit the Premises to be used for any other purpose without the prior
written consent of Landlord. Nothing contained herein shall be deemed to give
Tenant any exclusive right to such use in the Project. Tenant shall not use or
occupy the Premises in violation of law or of the certificate of occupancy
issued for the Building or Project, and shall, upon written notice from
Landlord, discontinue any use of the Premises which is declared by any
governmental authority having jurisdiction to be a violation of law or of said
certificate of occupancy. Tenant shall comply with any direction of any
governmental authority having jurisdiction which shall, by reason of the nature
of Tenant's use or occupancy of the Premises, impose any duty upon Tenant or
Landlord with respect to the Premises or with respect to the use or occupation
thereof. Tenant's shall not do or permit to be done anything which will
invalidate or increase the cost of any fire, extended coverage or any other
insurance policy covering the Building and/or Project and/or property located
therein and shall comply with all rules, orders, regulations and requirements of
the Insurance Service Offices, formerly known as the Pacific Fire Rating Bureau
or any other organization performing a similar function. Tenant shall promptly,
upon demand, reimburse Landlord for any additional premium charged for such
policy by reason of Tenant's failure to comply with the provisions of this
Article. Tenant shall not do or permit anything to be done in or about the
Premises which will in
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<PAGE>
any way obstruct or interfere with the rights of other tenants or occupants of
the Project, 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.
Tenant acknowledges that Landlord has recorded covenants, conditions and
restrictions against the Premises on February 18, 1987 as Instrument Number
87/046032 in the Official Records of Alameda County (the "CC&Rs"). Tenant's use
of the Premises shall be subject to and Tenant shall comply with the CC&R's, as
the same may be amended from time to time. Tenant acknowledges that there have
been and may be from time to time recorded easements and/or declarations
granting or declaring easements for parking, utilities, fire or emergency
access, and other matters. Tenant's use of the Premises shall be subject to and
Tenant shall comply with any and all such easements and declarations. Tenant's
use of the Premises shall be subject to such guidelines as may from time to time
be prepared by Landlord or the Bernal Corporate Park Owner's Association in
their sole discretion. Tenant acknowledges that governmental entities with
jurisdiction over the Premises may, from time to time promulgate laws, rules,
plans and regulations affecting the use of the Premises, including, but not
limited to, traffic management plans and energy conservation plans. Tenant's use
of the Premises shall be subject to and Tenant shall comply with any and all
such laws, rules, plans, and regulations. Tenant, at its sole cost, shall 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 33 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.
ARTICLE 7
---------
NOTICES
-------
Any notice required or permitted to be given hereunder must be in
writing and may be given by personal delivery or by mail, and if given by mail
shall be deemed sufficiently given if sent by registered or certified mail
addressed to Tenant at the Project attention:_____________, and to Pan American
Bank, FSB, 1300 South El Camino Real, Suite 320, San Mateo, California 94402,
attention:______________________ or to Landlord at its address set forth at the
end of this Lease. Either party may specify a different address for notice
purposes by written notice to the other except that the Landlord may in any
event use the Premises as Tenant's address for notice purposes.
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<PAGE>
ARTICLE 8
---------
BROKERS
-------
Tenant warrants that it has had no dealings with any real estate
broker or agent in connection with the negotiation of this Lease, except Chris
Adams of CB Commercial Real Estate, who represents Tenant only, whose commission
shall be payable by Landlord, and that it knows of no other real estate broker
or agent who is or might be entitled to a commission in connection with the
Lease. If Tenant has dealt with any other person or real estate broker with
respect to leasing or renting space in the Project, Tenant shall be solely
responsible for the payment of any fee due said person or firm and Tenant shall
hold Landlord free and harmless against any liability in respect thereto,
including attorneys' fees and costs.
ARTICLE 9
---------
HOLDING OVER
------------
If Tenant holds over after the expiration or earlier termination of
the term hereof without the express written consent of Landlord, Tenant shall
become a Tenant at sufferance only, at a rental rate equal to one hundred twenty
five percent (125%) of the rent in effect upon the date of such expiration
(subject to adjustment as provided in Paragraph 4 hereof and prorated on a daily
basis), and otherwise subject to the terms, covenants and conditions herein
specified, so far as applicable. Acceptance by Landlord of rent after such
expiration or earlier termination shall not result in a renewal of this Lease.
The foregoing provisions of this Article 9 are in addition to and do not affect
Landlord's right of re-entry or any rights of Landlord hereunder or as otherwise
provided by law. If Tenant fails to surrender the Premises upon the expiration
of this Lease despite demand to do so by Landlord, Tenant shall indemnify and
hold Landlord harmless from all loss or liability, including without limitation,
any claim made by any succeeding tenant founded on or resulting from such
failure to surrender and any attorneys' fees and costs.
ARTICLE 10
----------
TAXES ON TENANT'S PROPERTY
--------------------------
(a) Tenant shall be liable for and shall pay, at least ten days
before delinquency, 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 or if the assessed value of the Premises is increased by the
inclusion therein of a value placed upon such personal property or trade
fixtures of Tenant and if Landlord, after written notice to Tenant, pays the
taxes based upon such increased assessment, which Landlord shall have the right
to do regardless of the validity thereof, but only under proper protest if
requested by Tenant, Tenant shall, upon demand, repay to Landlord the taxes so
levied against Landlord, or the portion of such taxes resulting from such
increase in the assessment.
-8-
<PAGE>
(b) If the Tenant Improvements in the Premises, whether installed,
and/or paid for by Landlord or Tenant and whether or not affixed to the real
property so as to become a part thereof, are assessed for real property tax
purposes at a valuation higher than the valuation at which Tenant Improvements
conforming to Landlord's "Project Standard," in other space in the Project are
assessed, then the real property taxes and assessment levied against the Project
by reason of such excess assessed valuation shall be deemed to be taxes levied
against personal property of Tenant and shall be governed by the provisions of
Paragraph 10(a), above. If the records of the County Assessor are available and
sufficiently detailed to serve as a basis for determining whether said Tenant
Improvements are assessed at a higher valuation than Landlord's Project
Standard, such records shall be binding on both the Landlord and the Tenant. If
the records of the County Assessor are not available or sufficiently detailed to
serve as a basis for making said determination, the actual cost of construction
shall be used.
ARTICLE 11
----------
CONDITION OF PREMISES
---------------------
Tenant acknowledges that neither Landlord nor any agent of Landlord
has made any representation or warranty with respect to the Premises or the
Project or with respect to the suitability of either for the conduct of Tenant's
business. The taking of possession of the Premises by Tenant shall conclusively
establish that the Premises and the Project were in satisfactory condition at
such time, excluding punch list items and latent defects, if any.
ARTICLE 12
----------
ALTERATIONS
-----------
(a) Tenant shall make no alterations, additions or improvements in
or to the Premises without Landlord's prior written consent, which consent shall
not be unreasonably withheld or delayed and then only by contractors or
mechanics reasonably approved by Landlord. Tenant agrees that there shall be no
construction or partitions or other obstructions which might interfere with
Landlord's free access to mechanical installations or service facilities of the
Building or Project or interfere with the moving of Landlord's equipment to or
from the enclosures containing said installations or facilities. All such work
shall be done at such times and in such manner as Landlord may from time to time
reasonably designate. Tenant covenants and agrees that all work done by Tenant
shall be performed in full compliance with all laws, rules, orders, ordinances,
regulations and requirements of all governmental agencies, offices, and boards
having jurisdiction, and in full compliance with the rules, regulations and
requirements of the Insurance Service Offices formerly known as the Pacific Fire
Rating Bureau, and of any similar body. Before commencing any work, Tenant shall
give Landlord at least ten days written notice of the proposed commencement of
such work and shall, if required by Landlord, secure at Tenant's own cost and
expense, a completion and lien indemnity bond, satisfactory to Landlord, for
said work. Tenant further covenants and agrees that any mechanic's lien filed
against the Premises or against the Building or Project for work claimed to have
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<PAGE>
been done for, or materials claimed to have been furnished to, Tenant will be
discharged by Tenant, by bond or otherwise, within ten days after the filing
thereof, at the cost and expense of Tenant. All alterations, additions or
improvements upon the Premises made by either party, including (without limiting
the generality of the foregoing) all wall covering, built-in cabinet work,
paneling and the like, shall, unless Landlord elects otherwise, become the
property of Landlord, and shall remain upon, and be surrendered with the
Premises, as a part thereof, at the end of the term hereof, except that Landlord
may, by written notice to Tenant, require Tenant to remove all partitions,
counters, railings and the like installed by Tenant, and Tenant shall repair all
damage resulting from such removal or, at Landlord's option, shall pay to
Landlord all costs arising from such removal.
(b) All articles of personal property and all business and trade
fixtures, machinery and equipment, furniture and movable partitions owned by
Tenant or installed by Tenant at its expense in the Premises shall be and remain
the property of Tenant and may be removed by Tenant at any time during the lease
term when Tenant is not in default hereunder. If Tenant shall fail to remove all
of its effects from the Premises upon termination of this Lease for any cause
whatsoever, Landlord may, at its option, remove the same in any manner that
Landlord shall choose, and store said effects without liability to Tenant for
loss thereof. In such event, Tenant agrees to pay Landlord upon demand any and
all expenses incurred in such removal, including court costs and attorneys' fees
and storage charges on such effects for any length of time that the same shall
be in Landlord's possession. Landlord may, at its option, without notice, sell
said effects, or any of the same, at private sale and without legal process, for
such price as Landlord may obtain and apply the proceeds of such sale upon any
amounts due under this Lease from Tenant to Landlord and upon the expense
incident to the removal and sale of said effects.
ARTICLE 13
----------
REPAIRS
-------
(a) By entry hereunder, Tenant accepts the Premises as being in
good and sanitary order, condition and repair, excluding punch list items and
latent defects, if any. Tenant shall keep, maintain and preserve the Premises in
first class condition and repair, and shall, when and if needed, at Tenant's
sole cost and expense, make all repairs to the Premises and every part thereof.
Tenant shall, upon the expiration or sooner termination of the term hereof,
surrender the Premises to Landlord in the same condition as when received, usual
and ordinary wear and tear excepted. Landlord shall have no obligation to alter,
remodel, improve, repair, decorate or paint the Premises or any part thereof.
The parties hereto affirm that Landlord has made no representations to Tenant
respecting the condition of the Premises or the Project except as specifically
herein set forth.
(b) Anything contained in Paragraph 13(a) above to the contrary
notwithstanding, Landlord shall repair and maintain the structural portions of
the Building, including the foundations, building shell, and roof structure, all
at Landlord's expense. At Tenant's expense to be prorated through
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<PAGE>
operating costs, Landlord shall repair and maintain the basic plumbing,
elevators, life safety systems and other building systems, heating, ventilating,
air conditioning and electrical systems installed or furnished by Landlord, and
perform roof repair and maintenance to the Premises. 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 21 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, Project 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, statute or ordinance now or
hereafter in effect.
ARTICLE 14
----------
LIENS
-----
Tenant shall not permit any mechanic's, materialmen's or other liens
to be filed against the Building or Project, nor against Tenant's leasehold
interest in the Premises. Landlord shall have the right at all reasonable times
to post and keep posted on the Premises any notices which it deems necessary for
protection from such liens. If any such liens are filed, Landlord may, without
waiving its rights and remedies based on such breach of Tenant and without
releasing Tenant from any of its obligations, cause such liens to be released by
any means it shall deem proper, including payments in satisfaction of the claim
giving rise to such lien. Tenant shall pay to Landlord at once, upon notice by
Landlord, any sum paid by Landlord to remove such liens, together with interest
at the maximum rate per annum permitted by law from the date of such payment by
Landlord.
ARTICLE 15
----------
ENTRY BY LANDLORD
-----------------
Landlord reserves and shall at any and all times have the right to
enter the Premises to inspect the same, to supply janitorial service and any
service to be provided by Landlord to Tenant hereunder, to show the Premises to
prospective purchasers or tenants, to post notices of nonresponsibility, to
alter, improve or repair the Premises or any other portion of the Building or
Project, all without being deemed guilty of any eviction of Tenant and without
abatement of rent. Landlord may, in order to carry out such purposes, erect
scaffolding and other necessary structures where reasonably required by the
character of the work to be performed, provided that the business of Tenant
shall be interfered with as little as is reasonably practicable. Tenant hereby
waives any claim for damages 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 in, upon and about the Premises. Landlord shall at
all times have and retain a key with which to unlock all doors in the Premises,
excluding Tenant's vaults and safes. Landlord shall have the right to use any
and all means which
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Landlord may deem proper to open said doors in an emergency in order to obtain
entry to the Premises. Any entry to the Premises obtained by Landlord by any of
said means, or otherwise, shall not be construed or deemed to be a forcible or
unlawful entry into the Premises, or any eviction of Tenant from the Premises or
any portion thereof, and any damages caused on account thereof shall be paid by
Tenant. It is understood and agreed that no provision of this Lease shall be
construed as obligating Landlord to perform any repairs, alterations or
decorations except as otherwise expressly agreed herein by Landlord.
ARTICLE 16
----------
UTILITIES AND SERVICES
----------------------
Provided that Tenant is not in default under this Lease, Landlord
agrees to furnish or cause to be furnished to the Premises the utilities and
services described in the Standards for Utilities and Services, attached hereto
as EXHIBIT C, subject to the conditions and in accordance with the standards set
forth therein. Landlord's failure to furnish any of the foregoing items when
such failure is caused by:
(i) Accident, breakage, or repairs,
(ii) Strikes, lockouts or other labor disturbance or labor dispute of
any character,
(iii) Governmental regulation, moratorium or other governmental
action,
(iv) Inability despite the exercise of reasonable diligence to obtain
electricity, water or fuel or by
(v) Any other cause beyond Landlord's reasonable control,
shall not result in any liability to Landlord. In addition, Tenant shall not be
entitled to any abatement or reduction of rent by reason of such failure, no
eviction of Tenant shall result from such failure and Tenant shall not be
relieved from the performance of any covenant or agreement in this Lease because
of such failure. In the event of any failure, stoppage or interruption thereof,
Landlord shall diligently attempt to resume service promptly.
ARTICLE 17
----------
BANKRUPTCY
----------
If Tenant shall file a petition in bankruptcy under any provision of
the Bankruptcy Code as then in effect, or if Tenant shall be adjudicated a
bankrupt in involuntary bankruptcy proceedings and such adjudication shall not
have been vacated within thirty days from the date thereof, or if a receiver or
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trustee shall be appointed of Tenant's property and the order appointing such
receiver or trustee shall not be set aside or vacated within thirty days after
the entry thereof, or if Tenant shall assign Tenant's estate or effects for the
benefit of creditors, or if this Lease shall, by operation of law or otherwise,
pass to any person or persons other than Tenant, then in any such event Landlord
may terminate this Lease, if Landlord so elects, with or without notice of such
election and with or without entry or action by Landlord. In such case,
notwithstanding any other provisions of this Lease, Landlord, in addition to any
and all rights and remedies allowed by law or equity, shall, upon such
termination, be entitled to recover damages in the amount provided in Paragraph
23(b) hereof. Neither Tenant nor any person claiming through or under Tenant or
by virtue of any statute or order of any court shall be entitled to possession
of the Premises but shall surrender the Premises to landlord. Nothing contained
herein shall limit or prejudice the right of Landlord to recover damages by
reason of any such termination 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 is greater, equal to,
or less than the amount of damages recoverable under the provisions of this
Article 17.
ARTICLE 18
----------
INDEMNIFICATION
---------------
Tenant shall indemnify, defend and hold Landlord harmless from all
claims arising from Tenant's use of the Premises or the conduct of its business
or from any activity, work, or thing done, permitted or suffered by Tenant in or
about the Premises. Tenant shall further indemnify, defend and hold Landlord
harmless from all claims arising from any breach or default in the performance
of any obligation to be performed by Tenant under the terms of this Lease, or
arising from any act, neglect, fault or omission of Tenant or of its agents or
employees, and from and against all costs, attorneys' fees, expenses and
liabilities incurred in or about such claim or any action or proceeding brought
thereon. In case any action or proceeding shall 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 approved in writing by Landlord. Tenant, as a
material part of the consideration to Landlord, hereby assumes all risk of
damage to property or injury to person in, upon or about the Premises from any
cause whatsoever except that which is caused by the negligence or willful
misconduct of Landlord, its agents, employees or contractors or by the failure
of Landlord to observe any of the terms and conditions of this Lease where such
failure has persisted for an unreasonable period of time after written notice of
such failure. Tenant hereby waives all its claims in respect thereof against
Landlord.
Landlord shall indemnify, defend and hold Tenant harmless from all claims
arising from any breach or default in the performance of any obligation to be
performed by Landlord under the terms of this Lease, or arising from any act,
neglect, fault or omission of Landlord or its agents or employees, and from and
against all costs, attorney's fees, expenses and liabilities incurred in or
about such claim or any action or proceedings brought herein.
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ARTICLE 19
----------
DAMAGE TO TENANT'S PROPERTY
---------------------------
Notwithstanding the provisions of Article 18 to the contrary, Landlord
or its agents shall not be liable for (i) any damage to any property entrusted
to employees of the Project, (ii) loss or damage to any property by theft or
otherwise, or (iii) any injury 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 Project or from the pipes, appliances or plumbing
work therein or from the roof, street or sub-surface or from any other place or
resulting from dampness or from any other cause whatsoever except to the
extent any such loss, damage or injury is caused by the negligence or willful
misconduct of Landlord, its agents, employees or contractors and is not an
insured loss covered by the provisions of the waiver set forth in Paragraph
20(d) below. Landlord or its agents shall not be liable for interference with
light or other incorporeal hereditaments. Tenant shall give prompt notice to
Landlord in case of fire or accidents in the Premises or in the Project or of
defects therein or in the fixtures or equipment.
ARTICLE 20
----------
TENANT'S INSURANCE
------------------
(a) Tenant shall, during the term hereof and any other period of
occupancy, at its sole cost and expense, keep in full force and effect the
following insurance:
(i) Standard form property insurance insuring against the perils
of fire, extended coverage, vandalism, malicious mischief, special extended
coverage ("All-Risk") and sprinkler leakage. This insurance policy shall be upon
all property owned by Tenant, for which Tenant is legally liable or that was
installed at Tenant's expense, and which is located in the Project including,
without limitation, furniture, fittings, installations, fixtures (other than
Tenant improvements installed by Landlord), and any other personal property in
an amount not less than ninety percent of the full replacement cost thereof. In
the event that there shall be a dispute as to the amount which comprises full
replacement cost, the decision of Landlord or any mortgagees of Landlord shall
be conclusive. Such policy shall name Landlord and any mortgagees of Landlord as
insured parties, as their respective interests may appear.
(ii) Comprehensive General Liability Insurance insuring Tenant against
any liability arising out of the lease, use, occupancy or maintenance of the
Premises and all areas appurtenant thereto. Such insurance shall be in the
amount of $2,000,000 Combined Single Limit for injury to, or death of one or
more persons in an occurrence, and for damage to tangible property (including
loss of use) in an occurrence, with such liability amount to be adjusted from
year to year to reflect increases in the Consumer Price Index. The policy shall
insure the hazards of premises and
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operation, independent contractors, contractual liability (covering the
Indemnity contained in Paragraph 18 hereof) and shall (1) name Landlord as an
additional insured, and (2) contain a cross liability provision, and (3) contain
a provision that "the insurance provided the Landlord hereunder shall be primary
and non-contributing with any other insurance available to the Landlord."
(iii) Workers' Compensation and Employer's Liability insurance
(as required by state law).
(iv) Any other form or forms of insurance as Tenant or Landlord
or any mortgagees of Landlord may reasonably require from time to time in form,
in amounts and for insurance risks against which a prudent tenant would protect
itself.
(b) All policies shall be written in a form satisfactory to
Landlord and shall be taken out with insurance companies holding a General
Policyholders Rating of "A" and a Financial Rating of "X" or better, as set
forth in the most current issue of Bests Insurance Guide. Within ten days after
the execution of this Lease, Tenant shall deliver to Landlord copies of policies
or certificates evidencing the existence of the amounts and forms of coverage
satisfactory to Landlord. No such policy shall be cancelable or reducible in
coverage except after thirty days prior written notice to Landlord. Tenant
shall, within ten days prior to the expiration of such policies, furnish
Landlord with renewals or "binders" thereof, or Landlord may order such
insurance and charge the cost thereof to Tenant as additional rent. If Landlord
obtains any insurance that is the responsibility of Tenant under this section,
Landlord shall deliver to Tenant a written statement setting forth the cost of
any such insurance and showing in reasonable detail the manner in which it has
been computed.
ARTICLE 21
----------
DAMAGE OR DESTRUCTION
---------------------
(a) In the event the Project and/or the Premises is damaged by fire
or other perils covered by Landlord's insurance, Landlord shall have the
following rights and obligations:
(i) In the event of total destruction, at Landlord's option, as
soon as reasonably possible thereafter, commence repair, reconstruction and
restoration of the Project and/or the Premises and prosecute the same diligently
to completion, in which event this Lease shall remain in full force and effect;
or within sixty days after such damage, elect not to so repair, reconstruct or
restore the Project and/or the Premises, in which event this Lease shall
terminate. In either event, Landlord shall give Tenant written notice of its
intention within said sixty day period. In the event Landlord elects not to
restore the Project and/or the Premises, this Lease shall be deemed to have
terminated as of the date of such total destruction.
(ii) In the event of a partial destruction of the Project and/or
the Premises, to an extent not exceeding twenty-five percent of the full
insurable value thereof, and if the damage thereto is such that the Project
and/or the Premises may be repaired, reconstructed or restored
-15-
<PAGE>
within a period of ninety days from the date of the happening of such casualty
and if Landlord will receive insurance proceeds sufficient to cover the cost of
such repairs then Landlord shall commence and proceed diligently with the work
of repair, reconstruction and restoration and this Lease shall continue in full
force and effect. If such work of repair, reconstruction and restoration shall
require a period longer than ninety days or exceeds twenty-five percent of the
full insurable value thereof, or if said insurance proceeds will not be
sufficient to cover the cost of such repairs, then Landlord either may elect to
so repair, reconstruct or restore and the Lease shall continue in full force and
effect or Landlord may elect not to repair, reconstruct or restore and the Lease
shall then terminate. Under any of the conditions of this Subparagraph
21(a)(ii), Landlord shall give written notice to Tenant of its intention within
sixty days following said partial destruction. In the event Landlord elects not
to restore the Project and/or the Premises, this Lease shall be deemed to have
terminated as of the date of such partial destruction. If such work of repair,
reconstruction and restoration shall require a period longer than 180 days the
Tenant may terminate the lease by giving Landlord written notice within sixty
days of said partial destruction.
