SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 1999 or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to
Commission file number:
Umpqua Holdings Corporation
(Exact name of registrant as specified in its charter)
Oregon 93-1261319
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(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
445 S.E. Main Street, Roseburg, Oregon 97470
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 541-440-3900
Securities registered pursuant to Section 12(b) of the Act: None
Name of exchange on which registered: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filing pursuant to
Item 405 of Regulation S-K is not contained herein and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 20, 2000, there were 7,606,927 shares of common stock
outstanding. The aggregate market value of common stock held by non-affiliates
was $50,194,421 at March 20, 2000, based on the last reported sale price on
such date as reported by the Nasdaq National Market.
Documents Incorporated by Reference:
Portions of the 1999 Annual Report to Shareholders are incorporated by
reference in Part II hereof. Portions of the registrant's definitive proxy
statement for the 2000 annual meeting of shareholders are incorporated by
reference in Part III hereof.
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Part I
Item 1. Business
Introduction
Umpqua Holdings Corporation (the Company) is a bank holding company
formed in March 1999. At that time, the Company acquired 100% of the
outstanding shares of South Umpqua Bank. The Company is headquartered in
Roseburg, Oregon, and engages primarily in the business of commercial and
retail banking and the delivery of retail brokerage services. The Company
provides a wide range of banking, asset management, mortgage banking, and
other financial services to corporate, institutional and individual customers
through its wholly-owned banking subsidiary South Umpqua Bank (the Bank). The
Company engages in the retail brokerage business through its wholly-owned
subsidiary Strand, Atkinson, Williams & York, Inc. The Company and its
subsidiaries are subject to the regulations of certain federal agencies and
undergo periodic examinations by these regulatory agencies.
South Umpqua Bank ("South Umpqua") is one of the most innovative
community banks in the United States, combining a retail product delivery
approach with an emphasis on quality-assured personal service. The Company is
the fourth largest community bank in the State of Oregon, currently operating
14 full-service stores (or branches) in Douglas, Lane, Marion and Multnomah
Counties in Oregon. At December 31, 1999, South Umpqua had assets of $387
million and deposits of $302 million.
Since 1995, South Umpqua has transformed itself from a traditional
community bank into a community-oriented financial services retailer. The
Company has implemented a variety of retail marketing strategies to increase
revenue and differentiate itself from its competition. To establish itself as
a financial services retailer, the Company has remodeled a majority of its
branches to resemble retail stores. These new stores incorporate "serious
about service centers" that are the focal point for customer information and
"investment opportunity centers" providing broker-dealer services and
featuring financial and investment information in a multimedia format. The
Company has introduced smaller, 1,100 square foot "neighborhood stores," which
are lower cost, new format stores located in residential areas. To monitor the
quality of its customer service, South Umpqua introduced a "return on quality"
program for its sales associates and implemented an in-house "banking college"
to train its personnel in cross-selling and effective customer service.
Strand, Atkinson, Williams & York offer a full range of investment
products and services including:
o Stocks
o Fixed Income (municipals, corporates, preferreds, governments, agencies,
CDs, money market instruments)
o Mutual Funds
o Annuities
o Options
o Retirement Planning
o Money management Services (Strand, Atkinson, Williams & York is a
Registered Investment Advisor)
o Life Insurance, Disability Insurance and Medical Supplement Policies
Industry Overview
The commercial banking industry continues to undergo increased
competition, consolidation and change. Non-insured financial service companies
such as mutual funds, brokerage firms, insurance companies, mortgage companies
and leasing companies are offering alternative investment opportunities for
customers' funds or lending sources for their needs. Banks have been granted
extended powers to better compete including the limited right to sell
insurance and securities products, but the percentage of financial
transactions handled by commercial banks has dropped steadily. Although the
amount of deposits in banks is remaining steady, such deposits represent less
than 20% of household financial assets compared to over 35% twenty-five years
ago. This trend represents a continuing shift to stocks, bonds, mutual funds
and retirement accounts.
Nonetheless, commercial banks are reducing costs by consolidation and
exploring alternative ways of providing bank products. Although new community
banks continue to be organized, bank mergers substantially outstrip
formations.
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To more effectively and efficiently deliver its products, banks are
opening in-store branches, installing more automated teller machines ("ATMs")
and investing in technology to permit telephone, personal computer and
internet banking. While all banks are experiencing the effects of the changing
environment, the manner in which banks choose to compete is increasing the gap
between larger super-regional banks, committed to becoming national or
regional "brand names" providing a broad selection of products at low cost and
with advanced technology, and community banks which provide most of the same
products but with a commitment to personal service and with local ties to the
customers and communities they serve.
The Gramm-Leach-Bliley Act of 1999 eliminates many of the restrictions
placed on the activities of certain qualified bank holding companies.
Effective March 11, 2000, our bank holding company qualified as a "financial
holding company" and we are now qualified to expand into a wide variety of
financial services, including additional securities activities, and insurance
without the prior approval of the Federal Reserve Board.
Business Strategy
Umpqua Holdings Corporation's ("Company") objective is to become the
leading community-oriented financial services retailer throughout Oregon. The
Company intends to continue to grow its assets and increase profitability and
shareholder value by differentiating itself from its competitors through the
following strategy:
Capitalize On Its Innovative Product Delivery System: The Company's
philosophy has been to develop an environment for the customer that makes the
customer's banking experience an enjoyable one. With this approach in mind,
the Company developed a prototype store that offers "one-stop" shopping and
that includes distinct physical areas or boutiques, such as a "serious about
service center," an "investment opportunity center" and a "computer cafe,"
which make the Company's products and services more tangible and accessible.
The Company's initial prototype store was opened in 1996 in Roseburg, Oregon,
a community with historically low deposit growth. This new store,
nevertheless, captured $12 million in deposits from competitors by the end of
its first year of operation. On the basis of this initial success, the Company
opened four additional stores featuring the new format during 1997, two
additional stores in 1999, and plans to open additional stores in the near
future.
Deliver Superior Quality Service: The Company has insisted on quality
service as an integral part of the Company's culture, from the Board of
Directors to new sales associates. South Umpqua believes it was among the
first banks to introduce a measurable quality service program. Under its
"return on quality" program introduced in 1995, each sales associate's and
store's performance is evaluated monthly based on specific measurable factors
such as the "sales effectiveness ratio" that measures the average number of
banking products purchased by each new customer. The evaluations also
encompass factors such as the number of referrals generated for the sale of
investment products, the number of new loans and deposits generated in each
store, reports by incognito "mystery shoppers" and customer surveys. Based on
scores achieved, the return on quality program rewards both individual sales
associates and store teams with financial incentives. Through such programs,
the Company believes it can measure the quality of service provided to its
customers and maintain employee focus on quality customer service.
Establish Strong Brand Awareness: As a financial services retailer, the
Company has devoted considerable resources to developing the "South Umpqua
Bank" brand. This campaign has included the redesign of the Company's
corporate logo to emphasize its geographical origin, and promotion of the
"South Umpqua Bank" brand in advertising and merchandise bearing the South
Umpqua Bank logo, such as coffee beans, mugs, tee-shirts, hats and umbrellas.
The store's unique "look and feel" and innovative product displays help
position South Umpqua as an innovative, customer friendly retailer of
financial products and services. The Company believes it can build consumer
preference for its products and services through high quality service and
strong brand awareness.
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Use Technology to Expand Customer Base: Although the Company's strategy
will continue to emphasize superior personal service, the Company will also
continue to expand user-friendly, technology-based systems to attract
customers that may prefer to interact with their financial institution
electronically. Over the past years, the Company has introduced
technology-based services which include voice response banking, debit cards,
automatic payroll deposit programs, a "bank@home" program, automated loan
machines, advanced function ATMs and an internet web site. The Company
believes the availability of both traditional bank services and the newer
electronic banking services will enhance its ability to attract a broad range
of customers.
Increase Market Share in Existing Markets and Expand Into New Markets: As
a result of its innovative retail product orientation, measurable quality
service program and strong brand awareness, the Company believes that there is
significant potential to increase business with current customers, to attract
new customers in its existing markets and to enter new markets. Since its
introduction of these programs, South Umpqua has experienced significant
growth in deposits within Douglas County, increasing its share of commercial
bank deposits from 21.1% at June 30, 1995 to 32.2% at June 30, 1999. In July
1996, South Umpqua opened its first store in Eugene, Oregon, and as of
December 31, 1999, had four new format stores in the Eugene market with total
deposits of $80 million. During 1999, the Company opened new stores in Salem
and Portland, Oregon. From time to time, the Company has held discussions with
other institutions about the possibility of acquiring these banks. The Company
plans on pursuing further acquisition discussions and opening new stores to
expand into other markets outside of Douglas and Lane Counties through
acquisitions or the opening of new stores.
Marketing and Sales
South Umpqua's goal to increase its share of financial services in the
market areas it serves is driven by a marketing plan comprising several key
components.
Media Advertising. Over the years, the Company has introduced several
comprehensive media advertising campaigns. These campaigns augment the
Company's goal of strengthening its brand image and heightening public
awareness of its innovative product delivery system. These campaigns, entitled
"The Banking Revolution" and "Expect the Unexpected," were designed to
showcase South Umpqua's innovative style of banking, as well as the Company's
commitment to providing quality service to its customers. "The Banking
Revolution" campaign is designed to differentiate South Umpqua from other
financial institutions in its market area, while "Expect the Unexpected"
challenged them to visit the Company's stores and experience first-hand its
quality service. Both of these campaigns utilized various forms of media,
which included television, radio, print, billboards and direct mail flyers and
letters.
Retail Store Concept. As a financial services provider, the Company
believes that store environment is critical to successfully market and sell
its products and services. Retailers for years have displayed their
merchandise within their stores to encourage customers to purchase their
products. Purchases are made on the spur of the moment due to the products'
availability and attractiveness. South Umpqua believes this same concept can
be applied to financial institutions and accordingly displays its financial
services and products through tactile merchandising within its stores. Recent
displays have included enticements for mortgage loans, retirement accounts,
investments, and checking account programs. Unlike many financial institutions
whose strategy is to discourage customers from visiting their facilities in
favor of ATMs or other forms of electronic banking, South Umpqua encourages
its customers to visit its stores, where they are greeted by well-trained
sales associates, and encouraged to browse and to make "impulse buys." South
Umpqua introduced its first "prototype" store in mid-1996, which included such
services as a 24-hour banking vestibule with an automated loan machine, an
advanced function ATM and a 24-hour self-service U.S. Postal service center.
Neighborhood Stores. To bring financial services to the customer in a
cost-effective way, South Umpqua has created "neighborhood stores." These
facilities are constructed near high volume traffic areas, close to
neighborhood shopping centers. These stand-alone stores are, on average,
approximately 1,100 square feet in size and include all the features of the
prototype store described above. To strengthen brand recognition, all
neighborhood stores are identical in appearance. The Company currently has
three neighborhood stores, all located in the Eugene/Springfield area.
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Sales Culture. Although a successful marketing program will attract
customers to visit its stores, a sales environment and a well-trained sales
team is critical to selling the Company's products and services. The Company
believes that its sales culture has become well established throughout the
Company due to its unique facility design and its commitment to ongoing
training of sales associates on all aspects of sales and service. South Umpqua
trains its sales associates in its own banking college and pays commissions
for the sale of the Company's products and services. The Company's sales
culture has helped South Umpqua transform itself from a traditional community
bank to a nationally recognized marketing company focused on selling financial
products and services.
Products and Services
The Company offers a full array of financial products to meet the banking
needs of its market area and targeted customers. To ensure the ongoing
viability of its product offerings, the Company regularly examines the
desirability and profitability of existing and potential new products. To make
it easy for new prospective customers to bank with South Umpqua and access its
products, the Company introduced its "Switch Kit," which allows a customer to
open their primary checking account with the Company in less than four
minutes. These products and services have helped the Company grow its number
of deposit accounts from 18,200 in 1994 to 40,000 in 1999, a 100% increase.
Other avenues through which customers can access the Company's products
include the Company's web site and its 24-hour voice response system.
Deposit Products. The Company has a traditional array of deposit
products, including non-interest checking accounts, interest-bearing checking
and savings accounts, money market accounts and certificates of deposit. These
accounts earn interest at rates established by management based on competitive
market factors and management's desire to increase certain types or maturities
of deposit liabilities. In order to increase the number of relationships with
customers and increase service fee income, the Company also introduced its
line of "Value Packages" in 1996. These packages are comprised of several
products bundled together to provide added value to the customer and increase
the customer's ties to the Company. The Company also offers a seniors program,
the "Platinum Account," which offers an array of banking services and other
amenities such as purchase discounts, vacation trips and seminars, to
customers over fifty years old.
Investment Services. Strand, Atkinson, Williams & York, Inc. provides a
variety of investment products and services. These products include: equity
and debt securities, annuities, certificates of deposit, mutual funds,
retirement plans, life and health insurance and U.S. Government securities.
Commercial Loans. The Company offers specialized loans for its business
and commercial customers, including equipment and inventory financing, real
estate construction loans and SBA loans for qualified businesses. Commercial
lending is the primary focus of the Company's lending activities and a
significant portion of the Company's loan portfolio consists of commercial
loans. For regulatory reporting purposes, a substantial portion of the
Company's commercial loans are designated as real estate loans, because the
loans are secured by mortgages and trust deeds on real property, even though
the loans may be made for purposes of financing commercial activities, such as
accounts receivable, equipment purchases and leasing.
Real Estate Loans. Real estate loans are available for construction,
purchase and refinancing of residential owner-occupied and rental properties.
Borrowers can choose from a variety of fixed and adjustable rate options and
terms. Generally, the Company originates residential real estate loans as an
accommodation to its customers and sells most mortgages into the secondary
market. Real estate loans reflected in the loan portfolio are in large part
loans made to commercial customers that are secured by real property.
Consumer Loans. The Company provides loans to individual borrowers for a
variety of purposes, including secured and unsecured personal loans, home
equity and personal lines of credit and motor vehicle loans.
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Market Area
South Umpqua primarily accepts deposits and makes loans in Douglas,
Marion, Multnomah and Lane Counties of Oregon. As a community bank, the
Company has certain competitive advantages in its local focus. The Company is,
however, also more dependent on, and exposed to changes in, the local economy
than competitors who serve a number of geographic markets.
Douglas County
Douglas County, where most of the Company's stores are located, is the
eighth most populous county in Oregon with a population in 1999 of
approximately 99,200. Roseburg is the most populous city in the county, with a
population in 1999 of approximately 19,900. Population growth, which has been
modest since 1990, is largely attributable to a significant increase in new
residents over the age of 65, offset by a decline in younger residents. Most
of the population in the county resides near in the Interstate 5 corridor, the
Company's primary market area. According to the Oregon Employment Department,
the county's population is projected to increase over the next decade, but at
a slower rate than that of Oregon as a whole.
Douglas County is known as the "timber capital" of Oregon with
approximately 2.8 million acres of commercial forest land, most of which is
owned and managed by the federal government. The lumber and wood products
industry accounted for approximately 20% of the county's private-sector
employment in 1999, according to the Oregon Employment Department. Timber
harvests on public lands have declined significantly over the past several
years, as various court and administrative challenges and limits reduced the
amount of timber available for harvest. Decreased economic activity in Asia
has further dampened log exports and related logging activity. Employment in
the timber and forest products industry has declined accordingly, as it has in
related industries and governmental agencies, such as transportation companies
serving the forest products industry, the Bureau of Land Management and the
National Forest Service. Government employment still accounts for
approximately 20% of total employment in the county. Increases in service
jobs, particularly in health care and tourism, have helped to offset
timber-related job losses, with the result that total employment has been
essentially flat from the late 1970's to the mid-1990's, compared to a
state-wide growth of approximately 29% for the same period. It is expected
that the economy of Douglas County will continue to be dependent on the timber
and forest products industry.
Lane, Marion and Multnomah Counties
Lane County, where the Company has recently opened four new stores, has
experienced modest growth in population in the past several years, from
approximately 283,000 in 1990 to approximately 320,000 in 1999, an increase of
13%. A considerable amount of the growth is believed to be attributable to the
growth in technology-related employment in the Springfield/Eugene area.
Lane, Marion and Multnomah County have a significantly more diverse
economy than Douglas County. Their economies are dependent primarily on
service businesses, trade and government. Manufacturing employment has shifted
toward technology and non-timber-related manufacturing. The University of
Oregon, located in Eugene, is one of the largest employers in Lane County,
with approximately 4,560 employees.
Technology
The Company is committed to supporting its business with the best
available technology consistent with prudent management of resources. This
commitment applies to the delivery of financial services to its customers, as
well as internal operations such as data processing and accounting. Although
the Company considers personal contact with customers important to the overall
quality of service, the Company believes that providing customers access to
technology-driven financial services is crucial to maintaining its competitive
position in the financial services marketplace. As a result, the Company
provides automated teller machines at each store with access to nationwide ATM
networks, and offers telephone and internet banking, both in the "Computer
Cafe" in its newer stores and through the Company's home banking system.
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Competition
The community banking business is highly competitive. The Company
competes with other commercial banks and with other financial institutions,
including savings and loan associations, mutual savings banks, finance
companies, mortgage banking companies, credit unions, and investment
companies. In recent years, competition has increased from institutions not
subject to the same regulatory restrictions as banks and bank holding
companies.
The geographic market area served by South Umpqua is highly competitive
for both deposits and loans. The Company competes with traditional banking and
thrift institutions, as well as non-bank financial services providers, such as
credit unions, brokerage firms and mortgage companies. The major commercial
bank competitors are super-regional institutions headquartered outside the
state of Oregon, and their deposits represent a significant majority of total
statewide commercial bank deposits. The major banks have competitive
advantages over the Company in that they have higher lending limits and are
able to offer statewide facilities and services that the Company does not
offer.
The Company, however, views non-bank financial services providers, such
as credit unions, brokerage firms, insurance companies and mortgage companies,
as its principal competition. As the industry becomes increasingly dependent
on and oriented toward technology-driven delivery systems, permitting
transactions to be conducted by telephone, computer and the internet, such
non-bank institutions are able to attract funds and provide lending and other
financial services even without offices located in the Company's primary
service area. Some insurance companies and brokerage firms compete for
deposits by offering rates that are higher than may be appropriate for the
bank in relation to its asset/liability objectives, although the Company
offers a wide array of deposit products and believes it can compete
effectively through select rate-driven product promotions.
The acquisition of Strand, Atkinson, Williams & York, the retail
brokerage firm with offices in Portland and Medford, Oregon, as well as
Kalama, Washington, expanded the Company's business into the area of brokerage
services including equity and fixed income products, mutual funds, annuities,
options, retirement planning, and money management services. Additionally,
Strand, Atkinson, Williams & York offers life insurance, disability insurance
and medical supplement policies. As a result, in addition to competition for
banking services, the Company also competes with full service investment firms
for non-bank financial products and services.
Credit unions present a significant competitive challenge for the
Company. As credit unions currently enjoy an exemption from taxes, they are
able to offer higher deposit rates and lower loan rates than the Company.
Credit unions are also not currently subject to certain regulatory constraints
applicable to the Company, such as the Community Reinvestment Act, which,
among other things, requires regulated financial institutions to implement
procedures to make and monitor loans throughout the communities it serves.
Adhering to such regulatory requirements raises the costs associated with the
Company's lending activities, and reduces potential operating profits.
Accordingly, the Company seeks to compete by focusing on building customer
relations, providing superior service and offering a wide variety of
commercial banking products that do not compete directly with products and
services offered by the credit unions, such as commercial real estate loans,
inventory and accounts receivable financing, and SBA loans for qualified
businesses.
Employees
As of December 31, 1999, the Company had a total of 170 full-time
equivalent employees. None of the employees are subject to a collective
bargaining agreement. The Company considers its relationship with its
employees to be good.
Government Policies
The operations of the Company's subsidiaries are affected by state and
federal legislative changes and by policies of various regulatory authorities,
including those of the State of Oregon. These policies include, for example,
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statutory maximum legal lending rates, domestic monetary policies of the Board
of Governors of the Federal Reserve System, Unites States fiscal policy, and
capital adequacy and liquidity constraints imposed by national and state
regulatory agencies.
Supervision and Regulation
General - The Company is extensively regulated under federal and state
law. These laws and regulations are generally intended to protect depositors,
not shareholders. To the extent that the following information describes
statutory or regulatory provisions, it is qualified in its entirety by
reference to the particular statutory or regulatory provisions. Any change in
applicable laws or regulations may have a material effect on the business and
prospects of the Company. The operations of the Company may be affected by
legislative changes and by the policies of various regulatory authorities. The
Company cannot accurately predict the nature or the extent of the effects on
its business and earnings that fiscal or monetary policies, or new federal or
state legislation may have in the future.
Holding Company Regulation - The Company is a registered Financial
Holding Company under the Gramm-Leach-Bliley Act of 1999 (the "Act"), and is
subject to the supervision of, and regulation by, the Board of Governors of
the Federal Reserve System (the "Federal Reserve"). As a financial holding
company, the Company is examined by and files reports with the Federal
Reserve.
Financial holding companies are bank holding companies that satisfy
certain criteria and are permitted to engage in activities that traditional
bank holding companies are not. The qualifications and permitted activities of
financial holdings companies are described below under "Changing Regulatory
Structure of the Financial Service Industry".
Federal and State Bank Regulation - The Bank, as a state chartered bank
with deposits insured by the Federal Deposit Insurance Corporation ("FDIC"),
is subject to the supervision and regulation of the Oregon Department of
Consumer and Business Services, and of the FDIC. These agencies may prohibit
the Company from engaging in what they believe constitute unsafe or unsound
banking practices. In practice, the primary state regulator makes regular
examinations of the bank subject to its regulatory review or participates in
joint examinations with federal regulator. Areas subject to review by federal
authorities include the allowance for credit losses, investments, loans,
mergers, payments of dividends, establishment of stores and other aspects of
operations.
Strand, Atkinson, Williams & York is a member of the National Association
of Securities Dealers and is subject to their regulatory supervision. Areas
subject to this regulatory review include compliance with trading rules,
financial reporting, investment suitability for respective clients, and
compliance with NYSE rules and regulations.
The Community Reinvestment Act ("CRA") requires that, in connection with
examinations of financial institutions within its jurisdiction, the FDIC
evaluate the record of the financial institutions in meeting the credit needs
of their local communities, including low and moderate income neighborhoods,
consistent with the safe and sound operation of those institutions. These
factors are also considered in evaluating mergers, acquisitions and
applications to open a branch or new facility. The Company's current CRA
rating is "Satisfactory."
Banks are also subject to certain restrictions imposed by the Federal
Reserve Act on extensions of credit to executive officers, directors,
principal shareholders or any related interest of such persons. Extensions of
credit (i) must be made on substantially the same terms, including interest
rates and collateral as, and follow credit underwriting procedures that are
not less stringent than, those prevailing at the time for comparable
transactions with persons not affiliated with the Company, and (ii) must not
involve more than the normal risk of repayment or present other unfavorable
features. Banks are also subject to certain lending limits and restrictions on
overdrafts to such persons. A violation of these restrictions may result in
the assessment of substantial civil monetary penalties on the affected bank or
any officer, director, employee, agent or other person participating in the
conduct of the affairs of that bank, the imposition of a cease and desist
order, and other regulatory sanctions.
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The Federal Reserve and the FDIC have adopted non-capital safety and
soundness standards for institutions under their authority. These standards
cover internal controls, information and internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth,
compensation, fees and benefits, and standards for asset quality, earnings and
stock valuation. An institution which fails to meet these standards must
develop a plan acceptable to the agency, specifying the steps that the
institution will take to meet the standards. Failure to submit or implement
such a plan may subject the institution to regulatory sanctions. Management
believes that the Company is in substantial compliance with these standards.
Deposit Insurance - The deposits of the Company are currently insured to
a maximum of $100,000 per depositor through the Bank Insurance Fund ("BIF"),
administered by the FDIC. The Company is required to pay semi-annual deposit
insurance premium assessments to the FDIC. Assessments are based on how much
risk a bank is deemed to present to the BIF. Banks with higher levels of
capital and a low degree of supervisory concern are assessed lower premiums
than banks with lower levels of capital or involving a higher degree of
supervisory concern. The Bank qualifies for the lowest premium level, and
currently pays only the statutory minimum rate.
Dividends - Under the Oregon Bank Act, the Bank is subject to
restrictions on the payment of cash dividends to its parent company. A bank
may not pay cash dividends if that payment would reduce the amount of its
capital below that necessary to meet minimum applicable regulatory capital
requirements. In addition, the amount of the dividend may not be greater than
its net unreserved retained earnings, after first deducting (i) to the extent
not already charged against earnings or reflected in a reserve, all bad debts,
which are debts on which interest is unpaid and past due at least six months;
(ii) all other assets charged off as required by the Oregon Director or state
or federal examiner; and (iii) all accrued expenses, interest and taxes.
In addition, the appropriate regulatory authorities are authorized to
prohibit banks and bank holding companies from paying dividends which would
constitute an unsafe or unsound banking practice. The Company is not currently
subject to any regulatory restrictions on dividends other than those noted
above.
Capital Adequacy - The federal and state bank regulatory agencies use
capital adequacy guidelines in their examination and regulation of financial
holding companies and banks. If the capital falls below the minimum levels
established by these guidelines, a holding company or a bank may be denied
approval to acquire or establish additional banks or non-bank businesses or to
open new facilities.
The FDIC and Federal Reserve have adopted risk-based capital guidelines
for banks and bank holding companies. The risk-based capital guidelines are
designed to make regulatory capital requirements more sensitive to differences
in risk profile among banks and bank holding companies, to account for
off-balance sheet exposure and to minimize disincentives for holding liquid
assets. Assets and off-balance sheet items are assigned to broad risk
categories, each with appropriate weights. The resulting capital ratios
represent capital as a percentage of total risk-weighted assets and
off-balance sheet items. The capital adequacy guidelines limit the degree to
which a bank or bank holding company may leverage its equity capital.
Effects of Government Monetary Policy - The earnings and growth of the
Company are affected not only by general economic conditions, but also by the
fiscal and monetary policies of the federal government, particularly the
Federal Reserve. The Federal Reserve can and does implement national monetary
policy for such purposes as curbing inflation and combating recession, by its
open market operations in U.S. Government securities, control of the discount
rate applicable to borrowings from the Federal Reserve, and establishment of
reserve requirements against certain deposits. These activities influence
growth of bank loans, investments and deposits, and also affect interest rates
charged on loans or paid on deposits. The nature and impact of future changes
in monetary policies and their impact on the Company cannot be predicted with
certainty.
Changing Regulatory Structure of the Financial Services Industry -
Federal laws and regulations governing banking and financial services have
undergone significant changes in recent years. Of particular significance is
the recently enacted Gramm-Leach-Bliley Act that repealed sections of the
Banking Act of 1933, commonly referred to as the Glass-Steagall Act, that
prohibited banks from engaging in securities activities, and prohibited
securities firms from engaging in banking. The GLB Act created a new form of
holding company, known as a financial holding company, that is permitted to
acquire subsidiaries that are variously engaged in banking, securities
underwriting and dealing, and insurance underwriting.
8
<PAGE>
A bank holding company, if it meets specified criteria, may become a
financial holding company by filing a declaration with the Federal Reserve,
and may thereafter provide its customers with a far broader spectrum of
products and services than a traditional bank holding company is permitted to
do. A financial holding company may, through a subsidiary, engage in any
activity that is deemed to be financial in nature and activities that are
incidental or complementary to activities that are financial in nature. These
activities include traditional banking services and activities previously
permitted to bank holding companies under Federal Reserve regulations, but
also include underwriting and dealing in securities, providing investment
advisory services, underwriting and selling insurance, merchant banking
(holding a portfolio of commercial businesses, regardless of the nature of the
business, for investment), and arranging or facilitating financial
transactions for third parties.
To qualify as a financial holding company, the bank holding company must
be deemed to be well-capitalized and well-managed, as those terms are used by
the Federal Reserve. In addition, each subsidiary bank of a bank holding
company must also be well-capitalized and well-managed. Further, each
subsidiary bank must be rated at least "satisfactory" under the Community
Reinvestment Act.
A bank holding company that does not qualify, or has not chosen, to
become a financial holding company must limit its activities to traditional
banking activities and those non-banking activities the Federal Reserve has
deemed to be permissible because they are closely related to the business of
banking.
Legislation enacted by Congress in 1995 permits interstate banking and
branching, which allows banks to expand nationwide through acquisition,
consolidation or merger. Under this law, an adequately capitalized bank
holding company may acquire banks in any state or merge banks across state
lines if permitted by state law. Further, banks may establish and operate
branches in any state subject to the restrictions of applicable state law.
Under Oregon law, an out-of-state bank or bank holding company may merge with
or acquire an Oregon state chartered bank or bank holding company if the
Oregon bank, or in the case of a bank holding company, the subsidiary bank,
has been in existence for a minimum of three years, and the law of the state
in which the acquiring bank in located permits such merger. Branches may not
be acquired or opened separately, but once an out-of-state bank has acquired
branches in Oregon, either through a merger with or acquisition of
substantially all the assets of an Oregon bank, the acquirer may open
additional branches.
Item 2. Properties
South Umpqua's main office is located in Roseburg, Oregon. The Company
conducts its business through fourteen full-service financial stores
throughout its market area with stores located in Roseburg (4), Eugene (3),
Salem, Portland, Sutherlin, Canyonville, Myrtle Creek, Glendale and
Springfield. All of the stores have automated teller machines and 13 of the 14
stores have drive-up windows. The Company owns all but two stores, and leases
the land on which two others are located. The Company has options to extend
existing leases on the leased facilities. The Company's fourteen stores range
in size from approximately 1,100 square feet to slightly more than 15,000
square feet. In one store, excess space is leased to others. The Company
opened a Loan service center in February 1999 in Roseburg, Oregon. The
property, which is leased, is approximately 4,828 square feet and houses loan
processing staff.
Item 3. Legal Proceedings
No material legal proceedings, to which the Company is a party or which
involve any of its properties, was pending as of the date of this report on
Form 10-K.
Item 4. Submissions of Matters to a Vote of Securities Holders
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's Common Stock is traded over-the-counter on the NASDAQ Stock
Market National Market System under the symbol "UMPQ." Prior to the second
9
<PAGE>
quarter of 1998, when the Company completed a public offering and registered
its stock under the Securities Exchange Act of 1934, the Common Stock was
traded over-the-counter through the Bulletin Board Service of the NASDAQ Stock
Market and the Pink Sheet Service of the National Quotation Bureau . The
following lists the high and low trade prices for each period, as adjusted for
subsequent stock dividends and stock splits including a four-for-one stock
split paid on February 2, 1998. Prices do not include retail mark-ups,
mark-downs or commissions:
High Trade Low Trade Cash
Price Price Dividends
for Period for Period Declared
-------------------------------------------
1998
First Quarter .............. $ 16.75 $ 9.00 $ 0.0250
Second Quarter ............. $ 16.75 $ 13.13 $ 0.0250
Third Quarter .............. $ 14.38 $ 7.75 $ 0.0250
Fourth Quarter ............. $ 11.88 $ 7.25 $ 0.0400
1999
First Quarter .............. $ 11.00 $ 8.75 $ 0.04
Second Quarter ............. $ 10.63 $ 8.25 $ 0.04
Third Quarter .............. $ 10.63 $ 8.00 $ 0.04
Fourth Quarter ............. $ 11.00 $ 8.50 $ 0.04
As of December 31, 1999, the Common Stock was held of record by approximately
600 shareholders.
The Board of Directors' dividend policy is to review the Company's
financial performance, capital adequacy, regulatory compliance and cash
resources on a quarterly basis, and, if such review is favorable, to declare
and pay a cash dividend to shareholders. Although the Company expects to
continue to pay cash dividends, future dividends are subject to these
limitations and to the discretion of the Board of Directors, and could be
reduced or eliminated.
The Company has a dividend reinvestment plan that permits participants to
have shares purchased at the then-current market price in lieu of the receipt
of cash dividends.
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Financial Highlights 1999 1998 1997 1996 1995
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Income .................................... $ 4,874,000 $ 4,110,000 $ 3,044,000 $ 2,361,000 $ 2,207,000
Basic Earnings Per Common Share ............... $ 0.64 $ 0.56 $ 0.47 $ 0.36 $ 0.34
Fully Diluted Earnings Per Common Share ....... $ 0.63 $ 0.55 $ 0.46 $ 0.35 $ 0.34
Total Shareholders' Equity .................... $ 36,716,000 $ 36,146,000 $ 19,973,000 $ 17,022,000 $ 15,211,000
Total Assets .................................. $386,737,000 $318,887,000 $257,746,000 $203,838,000 $172,096,000
Total Loans ................................... $248,534,000 $186,167,000 $155,078,000 $112,861,000 $ 82,713,000
Total Deposits ................................ $301,673,000 $255,805,000 $221,726,000 $172,837,000 $149,751,000
</TABLE>
<TABLE>
<CAPTION>
Selected Ratios 1999 1998 1997 1996 1995
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Return on Average Assets ...................... 1.45% 1.47% 1.31% 1.27% 1.37%
Return on Average Equity ...................... 13.55% 13.14% 16.50% 14.71% 15.38%
Net Interest Margin ........................... 5.37% 5.37% 5.24% 5.14% 5.15%
Efficiency Ratio .............................. 55.60% 55.31% 61.86% 58.91% 57.93%
Loans/Deposits ................................ 82.39% 72.78% 69.94% 65.30% 55.23%
</TABLE>
<TABLE>
<CAPTION>
Asset Quality Ratios 1999 1998 1997 1996 1995
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for possible loan losses to:
Ending Total Loans ............................... 1.40% 1.43% 1.38% 1.76% 1.50%
Nonperforming Assets ............................. 216.19% 432.37% 170.27% 815.44% 541.43%
Nonperforming assets to
ending total loans ............................. 0.65% 0.33% 0.81% 0.21% 0.27%
Net loan charge-offs (recoveries)
to average loans ............................... 0.28% 0.30% 0.30% -0.16% 0.09%
</TABLE>
10
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation
The response to this item is incorporated by reference to the Company's
1999 Annual Report to Shareholders, pages 17-28.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The information called for by this item is incorporated by reference to
the Company's 1999 Annual Report to Shareholders, pages 17-28.
Item 9. Changes in and Disagreements With Accountants
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The response to this item is incorporated by reference to the Company's
Proxy Statement for the 2000 annual meeting of shareholders scheduled to be
held April 26, 2000, under the captions "Election of Directors" and
"Executive Officers."
Item 11. Executive Compensation
The response to this item is incorporated by reference to the Company's
Proxy Statement for the 2000 annual meeting of shareholders scheduled to be
held April 26, 2000, under the caption "Executive Compensation."
Item 12. Security Ownership of Certain Beneficial Owners and Management
The response to this item is incorporated by reference to the Company's
Proxy Statement for the 2000 annual meeting of shareholders scheduled to be
held April 26, 2000, under the caption "Security Ownership of Management and
Others."
Item 13. Certain Relationships and Related Transactions
The response to this item is incorporated by reference to the Company's
Proxy Statement for the 2000 annual meeting of shareholders scheduled to be
held April 26, 2000, under the caption "Transactions with Directors and
Officers."
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Financial Statements: The consolidated financial statements are
incorporated by reference to pages 30-43 of the Company's 1999 Annual
Report to Shareholders
(2) Financial Statement Schedules:
All schedules have been omitted because the information is not
required, not applicable, not present in amounts sufficient to
require submission of the schedule, or is included in the financial
statements or notes thereto.
(3) The exhibits filed with this report are listed in the Exhibit Index on
sequential page 16.
(b) There were no current reports on Form 8-K filed by the registrant during
the last quarter of the year ended December 31, 1999.
11
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized.
UMPQUA HOLDINGS CORPORATION
(Registrant)
By: /s/ Raymond P. Davis Date: March 15, 2000
----------------------------------------------
Raymond P. Davis, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: /s/ Allyn C. Ford Date: March 15, 2000
----------------------------------------------
Allyn C. Ford, Chairman of the Board
of Directors
By: Date: March 15, 2000
----------------------------------------------
Lynn K. Herbert, Director
By: /s/ Harold L. Ball Date: March 15, 2000
----------------------------------------------
Harold L. Ball, Director
By: /s/ Ronald O. Doan Date: March 15, 2000
----------------------------------------------
Ronald O. Doan, Director
By: Date: March 15, 2000
----------------------------------------------
David B. Frohnmayer, Director
By: /s/ Neil D. Hummel Date: March 15, 2000
----------------------------------------------
Neil D. Hummel, Director
By: /s/ Frances Jean Phelps Date: March 15, 2000
----------------------------------------------
Frances Jean Phelps, Director
By: /s/ Raymond P. Davis Date: March 15, 2000
----------------------------------------------
Raymond P. Davis, Director, President and
Chief Executive Officer
By: /s/ Scott Chambers Date: March 15, 2000
----------------------------------------------
Scott Chambers, Director
12
<PAGE>
EXHIBIT INDEX
Exhibit
3.1 Articles of Incorporation of Umpqua Holdings Corporation*
3.2 Bylaws of Umpqua Holdings Corporation*
4.0 Specimen Stock Certificate*
10.1 Executive Employment and Compensation Agreement dated July 10,
1998, for Ray Davis
10.2 Executive Employment Agreement dated June 1, 1999, for Steven
May
10.3 Executive Employment Agreement dated March 31, 1999, for
Daniel A. Sullivan
10.4 Executive Employment Agreement dated April 19, 1999, for Dolly
Lusty
10.5 South Umpqua Bank Stock Option Plan dated January 26, 1995, as
adopted by Umpqua Holdings Corporation as of March 12, 1999*
10.6 Form of Stock Option Agreement
10.7 Description of South Umpqua State Bank's 1997 Incentive Plan
for Senior Management**
10.8 Retail Lease Agreement dated November 1, 1994, relating to
lease of Garden Valley Shopping Center Branch Office in
Roseburg, Oregon**
10.9 Lease Agreement dated November 5, 1996, relating to lease of
Gateway Mall Brach Office in Springfield, Oregon**
10.10 Commercial Building Lease dated August 29, 1996, relating to
lease of 40th and Donald Street Branch Office in Eugene,
Oregon**
10.11 Commercial Lease dated October 23, 1973, and related
agreements relating to lease of Glendale, Oregon, Branch
Office**
10.12 Strand, Atkinson, Williams & York, Inc. Purchase Agreement
dated May 10, 1999
10.13 Ground Lease (including First Amendment) dated 2/12/99
relating to lease of the Salem, Oregon store
10.14 Commercial lease agreement dated February 25, 1999 related to
lease of the Northeast Portland store
10.15 Commercial lease agreement dated November 5, 1998 relating to
the Roseburg, Oregon Loan Center
13
<PAGE>
13.0 Annual Report to Shareholders
21.1 Subsidiaries of the Registrant
23.0 Consent of Independent Auditors
27.0 Financial Data Schedule
* Incorporated by reference to the registration statement on
Form S-8 filed on April 23, 1999.
** Incorporated herein by reference to the registration statement
on Form 10 filed by South Umpqua Bank as predecessor
registrant, as declared effective by the Federal Deposit
Insurance Corporation on April 1, 1998.
14
EXECUTIVE EMPLOYMENT AND
COMPENSATION AGREEMENT
Date: Effective as of July 10, 1998
Parties: South Umpqua Bank, a bank chartered under the laws of the State of
Oregon, its subsidiaries and affiliates (the "Company")
and
Ray Davis (the "Executive")
Agreement: The Company and the Executive agree as follows:
1. Effective Date Of Agreement
This Agreement is effective as of July 10, 1998.
2. Term Of Employment
The term of this Agreement shall commence as of July 10, 1998 and shall
continue until the close of the Company's business on July 10, 2000
("Term of Employment").
3. Obligation Of The Parties To Negotiate In Good Faith
Upon the expiration of the Term of Employment, the parties agree to
negotiate with one another in good faith regarding another Executive
Employment and Compensation Agreement. Upon the expiration of the Term of
Employment, the Executive shall be deemed to be an "employee at will."
4. Employment Position, Duties, And Responsibilities
The Company agrees to continue the Executive in its employ, and the
Executive agrees to remain in the employ of the Company for the Term of
Employment in the position and with the duties and responsibilities of
the principal Chief Executive Officer and President of the Company and
shall report to the Board of Directors. At all times during the Term of
Employment the Executive shall hold a title and position of
responsibility commensurate with the Executive's title and position on
July 10, 1998.
10.1 - 1
<PAGE>
The Executive shall also serve as a director of the Company, if elected.
Fees paid to the Executive for service as a director shall be in addition
to those amounts paid pursuant to this Agreement.
The office of the Executive shall be located at the principal offices of
the Company in Roseburg, Oregon. The Executive shall not be required to
relocate his office without his prior written consent.
5. Compensation
During the Term of Employment, the Executive shall be paid by the Company
as follows:
a. Annual Base Salary
A minimum annual base salary of $172,500 ("Base Salary"), payable at
the rate of not less than $14,375 per month, for the remainder of
the calendar year 1998, and for the remainder of the Term of
Employment, together with such increases as may be awarded by the
Company from time to time in accordance with the Company's regular
practices of salary increases for executives; plus
b. Annual Executive Performance Bonus
An annual executive performance bonus under the Company's Executive
Bonus Compensation Plan or such equivalent successor plan as may be
adopted by the Company from time to time ("Performance Bonus").
c. Retirement Plans
The Executive shall be a full and vested participant in all of the
Company's retirement, and deferred compensation plans, if any
("Retirement Plans") to the extent permitted by such plans; plus
d. Fringe Benefits
The Executive shall be entitled to a monthly car allowance of $500,
payment or reimbursement of: club dues and initiation fees for
Roseburg Golf and Country Club; other club dues or dues for civic
organizations which in the opinion of the Board of Directors are
beneficial to the Company; and Executive's reasonable expenses
incurred by the Executive in the conduct of his duties.
10.1 - 2
<PAGE>
6. Employee Benefit Plans
In addition to the payments and other benefits provided for in this
Agreement, the Executive shall be entitled to participate in the
Company's Incentive Stock Option Plan, Non-Qualified Stock Option Plan,
and the Executive Profit Sharing and Thrift Plan, if any, to the extent
permitted by such plans. If no such plans are in effect as of the date of
this Agreement, then the Executive shall become a participant as soon as
such plan or plans become operative.
Nothing in this Agreement shall preclude the Company from amending or
terminating any employee benefit plan or practice.
During the Term of Employment, the Executive's benefits set forth in this
Agreement shall not be less than those benefits available to the
Executive as of the date of this Agreement. The nature, level, and extent
of such benefits to which Executive is entitled may be reduced only with
the Executive's written consent.
7. Termination Of Executive's Employment During the Term Of Employment
a. Termination Of The Executive's Employment By The Company For "Cause"
In the event the Executive's employment is terminated by the Company
during the Term of Employment for "cause" (as defined in Section 9),
the Executive shall be entitled to receive payment only for those
sums, benefits, and other fringe benefits which have accrued to and
are due and owing the Executive as of the effective date of the
termination of his employment ("Effective Date"). Executive shall
not be entitled to any other sums for the remainder of the Term of
Employment.
b. Termination Of The Executive's Employment By The Company Without
"Cause"
In the event the Company terminates the Executive's employment
during the Term of Employment for any reason other than "cause" (as
defined in Section 9), then Executive shall be entitled to receive
and the Company shall be obligated to pay:
10.1 - 3
<PAGE>
1. All compensation, benefits, and other fringe benefits accrued
to the Effective Date;
2. An amount equal to nine months' Base Salary as defined in
Section 5.a; and
3. An amount equal to the projected Performance Bonus as defined
in Section 5.b. for the year in which the Effective Date
occurred, pro-rated based upon the number of months during such
year in which the Executive was employed. For example, if
Executive's employment was termined after six months of a bonus
year, and the projected bonus for the Executive for that year
was $20,000, then the Executive would be entitled to receive
the sum of $10,000 as the projected pro-rated bonus for that
year.
4. Health insurance benefits available to the Executive on the
Effective Date shall continue in full force and effect for the
maimum time allowed by law following the Effective Date.
c. Payment of Sums Due Executive
All sums due the Executive pursuant to this Section 7 shall be paid
by the Company to the Executive in full, in cash, or the equivalent
of cash, within five days from the Effective Date.
8. Termination Of Employment In Connection With A Change In Control Of
Company
The provisions of this Section 8 shall govern all severance or
termination payments to the Executive in the event that the Company
is subject to a "change in control" (as defined in Section 10).
a. Termination of Employment Of The Executive By The Company Or The
Company's Successor In Interest In Anticipation Of, In Connection
With, Or After A Change In Control
In the event that the Company, its successor in interest by merger,
its transferee, or the new owner of a controlling interest in the
Company's stock, terminates the Executive's employment or causes the
termination of the Executive's employment during the Term of
Employment in anticipation of, in connection with, or after a change
in control has occurred, then the Company, its successor in interest
by merger, its transferee, or the new owner of its stock, as the
10.1 - 4
<PAGE>
case may be, shall pay the Executive an amount equal to two times
the average of the total annual compensation (as defined in Section
5.(a) and (b)), including the Base Salary plus the Performance
Bonus, paid to the Executive during the last two full calendar years
of employment (including employment pursuant to a prior Agreement
dated July 10, 1994 between the Company and the Executive).
b. Termination Of Employment By Executive After A Change In Control And
Occurrence Of A "Triggering Event"
In the event that the Executive terminates his employment during the
Term of Employment after a change in control and a "triggering
event" (as defined in Section 10) has occurred, then the Company,
its successor in interest by merger, its transferee, or the new
owner of a controlling interest in the Company's stock, as the case
may be, shall pay the Executive the following amount: an amount
equal to two times the average of the total annual compensation, (as
defined in Section 5.(a) and (b)), including the Base Salary plus
the Performance Bonus) paid to the Executive during the last two
full calendar years of employment (including employment pursuant to
a prior Agreement dated July 10, 1994 between the Company and the
Executive).
c. Payments to Executive
Executive shall be paid those amounts specified in this Section 8 in
full, in cash or the equivalent of cash, five days after the
Effective Date.
d. Excess Parachute Payment
If the lump sum payment under this Section 8 of this Agreement,
either alone or together with other payments to which the Executive
is entitled to receive from the Company, would constitute an "excess
parachute payment" as defined in Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code"), such lump sum
severance payment shall be reduced to the largest amount that will
result in no portion of the lump sum payment under this Section 8 of
this Agreement being subject to the excise tax imposed by Section
4999 of the Code. The determination of any reduction in the lump sum
severance payment under this Section 8 of this Agreement, pursuant
to the foregoing provisions, shall be made by mutual agreement of
the Company and the Executive.
10.1 - 5
<PAGE>
9. Definition Of "Cause"
"Cause" is defined as personal dishonesty, willful misconduct, breach of
fiduciary involving personal profit, failure to perform his stated duties
as Chief Executive Officer and President of the Company, or failure of
the Executive to devote his full time and undivided attention during
normal business hours to the business and affairs of the Company, (except
for reasonable vacations, illness or disability and time devoted by the
Executive to serving as a director or member of any committee or
organization engaging in charitable and community activities).
10. Definition Of "Change In Control" and "Triggering Event"
A "change in control" is defined as any transaction, act, series of
transactions or series of acts that either:
(a) would constitute a change in control for purposes of The Bank Act
(ORS Chapters 706 through 716), the Bank Holding Company Act of
1956, as amended, The Bank Merger Act, as amended, The Change In
Bank Control Act, as amended, or The Securities Exchange Act Of
1934, as amended, (collectively referred to herein as the "Acts"),
assuming the Company is subject to the foregoing Acts regardless of
whether the Company is actually subject to the provisions of any
such Acts;
(b) would result in any person, entity or group of persons as those
terms are used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934 (but excluding an Employee Stock Ownership
Plan) becoming a beneficial owner, directly or indirectly of the
securities of the Company representing 20% or more of the combined
voting power of the Company's then outstanding shares; or
(c) would result in individuals who were directors of the Company as of
the date of this Agreement ceasing to constitute at least a majority
of the Board of Directors of the Company at any time prior to July
10, 2000.
A "triggering event" is defined as any one of the following events which
take place after a change in control has occurred:
(a) failure to elect or reelect the Executive to the same or higher
office or removal of the Executive from the office of President and
Chief Executive Officer of the Company;
(b) a significant diminution in the nature or scope of the authorities,
powers, functions, or duties related to the position of President
and Chief Executive Officer of the Company (including status,
10.1 - 6
<PAGE>
offices, and reporting requirements), or a reduction in the
compensation to which Executive is entitled as set forth in Section
5 which is not remedied within 30 days after receipt by the Company
of written notice from the Executive;
(c) the Company requiring the Executive to be based at any office or
location more than 15 miles from 445 Southeast Main St., Roseburg,
Oregon, or the Company requiring the Executive to travel on Company
business to a substantially greater extent than required immediately
prior to the date of this Agreement; or
(d) breach by the Company of any provision of this Agreement not covered
within the foregoing clauses (a), (b), and (c) of this section,
which is not remedied within 30 days after receipt by the Company of
written notice from the Executive;
For the purposes of this Section 10 and this Agreement, "Company"
shall include the Company's successor in interest by merger, its
transferee of all or substantially all of the Company's assets
and/or liabilities, or the new owner of a controlling interest of
the Company's stock.
(e) The liquidation, dissolution, consolidation or merger of the Company
or one or more of the Company's subsidiaries or affiliates, or the
transfer of all or a significant portion of the assets and/or
liabilities of the Company, or one of its subsidiaries or
affiliates, unless a successor or successors (by merger,
consolidation or otherwise) to which all or a significant portion of
the Company's assets and liabilities or the assets and liabilities
of any of its subsidiaries have been transferred, shall have assumed
and discharged all duties and obligations of the Company to the
Executive under this Agreement.
An election by the Executive to terminate his employment after the
occurrence of a change in control and the occurrence of a triggering
event as defined herein, shall entitle the Executive to payment of those
sums specified in Section 8.b.
11. Unexercised Stock Options
In the event that the Executive shall hold as of the Effective Date any
outstanding and unexercised (whether or not exercisable at the time)
stock options or options previously granted by the Company, the
disposition of such options shall be made in accordance with the
Company's Incentive Stock Option Plan (if any).
10.1 - 7
<PAGE>
12. Right To Seek Arbitration
Either party shall have the right, in addition to all other rights and
remedies provided by law at their election, either to seek arbitration in
Oregon, under the rules of the American Arbitration Association or to
institute a judicial proceeding, in either case within 90 days after
having received notice of termination of his employment.
13. Obligation To Mitigate Damages
In the event of the Executive's termination of employment, the Executive
shall not be required to mitigate damages by seeking other employment.
14. Confidential Information
Executive agrees not to disclose at any time any confidential information
obtained by him while in the employ of the Company. The executive also
agrees that upon leaving the Company, he will not take with him any
document of the Company's which is of a confidential or proprietary
nature.
15. Withholding
All payments required to be made by the Company to the Executive pursuant
to this Agreement shall be subject to applicable federal and state
withholding requirements.
16. Notices
All notices, requests, demands, and other communications provided for by
this Agreement will be in writing and shall be sufficiently given if and
when mailed in the continental United States by registered or certified
mail, or personally delivered to the party entitled thereto at the
address stated below or to such changed addresses as the addressee may
have given by similar notice:
To the Company: South Umpqua Bank
445 Southeast Main St.
Roseburg, Oregon 97470
To the Executive: Ray Davis
P.O. Box 1212
Roseburg, Oregon 97470
Any such notice delivered in personal shall be deemed to have been
received on the date of delivery.
10.1 - 8
<PAGE>
17. General Provisions
(a) There shall be no right of set-off or counter-claim against any
payments to the Executive, his surviving spouse, beneficiaries, or
estate. All sums to which the Executive is entitled pursuant to this
Agreement shall, upon his death, be paid to his surviving spouse,
heirs, or to his estate, if there is no surviving spouse.
(b) The Company and the Executive recognize that each party will have no
adequate remedy at law for breach of this Agreement; and that in the
event of any such breach, the Company and the Executive agree and
consent that the other shall be entitled to apply for and obtain a
Decree of Specific Performance.
(c) No right or interest to or in any payment shall be assignable by the
Executive, provided, however, that this provision shall not preclude
the Executive from designating one or more beneficiaries to receive
any amount or amounts that may be payable to him after his death and
shall not preclude the legal representative of his estate from
assigning any right hereunder to the person or persons entitled
thereto under his Will or in the case of intestacy to the person or
persons entitled thereto under the laws of intestate succession of
the State of Oregon.
