SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[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
Commission File No. 333-93365
NORTH BAY BANCORP
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(Name of Small Business Issuer in its Charter)
California 68-0434802
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(State or Jurisdiction of incorporation) (I.R.S. Employer Identification No.)
1500 Soscol Avenue, Napa, California 94559-1314
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(Address of principal office including Zip Code)
Issuer's telephone number, including area code: (707) 257-8585
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
--------------------------
Check whether the issuer (1) 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
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will 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-KSB
or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $15,465,718
State the aggregate market value of Common Stock held by non-affiliates of North
Bay Bancorp as of March 1, 2000: $27,734,875
State the number of shares of the North Bay Bancorp's Common Stock outstanding
as of March 1, 2000: 1,536,568
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Documents Incorporated by Reference:
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1999 Annual Report to Stockholders. Part II, Items 6 and 7 and Part III, Item 13
Proxy Statement for 2000 Annual Meeting Part III, Items 9, 10, 11 and 12
of Shareholders to be filed pursuant to
Regulation 14A.
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Transitional Small Business Disclosure Format (Check One: YES [ ] NO [X]
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TABLE OF CONTENTS
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PART
Item 1 - Business................................................................................................ 3
Item 2 - Properties..............................................................................................27
Item 3 - Legal Proceedings.......................................................................................28
Item 4 - Submission of Matters to a Vote of Security Holders.....................................................28
PART II
Item 5 - Market for the Bank's Common Stock and Related Security Holder Matters..................................29
Item 6 - Management's Discussion and Analysis of Financial Condition and Results of Operations...................30
Item 7 - Financial Statements and Supplementary Data.............................................................30
Item 8 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure....................30
PART III
Item 9 - Directors, Executive Officers, Promoters and Control Persons Compliance.................................30
with Section 16(a) of the Exchange Act
Item 10 - Executive Compensation.................................................................................30
Item 11 - Security Ownership of Certain Beneficial Owners and Management.........................................31
Item 12 - Certain Relationships and Related Transactions.........................................................31
Item 13 - Exhibits and Reports on Form 8-K.......................................................................31
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PART I
Item 1 - BUSINESS
NORTH BAY BANCORP
General
North Bay Bancorp, headquartered in Napa, California, became the bank holding
company of Vintage Bank on November 1, 1999 through a corporate reorganization.
In the reorganization, Vintage Bank became the wholly-owned subsidiary of North
Bay and the shareholders of Vintage became shareholders of North Bay. North Bay
is a registered bank holding company under the Bank Holding Company Act of 1956,
as amended, and is subject to the regulations of, and examination by, the Board
of Governors of the Federal Reserve System. Currently all operations of North
Bay are conducted through Vintage Bank. Subject to receipt of regulatory
approval and the completion of its current public offering of its common stock,
North Bay intends to acquire 100% of the outstanding shares of Solano Bank
(Proposed), a proposed California chartered banking corporation to be
headquartered in Vacaville, California.
Public Stock Offering
On December 22, 1999, North Bay filed a registration statement with the United
States Securities and Exchange Commission with respect to a proposed public
offering of North Bay common stock for an aggregate consideration of $5,000,000.
The registration statement was declared effective on February 9, 2000, and North
Bay commenced an offering of up to 200,000 shares of its common stock at a price
of $25.00 per share. The minimum and maximum shares that may purchased in
connection with the offering are 200 shares and 4,000 shares, respectively.
North Bay is offering its common stock through its and Vintage Bank's officers
and directors and the proposed directors of Solano Bank on a best efforts basis
and will not seek the assistance of securities dealers in connection with this
offering. In soliciting subscriptions North Bay intends to emphasize prospective
shareholders who are residents of Solano County as well as a subscriber's
potential to do business with, or to direct customers to, Solano Bank in order
to establish a significant shareholder constituency in Solano County. Subject to
limitations on the minimum and maximum numbers of shares that may be purchased
in the offering and the right of North Bay to accept or reject subscriptions in
its sole and absolute discretion, preference will be given to subscribers who
are residents of Solano County or have the potential to do business with, or to
direct customers to, Solano Bank.
The net proceeds of the offering will be utilized by North Bay to invest in
Solano Bank. Any excess proceeds not required to capitalize Solano Bank will be
used for general corporate purposes and working capital. Such purposes would
include, but not be limited to, the payment of operating expenses. If Solano
Bank does not receive the requisite regulatory approval, all net proceeds will
be used for general corporate purposes and working capital.
North Bay's expenses in connection with this offering are anticipated to
aggregate $135,000, including legal fees, accounting fees, the fees of financial
consultants and advisors, printing costs and mailing costs. See. Item 5. "MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS - Use of Proceeds."
SOLANO BANK (PROPOSED)
North Bay has filed an application with the California Department of Financial
Institutions for permission to organize a new state chartered bank in Solano
County, California. If approved, Solano Bank will be a member of the Federal
Reserve System headquartered in Vacaville, California with branches in Fairfield
and Benicia, California. It will be a wholly-owned subsidiary of North Bay.
Before acquiring Solano Bank, North Bay must also received the approval of the
Board of Governors of the Federal Reserve System.
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Bank Organization
In December, 1999 an Application for Permission to Organize Solano Bank was
filed with the California Commissioner of Financial Institutions. The
Commissioner before approving the application and after completing an
investigation to ascertain the matters required by law, must determine that (a)
the proposed bank would promote the public convenience and advantage; (b) the
proposed capital structure is adequate; and (c) the conditions in Solano County,
along with the experience, ability and standing of the proposed directors and
officers, afford a reasonable promise of successful operations. This
determination by the Commissioner does not constitute a representation or
guarantee by the Commissioner that Solano Bank will be successful. Solano Bank
cannot proceed to the next stage, including in incorporating under the laws of
the State of California until the Commissioner approves the application.
Final licensing of Solano Bank to commence operations is dependent upon
compliance with certain conditions and procedures under California law,
including completion of North Bay's public offering, Solano Bank being granted
membership in the Federal Reserve System and obtaining federal deposit
insurance. An application for federal deposit insurance was filed with the FDIC
in January 2000. An application for membership in the Federal Reserve System
cannot be filed with the Federal Reserve until preliminary approval is received
from the Commissioner.
Assuming receipt of all regulatory approvals, and the satisfaction of any
conditions contained in the approvals, it is anticipated that Solano Bank will
open for business in the second quarter of 2000, or as soon thereafter as is
practicable. However, no assurance can be given that all regulatory approvals
will be obtained. Without the approval of the Commissioner, the FDIC, and the
Federal Reserve System, Solano Bank will not be able to open for business.
Business of Solano Bank (Proposed)
General
As of the date of this annual report, Solano Bank has not conducted or been
authorized to conduct a banking business. Upon issuance of a license to conduct
a banking business by the Commissioner, Solano Bank will engage in the general
commercial banking business, and will accept checking and savings deposits, make
commercial, real estate, auto and other installment and term loans, issue
drafts, sell travelers' checks and provide other customary banking services,
including note collection and safe deposit box rental. Solano Bank anticipates
attracting the majority of its loan and deposit business from the residents and
numerous small to medium sized businesses and professional firms located in
Fairfield, Vacaville, and Benicia, California and nearby communities within
Solano County. Solano Bank does not intend to offer international banking or
trust services initially or for the foreseeable future, but it will attempt to
make such services available to Solano Bank's customers through correspondent
institutions. The deposits of Solano Bank will be insured by the FDIC up to
applicable limits. Solano Bank will be a member of the Federal Reserve System.
Management intends that Solano Bank will provide the highest possible level of
personalized service to residents and a full range of banking services for
businesses and professional firms located in Fairfield, Vacaville, and Benicia
and nearby communities within Solano County. Solano Bank will offer a wide range
of deposit accounts including "Money Market Deposit" accounts which require
minimum balances and frequency of withdrawal limitations. Other accounts offered
by Solano Bank will include certificates of deposit of up to 60 months duration,
Individual Retirement Accounts and 401(k) and SERP Plans. It is anticipated that
Solano Bank will engage in a full range of lending activities, including
commercial, consumer/installment and real estate construction loans. It is
intended that Solano Bank will direct its commercial lending principally toward
businesses whose demands for credit will fall within Solano Bank's lending
limit. In the event there are customers whose commercial loan demands exceed
Solano Bank 's lending limits, Solano Bank will seek to arrange for such loans
on a participation basis with other financial institutions, including Vintage
Bank. Solano Bank will offer a variety of consumer loans, including automobile
and home equity loans. Solano Bank also anticipates making commercial real
estate loans and commercial lines of credit.
Solano Bank further intends to provide some specialized services to its
customers. These services will include automated teller machines, courier
deposit services to key locations or customers throughout Solano Bank's service
area, Small Business Administration loans and extended lobby hours. Solano Bank
reserves the right to change its
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business plan at any time and no assurance can be given that, if Solano Bank's
proposed business plan is followed, it will prove successful.
Capital Accounts
The initial capitalization of Solano Bank will be $9,000,000 all of which will
be provided by North Bay. North Bay's investment will consist of $3,000,000 from
funds dividended to North Bay by Vintage Bank and the net proceeds of the North
Bay public offering. The balance will come from financing to be arranged by
North Bay from outside sources.
After North Bay's investment, Solano Bank will establish accounts for
contributed capital and retained earnings. The following chart shows Solano
Bank's initial capitalization. All organizational expenses will be borne by
North Bay.
Contributed Capital - 20,000,000 Shares of Common stock $9,000,000
authorized, no par value, 900,000 issued
500,000 Shares of Preferred Stock authorized, no shares
issued or outstanding
Retained earnings -0-
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Total Shareholders' Equity $9,000,000
VINTAGE BANK
General
Vintage Bank is a California corporation organized as a state chartered bank in
1984. Vintage Bank engages in commercial banking business in Napa County, from
its main banking office located at 1500 Soscol Avenue in Napa, California.
Vintage Bank has two branches, one located at 3271 Browns Valley Road, Napa,
California and the other at 3626 Bel Aire Plaza, Napa, California. Automated
teller machines are located at all offices, at the Napa Premium Outlets on
Freeway Drive in Napa, and at Ranch Market Too in Yountville, providing 24 hour
service. Vintage Bank is a member of the STAR, Interlink and PLUS ATM networks,
providing customers with access to Point of Sale and ATM service world-wide.
Vintage Bank is a member of the Federal Reserve System. The deposits of each
depositor of Vintage Bank are insured by the Federal Deposit Insurance
Corporation up to the maximum allowed by law.
Vintage Bank offers a full range of commercial banking services to individuals
and the business and agricultural communities in Napa County. Vintage Bank
emphasizes retail commercial banking operations. Vintage Bank accepts checking
and savings deposits, makes consumer, commercial, construction and real estate
loans, and provides other customary banking services. Vintage Bank does not
offer trust services and does not plan to do so in the near future. There have
been no material changes in services offered by Vintage Bank during the past
fiscal year. Commencing in early 1993, Vintage Bank made annuities and mutual
funds available to its customers through an unaffiliated corporation, Protective
Financial and Insurance Services, Inc. These products are currently being
offered through Protective Financial and one of its affiliates, ProEquities,
Inc. In Solano County, The Vintage Bank also makes securities and insurance
products available through Raymond James Financial Services. Under a contractual
arrangement, a licensed bank employee appointed and supervised by Protective
Financial, ProEquities, Inc. and Raymond James Financial Services handles all
annuity and mutual fund sales.
At this time, Vintage Bank does not offer internet banking; however, it is
currently testing an internet banking product which it intends to offer to its
customers in early 2000. The system will support account inquiries, transfers
between accounts, and automatic reconciliation and bill payment services.
Lending Activities
Vintage Bank concentrates its lending activities in commercial, installment,
construction, and real estate loans made primarily to businesses and individuals
located in Napa County. At December 31, 1999, total loans outstanding were
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$122,152,461 resulting in a loan to deposit ratio of 70.9%. At December 31,
1998, Vintage Bank had total loans outstanding of $96,526,870 resulting in a
loan-to-deposit ratio of 59.5%.
As of December 31, 1999, Vintage Bank's loan limits to individual customers were
$2,890,000 for unsecured loans and $4,800,000 for unsecured and secured loans
combined. As of December 31, 1998, Vintage Bank's lending limits were $2,799,259
for unsecured loans and $4,665,431 for unsecured and secured loans combined. For
customers desiring loans in excess of Vintage Bank's lending limits, Vintage
Bank may loan on a participation basis with another bank taking the amount of
the loan in excess of Vintage Bank's lending limits.
At December 31, 1999, Vintage Bank's commercial loans outstanding totaled
$21,463,022 (17.6% of total loans), real estate-secured commercial loans totaled
$13,010,890 10.6% of total loans), construction loans totaled $8,441,142 (6.9%
of total loans), real estate loans totaled $58,368,548 (47.8% of total loans),
and installment loans totaled $20,868,859 (17.1% of total loans). At December
31, 1998, commercial loans outstanding totaled $14,410,117 (14.9% of total
loans), real estate-secured commercial loans totaled $6,062,585 (6.3% of total
loans), construction loans totaled $5,950,207 (6.2% of total loans), real estate
loans totaled $51,643,406 (53.5% of total loans) and installment loans totaled
$18,460,555 (19.1% of total loans). At December 31, 1997, commercial loans
outstanding totaled $16,458,361 (19.9% of total loans), real estate-secured
commercial loans totaled $9,610,793 (11.7% of total loans), construction loans
totaled $6,446,381 (7.8% of the total loans), real estate loans totaled
$34,089,199 (41.3% of total loans), and installment loans totaled $15,918,156
(19.3% of total loans).
As of December 31, 1999, the total of undisbursed loans and similar commitments
was $35,079,602 as contrasted with $29,548,000 as of December 31, 1998 and
$23,549,000 as of December 31, 1997. Vintage Bank expects all but approximately
$1,521,000 of its undisbursed loans and similar commitments to be exercised
during 2000. Vintage Bank takes real estate, listed securities, savings and time
deposits, automobiles, machinery and equipment, inventory and accounts
receivable as collateral for loans.
The interest rates charged for the various loans made by Vintage Bank vary with
the degree of risk and the size and maturity of the loans involved and are
generally affected by competition and by current money market rates.
Commercial Loans
Vintage Bank makes commercial loans primarily to professionals, individuals and
businesses in the City of Napa. Vintage Bank offers a variety of commercial
lending products, including revolving lines of credit, working capital loans,
equipment financing and issuance of letters of credit. Typically, lines of
credit have a floating rate of interest based on Vintage Bank's Base Rate and
are for a term of one year or less. Working capital and equipment loans have a
floating or a fixed rate typically with a term of five years or less.
Approximately 62% of Vintage Bank's commercial loans are unsecured or secured by
personal property and, therefore, represent a higher risk of ultimate loss than
loans secured by real estate. However, as a result of the lending policies and
procedures implemented by Vintage Bank, management believes it has adequate
commercial loan underwriting and review procedures in place to manage the risks
inherent in commercial lending. In addition, commercial loans not secured by
real estate typically require higher quality credit characteristics to meet
underwriting requirements. The remaining 38% of Vintage Bank's commercial loans
are secured by real estate.
Real Estate Loans
Real estate loans consist of loans secured by deeds of trust on residential and
commercial properties. The purpose of these loans is to purchase real estate or
refinance an existing real estate loan, as compared with real estate secured
commercial loans, which have a commercial purpose unrelated to the purchase or
refinance of the real estate taken as collateral. Vintage Bank's real estate
loans bear interest at rates ranging from 6.38% to 12.00% and have maturities of
thirty years or less.
Vintage Bank established a Mortgage Loan Department in 1987 for the purpose of
originating and servicing residential mortgage loans. Most of the residential
mortgage loans originated by Vintage Bank's Mortgage Loan Department are sold to
institutional investors according to their guidelines. Servicing of these loans
is not retained by
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Vintage Bank, but Vintage Bank receives a loan fee. Prior to 1995, Vintage Bank
sold the major portion of its residential real estate loans to the Federal Home
Loan Mortgage Corporation commonly referred to as Freddie Mac with servicing
retained by Vintage Bank. No loans were sold to Freddie Mac in 1999 or 1998. As
of December 31, 1999, Vintage Bank's residential mortgage loan portfolio was
$17,825,710 of which $6,747,863 constitutes loans sold to Freddie Mac and
serviced by Vintage Bank. As of December 31, 1998, Vintage Bank's residential
mortgage loan portfolio was $19,688,857 of which $8,204,694 constituted loans
sold to Freddie Mac and serviced by Vintage Bank.
Real Estate Construction Loans
Vintage Bank makes loans to finance the construction of commercial, industrial
and residential projects and to finance land development. The majority of
Vintage Bank's construction loans were made to finance the construction of
residential projects. Vintage Bank's construction loans typically have
maturities of less than one year, have a floating rate of interest based on
Vintage Bank's base rate and are secured by first deeds of trust. Generally,
Vintage Bank does not extend credit in an amount greater than 50% of the
appraised value of the real estate securing land and land development loans, or
in an amount greater than 70% of the appraised value of the real estate securing
non-owner occupied residential construction loans and commercial construction
loans, or 75% of the appraised value in the case of owner occupied residential
construction loans. Commercial loans secured by real estate normally comply with
these same guidelines.
Historically, Vintage Bank has maintained a significant percentage of its loans
in real estate construction loans. As of December 31, 1999, 6.9% of the total
loan portfolio was represented by construction and land development loans,
compared with 6.3% as of December 31, 1998 and 7.8% as of December 31, 1997 and
higher concentrations in the previous three years. This decline in concentration
reflects a change in the construction environment. Although construction
activity has increased substantially during the past two years, it is dominated
by large scale contractors not using local sources of funding.
Installment Loans
Installment loans are made to individuals for household, family and other
personal expenditures. These loans typically have fixed rates and have
maturities of five years or less.
Lending Policies and Procedures
Vintage Bank's lending policies and procedures are established by senior
management of Vintage Bank and are approved by Vintage Bank's Board of
Directors. Vintage Bank's Board of Directors has established internal procedures
which limit loan approval authority of its loan officers. The Board of Directors
has delegated some lending authority to executive and loan officers and an
internal loan committee consisting of two executive officers and selected loan
officers.
The Directors' Loan Committee must approve all new loans and loan renewals in
excess of specified amounts. This includes any loan in excess of $500,000 if
secured by a residential first deed of trust or $400,000 if secured by a
commercial first deed of trust, $400,000 if secured by a second deed of trust,
$300,000 if unsecured or secured by equipment, receivables, inventory, or other
personal property. Further, any loan not substantially conforming to Vintage
Bank's written loan policy must be approved by the Directors' Loan Committee.
Loans to directors and executive officers of Vintage Bank or their affiliates
must be approved in all instances by a majority of the Board of Directors. In
accordance with law, directors and officers are not permitted to participate in
the discussion of or to vote on loans made to them or their related interests.
In addition, loans to directors and officers must be made on substantially the
same terms, including interest rates and collateral requirements, as those
prevailing for comparable transactions with other nonaffiliated persons at the
time each loan was made, subject to the limitations and other provisions in
California and Federal law. These loans also must not involve more than the
normal risk of collectibility or present other unfavorable features.
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Deposits
Napa County south of Oak Knoll Avenue constitutes Vintage Bank's primary service
area and most of Vintage Bank's deposits are attracted from the Napa area. No
material portion of Vintage Bank's deposits has been obtained from a single
person or a few persons, the loss of any one or more of which have a material
effect on the business of Vintage Bank. Total deposits as of December 31, 1999
were $172,380,039 Total deposits as of December 31, 1998 were $162,173,206.
Vintage Bank offers a courier service in the North Napa County area, including
Yountville and St. Helena and throughout the City of Napa and Southern Napa
County. Management anticipates that this courier service will increase deposits
from north of Vintage Bank's current primary market area.
Business Hours
In order to attract loan and deposit business, Vintage Bank maintains lobby
hours at its Main Office between 9:00 a.m. and 5:00 p.m. Monday through
Thursday, between 9:00 a.m. and 6:00 p.m. on Friday, and between 9:00 a.m. and
1:00 p.m. on Saturday. Drive-up hours are between 8:00 a.m. and 6:00 p.m. Monday
through Friday, and between 9:00 a.m. and 1:00 p.m. on Saturday. Both branch
offices are open between 9:00 a.m. and 5:00 p.m. Monday through Thursday,
between 9:00 a.m. and 6:00 p.m. on Friday, and between 9:00 a.m. and 1:00 p.m.
on Saturday.
Employees
At December 31, 1999, Vintage Bank employed eighty five (85) persons, twenty
four (24) of whom are part-time employees, including five (5) executive officers
and twenty (20) other officers. At December 31, 1998, Vintage Bank employed
eighty seven (87) persons, eighteen (18) of whom were part-time employees,
including five (5) executive officers and sixteen (16) other officers. None of
Vintage Bank's employees is presently represented by a union or covered under a
collective bargaining agreement. Management of Vintage Bank believes its
employee relations are excellent.
STATISTICAL DATA
The following statistical data should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations, and
the financial statements and notes thereto included in 1999 audited financial
statements incorporated herein by reference.
Distribution of Average Assets, Liabilities, and Shareholders Equity; Interest
Rates and Interest Differential
The following table sets forth average daily balances of assets, liabilities,
and shareholders' equity during 1999, 1998 and 1997, along with total interest
income earned and expense paid, and the average yields earned or rates paid
thereon and the net interest margin for the years ended December 31, 1999, 1998
and 1997.