(b) Upon any termination of this Lease under any of the provisions of
this Article 21, the parties shall be released without further obligation to the
other from the date possession of the Premises is surrendered to Landlord except
for items which have therefore accrued and are then unpaid.
(c) In the event of repair, reconstruction and restoration by and or
as herein provided, the rental payable under this Lease shall be abated
proportionately with the degree to which Tenant's use of the Premises is
impaired during the period of such repair, reconstruction or restoration. Tenant
shall not be entitled to any compensation or damages for loss in the use of the
whole or any part of the Premises and/or any inconvenience or annoyance
occasioned by such damage, repair, reconstruction or restoration.
(d) Tenant shall not be released from any of its obligations under
this Lease except to the extent and upon the conditions expressly stated in this
Article 21. Notwithstanding anything to the contrary contained in this Article
21, if Landlord is delayed or prevented from repairing or restoring the damaged
Premises within one year after the occurrence of such damage or destruction by
reason of acts of God, war, governmental restrictions, inability to procure the
necessary labor or materials, or other cause beyond the control of Landlord.
Landlord shall be relieved of its obligation to make such repairs or restoration
and Tenant shall be released from its obligation under this Lease as of the end
of said one year period.
(e) If damage is due to any cause other than fire or other peril
covered by extended coverage insurance, Landlord may elect to terminate this
Lease.
(f) If Landlord is obligated to or elects to repair or restore as
herein provided, Landlord shall be obligated to make repair or restoration only
of those portions of the Project and the Premises which were originally
provided at Landlord's expense, and the repair and restoration of items not
provided at Landlord's expense shall be the obligation of Tenant.
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<PAGE>
(g) Notwithstanding anything to the contrary contained in this
Article 21, 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 21 occurs during the last twelve months of the term
of this Lease or any extension hereof, and further in such event if said repair,
reconstruction or restoration requires more than thirty days the Tenant shall
have the right to terminate said lease by giving Landlord sixty days written
notice of its intention to do so.
(h) The provisions of California Civil Code 1932, Subsection 2, and
1933, Subsection 4, which permit termination of a lease upon destruction of the
Leased Premises, are hereby waived by Tenant; and the provisions of this Article
shall govern in case of such destruction.
ARTICLE 22
----------
EMINENT DOMAIN
--------------
In case all of the Premises, or such part thereof as shall
substantially interfere with Tenant's use and occupancy thereof, shall be taken
for any public or quasi-public purpose by any lawful power or authority by
exercise of the right of appropriation, condemnation or eminent domain, or sold
to prevent such taking, either party shall have the right to terminate this
Lease effective as of the date possession is required to be surrendered to said
authority. Tenant shall not assert any claim against Landlord or the taking
authority for any compensation because of such taking, and Landlord shall be
entitled to receive the entire amount of any award without deduction for any
estate or interest of Tenant. In the event the amount of property or the type of
estate taken shall not substantially interfere with the conduct of Tenant's
business, Landlord shall be entitled to the entire amount of the award without
deduction for any estate or interest of Tenant. Landlord shall restore the
Premises to substantially their same condition prior to such partial taking, and
a proportionate allowance shall be made to Tenant for the rent corresponding to
the time during which, and to the part of the Premises of which, Tenant shall be
so deprived on account of such taking and restoration. Nothing contained in this
Paragraph shall be deemed to give Landlord any interest in any award made to
Tenant for the taking of personal property and fixtures belonging to Tenant.
ARTICLE 23
----------
DEFAULTS AND REMEDIES
---------------------
(a) The occurrence of any one or more of the following events shall
constitute a default hereunder by Tenant:
(i) The abandonment of the Premises by Tenant. Abandonment is
herein defined to include, but is not limited to, any absence by Tenant from the
Premises for five business days or longer while in default of any provision of
this Lease.
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<PAGE>
(ii) The failure by Tenant to make any payment of rent or
additional 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 days after
written notice thereof from Landlord to Tenant; provided however, that any such
notice shall be in lieu of, and not in addition to, any notice required under
California Code of Civil Procedure Section 1161 regarding unlawful detainer
actions.
(iii) The failure by Tenant to observe or perform any of the
express or implied covenants or provisions of this Lease to be observed or
performed by Tenant, other than as specified in Subparagraph 23(a)(i) or (ii)
above, where such failure shall continue for a period of ten days after written
notice thereof from Landlord to Tenant. Any such notice shall be in lieu of, and
not in addition to, any notice required under California Code of Civil Procedure
Section 1161 regarding unlawful detainer actions. If the nature of Tenant's
default is such that more than ten days are reasonably required for its cure,
then Tenant shall not be deemed to be in default if Tenant shall commence such
cure within said ten-day period and thereafter diligently prosecute such cure to
completion, which completion shall occur not later than sixty days from the date
of such notice from Landlord.
(iv) (1) The making by Tenant of any general assignment
for the benefit of creditors; (2) the filing by or against Tenant of a petition
to have Tenant adjudged a bankrupt or a petition for reorganization or
arrangement under any law relating to bankruptcy (unless, in the case of a
petition filed against Tenant, the same is dismissed within thirty days); (3)
the appointment of a trustee or 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 days; or (4) 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 within thirty days.
(b) In the event of any such default by Tenant, in addition to any
other remedies available to Landlord at law or in equity, Landlord shall have
the immediate option to terminate this Lease and all rights of Tenant hereunder.
In the event that Landlord shall elect to so terminate this Lease then Landlord
may recover from Tenant:
(i) the worth at the time of award of any unpaid rent which
had been earned at the time of such termination; plus
(ii) 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 Tenant proves could have been
reasonably avoided; plus
(iii) 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 Tenant proves could be reasonably avoided; plus
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(iv) any other amount necessary to compensate Landlord for all
the detriment proximately caused by 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.
As used in Subparagraph 23(b)(i) and (ii) above, the "worth at the time of
award" is computed by allowing interest at the maximum rate permitted by law. As
used in Subparagraph 23(b)(iii) 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.
(c) In the event of any such default by Tenant, Landlord shall also
have the right, with or without terminating this Lease, to re-enter 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. No re-entry or taking possession of the Premises by Landlord
pursuant to this Paragraph 23(c) shall be construed as an election to terminate
this Lease unless a written notice of such intention is given to Tenant or
unless the termination thereof is decreed by a court of competent jurisdiction.
(d) All rights, options and remedies of Landlord contained in this
Lease shall be constructed and held to be cumulative, and no one of them shall
be exclusive of the other, and Landlord shall have the right to pursue any one
or all of such remedies or any other remedy or relief which may be provided by
law, whether or not stated in this Lease. No waiver of any default of Tenant
hereunder shall be implied from any acceptance by Landlord of any rent or other
payments due hereunder or any omission by Landlord to take any action on account
of such default if such default persists or is repeated, and no express waiver
shall affect defaults other than as specified in said waiver. The consent or
approval of Landlord to or of any act by Tenant requiring Landlord's consent or
approval shall not be deemed to waive or render unnecessary Landlord's consent
or approval to or of any subsequent similar acts by Tenant.
(e) The chronic delinquency by Tenant in the payment of Basic Rent or
any other payments required to be paid by Tenant under this Lease shall
constitute a default hereunder by Tenant. "Chronic delinquency" shall mean
failure by Tenant to pay Basic Rent, or any other payments required to be paid
by Tenant under this Lease within three (3) days after written notice thereof
for any three (3) occasions (consecutive or non-consecutive) during any twelve
(12) month period. In the event of a chronic delinquency, Landlord shall have
the right, at Landlord's option, to require that Basic Rent be paid by Tenant
quarterly, in advance.
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ARTICLE 24
----------
ASSIGNMENT AND SUBLETTING
-------------------------
(a) Tenant shall not voluntarily assign or encumber its interest in
this Lease or in the Premises, or sublease all or any part of the Premises, or
allow any other person or entity to occupy or use all or any part of the
Premises, without first obtaining Landlord's prior written consent which consent
shall not be unreasonably withheld or delayed. Any assignment, encumbrance or
sublease without Landlord's prior written consent shall be voidable, at
Landlord's election, and shall constitute a default and at the option of the
Landlord shall result in a termination of this Lease. No consent to assignment,
encumbrance, or sublease shall constitute a further waiver of the provisions of
this paragraph. Tenant shall notify Landlord in writing of Tenant's intent to
sublease, encumber or assign this Lease and Landlord shall, within thirty days
of receipt of such written notice, elect one of the following:
(i) Consent to such proposed assignment, encumbrance or
sublease;
(ii) Refuse such consent, which refusal shall be on
reasonable grounds; or
(iii) Elect to terminate this Lease.
(b) As a condition for granting its consent to any assignment,
encumbrance or sublease, sixty days prior to any anticipated assignment or
sublease Tenant shall give Landlord written notice (the "Assignment Notice"),
which shall set forth the name, address and business of the proposed assignee or
sublessee, information (including references) concerning the character,
ownership, and financial condition of the proposed assignee or sublessee, and
the Assignment Date, any ownership or commercial relationship between Tenant and
the proposed assignee or sublessee, and the consideration of all other material
terms and conditions of the proposed assignment or sublease, all in such detail
as Landlord shall reasonably require. If Landlord requests additional detail,
the Assignment Notice shall not be deemed to have been received until Landlord
receives such additional detail, and Landlord may withhold consent to any
assignment or sublease until such additional detail is provided to it. Further,
Landlord may require that the sublessee or assignee remit directly to Landlord
on a monthly basis, all monies due to Tenant by said assignee or sublessee.
(c) The consent by Landlord to any assignment or subletting shall not
be construed as relieving Tenant or any assignee of this Lease or sublessee of
the Premises from obtaining the express written consent of Landlord to any
further assignment or subletting or as releasing Tenant or any assignee or
sublessee of Tenant from any liability or obligation hereunder whether or not
then accrued. In the event Landlord shall consent to an assignment or sublease,
Tenant shall pay Landlord as Additional Rent a reasonable attorneys' and
administrative fee not to exceed $500 for costs incurred in connection with
evaluating the Assignment Notice. This section shall be fully applicable to all
further sales, hypothecations, transfers, assignments and subleases of any
portion of the Premises by any successor or assignee of Tenant, or any sublessee
of the Premises.
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(d) As used in this section, the subletting of substantially all of
the Premises for substantially all of the remaining term of this Lease shall be
deemed an assignment rather than a sublease. Notwithstanding the foregoing,
Landlord shall consent to the assignment, sale or transfer if the Assignment
Notice states that Tenant desires to assign the Lease to any entity into which
Tenant is merged, with which Tenant is consolidated or which acquires all or
substantially all of the assets of Tenant, provided that the assignee first
executes, acknowledges and delivers to Landlord an agreement whereby the
assignee agrees to be bound by all of the covenants and agreements in this Lease
which Tenant has agreed to keep, observe or perform, that the assignee agrees
that the provisions of this section shall be binding upon it as if it were the
original Tenant hereunder and that the assignee shall have a net worth
(determined in accordance with generally accepted accounting principles
consistently applied) immediately after such assignment which is at least equal
to the net worth (as so determined) of Tenant at the commencement of this Lease.
(e) Except as provided above, Landlord's consent to any sublease
shall not be unreasonably withheld or delayed. A condition to such consent shall
be delivery by Tenant to Landlord of a true copy of any such sublease. If for
any proposed assignment or sublease Tenant receives rent or other consideration,
either initially or over the term of the assignment or sublease, in excess of
the rent called for hereunder, or, in case of the sublease of a portion of the
Premises, in excess of such rent fairly allocable to such portion, after
appropriate adjustments to assure that all other payments called for hereunder
are taken into account, Tenant shall pay to Landlord as additional rent
hereunder one half (1/2) of the excess of each such payment of rent or
other consideration received by Tenant promptly after its receipt. Landlord's
waiver or consent to any assignment or subletting shall not relieve Tenant from
any obligation under this lease. The parties intend that the preceding sentence
shall not apply to any sublease rentals respecting a portion of the Premises
that during the entire term of this Lease was not occupied by Tenant for its own
use, but was always subleased by Tenant and/or kept vacant. For the purpose of
this section, the rent for each square foot of floor space in the Premises shall
be deemed equal.
ARTICLE 25
----------
SUBORDINATION
-------------
Without the necessity of any additional document being executed by
Tenant for the purpose of effecting a subordination, and at the election of
Landlord or any mortgagee with a lien on the Project or any ground lessor with
respect to the Project, this Lease shall be subject and subordinate at all times
to:
(i) All ground leases or underlying leases which may now exist
or hereafter be executed affecting the Project or the land upon which the
Project is situated or both,
(ii) The lien of any mortgage or deed of trust which may now
exist or hereafter be executed in any amount for which the Project, land, ground
leases or underlying leases, or Landlord's interest or estate in any of said
items is specified as security. Notwithstanding the foregoing,
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Landlord shall have the right to subordinate or cause to be subordinated any
such ground leases or underlying leases or any such liens to the Lease. In the
event that any ground lease or underlying lease terminates for any reason or any
mortgage or deed of trust is foreclosed or a conveyance in lieu of foreclosure
is made for any reason, Tenant shall, notwithstanding any subordination, attorn
to and become the Tenant of the successor in interest to Landlord, at the option
of such successor in interest. Tenant covenants and agrees to execute and
deliver, upon demand by Landlord and in the form requested by Landlord, any
additional documents evidencing the priority or subordination of this Lease with
respect to any such ground leases or underlying leases or the lien of any such
mortgage or deed of trust. Tenant hereby irrevocably appoints Landlord as
attorney-in-fact of Tenant to execute, deliver and record any such document in
the name and on behalf of Tenant, and
(iii) The CC&R's as described in Article 6.
ARTICLE 26
----------
ESTOPPEL CERTIFICATE
--------------------
(a) Within ten days following any written request which Landlord may
make from time to time, Tenant shall execute and deliver to Landlord a statement
certifying:
(i) The date of commencement of this Lease;
(ii) The fact that this Lease is unmodified and in full force
and effect (or, if there have been modifications hereto, that this Lease is in
full force and effect, and stating the date and nature of such modifications);
(iii) The date to which the rental and other sums payable under
this Lease have been paid;
(iv) That there are no current defaults under this Lease by
either Landlord or Tenant except as specified in Tenant's statement; and
(v) Such other matters requested by Landlord. Landlord and
Tenant intend that any statement delivered pursuant to this Article 26 may be
relied upon by any mortgagee, beneficiary, purchaser or prospective purchaser of
the Building or Project or any interest therein.
(b) Tenant's failure to deliver such statement within such time shall
be conclusive upon Tenant:
(i) That this Lease is in full force and effect, without
modification except as may be represented by Landlord,
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(ii) That there are no uncured defaults in Landlord's
performance, and
(iii) That not more than one month's rental has been paid in
advance.
ARTICLE 27
----------
SIGNAGE
-------
Landlord shall provide for Tenant the opportunity to have Tenant's
name placed upon the Building lobby directory sign, and at Tenant's entrance to
the Premises. Tenant shall have no other right to maintain a Tenant
identification sign in any other location in, on or about the Premises, the
Building, the Project, or Bernal Corporate Park and shall not display or erect
any 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
Landlord's written reasonable approval prior to installation. The cost of the
installation of the sign, and its maintenance and removal expense, shall be at
Tenant's sole expense. If Tenant fails to maintain its sign or if Tenant fails
to remove its 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. All signs shall comply with rules and regulations set
for by Landlord as may be modified from time to time.
ARTICLE 28
----------
RULES AND REGULATIONS
---------------------
Tenant shall faithfully observe and comply with the "Rules and
Regulations," a copy of which is attached hereto and marked EXHIBIT D, and all
reasonable and nondiscriminatory modifications thereof and additions thereto
from time to time put into effect by Landlord. Landlord shall not be responsible
to Tenant for the violation or non-performance by any other tenant or occupant
of the Project of any of said Rules and Regulations.
ARTICLE 29
----------
CONFLICT OF LAWS
----------------
This Lease shall be governed by and construed pursuant to the laws of
the State of California.
ARTICLE 30
----------
SUCCESSORS AND ASSIGNS
----------------------
Except as otherwise provided in this Lease, all of the covenants,
conditions and provisions of this Lease shall be binding upon and shall inure to
the benefit of the parties hereto and their respective, successors and assigns.
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ARTICLE 31
----------
SURRENDER OF PREMISES
------------ --------
The voluntary or other surrender of this Lease by Tenant, or a mutual
cancellation thereof, shall not work a merger, and shall, at the option of
Landlord, operate as an assignment to it of any or all subleases and
subtenancies.
ARTICLE 32
----------
ATTORNEYS' FEES
---------------
(a) If Landlord should bring suit for possession of the Premises, for
the recovery of any sum due under this Lease, or because of the breach of any
provisions of this Lease, or for any other relief against Tenant hereunder, or
in the event of any other litigation between the parties with respect to this
Lease, then all costs and expenses, including reasonable attorneys' fees,
incurred by the prevailing party therein shall be paid by the other party, which
obligation on the part of the other party shall be deemed to have accrued on the
date of the commencement of such action and shall be enforceable whether or not
the action is prosecuted to judgment.
(b) If Landlord is named as a defendant in any suit brought against
Tenant in connection with or arising out of Tenant's occupancy hereunder, Tenant
shall pay to Landlord its costs and expenses incurred in such suit, including
reasonable attorneys' fees.
ARTICLE 33
----------
PERFORMANCE BY TENANT
---------------------
All covenants and agreements to be performed by Tenant under any of
the terms of this Lease shall be performed by Tenant at Tenant's sole cost and
expense and without any abatement of rent. If Tenant shall fail to pay any sum
of money owed to any party other than Landlord, for which it is liable hereunder
or if Tenant shall fail to perform any other act on its part to be performed
hereunder and such failure shall continue for ten days after notice thereof by
Landlord, Landlord may, without waiving or releasing Tenant from obligations of
Tenant, but shall not be obligated to, make any such payment or perform any such
other act to be made or performed by Tenant. All sums so paid by Landlord and
all necessary incidental costs together with interest thereon at the maximum
rate permissible by law, from the date of such payment by Landlord, shall be
payable to Landlord on demand. Tenant covenants to pay any such sums and
Landlord shall have (in addition to any other right or remedy of Landlord) all
rights and remedies in the event of the non-payment thereof by Tenant as are set
forth in Article 23 hereof.
-24-
<PAGE>
ARTICLE 34
----------
MORTGAGEE PROTECTION
--------------------
In the event of any default on the part of Landlord, Tenant will give
notice by registered or certified mail to any beneficiary of a deed of trust or
mortgage covering the Premises whose address shall have been furnished to
Tenant, and shall offer such beneficiary or mortgagee a reasonable opportunity
to cure the default, including time to obtain possession of the Premises by
power of sale or a judicial foreclosure, if such should prove necessary to
effect a cure.
ARTICLE 35
----------
DEFINITION OF LANDLORD
----------------------
The term "Landlord", as used in this Lease, so far as covenants or
obligations on the part of Landlord are concerned, shall be limited to mean and
include only the owner or owners, at the time in question, of the fee title of
the Premises or the lessees under any ground lease, if any. In the event of any
transfer, assignment or other conveyance or transfers of any such title,
Landlord herein named (and in case of any subsequent transfers or conveyances,
the then grantor) shall be automatically freed and relieved from and after the
date of such transfer, assignment or conveyance of all liability as respects the
performance of any covenants or obligations on the part of Landlord contained in
this Lease thereafter to be performed. Without further agreement, the transferee
of such title shall be deemed to have assumed and agreed to observe and perform
any and all obligations of Landlord hereunder, during its ownership of the
Premises. Landlord may transfer its interest in the Premises without the consent
of Tenant and such transfer or subsequent transfer shall not be deemed a
violation on Landlord's part of any of the terms and conditions of this Lease.
ARTICLE 36
----------
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 any subsequent
breach of the same or any other term, covenant or condition herein contained,
nor shall any custom or practice which may grow up between the parties in the
administration of the terms hereof be deemed a waiver of or in any way affect
the right of Landlord to insist upon the performance by Tenant in strict
accordance with said terms. The subsequent acceptance of rent hereunder by
Landlord shall not be deemed to be a waiver of any preceding breach by Tenant or
any term, covenant or condition of this Lease, other than the failure of Tenant
to pay the particular rent so accepted, regardless of Landlord's knowledge of
such preceding breach at the time of acceptance of such rent.
-25-
<PAGE>
ARTICLE 37
----------
IDENTIFICATION OF TENANT
----------------- ------
If more than one person executes this Lease as Tenant:
(i) Each of them is jointly and severally liable for the
keeping, observing and performing of all of the terms, covenants, conditions,
provisions and agreements of this Lease to be kept, observed and performed by
Tenant, and
(ii) The term "Tenant" as used in this Lease shall mean and
include each of them jointly and severally. The act of or notice from, or notice
to refund to, or the signature of any one or more of them, with respect to the
tenancy of this Lease, including, but not limited to any renewal, extension,
expiration, termination or modification of this Lease, shall be binding upon
each and all of the persons executing this Lease as Tenant with the same force
and effect as if each and all of them had so acted or so given or received such
notice or refund or so signed.
ARTICLE 38
----------
PARKING
-------
The use by Tenant, its employees and invitees, of the parking
facilities of the Project shall be on the terms and conditions set forth in
EXHIBIT E attached hereto and by this reference incorporated herein and shall be
- ---------
subject to such other agreement between Landlord and Tenant as may hereinafter
be established. Tenant, its employees and invitees shall use no more than four
(4) non-exclusive parking spaces per one thousand (1,000) square feet of leased
space. Tenant's use of the parking spaces shall be confined to the Project. If,
in Landlord's reasonable business judgment, it becomes necessary, Landlord shall
exercise due diligence to cause the creation of cross-parking easements and such
other agreements as are necessary to permit Tenant, its employees and invitees
to use parking spaces on the properties and buildings of Bernal Corporate Park,
which are separate legal parcels from the Project. Tenant acknowledges that
other tenants of the Project and the tenants of the other buildings, their
employees and invitees, may be given the right to park at the Project.