18. Successors To The Company
This Agreement shall be binding upon and inure to the benefit of the
Company and any successor of the Company, including without limitation
any corporation or corporations acquiring directly or indirectly all or
substantially all of the assets and/or liabilities, or a controlling
interest in the stock of the Company, whether by merger, consolidation,
sale or otherwise (and such successor shall thereafter be deemed "the
Company" for the purposes of this Agreement), but shall not otherwise be
assignable by the Company.
19. Amendment Or Modification
This Agreement may not be amended or modified without the written consent
of the parties to this Agreement. A waiver by either party to this
Agreement of any breach by the other party shall not be deemed to be a
waiver of any subsequent or continuing breach.
20. Severability
In the event that any portion of this Agreement is declared
unenforceable, the remaining portions of this Agreement shall be
unaffected and shall remain in full force and effect.
10.1 - 9
<PAGE>
21. Legal Expenses
If the Company fails to comply with any of its obligations under this
Agreement, or in the event that the Company or any other person takes any
action or declares this Agreement unenforceable or institutes any
litigation or other legal action designed to deny, diminish or to recover
from the Executive the benefits intended to be provided to the Executive
hereunder, and provided further that the Executive has complied with all
of his obligations under this Agreement, the Company hereby authorizes
the Executive to retain counsel of his choice at the sole expense of the
Company to represent the Executive in connection with the initiation or
defense of any litigation or other legal action whether by or against the
Company, or any director, officer, shareholder, or other person
affiliated with the Company in any jurisdiction. The reasonable fees and
expenses of counsel selected by the Executive as provided herein shall be
paid or reimbursed to the Executive by the Company on a regular periodic
basis upon presentation by Executive of a statement or statements
prepared by such counsel in accordance with such counsel's customary
practices up to a maximum aggregate amount of $60,000 for legal fees and
expenses which shall be paid regardless of whether the Executive prevails
in any legal action.
22. Continuation Of Benefits
During any period of time that the validity or enforceability of this
Agreement is being challenged by any party, the Company shall continue to
cover the Executive and his beneficiaries under the Company's cafeteria
plan, hospital plan, health care plan, dental plan, life or other
insurance or death benefit plan, or other present or future similar group
or employee benefit plan or program for which key executives of the
Company are eligible to the same extent as if the Executive had continued
to be an employee of the Company.
DATED as of ________________.
SOUTH UMPQUA BANK
By: /s/ Allyn C. Ford
-----------------------------------------
Title: Chairman
/s/ Raymond P. Davis
---------------------------------------------
Raymond P. Davis
10.1 - 10
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement (the "Agreement") is dated effective
as of June 1, 1999 (the "Effective Date"), by and between Steve May
("Executive") and Umpqua Holdings Corporation ("Umpqua").
1. EMPLOYMENT. Umpqua, either directly or one of its wholly owned
subsidiaries, employs the Executive and the Executive accepts that employment
on the terms and conditions contained in this Agreement.
2. TERM. Umpqua agrees to employ the Executive for a period of two years
commencing on the Effective Date (the "Term"), unless that employment is
terminated earlier in accordance with this Agreement.
3. OPTION TO EXTEND. Umpqua has the option to extend, in its sole
discretion, the Executive's employment for one additional year upon written
notice to the Executive no less than 60 days prior to the expiration of the
Term.
4. DUTIES; POSITION.
4.1 Position. Executive shall be employed as Senior Vice
President/Retail Operations of South Umpqua Bank (the "Bank"), and as such
will have overall responsibility for the Bank's retail operations and such
other duties as may be designated by the President of Umpqua and will report
to the President of Umpqua.
4.2 Obligations to Umpqua.
(a) Executive agrees that to the best of his ability and experience
Executive will at all times loyally and conscientiously perform all of
the duties and obligations required of and from Executive pursuant to the
express and implicit terms of this Agreement and at the direction of the
President of Umpqua.
(b) Executive agrees that Executive will devote all of his business
and professional time and attention to the business affairs of Umpqua.
Executive shall not be employed by any person (including any individual
or entity) other than Umpqua in connection with any other business
activity.
5. BASE COMPENSATION. For services performed under this Agreement,
Executive shall be entitled to a salary ("Base Salary") of a minimum of $7,500
per month together with perquisites provided to senior officers of Umpqua.
6. TERMINATION. The employment of Executive shall terminate upon the
occurrence of any one or more of the events in this Section 6.
6.1 For Cause. Umpqua's termination of Executive for Cause (as
defined in Section 7.1 below) ("Termination For Cause").
10.2 - 1
<PAGE>
6.2 Without Cause. Umpqua's termination of Executive without Cause,
at any time at Umpqua's sole discretion, for any or no reason other than for
Cause ("Termination Without Cause").
6.3 By New President/Chief Executive Officer. Umpqua's termination
of Executive within six (6) months following the initial date of employment of
a President and Chief Executive Officer other than Raymond P. Davis
("Termination by New President/CEO").
6.4 For Good Reason. Executive's termination of his employment with
Umpqua for Good Reason (as defined in Section 7.2 below) within the 90-day
period immediately following one of the events set forth in Section 7.2 below
("Termination For Good Reason").
6.5 End of Term. Upon the expiration of the term of this Agreement
the employment of Executive shall revert to employment-at-will and this
Agreement shall terminate, unless this Agreement is renewed in writing by the
parties.
6.6 Death or Disability. Upon Executive's death or Disability (as
defined in Section 7.3 below).
7. DEFINITIONS.
7.1 Cause. For the purposes of this Agreement, "Cause" for
Executive's termination will exist upon the occurrence of one or more of the
following events:
(a) Dishonest or fraudulent conduct by Executive with respect to the
performance of his duties with Umpqua;
(b) Conduct by Executive that materially discredits Umpqua or is
materially detrimental to the reputation of Umpqua, including conviction
or a plea of nolo contendere of Executive of a felony or crime involving
moral turpitude;
(c) Executive's willful misconduct or gross negligence in
performance of his duties under this Agreement, including but not limited
to Executive's refusal to comply in any material respect with the legal
directives of the Board of Directors or the President and Chief Executive
Officer;
(d) An order from a state or federal banking regulatory agency
requesting or requiring removal of Executive or a finding by any such
agency that Executive's performance threatens the safety or soundness of
Umpqua or any of its subsidiaries;
(e) Executive's failure to materially perform the duties set forth
in Section 4 of this Agreement; or
10.2 - 2
<PAGE>
(f) Breach of Executive's fiduciary duties to Umpqua.
7.2 Good Reason. For purposes of this Agreement, "Good Reason" for
Executive's termination will exist upon the occurrence of one or more of the
following events:
(a) A material adverse change in Executive's position causing such
position to be of materially reduced stature or responsibility;
(b) A reduction of Executive's Base Salary unless in connection
with, and to the same degree as, reductions in the salaries of all or
substantially all similarly situated employees of Umpqua; or
(c) An unconsented requirement for Executive to relocate to a
facility or location more than 50 miles from Executive's current
location.
7.3 Disability. For purposes of this Agreement, "Disability" shall mean
that Executive has been unable to perform his duties under this Agreement as a
result of his incapacity due to physical or mental illness, and such
inability, which continues for at least 120 consecutive calendar days or 150
calendar days during any consecutive 12-month period, if shorter, after its
commencement, is determined to be total and permanent by a physician selected
by Umpqua and its insurers and acceptable to Executive or Executive's legal
representative (with such agreement on acceptability of the physician not to
be unreasonably withheld).
8. SEVERANCE BENEFITS. Executive shall be entitled to receive severance
benefits upon termination of employment only as set forth in this Section 8.
8.1 Termination Without Cause or For Good Reason. In the event of a
Termination Without Cause or Termination For Good Reason, Executive will
receive payment for all Base Salary and benefits accrued as of the date of
Executive's termination together with a payment of severance benefits equal to
six (6) months Base Salary.
8.2 Termination by Reason of Death or Disability. In the event of a
Termination by reason of death or Disability, Executive will receive payment
for all Base Salary and benefits accrued as of the date of Executive's
termination.
8.3 Termination by New President/CEO. In the event of a Termination
by New President/CEO, Executive will receive payment for all Base Salary and
benefits accrued as of the date of termination together with a payment of
severance benefits equal to six (6) months Base Salary.
8.4 Termination Relating to a Change in Control.
(a) In the event that Executive is terminated in anticipation of, in
connection with, or within one hundred eighty (180) days following the
closing date of a Change in Control and without Cause, then Umpqua, or
its successor in interest, shall pay Executive all Base Salary and
10.2 - 3
<PAGE>
benefits accrued as of the date of termination together with severance
benefits equal to two (2) years Base Salary.
(b) In the event that Executive is terminated 180 days or more after
the closing date of a Change in Control and without Cause, then Umpqua,
or its successor in interest, shall pay Executive all Base Salary and
benefits accrued as of the date of termination together with severance
equal to the greater of (i) an amount equal to two (2) years Base Salary
from the closing date of the Change in Control minus the Base Salary for
the number of days elapsed since the closing date of the Change in
Control or (ii) as otherwise provided in this Agreement.
8.5 Section 280G. All severance payments made under this Agreement
must be within the limits set forth in Section 280G of the Internal Revenue
Code; if a payment would otherwise be an "excess parachute payment" as defined
in Section 280G, the payment shall be reduced to avoid the applicability of
Section 280G.
9. DEFINITION OF CHANGE IN CONTROL. For the purposes of this Agreement, a
"Change in Control" shall be deemed to have occurred when any of the following
events takes place:
9.1 Acquisition of Fifty Percent or More of Voting Power. Any person
(including any individual or entity) or persons acting in concert becomes the
beneficial owner of voting shares representing fifty percent (50%) or more of
the voting power of Umpqua.
9.2 Removal of Directors. A majority of the Board of Directors of
Umpqua are removed from office by a vote of the shareholders of Umpqua over
the recommendation of the Board of Directors then serving.
9.3 Merger. Umpqua is a party to a plan of merger or plan of
exchange and upon consummation of such plan, the shareholders of Umpqua do not
own or continue to own at least a majority of the shares of the surviving
company.
10. ARBITRATION. Any dispute or claim arising out of or in connection
with this Agreement will be finally settled by binding arbitration in
Roseburg, Oregon in accordance with the rules of the American Arbitration
Association by one arbitrator appointed in accordance with said rules. The
arbitrator shall apply Oregon law, without reference to rules of conflicts of
law or rules of statutory arbitration, to the resolution of any dispute.
Judgment on the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. Notwithstanding the foregoing, the parties may
apply to any court of competent jurisdiction for preliminary or interim
equitable relief, or to compel arbitration in accordance with this Section 10,
without breach of this arbitration provision.
11. CONFIDENTIAL INFORMATION. The parties acknowledge that in the course
of Executive's duties he will have access to and become familiar with certain
proprietary and confidential information of Umpqua and other information about
Umpqua not known by its actual or potential competitors. Executive
acknowledges that such information constitutes valuable, special, and unique
assets of Umpqua's business, even though such information may not be of a
10.2 - 4
<PAGE>
technical nature and may not be protected under trade secret or related laws.
Executive agrees that he will hold in a fiduciary capacity and will not use
for himself and will not reveal, communicate, or divulge during the period of
his employment with Umpqua or at any time thereafter, and in any manner
whatsoever, any such date and confidential information of any kind, nature, or
description concerning any matters affecting or relating to Umpqua's business,
its customers, or its services, to any person, firm, entity, or company other
than Umpqua or persons, firms, entities, or companies designated by Umpqua.
Executive agrees that all memoranda, notes, records, papers, customer files,
and other documents, and all copies thereof relating to Umpqua's operations or
business, or matters related to any of Umpqua's customers, some of which may
be prepared by Executive, and all objects associated therewith in any way
obtained by Executive, shall be Umpqua's property.
12. NOTICES. All notices, requests, demands, and other communications
provided for by this Agreement will be in writing and shall be deemed
sufficient upon receipt, when delivered personally or by a
nationally-recognized delivery service (such as Federal Express), or three
business days after being deposited in the U.S. mail as certified mail, return
receipt requested, with postage prepaid, if such notice is addressed to the
party to be notified at such party's address as set forth below or as
subsequently modified by written notice.
To Umpqua: Umpqua Holdings Corporation
445 S.E. Main Street
Roseburg, Oregon 97470
Attention:President
To Executive: Steve May
P.O. Box 1820
Roseburg, OR 97470
13. GENERAL PROVISIONS.
13.1 Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Oregon, without giving effect to the principles of conflict of laws.
13.2 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to
renegotiate such provision(s) in good faith. In the event that the parties
cannot reach a mutually agreeable and enforceable replacement for such
provision, then (i) such provision shall be excluded from this Agreement, (ii)
the balance of the Agreement shall be interpreted as if such provisions were
so excluded, and (iii) the balance of the Agreement shall be enforceable in
accordance with its terms.
13.3 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
10.2 - 5
<PAGE>
13.4 Entire Agreement. This Agreement constitutes the sole agreement
of the parties and supersedes all oral negotiations and prior writings with
respect to the subject matter hereof.
13.5 Waiver. No waiver of any provision of this Agreement shall be
valid unless in writing, signed by the party against whom the waiver is sought
to be enforced. The waiver of any breach of this Agreement or failure to
enforce any provision of this Agreement shall not waive any later breach.
13.6 Assignment. Executive shall not assign or transfer any of his
rights pursuant to this Agreement, wholly or partially, to any other person or
to delegate the performance of its duties under the terms of this Agreement.
13.7 Attorneys' Fees. In the event of any arbitration or legal
proceeding relating to this Agreement, the prevailing party in such proceeding
shall be entitled to recover reasonable attorneys' fees in such proceeding, or
any appeal thereof, to be set by the arbitrators or the court without the
necessity of hearing testimony or receiving evidence, in addition to the costs
and disbursements allowed by law.
14. ADVICE OF COUNSEL. EACH PARTY TO THIS AGREEMENT ACKNOWLEDGES
THAT, IN EXECUTING THIS AGREEMENT, SUCH PARTY HAS HAD THE OPPORTUNITY TO SEEK
THE ADVICE OF INDEPENDENT LEGAL COUNSEL, AND HAS READ AND UNDERSTOOD ALL OF
THE TERMS AND PROVISIONS OF THIS AGREEMENT. THIS AGREEMENT SHALL NOT BE
CONSTRUED AGAINST ANY PARTY BE REASON OF THE DRAFTING OR PREPARATION HEREOF.
UMPQUA HOLDINGS CORPORATION
By: /s/ Raymond P. Davis
-----------------------------------------
Raymond P. Davis, Director, President and
Chief Executive Officer
/s/ Steve May
---------------------------------------------
Steve May
10.2 - 6
EXECUTIVE EMPLOYMENT AND
COMPENSATION AGREEMENT
Date: Effective as of March 31, 1999
Parties: South Umpqua Bank, a bank chartered under the laws of the State of
Oregon, its subsidiaries and affiliates (the "Company")
and
Daniel A. Sullivan (the "Executive")
Agreement: The Company and the Executive agree as follows:
1. Effective Date Of Agreement
This Agreement is effective as of March 31, 1999.
2. Term Of Employment
The term of this Agreement shall commence as of March 31, 1999 and shall
continue until the close of the Company's business on November 2, 2001 ("Term
of Employment").
3. Obligation Of The Parties To Negotiate In Good Faith
Upon the expiration of the Term of Employment, the parties agree to
negotiate with one another in good faith regarding another Executive
Employment and Compensation Agreement. Upon the expiration of the Term of
Employment, the Executive shall be deemed to be an "employee at will."
4. Employment Position, Duties, And Responsibilities
The Company agrees to continue the Executive in its employ, and the
Executive agrees to remain in the employ of the Company for the Term of
Employment in the position and with the duties and responsibilities of a
Senior Vice President and Chief Financial Officer of the Company and shall
report to the President and Chief Executive Officer of the Company. At all
10.3 - 1
<PAGE>
times during the Term of Employment the Executive shall hold a title and
position of responsibility commensurate with the Executive's title and
position on March 31, 1999.
5. Compensation
During the Term of Employment, the Executive shall be paid by the Company
as follows:
a. Annual Base Salary
A minimum annual base salary of $104,500("Base Salary"), payable at
the rate of not less than $8,708.34 per month, for the remainder of the
calendar year 1999, and for the remainder of the Term of Employment,
together with such increases as may be awarded by the Company from time
to time in accordance with the Company's regular practices of salary
increases for executives; plus
b. Annual Executive Performance Bonus
An annual executive performance bonus under the Company's Executive
Bonus Compensation Plan or such equivalent successor plan as may be
adopted by the Company from time to time ("Performance Bonus").
c. Retirement Plans
The Executive shall be a full and vested participant in all of the
Company's retirement, and deferred compensation plans, if any
("Retirement Plans") to the extent permitted by such plans; plus
d. Fringe Benefits
The Executive shall be entitled to a monthly car allowance of $500,
payment or reimbursement of: club dues and initiation fees for Roseburg
Golf and Country Club and the Multnomah Athletic Club; other club dues or
dues for civic organizations which in the opinion of the Board of
Directors are beneficial to the Company; and Executive's reasonable
expenses incurred by the Executive in the conduct of his duties.
6. Employee Benefit Plans
In addition to the payments and other benefits provided for in this
Agreement, the Executive shall be entitled to participate in the Company's
Incentive Stock Option Plan, Non-Qualified Stock Option Plan, and the
Executive Profit Sharing and Thrift Plan, if any, to the extent permitted by
10.3 - 2
<PAGE>
such plans. If no such plans are in effect as of the date of this Agreement,
then the Executive shall become a participant as soon as such plan or plans
become operative.
Nothing in this Agreement shall preclude the Company from amending or
terminating any employee benefit plan or practice.
During the Term of Employment, the Executive's benefits set forth in this
Agreement shall not be less than those benefits available to the Executive as
of the date of this Agreement. The nature, level, and extent of such benefits
to which Executive is entitled may be reduced only with the Executive's
written consent.
7. Termination Of Executive's Employment During the Term Of Employment
a. Termination Of The Executive's Employment By The Company For
"Cause"
In the event the Executive's employment is terminated by the Company
during the Term of Employment for "cause" (as defined in Section 9), the
Executive shall be entitled to receive payment only for those sums,
benefits, and other fringe benefits which have accrued to and are due and
owing the Executive as of the effective date of the termination of his
employment ("Effective Date"). Executive shall not be entitled to any
other sums for the remainder of the Term of Employment.
b. Termination Of The Executive's Employment By The Company Within
One Year After Hiring A New Chief Executive Officer or
President
In the event that the Company hires a new Chief Executive Officer or
President and the Executive's employment is terminated by the Company
within one (1) year following the date of employment of the new Chief
Executive Officer or President, then the Executive shall be entitled to
receive and the Company shall be obligated to pay the Executive:
1. All compensation, benefits, and other fringe benefits
accrued to the Effective Date;
2. A minimum amount equal to nine (9) months' Base Salary as
defined in Section 5.(a);and
10.3 - 3
<PAGE>
3. An amount equal to the projected Performance Bonus as
defined in Section 5.b. for the year in which the Effective Date
occurred, pro-rated based upon the number of months during such year
in which the Executive was employed. For example, if Executive's
employment was terminated after six months of a bonus year, and the
projected bonus for the Executive for that year was $20,000, then
the Executive would be entitled to receive the sum of $10,000 as the
projected pro-rated bonus for that year.
4. Health insurance benefits available to the Executive on the
Effective Date shall continue in full force and effect for the
maximum time allowed by law following the Effective Date.
c. Payment of Sums Due Executive
All sums due the Executive pursuant to this Section 7 shall be
paid by the Company to the Executive in full, in cash, or the
equivalent of cash, within five days from the Effective Date.
8. Termination Of Employment In Connection With A Change In Control Of
Company
The provisions of this Section 8 shall govern all severance or
termination payments to the Executive in the event that the Company is subject
to a "change in control" (as defined in Section 10).
a. Termination of Employment Of The Executive By The Company Or
The Company's Successor In Interest, In Anticipation Of, In
Connection With, Or After A Change In Control
In the event that the Company, its successor in interest by
merger, its transferee, or the new owner of a controlling interest
in the Company's stock, terminates the Executive's employment or
causes the termination of the Executive's employment during the Term
of Employment in anticipation of, in connection with, or after a
change in control has occurred, then the Company, its successor in
interest by merger, its transferee, or the new owner of its stock,
as the case may be, shall pay the Executive an amount equal to two
times the average of the total annual compensation, as defined in
Section 5.a. and b., including the Base Salary plus the Performance
Bonus, paid to the Executive during the last two full calendar years
of employment (including employment pursuant to a prior agreement
dated November 3, 1997 between the Company and the Executive).
10.3 - 4
<PAGE>
b. Termination Of Employment By Executive After A Change In
Control And Occurrence Of A "Triggering Event"
In the event that the Executive terminates his employment
during the Term of Employment after a change in control and a
"triggering event" (as defined in Section 10) has occurred, then the
Company, its successor in interest by merger, its transferee, or the
new owner of a controlling interest in the Company's stock, as the
case may be, shall pay the Executive the following amount: an amount
equal to two times the average of the total annual compensation, as
defined in Section 5.a. and b., including the Base Salary plus the
Performance Bonus, paid to the Executive during the last two full
calendar years of employment (including employment pursuant to a
prior agreement dated November 3, 1997 between the Company and the
Executive).
c. Payments to Executive
Executive shall be paid those amounts specified in this Section
8 in full, in cash or the equivalent of cash, five days after the
Effective Date.
d. Excess Parachute Payment
If the lump sum payment under this Section 8 of this Agreement,
either alone or together with other payments to which the Executive
is entitled to receive from the Company, would constitute an "excess
parachute payment" as defined in Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code"), such lump sum
severance payment shall be reduced to the largest amount that will
result in no portion of the lump sum payment under this Section 8 of
this Agreement being subject to the excise tax imposed by Section
4999 of the Code. The determination of any reduction in the lump sum
severance payment under this Section 8 of this Agreement, pursuant
to the foregoing provisions, shall be made by mutual agreement of
the Company and the Executive.
9. Definition Of "Cause"
"Cause" is defined as personal dishonesty, willful misconduct, breach of
fiduciary involving personal profit, failure to perform his stated duties as
Senior Vice President and Chief Financial Officer of the Company, or failure
of the Executive to devote his full time and undivided attention during normal
business hours to the business and affairs of the Company, (except for
reasonable vacations, illness or disability and time devoted by the Executive
to serving as a director or member of any committee or organization engaging
in charitable and community activities).
10.3 - 5
<PAGE>
10. Definition Of "Change In Control" and "Triggering Event"
A "change in control" is defined as any transaction, act, series of
transactions or series of acts that either:
(a) would constitute a change in control for purposes of The Bank
Act (ORS Chapters 706 through 716), the Bank Holding Company Act of 1956,
as amended, The Bank Merger Act, as amended, The Change In Bank Control
Act, as amended, or The Securities Exchange Act Of 1934, as amended,
(collectively referred to herein as the "Acts"), assuming the Company is
subject to the foregoing Acts regardless of whether the Company is
actually subject to the provisions of any such Acts;
(b) would result in any person, entity or group of persons as those
terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act
of 1934 (but excluding an Employee Stock Ownership Plan) becoming a
beneficial owner, directly or indirectly of the securities of the Company
representing 20% or more of the combined voting power of the Company's
then outstanding shares; or
(c) would result in individuals who were directors of the Company as
of the date of this Agreement ceasing to constitute at least a majority
of the Board of Directors of the Company at any time prior to November 3,
2001.
A "triggering event" is defined as any one of the following events which
take place after a change in control has occurred:
(a) failure to elect or reelect the Executive to the same or higher
office or removal of the Executive from the office of Senior Vice
President and Chief Financial Officer;
(b) a significant diminution in the nature or scope of the
authorities, powers, functions, or duties related to the position of
Senior Vice President and Chief Financial Officer of the Company
(including status, offices, and reporting requirements), or a reduction
in the compensation to which Executive is entitled as set forth in
Section 5 which is not remedied within 30 days after receipt by the
Company of written notice from the Executive;
(c) the Company requiring the Executive to be based at any office or
location more than 100 miles from 445 Southeast Main St., Roseburg,
Oregon, or the Company requiring the Executive to travel on Company
business to a substantially greater extent than required immediately
prior to the date of this Agreement; or
10.3 - 6
<PAGE>
(d) breach by the Company of any provision of this Agreement not
covered within the foregoing clauses (a), (b), and (c) of this section,
which is not remedied within 30 days after receipt by the Company of
written notice from the Executive;
For the purposes of this Section 10 and this Agreement, "Company"
shall include the Company's successor in interest by merger, its
transferee of all or substantially all of the Company's assets and/or
liabilities, or the new owner of a controlling interest of the Company's
stock.
(e) The liquidation, dissolution, consolidation or merger of the
Company or one or more of the Company's subsidiaries or affiliates, or
the transfer of all or a significant portion of the assets and/or
liabilities of the Company, or one of its subsidiaries or affiliates,
unless a successor or successors (by merger, consolidation or otherwise)
to which all or a significant portion of the Company's assets and
liabilities or the assets and liabilities of any of its subsidiaries have
been transferred, shall have assumed and discharged all duties and
obligations of the Company to the Executive under this Agreement.
An election by the Executive to terminate his employment after the
occurrence of a change in control and the occurrence of a triggering event as
defined herein, shall entitle the Executive to payment of those sums specified
in Section 8.b.
11. Unexercised Stock Options
In the event that the Executive shall hold as of the Effective Date any
outstanding and unexercised (whether or not exercisable at the time) stock
options or options previously granted by the Company, the disposition of such
options shall be made in accordance with the Company's Incentive Stock Option
Plan (if any).
12. Right To Seek Arbitration
Either party shall have the right, in addition to all other rights and
remedies provided by law at their election, either to seek arbitration in
Oregon, under the rules of the American Arbitration Association or to
institute a judicial proceeding, in either case within 90 days after having
received notice of termination of his employment.
13. Obligation To Mitigate Damages
In the event of the Executive's termination of employment, the Executive
shall not be required to mitigate damages by seeking other employment.
10.3 - 7
<PAGE>
14. Confidential Information
Executive agrees not to disclose at any time any confidential information
obtained by him while in the employ of the Company. The executive also agrees
that upon leaving the Company, he will not take with him any document of the
Company's which is of a confidential or proprietary nature.
15. Withholding
All payments required to be made by the Company to the Executive pursuant
to this Agreement shall be subject to applicable federal and state withholding
requirements.
16. Notices
All notices, requests, demands, and other communications provided for by
this Agreement will be in writing and shall be sufficiently given if and when
mailed in the continental United States by registered or certified mail, or
personally delivered to the party entitled thereto at the address stated below
or to such changed addresses as the addressee may have given by similar
notice:
To the Company: South Umpqua Bank
445 Southeast Main St.
Roseburg, Oregon 97470
To the Executive: Daniel A. Sullivan
1224 N.E. Walnut Street, Suite 261
Roseburg, Oregon 97470
Any such notice delivered in person shall be deemed to have been received
on the date of delivery.
17. General Provisions
(a) There shall be no right of set-off or counter-claim against any
payments to the Executive, his surviving spouse, beneficiaries, or
estate. All sums to which the Executive is entitled pursuant to this
Agreement shall, upon his death, be paid to his surviving spouse, heirs,
or to his estate, if there is no surviving spouse.
(b) The Company and the Executive recognize that each party will
have no adequate remedy at law for breach of this Agreement; and that in
the event of any such breach, the Company and the Executive agree and
consent that the other shall be entitled to apply for and obtain a Decree
of Specific Performance.
10.3 - 8
<PAGE>
(c) No right or interest to or in any payment shall be assignable by
the Executive, provided, however, that this provision shall not preclude
the Executive from designating one or more beneficiaries to receive any
amount or amounts that may be payable to him after his death and shall
not preclude the legal representative of his estate from assigning any
right hereunder to the person or persons entitled thereto under his Will
or in the case of intestacy to the person or persons entitled thereto
under the laws of intestate succession of the State of Oregon.
18. Successors To The Company
This Agreement shall be binding upon and inure to the benefit of the
Company and any successor of the Company, including without limitation any
corporation or corporations acquiring directly or indirectly all or
substantially all of the assets and/or liabilities, or a controlling interest
in the stock of the Company, whether by merger, consolidation, sale or
otherwise (and such successor shall thereafter be deemed "the Company" for the
purposes of this Agreement), but shall not otherwise be assignable by the
Company.
19. Amendment Or Modification
This Agreement may not be amended or modified without the written consent
of the parties to this Agreement. A waiver by either party to this Agreement
of any breach by the other party shall not be deemed to be a waiver of any
subsequent or continuing breach.
20. Severability
In the event that any portion of this Agreement is declared
unenforceable, the remaining portions of this Agreement shall be unaffected
and shall remain in full force and effect.
21. Legal Expenses
If the Company fails to comply with any of its obligations under this
Agreement, or in the event that the Company or any other person takes any
action or declares this Agreement unenforceable or institutes any litigation
or other legal action designed to deny, diminish or to recover from the
Executive the benefits intended to be provided to the Executive hereunder, and
provided further that the Executive has complied with all of his obligations
under this Agreement, the Company hereby authorizes the Executive to retain
counsel of his choice at the sole expense of the Company to represent the
Executive in connection with the initiation or defense of any litigation or
other legal action whether by or against the Company, or any director,
officer, shareholder, or other person affiliated with the Company in any
10.3 - 9
<PAGE>
jurisdiction. The reasonable fees and expenses of counsel selected by the
Executive as provided herein shall be paid or reimbursed to the Executive by
the Company on a regular periodic basis upon presentation by Executive of a
statement or statements prepared by such counsel in accordance with such
counsel's customary practices up to a maximum aggregate amount of $60,000 for
legal fees and expenses which shall be paid regardless of whether the
Executive prevails in any legal action.
22. Continuation Of Benefits
During any period of time that the validity or enforceability of this
Agreement is being challenged by any party, the Company shall continue to
cover the Executive and his beneficiaries under the Company's cafeteria plan,
hospital plan, health care plan, dental plan, life or other insurance or death
benefit plan, or other present or future similar group or employee benefit
plan or program for which key executives of the Company are eligible to the
same extent as if the Executive had continued to be an employee of the
Company.
DATED as of ________________
SOUTH UMPQUA BANK
By: /s/ Raymond P. Davis
-----------------------------------------
Raymond P. Davis, Director, President and
Chief Executive Officer
/s/ Daniel A. Sullivan
---------------------------------------------
Daniel A. Sullivan
10.3 - 10
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement (the "Agreement") is dated effective
as of April 19, 1999 (the "Effective Date"), by and between Dolly Lusty
("Executive") and Umpqua Holdings Corporation ("Umpqua").
1. EMPLOYMENT. Umpqua, either directly or one of its wholly owned
subsidiaries, employs the Executive and the Executive accepts that employment
on the terms and conditions contained in this Agreement.
2. TERM. Umpqua agrees to employ the Executive for a period of two years
commencing on the Effective Date (the "Term"), unless that employment is
terminated earlier in accordance with this Agreement.
3. OPTION TO EXTEND. Umpqua has the option to extend, in its sole
discretion, the Executive's employment for one additional year upon written
notice to the Executive no less than 60 days prior to the expiration of the
Term.
4. DUTIES; POSITION.
4.1 Position. Executive shall be employed as Senior Vice
President/Credit Administrator of South Umpqua Bank (the "Bank"), and as such
will have overall responsibility for the Bank's credit administration and such
other duties as may be designated by the President of Umpqua and will report
to the President of Umpqua.
4.2 Obligations to Umpqua.
(a) Executive agrees that to the best of his ability and experience
Executive will at all times loyally and conscientiously perform all of
the duties and obligations required of and from Executive pursuant to the
express and implicit terms of this Agreement and at the direction of the
President of Umpqua.
(b) Executive agrees that Executive will devote all of his business
and professional time and attention to the business affairs of Umpqua.
Executive shall not be employed by any person (including any individual
or entity) other than Umpqua in connection with any other business
activity.
5. BASE COMPENSATION. For services performed under this Agreement,
Executive shall be entitled to a salary ("Base Salary") of a minimum of $6,250
per month together with perquisites provided to senior officers of Umpqua.
6. TERMINATION. The employment of Executive shall terminate upon the
occurrence of any one or more of the events in this Section 6.
6.1 For Cause. Umpqua's termination of Executive for Cause (as
defined in Section 7.1 below) ("Termination For Cause").
10.4 - 1
<PAGE>
6.2 Without Cause. Umpqua's termination of Executive without Cause,
at any time at Umpqua's sole discretion, for any or no reason other than for
Cause ("Termination Without Cause").
6.3 By New President/Chief Executive Officer. Umpqua's termination
of Executive within six (6) months following the initial date of employment of
a President and Chief Executive Officer other than Raymond P. Davis
("Termination by New President/CEO").
6.4 For Good Reason. Executive's termination of his employment with
Umpqua for Good Reason (as defined in Section 7.2 below) within the 90-day
period immediately following one of the events set forth in Section 7.2 below
("Termination For Good Reason").
6.5 End of Term. Upon the expiration of the term of this Agreement
the employment of Executive shall revert to employment-at-will and this
Agreement shall terminate, unless this Agreement is renewed in writing by the
parties.
6.6 Death or Disability. Upon Executive's death or Disability (as
defined in Section 7.3 below).
7. DEFINITIONS.
7.1 Cause. For the purposes of this Agreement, "Cause" for
Executive's termination will exist upon the occurrence of one or more of the
following events:
(a) Dishonest or fraudulent conduct by Executive with respect to the
performance of his duties with Umpqua;
(b) Conduct by Executive that materially discredits Umpqua or is
materially detrimental to the reputation of Umpqua, including conviction
or a plea of nolo contendere of Executive of a felony or crime involving
moral turpitude;
(c) Executive's willful misconduct or gross negligence in
performance of his duties under this Agreement, including but not limited
to Executive's refusal to comply in any material respect with the legal
directives of the Board of Directors or the President and Chief Executive
Officer;
(d) An order from a state or federal banking regulatory agency
requesting or requiring removal of Executive or a finding by any such
agency that Executive's performance threatens the safety or soundness of
Umpqua or any of its subsidiaries;
(e) Executive's failure to materially perform the duties set forth
in Section 4 of this Agreement; or
10.4 - 2
<PAGE>
(f) Breach of Executive's fiduciary duties to Umpqua.
7.2 Good Reason. For purposes of this Agreement, "Good Reason" for
Executive's termination will exist upon the occurrence of one or more of the
following events:
(a) A material adverse change in Executive's position causing such
position to be of materially reduced stature or responsibility;
(b) A reduction of Executive's Base Salary unless in connection
with, and to the same degree as, reductions in the salaries of all or
substantially all similarly situated employees of Umpqua; or
(c) An unconsented requirement for Executive to relocate to a
facility or location more than 50 miles from Executive's current
location.
7.3 Disability. For purposes of this Agreement, "Disability" shall
mean that Executive has been unable to perform his duties under this Agreement
as a result of his incapacity due to physical or mental illness, and such
inability, which continues for at least 120 consecutive calendar days or 150
calendar days during any consecutive 12-month period, if shorter, after its
commencement, is determined to be total and permanent by a physician selected
by Umpqua and its insurers and acceptable to Executive or Executive's legal
representative (with such agreement on acceptability of the physician not to
be unreasonably withheld).
8. SEVERANCE BENEFITS. Executive shall be entitled to receive severance
benefits upon termination of employment only as set forth in this Section 8.
8.1 Termination Without Cause or For Good Reason. In the event of a
Termination Without Cause or Termination For Good Reason, Executive will
receive payment for all Base Salary and benefits accrued as of the date of
Executive's termination together with a payment of severance benefits equal to
six (6) months Base Salary.
8.2 Termination by Reason of Death or Disability. In the event of a
Termination by reason of death or Disability, Executive will receive payment
for all Base Salary and benefits accrued as of the date of Executive's
termination.
8.3 Termination by New President/CEO. In the event of a Termination
by New President/CEO, Executive will receive payment for all Base Salary and
benefits accrued as of the date of termination together with a payment of
severance benefits equal to six (6) months Base Salary.
8.4 Termination Relating to a Change in Control.
(a) In the event that Executive is terminated in anticipation of, in
connection with, or within one hundred eighty (180) days following the
closing date of a Change in Control and without Cause, then Umpqua, or
10.4 - 3
<PAGE>
its successor in interest, shall pay Executive all Base Salary and
benefits accrued as of the date of termination together with severance
benefits equal to two (2) years Base Salary.
(b) In the event that Executive is terminated 180 days or more after
the closing date of a Change in Control and without Cause, then Umpqua,
or its successor in interest, shall pay Executive all Base Salary and
benefits accrued as of the date of termination together with severance
equal to the greater of (i) an amount equal to two (2) years Base Salary
from the closing date of the Change in Control minus the Base Salary for
the number of days elapsed since the closing date of the Change in
Control or (ii) as otherwise provided in this Agreement.
8.5 Section 280G. All severance payments made under this Agreement
must be within the limits set forth in Section 280G of the Internal Revenue
Code; if a payment would otherwise be an "excess parachute payment" as defined
in Section 280G, the payment shall be reduced to avoid the applicability of
Section 280G.
9. DEFINITION OF CHANGE IN CONTROL. For the purposes of this Agreement, a
"Change in Control" shall be deemed to have occurred when any of the following
events takes place:
9.1 Acquisition of Fifty Percent or More of Voting Power. Any person
(including any individual or entity) or persons acting in concert becomes the
beneficial owner of voting shares representing fifty percent (50%) or more of
the voting power of Umpqua.
9.2 Removal of Directors. A majority of the Board of Directors of
Umpqua are removed from office by a vote of the shareholders of Umpqua over
the recommendation of the Board of Directors then serving.
9.3 Merger. Umpqua is a party to a plan of merger or plan of
exchange and upon consummation of such plan, the shareholders of Umpqua do not
own or continue to own at least a majority of the shares of the surviving
company.
10. ARBITRATION. Any dispute or claim arising out of or in connection
with this Agreement will be finally settled by binding arbitration in
Roseburg, Oregon in accordance with the rules of the American Arbitration
Association by one arbitrator appointed in accordance with said rules. The
arbitrator shall apply Oregon law, without reference to rules of conflicts of
law or rules of statutory arbitration, to the resolution of any dispute.
Judgment on the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. Notwithstanding the foregoing, the parties may
apply to any court of competent jurisdiction for preliminary or interim
equitable relief, or to compel arbitration in accordance with this Section 10,
without breach of this arbitration provision.
11. CONFIDENTIAL INFORMATION. The parties acknowledge that in the course
of Executive's duties he will have access to and become familiar with certain
proprietary and confidential information of Umpqua and other information about
Umpqua not known by its actual or potential competitors. Executive
acknowledges that such information constitutes valuable, special, and unique
assets of Umpqua's business, even though such information may not be of a
technical nature and may not be protected under trade secret or related laws.
10.4 - 4
<PAGE>
Executive agrees that he will hold in a fiduciary capacity and will not use
for himself and will not reveal, communicate, or divulge during the period of
his employment with Umpqua or at any time thereafter, and in any manner
whatsoever, any such date and confidential information of any kind, nature, or
description concerning any matters affecting or relating to Umpqua's business,
its customers, or its services, to any person, firm, entity, or company other
than Umpqua or persons, firms, entities, or companies designated by Umpqua.
Executive agrees that all memoranda, notes, records, papers, customer files,
and other documents, and all copies thereof relating to Umpqua's operations or
business, or matters related to any of Umpqua's customers, some of which may
be prepared by Executive, and all objects associated therewith in any way
obtained by Executive, shall be Umpqua's property.
12. NOTICES. All notices, requests, demands, and other communications
provided for by this Agreement will be in writing and shall be deemed
sufficient upon receipt, when delivered personally or by a
nationally-recognized delivery service (such as Federal Express), or three
business days after being deposited in the U.S. mail as certified mail, return
receipt requested, with postage prepaid, if such notice is addressed to the
party to be notified at such party's address as set forth below or as
subsequently modified by written notice.
To Umpqua: Umpqua Holdings Corporation
445 S.E. Main Street
Roseburg, Oregon 97470
Attention:President
To Executive: Dolly Lusty
P.O. Box 309
Roseburg, OR 97470
13. GENERAL PROVISIONS.
13.1 Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Oregon, without giving effect to the principles of conflict of laws.
13.2 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to
renegotiate such provision(s) in good faith. In the event that the parties
cannot reach a mutually agreeable and enforceable replacement for such
provision, then (i) such provision shall be excluded from this Agreement, (ii)
the balance of the Agreement shall be interpreted as if such provisions were
so excluded, and (iii) the balance of the Agreement shall be enforceable in
accordance with its terms.
13.3 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
10.4 - 5
<PAGE>
13.4 Entire Agreement. This Agreement constitutes the sole agreement
of the parties and supersedes all oral negotiations and prior writings with
respect to the subject matter hereof.
13.5 Waiver. No waiver of any provision of this Agreement shall be
valid unless in writing, signed by the party against whom the waiver is sought
to be enforced. The waiver of any breach of this Agreement or failure to
enforce any provision of this Agreement shall not waive any later breach.
13.6 Assignment. Executive shall not assign or transfer any of his
rights pursuant to this Agreement, wholly or partially, to any other person or
to delegate the performance of its duties under the terms of this Agreement.
13.7 Attorneys' Fees. In the event of any arbitration or legal
proceeding relating to this Agreement, the prevailing party in such proceeding
shall be entitled to recover reasonable attorneys' fees in such proceeding, or
any appeal thereof, to be set by the arbitrators or the court without the
necessity of hearing testimony or receiving evidence, in addition to the costs
and disbursements allowed by law.
14. ADVICE OF COUNSEL. EACH PARTY TO THIS AGREEMENT ACKNOWLEDGES
THAT, IN EXECUTING THIS AGREEMENT, SUCH PARTY HAS HAD THE OPPORTUNITY TO SEEK
THE ADVICE OF INDEPENDENT LEGAL COUNSEL, AND HAS READ AND UNDERSTOOD ALL OF
THE TERMS AND PROVISIONS OF THIS AGREEMENT. THIS AGREEMENT SHALL NOT BE
CONSTRUED AGAINST ANY PARTY BE REASON OF THE DRAFTING OR PREPARATION HEREOF.
UMPQUA HOLDINGS CORPORATION
By: /s/ Raymond P. Davis
-----------------------------------------
Raymond P. Davis, Director, President and
Chief Executive Officer
/s/ Dolly Lusty
----------------------------------------------
Dolly Lusty
10.4 - 6
UMPQUA HOLDINGS CORPORATION
NON-QUALIFIED STOCK OPTION
This Non-Qualified Stock Option is granted under the terms of Umpqua
Holdings Corporation Stock Option Plan (the "Plan"), adopted by Umpqua
Holdings Corporation, an Oregon corporation ("Umpqua") effective March 12,
1999 as the successor plan to the South Umpqua State Bank 1995 Stock Option
Plan. Unless otherwise defined herein, terms defined in the Plan shall have
the same defined meanings in this Option.
The "Optionee" ______________________________
Number of Shares of the ______________________________
Umpqua Common Stock
"Exercise Price" per Share $______________
"Date of Grant" ______________________________
"Expiration Date" ______________________________
1. Terms of the Option.
1.1 Grant of Option Umpqua hereby grants to the Optionee the right,
privilege, and option to purchase up to the number of shares indicated above,
subject to adjustment as hereinafter set forth in Section 1.2 below, of
Umpqua's Common Stock (the "Option Shares") at the Exercise Price per share as
indicated above (the "Option"). The Option may only be exercised as to a whole
number of shares of Common Stock.
1.2. Adjustments Upon Changes in Capitalization. In the event of changes
in the outstanding securities of Umpqua by reason of stock dividends, stock
splits, combinations, reclassification of securities, exchanges of shares, or
reorganizations, the number and class of securities of Umpqua deliverable upon
the exercise of this Option and the Exercise Price under this Option will be
subject to adjustment. Adjustments under this Section 1.2 will be made by
Umpqua's Board of Directors and their determination as to what adjustments
will be made, and the extent thereof, will be final, binding, and conclusive.
1.3 Status of this Option as a Non-Qualified Stock Option. It is
intended by Umpqua that this Option will not qualify as an incentive stock
option within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended.
1.4 Nontransferability of Option. This Option and the rights of the
Optionee under this Option may not be transferred in any manner except by will
or by the laws of descent and distribution upon the death of the Optionee.
1.5 Reservation of Shares. Umpqua agrees that at all times there will be
reserved for issuance upon exercise of this Option such number of shares of
its Common Stock as is required for such issuance.
2. Time of Exercise of Option.
2.1 When the Option Becomes Exercisable. This Option may only be
exercised in accordance with the vesting schedule, terms and conditions of
Appendix A hereto.
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2.2 Effect of Unpaid Leaves of Absence. If at any time during the term
of this Option, the Optionee is on unpaid leave from Umpqua or any Subsidiary,
the Option may not be exercised during such unpaid leave and the dates
contained in Appendix A shall be extended by the length of such unpaid leave.
2.3 Expiration and Termination of Option. This Option will expire upon
the close of business on the Expiration Date and may terminate earlier upon
certain events as set forth in Section 4 of this Option. To the extent that
this Option has not been exercised prior to the Expiration Date or any earlier
termination, all further rights to purchase Option Shares pursuant to this
Option will cease and terminate at such time.
3. Option Exercise Procedures.
3.1 Who May Exercise the Option. Only the Optionee (or, in the case of
exercise after death of the Optionee, by the executor, administrator, heir, or
legatee of the Optionee, as the case may be) may exercise this Option.
3.2 Notice of Exercise. A "Notice of Exercise," on a form approved by
Umpqua at the time of exercise, must be signed and delivered to Umpqua's
corporate Secretary or such other person as Umpqua may designate at Umpqua's
principal business office. Umpqua reserves the right to revise its form of
Notice of Exercise from time to time as it determines to be appropriate. If,
at the time of the exercise of this Option, Umpqua does not have an effective
registration statement on file with the Securities and Exchange Commission
that covers the issuance of shares upon the exercise of this Option, the
Notice of Exercise will contain certain representations from the Optionee as
required under applicable state and federal securities laws. A copy of the
then-current form of Notice of Exercise may be obtained at any time from
Umpqua. A Notice of Exercise will only be effective if submitted on the form
in effect at the time of such exercise.
3.3 Payment of Exercise Price. The Notice of Exercise must indicate the
manner of payment of the Exercise Price for the number of shares so purchased.
Payment may be made by check. Umpqua, in its sole discretion, may permit the
Exercise Price to be paid, in whole or in part, by the surrender to Umpqua for
cancellation of other securities of Umpqua that have been owned by the
Optionee for at least six-months with a fair market value equal to the Option
Price for the number of shares so purchased. Securities of Umpqua that are
surrendered for cancellation will be valued at the publicly reported price for
the last sale on the last business day preceding the day Umpqua receives the
Notice of Exercise, or, if there are no publicly reported prices for such
securities, at the fair market value of such securities as determined in good
faith by Umpqua's Board of Directors. If the Exercise Price is being paid in
whole or in part by the delivery of other securities of Umpqua, the Notice of
Exercise must be accompanied by delivery of the certificates or instruments
representing such other securities, duly endorsed for cancellation. Umpqua
may, in its sole discretion, permit an Optionee to elect to pay the Exercise
Price by authorizing a third party to sell the Shares to be issued upon such
exercise (or, at least, a sufficient portion thereof) and instructing such
third party to immediately remit to Umpqua a sufficient portion of the
proceeds from such sale to Umpqua to pay the Exercise Price and the entire tax
withholding resulting from such exercise.
3.4 Payment of Tax Withholding Amounts. The Optionee must, upon the
exercise of any portion of this Option, either with the delivery of the Notice
of Exercise or upon notification by Umpqua of the amount due, pay to Umpqua
the amounts, as reasonably determined by Umpqua, necessary to satisfy
applicable federal, state and local tax withholding requirements ("Tax
Withholding"). Payment of such Tax Withholding by the Optionee may be made by
check, by delivery of other securities of Umpqua or by the application of
Shares that could be received upon exercise of an Option, or shares of Common
Stock which could be received upon exercise of any other stock option issued
by Umpqua, by the Optionee so notifying Umpqua at the time of delivery of the
Notice of Exercise. This application of Shares shall be accomplished by
crediting toward the Optionee's withholding obligation the difference between
the fair market value of Umpqua's Common Stock and the exercise price of the
Option or other stock option specified in the Optionee's notice. Any such
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<PAGE>
application shall be considered an exercise of the Option or other stock
option to the extent that Shares are so applied and, as such, may add to the
Optionee's withholding obligation. No Shares will be issued upon an exercise
of an Option unless and until payment or adequate provision for payment of
such Tax Withholding amounts has been made in accordance with the foregoing.
If additional withholding is or becomes required beyond any amount paid or
provided for by the Optionee in accordance with the foregoing, the Optionee
will pay such additional amount to Umpqua immediately upon demand by Umpqua.
If the Optionee fails to pay the amount demanded, Umpqua may withhold that
amount from other amounts payable by Umpqua or any of its subsidiaries to the
Optionee, including salary, subject to applicable law, and Optionee, by
receiving and exercising such Option shall be deemed to have consented to such
withholding.
3.5 Delivery of Shares Following Exercise. Umpqua will make delivery of
the Option Shares purchased within a reasonable time after it receives the
Notice of Exercise and payment in full of the Exercise Price and all Tax
Withholding amounts with respect to the exercise of the Option have been paid
or adequately provided for. However, if any law or regulation requires Umpqua
to take any action with respect to the issuance of the Option Shares,
including, without limitation, actions that may be required for compliance
with federal and state securities laws or the listing requirements of any
stock exchange upon which Umpqua's Common Stock is then listed, then the date
of delivery of such shares may be extended for the period necessary to take
such action. The Optionee shall only become the holder of such shares upon the
actual issuance of the stock certificate representing such shares.
4. Termination and/or Acceleration of the Option Upon Certain Events
4.1 Effect of the Death of the Optionee. If the Optionee dies while an
employee of Umpqua or any Subsidiary, this Option will terminate one year
after the date of such death or, if sooner, upon the Expiration Date. In such
event, this Option may be exercised only to the extent the Optionee was
entitled to exercise this Option on the date of the Optionee's death and only
by the person or persons to whom the Optionee's rights under this Option may
pass by the Optionee's will or by the laws of descent and distribution of the
state or country of the Optionee's domicile at the time of death.
4.2 Effect of the Disability of the Optionee. If the Optionee becomes
totally and permanently disabled (as defined in Section 22 (e)(3) of the
Internal Revenue Code of 1986, as amended) while an employee of Umpqua or any
Subsidiary, this Option will terminate one year after the date of such
termination of employment or, if sooner, upon the Expiration Date. In such
event, this Option may be exercised only to the extent the Optionee was
entitled to exercise this Option on the date of such termination.
4.3 Effect of Termination of the Employment of the Optionee for Cause.
If the Optionee's employment with Umpqua or any Subsidiary is terminated for
cause, as determined by Umpqua's President or Board of Directors in their
reasonable discretion, this Option will terminate immediately upon the
delivery to the Optionee of any notice of such termination.
4.4 Effect of Any Other Termination of the Employment of the Optionee.
If the Optionee's employment with Umpqua or any Subsidiary terminates as a
result of the Optionee's retirement or for any reason other than the reasons
set forth in Sections 4.1, 4.2 or 4.3 of this Option, this Option will
terminate thirty (30) days after the date of such termination of employment
or, if sooner, upon the Expiration Date. In such event, this Option may be
exercised only to the extent the Optionee was entitled to exercise this Option
on the date of such termination. For purposes of this Option, the Optionee's
employment with Umpqua or any Subsidiary shall be considered to have
terminated if the Optionee for any reason becomes a "part-time" employee as
such term is defined in Umpqua's then existing employment rules or guidelines.