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December 31, 1999 December 31, 1998
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Average Income/ Average Average Income/ Average
Balance Expense Yield/Rate Balance Expense Yield/Rate
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ASSSETS
Loans (1) (2) $110,609,432 $9,818,961 8.88% $89,057,414 $8,465,003 9.51%
Investment securities:
Taxable 46,262,004 2,980,760 6.44% 38,917,590 2,472,704 6.35%
Non-taxable (3) 14,146,831 903,398 6.39% 10,056,956 655,165 6.51%
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TOTAL LOANS AND INVESTMENT SECURITIES 171,018,267 13,703,119 8.01% 138,031,960 11,592,872 8.40%
Due from banks, time 125,000 6,947 5.56% 200,000 11,018 5.51%
Federal funds sold 3,089,490 192,223 6.22% 12,355,606 461,039 3.73%
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TOTAL EARNING ASSETS $174,232,757 $13,902,289 7.98% 150,587,566 $12,064,929 8.01%
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Cash and due from banks 9,790,202 10,107,541
Allowance for loan losses (1,882,877) (1,639,488)
Premises and equipment, net 2,802,875 2,837,042
Accrued interest receivable
and other assets 5,901,102 5,280,858
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TOTAL ASSETS $190,844,059 $167,173,519
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LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Interest bearing demand $58,440,048 $1,338,642 2.29% $48,570,740 $1,104,570 2.27%
Savings 15,931,371 298,280 1.87% 13,572,370 246,590 1.82%
Time 54,217,935 2,530,100 4.67% 50,422,099 2,640,666 5.24%
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TOTAL DEPOSITS 128,589,354 4,167,022 3.24% 112,565,209 3,991,826 3.55%
3,783,333 197,069 5.21% 0 0 0.00%
TOTAL INTEREST BEARING
LIABILITIES $132,372,687 $4,364,091 3.30% 112,565,209 $3,991,826 3.55%
------------ ---------- ---------- ----------
Noninterest bearing DDA 39,988,858 37,870,860
Accrued interest payable
and other liabilities 1,214,180 1,100,279
Shareholders' equity 17,268,334 15,637,171
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TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $190,844,059 $167,173,519
============ ============
NET INTEREST INCOME $9,538,198 $8,073,103
========== ==========
NET INTEREST INCOME TO
AVERAGE EARNING ASSETS
(Net Interest Margin (4)) 5.47% 5.36%
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December 31, 1997
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Average Income/ Average
Balance Expense Yield/Rate
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<S> <C> <C> <C>
ASSETS
Loans (1) (2) $78,975,833 $7,537,434 9.54%
Investment securities:
Taxable 32,603,372 2,144,912 6.58%
Non-taxable (3) 4,153,167 327,404 7.88%
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TOTAL LOANS AND INVESTMENT SECURITIES 115,732,372 10,009,750 8.65%
Due from banks, time 200,000 11,443 5.72%
Federal funds sold 3,232,170 142,480 4.41%
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TOTAL EARNING ASSETS 119,164,542 $10,163,673 8.53%
----------- ----------
Cash and due from banks 9,615,681
Allowance for loan losses (1,617,445)
Premises and equipment, net 3,031,847
Accrued interest receivable
and other assets 3,111,061
---------
TOTAL ASSETS $133,305,686
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Interest bearing demand $32,836,482 $595,046 1.81%
Savings 12,577,868 254,568 2.02%
Time 43,766,802 2,265,651 5.18%
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TOTAL DEPOSITS 89,181,152 3,115,265 3.49%
942,133 26,240 2.79%
TOTAL INTEREST BEARING
LIABILITIES 90,123,285 $3,141,505 3.49%
---------- ----------
Noninterest bearing DDA 29,196,839
Accrued interest payable
and other liabilities 904,053
Shareholders' equity 13,081,509
----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $133,305,686
============
NET INTEREST INCOME $7,022,168
==========
NET INTEREST INCOME TO
AVERAGE EARNING ASSETS
(Net Interest Margin (4)) 5.89%
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<FN>
(1) Average loans include nonaccrual loans.
(2) Loan interest income includes loan fee income of $671,247 in 1999, $699,540
in 1998 and $452,288 in 1997.
(3) Average yields shown are taxable-equivalent. On a non- taxable basis, 1999
income was $689,683 with an average yield of 4.88%, 1998 interest income was
$496,666 with an average yield of 4.94%; in 1997 non-taxable income was $249,000
and the average yield was 6.00% and in 1996 non-taxable income was $277,984 and
the average yield was 6.00% and for the period of 1999, annualized non-taxable
income was $685,607 and the average yield was 5.08%
(4) Net interest margin is calculated by dividing net interest income by the
average balance of total earning assets for the applicable year.
</FN>
</TABLE>
-10-
<PAGE>
<TABLE>
Summary of Changes in Interest Earned and Paid
The following table sets forth a summary of the changes in interest earned and
interest paid in December 31, 1999 over 1998; December 31, 1998 over 1997; and
December 31, 1997 over 1996 resulting from changes in assets and liabilities
volumes and rates. The change in interest due to both rate and volume has been
allocated in proportion to the relationship of absolute dollar amounts of change
in each.
<CAPTION>
1999 Over 1998 1998 over 1997 1997 Over 1996
-------------- --------------- ---------------
Volume Rate Total Volume Rate Total Volume Rate Total
------------------------------------ ---------- ---------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (Decrease) In
Interest and Fee Income
Time Deposits With Other
Financial Institutions ($4,128) $57 ($4,071) $0 ($425) ($425) $0 ($271) ($271)
Investment Securities:
Taxable 464,933 43,123 508,056 415,865 (88,073) 327,792 378,506 81,119 459,625
Non-Taxable (1) 265,794 (17,561) 248,233 465,084 (137,323) 327,761 (37,715) 550 (37,156)
Federal Funds Sold (345,801) 76,985 (268,816) 402,402 (83,843) 318,559 (427,477) (33,027) (460,504)
Loans 2,053,954 (699,996) 1,353,958 958,643 (31,074) 927,569 1,353,509 (391,740) 961,769
---------- --------- ---------- ---------- ---------- --------- ---------- --------- --------
Total Interest and Fee
Income 2,434,752 (597,392) 1,837,360 2,241,994 (340,738) 1,901,256 1,266,823 (343,369) 923,454
---------- --------- ---------- ---------- ---------- --------- ---------- --------- --------
Increase (Decrease) In
Interest Expense
Deposits:
Interest Bearing
Transaction Accounts 222,019 12,053 234,072 284,084 225,440 509,524 58,580 (15,713) 42,867
Savings 43,361 8,329 51,690 19,594 (27,572) (7,978) 22,458 (10,825) 11,633
Time Deposits 200,354 (310,920) (110,566) 346,214 28,801 375,015 181,737 16,037 197,774
---------- --------- ---------- ---------- ---------- --------- ---------- --------- --------
Total Deposits 465,734 (290,538) 175,196 649,892 226,669 876,561 262,775 (10,501) 252,274
Short-term Borrowings 105,555 91,514 197,069 (26,240) 0 (26,240) (65,019) (27,367) (92,386)
---------- --------- ---------- ---------- ---------- --------- ---------- --------- --------
Total Interest Expense 571,289 (199,024) 372,265 623,652 226,669 850,321 197,756 (37,868) 159,888
---------- --------- ---------- ---------- ---------- --------- ---------- --------- --------
Net Interest Income $1,863,463 ($398,368) $1,465,095 $1,618,342 ($567,407) $1,050,935 $1,069,067 ($305,501) $763,566
========== ========= ========== ========== ========== ========= ========== ========= ========
<FN>
(1) The interest earned is taxable-equivalent. On a non-taxable basis 1999
interest was $193,017 more than 1998; 1998 interest income was $248,666 more
than in 1997; and 1997 interest income was $28,984 less than in 1996.
</FN>
</TABLE>
-11-
<PAGE>
Investment Securities
The following tables show the book value of investment securities as of December
31, 1999, 1998 and 1997.
Book Value as of December 31, 1999
----------------------------------
Held to Maturity Available-for-Sale
---------------- ------------------
Securities of the U. S. Treasury and
Government Agencies $ 0 $10,383,943
Mortgage Backed Securities 0 19,977,328
Equity Securities 0 924,750
Municipal Securities 1,389,964 12,364,934
Corporate Debt Securities 0 11,613,488
----------- -----------
$ 1,389,964 $55,264,443
=========== ===========
Book Value as of December 31, 1998
----------------------------------
Held to Maturity Available-for-Sale
---------------- ------------------
Securities of the U. S. Treasury and
Government Agencies $ 0 $11,703,432
Mortgage Backed Securities 0 23,572,792
Equity Securities 0 777,200
Municipal Securities 13,512,384 0
Corporate Debt Securities 0 12,452,234
----------- -----------
$13,512,384 $48,505,658
=========== ===========
Book Value as of December 31, 1997
----------------------------------
Held to Maturity Available-for-Sale
---------------- ------------------
Securities of the U. S. Treasury and
Government Agencies $ 0 $ 7,588,574
Mortgage Backed Securities 0 18,536,012
Equity Securities 0 688,400
Municipal Securities 4,017,714 0
Corporate Debt Securities 0 8,736,291
---------- -----------
$4,017,714 $35,549,277
========== ===========
-12-
<PAGE>
<TABLE>
The following tables provide a summary of the maturities and weighted average
yields of investment securities as of December 31, 1999, 1998, and 1997.
MATURITY AND WEIGHTED AVERAGE YIELD
OF INVESTMENT SECURITIES AS OF
DECEMBER 31, 1999
<CAPTION>
AFTER ONE AFTER FIVE
IN ONE YEAR THROUGH THROUGH AFTER
OR LESS FIVE YEARS TEN YEARS TEN YEARS TOTAL
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AVAILABLE FOR SALE SECURITIES:
Securities of the US Treasury
and other
US Government Agencies $3,003,975 6.35% $7,379,968 5.26% $0 0.00% $0 0.00% $10,383,943 5.58%
Mortgage-Backed Securities (2) 0 0.00% 972,018 6.71% 214,319 6.80% 18,790,991 6.59% 19,977,328 6.60%
Equity Securities 0 0.00% 0 0.00% 0 0.00% 924,750 5.91% 924,750 5.91%
Municipal Securities (1) 131,756 9.18% 1,799,408 7.43% 5,377,872 6.22% 5,055,898 6.77% 12,364,934 6.65%
Corporate Debt Securities 2,005,394 6.78% 4,967,583 5.98% 1,931,563 6.01% 2,708,948 6.67% 11,613,488 6.28%
--------- ----- --------- ----- --------- ----- --------- ----- ---------- -----
TOTAL $5,141,125 6.59% $15,118,977 5.85% $7,523,754 6.18% $27,480,587 6.61% $55,264,443 6.34%
HELD TO MATURITY SECURITIES:
Municipal Securities (1) $0 0.00% $0 0.00% $0 0.00% $1,389,964 8.77% $1,389,964 8.77%
-- ----- -- ----- -- ----- ---------- ----- ---------- -----
TOTAL $0 0.00% $0 0.00% $0 0.00% $1,389,964 8.77% $1,389,964 8.77%
<FN>
(1) The maturity of mortgage-backed securities is based on contractual maturity.
The average expected life is approximately four and one half years.
(2) Yields shown are taxable-equivalent.
</FN>
</TABLE>
<TABLE>
MATURITY AND WEIGHTED AVERAGE YIELD
OF INVESTMENT SECURITIES AS OF
DECEMBER 31, 1998
<CAPTION>
AFTER ONE AFTER FIVE
IN ONE YEAR THROUGH THROUGH AFTER
OR LESS FIVE YEARS TEN YEARS TEN YEARS TOTAL
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AVAILABLE FOR SALE SECURITIES:
Securities of the US Treasury
and other
US Government Agencies $2,029,688 6.31% $9,673,744 5.79% $0 0.00% $0 0.00% $11,703,432 5.88%
Mortgage-Backed Securities (1) 0 0.00% 1,627,649 6.74% 666,154 6.41% 21,278,989 6.64% 23,572,792 6.64%
Equity Securities 0 0.00% 0 0.00% 0 0.00% 777,200 5.66% 777,200 5.66%
Corporate Debt Securities 1,499,700 5.29% 6,364,305 6.29% 1,034,590 6.19% 3,553,639 6.61% 12,452,234 6.25%
--------- ----- --------- ----- --------- ----- --------- ----- ----------- -----
TOTAL $3,529,388 5.88% $17,665,698 6.06% $1,700,744 6.28% $25,609,828 6.61% $48,505,658 6.34%
HELD TO MATURITY SECURITIES:
Municipal Securities (2) $0 0.00% $1,513,655 8.13% $4,839,580 6.56% $7,159,149 6.67% $13,512,384 6.79%
-- ----- ---------- ----- ---------- ----- ---------- ----- ----------- -----
TOTAL $0 0.00% $1,513,655 7.75% $4,839,580 8.74% $7,159,149 7.55% $13,512,384 6.79%
<FN>
(1) The maturity of mortgage-backed securities is based on contractual maturity.
The average expected life is approximately four and one half years.
(2) Yields shown are taxable-equivalent.
</FN>
</TABLE>
-13-
<PAGE>
<TABLE>
MATURITY AND WEIGHTED AVERAGE YIELD
OF INVESTMENT SECURITIES AS OF
DECEMBER 31, 1997
<CAPTION>
AFTER ONE AFTER FIVE
IN ONE YEAR THROUGH THROUGH AFTER
OR LESS FIVE YEARS TEN YEARS TEN YEARS TOTAL
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AVAILABLE FOR SALE SECURITIES:
Securities of the US Treasury
and other
US Government Agencies $0 0.00% $7,588,574 6.19% $0 0.00% $0 0.00% $7,588,574 6.19%
Mortgage-Backed Securities (2) 0 0.00% 618,923 6.11% 2,900,612 6.68% 15,016,477 6.91% 18,536,012 6.85%
Equity Securities 0 0.00% 0 0.00% 0 0.00% 688,400 5.38% 688,400 5.38%
Corporate Debt Securities (1) 1,693,004 5.60% 4,064,380 6.48% 424,112 6.42% 2,554,795 6.71% 8,736,291 6.37%
--------- ----- --------- ----- ------- ----- --------- ----- --------- -----
TOTAL $1,693,004 5.60% $12,271,877 6.28% $3,324,724 6.65% $18,259,672 6.82% $35,549,277 6.56%
HELD TO MATURITY SECURITIES:
Municipal Securities (1) $416,519, 8.82% $923,477 7.75% $1,679,174 8.74% $998,543 7.55% $4,017,713 8.23%
--------- ----- -------- ----- ---------- ----- -------- ----- ---------- -----
TOTAL $416,519 8.81% $923,477 7.75% $1,679,174 8.74% $998,543 7.55% S4,017,713 8.23%
<FN>
(1) The maturity of mortgage-backed securities is based on contractual maturity.
The average expected life is approximately four and one half years.
(2) Yields shown are taxable-equivalent.
</FN>
</TABLE>
-14-
<PAGE>
LOAN PORTFOLIO
<TABLE>
Composition of Loans
The following table shows the composition of loans as of December 31, 1999,
1998, 1997, 1996 and 1995.
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial Loans $ 21,463,022 $ 14,410,117 $ 16,458,361 $ 13,609,827 $ 12,025,706
Commercial Loans Secured by
Real Estate 13,010,890 6,062,585 9,610,793 9,262,856 8,993,636
Installment Loans 20,868,859 18,460,555 15,918,156 13,331,160 11,445,283
Real Estate Loans 58,368,548 51,643,406 34,089,199 29,991,166 23,170,533
Construction Loans 8,441,142 5,950,207 6,446,381 6,059,766 9,061,079
------------ ------------ ------------ ------------ ------------
122,152,461 96,526,870 82,522,890 72,254,775 64,696,237
Less - Allowance for
Loan Losses 1,986,931 1,751,693 1,532,128 1,474,437 1,326,186
------------ ------------ ------------ ------------ ------------
$120,165,530 $ 94,775,177 $ 80,990,762 $ 70,780,338 $ 63,370,051
============ ============ ============ ============ ============
</TABLE>
<TABLE>
The following table shows maturity distribution of loans and sensitivity in
interest rates as of December 31, 1999
<CAPTION>
AFTER ONE
IN ONE YEAR THROUGH AFTER
OR LESS FIVE YEARS FIVE YEARS TOTAL
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial (Including
Real Estate Secured) $ 12,504,837 $ 10,035,549 $ 11,933,526 $ 34,473,912
Installment 16,418,193 2,842,641 1,608,025 20,868,859
Real Estate 5,609,835 18,166,847 34,591,866 58,368,548
Construction 7,017,129 316,038 1,107,975 8,441,142
------------ ------------ ------------ ------------
$ 41,549,994 $ 31,361,075 $ 49,241,392 $122,152,461
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
The following table shows maturity sensitivity to changes in interest rates as
of December 31, 1999 .
<S> <C> <C> <C> <C>
Loans With Fixed Interest Rates $ 9,171,730 $ 24,391,388 $ 38,295,357 $ 71,858,475
Loans With Floating Interest Rates 32,378,264 6,969,687 10,946,035 50,293,986
------------ ------------ ------------ ------------
$ 41,549,994 $ 31,361,075 $ 49,241,392 $122,152,461
============ ============ ============ ============
</TABLE>
Nonaccrual Past Due and Restructured Loans
Nonaccrual loans were $88,694, $466,051, $582,154 and $454,931 as of December
31, 1998, 1997, 1996, and 1995, respectively. There were no nonaccrual loans as
of December 31, 1999. The Vintage Bank held no OREO as
-15-
<PAGE>
December 31, 1999, 1998, 1997, or 1995. OREO held at December 31, 1996 was
$342,037, which was a single loan on commercial undeveloped land. There were no
loans accruing interest 90 days past due as of December 31, 1999, 1998, 1997,
1996 or 1995. There are no loans upon which principal and interest payments were
90 days past due at December 31, 1999 and with respect to which serious doubt
existed as to the ability of the borrower to comply with the present loan
payment terms.
<TABLE>
The following table sets forth the amount of the bank's non-performing assets as
of the dates indicated:
<CAPTION>
December 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Nonaccrual loans 0 88,694 466,051 582,154 454,931
Accruing loans past due 90 days or more 0 0 0 0 0
Total nonperforming loans 0 88,694 466,051 582,154 454,931
Other real estate owned 0 0 0 342,037 0
Total nonperforming assets 0 88,694 466,051 924,191 454,931
Nonperforming loans to total loans NA 0.09% 0.56% 0.80% 0.70%
Allowance for loan losses to nonperforming loans NA 1975% 329% 253% 292%
Nonperforming assets to total assets NA 0.05% 0.35% 0.77% 0.44%
Allowance for loan losses to nonperforming assets NA 1975% 329% 160% 292%
</TABLE>
-16-
<PAGE>
The following tables summarize the allocation of the allowance for loan losses
between loan types at December 31, 1999, 1998, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
December 31, 1999
Composition of Loans Amount Allocated for Percentage of Loans
Loan Losses in Each Cateory to
Total Loans
<S> <C> <C> <C>
Commercial Loans $ 21,463,022 $ 349,700 17.6%
Commercial Loans Secured by
Real Estate 13,010,890 212,602 10.7%
Installment Loans 20,868,859 337,778 17.0%
Real Estate Loans 58,368,548 949,753 47.8%
Construction Loans 8,441,142 137,098 6.9%
122,152,461 100.0%
------------
Less Allowance for Loan Losses 1,986,931 $1,986,931
------------ ----------
$120,165,530
============
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
Composition of Loans Amount Allocated for Percentage of Loans
Loan Losses in Each Cateory to
Total Loans
<S> <C> <C> <C>
Commercial Loans $14,410,117 $ 261,002 14.9%
Commercial Loans Secured by
Real Estate 6,062,585 110,357 6.3%
Installment Loans 18,460,555 334,573 19.1%
Real Estate Loans 51,643,406 937,156 53.5%
Construction Loans 5,950,207 108,605 6.2%
96,526,870 ---------- 100.0%
-----------
Less Allowance for Loan Losses 1,751,693 $1,751,693
----------- ----------
$94,775,177
===========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
Composition of Loans Amount Allocated for Percentage of Loans
Loan Losses in Each Cateory to
Total Loans
<S> <C> <C> <C>
Commercial Loans $16,458,361 $ 304,893 19.9%
Commercial Loans Secured by
Real Estate 9,610,793 179,259 11.7%
Installment Loans 15,918,156 295,701 19.3%
Real Estate Loans 34,089,199 632,769 41.3%
Construction Loans 6,446,381 119,506 7.8%
82,522,890 ---------- 100.0%
-----------
Less Allowance for Loan Losses 1,532,128 $1,532,128
----------- ----------
$80,990,762
===========
</TABLE>
-17-
<PAGE>
<TABLE>
<CAPTION>
December 31, 1996
Composition of Loans Amount Allocated for Percentage of Loans
Loan Losses in Each Cateory to
Total Loans
<S> <C> <C> <C>
Commercial Loans $13,609,827 $ 277,194 18.8%
Commercial Loans Secured by
Real Estate 9,262,856 188,728 12.8%
Installment Loans 13,331,160 272,771 18.5%
Real Estate Loans 29,991,166 611,891 41.5%
Construction Loans 6,059,766 123,853 8.4%
----------- ---------- 100.0%
72,254,775
Less Allowance for Loan Losses 1,474,437 $1,474,437
----------- ----------
$70,780,338
===========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
Composition of Loans Amount Allocated for Percentage of Loans
Loan Losses in Each Cateory to
Total Loans
<S> <C> <C> <C>
Commercial Loans $12,025,706 $ 246,671 18.6%
Commercial Loans Secured by
Real Estate 8,993,636 184,340 13.9%
Installment Loans 11,445,283 234,735 17.7%
Real Estate Loans 23,170,533 474,774 35.8%
Construction Loans 9,061,079 185,666 14.0%
----------- ---------- 100.0%
64,696,237
Less Allowance for Loan Losses 1,326,186 $1,326,186
----------- ----------
$63,370,051
===========
</TABLE>
-18-
<PAGE>
<TABLE>
Summary of Loan Loss Experience
The following table provides a summary of Vintage Bank's loan loss experience as
of December 31, 1999, 1998, 1997, 1996, and 1995.