ARTICLE 39
----------
TERMS AND HEADINGS
------------------
The words "Landlord" and "Tenant" as used herein shall include the
plural as well as the singular. Words used in any gender include other genders.
The paragraph headings of this Lease are not a part of this Lease and shall have
no effect upon the construction or interpretation of any part hereof.
-26-
<PAGE>
ARTICLE 40
----------
EXAMINATION OF LEASE
-------------- -----
Submission of this instrument for examination or signature by Tenant
does not constitute a reservation of or option for lease, and it is not
effective as a lease or otherwise until execution by and delivery to both
Landlord and Tenant.
ARTICLE 41
----------
TIME
----
Time is of the essence with respect to the performance of every
provision of this Lease in which time or performance is a factor.
ARTICLE 42
----------
PRIOR AGREEMENT: AMENDMENTS
---------------------------
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 agreement
or understanding pertaining to any such matter shall be effective for any
purpose. No provisions 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.
ARTICLE 43
----------
SEPARABILITY
------------
Any provision of this Lease which shall prove to be invalid, void or
illegal in no way affects, impairs or invalidates any other provision hereof,
any such other provisions shall remain in full force and effect.
ARTICLE 44
----------
RECORDING
---------
Neither Landlord nor Tenant shall record this Lease nor a short form
memorandum thereof without the consent of the other.
ARTICLE 45
----------
CONSENTS
--------
Whenever the consent of either party is required hereunder such
consent shall not be unreasonably withheld.
-27-
<PAGE>
ARTICLE 46
----------
LIMITATION ON LIABILITY
-----------------------
In consideration of the benefits accruing hereunder, Tenant and all
successors and assigns covenant and agree that, in the event of any actual or
alleged failure, breach or default hereunder by Landlord:
(a) The sole and exclusive remedy shall be against the Landlord's
interest in the Project and any insurance or condemnation proceeds with respect
to the Project otherwise payable to Landlord;
(b) No partner, officer, agent or employee of Landlord shall be sued
or named as a party in any suit or action (except as may be necessary to secure
jurisdiction of Landlord);
(c) No service or process shall be made against any partner, officer,
agent or employee of Landlord (except as may be necessary to secure jurisdiction
of Landlord);
(d) No partner, officer, agent or employee of Landlord shall be
required to answer or otherwise plead to any service of process;
(e) No judgment will be taken against any partner, officer, agent or
employee of Landlord;
(f) Any judgment taken against any partner, officer, agent or
employee of Landlord may be vacated and set aside at any time nunc pro tunc;
(g) No writ of execution will ever be levied against the assets of
any partner, officer, agent or employee of Landlord;
(h) These covenants and agreements are enforceable both by Landlord
and also by any partner, officer, agent or employee of Landlord.
ARTICLE 47
----------
RIDERS
------
Clauses, plats and riders, if any, signed by Landlord and Tenant and
affixed to this Lease are a part hereof.
ARTICLE 48
----------
EXHIBITS
--------
All Exhibits attached hereto are incorporated into this Lease.
-28-
<PAGE>
ARTICLE 49
----------
MODIFICATION FOR LENDER
-----------------------
If, in connection with obtaining construction, interim or permanent
financing for the Project the lender shall request reasonable modifications in
this Lease as a condition to such financing, Tenant will not unreasonably
withhold, delay or defer its consent thereto, provided that such modifications
do not increase the obligations of Tenant hereunder or materially adversely
affect the leasehold interest hereby created or Tenant's rights hereunder.
ARTICLE 50
----------
PROJECT PLANNING
----------------
If Landlord requires the Premises for use in conjunction with another
suite or for other reasons connected with the Project planning program, upon
notifying Tenant in writing, Landlord shall have the right to relocate Tenant to
other space in the Project, at Landlord's sole cost and expense, and the terms
and conditions of the original Lease shall remain in full force and effect,
except that a revised EXHIBIT A reflecting the location of the new space shall
be attached to and become a part of this Lease. However, if the new space does
not meet with Tenant's approval, Tenant shall have the right to terminate this
Lease effective ninety (90) days after written notice to Landlord, which notice
shall be given within ten (10) days after receipt of Landlord's notification.
ARTICLE 51
----------
AVAILABILITY OF APPROXIMATELY 1,019 RENTABLE SQUARE FEET
--------------------------------------------------------
In the event that the front approximately 1,019 rentable square feet
portion of the premises is not available at the time the approximately 4,383
rentable square feet portion of the premises is available, Tenant agrees to
commence the lease upon the availability of the approximately 4,383 rentable
square feet. In that event the basic rent will be adjusted proportionately
until the approximately 1,019 rentable square foot portion of the premises is
delivered to tenant with the tenant improvement work substantially completed.
Landlord agrees that the approximately 1,109 rentable square feet portion of the
space will be delivered no later than approximately September 30, 1997.
ARTICLE 52
----------
OPTION TO RENEW
---------------
Provided that Tenant is not in default under the terms and conditions
of this Lease at the time of its exercise of this Option to Renew, or at the
time of renewal of this Lease, Tenant shall have the right to renew this Lease
for one (1) two (2) year term at fair market rent with six (6) months written
notice to Landlord. This option is personal to Pan American Bank, FSB, a
California Corporation.
-29-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Lease as of the date
first above written.
BERNAL CORPORATE PARK, a joint venture between Principal Mutual Life Insurance
Company, an Iowa Corporation and Patrician Associates, Inc., a California
Corporation.
<TABLE>
<S> <C>
By: Patrician Associates, Inc., a California Corporation, ADDRESS:
Joint Venture Partner Parkway Properties, Inc.,
7011 Koll Center Parkway
By: /s/ KURT D. SCHAEFFER Suite 210
---------------------------------------------------- Pleasanton, California 94566
By: KURT D. SCHAEFFER
VICE PRESIDENT
----------------------------------------------------
By: Principal Mutual Life Insurance Company, an Iowa Corporation,
Joint Venture Partner
By: /s/ TIMOTHY E. MINTON
----------------------------------------------------
By: TIMOTHY E. MINTON
Director
Commercial Real Estate Reporting and Computer Services
----------------------------------------------------
TENANT: ADDRESS:
PAN AMERICAN BANK, FSB 7041 Koll Center Parkway
a California Corporation Suite 135
Pleasanton, California 94566
By: /s/ ROBERT WILSON
---------------------------------------------------
Its: EVP
---------------------------------------------------
By:
---------------------------------------------------
Its:
---------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 10.59
BERNAL CORPORATE PARK LEASE
FIRST AMENDMENT TO LEASE
That certain Lease dated December 9, 1996, by and between BERNAL CORPORATE
PARK, a joint venture between Principal Mutual Life Insurance Company, an Iowa
Corporation and Patrician Associates, Inc., a California Corporation, Landlord,
and PAN AMERICAN BANK, FSB, a California Corporation, Tenant, for the premises
located at 7041 Koll Center Parkway, Suite 135, is amended this 27th day of
January, 1997, by amending (or adding as the case may be) the clauses below with
the like numbered clauses in the Lease.
ARTICLE 1 TERM
- --------- ----
Commencement Date: January 15, 1997
------------------
Expiration Date: January 14, 2002
----------------
All other terms and conditions of the above described Lease shall remain in full
force and effect.
BERNAL CORPORATE PARK, a joint venture between Principal Mutual Life Insurance
Company, an Iowa Corporation and Patrician Associates, Inc., a California
Corporation
By: Patrician Associates, Inc., a California Corporation, Joint Venture Partner
By: /s/ [SIGNATURE ILLEGIBLE]
-----------------------------------------------------------------------
By:
-----------------------------------------------------------------------
By: Principal Mutual Life Insurance Company, an Iowa Corporation, Joint Venture
Partner
By: /s/ [SIGNATURE ILLEGIBLE]
-----------------------------------------------------------------------
By:
-----------------------------------------------------------------------
TENANT: PAN AMERICAN BANK, FSB a California Corporation
By: /s/ LAWRENCE J. GRILL
-----------------------------------------------------------------------
Its: President
-----------------------------------------------------------------------
<PAGE>
EXHIBIT 10.60
SHOPPING CENTER SUBLEASE
BETWEEN
PANORAMA TOWNE CENTER, L.P., AS LANDLORD
AND
PAN AMERICAN BANK OF SAN MATEO, FSB, AS TENANT
<PAGE>
SHOPPING CENTER SUBLEASE
This Shopping Center Sublease (the "Lease" herein), dated September
25, 1995 for reference purposes only, is made by and between Panorama Towne
Center, L.P., a California Limited Partnership, as Landlord, and Pan American
Bank of San Mateo, FSB, a Federally-chartered savings bank, as Tenant.
1. LEASE OF PREMISES.
In consideration of the Rent (as defined in Article 9) to be paid by Tenant and
the performance of the covenants and agreements to be performed by Tenant under
this Lease, Landlord agrees to sublease to Tenant and Tenant agrees to sublease
from Landlord, the Premises shown by diagonal lines on Exhibit "A" attached
hereto, and further described at Section 3.h. The Premises are located within
the shopping center described in Section 3.j. Tenant shall have the non-
exclusive right (unless otherwise provided herein) in common with Landlord and
other tenants, subtenants and invitees of the Shopping Center, to use of the
Common Areas (as defined at Section 3.c.).
2. LEASE REVIEW OBLIGATIONS OF LANDLORD AND TENANT.
Landlord and Tenant acknowledge and agree that each has the responsibility to
personally review and approve the contents of this Lease and to have this Lease
reviewed, approved, and modified as needed by its attorneys before the Lease is
signed.
3. DEFINITIONS.
As used in this Lease, the following terms have the following meanings:
a. BROKER: CB Commercial Real Estate Group, Inc.
b. COMMENCEMENT DATE: The earliest of the following dates:
(i) The date Tenant initially opens for business
in the Premises; or
(ii) 60 days after substantial completion of
Landlord's Work (as defined in Exhibit "C" to
the Lease) in the Premises.
<PAGE>
The date of such substantial completion is the
date the Premises are substantially complete
to the extent of Landlord's Work, except for
such work that Landlord cannot complete until
Tenant performs necessary portions of Tenant's
Work (as defined in Exhibit "C"). Substantial
completion of Landlord's work shall be
evidenced by notice to Tenant from Landlord's
architect or designated representative that
substantial completion has occurred.
Tenant shall commence Tenant's Work promptly upon substantial completion of
Landlord's Work and shall diligently complete Tenant's Work so that Tenant
can promptly open for business in the Premises.
c. COMMON AREAS: All areas, structural portions, facilities and equipment of
the Shopping Center outside the Premises and the premises of other tenants,
but within the exterior boundaries of the Shopping Center that are provided
and designated by Landlord from time to time for the general use, benefit
and/or convenience of Tenant and/or other tenants of the shopping Center
and/or their respective authorized representatives and invitees. Common
Areas include without limitation, pedestrian walkways and patios,
landscaped areas, sidewalks, service corridors, public restrooms,
stairways, roofs, walls, plazas, malls (including any enclosed malls where
climate control is provided), throughways, loading areas, parking areas,
and roads, all as generally shown on Exhibit "A." Landlord shall have the
right to regulate or restrict the use of the Common Areas, provided the use
and occupancy of the Premises by Tenant and its employees, agents and
invitees is not materially adversely affected thereby, and further provided
that Landlord may designate a portion or portions of the Common Areas for
Tenant's employees' parking.
d. FLOOR AREA: As to both the Premises and the Shopping Center, the
respective measurements of floor area as are from time to time subject to
lease by Tenant and all tenants of the Shopping Center, respectively, as
determined and applied by Landlord on a consistent basis throughout the
Shopping Center.
<PAGE>
e. LANDLORD'S MAILING ADDRESS: Panorama Towne Center, L.P.
9333 Duxbury Road
Los Angeles, CA 90034
Attn.: Arieh Greenbaum
TENANT'S MAILING ADDRESS: Pan American Bank, FSB
1300 S. El Camino Real
Third Floor
San Mateo, CA 94402
Attn: Lorna Seipser
f. MINIMUM ANNUAL RENT (INITIAL) (SECTION 9.1:): $84,264.00 per year, payable
in twelve (12) equal monthly installments each year, and subject to
adjustment based on the actual Floor Area of the Premises as determined by
Landlord multiplied by $2.00 per square foot per month. SEE ADDENDUM,
Paragraph 1.
g. INTENTIONALLY DELETED.
h. PREMISES: That portion of the Shopping Center containing approximately
3,511 square feet of Floor Area, shown by diagonal lines on Exhibit "A," It
and the improvements constructed thereon.
i. SECURITY DEPOSIT: None.
j. SHOPPING CENTER: The shopping center of which the Premises are a part
including any other buildings and improvements on the real property
(collectively, the "Building" or "Property")located at the northwest corner
of Van Nuys and Chase and further described on Exhibit "A." The Shopping
Center is to be known as "Panorama Towne Center".
k. TENANT'S FIRST ADJUSTMENT DATE (ADDENDUM, PARAGRAPH 1): The first day of
the calendar month following the Commencement Date plus 36 months.
l. TENANT'S PROPORTIONATE SHARE (INITIAL): 3.68% (estimated). Such share is a
fraction, the numerator of which is the Floor Area of the Premises, and the
denominator of which is the Floor Area of the buildings in the Shopping
Center available for exclusive use and occupancy by tenants. As of the
date of this Lease, it is contemplated that the Shopping Center will
contain a total Floor Area of approximately 95,520 square feet.
m. TENANT'S TRADE NAME: Pan American Bank of San Mateo, FSB.
3
<PAGE>
n. TENANT'S USE CLAUSE (ARTICLE 10): During the first five (5) years of the
Term, the Premises shall be used and occupied only for the purpose of
operating a bank or financial institution as defined by state and/or
federal banking regulations, and for no other use or purpose. During the
remainder of the Term and the option periods, if any, the Premises shall be
used and occupied for the purpose of operating a bank or financial
institution as defined by state and/or federal banking regulation or for
any other purposes so long as such use does not violate an exclusive use
right granted to another tenant of the Shopping Center (or proposed to be
granted to a prospective tenant with whom Landlord is in active
negotiations with at such time) or constitute a use that may be prohibited
pursuant to the terms of any other tenant's lease or violate any
restrictions that may be contained in any other tenant's lease.
o. TERM: The Term of this Lease shall begin as of the date hereof and shall
continue thereafter for a period of ten (10) years (plus any partial month)
following the Commencement Date. The Commencement Date and expiration date
of the Lease shall be set forth in Landlord's Notice of Lease Term Dates
(the "Notice"). The Notice shall be served on Tenant promptly following
determination of the Commencement Date under Section 3.b; provided,
however, Landlord's or Tenant's failure to serve or execute such Notice
shall not affect the determination of the Commencement Date or expiration
date of this Lease.
4. EXHIBITS AND ADDENDA.
The exhibits and addenda listed below (unless lined out) are incorporated by
reference in this Lease:
a. Exhibit "A" - Premises and Shopping Center
b. Exhibit "B" - (Intentionally Deleted)
c. Exhibit "C" - Landlord's - Work and Tenant's Work
d. Exhibit "D" - Sample Form of Tenant Estoppel Certificate
e. Exhibit "E" - Shopping Center Sign Criteria
f. Exhibit "F" - Landlord's Notice of Lease Term Dates
g. Exhibit "G" - Guaranty of Lease (the "Guaranty")
4
<PAGE>
h. Addendum to Shopping Center Sublease
5. SHOPPING CENTER PLAN.
The plan of the Shopping Center attached as Exhibit "A" shows, among other
things, the principal improvements which initially comprise or will initially
comprise the Shopping Center. Tenant agrees that Landlord may at any time and
from time to time, change the shape, size, location, number, and extent of the
improvements now shown on Exhibit "A" and may eliminate or add any improvements
to any portion of the Shopping Center, but Landlord agrees (i) not to materially
change the size or location of the Premises prior to construction of Tenant's
building on the Premises without Tenant's consent, which consent shall not be
unreasonably withheld and (ii) that any such changes will not materially and
adversely affect ingress to and egress from the Premises, visibility of the
Premises or parking availability for Tenant or its customers in the shopping
Center. Following delivery of possession of the Premises to Tenant, Landlord
shall not materially change the size or location of the Premises without
Tenant's consent, which consent may be withheld in Tenant's sole discretion.
6. OTHER TENANCIES.
Landlord reserves the absolute right to effect such other tenancies and uses in
the Shopping Center as Landlord, in its sole business judgment, determines best
promotes the interests of the Shopping Center. Landlord and Broker do not
represent, and Tenant does not rely on the possibility, that any specific tenant
or number of tenants will occupy space in the Shopping Center during the Term.
Except as provided in the following sentence, Landlord shall not lease space to
another bank, savings and loan, thrift and loan, or other financial institution
regulated by a state or federal banking regulation in the Shopping Center during
Tenant's occupancy of the Premises, or permit the installation of automatic
teller machines (except for use at points of purchase). Tenant acknowledges
and, agrees that notwithstanding anything to the contrary in this Lease, Food 4
Less and/or a proposed drug store tenant, or any occupant of the leased premises
of Food 4 Less or such drug store, will have the right to place in their
premises a bank, savings and loan, thrift and loan or other financial
institution, and/or to install automatic teller machines in, or on the exterior
walls of, their leased premises.
7. DELIVERY OF POSSESSION.
Landlord agrees to deliver to Tenant and Tenant agrees to accept from Landlord
possession of the Premises promptly upon substantial
5
<PAGE>
completion of Landlord's Work. If for any reason Landlord does not deliver
possession of the Premises to Tenant with Landlord's Work substantially complete
on or before February 28, 1996, Landlord shall not be subject to any liability
for such failure, and the validity of this Lease shall not be impaired, but
Tenant shall have the right, as its sole remedy for Landlord's failure to
deliver the Premises as aforesaid, to take all reasonable action necessary to
diligently complete Landlord's Work at Tenant's cost and to offset such cost
against the Minimum Annual Rent to be paid hereunder. If Tenant elects to
exercise such right, Tenant shall so notify Landlord in writing on or before
March 20, 1996. If Tenant fails to so notify Landlord in writing, Tenant shall
be deemed to have waived such right.
8. TENANT'S WORK.
Tenant shall commence construction of Tenant's Work as defined in Exhibit "C" no
later than five (5) business days after the date of substantial completion of
Landlord's Work in the Premises and shall diligently complete Tenant's Work.
Landlord shall give Tenant not less than 10 days' advance written notice of such
anticipated date of substantial completion of Landlord's Work. Tenant shall, at
any time requested by Landlord or Landlord's architect, construct those portions
of Tenant's Work necessary to enable Landlord to proceed with Landlord's Work
hereunder.
9. RENT.
9.1 PAYMENT OF MINIMUM ANNUAL RENT. Beginning on the Commencement Date,
Tenant agrees to pay the Minimum Annual Rent during the Term for its use and
occupancy of the Premises. Minimum Annual Rent shall be payable in advance on
the first day of each calendar month of the Term without notice, set-off or
deduction except as expressly provided herein, in twelve (12) equal monthly
installments during each year of the Term. If the period for which Minimum
Annual Rent is due and payable begins (or ends) on other than the first (or
last) day of a calendar month, the Minimum Annual Rent for the partial month
shall be prorated on a daily basis, based on a 30 day month. Tenant shall pay
Landlord the first installment of Minimum Annual Rent when such installment is
due hereunder.
9.2 PROPERTY TAXES.
a. Beginning on the commencement Date, and for the balance of the
Term, Tenant shall pay to Landlord as additional rent the amount of taxes and
assessments levied and assessed for any year ("Property Taxes") against the
Premises, including both
6
<PAGE>
the underlying real property and the improvements thereon. Such sum shall be
prorated for any partial year of the Term on a daily basis, based on a 360-day
year. Subject to Tenant's compliance with the preceding provisions of this
Section 9.2.a., Landlord shall pay all Property Taxes assessed against the
Shopping Center prior to delinquency.
If the Premises are not separately assessed, but are assessed as part of
the land and improvements on a larger parcel (hereinafter the "Larger Parcel"),
Tenant's sharp of Property Taxes shall be a fractional portion of the property
taxes on the Larger Parcel, the numerator of which is the Floor Area of the
Premises and the denominator of which is the Floor Area of all the areas
available for exclusive use and occupancy by tenants of the Larger Parcel.
Tenant shall pay Property Taxes to Landlord as part of Common Area Costs at the
times and in the manner provided for the payment of Common Area Costs at Section
24.3 of this Lease. Subject to Tenant's compliance with the preceding provisions
of this paragraph, Landlord shall pay all Property Taxes assessed against the
Shopping Center owned by Landlord prior to delinquency. For purposes hereof, an
equitable adjustment shall be made for buildings which are only partially
completed on the date such property taxes become a lien.
If any Property Taxes (including any assessments which may be evidenced by
improvement or other bonds) due hereunder may be paid in annual installments,
only the amount of such annual installment (with an appropriate proration for
any partial year) and statutory interest (if any) shall be included in the
Computation of annual Property Taxes.
b. The term "Property Taxes" shall mean: (i) any fee, license fee,
license tax, business license fee, commercial rental tax, levy, charge,
assessment or tax imposed by any taxing authority against or relating to the
Premises or the Shopping Center; (ii) any tax on Landlord's right to receive, or
the receipt of, rent or income from the Premises or the Shopping Center or
against Landlord's business of leasing space in the Shopping Center; (iii) any
tax or charge for fire protection, streets, sidewalks, road maintenance, refuse
or other services provided to the Premises or the Shopping Center by or through
any governmental agency; (iv) any tax imposed upon this transaction and (v) any
charge or fee replacing any tax previously included within the definition of
real property tax. "Property Taxes" do not, however, include (1) Landlord's
federal or state income, franchise, inheritance or estate taxes, or (2) except
as otherwise provided below, any tax imposed based upon a change in ownership of
the Premises or the Shopping Center. Notwithstanding the preceding
7
<PAGE>
sentence, "Property Taxes" shall include any tax imposed based upon a change in
ownership of the Premises or the Shopping center caused by (1) the first
transfer of all or part of Landlord's interest in all or part of the Premises or
the Shopping Center to an unrelated third party following the Commencement Date,
and (2) the first transfer of Landlord's interest in all or part of the Premises
- ---
or the Shopping Center to family members of the general or limited partners of
Landlord or to the family members of the shareholders, officers or directors of
such general or limited partners, whether by gift, devise, testamentary transfer
or intestate succession, or to or from a trust for the benefit of an heir at law
(or an heir at law of any such partner or shareholder, officer or director) or
for the benefit of Landlord, following the Commencement Date.