4.5 Effect of a Change of Control of Umpqua. In the event of (a) a
merger, consolidation, plan of exchange or voluntary share exchange agreement
with one or more corporations in which the shareholders of Umpqua immediately
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prior to such transaction do not, following such transaction, continue to hold
securities with voting rights equal to at least 50% of all votes entitled to
be cast in the election of directors of the surviving entity, (b) a sale of
all or substantially all of the assets of Umpqua or (c) the dissolution and
liquidation of Umpqua (collectively a "Change of Control Transaction"),
(i) this Option may be assumed by the successor in interest in such Change of
Control Transaction, (ii) the Optionee may receive from the successor in
interest in such Change of Control Transaction a replacement option with
rights which are economically equivalent to the rights under this Option at
the time of such Change of Control Transaction or, (iii) if neither of the
foregoing occurs, this Option shall terminate upon the closing of the Change
of Control Transaction. If, in a Change of Control Transaction, this Option is
neither assumed nor replaced by the successor in interest, the Optionee shall
be provided with notice at least thirty (30) days prior to the closing of such
Change of Control Transaction and shall be entitled to exercise this Option as
to all of the Option Shares without regard to the vesting schedule set forth
in Section 2.1.
5. Representations, Warranties and Covenants of the Optionee.
5.1. No Effect on Employment. The Optionee understands and agrees that
nothing contained in this Option will be construed to limit or restrict the
rights of Umpqua to terminate the employment of the Optionee at any time, with
or without cause, to change the duties of the Optionee or to increase or
decrease the Optionee's compensation. Without limiting the foregoing, the
Optionee understands and agrees that the vesting of Option Shares under this
Option is subject to and is conditioned upon the continued employment of the
Optionee by Umpqua or a Subsidiary and that such employment can be terminated
at any time by Umpqua or its Subsidiary.
5.2. Rights Prior to Exercise of This Option. The Optionee understands
and agrees that the Optionee will have no rights as a shareholder in the
Option Shares, including without limitation the right to vote or receive
dividends, until the issuance of the Option Shares is reflected in Umpqua's
stock transfer records.
5.3. Tax Implications. The Optionee understands that, under federal
income tax laws as they currently exist, the exercise of this Option will
result in ordinary income to the Optionee in an amount equal to the difference
between the Exercise Price and the fair market value of the shares acquired on
the date of such exercise.
5.4 Underwriter's Lock-up. The Optionee by accepting this Option agrees
that whenever Umpqua undertakes a firm underwritten public offering of its
securities and if requested by the managing underwriter in such offering, the
Optionee will enter into an agreement not to sell or dispose of any securities
of Umpqua owned or controlled by the Optionee provided that such restriction
will not extend beyond twelve (12) months from the effective date of the
registration statement filed in connection with such offering.
5.5 Disclosures. The Optionee acknowledges receipt of a copy of the Plan
and certain related information and represents that Optionee has fully
reviewed the terms and conditions of the Plan and this Option and has had
opportunity to obtain the advice of counsel prior to executing this Option.
The Optionee represents and warrants that the Optionee is not relying upon any
representations, agreements or understandings of or with Umpqua except for
those set forth in the Plan and this Option.
6. Miscellaneous Provisions
6.1. Binding Effect. This Option will be binding upon and inure to the
benefit of the parties hereto and their heirs, executors, administrators,
successors, and permitted assigns.
6.2. Notices. All notices to the Optionee or other persons then entitled
to exercise this Option will be delivered at the address contained in the
records of Umpqua or such other address as may be specified in writing by the
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Optionee or such other person. All notices to Umpqua will be delivered at its
principal office.
6.3. Governing Law and Interpretation. This Option will be governed by
the laws of the State of Oregon as to all matters, including but not limited
to matters of validity, construction, effect, and performance, without giving
effect to rules of choice of law. This Option hereby incorporates by reference
all of the provisions of the Plan and will in all respects be interpreted and
construed in such manner as to effectuate the intent of the Plan. In the event
of a conflict between the terms of this Option and the Plan, the terms of the
Plan will prevail. All matters of interpretation of the Plan and this Option,
including the applicable terms and conditions and the definitions of the
words, will be determined in the sole and final discretion of Umpqua's Board
of Directors.
6.4. Attorney Fees. If any suit or action is instituted in connection
with any controversy arising out of this Option or the enforcement of any
right hereunder, the prevailing party will be entitled to recover, in addition
to costs, such sums as the court may adjudge reasonable as attorney fees,
including fees on any appeal.
UMPQUA HOLDINGS CORPORATION
By: ____________________________________
Raymond P. Davis President
Attest:
By: _______________________________
____________________, Secretary
OPTIONEE:
__________________________________________
__________________________________________
5
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") dated effective May
____, 1999, by and between UMPQUA HOLDINGS CORPORATION, an Oregon corporation
("Umpqua"); JAN JANSEN, DOUGLAS STRAND, JOHN YORK, PETER WILLIAMS AND ROBERT
ATKINSON (collectively, the "Shareholders"); and STRAND, ATKINSON, WILLIAMS &
YORK, INCORPORATED, an Oregon corporation (the "Company").
R E C I T A L S :
A. The Shareholders are the owners of all of the issued and
outstanding shares of capital stock of the Company (the "Shares").
B. The Company is a licensed broker dealer selling investment
securities and providing other financial services from offices located in
Portland and Medford, Oregon and Kalama, Washington.
C. All the parties desire to consummate a business combination
transaction pursuant to which Umpqua will acquire all of the stock of the
Company from the Shareholders, for the consideration and on the other terms
set forth in this Agreement.
The parties intending to be legally bound, agree as follows:
1. DEFINITIONS
As used herein, the following terms have the indicated meanings:
"Adjusted Net Income" of the Company for any period means the combined
Net Income of Company and SUI for the period, determined in accordance with
GAAP, with the following adjustments:
(i) Any amortization of goodwill or other intangibles booked or other
purchase accounting adjustments made as a result of the acquisition of
the Company by Umpqua or the acquisition of SUI by the Company and any
amortization thereof, shall be ignored (including related taxes, if
any) in the calculation of Adjusted Net Income.
(ii) Net Income shall be increased by an amount equal to the after tax cost
of the interest income that would have accrued at the Prime Rate on the
amount of all funds paid by the Company to Umpqua or any affiliate of
Umpqua during the period as a dividend, distribution or loan in excess
of the Shareholders equity of the Company at Closing, from the date
such payment was made to the end of the period or the date of its
repayment.
(iii) Net income shall be decreased by an amount equal to after tax cost of
the interest expenses that would have accrued at the Prime Rate on the
amount of all funds provided by Umpqua or any affiliate of Umpqua to
the Company during the period as a loan or capital contribution (except
for the contribution of SUI pursuant to Section 7.12 of this
Agreement), from the date of such loan or capital contribution to the
date of repayment or the end of the period.
(iv) If Umpqua or an affiliate provides a service or product to the Company,
or if the Company provides a service or product to Umpqua or an
affiliate of Umpqua, the reasonable after tax costs of such services or
product will be deducted from (or added to, as the case may be) the net
income for that period. If federal or state regulations requires the
charges in excess of those permitted by the preceding sentence, the
Adjusted Net Income will ignore any such charge.
(v) For the period of time following Closing to December 31, 1999 only,
Adjusted Net Income shall be determined without regard to the revenue
and expenses attributable to the SUI offices and market territory.
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(vi) Any payments to Shareholders pursuant to Section 7.9 will be ignored.
It is the intent of the parties that, subject to the specific
adjustments described above, the Adjusted Net Income of the Company for
future periods will reflect the net income that the Company and SUI would
have earned in such future periods had they been operated during those
periods in the same manner that it was operated during 1998 with the present
capital levels of the Company maintained at its December 31, 1998 level.
"Balance Sheet Date" means December 31, 1998.
"Change in Control" means (i) the sale of South Umpqua Bank or the
Company to a party not controlled by Umpqua or (ii) the acquisition of 50% or
more of the common stock of Umpqua by any person or any merger or other
transaction which results in the Umpqua shareholders immediately prior to the
transaction which, as a group own 100% of Umpqua, having less than 50% of the
outstanding shares of the resulting corporation owning or controlling Umpqua
immediately after the transaction.
"Closing" shall refer to the consummation of the transaction
contemplated under this Agreement in accordance with its terms. "Closing
Date" shall refer to the actual date of Closing, which shall be within 5
business days following the satisfaction or waiver of all conditions to the
obligations of the parties (other than those requiring action at Closing).
Unless the parties mutually agree otherwise, the Closing Date shall be no
later than July 31, 1999.
"Contingent Payment Period" shall mean (i) the period of time following
Closing to December 31, 1999, (ii) the calendar year 2000, (iii) the calendar
year 2001 and (iv) the period of time from January 1, 2002 until the third
anniversary of Closing (herein the "first", "second", "third", and "fourth"
Contingent Payment Period).
"Contingent Purchase Price" means an amount, not to exceed $1,000,000
in the aggregate, determined by the Adjusted Net Income of the Company over
the three years following Closing and from the following table.
For the First Contingent Payment Period:
Average Monthly Adjusted Percentage of
Net Income Maximum Payment
----------------------------------------------------------------
$26,667 or greater 100%
between $24,000 and $26,667 75%
between $21,333 and $24,000 50%
less than $21,333 0%
For the Second, Third and Fourth Contingent Payment Periods:
Average Monthly Adjusted Percentage of
Net Income Maximum Payment
----------------------------------------------------------------
$33,333 or greater 100%
Between $30,000 and $33,333 75%
Between $26,667 and $30,000 50%
Less than $26,667 0%
"GAAP" means the generally accepted accounting principles in the United
States.
"Initial Purchase Price" means $2,100,000.
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"Maximum Payment" shall mean $27,778 for each month (or a prorata
portion for any partial month) during the applicable Contingent Payment
Period.
"Net Income" means net income of the Company for the period determined
in accordance with GAAP.
"Prime Rate" means the prime rate of interest as reported by the Wall
Street Journal.
"SUI" means the broker/dealer operations of South Umpqua Financial
Services, Inc., dba SouthUmpqua Investments, but not including securities
held by such subsidiary for its own account.
"Take-Over" means (i) the sale of South Umpqua Bank or the Company to a
party not controlled by Umpqua, or (ii) the acquisition of 80% or more of the
common stock of Umpqua by any person, or any merger or other transaction
which results in the Umpqua shareholders immediately prior to the transaction
which, as a group own 100% of Umpqua, having less than 20% of the outstanding
shares of the resulting corporation owning or controlling Umpqua.
"Target Adjusted Net Income" means the following monthly Adjusted Net
Income for those months falling within the applicable periods:
Year Monthly Adjusted Net Income
1999 $ 32,000
2000 $ 46,000
2001 $ 55,000
2002 $ 65,000
2003 $ 77,000
2004 $ 91,000
2005 $109,000
2. SALE AND PURCHASE OF SHARES
2.1 Shares and Shareholders. Schedule 2.1 sets forth the name, as it
appears in the Company's corporate records, of each record owner of shares of
the Company's capital stock, the number and class or series of the shares of
capital stock held by each Shareholder, and the percentage of the Purchase
Price each Shareholder is to receive.
2.2 Sale of Shares. Subject to the terms and conditions set forth in this
Agreement, on the Closing Date the Shareholders shall sell, transfer, convey,
assign, and deliver to Umpqua and Umpqua shall purchase, acquire and accept
from the Shareholders, all of the right, title and interest in and to the
Shares, free and clear of all encumbrances, claims, liens or restrictions on
transfer, except such restrictions as may be imposed by state or federal law
upon the sale or transfer of unregistered securities. The obligation of Umpqua
to purchase the Shares is subject to the Shareholders selling to Umpqua, in
the aggregate, all of the Shares.
3. PURCHASE PRICE
3.1 Payment of Initial Purchase Price. Payment of the Initial Purchase
Price shall be paid to the Shareholders in the amounts set forth in Schedule
2.1 in cash by wire transfer or cashier's check delivered at Closing in
exchange for the Shares described in Section 2.2 above.
3.2 Contingent Purchase Price. As soon as possible, and in any event
within 90 days following each Contingent Payment Period, Umpqua shall prepare
an income statement for the Company for that period and shall calculate the
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Adjusted Net Income and resulting Contingent Purchase Price on the basis
thereof. Umpqua shall deliver the financial statements and calculations to the
Shareholders which will have 15 days after receipt of such financial
statements and calculations to make any objections they may have to the
Adjusted Net Income of the Company and the Contingent Purchase Price as
calculated by Umpqua. If the Shareholders do not give notice of objections
within that time period, the Adjusted Net Income and Contingent Purchase Price
so calculated shall be final. If the Shareholders do give timely notice of
their objections, and Umpqua and the Shareholders are unable to resolve the
matter by agreement, either side may submit the matter to an independent
accounting firm, other than KPMG, LLP (or other than Umpqua's then current
independent accountants, as the case may be), mutually selected and paid for
by the Shareholders and Umpqua. The decision of that accounting firm shall be
binding on the parties.
3.3 Payment of Contingent Purchase Price. The Contingent Purchase Price
shall be paid to the Shareholders in the proportions set forth in Schedule 2.1
in cash by wire transfer instructions or by cashier's check within two
business days after the Contingent Purchase Price for and Contingent Payment
Period has been finally determined pursuant to Section 3.2.
4. CLOSING
4.1 Date, Time and Place of Closing. Subject to the terms and conditions
set forth in this Agreement and the fulfillment of the conditions to the
obligations of the parties under Sections 8 and 9, the Closing of this
Agreement shall take place at law offices of Foster Pepper & Shefelman,
Portland, Oregon at a date and time mutually agreed upon by Umpqua, the
Shareholders and the Company and within 5 days following receipt of all
required consents and other conditions of Closing. Notwithstanding any
provision in this Agreement to the contrary, if the Closing has not occurred
on or before July 31, 1999, either Umpqua or the Company, shall have the right
to terminate this Agreement pursuant to Section 12 provided that the failure
of the Closing to occur did not result from a breach of this Agreement by such
notifying party.
4.2 Documents to be Delivered at Closing by the Shareholders. At Closing,
the Shareholders will deliver or cause the Company to deliver to Umpqua the
following instruments and other documents, in each case in such form as Umpqua
may reasonably request.
4.2.1 The Shares, duly enclosed or with accompanying executed stock
power;
4.2.2 Consents from all parties from whom consent is required to be
in order for the Company or the Shareholders to enter into the
transactions contemplated by this Agreement and Umpqua to acquire
ownership of the Company, including without limitation, the consent of
any unrelated third party lessor to the transfer of the Shares to Umpqua;
4.2.3 Executed closing certificates as set forth in Section 8.1; and
4.2.4 Such other documents and instruments as Umpqua may reasonably
require to effectuate or evidence the transfer of all of the Shares and
control of the Company.
4.2.5 Executed Broker Retention Agreements as set forth in Section
8.4.
4.3 Documents to be Delivered at Closing by Umpqua. At Closing, Umpqua
will execute and deliver to the Shareholders the following instruments and
other documents in each case, in such forms the Shareholders may reasonably
request:
4.3.1 A cashier's check or wire transfer deposit confirmation in the
amounts as provided by Section 3.1;
4.3.2 Executed closing certificates as set forth in Section 9.1; and
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4.3.3 Such other documents and instruments as the Shareholders may
reasonably request in order to effectuate the transaction contemplated by
this Agreement.
4.4 Transfer Taxes. The Shareholders will pay any transfer taxes and
excise taxes incurred by any party in connection with the transactions
contemplated by this Agreement.
5. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
The Shareholders jointly and severally represent and warrant to Umpqua as
follows:
5.1 Authorization. The execution, delivery and performance of this
Agreement has been duly authorized by the Board of Directors and the
shareholders of the Company, and this Agreement has been duly executed and
delivered by the Company and each Shareholder. The Company has all necessary
corporate authority to execute and deliver this Agreement and to perform the
Company's obligations hereunder. This Agreement is a valid and legally binding
obligation of the Company and the Shareholders, enforceable against the
Company and the Shareholders in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to the enforcement
of creditors' rights generally and by general principles of equity (regardless
of whether such enforceability is considered in a proceeding in equity or at
law). The Shareholders have the complete and unrestricted right, power and
authority to execute this Agreement and perform their covenants in accordance
with this Agreement and will have at Closing good, absolute and marketable
title to the Shares, free and clear of any liens, claims, encumbrances or
restrictions of any kind.
5.2 Incorporation and Good Standing. The Company is duly organized,
validly existing and in good standing under the applicable laws of the state
of its incorporation and has all necessary power and authority to own, lease
and operate its properties and assets and to conduct its business as its
business is now being conducted. The Company has delivered to Umpqua complete
and accurate copies of the Company's articles of incorporation and bylaws,
including all amendments thereto. The Company is qualified to do business and
is in good standing in each state in which it transacts business. Except as
disclosed in Schedule 5.2, the Company does not have any subsidiaries nor any
direct or indirect equity interest in any corporation, partnership or other
entity.
5.3 Capitalization. The authorized capital stock of the Company consists
of 1,000 shares of Common Stock, no par value, 500 shares of which are
outstanding. The Shares constitute all of the issued and outstanding shares of
capital stock of the Company. The Shares have been validly authorized and
issued, are fully paid and non-assessable, and have not been issued in
violation of any preemptive rights or of any federal or state securities law.
On the date hereof, the Shares are owned beneficially and of record by the
Shareholders as set forth on Schedule 2.1. There are and will be on the
Closing Date no outstanding subscriptions, options, rights, warrants,
convertible securities, buy-in or other agreements or commitments obligating
the Company to issue any additional shares of its capital stock of any class
or any other securities of any kind. Except as disclosed in Schedule 5.3,
there are no agreements that relate to the voting, control or disposition of
the Shares.
5.4 No Conflicts. Neither the execution and delivery of this Agreement
nor the fulfillment of or compliance with the terms and provisions hereof will
violate, conflict with, or result in a breach of the terms, conditions or
provisions of, or constitute a default or an event which, with notice or lapse
of time or both, would constitute a default under, the articles of
incorporation or bylaws of the Company, any contract, agreement, mortgage,
deed of trust or other instrument or obligation to which either the
Shareholders or the Company are parties or by which any of them is bound
(assuming receipt of the consents and approvals disclosed in Schedule 5.5), or
violate any provision of any applicable law or regulation or of any order,
decree, writ or injunction of any court or governmental body, or result in the
creation or imposition of any lien, charge, restriction, security interest or
encumbrance of any nature whatsoever on any property or asset of the Company
or on the Shares.
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5.5 Consents. Except as otherwise set forth in Schedule 5.5, no consent
from, or other approval of, any governmental entity or agency or any other
person or entity is necessary in connection with the execution, delivery or
performance of this Agreement by the Company.
5.6 Real Property Leases. Set forth in Schedule 5.6 is a complete and
accurate copy of all real property leases pursuant to which the Company
occupies its business (the "Business Real Property"). Each of the real estate
leases are in full force and effect and constitute legal, valid and binding
obligations of the parties thereto. The Company has performed in all material
respects the covenants required to be performed by it under each of the real
estate leases to which it is a party and has no knowledge of any material
defaults under any of the leases to which it is a party.
5.7 Tangible Personal Property. Schedule 5.7 sets forth a complete and
accurate description of all equipment, furniture, fixtures and other tangible
personal property owned by, in possession of, or used by the Company on
December 31, 1998 in connection with its business and a complete and accurate
description of all tangible personal property in which the Company has a
leasehold interest, together with a complete and accurate description of each
lease under which the Company holds such leasehold interests. Each of the
leases is in full force and effect and constitutes a legal, valid and binding
obligation of the parties thereto. The Company has performed in all material
respects the covenants required to be performed by it under each of the leases
to which it is a party and has no knowledge of any material defaults under any
of the leases to which it is a party.
5.8 Securities. The Company has delivered to Umpqua a schedule of all
investment securities (Schedule 5.8) held for its own account of a recent date
no more than 5 days prior to the date of this Agreement. The schedule
identifies each such security and sets forth both its cost as reflected on the
books of the Company and its market value as of the date reflected on the
schedule.
5.9 Licenses and Permits. Schedule 5.9 sets forth a complete and
accurate description of all material permits, licenses, franchises,
certificates and similar items and rights, owned or held by the Company
(hereinafter collectively referred to as the "Licenses and Permits"). The
Licenses and Permits are adequate for the operation of the Company's business;
are valid and in full force and effect, and no basis exists for a grantor of
any such Licenses or Permits to terminate the same. No additional material
permit, license, franchise, certificate or similar item or right is required
by the Company for the operation of its business. Except as set forth on
Schedule 5.9, the Company's rights under the Licenses and Permits will not be
impaired by the purchase of the shares by Umpqua.
5.10 Intellectual Property. Schedule 5.10 sets forth a complete and
accurate description of all intellectual property presently in use by the
Company, which intellectual property includes (without limitation) patents,
trademarks, trade names, service marks, copyrights, trade secrets, customer
lists, inventions, formulas, methods, processes, advertising materials,
Internet sites and any other proprietary information or property. Except as
disclosed in Schedule 5.10, there are no outstanding licenses or consents to
third parties granting the right to use any intellectual property owned by the
Company. Except as disclosed in Schedule 5.10, the Company owns or has the
right to use its intellectual property free and clear of any known claims and,
to Shareholders knowledge, without any conflict with the rights of others and
no royalties or fees are payable by the Company to any third party by reason
of the use of any intellectual property by the Company. No additional
intellectual property is required by the Company for the operation of its
business.
5.11 Title to Properties; Encumbrances. The Company has good and
marketable title to (or, in the case of leased property, valid and subsisting
leasehold interests in) all of its properties and assets, including (without
limitation) the properties and assets that will be listed on Schedules 5.6,
5.7 and 5.6 except for properties and assets sold, consumed or otherwise
disposed of by the Company in the ordinary course of its business. None of the
Company's properties or assets are subject to any liens, mortgages,
encumbrances, conditional sales agreements, security interests, claims or
restrictions of any kind or character, except as disclosed in its Audited
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Financial Statements or for (i) encumbrances listed on Schedule 5.11,
(ii) liens for current taxes not yet due and payable, (iii) mechanics and
materialmen's liens arising in the ordinary course of business and securing
obligations that are not overdue and (iv) defects in title which do not
materially and adversely affect, individually or in the aggregate, the
properties or assets as a whole.
5.12 Financial Statements. The Company has delivered its (i) audited
financial statements as of and for each of the five years in the period ended
December 31, 1998 together with the reports of KPMG Peat Marwick, LLP (and its
predecessors) and (ii) unaudited interim financial statements as of and for
the three month period ended March 31, 1999 (collectively the "Financial
Statements"). The Audited Financial Statements were prepared in accordance
with the GAAP and fairly reflect in all material respects the results of
operations and financial condition of the Company for the periods and at the
dates indicated.
5.13 Indebtedness for Borrowed Money; Guaranties. The Company has
delivered to Umpqua a complete and accurate copy of all instruments evidencing
or relating to the Company's indebtedness for borrowed money at April 30,
1999. To Shareholder's knowledge, the Company is not in default or violation
of any provision of any agreement evidencing or relating to its indebtedness
for borrowed money. Schedule 5.13 sets forth as of April 30, 1999 a complete
and accurate description of all guaranties by the Company of any obligation or
liability of any person or entity, including (without limitation) any
guaranties of installment sales contracts, leases or obligations under service
contracts.
5.14 Tax Matters. The Company has duly filed all federal, state and local
tax returns required to be filed by it. All federal, state, local and foreign
income, ad valorem, excise, sales, use, payroll, unemployment and other taxes
and assessments that are due and payable by the Company have been properly
computed, duly reported, fully paid, and discharged. The only unpaid taxes
that require payment by the Company are current taxes not yet due and payable.
All current taxes not yet due and payable by the Company have been properly
accrued and are accurately reflected in the Company's balance sheet in the
Financial Statements. The Company has not been delinquent in the payment of
any tax, assessment or governmental charge, nor has any tax deficiency been
proposed or assessed against it, nor has it executed any waiver of the statute
of limitations on the assessment or collection of any tax.
5.15 Transactions Since Balance Sheet Date. Since the Balance Sheet Date,
except as anticipated by this Agreement or set forth on Schedule 5.15,
(i) the Company has not incurred any material debts, liabilities or
obligations except current liabilities in the ordinary course of business;
discharged or satisfied any material liens or encumbrances, or paid any
material debts, liabilities or obligations, except in the ordinary course of
business; mortgaged, pledged or otherwise subjected to any lien or other
encumbrance any of its properties or assets; canceled any material debt or
claim; sold or transferred any properties or assets except sales from
inventory in the ordinary course of business; nor entered into any material
transaction other than in the ordinary course of business; (ii) there has not
been any change in the financial condition, net income, assets, liabilities,
operations or business of the Company other than changes in the ordinary
course of business, none of which, individually or in the aggregate, has been
materially adverse; (iii) there has not been any declaration, setting aside or
payment of any dividend or other distribution in respect of, or any repurchase
or acquisition of, the capital stock of the Company; (iv) the Company has not
issued any securities or options to purchase any securities of any nature
whatsoever; (v) the Company has not increased the compensation, commissions,
bonuses or other remuneration payable to any officer, director, employee or to
any other person or entity, whether now or hereafter payable, except in the
ordinary course of business, nor paid any bonuses to any Shareholder except as
disclosed in the Company's Financial Statements or contemplated by this
Agreement, (vi) there has not been any damage, destruction or loss (whether or
not covered by insurance) materially and adversely affecting the assets,
properties or business of the Company; (vii) the Company has not made any
capital expenditure or commitment in excess of $5,000 for additions to
property, plant or equipment; (viii) the Company has not made any loan or
advance to any person or entity, other than advances to commission
salespersons in the ordinary course of business; guaranteed any obligation or
liability of any person or entity, including (without limitation) any
guaranties of any contracts or leases, or given any indemnification to any
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person or entity; (ix) the Company has not made any sale, assignment or
transfer of, additions to or transactions involving any tangible asset other
than in the ordinary course of business; (x) the Company has not made any
change in its method of accounting or accounting practices, including (without
limitation) any change in depreciation or amortization policies or rates;
(xi) the Company has not granted any waiver or release of any material claim
or right, or canceled any material debt or claim held by it; (xii) the Company
has not amended or terminated any material contract, agreement or license to
which it is a party; (xiii) the Company has not agreed, in writing or
otherwise, to do or permit any of the foregoing.
5.16 Litigation. Schedule 5.16 sets forth a complete and accurate
description of all orders, decrees, writs or injunctions of any court or
governmental body applicable specifically to the Company and all legal
actions, suits, arbitrations, condemnation actions or other proceedings
pending or, to the knowledge of the Shareholders, threatened against the
Shareholders with respect to their Shares or against the Company or any of its
properties, assets or business except for such matters which would not
materially and adversely affect, individually or in the aggregate, the
Company's business, properties or assets as a whole. The Company has no
knowledge of any facts that might result in any other material action, suit,
arbitration or proceeding. Schedule 5.16 also summarizes all claims and
proceedings that have been made against the Company since January 1, 1996.
5.17 Compliance With Laws. To the best of each of the Shareholders'
knowledge, there are no existing violations of federal, state or local laws,
ordinances, rules, codes, regulations or orders by the Company which are
reasonably likely to materially affect the properties, assets or business of
the Company. The Company is not subject to any restriction, judgment, order,
writ, injunction, decree or award, which materially and adversely affects or
is likely to materially and adversely affect the business, operations,
properties, assets or condition (financial or otherwise) of the Company.
5.18 Contracts and Agreements. Schedule 5.18 sets forth a complete and
accurate description of all material contracts and agreements not previously
scheduled to which the Company is a party or by which it or any of its
property is bound. All such contracts and agreements are in full force and
effect and neither the Company nor, to each Shareholder's knowledge, the other
parties thereto are in breach of any of the provisions thereof. Except as set
forth on Schedule 5.18, the Company is not a party to any contract or
agreement which materially and adversely affects or is likely to materially or
adversely affect the business, operations, properties, assets or condition
(financial or otherwise) of the Company.
5.19 Employee Benefit Plans. Schedule 5.19 sets forth a complete and
accurate description of all pension, profit sharing, bonus, deferred
compensation, percentage compensation, severance pay, retirement, health,
stock option, stock buy-in, insurance and other employee benefit plans and
arrangements binding upon the Company. The Company has complied with the
provisions of and has performed the obligations required of it under such
plans and arrangements, and the Company is not in default under any provision
thereof in any material respect. There have been no material defaults,
breaches or omissions by the Company or any fiduciary under any of these plans
or arrangements.
5.20 Insurance. Schedule 5.20 sets forth a complete and accurate
description of all insurance maintained by the Company and summarizes the
coverage provided by each of the insurance policies, including (without
limitation) whether the insurance policies are "claims made" or "occurrence"
policies. All of the insurance is in full force and effect, and the Company
will keep such insurance in full force and effect until the Closing Date.
5.21 Personnel. Schedule 5.21 sets forth a complete and accurate list of
all employees of the Company as of the date indicated thereon and all
independent contractors regularly performing services on behalf of the Company
and their respective rates of compensation, including any salary, bonus or
other payment arrangement made with any of them. Except as disclosed in
Schedule 5.21, the Company does not have any employment agreements or
contracts between the Company and any person or entity. The Company is not a
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party to or bound by any collective bargaining agreement, nor has the Company
experienced any strikes, grievances, claims of unfair labor practices or other
collective bargaining dispute. There are no unions representing any employees
of the Company. The Company has no knowledge of any organizational effort
presently being made or threatened by or on behalf of any labor union with
respect to employees of the Company. The Company has paid or has made
provision for the payment of all compensation due any person or entity and has
complied in all material respects with all applicable laws, rules and
regulations relating to the employment of labor, including those related to
wages, hours, collective bargaining and the payment and withholding of taxes,
and has withheld and paid to the appropriate governmental authority, or is
holding for payment not yet due to such authority, all amounts required by law
or agreement to be withheld from the compensation of its employees.
5.22 Accounts Receivable. Schedule 5.22 sets forth a complete and
accurate list of all accounts and notes receivable of the Company as of March
31, 1999 and an aging analysis of such accounts. All receivables of the
Company are valid and enforceable claims, and collectible, arose in the
ordinary course of business, require no further performance by the Company
and, are not subject to claims or offset.
5.23 Delivery of Documents. Complete and accurate copies of all written
instruments listed or described on the schedules have been or will be
furnished or made available to Umpqua. The Company will make available to
Umpqua, to the extent requested by Umpqua, all books, records and facilities
of the Company.
5.24 Powers of Attorney; Authorized Signatories. The Company has provided
to Umpqua (i) the names and addresses of all persons holding a power of
attorney on behalf of the Company, and (ii) the account numbers and names of
all banks or other financial institutions in which the Company currently has
an account, deposit or safe deposit box, with the names of all persons
authorized to draw on the accounts or deposits or to have access to the boxes.
5.25 Full Disclosure. The representations and warranties by the
Shareholders in this Agreement and in the schedules attached hereto, and the
other statements in writing and information furnished or to be furnished to
Umpqua by or on behalf of the Company or the Shareholders in connection with
the transactions contemplated by this Agreement, taken as a whole, do not and
will not contain any untrue statement of a material fact, or omit to state a
material fact necessary to make the statements contained herein not
misleading.
5.26 Continuation of Business. The Shareholders know of no reason why the
Company cannot continue its business in all material respects in the same
manner following the execution of this Agreement and the Closing as it has
been operated prior thereto, except to the extent that Umpqua causes the
business of the Company to change following the Closing.
5.27 Y2K Compliance. The Company has addressed the Y2K issue, tested all
systems and all Company systems are year 2000 compliant in all respects,
except those systems specifically set forth in Schedule 5.27.
6. REPRESENTATIONS AND WARRANTIES OF UMPQUA
Umpqua represents and warrants to the Shareholders as follows:
6.1 Authorization. The execution, delivery and performance of this
Agreement has been duly authorized by the Board of Directors of Umpqua and
this Agreement has been duly executed and delivered by Umpqua. Umpqua has all
necessary corporate authority to execute and deliver this Agreement and to
perform its obligations hereunder. This Agreement is a valid and legally
binding obligation of Umpqua, enforceable against Umpqua in accordance with
its terms, except as the enforceability thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to the
enforcement of creditors' rights generally and by general principles of equity
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(regardless of whether such enforceability is considered in a proceeding in
equity or at law). Umpqua has the complete and unrestricted right, power and
authority to execute this Agreement and perform its covenants in accordance
with this Agreement.
6.2 Incorporation. Umpqua is duly organized and validly existing under
the applicable laws of the state of its incorporation and has all necessary
power and authority to own, lease and operate its properties and assets and to
conduct its business as its business is now being conducted. Umpqua is
qualified to do business and is in good standing in each state in which it
transacts business.
6.3 No Conflicts. Neither the execution and delivery of this Agreement
nor the fulfillment of or compliance with the terms and provisions hereof will
violate, conflict with or result in a breach of the terms, conditions or
provisions of, or constitute a default or an event which, with notice or lapse
of time or both, would constitute a default under, the articles of
incorporation or bylaws of Umpqua, any contract, agreement, mortgage, deed of
trust or other instrument or obligation to which Umpqua is bound or violate
any provision of any applicable law or regulation or of any order, decree,
writ or injunction of any court or governmental body, or result in the
creation or imposition of any lien, charge, restriction, security interest or
encumbrance of any nature whatsoever on any property or asset of Umpqua.
6.4 Consents. Except as set forth in Schedule 6.4, no consent from, or
other approval of, any governmental entity or agency or any other person or
entity is necessary in connection with the execution, delivery or performance
of this Agreement by Umpqua.
6.5 Compliance With Laws. To the best of Umpqua's knowledge, there are
no existing violations of federal, state or local laws, ordinances, rules,
codes, regulations or orders by Umpqua which are reasonably likely to
materially affect the properties, assets or business of Umpqua. To the best of
Umpqua's knowledge, Umpqua is not subject to any restriction, judgment, order,
writ, injunction, decree or award, which materially and adversely affects or
is likely to materially and adversely affect the business, operations,
properties, assets or condition (financial or otherwise) of Umpqua.
6.6 Full Disclosure. The representations and warranties by Umpqua in
this Agreement and in the schedules provided herewith, and the other
statements in writing and information furnished or to be furnished to the
Shareholders by or on behalf of Umpqua in connection with the transactions
contemplated by this Agreement, taken as a whole, do not and will not contain
any untrue statement of a material fact, or omits or will omit to state a
material fact necessary to make the statements contained herein not
misleading.
7. COVENANTS
Umpqua, the Shareholders and the Company agree that:
7.1 Undertaking. The Shareholders, the Company and Umpqua mutually agree
to cooperate and use commercially reasonable good faith efforts to prepare all
documentation, to effect all filings and to obtain all permits, consents,
approvals and authorizations of all third parties and governmental bodies as
may be necessary to consummate the transactions contemplated by this
Agreement. It will be Umpqua's responsibility to file or prepare for filing
all required consents or applications to permit this transaction to be
consummated except for the NASD application and notice requirements which will
be the Company's responsibility.
7.2 Conduct of Business by the Company Prior to the Closing Date. The
Company and the Shareholders shall cause the Company to conduct its operations
according to the ordinary and usual course of business reasonably consistent
with past and current practices, to use commercially reasonable good faith
efforts to maintain and preserve its assets, properties, insurance policies,
business organization, and advantageous business relationships and to retain
the services of its officers, employees, agents and independent contractors,
and shall not allow the Company to engage in any practice, take any material
action, or enter into any material transaction outside of the ordinary course
of business.
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7.3 Umpqua's Examination. The Company and the Shareholders shall cause
the Company to permit representatives of Umpqua to have full access to and to
examine, at all reasonable times, and in a manner so as not to interfere with
the normal business operations of the Company, the books, records, properties
and assets of the Company.
7.4 Notice of Changes. The Company shall give prompt written notice to
Umpqua of any material adverse change in the financial condition, net income,
assets, liabilities, operations or business of the Company. Umpqua shall give
prompt written notice to the Shareholders of any material adverse change in
the financial condition, net income, assets, liabilities, operations or
business of Umpqua.
7.5 Further Assurances. From time to time at or after the Closing, as
and when requested by any party hereto, the other party shall execute and
deliver, or cause to be executed and delivered, all such documents and
instruments and shall take, or cause to be taken, all such further or other
actions as such other party may reasonably deem necessary or desirable to
consummate the transactions contemplated by this Agreement.
7.6 Release of Guarantees. All guarantees by the Company of the
indebtedness or obligations of any other party or person shall be released,
discharged or terminated prior to or at Closing.
7.7 Update of Representations. If any party to this Agreement becomes
aware of any breach of the representations and warranties contained herein,
whether made by such party or any other party, such party shall notify all
other parties, by the delivery of a new or revised Schedule disclosing the
facts constituting such breach or otherwise. The non-breaching parties shall
be entitled to exercise any right they may have to terminate this Agreement on
the basis of such breach, but if they elect to proceed with the Closing rather
than terminating, the breach so disclosed and all remedies in respect thereof
shall be deemed to have been waived.
7.8 Payment of Debt from Shareholder. Prior to or contemporaneous with
Closing, the Shareholders shall pay off all indebtedness owing to the Company,
net of any amounts owed by the Company to the Shareholders.
7.9 Long Term Bonus Pool. Umpqua will cause the Company to establish a
"Long Term Bonus Pool" ("LTBP"). The first LTBP will consist of 20% of the
amount by which the Company's Adjusted Net Income exceeds the Target Adjusted
Net Income from the Closing Date through December 31, 2001.
The second LTBP will consist of 28% of the amount by which the Company's
Adjusted Net Income exceeds the Target Adjusted Income from January 1, 2002
through the fifth anniversary of the Closing Date. All amounts in the LTBP
will be paid to eligible participants within 10 days of the determination of
the amounts in the pool.
The person entitled to participate in the LTBP will be as set forth in
Schedule 7.9. Umpqua shall have final approval on the distribution of the LTBP
among the participants upon consultation with management of the Company. The
LTBP will replace all existing bonus, incentive, profit sharing or other
deferred compensation arrangements of the Company except for a 401(k) plan and
the Company's commitment to match up to 25% of the employee contribution (up
to a maximum match of $2,500 per person).
7.10 Commission Schedule. Without the consent of Umpqua, the existing
commission pay-out schedule applicable to the Company's licensed brokers will
not be increased following Closing. During the five years following Closing,
Umpqua will not cause the Company to reduce the existing commission pay-out
schedule to existing non-Shareholders employees who have signed the Broker
Agreement. Further, Umpqua shall not cause the Company to reduce the pay-out
to Shareholder employees without the consent of at least a majority of the
Shareholders then employed by the Company or unless the Company fails to
achieve, commencing for periods following January 1, 2000, Adjusted Net Income
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during a six month period of at least $125,000. If such commission is
adjusted, Umpqua will meet on a quarterly basis with the Shareholder employees
to determine if such commissions can be increased, should stay at the same
level, or be reduced further. In the event of a Take-Over, the existing
commission pay-out schedule will not be lowered with respect to current
brokers for a period of not less than two years.
7.11 Stock Options. Promptly following Closing, Umpqua shall grant
nonqualified stock options to the persons, in the amounts and subject to the
vesting as set forth in Schedule 7.11. Further, Umpqua will reserve options
with respect to 30,000 additional shares of Umpqua common stock for future
grants to motivate existing non-shareholder brokers and recruit new brokers
who may join the Company during the five years after Closing. The grant of
these options shall be made at the recommendation of the Shareholders then
with the Company, subject to the reasonable approval of Umpqua.
7.12 South Umpqua Investments. Promptly following Closing, Umpqua will
contribute or cause to be contributed the operating assets, books and records,
personnel and current customer relationships of SUI to the Company, not
including securities held by such subsidiary for its own account.
7.13 Payment of Bonuses. On or prior to Closing, the Company shall accrue
for the payment of bonuses for the period of January 1, 1999 through Closing
but only to the extent such bonuses shall not exceed Net Income for the
period. Payment of such bonuses shall be effected within 30 days of Closing
except for an accounting adjustment reserve fund which shall be established in
the amount of $40,000. This accounting adjustment reserve fund will be charged
or credited with accounting adjustments with respect to the period of January
1, 1999 to Closing. Final payment of this accounting reserve fund net balance
will be made 90 days after Closing.
8. CONDITIONS PRECEDENT TO OBLIGATION OF UMPQUA
The obligation of Umpqua to effect the transactions contemplated by this
Agreement is subject to the satisfaction on or prior to the Closing Date of
the following conditions, each of which may be waived by Umpqua:
8.1 Representations, Warranties of the Shareholders and Covenants of the
Company and the Shareholders. All representations and warranties of the
Shareholders contained in this Agreement shall be true and correct in all
material respects as of the Closing Date with the same effect as though such
representations and warranties were made on the Closing Date, except to the
extent that such representations and warranties expressly relate to any
earlier date, and the Company and the Shareholders shall have performed and
complied in all material respects with all the covenants and agreements and
satisfied in all material respects all the conditions required by this
Agreement to be performed, complied with or satisfied by the Company and each
of the Shareholders on or prior to the Closing Date. The Company and each of
the Shareholders must have delivered to Umpqua a certificate dated as of the
Closing Date certifying that this condition has been fulfilled.
8.2 No Adverse Change. No material adverse change in the financial
condition, net income, assets, liabilities, operations or business of the
Company shall have occurred.
8.3 Third Party Approvals. This Agreement and the transactions
contemplated by this Agreement shall have received all required material
approvals and consents from all Company lessors, and federal, state or local
regulatory agencies whose consent is required and copies of such approvals and
consents shall have been delivered to Umpqua.
8.4 Broker Agreements. The Company will have secured executed Broker
Agreements substantially in the form of Schedule 8.4 from all licensed brokers
of the Company who are not Shareholders.
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8.5 Employment Agreement. The Company will have secured an executed
Employment Agreement substantially in the form of Schedule 8.5 from the
employee.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY AND THE SHAREHOLDERS
The obligations of the Shareholders and the Company to effect the
transactions contemplated by this Agreement are subject to the satisfaction on
or prior to the Closing Date of the following conditions, each of which may be
waived by the Company or by the Shareholders:
9.1 Representations, Warranties and Covenants of Umpqua. All
representations and warranties of Umpqua contained in this Agreement shall be
true and correct in all material respects as of the Closing Date with the same
effect as though such representations and warranties were made on the Closing
Date, except to the extent that such representations and warranties expressly
relate to an earlier date, and Umpqua shall have performed and complied in all
material respects with all of the covenants and agreements and satisfied in
all material respects all the conditions required by this Agreement to be
performed, complied with or satisfied by Umpqua on or prior to the Closing
Date. Umpqua must have delivered to the Company a certificate dated as of the
Closing Date certifying that this condition has been fulfilled.
9.2 No Adverse Changes. No material adverse change in the financial
condition, net income, assets, liabilities, operations or business of Umpqua
shall have occurred.
9.3 Third Party Approvals. This Agreement and the transactions
contemplated by this Agreement shall have received all required material
approvals and consents from all Company lessors, and federal, state or local
regulatory agencies whose consent is required, and copies of such approvals
and consents shall have been delivered to the Company.
10. SURVIVAL OF REPRESENTATIONS AND WARRANTIES
All representations and warranties made in this Agreement or in any
certificate, exhibit, document, or instrument furnished in connection with
this Agreement shall survive the Closing. Notwithstanding any investigation or
examination conducted before or after the Closing or the decision of any party
to complete the Closing, subject to the provisions of Section 7.7 each party
shall be entitled to rely upon the representations and warranties set forth in
this Agreement. Under no circumstance shall the representation and warranties
of the parties contained in this Agreement incur to the benefit of the others
for more than three (3) years from the date of Closing (but six (6) years for
any Claim based upon fraud). (the "Survival Period").
11. INDEMNIFICATION
11.1 General Indemnity. The Shareholders agree to jointly and severally
indemnify, defend and hold harmless the Company and Umpqua and their
respective successors and assigns (the "Umpqua Indemnified Parties") from and
against any claims, damages, liabilities, loss, penalties, actions, suits,
proceedings, demands, assessments, costs and expenses, including reasonable
attorneys fees and expenses of investigation ("Claims"), incurred by any
Umpqua Indemnified Party arising from or related to (i) any breach of any
representation or warranty made by the Company or the Shareholders in this
Agreement of which notice is given to the Shareholders by the Umpqua
Indemnified Parties prior to the expiration of the Survival Period for such
representation or warranty or (ii) any breach of any covenant or agreement
made by the Company or the Shareholders in this Agreement, to the extent, in
the case of the Company, that such covenant or agreement was to be performed
at or before the Closing. Umpqua agrees to indemnify, defend and hold harmless
the Shareholders and their respective successors and assigns (the "Shareholder
Indemnified Parties") from and against any Claims incurred by any Shareholder
Indemnified Party arising from or related to (i) any breach of any
representation or warranty made by Umpqua in this Agreement of which notice is
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given to Umpqua by the Shareholder Indemnified Parties prior to the expiration
of the Survival Period for such representation or warranty or (ii) any breach
of any covenant or agreement made by Umpqua in this Agreement.
11.2 Defense of Claims. Each of the Shareholder Indemnified Parties and
the Umpqua Indemnified Parties (an "Indemnified Party") shall promptly notify
the indemnifying party of any Claim against which indemnification will be
sought hereunder. If the Claim involves a claim, investigation, demand, action
or suit by a third party, including a governmental authority, the indemnifying
party shall have the right to defend the claim with counsel of their choosing,
but the Indemnified Party shall be entitled to participate in the defense at
its expense. If the indemnifying party does not assume the defense of the
Claim, the Indemnified Party may do so, but the indemnifying party will have
the right to participate in the defense at their expense. The party defending
a Claim shall not settle the Claim without the consent of the other party or
parties, which consent shall not be unreasonably withheld.
11.3 Limitations. Any amount against which an Indemnified Party is
entitled to be indemnified hereunder shall be reduced by (i) the amount of any
insurance proceeds available to such Indemnified Party in respect of the
matter giving rise to a Claim, and (ii) any recoveries from third parties in
respect of the Claim or the facts underlying the Claim. Further, no
Indemnified Party shall make a Claim for indemnification unless the basis for
a Claim is $10,000. Notwithstanding the forgoing, if the basis for a Claim is
less than $10,000, one or more Claims may be aggregated providing the
aggregate amounts exceed $20,000. The $10,000 and $20,000 sums are one-time
deductible amounts.
12. TERMINATION
12.1 Mutual Consent. This Agreement may be terminated by the written
consent of the parties.
12.2 By Umpqua. This Agreement may be terminated by written notice of
termination given by Umpqua to the Company and the Shareholders (i) if the
Company or the Shareholders default in any material respect in the observance
of or in the due and timely performance by them of any of the agreements and
covenants contained herein, (ii) if any of the warranties and representations
of the Company or the Shareholders contained herein are false in any material
respect, or (iii) if the conditions of this Agreement to be complied with or
performed by the Shareholders or the Company at or before Closing are not
complied with or performed at the time required for such compliance or
performance and such noncompliance or nonperformance is not waived by Umpqua.
12.3 By the Company or Shareholders. This Agreement may be terminated by
written notice of termination given by the Company to Umpqua if (i) Umpqua
defaults in any material respect in the observance of or in the due and timely
performance by Umpqua of any agreements and covenants of Umpqua contained,
(ii) any of the representations and warranties of Umpqua contained herein are
false in any material respect or (iii) the conditions of this Agreement to be
complied with or performed by Umpqua at or before Closing are not complied
with or performed at the time required for such compliance or performance and
such noncompliance or nonperformance is not waived by the Company.
12.4 Effect of Termination. Upon any termination of this Agreement under
Section 12.1, no party to this Agreement shall have any liability or
obligation hereunder. Upon any termination of this Agreement under Section
12.2 or 12.3, neither party shall have any prospective obligation hereunder,
but each party shall have, if otherwise available, the remedy of specific
enforcement, prior to termination.
13. DISPUTE RESOLUTION
13.1 Mediation. The parties hope there will be no disputes arising out
of this transaction. To that end, each commits to cooperate in good faith and
to deal fairly in performing its duties under this Agreement in order to
accomplish their mutual objectives and avoid disputes. But if a dispute
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arises, the parties agree to resolve all disputes by the following alternate
dispute resolution process. The parties will seek a fair and prompt negotiated
resolution, but if this is not successful, all disputes shall be resolved by
binding arbitration; provided, however, that during this process, at the
request of either party made not later than twenty-five (25) days after the
initial arbitration demand, the parties will attempt to resolve any dispute by
non-binding mediation (but without delaying the arbitration hearing date). The
parties recognize that negotiation or mediation may not be appropriate to
resolve some disputes and agree that either party may proceed with arbitration
without negotiating or mediating. The parties confirm that by agreeing to this
alternate dispute resolution process, they intend to give up their right to
have any dispute decided in court by a judge or jury.
13.2 Binding Arbitration. Any claim between the parties arising out of or
relating to this Agreement shall be determined by arbitration in Portland,
Oregon (or some other place as the parties may agree). The arbitration shall
be conducted before one neutral arbitrator; provided, however, that if either
party demands a total award greater than $250,000, including interest,
attorneys' fees and costs, then either party may require that there be three
(3) neutral arbitrators. If the parties cannot agree on the identity of the
arbitrator(s) within ten (10) days of the arbitration demand, the
arbitrator(s) shall be selected by the administrator of the American
Arbitration Association (AAA) office having jurisdiction over Portland, Oregon
from its Large, Complex Case Panel (or have similar professional credentials).
Each arbitrator shall be an attorney with at least fifteen (15) years'
experience in corporate law. Whether a claim is covered by this Agreement
shall be determined by the arbitrator(s). All statutes of limitations which
would otherwise apply to a court proceeding shall apply equally to any
arbitration proceeding hereunder.
13.3 Procedures. The arbitration shall be conducted in accordance with
the AAA Commercial Arbitration Rules with Expedited Procedures, as modified by
this Agreement. There shall be no dispositive motion practice. As may be shown
to be necessary to ensure a fair hearing, the arbitrator(s) may authorize
limited discovery, and may enter pre-hearing orders regarding (without
limitation) scheduling, document exchange, witness disclosure and issues to be
heard. The arbitrator(s) shall not be bound by the rules of evidence or of
civil procedure, but may consider such writings and oral presentations as
reasonable business people would use in the conduct of their day-to-day
affairs, and may require the parties to submit some or all of their case by
written declaration or such other manner of presentation as the arbitrator(s)
may determine to be appropriate. The parties intend to limit live testimony
and cross-examination to the extent necessary to ensure a fair hearing on
material issues.
13.4 Hearing and Award. The arbitrator(s) shall take such steps as may be
necessary to hold a private hearing within ninety (90) days of the initial
demand for arbitration and to conclude the hearing within three (3) days; and
the arbitrator(s)'s written decision shall be made not later than fourteen
(14) calendar days after the hearing. The parties have included these time
limits in order to expedite the proceeding, but they are not jurisdictional,
and the arbitrator(s) may for good cause afford or permit reasonable
extensions or delays, which shall not affect the validity of the award. The
written decision shall contain a brief statement of the claim(s) determined
and the award made on each claim. In making the decision and award, the
arbitrator(s) shall apply applicable substantive law. Absent fraud, collusion
or willful misconduct by an arbitrator, the award shall be final, and judgment
may be entered in any court having jurisdiction thereof. The arbitrator(s) may
award injunctive relief or any other remedy available from a judge, including
the joinder of parties or consolidation of this arbitration with any other
involving common issues of law or fact or which may promote judicial economy,
and may award attorneys' fees and costs to the prevailing party, but shall not
have the power to award punitive or exemplary damages. If the arbitration is
conducted by three arbitrators, the decision and award of the arbitrators need
not be unanimous; rather, the decision and award of two arbitrators shall be
final.
14. NONDISCLOSURE, NON-COMPETE, AND NON-SOLICITATION
14.1 Nondisclosure. Shareholders acknowledge that the identity or
trading practices of customers or prospective customers of the Company, sales
techniques, trading practices, asset allocation methods, security selection
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techniques and other information and practices of the Company constitute
"Trade Secrets" which are confidential and proprietary to the Company.