<CAPTION>
December 31,
------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Average loans for the period $110,609,432 $89,057,414 $78,975,833 $65,473,343 $57,202,247
Loans outstanding at end
of period 122,152,461 96,526,870 82,522,890 72,254,775 64,696,237
Allowance for Loan Losses
Balance, beginning of period 1,751,693 1,532,128 1,474,437 1,326,186 1,167,606
Less loans charged off:
Real Estate loans 12,776 7,300 155,079 125,295 185
Commercial loans 0 38,030 35,806 0 28,942
Installment loans 11,606 13,880 5,018 2,224 3,960
---------- ---------- ---------- ---------- ----------
Total loans charged off 24,382 59,210 195,903 127,519 33,087
Recoveries:
Real Estate loans 0 700 800 0 0
Commercial loans 6,615 36,592 12,365 33,509 9,520
Installment loans 13,005 1,483 429 2,261 2,147
---------- ---------- ---------- ---------- ----------
Total recoveries 19,620 38,775 13,594 35,770 11,667
Net loans charged off (recovered) 4,762 20,435 182,309 91,749 21,420
Provision for loan losses 240,000 240,000 240,000 240,000 180,000
---------- ---------- ---------- ---------- ----------
Balance, end of period $1,986,931 $1,751,693 $1,532,128 $1,474,437 $1,326,186
========== ========== ========== ========== ==========
Net loans charged off
to average loans by types:
Real Estate loans .001% .007% .195% .191% .000%
Commercial loans (.006%) .002% .030% (.051%) .034%
Installment loans .001% .014% .006% .000% .003%
Net losses to average loans outstanding .004% .023% .231% .140% .037%
</TABLE>
-19-
<PAGE>
<TABLE>
TIME DEPOSITS
The following table sets forth the maturity of time certificates of deposit of
$100,000 or more at December 31, 1999 1998 and 1997.
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
3 Months or Less $11,927,749 54.4% $8,177,036 46.9% $7,258,193 49.2%
Over 3 through
6 Months 7,126,652 32.5% 5,514,648 31.6% 4,330,679 29.3%
Over 6 Months through
12 Months 2,001,570 9.1% 2,279,043 13.1% 1,930,251 13.1%
Over 12 Months 865,947 4.0% 1,472,686 8.4% 1,246,253 8.4%
----------- --- ----------- --- ----------- ---
$21,921,918 100% $17,443,413 100% $14,765,376 100%
=========== ==== =========== ==== =========== ====
</TABLE>
SHORT TERM BORROWINGS
As of December 31, 1999, Vintage Bank has borrowed funds from the Federal Home
Loan Bank of San Francisco on the following terms;:
Borrowings Rate Due
---------- ---- ---
$2,900,000 5.46% January 18, 2000
2,100,000 5.50% January 18, 2000
RETURN ON EQUITY AND ASSETS
The following sets forth key ratios for the periods ending December 31, 1999,
1998 and 1997.
1999 1998 1997
----- ----- -----
Net Income as a Percentage of
Average Assets 1.44% 1.29% 1.39%
Net Income as a Percentage of
Average Equity 15.52% 13.45% 14.17%
Average Equity as a Percentage
of Average Assets 9.25% 9.59% 9.81%
Dividends Declared Per Share
as a Percentage of Net
Income Per share 11.76% 14.18% 14.71%
COMPETITION
As of December 31, 1999, the Napa area contained twenty three (23) competitive
banking offices (including Vintage Bank) three (3) offices of savings banks and
savings and loan associations and five (5) offices of credit unions.
As of December 31, 1999, Fairfield contained thirteen (13) competitive banking,
no offices of savings banks and savings and loan associations and ten (10)
offices of credit unions; Vacaville contained nine (9) competitive banking, no
offices of savings banks and savings and loan associations and five (5) offices
of credit unions; and Benicia
-20-
<PAGE>
contained six (6) competitive banking, no offices of savings banks and savings
and loan associations and no offices of credit unions.
Vintage Bank relies, and Solano Bank will rely, substantially on local
promotional activity, personal contacts by its officers, directors and
employees, referrals by its customers and shareholders, personalized service and
its reputation in the communities it serves to compete effectively.
The banking business in California, including Vintage Bank's primary service
area, and Solano Bank's proposed primary service area, is highly competitive
with respect to both loans and deposits and is dominated by major banks with
billions of dollars in deposits and extensive branch systems over a wide
geographic area within California. These major banks offer certain services
(such as trust, investment, interstate and international bank services) which
Vintage Bank does not, and Solano Bank will not, offer directly. By virtue of
their higher total capitalization, the major banks have substantially higher
lending limits than Vintage Bank has and Solano Bank will have.
Further, Vintage Bank competes directly with one other community bank, Napa
National Bank. On November 19. 1999, Napa National announced its acquisition by
Wells Fargo Bank to be completed during the first quarter of 2000, subject to
satisfaction of conditions. A sale of Napa Valley Bank to WestAmerica Bancorp,
consummated in 1993, contributed to Vintage Bank's growth in 1993 and 1994.
Vintage Bank's broad community ownership, low employee turnover and emphasis on
personalized and prompt service contributed to Vintage Bank's deposit growth in
1998 and these attributes are expected to support continued growth of Vintage
Bank.
Vintage Bank competes, and Solano Bank will compete, directly with respect to
loan business with other commercial banks, savings and loan associations and
other financial institutions, including finance companies, insurance companies,
mortgage companies, pension funds, credit unions and other consumer and
commercial lenders doing business in Napa County. As of December 31, 1998,
Vintage Bank held an estimated 19.2% of the total bank deposits in its primary
market.
From time to time, legislation is proposed or enacted which has the effect of
increasing the cost of doing business, limiting permissible activities or
affecting the competitive balance between banks and other financial
institutions. The recent enactment of interstate banking in California and the
more recent elimination of statutory barriers separating the banking, insurance
and securities industries provide further competition for North Bay, Vintage
Bank and Solano Bank. It is difficult to predict the competitive impact these
and other changes in legislation will have on commercial banking in general or
on the businesses of North Bay and the Banks in particular. See "Supervision and
Regulation."
SUPERVISION AND REGULATION
North Bay
North Bay, as a bank holding company, is subject to regulation under the Bank
Holding Company Act of 1956, as amended, and is registered with and subject to
the supervision of the Board of Governors of the Federal Reserve System. It is
the policy of the Federal Reserve that each bank holding company serve as a
source of financial and managerial strength to its subsidiary banks. The Federal
Reserve has the authority to examine North Bay.
The Bank Holding Company Act requires North Bay to obtain the prior approval of
the Federal Reserve before acquisition of all or substantially all of the assets
of any bank or ownership or control of the voting shares of any bank if, after
giving effect to such acquisition, North Bay would own or control, directly or
indirectly, more than 5% of the voting shares of such bank. Recent amendments to
the Bank Holding Company Act expand the circumstances under which a bank holding
company may acquire control of or all or substantially all of the assets of a
bank located outside the State of California.
North Bay may not engage in any business other than managing or controlling
banks or furnishing services to its subsidiaries, with the exception of certain
activities which, in the opinion of the Federal Reserve, are so closely related
to banking or to managing or controlling banks as to be incidental to banking.
Recently enacted federal legislation, known as the Gramm-Leach-Bliley Act,
offers bank holding companies an opportunity to broaden the scope of activities
engaged in by electing to be treated as a financial holding company. A financial
holding company enjoys
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broader powers than a bank holding company, specifically including the ability
to own securities and insurance companies in addition to financial institutions.
North Bay is generally prohibited from acquiring direct or indirect ownership or
control of more than 5% of the voting shares of any company unless that company
is engaged in such authorized activities and the Federal Reserve approves the
acquisition.
North Bay and its subsidiaries are prohibited from engaging in certain tie-in
arrangements in connection with any extension of credit, sale or lease of
property or provision of services. For example, with certain exceptions Vintage
Bank may not condition an extension of credit on a customer obtaining other
services provided by it, North Bay or any other subsidiary, or on a promise by
the customer not to obtain other services from a competitor. In addition,
federal law imposes certain restrictions on transactions between Vintage Bank
and its affiliates. As affiliates, Vintage Bank and North Bay are subject, and
Solano Bank will be subject, with certain exceptions, to the provisions of
federal law imposing limitations on and requiring collateral for extensions of
credit by Vintage and Solano Bank to any affiliate.
The Banks
As a California state-chartered bank, Vintage Bank is subject to , and Solano
Bank will be subject to, regulation, supervision and periodic examination by the
California Department of Financial Institutions. As a member of the Federal
Reserve System, Vintage Bank is, and Solano Bank will be, also subject to
regulation, supervision and periodic examination by the Federal Reserve Bank of
San Francisco. Vintage Bank's deposits are, and Solano Bank's deposits will be,
insured by the Federal Deposit Insurance Corporation to the maximum amount
permitted by law, which is currently $100,000 per depositor in most cases.
Insured banks are subject to FDIC regulations applicable to all insured
institutions.
The regulations of these state and federal bank regulatory agencies govern, or
will govern, most aspects of the Banks' businesses and operations, including but
not limited to, the scope of its business, its investments, its reserves against
deposits, the nature and amount of any collateral for loans, the timing of
availability of deposited funds, the issuance of securities, the payment of
dividends, bank expansion and bank activities, including real estate development
and insurance activities, and the payment of interest on certain deposits.
Vintage Bank is, and Solano Bank will be, also subject to the requirements and
restrictions of various consumer laws, regulations and the Community
Reinvestment Act.
Payment of Dividends
North Bay
The shareholders of North Bay are entitled to receive dividends when and as
declared by its Board of Directors, out of funds legally available, subject to
the dividends preference, if any, on preferred shares that may be outstanding
and also subject to the restrictions of the California Corporations Code. At
December 31, 1999, North Bay had no outstanding shares of preferred stock.
The principal sources of cash revenue to North Bay will be dividends and
management fees received from Vintage Bank and Solano Bank. The Banks' ability
to make dividend payments to North Bay is subject to state and federal
regulatory restrictions.
The Banks
Under state law, the Board of Directors of a California state chartered bank may
declare a cash dividend, subject to the restriction that the amount available
for the payment of cash dividends is limited to the lesser of the bank's
retained earnings, or the bank's net income for the latest three fiscal years,
less dividends previously declared during that period, or, with the approval of
the Commissioner of Financial Institutions, to the greater of the retained
earnings of the bank, the net income of the bank for its last fiscal year or the
net income of the bank for its current fiscal year.
Federal Reserve regulations also govern the payment of dividends by a state
member bank. Under Federal Reserve regulations, dividends may not be paid unless
both capital and earnings limitations have been met. First, no dividend
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may be paid if it would result in a withdrawal of capital or exceed the member
bank's net profits then on hand, after deducting its losses and bad debts.
Exceptions to this limitation are available only upon the prior approval of the
Federal Reserve and the approval of two-thirds of the member bank's
shareholders. Second, a state member bank may not pay a dividend without the
prior written approval of the Federal Reserve if the total of all dividends
declared in one year exceeds the total of net profits for that year plus the
preceding two calendar years, less any required transfers to surplus under state
or federal law.
The Federal Reserve has broad authority to prohibit a bank from engaging in
banking practices which it considers to be unsafe or unsound. It is possible,
depending upon the financial condition of the bank in question and other
factors, that the Federal Reserve may assert that the payment of dividends or
other payments by a member bank is considered an unsafe or unsound banking
practice and therefore, implement corrective action to address such a practice.
Accordingly, the future payment of cash dividends by Vintage Bank or Solano Bank
to North Bay will generally depend not only on the bank's earnings during any
fiscal period but also on the bank's meeting certain capital requirements and
the maintenance of adequate allowances for loan and lease losses.
Impact of Monetary Policies
The earnings and growth of the Banks are subject to the influence of domestic
and foreign economic conditions, including inflation, recession and
unemployment. The earnings of the Banks are affected not only by general
economic conditions but also by the monetary and fiscal policies of the United
States and federal agencies, particularly the Federal Reserve. The Federal
Reserve can and does implement national monetary policy, such as seeking to curb
inflation and combat recession, by its open market operations in United States
Government securities and by its control of the discount rates applicable to
borrowings by banks from the Federal Reserve System. The actions of the Federal
Reserve in these areas influence the growth of bank loans, investments and
deposits and affect the interest rates charged on loans and paid on deposits.
The Federal Reserve's policies have had a significant effect on the operating
results of commercial banks and are expected to continue to do so in the future.
The nature and timing of any future changes in monetary policies are not
predictable.
Recent and Proposed Legislation
The operations of North Bay and the Banks are subject to extensive regulation by
federal, state, and local governmental authorities and are subject to various
laws and judicial and administrative decisions imposing requirements and
restrictions on part or all of their respective operations. North Bay believes
that it is in substantial compliance in all material respects with applicable
federal, state, and local laws, rules and regulations. Because the business of
North Bay and [the Banks is highly regulated, the laws, rules and regulations
applicable to each of them are subject to regular modification and change.
From time to time, legislation is enacted which has the effect of increasing the
cost of doing business, limiting or expanding permissible activities or
affecting the competitive balance between banks and other financial
institutions. Proposals to change the laws and regulations governing the
operations and taxation of banks and other financial institutions are frequently
made in Congress, in the California legislature and before various bank
regulatory agencies. Most recently, President Clinton signed into law the
Gramm-Leach-Bliley Act. This legislation eliminates many of the barriers that
have separated the insurance, securities and banking industries since the Great
Depression. The federal banking agencies (the Federal Reserve, FDIC, Office of
the Comptroller of the Currency) among others, are currently drafting
regulations to implement the Gramm-Leach-Bliley Act. The likelihood of any major
change from these regulations, and the impact such change may have on North Bay
and the Banks is impossible to predict.
Gramm-Leach-Bliley Act
The Gramm-Leach-Bliley Act, signed into law on November 12, 1999, is the result
of a decade of debate in the Congress regarding a fundamental reformation of the
nation's financial system. The law is subdivided into seven
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titles, by functional area. Title I acts to facilitate affiliations among banks,
insurance companies and securities firms. Title II narrows the exemptions from
the securities laws previously enjoyed by banks, requires the Federal Reserve
and the SEC to work together to draft rules governing certain securities
activities of banks and creates a new, voluntary investment bank holding
company. Title III restates the proposition that the states are the functional
regulators for all insurance activities, including the insurance activities of
federally-chartered banks. The law bars the states from prohibiting insurance
activities by depository institutions. The law encourages the states to develop
uniform or reciprocal rules for the licensing of insurance agents. Title IV
prohibits the creation of additional unitary thrift holding companies. Title V
imposes significant requirements on financial institutions related to the
transfer of nonpublic personal information. These provisions require each
institution to develop and distribute to accountholders an information
disclosure policy, and requires that the policy allow customers to, and for the
institution to, honor a customer's request to "opt-out" of the proposed transfer
of specified nonpublic information to third parties. Title VI reforms the
Federal Home Loan Bank system to allow broader access among depository
institutions to the systems advance programs, and to improve the corporate
governance and capital maintenance requirements for the system. Title VII
addresses a multitude of issues including disclosure of ATM surcharging
practices, disclosure of agreements among non-governmental entities and insured
depository institutions which donate to non-governmental entities regarding
donations made in connection with the Community Reinvestment Act, and disclosure
by the recipient non-governmental entities of how such funds are used.
Additionally, the law extends the period of time between CRA examinations of
community banks.
North Bay continues to evaluate the strategic opportunities presented by the
broad powers granted to bank holding companies that elect to be treated as
financial holding companies. In the event that North Bay determines that access
to the broader powers of a financial holding company is in the best interests of
North Bay its shareholders and the Banks, North Bay will file the appropriate
election with the Federal Reserve.
The Banks and North Bay intend to comply with all provisions of the
Gramm-Leach-Bliley Act and all implementing regulations as they become
effective, and Vintage Bank intends to develop appropriate policies and
procedures to meet its responsibilities in connection with the privacy
provisions of Title V of that Act.
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<PAGE>
Item 2 - PROPERTIES
North Bay
North Bay's office is located in Vintage Bank's main office at 1500 Soscol
Avenue, Napa, California.
Vintage Bank
Vintage Bank's main office is located in a two-story building at 1500 Soscol
Avenue, Napa, California. The real property on which the building is located was
acquired by Vintage Bank in 1988, and construction of the building was completed
in 1989. In 1993 an additional 2,500 square feet of previously unoccupied space
in the Main Office was remodeled, thereby increasing usable space from
approximately 7,500 to 10,000 square feet. The real property and all
improvements at the Main Office are owned by Vintage Bank. In January, 1996
Vintage Bank purchased approximately 11,000 square feet of land adjacent to the
Main Office to facilitate expansion of Vintage Bank's motor banking facility.
The land was purchased at a cost of $87,375. The expanded autobanking facility
was completed in June, 1996 at a cost of $345,000 including related equipment
purchases.
Vintage Bank leases the premises for its Browns Valley Office, consisting of
approximately 2,000 square feet, located at 3271 Browns Valley Road, Napa,
California. The lease commenced on October 22, 1990 for a term of five years,
with three successive options to renew for five years each. To exercise an
option, the lease requires three months prior notice of the bank's intent to
renew. The lease was renewed for an additional five years in October, 1995. Rent
is subject to adjustment in accordance with increases in the Consumer Price
Index. Effective January 1, 1996, the lease rate was $3,207 per month. By the
terms of the lease Vintage Bank is required to (i) maintain and repair the
leased premises, (ii) maintain combined single limit, bodily injury and property
damage insurance, and (iii) pay its pro rata share of real property taxes and
common area maintenance expenses.
Vintage Bank leases the premises for its Bel Aire Shopping Center Office,
consisting of approximately 5,850 square feet, located at 3626 Bel Aire Plaza,
Napa, California. The lease term commenced on January 1, 1997, for a term of ten
years, with two successive options to renew for five years each upon at least
180 days' notice. Monthly rental was fixed at $5,850 per month for the first
year of the term of the lease. Thereafter rent is subject to adjustment in
accordance with a schedule for the second through the sixth year on the terms
set forth in the lease and thereafter in accordance with increases in the
Consumer Price Index. By the terms of the lease Vintage Bank is required to:
o maintain and repair the leased premises;
o pay for all utilities used;
o maintain public liability insurance;
o pay its pro rata share of common area maintenance; and
o pay its pro rata share of all real property taxes assessed against the
shopping center.
Effective April 1, 1995, Vintage Bank entered into a five year license agreement
with Chelsea GCA Realty Partnership, L.P., a Delaware limited partnership, for
the installation and operation of an automatic teller machine (ATM) and a
vaulted deposit drop box at the Napa Factory Outlet Stores. Vintage Bank pays a
monthly license fee equal to the greater of $200 per month or one hundred
dollars ($100) for each set of one thousand (1,000) ATM transactions.
Vintage also maintains a Solano County loan production office at 1300 Oliver
Road, Suite 180, Fairfield, California. Vintage Bank leases the premises for its
Solano Loan Center, consisting of approximately 1,480 square feet, located at
1300 Oliver Road, Suite 180, Fairfield, CA 94533. The term of the lease is
listed as six (6) months from approximately October 1, 1999 to February 28,
2000. The rent for the property is $2,000 per month. By the terms of the lease
Vintage Bank is required to (i) maintain and repair the leased premises, (ii)
pay its pro rata share of real property tax and common area operating expenses,
(iii) pay its pro rata share of utility expenses, and (iv) maintain property
insurance covering tenant improvements, workers' compensation and employer's
liability insurance and commercial general liability insurance with a combined
single limit for bodily injury, personal injury and property damage. Upon
opening of Solano Bank, the loan production office will be closed.
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<PAGE>
Vintage Bank owns certain leasehold improvements and furniture, fixtures and
equipment located at its offices, all of which are used in the banking business.
Solano Bank (Proposed)
Solano Bank will operate out of its headquarters office in Vacaville, California
and from branches located in Fairfield and Benicia, California.
The headquarters office will be located at 403 Davis Street, Vacaville,
California. The proposed lease for the building provides for about 5,000 square
feet at a lease cost of $5,210 per month. The initial lease will be for a period
of five (5) years, with three five (5) year options to extend. Leasehold
improvements are estimated to be $101,100.
The actual location of the Fairfield office has not as yet been determined.
However, leasehold improvements are estimated to be $87,500.
The Benicia branch will be located at 1395 E. 2nd Street, Benicia, California.
The proposed lease for the building provides for about 2,000 square feet at a
lease cost of $2,980 per month. The initial lease will be for a period of five
(5) years , with three five (5) year options to extend. Leasehold improvements
are estimated to be $61,400.
Item 3 - LEGAL PROCEEDINGS
Neither North Bay nor Vintage Bank is a party to, nor are any of their
properties the subject of, any material pending legal proceedings other than
ordinary, routine litigation incidental to North Bay's and Vintage Bank's
businesses, nor are any of such proceedings known to be contemplated by
government authority. No director, officer, affiliate, more than 5% shareholder
of North Bay or Vintage Bank or any associate of these persons is a party
adverse to North Bay or Vintage Bank or has a material interest adverse to North
Bay or Vintage Bank in any material legal proceeding.
Item 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A Special Meeting of Vintage Bank shareholders was held on October 13, 1999 to
approve a plan of corporate reorganization under which Vintage Bank would become
the wholly-owned subsidiary of a newly formed bank holding company, North Bay
Bancorp, which had been organized at the direction of Vintage Bank's Board of
Directors. Upon consummation of the reorganization, Vintage Bank common stock
would be converted, without recognition of gain or loss for tax purposes, into
stock of North Bay on a share-for-share basis. 1,073,088 shares voted in favor
of the reorganization, 10,841 shares voted against the reorganization, and 2,722
shares abstained.
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<PAGE>
PART II
Item 5 - MARKET FOR THE BANK'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
On November 1, 1999, North Bay's common stock began trading over-the-counter on
the OTC "Bulletin Board" under the symbol NBAN. Prior to November 1, 1999,
Vintage Bank's common stock was quoted on the OTC "Bulletin Board" under the
symbol VTGB. The firm of Hoefer & Arnett, Incorporated serves as primary market
maker in North Bay's common stock.