9.3 ADDITIONAL RENT. All sums of money required to be paid pursuant to
the terms of this Article 9, and all other sums of money or charges required to
be paid by Tenant under this Lease, whether or not such sums are specifically
designated as additional rent, shall constitute rent. All amounts required to
be paid by Tenant hereunder are sometimes collectively referred to as "Rent."
9.4 INTEREST AND LATE CHARGES. If Tenant fails to pay within five (5)
business days of the date due and payable, any Rent, additional rent, or other
sums due from Tenant under this Lease, the unpaid amounts shall bear interest at
the rate of ten percent (10%) per annum from the date due to the date of
payment.
Tenant acknowledges that its late payment of any monthly installment of
Minimum Annual Rent will cause Landlord to incur certain costs and expenses not
contemplated under this Lease, the exact amount of which is extremely difficult
or impractical to fix. Such costs and expenses will include, without limitation,
loss of use of money, administrative and collection costs, and processing and
accounting expenses. Therefore, if any installment of Minimum Annual Rent is
not received by Landlord from Tenant by the fifth (5th) day of the month for
which such installment is due, Tenant shall immediately pay to Landlord a late
charge equal to four percent (4%) of such installment. Such late charge is in
addition to any interest due pursuant to the preceding paragraph of this Section
9.4 Landlord and Tenant agree that this late charge represents a reasonable
estimate of costs and expenses incurred by Landlord from, and is fair
compensation to Landlord for its loss suffered by, such nonpayment by Tenant.
Acceptance of this late charge shall not constitute a waiver of Tenant's default
with respect to such nonpayment by Tenant nor prevent Landlord from exercising
any other rights and remedies available to Landlord under this Lease.
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9.5 PAYMENT OF RENT. All Rent and other payments due under this Lease
shall be paid by Tenant to Landlord at the address set forth in Section 3.e.
above or at such place as may from time to time be designated by Landlord in
writing at least 10 days prior to the next ensuing payment date.
10. POSSESSION AND USE.
10.1 PERMITTED USES AND PROHIBITED CONDUCT. Possession of the Premises
shall be delivered to Tenant free and clear of all tenants and occupants and the
rights of either. Tenant shall use the Premises solely for the purposes set
forth in Section 3.n. (Tenant's Use Clause) and this Article 10. Tenant shall
not use or permit all or any part of the Premises to be used for any other
purposes. Tenant shall not, without the prior written consent of Landlord, sell
merchandise from vending machines or allow any coin operated vending or gaming
machines on the Premises, except for vending machines located inside Tenant's
Building and used exclusively by Tenant's employees for on Premises consumption.
Tenant shall not use or permit any person to use the Premises for conducting a
second-hand store, auction, distress or fire sale or bankruptcy or going-out-of-
business sale, or for any use or purpose in violation of the laws, ordinances,
regulations and requirements of the United States or the State, County and City
where the Shopping Center is located, or any other lawful authority. Tenant
shall, during the Term, keep the Premises in a clean condition, free of any
objectionable noises, odors or nuisances, and shall comply with all health and
police regulations. All trash and rubbish of Tenant shall be deposited only in
receptacles provided by Tenant and no other trash receptacles shall be permitted
to remain outside the Premises or Building. Landlord shall cause such
receptacles to be emptied and trash removed at Tenant's expense. Tenant shall
not cause or permit waste to occur in the Premises and shall not overload any
floor or abuse the plumbing in the Premises.
Tenant may not display or sell merchandise or allow carts, devices or any
other objects to be stored or, to remain outside the defined exterior walls,
roof or permanent doorways of the Premises. No aerials, antennae or satellite
equipment shall be erected on the roof or exterior walls of the Premises or
Building without first obtaining, in each instance, the written consent of
Landlord, which consent shall not be unreasonably withheld. Any aerial or
antenna so installed without Landlord's written consent may be removed without
notice at any time, at Tenant's expense. Tenant shall not solicit or distribute
materials in any manner in any of the Common Areas (including automobile parking
facilities) in the event any other tenant of the Shopping Center reasonably
objects.
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10.2 INSURANCE COVERAGE USE RESTRICTIONS. Tenant shall not do anything in
or about the Premises which increases the insurance rates on the Shopping center
or any part thereof or impairs the ability to maintain insurance coverage on the
Shopping Center, or any part thereof. Tenant agrees to pay to Landlord promptly
upon demand the amount of any increases in Landlord's insurance premiums caused
by Tenant's violation of these restrictions, whether or not Landlord has
consented to such act(s) by Tenant. If Tenant installs any electrical equipment
in the Premises which overloads the electrical lines of the Premises, Tenant
shall, at its expense, make any changes and install any fire extinguishing
equipment required by Landlord's insurance underwriters or applicable fire,
safety and building codes and regulations. Nothing herein contained constitutes
Landlord's consent to such overloading.
10.3 DELIVERIES. Tenant shall use its best efforts to complete all
deliveries, loading, unloading and services to the Premises before 10:00 a.m.
each day. Tenant shall attempt to prevent any 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 Tenant in regard to deliveries to
and servicing of the Premises, and Tenant agrees to abide by such further non-
discriminatory regulations of Landlord. This clause shall not apply to armored
vehicles.
11. UTILITIES SERVICES.
11.1 UTILITIES INSTALLATION. Landlord agrees that to the extent provided
for in Exhibit "C" hereof, it will initially bring up to the interior walls of
Tenant's Premises (i) facilities for the removal of sewage and the delivery to
and distribution within the Premises of water, electricity, telephone and
natural gas (these facilities are collectively referred to in this Article 12 as
"utilities"), and (ii) a heating, ventilation and air conditioning system (the
"HVAC system"). Unless Landlord agrees otherwise, Tenant shall use only those
utilities provided for under Exhibit "C" to serve the Premises. If required
under Exhibit "C", a separate meter shall measure the consumption of utilities
and/or the HVAC system.
If not required to be furnished by Landlord under Exhibit "C", Tenant shall
be responsible for obtaining any utilities and/or HVAC system required for
Tenant's business operations in the Premises.
11.2 UTILITIES AND HVAC SYSTEM CHARGES. Tenant shall pay for all utilities
used by Tenant on the Premises from and after substantial completion of
Landlord's Work in the Premises.
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Landlord, at Landlord's cost, shall cause separate meters for the Premises to be
installed as part of Landlord's Work. Tenant shall pay directly to the
appropriate utility company the cost of all such utilities used on the Premises.
11.3 NO LANDLORD LIABILITY. Landlord shall not be liable in damages or
otherwise for any failure or interruption of (i) any utility service being
furnished to the Premises, or (ii) operation of the HVAC system, unless due to
Landlord's gross negligence or willful misconduct. No such failure or
interruption shall entitle Tenant to terminate this Lease or stop paying any
Rent or other payments due hereunder. If such failure or interruption is caused
by Landlord's gross negligence or willful misconduct and as a result thereof
Tenant cannot conduct its business from the Premises, then, following 48 hours'
prior notice to Landlord, Tenant shall have the right to make any necessary
repairs or take any other reasonable action necessary to restore such utility
service or operation of the HVAC system, without being required to comply with
the provisions of Paragraph 26 hereof, and Tenant shall have the right to
recover from Landlord all costs reasonably incurred by Tenant in restoring such
service.
12. INDEMNITIES.
12.1 Tenant shall indemnify and hold Landlord harmless from any and all
costs, claims or liability of any kind arising out of: (a) Tenant's use and
occupancy of the Premises, (b) the conduct of Tenant's business or any work,
activity or other things allowed or permitted by Tenant to be done in or on the
Premises; (c) any breach or default in the performance of any of Tenant's
obligations under this Lease; (d) any misrepresentation or breach of warranty by
Tenant under this Lease; and/or (e) any other acts or omissions of Tenant, its
agents, employees, invitees, or contractors, except to the extent caused by
Landlord's gross negligence or willful misconduct. Tenant shall, at Tenant's
expense, and by counsel reasonably satisfactory to Landlord, defend Landlord in
any action or proceeding arising from any such claim or liability and shall
indemnify Landlord from and against all costs, attorney's fees, expert witness
fees and any other expenses incurred in such action or proceeding. As a
material part of the consideration for Landlord's execution of this Lease,
Tenant hereby assumes all risk of damage to property or injury to persons in, on
or about the Premises from any cause, and Tenant hereby waives all claims in
respect thereof against Landlord, except for any claim arising out of Landlord's
gross negligence or willful misconduct.
12.2 Landlord shall indemnify and hold harmless Tenant from any and all
costs, claims or liability suffered by Tenant as a
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direct result of Landlord's gross negligence or willful misconduct in connection
with the performance of its agreements and obligations under this Lease.
13. INSURANCE - WAIVER OF SUBROGATION.
13.1 TENANT'S INSURANCE OBLIGATIONS. Tenant shall, from and
after the earlier of (a) substantial completion of Landlord's Work in the
Premises, or (b) commencement of any of Tenant's Work in the Premises, and for
the reminder of the Lease Term maintain, at its expense, the following types of
insurance coverage, in the amounts specified and in the forms hereinafter
provided for:
(i) LIABILITY INSURANCE. Commercial general liability insurance
insuring Tenant against liability for bodily injury, property damage (including
loss of use of property) and personal injury arising out of the operation, use
or occupancy of the Premises. Such policy shall be an occurrence form and shall
include owner's and Contractor's Protective Liability with respect to
construction of improvements by Tenant on the Premises. Tenant shall name
Landlord as an additional insured under such policy. The initial amount of such
insurance shall be not less than $3,000,000 per occurrence. The liability
insurance obtained by Tenant under this Section 13.1 (i) shall (1) be primary
and non contributing; (2) contain cross-liability endorsements; and (3) insure
Landlord against Tenant's performance under Article 12.1(a), (b) and (e) if the
matters giving rise to the indemnity under Article 12 result from the negligence
of Tenant. The amount and coverage of such insurance shall not limit Tenant's
liability nor relieve Tenant of any other obligation under this Lease.
(ii) PLATE GLASS. Insurance covering the full replacement cost of all
plate glass on the Premises, including without limitation any plate glass walls.
Tenant shall have the option to self-insure this risk.
(iii) TENANT IMPROVEMENTS. Insurance covering all of the items
specified as "Tenant's Work" in Exhibit "C", Tenant's leasehold improvements,
alterations, additions or improvements permitted under Article 15, and Tenant's
trade fixtures, merchandise and personal property from time to time in, on or
upon the Premises. Such insurance shall cover not less than 100% of the full
replacement cost of the foregoing from time to time during the Term, and shall
provide protection against any peril included within the classification of fire,
extended coverage, sprinkler leakage, vandalism, theft, malicious mischief and
special extended perils (all risk), except earthquake and flood. Any policy
shall
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name Landlord as loss-payee and policy proceeds shall be used for the repair or
replacement of the property damaged or destroyed unless this Lease is terminated
under the provisions of Article 22 hereof.
(iv) GENERAL INSURANCE PROVISIONS.
a. Any insurance required to be maintained by Tenant hereunder
shall include a provision which requires the insurance carrier to give Landlord
not less than thirty (30) days' written notice prior to any cancellation or
modification of such coverage.
b. A certificate of the insurer or the insurer's legal
representative evidencing the existence and amount of each insurance policy
required of Tenant hereunder shall be delivered to Landlord before the date
Tenant is first given the right of possession of the Premises, and thereafter at
least 30 days prior to the expiration of any such policy. Landlord may, at any
time and from time to time, inspect and/or copy any insurance policies required
to be maintained by Tenant hereunder. No such policy shall be cancelable except
after 30 days' written notice to Landlord. If Tenant fails to deliver any such
evidence of insurance to Landlord required under this Lease within the
prescribed time period or if any such policy is cancelled or modified during the
Lease Term without Landlord's consent, Landlord may obtain such insurance
coverage, in which case Tenant shall reimburse Landlord for the cost of such
insurance within fifteen (15) days after receipt of a statement therefor.
c. All insurance shall be maintained with companies holding a
"General Policy Rating" of A-VIII or better, as set forth in the most current
issue of "Best's Key Rating Guide." Landlord and Tenant acknowledge the
insurance markets are rapidly changing and that insurance in the form and
amounts described in this Section 13.1 may not be available in the future.
Tenant acknowledges that the insurance described in this Section 13.1 is for the
primary benefit of Landlord. If at any time during the Lease Term, Tenant is
unable to maintain the insurance required under the Lease, Tenant shall
nevertheless maintain insurance coverage which is customary and commercially
reasonable in the insurance industry for Tenant's type of business, as that
coverage may change from time to time. Landlord makes no representation as to
the adequacy of such insurance to protect Landlord's or Tenant's interests.
13.2 LANDLORD'S INSURANCE OBLIGATIONS. Landlord shall, in connection with
its ownership and operation of the Shopping center,
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at all times from and after commencement of Landlord's Work in the Premises,
maintain or cause to be maintained in effect policies of insurance providing
protection against the following liabilities and/or risks: (a) commercial
general liability insurance in an amount not less than $3,000,000 combined
single limit for bodily injury and property damage, and (b) fire and extended
coverage insurance (including coverage for Common Area sprinkler damage,
vandalism and malicious mischief, and, if required by any lender holding a
security interest in the Shopping Center or if deemed necessary by Landlord,
flood and earthquake insurance) on the Shopping Center in an amount not less
than the full replacement cost (exclusive of the cost of excavations,
foundations and footings) from time to time during the Term. The types and
coverages of insurance maintained by Landlord hereunder shall be subject to such
further requirements as may be imposed by Landlord's lender. Landlord shall also
have the right to maintain such additional types and coverages of insurance
(including business interruption insurance) as are customary, prudent or
reasonable for shopping centers similar to the Shopping Center. Landlord's
obligation to carry the insurance provided for herein may be satisfied by
blanket policies carried by Landlord or, maintained by one or more tenants of
the Shopping Center so long as the coverage required hereunder is satisfied.
13.3 WAIVER OF SUBROGATION. Landlord and Tenant (for themselves and their
insurers) each hereby waive all rights of recovery against the other and against
the officers, employees, agents and representatives of the other, against any of
the parties to the REA referred to in Article 14 hereof (the "Parties") and
against other tenants of the Shopping Center (provided such Parties and other
tenants have waived such rights against Landlord and Tenant), on account of any
loss by or damage to the waiving party or its property or the property of others
under its control (including as to Tenant the Premises and its contents, and as
to Landlord the other portions of the Shopping Center), to the extent such risk
is covered by insurance; provided that nothing contained in the preceding
sentence shall be deemed to relieve either party of its obligation to carry the
insurance required of such party under this Lease. The foregoing waivers of
subrogation shall be required hereunder only if (a) then available in the State
where the Shopping Center is located, and (b) such waiver does not invalidate
the applicable policy.
14. TITLE OF LANDLORD.
Landlord's estate in the Shopping Center and Tenant's leasehold estate in the
Premises is subject to the liens or restrictions of (a) any matters or documents
of record (the "Matters of Record"),
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including the effect of any covenants, conditions, restrictions, easements,
mortgages or deeds of trust, ground leases, rights of way or any construction,
operation and reciprocal easement agreement (the "REA"); and (b) the effect of
any zoning laws of the City, County and State where the Shopping Center is
located. Tenant agrees that (i) Tenant and all persons in possession of Tenant's
leasehold estate or holding under Tenant will conform to and will not violate
the terms of any REA or any other Matters of Record, and (ii) this Lease is
subordinate to the REA, if any, and any amendments or modifications thereto. If
the REA, if any, is not of record as of the date of this Lease, then this Lease
shall automatically become subordinate to the REA upon recordation of the REA,
provided Tenant has approved such REA, in the exercise of Tenant's reasonable
discretion. Tenant agrees to execute and return to Landlord within 10 days after
written demand therefor by Landlord, an agreement in recordable form
satisfactory to Landlord subordinating this Lease to the REA. Any REA shall not
prevent Tenant from using the Premises for the purposes set forth in Tenant's
Use Clause.
15. TENANT'S RIGHT TO MAKE ALTERATIONS.
15.1 PERMITTED IMPROVEMENTS. Subject to the terms of this Article 15,
Tenant may from time to time after completion of Tenant's Work and at its own
expense, make alterations, additions, improvements and changes (individually and
collectively referred to in this Article 15 as "improvements") in and to the
interior of the Premises after first giving notice to Landlord of the
improvement work proposed to be done and providing Landlord with all plans for
such proposed improvement work. Tenant may "not make any improvement which
reduces the value of the Premises or is of a structural nature. No single
improvement costing more than $2,500, and no improvements in the aggregate
costing more than $10,000 may be made without first obtaining the written
approval of Landlord, which approval shall not be unreasonably withheld. In
addition, no improvement shall be made to any storefront, mechanical system, or
exterior wall or to the roof of the Premises, nor shall Tenant erect any
mezzanine or increase the size of an existing mezzanine, unless and until the
written consent and approval of Landlord is first obtained.
No penetration into or through the roof or floor of the Premises may be
made without Landlord's prior written approval of the reason for such
penetration and the method by which it is to be done. If Landlord approves any
such penetration, Landlord shall have the absolute right to select and supervise
the contractor performing such penetration. Tenant shall be liable for any
damage
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caused by any such penetration, whether or not so approved by Landlord.
Tenant shall reimburse Landlord for all out-of-pocket costs incurred by
Landlord (including architect's and/or engineer's fees) in approving Tenant's
plans for improvements, provided such costs do not exceed $2,500.
15.2 CONSTRUCTION REQUIREMENTS. All improvements to be made to the
Premises which require the approval of Landlord shall be performed under the
supervision of a competent architect or competent licensed structural engineer
and shall be made in accordance with plans and specifications first approved in
writing by Landlord before the commencement of work. All improvements shall be
constructed in a good and workmanlike manner in accordance with all applicable
laws (including any laws relating to the use of hazardous materials, such as
asbestos-containing materials) and diligently completed. Before commencement of
any construction, Tenant shall deliver a copy of any required building permit to
Landlord and shall provide Landlord with a list of all contractors or
subcontractors being used. Upon completion of such improvements, Tenant shall
file a Notice of Completion for record in the office of the County Recorder
where the Shopping Center is located, as required or permitted by law. Tenant
shall provide Landlord with "as built" plans, copies of all construction
contracts, and proof of payment of all labor and materials in connection with
any improvements made to the Premises. Upon expiration or earlier termination
of this Lease, such improvements shall become a part of the Premises and shall
---
not be removed by Tenant, unless Landlord has otherwise agreed in writing.
Without limiting the foregoing, Landlord hereby approves the removal by Tenant
of its portable vault and all contents thereof, its exterior signage and all
non-attached personal property at the end of the Lease Term, provided that
Tenant shall be required to repair all damage caused thereby and to install
finished wall surfaces in accordance with Landlord's specifications. In
constructing such improvements, Tenant shall have the work performed in such a
manner as not to obstruct access to the Premises of any other tenant in the
Shopping Center.
15.3 INSURANCE REQUIREMENT. If Tenant makes any permitted improvements to
the Premises under the provisions of this Article 15, Tenant shall carry
insurance covering any such improvements satisfying the requirements of Section
13.1(iii). It is expressly understood and agreed that no such improvements will
be insured by Landlord under the insurance it may carry upon the Building or
Shopping Center, nor shall Landlord be required to
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reinstall any such improvements made by Tenant under any provision of Article 22
for reconstruction of the Premises.
16. MECHANICS' LIENS.
16.1 TENANT'S COVENANTS. Tenant shall pay all costs for work done by or
for Tenant in the Premises (other than Landlord's Work), and Tenant shall keep
the Premises, Building and Shopping Center free of all mechanics' liens and
other liens on account of work done for Tenant. Tenant shall indemnify, defend
and hold Landlord harmless from and against any and all liability, loss, damage,
costs, attorneys' fees and all other expenses on account of claims of lien of
laborers or materialmen or others f or work performed or materials or supplies
furnished to or for Tenant or persons claiming under Tenant. In addition,
Tenant shall keep Tenant's leasehold interest and any of those improvements to
the Premises which are or become property of Landlord pursuant to this Lease
free of all attachment or judgment liens.
16.2 TENANT'S CONTEST OF LIEN. If Tenant desires to contest any claim of
lien arising from work done by or for Tenant in the Premises, Tenant shall first
furnish Landlord adequate security in the amount of the claim, plus estimated
costs and interest, or a bond of a responsible corporate surety in such amount,
conditioned on the discharge of the lien. If a final judgment establishing the
Validity or existence of any such lien for any amount is entered, Tenant shall
immediately pay and satisfy such judgment.
16.3 LANDLORD'S RIGHT TO CURE. If Tenant is in default in paying any
charge for which a lien claim and suit to foreclose the lien have been filed,
and Tenant has not given Landlord adequate security to protect the Premises, the
property therein, and the Building, Shopping Center and Landlord from liability
for such claim of lien, Landlord may (but shall not be required to) pay the
claim and any associated costs, and the amount so paid, together with reasonable
attorneys' fees incurred in connection with such payment shall be immediately
due and owing from Tenant to Landlord. Tenant shall pay the amounts so owed to
Landlord with interest at the rate of ten percent (10%) per annum from the date
of Landlord's payment.
16.4 NOTICE OF LIEN. If any claim of lien is fired against the Premises or
any action affecting the title to the Premises or the property therein is
commenced, the party receiving notice of such lien or action shall immediately
give the other party written notice thereof.
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16.5 NOTICE OF NON-RESPONSIBILITY. During construction of improvements by
Tenant, Landlord or its representatives shall have the right to enter and
inspect the Premises, upon reasonable advance notice to Tenant, at all
reasonable times and shall have the right to post and keep posted thereon
notices of non responsibility, or such other notices which Landlord deems
proper for the protection of Landlord's interest in the Premises. Tenant shall,
before commencing any work which might result in the filing of a lien, give
Landlord written notice of its intention to so commence work in sufficient time
to enable Landlord to post such notices.
17. ADVERTISING MEDIA.
Tenant shall not affix or maintain upon the glass panes or supports of the show
windows (or within 24 inches of any show window), doors or exterior walls of the
Premises, any signs, advertising placards, names, insignia, trademarks,
descriptive material or any other like item(s) (collectively, "signs") without
having first received the written approval of Landlord (which approval shall not
be unreasonably withheld) as to the size, type, color and location of such item.