Additionally, by virtue of certain Shareholder's employment with the Company,
such Shareholders have had and will continue to have access to information
that is confidential and proprietary to the Company's customers and other
third persons. Shareholders therefore agrees that Shareholders:
14.1.1 will not, at any time, without the express written consent of
the Company, disclose, publish or divulge to any person, firm, or
corporation any of said Trade Secrets except in accordance with express
instruction or permission of the Company;
14.1.2 will not use, directly or indirectly, for Shareholder's own
benefit or the benefit of any other person, firm, or corporation any of
said Trade Secrets;
14.1.3 will treat confidentially all documents involving said Trade
Secrets that are delivered or made available to any Shareholder as a
necessary part of Shareholder's responsibilities as an employee of the
Company, whether or not they are identified or marked by the Company as
proprietary or confidential documents, and will not reproduce or use such
documents without appropriate authority;
14.1.4 will not advise others of said Trade Secrets known or used by
the Company or others associated with the Company;
14.1.5 will not, following his leaving the employ of the Company,
accept employment where the duties under such employment would require or
would pose a reasonable likelihood of requiring Shareholder to use or
disclose said Trade Secrets; and
14.1.6 will equally abide by the restrictions set forth above in
Section 14.1.1 through 14.1.6, inclusive, as to any information that is
proprietary and confidential to third persons and that was divulged to
Shareholder by virtue of his employment with the Company.
Provided, however, upon satisfaction of the covenants set forth in
Section 14.2 and 14.3, the identity of such Shareholder's customers will no
longer be deemed a Trade Secret.
14.2 Non-Compete. For a term of five (5) years following the Closing
Date (but in no case longer than two years following a Take-Over),
Shareholders will not, directly or indirectly, within the state of Oregon or
Clark County Washington, own, operate, manage, control, participate in the
ownership, management, operation or control of or be paid or employed by or
acquire any interest in or securities of or otherwise become associated with
or provide assistance to, as an employee, consultant, director, officer,
shareholder, partner, agent, associate, principal, representative or any other
capacity, any business entity engaged in the sale of investment securities.
14.3 Non-Solicitation and Acceptance of the Company Customers and
Employees. Shareholders agrees that for a period of the greater of (i) five
(5) years from the Closing Date; or (ii) one (1) year following termination of
employment, (but in no case longer than two years following a Take-Over)
Shareholders will not, without the prior written consent of the Company which
consent may be withheld by the Company in the Company's sole discretion,
directly or indirectly solicit, influence, or assist anyone in the
solicitation or influencing of (a) any customer of the Company or Umpqua for
the purpose of causing, encouraging, or attempting to cause or encourage such
customer to divert its current, ongoing, or future business from the Company
or Umpqua or to accept any brokerage business from such customers; or (b) any
other employee of the Company or Umpqua for the purpose of causing,
encouraging, or attempting to cause or encourage such other employee to leave
the employment of the Company or Umpqua. Without limiting the foregoing, it is
understood and agreed that any written or oral communication to a customer or
employee of the Company or Umpqua which announces Shareholder's departure from
the Company or which announces Shareholder's new employment, business address,
phone number or email address shall constitute a solicitation of such customer
or employee.
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14.4 Consideration Paid. It is understood that the covenants given in
this Section 14 are given to ensure that Umpqua acquires the goodwill of the
business of the Company and are an integral part of this Agreement. The
parties agree that a total of $200,000 of the Initial Purchase Price is
allocated to these covenants which shall be allocated for tax purposes to the
Shareholders in proportion to their stock holdings set forth on Schedule 2.1.
14.5 Enforcement. In the event of any breach of this Section 14 by
Shareholder or any threatened or attempted breach by Shareholder of the
nondisclosure, non-compete, non-solicitation and non-acceptance obligations
set forth above in Subsection 14.1.1 through 14.1.4, the Company will be
entitled to injunctive relief against Shareholder and the parties hereby agree
that the amount of any bond for damages to be posted by the Company in seeking
such injunction will be Five Hundred Dollars ($500); provided, however, that
this provision will in no way limit or be evidence of the amount of damages to
the enjoined party. Nothing herein will be construed as precluding or limiting
any other remedies available hereunder or at law or in equity for any breach
or threatened or attempted breach of this Section, including the recovery of
damages.
15. GENERAL PROVISIONS
15.1 Entire Agreement. This Agreement and the exhibits and schedules
hereto constitutes the entire agreement between the parties regarding the
subject matter hereof and supersedes all prior agreements and understandings
between the parties relating to the subject matter of this Agreement. There
are no agreements, understandings, restrictions, warranties, representations
between the parties relating to the subject matter hereof other than those set
forth in this Agreement.
15.2 Schedules. The exhibits attached and the schedules provided
pursuant to this Agreement are made a part of this Agreement by this
reference.
15.3 Publicity. The parties hereto agree that no public release or
announcement concerning the terms of the transactions contemplated by this
Agreement shall be issued by any party without the prior consent of the other
party (which consent shall not be unreasonably withheld), except as such
release or announcement may be required by law.
15.4 Amendment. This Agreement may not be amended, modified or
terminated except by an instrument in writing signed by all parties to this
Agreement.
15.5 Construction. All pronouns and any variations thereof shall be
deemed to refer to the masculine, feminine or neuter gender thereof or to the
plurals of each, as the identity of the person or persons or the context may
require. The descriptive headings contained in this Agreement are for
reference purposes only and are not intended to describe, interpret, define or
limit the scope, extent or intent of this Agreement or any provision contained
in this Agreement.
15.6 Invalidity. If any provision contained in this Agreement shall for
any reason be held to be invalid, illegal, void or unenforceable in any
respect, such provision shall be deemed modified so as to constitute a
provision conforming as nearly as possible to such invalid, illegal, void or
unenforceable provision while still remaining valid and enforceable; and the
remaining terms or provisions contained herein shall not be affected thereby.
15.7 Payment of Expenses. Whether or not the transactions contemplated by
this Agreement are consummated, each of the parties to this Agreement shall be
responsible for its own costs and expenses incurred in connection with the
preparation and negotiation of this Agreement and the transactions
contemplated hereby.
15.8 Binding Effect and Assignment. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
legal representatives, successors and permitted assigns. No party may assign
any of their rights or delegate any of their obligations hereunder. Any
assignment in violation hereof shall be void.
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<PAGE>
15.9 Applicability of Exceptions and Disclosure. All facts and agreements
disclosed in the Exhibits and Schedules to this Agreement shall be deemed to
be disclosed for all purposes of this Agreement and to constitute exceptions
not only to the representations and warranties in the specific Sections that
refer to such Exhibits or Schedules, but also to all other representations and
warranties to which such disclosures are relevant.
15.10 Notices. All notices and other communications hereunder shall be
(i) in writing, dated with the current date of such notice, and signed by the
party giving such notice, and (ii) mailed, postpaid, registered or certified,
return receipt requested, addressed to the party to be notified, or delivered
by personal delivery or by overnight courier. Notice shall be deemed given
when received by the party to be notified or when the party to be notified
refuses to accept delivery of the notice. The initial addresses of the parties
shall be as follows:
If to Umpqua: Umpqua Holdings Corporation
445 S.E. Main Street
Roseburg, Oregon 97470
Attn: Ray Davis
With a copy to: Foster Pepper & Shefelman LLP
101 S.W. Main Street, 15th Floor
Portland, Oregon 97204
Attn: Kenneth E. Roberts
If to the Company:Strand, Atkinson, Williams & York,
Incorporated
720 S.W. Washington
Portland, OR 97205
Attn: Jan Jansen
With a copy to: Brownstein Rask Arenz Sweeney Kerr & Grim LLP
1200 S.W. Main Street
Portland, OR 97204
If to the
Shareholders: Jan Jansen John York
340 Berwick 4225 NE Alameda
Lake Oswego, OR 97034 Portland, OR 97213
Douglas Strand Robert Atkinson
7300 SW Ridgemnont St. 2020 SW Market, Suite 402
Portland, OR 97225 Portland, OR 97201
Peter Williams
6222 SE 30th
Portland, OR 97202
The parties hereto shall have the right from time to time to change their
respective addresses by written notice to the other parties.
15.11 Definition of Knowledge. As used in this Agreement, the Company's
and the Shareholders' "knowledge" shall include the knowledge of the
Shareholders.
15.12 Remedies. Except as may be expressly set forth in this Agreement,
none of the remedies provided for in this Agreement shall be the exclusive
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remedy of either party for a breach of this Agreement. The parties hereto
shall have the right to seek any other remedy at law or in equity in lieu of
or in addition to any remedies provided for in this Agreement.
15.13 Waiver. No waiver of any breach or default hereunder shall be
considered valid unless in writing and signed by the party giving such waiver,
and no such waiver shall be deemed a waiver of any subsequent breach or
default of the same or similar nature.
15.14 Governing Law. This Agreement shall be construed, enforced and
governed in accordance with the laws of the State of Oregon.
15.15 Counterparts. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one and the same
instrument.
15.16 No Strict Construction. The parties and their counsel have
participated jointly in the negotiation and drafting of this Agreement. In the
event an ambiguity or question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by the parties hereto and
no presumption or burden of proof shall arise favoring or disfavoring any
party by virtue of the authorship of any provisions of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
UMPQUA HOLDINGS CORPORATION
By: /s/ Raymond P. Davis
------------------------------------------
STRAND, ATKINSON, WILLIAMS & YORK,
INCORPORATED
By: /s/ Jan Jansen
------------------------------------------
Jan Jansen, President
SHAREHOLDERS
/s/ Jan Jansen
----------------------------------------------
Jan Jansen
/s/ Douglas Strand
----------------------------------------------
Douglas Strand
/s/ John York
----------------------------------------------
John York
/s/ Peter Williams
----------------------------------------------
Peter Williams
/s/ Robert Atkinson
----------------------------------------------
Robert Atkinson
19
<PAGE>
AMENDMENT NO. 1
TO
STOCK PURCHASE AGREEMENT
This is an amendment (the "Amendment") to the STOCK PURCHASE AGREEMENT
dated effective May 10, 1999, by and between UMPQUA HOLDINGS CORPORATION, an
Oregon corporation ("Umpqua"); JAN JANSEN, DOUBLAS STRAND, JOHN YORK, PETER
WILLIAMS AND ROBERT ATKINSON (collectively, the "Shareholders"); and STRAND,
ATKINSON, WILLIAMS & YORK, INCORPORATED, an Oregon corporation (the
"Company").
R E C I T A L S :
References made to that certain Stock Purchase Agreement dated effective
May 10, 1999 (the "Agreement") by and between the parties to this Amendment.
Except as specifically amended or supplemented by this Amendment, all
provisions of the Agreement continue to be effective and are incorporated
hereby this reference.
1. Modifications of Adjusted Net Income Thresholds and Targets
In connection with the acquisition of the Company by Umpqua, initial
approval from the Federal Reserve Board is expected to include the right for
the Company to engage only in "tier 1" and exempt activities expressly deemed
to be closely related to banking. The parties estimate that unless and until
the Company receives permission to engage in "tier 2" activities, its
opportunity to achieve its gargeted and threshold income levels will be
moderately affected. Accordingly, the parties agree that for every month (or
pro rata portion of any such month) in which the Company is not permitted to
engage in "tier 2" activities, the net Income targets either for purposes of
the Contingent Purchase Price calculations or achieving the Target Adjusted
Net Income levels, will be reduced by $3,200 per month. Once such tier 2
authority has been received, the thresholds and targets will again revert to
the levels set forth in the Agreement.
2. Extension of Closing Date
The parties agree that the outside Closing Date (absent a further mutual
agreement to the contrary) shall be extended to November 30, 1999.
1
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of July
12, 1999.
UMPQUA HOLDINGS CORPORATION
By: /s/ Raymond P. Davis
----------------------------------
STRAND, ATKINSON, WILLIAMS & YORK,
INCORPORATED
By: /s/ Jan Jansen
----------------------------------
Jan Jansen, President
SHAREHOLDERS
/s/ Jan Jansen
--------------------------------------
Jan Jansen
/s/ Douglas Strand
--------------------------------------
Douglas Strand
/s/ John York
--------------------------------------
John York
/s/ Peter Williams
--------------------------------------
Peter Williams
/s/ Robert Atkinson
--------------------------------------
Robert Atkinson
2
GROUND LEASE
Date: February 12, 1999
Lessor: RICHARD WHITT and BARBARA WHITT, ("Lessor")
husband and wife, and KEITH FLICKER
Lessee: SOUTH UMPQUA BANK ("Lessee")
a ____________________________
Lessor leases to Lessee, and Lessee leases from Lessor, the real
property (the "Premises") described on Exhibit A attached and incorporated in
this Lease by this reference consisting of approximately 21,669 gross square
feet. The foregoing demise is subject, however, to the encumbrances
described on Exhibit B attached and incorporated in this Lease by this
reference.
The Premises are leased for a term (the "Term") of twenty (20) years
(subject to two options to extend for ten (10) years each as set forth in
Section 23), commencing on the date of this Lease.
Lessor and Lessee agree as follows:
Section 1. Project Conditions
1.1 Lessee intends to construct a building (the "Building") and
related improvements on, under, and over the Premises. The Building and all
the related improvements are referred to in this Lease as the "Project." The
Project and any future alterations, additions, replacements, or modifications
to the Project during the Term of this Lease are referred to in this Lease as
the "Improvements." The preliminary plans and specifications for the Project
are attached as Exhibit C and incorporated in this Lease by this reference.
This Lease shall be conditioned on Lessee and Lessor determining that the
Project is feasible after completing a due-diligence investigation of the
condition of the Property and obtaining all necessary governmental approvals,
consultants reports, financing commitments, final plans and specifications,
design and construction contracts, and any other approvals, loan and lease
commitments, or contracts reasonably determined to be necessary by the Lessor
and the Lessee. Due diligence investigations shall be completed by not later
than March 1, 1999. If Lessee determines that the Project is not feasible,
Lessee shall notify Lessor in writing received by Lessor not later than 5:00
PM on March 2, 1999.
1.2 The foregoing condition shall be for the benefit of both parties
and must be satisfied or waived by both the parties on or before 5:00 p.m. on
March 1, 1999, or this Lease shall terminate and be of no further force and
effect. In such event neither party shall have any further liability under
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<PAGE>
this Lease except for liability accrued before the date of termination.
Nevertheless, Lessee shall have the right to terminate this lease if Lessee
does not obtain consent from state and federal banking regulatory agencies
for this lease by March 15, 1999. Lessee shall use best efforts to obtain the
necessary consents. Lessee shall notify Lessor in writing immediately if it
elects to terminate because of the condition in this Section 1.2 and shall
provide to Lessor evidence that it did not, or in its reasonable judgment,
could not obtain consent.
1.3 Lessor shall cooperate with Lessee in all respects in connection
with satisfying the condition. Lessor shall execute such applications and
other instruments reasonably necessary to satisfying the condition, provided
that Lessor shall not be required to pay any application fees or incur any
other costs or liability in connection with satisfying the condition beyond
Lessor's fees for any professional advice Lessor desires. Lessor shall appear
as a witness in any legal or administrative proceedings to the extent
reasonably necessary to satisfy the condition.
1.4 Prior to or at the same time as Lessee engages in its
construction, Lessor shall construct the driveway on Lessor's adjacent land
to provide access from Commercial Street SE to the Premises. Lessor may, at
Lessor's election, undertake construction of all perimeter sidewalks, and
parking areas. In such event, Lessor shall notify Lessee and shall coordinate
all construction activities. All parking areas and sidewalks constructed by
Lessor using a competent contractor and at reasonable cost. All costs
incurred by Lessor in the construction on the Premises shall be paid for by
Lessee within thirty (30) days after billing therefore. The payment of the
construction costs shall be additional rent under this Lease.
Section 2. Construction of the Project
Lessee shall construct the Project (including all parking lots,
sidewalks, landscape areas, and buildings) in accordance with the final plans
and specifications approved by Lessor, which approval shall not be
unreasonably withheld or delayed. The work shall be performed in accordance
with all Legal Requirements and in a good and professional manner. For the
purposes of this Lease, the term Legal Requirements includes all present and
future laws, ordinances, orders, rules, regulations, and requirements of all
federal, state, and municipal governments, departments, commissions, boards,
and officers, foreseen or unforeseen, ordinary as well as extraordinary.
Lessor shall have the right to inspect the work at reasonable intervals
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<PAGE>
subject to the supervision of Lessee and in a manner that will minimize any
interference with the work.
Lessee shall use its best efforts to submit plans for permits by not
later than April 1, 1999 and Lessee shall diligently pursue permits until
issuance. Lessee shall diligently pursue completion of construction from the
date of issuance of the permits and use best efforts to complete construction
not later than six (6) months following issuance of the permits.
Lessor agrees that it shall deliver the Premises with all existing
buildings demolished and debris removed. Lessor shall fill the existing
basement to native ground level or such other lower level as Lessee shall
direct and shall compact all fill in the basement area to a load bearing
capacity of 2,500 pounds per square foot. Lessor shall cooperate with Lessee
in the placement of the fill to allow construction contemplated by Lessee.
Lessor's financial obligation to meet the load bearing capacity shall not
exceed standard placement. Lessee shall pay any cost in excess of standard
placement to meet its particular needs.
Section 3. Minimum Rent
3.1 Lessee covenants and agrees to pay to Lessor, promptly when due,
without notice or demand and without deduction or setoff of any amount
whatsoever, $6,250 per month as Minimum Rent for the Premises from six months
following the date of this Lease. All Rent shall be paid in advance, on the
first day of each month during the Term. If the Minimum Rent is scheduled to
begin on a date other than the first day of a month, the first and last
month's rent shall be pro-rated. If the Minimum Rent payment is not received
by Lessor by the tenth day of any month, Lessee shall pay a late fee equal to
5% of the unpaid Minimum Rent. Lessor's imposition of the late fee shall not
affect Lessor's other remedies.
3.2 All amounts payable under Section 3.1 above, as well as all other
amounts payable by Lessee to Lessor under the terms of this Lease, shall be
paid at the office of Lessor set forth in Section 32, or at such other place
within the continental limits of the United States as Lessor shall from time
to time designate by notice to Lessee, in lawful money of the United States
which shall be legal tender in payment of all debts and dues, public and
private, at the time of payment.
3.3 It is intended that the Minimum Rent provided for in this section
shall be an absolutely net return to Lessor throughout the Term, free of any
expense, charge, or other deduction whatsoever, including all claims,
demands, or setoffs of any nature whatsoever.
Page 3
<PAGE>
3.4 Lessee shall also pay without notice, except as may be provided
in this Lease, and without abatement, deduction, or setoff, as additional
rent, all sums, impositions, costs, and other payments which Lessee in any of
the provisions of this Lease assumes or agrees to pay, and in the event of
any nonpayment, Lessor shall have (in addition to all other rights and
remedies) all the rights and remedies provided for in this Lease or by law in
the case of nonpayment of the Minimum Rent.
3.5 Lessee shall pay, as Additional Rent, its pro rata share of
Common Area Maintenance Charges imposed under any Reciprocal Easement
Agreement affecting the Premises.
3.6 The base rent provided in Section 3.1 shall be increased or
decreased in the month of January each year by a percentage equal to 100% of
the percentage change in the Consumer Price Index published by the United
States Bureau of Labor Statistics of the United States Department of Labor,
not to exceed 5% per year. Comparisons shall be made using the index entitled
U.S. City Average--All Items and Major Group Figures for All Urban Consumers
(1982-84 = 100), or the nearest comparable data on changes in the cost of
living if such index is no longer published. The change shall be determined
by comparison of the figure for January, 2000, with that of January of each
succeeding year. In no event, however, shall base rent be reduced below that
payable during the first year of this lease. The minimum rent shall be fixed
until January 1, 2001, when the first rent adjustment under this paragraph
shall occur.
Section 4. Use
4.1 Lessee shall use and occupy the premises continuously during the
Term for the operation of a first-class building and for such uses as are not
otherwise prohibited by the terms of this Lease or any Covenants, Conditions
or Restrictions now existing or hereafter made applicable to the Premises.
The Premises may not be used for any other purpose without the written
consent of Lessor, which consent shall not be unreasonably withheld. Lessee
shall maintain and operate the business during the entire Term with due
diligence and in a first-class manner. Neither Lessee nor the employees,
agents, concessionaires, licensees, or sublessees of Lessee shall solicit
business in the parking area or other common areas of the development, nor
shall Lessee distribute any handbills or other advertising matter on
automobiles parked in the parking area or in the other common areas. Lessor
shall have the right to approve any signs or displays Lessee may desire to
erect on or about the Premises that are visible from the exterior of the
Building. in order to ensure that Lessor may control the quality and
character of the presentation displayed by Lessee. Such approval may be
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<PAGE>
withheld or revoked if Lessor reasonably and in good faith believes such
display or plan is unsatisfactory or inappropriate for the development.
4.2 Lessee shall not use or occupy, or permit or suffer all or any
part of the Premises or the Improvements to be used or occupied (1) for any
unlawful or illegal business, use, or purpose, (2) in any such manner to
constitute a nuisance of any kind, or (3) for any purpose or in any way in
violation of the certificate of occupancy, or of any Legal Requirements,
including but not limited to Legal Requirements respecting Hazardous
Substances, (4) for any business, use, or purpose deemed disreputable, or (5)
for any purpose that would violate any lease entered into, now or in the
future, between Landlord and a third party which allows for exclusive rights
to use property adjacent to or contiguous with the Premises for a particular
use, provided however that Tenant may always use the Premises for a bank or
general office use. The term Hazardous Substance means any hazardous, toxic,
or dangerous substance, waste, or material that is the subject of
environmental protection Legal Requirements, including but not limited to the
items listed in the United States Department of Transportation Hazardous
Materials Table (49 CFR s172.101) or designated as hazardous substances by
the United States Environmental Protection Agency (40 CFR pt 302) . Lessee
acknowledges that the term Legal Requirements includes but is not limited to
all environmental protection laws such as the Comprehensive Environmental
Response, Compensation and Liability Act (42 USC s6901 et seq.), the Federal
Water Pollution Control Act (33 USC s6901 et seq.), the Federal Water
Pollution Control Act (33 USC s1257 et seq.), and the Clean Air Act (42 USC
s2001 et seq.) . Any dispute between Lessor and Lessee arising under the
provisions of clause (4) of the preceding sentence shall be submitted to
arbitration as provided in Section 33 below.
4.3 Lessee shall observe and comply with all conditions and
requirements necessary to preserve and extend any and all rights, licenses,
permits (including but not limited to zoning variances, special exceptions,
and nonconforming uses), privileges, franchises, and concessions that now
apply to the Premises or that have been granted to or contracted for by
Lessor or Lessee in connection with any existing or presently contemplated
use of the Premises or the Improvements.
4.4 Lessee shall not suffer or permit the Premises or the
Improvements or any portion to be used by the public, as such, without
restriction or in such manner as might reasonably tend to impair Lessor's
title to the Premises or Improvements or any portion, or in such manner as
might reasonably make possible a claim or claims of adverse usage, adverse
possession, or prescription by the public, as such, or of implied dedication,
of the Premises or Improvements or any portion. Lessee acknowledges that
Lessor does not consent, expressly or by implication, to the unrestricted use
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<PAGE>
or possession of the whole or any portion of the Premises or Improvements by
the public, as such.
4.5 Lessor and Lessee agree that if and when any governmental or any
other public authority requires the execution and delivery of any instrument
to evidence or consummate the dedication of any street adjoining the Premises
and/or if and when any governmental or any other public authority or any
public utility company requires the execution and delivery of any rights of
way, easements, and grants in, over, and along any such streets or in, over,
under, or through the Premises (except any that may run under the
Improvements) for the purpose of providing water, gas, steam, electricity,
telephone, storm and sanitary sewer, or any other necessary or desirable
service or facility for the benefit of the Premises or the Improvements, then
both parties, without cost to either party, will execute, acknowledge, and
deliver any such instrument or document as may be required.
Section 5. Liens
5.1 Lessee shall have no power to do any act or to make any contract
that may create or be the foundation for any lien, mortgage, or other
encumbrance on the reversion or other estate of Lessor or on any interest of
Lessor in the Premises.
5.2 Lessee shall not suffer or permit any liens to attach to the
interest of Lessee in all or any part the Premises by reason of any work,
labor, services, or materials done for, or supplied to, or claimed to have
been done for or supplied to, Lessee or anyone occupying or holding an
interest in all or any part of the Improvements on the Premises through or
under Lessee. If any such lien shall at any time be filed against the
Premises, Lessee shall cause the same to be discharged within the earlier of
the time allowed by any of Lessor's mortgages, or within 60 days after the
date of filing the same, by either payment, deposit, or bond.
5.3 Nothing in this Lease shall be deemed to be, or be construed in any
way as constituting, the consent or request of Lessor, express or implied, by
inference or otherwise, to any person, firm, or corporation for the
performance of any labor or the furnishing of any materials for any
construction, rebuilding, alteration, or repair of or to the Premises or to
the Improvements, or as giving Lessee any right, power, or authority to
contract for or permit the rendering of any services or the furnishing of any
materials that might in any way give rise to the right to file any lien
against Lessor's interest in the Premises or against Lessor's interest, if
any, in the Improvements. Lessee is not intended to be an agent of Lessor for
the construction of Improvements on the Premises. Lessor shall have the right
to post and keep posted at all reasonable times on the Premises and on the
Improvements any notices that Lessor shall be required to post for the
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protection of Lessor and of the Premises and of the Improvements from any such
lien. The foregoing shall not be construed to diminish or vitiate any rights
of Lessee in this Lease to construct, alter, or add to the Improvements.
Section 6. Taxes and Other Charges
6.1 Lessee shall pay and discharge, or cause to be paid and
discharged, before any fine, penalty, interest, or cost may be added for
nonpayment, all real estate taxes, personal property taxes, privilege taxes,
excise taxes, business and occupation taxes, gross sales charges, assessments
(including, but not limited to, assessments for public improvements or
benefits) , and all other governmental impositions and charges of every kind
and nature whatsoever, whether or not now customary or within the
contemplation of the parties and regardless of whether the same shall be
extraordinary or ordinary, general, or special, unforeseen or foreseen, or
similar or dissimilar to any of the foregoing which, at any time during the
Term, shall be or become due and payable and which:
6.1.1 Shall be levied, assessed, or imposed against the Premises or
the Improvements or any interest of Lessor or Lessee under this Lease; or
6.1.2 Shall be or become liens against the Premises or the
Improvements or any interest of Lessor or Lessee under this Lease; or
6.1.3 Shall be levied, assessed, or imposed on or against Lessor by
reason of any actual or asserted engagement by Lessor or Lessee, directly or
indirectly, in any business, occupation, or other activity in connection with
the Premises or the Improvements; or
6.1.4 Shall be levied, assessed, or imposed on or in connection with
the ownership, leasing, operation, management, maintenance, repair,
rebuilding, use, or occupancy of the Premises or the Improvements;
under or by virtue of any present or future Legal Requirement, it being the
intention of the parties that, insofar as the same may lawfully be done,
Lessor shall be free from all such expenses and all such real estate taxes,
personal property taxes, privilege taxes, excise taxes, business and
occupation taxes, gross sales taxes, occupational license taxes, water
charges, sewer charges, assessments, and all other governmental impositions
and charges of every kind and nature whatsoever (all of such taxes, water
charges, sewer charges, assessments, and other governmental impositions and
charges that Lessee is obligated to pay being collectively called "Tax" or
"Taxes")
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6.2 Nothing contained in this Lease requires Lessee to pay any
franchise, estate, inheritance, succession, capital levy, or transfer tax of
Lessor, or any income, excess profits, or revenue tax, or any other tax,
assessment, charge, or levy on the Rent payable by Lessee under this Lease;
provided, however, that if at any time during the Term the methods of
taxation prevailing at the commencement of the Term are altered so that in
lieu of any Tax under this section there is levied, assessed, or imposed (1)
a tax, assessment, levy, imposition, or charge, wholly or partially as a
capital license fee measured by the Rent payable by Lessee under this Lease,
then all such taxes, assessments, levies, impositions, or charges or the part
so measured or based, shall be deemed to be included within the term Tax for
the purposes of this Lease, to the extent that such Tax would be payable if
the Premises were the only property of Lessor subject to such Tax, and Lessee
shall pay and discharge the same as provided in respect to the payment of
Taxes.
6.3 If by law any Tax is payable, or may at the option of the
taxpayer be paid, in installments, Lessee may, whether or not interest shall
accrue on the unpaid balance, pay the same, and any accrued interest on any
unpaid balance, in installments as each installment becomes due and payable,
but in any event before any fine, penalty, interest, or cost may be added for
nonpayment of any installment or interest.
6.4 Any Tax relating to a fiscal period of the taxing authority, a
part of which is within the Term and a part of which is before or after the
Term, whether or not such Tax shall be assessed, levied, imposed, or become a
lien on the Premises or the Improvements, or shall become payable, during the
Term, shall be apportioned and adjusted between Lessor and Lessee so that
Lessee shall pay only the portions that correspond with the portion of such
fiscal periods included within the Term. With respect to any Tax for public
improvements or benefits that by law is payable, or at the option of the
taxpayer may be paid, in installments, Lessor shall pay the installments that
become due and payable after the Term expires, and Lessee shall pay all such
installments which become due and payable at any time during the Term.
6.5 Lessee covenants to furnish to Lessor, within 30 days after the
last date when any Tax must be paid by Lessee as provided in this section,
official receipts, if such receipts are then available to Lessee, of the
appropriate taxing authority, or other proof satisfactory to Lessor,
evidencing payment.
6.6 Lessee shall have the right at Lessee's expense to contest or
review the amount or validity of any Tax or to seek a reduction in the
assessed valuation on which any Tax is based, by appropriate legal
proceedings. Lessee may defer payment of such contested Tax on condition,
however, that if such contested Tax is not paid beforehand and if such legal
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proceedings shall not operate to prevent the enforcement of the collection of
the Tax so contested and shall not prevent the sale of the Premises or the
Improvements to satisfy the same, then before instituting any such
proceedings Lessee shall furnish to Lessor and to any Permitted Leasehold
Mortgagee (as defined below), if so required by the terms of its mortgage, a
surety company bond, cash deposit, or other security reasonably satisfactory
to Lessor and any such Permitted Leasehold Mortgagee, as security for the
payment of such Tax, in an amount sufficient to pay such Tax, together with
all interest and penalties in connection with such Tax and all charges that
might be assessed against the Premises or the Improvements in the legal
proceedings. Upon termination of such legal proceedings or at any time when
Lessor or any such Permitted Leasehold Mortgagee shall determine the security
to be insufficient for the purpose, Lessee shall forthwith, on demand,
deliver to Lessor or such Permitted Leasehold Mortgagee additional security
as is sufficient and necessary for the purpose, and on failure of Lessee so
to do, the security originally deposited shall be applied to the payment,
removal, and discharge of the Tax and the interest and penalties in
connection with the Tax and the charges and costs accruing in such legal
proceedings and the balance, if any, shall be paid to Lessee provided that
there is then no uncured default under this Lease. In the event that such
security shall be insufficient for this purpose, Lessee shall forthwith pay
over to Lessor or to any such Permitted Leasehold Mortgagee an amount
sufficient, together with the security originally deposited, to pay the same.
Lessee shall not be entitled to interest on any money deposited pursuant to
this section.
6.7 Any contest as to the validity or amount of any Tax, or assessed
valuation on which such Tax was computed or based, whether before or after
payment, may be made by Lessee in the name of Lessor or of Lessee, or both,
as Lessee shall determine, and Lessor agrees that it will, at Lessee's
expense, cooperate with Lessee in any such contest to such extent as Lessee
may reasonably request, it being understood, however, that Lessor shall not
be subject to any liability for the payment of any costs or expenses in
connection with any proceeding brought by Lessee, and Lessee covenants to
indemnify and save Lessor harmless from any such costs or expenses. Lessee
shall be entitled to any refund of any such Tax and penalties or interest
that have been paid by Lessee or by Lessor and reimbursed to Lessor by Lessee.
6.8 The parties shall use reasonable efforts to see that all
communications from the governmental authorities respecting Taxes are sent
directly by such authorities to Lessor. Lessor shall forward any and all
communications to Lessee within 48 hours of Lessor's receipt. The
certificate, advice, receipt, or bill of the appropriate official designated
by law to make or issue the same or to receive payment of any Tax or
nonpayment of such Tax shall be prima facie evidence that such Tax is due and
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unpaid or has been paid at the time of the making or issuance of such
certificate, advice, receipt, or bill.
Section 7. Insurance
7.1 Lessee, at Lessee's sole cost and expense, shall maintain, for
the mutual benefit of Lessee, Lessor, and any Permitted Leasehold Mortgagee,
casualty insurance covering loss or damage by fire, and other risks as may be
embraced within all-risk insurance insuring the full replacement cost
(excluding foundation and excavation cost) of the Improvements. If all-risk
insurance becomes unavailable, then Lessee shall insure the Improvements with
such coverage as is customary from time to time for comparable first-class
buildings in the Salem, Oregon metropolitan area. The amount of such
insurance policy shall be increased from time to time as the full replacement
cost of the Improvements increases. Any dispute regarding insurance matters
shall be arbitrated by the parties.
In the event of any casualty damage to the Improvements, Lessor may
make proof of loss if Lessee fails to do so within 15 days of the casualty
and after 10 days' written notice from Lessor of its intent to do so. Unless
the casualty occurs within five years of the Expiration Date of this Lease,
Lessee shall promptly repair or replace the damaged and destroyed
Improvements in substantially the form on the date of the casualty or in a
manner reasonably satisfactory to Lessor. Lessee may use the Proceeds to pay
for the cost of repair, restoration or replacement of the Improvements. Any
proceeds not used for the repair, restoration, or replacement of the
Improvements shall be distributed on the same basis as any condemnation
proceeds pursuant to the provisions of Section 16.2 below. If the damage
occurs within five (5) years of the Expiration Date of this Lease, and the
cost of repairing such damage is more than 50% of the assessed real market
value of the Improvements, then Lessee shall have the option of terminating
this Lease. If the damage occurs within one (1) year of the Expiration Date
of this Lease, and the cost of repairing such damage is more than 25% of the
assessed real market value of the Improvements, then either party shall have
the option of terminating this Lease. In the event the Lease is so terminated
within five (5) years of the Expiration Date, Lessee shall then, at the
election of Lessor, promptly remove all debris and restore the Premises to
the condition in existence at the time of the initial letting, including
compaction necessary to meet the criteria specified in this Lease. All
Proceeds in excess of the amount required to pay the remaining balance, if
any, on the Permitted Leasehold Mortgages and to remove all debris may be
retained by the Lessor. Any dispute regarding the distribution of Proceeds
shall be arbitrated.
7.2 Lessee, at its expense, shall maintain at all times during the
Term of this Lease public liability insurance in respect of the Premises and
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the conduct or operation of its business, with Lessor as additional insured,
with $2,000,000 minimum combined single-limit coverage, or its equivalent.
All casualty insurance policies shall include contractual liability,
severability of interest, and cross-liability endorsements. When Lessee
conducts demolition or excavation work, the exclusions now customarily
referred to as the X, C, and U exclusions shall be deleted from Lessee's
liability insurance. Lessee shall deliver to Lessor and any additional named
insured such fully paid-for policies or certificates of insurance, in a form
satisfactory to Lessor, issued by the insurance company or its authorized
agent, at least 10 days before the Commencement Date. Lessee shall procure
and pay for renewals of such insurance from time to time before the
expiration, and Lessee shall deliver to Lessor and any additional named
insured such renewal policy or certificate at least 30 days before the
expiration of any existing policy. All insurance policies shall contain
provisions whereby (1) losses shall be payable despite the negligence of any
person having an insurable interest in the Improvements; (2) the Proceeds
will be paid in accordance with the terms of this Lease; and (3) the policies
cannot be canceled unless Lessor and any additional named insured are given
at least 20 days' prior written notice of such cancellation or modification.
7.3 All insurance policies shall be written as primary policies and
shall not be contributing with or be in excess of the coverage that either
Lessor or Lessee may carry. All such insurance policies shall be issued in
the name of Lessee, with Lessor and any Permitted Leasehold Mortgagee being
included in the insurance policy definition of who is an additional insured,
shall contain a standard mortgagee's clause in form satisfactory to the
Permitted Leasehold Mortgagees, and shall be primary to any insurance
available to Lessor.
7.4 All policies of insurance shall be issued by good, responsible
companies, reasonably acceptable to Lessor and any Permitted Leasehold
Mortgagee and that are qualified to do business in the State of Oregon.
Executed copies of such policies of insurance shall be delivered to any
Permitted Leasehold Mortgagee and certificates shall be delivered to Lessor
within 30 days after the Building is completed and thereafter within 30 days
before the expiration of the term of each such policy. As often as any such
policy shall expire or terminate, renewal or additional policies shall be
procured and maintained by Lessee in like manner and to like extent. All
policies of insurance must contain a provision that the company writing the
policy will give Lessor and any Permitted Leasehold Mortgagee 30 days'
written notice in advance of any cancellation, substantial change of
coverage, or the effective date of any reduction in amount of insurance.
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7.5 The obligations of Lessee to carry the insurance provided for may
be brought within the coverage of a so-called blanket policy or policies of
insurance; provided, however:
7.5.1 That the coverage afforded will not be reduced or diminished by
reason of the use of such blanket policy of insurance;
7.5.2 That the requirements set forth are otherwise satisfied; and
7.5.3 That, as to all insurance, Lessor and any Permitted Leasehold
Mortgagee shall be named as additional insured.
7.6 Lessor may from time to time, but not more frequently than once
every three years, require that the amount of public liability insurance to
be maintained by Lessee under Section 7.2 be increased so that the amount
adequately protects Lessor's interest based on amounts of coverage required
of comparable tenants in comparable buildings.
Section 8. Lessor's Right to Perform Lessee's Covenants
8.1 If Lessee at any time fails to pay any Tax in accordance with the
provisions of this Lease or fails to make any other payment or perform any
other act on its part to be made or performed, then Lessor, after 10 days'
notice to Lessee (or without notice in case of an emergency) and without
waiving or releasing Lessee from any obligation of Lessee contained in this
Lease or from any default by Lessee and without waiving Lessor's right to
take such action as may be permissible under this Lease as a result of such
default, may (but shall be under no obligation to)
8.1.1 Pay any Tax payable by Lessee pursuant to the provisions of this
Lease; or
8.1.2 Make any other payment or perform any other act on Lessee's part to
be made or performed as provided in this Lease, and may enter the Premises and
the Improvements for any such purpose, and take all such action, as may be
necessary.
8.2 All sums so paid by Lessor and all costs and expenses incurred by
Lessor, including reasonable attorney fees, in connection with the
performance of any such act, together with, if Lessee does not pay the same
within the 30-day period after notice from Lessor, interest from the date of
such payment or incurrence by Lessor of such cost and expense until paid, at
the annual rate of 12%, shall constitute Additional Rent payable by Lessee
under this Lease and shall be paid by Lessee to Lessor on demand.
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Section 9. Compliance with Legal Requirements
9.1 Throughout the Term, Lessee shall promptly comply with all Legal
Requirements that may apply to the Premises or to the use or manner of uses
of the Premises or the Improvements or the owners or users of the
Improvements, whether or not the Legal Requirements affect the interior or
exterior of the Improvements, necessitate structural changes or improvements,
or interfere with the use and enjoyment of the Premises or the Improvements,
and whether or not compliance with the Legal Requirements is required by
reason of any condition, event, or circumstance existing before or after the
Term commences. Lessee shall pay all costs of compliance with Legal
Requirements, but Lessee shall have the right to cease occupation or use of,
or to demolish or remove, all or any part of the Premises or the Improvements
in lieu of compliance with any Legal Requirement that may require
expenditures on behalf of Lessee for continued use or occupation of the
Premises.
9.2 Lessee shall have the right, after prior written notice to
Lessor, to contest by appropriate legal proceedings, diligently conducted in
good faith, in the name of Lessee or Lessor or both, without cost or expense
to Lessor, the validity or application of any Legal Requirement subject to
the following:
9.2.1 If, by the terms of any Legal Requirement, compliance may legally
be delayed pending the prosecution of any such proceeding without the
incurrence of any lien, charge, or liability of any kind against all or any
part of the Premises or the Improvements and without subjecting Lessee or
Lessor to any liability, civil or criminal, for failure to comply, Lessee may
delay compliance until the final determination of such proceeding; or
9.2.2 If any lien, charge, or civil liability would be incurred by reason
of any such delay, Lessee nevertheless may contest the matter and delay
compliance, provided that such delay would not subject Lessor to criminal
liability or fine, and Lessee
9.2.2.1 Furnishes to Lessor security, reasonably satisfactory to
Lessor, against any loss or injury by reason of such contest or delay, and
9.2.2.2 Prosecutes the contest with due diligence.
9.3 Lessor shall execute and deliver any appropriate papers that may
be necessary or proper to permit Lessee to contest the validity or
application of any Legal Requirement, provided all the requirements of this
section have been satisfied by Lessee and Lessor will incur no cost.
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9.4 Notwithstanding any other provision in this Lease, Lessee shall
have no obligation to remediate or otherwise cause the removal of any
Hazardous Substance existing on the Premises on the date of this Lease. If
such Hazardous Substance is found, Lessee shall immediately notify Lessor who
shall, at Lessor's election, either pay all costs associated with remediation
or removal of the Hazardous Substance, or, alternatively, terminate this
Lease and pay to Lessee the value of its improvements as determined through
appraisal. If the cost of remediation is less than or equal to $100,000.00,
and if Lessor elects to terminate this Lease, Lessee may elect to continue
the lease in effect and shall then be entitled to pay all costs associated
with the remediation or removal of the Hazardous Substance, not to exceed
$100,000, and may offset the costs so incurred against the rent, except that
in no case may more than 40% of the minimum monthly rent be offset in any
calendar month.
Section 10. Repairs and Maintenance
Lessee shall maintain, repair, and replace the Premises and the
Improvements as necessary to keep them in good order, condition, and repair
throughout the entire Term. Lessee's obligations shall extend to both
structural and nonstructural items and to all maintenance, repair, and
replacement work, including but not limited to unforseen and extraordinary
items. Lessor shall maintain the common areas of the development in good
order, condition, and repair throughout the entire Term. All aspects of
maintaining the parking area, including but not limited to landscaping,
cleaning, and lighting shall be governed by a Reciprocal Easement Agreement
recorded in the deed records of Marion County, Oregon and related to the
Premises.
Section 11. Alterations, Additions, and New Improvements
The term Modifications means any demolition, improvement, alteration,
change, or addition, of, in, or to all or any part of the Premises or the
Improvements. The term Minor Modifications shall mean any Modifications
costing less than $75,000, and the term Major Modifications shall mean any
and all Modifications other than Minor Modifications. Multiple Modifications
occurring within a period of 365 days shall be deemed a single Modification
for the purposes of applying the provisions contained in this section. At any
time during the Term and at Lessee's own cost and expense, Lessee may make or
permit to be made any Minor Modifications, provided there is no existing and
unremedied default on the part of Lessee, of which Lessee has received notice
of default, under any of the terms, covenants, and conditions of this Lease.
Major Modifications shall require the prior consent of the Lessor. All
salvage material in connection with any Modification that Lessee is permitted
to make shall belong to Lessee. Not withstanding any other provision of this
Section, no modification of the improvements on the Premises shall occur
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without Lessor's prior written consent which would (i) alter the exterior of
the building, or (ii) alter the footprint of the building on the ground or
(iii) require the elimination of any parking area. Landlord's consent to a
Major Modification shall not be unreasonably withheld, delayed or conditioned.
Section 12. Title to Improvements
Title to Improvements shall be and remain in Lessee until the
expiration of the Term, unless this Lease is terminated sooner as provided.
Upon such expiration or sooner termination, title to the Improvements shall
automatically pass to, vest in, arid belong to Lessor without further action
on the part of either party and without cost or charge to Lessor. During the
Term, Lessee shall be entitled for all taxation purposes to claim cost
recovery deductions and the like on the Improvements.
Section 13. No Waste
Lessee shall not do or suffer any waste or damage, disfigurement, or
injury to the Premises or the Improvements. Demolition of all or any part of
the Improvements done in accordance with the requirements of Section 11 above
shall not be considered prohibited by the terms of this section.
Section 14. Inspection and Access
14.1 Lessee shall permit Lessor, any Permitted Leasehold Mortgagee,
or the authorized representative of any of them to enter the Premises arid
the Improvements at all reasonable times, and after reasonable notice, during
usual business hours for the purposes of inspecting the same and making any
repairs or performing any work that Lessee has neglected or refused to make
in accordance with the terms, covenants, and conditions of this Lease.
Nothing in this Lease shall imply any duty or obligation on the part of
Lessor to do any such work or to make any Improvements of any kind whatsoever
to the Premises (including, but not limited to, repairs and other restoration
work made necessary due to any fire, other casualty, or partial condemnation,
irrespective of the sufficiency or availability of any fire or other
insurance proceeds, or any award in condemnation, which may be payable) The
performance of any work by Lessor shall not constitute a waiver of Lessee's
default in failing to perform the same.
14.2 During the progress of any work on the Premises or the
Improvements performed by Lessor pursuant to the provisions in this section,
Lessor may keep and store on the Premises all necessary materials, tools,
supplies, and equipment. Lessor shall not be liable for inconvenience,
annoyance, disturbance, loss of business, or other damage of Lessee or any
user by reason of making such repairs or performing any such work, or on
account of bringing materials, tools, supplies, and equipment onto the
Premises or into the Improvements during the course of the work and the
obligations of Lessee under this Lease shall not be affected by the work.
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14.3 Lessor shall have the right to enter on the Premises and the
Improvements at all reasonable times during usual business hours for the
purpose of showing the same to prospective purchasers of Lessor's interest
and, at any time within two years before the Term expires, for the purpose of
showing the same to prospective Lessees.
14.4 Except in the event of emergency repairs, all entry to the
Premises by Lessor shall require at least 24 hours' advance notice to Lessee.
In the event of any emergency repairs, Lessor shall use reasonable efforts to
give Lessee the earliest possible notice of the same.
14.5 If Lessor constructs or causes to be constructed any
Improvements adjacent to the Premises for Lessor's benefit, Lessee shall
afford to the person or persons constructing the Improvements the right to
enter on the Premises for the purpose of doing such work as such person or
persons shall consider to be necessary to preserve any of the walls or
structures of the Improvements on the Premises from injury or damage and to
support the same by proper foundations.
Lessee shall not, by reason of any such work, have any claim against
Lessor for damages or indemnity or for suspension, diminution, abatement, or
reduction of Rent under this Lease.
Section 15. Lessor's Exculpation and Indemnity
15.1 Lessee is and shall be in exclusive control of the Premises and
of the Improvements, and Lessor shall not in any event whatsoever be liable
for any injury or damage to any property or to any person happening on, in,
or about the Premises or the Improvements or any injury or damage to the
Premises or the Improvements or to any property, whether belonging to Lessee
or to any other person, caused by any fire, breakage, leakage, defect, or bad
condition in any part or portion of the Premises or of the Improvements, or
from steam, gas, electricity, water, rain, or snow that may leak into, issue,
or flow from any part of the Premises or the Improvements from the drains,
pipes, or plumbing work of the same, or from the street, subsurface, or any
place or quarter, or due to the use, misuse, or abuse of all or any of the
Improvements or from any kind of injury that may arise from any other cause
whatsoever on the Premises or in or on the Improvements, including defects in
construction of the Improvements, latent or otherwise.
15.2 Lessee shall indemnify and hold Lessor harmless against and from
all liabilities, obligations, damages, penalties, claims, costs, charges, and
expenses, including reasonable architect and attorney fees, that may be
imposed on or incurred by or asserted against Lessor by reason of any of the
following occurrences during the Term:
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15.2.1 Any work or thing done in, on, or about all or any part of
the Premises or the Improvements by Lessee or any party other than Lessor;
15.2.2 Any use, nonuse, possession, occupation, condition,
operation, maintenance, or management of all or any part of the Premises or
the Improvements or any adjacent alley, sidewalk, curb, vault, passageway, or
space;
15.2.3 Any negligence on the part of Lessee or any of its agents,
contractors, servants, employees, sublessees, licensees, or invitees;
15.2.4 Any accident, injury, or damage to any person or property
occurring in, on, or about the Premises or the Improvements; or
15.2.5 Any failure on the part of Lessee to perform or comply
with any of the covenants, agreements, terms, provisions, conditions, or
limitations contained in this Lease on its part to be performed or complied
with.
15.3 In case any action or proceeding is brought against Lessor by
reason of any such claim, Lessee upon written notice from Lessor shall, at
Lessee's expense, resist or defend such action or proceeding by counsel
approved by Lessor in writing, which approval shall not be unreasonably
withheld. Lessor shall not make any claim against Lessee with respect to any
of such risks as to which Lessee has furnished Lessor with insurance policies
or certificates of insurance evidencing coverage of such risks unless and
until the insurer fails or refuses to defend and/or pay all or any part of a
third-party claim.
Section 16. Condemnation
16.1 If all the Premises and the Improvements are taken or condemned,
by right of eminent domain or by purchase in lieu of condemnation, or if such
portion of the Premises or the Improvements shall be so taken or condemned
that the portion remaining is not sufficient and suitable, in Lessee's sole
judgment (subject, however, to any rights of any Permitted Leasehold
Mortgagee) , to permit the restoration of the Improvements following such
taking or condemnation, then this Lease and the Term, at Lessee's option,
shall cease and terminate as of the date on which the condemning authority
takes possession (any taking or condemnation of the land described in this
section being called a "Total Taking"), and the Minimum Rent and Additional
Rent shall be apportioned and paid to the date of such total taking.
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16.2 If this Lease expires and terminates as a result of a Total
Taking, the rights and interests of the parties shall be determined as
follows:
16.2.1 The total award or awards for the Total Taking shall be
apportioned and paid in the following order of priority:
16.2.1.1 Lessor shall have the right to and shall be entitled to
receive directly from the condemning authority, in its entirety and not
subject to any trust, that portion of the award, which is defined and
referred to as the "Land Award," and neither Lessee nor any Permitted
Leasehold Mortgagee shall be entitled to receive any part of the Land Award.
The term Land Award shall mean that portion of the award in condemnation or
change of grade proceedings that represents the fair market value of the
Premises, considered as vacant, unimproved but encumbered by this Lease, the
consequential damage to any part of the Premises that may not be taken, the
diminution of the assemblage or plottage value of the Premises not so taken
and all other elements and factors of damage to the Premises; but in all
events such damage or valuation shall take into consideration that the
Premises is encumbered by this Lease;
16.2.1.2 Lessee shall have the right to and shall be entitled to
receive directly from the condemning authority, subject, however, to the
rights of the Permitted Leasehold Mortgagees, that portion of the award
referred to as the "Leasehold Award." The term Leasehold Award shall mean
that portion of the award in condemnation proceedings that represents the
fair market value of Lessee's interest in the Improvements and the fair
market value of Lessee's leasehold estate as so taken and, provided this
Lease is not terminated as a result of such condemnation or taking, the
consequential damages to any part of the Improvements.
16.2.1.3 It is the intent of the parties that the Land Award and
Leasehold Award will equal the total amount of the awards respecting a total
taking.
16.2.2 If the court or such other lawful authority as may be
authorized to fix and determine the awards fails to fix and determine,
separately and apart, the Land Award and the Leasehold Award, such awards
shall be determined and fixed by written agreement mutually entered into by
and among Lessor, Lessee, and First Leasehold Mortgagee, if any, and if an
agreement is not reached within 20 days after the judgment or decree is
entered in the proceedings, the controversy shall be resolved in the same
court as the condemnation action is brought, in such proceedings as may be
appropriate for adjudicating the controversy; and
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16.2.3 If the condemning authority refuses or otherwise fails to
deduct from the Leasehold Award any Rent or other money due from Lessee to
Lessor and to pay same directly to Lessor, then Lessee and the First
Leasehold Mortgagee, if any, shall execute and deliver to Lessor a written
and acknowledged assignment of such amount payable out of such Leasehold
Award, and if, nevertheless, the full amount of the Leasehold Award is paid
to Lessee or the First Leasehold Mortgagee, if any, the recipient shall hold
in trust for Lessor and pay over to Lessor forthwith on the receipt of the
award the amount or amounts so due.
16.3 If, during the Term, there is a taking or condemnation of the
Premises or the Improvements that is not a total taking and not a temporary
taking of the kind described below, or in the event of the change in the
grade of the streets or avenues on which the Premises abuts, this Lease and
the Term shall not cease or terminate but shall remain in full force and
effect with respect to the portion of the Premises and of the Improvements
not taken or condemned (any taking or condemnation or change of grade of the
kind described in this Section being referred to as a "Partial Taking") , and
in such event:
16.3.1 The total award or awards for the taking shall be
apportioned and paid in the following order of priority:
16.3.1.1 Lessor shall have the right to and shall be entitled to
receive directly from the condemning authority, in its entirety and not
subject to any trust, that portion of the award that equals the Land Award,
and neither Lessee nor any Permitted Leasehold Mortgagee shall be entitled to
receive any part of the award; and
16.3.1.2 If at the time of such taking there is a First Leasehold
Mortgage held by a Lending Institution, then such Lending Institution, or, if
there is no such First Leasehold Mortgage, then Lessee, shall have the right
to and shall be entitled to receive directly from the condemning authority
the balance of the award, to be applied by the recipient as it shall deem
appropriate.