The following table (adjusted for the 1998, 1999, and 2000 stock dividends)
summarizes the common stock high and low bid prices based upon transactions of
which North Bay or Vintage Bank is aware:
Quarter ended (1) High Low
-------------------------- --------------- ----------------
December 31, 1999 $25.71 $24.05
September 30, 1999 25.71 22.38
June 30, 1999 22.86 19.05
March 31, 1999 22.86 19.05
December 31, 1998 18.59 16.10
September 30, 1998 19.73 16.33
June 30, 1998 20.86 18.14
March 31, 1998 24.49 20.86
(1) Price information for 1998 and the first three quarters of 1999 reflect
trades in Vintage Bank common stock. Information for the quarter ended December
31, 1999 includes trades in North Bay common stock commencing on November 2,
1999.
There may be other transactions of which North Bay is not aware and accordingly,
they are not reflected in the range of actual sales prices stated. Further,
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions. Additionally, since
trading in North Bay's common stock is limited, the range of prices stated is
not necessarily representative of prices which would result from a more active
market.
Vintage Bank paid cash dividends of $0.20 per share in 1998 and $0.20 per share
in 1999. The holders of common stock of North Bay are entitled to receive cash
dividends when and as declared by the Board of Directors, out of funds legally
available for the payment of dividends.
On January 18, 2000, the Board of Director of North Bay declared a $0.20 per
share cash dividend and a 5% stock dividend payable March 20, 2000 to
shareholders of record as of March 1, 2000. The cash dividend and stock dividend
will not be paid on shares offered by this prospectus.
North Bay is restricted in its ability to pay dividends to its shareholders as a
matter of law. For a discussion of restrictions imposed by law, see "SUPERVISION
and REGULATION - Payment of Dividends."
As of March 1, 2000, there were 879 holders of record of North Bay's common
stock.
Use of Proceeds of Public Offering
On December 22, 1999, North Bay filed Registration Statement No. 333-93365 with
the United States Securities and Exchange Commission with respect to a proposed
public offering of North Bay common stock for an aggregate consideration of
$5,000,000. The registration statement was declared effective on February 9,
2000, and North Bay
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<PAGE>
commenced an offering of up to 200,000 shares of its common stock, no par value,
at a price of $25.00 per share. All securities are being sold for the account of
the issuer and there are no underwriters involved in the offering. The offering
has not been terminated.
As of December 31, 1999, no shares had been sold. The following expenses have
been incurred by North Bay in connection with the issuance and distribution of
securities registered:
Underwriting Discounts and Commissions $ -0-
Finders Fees: $ -0-
Expenses paid to underwriters; $ -0-
Other Expenses: ` $85,000
-------
Total Expenses: $85,000
All expenses were paid to persons other than directors, officers, or 10%
shareholders of North Bay.
As of December 31, 1999, there were no net proceeds of the offering.
Item 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The management's discussion and analysis of financial condition and results of
operations is included in North Bay's 1999 Annual Report to Shareholders on
pages 5 through 12 which information is incorporated herein by reference.
Item 7 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
North Bay's consolidated balance sheets, statements of operations, statements of
changes in shareholders' equity, statements of cash flows and related notes
thereto are included in North Bay's 1999 Annual Report to Shareholders on pages
13 through 16 which information is incorporated herein by reference.
Item 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
Item 9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
For information regarding the directors, executive officers, promoters and
control persons of North Bay, see "ELECTION OF DIRECTORS" and "REPORTS OF
CHANGES IN BENEFICIAL OWNERSHIP" on pages 4 to 7 and 10 of the Bank's definitive
proxy statement for the 2000 Annual Meeting of Shareholders to be filed pursuant
to Regulation 14A (the "Proxy Statement"), which is incorporated herein by
reference.
Item 10 - EXECUTIVE COMPENSATION
For information concerning compensation of the executive officers of North Bay,
see "EXECUTIVE COMPENSATION" on pages 10 to 17 of the Proxy Statement, which is
incorporated herein by reference.
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<PAGE>
Item 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
For information concerning the security ownership of certain beneficial owners
and management of North Bay, see "SECURITY OWNERSHIP OF MANAGEMENT" on pages 7
to 10 of the Proxy Statement, which is incorporated herein by reference.
Item 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information concerning certain relationships and related transactions, see
"MANAGEMENT INDEBTEDNESS" on page 17 of the Proxy Statement, which is
incorporated herein by reference.
Item 13 - EXHIBITS AND REPORTS ON FORM 8-K
Page of 1999
Annual Report
-------------
(a) 1. Financial Statements
(i) Balance Sheets, December 31, 1999 and
1998 13
(ii) Income Statements for the years
ended December 1999, 1998, and 1997 14
(iii) Statements of Changes in Shareholders' Equity
for the years ended December 31,
1999, 1998, and 1997 15
(iv) Statements of Cash Flows for the years
ended December 31, 1999, 1998, and 1997 16
(v) Notes to Financial Statements 17
(vi) Report of Independent Public
Accountants 33
Schedules have been omitted as inapplicable or because the information required
is included in the financial statements or notes thereto.
3. Exhibits
See Exhibit Index on page 34 of this Report.
(b) Reports on Form 8-K
A current report on Form 8-K was filed with the Securities and Exchange
Commission on November 29, 1999 reporting, under Item. 5 "Other Matters," the
consummation of the reorganization pursuant to which The Vintage Bank became the
wholly-owned subsidiary of North Bay Bancorp and also reporting that upon
consummation of the reorganization, all shareholders of The Vintage Bank became
shareholders of North Bay Bancorp on a share for share basis and accordingly the
securities of North Bay Bancorp became registered pursuant to Section 12(g) of
the Exchange Act as of November 1, 1999.
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<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 report to be signed on its
behalf by the undersigned, thereunto duly authorized.
NORTH BAY BANCORP
By: /s/ Terry L. Robinson
---------------------
Terry L. Robinson
President and Chief Executive Officer
Dated: March 28, 2000
SIGNATURES
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.
Signature Title Date
/s/David B. Gaw Director March 28, 2000
- -------------------------
David B. Gaw
Director March __, 2000
- -------------------------
Conrad W. Hewitt
/s/Harlan R. Kurtz Director March 28, 2000
- -------------------------
Harlan R. Kurtz
/s/Richard S. Long Director March 28, 2000
- -------------------------
Richard S. Long
/s/Thomas H. Lowenstein Director and March 28, 2000
- ------------------------- Vice Chairman of the Board
Thomas H. Lowenstein
/s/Thomas F. Malloy Director and March 28, 2000
- ------------------------- Chairman of the Board
Thomas F. Malloy
/s/Terry L. Robinson President, Chief March 28, 2000
- ------------------------- Executive Officer and Director
Terry L. Robinson (Principal Executive Officer)
/s/James E. Tidgewell Director March 28, 2000
- -------------------------
James E. Tidgewell
/s/Lee-Ann Almeida Vice President March 27, 2000
- ------------------------- Chief Financial Officer
Lee-Ann Almeida (Principal Financial Officer)
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EXHIBIT INDEX
Exhibit No. Description
2.1 Plan of Reorganization and Merger Agreement entered into as of
July 30, 1999 by and among The Vintage Bank, Vintage Merger
Co. and North Bay Bancorp. (1)
3.1 Articles of Incorporation of Registrant.(2)
3.2 Bylaws as amended of Registrant. (2)
10.1 North Bay Bancorp Stock Option Plan. (2)*
10.2 Employment Agreement with Terry L. Robinson. (2)*
10.3 Lease by and between B&C Stocking LLC, as Lessor, and North
Bay Bancorp, as Lessee, with respect to premises at 403 Davis
Street, Vacaville, California.
10.4 Lease by and between Davies Partners II, as Lessor, and North
Bay Bancorp, as Lessee, with respect to premises at 1395 E. 2d
Street, Benicia, California.
11. Statement re: computation of per share earnings is included in
Note 1 to the financial statements to the prospectus included
in Part I of this Registration Statement.
13 1999 Annual Report to Shareholders (parts not incorporated by
reference are furnished for informational purposes only and
not filed herewith).
21. Subsidiaries of Registrant are: The Vintage Bank, a California
banking corporation.
23.1 Consent of Arthur Andersen LLP as independent public
accountants for North Bay Bancorp and The Vintage Bank.
24. Power of Attorney
27. Financial Data Schedule
* Employment contracts and compensation plans.
(1) Attached as Exhibit 7(c)(2) to North Bay Bancorp's Current Report on Form
8-K filed with the Securities and Exchange Commission on November 29, 1999, and
incorporated herein by reference.
(2) Attached as Exhibits 3.1, 3.2, 10.1 and 10.2, respectively, to Registration
Statement No. 333-93365 filed by North Bay with the Securities and Exchange
Commission under the Securities Act of 1933, and incorporated herein by
reference.
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Exhibit 10.3
Lease by and between B&C Stocking LLC, as Lessor, and North Bay Bancorp, as
Lessee, with respect to premises at 403 Davis Street, Vacaville, California.
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[LOGO]
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE - NET
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. Basic Provisions ("Basic Provisions").
1.1 Parties: This Lease ("Lease"), dated for reference purposes only
December 1, 1999 is made by and between B&C Stocking LLC ("Lessor") and North
Bay Bancorp or its Assignee ("Lessee"), (collectively the "Parties", or
individually a "Party").
1.2(a) Premises: That certain portion of the Project (as defined below),
including all improvements therein or to be provided by Lessor under the terms
of this Lease, commonly known by the street address of 403 Davis Street, located
in the City of Vacaville, County of Solano, State of California, with zip code
95688, as outlined on Exhibit "A" attached hereto ("Premises") and generally
described as (describe briefly the nature of the Premises): approximately 5,000
square feet of floor space on the first floor of a 20,000 square foot two story
building located at 403 Davis Street (subject to adjustment pursuant to Section
50). In addition to Lessee's rights to use and occupy the Premises as
hereinafter specified, Lessee shall have non-exclusive rights to the Common
Areas (as defined in Paragraph 2.7 below) as hereinafter specified, but shall
not have any rights to the roof, exterior walls or utility raceways of the
building containing the Premises ("Building") or to any other buildings in the
Project. The Premises, the Building, the Common Areas, the land upon which they
are located along with all other buildings and improvements thereon, are herein
collectively referred to as the "Project." (See also Paragraph 2)
1.2(b) Parking: see para. 49 unreserved vehicle parking spaces
("Unreserved Parking Spaces"); and see para. 49 reserved vehicle parking spaces
("Reserved Parking Spaces"). (See also Paragraph 2.6)
1.3 Term: five (-5-) years and no (-0-) months ("Original Term"
commencing March 1, 2000 ("Commencement Date") and ending February 28, 2005
("Expiration Date"). (See also Paragraph 3)
1.4 Eariy Possession: Jan. 3, 2000 - see para. 3.2 ("Early Possession
Date"). (See also Paragraphs 3.2 and 3.3)
1.5 Base Rent: $5,210.00 per month ("Base Rent"), payable on or before
the first day of each month commencing April 1, 2000. (See also Paragraph 4)
[X] If this box is checked, there are provisions in this Lease for the Base Rent
to be adjusted. (SEE ALSO PARAGRAPH 50)
1.6 Lessee's Share of Common Area Operating Expenses: twenty six percent
(26%) ("Lessee's Share").
1.7 Base Rent and Other Monies Paid Upon Execution:
(a) Base Rent: $5,210.00 (SEE ALSO PARAGRAPH 5O) for the period
March 1, ____.
(b) Common Area Operating Expenses: $ none for the period N/A.
(c) Security Deposit: $5,210.00 ("Security Deposit"). (See also
Paragraph 5)
(d) Other: $ none for N/A.
(e) Total Due Upon Execution of this Lease: $10,420.00.
1.8 Agreed Use: Banking facility and related office uses. (See also
Paragraph 6)
1.9 Insuring Party. Lessor is the "Insuring Party". (See also Paragraph
8)
1.10 Real Estate Brokers: (See also Paragraph 15 AND PARAGRAPH 51)
(a) Representation: The following real estate brokers (the
"Brokers") and brokerage relationships exist in this transaction (check
applicable boxes):
[ ] ___________________________________________ represents Lessor exclusively
("Lessor's Broker");
[ ] ___________________________________________ represents Lessee exclusively
("Lessee's Broker"); or
[X] Coldwell Banker Commercial North Bay represents both Lessor and Lessee
("Dual Agency").
(b) Payment to Brokers: Upon execution and delivery of this Lease by
both Parties, Lessor shall pay to the Brokers the brokerage fee agreed to in a
separate written agreement (or if there is no such agreement, the sum of
$19,444.82 or 6% of the total Base Rent for the brokerage services rendered by
the Brokers).
1.11 Guarantor. The obligations of the Lessee under this Lease are to be
guaranteed by N/A ("Guarantor"). (See also Paragraph 37)
1.12 Addenda and Exhibits. Attached hereto is an Addendum or Addenda
consisting of Paragraphs -49- through -63- and Exhibits "A" through "D", all of
which constitute a part of this Lease.
2. Premises.
2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of size set forth in this Lease, or that may have
been used in calculating Rent, is an approximation which the Parties agree is
reasonable and any payments based thereon are not subject to revision whether or
not the actual size is more or less.
2.2 Condition. (SEE ALSO PARAGRAPH 55) Lessor shall deliver that portion
of the Premises contained within the Building ("Unit") to Lessee broom clean and
free of debris on the Commencement Date or the Early Possession Date, whichever
first occurs ("Start Date"), and, warrants that the existing electrical,
plumbing, fire sprinkler, lighting, heating, ventilating and air conditioning
systems ("HVAC"), loading doors, if any, and all other such elements in the
Unit, other than those constructed by Lessee, shall be in good operating
condition on said date and that the structural elements of the roof, bearing
walls and foundation of the Unit shall be free of LEAKS AND material defects. If
a non-compliance with such warranty exists as of the Start Date, OR IF THE
CONDITION OF THE ROOF SHOULD FALL INTO NONCOMPLIANCE WITH SUCH WARRANTY WITHIN
SIXTY (60) DAYS FOLLOWING THE START DATE, Lessor shall, as Lessor's sole
obligation with respect to such matter, except as otherwise provided in this
Lease, promptly after receipt of written notice from Lessee setting forth with
specificity the nature and extent of such
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non-compliance, malfunction or failure, REPAIR same at Lessor's expense. If
Lessee does not give Lessor the required notice (I) WITHIN SIXTY (6O) DAYS OF
THE START DATE, WITH RESFECT TO THE CONDITION OF THE ROOF, OR (II) WITHIN FIVE
(5) BUSINESS DAYS OF THE START DATE AS TO THE REMAINING SYSTEMS, correction of
any such non-compliance, malfunction or failure shall be the obligation of
Lessee at Lessee's sole cost and expense (except for the repairs to the fire
sprinkler systems, roof, foundations, and/or bearing walls - see Paragraph 7).
LESSOR MAKES NO WARRANTY OR REFRESENTATION REGARDING THE ADEQUACY OF SYSTEMS
REFERENCED IN THIS SECTION FOR LESSEE'S INTENDED USE OF PREMISES.
2.3 Compliance. Lessor warrants that the improvements on the Premises
and the Common Areas comply with the building codes that were in effect at the
time that each such improvement, or portion thereof, was constructed, and also
with all applicable laws, covenants or restrictions of record, regulations, and
ordinances in effect on the Start Date ("Applicable Requirements"). Said
warranty does not apply to the use to which Lessee will put the Premises or to
any Alterations or Utility installations (as defined in Paragraph 7.3(a)) made
or to be made by Lessee. NOTE: Lessee is responsible for determining whether or
not the Applicable Requirements, and especially the zoning, are appropriate for
Lessee's intended use, and acknowledges that past uses of the Premises may no
longer be allowed. If the Premises do not comply with said warranty, Lessor
shall, except as otherwise provided, promptly after receipt of written notice
from Lessee setting forth with specificity the nature and extent of such
non-compliance, rectify the same at Lessor's expense. If Lessee does not give
Lessor written notice of a non-compliance with this warranty within 6 months
following the Start Date, correction of that non-compliance shall be the
obligation of Lessee at Lessee's sole cost and expense. If the Applicable
Requirements are hereafter changed so as to require during the term of this
Lease the construction of an addition to or an alteration of the Unit, Premises
and/or Building, the remediation of any Hazardous Substance, or the
reinforcement or other physical modification of the Unit, Premises and/or
Building ("Capital Expenditure"), Lessor and Lessee shall allocate the cost of
such work as follows:
(a) Subject to Paragraph 2.3(c) below, if such Capital Expenditures
are required as a result of the specific and unique use of the Premises by
Lessee as compared with uses by tenants in general, Lessee shall be fully
responsible for the cost thereof, provided, however that if such Capital
Expenditure is required during the last 2 years of this Lease and the cost
thereof exceeds 6 months' Base Rent, Lessee may instead terminate this Lease
unless Lessor notifies Lessee, in writing, within 10 days after receipt of
Lessee's termination notice that Lessor has elected to pay the difference
between the actual cost thereof and the amount equal to 6 months' Base Rent. If
Lessee elects termination, Lessee shall immediately cease the use of the
Premises which requires such Capital Expenditure and deliver to Lessor written
notice specifying a termination date at least 90 days thereafter. Such
termination date shall, however, in no event be earlier than the last day that
Lessee could legally utilize the Premises without commencing such Capital
Expenditure.
(b) If such Capital Expenditure is not the result of the specific
and unique use of the Premises by Lessee (such as, governmentally mandated
seismic modifications), then Lessor and Lessee shall allocate the obligation to
pay for the portion of such costs reasonably attributable to the Premises
pursuant to the formula set out in Paragraph 7.1(d); provided, however, that if
such Capital Expenditure is required during the last 2 years of this Lease or if
Lessor reasonably determines that it is not economically feasible to pay its
share thereof, Lessor shall have the option to terminate this Lease upon 90 days
prior written notice to Lessee unless Lessee notifies Lessor, in writing, within
10 days after receipt of Lessor's termination notice that Lessee will pay for
such Capital Expenditure. If Lessor does not elect to terminate, and fails to
tender its share of any such Capital Expenditure, Lessee may advance such funds
and deduct same, with Interest, from Rent until Lessor's share of such costs
have been fully paid. If Lessee is unable to finance Lessor's share, or if the
balance of the Rent due and payable for the remainder of this Lease is not
sufficient to fully reimburse Lessee on an offset basis, Lessee shall have the
right to terminate this Lease upon 30 days written notice to Lessor.
(c) Notwithstanding the above, the provisions concerning Capital
Expenditures are intended to apply only to non-voluntary, unexpected, and new
Applicable Requirements. If the Capital Expenditures are instead triggered by
Lessee as a result of an actual or proposed change use, change in intensity of
use, or modification to the Premises then, and in that event, Lessee shall be
fully responsible for the cost thereof, and Lessee shall not have any right to
terminate this Lease.
2.4 Acknowledgements. EXCEPT FOR CONDITIONS SUBJECT TO SECTIONS 2.2 AND
2.3 HEREIN, Lessee acknowledges that: (a) it has been advised by Lessor and/or
Brokers to satisfy itself with respect to the condition of the Premises
(including but not limited to the electrical, HVAC and fire sprinkler systems,
security, environmental aspects, and compliance with Applicable Requirements and
the Americans with Disabilities Act), and their suitability for Lessee's
intended use, (b) Lessee has made such investigation as it deems necessary with
reference to such matters and assumes all responsibility therefor as the same
relate to its occupancy of the Premises, and (c) neither Lessor, Lessor's
agents, nor Brokers have made any oral or written representations or warranties
with respect to said matters other than as set forth in this Lease. In addition,
Lessor acknowledges that: (i) Brokers have made no representations, promises or
warranties concerning Lessee's ability to honor the Lease or suitability to
occupy the Premises, and (ii) it is Lessor's sole responsibility to investigate
the financial capability and/or suitability of all proposed tenants.
2.5 Lessee as Prior Owner/Occupant. The warranties made by Lessor in
Paragraph 2 shall be of no force or effect if immediately prior to the Start
Date Lessee was the owner or occupant of the Premises. In such event, Lessee
shall be responsible for any necessary corrective work.
2.6 Vehicle Parking. (SEE ALSO PARAGRAPH 49) Lessee shall be entitled to
use the number of Unreserved Parking Spaces and Reserved Parking Spaces
specified in Paragraph 1.2(b) on those portions of the Common Areas designated
from time to time by Lessor for parking. Lessee shall not use more parking
spaces than said number. Said parking spaces shall be used for parking by
vehicles no larger than full-size passenger automobiles or pick-up trucks,
herein called "Permitted Size Vehicles." Lessor may regulate the loading and
unloading of vehicles by adopting Rules and Regulations as provided in Paragraph
2.9. No vehicles other than Permitted Size Vehicles may be parked in the Common
Area without the prior written permission of Lessor.
(a) Lessee shall not permit or allow any vehicles that belong to or
are controlled by Lessee or Lessee's employees, suppliers, shippers, customers,
contractors or invitees to be loaded, unloaded, or parked in areas other than
those designated by Lessor for such activities.
(b) Lessee shall not service or store any vehicles in the Common
Areas.
(c) If Lessee permits or allows any of the prohibited activities
described in this Paragraph 2.6, then Lessor shall have the right, without
notice, in addition to such other rights and remedies that it may have, to
remove or tow away the vehicle involved and charge the cost to Lessee, which
cost shall be immediately payable upon demand by Lessor.
2.7 Common Areas - Definition. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Project and interior utility raceways and installations within the Unit
that are provided and designated by the Lessor from time to lime for the general
non-exclusive use of Lessor, Lessee and other tenants of the Project and their
respective employees, suppliers, shippers, customers, contractors and invitees,
including parking areas, loading and unloading areas, trash areas, roadways,
walkways, driveways and landscaped areas.