Notwithstanding the foregoing, Tenant may affix advertising posters and banners
upon the glass panes of the show windows of a type that are usual and customary
for financial institutions so long as such materials do not constitute a
nuisance and do not violate the terms of any other lease of space in the
Shopping Center. Tenant shall not affix any sign to the roof of the Premises.
Tenant shall not utilize any advertising medium which can be seen or heard
outside the Premises, including without limitation, flashing lights,
searchlights, loudspeakers, phonographs, radios or television. Tenant shall not
display, paint or place any bumper stickers or other advertising devices (other
than handbills) on any vehicle parked in the parking area of the Shopping
Center, nor shall Tenant distribute any advertising devices (other than
handbills) in the Shopping Center.
Prior to initially opening for business in the Premises Tenant, shall erect
its storefront sign(s) in accordance with the provisions of the sign criteria
attached hereto as Exhibit "E". Tenant shall not install, erect or maintain any
sign in violation of any applicable law, ordinance or use permit of any
governmental authority. Upon termination of the Lease, Tenant shall, at
Tenant's sole expense, remove any and all of its signs and repair damage
resulting from such removal, including patching all holes and repainting walls
to match the existing color to the reasonable
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satisfaction of an independent architect and/or designer selected by Landlord.
Tenant shall have the right to maintain or replace a sign upon the free
standing pylon sign to be constructed by Landlord in the location shown on the
Site Plan, subject to Landlord's approval of the size, materials, color, design,
type and location of such sign. Landlord shall secure the approval of all
governmental authorities for the pylon sign, provided it is understood that
Tenant shall be responsible for obtaining approval of its sign face. It is
further understood that Landlord shall have no obligation to construct such
pylon sign in the event Landlord is unable to obtain governmental approval.
Tenant shall share the cost of maintaining and operating such pylon sign with
the other tenants represented on such pylon sign. Tenant shall also pay its pro
rata share of the initial cost of the construction of the pylon sign based on
its share of the sign space represented on said pylon sign. Within 10 business
days after Landlord's submission of the pylon sign design to Tenant, Tenant
shall notify Landlord in writing if it wishes to maintain a place on the pylon
sign on the terms and conditions contained herein. If Tenant fails to notify
Landlord in writing within such 10 business day period that it wishes to
maintain a place on the pylon sign on the terms and conditions contained herein,
Tenant shall have no further right under this Lease to maintain a sign on the
pylon sign.
Subject to obtaining the approval of all other tenants of the Shopping
Center, Tenant shall have the right to construct a monument sign in a location
in front of the Premises to be approved by Landlord. Tenant shall pay all of
the costs of constructing and maintaining such sign to a standard consistent
with the standards, of the Shopping Center. The size, materials, design, color,
type and location of such sign shall be subject to approval by Landlord, which
approval shall not be unreasonably withheld or delayed.
18. FIXTURES AND PERSONAL PROPERTY.
18.1 REMOVAL AND REPLACEMENT. All of Tenant's trade fixtures, furnishings,
furniture, signs and other personal property not permanently affixed to the
Premises (Collectively referred to as "Personal Property") shall be in good
condition when installed in or attached to the Premises by Tenant and shall
remain the property of Tenant. If Tenant is not then in default under the terms
of this Lease, Tenant shall have the right to remove its Personal Property from
the Premises, including without limitation, counters, shelving, showcases,
mirrors and other movable Personal Property, but prior to the expiration of the
Term Tenant may not remove so much of its Personal Property without immediately
replacing it with
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comparable or better quality Personal Property, as to render the Premises
unsuitable for conducting the business specified in Tenant's Use Clause. Tenant
shall, at its expense, immediately repair any damage to the Premises resulting
from removal of its Personal Property, and on the expiration or earlier
termination of the Term shall leave the Premises in a neat and clean condition,
free of debris, reasonable wear and tear and damage from casualty or
condemnation (so long as Tenant assigns any and all proceeds and awards payable
with respect thereto to Landlord) excepted.
18.2 FIXTURES. All improvements to the Premises made by or for Tenant,
excluding Tenant's Personal Property, but including mechanical systems, light
fixtures, floor coverings and partitions and all other items comprising Tenant's
Work pursuant to Exhibit "C" (collectively referred to as "Fixtures"), shall
become the property of Landlord upon expiration or earlier termination of this
Lease, unless Landlord has otherwise agreed in writing.
18.3 PERSONAL PROPERTY TAXES. Tenant shall pay before delinquency all
taxes (including sales and use taxes), assessments, license fees and public
charges levied, assessed or imposed upon its business operations, merchandise,
trade fixtures and/or Personal Property. If any such items of property are
assessed with any other property owned or controlled by Landlord and relating to
the Shopping Center, Tenant shall pay Landlord the taxes attributable to
Tenant's personal property within 15 days after Tenant's receipt of a written
statement from Landlord setting forth such personal property taxes. Landlord
shall reasonably determine the basis of prorating any such assessments and such
determination shall be binding on Landlord and Tenant, absent manifest error.
No taxes, assessments, fees or charges referred to and billed to Tenant under
this paragraph shall be considered to be taxes under the provisions of Section
9.2 hereof.
19. ASSIGNING, MORTGAGING, SUBLETTING, CHANGE IN OWNERSHIP.
19.1 ONE YEAR PROHIBITION AGAINST TRANSFER. Landlord and Tenant
acknowledge that the Shopping Center is an interdependent enterprise and that
each party's realization of the benefits of this Lease depends upon Tenant's
creating and maintaining a successful and profitable retail operation in the
Premises. Landlord and Tenant further acknowledge that the character and quality
of Tenant's operation, and of the Shopping Center, will be enhanced by Tenant's
use of its best efforts, for a reasonable period of time, to establish a
successful business and business image. Landlord and Tenant further agree that
one year is a reasonable period of time to attempt to achieve this goal.
Accordingly, Tenant agrees that for a period of one year from the
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date Tenant initially opens to the public for business in the Premises (the
"Occupancy Period"), Tenant shall not, and shall not have the power to, transfer
or assign this Lease, sublet the Premises, enter into license or concession
agreements, or change ownership (such transactions are hereinafter individually
and collectively referred to as a "Transfer"), without first procuring the
written consent of Landlord, which may be given or withheld in Landlord's sole
and absolute discretion. Notwithstanding the foregoing, a merger, stock sale or
other corporate reorganization of Tenant shall not constitute a "Transfer" for
purposes of this Paragraph 19.1 only. After the expiration of the Occupancy
Period, Landlord's consent to any Transfer shall not be unreasonably withheld,
subject to the terms, covenants and conditions contained below.
19.2 RESTRICTIONS ON TRANSFER. If after expiration of the Occupancy Period
Tenant desires to effect a Transfer to anyone (a "Transferee") other than a
successor, subsidiary, affiliated or controlling corporation of Tenant (an
"Affiliate"), Tenant shall give written notice ("Transfer Notice") to Landlord
at least 30 days before the effective date of any such proposed Transfer. The
Transfer Notice shall state (a) whether Tenant proposes to assign the Lease,
sublet the Premises, enter into a license or concession agreement or change
ownership, (b) the proposed effective date of the Transfer, (c) the identity of
the proposed Transferee, (d) all other material terms of the proposed Transfer,
and (e) in detail the type of business operation the proposed Transferee intends
to conduct on the Premises. The Transfer Notice shall be accompanied by a copy
of the proposed agreement documenting the Transfer, or if none, a copy of any
offers, draft agreements, letters of commitment or intent and other documents
pertaining to the proposed Transfer. In addition, the Transfer Notice shall be
accompanied by the proposed Transferee's income statements and balance sheets
covering the preceding 36-month period, and each shall be certified as accurate
by the Transferee. Landlord may, at any time within 30 days after its receipt
of Transfer Notice, grant or withhold consent to such proposed Transfer (which
consent shall not be unreasonably withheld under thee business judgment
standards set forth in Section 19.3 below) by mailing written notice to Tenant
of its decision ("Decision Notice"). If Landlord consents to the proposed
Transfer, Tenant may thereafter promptly effect a Transfer in accordance with
the terms of Tenant's Transfer Notice.
If Landlord consents to the proposed Transfer and Tenant does not
consummate the proposed Transfer within 30 days after receipt of the Decision
Notice, the provisions of the first paragraph of this Section 19.2 shall again
apply.
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19.3 GROUNDS FOR WITHHOLDING CONSENT. Landlord may withhold consent to a
proposed Transfer if, in Landlord's reasonable business judgment, any of the
following is the case: (i) the proposed Transfer may result in deterioration in
the quality of operation conducted in the Premises, as compared to the
operation, conducted by Tenant prior to the date of Transfer Notice; (ii) the
proposed Transferee lacks a good business reputation or sufficient relevant
business experience in Landlord's reasonable judgment; (iii) the financial worth
of the proposed Transferee as of the date of the Transfer Notice is (x) less
than the financial worth of Tenant as of the date of this Lease, if the date of
the Transfer Notice is during the original term of this Lease, or (y) less than
$5,000,000 (as adjusted for changes in the Consumer Price Index, Los
Angeles/Anaheim/Riverside area, All Urban Wage Earners), if the date of the
Transfer Notice is during an option period; (iv) the proposed Transferee's
proposed use of the Premises conflicts with Tenant's Use Clause and/or Article
10; or (vi) the proposed Transfer would breach any covenant of Landlord
respecting restrictions, use or exclusivity rights in any other lease, or any
financing or other agreement relating to the Shopping Center. Any attempted or
purported Transfer without Landlord's written consent shall be void and of no
force or effect.
19.4 NO RELEASE FROM LIABILITY. No Transfer, whether with or without
Landlord's consent, shall relieve Tenant or any guarantor of Tenant's
obligations under this Lease, if any, from its covenants and obligations
hereunder during the Term. Tenant shall, promptly upon demand, reimburse
Landlord for Landlord's reasonable attorneys' fees incurred in conjunction with
the processing and documentation of any requested Transfer, up to $2,500.
19.5 TRANSFEREE'S OBLIGATIONS. Each Transfer to which Landlord has
consented shall be evidenced by a written instrument in form reasonably
satisfactory to Landlord, and executed by Tenant and the Transferee. Each such
Transferee shall agree in writing for the benefit of Landlord to assume, be
bound by, and perform the terms, covenants and conditions of this Lease to be
performed, kept or satisfied by Tenant, including the obligation to pay to
Landlord all amounts coming due under this Lease. One fully executed copy of
such written instrument shall be delivered to Landlord. Failure to obtain in
writing Landlord's prior consent or otherwise comply with the provisions of this
Article 19 shall prevent any Transfer from becoming effective.
19.6 DIVISION OF PROFIT BETWEEN LANDLORD AND TENANT. Any sums or other
economic consideration received by Tenant as a result of a Transfer, however
denominated, which exceed, in the aggregate, (i) the total sums which Tenant is
obligated to pay Landlord under
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this Lease (prorated to reflect obligations allocable to any portion of the
Premises subleased), plus (ii) the unamortized value of leasehold improvements
to the Premises paid for by Tenant prior to the date of Transfer Notice,
depreciated on a straight-line basis over the Term, plus (iii) any real estate
brokerage commissions or fees payable by Tenant in connection with such
Transfer, plus (iv) costs of renovation or construction of improvements to the
Premises for the benefit of the Transferee required to be paid for by Tenant as
a part of the Transfer, shall be divided equally between Landlord and Tenant.
Landlord's share of such profit shall be paid to Landlord promptly following its
receipt, as additional rent under this Lease. Such payments shall not affect or
reduce any other obligations of Tenant hereunder.
19.7 FURTHER RESTRICTIONS. Tenant shall not, without the prior written
consent of Landlord (which consent shall not be unreasonably withheld), mortgage
or hypothecate this Lease or any interest herein. Tenant shall not permit the
Premises to be used by any party other than Tenant or a permitted Transferee.
Any of the foregoing acts without such consent shall be void and shall, at the
option of Landlord, constitute an uncurable default under this Lease. For
purposes of this Article 19, if Tenant is a partnership, any withdrawals or
change(s) of partners cumulatively owning a 50% or more interest in the
partnership, or if Tenant is a corporation, any transfer(s) cumulating 50% or
more of its stock, shall constitute a voluntary Transfer and shall be subject to
the provisions hereof. This Lease shall not, nor shall any interest of Tenant
herein, be assignable by operation of law without the written consent of
Landlord.
20. TENANT'S CONDUCT OF BUSINESS.
20.1 TENANT'S OPERATING COVENANTS. Tenant agrees that from and after its
initial opening for business it shall, subject to the provisions of Section 22.5
hereof, operate and conduct its business in the Premises during normal and usual
banking hours. Tenant shall at all times keep Premises in a neat, clean and
orderly condition.
20.2 Tenant recognizes that it is in the interests of both Tenant and
Landlord to regulate the minimum hours of business for all tenants of the
Shopping Center and Tenant agrees that commencing with its opening for business
in the Premises and for the remainder of the Term, it shall continuously open
for business during normal and usual banking hours.
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21. REPAIR AND MAINTENANCE OF THE PREMISES.
21.1 TENANT'S OBLIGATIONS. Tenant shall, at its expense and at all times
from and after substantial completion of the Premises, repair, replace and
maintain in good and tenantable condition, the Premises and every part thereof
(except portions of the Premises to be maintained by Landlord under Section
21.2), including without limitation, the utility meters, pipes and conduits
serving the interior of the Premises all fixtures, the storefront, plate glass,
all signs, locks and closing devices, all window sashes, casements or frames,
doors and door frames, security grilles or similar enclosures, floor coverings,
including carpeting, terrazzo or other special flooring, all other equipment
installed in the Premises, and all such items of repair, maintenance, alteration
and improvement or reconstruction to the Premises as may at any time or from
time to time be required by any governmental agency having jurisdiction thereof.
All exterior and interior glass in the Premises shall be maintained by Tenant
and any glass broken shall be promptly replaced by Tenant at its expense with
glass of the same kind, size and quality.
Tenant shall, at Tenant's expense, contract with a qualified service
company for the monthly maintenance of the HVAC system serving the Premises.
Upon surrender of the Premises, Tenant shall deliver the Premises to
Landlord in good order, condition and repair, but Tenant shall not be
responsible for ordinary wear and tear to the Premises, damage due to insured
casualty losses covered by Article 22 or for any items of repair which are
Landlord's obligation under Section 21.2.
21.2 LANDLORD'S OBLIGATIONS. Subject to Sections 21.1 and 24.2, Landlord
shall, at the sole expense of Landlord, repair and maintain in good and
tenantable condition the roof, exterior walls, building systems (except as
otherwise provided in Paragraph 21.1 above) structural parts of the Premises
(including the foundation and structural floor) serving the Premises. Subject
to Section 24.2, no expenses incurred by Landlord in performing its obligations
under this Section 21.2 shall be included as Rent under this Lease.
Notwithstanding anything to the contrary contained herein, Tenant shall be
responsible for the cost of general maintenance and repairs to the HVAC system
serving the Premises, and Tenant shall be responsible at its expense for making
any repairs necessitated by reason of the negligence of Tenant, or by reason of
the failure of Tenant to perform or observe any of its obligations under this
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Lease or by reason of alterations, additions, or improvements to the Premises
made by tenant. Notwithstanding the foregoing, Landlord shall have the right
(but shall not be required) to make such repairs so necessitated by Tenant. If
Landlord elects to make such repairs on Tenant's behalf, Tenant shall pay to
Landlord any such costs incurred by Landlord promptly following receipt of a
bill therefor. Landlord shall assign to Tenant for Tenant's benefit during the
Term of this Lease all manufacturers' warranties relating to the HVAC system.
It is understood and agreed that Landlord is under no obligation to make
any repairs, alterations, replacements or improvements to the Premises or the
mechanical equipment exclusively serving the Premises at any time except as
expressly set forth in this Lease.
Notwithstanding anything to the contrary contained in this Lease, Landlord
shall not be liable to Tenant for failure to make repairs required of Landlord
hereunder unless Tenant has previously notified Landlord in writing of the need
for such repairs and Landlord has failed to commence and complete those repairs
within a reasonable period of time following receipt of Tenant's notice.
21.3 TENANT'S FAILURE TO MAINTAIN PREMISES. If Tenant fails to repair or
maintain the Premises, or any part thereof, as required by this Lease, Landlord
shall have the right (in addition to all other rights and remedies provided
herein for breach of this Lease), upon giving Tenant reasonable written notice
of its election to do so (and reasonable opportunity to cure), 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 to Landlord by Tenant promptly
following receipt of a bill therefor.
21.4 LANDLORD'S RIGHT OF ENTRY. Landlord or its authorized
representatives, upon reasonable prior notice to Tenant may enter the Premises
at reasonable times during business hours to inspect the Premises, make repairs
to the Premises authorized hereunder or perform any work therein (i) needed to
comply with any laws, ordinances, rules or regulations of any public authority
or the insurance services office or any similar body, (ii) that Landlord deems
necessary to prevent waste or deterioration in or to the Premises if Tenant
fails to make repairs or perform required work promptly after receipt of written
demand from Landlord, or (iii) that Landlord deems necessary in connection with
the expansion, reduction, remodeling, or renovation of any portion of the
Shopping Center. During such entry by Landlord and its authorized
representatives, Landlord and its authorized representatives shall
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comply with Tenant's security requirements and shall at all times be accompanied
by Tenant. Nothing herein implies any duty of Landlord to do any such work
which, under any provision of this Lease, Tenant is required to do, nor shall
Landlord's performance of any repairs on behalf of Tenant constitute a waiver of
Tenant's default in failing to do such work. No exercise by Landlord of any
rights hereunder shall entitle Tenant to any compensation, damages or abatement
of Rent for any injury or inconvenience occasioned by such exercise, unless
caused by Landlord's gross negligence or willful misconduct. If Landlord makes
or performs any repairs provided for in (i) or (ii) above, Tenant shall pay the
cost thereof to Landlord as additional rent promptly upon receipt of bill
therefor.
22. CASUALTY DAMAGE AND RECONSTRUCTION.
22.1 INSURED CASUALTY. If the Premises are damaged by fire or other perils
covered by Landlord's fire and extended coverage insurance, then within 45 days
after the insurer's and Landlord's written approval of the insurer's proposed
insurance payment, Landlord shall commence repair, reconstruction and
restoration of the Premises and diligently complete such repairs, in which event
this Lease shall continue in full force and effect. Notwithstanding the
foregoing, if there is partial or total destruction of the Premises during the
last three (3) years of the Term, Landlord and Tenant shall each have the option
to terminate this Lease by written notice to the other given 30 days after such
destruction; provided, however, Tenant may negate Landlord's election to
terminate this Lease under this paragraph by notifying Landlord in writing
within 30 days thereafter that Tenant agrees to extend the term of the Lease for
an additional five (5) years following the scheduled expiration of the Term, on
the same terms and conditions as would be in effect during the last year of the
Term except that the initial Minimum Annual Rent for the first year of the
extension term shall be the Fair Rental Value of the Premises, as determined in
accordance with Paragraph 2 of the Addendum, and such Minimum Annual Rent shall
increase three percent (3%) per year at the beginning of the second and each
subsequent year of such extension term. If Tenant so elects, Landlord shall
commence repair, reconstruction and restoration of the Premises and diligently
complete same. During the period of reconstruction or repair by Landlord,
Tenant shall have the right to operate its business from a trailer situated at a
place in the Common Area to be designated by Landlord so long as such operation
does not violate the terms of applicable law or the terms of any other lease of
space in the Shopping Center. Notwithstanding anything to the contrary
contained in Section 22.2, the provisions of this Section 22.1 shall also apply
in the event of a casualty due to
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earthquake if (a) Tenant maintains earthquake insurance for such risk and
Landlord receives and approves the insurer's insurance payment, and (b) Landlord
determines, in its reasonable discretion, that it is economically feasible for
Landlord to repair or reconstruct the Shopping Center.
22.2 UNINSURED CASUALTY. If the Premises are damaged by act of war,
nuclear reaction, nuclear radiation or radioactive contamination, or from any
other casualty not covered by Landlord's fire and extended coverage insurance
(including flood or earthquake damage if not covered under insurance maintained
by Landlord) and the cost of repairing or restoring the Premises exceeds Twenty
Five Thousand Dollars ($25,000), Landlord may following the date of such damage,
either (a) commence repair, reconstruction or restoration of the Premises and
diligently complete it, in which event this Lease shall continue in full force
and effect, or (b) elect not to repair, reconstruct or restore the Premises, in
which event this Lease shall cease and terminate as of the date of destruction.
In either such event Landlord shall give Tenant written notice of its election
hereunder within 90 days. If Landlord elects to reconstruct the Premises,
Tenant shall have the right to operate its business from a trailer situated at a
place in the Common Area to be designated by Landlord so long as such operation
does not violate applicable law or the terms of any other lease of space in, the
Shopping Center.
22.3 RECONSTRUCTION RESPONSIBILITIES. Any reconstruction of the Premises
under this Article 22 shall conform to the provisions of Exhibit "C" and shall
cover all work set forth therein as "Landlord's Work" and "Tenant's Work".
Landlord shall reconstruct the Premises only to the extent of Landlord's Work.
Tenant, at its expense, shall reconstruct all items set forth as Tenant's Work,
and shall replace its merchandise, trade fixtures, furniture, furnishings and
equipment. Tenant shall commence reconstruction of Tenant's Work promptly upon
delivery to it of possession of the Premises by Landlord with Landlord's Work
substantially completed and shall diligently complete Tenant's Work, replace its
merchandise, trade fixtures, furniture, furnishings and equipment, and resume
normal business operations in the Premises.
22.4 RELEASE FROM LIABILITY. Upon any termination of this Lease under any
of the provisions of this Article 22, each party shall be released from further
obligations to the other party under this Lease, except for any obligations
which have previously accrued. In the event of termination of this Lease, all
proceeds from Tenant's fire and extended coverage insurance under Section 13.1
covering the items set forth as "Tenant's Work" in Exhibit "C" and Tenant's
leasehold improvements, but excluding
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proceeds for trade fixtures, furnishings, furniture, merchandise, signs and
other personal property, shall be paid to Landlord.