16.4 In the event of a taking of all or a part of the Premises or the
Improvements for temporary use, this Lease shall continue without change, as
between Lessor and Lessee, and Lessee shall be entitled to the entire award
made for such use; provided that Lessee shall be entitled to file and
prosecute any claim against the condemner for damages and to recover the
same, for any negligent use, waste, or injury to the Premises or the
Improvements throughout the balance of the then-current Term. The amount of
damages so recovered shall belong to Lessee.
16.5 In the event of any dispute between Lessee and Lessor with
respect to any issue of fact arising out of a taking mentioned in this
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section, such dispute shall be resolved by the same court in which the
condemnation action is brought, in such proceedings as may be appropriate for
the adjudicating the dispute.
Section 17. Assignment and Subletting
17.1 Until the Project is substantially completed, Lessee shall not
sell, assign, or in any other manner transfer this Lease or any interest in
this Lease or the estate of Lessee under this Lease without the prior consent
of Lessor, which consent shall not be unreasonably withheld or delayed. After
the Project is completed, there shall be no restriction on Lessee's right to
sell, assign, or in any manner transfer this Lease or any interest in this
Lease or the estate of Lessee or rent, sublet, sublease, or underlet the
Premises or the Improvements, except as set forth below.
17.2 Lessee shall have the right to sublet portions of the
Improvements at any time and from time to time, but only for a term or terms
that shall expire before the expiration of the Term, and provided that each
such sublease shall be in writing and shall be subject and subordinate to the
rights of Lessor under this Lease. The use of the subtenant shall be subject
to the approval of Landlord as required in Section 4.
17.3 When this Lease terminates, Lessor shall recognize and not
disturb the quiet enjoyment of any sublessee if (1) the sublease is then free
from default; (2) the sublease is in all material respects in the form of
sublease approved by Lessor; and (3) the sublessee executes the attornment
agreement described below in this section. As a condition of Lessor's
nondisturbance of the sublessee, it shall deliver to Lessor an attornment
agreement confirming that the sublessee will attorn to Lessor and recognize
it as the sublessee's Lessor under the terms of the sublease. Upon such
attornment and satisfaction of the other nondisturbance requirements set
forth above, the sublease shall continue in full force and effect as a direct
lease between the sublessee and Lessor on all the terms, conditions, and
covenants as are set forth in the sublease except that Lessor shall not (1)
be liable for any previous act or omission of the sublessor; (2) be subject
to any offset, deficiency, or defense that shall have accrued to the
sublessee against the sublessor; (3) be bound by any previous prepayment of
more than one month's rent unless such modification or prepayment shall have
been expressly approved in writing by Lessor; or (4) be liable for commencing
or completing any construction or any contribution toward construction or
installation of any improvements on the Premises required under the sublease,
or any expansion or rehabilitation of existing improvements on the Premises,
or for restoring improvements following any casualty not required to be
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insured under this Lease, or for the costs of any restoration in excess of
the proceeds recovered under any insurance required to be carried under this
Lease. On request, Lessor shall confirm in a separate written agreement with
any qualified sublessee the nondisturbance obligation of Lessor as set forth
in this section.
Section 18. Representations of Lessor
Lessor represents to Lessee as follows:
18.1 Lessor has no notice of any liens to be assessed against the
Premises.
18.2 To the best knowledge of Lessor, there is no violation of any
Legal Requirements related to the Premises that will be existing on the date
Lessee's construction begins.
18.3 The execution, delivery, and performance of this Lease by Lessor
will not result in any breach of, or constitute any default under, or result
in the imposition of, any lien or encumbrance on the Premises under any
agreement or other instrument to which Lessor is a party or by which Lessor
is bound.
18.4 To the best of Lessors knowledge, there are no legal actions,
suits or other legal or administrative proceedings (except a currently
pending lot line adjustment previously disclosed to Lessee) , including
condemnation cases, pending or threatened against the Premises, and Lessor is
not aware of any fact that might result in any such action, suit, or other
proceeding.
18.5 Lessor has no information or knowledge of any action by adjacent
landowners, or natural or artificial condition on the Premises that would
limit, or impede the Lessee's project.
Section 19. Default; Remedies
19.1 The occurrence of any one or more of the following events of
default constitutes a breach of this Lease by Lessee:
19.1.1 If Lessee defaults in the payment of Rent due and payable
by Lessee, and such default continues for 10 days after Lessor has given
Lessee a notice specifying the same; or
19.1.2 If Lessee, whether by action or inaction, is in default of
any of its obligations under this Lease (other than a default in the payment
of Rent by Lessee) and such default continues and is not remedied within 60
days after Lessor has given Lessee a notice specifying the same, or, in the
case of a default that can be cured but not within a period of 60 days, if
Lessee has not (1) commenced curing such default within such 60-day period;
(2) notified Lessor of Lessee's intention to cure the default; or (3)
continuously and diligently completed the cure of the default.
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19.2 During any 12-month period, Lessee shall be entitled to only two
notices pursuant to Section 19.1.1. Thereafter, nonpayment of rent within ten
(10) days after the due date shall be an event of default without further
notice to Lessee.
19.3 Upon the occurrence of an event of default, Lessor may exercise
any one or more of the remedies set forth in this section or any other remedy
available under applicable law or contained in this Lease:
19.3.1 Lessor or Lessor's agents and employees may immediately or
at any time thereafter reenter the Premises either by summary eviction
proceedings or by any suitable action or proceeding at law, or by force or
otherwise, without being liable to indictment, prosecution, or damages, and
may repossess the same, and may remove any person from the Premises, to the
end that Lessor may have, hold, and enjoy the Premises.
19.3.2 Lessor may relet the whole or any part of the Premises
from time to time, either in the name of Lessor or otherwise, to such
Lessees, for such terms ending before, on, or after the expiration date of
the Lease Term, at such rentals and on such other conditions (including
concessions and free rent) as Lessor may determine to be appropriate. To the
extent allowed under Oregon law, Lessor shall have no obligation to relet all
or any part of the Premises and shall not be liable for refusal to relet the
Premises, or, in the event of such reletting, for refusal or failure to
collect any rent due on such reletting; and any action of Lessor shall not
operate to relieve Lessee of any liability under this Lease or otherwise
affect such liability. Lessor at its option may make such physical changes to
the Premises as Lessor, in its sole discretion, considers advisable and
necessary in connection with any such reletting or proposed reletting,
without relieving Lessee of any liability under this Lease or otherwise
affecting Lessee's liability.
19.3.3 Whether or not Lessor retakes possession or relets the
Premises, Lessor has the right to recover its damages, including without
limitation all lost rentals, all legal expenses, all costs incurred by Lessor
in restoring the Premises or otherwise preparing the Premises for reletting,
and all costs incurred by Lessor in reletting the Premises.
19.3.4 To the extent permitted under Oregon law, Lessor may sue
periodically for damages as they accrue without barring a later action for
further damages. Lessor may in one action recover accrued damages plus
damages attributable to the remaining Lease Term equal to the difference
between the Rent reserved in this Lease for the balance of the Lease Term
after the time of award, and the fair rental value of the Premises for the
same period, discounted at the time of award at a reasonable rate not to
exceed 10% per annum. If Lessor has relet the Premises for the period that
otherwise would have constituted all or part of the unexpired portion of the
Term, the amount of rent reserved on such reletting shall be deemed, prima
facie, to be the fair and reasonable rental value for the part or the whole
of the Premises so relet during the term of the reletting.
19.4 No failure by Lessor to insist on the strict performance of any
agreement, term, covenant, or condition of this Lease or to exercise any
right or remedy consequent upon a breach, and no acceptance of full or
partial Rent during the continuance of any such breach, constitutes a waiver
of any such breach or of such agreement, term, covenant, or condition. No
agreement, term, covenant, or condition to be performed or complied with by
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Lessee, and no breach by Lessee, shall be waived, altered, or modified except
by a written instrument executed by Lessor. No waiver of any breach shall
affect or alter this Lease, but each and every agreement, term, covenant, and
condition of this Lease shall continue in full force and effect with respect
to any other then-existing or subsequent breach.
19.5 Each right and remedy provided for in this Lease shall be
cumulative and shall be in addition to every other right or remedy provided
for in this Lease or now or hereafter existing at law or in equity or by
statute or otherwise, and the exercise or beginning of the exercise by Lessor
or Lessee of any one or more of the rights or remedies provided for in this
Lease or now or hereafter existing at law or in equity or by statute or
otherwise shall not preclude the simultaneous or later exercise by the party
in question of any or all other rights or remedies provided for in this Lease
or now or hereafter existing at law or in equity or by statute or otherwise.
Section 20. No Abatement of Rent
20.1 Except as otherwise specifically provided in this Lease, no
abatement, refund, diminution, or reduction of Rent or other compensation
shall be claimed by or allowed to Lessee, or any person claiming under it,
under any circumstances, whether for inconvenience, discomfort, interruption
of business, or otherwise, arising from work on Improvements, by virtue or
because of Legal Requirements, or the occurrence of any matters referred to
in Sections 7 (casualty damage) and 16 (condemnation) of this Lease, or for
any other reason, cause, or occurrence.
20.2 Unless caused by Lessor, if any adjoining Building or structure
encroaches on the Premises, no claim, demand, or objection of any kind shall
be made by Lessee against Lessor by reason of such encroachments; no claim
for abatement of Rent due under this Lease shall be made by reason of such
encroachments or acts of, or in connection with, removal of the
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encroachments. The rights, liabilities, and obligations of the parties shall
be the same as if there were no encroachments. In any related legal
proceedings, the Premises may properly and without prejudice be described
according to the description previously used without reference to any such
encroachments. Lessor agrees to cooperate with Lessee in any proceedings
sought by Lessee to remove such encroachments, provided such cooperation does
not cause Lessor to incur any expense.
Section 21. Transfer of Interest by Lessor
Lessor may sell, exchange, assign, transfer, convey, contribute,
distribute, or otherwise dispose of all or any part of its interest (called
"Lessor's Interest") in the Premises or this Lease (including but not limited
to Lessor's reversion) . Upon any transfer of the Lessor's interest, the new
owner of the Lessor's interest shall be deemed for all purposes the Lessor
and the existing Lessor shall be released from all liability under this Lease
except liability for any default of the Lease existing on the date of
assignment.
Section 22. Tenant's Abandonment of the Premises
If Lessee shall abandon the Premises for a period in excess of 180
days, Lessor shall have the Option to purchase Lessee's Improvements on the
Premises. The Improvements shall be purchased at a price determined by
appraisal as set forth herein. Lessor shall notify Lessee of its election to
purchase the Premises in writing at any time after the 180 day period and
before Lessee is subject to a binding contract to sell the improvements to
others. If the parties are unable to agree on a price and go through the
appraisal process, Lessor may decline to close the sale, in which event the
Lessor shall pay the entire costs of the appraisal. Closing shall occur
within 60 days after Lessor's notice of exercise of its option. Lessee's
obligations under this Lease shall terminate at closing. Lessee shall provide
to Lessor a preliminary title report to show the condition of the title to
the Improvements at least thirty (30) days prior to the date set for closing.
At closing, Lessee shall provide to Lessor a special warranty deed which
shall warrant the real property and Improvements free of all claims or
encumbrances except those existing on the date of this Lease and those
claimed by, through or under the Lessor.
Section 23. Option to Extend Lease
The Term may be extended, at the option of Lessee, for two additional
periods of ten (10) years each. Each option shall be exercised by Lessee
giving written notice to Lessor not more than 24 months nor less than 12
months before the initial Term expires. Such extended Term shall be on the
same terms, covenants, and conditions as provided in this Lease for the
initial Term, except the Minimum Rent. Minimum Rent for the renewal terms
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shall be determined by appraisal of the real property (less improvements
constructed by Lessee under this Lease). The Minimum Rent shall equal the
appraised value of the real property with an annual capitalization rate of
11.5%, provided however, the monthly Minimum Rent shall not be less than the
monthly Minimum Rent for the Premises for the month immediately prior the
commencement of the renewal term. Minimum Rent during the renewal term shall
be adjusted as provided in Section 3.5, above. Payment of all additional
charges required to be made by Lessee as provided in this Lease for the
initial Term shall continue to be made during the extended Term.
Section 24. Lessor's Right to Encumber
Lessor, during the Term, may encumber, mortgage, pledge, or otherwise
hypothecate its fee simple interest in the Premises.
Section 25. Nonmerger
There shall be no merger of this Lease, or of the leasehold estate
created by this Lease, with the fee estate in the Premises by reason of the
fact that this Lease, the leasehold estate created by this Lease, or any
interest in this Lease or in any such leasehold estate, may be held, directly
or indirectly, by or for the account of any person who shall own the fee
estate in the Premises or any interest in such fee estate, and no such merger
shall occur unless and until all persons at the time having an interest in
the fee estate in the Premises and all persons (including all Permitted
Leasehold Mortgagees) having an interest in this Lease, or in the leasehold
estate created by this Lease, shall join in a written instrument effecting
such merger and shall duly record the same.
Section 26. Quiet Enjoyment
Lessee, on paying the Rent and observing and keeping all covenants,
agreements, and conditions of this Lease on its part to be kept, shall
quietly have and enjoy the Premises during the Term without hindrance or
molestation by anyone claiming by, through, or under Lessor as such, subject,
however, to the exceptions, reservations, and conditions of this Lease.
Section 27. Surrender
27.1 Except as otherwise provided, Lessee, on the last day of the
Term, shall surrender and deliver up the Premises and all Improvements to the
possession and use of Lessor without fraud or delay, free and clear of all
lettings and occupancies other than subleases then terminable at the option
of Lessor or subleases to which Lessor shall have specifically consented, and
free and clear of all liens and encumbrances other than those, if any,
presently existing or created or suffered by Lessor, without any payment or
allowance whatever by Lessor on account of any Improvements on the Premises.
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27.2 When furnished by or at the expense of Lessee or any sublessee,
furniture, fixtures, and equipment may be removed by Lessee at or before this
Lease terminates, provided, however, that the removal will not injure the
Premises or the Improvements or necessitate changes in or repairs to the
same. Lessee shall pay or cause to be paid to Lessor the cost of repairing
any damage arising from such removal and restoration of the Premises and/or
the Improvements to their condition before such removal.
27.3 Any personal property of Lessee or any sublessee that shall
remain on the Premises after the termination of this Lease and the removal of
Lessee or such sublessee from the Premises may, at the option of Lessor, be
deemed to have been abandoned by Lessee or such sublessee and may either be
retained by Lessor as its property or be disposed of, without accountability,
in such manner as Lessor may see fit, or if Lessor gives written notice to
Lessee to such effect, such property shall be removed by Lessee at Lessee's
sole cost and expense. If this Lease terminates early for any reason other
than the default of Lessee then, anything to the contrary notwithstanding,
Lessee or any sublessee shall have a reasonable time thereafter to remove its
personal property.
27.4 Lessor shall not be responsible for any loss or damage occurring
to any property owned by Lessee or any sublessee.
27.5 The provisions of this section shall survive any termination of
this Lease.
Section 28. Invalidity of Particular Provisions
If any term or provision of this Lease or the application of the Lease
to any person or circumstances is, to any extent, invalid or unenforceable,
the remainder of this Lease, or the application of such term or provision to
persons or circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected, and each term and provision of this
Lease shall be valid and be enforced to the fullest extent permitted by law.
Section 29. No Representations
Lessee acknowledges that it has examined the Premises and that no
representations as to the condition of the Premises have been made by Lessor
or any agent or person acting for Lessor (except as expressly provided in
this Lease) . Before any construction commences on the Premises, Lessee shall
conduct tests of the subsurface and soil conditions to ascertain the
suitability of the Premises for the contemplated Project and shall furnish
such fill and take such other steps as may be required before the
commencement of construction. Lessor shall have no liability because of, or
as a result of, the existence of any subsurface or soil condition, either on
the Premises or on adjacent land, that might affect Lessee's construction.
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Section 30. Estoppel Certificate
Either party, within 10 days after a request from time to time made by
the other party and without charge, shall give a certification in writing to
any person, firm, or corporation reasonably specified by the requesting party
stating (1) that this Lease is then in full force and effect and unmodified,
or if modified, stating the modifications; (2) that Lessee is not in default
in the payment of Rent to Lessor, or if in default, stating such default; (3)
that as far as the maker of the certificate knows, neither party is in
default in the performance or observance of any other covenant or condition
to be performed or observed under this Lease, or if either party is in
default, stating such default; (4) that as far as the maker (if Lessor) of
the certificate knows, no event has occurred that authorized, or with the
lapse of time will authorize, Lessee to terminate this Lease, or if such
event has occurred, stating such event; (5) that as far as the maker of the
certificate knows, neither party has any offsets, counterclaims, or defenses,
or, if so, stating them; (6) the dates to which Rent have been paid; and (7)
any other matters that may be reasonably requested by the requesting party.
Section 31. Force Majeure
If the performance by either of the parties of their respective
obligations under this Lease (excluding monetary obligations) is delayed or
prevented in whole or in part by any Legal Requirement (and not attributable
to an act or omission of the party), or by any acts of God, fire or other
casualty, floods, storms, explosions, accidents, epidemics, war, civil
disorders, strikes or other labor difficulties, shortage or failure of supply
of materials, labor, fuel, power, equipment, supplies or transportation, or
by any other cause not reasonably within the party's control, whether or not
specifically mentioned, the party shall be excused, discharged, and released
of performance to the extent such performance or obligation (excluding any
monetary obligation) is so limited or prevented by such occurrence without
liability of any kind.
Section 32. Notices
32.1 Any notice required or permitted by the terms of this Lease
shall be deemed given if delivered personally to an officer of the party to
be notified or sent by United States registered or certified mail, postage
prepaid, return-receipt requested, and addressed as follows:
If to Lessor: with copy to:
Dan Berrey, P.C. Gordon Hanna, P.C.
% Certified Property Attn: Gordon Hanna
Management 340 Vista St. SE, Suite 310
P.O. Box 269 P.O. Box 4591
Salem, OR 97308 Salem, OR 97302
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If to Lessee: with copy to:
South Umpqua Bank John Arnold
Attn: President Arnold, Gallagher, Saydack, et al
445 S.E. Main Street 800 Willamette St., Suite 800
P.O. Box 1820 P.O. Box 1758
Roseburg, OR 97470 Eugene, OR 97440
or such other addresses as may be designated by either party by written
notice to the other. Except as otherwise provided in this Lease, every
notice, demand, request, or other communication shall be deemed to have been
given or served on actual receipt.
32.2 A copy of each notice from Lessor to Lessee shall be
contemporaneously delivered to each Permitted Leasehold Mortgagee which shall
have previously delivered to Lessor, by registered or certified mail, return
receipt requested, addressed as provided above in this section, its name and
the mailing address to which communications under this section are to be
delivered. Notice to Lessee shall not be effective until a duplicate notice
is received by each Permitted Leasehold Mortgagee that is entitled to notice.
32.3 Lessee shall immediately send to Lessor, in the manner
prescribed above for giving notice, copies of all notices given by it to any
Permitted Leasehold Mortgagee or received by it from such Permitted Leasehold
Mortgagee, and copies of all notices that it receives with respect to the
Premises or Improvements from any government authorities, fire regulatory
agencies, and similarly constituted bodies, and copies of its responses to
such notices.
32.4 Notwithstanding anything in this section to the contrary, any
notice mailed to the last designated address of any person or party to which
a notice may be or is required to be delivered pursuant to this Lease or this
section shall not be deemed ineffective if actual delivery cannot be made due
to a change of address of the person or party to which the notice is directed
or the failure or refusal of such person or party to accept delivery of the
notice.
Section 33. Arbitration and Appraisal
33.1 In any case in which it is provided by the terms of this Lease
that any matter shall be determined by arbitration or appraisal, such
arbitration or appraisal shall be conducted in the manner specified in this
section.
33.2 The party desiring such arbitration or appraisal shall give
written notice to that effect to the other party and shall in such notice
appoint a disinterested person of recognized competence in the field involved
as arbitrator or appraiser on its behalf. Within 15 days thereafter, the
other party may by written notice to the original party appoint a second
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disinterested person of recognized competence in such field as arbitrator or
appraiser on its behalf. The arbitrators thus appointed shall appoint a third
disinterested person of recognized competence in such field, and the three
arbitrators shall, as promptly as possible, determine such matter, provided,
however, that
33.2.1 If the second arbitrator or appraiser is not appointed
pursuant to the above procedure, then the first arbitrator or appraiser shall
proceed to determine such matter; and
33.2.2 If the two arbitrators or appraisers appointed by the
parties are unable to agree, within 15 days after the second arbitrator or
appraiser is appointed, on the appointment of a third arbitrator or
appraiser, they shall give written notice of such failure to agree to the
parties and, if the parties fail to agree on the selection of the third
arbitrator or appraiser within 15 days after the arbitrators or appraisers
appointed by the parties give notice, then within 10 days thereafter either
of the parties on written notice to the other party may request such
appointment by the presiding judge of the Circuit Court of the County of the
State of Oregon in which the Premises are located, or to any other court
having jurisdiction and exercising functions similar to those now exercised
by the court.
33.3 Lessor and Lessee shall each be entitled to present evidence and
argument to the arbitrators. The determination of the majority of the
arbitrators or appraisers, or of the sole arbitrator or appraiser, as the
case may be, shall be conclusive on the parties, and judgment on the same may
be entered in any court having jurisdiction over the parties. The arbitrators
or appraisers or the sole arbitrator or appraiser, as the case may be, shall
give written notice to the parties stating the arbitration determination, and
shall furnish to each party a signed copy of such determination. Arbitration
proceedings shall be conducted pursuant to ORS 33.210-33.340 and the rules of
the American Arbitration Association, except as provided otherwise. If any
such dispute involves a determination of value or of a fixed amount of money
and if a majority of the arbitrators do not agree, then, instead of such
arbitration, either party shall be entitled to seek a judicial determination
of the matter in issue in a court of competent jurisdiction.
33.4 Each party shall pay the fees and expenses of the arbitrator or
appraiser appointed by such party and one-half of the fees and expenses of
the third arbitrator or appraiser, if any.
33.5 Anything contained in this Lease to the contrary
notwithstanding, whenever Lessee is required to make any payment or to
perform any act or thing at a specified time or within a specified time limit
under the provisions of this Lease, and any such payment or performance is
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subject to arbitration under this section, such time or time limit, as the
case may be, shall be extended by the period consumed by the institution,
conduct, and prosecution to final conclusion of any arbitration or appraisal
concerning or relating to such payment or performance.
Section 34. Costs and Attorney Fees
If either party brings an action to recover any sum due or for any
breach and obtains a judgment or decree in its favor, the court may award to
such prevailing party its reasonable costs and reasonable attorney fees,
specifically including reasonable attorney fees incurred in connection with
any appeals (whether or not taxable as such by law).
Section 35. Entire Agreement
This Lease contains the entire agreement between the parties and,
except as otherwise provided, can be changed, modified, amended, or
terminated only by an instrument in writing executed by the parties. It is
mutually acknowledged and agreed by Lessee and Lessor that there are no
verbal agreements, representations, warranties, or other understandings
affecting this Lease.
Section 36. Applicable Law
This Lease shall be governed by, and construed in accordance with, the
laws of the state of Oregon.
Section 37. Interest on Rent Arrearages
All arrearages in the payment of Rent that Lessee fails to pay within
the 30-day period after notice from Lessor shall bear interest from the date
due until paid, at the rate defined in Section 8.2 above.
Section 38. Brokerage
Lessor and Lessee represent to each other that they have not employed
any brokers in negotiating and consummating the transaction set forth in this
Lease, but have negotiated directly with each other.
Section 39. Covenants to Bind and Benefit Parties
The covenants and agreements contained in this Lease shall bind and
inure to the benefit of Lessor, its successors and assigns, and Lessee, its
successors and assigns.
Section 40. Captions and Table of Contents
40.1 The captions of this Lease are for convenience and reference
only, and in no way define, limit, or describe the scope or intent of this
Lease or in any way affect this Lease.
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40.2 The table of contents preceding this Lease but under the same
cover is for the purpose of convenience and reference only, and is not to be
deemed or construed in any way as part of this Lease, nor as supplemental or
amendatory.
Section 41. Definition of Lessor
The term Lessor as used in this Lease means only the owner for the
time being of the Premises, so that in the event of a sale, transfer,
conveyance, or other termination of Lessor's interest in the Premises, Lessor
shall be and is entirely freed and relieved of all liability of Lessor
thereafter accruing, and in such event Lessor shall remit any funds held by
Lessor, in which Lessee has an interest, to the successor owner of the
Premises. Lessor shall remain liable for any such money not so remitted. It
shall be deemed and construed without further agreement between the parties
or their successors in interest, or between the parties and such successor
owner of the Premises, that such successor owner has assumed and agreed to
carry out any and all agreements, covenants, and obligations of Lessor
thereafter accruing.
Section 42. Recordation of Lease
Lessee may elect that a copy of this Lease or a memorandum, executed
and acknowledged by both parties, be recorded in the public records of Marion
County, Oregon. Lessee shall pay the recording costs.
Section 43. Covenants, Conditions and Restrictions
Lessee takes leases the property subject to certain Covenants,
Conditions and Restrictions which provide, among other things, for the common
use of certain driveways, sidewalks, landscape area and parking facility. As
of the date of this lease, the parties are still negotiating over certain
minor points in the Covenants, Conditions and Restrictions. In the event the
Covenants, Conditions and Restrictions are not recorded prior to the date of
this Ground Lease, Lessee agrees on demand to subordinate its interest in the
property to the provisions of the recorded Covenants, Conditions and
Restrictions.
Section 44. Statutory Warning
"THIS INSTRUMENT WILL NOT ALLOW USE OF THE PROPERTY DESCRIBED IN THIS
INSTRUMENT IN VIOLATION OF APPLICABLE LAND USE LAWS AND REGULATIONS. BEFORE
SIGNING OR ACCEPTING THIS INSTRUMENT, THE PERSON ACQUIRING FEE TITLE TO THE
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PROPERTY SHOULD CHECK WITH THE APPROPRIATE CITY OR COUNTY PLANNING DEPARTMENT
TO VERIFY APPROVED USES."
IN WITNESS WHEREOF, Lessee and Lessor have caused this Lease to be
executed by their duly authorized officers.
Lessor: Lessee:
SOUTH UMPQUA BANK
/s/ Richard Whitt by POA By: /s/ Steve May, its Vice
- - ---------------------------------- ---------------------------------
President/Retail Banking
/s/ Barbara Whitt by POA
- - ----------------------------------
/s/ Keith Flicker
- - ----------------------------------
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FIRST ADDENDUM TO GROUND LEASE
BETWEEN: Richard Whitt and Barbara Whitt,
husband and wife, and Keith Flicker ("Lessor")
AND: South Umpqua Bank ("Lessee")
an Oregon banking corporation
445 SE Main Street
Roseburg, OR 97470
EFFECTIVE
DATE: February 12, 1999.
1. Section 1.2 is hereby deleted in its entirety and the following language
substituted in its place:
"The foregoing condition shall be for the benefit of both parties and
must be satisfied or waived by both the parties on or before 5:00 p.m.
on March 1, 1999, or this Lease shall terminate and be of no further
force and effect. In such event neither party shall have any further
liability under this Lease except for liability accrued before the date
of termination.
In addition, it is a condition of this Lease that Lessee secure
approval from state and federal banking regulatory agencies to locate a
branch on the Premises. Lessee represents that it has already applied
for such approval and covenants that it will use its best efforts to
obtain the same. Lessee shall keep Lessor informed as to the status of
its applications for approval and will promptly notify Lessor when such
approval is obtained. If approval has not been secured by April 1, 1999,
either party may terminate this Lease unless it reasonably appears that
approval will be obtained by April 30, 1999, in which event the parties
shall extend the date for satisfaction of this condition to the earlier
of: (i) the date on which Lessee receives notice of such approval, or
(ii) April 30, 1999. If Lessee elects to terminate this Lease because of
the failure to satisfy the condition in this Section 1.2, it shall
provide to Lessor evidence that it did not, or, its reasonable judgment,
could not obtain the necessary regulatory approval."
2. The last paragraph of Section 2 is hereby deleted in its entirety and
the following language substituted in its place:
"Lessor shall deliver the Premises with all existing buildings
demolished and debris removed. Lessor shall prepare the site and fill
the existing basement to native ground level or such other lower level
as Lessee shall direct in accordance with the specifications attached
hereto as Exhibit A and by this reference incorporated herein. Lessee
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<PAGE>
shall reimburse Lessor for the cost of such basement fill to the extent
it is greater than would be the cost of standard placement of fill with
a load-bearing capacity of 2,500 pounds per square foot. The parties
estimate that Lessee's reimbursement obligation will be approximately
$1,000.00."
3. Except as provided in Sections 1 and 2 above, the Lease is unchanged.
LESSOR: LESSEE:
Richard Whitt and Barbara Whitt, South Umpqua Bank
husband and wife, and Keith Flicker
By: Steve May, Sr. VP/Retail
Banking -------------------------------
Sr. VP / Retail Banking
s/s Richard Whitt by POA
- - ----------------------------------
s/s Barbara Whitt by POA
- - ----------------------------------
s/s Keith Flicker by POA
- - ----------------------------------
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<PAGE>
EXHIBIT A TO FIRST ADDENDUM
FOUNDATIONS
1. Preparation - Prior to filling basement, the Contractor shall remove all
decomposable materials. Exposed soils, if any, shall be scarified to a
depth of at least 6 inches and then be brought to the proper moisture
content and compacted to 95% Standard Proctor density.
2. Filling - The Contractor shall clean, free draining fill material within
the basement, as more fully described subsequently. Prior to backfill,
the basement structure shall be penetrated to provide for escape of free
water. The structural fill shall be as further described below, properly
moisture conditioned and compacted:
a. Structural fill shall be non-expansive material, free of organic
material and with a maximum aggregate size smaller than 2 1/2" and
at least 75% smaller than 3/4". On site materials are not
suitable, except as described in paragraph 3.
b. Structural fill shall be compacted to 95% relative density per
ASTM D- 1557 at optimum moisture content.
c. Basement fill shall be topped with a minimum thickness of 4 inches
of 3/4" minus road base, moisture conditioned to within 2% of
optimum moisture content and compacted to at least 95% of Standard
Proctor density.
3. Alternate Fill - Clean soil fill may be used, subject to weather
conditions being suitable for placement and compaction and conformance
with the following:
a. Prior to placement, representative soil samples shall be
appropriately prepared and tested for density per ASTM D-1557.
After compaction to 95% relative density per ASTM D-1557,
consolidation tests shall be performed on a representative sample.
The material shall be deemed suitable if maximum consolidation
under 2,500 psf load does not exceed 1/4" total for the depth of
fill.
b. Structural fill shall be non-expansive material, free of organic
material and with a maximum aggregate size smaller than 2 1/2" and
at least 75% smaller than 3/4". Maximum portion passing the #200
sieve shall be 25%.
c. Basement fill shall be topped with a minimum thickness of 4 inches
of 3/4" minus road base, moisture conditioned to within 2% of
optimum moisture content and compacted to at least 95% of Standard
Proctor density.
SITE PREPARATION
1. Prior to placing site fills, the Contractor shall remove all
construction rubble, trash, debris, decomposable materials and other
non-soil components and shall scarify exposed surface to a depth of at
least 6 inches. After scarification, surface shall be brought to within
1% of optimum moisture content and compacted to the density specified
below. Asphaltic, concrete and other surfaces and any ancillary
structures shall be constructed in accordance with civil and
architectural plans.
2. Fill material shall be free of trash and rock over 6" in diameter. All
structural fill shall be moisture conditioned to within 1% of optimum
moisture content and compacted to at least 95% Standard Proctor density.
3. Fills within basement area outside of building footprint, but within
parking or other surfaced area, shall be constructed as described in
Foundations section.
Page 3
Real Estate Lease
THIS LEASE is made and entered into this 25th day of February, 1999
between NE Broadway Partners ("Landlord"), and South Umpqua Bank ("Tenant").
1. Basic Lease Provisions and Identification of Exhibits.
1.1 Basic Lease Provisions.
Leased Premises: Approximately 3,419 square feet of rentable floor space
located at 1448 NE Weidler, Portland, Oregon and as
depicted in Exhibit A
Applicable
Percentage: 54.792%
Lease Term: Five (5) years
Commencement Date: May 1, 1999, or the opening of business, whichever occurs
first.
Monthly Base Rent: Tenant shall pay a monthly base rent as
follows:
Year 1 - 2 $5,408.00
Year 3 $5,692.91
Year 4 $5,977.83
Year 5 $6,262.75
Permitted Uses: Bank and Financial Service
Tenant's Broker: Norris & Stevens
Landlord's Broker: HSM Pacific
Exhibits: Leased Premises, Tenant's Improvements, Option to Renew,
and Rules and Regulations
1.2 Identification of Exhibits.
The Exhibits identified in and attached to this Lease are
incorporated in this Lease by reference.
2. Leased Premises.
Landlord hereby leases to Tenant, and Tenant hereby accepts from
Landlord, subject to and with the benefit of the terms and provisions of this
Lease, the Leased Premises as described in Section 1.1. The real property and
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improvements in which the Leased Premises are located are hereinafter referred
to as the "Building."
3. Term.
This Lease shall be in effect for the period of time specified in Section
1.1 known as "Lease Term" and hereinafter referred to as the "Term."
4. Monthly Base Rent, Other Charges, Late Charge, Utilities, and Deposit
4.1 Monthly Base Rent.
Commencing on the Commencement Date, Tenant shall pay to Landlord,
without notice or demand and without any deduction whatsoever, the
monthly sums set forth in Section 1.1, above, (the "Monthly Base Rent'),
which Tenant shall pay in advance on or before the first day of each
calendar month of the Term.
4.2 Other Charges.
In addition to the Monthly Base Rent, Tenant shall pay to Landlord
in the manner provided in Section 4.2 (c), Tenant's share of the
following items (hereinafter called "Other Charges"):
(a) Tenant shall pay to Landlord Tenant's prorata share of the
operating costs of the Building. Tenant's share shall be an
amount equal to the total operating costs during each calendar
year of the Term, multiplied by the "Applicable Percentage".
The "Applicable Percentage" is 54.792%, and represents the
percentage that Tenant's useable space is of the total useable
space in the Building. For the purposes of this Section 4.2
(a), the term "operating costs of the Building" means the total
costs and expenses that are actual, reasonable and necessary,
and directly attributable to operating, maintaining, repairing
and cleaning the Land, and Building, including, but not limited
to, standard all-risk insurance coverage, fire and extended
coverage, including earthquake insurance, the cost of public
liability and property damage insurance, rental insurance,
personal property taxes and assessments payable on the land and
improvements comprising the Building, all repairs not required
by Landlord referred to in Section 10 hereof, asphalt patching
and resurfacing, lighting, sanitary control, removal of snow,
trash and other refuse, rental maintenance Lease and repair of
machinery and equipment used in such maintenance, the cost of
personnel to implement such services, utility charges for
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common areas, and a reasonable allowance to Landlord for
Landlord's supervision of the operation, maintenance, repair,
etc. of the common area, however, such allowance shall not
exceed ten percent 10% of operating costs. In addition, Tenant
shall pay its prorata share of all real and personal property
taxes. The term "Property Taxes" shall include all real and
personal property taxes, assessments, and other governmental
charges, general and special, ordinary, and extraordinary, of
any kind and nature whatsoever levied by any governmental
authority against the land and improvements comprising the
Building and any personal property used in its operation,
maintenance and repair, and all costs and expenses incurred by
Landlord in attempts to obtain reductions in such taxes or
assessments. Property Taxes include, without limitation,
assessments for roads or other public improvements or benefits
which are levied, assessed or imposed during the Term of this
Lease, and which become a lien upon the Building or any part
thereof, together with any taxes upon rental payable by Tenant
hereunder if such taxes are substituted in whole or in part for
presently existing ad valorem real property taxes but only to
the extent to which such taxes upon rentals are substituted for
said real property taxes. However, "Property Taxes" shall not
include any franchise, excise, gift, estate, inheritance,
succession, capital levy or transfer tax of Landlord in
connection with this Lease or Landlord's rights in the Leased
Premises, or any income, excess profits or revenue tax charge
or levy against Landlord upon the business, sales or operations
of Landlord. Nothing herein shall prevent or prohibit Tenant at
its own expense from contesting or instituting all proceedings
reasonably necessary to contest the validity or amount of any
real or personal property taxes and assessments applicable to
the Leased Premises.
(b) Notwithstanding anything contained herein to the contrary, the
following shall not be included in the Other Charges:
(1) The cost of any capital addition to the Building or the
land on which the Building is located, including the cost
to prepare space for occupancy by a new tenant;
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(2) Expenses for which Landlord is or will be reimbursed by
another source;
(3) Expenses for the defense of Landlord's title to the Leased
Premises or the Building;
(4) Structural repairs and replacements which are required of
Landlord under Section 10.1;
(5) Depreciation and amortization of the Building, financing
costs, including interest and principal amortization of
debts;
(6) Charitable or political contributions;
(7) Cost of improving, renovating, or cleaning space for a
tenant or space vacated by a tenant or items and services
selectively supplied to any other tenant;
(8) Any amounts expended by Landlord as environmental response
costs for removal, enclosure, encapsulation, clean-up,
remediation or other activities regarding Landlord's
compliance with federal, state, municipal or local
hazardous waste and environmental laws, regulations or
ordinances unless the need for such expenditure by
Landlord is caused in whole or part by Tenant's use and
occupancy of the Leased Premises;
(9) Costs to correct original defects in the design,
construction or latent defects in the Leased Premises or
the Building;
(10) Expenses payable directly by tenant(s) for any reason
(such as excessive utility use);
(11) Any repair, rebuilding or other work necessitated by
condemnation, fire, windstorm or other insured casualty or
hazard;
(12) Any amounts due as a result of Landlord's violation or
failure to comply with any governmental regulations and
rules or any court order, decree or judgment;
(13) Leasing commissions, advertising expenses and other costs
incurred in leasing or procuring new tenants;
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(14) The salaries and benefits of executive officers of
Landlord, if any;
(15) Attorney's fees, accounting fees and expenditures incurred
in connection with negotiations, disputes and claims of
other tenants or occupants of the Building with other
third parties except as specially provided in the Lease;
as well as cost to prepare financial statements or tax
returns; or
(16) Cost of the initial stock of tools and equipment for
operations, repair and maintenance of the Building.
(c) Prior to the expiration of each calendar year during the Term
(or as soon thereafter as such information becomes available)
Landlord will notify Tenant in writing of Landlord's estimate
of Tenant's share of the Other Charges due for the next
calendar year. Landlord's estimate shall be based, to the
extent possible, upon the actual amount of the Other Charges
for the immediately preceding calendar year. Tenant shall pay
their estimated amount in advance in twelve (12) equal monthly
installments on the first day of each month of such calendar
year. Within thirty (30) days after the end of each calendar
year. Landlord will compute Tenant's share for such calendar
year based upon the actual amount of the Other Charges for the
calendar year, and if the total amount of Tenant's share for
calendar year is less than the actual amount of Tenant's share
for such calendar year, Tenant shall pay Landlord any
deficiency. If the total amount paid by Tenant for such
calendar year exceeds the actual amount of Tenant's share,
Landlord shall credit such excess to the next monthly payments
which thereafter become due. If this Lease commences at a time
other than the beginning of a calendar year, Tenant shall pay
the estimate of Tenant's share for the portion remaining of the
calendar year based upon the number of days the Lease is in
force. If this Lease expires at a time other than the
expiration date of a calendar year, Tenant shall be obligated
to pay immediately any deficiencies which shall be computed at
the expiration of that calendar year. If the estimated amount
Tenant has paid for that calendar year exceeds the actual
amount of Tenant's share, and if Tenant has otherwise complied
with all the terms and provisions of this Lease, Landlord shall
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refund such excess to Tenant Tenant's obligations under this
Section shall survive the expiration or termination of this
Lease.
(d) Landlord shall keep records showing all expenditures incurred
as Other Charges and/or Additional Rent for each year for a
period of three years following each year, and such records
shall be made available for inspection by Tenant and/or its
agents during such period.
(e) Any dispute with respect to Landlord's calculations of Other
Charges under this Lease shall be submitted to an independent,
certified public accountant selected by both Landlord and
Tenant, whose decision shall be binding on the parties. If
Landlord and Tenant are unable to agree on such an accountant,
either party may apply to the Presiding Judge of the judicial
district where the Leased Premises are located for appointment
of an independent certified public accountant. Where there is a
variance of two percent (2%) or more between said decision and
Landlord's determination of Tenant's share of Building Charge,
Common Area Charge and/or Additional Rent, Landlord shall pay
the costs of said audit and shall credit any overpayment toward
the next Monthly Base Rent payment due. If there is no variance
or a variance of less than two percent (2%), Tenant shall pay
such costs including the cost of audit to Landlord within ten
(10) days after demand by Landlord.
4.3 Late Charge.
If any Monthly Base Rent installment is not received by Landlord
from Tenant by the tenth (10th) day of the month for which such
installment is due, Tenant shall immediately pay to Landlord a late
charge equal to five percent (5%) of such installment.
4.4 Utilities.
Tenant shall pay before delinquency, at its sole cost and expense,
all charges for water, gas, heat, electricity, refrigeration, power,
telephone service, sewer service charges, and all other services or
utilities used in, upon or about the Leased Premises during the Term;
provided, however, that if any such services or utilities shall be billed
to Landlord and are not separately metered to the Leased Premises, the
amount thereof shall be prorated by Landlord among all users of the
Building based on use of such services or utilities, and Tenant shall pay
to Landlord upon demand Tenant's pro rata share of such charges. In
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determining this proration of such charges among tenants of the Building,
Landlord shall consider the customary and historical uses of such
services by similar tenants in similar locations and by Tenant in similar
locations. If Tenant disagrees with Landlord's determination, the dispute
shall be subject to arbitration pursuant to ORS 33.210 et seq. with costs
to be paid by the losing party as designated by the arbitrator. Landlord
or Tenant, as the case may be. shall pay the amount owed to the other as
set forth in the arbitrator's award. In no event shall Landlord be liable
for an interruption or failure in the supply of any such utilities to the
Leased Premises.
5. Personal Property Taxes.
Tenant shall pay, or cause to be paid, before delinquency, any and all
taxes levied or assessed during the Term upon all Tenants leasehold
improvements, equipment, furniture, fixtures, and any other personal property
located in the Leased Premises.
6. Licenses and Taxes.
Tenant shall be liable for, and shall pay throughout the Term, all
license and excise fees and business and occupation taxes covering the
business conducted by Tenant on the Leased Premises but excluding any fee or
charge on the net income or revenue of Landlord.
7. Use.
7.1 Permitted Uses.
Tenant shall not use or permit or allow the use of the Leased
Premises for any business or purpose other than set forth in Section 1.1
above without Landlord's prior written consent which shall not be
unreasonably withheld, conditioned, or delayed. Tenant shall not do or
permit anything to be done in or about the Leased Premises other than as
specified in Section 1.1 or bring or keep anything therein which will in
any way increase the existing rate or premiums or affect any fire or
other insurance upon the Leased Premises or the Building, or cause a
cancellation of any insurance policy covering the Leased Premises or the
Building or any part thereof or any of its contents. Tenant shall not do
or permit or allow anything to be done in or about the Leased Premises
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which will in any way obstruct or interfere with the rights of other
tenants or occupants of the Building. To the extent compliance is within
Tenant's control, Tenant shall conform to all applicable laws and
regulations of any public authority affecting the Leased Premises and the
condition and use thereto, and correct at Tenants own expense any failure
of compliance created through Tenant's fault or by reason of Tenant's
use.
7.2 Hazardous Substances.
(a) Tenant shall use its best efforts to ensure that Hazardous
Substances are not spilled, leaked, disposed of, or otherwise
released on or under the Leased Premises. Tenant may use or
otherwise handle on the Leased Premises only those Hazardous
Substances typically used or sold in the prudent and safe
operation of Tenant's business conducted on the Leased
Premises. Tenant may bring upon the property, use and store
materials of a type and quantity consistent with the operation
of its permitted business use, provided that said storage and
use are consistent with all current State of Oregon and federal
law, statute, rule or regulation regarding the handling,
storage and use of said materials.
(b) Upon twenty (20) days prior written notice to Tenant (except in
the case of an emergency) Landlord may, but is not obligated
to, enter upon the Leased Premises and take such actions and
incur such costs and expenses to effect such compliance as it
deems advisable to protect its interest in the Leased Premises.
Tenant shall reimburse Landlord for the full amount of all
costs and expenses incurred by Landlord in connection with such
compliance activities, and such obligation shall continue even
after the termination of this Lease. Tenant shall notify
Landlord immediately of any release of any Hazardous Substance
on the Leased Premises.
(c) Tenant agrees to indemnify and hold Landlord harmless against
any and all losses, liabilities, suits, obligations, fines,
damages, judgments, penalties, claims, charges, cleanup costs,
remedial actions, costs and expenses (including, without
limitations, attorneys' fees and disbursements) which may be
imposed on, incurred or paid by, or asserted against Landlord
or the Leased Premises by reason of, or in connection with (1)
any misrepresentation, breach of warranty or other default by
Tenant under this Lease, or (2) the acts or omissions of
Tenant, or any subtenant or other person for whom Tenant would
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otherwise be liable, resulting in the release of any Hazardous
Substance.
(d) In the event of a violation and/or emergency with immediate
threat to life, property or environment, Landlord reserves the
right to begin immediate action to correct said violation
and/or emergency. Any measures taken by Landlord will not
relieve Tenant of responsibility for said violation and/or
emergency.
7.3 Use and Maintenance of Common Area.
(a) The use and occupation by Tenant of the Leased Premises shall
include a right to use the Common Area and other facilities as
may be designated from time to time by Landlord, subject,
however, to the terms and conditions of this Lease. The Common
Area and facilities, which Tenant may be permitted to use and
occupy pursuant to this paragraph are to be used and occupied
under a revocable license, and if the amount of such areas is
diminished, Landlord shall not be subject to any liability nor
shall Tenant be entitled to any compensation, diminution or
abatement of rent, nor shall such diminution of such areas be
deemed constructive or actual eviction.
(b) Landlord shall at all times during the Term of this Lease have
the following rights with respect to the Common Area.
(1) Landlord shall have the right from time to time to make
changes in the Common Area, including the location and
relocation of driveways, entrances, exits, parking spaces,
the direction and flow of traffic, landscaped areas, and
all other facilities thereof.
(2) Landlord shall have the right to establish, change, alter,
amend and to enforce against Tenant and other users of the
Common Area, such reasonable rules and regulations as may
be deemed necessary or advisable for the proper and
efficient operation and maintenance of the Common Area.
The rules and regulations herein provided may include,
without limitation, the hours during which the Common Area
shall be open for use but in no event shall the parking
lot be closed until a reasonable period of time after
Tenant closes its Leased Premises. Tenant agrees to
conform to and abide by all rules and regulations in its
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use and the use by its customers and patrons of the Common
Area, provided, however, that all such rules and
regulations and such types of operation and other matters
affecting the customers and patrons of Tenant shall apply
equally and without discrimination to all persons entitled
to the use of the Common Area.
(3) Landlord shall have the sole and exclusive control of the
Common Area, and may at any time and from time to time
exclude and restrain any person from use or occupancy
thereof, excepting, however, bona fide customers, patrons
and suppliers of Tenant, and other tenants of Landlord who
make use of the Common Area in accordance with the rules
and regulations established by Landlord from time to time
with respect thereto. Nothing herein shall limit the
rights of Landlord at any time to remove any unauthorized
persons. The rights of Tenant in and to the Common Area
shall at all times be subject to the rights of Landlord
and of other tenants in the Building to use the same in
common with Tenant, and it shall be the duty of Tenant to
keep all of the Common Area free and clear of any
obstructions created or permitted by Tenant or resulting
from Tenant's operation and to permit the use of the
Common Area only for the purpose hereinabove set forth.
(4) Landlord shall have the right to designate specific areas
for the parking of vehicles of the agents and employees of
Tenant. Tenant shall cause its agents and employees to
park its vehicles only within such designated areas.
8. Alterations.
Tenant shall not make any alterations, additions or improvements in or to
the Leased Premises without the prior written consent of Landlord, which
consent shall not be unreasonably withheld, conditioned or delayed.
9. Removal of Tenant's Property.
All trade fixtures and equipment placed upon the Leased Premises or
installed by Tenant during the Term of this Lease shall remain the property of
Tenant. Upon expiration and/or termination of this Lease, however caused,
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Tenant may, at Tenant's own expense remove any or all such fixtures and
equipment Tenant shall repair any physical damage resulting from the removal.
If Tenant fails to remove such property, Landlord may give Tenant twenty (20)
days written notice requiring Tenant to remove the property. Following such
twenty (20) day written notice, in the event Tenant has not removed its
property, Landlord may treat the property as abandoned and retain the property
or Landlord may effect a removal of the property and place it in public
storage on Tenant's account. In the event of a removal, Tenant may be liable
to Landlord for the cost of removal, restoration of the Leased Premises,
transportation to storage, and storage.
10. Maintenance and Repairs.
10.1 Landlord's Obligations.
The following shall be the responsibility of Landlord at Landlord's
expense:
(a) Repair and maintenance of the roof, gutters, exterior walls and
foundation of the Leased Premises.
(b) Repair and maintenance of exterior water, sewer, gas and
electrical services up to the point of entry to the Leased
Premises.
Except as otherwise specifically provided herein and unless Landlord is
grossly negligent in performing repairs, alterations or improvements,
there shall be no abatement of Monthly Base 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 Leased Premises or Building of
which the Leased Premises is a part or in or to fixtures, appurtenances
and equipment therein; provided, however, if Landlord fails to commence
repairs of the Building as required in this Section 10.1 within twenty
(20) days after written notice from Tenant, Tenant may perform such
repairs and deduct the costs thereof from the installments of Monthly
Base Rent next falling due; and provided further, if such disrepair has
the effect that Tenant cannot reasonably operate the business for the use
set forth in Section 1.1, then the Monthly Base Rent shall be abated
until the Leased Premises can be reasonably operated for such use.
Notwithstanding anything contained herein to the contrary, Landlord shall
use best efforts to avoid materially or unreasonably affecting or
interrupting Tenant's use, business or operations on or decreasing access
or visibility of the Leased Premises.
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10.2 Tenant's Obligations
The following shall be the responsibility of Tenant at Tenant's
expense:
(a) Repair of interior walls, ceilings, doors, windows, and related
hardware, floors (including floor coverings), all electrical
equipment. light fixtures, switches, and wiring and plumbing
from the point of entry to the Leased Premises and all other
appliances and equipment within or attached to the Leased
Premises. In addition, Tenant shall at its sole cost and
expense install or construct any improvements, equipment, or
fixtures required by any governmental authority or agency as a
consequence of Tenant's use and occupancy of the Leased
Premises. Tenant shall replace, any damaged glass within
forty-eight (48) hours of the occurrence of such damage.
(b) Any repairs necessitated by the negligence of Tenant, its
agents, employees, and invitees, except as provided in Section
13.3 dealing with waiver of subrogation, but including repairs
that would otherwise be the responsibility of Landlord under
Section 10.1.
(c) Repair and maintenance of the heating and air conditioning
system.
(1) Landlord will employ and pay a contractor satisfactory to
Landlord, engaged in the business of maintaining systems,
to perform regularly scheduled inspections of the Heating,
Ventilation and Air Conditioning (HVAC) systems serving
the Leased Premises and to perform any necessary work,
maintenance or repair thereon, provided said rates are
competitive. Tenant shall reimburse Landlord for all sums
paid by Landlord in connection therewith.