2.8 Common Areas - Lessee's Rights. Lessor grants to Lessee, for the
benefit of Lessee and its employees, suppliers, shippers, contractors, customers
and invitees, during the term of this Lease, the non-exclusive right to use, in
common with others entitled to such use, the Common Areas as they exist from
time to time, subject to any rights, powers, and privileges reserved by Lessor
under the terms hereof or under the terms of any rules and regulations or
restrictions governing the use of the Project. Under no circumstances shall the
right herein granted to use the Common Areas be deemed to include the right to
store any property, temporarily or permanently, in the Common Areas. Any such
storage shall be permitted only by the prior written consent of Lessor or
Lessor's designated agent, which consent may be revoked at any time. In the
event that any unauthorized storage shall occur then Lessor shall have the
right, without notice, in addition to such other rights and remedies that it may
have, to remove the property and charge the cost to Lessee, which cost shall be
immediately payable upon demand by Lessor.
2.9 Common Areas - Rules and Regulations. Lessor or such other person(s)
as Lessor may appoint shall have the exclusive control and management of the
Common Areas and shall have the right, from time to time, to establish, modify,
amend and enforce reasonable rules and regulations ("Rules and Regulations") for
the management, safety, care, and cleanliness of the grounds, the parking and
unloading of vehicles and the preservation of good order, as well as for the
convenience of other occupants or tenants of the Building and the Project and
their invitees. Lessee agrees to abide by and conform to all such Rules and
Regulations, and to cause its employees, suppliers, shippers, customers,
contractors and invitees to so abide and conform. Lessor shall not be
responsible to Lessee for the non-compliance with said Rules and Regulations by
other tenants of the Project.
2.10 Common Areas - Changes. Lessor shall have the right, in Lessor's
sole discretion, EXCEPT AS OTHERWISE EXFRESSLY PROVIDED BELOW from time to time:
(a) UPON RECEIPT OF THE PRIOR APPROVAL OF LESSEE, WHICH APPROVAL
SHALL NOT BE UNREASONABLY WITHHELD OR DELAYED, TO make changes to the Common
Areas, including, without limitation, changes in the location, size, shape and
number of driveways, entrances, parking spaces, parking areas, loading and
unloading areas, ingress, egress, direction of traffic, landscaped areas,
walkways and utility raceways;
(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;
(c)
(d) To add additional buildings and improvements to the Common Areas
SO LONG AS THERE IS (I) NO REDUCTION IN THE NUMBER 0F PARKING SPACES IN THE
PROJECT AND (II) NO MATERIAL OBSTRUCTION OF THE VISIBILITY OF THE PREMISES FROM
ADJACENT PUBLIC STREETS;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Project, or any portion thereof; and
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(f) To do and perform such other acts and make such other changes in, to
or with respect to the Common Areas and Project as Lessor may, in the exercise
of sound business judgment, deem to be appropriate.
3. Term.
3.1 Term. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified In Paragraph 1.3.
3.2 Early Possession. If Lessee totally or partially occupies the
Premises prior to the Commencement Date, the obligation to pay ALL Rent shall be
abated for the period of such early possession. All other terms of this Lease
(including but not limited to the obligations to pay Lessee's insurance premiums
and to maintain the Premises) shall, however, be in effect during such period.
Any such early possession shall not affect the Expiration Date.
3.3 Delay In Possession. Lessor agrees to use its best commercially
reasonable efforts to deliver possession of the Premises to Lessee by the
Commencement Date. if, despite said efforts, Lessor is unable to deliver
possession as agreed, Lessor shall not be subject to any liability therefor, nor
shall such failure affect the validity of this Lease. Lessee shall not, however,
be obligated to pay Rent or perform its other obligations until it receives
possession of the Premises. If possession is not delivered within 10 days after
the Commencement Date, Lessee may, at its option, by notice in writing within 10
days after the end of such 10 day period, cancel this Lease, in which event the
Parties shall be discharged from all obligations hereunder. If such written
notice is not received by Lessor within said 10 day period, Lessee's right to
cancel shall terminate. Except as otherwise provided, if possession is not
tendered to Lessee by the Start Date and Lessee does not terminate this Lease,
as aforesaid, any period of rent abatement that Lessee would otherwise have
enjoyed shall run from the date of delivery of possession and continue for a
period equal to what Lessee would otherwise have enjoyed under the terms hereof,
but minus any days of delay caused by the acts or omissions of Lessee. If
possession of the Premises is not delivered within 4 months after the
Commencement Date, this Lease shall terminate unless other agreements are
reached between Lessor and Lessee, in writing.
3.4 Lessee Compliance. Lessor shall not be required to tender possession
of the Premises to Lessee until Lessee complies with its obligation to provide
evidence of insurance (Paragraph 6.5). Pending delivery of such evidence, Lessee
shall be required to perform all of its obligations under this Lease from and
after the Start Date, including the payment of Rent, notwithstanding Lessor's
election to withhold possession pending receipt of such evidence of insurance.
Further, if Lessee is required to perform any other conditions prior to or
concurrent with the Start Date, the Start Date shall occur but Lessor may elect
to withhold possession until such conditions are satisfied.
4. Rent.
4.1 Rent Defined. All monetary obligations of Lessee to Lessor under the
terms of this Lease (except for the Security Deposit) are deemed to be rent
("Rent").
4.2 Common Area Operating Expenses. Lessee shall pay to Lessor during
the term hereof, in addition to the Base Rent, Lessee's Share (as specified in
Paragraph 1.6) of all Common Area Operating Expenses, as hereinafter defined,
during each calendar year of the term of this Lease, in accordance with the
following provisions:
(a) "Common Area Operating Expenses" are defined, for purposes of
this Lease, as all costs incurred by Lessor relating to the ownership and
operation of the Project, including, but not limited to, the following:
(i) The operation, repair and maintenance, in neat, clean,
good order and condition of the following:
(aa) The Common Areas and Common Area improvements,
including parking areas, loading and unloading areas,
trash areas, roadways, parkways, walkways, driveways,
landscaped areas, bumpers, irrigation systems, Common
Area lighting facilities, fences and gates, elevators,
roofs, and roof drainage systems.
(bb) Exterior signs and any tenant directories.
(cc) Any fire detection and/or sprinkler systems.
(ii) The cost of water, gas, electricity and telephone to
service the Common Areas and any utilities not
separately metered (SEE ALSO PARAGRAPH 57).
(iii) Trash disposal, pest control services, property
management, security services, and the cost of any
environmental inspections.
(iv) Reserves set aside for maintenance and repair of Common
Areas.
(v) Real Property Taxes (as defined in Paragraph 10).
(vi) The cost of the premiums for the insurance maintained by
Lessor pursuant to Paragraph 8.
(vii) Any deductible portion of an insured loss concerning the
Building or the Common Areas.
(viii) The cost of any Capital Expenditure to the Building or
the Project not covered under the provisions of
Paragraph 2.3 INCLUDING BUT NOT LIMITED TO THE HVAC
SYSTEM AND THE ROOF provided; however, that Lessor shall
allocate the cost of any such Capital Expenditure over a
12 year period and Lessee shall not be requIred to pay
more than Lessee's Share of 1/144th of the cost of such
Capital Expenditure in any given month.
(ix) Any other services to be provided by Lessor that are
stated elsewhere in this Lease to be a Common Area
Operating Expense.
(X) THE INITIAL DESIGN, SITE PREPARATION, LAYOUT, PURCHASE,
PLANTING AND/OR INSTALLATION OF LANDSCAPING IN AND
AROUND THE PROJECT AND ALL OTHER IMPROVEMENTS OR WORK TO
BE INSTALLED OR PERFORMED AT OR AROUND THE COURTYARD
LOCATION, ALL OF WHICH TO BE MUTUALLY AGREED UPON AND
PAID FOR PORPORTIONALLY AS NOTED IN PARA. 1.6.
(b) Any Common Area Operating Expenses and Real Property Taxes that
are specifically attributable to the Unit, the Building or to any other building
in the Project or to the operation, repair and maintenance thereof, shall be
allocated entirely to such Unit, Building, or other building. However, any
Common Area Operating Expenses and Real Property Taxes that are not specifically
attributable to the Building or to any other building or to the operation,
repair and maintenance thereof, shall be equitably allocated by Lessor to all
buildings In the Project.
(c) The inclusion of the improvements, facilities and services set
forth in Subparagraph 4.2(a) shall not be deemed to impose an obligation upon
Lessor to either have said improvements or facilities or to provide those
services unless the Project already has the same, Lessor already provides the
services, or Lessor has agreed elsewhere in this Lease to provide the same or
some of them.
(d) Lessee's Share of Common Area Operating Expenses shall be
payable by Lessee within 10 days after a reasonably detailed statement of actual
expenses is presented to Lessee. At Lessor's option, however, an amount may be
estimated by Lessor from time to time of Lessee's Share of annual Common Area
Operating Expenses and the same shall be payable monthly or quarterly, as Lessor
shall designate, during each 12 month period of the Lease term, on the same day
as the Base Rent is due hereunder. Lessor shall deliver to Lessee within 60 days
after the expiration of each calendar year a reasonably detailed statement
showing (i) Lessee's Share of the actual Common Area Operating Expenses incurred
during the preceding year. AND (II) THE TOTAL AMOUNT OF THE COMMON AREA
OFERATING EXPENSES FOR THE PRECEDING YEAR. If Lessee's payments under this
Paragraph 4.2(d) during the preceding year exceed Lessee's Share as indicated on
such statement, Lessor shall credit the amount of such over-payment against
Lessee's Share of Common Area Operating Expenses next becoming due. If Lessee's
payments under this Paragraph 4.2(d) during the preceding year were less than
Lessee's Share as indicated on such statement, Lessee shall pay to Lessor the
amount of the deficiency within 10 days after delivery by Lessor to Lessee of
the statement. LESSOR SHALL KEEP AT ITS PRINCIPAL OFFICE FULL AND ACCURATE BOOKS
OF ACCOUNT, RECORDS, RECEIPTS AND OTHER PERTINENT DATA REFLECTING THE COMMON
AREA OPERATING EXPENSES ("BUSINESS RECORDS"). LESSEE SHALL SE ENTITLED DURING
THE TERM AND WITHIN TWO YEARS AFTER EXPIRATION OR TERMINATION OF THIS LEASE TO
INSPECT AND EXAMINE ALL OF LESSOR'S BUSINESS RECORDS NOT MORE FREQUENTLY THAN
ONCE DURING EACH LEASE YEAR AND ONCE AFTER TERMINATION OF THIS LEASE. SAID
INSPECTION AND EXAMINATION MAY BE CONDUCTED ON LESSEE'S BEHALF BY A CERTIFIED
PUBLIC ACCOUNTING FIRM SELECTED BY LESSEE. IF THE INSPECTION AND EXAMINATION
SHOWS THAT LESSEE HAS SEEN BILLED AND PAID MORE THAN LESSEE'S SHARE, THE EXCESS
AMOUNT PAID SHALL BECOME IMMEDIATELY DUE AND PAYABLE BY LESSOR TO LESSEE. THE
COST OF THE AUDIT SHALL BE BORNE BY LESSEE UNLESS IT IS DETERMINED THAT LESSEE
HAS SEEN BILLED AND PAID MORE THAN 110% OF LESSEE'S SHARE IN WHICH CASE LESSEE'S
COSTS OF THE AUDIT SHALL BECOME IMMEDIATELY DUE AND PAYABLE BY LESSOR TO LESSEE.
IN THE EVENT LESSOR FAILS TO PROMPTLY REMIT ANY AMOUNT DUE TO LESSEE, LESSEE
SHALL HAVE THE RIGHT TO DEDUCT THE AMOUNT DUE FROM FUTURE RENT AND OTHER AMOUNTS
PAYABLE BY LESSEE TO LESSOR UNDER THIS LEASE,
4.3 Payment. Lessee shall cause payment of Rent to be received by
Lessor in lawful money of the United States, without offset or deduction (except
as specifically permitted in this Lease), on or before the day on which it is
due. Rent for any period during the term hereof which is for less than one full
calendar month shall be prorated based upon the actual number of days of said
month. Payment of Rent shall be made to Lessor at its address stated herein or
to such other persons or place as Lessor may from time to time designate in
writing. Acceptance of a payment which is less than the amount then due shall
not be a waiver of Lessor's rights to the balance of such Rent, regardless of
Lessor's endorsement of any check so stating. In the event that any check,
draft, or other instrument of payment given by Lessee to Lessor is dishonored
for any reason, Lessee agrees to pay to Lessor the sum of $25 in addition to any
late charges which may be due.
5. Security Deposit. Lessee shall deposit with Lessor upon execution
hereof the Security Deposit as security for Lessee's faithful performance of its
obligations under this Lease. If Lessee fails to pay Rent, or otherwise Defaults
under this Lease, Lessor may use, apply or retain all or any portion of said
Security Deposit for the payment of any amount due Lessor or to reimburse or
compensate Lessor for any liability, expense, loss or damage which Lessor
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may suffer or incur by reason thereof. If Lessor uses or applies all or any
portion of the Security Deposit, Lessee shall within 10 days after written
request therefor deposit monies with Lessor sufficient to restore said Security
Deposit to the full amount required by this Lease. Should the Agreed Use be
amended to accommodate a material change in the business of Lessee or to
accommodate a sublessee or assignee, Lessor shall have the right to increase the
Security Deposit to the extent necessary, in Lessor's reasonable judgment, to
account for any increased wear and tear that the Premises may suffer as a result
thereof. If a change in control of Lessee occurs during this Lease and following
such change the financial condition of Lessee is, in Lessor's reasonable
judgment, significantly reduced, Lessee shall deposit such additional monies
with Lessor as shall be sufficient to cause the Security Deposit to be at a
commercially reasonable level based on such change in financial condition.
Lessor shall not be required to keep the Security Deposit separate from its
general accounts. Within 14 days after the expiration or termination of this
Lease, if Lessor elects to apply the Security Deposit only to unpaid Rent, and
otherwise within 30 days after the Premises have been vacated pursuant to
Paragraph 7.4(c) below, Lessor shall return that portion of the Security Deposit
not used or applied by Lessor. No part of the Security Deposit shall be
considered to be held in trust, to bear interest or to be prepayment for any
monies to be paid by Lessee under this Lease.
6. Use.
6.1 Use. Lessee shall use and occupy the Premises only for the Agreed
Use, or any other legal use which is reasonably comparable thereto, and for no
other purpose. Lessee shall not use or permit the use of the Premises in a
manner that is unlawful, creates damage, waste or a nuisance, or that disturbs
occupants of or causes damage to neighboring premises or properties. Lessor
shall not unreasonably withhold or delay its consent to any written request for
a modification of the Agreed Use, so long as the same will not impair the
structural integrity of the improvements on the Premises or the mechanical or
electrical systems therein, and/or is not significantly more burdensome to the
Premises. If Lessor elects to withhold consent, Lessor shall within 7 days after
such request give written notification of same, which notice shall include an
explanation of Lessor's objections to the change in the Agreed Use.
6.2 Hazardous Substances.
(a) Reportable Uses Require Consent. The term "Hazardous Substance"
as used in this Lease, shall mean any product, substance, or waste whose
presence, use, manufacture, disposal, transportation, or release, either by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the
environment or the Premises, (ii) regulated or monitored by any governmental
authority, or (iii) a basis for potential liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substances shall include, but not be limited to, hydrocarbons,
petroleum, gasoline, and/or crude oil or any products, by-products or fractions
thereof. Lessee shall not engage in any activity in or on the Premises which
constitutes a Reportable Use of Hazardous Substances without the express prior
written consent of Lessor and timely compliance (at Lessee's expense) with all
Applicable Requirements. "Reportable Use" shall mean (i) the installation or use
of any above or below ground storage tank, (ii) the generation, possession,
storage, use, transportation, or disposal of a Hazardous Substance that requires
a permit from, or with respect to which a report, notice, registration or
business plan is required to be filed with, any governmental authority, and/or
(iii) the presence at the Premises of a Hazardous Substance with respect to
which any Applicable Requirements requires that a notice be given to persons
entering or occupying the Premises or neighboring properties. Notwithstanding
the foregoing, Lessee may use any ordinary and customary materials reasonably
required to be used in the normal course of the Agreed Use, so long as such use
is in compliance with all Applicable Requirements, is not a Reportable Use, and
does not expose the Premises or neighboring property to any meaningful risk of
contamination or damage or expose Lessor to any liability therefor. In addition,
Lessor may condition its consent to any Reportable Use upon receiving such
additional assurances as Lessor reasonably deems necessary to protect itself,
the public, the Premises and/or the environment against damage, contamination,
injury and/or liability, including, but not limited to, the installation (and
removal on or before Lease expiration or termination) of protective
modifications (such as concrete encasements) and/or increasing the Security
Deposit.
(b) Duty to Inform Lessor. If Lessee knows, or has reasonable cause to
believe, that a Hazardous Substance has come to be located in, on, under or
about the Premises, other than as previously consented to by Lessor, Lessee
shall immediately give written notice of such fact to Lessor, and provide Lessor
with a copy of any report, notice, claim or other documentation which it has
concerning the presence of such Hazardous Substance.
(c) Lessee Remedlation. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under, or about the
Premises (including through the plumbing or sanitary sewer system) and shall
promptly, at Lessee's expense, take all investigatory and/or remedial action
reasonably recommended, whether or not formally ordered or required, for the
cleanup of any contamination of, and for the maintenance, security and/or
monitoring of the Premises or neighboring properties, that was caused by Lessee,
or pertaining to or involving any Hazardous Substance brought onto the Premises
during the term of this Lease, by or for Lessee, or ANYONE UNDER LESSEE'S
CONTROL.
(d) Lessee Indemnification. Lessee shall indemnify, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, harmless from
and against any and all loss of rents and/or damages, liabilities, judgments,
claims, expenses, penalties, and attorneys' and consultants' fees arising, out
of or involving any Hazardous Substance brought onto the Premises by or for
Lessee, or any third party (provided, however, that Lessee shall have no
liability under this Lease with respect to underground migration of any
Hazardous Substance under the Premises from areas outside of the Project).
Lessee's obligations shall include, but not be limited to, the effects of any
contamination or injury to person, property or the environment created or
suffered by Lessee, and the cost of investigation, removal, remediation,
restoration and/or abatement, and shall survive the expiration or termination of
this Lease. No termination, cancellation or release agreement entered into by
Lessor and Lessee shall release Lessee from its obligations under this Lease
with respect to Hazardous Substances, unless specifically so agreed by Lessor in
writing at the time of such agreement.
(e) Lessor Indemnification. LESSOR HEREBY REPRESENTS AND WARRANTS TO
LESSEE THAT LESSOR HAS NO KNOWLEDGE OF ANY HAZARDOUS SUBSTANCES ON THE PREMISES
OR IN OR ON THE PROJECT IN WHICH THE PREMISES ARE LOCATED EXCEPT AS DESCRISED IN
THE REPORT PREPARED BY PENN ENVIRONMENTAL DATED JANUARY 4, 1999, A COPY OF WHICH
IS ATTACHED HERETO AS EXHIBIT "D". LESSOR SHALL INDEMNIFY, PROTECT, DEFEND AND
HOLD LESSEE, ITS AGENTS, EMPLOYEES, LENDERS IF ANY HARMLESS FROM AND AGAINST ANY
AND ALL DAMAGES, LIABILITIES, JUDGEMENT, COSTS, CLAIM, LIENS, EXPENSES,
PENALTIES, LOSS OF PERMITS AND ATTORNEYS' AND CONSULTANTS' FEES ARISING OUT OF
OR INVOLVING ANY HAZARDOUS SUBSTANCES (I) EXISTING ON THE PREMISES OR IN OR ON
THE PROJECT IN WHICH THE PREMISES ARE LOCATED IN CONTRAVENTION OF LESSOR'S
WARRANTY GIVEN IN THE PRECEDING SENTENCE OR (II) BROUGHT ONTO THE PREMISES OR
THE PROJECT BY OR FOR LESSOR OR BY ANYONE UNDER LESSOR'S CONTROL. LESSOR'S
OBLIGATIONS UNDER THIS PARAGRAPH 6.2(c) SHALL INCLUDE, BUT NOT BE LIMITED TO,
THE EFFECTS OF ANY CONTAMINATION OR INJURY TO PERSON, PROPERTY OR THE
ENVIRONMENT CREATED OR SUFFERED BY LESSEE, AND THE COST OF INVESTIGATION
(INCLUDING CONSULTANTS' AND ATTORNEYS' FEES AND TESTING) REMOVAL, REMEDIATION,
RESTORATION AND/OR ABATEMENT THEREOF, OR OF ANY CONTAMINATION THEREIN INVOLVED,
AND SHALL SURVIVE THE EXPIRATION OR EARLIER TERMINATION OF THIS LEASE.
(f) Investigations and Remediations. Lessor shall retain the
responsibility and pay for any investigations or remediation measures required
by governmental entities having jurisdiction with respect to the existence of
Hazardous Substances on the Premises (i) prior to the Start Date, OR (ii)
BROUGHT ONTO THE PREMISES OR THE PROJECT BY OR FOR LESSOR OR BY ANYONE UNDER
LESSOR'S CONTROL, unless such remediation measure is required as a result of
Lessee's use (including "Alterations", as defined in paragraph 7.3(a) below) of
the Premises, in which event Lessee shall be responsible for such payment.
Lessee shall cooperate fully in any such activities at the request of Lessor,
including allowing Lessor and Lessor's agents to have reasonable access to the
Premises at reasonable times in order to carry out Lessor's investigative and
remedial responsibilities.