22.5 ABATEMENT OF RENT. In the event of reconstruction of the Premises
under this Article 22, the Minimum Annual Rent otherwise payable under this
Lease shall be abated proportionately with the degree to which Tenant's use of
the Premises is impaired. Such abatement shall commence on the date of
destruction and continue during any period of reconstruction and replacement
provided for in Section 22.3. Tenant shall continue to operate its business on
the Premises during any such abatement period to the extent practical as a
matter of prudent business management, and the obligation of Tenant to pay Rent
hereunder shall remain in full force and effect. 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, Building, Shopping Center or Tenant's personal
property, or for any inconvenience or annoyance suffered by reason of damage or
destruction thereto, or the reconstruction or replacement thereof, unless caused
by Landlord's gross negligence or willful misconduct.
22.6 WAIVER OF STATUTORY RIGHTS OF TERMINATION. Tenant hereby waives any
statutory rights of termination which may arise by reason of any partial or
total destruction of the Premises, Building or Shopping Center which Landlord is
obligated to restore or may restore under any of the provisions of this Lease.
23. EMINENT DOMAIN.
23.1 TAKINGS RESULTING IN TERMINATION. If the entire Premises is
appropriated or taken (a "taking") under the power of eminent domain by any
public or quasi-public authority (an "authority"), this Lease shall terminate as
of the date of such taking.
If 25% or more of the Floor Area of the Premises is taken under the power
of eminent domain by any authority, or if such taking renders the Premises
unusable as a bank, either Landlord or Tenant may terminate this Lease as of the
date Tenant is required to vacate a portion of the Premises, upon giving notice
in writing of such election within 30 days after receipt by Tenant from Landlord
of written notice that the Premises have been so taken. Landlord shall promptly
give Tenant notice in writing of any taking after learning of it.
If this Lease is terminated as provided in this Section 23.1 Landlord and
Tenant shall each be released from any further obligations to the other party
under this Lease, except for any obligations which have previously accrued.
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23.2 TAKINGS NOT RESULTING IN TERMINATION. If both Landlord and Tenant
elect not to exercise any right granted hereunder to terminate this Lease in
connection with a taking, or the Lease is not terminable in connection with a
taking, Tenant shall continue to occupy that portion of the Premises which was
not taken, and (a) at Landlord's cost and expense and as soon as reasonably
possible, Landlord will restore the Premises on the land remaining to a complete
unit of like quality and character as existed prior to such taking; and (b) the
Minimum Annual Rental provided for in Section 3.f. and Article 9 shall be
reduced on an equitable basis, taking into account the relative value of the
portion of the Premises taken as compared to the portion remaining. Tenant
hereby waives any statutory rights of termination which may arise by reason of
any partial taking of the Premises under the power of eminent domain.
23.3 AWARD. If this Lease is terminated under Section 23.1, or modified
under Section 23.2, Landlord shall be entitled to receive the entire
condemnation award for the taking of all real property interests in the
Premises. The Rent and other charges for the last month of Tenant's occupancy
shall be prorated and Landlord shall refund to Tenant any Rent or other charges
paid in advance. Notwithstanding the foregoing and provided Tenant's award does
not reduce Landlord's award, Tenant's right to receive a condemnation award for
the taking of its merchandise, Personal Property, goodwill, relocation expenses
and/or interests in other than the real property taken shall not be affected in
any manner by the provisions of this Section 23.3.
23.4 TRANSFER UNDER THREAT OF TAKING. For the purposes of this Article 23,
a voluntary sale or conveyance under threat of and in lieu of condemnation shall
be deemed a taking under the power of eminent domain.
24. COMMON AREAS.
24.1 USE OF COMMON AREAS. Tenant and its employees and invitees, except as
otherwise specifically provided in this Lease or the Shopping Center rules and
regulations or as otherwise designated from time to time by Landlord, are
authorized to use the Common Areas in common with other persons during the Term.
Landlord agrees that the Common Areas shall be initially constructed on the
areas generally shown on Exhibit "A," and, subject to the preceding sentence,
shall be maintained and operated at all times following completion thereof for
the benefit and/or use of the customers and patrons of Tenant and of other
tenants, owners and occupants of the Shopping Center. The original
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construction and installation of the Common Areas shall be at Landlord's
expense.
24.2 LANDLORD'S MAINTENANCE RESPONSIBILITIES; COMMON AREA COSTS. Landlord
shall keep the Common Areas and Shopping Center neat, clean and orderly,
property lighted and landscaped, and shall repair any damage to Common Area and
Shopping Center facilities, unless caused by Tenant's negligence or intentional
acts. Notwithstanding the foregoing, all expenses incurred by Landlord in
connection with the operation, repair, cleaning and maintenance of the Common
Areas and the Shopping Center ("Common Area Costs") shall be charged and
prorated in the manner set forth in this Article 24.
Common Area Costs shall include, without limitation., all sums expended in
connection with the Common Areas and Shopping Center for: general maintenance
and repairs; resurfacing; painting (including graffiti removal); re-striping;
cleaning; trash removal; snow and ice removal; sweeping and janitorial services;
lighting, and other utility expenses; maintenance, repair, cleaning and
replacement of public toilets, music program equipment and loudspeakers,
sidewalks, stairways, curbs, Shopping Center signs, sprinkler systems, planting
and landscaping, floors, walls, ceilings, roofs, skylights, windows, directional
signs, markers and bumpers, fire protection systems and equipment (including
fire sprinklers), security systems, lighting systems and fixtures (including
replacement of tubes and bulbs), storm drainage systems, plumbing, electrical,
and other utility systems which do not exclusively serve the interior of
tenants' premises, and all mechanical equipment (including automatic door
openers, escalators and elevators); personnel to implement the foregoing
services, including, if Landlord deems necessary, the cost of security guards;
all on-site costs and personnel expenses of Landlord incurred to manage the
Shopping Center (which may be contracted for with third parties) but excluding
time spent managing other property owned or leased by Landlord; all Property
Taxes on the improvements and land comprising the Common Areas and Shopping
Center or any personalty in use on the Common Areas or shopping Center; any sums
paid to third parties for the purpose of seeking reduction of Property Taxes;
any governmental imposition or surcharge imposed upon Landlord or assessed
against any portion of the Common Areas or Shopping Center; depreciation on
maintenance and operating machinery and equipment (if owned) and rental paid for
such machinery and equipment (if rented); and premiums for adequate
comprehensive general liability and property damage insurance covering
Landlord's ownership and operation of the Common Areas and Shopping Center,
including without limitation, fire and extended coverage insurance on the Common
Areas and the Shopping
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Center (which may include earthquake and flood damage endorsements) and
vandalism and plate glass insurance covering the Common Areas and Shopping
Center. In addition, Common Area Costs shall include a sum to be payable to
Landlord for supervision of the Common Areas and for accounting, bookkeeping and
collection of Common Area Costs, in an amount equal to 10% of the total of all
of the foregoing Common Area Costs incurred in each calendar year. Landlord may
have any or all services and management performed in connection with the Common
Areas and Shopping Center provided by an independent contractor(s). In the event
Food 4 Less exercises its option to provide security for its control area, the
pro-rata share for determining Tenant's share of security is to be based on the
Shopping Center containing approximately 42,198 square feet of Floor Area.
If Landlord acquires, constructs or makes available for Common Area
purposes land or improvements not shown as part of the Shopping Center on
Exhibit "A", then Common Areas Costs shall also include all of the expenses
itemized above incurred and paid in connection with such additional land or
improvements.
24.3 METHOD OF PAYMENT.
(i) From and after the date Rent has commenced, and thereafter during
the Term, Tenant shall pay to Landlord, on the first day of each calendar month,
an amount estimated by Landlord to be Tenant's Proportionate Share of Common
Area Costs for the period covered by such estimate. This estimated monthly
charge may be adjusted by Landlord at the end of any calendar month on the basis
of Landlord's experience and reasonably anticipated Common Area Costs.
(ii) Within 60 days following the end of each calendar year (or as
soon thereafter as possible), Landlord shall furnish Tenant with a statement
showing the actual total of Common Area Costs for the preceding year, the actual
amount of Tenant's Proportionate Share of Common Area Costs for that year and
the payments made by Tenant for that year under subparagraph (i) above. If
Tenant's Proportionate Share of Common Area Costs exceeds the, estimated
payments made by Tenant under subparagraph (i) above, Tenant shall pay Landlord
the deficiency within 30 days after receipt of such statement. If Tenant's
estimated payments exceed Tenant's Proportionate Share of Common Area Costs,
Tenant may offset the excess against payments thereafter coming due under
subparagraph (i) above or receive a refund following the expiration of the Term.
There shall be an appropriate adjustment of Tenant's Proportionate Share of
Common Area Costs as of the commencement of
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Rent and expiration of the Term. Landlord's and Tenant's obligations hereunder
shall survive expiration of the Term.
Tenant's failure to pay any sums due hereunder shall constitute a default
under this Lease equivalent to a failure to pay Minimum Annual Rent when due.
Tenant shall have the right to audit the Common Area costs and the Property
Taxes and Tenant's Proportionate Share of Common Area Costs for a period of one
(1) year after the year to which such Common Area Costs and Property Taxes
relate. Upon Tenant's request and at Tenant's expense, Landlord shall provide
Tenant with copies of all books, supporting documents and other information
reasonably requested by Tenant to assist Tenant in its audit. The costs and
expenses of any audit shall be borne by Tenant, unless the audit shows a
discrepancy of at least three percent (3%) of Common Area Costs (inclusive of
Property Taxes) stated by Landlord, in which case Landlord shall reimburse
Tenant for all of the costs and expenses of the audit. If requested by Tenant,
Landlord shall provide adequate work space within Landlord's offices for
Tenant's authorized representatives to review such books, supporting documents
and other information.
24.4 CONTROL OF COMMON AREAS. Landlord shall have the right at all times
to determine the nature and extent of the Common Areas and to make changes from
time to time which in Landlord's opinion are desirable and in the best interests
of all persons using the Common Areas. Landlord's rights hereunder include
without limitation, the right to install, remove, relocate and change driveways,
entrances, exits, automobile parking spaces, the direction and flow of traffic,
prohibited areas, landscaped areas, utilities and all facilities of the
foregoing, provided Landlord does not materially change the size or location of
the Premises or the principal means of ingress to or egress from the Premises or
reduce the parking space availability below the City of Los Angeles'
requirements.
Landlord shall have exclusive control of the Common Areas, and may, without
limitation, lease space within the Common Areas to tenants for the sale of
merchandise or services, and permit advertising displays, educational displays
and entertainment in the Common Areas: provided, however, none of the foregoing
shall materially adversely affect the visibility or accessibility of the
Premises. Landlord may at any time and from time to time during the Term
exclude and restrain any person from use or occupancy of the Common Areas,
except for bona fide employees, customers, patrons and service suppliers of
Tenant and other tenants and occupants of the Shopping Center who use the Common
Areas in
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accordance with the rules and regulations then established by Landlord. The
rights of Tenant under this Article 25 shall at all times be subject to the
rights of Landlord, the other tenants of Landlord and the other owners and
occupants of the Shopping Center to use the Common Areas in common with Tenant.
Tenant shall not create or permit any obstructions in the Common Areas and shall
permit its customers, patrons and service suppliers to use the Common Areas only
for normal parking and ingress and egress to and from the Building occupied by
Tenant.
24.5 RULES AND REGULATIONS. Landlord shall have the right to establish,
and from time to time change, alter and amend, and to enforce against Tenant and
the other users of the Common Areas, such reasonable and nondiscriminatory rules
and regulations (including the exclusion of employees parking from common Areas
from November 15 through and including January 4 of each year) as Landlord may
deem necessary or advisable for the proper and efficient operation and
maintenance of the Common Areas and Shopping Center. The rules and regulations
may including without limitation, the hours during which the Common Areas,
including any enclosed mall, shall be open for use.
24.6 EMPLOYEE PARKING. Landlord shall at all times have the right to
designate a particular parking area to be used by employees of Tenant and other
occupants of the Shopping Center and any such designation may be changed by
Landlord 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 from time to time with an accurate
current list of its employees' automobile license plate numbers within 15 days
after taking possession of the Premises and thereafter within 5 days after any
change in the accuracy of the list. If Tenant or its employees fail to park
their cars in designated parking areas, Landlord may charge Tenant $25.00 per
day per car for each such violation after notice to Tenant and shall have the
right to have any such car towed away. All amounts due under the provisions of
this Section 24.6 shall be payable by Tenant within 10 days after demand by
Landlord. Subject to Section 24.5 above, Tenant shall be entitled to ten (10)
single parking spaces for its employees, at no cost, for the term of the Lease
and options, if exercised.
25. DEFAULTS BY TENANT.
25.1 EVENTS OF DEFAULT. Each of the following shall constitute a material
default and breach under this Lease:
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a. If Tenant is at any time in default of its obligation to pay any
Rent or other charges, and such default continues for more than 10 days after
written notice of such default;
b. If Tenant is in default in the prompt and full performance of any
other of its obligations under this Lease and such default continues more than
30 days after written notice specifying the particulars of such default or if
such default is not capable of cure within 30 days, Tenant fails to commence
such cure within 30 days and thereafter diligently prosecute such cure to
completion.
c. If Tenant vacates or abandons the Premises or otherwise fails to
occupy and operate the Premises in accordance with Article 21;
d. (i) If Tenant or any guarantor of this Lease makes a general
assignment or general arrangement for the benefit of creditors; or (ii) if a
petition for adjudication of bankruptcy or for reorganization or rearrangement
is filed by or against Tenant or any guarantor and is not dismissed within sixty
(60) days; or (iii) if a trustee or receiver is appointed to take possession of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease and possession is not restored to Tenant within sixty
(60) days; or (iv) if substantially all of Tenant's assets located at the
Premises or of Tenant's interest in this Lease is subjected to attachment,
execution or other judicial seizure which is not discharged within sixty (60)
days. If a court of competent jurisdiction determines that any of the acts
described in this subparagraph (d) is not a default under this Lease, and a
trustee or receiver is appointed to take possession of Tenant's assets or if
Tenant remains a debtor in possession and such trustee or Tenant transfers
Tenant's interest in this Lease, then Landlord shall receive, as additional
rent, the excess, if any, of the rent (or any other consideration) paid in
connection with such assignment or sublease over the Rent payable by Tenant
hereunder; or
e. If any guarantor of the Lease revokes or otherwise terminates, or
purports to revoke or otherwise terminate, any guaranty of all or any portion of
Tenant's obligations under the Lease. Unless otherwise expressly provided, no
guaranty of the Lease is revocable.
25.2 REMEDIES UPON BREACH OF LEASE. On the occurrence of any breach of
this Lease by Tenant, Landlord may at any time thereafter, with or without
notice or demand and without limiting
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Landlord in the exercise of any right or remedy which Landlord may have:
a. Terminate Tenant's right to possession of the Premises and
reenter the Premises by any lawful means, in which case this Lease shall
terminate. In such case Tenant shall immediately surrender possession of the
Premises to Landlord; or
b. Maintain Tenant's right to possession of the Premises, in which
case this Lease shall continue in effect whether or not Tenant has abandoned the
Premises. In such event Landlord shall be entitled to enforce all Landlord's
rights and remedies under this Lease, including the right to recover the Rent as
it becomes due and Landlord shall have the right to occupy or re-let the whole
or any part of the Premises for the account of Tenant; or
c. Pursue any other remedy now or hereafter available to Landlord
under the laws or judicial decisions of the state in which the Shopping Center
is located.
If Landlord reenters the Premises under the provisions of subparagraph (b)
above, Landlord shall not be deemed to have terminated this Lease, or the
liability of Tenant to pay any Rent or other charges that are due or thereafter
accruing, or Tenant's liability for damages under any of the provisions hereof.
In the event of any entry or taking possession of the Premises as aforesaid,
Landlord shall have in addition to its rights under Section 25.4 hereof, the
right, but not the obligation, to remove from the Premises any personal property
located therein and to place it in storage at a public warehouse at the expense
and risk of Tenant.
Notwithstanding any other term or provision hereof to the contrary, this
Lease shall terminate in accordance with applicable law on the occurrence of any
act which affirms Landlord's intention to terminate this Lease as provided in
Section 25.2, including the filing of unlawful detainer action against Tenant.
On such termination, Landlord's damages for default shall include all costs and
fees, including reasonable attorneys' fees, incurred by Landlord in connection
with the filing, commencement, pursuing or defending of any action in any
bankruptcy court or other court with respect to the Lease, the obtaining of
relief from any stay in bankruptcy restraining any action to evict Tenant, or
the pursuing of any action with respect to Landlord's right to possession of the
Premises. All such damages suffered (apart from Minimum Annual Rent and other
Rent payable hereunder shall constitute pecuniary damages which must be
reimbursed to Landlord prior to assumption of
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the Lease by Tenant or any successor to Tenant in any bankruptcy or other
proceeding.
Landlord's exercise of any right or remedy shall not prevent it from
exercising any other right or remedy.
It is understood and agreed that this Lease is a lease of real property in
a shopping center within the meaning of 11 U.S.C. Section 365(b)(3) of the
Bankruptcy Code.
25.3 LANDLORD'S DAMAGES. If Landlord elects to terminate this Lease and
Tenant's right to possession of the Premises in accordance with the provisions
of this Lease, Landlord may recover from Tenant as damages, all of the
following:
(i) The worth at the time of award of any unpaid Rent and other
charges which has been earned at the time at such termination; plus
(ii) The worth at the time of award of the amount by which the unpaid
Rent and other charges which would have been earned after termination until the
time of award exceeds the amount of such rental loss Tenant proves Landlord
could have reasonably avoided; plus
(iii) The worth at the time of award of the amount by which the unpaid
Rent and other charges which Tenant would have paid for the balance of the Term
after the time of award exceeds the amount of such rental loss that Tenant
proves Landlord could have reasonably avoided; plus
(iv) Any other amount necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform its 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 in (a) maintaining or preserving the Premises, after such default,
(b) recovering possession of the Premises, including reasonable attorneys' fees
therefor, (c) expenses of re-letting the Premises to a new tenant, including
necessary renovations or alterations of the Premises, reasonable attorneys' fees
incurred, and customary leasing commissions incurred; plus
(v) Such other amounts in addition to or in lieu of the foregoing as
may be permitted from time to time by the laws of the State where the Shopping
Center is located.
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As used in subparagraphs (i) and (ii) above, the "worth at the time of
award" is computed by allowing interest on unpaid amounts at the rate of 10% per
annum. As used in subparagraph (iii) above, the "worth at the time of award" is
computed by discounting such amount at the discount rate of the Federal Reserve
Bank located nearest to the Shopping Center in effect at the time of award, plus
1%.
For purposes of this Article 25, all Rent other than Minimum Annual Rent,
shall, for purposes of calculating any amount due under the provisions of
subparagraph (iii) above, be computed on the basis of the average monthly amount
of Rent payable by Tenant during the immediately preceding 36 month period,
except that if it becomes necessary to compute such rental before such 36 months
of the Term has expired, then such Rent shall be computed on the basis of the
average monthly amount of Rent payable during such shorter period.
The rights and remedies given to Landlord in this Article shall be in
addition and supplemental to all other rights or remedies which Landlord may
have under the laws in force when the default occurs.
25.4 NO WAIVER. The waiver by Landlord of any breach by Tenant of any
term, covenant or condition contained in this Lease shall not be deemed to be a
waiver of such term, covenant or condition, of any subsequent breach thereof, or
of any other term, covenant or condition of this Lease. 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
or of any right of Landlord to a forfeiture of the Lease by reason of such
breach, regardless of Landlord's knowledge of such preceding breach at the time
of acceptance of such Rent. No term, covenant or condition of this Lease shall
be deemed to have been waived by, Landlord unless such waiver is in writing and
signed by Landlord.
26. DEFAULTS BY LANDLORD.
If Landlord fails to perform any covenant, condition, or agreement contained in
this Lease within 30 days after receipt of written notice from Tenant specifying
such failure (or if such failure cannot reasonably be cured within 30 days, if
Landlord does not commence to cure the failure within that 30 day period and
thereafter diligently prosecute such cure to completion), then such failure
shall constitute a default hereunder and Landlord shall be liable to Tenant for
any damages sustained by Tenant as a result of Landlord's default; provided,
however, it is expressly understood
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and agreed that if Tenant obtains a money judgment against Landlord resulting
from any default or other claim arising under this Lease, that judgment shall be
satisfied only out of the rents, issues, profits, and other income actually
received on account of Landlord's right, title and interest in the Premises,
Building and/or Shopping Center, and no other real, personal or mixed property
of Landlord (or of any of the partners which comprise Landlord, or of partners
or principals of such partners comprising Landlord, if any, or of Landlord's
Officers, shareholders or directors, if any) wherever situated, shall be subject
to levy, attachment or execution, or otherwise used to satisfy any such
judgment. Tenant hereby waives any right to satisfy a judgment against Landlord
except from the rents, issues, profits and other income actually received on
account of Landlord's right, title and interest in the Premises, Building and/or
Shopping Center.
Tenant shall not have the right to terminate this Lease or to withhold,
reduce or offset any cost of such cure against any payments of Rent or any other
charges due and payable to Landlord under this Lease, except as otherwise
specifically provided in this Lease. Tenant shall have the right to offset the
amount of any money judgment obtained by Tenant against Landlord resulting from
a default by Landlord under this Lease against payment of the minimum Annual
Rent.
Tenant agrees to send by certified or registered mail to any mortgagee or
deed of trust beneficiary of the Shopping Center whose address has been
furnished to Tenant, a copy of any notice of default served by Tenant on
Landlord. Subject to the provisions of Paragraph 11.3 above, Tenant agrees that
if Landlord fails to cure such default within the time provided for in this
Lease, Tenant shall provide any such mortgagee or beneficiary with notice of
such failure and such mortgagee or beneficiary shall have an additional 30 days
following receipt of such notice to cure such default; provided that if such
default cannot reasonably be cured within that additional 30 day period, then
such mortgagee or beneficiary shall have such additional time to cure the
default as is reasonably necessary under the circumstances. If neither Landlord
nor any such mortgagee or beneficiary cures such default within the time periods
provided above, then Tenant shall have the right to cure the default and recover
the cost thereof, with interest thereon at the rate of ten percent (10%) per
annum, as provided in this Article 26.
27. ATTORNEYS' FEES.
If at any time after the date hereof either Landlord or Tenant institutes any
action or proceeding against the other relating to
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the provisions of this Lease or any default hereunder, the losing party in such
action or proceeding shall reimburse the winning party for its reasonable
expenses of attorneys' fees and all costs and disbursements incurred, including,
without limitation, any such fees, costs or disbursements incurred on any appeal
from such action or proceeding. Subject to the provisions of local law, the
winning party shall recover all such fees, costs or disbursements as costs
taxable by the court or arbiter in the action or proceeding itself without the
necessity for a cross-action by the winning party.