10.3 Failure to Maintain.
If Tenant fails to keep and preserve the Leased Premises as set
forth in Section 10.2, above, Landlord may, at its option, put or cause
the same to be put in the condition and state of repair agreed upon, and
in such case, upon receipt of written statements from Landlord, Tenant
shall promptly pay the entire cost thereof. Landlord shall have the
right, without liability, to enter the Leased Premises for the purpose of
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making such repairs upon the failure of Tenant to do so with fifteen (15)
days' notice to Tenant, unless Landlord deems entry necessary without
notice due to an emergency.
10.4 Common Area Maintenance and Repair.
All repairs to the Leased Premises which Landlord is not required to
make under Section 10.1 and Tenant is not required to make under Section
10.2 shall be deemed Common Area Maintenance and Repair and will be
maintained by Tenant as per Section 24.11.
10.5 Landlord's Duties.
Landlord shall not be in default under this Lease or liable for any
damages resulting from or incidental to, nor shall it be an actual or
constructive eviction of Tenant, nor shall the Monthly Base Rent be
abated by reason of:
(a) The interruption of any of the services described in this
Section 10;
(b) Failure to furnish or delay in furnishing any such services
when such failure or delay is caused by accident or any
condition beyond the reasonable control of Landlord, including
the making of necessary repairs or improvements to the Leased
Premises or to the Building;
(c) Any limitation, curtailment, rationing or restrictions on the
use of electricity, water, gas or any other form of energy
serving the Leased Premises or the Building; or
(d) Failure to make any repair or to perform any maintenance,
unless such failure shall persist for an unreasonable time
after written notice of the need for such repair or maintenance
is given to Landlord by Tenant. Landlord shall use reasonable
efforts to remedy any interruption in the furnishing of such
services.
11. Liens and Encumbrances.
(a) Tenant shall keep the Leased Premises and the Building free from any
liens or encumbrances arising out of any work performed, materials
furnished or obligations incurred by Tenant, and shall indemnify and
hold Landlord harmless from any and all costs, liability or expenses
(including attorneys' fees) arising therefrom.
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(b) Tenant may withhold payment of any claim in connection with a
good-faith dispute over the obligation to pay, as long as Landlord's
property interests are not jeopardized. If a lien is filed as a
result of nonpayment, Tenant shall, within ten (10) days after
knowledge of the filing, secure the discharge of the lien or post a
cash deposit or satisfactory surety bond in an amount sufficient to
discharge the lien plus any costs, attorney fees, and other charges
that could accrue as a result of a foreclosure or sale under the
lien.
12. Assignment and Subletting.
No part of the Leased Premises may be assigned, mortgaged, or subleased,
nor may a right of use of any portion of the property be conferred on any
third person by any other means, without the prior written consent of Landlord
which will be subject to the factors discussed below. This provision shall
apply to all transfers by operation of law. If Tenant is a corporation or
partnership, this provision shall apply to any transfer of a majority voting
interest in stock or partnership interest of Tenant. No consent in one
instance shall prevent the provision from applying to subsequent instances. In
determining whether to consent to assignment Landlord may consider the
following factors: financial ability of assignee; business experience of
assignee; compatibility of use with other tenants in the Building; zoning or
other use restrictions; and other factors which Landlord may deem prudent.
13. Insurance and Indemnity.
13.1 Insurance.
(a) During the entire Term Tenant shall, at its expense, maintain
adequate liability insurance with an insurance company or
companies acceptable to Landlord with a combined single limit
of $1,000,000 for personal injuries and property damage, to
indemnify both Landlord and Tenant against any such claims,
demands, losses, damages, liabilities and expenses. Landlord
shall be named as an additional insured and shall be furnished
with a certificate of insurance, which shall bear an
endorsement that the same shall not be canceled except upon not
less than thirty (30) days' prior written notice to Landlord.
Tenant shall also at its own expense maintain, during the Term,
all-risk insurance covering its furniture, fixtures, equipment
and inventory in an amount equal to the replacement cost
thereof, and insurance covering all plate glass and other glass
on the Leased Premises. Tenant shall provide Landlord with
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copies of the policies of insurance or certificates thereof.
Landlord shall carry all-risk fire insurance on the Building.
(b) Landlord will not carry insurance of any kind on any of
Tenant's improvements or on Tenant's furniture or furnishings
or on any fixtures, equipment, improvements or appurtenances of
Tenant under this Lease, and Landlord shall not be obligated to
repair any damage thereto or replace the same, except for
damages or loss caused by Landlord or Landlord's agents or by
the gross negligence of Landlord or Landlord's agents.
13.2 Indemnification.
(a) Landlord shall not be liable for injury to any person, or for
the loss of or damage to any property (including property of
Tenant) occurring in or about the Leased Premises from any
cause whatsoever, except for Landlord's gross negligence or
misconduct. Tenant hereby indemnifies and holds Landlord
harmless from and agrees to defend Landlord against any and all
claims, charges, liabilities, obligations, penalties, damages,
costs and expenses (including attorneys' fees) arising,
claimed, charged or incurred against or by Landlord from any
matter or thing arising from Tenant's use of the Leased
Premises, the conduct of its business or from any activity,
work or other things done or permitted by Tenant in or about
the Leased Premises. Tenant shall further indemnify and hold
Landlord harmless from and against any and all claims arising
from any breach or default in the performance of any obligation
on Tenant's part or to be performed under the terms of this
Lease, or arising from any act or negligence of Tenant, or any
officer, agent, employee, guest, or invitee of Tenant, and from
all costs, attorneys' fees, and liabilities incurred in the
defense of any such claim or any action or proceeding brought
thereon and in case any action or proceeding be brought against
Landlord by reason of such claim. Tenant, upon notice from
Landlord, shall defend the same at Tenant's expense by counsel
reasonably satisfactory to Landlord. The indemnification
provided for in this Section with respect to any acts or
omission during the Term of this Lease shall survive any
termination or expiration of this Lease. Except for conditions
under Landlords control. Landlord shall not be liable for
interference with light or air or view or for any latent defect
in the Leased Premises. Tenant shall promptly notify Landlord
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of casualties or accidents occurring in or about the Leased
Premises.
(b) Landlord shall indemnify and defend Tenant from any claim,
loss, liability, cost or expense, including Tenant's reasonable
attorney fees and costs, arising out of or related to any
activity of Landlord, its employees, agents or contractors, on
the Leased Premises or any condition of the Leased Premises
caused or contributed to by Landlord, its agents, employees, or
contractors, or any breach of any duty, representation or
warranty of Landlord under this Lease; provided, however, that
Landlord shall have no liability for damages due to natural
causes or causes outside Landlord's reasonable control or
supervision.
13.3 Waiver of Subrogation.
Landlord and Tenant hereby mutually release each other from
liability and waive all right of recovery against each other, their
agents, employees, customers and invitees for any loss in or about the
Leased Premises, from perils insured against under their respective fire
and all-risk insurance contracts, including any extended coverage
endorsements thereof, whether due to negligence or any other cause;
provided that this Section shall be inapplicable if it would have the
effect, but only to the extent it would have the effect, of invalidating
any insurance coverage of Landlord or Tenant.
14. Eminent Domain.
14.1 Partial Taking.
If a portion of the Leased Premises is condemned and Section 14.2
does not apply, the Lease shall continue on the following terms:
(a) Landlord shall be entitled to the proceeds of condemnation
attributable to the real property and improvements (except for
Tenant's leasehold improvements and trade fixtures). Tenant
shall have no claim against Landlord as a result of the
condemnation except that Tenant shall be entitled to receive
any proceeds for interruption of Tenant's business and to any
award attributable to Tenant's leasehold improvements, trade
fixtures and equipment.
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(b) Landlord shall proceed as soon as reasonably possible to make
such repairs and alterations to the Leased Premises as are
necessary to restore the remaining Leased Premises to a
condition as reasonably practicable to that existing at the
time of the condemnation. Base Rent shall be abated to the
extent that the Leased Premises is unusable by Tenant during
the period of alteration and repair.
(c) After the date on which title vests in the condemning authority
or an earlier date on which alterations or repairs are
commenced by Landlord to restore the balance of the Leased
Premises in anticipation of taking, the Monthly Base Rent shall
be reduced in proportion to the reduction in value of the
Leased Premises as an economic unit on account of the partial
taking. If the parties are unable to agree on the amount of the
reduction of Monthly Base Rent, the amount shall be determined
by arbitration.
14.2 Total Taking.
If a condemning authority takes all of the Leased Premises or a
portion sufficient to render the remaining Leased Premises reasonably
unsuitable for the use that Tenant was then making of the Leased
Premises, the Lease shall terminate as of the date the title vests in the
condemning authorities. Such termination shall have the same effect as a
termination under Section 14.1. Landlord shall be entitled to the
proceeds of condemnation attributable to the real property and
improvements (except for Tenants leasehold improvements and Tenant's
trade fixtures). Tenant shall have no claim against Landlord as a result
of the condemnation, provided Tenant shall be entitled to receive any
proceeds for interruption of Tenant's business or relocation expenses
made available by the condemning authority and Tenant shall be entitled
to any award attributable to Tenant's leasehold improvements and Tenant's
trade fixtures and equipment.
14.3 Sale in Lieu of Condemnation.
Sale of all or part of the Leased Premises to a purchaser with the
power of eminent domain in the face of a threat or probability of the
exercise of the power shall be treated for the purposes of this Section
14.3 as a taking by condemnation.
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15.1 Default.
Any of the following shall constitute a default by Tenant under this
Lease:
(a) Tenant's failure to pay rent or any monetary obligation under
this Lease within 10 days after it is due provided, however,
Landlord will not be required to notify Tenant more than one
time during any twelve (12) month period of failure to pay
rent.
(b) Tenant's insolvency, business failure or assignment for the
benefit of its creditors. Tenant's commencement of proceedings
under any provision of any bankruptcy or insolvency law or
failure to obtain dismissal of any petition filed against it
under such laws within the time required to answer; or the
appointment of a receiver for Tenant's properties.
(c) Assignment or subletting by Tenant in violation of Section 12.
(d) Vacation or abandonment of the Leased Premises without the
written consent of Landlord or failure to occupy the Leased
Premises within twenty (20) days after notice of tendering
possession.
(e) Tenant's failure to comply with any other term or condition
within twenty (20) days following written notice from Landlord
specifying the noncompliance. If such noncompliance cannot be
cured within the twenty (20) day period, this provision shall
be satisfied if Tenant commences correction within such period
and thereafter proceeds in good faith and with reasonable
diligence to effect compliance as soon as possible.
15.2 Legal Expenses.
In case of default as described in Section 15.1, Landlord shall have
the right to the following remedies which are intended to be cumulative
and in addition to any other remedies provided under applicable law:
(a) Landlord may at its option terminate the Lease by notice to Tenant.
With or without termination, Landlord may retake possession of the
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Leased Premises and may use or relet the Leased Premises without
accepting surrender or waiving the right to damages. Following such
retaking of possession, efforts by Landlord to relet the Leased
Premises shall be sufficient if Landlord uses reasonable and good
faith efforts for finding tenants for the space at rates not less
than the current rates for other comparable space in the Building.
If Landlord has other vacant space in the Building, prospective
tenants may be placed in such other space without prejudice to
Landlord's claim to damages or loss of rentals from Tenant.
(b) Landlord may recover all damages caused by Tenant's default which
shall include an amount equal to rentals lost because of the
default, lease commissions paid for this Lease, and the unamortized
cost of any tenant improvements installed by Landlord to meet
Tenant's special requirements. Landlord may sue periodically to
recover damages as they occur throughout the Term, and no action for
accrued damages shall bar a later action for damages subsequently
accruing. Landlord may elect in any one action to recover accrued
damages plus damages attributable to the remaining Term of the
Lease. Such damages shall be measured by the difference between the
Monthly Base Rent under this Lease and the reasonable rental value
of the Leased Premises for the remainder of the Term discounted to
the time of judgment at the prevailing interest rate on judgments.
(c) Landlord may make any payment or perform any obligation which Tenant
has failed to perform, in which case Landlord shall be entitled to
recover from Tenant upon demand all amounts so expended, plus
interest from the date of the expenditure at the rate of one and
one-half percent (1.5%) per month. Any such payment or performance
by Landlord shall not waive Tenant's default.
16. Default by Landlord.
Landlord shall not be in default unless Landlord fails to perform
obligations required of Landlord within twenty (20) days after written notice
by Tenant to Landlord which describes the default; provided, however, that if
the nature of Landlord's obligation is such that more than twenty (20) days
are required for performance, then Landlord shall not be in default if
Landlord commences performance within such twenty (20) day period and
thereafter diligently prosecutes the same to completion.
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17. Damage or Destruction.
No damages, compensation or claim shall be payable by Landlord for
inconvenience, loss of business or annoyance arising from any repair or
restoration of any portion of the Leased Premises or the Building.
17.1 Destruction.
If the Leased Premises or the Building in which the Leased Premises
are located are destroyed or damaged such that the cost of repair exceeds
fifty percent (50%) of the value of the structure before the damage,
either party may elect to terminate the Lease a~ of the date of the
damage or destruction by notice given to the "other in writing not more
than sixty (60) days following the date of damage. If neither party
elects to terminate, Landlord shall diligently proceed to restore the
Leased Premises to substantially the same or better form as prior to the
damage or destruction so as to provide Tenant with usable space
equivalent in quantity and character and in the same location as existed
prior to the damage or destruction. Tenant shall be responsible for the
cost to rebuild any fixtures or improvements not insured under the
insurance policy referred to in Section 13.1 unless such damage or
destruction was caused or by the gross negligence of Landlord, its agents
or employees, or persons under the control or supervision of Landlord.
Work shall commence as soon as reasonably possible and thereafter shall
proceed without interruption except for work stoppages on account of
labor disputes and matters beyond Landlord's reasonable control.
17.2 Rent Abatement.
Rent shall be abated during the repair of any damage to the extent
the Leased Premises are untenantable, except that there shall be no rent
abatement where the damage occurred as the result of the negligence of
Tenant, its employees, agents or contractors.
17.3 Damage Late in Term.
If damage or destruction to which Section 17.1 would apply occurs
within one year before the end of the then-current Term, Tenant may elect
to terminate the Lease by written notice to Landlord given within thirty
(30) days after the date of the damage.
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17.4 Express Agreement.
The provisions of this Section shall be considered an express
agreement governing any case of damage or destruction of the Building or
Leased Premises by fire or other casualty.
18. Subordination and Attornment
18.1 Subordination.
This Lease shall be subordinate to any existing or future mortgages
or deeds of trust on the Building or on the leasehold interest held by
Landlord, and to any extensions, renewals, or replacements thereof. At
the request of Landlord, Tenant shall promptly execute and deliver all
instruments which may be appropriate to further secure and document such
subordination.
18.2 Attornment.
If the interest of Landlord is transferred to any person or entity
by reason of foreclosure or other proceedings for enforcement of any
mortgage, deed of trust or security or by delivery of a deed in lieu of
foreclosure or other proceedings, Tenant shall upon delivery to Tenant by
said transferee of a nondisturbance agreement, immediately and
automatically attorn to such person or entity. In the event of such
transfer, this Lease and Tenant's rights hereunder shall continue
undisturbed so long as Tenant is not in default.
18.3 Tenant's Certificate.
Tenant and or Landlord shall at any time and from time to time upon
not less than three days' prior written notice from Landlord and or
Tenant execute, acknowledge and deliver to Landlord and or Tenant a
statement in writing (a) certifying that this Lease is unmodified and in
full force and effect (or, if modified, stating the nature of such
modification and certifying that this Lease as so modified is in full
force and effect), and the date to which the rents are paid in advance,
if any, and (b) acknowledging that there are not, to Tenant's and or
Landlord's knowledge, any uncured defaults on the part of Landlord and or
Tenant hereunder, or specifying such defaults if any are claimed, and (c)
setting forth the date of commencement of Monthly Base Rents. Any such
statement may be relied upon by any prospective purchaser or encumbrancer
of all or any portion of the Building.
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18.4 Transfer or Sale of Property.
Should Landlord sell or transfer, in any way, its ownership interest
or a portion thereof of the Leased Premises, the new owner shall be
required to honor this Lease including extensions thereof so long as
Tenant is not in default.
19. Access by Landlord.
Landlord or Landlord's employees, agents, and contractors shall have the
right to enter the Leased Premises with reasonable notice to examine the same
or to make such repairs, alterations, improvements or additions as Landlord
may deem necessary or desirable. If Tenant is not personally present to permit
entry and an entry is necessary, Landlord may in case of emergency forcibly
enter the same, without rendering Landlord liable therefor. Nothing contained
herein shall be construed to impose upon Landlord any duty of repair of the
Leased Premises or the Building except as otherwise specifically provided for
herein.
20. Abandonment of Leased Premises.
Should Tenant vacate or abandon the Leased Premises or be dispossessed by
process of law or otherwise for more than twenty (20) business days, such
abandonment, vacation or dispossession shall be deemed a breach of this Lease,
and, in addition to any other rights which Landlord may have, Landlord may
remove any personal property belonging to Tenant which remains on the Leased
Premises and store the same, the cost of such removal and storage to be
charged to the account of Tenant.
21. Attorney's Fees and Court Costs.
The prevailing party shall recover from the losing party, attorney's fees
and costs if an attorney is hired to collect the rental due herewith or to
enforce compliance with any of the terms, covenants or conditions of this
Lease. The losing party promises and agrees to pay the prevailing party's
reasonable attorney's fees and costs even though no suit or action is filed
hereon. However, if a suit or action is filed, the amount of such reasonable
attorney's fees shall be fixed by the court or courts in which the suit or
action, including any appeal therein, is tried, heard or decided. Such sum
shall include an amount estimated by the court as the reasonable costs and
fees to be incurred by the prevailing party in collecting any monetary
judgment or award or otherwise enforcing each order, judgment or decree
entered in such suit, action or other proceedings. Attorney's fees and costs
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include those attorney's fees and costs incurred seeking relief from stay in
bankruptcy courts.
22. Quiet Enjoyment
Tenant, upon fully complying with and promptly performing all of the
terms, covenants and conditions of this Lease on its part to be performed, and
upon the prompt and timely payment of all sums due hereunder, shall have and
quietly enjoy the Leased Premises for the Term set forth herein as against any
adverse claim of Landlord or any third party claiming by, through or under
Landlord.
23. Signs.
Tenant shall not place or suffer to be placed on the exterior walls of
the Leased Premises or upon the roof or any exterior door or wall or on the
exterior or interior of any window thereof any sign, awning, canopy, marquee,
advertising matter, decoration, letter or other thing of any kind, without the
prior written consent of Landlord. Tenant, at Tenant's expense, shall have the
right to install signage consistent with Landlord's size and design guidelines
upon Landlord's written approval, which shall not be unreasonably withheld.
24. Holdover.
If Tenant shall continue to occupy the Leased Premises after the
expiration or sooner termination of this Lease, Tenant shall pay, as
liquidated damages, for each month of continued occupancy an amount equal to
one and one-half (1.5) times the monthly rent being paid for the month the
Lease expires or is terminated. No receipt of money by Landlord from Tenant
after expiration or termination of this Lease shall reinstate or extend this
Lease or affect any prior notice given by Landlord to Tenant.
25. Miscellaneous.
25.1 Tenant Defined.
The word "Tenant" as used herein shall mean each and every person,
partnership or corporation who is mentioned as a Tenant herein or who
executes this Lease as Tenant.
25.2 Joint Obligation.
If there be more than one Tenant, the obligations hereunder imposed
shall be joint and several.
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25.3 Broker's Commission.
Landlord and Tenant represent and warrant that they have incurred no
liabilities or claims for brokerage commissions or finder's fees in
connection with the execution of this Lease and that they have not dealt
with or have any knowledge of any real estate broker, agent or
salesperson in connection with this Lease other than the individuals
named in Section 1.1.
25.4 Recording.
Tenant shall not record this Lease without the prior written consent
of Landlord.
25.5 Notices.
Any notice required in accordance with any of the provisions herein
if to Landlord shall be delivered or mailed by first class US mail to the
address of Landlord as set forth by the signature of the Parties, or at
such other place as Landlord may in writing from time to time direct to
Tenant, and if to Tenant, shall be delivered or mailed by first class US
mail to Tenant at the Leased Premises. If there is more than one Tenant,
any notice required or permitted hereunder may be given by or to any one
thereof, and shall have the same force and effect as if given by or to
all thereof. Notices shall be deemed received on the date hand delivered
or on the date that is three days after proper mailing if sent by first
class US mail.
25.6 Time.
Time is of the essence of this Lease and each and all of its
provisions in which performance is a factor.
25.7 Prior Agreements.
This Lease contains all of the agreements of the parties hereto with
respect to any matter covered or mentioned in this Lease, and no prior
agreements or understanding pertaining to any such matters shall be
effective for any purpose. No 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. This Lease shall not be
effective or binding on any party until fully executed by both parties
hereto.
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25.8 Choice of Law.
This Lease shall be governed by the laws of the state in which the
Leased Premises are located.
25.9 Confidentiality.
Tenant agrees to keep all terms and conditions of this Lease
strictly confidential and not directly or indirectly divulge such
information to any third party without Landlord's prior written consent
except that the Tenant may report any information required by laws or
regulations applicable to tenant.
25.10 Portion of Rent.
In the event of commencement or termination of this Lease at a time
other than the beginning or end of one of the specified rental periods,
then the Monthly Base Rent shall be prorated as of the date of
commencement or termination and in the event of termination for reasons
other than default, all prepaid rent shall be refunded to Tenant or paid
on its account.
25.11 Net Lease.
Landlord and Tenant acknowledge that this Lease is a "net lease"
with respect to taxes, insurance, utility service, repairs and
maintenance of the Leased Premises and Common Areas. Landlord shall
receive all Monthly Base Rents and all payments hereunder that Tenant is
required to make to Landlord free from any charges, assessments,
impositions, expenses, deductions and offsets.
IN WITNESS WHEREOF, the parties hereto have executed this instrument the
day and year first above set forth.
LANDLORD TENANT
NE Broadway Partners South Umpqua Bank
P0 Box 529 1448 NE Weidler
Eugene, OR 97440 Portland, OR 97232
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EXHIBIT A
Floor Plan showing Useable Space and Shared Common Area
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EXHIBIT B
NE Broadway Partners
Real Property Lease
Tenant lmprovement Provisions.
1. Building Standard Components Provided By Landlord.
Landlord agrees to deliver the Leased Premises with all utilities and
mechanical systems in good working order and all existing portable
fixtures removed from the Leased Premises.
2. Tenant lmprovement Allowance Provided By Landlord.
In addition to the items specified in paragraph 1 above, Landlord will
provide an allowance of $30,000. Such allowance will be used by Tenant in
the Leased Premises to provide: lighting, partitions, carpet, paint, etc.
and shall be paid to Tenant upon receipt of a Certificate of Occupancy
and the release of all liens.
3. lmprovements Constructed By Tenant.
3.1 All work that is to be performed in connection with Tenant
Improvements on the Leased Premises by Tenant or Tenant's contractor
is hereafter referred to as tenant's work ("Tenant's Work"), and is
subject to the following conditions:
3.2 Such Tenant's Work shall not proceed until Landlord's written
approval which shall not be unreasonably withheld of each of the
following items: (1) Tenant's contractor; (2) public liability and
property damage insurance carried by Tenant or its contractor; and
(3) schematic plans and specifications which shall be prepared by
Tenant's Planner at Tenant's expense. All such Tenant's Work shall
be done in strict conformity with such final plans and
specifications.
3.3 Tenant shall obtain at Tenant's expense any required building
permits. All Tenant's Work shall be performed at Tenant's sole
expense in accordance with the building permits and all applicable
governmental regulations. Notwithstanding any failure by Landlord to
object to any such Tenant's Work, Landlord shall have no
responsibility for Tenant's failure to meet all applicable
regulations. Tenant shall hold Landlord harmless from any and all
liability, costs, damages, expenses (including attorneys' fees) and
from any liens resulting from Tenant's Work.
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3.4 If, in conjunction with the application for or issuance of any
permits, or certificates to either Landlord or Tenant or to their
respective designees with respect to the commencement and/or
completion of either Landlord's work or Tenant's work, any
governmental or quasi-governmental authority having jurisdiction
requires the performance of any work to correct or modify Building
structure or Building access (including front or back entry/door to
Tenant's space) in order to receive permit or certificate, then this
work shall be performed by Landlord at Landlord's sole expense.
3.5 Tenant shall provide Landlord with work commencement notice and
Tenant's contractors construction schedule for all Tenant's work.
Landlord shall be informed in advance of any Tenant's work requiring
access to the adjoining tenant's leased space or disruption of any
utility service to the Building.
3.6 If any work performed by Tenant or Tenant's contractor is not
performed properly or if the Leased Premises are not properly
cleaned, Landlord shall notify Tenant and Tenant shall correct such
work and clean the Leased Premises.
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EXHIBIT C
NE Broadway Partners
Real Property Lease
Option to Renew.
At the end of the original Lease Term, providing Tenant is not then in
default, Tenant shall have the right and option to renew this Lease for an
additional five (5) year term. In the event Tenant exercises the option to
renew, Tenant shall give Landlord written notice of intent to renew not less
than one-hundred eighty (180) days and not more than two-hundred ten (210)
days prior to the end of the original Term. In the event Tenant is not in
default and gives the notice to Landlord within the time set forth above,
this Lease shall be renewed for a period of five (5) years upon the same
terms and conditions as set forth herein except for rent. The parties shall
meet within thirty (30) days of the date Tenant gives Landlord notice of
intent to renew the Lease and agree upon the rent which will be determined by
market rates then in effect.
At the end of the first option period described above, providing Tenant is
not then in default, Tenant shall have the right and option to renew this
Lease for an additional five (5) year term. In the event Tenant exercises the
option to renew, Tenant shall give Landlord written notice of intent to renew
not less than one-hundred eighty (180) days and not more than two-hundred ten
(210) days prior to the end of the original Term. In the event Tenant is not
in default and gives the notice to Landlord within the time set forth above,
this Lease shall be renewed for a period of five (5) years upon the same
terms and conditions as set forth herein except for rent. The parties shall
meet within thirty (30) days of the date Tenant gives Landlord notice of
intent to renew the Lease and agree upon the rent which will be determined by
market rates then in effect.
Arbitration.
If a dispute arises between the parties concerning the rental rates for the
option periods, either party may request arbitration and appoint as an
arbitrator an independent real estate professional having knowledge of
valuation of rental properties comparable to the Leased Premises. The other
party shall also choose an arbitrator with such qualifications, and the two
arbitrators shall choose a third. If the choice of the second or third
arbitrator is not made within ten (10) days of the choosing of the prior
arbitrator, then either party may apply to the presiding judge of the
judicial district where the Leased Premises are located for appointment of
the required arbitrator.
The arbitration shall proceed according to the Oregon statutes governing
arbitration, and the award of arbitrators shall have the effect therein
provided. The arbitration shall take place in the county where the Leased
Premises are located. Costs of the arbitration shall be shared equally by the
parties, but each party shall pay its own attorney fees incurred in
connection with the arbitration. The purpose of the arbitrators is to
establish a fair market rental value.
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EXHIBIT D
NE Broadway Partners
Real Property Lease
Rules and Regulations.
1. No sign, placard, picture, advertisement, name or notice shall be posted
or affixed on or to any part of the outside of the Building or the Leased
Premises except a suite number and Tenant name outside the Leased
Premises entry door without the prior consent of Landlord, and Landlord
shall have the right to remove any sign, placard, picture, advertisement,
name or notice posted in violation of this rule, without notice to and at
the expense of Tenant.
2. The sidewalks, exits or entrances shall not be obstructed by any Tenant
or used for any purpose other than for ingress and egress from the Leased
Premises. The exits, entrances, and roof are not for the use of the
general public and Landlord shall in all cases retain the right to
control and prevent access thereto by all persons whose presence in the
judgment of Landlord shall be prejudicial to the safety, character,
reputation and interests of the Building and its tenants.
3. Tenant shall not alter any lock or install any new or additional locks or
any bolts on any door of the Leased Premises or the Building without the
prior written consent of Landlord.
4. The restrooms and the fixtures and equipment contained therein shall not
be used for any purpose other than that for which they were constructed.
Restroom fixtures shall not be used for the disposal of foreign
substances (e.g. coffee grounds) and the expense of any breakage,
stoppage or damage resulting from violation of this rule shall be borne
by the responsible Tenant.
5. Tenant shall not permit the Leased Premises to be occupied or used in a
manner offensive or objectionable to the other occupants of the Building,
persons having business therein, or the occupants of neighboring
buildings. Specifically, Tenant shall not use, keep or permit to be used
or kept any noxious gas or odorous substance in the Leased Premises.
Tenant shall not allow any animals of any kind to be brought into or kept
in or about the Leased Premises or the Building. Tenant shall not make or
permit to be made any loud or disturbing noises, whether by any musical
instrument, audio equipment, appliance, or in any other way. Tenant shall
not install any radio or television antenna, loudspeaker, or other device
on the roof or exterior walls or windows of the Building.
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6. Tenant shall not install vinyl, tile, carpet or other similar floor
covering so that the same shall be affixed to any floor of the Leased
Premises in any manner except as approved by Landlord. The expense of
repairing any damage resulting from a violation of this rule or of
removing any floor coverings affixed in violation of this rule shall be
borne by Tenant.
7. Before leaving the Building, Tenant and Tenant's employees shall (1) see
that the doors of the Leased Premises are closed and securely locked; (2)
shut off all water faucets and water-using appliances; and (3) shut off
all lights except security night lights and appliances which consume
electricity, so as to prevent waste or damage. Tenant shall indemnify
Landlord and other tenants for any injuries sustained by any of them as a
result of any violation of this rule.
8. Landlord reserves the right to exclude or expel from the Building any
person who, in the judgment of Landlord, is intoxicated or under the
influence of liquor or drugs, or who shall in any manner do any act in
violation of any of the Rules and Regulations of the Building.
9. The requirements of Tenant will be attended to only upon application at
the Building management office. Employees of Landlord shall not perform
any work or do anything outside of their regular duties unless under
special instructions from Landlord, and no employee will admit any person
(tenant or otherwise) to any office without specific instruction from
Landlord.
10. Without the prior written consent of Landlord, Tenant shall not use the
name of the Building to promote or advertise the business of Tenant
except as Tenant's address.
11. Tenant agrees that it shall comply with all fire and security regulations
that may be issued from time to time by Landlord. Tenant shall also
provide Landlord with the name of a designated responsible employee to
represent Tenant in all matters pertaining to fire or security
regulations.
12. Landlord reserves the right to rescind, alter or waive, by written notice
to Tenant, any rule or regulation prescribed for the Building when, in
Landlord's judgment, it is necessary, desirable or proper to take such
action in the best interest of the Building and its tenants. The waiver
of a rule or regulation for the benefit of a particular tenant or tenants
shall not be construed as a waiver of such rule or regulation in favor of
any other tenant or tenants, nor shall any such waiver prevent Landlord
from thereafter enforcing the rules or regulation in question against any
or all tenants of the Building.
13. These Rules and Regulations supplement and shall not be construed to
modify or amend the provisions of the Lease Agreement or other agreement
between Landlord and Tenant. In the event of any conflict between these
Rules and Regulations and the Lease Agreement and any agreement executed
by Landlord and Tenant, the Lease Agreement shall prevail.
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14. Landlord may require Tenant to provide Landlord the license number at
automobiles to be parked in the parking lot pursuant to the rights
granted hereunder. Landlord may provide parking stickers to Tenant to
identify automobiles parked in such parking lot. In such event, any
automobiles parked in areas allocated for Tenants of the Building which
are not properly identified as automobiles belonging to Tenant, or
employees or agents thereof, may be removed by Landlord without notice to
Tenant. The cost of any such removal shall be borne by Tenant. In the
event of any repeated violations of the rules and regulations promulgated
by Landlord with respect to the parking lot, Landlord shall have the
right to revoke Tenant's parking privileges granted hereunder without
terminating this Lease. Any such revocation shall be evidenced by
delivery of written notice to Tenant.
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ADDENDUM
Signage. Landlord understands that Tenant will pursue approval for
increased signage beyond the current thirty-two (32) square feet maximum with
the City of Portland. If approval is granted, Tenant intends to install
individualized dimensional lettering, which is the mutually preferred
solution for the building. If Tenant is unable to receive increase their
allowed square footage for signage, Landlord will approve appropriately sized
and designed acceptable alternate signage.
Final approval will be contingent upon Landlord's review of complete shop
drawings showing placement, construction and connections prior to work
commencing.
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LEASE AGREEMENT
THIS LEASE AGREEMENT, made in duplicate originals at Roseburg, Oregon, on
this 5th day of November 1998, by and between G & I INVESTMENTS, an Oregon
Partnership, hereinafter designated as "LANDLORD", and SOUTH UMPQUA BANK,
hereinafter designated as "TENANT".
W I T N E S S E T H:
Landlord is constructing a building (Building) and related site
improvements on a parcel of property located at the corner of Pine and Cass
Streets, Roseburg, Oregon. Tenant desires to lease a portion of the first
floor of the building, which will consist of approximately 4,828 square feet
of usable space, which area is depicted on attached Exhibits "A". The area
leased to Tenant under this agreement is referred to herein as the "Leased
Premises." In consideration of the covenants, agreements and stipulations
herein contained on the part of the Landlord and Tenant to be observed and
faithfully performed, and in consideration of the rentals to be paid as herein
provided, Landlord hereby leases to Tenant, and Tenant hereby rents from
Landlord the leased premises.
(1) Occupancy:
a. Bui1ding and Tenant Improvements: Landlord shall construct the
Building and related site improvements and all improvements for the
Leased Premises (on a build-to-suit, turn-key basis, except as provided
below) in accordance with plans and specifications to be approved by
Landlord and Tenant. Plans and specifications for the Building and
leasehold improvements shall be consistent with schematic plans prepared
by Dallas W. Horn, architect, dated October 8, 1998, subject to changes
thereto agreed by Landlord and Tenant. Landlord will be constructing the
Building and leasehold improvements on a "fast track" basis. Final plans
and specifications/working drawings for each phase of the project shall
be submitted by Landlord to Tenant for approval. Such approval shall not
be unreasonably withheld as long as such plans and specifications/
working drawings conform substantially to the approved schematics. The
Building and Tenant improvements shall be constructed with quality
materials in a good and workmanlike manner. Landlord shall construct and
install all leasehold improvements for the Leased Premises including, but
not limited to (except as noted below), the following:
(i) All ceilings, light fixtures, floor coverings, and wall finishes, of
good quality and as reasonably approved by Tenant;
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(ii) All restrooms, fully fixtured;
(iii)All built-in counters shown on the schematics, with counter areas
in conference rooms and the meeting room on the first floor plumbed
and fixtured, with sink;
(iv) All conduits for fiber optics, phone, and computer lines;
(v) Designated circuits to the computer room;
Excluded from Landlord's responsibility are any modular units to be
installed by Tenant, any cabinetry behind the reception area, other than
built-in counters/cabinets to be provided by Landlord, appliances (except
as specified above). Landlord shall be responsible for pulling all fiber
optic, phone and computer lines. Landlord shall provide access to Tenant
for completion of Tenant's work so that the space will be ready for
occupancy when Landlord's work is completed. Any change orders made after
approval of any phase of the project will be paid for by the party
requesting the change order.
b. Completion Date: Landlord shall substantially complete the
Building and leasehold improvements for the Leased Premises by January 1,
1999. As used herein, "substantial completion" means that the Building
and leasehold improvements have been completed in accordance with plans
and specifications, as certified by Landlord's architect and accepted by
Tenant, that a certificate of occupancy has been issued and the Leased
Premises are ready for occupancy and use by Tenant, with only minor
details of construction (punch list items) remaining to be done which do
not interfere with Tenant's occupancy or use. If Landlord requires
additional time and Tenant approves, the substantial completion date
shall be modified to a date that is acceptable to both Landlord and
Tenant. If Landlord fails to substantially complete the Building and
leasehold improvements by the substantial completion date specified above
or as mutually modified, Landlord shall be responsible to Tenant for any
additional costs, expenses or losses that Tenant incurs because of such
failure.
c. Outside Completion Date: Notwithstanding any other provisions of
this Lease to the contrary, if the Building and leasehold improvements
have not been substantially completed by January 31, 1999, Tenant shall
have the right to terminate the Lease.
d. Tenant's Work: Tenant shall have access to the Leased Premises
prior to substantial completion of Landlord's work, to permit Tenant to
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install its wiring for phone and computer hookups and to install its
modular units in the Leased Premises.
e. Original Term: The original term of this Lease shall be a period
of 5 years, commencing 10 days following the date of substantial
completion (as determined under Paragraph 1) but not sooner than February
1, 1999.
f. Addendum: Leased Premises shall be measured to determine the area
and the parties shall sign an instrument which establishes the area of
the Leased Premises, the commencement date, and the termination date of
this Lease.
g. Renewal Terms: Tenant shall have the option of renewing this
Lease for two successive terms of five years each. Each renewal term
shall commence on the day following the expiration of the preceding term.
The option may be exercised by written notice to Landlord not later than
90 days prior to the last day of the expiring term. The terms and
conditions of the Lease for each renewal term shall be identical with the
original term except for rent and except Tenant shall no longer have an
option to renew this lease that has been exercised. Basic rent for the
renewal term shall be an increase of the amount of basic for the original
term in a percentage equal to the increase in the consumer price index
published by the United States Labor Statistics, subject to the Preferred
Tenant Status Clause herein.
(2) Basic Rent: The Tenant shall pay to Landlord as rental for the above
described property the sum of:
a. $1.15 per square foot, which shall be payable on the 1st day of
each month, in advance at such place as may be designated by Landlord,
except that the rental for the first month of the term hereby created has
been paid upon the execution of this lease, together with the rental for
the last month of the term hereby created, and Landlord acknowledges
receipt of said sum. If rent has not been received by Landlord by 5:00
p.m. on the 7th of the month, Tenant shall pay to the Landlord a late fee
in the amount of $500.00.
b. Rent for the first and last months of this lease term shall be
prorated on a daily basis if the lease commences (by reason of prior
rental payments) on a day other than the first day of the month.
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c. Preferred Tenant Status: Landlord hereby agrees to give Tenant
preferred Tenant Status and further agrees that Landlord will not rent
any space in the building, a portion of which is occupied by Tenant, for
less rent per square foot than what Landlord is renting to Tenant.
(3) Charges. Each party shall promptly pay all charges which hereafter
may be lawfully levied or imposed upon said premises and chargeable to either.
All sums which either party is required to pay to protect its interest in said
property shall, at its election, and after notice to the other, be added or
subtracted (whichever is appropriate) to unpaid rental, or, in the
alternative, shall be billed to the other and shall accrue 9% interest. Such
remedy shall not be deemed exclusive.
(4) Additional Rent: All utility charges and personal property taxes that
Tenant is required to pay by this Lease, and any other sum that Tenant is
required to pay to Landlord (such as its prorata share of taxes and insurance
under Paragraph (6) below) or to third parties shall be additional rent.
(5) Tenant sha11 a1so pay:
a. All taxes upon Tenant's personal property on the Premises,
including trade fixtures owned by Tenant;
b. All charges for heat, light, power, water, internal security, and
other services or utilities separately metered to and used by Tenant in
the Leased Premises;
c. All janitorial services for the Leased Premises;
d. Expenses for interior maintenance of the Leased Premises;
e. Tenant shall also pay a prorata share of (i) janitorial costs for
the common restrooms on the first floor of the Building, (ii) real
property taxes and assessments, general and special, levied upon the
Building, parking areas and common areas by the City of Roseburg, Douglas
County, or the State of Oregon, and (iii) casualty insurance premiums
paid by Landlord for the Building. (iv) Costs of ordinary maintenance of
the exterior of the Building, excluding the roof, costs of maintaining
the courtyard and landscaping and other common areas of the Building.
Tenant's prorata share shall be a percentage equal to the ratio that the
usable area of the Leased Premises bears to the total leasable space in
the Building;
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f. Tenant shall bear the expense of any insurance insuring the
property of Tenant on the Premises on risks but shall not be required to
insure;
g. All amounts which Tenant is required to reimburse Landlord for
expenses incurred by Landlord in discharging Tenant's obligations; and
h. All amounts which Tenant is required to pay by any other
provision of this Lease.
i. Tenant shall also reimburse Landlord a prorata portion of any
repairs for the HVAC which are other than ordinary maintenance. Such
prorata share shall be determined by the number of months remaining on
the then current term of the lease, with Tenant's responsibility being a
percentage determined by dividing the number of months remaining on the
then current term of the lease by the total number of the months of that
term.
(6) Permitted Use: The premises shall be used for general office use.
(7) Restrictions on Use: In connection with the use of the premises,
Tenant shall:
a. Conform to all applicable laws and regulations of any public
authority affecting the premises and the use, and correct at Tenant's own
expense any failure of compliance created through Tenant's fault or by
reason of Tenant's use. Tenant shall not otherwise be required to make
expenditures to comply with any laws or regulations, including the
Americans with Disabilities Act, and in no event shall Tenant be required
to make any structural changes to effect such compliance. Notwithstanding
the foregoing, Tenant warrants that the Building and the Leased Premises
will fully comply at all times with the Americans with Disabilities Act
now in effect or as hereafter amended.
b. Refrain from any activity which would make it impossible to
insure the premises against casualty, would increase the insurance rate
or would prevent Landlord from taking advantage of any ruling of the
Oregon Insurance Rating Bureau, or its successor, allowing Landlord to
obtain reduced premium rates for long-term fire insurance policies,
unless the Tenant pays the additional cost of the insurance, and
affirmatively takes such precautions as shall be recommended by the
Landlord.
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(8) Land1ord's Obligations: The following shall be the responsibility of
the Landlord up to the point of entry to the premises:
a. Maintenance and repair of the roof and foundations and any
repairs necessitated by disrepair or defect of the roof and foundations,
exterior maintenance (including periodic painting) of the Building and
maintenance and repair of all common areas of the Building, parking
areas, courtyard and landscaping, and repair of the heating and
ventilation system in the Premises other than ordinary maintenance or
repairs due to misuse, abuse of the system by Tenant or Tenant's failure
to properly maintain the system. Landlord shall also be responsible for
maintenance and repair of the elevator.
b. All repairs or restoration made necessary by fire or other peril
which could be covered by a standard fire insurance policy with an
extended coverage endorsement, or by reason of war, or by earthquake or
other natural casualty.
(9) Tenant's Obligations: The following shall be the responsibility of
the Tenant:
a. Any interior decorating.
b. Any repairs necessitated by the negligence of Tenant or Tenant's
agents, employees or contractors, except for damage covered by Landlord's
insurance required under paragraph (15).
c. Ordinary maintenance of the heating and air conditioning systems
and repairs necessary because of misuse or abuse of the system or
improper maintenance.
d. Any repairs or alterations required under Tenant's obligation to
comply with laws and regulations as set forth in paragraph 7 above.
e. All other repairs to the premises necessary to Tenant's use of
the premises which Landlord is not required to make under paragraph 9
above.
(10) Land1ord's Interference with Tenant: Any repairs, replacements,
alterations or other work performed on or around the leased premise by
Landlord shall be done in such a way as to interfere as little as reasonably
possible with use of the premises; and work shall be done so as to result in
no significant reduction in Tenant's usable area. Tenant shall have the right
to an abatement of rent for any claim against Landlord for any inconvenience
or disturbance resulting from Landlord's activities performed in conformance
with the requirements of this provision.
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(11) Reimbursement for Repairs Assumed: If either party fails or refuses
to make repairs which are required by this lease, the other party may make the
repairs and charge the actual costs of repairs to the first party. Such
expenditures by the Landlord shall bear 9% interest per annum from the date of
expenditure by the Landlord. Such expenditures by the Tenant may be deducted
from rent and other payments subsequently becoming due, or at Tenant's
election, collected directly from the Landlord. Except in an emergency
creating an immediate risk of personal injury or property damage, neither
party may perform repairs which are the obligation of the other party and
charge the other party for the resulting expenses unless at least thirty (30)
days before work is commenced the defaulting party is given notice in writing
outlining with reasonable particularity the repairs required, and such party
fails within that time to initiate such repairs in good faith.
(12) Inspection of Premises: Landlord shall have the right to inspect the
premises at any reasonable time or times during normal business hours to
determine the necessity of repair. Whether or not such inspection is made, the
duty of the Landlord to make repairs as outlined above in any area of Tenant's
possession and control shall not mature until a reasonable time after Landlord
has received from Tenant notice in writing of the repairs that are required.
(13) Alterations:
a. Tenant may make such alterations or improvements, including
signage, to the leased premises as required by Tenant's use of said
premises except that all alterations and improvements so made shall
comply with all applicable federal, local and state laws, rules and
regulations.
(14) Insurance Required: Landlord shall keep the Building and other
improvements, including the Leased Premises, insured against all risks of
direct physical loss or damage of the type normally covered by a standard fire
insurance policy with endorsements for extended and special extended coverage,
including coverage for additional costs resulting from debris removal and
reasonable coverage for enforcement of any ordinance or law regulating
reconstruction or replacement of any damaged portions of the building required
to be demolished or removed by reason of enforcement of any building, zoning,
safety or land use laws as a result of a covered loss, for replacement value
and containing a waiver of subrogation and inflation guard protection. The
cost of such insurance shall be subject to reimbursement by Tenants of the
Building on a prorata basis, as provided in Paragraph (6) above. Tenant shall
bear the expense of any insurance insuring the property of Tenant on the
premises against such risks, but shall not be required to insure said
property, whether or not said property be personal or an improvement to said
premises.
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(15) Waiver of Subrogation: The parties shall obtain from their
respective insurance carriers waivers of subrogation against the other party,
agents, employees and, as to the Tenant, invitees. Neither party shall be
liable to the other for any loss or damage caused by fire or any of the risks
enumerated in a standard fire insurance policy with an extended coverage
endorsement if such insurance was obtainable at the time of such loss or
damage. The party benefiting from a waiver of subrogation clause in an
insurance policy shall pay any additional premium required to obtain such a
clause within 10 days after being notified by the other party of such
additional cost, unless the benefiting party can obtain such insurance
satisfactory to the first party.
(16) Partial Damage: If the leased premises are partly damaged and
paragraph 17 below does not apply, the property shall be repaired as follows:
If the Leased Premises are partly damaged and Paragraph (17)
does not apply, the Leased Premises shall be repaired by
Landlord at Landlord's expense. Repairs shall be accomplished
with all reasonable dispatch, subject to interruptions and
delays from labor disputes and matters beyond the control of
Landlord. Rent shall be abated to the extent the Leased
Premises is untenantable subsequent to the damage and during
the period of repair.
(17) Destruction: If the Building or the Leased Premises are destroyed or
damaged such that the cost of repair exceeds fifty per cent (50%) of the value
before the damage, the parties shall proceed as follows:
a. Either Landlord or Tenant may elect to terminate the lease as of
the date of damage or destruction by notice given to the other party in
writing not more than 45 days following the date of damage. In such event
all rights and obligations of the parties shall cease as of the date of
termination, and Tenant shall be entitled to the reimbursement of any
prepaid rent or other amounts paid by Tenant and attributable to the
anticipated term subsequent to the termination date.
b. In the absence of an election under (a) above, Landlord shall
proceed to restore the leased premises to substantially the same form as
prior to the damage or destruction so as to provide for the Tenant usable
space equivalent in quantity and character to that before the damage.
Work shall be commenced as soon as reasonably possible, and thereafter
shall proceed without interruption except
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for work stoppages on account of labor disputes and matters not under
control of the Landlord. Rent shall be abated from the date of damage
until the premises are tenantable.
c. In either event, rent shall be abated from the date of damage
except when the damage occurs solely because of the fault of the Tenant.
(18) Damage Late in Term: If damage or destruction to which the paragraph
immediately above would apply occurs within six (6) months prior to the end of
the then-current lease term, Tenant may elect to terminate the lease by notice
in writing to Landlord given within thirty (30) days after the date of the
damage. Such termination shall have the same effect as termination by the
Landlord under paragraph 17(a) above.
(19) Partial Taking: If a portion of the leased premises is condemned and
paragraph 20 does not apply, the lease shall continue on the following terms:
a. The proceeds of condemnation shall be divided between Tenant and
Landlord in accordance with the allocation of said damages made by the
condemning authority.
b. Landlord shall proceed as soon as reasonably possible to make
such repairs and alterations to the premises as are necessary to restore
the remaining premises to a condition as comparable as reasonably
practicable to Landlord may, but shall not be required to, perform
alterations prior to the actual taking after the portion to be taken has
been finally determined. Rent shall be abated to the extent the premises
are untenantable during the period of alterations and repair.
c. After the date on which title vests in the condemning authority,
or an earlier date on which alterations or repairs are commenced by
Landlord to restore the balance of the property in anticipation of
taking, the rent shall be reduced commensurately with the reduction in
value of the leased premises as an economic unit on account of the
partial taking. If the parties are unable to agree upon the amount of the
reduction of rent, the amount shall be determined by arbitration in the
same manner as is provided for determination of rent during a renewal
period.
d. If a portion of the Landlord's property not included in the
leased premises is taken and severance damages are awarded on account of
the leased premises as a result of change of grade of adjacent streets or
other activity by a public body not involving a physical taking of any
portion of the land, this shall be regarded
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as a partial condemnation to which paragraphs (a) and (c) next above
apply, and the rent shall be reduced to the extent of diminution of value
of the premises as though a portion had been physically taken.
(20) Total Taking: If a condemning authority takes all of the leased
premises or a portion sufficient to render the remaining premises reasonably
unsuitable for the use which Tenant was then making of the premises, the lease
shall terminate as of the date title vests in the condemning authorities.
Shall the parties not agree whether the premises are reasonably unsuitable,
they shall select an agreeable arbitrator to decide if the premises are
reasonably unsuitable. The decision of the arbitrator shall be binding upon
the parties. Such termination shall have the same effect as a termination
under paragraph 17(a) above. The proceeds of condemnation shall be divided
between Tenant and Landlord in accordance with the allegation of said damages
made by the condemning authority, or as their intent may equitably appear if
such allocation is not made.
(21) Sale in Lieu of Condemnation: Sale of all or part of the leased
premises to a purchaser with the power of eminent domain in the face of a
threat or probability of the exercise of the power shall be treated for the
purposes of this lease as a taking by condemnation.
(22) Liens:
a. Except with respect to activities for which Landlord is
responsible, the Tenant shall pay as due all claims for work done on and
for services rendered or materials furnished to the leased premises and
shall keep the premises free from any liens. If Tenant fails to pay any
such claims or to discharge any lien, Landlord may do so and collect the
cost as additional rent. Any amount so added shall bear interest at the
rate of 9% per annum from the date expended by Landlord and shall be
payable on demand. Such action by Landlord shall not constitute a waiver
of any right or remedy which Landlord may have on account of Tenant's
default.
b. Tenant may withhold payment of any claim in connection with a
good-faith dispute over the obligation to pay, so long as Landlord's
property interests are not jeopardized. If a lien is filed as a result of
nonpayment, Tenant shall within ten (10) days after knowledge of the
filing, secure the discharge of the lien or deposit with Landlord cash or
a sufficient corporate surety bond or other security satisfactory to
Landlord in an amount sufficient to discharge the lien plus any costs,
attorney fees and other charges
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that could accrue as a result of a foreclosure or sale under the lien.
(23) Indemnification: Tenant shall indemnify and defend Landlord
from any claim, loss or liability arising out of or related to any
activity of Tenant on the leased premises, or any condition created by
Tenant including the presence of hazardous substances on, in or about the
premises placed there by Tenant, of the leased premises in the possession
or under the control of Tenant, or failure to effect any repair or
maintenance required by this lease. Tenant's duty to indemnify shall not
apply to or prevent any claim by Tenant against Landlord for injury or
damage to Tenant or Tenant's property for which Landlord may be liable.
Landlord shall indemnify and defend Tenant from any claim, loss or
liability arising out of or relating to any activity of Landlord on the
property, or any condition of the Building, other than a condition
created by Tenant and arising out of or related to the presence of
hazardous substances, on, in or about the property unless placed there by
Tenant.