(g) Lessor Termination Option. If a Hazardous Substance Condition
(see Paragraph 9.1(e)) occurs during the term of this Lease, unless Lessee is
legally responsible therefor (in which case Lessee shall make the investigation
and remediation thereof required by the Applicable Requirements and this Lease
shall continue in full force and effect, but subject to Lessor's rights under
Paragraph 6.2(d) and Paragraph 13), Lessor may, at Lessor's option, either (i)
investigate and remediate such Hazardous Substance Condition, if required, as
soon as reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) if the estimated cost to remediate
such condition exceeds 12 times the then monthly Base Rent or $100,000,
whichever is greater, give written notice to Lessee, within 30 days after
receipt by Lessor of knowledge of the occurrence of such Hazardous Substance
Condition, of Lessor's desire to terminate this Lease as of the date 60 days
following the date of such notice. In the event Lessor elects to give a
termination notice, Lessee may, within 10 days thereafter, give written notice
to Lessor of Lessee's commitment to pay the amount by which the cost of the
remediatlon of such Hazardous Substance Condition exceeds an amount equal to 12
times the then monthly Base Rent or $100,000, whichever is greater. Lessee shall
provide Lessor with said funds or satisfactory assurance thereof within 30 days
following such commitment. In such event, this Lease shall continue in full
force and effect, and Lessor shall proceed to make such remediation as soon as
reasonably possible after the required funds are available. If Lessee does not
give such notice and provide the required funds or assurance thereof within the
time provided, this Lease shall terminate as of the date specified in Lessor's
notice of termination. IN THE EVENT OF ANY INVESTIGATION OF THE PREMISES OR
PROJECT DUE TO THE OCCURRENCE OF A HAZARDOUS SUBSTANCE CONDITION, LESSOR SHALL
PROMPTLY PROVIDE LESSEE WITH A COPY OF ANY AND ALL REPORTS GENERATED IN
CONNECTION WITH THE INVESTIGATION OR REMEDIATION OF SAME. LESSEE SHALL HAVE THE
RIGHT TO TERMINATE THIS LEASE EFFECTIVE UPON DELIVERY OF
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WRITTEN NOTICE TO LESSOR IF REMEDIATION OF THE HAZARDOUS SUBSTANCE CONDITION
WILL MATERIALLY INTERFERE WITH THE CONDUCT OF ITS BUSINESS ON THE PREMISES AND
IN THE PROJECT IN WHICH THE PREMISES ARE LOCATED.
6.3 Lessee's Compliance with Applicable Requirements. Except as
otherwise provided in this Lease, Lessee shall, at Lessee's sole expense, fully,
diligently and in a timely manner, materially comply with all Applicable
Requirements, the requirements of any applicable fire insurance underwriter or
rating bureau, and the recommendations of Lessor's engineers and/or consultants
which relate in any manner to the Premises, without regard to whether said
requirements are now in effect or become effective after the Start Date. Lessee
shall, within 10 days after receipt of Lessor's written request, provide Lessor
with copies of all permits and other documents, and other information evidencing
Lessee's compliance with any Applicable Requirements specified by Lessor, and
shall immediately upon receipt, notify Lessor in writing (with copies of any
documents involved) of any threatened or actual claim, notice, citation,
warning, complaint or report pertaining to or involving the failure of Lessee or
the Premises to comply with any Applicable Requirements.
6.4 Inspection; Compliance. Lessor and Lessor's "Lender" (as defined in
Paragraph 30) and consultants shall have the right to enter into Premises at any
time, in the case of an emergency, and otherwise at reasonable times UPON THREE
(3) DAYS ADVANCE WRITTEN NOTICE, for the purpose of inspecting the condition of
the Premises and for verifying compliance by Lessee with this Lease. The cost of
any such inspections shall be paid by Lessor, unless a violation of Applicable
Requirements, or a contamination is found to exist or be imminent, or the
inspection is requested or ordered by a governmental authority. In such case,
Lessee shall upon request reimburse Lessor for the cost of such inspection, so
long as such inspection is reasonably related to the violation or contamination.
ANY INSPECTION CONDUCTED PURSUANT TO THIS SECTION SHALL BE CONDUCTED IN A MANNER
WHICH WILL NOT UNREASONABLY INTERFERE WITH THE OPERATION OF LESSEE'S BUSINESS.
IN THE EVENT OF ANY ENTRY ONTO THE PREMISES IN THE CASE OF EMERGENCY, SUCH ENTRY
SHALL BE PERMISSIBLE ONLY FOR THE LIMITED PURPOSE OF ADMITTING FIRE, POLICE, OR
OTHER PUBLIC SAFETY OFFICALS ONTO THE PREMISES.
7. Maintenance; Repairs, Utlilty Installations; Trade Fixtures and
Alterations.
7.1 Lessee's Obligations.
(a) In General. Subject to the provisions of Paragraph 2.2
(Condition), 2.3 (Compliance), 6.3 (Lessee's Compliance with Applicable
Requirements), 7.2 (Lessor's Obligations), 9 (Damage or Destruction), and 14
(Condemnation), Lessee shall, at Lessee's sole expense, keep the Premises,
Utility Installations (intended for Lessee's exclusive use, no matter where
located), and Alterations in good order, condition and repair (whether or not
the portion of the Premises requiring repairs, or the means of repairing the
same, are reasonably or readily accessible to Lessee, and whether or not the
need for such repairs occurs as a result of Lessee's use, any prior use, the
elements or the age of such portion of the Premises), including, but not limited
to, all equipment or facilities, such as plumbing, HVAC equipment, electrical,
lighting facilities, boilers, pressure vessels, fixtures, interior walls,
interior surfaces of exterior walls, ceilings, floors, windows, doors, plate
glass, and skylights but excluding any items which are the responsibility of
Lessor pursuant to Paragraph 7.2. Lessee, in keeping the Premises in good order,
condition and repair, shall exercise and perform good maintenance practices,
specifically including the procurement and maintenance of the service contracts
required by Paragraph 7.1(b) below. Lessee's obligations shall include
restorations, replacements or renewals when necessary to keep the Premises and
all improvements thereon or a part thereof in good order, condition and state of
repair.
(c) Failure to Perform. If Lessee fails to perform Lessee's
obligations under this Paragraph 7.1, Lessor may enter upon the Premises after
10 days' prior written notice to Lessee (except in the case of an emergency, in
which case no notice shall be required), perform such obligations on Lessee's
behalf, and put the Premises in good order, condition and repair, and Lessee
shall promptly reimburse Lessor for the cost thereof.
(d) Replacement. Subject to Lessee's indemnification of Lessor as
set forth in Paragraph 8.7 below, and without relieving Lessee of liability
resulting from Lessee's failure to exercise and perform good maintenance
practices, if an item described in Paragraph 7.1(b) cannot be repaired other
than at a cost which is in excess of 50% of the cost of replacing such item,
then such item shall be replaced by Lessor, and the cost thereof shall be
prorated between the Parties and Lessee shall only be obligated to pay, each
month during the remainder of the term of this Lease, on the date on which Base
Rent is due, an amount equal to the product of multiplying the cost of such
replacement by a fraction, the numerator of which is one, and the denominator of
which is 144 (ie. 1/144th of the cost per month). Lessee shall pay interest on
the unamortized balance at a rate that is commercially reasonable in the
judgment of Lessor's accountants. Lessee may, however, prepay its obligation at
any time.
7.2 Lessor's Obligations. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance), 4.2 (Common Area Operating Expenses), 6 (Use),
7.1 (Lessee's Obligations), 9 (Damage or Destruction) and 14 (Condemnation),
Lessor, subject to reimbursement pursuant to Paragraph 4.2, AND EXCEPT FOR
DEFECTS OR CONDITIONS CAUSED BY LESSEE'S IMPROVEMENTS shall keep in good order,
condition and repair the foundations, exterior walls, structural condition of
interior bearing wails, exterior roof, fire sprinkler system, Common Area fire
alarm and/or smoke detection systems, fire hydrants, parking lots, walkways,
parkways, driveways, landscaping, fences, signs and utility systems serving the
Common Areas and all parts thereof, as well as providing the services for which
there is a Common Area Operating Expense pursuant to Paragraph 4.2. Lessor shall
not be obligated to paint the exterior or interior surfaces of exterior walls,
BUT SHALL BE REQUIRED TO MAINTAIN EXTERIOR WALLS IN FIRST CLASS CONDITION EXCEPT
FOR DEFECTS OR CONDITIONS CAUSED BY LESSEE'S IMPROVEMENTS, Lessor SHALL NOT be
obligated to maintain, repair or replace windows, doors or plate glass of the
Premises.
7.3 UtilIty Installations; Trade Fixtures; Alterations. (SEE ALSO
PARAGRAPH 58)
(a) Definitions. The term "Utility Installations" refers to all
floor and window coverings, air lines, power panels, electrical distribution,
security and fire protection systems, communication systems, lighting fixtures,
HVAC equipment, plumbing, and fencing in or on the Premises. The term "Trade
Fixtures" shall mean Lessee's machinery and equipment that can be removed
without doing material damage to the Premises. The term "Alterations" shall mean
any modification of the improvements, other than Utility Installations or Trade
Fixtures, whether by addition or deletion. "Lessee Owned Alterations and/or
Utility Installations" are defined as Alterations and/or Utility Installations
made by Lessee that are not yet owned by Lessor pursuant to Paragraph 7.4(a).
(b) Consent. Lessee shall not make any Alterations or Utility
Installations to the Premises without Lessor's prior written consent. Lessee
may, however, make non-structural Utility Installations to the interior of the
Premises (excluding the roof) without such consent but upon notice to Lessor, as
long as they are not visible from the outside, do not involve puncturing,
relocating or removing the roof or any existing walls, and the cumulative cost
thereof during this Lease as extended does not exceed a sum equal to 3 month's
Base Rent in the aggregate or a sum equal to one month's Base Rent in any one
year. Notwithstanding the foregoing, Lessee shall not make or permit any roof
penetrations and/or install anything on the roof without the prior written
approval of Lessor. Lessor may, as a precondition to granting such approval,
require Lessee to utilize a contractor chosen and/or approved by Lessor. Any
Alterations or Utility Installations that Lessee shall desire to make and which
require the consent of the Lessor shall be presented to Lessor in written form
with detailed plans. Consent shall be deemed conditioned upon Lessee's: (i)
acquiring all applicable governmental permits, (ii) furnishing Lessor with
copies of both the permits and the plans and specifications prior to
commencement of the work, and (iii) compliance with all conditions of said
permits and other Applicable Requirements in a prompt and expeditious manner.
Any Alterations or Utility Installations shall be performed in a workmanlike
manner with good and sufficient materials. Lessee shall promptly upon completion
furnish Lessor with as-built plans and specifications.
(c) IndemnificatIon. Lessee shall pay, when due, all claims for
labor or materials furnished or alleged to have been furnished to or for Lessee
at or for use on the Premises, which claims are or may be secured by any
mechanic's or materialman's lien against the Premises or any interest therein.
Lessee shall give Lessor not less than 10 days notice prior to the commencement
of any work in, on or about the Premises, and Lessor shall have the right to
post notices of non-responsibility. If Lessee shall contest the validity of any
such lien, claim or demand, then Lessee shall, at Its sole expense defend and
protect itself, Lessor and the Premises against the same and shall pay and
satisfy any such adverse judgment that may be rendered thereon before the
enforcement thereof. If Lessor shall require, Lessee shall furnish a surety bond
in an amount equal to 150% of the amount of such contested lien, claim or
demand, indemnifying Lessor against liability for the same. If Lessor elects to
participate in any such action, Lessee shall pay Lessor's attorneys' fees and
costs.
7.4 Ownership; Removal; Surrender; and Restoration.
(a) Ownership. All Alterations and Utility Installations made by
Lessee shall be the property of Lessee, but considered a part of the Premises.
Lessor may, at any time, elect in writing to be the owner of all or any
specified part of the Lessee Owned Alterations and Utility Installations. Unless
otherwise instructed per paragraph 7.4(b) hereof, all Lessee Owned Alterations
and Utility Installations shall, at the expiration or termination of this Lease,
become the property of Lessor and be surrendered by Lessee with the Premises.
(b) Removal. (SEE PARAGRAPH 58 AND 59]
(c) Surrender; Restoration. Lessee shall surrender the Premises by
the Expiration Date or any earlier termination date, with all
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of the improvements, parts and surfaces thereof broom clean and free of debris,
and in good operating order, condition and state of repair, ordinary wear and
tear excepted. "Ordinary wear and tear" shall not include any damage or
deterioration that would have been prevented by good maintenance practice.
Notwithstanding the foregoing, if this Lease is for 12 months or less, then
Lessee shall surrender the Premises in the same condition as delivered to Lessee
on the Start Date with NO allowance for ordinary wear and tear. Lessee shall
repair any damage occasioned by the installation, maintenance or removal of
Trade Fixtures, Lessee owned Alterations and/or Utility Installations,
furnishings, and equipment as well as the removal of any storage tank installed
by or for Lessee. Lessee shall also completely remove from the Premises any and
all Hazardous Substances brought onto the Premises by or for Lessee, OR ANYONE
UNDER LESSEE'S CONTROL (except Hazardous Substances which were deposited via
underground migration from areas outside of the Project) even if such removal
would require Lessee to perform or pay for work that exceeds statutory
requirements. Trade Fixtures shall remain the property of Lessee and shall be
removed by Lessee. The failure by Lessee to timely vacate the Premises pursuant
to this Paragraph 7.4(c) without the express written consent of Lessor shall
constitute a holdover under the provisions of Paragraph 26 below.
8. Insurance; Indemnity.
8.1 Payment of Premiums. The cost of the premiums for the insurance
policies required to be carried by Lessor, pursuant to Paragraphs 8.2(b), 8.3(a)
and 8.3(b), shall be a Common Area Operating Expense. Premiums for policy
periods commencing prior to, or extending beyond, the term of this Lease shall
be prorated to coincide with the corresponding Start Date or Expiration Date.
8.2 Liability insurance.
(a) Carried by Lessee. Lessee shall obtain and keep in force a
Commercial General Liability policy of insurance protecting Lessee and Lessor as
an additional insured against claims for bodily injury, personal injury and
property damage based upon or arising out of the ownership, use, occupancy or
maintenance of the Premises and all areas appurtenant thereto. Such insurance
shall be on an occurrence basis providing single limit coverage in an amount not
less than $1,000,000 per occurrence with an annual aggregate of not less than
$2,000,000, an "Additional Insured-Managers or Lessors of Premises Endorsement"
and contain the "Amendment of the Pollution Exclusion Endorsement" for damage
caused by heat, smoke or fumes from a hostile fire. The policy shall not contain
any intra-insured exclusions as between insured persons or organizations, but
shall include coverage for liability assumed under this Lease as an "insured
contract" for the performance of Lessee's indemnity obligations under this
Lease. The limits of said insurance shall not, however, limit the liability of
Lessee nor relieve Lessee of any obligation hereunder. All insurance carried by
Lessee shall be primary to and not contributory with any similar insurance
carried by Lessor, whose insurance shall be considered excess insurance only.
(b) Carried by Lessor. Lessor shall maintain liability insurance as
described in Paragraph 8.2(a), in additiqn to and not in lieu of, the insurance
required to be maintained by Lessee. Lessee shall not be named as an additional
insured therein.
8.3 Property Insurance, Building, Improvements and Rental Value.
(a) Building and Improvements. Lessor shall obtain and keep in force
a policy or policies of insurance in the name of Lessor, with loss payable to
Lessor, any ground-lessor, and to any Lender insuring loss or damage to the
Premises. The amount of such insurance shall be equal to the full replacement
cost of the Premises, as the same shall exist from time to time, or the amount
required by any Lender, but in no event more than the commercially reasonable
and available insurable value thereof. Lessee Owned Alterations and Utility
Installations, Trade Fixtures, and Lessee's personal property shall be insured
by Lessee under Paragraph 8.4. If the coverage is available and commercially
appropriate, such policy or policies shall insure against all risks of direct
physical loss or damage (except the perils of flood and/or earthquake unless
required by a Lender), including coverage for debris removal and the enforcement
of any Applicable Requirements requiring the upgrading, demolition,
reconstruction or replacement of any portion of the Premises as the result of a
covered loss. Said policy or policies shall also contain an agreed valuation
provision in lieu of any coinsurance clause, waiver of subrogation, and
inflation guard protection causing an increase in the annual property insurance
coverage amount by a factor of not less than the adjusted U.S. Department of
Labor Consumer Price Index for All Urban Consumers for the city nearest to where
the Premises are located. If such insurance coverage has a deductible clause,
the deductible amount shall not exceed $1,000 per occurrence.
(b) Rental Value. Lessor shall also obtain and keep in force a
policy or policies in the name of Lessor with loss payable to Lessor and any
Lender, insuring the loss of the full Rent for one year with an extended period
of indemnity for an additional 180 days ("Rental Value Insurance"). Said
insurance shall contain an agreed valuation provision in lieu of any coinsurance
clause, and the amount of coverage shall be adjusted annually to reflect the
projected Rent otherwise payable by Lessee, for the next 12 month period.
(c) Adjacent Premises. Lessee shall pay for any increase in the
premiums for the property insurance of the Building and for the Common Areas or
other buildings in the Project if said increase is caused by Lessee's acts,
omissions, use or occupancy of the Premises.
(d) Lessee's Improvements. Since Lessor is the Insuring Party,
Lessor shall not be required to insure Lessee Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 Lessee's Property; Business Interruption Insurance.
(a) Property Damage. Lessee shall obtain and maintain insurance
coverage on all of Lessee's personal property, Trade Fixtures, and Lessee Owned
Alterations and Utility Installations. Such insurance shall be full replacement
cost coverage with a deductible of not to exceed $1,000 per occurrence. The
proceeds from any such insurance shall be used by Lessee for the replacement of
personal property, Trade Fixtures and Lessee Owned Alterations and Utility
Installations. Lessee shall provide Lessor with written evidence that such
insurance is in force.
(b)
(c) No Representation of Adequate Coverage. Lessor makes no
representation that the limits or forms of coverage of insurance specified
herein are adequate to cover Lessee's property, business operations or
obligations under this Lease.
8.5 Insurance Policies. Insurance required herein shall be by companies
duly licensed or admitted to transact business in the state where the Premises
are located, and maintaining during the policy term a "General Policyholders
Rating" of at least B+, V, as set forth in the most current issue of "Best's
Insurance Guide", or such other rating as may be required by a Lender. Lessee
shall not do or permit to be done anything which invalidates the required
insurance policies. Lessee shall, prior to the Start Date, deliver to Lessor
certified copies of policies of such insurance or certificates evidencing the
existence and amounts of the required insurance. No such policy shall be
cancelable or subject to modification except after 30 days prior written notice
to Lessor. Lessee shall, at least 30 days prior to the expiration of such
policies, furnish Lessor with evidence of renewals or "insurance binders"
evidencing renewal thereof, or Lessor may order such insurance and charge the
cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon
demand. Such policies shall be for a term of at least one year, or the length of
the remaining term of this Lease, whichever is less. If either Party shall fail
to procure and maintain the insurance required to be carried by it, the other
Party may, but shall not be required to, procure and maintain the same.
8.6 Waiver of Subrogation. Without affecting any other rights or
remedies, Lessee and Lessor each hereby release and relieve the other, and waive
their entire right to recover damages against the other, for loss of or damage
to its property arising out of or incident to the perils required to be insured
against herein. The effect of such releases and waivers is not limited by the
amount of insurance carried or required, or by any deductibles applicable
hereto. The Parties agree to have their respective property damage insurance
carriers waive any right to subrogation that such companies may have against
Lessor or Lessee, as the case may be, so long as the insurance is not
invalidated thereby.
8.7 Indemnity. Except for Lessor's gross negligence or willful
misconduct, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
liens, judgments, penalties, attorneys' and consultants' fees, expenses and/or
liabilities arising out of, involving, or in connection with, the use and/or
occupancy of the Premises by Lessee. If any action or proceeding is brought
against Lessor by reason of any of the foregoing matters, Lessee shall upon
notice defend the same at Lessee's expense by counsel reasonably satisfactory to
Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not
have first paid any such claim in order to be defended or indemnified.
8.8 Exemption of Lessor from Liability. EXCEPT FOR LESSOR'S GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT, Lessor shall not be liable for injury or
damage to the person or goods, wares, merchandise or other property of Lessee,
Lessee's employees, contractors, invitees, customers, or any other person in or
about the Premises, whether such damage or injury is caused by or results from
fire, steam, electricity, gas, water or rain, or from the breakage, leakage,
obstruction or other defects of pipes, fire sprinklers, wires, appliances,
plumbing, HVAC or lighting fixtures, or from any other cause, whether the said
injury or damage results from conditions arising upon the Premises or upon other
portions of the Building, or from other sources or places. Lessor shall not be
liable for any damages arising from any act or neglect of any other tenant of
Lessor nor from the failure of Lessor to enforce the provisions of any other
lease in the Project. Notwithstanding Lessor's negligence or breach of this
Lease, Lessor shall under no circumstances be liable for injury to Lessee's
business or for any loss of income or profit therefrom.
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Partial Damage" shall mean damage or destruction to
the improvements on the Premises, other than Lessee Owned Alterations and
Utility Installations, which can reasonably be repaired in 3 months or less from
the date of the damage or destruction, and the cost thereof does not exceed a
sum equal to 6 month's Base Rent. Lessor shall notify Lessee in writing within
30 days from the date of the damage or destruction as to whether or not the
damage is Partial or Total.
(b) "Premises Total Destruction" shall mean damage or destruction to
the improvements on the Premises, other than Lessee Owned Alterations and
Utility Installations and Trade Fixtures, which cannot reasonably be repaired in
3 months or less from the date of the damage or destruction and/or the cost
thereof exceeds a sum equal to 6 month's Base Rent. Lessor shall notify Lessee
in writing within 30 days from the date of the damage or destruction as to
whether or not the damage is Partial or Total.
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(c) "Insured Loss" shall mean damage or destruction to improvements
on the Premises, other than Lessee Owned Alterations and Utility Installations
and Trade Fixtures, which was caused by an event required to be covered by the
insurance described in Paragraph 8.3(a), irrespective of any deductible amounts
or coverage limits involved.
(d) "Replacement Cost" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of Applicable Requirements, and without
deduction for depreciation.
(e) "Hazardous Substance Condition" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 Partial Damage - Insured Loss. If a Premises Partial Damage that is
an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such
damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect; provided, however, that Lessee shall, at Lessor's
election, make the repair of any damage or destruction the total cost to repair
of which is $5,000 or less, and, in such event, Lessor shall make any applicable
insurance proceeds available to Lessee on a reasonable basis for that purpose.