28. SUBORDINATION - ATTORNMENT.
28.1 SUBORDINATION. Within 10 days after receipt of a written request from
Landlord any first mortgagee or first deed of trust trustee or beneficiary of
Landlord (collectively, "Lender"), or any lessor of Landlord, Tenant shall, in
writing, subordinate its rights under this Lease to the lien or security
interest of the first mortgage or deed of trust (including all future advances
made thereunder subsequent to the effective date of this Lease), the interest of
any lease in which Landlord is the lessee, or any REA that may burden the
Premises, Building, Shopping Center, the underlying real property or any future
improvements made to the underlying real property, provided such Lender or
ground lessor delivers to Tenant a reasonably satisfactory nondisturbance and
attornment agreement. In addition, as a condition to Tenant's obligations under
this Lease, Landlord shall deliver to Tenant within 30 days following execution
of this Lease, a reasonably satisfactory nondisturbance and attornment agreement
from any existing lenders and ground lessors.
28.2 ATTORNMENT. If Landlord's interest in the Premises is acquired by any
ground lessor, beneficiary under a deed of trust, mortgagee or purchaser at a
foreclosure sale, then Tenant shall upon request, attorn to such transferee of
or successor to Landlord's interest in the Premises and recognize such
transferee or successor as Landlord under this Lease, provided such transferee
or successor accepts the Premises subject to this Lease.
28.3 ESTOPPEL CERTIFICATE. Tenant shall, at any time and from time to
time, upon not less than 10 business days' prior written notice from Landlord,
execute, acknowledge and deliver to Landlord a written statement substantially
in the form of Exhibit "D" certifying (i) that this Lease represents the entire
agreement between Landlord and Tenant, and 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), (ii) the dates to
which the Rent and other
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charges are paid in advance, if any; (iii) the Commencement Date and expiration
date of the Lease Term, (iv) whether Tenant has assigned or transferred this
Lease or any interest of Tenant therein; and,(v) that there are not, to Tenant's
knowledge, any uncured defaults on the part of Landlord hereunder and that
Tenant has no right of offset, counterclaim or deduction against Rent, or
specifying such defaults if any are claimed together with the amount of any
offset, counterclaim or deduction alleged by Tenant. Any such statement may be
relied upon by any prospective purchaser or lender upon the security of the real
property of which the Building and the Premises are a part. Tenant's failure to
deliver such statement within the time required shall be conclusive and binding
upon Tenant that (a) this Lease is in full force and effect, without
modification except as may be represented by Landlord, (b) there are no uncured
defaults in Landlord's performance and that Tenant has no right of offset,
counterclaim or deduction against Rent, and (c) no more than one month's Rent
has been paid in advance.
29. QUIET POSSESSION.
Landlord agrees that Tenant, upon paying the Rent and timely performing its
obligations under this Lease, may quietly have, hold and enjoy the Premises
during the Term or any extension thereof; subject, however, to any rights of
entry specifically granted to Landlord hereunder, any REA of which Tenant has
been provided a copy or to which Tenant consents, and any mortgages, deeds of
trust, ground or underlying leases, agreements, encumbrances and/or other
Matters of Record to which this Lease is subordinate.
30. CAPTIONS; JOINT AND SEVERAL LIABILITY.
30.1 CAPTIONS. The captions of the Articles and Sections of this Lease are
for convenience only, are not operative parts of this Lease and do not in any
way limit or amplify the terms and provisions of this Lease.
30.2 JOINT AND SEVERAL LIABILITY. If two or more persons or entities
execute this Lease as Landlord or Tenant then such persons or entities shall be
jointly and severally liable for compliance with and performance of all the
terms, covenants and provisions of this Lease.
31. NOTICES.
Whenever this Lease requires or permits notice or demand to be given by either
party to the other, such notice or demand shall be in writing and given or
served either personally or in writing
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forwarded by certified mail, return receipt requested, addressed to the parties
at the addresses specified in Section 3.d. hereof. Either party may change such
address by written notice to the other as herein provided.
32. OBLIGATIONS OF SUCCESSORS.
Except as otherwise provided herein, all of the provisions of this Lease shall
bind and fit of the parties hereto, and their respective heirs, legal
representatives, successors and assigns.
33. CONSENT OF LANDLORD AND TENANT.
Wherever in this Lease consent or approval is required from either party to any
action by the other, such consent or approval shall be given in writing and
shall not be unreasonably withheld, unless otherwise expressly permitted in this
Lease. Landlord shall not be deemed to have withheld its consent unreasonably
where Landlord's right to give its consent is dependent on Landlord obtaining
the consent of any other person, agency or authority having the right to
withhold its consent pursuant to any agreement or law and such person, agency or
authority does withhold its consent.
If Landlord or Tenant unreasonably fails to give any such consent, the
other party shall be entitled to specific performance in equity and shall have
such other remedies as are reserved to it under this Lease, but in no event
shall Landlord or Tenant be responsible in monetary damages for failure to give
consent unless such consent is withheld maliciously or in bad faith.
34. MISCELLANEOUS.
34.1 RELATIONSHIP OF THE PARTIES. Nothing contained in this Lease shall be
deemed or construed to create a partnership or joint venture between Landlord
and Tenant or between Landlord and any other party, or cause Landlord to be
responsible in any way for the debts or obligations of Tenant or anyone else.
34.2 SEPARABILITY. If any provision of this Lease is determined to be void
by any court of competent jurisdiction, such determination shall not affect any
other provision of this Lease and all such other provisions shall remain in full
force and effect. It is the intention of the parties that if any provision of
this Lease is capable of two constructions, one of which would render the
provision void and the other of which would render the provision valid, then the
provision shall have the meaning which renders it valid.
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34.3 CORPORATE AUTHORITY; PARTNERSHIP AUTHORITY. If Tenant is a
corporation, each person signing this Lease on behalf of Tenant represents and
warrants that he has full authority to do so and that this Lease binds the
corporation. Within thirty (30) days after this Lease is signed, Tenant shall
deliver to Landlord a certified copy of a resolution of Tenant's Board of
Directors authorizing the execution of this Lease or other evidence of such
authority reasonably acceptable to Landlord. If Tenant is a partnership, each
person or entity signing this Lease for Tenant represents and warrants that he
or it is a general partner of the partnership, that he or it has full authority
to sign for the partnership and that this Lease binds the partnership and all
general partners of the partnership. Tenant shall give written notice to
Landlord of any general partner's withdrawal or addition. If Tenant is a
partnership, within thirty (30) days after this Lease is signed, Tenant shall
deliver to Landlord a copy of Tenant's recorded statement of partnership,
certificate of limited partnership or other evidence of partnership satisfactory
to Landlord.
34.4 ENTIRE AGREEMENT. It is understood that there are no oral or written
agreements or representations between the parties hereto affecting this Lease,
and that this Lease supersedes and cancels any and all previous negotiations,
arrangements, representations, brochures, displays, projections, estimates,
agreements and understandings, if any, made by or between Landlord and Tenant
with respect to the subject matter thereof, and none thereof shall be used to
interpret, construe, supplement or contradict this Lease. This Lease, and all
amendments hereto, are the only agreement between the parties hereto. All
negotiations and oral agreements acceptable to both parties have been merged
into and are included in this Lease.
There are no other representations, covenants or warranties between the
parties and any reliance on representations of a party is based solely upon the
express representations, covenants and warranties contained in this Lease. In
construing this Lease, the parties agree that there shall be no presumption,
canon of construction or implication favoring the position of either Landlord or
Tenant.
34.5 GOVERNING LAW. The laws of the state where the Shopping Center is
located shall govern the validity of performance and enforcement of this Lease.
34.6 WAIVER OF CONSENT LIMITATIONS. A waiver of any breach or default
under the Lease shall not be a waiver of any other breach or default.
Landlord's consent to or approval of any act by Tenant
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requiring Landlord's consent or approval shall not be deemed to waive or render
unnecessary Landlord's consent to or approval of any subsequent similar act by
Tenant.
34.7 FORCE MAJEURE. The occurrence of any of the following events shall
excuse performance of such obligation of Landlord or Tenant as are rendered
impossible or reasonably impracticable to perform while such event continues:
strikes; lockouts; labor disputes; acts of God; inability to obtain labor,
materials or reasonable substitutes therefor; governmental prohibitions or
restrictions; 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 (collectively, "Force Majeure").
Notwithstanding the foregoing, the occurrence of such events shall not excuse
Tenant's obligations to pay Minimum Annual Rent and additional rent (unless the
provisions of Articles 22 or 23 apply) or excuse such obligations as this Lease
may nevertheless otherwise impose on the party to obey, remedy or avoid, despite
such event.
34.8 WAIVER OF REDEMPTION RIGHTS. Tenant hereby expressly waives any and
all rights of redemption granted by or under any present or future laws in the
event Tenant is evicted from or dispossessed of the Premises for any cause, or
in the event Landlord obtains possession of the Premises by reason of the
violation by Tenant of any of the covenants and conditions of this Lease or
otherwise. The rights given to Landlord herein are in addition to any rights
that may be given to Landlord by any statute or otherwise.
34.9 AMENDMENTS. To be effective and binding on Landlord and Tenant, any
amendment, modification, addition or deletion to the provisions of this Lease
must be in writing and executed by both parties in the same manner as the Lease
itself.
34.10 DEFINITION OF LANDLORD. As used in this Lease, the term "Landlord"
means only the current owner of the fee title to the Shopping Center or the
leasehold estate under a ground lease of the Shopping Center at the time in
question, as appropriate. Each Landlord is obligated to perform the obligations
of Landlord under this Lease only during the time such Landlord owns such
interest or title. Any Landlord who transfers its title or interest in the
Shopping Center is relieved of all liabilities for the obligations of Landlord
under this Lease to be performed on or after the date of transfer, provided the
new owner expressly assumes in writing all future obligations of Landlord under
this Lease.
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34.11 TENANT'S FINANCIAL CONDITION. Within ten (10) days after written
request from Landlord, Tenant shall deliver to Landlord such financial
statements as Landlord reasonably requires to verify the net worth of Tenant or
any guarantor of Tenant. In addition, Tenant shall deliver to any lender
designated by Landlord any financial statements required by such lender to
facilitate the financing or refinancing of the Shopping Center. Tenant
represents and warrants to Landlord that each such financial statement is a true
and accurate statement as of the date of such statement. All financial
statements shall be confidential and shall be used only for the purposes set
forth in this Lease.
35. BROKERS.
Landlord and Tenant represent and warrant to each other that the Broker
named in Section 3.a of this Lease is the only agent, broker, finder or other
party with whom either party has dealt who is or may be entitled to any
commission or fee with respect to this Lease. Landlord agrees to pay the
commission payable to the Broker named in Section 3.a. pursuant to the terms of
a separate agreement entered into by and between Landlord and Broker.
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36. COMPLIANCE.
The parties hereto agree to comply with all applicable federal, state and local
laws, regulations, codes ordinances and administrative orders having
jurisdiction over the parties, property or the subject matter of this Agreement.
LANDLORD AND TENANT have signed this Lease on the dates set forth below.
Date: September 22, 1995 Date: September 22, 1995
Landlord: Tenant:
Panorama Towne Center L.P., Pan American Bank of San
a California Limited Mateo, FSB, a Federally
Partnership Chartered Savings Bank
By: Panorama Towne Center, Inc. By: /s/ LAWRENCE J. GRILL
---------------------------
a California corporation, Lawrence J. Grill,
its General Partner President
By: /s/ [SIGNATURE ILLEGIBLE] By: /s/ [SIGNATURE ILLEGIBLE]
--------------------------- ---------------------------
Its: Its: CFO
--------------------- ---------------------
By:
---------------------------
Its:
---------------------
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ADDENDUM TO SHOPPING CENTER LEASE BETWEEN PANORAMA TOWNE CENTER, A CALIFORNIA
LIMITED PARTNERSHIP ("LANDLORD") AND PAN AMERICAN BANK OF SAN MATEO, FSB
("TENANT") DATED _______________, 1995.
1. MINIMUM ANNUAL RENT: The Minimum Annual Rent for the Term of the Lease
shall be:
<TABLE>
<CAPTION>
MONTHS MONTHLY ANNUALLY
- ------------------------- ---------- -----------
<S> <C> <C>
Months 1 through 36 $7,022.00 $ 84,264.00
Months 37 through 60 $7,549.00 $ 90,588.00
Months 61 through 72 $8,115.00 $ 97,380.00
Months 73 through 84 $8,358.00 $100,296.00
Months 85 through 96 $8,609.00 $103,308.00
Months 97 through 108 $8,867.00 $106,404.00
Months 109 through 120 $9,133.00 $109,596.00
</TABLE>
2. TERM: Options and Option Rent -
In addition to the Term as set forth above, and provided Tenant is not in
default of any provisions of the Lease, Tenant shall have three (3) five-year
options to extend the Term, as follows:
a. Tenant shall provide not less than six (6) months nor more than twelve
(12) months written notice to Landlord of exercise of each option to
extend;
b. The Minimum Annual Rent for the first year of the first option period,
if exercised, shall be at the then Fair Rental Value, as hereinafter
defined. The "Fair Rental Value" of the Premises shall be determined
in the following manner.
(i) Not later than 120 days prior to the first day of the respective
option period, Landlord and Tenant shall meet in an effort to
negotiate, in good faith, the Fair Rental Value of the Premises
as of such date. If Landlord and Tenant have not agreed upon the
Fair Rental Value of the Premises at least
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90 days prior to the applicable date, the Fair Rental Value shall
be determined by appraisal, by one or more appraisers or brokers
(herein called "Appraiser(s)"), as provided below. If
appraiser(s) are used, such appraiser(s) shall have at least five
(5) years' experience in the appraisal of commercial real
property in the area in which the Premises is located and shall
be members of professional organizations such as MAI or
equivalent. If broker(s) are used, such broker(s) shall have at
least five years' experience in the sales and leasing of
commercial real property in the area in which the Premises is
located and shall be members of professional organizations such
as the Society of Industrial and Office Realtors or equivalent.
(ii) If Landlord and Tenant are not able to agree upon the Fair Rental
Value of the Premises within the prescribed time period, then
Landlord and Tenant shall attempt to agree in good faith upon a
single Appraiser not later than 75 days prior to the applicable
date. If Landlord and Tenant are unable to agree upon a single
appraiser within such time period, then Landlord and Tenant shall
each appoint one Appraiser not later than 65 days prior to the
applicable option term commencement date. Within 10 days
thereafter, the two appointed Appraisers shall appoint a third
Appraiser. If either Landlord or Tenant fails to appoint its
Appraiser within the prescribed time period, the single Appraiser
appointed shall determine the Fair Rental Value of the Premises.
If both parties fail to appoint Appraisers within the prescribed
time periods, then the first Appraiser thereafter selected by a
party shall determine the Fair Rental Value of the Premises. Each
party shall bear the cost of its own Appraiser and the parties
shall share equally the cost of the single or third Appraiser, if
applicable .
(iii) For the purposes of such appraisal, the term "Fair Rental Value"
shall mean the price that a ready and willing tenant would pay,
as of the applicable date, as monthly rent to a ready and willing
landlord of property comparable to the Premises if such property
were exposed for lease on the open market for a reasonable period
of time and taking
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into account all of the purposes for which such property may be
used. If a single Appraiser is chosen, then such Appraiser shall
determine the Fair Rental Value of the Premises. Otherwise, the
Fair Rental Value of the Premises shall be the arithmetic average
of the two of the three appraisals which are closest in amount,
and the third appraisal shall be disregarded. Landlord and Tenant
shall instruct the Appraiser(s) to complete the determination of
the Fair Rental Value not later than 30 days prior the applicable
option term commencement date. If the Fair Rental Value is not
determined prior to the applicable option term commencement date,
then Tenant shall continue to pay to Landlord the Minimum Annual
Rent for the previous year until the Fair Rental Value is
determined. When the Fair Rental Value of the Premises is
determined, Landlord shall deliver notice thereof to Tenant, and
Tenant shall pay to Landlord, within 10 days after receipt of
such notice or Landlord shall pay to Tenant, as appropriate, the
difference between the Minimum Annual Rent actually paid by
Tenant to Landlord and the new Minimum Annual Rent determined
hereunder.
Rent for each subsequent year of the first option period commencing
with the second year shall increase three percent (3%) over the rent
for the immediately preceding year.
c. If exercised, the Minimum Annual Rent for the second (2nd) and third
(3rd) option periods shall increase three percent (3%) over the rent
for the last year of the preceding option term, and Minimum Annual
Rent for each subsequent year of the respective option periods shall
increase three percent (3%) per annum over the Minimum Annual Rent for
the immediately preceding year.
3. EARLY TERMINATION: Tenant shall have the right to cancel this Lease during
the ninety (90) day period preceding the end of the fifth lease year by giving
Landlord at least ninety (90) days prior written notice of Tenant's intent to
cancel. Tenant shall reimburse Landlord for unamortized costs, prorated over
ten (10) years, of tenant improvements paid for by Landlord as part of the
tenant improvement allowance described in Paragraph 4 below in the event Tenant
exercises its early termination rights.
3
<PAGE>
4. TENANT'S WORK: Tenant shall have the right to utilize a reputable
contractor of its choice for its tenant improvement work. Landlord shall provide
temporary power to the Premises sufficient for Tenant's construction purposes
and shall provide access for Tenant's construction workers, along with a space
for a construction debris container. Landlord and Landlord's employees, agents
and contractors, shall use their best efforts to avoid interfering with Tenant's
construction work at the Premises. Landlord shall provide Tenant with a tenant
improvement allowance of Twenty-Five Dollars ($25) per square foot above
"Landlord's Work," as defined in Exhibit "C" attached hereto. Said allowance
shall be paid monthly during the performance of Tenant's work upon delivery to
Landlord of a certificate from Tenant's architect certifying that the work for
which Tenant is seeking reimbursement has been performed at the Premises.
5. ADDITIONAL PROVISIONS:
ADA: Landlord represents that Landlord's Work, and Tenant represents that
Tenant's Work, at the Premises shall be in compliance with all codes and laws,
including fire safety, physical handicap, earthquake safety, hazardous material
and the Americans with Disabilities Act ("ADA").
HAZARDOUS MATERIALS: As used in this Lease, the term "Hazardous Material" means
any flammable items, explosives, radioactive materials, hazardous or toxic
substances, material or waste or related materials, including any substances
defined as or included in the definition of "hazardous substances," "hazardous
wastes," "hazardous materials" or "toxic substances" now or subsequently
regulated under any applicable federal, state or local laws or regulations,
including without limitation petroleum-based products, paints, solvents, lead,
cyanide, DDT, printing inks, acids, pesticides, ammonia compounds and other
chemical products, asbestos, PCBs and similar compounds, and including any
different products and materials which are subsequently found to have adverse
effects on the environment or the health and safety of persons. Tenant shall not
cause or permit any Hazardous Materials in excess of permitted levels or
reportable quantities under applicable environmental laws to be generated,
produced, brought upon, used, stored, treated or disposed of in or about the
Premises by Tenant, its agents, employees, contractors, sublessees or invitees
without the prior written consent of Landlord. Landlord shall be entitled to
take into account such other factors or facts as Landlord may reasonably
determine to be relevant in determining whether to grant or withhold consent to
Tenant's proposed activity with respect to Hazardous Material. In no event,
however, shall Landlord be required to consent to the installation or use of any
storage tanks
4
<PAGE>
on the Premises. Tenant shall indemnify Landlord and its successors and assigns
against and hold Landlord and its successors and assigns harmless from any and
all costs, claims or liability arising from the conduct of Tenant's business or
anything else done or permitted by Tenant to be done in or about the Premises,
including any contamination of the Premises or any other property resulting from
the presence or use of Hazardous Material caused or permitted by Tenant.
Landlord shall indemnify Tenant and its successors and assigns and hold Tenant
and its successors and assigns harmless from any and all costs, claims or
liability arising from any contamination of the Premises (a) caused or permitted
by Landlord, or (b) arising prior to the date of this Lease.
SIGNAGE: Landlord hereby grants to Tenant the right to install illuminated
signage on the building to the maximum extent permitted by the City of Los
Angeles, subject to (i) the signage restrictions contained in any other lease of
space in the Shopping Center which are applicable to the Shopping Center
generally, (ii) the Shopping Center Sign Criteria, described in Exhibit "E"
hereto, and (iii) Landlord's prior approval, which shall not be unreasonably
withheld.
ARCHITECTURAL DRAWINGS: Landlord and Tenant shall work with a mutually
agreeable architect for the design of the building shell. Landlord shall be
responsible for all costs associated with such architect and design of the
building shell. Tenant shall have the right to select its own architect and
space planner to design and to oversee construction of Tenant's Work.
5
<PAGE>
Exhibit 10.61
PROMISSORY NOTE
---------------
$225,000.00 Los Angeles, California
October 15, 1997
FOR VALUE RECEIVED, LAWRENCE J. GRILL (the "Borrower"), promises to
pay to the order of UNITED PANAM FINANCIAL CORP., its successors and assigns
(the "Lender") at 1999 Avenue of the Stars, Suite 2960, Los Angeles, California
90067 or at such other place as might be designated in writing by the Lender,
the principal sum of Two Hundred Twenty-five Thousand Dollars ($225,000.00) or
so much thereof as remains unpaid, together with interest thereon at a fixed
rate equal to Five and Eighty-One One Hundredths Percent (5.81%) per annum.
Interest will be calculated on the basis of the actual days elapsed based on a
per diem charge computed over a year composed of three hundred sixty (360) days.
Principal and interest will be payable as follows: Interest from the
date hereof on the outstanding amount of the Note will be payable annually on
October 15 of each year beginning with October 15, 1998. On October 15, 2000,
the entire unpaid principal balance and all accrued but unpaid interest thereon
will be due and payable.
The Borrower will have the right at any time and from time to time to
prepay the unpaid principal balance of this Note, in whole or in part, without
penalty, but with interest on the unpaid principal balance accrued to the date
of prepayment.
The Borrower agrees that if, and as often as, this Note is placed in
the hands of an attorney for collection or to defend or enforce any of the
Lender's rights under this Note or otherwise relating to the indebtedness hereby
evidenced, the Borrower will pay the Lender's reasonable attorneys' fees, all
court costs and all other expenses incurred by the Lender in connection
therewith. At the option of the Lender, after the failure of the Borrower to
pay any such sum hereunder within thirty (30) days of the date due, the unpaid
balance of this Note will bear interest at Ten Percent (10.0%) per annum.