(24) Liability Insurance: Before going into possession of the
premises, Tenant shall procure, and thereafter during the term of this
lease shall continue to carry, the following insurance at Tenant's cost:
a. Public liability and property damage insurance in a reasonable
company with limits of not less than $500,000 for injury to one person,
$1,000,000 for injury to two or more persons in one occurrence, and
$500,000 for damage to property. Such insurance shall cover all risks
arising directly or indirectly out of Tenant's activities on, or any
condition of, the leased premises. Certificates evidencing such insurance
and bearing endorsements requiring ten (10) days written notice to
Landlord prior to any change or cancellation shall be furnished to
Landlord prior to Tenant's occupancy of the property.
b. Worker's Compensation from the State Accident Insurance fund or
from a responsible private carrier. Private insurance shall provide the
schedule of employee benefits required by law and shall provide
employer's liability coverage with limits as required by law. Tenant
shall supply Landlord with satisfactory evidence of public coverage or
with certificates of private coverage in the same form as required above
for Tenant's general liability insurance.
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(25) Landlord's Warranty: Landlord warrants that it is the owner of the
leased premises free of all encumbrances except the balance owed upon any
loans to pay the purchase price and has the right to lease them. Landlord will
defend Tenant's right to quiet enjoyment of the lease premises from the lawful
claims and demands of all persons during the lease term.
Landlord has complied with all Environmental Laws at its premises and the
business of Landlord has been conducted there so as not to give rise to any
claim, whether directly or indirectly, from the use, treatment, storage,
disposal, release, spill, generation, manufacture, transportation or handling
of hazardous substances. As used in this Lease, "Environmental Laws" shall
mean any federal, state or local law, statute, regulation or ordinance which
lists, defines, regulates, controls or proscribes the use, treatment, storage,
disposal, generation, manufacture, transportation or handling of "hazardous
substances". As used in this Lease, "hazardous substances" shall mean
materials that, because of their quantity, concentration of physical, chemical
or infectious characteristics, may cause or pose a present or potential hazard
to human health or the environment when improperly used, treated, stored,
disposed of, generated, manufactured, transported or otherwise handled. The
term includes, without limitation, petroleum products or crude oil or any
fraction thereof and any and all hazardous or toxic substances, materials or
wastes as defined or listed under any Environmental Laws.
(26) Assignment and Sublease: No part of the leased property may be
assigned, mortgaged or otherwise subleased, nor may a right of use of any
portion of the leased property be conferred on any third person, except as
provided hereinabove, without the prior written consent of Landlord. This
provision shall apply to all transfers by operation of law and executors and
legatees. No consent in one instance shall prevent this provision from
applying to a subsequent instance. The Landlord shall consent to a transaction
where Landlord's consent is required by this provision when withholding such
consent would be unreasonable in the circumstances.
(27) Default: The following shall be events of default:
a. Failure of Tenant to comply with any term or condition or fulfill
any obligation of this lease, including payment, within thirty (30) days
after written notice by Landlord specifying the nature of the default
with reasonable particularity.
b. Insolvency of Tenant; an assignment by Tenant for the benefit of
creditors; the filing by Tenant of a voluntary petition in bankruptcy; an
adjudication that Tenant is bankrupt or the appointment of a receiver of
the properties of Tenant; the filing of
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an involuntary petition of bankruptcy and failure of Tenant to secure a
dismissal of the petition within thirty (30) days after filing;
attachment of or the levying of execution on the leasehold interest and
failure of Tenant to secure discharge of the attachment or release of the
levy of execution within ten (10) days.
(28) Termination: In the event of a default, the lease may be terminated
at the option of the Landlord by notice in writing to Tenant. The notice may
be given before or within thirty (30) days after the running of the grace
period for default and may be included in a notice of failure of compliance
given under paragraph 28(b) and (c) above. If the property is abandoned by
Tenant in connection with a default, termination shall be automatic and
without notice.
(29) Damages Without Termination: If this lease is not terminated by
election of Landlord or otherwise, Landlord shall be entitled to recover
damages from Tenant.
(30) Re-entry After Termination: If the lease is terminated for Tenant's
defaults, Tenant's liability to Landlord for damages shall survive such
termination, and the rights and obligations of the parties shall be as
follows:
a. Tenant shall vacate the property immediately, remove any property
of Tenant including any fixtures which Tenant is required to remove at
the end of the lease term, perform any clean up, alterations or other
work required to leave the property in the condition required at the end
of the term, and deliver all keys to Landlord.
b. Landlord may re-enter, take possession of the premises and remove
any personal property by legal action or by self-help with the use of a
reasonable force and without liability for damages.
(31) Reletting: Following re-entry or abandonment, Landlord shall make
all reasonable efforts to relet the premises and in that connection may:
a. Make any suitable alterations or refurbish the premises, or both,
or change the character or use of the premises.
b. Relet the premises for a term longer or shorter than that term of
this lease upon reasonable terms and conditions.
(32) Damages: In the event of termination on default, Landlord shall be
entitled to recover immediately, without waiting until the due date of
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any future rent or until the date fixed for expiration of the lease term, the
following amounts as damages:
a. Any excess of: (i) the value of all of Tenant's obligations under
this lease, including the obligation to pay rent, from the date of
default until the end of the term, over (ii) the reasonable rental value
of the property for the same period figured as of the date of default,
the net result to be discounted to the date of default at 121 per annum.
b. The reasonable costs of re-entry and reletting, including without
limitation the cost of clean up, removal of Tenant's property and
fixtures, or any other expense occasioned by Tenant's failure to quit the
premises upon termination and to leave them in the required condition,
attorney fees, court costs, broker commissions and advertising costs.
c. Remedies Cumulative. The foregoing remedies shall be in addition
to and shall not exclude any other remedy available to Landlord under
applicable law.
(33) Condition of Premises: Upon expiration of the lease term or earlier
termination on account of default or termination without default, Tenant shall
deliver all keys to the Landlord and surrender the leased premises in good
condition, reasonable wear and tear excepted. Alterations constructed by
Tenant shall not be removed by Tenant unless such alterations can be removed
without damage to the remaining premises, or such damage to the remaining
premises as is occasioned by the removal of said alterations is repaired.
Depreciation and wear from ordinary use for the purpose for which the premises
were let need not be restored to original condition, but all repair for which
Tenant is responsible shall be completed before the latest practical date
prior to such surrender.
(34) Fixtures:
a. All fixtures placed upon the leased premises during the term by
Tenant shall be the Tenant's property provided Tenant shall remove said
fixtures prior to the latest practical date prior to surrender of the
leasehold. All other personal property shall remain the property of
Tenant if placed on the lease premises by Tenant.
b. The time for removal of any property or fixtures which the Tenant
has the right to remove and wishes to remove from the leased premises
upon termination shall be as follows:
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(i) On or before the date the lease terminates
because of expiration of the original or any renewal, or
because of default.
(ii) Within thirty (30) days after notice from the
Landlord requiring such removal where the property to be
removed is a fixture which Tenant is not required to
remove.
(35) Holdover
a. At the expiration of the lease term, Tenant may continue to
occupy said premises as a month-to-month tenant subject to Landlord's
right to terminate such tenancy upon thirty (30) days' notice. Such
occupancy shall be subject to all of the provisions of the lease except
the provisions for term and renewal. Failure of Tenant to remove
fixtures, furniture, furnishings, or trade fixtures which the Tenant may
remove under this lease shall constitute a failure to vacate to which
this paragraph shall apply if the property not removed substantially
interferes with the occupancy of the premises by another Tenant or with
occupancy by Landlord for any purpose.
b. If a month-to-month tenancy results from a holdover by Tenant,
the tenancy shall be terminable upon thirty (30) days' written notice.
(36) Nonwaiver: Waiver by either party of strict performance of any
provision of this lease shall not be a waiver of or prejudice the party's
right to require strict performance of the same provision in the future, or of
any other provision.
(37) Attorney's Fees: If a civil action is instituted in connection with
any controversy arising out of this lease, the prevailing party shall be
entitled to recover in addition to costs such sum as the Court may adjudge
reasonable as attorney fees at trial or by any appellate court upon appeal.
(38) Context: The covenants herein shall be binding upon the benefits and
advantages shall inure to the respective heirs, legal representatives,
successors and assigns of the parties hereto. Whenever used, "Landlord" and
"Tenant" shall include their successors in interest, the singular the plural,
the plural the singular, and the use of any gender shall be applicable to all
genders.
(39) Notices: Any notice required or permitted under this lease shall be
given when actually delivered or when deposited in the United States mail,
addressed as follows:
15
<PAGE>
Landlord: G & I Investments
P.O. Box 909
Roseburg, OR 97470
Tenant: South Umpqua Bank
Registered Agent:
445 SE Main Street
Roseburg, OR 97470
or to such other address as may be specified from time to time by either of
the parties in writing.
(40) Parking: Landlord shall provide Tenant with not less than 8 spaces,
marked and designated for the exclusive use of Tenant and its customers,
located on the north side of the building, and an additional nine (9) spaces
for employee parking in the lot on the south side of the building closest to
Mosher Street.
(41) Taxes: Landlord shall pay all real property taxes and assessments
levied on the building and the land upon which it is situated, including the
parking areas for the Building, subject to Tenant's obligation to reimburse
Landlord for Tenant's prorata share of such taxes, as provided in Paragraph
6e. If the land upon which the Building and the parking areas for the Building
are situated consists of more than one tax lot or if the tax lots on which the
Building and parking for the Building are situated are used by others or for
purposes in addition to the Building and its Tenants, in calculating the taxes
which are subject to reimbursement on a prorata basis, the amount of taxes for
the land shall be only that portion of the land taxes that are reasonably
attributable to the Building and parking for the Building, including common
areas, as determined by Landlord and as reasonably approved by Tenant.
(42) Signage: Tenant shall have the exclusive right to place a sign on
the north side of the building. The sign shall be secured flat on the wall of
the building and shall be no larger than _____ feet by _______ feet. Landlord
agrees that it shall not allow any other tenant to place a sign on the
exterior of the building without first obtaining the written permission of
South Umpqua Bank, which shall not be unreasonably withheld. In addition,
Tenant shall have the right to place a pilon sign in the landscaping area
around the building, the specific site to be mutually agreed on between the
Landlord and Tenant.
16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have set their hands the day and
year first above written.
LANDLORD:
G & I INVESTMENTS
By: /s/ David Gilbert
----------------------------
David Gilbert
TENANT:
SOUTH UMPQUA BANK
By: /s/ Raymond P. Davis
----------------------------
Raymond P. Davis
Registered Agent 11/5/98
Index to Financial Information
Page
Management's Discussion and Analysis of Financial
Condition and Results of Operations ................................... 17
Independent Auditors' Report .......................................... 29
Consolidated Balance Sheets ........................................... 30
Consolidated Statements of Income ..................................... 31
Consolidated Statements of Changes in Shareholders' Equity
and Comprehensive Income .............................................. 32
Consolidated Statements of Cash Flows ................................. 33
Notes to Consolidated Financial Statements ............................ 34
Corporate Information ................................................. 44
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Disclosure Regarding Forward Looking Statements
The following narrative includes a discussion of certain significant
business trends and uncertainties, as well as other forward looking
statements, and is intended to be read in conjunction with and is qualified in
its entirety by reference to the consolidated financial statements and
accompanying notes included elsewhere in this Annual Report.
This Annual Report includes forward looking statements that are based on
the current beliefs of the Company's management, as well as assumptions made
by and information currently available to the Company's management. All
statements other than statements of historical fact included in this Annual
Report regarding the Company's financial position, business strategy, and
plans and objectives of management of the Company for future operations, are
forward looking statements. When used in this Annual Report, the words
"anticipate," "believe," "estimate," and "intend," and words or phrases of
similar meaning, as they relate to the Company or Company management, are
intended to identify forward looking statements. Although the Company believes
that the expectations reflected in such forward looking statements are
reasonable, it can give no assurance that such expectations will prove to have
been correct. Based upon changing conditions, the occurrence of certain risks
or uncertainties, or if any underlying assumptions prove incorrect, actual
results may vary materially from those described herein as anticipated,
believed, estimated, expected or intended. The Company does not intend to
update these forward looking statements. All subsequent written and oral
forward looking statements attributable to the Company and/or persons acting
on its behalf are expressly qualified in their entirety.
Overview
Umpqua Holdings Corporation (the Company) is a bank holding company
headquartered in Roseburg, Oregon. It is the parent company of South Umpqua
Bank, a commercial bank (the Bank) and Strand, Atkinson, Williams & York,
Inc., a retail brokerage firm. The Company provides financial solutions for
its customers along the Interstate 5 corridor from Portland to Medford,
Oregon. The Company's strategy is to differentiate itself through superior
customer service, innovative product delivery, and the establishment of strong
brand awareness and customer loyalty.
The Company continued its expansion plans in 1999 with the establishment
of a new loan center in February, the formation of a holding company in March,
the relocation and expansion of its Sutherlin store in June, the opening of
its first Portland-area store in July, and the acquisition of Strand,
Atkinson, Williams & York, Inc. in November. In January 2000 the Company
opened its first store in Salem.
Financial Highlights
The Company earned $4.9 million in 1999, up 18.6% over 1998 earnings of
$4.1 million. Diluted earnings per share also improved to $0.63 in 1999
compared with $0.55 in 1998. The return on average shareholders' equity
improved to 13.55% for 1999 compared with 13.14% for 1998. Total loans grew
over 33% in 1999 to $248.5 million at year end, while total deposits increased
17.9% to $301.7 million during the same period.
Results of Operations
The following discussion is intended to provide information to facilitate
the understanding and assessment of significant changes and trends related to
the financial condition and results of operations of the Company. This
discussion and analysis should be read in conjunction with Company's
consolidated financial statements and notes appearing elsewhere in this Annual
Report.
<TABLE>
<CAPTION>
Percentage
1999 1998 Growth
- - ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Average assets ...................... $ 336,010,000 $ 279,123,000 20.4%
Average deposits .................... 271,194,000 231,781,000 17.0%
Average loans and loans held for sale 212,824,000 167,222,000 27.3%
Net income .......................... 4,874,000 4,110,000 18.6%
Return on average assets ............ 1.45% 1.47% -1.4%
Return on average equity ............ 13.55% 13.14% 3.1%
Basic earnings per common share ..... $ 0.64 $ 0.56 14.3%
Diluted earnings per common share ... $ 0.63 $ 0.55 14.5%
</TABLE>
17
<PAGE>
SELECTED QUARTERLY FINANCIAL DATA
The following tables set forth the Company's unaudited consolidated
financial data regarding operations for each quarter of 1999 and 1998. This
information, in the opinion of management, includes all normal recurring
adjustments necessary to state fairly the information set forth therein.
Certain amounts previously reported have been reclassified to conform with
current presentation. These reclassifications had no net impact on the results
of operations.
<TABLE>
<CAPTION>
1999
----------------------------------
First Second Third Fourth
(in thousands) Quarter Quarter Quarter Quarter
- - ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income Statement Data
Interest income ................................... $5,723 $5,941 $6,282 $6,734
Interest expense .................................. 1,941 2,036 2,131 2,348
---------------------------------
Net interest income ............................... 3,782 3,905 4,151 4,386
Provision for loan losses ......................... 328 327 226 511
---------------------------------
Net interest income after provision for loan losses 3,454 3,578 3,925 3,875
Noninterest income ................................ 978 958 955 1,533
Noninterest expense ............................... 2,537 2,713 2,926 3,525
---------------------------------
Income before provision for income taxes .......... 1,895 1,823 1,954 1,883
Provision for income taxes ........................ 691 651 712 627
---------------------------------
Net Income .................................... $1,204 $1,172 $1,242 $1,256
=================================
Basic earnings per common share ................... $ 0.16 $ 0.15 $ 0.16 $ 0.16
Diluted earnings per common share ................. $ 0.15 $ 0.15 $ 0.16 $ 0.16
</TABLE>
<TABLE>
<CAPTION>
1998
----------------------------------
First Second Third Fourth
(in thousands) Quarter Quarter Quarter Quarter
- - ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income Statement Data
Interest income ................................... $4,823 $5,140 $5,388 $5,567
Interest expense .................................. 1,781 1,785 1,872 1,856
---------------------------------
Net interest income ............................... 3,042 3,355 3,516 3,711
Provision for loan losses ......................... 274 237 180 334
---------------------------------
Net interest income after provision for loan losses 2,768 3,118 3,336 3,377
Non-interest income ............................... 847 847 840 837
Non-interest expense .............................. 2,194 2,324 2,379 2,581
---------------------------------
Income before provision for income taxes .......... 1,421 1,641 1,797 1,633
Provision for income taxes ........................ 528 611 660 583
---------------------------------
Net Income .................................... $ 893 $1,030 $1,137 $1,050
=================================
Basic earnings per common share ................... $ 0.14 $ 0.13 $ 0.15 $ 0.14
Diluted earnings per common share ................. $ 0.13 $ 0.13 $ 0.15 $ 0.13
</TABLE>
18
<PAGE>
AVERAGE BALANCES AND AVERAGE RATES EARNED AND PAID
The following table shows average balances and interest income or
interest expense, with the resulting average yield or rates by category of
average earning asset or interest-bearing liabilty:
<TABLE>
<CAPTION>
Year ended December 31, 1999 Year ended December 31, 1998 Year ended December 31, 1997
-------------------------------------------------------------------------------------------
Interest Average Interest Average Interest Average
Income Yields Income Yields Income Yields
Average or or Average or or Average or or
(in thousands) Balance Expense Rates Balance Expense Rates Balance Expense Rates
- - ----------------------------------------------------------------------------------------------------------------------------------
INTEREST-EARNING ASSETS:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans (1)(2) ........................ $ 212,446 $ 19,144 9.01% $ 166,032 $ 15,625 9.41% $ 135,988 $ 13,087 9.62%
Loans held for sale ................. 378 49 12.96% 1,190 112 9.41% 449 34 7.57%
Investment securities
Taxable securities ............... 63,774 3,966 6.22% 69,811 4,196 6.01% 57,214 3,406 5.95%
Non-taxable securities (1) ....... 19,925 1,307 6.56% 9,017 569 6.31% 4,573 329 7.19%
Temporary investments ............... 12,201 611 5.01% 10,209 558 5.47% 14,736 806 5.47%
--------------------- --------------------- ---------------------
Total interest earning assets ....... 308,724 25,077 8.12% 256,259 21,060 8.22% 212,960 17,662 8.29%
Cash and due from banks ............. 18,661 15,506 13,248
Allowance for loan losses ........... (2,991) (2,446) (2,159)
Other assets ........................ 11,616 9,804 9,158
--------- --------- ---------
Total assets ..................... $ 336,010 $ 279,123 $ 233,207
INTEREST-BEARING LIABILITIES:
Interest-bearing checking and
savings accounts ................. $ 137,488 $ 3,417 2.49% $ 121,568 $ 3,208 2.64% $ 105,523 $ 2,827 2.68%
Time deposits ....................... 77,586 3,660 4.72% 64,419 3,262 5.06% 55,868 2,860 5.12%
Term debt ........................... 26,678 1,379 5.17% 14,699 825 5.61% 13,756 806 5.86%
--------------------- --------------------- ---------------------
Total interest-bearing liabilities 241,752 8,456 3.50% 200,686 7,295 3.64% 175,147 6,493 3.71%
Non-interest-bearing deposits ....... 56,120 45,794 37,795
Other liabilities ................... 2,174 1,370 1,818
--------- --------- ---------
Total liabilities ................ 300,046 247,850 214,760
Shareholders' equity ................ 35,964 31,273 18,447
--------- --------- ---------
Total liabilities and
shareholders' equity $ 336,010 $ 279,123 $ 233,207
========= ========= =========
NET INTEREST INCOME (1) $ 16,621 $ 13,765 $ 11,169
======== ========= =========
NET INTEREST SPREAD 4.62% 4.58% 4.58%
AVERAGE YIELD ON EARNING ASSETS (1),(2) 8.12% 8.22% 8.29%
INTEREST EXPENSE TO EARNING ASSETS 2.75% 2.85% 3.05%
----- ----- -----
NET INTEREST INCOME TO EARNING ASSETS (1),(2) 5.37% 5.37% 5.24%
===== ===== =====
</TABLE>
(1) Tax exempt income has been adjusted to a tax equivalent basis at a 34%
effective rate. The amount of such adjustment was an addition to recorded
income of $397, $142 and $120 for 1999, 1998 and 1997, respectively.
(2) Non-accrual loans are included in average balance.
19
<PAGE>
ANALYSIS OF CHANGES IN INTEREST DIFFERENTIAL
The following table sets forth, on a tax-equivalent basis, a summary of
the changes in net interest income resulting from changes in volumes and
rates. Changes not due solely to volume or rate changes are allocated to rate.
<TABLE>
<CAPTION>
1999 COMPARED TO 1998 1998 COMPARED TO 1997
---------------------------------------------------------------------
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO CHANGE IN DUE TO CHANGE IN
---------------------------------------------------------------------
VOLUME RATE NET CHANGE VOLUME RATE NET CHANGE
---------------------------------------------------------------------
(in thousands)
INTEREST-EARNING ASSETS:
<S> <C> <C> <C> <C> <C> <C>
Loans(1) ................................................. $ 4,368 $(849) $ 3,519 $ 2,891 (353) $ 2,538
Loans held for sale ...................................... (76) 13 (63) 56 22 78
Investment securities
Taxable securities .................................... (363) 133 (230) 750 40 790
Non-taxable securities(1) ............................. 688 50 738 320 (80) 240
Temporary investments ................................. 109 (56) 53 (248) (0) (248)
---------------------------------------------------------------------
Total (1) .......................................... 4,726 (709) 4,017 3,769 (371) 3,398
INTEREST-BEARING LIABILITIES:
Interest-bearing checking and
savings accounts ....................................... 420 (211) 209 430 (49) 381
Time deposits ............................................ 667 (269) 398 438 (36) 402
Term debt ................................................ 672 (118) 554 55 (36) 19
---------------------------------------------------------------------
Total .............................................. 1,759 (598) 1,161 923 (121) 802
---------------------------------------------------------------------
Net increase (decrease) in net interest income ........... $ 2,967 $(111) $ 2,856 $ 2,846 $(250) $ 2,596
=====================================================================
</TABLE>
(1) Tax-exempt interest income has been adjusted to a tax equivalent basis at
a 34% effective tax rate.
Net Interest Income for the Years Ended December 31, 1999, 1998 and 1997
The primary component of earnings for financial institutions is net
interest income. Net interest income is the difference between interest
income, primarily from loans and investments, and interest expense on deposits
and borrowings. Changes in net interest income result from changes in
"volume," changes in "spread," and changes in "margin." Volume refers to the
level of average interest-earning assets and average interest-bearing
liabilities. Spread refers to the difference between the yield on
interest-earning assets and the cost of interest-bearing liabilities. Margin
refers to the ratio of net interest income to interest-earning assets and is
influenced by the mix of interest-earning assets and interest-bearing
liabilities as well as the relative proportion of interest-bearing liabilities
to interest-earning assets.
Net interest income on a taxable equivalent basis was $16.6 million for
1999, a $2.9 million or 20.7% improvement over 1998. The primary reason for
this increase was an increase in the volume of earning assets, which averaged
$308.7 million during 1999 compared with $256.3 million during 1998. The
primary reasons for the increase in average interest-earning assets were
increases in loans and non-taxable investment securities. Average loans were
$46.4 million higher in 1999 when compared with 1998 and average non-taxable
securities increased $10.9 million during the same period. The increase in
average loans was due primarily to an increase in commercial real estate loans
(see additional discussion under Loans). The increase in average non-taxable
investments was due to the comparative attractiveness of yields available on
municipal securities versus taxable securities in 1999. The yield on average
loans during 1999 declined 0.40% compared with 1998 to 9.01%. This decline was
due primarily to loan repricings in the Company's variable-rate loan portfolio
and was consistent with overall rate movements during the period. The average
prime rate in 1999 was 7.99% compared with 8.36% in 1998. Although the yield
on loans declined 0.40%, the yield on average interest-earning assets declined
by only 0.10% due to improvements in the mix of interest-earning assets.
Average loans comprised 68.8% of earning assets during 1999 compared with
64.8% during 1998. The increase in interest-earning assets was funded by a
combination of interest-bearing deposits, term debt, and non-interest-bearing
liabilities and equity. Average interest-bearing deposits increased $29.1
million, and average term debt increased $12.0 million. The average cost of
interest-bearing liabilities declined 0.14% compared with 1998 to 3.50% during
1999. This decline was consistent with overall market rates during the period.
Comparing 1998 with 1997, net interest income increased $2.6 million, and
the margin improved 0.13% to 5.37%. The increase in net interest income was
primarily attributable to increases in average earning assets, which were up
$43.3 million. The improvement in the margin was primarily attributable to
higher non-interest-bearing liabilities and equity as a proportion of earning
assets. Average non-interest-bearing funding was 30.6% of average earning
assets in 1998 compared with 27.3% in 1997.
20
<PAGE>
Provision for Loan Losses for the Years Ended December 31, 1999, 1998 and 1997
The provision expense is management's estimate of the amount necessary to
maintain an allowance for loan losses at a level which is considered adequate
based on the risk of losses inherent in the loan portfolio (see additional
discussion under Allowance for Loan Losses). Management believes the allowance
has been maintained at an adequate level with the provision for loan loss
expense of $1,392,000 in 1999, $1,025,000 in 1998 and $562,000 in 1997. Loan
charge-offs, net of loan recoveries, were $587,000, $502,000 and $412,000 for
the years 1999, 1998 and 1997, respectively.
Non-Interest Income for the Years Ended December 31, 1999, 1998 and 1997
Non-interest income was $4,424,000 and $3,371,000 for the years ended
1999 and 1998, respectively. Service fees, the largest component of
non-interest income, increased $759,000 over 1998 to $2,973,000 in 1999. This
34.2% increase was due primarily to service charges on checking accounts which
were up $435,000, and ATM fee income which was up $317,000. The increase in
service charges was due to deposit fee repricing and an increase in the number
of checking accounts. ATM fees increased due to expansion of the Company's ATM
network. Other income was $370,000 in 1999 compared with $284,000 in 1998, an
$86,000 increase. Brokerage commissions and fees increased to $830,000 in 1999
compared with $523,000 in 1998. The primary reason for the increase was
revenue generated by the Company's brokerage subsidiary, Strand, Atkinson,
Williams & York, Inc, which was acquired in November 1999. Gain on sale of
loans declined to $251,000 in 1999 from $349,000 in 1998. Gains on sales of
loans result primarily from the origination and sale of single family
residential loans. Loans sold were approximately $16.1 million in 1999 and
$29.3 million in 1998.
Comparing 1998 to 1997, total non-interest income increased $315,000 to
$3,371,000. Improvements in service fees, commissions and gain on sale of
loans were partially offset by a decline in the gain on sale of mortgage
servicing rights. Service fees were up due to growth in deposit accounts and
expansion of the Company's ATM network. The Company sold its mortgage
servicing rights in March 1997 resulting in a $583,000 gain. As a result,
there was no loan servicing income in 1999 or 1998.
Non-Interest Expense for the Years Ended December 31, 1999, 1998 and 1997
Non-interest expense consists principally of employees' salaries and
benefits, occupancy costs, communications expenses, marketing, professional
fees and other non-interest expenses. One measure of a Company's ability to
contain non-interest expense is the efficiency ratio. It is calculated by
dividing total non-interest expense by the sum of net interest income on a
tax-equivalent basis and non-interest income. The Company's efficiency ratio
for 1999 was 55.6% compared with 55.3% in 1998 and 61.9% in 1997. The increase
in 1999 was due partially to the operating expenses of Strand, Atkinson,
Williams & York, Inc. The operating costs for the retail brokerage business
are higher than those for the commercial bank. Excluding the income and
operating costs of Strand, Atkinson, Williams & York, Inc., the efficiency
ratio for 1999 would have been 55.2%.
Non-interest expense for 1999 increased $2,224,000 over 1998 to
$11,702,000. Salaries and benefits increased $1,115,000. Salaries and benefits
expenses at Strand, Atkinson, Williams & York, Inc. accounted for $259,000 of
the increase while the remainder was due to expansion at the Bank. Full-time
equivalent employees at the Bank grew from 157 at the end of 1998 to 175 at
the end of 1999. Occupancy expense increased $240,000 over 1998 to $945,000
for 1999. This increase was due to the opening of a new Portland store, a new
loan center, the relocation and expansion of the Sutherlin store, and the
opening of a Support and Accounting Office. Marketing expense increased
$206,000 over 1998 to $942,000 in 1999 as the result of increased marketing
efforts and the expansion into new markets. Communications expenses, which
consist primarily of postage and telephone expense, were $786,000 in 1999
compared with $630,000 in 1998. The increase was due to the Company's
increased loan and deposit base, as well as expansion of the Company's ATM
network and costs associated with new and remodeled facilities. Professional
services include director fees, attorney fees, accountant fees, security
services and other fees. Professional fees were up $322,000 in 1999 compared
with 1998 due primarily to the expansion and servicing of the Company's ATM
network and increased internal audit and accounting fees.
Comparing 1998 with 1997, total non-interest expense increased $678,000
to $9,478,000. Communications expense in 1998 increased $127,000 compared with
1997 due to the Company's increased loan and deposit base, as well as costs
associated with the ATM network. Professional fees were $1,021,000 in 1998
compared with $796,000 in 1997. The increase from 1997 was due to increased
security services related to store and ATM network expansion, and additional
expenses as the result of becoming a publicly traded Company in 1998.
Income Taxes for the Years Ended December 31, 1999, 1998 and 1997
The provision for income taxes was $2,681,000, $2,382,000 and $1,699,000
for the years 1999, 1998 and 1997, respectively. The provision resulted in
effective combined federal and state tax rates of 35.5%, 36.7% and 35.8%. The
1.2% decrease in the effective rate from 1998 to 1999 was due to increased
non-taxable revenue generated by the Company. In 1997 the Company's state
income tax rate was reduced from 6.6% to 3.8% due to surplus revenues received
by the State of Oregon.
21
<PAGE>
Investment Portfolio
Investment securities held at December 31, 1999 were $76,869,000 compared
with $84,888,000 at December 31, 1998. The objectives of the investment
portfolio are to provide liquidity, offset interest rate risk positions and
provide a profitable interest yield to the Company. The Company classifies all
of its investment securities as "available-for-sale" and consequently carries
them at fair value. At December 31, 1999 the Company had net unrealized losses
of $2,872,000 compared with net unrealized gains at December 31, 1998 of
$1,023,000. Unrealized gains/ losses reflect changes in market conditions and
do not represent the amount of actual profits or losses the Company may
ultimately realize. Actual gains and losses are recognized at the time
investment securities are sold or redeemed. The net unrealized losses resulted
from the effect that increasing market interest rates had on the Company's
fixed-rate investment portfolio. The following tables provide details of the
Company's investment portfolio and its maturity distribution and yields.
The following table provides the carrying values of the Company's
portfolio of investment securities as of December 31, 1999 and 1998:
December 31,
----------------
(in thousands) 1999 1998
- - ------------------------------------------------------------------------------
Investment Securities Available-For-Sale At Fair Value:
Obligations of U.S. Government agencies .................... $39,153 $41,054
U.S. Treasury securities ................................... 2,509 6,081
U.S. Government agency mortgage-backed securities .......... 13,695 22,344
Obligations of states and political subdivisions ........... 21,512 14,261
Mutual fund ................................................ - 1,148
----------------
$76,869 $84,888
================
The maturity distribution and yields of securities at December 31, 1999 were
as follows:
<TABLE>
<CAPTION>
December 31, 1999
------------------------------------------
Weighted
Amortized Approximate Average
Cost Market Value Yield(1)
- - -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasuries and Agencies:
One year or less ................................ $ 2,500 $ 2,509 6.65%
One to five years ............................... 11,285 11,131 6.33%
Five to ten years ............................... 29,703 28,022 6.39%
Over ten years .................................. -- -- --
------------------------------------------
Total ....................................... 43,488 41,662 6.39%
------------------------------------------
Obligations of States and Political Subdivisions:
One year or less ................................ 266 266 6.70%
One to five years ............................... 6,111 6,045 6.67%
Five to ten years ............................... 15,652 14,992 6.48%
Over ten years .................................. 219 209 7.42%
------------------------------------------
Total ....................................... 22,248 21,512 6.54%
------------------------------------------
Serial Maturities (2) ........................... 14,005 13,695 6.26%
------------------------------------------
$79,741 $76,869 6.41%
==========================================
</TABLE>
(1) Weighted average yields are stated on a federal tax equivalent basis at a
34% effective tax rate.
(2) Serial maturities include mortgage-backed securities, collateralized
mortgage obligations and asset-backed securities.
Trading Account Assets
The Company had trading account assets of $475,000 at December 31, 1999
and $0 at December 31, 1998. The Company's entire trading portfolio is the
result of the Strand, Atkinson, Williams & York, Inc. acquisition, and
represents securities held at year end for sale to retail clients. Trading
account assets are recorded at fair value and gains/losses are recognized in
income currently.
22
<PAGE>
Loans
Outstanding loans, excluding mortgage loans held for sale, were $248.5
million at December 31, 1999 compared with $186.2 million at December 31,
1999. Real estate mortgage loans increased $34.4 million from year-end 1998 to
year-end 1999 while construction loans increased $16.2 million during the same
period. The Company also experienced strong growth in the Commercial and
Industrial loan segment, which was up $12.0 million between December 31, 1998
and December 31, 1999. The Company's loan portfolio carries credit risk, which
could result in loan charge-offs. The Company manages this risk through the
use of credit policies and review procedures. (See additional information
under the Allowance for Loan Losses discussion.)
The following table presents the composition of the Company's loan
portfolio at December 31 of the years indicated:
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------------------------
(in thousands) Amount % Amount % Amount % Amount % Amount %
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and industrial $60,137 24.20% $48,140 25.90% $44,487 28.70% $28,848 25.60% $16,966 20.50%
Real estate:
Construction 29,962 12.10% 13,766 7.40% 10,761 6.90% 6,235 5.50% 4,081 5.00%
Mortgage 128,003 51.40% 93,592 50.20% 69,824 45.00% 53,120 47.10% 42,518 51.40%
Individuals 30,228 12.20% 30,309 16.30% 29,548 19.10% 24,259 21.50% 18,952 22.90%
Other 204 0.10% 360 0.20% 458 0.30% 399 0.30% 196 0.20%
-----------------------------------------------------------------------------------------------------
Total $248,534 100.00% $186,167 100.00% $155,078 100.00% $112,861 100.00% $82,713 100.00%
=====================================================================================================
</TABLE>
The following table sets forth the Company's loan portfolio maturities on
fixed-rate loans and the repricing dates on variable-rate loans, at December
31, 1999:
Within One to After
(in thousands) One Year Five Years Five Years Total
- - ----------------------------------------------------------------------------
Fixed-Rate Loan Maturities
Commercial and industrial ..... $ 2,158 $ 6,545 $ 8 $ 8,711
Real estate ................... 10,491 2,763 7,488 20,742
Individuals ................... 2,166 9,399 6,737 18,302
Other ......................... - - - -
-------------------------------------------
Total .................... $ 14,815 $18,707 $ 14,233 $ 47,755
===========================================
Adjustable-Rate Loan Repricings
Commercial and industrial ..... $ 49,947 $ 1,478 $ - $ 51,425
Real estate ................... 63,099 74,124 - 137,223
Individuals ................... 11,927 - - 11,927
Other ......................... 204 - - 204
-------------------------------------------
Total .................... $125,177 $75,602 $ - $200,779
===========================================
23
<PAGE>
Non-performing Loans
Commercial and real estate loans are placed on non-accrual status when
they are 90 days past due as to principal or interest, unless the loans are
both well-secured and in the process of collection. The increase in
non-accrual loans between 1999 and 1998 was primarily due to the addition of
one large commercial loan in late 1999. The Company is currently addressing
the issues involved with this credit, and final resolution is anticipated in
the third quarter of 2000.
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------------
(in thousands) 1999 1998 1997 1996 1995
- - ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans on non-accrual status $ 1,398 $ 457 $ 1,157 $ 218 $ 222
Loans past due greater than 90 days but
not on non-accrual status 206 159 101 26 7
Other real estate owned - - - - -
------------------------------------------------------
Total non-performing assets $ 1,604 $ 616 $ 1,258 $ 244 $ 229
======================================================
Percentage of non-performing loans to total loans 0.65% 0.33% 0.81% 0.22% 0.28%
</TABLE>
Allowance for Loan Losses
The allowance for loan losses is maintained at a level considered by
management to be adequate to absorb losses inherent in the loan portfolio.
Management monitors and evaluates the adequacy of the allowance on an ongoing
basis. The following tools are used to manage and evaluate the loan portfolio:
o Internal credit review and risk grading system
o Regulatory examination results
o Monitoring of charge-off, past due and non-performing activity and trends
o Assessment of economic and business conditions in our market areas
On a quarterly basis, losses inherent in the portfolio are estimated by
reviewing the following key elements of the loan portfolio:
o Portfolio performance measures
o Portfolio mix
o Portfolio growth rates
o Historical loss rates
o Portfolio concentrations
o Current economic conditions in our market areas
The Company also tests the adequacy of the allowance for loan losses
using the following methodologies:
o Loss allocation by internally assigned risk rating
o Loss allocation by portfolio type, based on historic loan loss experience
o The allowance as a percentage of total loans
The allowance for loan losses is based upon estimates of losses inherent
in the portfolio. The amount of losses actually incurred can vary
significantly from these estimates. Assessing the adequacy of the allowance on
a quarterly basis allows management to adjust these estimates based upon the
most recent information available.
At December 31, 1999 the allowance for loan losses was $3,469,000, or
1.4% of total loans, and is considered by management adequate to absorb credit
losses on specifically identified loans as well as estimated credit losses
inherent in the portfolio.
24
<PAGE>
The following table shows activity in the allowance for loan losses for
the periods indicated:
<TABLE>
<CAPTION>
Years ended December 31,
Summary of Loan Loss Experience -------------------------------------------------------
(in thousands) 1999 1998 1997 1996 1995
- - -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans outstanding at end of year $ 248,534 $ 186,167 $ 155,078 $ 112,861 $ 82,713
=======================================================
Average loans outstanding $ 212,446 $ 166,032 $ 135,988 $ 97,985 $ 71,860
=======================================================
Allowance for loan losses, beginning of year $ 2,664 $ 2,141 $ 1,991 $ 1,237 $ 812
Loans charged off:
Commercial 549 255 82 34 -
Real estate - - - - -
Consumer 288 349 391 97 92
-------------------------------------------------------
Total loans charged off 837 604 473 131 92
-------------------------------------------------------
Recoveries:
Commercial 213 44 39 266 1
Real estate - - - - -
Consumer 37 58 22 19 28
-------------------------------------------------------
Total recoveries 250 102 61 285 29
-------------------------------------------------------
Net loans charged off (recovered) 587 502 412 (154) 63
Provision charged to income 1,392 1,025 562 600 488
-------------------------------------------------------
Allowance for loan losses, end of year $ 3,469 $ 2,664 $ 2,141 $ 1,991 $ 1,237
=======================================================
Ratio of net loans charged off to average
loans outstanding 0.28% 0.30% 0.30% -0.16% 0.09%
-------------------------------------------------------
Ratio of allowance for loan losses to
ending total loans 1.40% 1.43% 1.38% 1.76% 1.50%
-------------------------------------------------------
</TABLE>
The following table sets forth the allocation of the allowance for loan
losses at December 31, 1999:
Percentage of Loans
in Each Category
(in thousands) Amount to Total Loans
- - -------------------------------------------------------------------------------
Commercial and industrial .................... $1,364 24.20%
Real estate .................................. 1,694 63.50%
Loans to individuals ......................... 399 12.20%
Other ........................................ 12 0.10%
-------------------------
$3,469 100.00%
=========================
Capital Expenditures
Capital expenditures for premises and equipment were $2.9 million, $0.5
million and $2.1 million for the years ended December 31, 1999, 1998 and 1997,
respectively. Capital expenditures in 1999 included a Support and Accounting
Office, a new Sutherlin store, a new Portland store, additional ATMs, a
remodel of the Company's executive offices, and the construction of a store in
Salem, which opened in January 2000.
Deposits and Borrowings
Total deposits increased $45.9 million over year-end 1998 to $301.7
million at December 31, 1999. Deposits in Lane County increased $26.8 million
as the Company continued to expand its penetration into that market. Deposits
in Douglas County also increased $15.2 million during 1999. The Company does
not depend on brokered deposits or higher than market priced time deposits. At
December 31, 1999 time certificates of deposit of $100,000 or more were $28.9
million compared with $24.0 million at December 31, 1998.
Borrowings increased $21.0 million during 1999 due to strong loan demand
and the building up of liquidity in anticipation of possible Year 2000
depositor withdrawals. Approximately $6 million of the increase in borrowings
was due to the liquidity build-up. The $6 million of borrowings were repaid in
January 2000.
25
<PAGE>
The following table sets forth the average balances of Company's
interest-bearing liabilities, interest expense and average rates paid for the
periods indicated:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------------------------------------------
1999 1998 1997
----------------------------------------------------------------------------------------
Average Interest Average Average Interest Average Average Interest Average
(in thousands) Balance Expense Rate Balance Expense Rate Balance Expense Rate
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Liabilities
Interest-bearing checking ............ $ 115,552 $2,984 2.58% $102,513 $2,792 2.72% $ 88,614 $2,442 2.76%
Savings accounts ..................... 21,936 433 1.97% 19,055 416 2.18% 16,909 385 2.28%
Time deposits ........................ 77,586 3,660 4.72% 64,419 3,262 5.06% 55,868 2,860 5.12%
Borrowed funds ....................... 26,678 1,378 5.17% 14,699 825 5.61% 13,756 806 5.86%
------------------- ------------------ ------------------
Total interest-bearing liabilities 241,752 $8,455 3.50% 200,686 $7,295 3.64% 175,147 $6,493 3.71%
====== ====== ======
Non-interest-bearing liabilities ..... 58,294 47,164 39,613
--------- -------- --------
Total liabilities .................... 300,046 247,850 214,760
========= ======== ========
</TABLE>
Asset-Liability Management/Interest Rate Sensitivity
Asset and liability management is an integral part of managing a
financial institution's primary source of income, net interest income. The
Company manages the balance between the rate-sensitive assets and
rate-sensitive liabilities being repriced in any given period with the
objectives of minimizing fluctuations in net interest income. The Company
considers its rate-sensitive assets to be those that either contain a
provision to adjust the interest rate periodically or mature within one year.
These assets include certain loans and investment securities and
interest-bearing deposits in other banks. Rate-sensitive liabilities are those
liabilities that are considered sensitive to periodic interest rate changes
within one year, including maturing time certificates, certain savings
deposits and interest-bearing demand deposits. The difference between the
aggregate amount of assets and liabilities that reprice within various time
frames is called the "gap." Generally, if repricing assets exceed repricing
liabilities during a time frame, the Company would be deemed to be asset
sensitive. If aggregate repricing liabilities exceeded aggregate repricing
assets during a time frame, the Company would be deemed to be liability
sensitive during that time frame. The Company generally seeks to maintain a
balanced position within one year, whereby the difference between assets and
liabilities repricing is minimized. This is accomplished by maintaining a
significant level of loans, investment securities and deposits available for
repricing within one year.
According to the traditional financial institution industry static gap
basis table set forth on the following page, the Company was slightly
liability sensitive within one year. Changes in interest rates would not be
expected to have a significant impact on net interest margin.
In addition to this static gap report, management performs a financial
analysis (dynamic gap) to specifically analyze the change in net interest
margin from a changing rate environment. The estimate of interest rate
sensitivity takes into account the differing time intervals and differing rate
change increments of each type of interest sensitive asset and liability. It
then measures the projected impact of changes in market interest rates on the
Company's net interest income, net interest margin, and return on equity.
The interest rate gaps in the following table arise when assets are
funded with liabilities having different repricing intervals. Since these gaps
are actively managed and change daily as adjustments are made in interest rate
views and market outlook, positions at the end of any period may not be
reflective of the Company's interest rate sensitivity in subsequent periods.
Active management dictates that longer-term economic views are balanced
against prospects for short-term interest rate changes in all repricing
intervals. For purposes of the analysis above, repricing of fixed-rate
instruments is based upon the contractual maturity of the applicable
instruments. Actual payment patterns may differ from contractual payment
patterns. The change in net interest income may not always follow the general
expectations of an asset sensitive or liability sensitive balance sheet during
periods of changing interest rates, because interest rates earned or paid may
change by differing increments and at different time intervals for each type
of interest sensitive asset or liability. As a result of these factors, at any
given time, the Company may be more sensitive or less sensitive to changes in
interest rates than indicated in the following table.
26
<PAGE>
<TABLE>
<CAPTION>
Interest Rate Sensitivity - Static Gap Basis By Repricing Interval Non-
----------------------------------------- Interest-
0-3 3-12 1-5 Over 5 Bearing
December 31, 1999 (in thousands) Months Months Years Years Fund Total
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-bearing deposits in other banks ............................ $ 15,630 $ -- $ -- $ -- $ -- $ 15,630
Securities available-for-sale ....................................... 2 8,219 19,005 49,643 -- 76,869
Trading account assets .............................................. 475 -- -- -- -- 475
Loans ............................................................... 92,417 47,574 94,309 14,234 -- 248,534
Non-interest-earning assets and allowance for credit losses ......... -- -- -- -- 45,229 45,229
-------------------------------------------------------------
Total ......................................................... 108,524 55,793 113,314 63,877 45,229 $386,737
========
Liabilities and Shareholders' Equity
Interest-bearing demand deposits .................................... 32,080 32,081 64,160 -- -- 128,321
Savings deposits .................................................... 5,720 5,720 11,438 -- -- 22,878
Time deposits
Over $100,000 ................................................. 13,854 14,801 200 -- -- 28,855
Under $100,000 ................................................ 19,035 31,927 9,247 1,701 -- 61,910
Term debt ........................................................... 16,000 -- 30,158 -- -- 46,158
Non-interest-bearing liabilities and shareholders' equity ........... -- -- -- -- 98,615 98,615
-------------------------------------------------------------
Total ......................................................... 86,689 84,529 115,203 1,701 98,615 386,737
========
Interest rate sensitivity gap ....................................... 21,835 (28,736) (1,889) 62,176 (53,386)
Cumulative .......................................................... $ 21,835 $ (6,901) $ (8,790) $53,386 $ --
==================================================
Cumulative gap as a % of earning assets ............................. 6.4% (2.0%) (2.6%) 15.6%
</TABLE>
Based on a financial analysis (dynamic gap) performed as of December 31,
1999, which takes into account how the specific interest rate scenario would
be expected to affect each interest-earning asset and each interest-bearing
liability, the Company estimates that changes in the prime rate of interest
would affect the Company's performance as follows:
<TABLE>
<CAPTION>
Increase
(decrease)
in Net
Interest Net Interest Return on
Income Margin Equity
(Current prime rate is 8.50%) (000's) 1999 = 5.37% 1999 = 13.55%
- - -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Prime Rate Increase of:
2% to 10.50% ................... $ 521 5.55% 14.38%
1% to 9.50% .................... $ 262 5.47% 13.97%
Prime Rate Decrease of:
2% to 6.50% ................... $(435) 5.24% 12.86%
1% to 7.50% .................... $(210) 5.32% 13.22%
</TABLE>
27
<PAGE>
Return on average assets and average equity and certain other ratios for
the periods indicated are presented below:
Years ended December 31,
--------------------------------
(dollars in thousands, except per share data) 1999 1998 1997
- - ------------------------------------------------------------------------------
Net income .................................. $ 4,874 $ 4,110 $ 3,044
Average assets .............................. $336,010 $279,123 $233,207
Return on average assets .................... 1.45% 1.47% 1.31%
Net income .................................. $ 4,874 $ 4,110 $ 3,044
Average equity .............................. $ 35,964 $ 31,273 $ 18,447
Return on average equity .................... 13.55% 13.14% 16.50%
Cash dividends declared per share ........... $ 0.16 $ 0.115 $ 0.08
Basic earnings per common share ............. $ 0.64 $ 0.56 $ 0.47
Dividend payout ratio ....................... 25.00% 20.54% 17.02%
Average equity .............................. $ 35,964 $ 31,273 $ 18,447
Average assets .............................. $336,010 $279,123 $233,207
Average equity to average assets ratio ...... 10.70% 11.20% 7.91%
Liquidity
Liquidity enables the Company to meet the borrowing needs of its
customers and withdrawals of its depositors. The Company meets its liquidity
needs through the maintenance of cash resources, lines of credit with other
financial institutions, and a stable base of core deposits. Excess funds, when
available, are deposited on a short-term basis with the Federal Home Loan Bank
(FHLB), whose interest rates approximate Federal Funds sold. The Company's
main source of funds is the deposits of its individual and commercial
customers. Having a stable and diversified deposit base is a significant
factor in the Company's long-term liquidity structure.
At December 31, 1999 the Company had a total funding line with the FHLB
of $88.2 million. The outstanding balance of term advances was $46.2 million
at December 31, 1999 leaving an available balance of $42.0 million. The
Company also had available lines of $18.4 million from financial institutions.
At December 31, 1999 the Company had $15.6 million in interest-bearing
deposits with the FHLB. The Company also has the flexibility of selling
securities from its available-for-sale portfolio to meet liquidity needs.
Capital
Management seeks to maintain capital at a level that provides
shareholders, customers and regulators with assurance of the Company's
financial soundness, while at the same time employing leverage to achieve a
desirable level of profitability.
On February 8, 1999 the Board of Directors authorized the repurchase of
up to 500,000 shares of the Company's common stock. The Company repurchased
89,625 shares during 1999.
The Company is subject to certain minimum regulatory capital standards.
These minimum standards include maintaining Tier 1 Capital at 4.0% and Total
Capital at 8.0% of risk-weighted assets. At December 31, 1999 the Company had
a Tier 1 ratio of 13.81% and a Total Capital ratio of 15.06%.
Inflation
Assets and liabilities of a financial institution are primarily monetary
in nature. Therefore, inflation has a less significant impact on financial
institutions than fluctuations in interest rates. Inflation, as measured by
the Consumer Price Index, has not changed significantly during the past two
years and has not had a material impact on the Company.
28
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
of Umpqua Holdings Corporation:
We have audited the accompanying consolidated balance sheets of Umpqua
Holdings Corporation and subsidiaries as of December 31, 1999 and 1998, and
the related consolidated statements of income, changes in shareholders' equity
and comprehensive income, and cash flows for each of the years in the
three-year period ended December 31, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 Umpqua
Holdings Corporation and subsidiaries as of December 31, 1999 and 1998, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1999 in conformity with generally
accepted accounting principles.