Notwithstanding the foregoing, if the required insurance was not in force or the
insurance proceeds are not sufficient to effect such repair, the Insuring Party
shall promptly contribute the shortage in proceeds as and when required to
complete said repairs. In the event, however, such shortage was due to the fact
that, by reason of the unique nature of the improvements, full replacement cost
insurance coverage was not commercially reasonable and available, Lessor shall
have no obligation to pay for the shortage in insurance proceeds or to fully
restore the unique aspects of the Premises PROVIDED SUCH DAMAGE IS NOT THE
RESULT OF LESSOR'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT unless Lessee provides
Lessor with the funds to cover same, or adequate assurance thereof, within 10
days following receipt of written notice of such shortage and request therefor.
If Lessor receives said funds or adequate assurance thereof within said 10 day
period, the party responsible for making the repairs shall complete them as soon
as reasonably possible and this Lease shall remain in full force and effect. If
such funds or assurance are not received, Lessor may nevertheless elect by
written notice to Lessee within 10 days thereafter to: (i) make such restoration
and repair as is commercially reasonable with Lessor paying any shortage in
proceeds, in which case this Lease shall remain in full force and effect, or
(ii) have this Lease terminate 30 days thereafter. Lessee shall not be entitled
to reimbursement of any funds contributed by Lessee to repair any such damage or
destruction. Premises Partial Damage due to flood or earthquake shall be subject
to Paragraph 9.3, notwithstanding that there may be some insurance coverage, but
the net proceeds of any such insurance shall be made available for the repairs
if made by either Party.
9.3 Partial Damage - Uninsured Loss. If a Premises Partial Damage that
is not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense),
Lessor may either: (i) repair such damage as soon as reasonably possible at
Lessor's expense, in which event this Lease shall continue in full force and
effect, or (ii) terminate this Lease by giving written notice to Lessee within
30 days after receipt by Lessor of knowledge of the occurrence of such damage.
Such termination shall be effective 60 days following the date of such notice.
In the event Lessor elects to terminate this Lease, Lessee shall have the right
within 10 days after receipt of the termination notice to give written notice to
Lessor of Lessee's commitment to pay for the repair of such damage without
reimbursement from Lessor. Lessee shall provide Lessor with said funds or
satisfactory assurance thereof within 30 days after making such commitment. In
such event this Lease shall continue in full force and effect, and Lessor shall
proceed to make such repairs as soon as reasonably possible after the required
funds are available. If Lessee does not make the required commitment, this Lease
shall terminate as of the date specified in the termination notice. IF PREMISES
PARTIAL DAMAGE THAT IS NOT AN INSURED LOSS OCCURS AS THE RESULT OF LESSOR'S
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, LESSOR SHALL BE REQUIRED TO REPAIR SUCH
DAMAGE AS SOON AS REASONABLY POSSIBLE AT LESSOR'S EXPENSE.
9.4 Total Destruction. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs, this Lease shall terminate AS OF THE DATE OF
such PREMISES TOTAL Destruction. If the damage or destruction was caused by the
gross negligence or willful misconduct of Lessee, Lessor shall have the right to
recover Lessor's damages from Lessee, except as provided in Paragraph 8.6. IN
THE EVENT THE DAMAGE OR DESTRUCTION WAS CAUSED BY LESSOR'S GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT, LESSEE SHALL HAVE THE RIGHT TO RECOVER LESSEE'S DAMAGES FROM
LESSOR EXCEPT AS RELEASED OR WAIVED IN PARAGRAPH 8.6.
9.5 Damage Near End of Term. If at any time during the last 6 months of
this Lease there is damage for which the cost to repair exceeds one month's Base
Rent, whether or not an Insured Loss, Lessor may terminate this Lease effective
60 days following the date of occurrence of such damage by giving a written
termination notice to Lessee within 30 days after the date of occurrence of such
damage. Notwithstanding the foregoing, if Lessee at that time has an exercisable
option to extend this Lease or to purchase the Premises, then Lessee may
preserve this Lease by, (a) exercising such option and (b) providing Lessor with
any shortage in insurance proceeds (or adequate assurance thereof) IF SUCH
DAMAGE IS NOT DUE TO LESSOR'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT (IN WHICH
EVENT LESSOR SHALL PAY ANY SUCH SHORTAGE) needed to make the repairs on or
before the earlier of (i) the date which is 10 days after Lessee's receipt of
Lessor's written notice purporting to terminate this Lease, or (ii) the day
prior to the date upon which such option expires. If Lessee duly exercises such
option during such period and provides Lessor with funds (or adequate assurance
thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor's
commercially reasonable expense, repair such damage as soon as reasonably
possible and this Lease shall continue in full force and effect. If Lessee fails
to exercise such option and provide such funds or assurance during such period,
then this Lease shall terminate on the date specified in the termination notice
and Lessee's option shall be extinguished.
9.6 Abatement of Rent; Lessee's Remedies.
(a) Abatement. In the event of Premises Partial Damage or Premises
Total Destruction or a Hazardous Substance Condition for which Lessee is not
responsible under this Lease, the Rent payable by Lessee for the period required
for the repair, remediation or restoration of such damage shall be abated in
proportion to the degree to which Lessee's use of the Premises is impaired, but
not to exceed the proceeds received from the Rental Value insurance. All other
obligations of Lessee hereunder shall be performed by Lessee, and Lessor shall
have no liability for any such damage, destruction, remediation, repair or
restoration except as provided herein.
(b) Remedies. If Lessor shall be obligated to repair or restore the
Premises and does not commence, in a substantial and meaningful way, such repair
or restoration within 60 days after such obligation shall accrue, Lessee may,
at any time prior to the commencement of such repair or restoration, (i) give
written notice to Lessor and to any Lenders of which Lessee has actual notice,
of Lessee's election to terminate this Lease on a date not less than 30 days
following the giving of such notice, (ii) SEEK SPECIFIC PERFORMANCE BY LESSOR OF
LESSOR'S OBLIGATIONS UNDER THE PROVlSIONS OF SECTIONS HEREOF, OR (iii) LESSEE
MAY REPAIR OR RESTORE THE PREMISES. IF LESSEE REPAIRS OR RESTORES THE PREMISES
PURSUANT TO (iii) IN THE PRECEDING SENTENCE, LESSOR SHALL REIMBURSE LESSEE FULLY
FOR THE COSTS OF SUCH REPAIRS AND RESTORATION TO THE EXTENT SUCH REPAIRS AND
RESTORATION ARE FOR AN UNINSURED LOSS, AND TO THE EXTENT THE REPAIRS AND
RESTORATION ARE FOR AN INSURED LOSS LESSOR FORTHWITH SHALL TURN OVER ANY
APPLICABLE INSURANCE PROCEEDS AND REIMBURSE LESSEE FULLY FOR THE COSTS OF SUCH
REPAIRS AND RESTORATION TO THE EXTENT THE COST OF SUCH REPAIRS AND RESTORATION
EXCEED ANY APPLICABLE INSURANCE PROCEEDS. If Lessee gives such notice and such
repair or restoration is not commenced within 30 days thereafter, this Lease
shall terminate as of the date specified in said notice. If the repair or
restoration is commenced within such 30 days, this Lease shall continue in full
force and effect. "Commence" shall mean either the unconditional authorization
of the preparation of the required plans, or the beginning of the actual work on
the Premises, whichever first occurs.
9.7 Termination; Advance Payments. Upon termination of this Lease
pursuant to Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be
made concerning advance Base Rent and any other advance payments made by Lessee
to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's
Security Deposit as has not been, or is not then required to be, used by Lessor.
9.8 Waive Statutes. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises with
respect to the termination of this Lease and hereby waive the provisions of any
present or future statute to the extent inconsistent herewith.
10. Real Property Taxes.
10.1 Definition. As used herein, the term "Real Property Taxes" shall
Include any form of assessment; real estate, general, special, ordinary or
extraordinary, or rental levy or tax (other than inheritance, personal income or
estate taxes); improvement bond; and/or license fee imposed upon or levied
against any legal or equitable interest of Lessor in the Project, Lessor's right
to other income therefrom, and/or Lessor's business of leasing, by any authority
having the direct or indirect power to tax and where the funds are generated
with reference to the Project address and where the proceeds so generated are to
be applied by the city, county or other local taxing authority of a jurisdiction
within which the Project is located. The term "Real Property Taxes" shall also
include any tax, fee, levy, assessment or charge, or any increase therein,
imposed by reason of events occurring during the term of this Lease, including
but not limited to, a change in the ownership of the Project or any portion
thereof or a change in the improvements thereon. In calculating Real Property
Taxes for any calendar year, the Real Property Taxes for any real estate tax
year shall be included in the calculation of Real Property Taxes for such
calendar year based upon the number of days which such calendar year and tax
year have in common.
10.2 Payment of Taxes. Lessor shall pay the Real Property Taxes
applicable to the Project, and except as otherwise provided in Paragraph 10.3,
any such amounts shall be included in the calculation of Common Area Operating
Expenses in accordance with the provisions of Paragraph 4.2.
10.3 Additional Improvements. Common Area Operating Expenses shall not
include Real Property Taxes specified in the tax assessors records and work
sheets as being caused by additional improvements placed upon the Project by
other lessees or by Lessor for the exclusive enjoyment of such other lessees.
Notwithstanding Paragraph 10.2 hereof, Lessee shall, however, pay to Lessor at
the time Common Area Operating Expenses are payable under Paragraph 4.2, the
entirety of any increase in Real Property Taxes if assessed solely by reason of
Alterations, Trade Fixtures or Utility
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Installations placed upon the Premises by Lessee or at Lessee's request.
10.4 Joint Assessment. If the Building is not separately assessed, Real
Property Taxes allocated to the Building shall be an equitable proportion of the
Real Property Taxes for all of the land and improvements included within the tax
parcel assessed, such proportion to be determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available. Lessor's reasonable determination thereof, in good
faith, shall be conclusive.
10.5 Personal Property Taxes. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises. When possible, Lessee shall cause its
Lessee Owned Alterations and Utility Installations, Trade Fixtures, furnishings,
equipment and all other personal property to be assessed and billed separately
from the real property of Lessor. If any of Lessee's said property shall be
assessed with Lessor's real property, Lessee shall pay Lessor the taxes
attributable to Lessee's property within 10 days after receipt of a written
statement setting forth the taxes applicable to Lessee's property.
11. Utilities. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. Notwithstanding the provisions of
Paragraph 4.2, if at any time in Lessor's sole judgment, Lessor determines that
Lessee is using a disproportionate amount of water, electricity or other
commonly metered utilities, or that Lessee is generating such a large volume of
trash as to require an increase in the size of the dumpster and/or an increase
in the number of times per month that the dumpster is emptied then Lessor may
increase Lessee's Base Rent by an amount equal to such increased costs. [SEE
ALSO PARAGRAPH 60]
12. Assignment and Subletting.
12.1 Lessor's Consent Required.
(a) Lessee shall HAVE THE RIGHT TO assign, transfer, mortgage or
encumber (collectively, "assign or assignment") or sublet all or any part of
Lessee's interest in this Lease or in the Premises TO A WHOLLY OWNED SUBSIDIARY
OF LESSEE without Lessor's consent. UPON OBTAINING THE WRITTEN CONSENT OF
LESSOR, LESSEE SHALL HAVE THE RIGHT TO SUBLET ALL OR ANY PART OF LESSEE'S
INTEREST IN THIS LEASE. [ALSO SEE PARAGRAPH 60]
(b) A CHANGE IN THE CONTROL OF LESSEE OR ANY PARENT CORPORATION
SHALL NOT CONSTITUTE AN ASSIGNMENT REQUIRING LESSORS CONSENT SO LONG AS THE
STOCK OF LESSEE OR ANY PARENT CORPORATION IS TRADED THROUGH AN EXCHANGE, OVER
THE COUNTER OR THE OTC BULLETIN BOARD.
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
transfer, leveraged buy-out or otherwise), whether or not a formal assignment or
hypothecation of this Lease or Lessee's assets occurs, which results or will
result in a reduction of the Net Worth of Lessee by an amount greater than 25%
of such Net Worth as it was represented at the time of the execution of this
Lease or at the time of the most recent assignment to which Lessor has
consented, or as it exists immediately prior to said transaction or transactions
constituting such reduction, whichever was or is greater, shall be considered an
assignment of this Lease to which Lessor may withhold its consent. "Net Worth of
Lessee" shall mean the net worth of Lessee (excluding any guarantors)
established under generally accepted accounting principles.
(d) An assignment or subletting without consent EXCEPT AS
PERMISSIBLE PURSUANT TO SECTION 12.1(a) ABOVE AND SECTION 60 BELOW shall, at
Lessor's option, be a Default curable after notice per Paragraph 13.1(c), or a
noncurable Breach without the necessity of any notice and grace period. If
Lessor elects to treat such unapproved assignment or subletting as a noncurable
Breach, Lessor may either: (i) terminate this Lease, or (ii) upon 30 days
written notice, increase the monthly Base Rent to 110% of the Base Rent then in
effect. Further, in the event of such Breach and rental adjustment, (i) the
purchase price of any option to purchase the Premises held by Lessee shall be
subject to similar adjustment to 110% of the price previously in effect, and
(ii) all fixed and non-fixed rental adjustments scheduled during the remainder
of the Lease term shall be increased to 110% of the scheduled adjusted rent.
(e) Lessee's remedy for any breach of Paragraph 12.1 by Lessor shall
be limited to compensatory damages and/or injunctive relief.
12.2 Terms and Conditions Applicable to Assignment and Subletting
(a) Regardless of Lessor's consent, no assignment or subletting
shall: (i) be effective without the express written assumption by such assignee
or sublessee of the obligations of Lessee under this Lease, (ii) release Lessee
of any obligations hereunder, or (iii) alter the primary liability of Lessee for
the payment of Rent or for the performance of any other obligations to be
performed by Lessee.
(b) Lessor may accept Rent or performance of Lessee's obligations
from any person other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of Rent or performance shall constitute a waiver or estoppel
of Lessor's right to exercise its remedies for Lessee's Default or Breach.
(c) Lessor's consent to any assignment shall not constitute a
consent to any subsequent assignment.
(d) in the event of any Default or Breach by Lessee, Lessor may
proceed directly against Lessee, any Guarantors or anyone else responsible for
the performance of Lessee's obligations under this Lease, including any assignee
or sublessee, without first exhausting Lessor's remedies against any other
person or entity responsible therefore to Lessor, or any security held by
Lessor.
(e) Each request for consent to an assignment shall be in writing,
accompanied by information relevant to Lessor's determination as to the
financial and operational responsibility and appropriateness of the proposed
assignee including but not limited to the intended use and/or required
modification of the Premises, if any, together with a fee of $1,000 or 10% of
the current monthly Base Rent applicable to the portion of the Premises which is
the subject of the proposed assignment whichever is greater, as consideration
for Lessor's considering and processing said request. Lessee agrees to provide
Lessor with such other or additional information and/or documentation as may be
reasonably requested.
(f) Any assignee of, or sublessee under, this Lease shall, by reason of
accepting such assignment or entering into such sublease, be deemed to have
assumed and agreed to conform and comply with each and every term, covenant,
condition and obligation herein to be observed or performed by Lessee during the
term of said assignment or sublease, other than such obligations as are contrary
to or inconsistent with provisions of an assignment or sublease to which Lessor
has specifically consented to in writing.
(g) ANY OPTION GRANTED TO LESSEE IN THIS LEASE MAY BE ASSIGNED TO,
OR EXERCISED BY, ANY PARTY TO WHICH THE LEASE IS ASSIGNED PURSUANT TO THE TERMS
OF THIS LEASE. (See Paragraph 39.2)
12.3 Additional Terms and Conditions Applicable to Subletting. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all Rent payable on any sublease, and Lessor may collect such Rent
and apply same toward Lessee's obligations under this Lease; provided, however,
that until a Breach shall occur in the performance of Lessee's obligations,
Lessee may collect said Rent. Lessor shall not, by reason of the foregoing or
any assignment of such sublease, nor by reason of the collection of Rent, be
deemed liable to the sublessee for any failure of Lessee to perform and comply
with any of Lessee's obligations to such sublessee. Lessee hereby irrevocably
authorizes and directs any such sublessee, upon receipt of a written notice from
Lessor stating that a Breach exists in the performance of Lessee's obligations
under this Lease, to pay to Lessor all Rent due and to become due under the
sublease. Sublessee shall rely upon any such notice from Lessor and shall pay
all Rents to Lessor without any obligation or right to inquire as to whether
such Breach exists, notwithstanding any claim from Lessee to the contrary.
(b) In the event of a Breach by Lessee, Lessor may, at its option,
require sublessee to attorn to Lessor, in which event Lessor shall undertake the
obligations of the sublessor under such sublease from the time of the exercise
of said option to the expiration of such sublease; provided, however, Lessor
shall not be liable for any prepaid rents or security deposit paid by such
sublessee to such sublessor or for any prior Defaults or Breaches of such
sublessor.
(c) Any matter requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor.
(d) No sublessee shall further assign or sublet all or any part of
the Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach
by Lessee to the sublessee, who shall have the right to cure the Default of
Lessee within the grace period, if any, specified in such notice. The sublessee
shall have a right of reimbursement and offset from and against Lessee for any
such Defaults cured by the sublessee. [ALSO SEE PARAGRAPH 60]
13. Default; Breach; Remedies.
13.1 Default; Breach. A "Default" is defined as a failure by the Lessee
to comply with or perform any of the terms, covenants, conditions or Rules and
Regulations under this Lease. A "Breach" is defined as the occurrence of one or
more of the following Defaults, and the failure of Lessee to cure such Default
within any applicable grace period:
(a) The abandonment of the Premises, or the vacating of the Premises
without providing a commercially reasonable level of security, or where the
coverage of the property insurance described in Paragraph 8.3 is jeopardized as
a result thereof, or without providing reasonable assurances to minimize
potential vandalism.
(b) The failure of Lessee to make any payment of Rent or any
Security Deposit required to be made by Lessee hereunder, whether to Lessor or
to a third party, when due, to provide reasonable evidence of insurance or
surety bond, or to fulfill any obligation under this Lease which endangers or
threatens life or property, where such failure continues for a period of 3
business days following written notice to Lessee.
(c) The failure by Lessee to provide (i) reasonable written evidence
of compliance with Applicable Requirements, (ii) the service contracts, (iii)
the rescission of an unauthorized assignment or subletting, (iv) an Estoppel
Certificate, (v) a requested subordination, (vi) evidence concerning
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any guaranty andlor Guarantor, (vii) any document requested under Paragraph 41
(easements), or (viii) any other documentation or information which Lessor may
reasonably require of Lessee under the terms of this Lease, where any such
failure continues for a period of 10 days following written notice to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 2.9 hereof,
other than those described in subparagraphs 13.1(a), (b) or (c), above, where
such Default continues for a period of 30 days after written notice; provided,
however, that if the nature of Lessee's Default is such that more than 30 days
are reasonably required for its cure, then it shall not be deemed to be a Breach
if Lessee commences such cure within said 30 day period and thereafter
diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the making of
any general arrangement or assignment for the benefit of creditors; (ii)
becoming a "debtor" as defined in 11 U.S.C. 101 or any successor statute thereto
(unless, in the case of a petition filed against Lessee, the same is dismissed
within 60 days); (iii) the appointment of a trustee or receiver to take
possession of substantially all of Lessee's assets located at the Premises or of
Lessee's interest in this Lease, where possession is not restored to Lessee
within 30 days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this seizure is not discharged within 30 days; provided, however, in
the event that any provision of this subparagraph (e) is contrary to any
applicable shall be of no force or effect, and not affect the validity of the
remaining provisions.
(f) The discovery that any financial statement of Lessee or of any
Guarantor given to Lessor was materially false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a Guarantor, (ii) the termination of a Guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a Guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a Guarantor's refusal to honor the guaranty, or (v) a
Guarantor's breach of its guaranty obligation on an anticipatory basis, and
Lessee's failure, within 60 days following written notice of any such event, to
provide written alternative assurance or security, which, when coupled with the
then existing resources of Lessee, equals or exceeds the combined financial
resources of Lessee and the Guarantors that existed at the time of execution of
this Lease.
13.2 Remedies. If Lessee fails to perform any of its affirmative duties
or obligations, within 10 days after written notice (or in case of an emergency,
without notice), Lessor may, at its option, perform such duty or obligation on
Lessee's behalf, including but not limited to the obtaining of reasonably
required bonds, insurance policies, or governmental licenses, permits or
approvals. The costs and expenses of any such performance by Lessor shall be due
and payable by Lessee upon receipt of invoice therefor. If any check given to
Lessor by Lessee shall not be honored by the bank upon which it is drawn,
Lessor, at its option, may require all future payments to be made by Lessee to
be by cashier's check. In the event of a Breach, Lessor may, with or without
further notice or demand, and without limiting Lessor in the exercise of any
right or remedy which Lessor may have by reason of such Breach:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession to Lessor. In such event Lessor shall be
entitled to recover from Lessee: (i) the unpaid Rent which had been earned at
the time of termination; (ii) the worth at the time of award of the amount by
which the unpaid rent which would have been earned after termination until the
time of award exceeds the amount of such rental loss that the Lessee proves
could have been reasonably avoided; (iii) the worth at the time of award of the
amount by which the unpaid rent for the balance of the term after the time of
award exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorneys' fees, and that
portion of any leasing commission paid by Lessor in connection with this Lease
applicable to the unexpired term of this Lease. The worth at the time of award
of the amount referred to in provision (iii) of the immediately preceding
sentence shall be computed by discounting such amount at the discount rate of
the Federal Reserve Bank of the District within which the Premises are located
at the time of award plus one percent. Efforts by Lessor to mitigate damages
caused by Lessee's Breach of this Lease shall not waive Lessor's right to
recover damages under Paragraph 12. If termination of this Lease is obtained
through the provisional remedy of unlawful detainer, Lessor shall have the right
to recover in such proceeding any unpaid Rent and damages as are recoverable
therein, or Lessor may reserve the right to recover all or any part thereof in a
separate suit. If a notice and grace period required under Paragraph 13.1 was
not previously given, a notice to pay rent or quit, or to perform or quit given
to Lessee under the unlawful detainer statute shall also constitute the notice
required by Paragraph 13.1. In such case, the applicable grace period required
by Paragraph 13.1 and the unlawful detainer statute shall run concurrently, and
the failure of Lessee to cure the Default within the greater of the two such
grace periods shall constitute both an unlawful detainer and a Breach of this
Lease entitling Lessor to the remedies provided for in this Lease and/or by said
statute.