During the existence of any default, the Lender may apply payments received on
any amount due hereunder or under the terms of any instrument now or hereafter
evidencing or securing payment of this indebtedness as the Lender determines
from time to time.
This Note is issued pursuant to a Loan and Stock Pledge Agreement of
even date herewith (the "LOAN AGREEMENT") and is secured by the security
interests described therein. Upon the breach by the Borrower of any provision
of this Note or of the Loan Agreement, or upon termination of Borrower's
employment by Lender as provided in the Loan Agreement, or occurrence of any
other default or event of default respecting this Note, the Loan Agreement or
any other instrument now or hereafter evidencing or securing the indebtedness
represented
<PAGE>
hereby, at the option of the Lender the entire indebtedness evidenced by this
Note shall become immediately due, payable and collectible as the Lender may
elect, regardless of the date of maturity of this Note.
This Note is issued by the Borrower and accepted by the Lender
pursuant to a lending transaction negotiated, consummated and to be performed in
California. This Note is to be construed according to the internal laws of the
State of California.
The makers, endorsers, sureties, guarantors and all other persons who
might become liable for all or any part of this obligation severally waive
presentment for payment, protest and notice of nonpayment. Such parties consent
to any extension of time (whether one or more) of payment hereof, release of all
or any part of the collateral securing payment hereof or release of any party
liable for the payment of this obligation. Any such extension or release may be
made without notice to any such party and without discharging such party's
liability hereunder.
This Note is intended to strictly conform with all usury laws to the
extent applicable to the transactions contemplated hereby. The provisions of
this Note and of all agreements between the Borrower and the Lender are hereby
expressly limited so that in no contingency or event whatsoever, shall the
amount contracted for, charged, paid or agreed to be paid to the Lender for the
use, forbearance or retention of money or credit hereunder or otherwise exceed
the maximum rate permitted by law therefor. If, from any circumstance
whatsoever, performance or fulfillment of any provision hereof or of any
agreement between the Borrower and the Lender shall, at the time of the
execution and delivery thereof, or at the time or performance of such provision
shall be due, involve or purport to require any payment in excess of the limits
prescribed by law, the obligation to be performed or fulfilled shall be reduced
automatically to the limit prescribed by law without the necessity of the
execution of any amendment or new document.
IN WITNESS WHEREOF, the Borrower has executed this instrument
effective the date first above written.
/s/ LAWRENCE J. GRILL
__________________________________
LAWRENCE J. GRILL
2
<PAGE>
Exhibit 10.62
LOAN AND STOCK PLEDGE AGREEMENT
-------------------------------
THIS LOAN AND STOCK PLEDGE AGREEMENT (the "LOAN AGREEMENT" or
"AGREEMENT") is made and executed as of October 15, 1997, by and among LAWRENCE
J. GRILL ("PLEDGOR") and UNITED PANAM FINANCIAL CORP., a Delaware corporation
("LENDER") in connection with a loan or loans of up to $225,000.00 to be made by
Lender to Pledgor ("LOAN") pursuant to a Promissory Note or Notes (each a
"NOTE") of Borrower of even date herewith, the proceeds of which have been used
by Pledgor to purchase 150 shares of the common stock of Lender (the "SHARES")
acquired by exercise of a Stock Option (the "OPTION") pursuant to a Stock Option
Agreement between Lender and Pledgor originally dated as of October 18, 1994.
The Option was granted under and subject to the terms of Lender's 1994 Stock
Option Plan.
1. Purchase of Shares. Pledgor hereby exercises the Option and
------------------
agrees, in connection therewith, to (i) the pledge of the Shares pursuant to
this Agreement as security for the Loan; (ii) the terms and restrictions of the
May 16, 1994 Stockholders Agreement governing ownership and transfer of the
Shares; (iii) the acceptance of a certificate for the Shares subject to the
legend conditions required by the May 16, 1994 Stockholders Agreement and
applicable securities laws; and (iv) repay the Loan in full thirty days after
termination of Pledgor's employment by Lender or its affiliates as provided in
the 1994 Stock Option Plan of Lender. Pledgor represents he is acquiring Shares
for his own account and not with a view toward the resale or other distribution
thereof, and agrees that the Shares are "restricted securities" for purposes of
the Securities Act of 1933 and Rule 144 thereunder. Lender hereby agrees that
all installments of the Option shall be immediately vested and exercisable
notwithstanding any contrary provision in the Stock Option Agreement between
Lender and Pledgor.
2. Obligations; Security Interest. This Loan Agreement and the
------------------------------
security interest created hereby are given for the purpose of securing the
payment and performance of any and all of Pledgor's presently existing or
hereafter arising obligations and liabilities owing to Lender ("Obligations"),
including, without implied limitation (i) payment of all indebtedn
ess evidenced
by the Note; (ii) all present and future obligations of Pledgor under this
Agreement; and (iii) any and all amendments, modifications, renewals and/or
extensions of any of the foregoing, including, but not limited to amendments,
modifications, renewals or extensions which are evidenced by new or additional
instruments, documents or agreements or which change the rate of interest on any
indebtedness or obligations secured hereby. The term "Obligations" as used
herein is intended to mean Obligations in its most comprehensive sense and
includes all present and future indebtedness, liabilities, undertakings,
covenants and other obligations of Pledgor, whether voluntary or involuntary,
absolute or contingent, liquidated or unliquidated, determined or undetermined,
earned or unearned, and due or not due.
3. PLEDGE. Pledgor hereby assigns, grants, pledges and transfers to
------
Lender, as security for the payment and performance of the Obligations described
in Paragraph 1 above,
<PAGE>
a security interest in, and lien upon all of Pledgor's right, title and interest
in and to the following:
(a) the Shares;
(b) stock powers ("POWERS") duly executed in blank, with such
signatures properly guaranteed covering all of the Shares; and
(c) the proceeds of each of the foregoing including, without
limitation any and all dividends, cash, instruments and other property from time
to time received, receivable, or otherwise distributed in respect of or in
exchange for any of the Shares or Options (the "PROCEEDS"). The Shares, the
Powers, and the Proceeds shall be collectively referred to as the "COLLATERAL".
4. DELIVERIES. Concurrent with the execution hereof, Pledgor has
----------
delivered Certificate(s) No(s). ____________________, representing all of the
Shares, to Lender together with related Powers or endorsements, to be held
pursuant to the terms hereof for the benefit of Lender.
5. LENDER'S DUTIES. Lender shall have no duty with respect to the
---------------
Collateral other than the duty to use reasonable care if it is in its
possession. Without limiting the generality of the foregoing, Lender shall be
under no obligation to take any steps necessary to preserve rights in the
Collateral against any other parties, to sell same if it threatens to decline in
value, or to exercise any rights represented thereby; provided, however, that
Lender may, at its option, do so, and any and all expenses incurred in
connection therewith shall be for the sole account of Pledgor.
6. VOTING RIGHTS; DIVIDENDS; ETC. During the term of this Agreement
-----------------------------
and as long as no breach of agreement, representation, warranty or obligation of
Pledgor or other event of default, under this Loan Agreement or the Note (an
"EVENT OF DEFAULT"), shall have occurred and be continuing beyond any applicable
cure period:
(a) Pledgor shall be entitled to exercise any and all voting and
other consensual rights pertaining to the Shares or any part thereof for any
purpose not inconsistent with the terms of this Agreement.
(b) Pledgor shall be entitled to receive and retain any and all
dividends and distributions paid in respect of the Shares provided, however,
that any and all
(i) dividends and distributions paid or payable other than
in cash in respect of, and instruments and other property received, receivable
or otherwise distributed in respect of, or in exchange for, any Shares,
<PAGE>
(ii) dividends and distributions paid or payable in cash in
respect of any Shares in connection with a partial or total liquidation or
dissolution or in connection with a reduction of capital, capital surplus or
paid-in surplus, and
(iii) cash paid with respect to, payable or otherwise
distributed on redemption of, or in exchange for, any Shares, shall be forthwith
delivered to Lender to hold as Collateral and shall, if received by Pledgor, be
received in trust for the benefit of Lender, be segregated from the other
property or funds of Pledgor, and be forthwith delivered to Lender as Collateral
in the same form as so received (with any necessary endorsement).
(c) Lender shall execute and deliver (or cause to be executed
and delivered) to Pledgor all such proxies and other instruments as Pledgor may
reasonably request for the purpose of enabling Pledgor to exercise those voting
and other rights which it is entitled to exercise pursuant to paragraph 6(a)
above and to receive those dividends or distributions which it is authorized to
receive and retain pursuant to paragraph 6(b) above.
(d) If an Event of Default shall have occurred and be continuing
and any amounts shall be due and payable (whether by acceleration, maturity, or
otherwise) under any of the Obligations, all rights of Pledgor to exercise the
voting and other consensual rights which it would otherwise be entitled to
exercise pursuant to this paragraph 6 and to receive the dividends and
distributions which it would otherwise be authorized to receive and retain
pursuant to this paragraph shall, at Lender's option, cease, and all such rights
shall, at Lender's option, thereupon become vested in Lender so long as an Event
of Default shall continue, and Lender shall, at its option, thereupon have the
sole right to exercise such voting and other consensual rights and to receive
and hold as Collateral such dividends and interest payments.
7. REPRESENTATIONS. Pledgor warrants, represents and covenants that:
---------------
(a) except as set forth in the Securities Act of 1933, as
amended (the "Act") and the May 16, 1994 Shareholders Agreement, there are no
restrictions upon the transfer of any of the Collateral and Pledgor has the
right to pledge and grant a security interest in or otherwise transfer such
Collateral free of any encumbrances or rights of third parties;
(b) all of the Collateral is and shall remain free from all
liens, claims, encumbrances, and purchase money or other security interests, and
Pledgor shall not, without Lender's prior written consent, sell, transfer or
otherwise dispose of any or all of the Collateral;
(c) this Agreement, and the delivery to Lender of the
certificates representing the Shares creates a valid and perfected security
interest in the Collateral in favor of Lender, and all actions necessary or
desirable to such perfection have been duly taken;
(d) no authorization or other action by, and no notice to or
filing with, any governmental authority or regulatory body is required either
(i) for the grant by Pledgor of the security interest granted hereby or for the
execution, delivery or performance of this
-3-
<PAGE>
Agreement by Pledgor; (ii) for the perfection of or exercise by Lender of its
rights and remedies hereunder; or (iii) for the exercise by Lender of the voting
or other rights provided for in this Agreement or the remedies in respect of the
Shares pursuant to this Agreement (except as may be required in connection with
a disposition of the Shares by laws affecting the offering and sale of
securities generally);
(e) Pledgor has made its own arrangements for keeping informed
of changes or potential changes affecting the Collateral (including, but not
limited to, rights to convert, rights to subscribe, payment of dividends,
reorganization or other exchanges, tender offers and voting rights) and Pledgor
agrees that Lender shall have no responsibility or liability for informing
Pledgor of any such changes or potential changes or for taking any action or
omitting to take any action with respect thereto; and
(f) All of the outstanding Shares have been duly and validly
issued by Remediation and they are fully paid and nonassessable.
8. SHARE ADJUSTMENT. In the event that during the term of this
----------------
Agreement, any reclassification, readjustment or other change is declared or
made in the capital structure of Borrower, or any Option is exercised, all new
substituted and additional shares, options, or other securities, issued, or
issuable, to Pledgor by reason of any such change or exercise shall be delivered
to and held by Lender under the terms of this Agreement in the same manner as
the Collateral originally pledged hereunder.
9. WARRANTS. In the event that during the term of this Agreement,
--------
subscription warrants or any other rights or options shall be issued or
exercised in connection with the Collateral, such warrants, rights and options
acquired by Pledgor shall be immediately assigned by Pledgor to Lender and all
new stock or other securities so acquired by Pledgor shall also be immediately
assigned to Lender to be held under the terms of this Agreement in the same
manner as the Collateral originally pledged hereunder.
10. CONSENT. Pledgor hereby consents that, from time-to-time, before
-------
or after the occurrence or existence of any Event of Default, with or without
notice to or assent from Pledgor, any other security at any time held by or
available to Lender for any of the Obligations or any other security at any time
held by or available to Lender of any other person, firm or corporation
secondarily or otherwise liable for any of the Obligations, may be exchanged,
surrendered, or released and any of the Obligations may be changed, altered,
renewed, extended, continued, surrendered, compromised, waived or released, in
whole or in part, as Lender may see fit, and Pledgor shall remain bound under
this Agreement notwithstanding any such exchange, surrender, release,
alteration, renewal, extension, continuance, compromise, waiver or inaction, or
extension of further credit.
11. REMEDIES UPON DEFAULT. Upon the occurrence of an Event of
---------------------
Default, Lender shall have, in addition to any other rights given by law or the
rights hereunder, all of
-4-
<PAGE>
the rights and remedies with respect to the Collateral of a secured party under
the California Uniform Commercial Code ("CODE").
In addition, with respect to the Collateral, or any part thereof, upon
ten (10) business days' notice to Pledgor following the occurrence of an Event
of Default and Pledgor's failure to cause such Event of Default to be cured
within such period, Lender may sell or cause the same to be sold at any public
or private sale, in one or more sales or lots, at such price as Lender may deem
best, and for cash or on credit or for future delivery, without assumption of
any credit risk, and the purchaser of any or all of the Collateral so sold shall
thereafter hold the same absolutely, free from any claim, encumbrance or right
of any kind whatsoever.
Any sale of the Collateral conducted in conformity with reasonable
commercial practices of banks, insurance companies or other financial
institutions disposing of property similar to the Collateral and any sale made
through NASDAQ, any securities exchange or any NASD member shall be conclusively
deemed to be commercially reasonable. Any requirements of reasonable notice
shall be met if such notice is mailed to Pledgor, at the address set forth in
the Loan Agreement, at least ten (10) calendar days before the time of the sale
or disposition. Any other retirement of notice, demand or advertisement for
sale, is, to the extent permitted by law, waived.
Lender may, in its own name, or in the name of a designee or nominee,
buy at any public sale of the Collateral, or to the extent permitted by the
Code, at any private sale. Lender shall have the right to execute any document
or form, in its name or in the name of the Pledgor, which may be necessary or
desirable in connection with such sale of Collateral.
In addition to specific rights provided herein with respect to sales
of the Shares, and subject to applicable law, sales of the Collateral may be
conducted with or without demand and with or without notice or advertisement,
for cash, credit or for future delivery, all as the Lender shall deem
appropriate. Without limiting the foregoing, the Lender may (i) approach and
negotiate with potential purchasers, and (ii) restrict the prospective bidders
or purchasers to persons who will represent and agree that they are purchasing
such Collateral for their own account for investment and not with a view to the
distribution or resale thereof. In the event any such Collateral is sold at
private sale, Pledgor agrees that such sale shall not, by reason merely that it
is a private sale subject to the potential restrictions described herein, or
that there is a possibility that a substantially higher price might have been
realized at a public sale, be deemed to have not been made in a commercially
reasonable manner. Pledgor recognizes that no ready market may exist for such
Collateral and that a sale by Lender of any such Collateral for an amount
substantially less than the value of the Shares may be commercially reasonable
in view of the difficulties that may be encountered in attempting to sell a
large block of the securities of Remediation. Upon consummation of any such
sale, Lender shall have the right to assign, transfer and deliver to the
purchaser or purchasers thereof, the Collateral so sold. Each such Purchaser of
any such sale shall hold the Property sold absolutely free from any claim or
right on the part of the Pledgor, and Pledgor hereby waives (to the extent
permitted by law) all rights of redemption, stay and/or appraisal which Pledgor
now has or may at any time in the future
-5-
<PAGE>
have under any rule of law or statute now existing or hereafter enacted. If any
consent, approval or authorization of any state, municipal or other governmental
agency or authority shall be necessary to effectuate any sale or disposition of
the Collateral, Pledgor shall execute all such applications and other
instruments as may be required in connection with securing any such consent,
approval or authorization and, will otherwise use its best efforts to secure the
same. Under no circumstances will Lender be obligated to register any
securities under the Securities Act of 1933 or any similar qualification or
registration law of any state, unless, in its sole discretion, it shall elect to
do so, in which case the cost of such registration and qualification shall
become part of the Obligations secured hereby.
12. LENDER AS PLEDGOR'S ATTORNEY-IN-FACT. Pledgor hereby irrevocably
------------------------------------
appoints Lender as its attorney-in-fact to arrange for the transfer at any time
of the Collateral on the books of Pledgor to the name of Lender or to the name
of Lender's nominee.
13. FURTHER ASSURANCES. Pledgor agrees that it will cooperate with
------------------
Lender and will execute and deliver, or cause to be executed and delivered, all
such other stock powers, proxies, instruments, and documents and will take all
such other action, as Lender may reasonably request from time to time in order
to carry out the provisions and purposes hereof.
14. ATTORNEYS' FEES AND COSTS. Pledgor hereby agrees to pay all
-------------------------
reasonable attorneys' fees and all other costs and expenses which may be
incurred by Lender in the enforcement of this Agreement, whether or not suit is
brought.
15. NOTICES. All notices or demands by any party hereto to the other
-------
party and relating to this Agreement shall be made in the manner and to the
addresses set forth in the Loan Modification Agreement.
16. CALIFORNIA LAW APPLICABLE. This Agreement shall be governed by,
-------------------------
and construed in accordance with, the laws of the State of California.
17. GENERAL PROVISIONS.
------------------
(a) This Agreement shall be binding and deemed effective when
executed by Pledgor and accepted and executed by Lender.
(b) This Agreement shall bind and inure to the benefit of the
respective successors and assigns of Pledgor and Lender; provided, however, that
Pledgor may not assign this Agreement or any rights hereunder without Lender's
prior written consent and any prohibited assignment shall be absolutely void. No
consent to an assignment by Lender shall release Pledgor from its obligations to
Lender hereunder. Lender may assign its rights and duties hereunder. Lender
reserves the right to sell, assign, transfer, negotiate, or grant participations
in all or any part of, or any interest in rights and benefits hereunder. In
connection therewith, Lender may disclose all documents and information which
Lender now or hereafter may have relating to Pledgor or Pledgor's business.
-6-
<PAGE>
(c) Section headings and numbers have been set forth herein for
convenience only. Unless the contrary is compelled by the context, everything
contained in each Section hereof applies equally to this entire Agreement.
(d) Neither this Agreement nor any uncertainty or ambiguity
herein shall be construed or resolved against Lender or Pledgor, whether under
any rule of construction or otherwise, by virtue of such party's having prepared
the same. On the contrary, this Agreement has been reviewed by each of the
parties and their counsel and shall be construed and interpreted according to
the ordinary meaning of the words used so as to fairly accomplish the purposes
and intentions of all parties hereto.
(e) Each provision of this Agreement shall be severable from
every other provision of this Agreement for the purpose of determining the legal
enforceability of any specific provision.
(f) This Agreement cannot be changed or terminated orally. All
prior agreements, understandings, representations, warranties, and negotiations,
if any, are merged into this Agreement and the other documents and written
agreements entered into in connection herewith and therewith.
(g) THE PARTIES HEREBY EXPRESSLY WAIVE ANY RIGHT TO TRIAL BY
JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (1) ARISING UNDER THIS
AGREEMENT, ANY OF THE LOAN DOCUMENTS OR ANY OTHER INSTRUMENT, DOCUMENT OR
AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (2) IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR
ANY OF THEM WITH RESPECT TO THIS AGREEMENT, THE LOAN DOCUMENTS, OR ANY OTHER
INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH,
OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING
OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND
THE PARTIES HEREBY AGREE AND CONSENT THAT ANY SUCH CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY
PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS
SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO
TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first written.
UNITED PANAM FINANCIAL CORP.
A DELAWARE CORPORATION
/s/ LAWRENCE J. GRILL BY: /s/ GUILLERMO BRON
- --------------------------- ----------------------------
LAWRENCE J. GRILL ITS: Chairman
---------------------------
-7-
<PAGE>
EXHIBIT 23.1
The Board of Directors
United PanAm Financial Corp.:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ KPMG PEAT MARWICK LLP
San Francisco, California
December 19, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-END> SEP-30-1997 DEC-31-1996
<CASH> 23,791,000 5,063,000
<INT-BEARING-DEPOSITS> 22,000,000 21,000,000
<FED-FUNDS-SOLD> 0 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 2,002,000 0
<INVESTMENTS-CARRYING> 0 0
<INVESTMENTS-MARKET> 0 0
<LOANS> 222,741,000 155,587,000
<ALLOWANCE> 6,203,000 5,356,000
<TOTAL-ASSETS> 283,262,000 187,598,000
<DEPOSITS> 210,783,000 159,061,000
<SHORT-TERM> 35,000,000 4,000,000
<LIABILITIES-OTHER> 14,254,000 6,846,000
<LONG-TERM> 12,870,000 10,930,000
0 0
0 0
<COMMON> 107,000 107,000
<OTHER-SE> 10,248,000 6,654,000
<TOTAL-LIABILITIES-AND-EQUITY> 283,262,000 187,598,000
<INTEREST-LOAN> 17,867,000 15,855,000
<INTEREST-INVEST> 447,000 706,000
<INTEREST-OTHER> 0 0
<INTEREST-TOTAL> 18,314,000 16,561,000
<INTEREST-DEPOSIT> 6,710,000 7,225,000
<INTEREST-EXPENSE> 8,193,000 7,853,000
<INTEREST-INCOME-NET> 10,121,000 8,708,000
<LOAN-LOSSES> 445,000 194,000
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 728,000 395,000
<INCOME-PRETAX> 6,174,000 1,641,000
<INCOME-PRE-EXTRAORDINARY> 6,174,000 1,641,000
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,594,000 950,000
<EPS-PRIMARY> 0.32 0.09
<EPS-DILUTED> 0.32 0.09
<YIELD-ACTUAL> 11.51 10.34
<LOANS-NON> 4,668,000 5,835,000
<LOANS-PAST> 38,000 0
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 5,356,000 5,250,000
<CHARGE-OFFS> 1,691,000 718,000
<RECOVERIES> 779,000 274,000
<ALLOWANCE-CLOSE> 6,203,000 5,356,000
<ALLOWANCE-DOMESTIC> 6,203,000 5,356,000
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 426,000 0
</TABLE>