/S/ KPMG LLP
KPMG LLP
Portland, Oregon
January 21, 2000
29
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------------
1999 1998
- - ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from banks, non-interest-bearing (Note 2) ................. $ 30,058,897 $ 17,765,938
Interest-bearing deposits in other banks ............................... 15,630,197 19,201,605
------------- -------------
Total cash and cash equivalents .................................... 45,689,094 36,967,543
Investment securities available-for-sale at fair value (Note 3) ........ 76,868,536 84,887,992
Trading account assets ................................................. 474,782 --
Mortgage loans held for sale, at cost which approximates market (Note 9) -- 1,780,225
Loans receivable (Note 4) .............................................. 248,533,933 186,166,966
Less: Allowance for loan losses .................................... (3,469,350) (2,663,914)
------------- -------------
Loans, net ............................................................. 245,064,583 183,503,052
Federal Home Loan Bank stock, at cost .................................. 2,346,200 1,949,200
Premises and equipment, net (Note 5) ................................... 9,419,744 7,161,950
Deferred tax asset (Note 8) ............................................ 1,141,308 --
Intangible assets (Note 17) ............................................ 2,284,415 --
Accrued interest receivable ............................................ 2,422,829 2,131,553
Other assets ........................................................... 1,025,225 505,467
------------- -------------
$ 386,736,716 $ 318,886,982
============= =============
Liabilities and Shareholders' Equity
Deposit liabilities
Demand, non-interest-bearing ....................................... $ 59,709,104 $ 52,235,927
Demand, interest-bearing ........................................... 128,321,434 111,389,033
Savings ............................................................ 22,877,722 19,968,138
Time deposits (Note 6) ............................................. 90,765,095 72,211,623
------------- -------------
Total deposit liabilities ....................................... 301,673,355 255,804,721
Term debt (Note 12) .................................................... 46,158,000 25,198,000
Accrued interest payable ............................................... 543,424 353,054
Deferred tax liability (Note 8) ........................................ -- 318,398
Other liabilities ...................................................... 1,645,715 1,067,183
------------- -------------
350,020,494 282,741,356
------------- -------------
Commitments and contingencies (Note 15)
Shareholders' Equity (Notes 13 and 14)
Common stock, no par value, 10,000,000 shares authorized;
issued and outstanding: 7,609,727 in 1999 and 7,667,552 in 1998 25,778,259 26,425,200
Retained earnings 12,708,368 9,055,331
Accumulated other comprehensive (loss) income (1,770,405) 665,095
------------- -------------
36,716,222 36,145,626
------------- -------------
$ 386,736,716 $ 318,886,982
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------------
1999 1998 1997
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Income
Interest and fees on loans ........................................ $ 19,192,599 $ 15,737,046 $ 13,113,266
Interest on taxable investment securities ......................... 4,576,785 4,754,115 4,212,145
Interest on tax-exempt investment securities ...................... 910,946 426,937 216,937
------------------------------------------
Total interest income ........................................ 24,680,330 20,918,098 17,542,348
------------------------------------------
Interest Expense
Interest on demand deposits ....................................... 2,984,813 2,791,870 2,442,045
Interest on savings accounts ...................................... 432,725 416,281 384,687
Interest on time deposits (Note 6) ................................ 3,659,957 3,261,761 2,860,345
Interest on borrowed funds ........................................ 1,378,453 824,555 805,976
------------------------------------------
Total interest expense ....................................... 8,455,948 7,294,467 6,493,053
------------------------------------------
Net interest income ....................................... 16,224,382 13,623,631 11,049,295
------------------------------------------
Provision for loan losses (Note 4) ................................ 1,392,250 1,024,650 562,180
------------------------------------------
Net interest income after provision for loan losses 14,832,132 12,598,981 10,487,115
Non-Interest Income
Service fees ...................................................... 2,973,400 2,214,891 1,657,655
Brokerage commissions and fees .................................... 829,554 523,162 424,948
Gain on sale of loans ............................................. 251,069 349,203 124,278
Loan servicing (Note 9) ........................................... -- -- 56,496
Gain on sale of mortgage servicing rights (Note 9) ................ -- -- 583,334
Loss on sale of investment securities ............................. -- -- (74,700)
Other ............................................................. 370,209 283,662 284,081
------------------------------------------
Total non-interest income .................................... 4,424,232 3,370,918 3,056,092
------------------------------------------
Non-Interest Expense
Salaries and benefits (Note 11) ................................... 5,730,972 4,616,162 4,551,197
Occupancy expense ................................................. 944,598 704,262 656,209
Equipment ......................................................... 863,408 767,072 796,390
Communications .................................................... 785,966 630,199 502,913
Marketing ......................................................... 941,618 735,976 698,333
Professional services ............................................ 1,343,276 1,020,922 796,124
Supplies .......................................................... 384,215 365,839 369,504
Other ............................................................. 707,580 637,375 428,774
------------------------------------------
Total non-interest expense ................................... 11,701,633 9,477,807 8,799,444
------------------------------------------
Income before provision for income taxes .......................... 7,554,731 6,492,092 4,743,763
Provision for income taxes (Note 8) ............................... 2,680,790 2,381,711 1,699,267
------------------------------------------
Net income ........................................................ $ 4,873,941 $ 4,110,381 $ 3,044,496
==========================================
Earnings per Common Share (Note 10)
Basic ........................................................ $ 0.64 $ 0.56 $ 0.47
==========================================
Diluted ...................................................... $ 0.63 $ 0.55 $ 0.46
==========================================
</TABLE>
See accompanying notes to consolidated financial statements.
31
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Accumulated
Number of Other
Common Common Retained Comprehensive Comprehensive
Shares Stock Earnings Income (Loss) Income (Loss)
- - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997 6,499,152 $10,353,990 $6,868,672 $ (200,931)
Net Income 3,044,496 3,044,496
Other comprehensive income, net of tax
Unrealized gains on securities arising
during the period 369,389 369,389
----------
Comprehensive income $3,413,885
==========
Transfer from retained earnings to surplus (Note 13) 3,611,004 (3,611,004)
Stock options exercised (Note 14) 9,200 41,434
Cash dividends $.0775 per share (504,397)
------------------------------------ ----------
Balance at December 31, 1997 6,508,352 $14,006,428 $5,797,767 $ 168,458
==================================== ==========
Balance at January 1, 1998 6,508,352 $14,006,428 $5,797,767 $ 168,458
Net Income 4,110,381 4,110,381
Other comprehensive income, net of tax
Unrealized gains on securities arising
during the period 558,777 558,777
Unrealized losses on securities transferred
from held-to-maturity to available-for-sale (62,140) (62,140)
----------
Comprehensive income $4,607,018
==========
Stock Issuance, net of issuance costs
of $1,416,000 1,150,000 12,384,000
Stock options exercised (Note 14) 9,200 34,772
Cash dividends $.115 per share (852,817)
------------------------------------ ----------
Balance at December 31, 1998 7,667,552 $26,425,200 $9,055,331 $ 665,095
==================================== ==========
Balance at January 1, 1999 7,667,552 $26,425,200 $9,055,331 $ 665,095
Net Income 4,873,941 $4,873,941
Other comprehensive income, net of tax
Unrealized losses on securities arising
during the period (2,435,500) (2,435,500)
----------
Comprehensive income $2,438,441
==========
Stock repurchased (89,625) (857,041)
Proceeds from stock options exercised (Note 14) 31,800 210,100
Cash dividends $0.16 per share (1,220,904)
------------------------------------ ----------
Balance at December 31, 1999 7,609,727 $25,778,259 $12,708,368 $(1,770,405)
==================================== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
32
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ............................................................ $ 4,873,941 $ 4,110,381 $ 3,044,496
Adjustments to reconcile net income to net cash provided
by operating activities:
Federal Home Loan Bank stock dividends ............................ (148,300) (142,700) (132,400)
Deferred income tax expense ....................................... 34,339 288,050 95,117
Amortization of investment premiums, net .......................... 195,222 266,396 242,151
Origination of loans held for sale ................................ (14,163,995) (29,667,550) (11,988,870)
Proceeds from sales of loans held for sale ........................ 16,142,424 29,294,904 11,948,468
Provision for loan losses ......................................... 1,392,250 1,024,650 562,180
Gain on sales of mortgage servicing rights ........................ -- -- (583,334)
Gain on servicing release premiums ................................ (198,204) (341,577) --
Gain on sales of loans ............................................ (52,866) (7,626) (124,278)
Net realized losses on sale of investment
securities available for sale ................................. -- -- 74,700
Depreciation of premises and equipment ............................ 727,726 651,651 609,148
Amortization of intangibles ....................................... 18,326 -- --
Net (increase) in other assets .................................... (461,386) (261,832) (568,382)
Net increase (decrease) in other liabilities ...................... 440,842 (889,965) 908,056
------------ ------------ ------------
Net cash provided by operating activities ............. 8,800,319 4,324,782 4,087,052
------------ ------------ ------------
Cash flows from investing activities:
Purchases of investment securities .................................... (11,445,247) (34,428,831) (25,604,231)
Purchases of FHLB stock ............................................... (248,700) -- --
Maturities of investment securities ................................... 6,917,235 6,813,012 6,883,413
Principal repayments received on mortgage-backed
and related securities ............................................ 8,457,039 11,076,719 8,215,214
Proceeds from sales of investment securities
available-for-sale ................................................ -- -- 2,932,813
Net loan originations ................................................ (65,036,790) (29,761,580) (41,632,079)
Purchase of loans ..................................................... (1,541,989) (2,060,223) (1,810,000)
Acquisition of Strand, Atkinson, Williams & York,
net of cash acquired ............................................ (2,828,182) -- --
Proceeds from sales of loans .......................................... 3,677,864 238,553 1,520,818
Purchases of premises and equipment ................................... (2,885,697) (454,604) (2,121,362)
------------ ------------ ------------
Net cash used by investing activities ................. (64,934,467) (48,576,954) (51,615,414)
------------ ------------ ------------
Cash flows from financing activities:
Net increase in deposit liabilities ................................... 45,868,634 34,079,193 48,889,024
Dividends paid on common stock ........................................ (1,220,904) (852,817) (504,397)
Net proceeds from stock offering ...................................... -- 12,384,000 --
Proceeds from stock options exercised ................................. 105,010 34,773 41,434
Retirement of common stock ............................................ (857,041) -- --
Proceeds from Federal Home Loan Bank borrowings, net .................. 20,960,000 11,460,000 1,160,000
------------ ------------ ------------
Net cash provided by financing activities ............. 64,855,699 57,105,149 49,586,061
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents ...................... 8,721,551 12,852,977 2,057,699
Cash and cash equivalents, beginning of year .............................. 36,967,543 24,114,566 22,056,867
------------ ------------ ------------
Cash and cash equivalents, end of year .................................... $ 45,689,094 $ 36,967,543 $ 24,114,566
============ ============ ============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest .......................................................... $ 8,265,578 $ 7,371,202 $ 6,668,178
Income taxes ...................................................... $ 2,685,000 $ 1,949,109 $ 1,856,010
</TABLE>
See accompanying notes to consolidated financial statements.
33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Umpqua Holdings Corporation (the Company) is a bank holding company
formed in March 1999. At that time, the Company acquired 100% of the
outstanding shares of South Umpqua Bank. The Company is headquartered in
Roseburg, Oregon, and engages primarily in the business of commercial and
retail banking and the delivery of retail brokerage services. The Company
provides a wide range of banking, asset management, mortgage banking, and
other financial services to corporate, institutional and individual customers
through its wholly-owned banking subsidiary South Umpqua Bank (the Bank). The
Company engages in the retail brokerage business through its wholly-owned
subsidiary Strand, Atkinson, Williams & York, Inc. The Company and its
subsidiaries are subject to the regulations of certain National and State
agencies and undergo periodic examinations by these regulatory agencies.
Basis of Financial Statement Presentation
The consolidated financial statements have been prepared in accordance
with generally accepted accounting principles and with prevailing practices
within the banking and securities industries. In preparing such financial
statements, management is required to make certain estimates and judgments
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the date of the balance sheet, and the
reported amounts of revenues and expenses for the reporting period. Actual
results could differ significantly from those estimates. Material estimates
that are particularly susceptible to significant change relate to the
determination of the allowance for loan losses.
Consolidation
The accompanying consolidated financial statements include the accounts
of Umpqua Holdings Corporation, South Umpqua Bank, and Strand, Atkinson,
Williams & York, Inc. All significant intercompany balances and transactions
have been eliminated in consolidation.
Cash and Cash Equivalents
For purposes of the accompanying statements of cash flows, cash and cash
equivalents includes cash and due from banks, and interest-bearing balances
due from other banks.
Trading Account Assets
Debt securities held for resale are classified as trading account
securities and reported at fair value. Realized and unrealized gains or losses
are recorded in non-interest income.
Investment Securities
Investment securities held-to-maturity are stated at cost, adjusted for
amortization of premiums and accretion of discounts. Securities
available-for-sale are stated at fair value. Gains and losses on sales of
securities, recognized on a specific identification basis, are included in
non-interest income. Net unrealized gain or loss on securities
available-for-sale are included, net of tax, as a component of shareholders'
equity.
Mortgage-backed and related securities represent participating interests
in pools of mortgage loans originated and serviced by the issuers of the
securities. Premiums and discounts are amortized using a method that
approximates the level-yield method over the remaining period to contractual
maturity, adjusted for anticipated prepayments. Certain obligations of U.S.
Government agencies are callable by the agency. Premiums on these securities
are amortized using a method that approximates the level-yield method over the
remaining period to the first call date. Discounts are amortized using a
method that approximates the level-yield method over the remaining period to
scheduled maturity.
The Company adopted Statement of Financial Accounting Standard (SFAS)
No.133, Accounting for Derivative Instruments and Hedging Activities, which
establishes accounting and reporting standards for derivative instruments and
for hedging activities. It requires that an entity recognize all derivatives
as either assets or liabilities in the balance sheet and measure those
instruments at fair value. The accounting for changes in the fair value of a
derivative (that is, gains and losses) depends on the intended use of the
derivative and resulting designation. The Company adopted the standard
effective September 30, 1998. As permitted by the standard, the Company
transferred its held-to-maturity investment portfolio to the
available-for-sale designation, resulting in a charge to accumulated other
comprehensive income of $62,140, net of tax. The adoption of the statement did
not have a material impact on the consolidated financial position or financial
results of the Company.
Loans Held For Sale
Loans held for sale include mortgage loans and are reported at the lower
of cost or market value. Gains or losses on the sale of loans that are held
for sale are recognized at the time of the sale on a specific identification
basis and determined by the difference between net sale proceeds and the net
book value of the loans sold.
Loans
Loans are reported net of unearned income. All discounts and premiums are
recognized over the life of the loan as yield adjustments.
34
<PAGE>
Impaired Loans
Loans specifically identified as impaired are measured based on the
present value of expected future cash flows, discounted at the loans'
observable market price, or the fair value of the collateral if the loan is
collateral dependent. A loan is considered impaired when, based on current
information and events, it is probable that the Company will be unable to
collect all amounts due according to the contractual terms of the loan
agreement, including scheduled interest payments. If the measurement of the
impaired loan is less than the recorded investment in the loan, impairment is
recognized by creating or adjusting an existing allocation of the allowance
for loan losses. Interest received on impaired loans is applied first against
the recorded impaired loan until paid in full, next as a recovery up to any
amounts charged off related to the impaired loan, and finally as interest
income.
Allowance for Loan Losses
The allowance for loan losses is established to absorb known and inherent
losses primarily resulting from loans outstanding and related off-balance
sheet commitments. Accordingly, all loan losses are charged to the allowance
and all recoveries are credited to it. The provision for loan losses charged
to operating expense is based on past loan loss experience and other factors
which, in management's judgment, deserve current recognition in estimating
possible loan losses. Such other factors include growth and composition of the
loan portfolio, credit concentrations, trends in portfolio volume, maturities,
delinquencies and non-accruals, the relationship of the allowance for loan
losses to outstanding loans, and general economic conditions. While management
uses the best information available to base its estimates, future adjustments
to the allowance may be necessary if economic conditions, particularly in the
Company's market, differ substantially from the assumptions used. In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review the Company's allowance for loan losses. Such agencies may
require the Company to recognize additions to the allowance based on their
judgments about information available to them at the time of their
examinations. The Company's principal lending activity is concentrated in
Douglas County, Lane County, and Multnomah County, Oregon.
Loan Fees and Direct Loan Origination Costs
Loan origination fees and direct loan origination costs are capitalized
and recognized as an adjustment to the yield over the life of the related
loans.
Non-Accrual Loans
Commercial and real estate loans are placed on non-accrual status when
they are 90 days past due as to principal or interest, unless the loan is both
well-secured and in process of collection. When a loan is placed on
non-accrual status, unpaid interest that is deemed uncollectible is reversed
and charged against current earnings, and all amortization of net deferred
fees or costs is discontinued.
Income Taxes
Income taxes are accounted for using the asset and liability method.
Under this method, a deferred tax asset or liability is determined based on
the enacted tax rates which will be in effect when the differences between the
financial statement carrying amounts and tax basis of existing assets and
liabilities are expected to be reported in the Company's income tax returns.
The effect on deferred taxes of a change in tax rates is recognized in income
in the period that includes the enactment date. Valuation allowances are
established to reduce the net carrying amount of deferred tax assets if it is
determined to be more likely than not that all or some portion of the
potential deferred tax asset will not be realized.
Mortgage Servicing
Fees related to the servicing of mortgage loans of others are recorded as
income when payments are received. Late charges and miscellaneous other fees
are credited to income when collected. The costs of servicing loans are
expensed as incurred.
Premises, Equipment and Other Long-Lived Assets
Company premises and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation is provided over the estimated
useful life of the respective assets, 5 to 39 years, on a straight-line or
accelerated basis. Expenditures for major renovations and betterments of the
Company's premises and equipment are capitalized. In accordance with SFAS No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of, management reviews long-lived assets and intangibles
any time that a change in circumstance indicates that the carrying amount of
these assets may not be recoverable. Recoverability of these assets is
determined by comparing the carrying value of the asset to the forecasted
undiscounted cash flows of the operation associated with the asset. If the
evaluation of the forecasted cash flows indicates that the carrying value of
the asset is not recoverable, the asset is written down to fair value.
Goodwill, the price paid over the net fair value of acquired businesses, is
amortized on a straight-line basis over 15 years. Other intangible assets are
amortized over their estimated useful lives on a straight-line basis.
Intangibles are evaluated periodically for impairment.
Other Real Estate Owned
Other real estate owned by the Company represents property acquired
through foreclosures or settlement of loans and is carried at the lower of the
principal amount of the loans outstanding at the time acquired or at the
estimated fair market value of the property. The Company had no other real
estate owned at December 31, 1999 or 1998.
35
<PAGE>
Profit Sharing and Stock Option Plans
The Company has a profit sharing plan covering substantially all its
employees. The contribution is determined annually by the Board of Directors
at its discretion.
The Company grants stock options for a fixed number of shares to
employees with an exercise price equal to the closing market value of the
shares on the date of grant. The Company accounts for stock option grants in
accordance with APB Opinion 25, Accounting for Stock Issued to Employees, and
accordingly recognizes no compensation expense for the stock option grants.
Computation of Earnings Per Share
Earnings per common share are based on the weighted average number of
common and common equivalent shares outstanding during each year.
Federal Home Loan Bank Stock
The Bank's investment in Federal Home Loan Bank (FHLB) stock is carried
at par value, which reasonably approximates its fair value. As a member of the
FHLB system, the Bank is required to maintain a minimum level of investment in
FHLB stock based on specific percentages of its outstanding mortgages, total
assets, or FHLB advances. At December 31, 1999, the Bank's minimum required
investment was approximately $2,008,000. The Bank may request redemption at
par value of any stock in excess of the minimum required investment. Stock
redemptions are at the discretion of the FHLB.
Reclassifications
Certain amounts reported in prior years' financial statements have been
reclassified to conform to the current presentation.
Comprehensive Income.
SFAS No. 130, Reporting Comprehensive Income, establishes standards for
reporting and displaying comprehensive income and its components in
general-purpose financial statements. Comprehensive income includes net income
and several other items that current accounting standards require to be
recognized outside of net income. This SFAS is effective for fiscal years
beginning after December 15, 1997, and as such, was adopted by the Company in
1998.
Business Segments
SFAS No. 131, Disclosure about Segments of an Enterprise and Related
Information, requires public enterprises to report certain information about
their operating segments in a complete set of financial statements to
shareholders. It also requires reporting of certain enterprise-wide
information about the Company's products and services, its activities in
different geographic areas, and its reliance on major customers. The basis for
determining the Company's operating segments is the manner in which management
operates the business. This SFAS is effective for financial statements for
periods beginning after December 15, 1997 and, as such, was adopted by the
Company in 1998. The Company has no foreign operations, no customers that
provide more than 10 percent of gross revenue, and has determined that it has
only one operating segment.
NOTE 2 - CASH AND DUE FROM BANKS
The Company is required to maintain an average reserve balance with the
Federal Reserve Bank or maintain such reserve balance in the form of cash. The
amount of average required reserve balance for the period including December
31, 1999 and 1998 was approximately $6,993,000 and $5,003,000, respectively,
and was met by holding cash and maintaining an average balance with the
Federal Reserve Bank.
NOTE 3 - INVESTMENT SECURITIES
The amortized costs, unrealized gains, unrealized losses and approximate
fair values of investment securities are as follows:
<TABLE>
<CAPTION>
December 31, 1999
------------------------------------------------------
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
- - ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available-For-Sale
Obligations of U.S. Government agencies ........ $40,987,663 $ 4,931 $ 1,839,607 $39,152,987
US Treasury securities ......................... 2,500,485 8,109 -- 2,508,594
US Government agency mortgage-backed securities 14,004,761 3 309,324 13,695,440
Obligations of states and political subdivisions 22,247,610 26,441 762,536 21,511,515
Mutual fund .................................... -- -- -- --
------------------------------------------------------
$79,740,519 $ 39,484 $ 2,911,467 $76,868,536
======================================================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
------------------------------------------------------
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
- - ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available-For-Sale
Obligations of U.S. Government agencies ........ $40,272,133 $ 831,583 $ 49,769 $41,053,947
US Treasury securities ......................... 6,001,119 79,584 -- 6,080,703
US Government agency mortgage-backed securities 22,484,684 26,758 166,764 22,344,678
Obligations of states and political subdivisions 13,959,102 327,420 25,588 14,260,934
Mutual fund .................................... 1,147,730 -- -- 1,147,730
------------------------------------------------------
$83,864,768 $ 1,265,345 $ 242,121 $84,887,992
======================================================
</TABLE>
Investment securities having a carrying value of $19,412,725 and
$10,980,722 at December 31, 1999 and 1998, respectively were pledged to secure
public deposits and for other purposes required or permitted by law.
36
<PAGE>
The carrying value and fair value of debt securities at December 31, 1999
with contractual maturity dates are shown below. Securities with serial
maturities, which include mortgage-backed securities, collateralized mortgage
obligations, and asset-backed securities, are detailed on a separate line.
Serial maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties. Certain obligations of U.S. Government agencies and
states and political subdivisions are callable by the applicable agency or
political subdivision. These borrowers also have the right to call or prepay
obligations with or without call or prepayment penalties.
Available-for-Sale
----------------------------
Amortized Cost Fair Value
- - -------------------------------------------------------------------------------
Due in one year or less ...................... $ 2,766,439 $ 2,775,008
Due after one year through five years ........ 17,396,544 17,146,122
Due after five years through ten years ....... 45,354,081 43,042,554
Due after ten years .......................... 218,694 209,412
Serial maturities ............................ 14,004,761 13,695,440
----------------------------
Total ...................................... $79,740,519 $76,868,536
============================
There were no sales of securities available-for-sale during 1999 or 1998.
NOTE 4 - LOANS RECEIVABLE
The breakdown of loans receivable is as follows:
December 31,
----------------------------
1999 1998
- - -------------------------------------------------------------------------------
Commercial and industrial ................. $ 60,136,523 $ 48,139,687
Real estate ............................... 157,965,202 107,357,913
Individuals ............................... 30,228,336 30,309,517
Other ..................................... 203,872 359,849
----------------------------
Total ................................... $248,533,933 $186,166,966
============================
Included in the above balances are net deferred fees of $326,000 and
$248,000 at December 31, 1999 and 1998, respectively.
At December 31, 1999, loans are comprised of fixed and variable rate
instruments as follows:
Loans at fixed rates ................................ $ 47,754,605
Loans at variable rates ............................. 200,779,328
------------
$248,533,933
============
Loans at variable rates include loans that reprice immediately, as well
as loans that reprice any time prior to maturity.
Approximate loan portfolio maturities on fixed-rate loans and repricings
on variable-rate loans at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Within One to After
one year five years Five years Total
- - -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial and Industrial $ 52,105,550 $ 8,022,561 $ 8,412 $ 60,136,523
Real estate ............. 73,589,804 76,887,538 7,487,860 157,965,202
Individuals ............. 14,092,599 9,398,501 6,737,236 30,228,336
Other ................... 203,872 -- -- 203,872
---------------------------------------------------------
Total ................. $139,991,825 $ 94,308,600 $ 14,233,508 $248,533,933
=========================================================
</TABLE>
Approximately $125,177,000 of variable-rate loans will reprice within one
year. Variable residential real estate loans have maturities between 20 and 30
years; variable commercial and industrial real estate loans typically have
maturities between 5 and 10 years.
In the ordinary course of business, the Company has made loans to its
directors, executive officers, principal shareholders and their associated and
affiliated companies ("related parties"). All such loans have been made on the
same terms as those prevailing at the time of origination to other borrowers.
At December 31, 1999 and 1998, outstanding loans to related parties were
$3,654,000 and $2,397,000, respectively. Repayments of $2,302,000 and new
advances of $2,263,000 were made during the year ended December 31, 1999.
Transactions in the allowance for loan losses of the Company for the
indicated years ended December 31 are summarized as follows:
1999 1998 1997
- - ------------------------------------------------------------------------------
Balance January 1 ............... $ 2,663,914 $ 2,140,970 $ 1,990,817
Provision for loan losses ..... 1,392,250 1,024,650 562,180
----------- ----------- -----------
4,056,164 3,165,620 2,552,997
Loans charged off ............. (836,717) (603,886) (472,874)
Recoveries .................... 249,903 102,180 60,847
----------- ----------- -----------
Net loans (charged off) recovered (586,814) (501,706) (412,027)
----------- ----------- -----------
Balance December 31 ............. $ 3,469,350 $ 2,663,914 $ 2,140,970
=========== =========== ===========
A summary of non-accrual loans and the related loss of interest income is
presented below:
1999 1998
- - ------------------------------------------------------------------------------
Non-accrual loans December 31 ...................... $1,398,439 $ 457,131
Interest income that would have been earned ........ $ 146,648 $ 49,866
during the year at original contractual rates
Interest income actually recognized during the year $ 89,871 $ 25,345
37
<PAGE>
At December 31, 1999 the Company had loans totalling $1,051,700
considered impaired under SFAS No. 114, Accounting for Impaired Loans,
included in non-accrual loans. The Company did not have any impaired loans at
December 31, 1998. The allowance allocated to impaired loans was $540,000 at
December 31, 1999. The amount of the allowance against impaired loans was
determined after measuring impairment based on the present value of the
expected future cash flows discounted at the loan's effective rate. The
average recorded investment in impaired loans was $87,600 and $0 for the years
ended December 31, 1999 and 1998. The Company has no commitment to extend
additional credit on loans which are non-accrual or impaired at December 31,
1999.
NOTE 5 - PREMISES AND EQUIPMENT
The detail of premises and equipment is as follows:
1999 1998
---------------------------
Buildings and land ............................... $ 8,012,986 $ 6,459,875
Furniture, fixtures and equipment ................ 4,928,965 3,696,769
Computer software ................................ 700,690 638,686
---------------------------
13,642,641 10,795,330
Less accumulated depreciation and amortization ... 4,222,897 3,633,380
---------------------------
$ 9,419,744 $ 7,161,950
===========================
NOTE 6 - TIME DEPOSITS
Included in time deposits at December 31, 1999, 1998 and 1997 are
$28,854,652, $24,035,496 and $17,778,828, respectively, of deposits $100,000
or greater. Interest expense on time deposits $100,000 or greater amounted to
$1,086,968, $815,853 and $775,566 for the years ended 1999, 1998 and 1997,
respectively.
The following table sets forth by remaining maturity, time certificates
of deposit at December 31, 1999:
Time Deposits
of $100,000 All other
or more Time Deposits Total
---------------------------------------
Three months or less ............... $11,434,552 $ 7,637,293 $19,071,845
Over three months through
twelve months .................... 16,415,978 44,657,427 61,073,405
Over one year through five years ... 400,000 9,036,556 9,436,556
Over five years .................... 604,122 579,167 1,183,289
---------------------------------------
Total ............................ $28,854,652 $61,910,443 $90,765,095
=======================================
NOTE 7 - LEASES
The Bank is obligated under a number of non-cancelable operating leases
for land, buildings and equipment. The majority of these leases have renewal
options. In addition, some of the leases contain escalation clauses tied to
the consumer price index with caps.
The Bank's future minimum rental payments required under land, building
and equipment operating leases that have initial or remaining non-cancelable
lease terms of one year or more are as follows:
Year Ending December 31:
-------------------------------------------------------
2000 $ 316,620
2001 322,655
2002 330,541
2003 335,747
2004 293,165
Thereafter 1,361,676
---------
Total $2,960,404
==========
Rent expense applicable to operating leases for the years ended December
31, 1999, 1998 and 1997 was $269,220, $154,160 and $169,158 respectively.
The Bank leases a portion of its Eugene, Oregon building to other
tenants. The leases provide for monthly lease payments to the Bank in the
amount of $6,900 through December 2001. In connection with the acquisition of
Strand, Atkinson, Williams & York, Inc., the Company became liable for certain
capitalized lease obligations totalling approximately $66,000. These capital
lease obligations are included in other liabilities.
NOTE 8 - INCOME TAXES
The following is a summary of consolidated income tax expense:
Current Deferred Total
--------------------------------------
Year ended December 31, 1999:
U.S. Federal ..................... $2,144,090 $ 28,430 $2,172,520
State ............................ 502,361 5,909 508,270
--------------------------------------
Total $2,646,451 $ 34,339 $2,680,790
======================================
Year ended December 31, 1998:
U.S. Federal ..................... $1,733,363 $ 238,479 $1,971,842
State ............................ 360,298 49,571 409,869
--------------------------------------
Total $2,093,661 $ 288,050 $2,381,711
======================================
Year ended December 31, 1997:
U.S. Federal ..................... $1,438,474 $ 75,514 $1,513,988
State ............................ 165,676 19,603 185,279
--------------------------------------
Total $1,604,150 $ 95,117 $1,699,267
======================================
38
<PAGE>
A reconciliation of the Company's expected tax expense using the U.S.
Federal income tax statutory rate to the actual effective rate is as follows:
1999 1998 1997
-------------------------------
Statutory Federal income tax rate 34.0% 34.0% 34.0%
Tax exempt income -3.5% -1.9% -1.4%
State excise tax, net of Federal
income tax benefit 4.4% 4.4% 2.5%
Other 0.6% 0.2% 0.7%
-------------------------------
Effective income tax rate 35.5% 36.7% 35.8%
===============================
The tax effects of temporary differences which give rise to significant
portions of deferred tax assets and deferred tax liabilities at December 31
are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------------------
<S> <C> <C> <C>
Deferred tax assets:
Loans receivable, due to allowance
for loan losses ................................. $ 1,102,126 $ 843,290 $ 676,627
Unrealized loss on investment securities .......... 1,101,578 -- --
Deferred bonus .................................... -- -- 306,848
Accrued liabilities ............................... 45,676 50,380 29,988
Other ............................................. 3,184 -- --
----------------------------------------
Total gross deferred tax assets ................. 2,252,564 893,670 1,013,463
Less valuation allowance ...................... -- -- --
----------------------------------------
Net deferred tax assets ..................... 2,252,564 893,670 1,013,463
Deferred tax liabilities:
Investment securities, due to accretion of discount 10,605 11,142 17,828
Excess tax over book depreciation ................. 106,940 104,860 110,365
Investment securities, due to FHLB stock dividends 333,736 276,854 222,120
Unrealized gain on investment securities .......... -- 392,467 90,708
Deferred loan fees ................................ 639,659 426,745 335,369
Other ............................................. 20,316 -- --
----------------------------------------
Total gross deferred tax liabilities ............ 1,111,256 1,212,068 776,390
----------------------------------------
Net deferred tax assets (liabilities) ............... $ 1,141,308 $ (318,398) $ 237,073
========================================
</TABLE>
There was no valuation allowance for deferred tax assets as of December
31, 1999, 1998 and 1997. The Company has determined that it is not required to
establish a valuation allowance for the deferred tax assets as management
believes it is more likely than not that the deferred tax assets of
$2,252,564, $893,670 and $1,013,463 at December 31, 1999, 1998 and 1997,
respectively, will be realized principally through carrryback to taxable
income in prior years, future reversals of existing taxable temporary
differences, and to a minor extent, future taxable income. Management believes
that future taxable income will be sufficient to realize the benefits of
temporary deductible differences that cannot be realized through carryback to
prior years or through the reversal of future temporary taxable differences.
NOTE 9 - MORTGAGE SERVICING
Changes in capitalized mortgage servicing rights for 1999, 1998 and 1997
were as follows:
1999 1998 1997
---------------------------------------
Balance, January 1 $ - $ - $ 151,352
Originated servicing rights 95,905
Amortization (1,988)
Sale of servicing rights (245,269)
---------------------------------------
Balance, December 31 - - -
Valuation allowance
---------------------------------------
Net balance, December 31 $ - $ - $ -
=======================================
In 1997, the Company sold its mortgage servicing rights, which, at the
time of sale, had a carrying basis of $245,269. Proceeds from the sale
amounted to $828,603, resulting in a recognized gain of $583,334.
NOTE 10 - EARNINGS PER SHARE
The following table reconciles basic earnings per common share (EPS) to
diluted EPS:
<TABLE>
<CAPTION>
For the year ended December 31, 1999
-----------------------------------------
Weighted
Average Per Share
Income Shares Amount
-----------------------------------------
<S> <C> <C> <C>
Basic EPS
Income available to common shareholders $4,873,941 7,636,191 $ 0.64
Effect of dilutive securities: stock options 136,584 (0.01)
-----------------------------------------
Diluted EPS $4,873,941 7,772,775 $ 0.63
=========================================
</TABLE>
<TABLE>
<CAPTION>
For the year ended December 31, 1998
-----------------------------------------
Weighted
Average Per Share
Income Shares Amount
-----------------------------------------
<S> <C> <C> <C>
Basic EPS
Income available to common shareholders $4,110,381 7,372,614 $ 0.56
Effect of dilutive securities: stock options 163,588 (0.01)
-----------------------------------------
Diluted EPS $4,110,381 7,536,202 $ 0.55
=========================================
</TABLE>
<TABLE>
<CAPTION>
For the year ended December 31, 1997
-----------------------------------------
Weighted
Average Per Share
Income Shares Amount
-----------------------------------------
<S> <C> <C> <C>
Basic EPS
Income available to common shareholders $3,044,496 6,507,420 $ 0.47
Effect of dilutive securities: stock options 165,210 (0.01)
-----------------------------------------
Diluted EPS $3,044,496 6,672,630 $ 0.46
=========================================
</TABLE>
Options to purchase 194,100 shares of common stock at prices ranging from
$9.75 to $12 per share were outstanding during 1999, but were not included in
the computation of diluted EPS because the options' exercise price was greater
than the average market price of the common shares. The options, which expire
from March 31, 2009 to November 2010, were outstanding at December 31, 1999.
39
<PAGE>
NOTE 11 - PROFIT SHARING PLAN
The Bank's employees participate in a defined contribution profit sharing
and 401(k) plan sponsored by the Bank.
At the discretion of the Bank's Board of Directors, the Bank may elect to
contribute to the profit sharing plan based on profits of the Bank. Employees
become eligible to participate in the profit sharing plan the first year they
achieve 1,000 hours of service. The provision for profit sharing costs charged
to expense amounted to $315,000, $249,000 and $232,000 in 1999, 1998 and 1997,
respectively.
Strand, Atkinson, Williams & York, Inc. employees participate in a
defined contribution profit sharing and 401(k) plan sponsored by Strand,
Atkinson, Williams & York, Inc. At the discretion of Strand, Atkinson,
Williams & York, Inc.'s board of directors, Strand, Atkinson, Williams & York,
Inc. may elect to contribute to the profit sharing plan based on profits of
Strand, Atkinson, Williams & York, Inc. Employees become eligible to
participate in the profit sharing plan upon completion of 2 years of service.
The provision for profit sharing costs charged to net income amounted to
$1,345 in 1999.
NOTE 12 - TERM DEBT
The Bank had outstanding notes from the FHLB at December 31, 1999 and
1998 as follows:
December 31, 1999
-----------------------------------------------
Amount Maturity Interest Rate
-----------------------------------------------
$ 6,000,000 January 2000 5.84%
10,000,000 February 2000 6.04%
7,500,000 October 2001 4.85%
12,500,000 December 2002 5.78%
158,000 November 2003 5.75%
3,000,000 December 2003 4.53%
7,000,000 December 2003 5.30%
-----------
$46,158,000
===========
December 31, 1998
-----------------------------------------------
Amount Maturity Interest Rate
-----------------------------------------------
$ 7,500,000 October 2001 4.85%
7,500,000 June 2002 5.39%
198,000 November 2003 5.75%
3,000,000 December 2003 4.53%
7,000,000 December 2003 5.30%
-----------
$25,198,000
===========
Interest on the above borrowings is due monthly with the principal due at
maturity, with the exception of the note due November 2003, where, in addition
to interest, a portion of the principal is due monthly. The $12,500,000 note,
scheduled to mature in December 2002, is callable on a quarterly basis by the
FHLB after March 2, 2000. The $3,000,000 note scheduled to mature in December
2003, is callable on a quarterly basis by the FHLB after June 11, 2000.
The Bank has pledged as collateral for these notes all FHLB stock, all
funds on deposit with the FHLB, all notes or other instruments representing
obligations of third parties, securities issued, insured or guaranteed by the
United States Government or any agency thereof, and its instruments, accounts,
general intangibles, equipment and other property in which a security interest
can be granted by the Bank to the FHLB.
The Bank had unused lines of credit with the FHLB of $42,079,000 at
December 31, 1999. The Bank also had unused lines of credit with financial
institutions amounting to $18,366,000 at December 31, 1999.
The FHLB requires the Bank to maintain a required level of investment in
FHLB stock to qualify for notes.
NOTE 13 - SHAREHOLDERS' EQUITY
The Company had routinely transferred amounts in retained earnings to
surplus to increase its legal lending limit. It transferred $3,611,004 in
1997. Based on changes made in the related regulations in late 1997, such
transfers will no longer be required as all elements of capital are now
considered part of the legal lending limit base.
The Company is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possible additional
discretionary actions by regulators that, if undertaken, could have a material
effect on the Company's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Company must meet specific capital guidelines that involve quantitative
measures of the Company's assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. The Company's
capital amounts and classifications are also subject to qualitative judgments
by the regulators about risk components, asset risk weighting, and other
factors.
Risk-based capital guidelines issued by the Federal Reserve Bank
establish a risk adjusted ratio relating capital to different categories of
assets and off-balance-sheet exposures for bank holding companies. The
Company's Tier 1 capital is comprised primarily of common equity, and excludes
the equity impact of adjusting available-for-sale securities to fair value.
Total capital also includes a portion of the allowance for loan losses, as
defined according to regulatory guidelines.
Quantitative measures established by regulation to ensure capital
adequacy require the Company to maintain minimum amounts and ratios (set forth
in the following table) of total and Tier I capital to risk-weighted assets
(as defined in the regulations), and of Tier I capital to average assets (as
defined in the regulations). Management believes, as of December 31, 1999,
that the Company meets all capital adequacy requirements to which it is
subject.
40
<PAGE>
The Company's actual capital amounts and ratios are presented in the
following table:
<TABLE>
<CAPTION>
To be well capitalized
For Capital under prompt corrective
Actual Adequacy purposes action provisions
- - ----------------------------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
- - ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999:
Total Capital
(to Risk Weighted Assets) $39,482,000 15.06% $20,974,640 8.00% $25,758,900 10.00%
Tier I Capital
(to Risk Weighted Assets) 36,202,000 13.81% $10,487,320 4.00% $15,455,340 6.00%
Tier I Capital
(to Average Assets) 36,202,000 9.99% $14,500,520 4.00% $18,125,650 5.00%
As of December 31, 1998:
Total Capital
(to Risk Weighted Assets) $38,028,000 18.67% $16,293,120 8.00% $20,366,400 10.00%
Tier I Capital
(to Risk Weighted Assets) 35,481,000 17.42% 8,146,560 4.00% 12,219,840 6.00%
Tier I Capital
(to Average Assets) 35,481,000 12.71% 11,164,920 4.00% 13,956,150 5.00%
</TABLE>
The Bank is a state chartered bank with deposits insured by the Federal
Deposit Insurance Corporation (FDIC) and is not a member of the Federal
Reserve System, and is subject to the supervision and regulation of the
Director of the Oregon Department of Consumer and Business Services,
administered through the Division of Finance and Corporate Securities, and to
the supervision and regulation of the FDIC. As of December 31, 1999, the most
recent notification from the FDIC categorized the Bank as well-capitalized
under the regulatory framework for prompt corrective action. There are no
conditions present since the notification that management believes have
changed the institution's category.
NOTE 14 - EMPLOYEE STOCK OPTION PLAN
The Company has an employee stock option plan whereby options may be
granted to its employees for up to 1,150,000 shares of common stock. Under the
plan, the exercise price of each option equals the market price of the
Company's stock on the date of the grant, and an option's maximum term is 11
years. Options vest upon meeting performance criteria, but in all
circumstances no later than six years after the date of the grant.
The following table summarizes information about stock options
outstanding at December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------------------------------------------------------
Average Average Average
Options price per Options price per Options price per
outstanding share outstanding share outstanding share
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, beginning of year 497,624 $ 5.68 376,824 $ 3.92 362,824 $ 2.98
Grants 150,000 9.69 130,000 12.00 60,000 6.58
Exercised (31,800) 3.30 (9,200) 3.78 (9,200) 3.81
Cancelled and returned to plan - - - - (36,800) 3.81
----------------------------------------------------------------------------
615,824 $ 6.78 497,624 $ 5.68 376,824 $ 3.92
============================================================================
Options exercisable at end of year 333,624 309,224 243,059
Average fair value of options $ 4.43 $ 3.57 $ 1.95
</TABLE>
The fair value per share of each option grant is estimated on the date of
the grant using the Black-Scholes option-pricing model with the following
weighted average assumptions for grants in 1999, 1998 and 1997: Dividend yield
from 1.2% to 2.9%, risk-free interest rate of 5.5%-6.0%, volatility of 0%-47%
and expected lives of six years.
The Company applies APB Opinion No. 25 in accounting for its plan;
accordingly, no compensation cost has been recognized for its stock option in
the accompanying consolidated financial statements because the stock options
are granted at the fair value of the stock on the date of the grant. Had the
Company determined compensation cost based on the fair value at the grant date
for its stock options under the Black-Scholes option-pricing model described
above, as permitted in SFAS No. 123, the Company's net income would have been
reduced to the pro forma amounts indicated in the following table:
41
<PAGE>
1999 1998 1997
- - ----------------------------------------------------------------------------
Net income, as reported $4,873,941 $4,110,381 $3,044,496
Net income, pro forma $4,777,231 $4,073,549 $2,995,587
Basic EPS, as reported $ 0.64 $ 0.56 $ 0.47
Basic EPS, pro forma $ 0.63 $ 0.55 $ 0.46
Diluted EPS, as reported $ 0.63 $ 0.55 $ 0.46
Diluted EPS, pro forma $ 0.61 $ 0.54 $ 0.45
Outstanding options at December 31, 1999 are as follows:
Exercise Price
Total Shares Vested Shares per Share Expiration
---------------------------------------------------------------------
256,424 256,424 $ 2.70 March 2006
19,400 10,200 3.81 January 2007
20,000 12,000 5.25 January 2008
20,000 12,000 5.88 June 2008
20,000 8,000 8.63 November 2008
130,000 35,000 12.00 April 2009
82,500 0 9.63 May 2010
2,500 0 10.25 October 2010
65,000 0 9.75 December 2009
In 1997, compensation expense under a stock appreciation right agreement
totalled $256,594. The agreement, which has been fully funded, terminated in
1997.
NOTE 15 - COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries are defendants in various legal
proceedings. Management, after reviewing these actions and proceedings with
legal counsel, believes that the outcome of such proceedings will not have a
materially adverse effect upon the financial position or results of operations
of the Company and its subsidiaries.
In the normal course of business, there are various commitments and
contingent liabilities outstanding, such as commitments to extend credit. At
December 31, 1999 the Company had approximately $357,366 committed under
standby letters of credit. The Company issues these standby letters of credit
using the same guidelines as a direct loan. Management anticipates no material
losses as a result of these transactions.
At December 31, 1999 outstanding commitments to advance funds amounted to
approximately $68,735,000 of which approximately $18,703,000 were for
fixed-rate loans and approximately $50,032,000 were for variable-rate loans.
NOTE 16 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following is presented pursuant to the requirements of SFAS No. 107,
Disclosures about Fair Value of Financial Instruments.
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
-----------------------------------------------------------
Carrying Carrying
amount Fair value amount Fair value
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks .............. $ 45,689,094 $ 45,689,094 $ 36,967,543 $ 36,967,543
Trading account assets ............... 474,782 474,782 -- --
Investment securities ................ 76,868,536 76,868,536 84,887,992 84,887,992
Loans ................................ 248,533,933 246,282,919 186,166,966 186,579,779
FHLB stock ........................... 2,346,200 2,346,200 1,949,200 1,949,200
Mortgage loans held for sale ......... -- -- 1,780,225 1,780,225
Financial liabilities:
Deposits ............................. 301,673,355 301,350,151 255,804,721 256,165,103
Federal Home Loan Bank borrowings .... 46,158,000 44,460,820 25,198,000 25,114,190
Off-balance-sheet financial instruments:
Loan commitments ..................... 68,735,000 68,735,000 72,761,000 72,761,000
Letters of credit .................... 357,000 357,000 207,000 207,000
</TABLE>
The following methods and assumptions were used to estimate the fair
value of each class of financial instrument for which it is practicable to
estimate that value. The estimated fair value amounts have been determined
using available market information and appropriate valuation methodologies.
However, considerable judgment is necessarily required to interpret market
data to develop the estimates of fair value. Potential tax ramifications
related to the realization of unrealized gains and losses that would be
incurred in an actual sale have not been taken into consideration.
Cash and Short-term Investments
For short-term instruments, including cash and due from banks,
interest-bearing deposits with banks, the carrying amount is a reasonable
estimate of fair value.
Securities
For trading securities and securities available-for-sale, fair values are
based on quoted market prices or dealer quotes.
Loans
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type, including commercial, real
estate and consumer loans. Each loan category is further segregated by fixed
and variable rate, performing and non-performing categories. For variable-rate
loans, carrying value approximates fair value. Fair value of fixed-rate loans
is calculated by discounting contractual cash flows at rates which similar
loans are currently being made.
42
<PAGE>
Deposit Liabilities
The fair value of deposits with no stated maturity, such as
non-interest-bearing deposits, savings and interest checking accounts, and
money market accounts, is equal to the amount payable on demand as of December
31, 1999 and 1998. The fair value of certificates of deposit is based on the
discounted value of contractual cash flows. The discount rate is estimated
using the rates currently offered for deposits of similar remaining
maturities.
Term Debt
The fair value of medium-term notes is calculated based on the discounted
value of the contractual cash flows using current rates at which such
borrowings can currently be obtained.
NOTE 17 - ACQUISITION OF STRAND, ATKINSON, WILLIAMS & YORK, INC.
In November 1999, the Company completed its acquisition of Strand,
Atkinson, Williams & York, Inc. Strand, Atkinson, Williams & York, Inc.
provides a full range of brokerage services to its clients. The results of
operations of this company are included in Umpqua Holdings Corporation for the
month of December 1999. The acquisition was accounted for under the purchase
method of accounting; accordingly, the cost of the acquisition of $2,700,000
was allocated to the assets acquired and liabilities assumed. The cost of
intangible assets acquired are being amortized over the life of such assets.
The residual premium (goodwill) is being amortized over 15 years, using the
straight-line method. The purchase agreement provides for future contingent
payments to Strand, Atkinson, Williams & York, Inc. shareholders if certain
earnings objectives are achieved by Strand, Atkinson, Williams & York, Inc.
during the next three years. If these contingent payments occur, they will be
accounted for as additional goodwill and will be amortized over the remaining
life of the original goodwill. The following table presents pro-forma results
for 1999 and 1998 as if the acquisition had occurred on January 1, 1998.
1999 1998
- - ------------------------------------------------------------------------------
Operating revenue (net interest income
plus non-interest income) .............. $24,563,420 $20,716,865
Income before income taxes ................... $ 7,350,570 $ 6,306,324
Net income ................................... $ 4,690,830 $ 3,950,095
Basic earnings per common share .............. $ 0.61 $ 0.65
Dilluted earnings per common share ........... $ 0.60 $ 0.52
NOTE 18 - PARENT COMPANY FINANCIAL STATEMENTS
CONDENSED BALANCE SHEET
December 31, 1999
-----------------
Assets
Non-interest-bearing deposits with subsidiary banks ........ $ 49,955
Investments in:
Bank subsidiary .......................................... 33,844,570
Nonbank subsidiary ....................................... 2,808,305
Receivable from bank subsidiary ............................ 410,000
Other assets ............................................... 41,501
-----------
Total assets ................................................. $37,154,331
===========
Liabilities and Shareholders' Equity
Payable to bank subsidiary ................................. $ 45,571
Other liabilities .......................................... 392,538
Total liabilities ........................................ 438,109
Shareholders' Equity ....................................... 36,716,222
-----------
Total liabilities and shareholders' equity ................... $37,154,331
===========
CONDENSED STATEMENT OF INCOME
Year Ended
December 31, 1999
-----------------
Income
Dividends from subsidiaries .............................. $ 4,610,000
Equity in undistributed earnings of subsidiaries ......... 318,062
Other income ............................................. 387
-----------
Total income ............................................... 4,928,449
-----------
Expenses
Management fees paid to subsidiaries ..................... 25,710
Other expenses ........................................... 62,557
-----------
Total expense .............................................. 88,267
-----------
Income before income tax ................................... 4,840,182
Income tax benefit ......................................... (33,759)
-----------
Net income ................................................. $ 4,873,941
===========
CONDENSED STATEMENT OF CASH FLOWS
December 31, 1999
-----------------
Operating Activities:
Net income ................................................. $ 4,873,941
Adjustment to reconcile net income to
net cash provided by operating activities:
Equity in undistributed earnings of subsidiaries ......... (318,062)
Increase in other liabilities ............................ 421,461
Increase in other assets ................................. (41,501)
-----------
Net cash provided by operating activities .............. 4,935,839
Investing activities:
Investment in subsidiary ................................. (2,720,793)
Net increase in receivables from subsidiaries ............ (410,000)
-----------
Net cash used by investing activities .................. (3,130,793)
Financing activities:
Net increase in payables to subsidiaries ................. 45,571
Dividends paid ........................................... (1,220,905)
Stock repurchased ........................................ (617,173)
Proceeds from exercise of stock options .................. 37,416
-----------
Net cash used by investing activities .................. (1,755,091)
-----------
Change in cash and cash equivalents ........................ 49,955
Cash and cash equivalents at beginning of year ............. --
-----------
Cash and cash equivalents at end of year ................... $ 49,955
===========
43
SUBSIDIARIES OF UMPQUA HOLDINGS CORPORATION
Jurisdiction of Name Under Which
Name of Subsidiary Incorporation Business Is Conducted
- - ------------------------------------------------------------------------------
South Umpqua Bank Oregon South Umpqua Bank
Strand, Atkinson, Williams & Oregon Strand, Atkinson, Williams &
York York
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Umpqua Holding Corp.:
We consent to incorporation by reference in the Registration Statement (No.
333-77259) on Form S-8 of Umpqua Holding Corp. of our report dated January 21,
2000, relating to the consolidated balance sheets of Umpqua Holding Corp. and
subsidiaries as of December 31, 1999 and 1998, and the related consolidated
statements of income, changes in shareholders' equity and comprehensive
income, and cash flows for each of the years in the three-year period ended
December 31, 1999, which report appears in the December 31, 1999 annual report
on Form 10-K of Umpqua Holding Corp.
/s/ KPMG LLP
Portland, Oregon
January 21, 2000
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0001077771
<NAME> Umpqua Holdings Corporation
<MULTIPLIER> 1,000
<CURRENCY> U.S.Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1.0
<CASH> 30,058,897
<INT-BEARING-DEPOSITS> 15,630,197
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 474,782
<INVESTMENTS-HELD-FOR-SALE> 76,868,536
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 248,533,933
<ALLOWANCE> 3,469,350
<TOTAL-ASSETS> 386,736,716
<DEPOSITS> 301,673,355
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,189,139
<LONG-TERM> 46,158,000
0
0
<COMMON> 25,778,259
<OTHER-SE> 10,937,963
<TOTAL-LIABILITIES-AND-EQUITY> 386,736,716
<INTEREST-LOAN> 19,192,599
<INTEREST-INVEST> 4,876,731
<INTEREST-OTHER> 611,000
<INTEREST-TOTAL> 24,680,330
<INTEREST-DEPOSIT> 7,077,495
<INTEREST-EXPENSE> 8,455,948
<INTEREST-INCOME-NET> 16,224,382
<LOAN-LOSSES> 1,392,250
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 11,701,633
<INCOME-PRETAX> 7,554,731
<INCOME-PRE-EXTRAORDINARY> 7,554,731
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,873,941
<EPS-BASIC> 0.64
<EPS-DILUTED> 0.63
<YIELD-ACTUAL> 5.37
<LOANS-NON> 1,398,000
<LOANS-PAST> 206,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,664,000
<CHARGE-OFFS> 837,000
<RECOVERIES> 250,000
<ALLOWANCE-CLOSE> 3,469,000
<ALLOWANCE-DOMESTIC> 3,469,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