(b) Continue the Lease and Lessee's right to possession and recover
the Rent as it becomes due, in which event Lessee may sublet or assign, subject
only to reasonable limitations. Acts of maintenance, efforts to relet, and/or
the appointment of a receiver to protect the Lessor's interests, shall not
constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available under the
laws or judicial decisions of the state wherein the Premises are located. The
expiration or termination of this Lease and/or the termination of Lessee's right
to possession shall not relieve Lessee from liability under any indemnity
provisions of this Lease as to matters occurring or accruing during the term
hereof or by reason of Lessee's occupancy of the Premises.
13.3 Inducement Recapture. Any agreement for free or abated rent or
other charges, or for the giving or paying by Lessor to or for Lessee of any
cash or other bonus, inducement or consideration for Lessee's entering into this
Lease, all of which concessions are hereinafter referred to as "inducement
Provisions", shall be deemed conditioned upon Lessee's full and faithful
performance of all of the terms, covenants and conditions of this Lease. Upon
Breach of this Lease by Lessee, any such Inducement Provision shall
automatically be deemed deleted from this Lease and of no further force or
effect, and any rent, other charge, bonus, inducement or consideration
theretofore abated, given or paid by Lessor under such an inducement Provision
shall be immediately due and payable by Lessee to Lessor, notwithstanding any
subsequent cure of said Breach by Lessee. The acceptance by Lessor of rent or
the cure of the Breach which initiated the operation of this paragraph shall not
be deemed a waiver by Lessor of the provisions of this paragraph unless
specifically so stated in writing by Lessor at the time of such acceptance.
13.4 Late Charges. Lessee hereby acknowledges that late payment by
Lessee of Rent will cause Lessor to incur costs not contemplated by this Lease,
the exact amount of which will be extremely difficult to ascertain. Such costs
include, but are not limited to, processing and accounting charges, and late
charges which may be imposed upon Lessor by any Lender. Accordingly, if any Rent
shall not be received by Lessor within 5 days after such amount shall be due,
then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a
one-time late charge equal to 10% of each such overdue amount or $100, whichever
is greater. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of such late
payment. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent the exercise of any of the other rights and remedies granted hereunder.
In the event that a late charge is payable hereunder, whether or not collected,
for 3 consecutive installments of Base Rent, then notwithstanding any provision
of this Lease to the contrary, Base Rent shall, at Lessor's option, become due
and payable quarterly in advance.
13.5 Interest. Any monetary payment due Lessor hereunder, other than
late charges, not received by Lessor, when due as to scheduled payments (such as
Base Rent) or within 30 days following the date on which it was due for
non-scheduled payment, shall bear Interest from the date when due, as to
scheduled payments, or the 31st day after it was due as to non-scheduled
payments. The interest ("Interest") charged shall be equal to the prime rate
reported in the Wall Street Journal as published closest prior to the date when
due plus 4%, but shall not exceed the maximum rate allowed by law. Interest is
payable in addition to the potential late charge provided for in Paragraph 13.4.
13.6 Breach by Lessor.
(a) Notice of Breach. Lessor shall not be deemed in breach of this
Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph, a reasonable
time shall in no event be less than 30 days after receipt by Lessor, and any
Lender whose name and address shall have been furnished Lessee in writing for
such purpose, of written notice specifying wherein such obligation of Lessor has
not been performed; provided, however, that if the nature of Lessor's obligation
is such that more than 30 days are reasonably required for its performance, then
Lessor shall not be in breach if performance is commenced within such 30 day
period and thereafter diligently pursued to completion.
(b) Performance by Lessee on Behalf of Lessor. In the event that
neither Lessor nor Lender cures said breach within 30 days after receipt of said
notice, or if having commenced said cure they do not diligently pursue it to
completion, then Lessee may elect to cure said breach at Lessee's expense and
offset from Rent an amount equal to the greater of one month's Base Rent or the
Security Deposit, and to pay an excess of such expense under protest, reserving
Lessee's right to reimbursement from Lessor. Lessee shall document the cost of
said cure and supply said documentation to Lessor.
14. Condemnation. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(collectively "Condemnation"), this Lease shall terminate as to the part taken
as of the date the condemning authority takes title or possession, whichever
first occurs. If more than 10% of the floor area of the Unit, or more than 25%
of Lessee's Reserved Parking Spaces, is taken by Condemnation, Lessee may, at
Lessee's option, to be exercised in writing within 10 days after Lessor shall
have given Lessee written notice of such taking (or in the absence of such
notice, within 10 days after the condemning authority shall have taken
possession) terminate this Lease as of the date the condemning authority takes
such possession. If Lessee does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and effect as to the portion of
the Premises remaining, except that the Base Rent shall be reduced in proportion
to the reduction in utility of the Premises caused by such Condemnation.
Condemnation awards and/or payments shall be the property of Lessor, whether
such award shall be made as compensation for diminution in value of the
leasehold, the value of the part taken, or for severance damages; provided,
however, that Lessee shall be entitled to any compensation for Lessee's
relocation expenses, loss of business goodwill and/or Trade Fixtures, without
regard to whether or not this Lease is terminated pursuant to the
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provisions of this Paragraph. All Alterations and Utility Installations made to
the Premises by Lessee, for purposes of Condemnation only, shall be considered
the property of the Lessee and Lessee shall be entitled to any and all
compensation which is payable therefor. In the event that this Lease is not
terminated by reason of the Condemnation, Lessor shall repair any damage to the
Premises caused by such Condemnation.
15. Brokerage Fees. (ALSO SEE PARAGRAPH 51)
15.1 Additional Commission. In addition to the payments owed pursuant to
Paragraph 1.10 above, and unless Lessor and the Brokers otherwise agree in
writing, Lessor agrees that: (a) if Lessee exercises any Option, (b) if Lessee
acquires from Lessor any rights to the Premises or other premises owned by
Lessor and located within the Project, (c) if Lessee remains in possession of
the Premises, with the consent of Lessor, after the expiration of this Lease, or
(d) if Base Rent is increased, whether by agreement or operation of an
escalation clause herein, then, Lessor shall pay Brokers a fee in accordance
with the schedule of the Brokers in effect at the time of the execution of this
Lease.
15.2 Assumption of Obligations. Any buyer or transferee of Lessor's
interest in this Lease shall be deemed to have assumed Lessor's obligation
hereunder. Brokers shall be third party beneficiaries of the provisions of
Paragraphs 1.10, 15, 22 and 31. If Lessor falls to pay to Brokers any amounts
due as and for brokerage fees pertaining to this Lease when due, then such
amounts shall accrue interest. In addition, if Lessor fails to pay any amounts
to Lessee's Broker when due, Lessee's Broker may send written notice to Lessor
and Lessee of such failure and if Lessor fails to pay such amounts within 10
days after said notice, Lessee shall pay said monies to its Broker and offset
such amounts against Rent. In addition, Lessee's Broker shall be deemed to be a
third party beneficiary of any commission agreement entered into by andlor
between Lessor and Lessor's Broker for the limited purpose of collecting any
brokerage fee owed.
15.3 Representations and Indemnities of Broker Relationships. Lessee and
Lessor each represent and warrant to the other that it has had no dealings with
any person, firm, broker or finder (other than the Brokers, if any) in
connection with this Lease, and that no one other than said named Brokers is
entitled to any commission or finder's fee in connection herewith. Lessee and
Lessor do each hereby agree to indemnify, protect, defend and hold the other
harmless from and against liability for compensation or charges which may be
claimed by any such unnamed broker, finder or other similar party by reason of
any dealings or actions of the indemnifying Party, including any costs,
expenses, attorneys' fees reasonably incurred with respect thereto.
16. Estoppel Certificates.
(a) Each Party (as "Responding Party") shall within 10 days after
written notice from the other Party (the "Requesting Party") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "Estoppel Certificate" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
(b) if the Responding Party shall fail to execute or deliver the
Estoppel Certificate within such 10 day period, the Requesting Party may execute
an Estoppel Certificate stating that: (i) the Lease is in full force and effect
without modification except as may be represented by the Requesting Party, (ii)
there are no uncured defaults in the Requesting Party's performance, and (iii)
if Lessor is the Requesting Party, not more than one month's rent has been paid
in advance. Prospective purchasers and encumbrances may rely upon the Requesting
Party's Estoppel Certificate, and the Responding Party shall be estopped from
denying the truth of the facts contained in said Certificate.
(c) If Lessor desires to finance, refinance, or sell the Premises,
or any part thereof, Lessee and all Guarantors shall deliver to any potential
lender or purchaser designated by Lessor such financial statements as may be
reasonably required by such lender or purchaser, including but not limited to
Lessee's financial statements for the past 3 years. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. Definition of Lessor. The term "Lessor" as used herein shall mean the owner
or owners at the time in question of the fee title to the Premises, or, if this
is a sublease, of the Lessee's interest in the prior lease. In the event of a
transfer of Lessor's title or interest in the Premises or this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor. Except as provided in Paragraph 15, upon such
transfer or assignment and delivery of the Security Deposit, as aforesaid, the
prior Lessor shall be relieved of all liability with respect to the obligations
and/or covenants under this Lease thereafter to be performed by the Lessor.
Subject to the foregoing, the obligations and/or covenants in this Lease to be
performed by the Lessor shall be binding only upon the Lessor as hereinabove
defined. Notwithstanding the above, and subject to the provisions of Paragraph
20 below, the original Lessor under this Lease, and all subsequent holders of
the Lessor's interest in this Lease shall remain liable and responsible with
regard to the potential duties and liabilities of Lessor pertaining to Hazardous
Substances as outlined in Paragraph 6.2 above.
18. Severability. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. Days. Unless otherwise specifically indicated to the contrary, the word
"days" as used in this Lease shall mean and refer to calendar days.
20. Limitation on Liability. Subject to the provisions of Paragraph 17 above,
the obligations of Lessor under this Lease shall not constitute personal
obligations of Lessor, the individual partners of Lessor or its or their
individual partners, directors, officers or shareholders, and Lessee shall look
to the Premises, and to no other assets of Lessor, for the satisfaction of any
liability of Lessor with respect to this Lease, and shall not seek recourse
against the individual partners of Lessor, or its or their individual partners,
directors, officers or shareholders, or any of their personal assets for such
satisfaction.
21. Time of Essence. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
22. No Prior or Other Agreements; Broker Disclaimer. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the use, nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party. The liability (including court costs and attorneys'
fees), of any Broker with respect to negotiation, execution, delivery or
performance by either Lessor or Lessee under this Lease or any amendment or
modification hereto shall be limited to an amount up to the fee received by such
Broker pursuant to this Lease; provided, however, that the foregoing limitation
on each shall not be applicable to any gross negligence or willful misconduct of
such Broker.
23. Notices.
23.1 Notice Requirements. All notices required or permitted by this
Lease or applicable law shall be in writing and may be delivered in person (by
hand or by courier) or may be sent by regular, certified or registered mail or
U.S. Postal Service Express Mail, with postage prepaid, or by facsimile
transmission, and shall be deemed sufficiently given if served in a manner
specified in this Paragraph 23. The addresses noted adjacent to a Party's
signature on this Lease shall be that Party's address for delivery or mailing of
notices. Either Party may by written notice to the other specify a different
address for notice, except that upon Lessee's taking possession of the Premises,
the Premises shall constitute Lessee's address for notice. A copy of all notices
to Lessor shall be concurrently transmitted to such party or parties at such
addresses as Lessor may from time to time hereafter designate in writing.
23.2 Date of Notice. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown on
the receipt card, or if no delivery date is shown, the postmark thereon. If sent
by regular mail the notice shall be deemed given 48 hours after the same is
addressed as required herein and mailed with postage prepaid. Notices delivered
by United States Express Mail or overnight courier that guarantee next day
delivery shall be deemed given 24 hours after delivery of the same to the Postal
Service or courier. Notices transmitted by facsimile transmission or similar
means shall be deemed delivered upon telephone confirmation of receipt
(confirmation report from fax machine is sufficient), provided a copy is also
delivered via delivery or mall. If notice is received on a Saturday, Sunday or
legal holiday, it shall be deemed received on the next business day.
24. Waivers. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or of any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. The acceptance of Rent by
Lessor shall not be a waiver of any Default or Breach by Lessee. Any payment by
Lessee may be accepted by Lessor on account of moneys or damages due Lessor,
notwithstanding any qualifying statements or conditions made by Lessee in
connection therewith, which such statements and/or conditions shall be of no
force or effect whatsoever unless specifically agreed to in writing by Lessor at
or before the time of deposit of such payment.
25. Disclosures Regarding The Nature of a Real Estate Agency Relationship.
(a) When entering into a discussion with a real estate agent
regarding a real estate transaction, a Lessor or Lessee should from the outset
understand what type of agency relationship or representation it has with the
agent or agents in the transaction. Lessor and Lessee acknowledge being advised
by the Brokers in this transaction, as follows:
(i) Lessor's Agent. A Lessor's agent under a listing agreement
with the Lessor acts as the agent for the Lessor only. A Lessor's agent or
subagent has the following affirmative obligations. To the Lessor: A fiduciary
duty of utmost care, integrity, honesty, and loyalty in dealings with the
Lessor. To the Lessee and the Lessor: (a) Diligent exercise of reasonable skills
and care in performance of the agent's duties. (b) A duty of honest and fair
dealing and good faith. (c) A duty to disclose all facts known to the agent
materially affecting the value or desirability of the property that are not
known to, or within the diligent attention and observation of, the Parties. An
agent is not obligated to reveal to either Party any confidential information
obtained from the other Party which does not involve the affirmative duties set
forth above.
(ii) Lessee's Agent. An agent can agree to act as agent for the
Lessee only. In these situations, the agent is not the Lessor's agent, even if
by agreement the agent may receive compensation for services rendered, either in
full or in part from the Lessor. An agent acting only for a Lessee has the
following affirmative obligations. To the Lessee: A fiduciary duty of utmost
care, integrity, honesty, and loyalty in dealings with the Lessee. To the Lessee
and the Lessor: (a) Diligent exercise of reasonable skills and care in
performance of the agent's duties. (b) A duty of honest and fair dealing
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and good faith. (c) A duty to disclose all facts known to the agent materially
affecting the value or desirability of the property that are not known to, or
within the diligent attention and observation of, the Parties. An agent is not
obligated to reveal to either Party any confidential information obtained from
the other Party which does not involve the affirmative duties set forth above.
(iii) Agent Representing Both Lessor and Lessee. A real estate
agent, either acting directly or through one or more associate licenses, can
legally be the agent of both the Lessor and the Lessee in a transaction, but
only with the knowledge and consent of both the Lessor and the Lessee. In a dual
agency situation, the agent has the following affirmative obligations to both
the Lessor and the Lessee: (a) A fiduciary duty of utmost care, integrity,
honesty and loyalty in the dealings with either Lessor or the Lessee. (b) Other
duties to the Lessor and the Lessee as stated above in subparagraphs (i) or
(ii). In representing both Lessor and Lessee, the agent may not without the
express permission of the respective Party, disclose to the other Party that the
Lessor will accept rent in an amount less than that indicated in the listing or
that the Lessee is willing to pay a higher rent than that offered. The above
duties of the agent in a real estate transaction do not relieve a Lessor or
Lessee from the responsibility to protect their own interests. Lessor and Lessee
should carefully read all agreements to assure that they adequately express
their understanding of the transaction. A real estate agent is a person
qualified to advise about real estate. If legal or tax advice is desired,
consult a competent professional.
(b) Brokers have no responsibility with respect to any default or
breach hereof by either Party. The liability (including court costs and
attorneys' fees), of any Broker with respect to any breach of duty, error or
omission relating to this Lease shall not exceed the fee received by such Broker
pursuant to this Lease; provided, however, that the foregoing limitation on each
Broker's liability shall not be applicable to any gross negligence or willful
misconduct of such Broker.
(c) Buyer and Seller agree to identify to Brokers as "Confidential"
any communication or information given Brokers that is considered by such Party
to be confidential.
26. No Right To Holdover. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or termination of this Lease.
In the event that Lessee holds over, then the Base Rent shall be increased to
150% of the Base Rent applicable immediately preceding the expiration or
termination. Nothing contained herein shall be construed as consent by Lessor to
any holding over by Lessee.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. Covenants and Conditions; Construction of Agreement. All provisions of this
Lease to be observed or performed by Lessee are both covenants and conditions.
In construing this Lease, all headings and titles are for the convenience of the
Parties only and shall not be considered a part of this Lease. Whenever required
by the context, the singular shall include the plural and vice versa. This Lease
shall not be construed as if prepared by one of the Parties, but rather
according to its fair meaning as a whole, as if both Parties had prepared it.
29. Binding Effect; Choice of Law. This Lease shall be binding upon the parties,
their personal representatives, successors and assigns and be governed by the
laws of the State in which the Premises are located. Any litigation between the
Parties hereto concerning this Lease shall be initiated in the county in which
the Premises are located.
30. Subordination; Attornment; Non-Disturbance.
30.1 Subordination. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed upon the Premises, to any and all advances made on the security
thereof, and to all renewals, modifications, and extensions thereof. Lessee
agrees that the holders of any such Security Devices (in this Lease together
referred to as "Lender") shall have no liability or obligation to perform any of
the obligations of Lessor under this Lease. Any Lender may elect to have this
Lease and/or any Option granted hereby superior to the lien of its Security
Device by giving written notice thereof to Lessee, whereupon this Lease and such
Options shall be deemed prior to such Security Device, notwithstanding the
relative dates of the documentation or recordation thereof.
30.2 Attainment. In the event that Lessor transfers title to the
Premises, or the Premises are acquired by another upon the foreclosure or
termination of a Security Device to which this Lease is subordinated (i) Lessee
shall, subject to the non-disturbance provisions of Paragraph 30.3, attorn to
such new owner, and upon request, enter into a new lease, containing all of the
terms and provisions of this Lease, with such new owner for the remainder of the
term hereof, or, at the election of such new owner, this Lease shall
automatically become a new Lease between Lessee and such new owner, upon all of
the terms and conditions hereof, for the remainder of the term hereof, and (ii)
Lessor shall thereafter be relieved of any further obligations hereunder and
such new owner shall assume all of Lessor's obligations hereunder, except that
such new owner shall not: (a) be liable for any act or omission of any prior
lessor or with respect to events occurring prior to acquisition of ownership;
(b) be subject to any offsets or defenses which Lessee might have against any
prior lessor, (c) be bound by prepayment of more than one month's rent, or (d)
be liable for the return of any security deposit paid to any prior lessor.
30.3 Non-Disturbance. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving a commercially reasonable non-disturbance
agreement (a "Non-Disturbance Agreement") from the Lender which Non-Disturbance
Agreement provides that Lessee's possession of the Premises, and this Lease,
including any options to extend the term hereof, will not be disturbed so long
as Lessee is not in Breach hereof and attorns to the record owner of the
Premises. Further, within 60 days after the execution of this Lease, Lessor
shall use its commercially reasonable efforts to obtain a Non-Disturbance
Agreement from the holder of any pro-existing Security Device which is secured
by the Premises. In the event that Lessor is unable to provide the
Non-Disturbance Agreement within said 60 days, then Lessee may, at Lessee's
option, directly contact Lender and attempt to negotiate for the execution and
delivery of a Non-Disturbance Agreement.
30.4 Self-Executing. The agreements contained in this Paragraph 30 shall
be effective without the execution of any further documents; provided, however,
that, upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of the Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any
subordination, attornment and/or Non-Disturbance Agreement provided for herein.
31. Attorneys' Fees. If any Party or Broker brings an action or proceeding
involving the Premises whether founded in tort, contract or equity, or to
declare rights hereunder, the Prevailing Party (as hereafter defined) in any
such proceeding, action, or appeal thereon, shall be entitled to reasonable
attorneys' fees. Such fees may be awarded in the same suit or recovered in a
separate suit, whether or not such action or proceeding is pursued to decision
or judgment. The term, "Prevailing Party" shall include, without limitation, a
Party or Broker who substantially obtains or defeats the relief sought, as the
case may be, whether by compromise, settlement, judgment, or the abandonment by
the other Party or Broker of its claim or defense. The attorneys' fees award
shall not be computed in accordance with any court fee schedule, but shall be
such as to fully reimburse all attorneys' fees reasonably incurred. In addition,
Lessor shall be entitled to attorneys' fees, costs and expenses incurred in the
preparation and service of notices of Default and consultations in connection
therewith, whether or not a legal action is subsequently commenced in connection
with such Default or resulting Breach ($200 is a reasonable minimum per
occurrence for such services and consultation).
32. Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents shall
have the right to enter the Premises at any time, in the case of an emergency,
and otherwise at reasonable UPON THREE (3) BUSINESS DAYS ADVANCE WRITTEN NOTICE
for the purpose of showing the same to prospective purchasers, lenders, or
LESSEES, and making such alterations, repairs, improvements or additions to the
Premises as Lessor may deem necessary. All such activities shall be without
abatement of rent or liability to Lessee. Lessor may at any time place on the
Premises any ordinary "For Sale" signs and Lessor may during the last TWO months
of the term hereof place on the Premises any ordinary "For Lease" signs. Lessee
may at any time place on the Premises any ordinary "For Sublease" sign.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, any auction
upon the Premises without Lessor's prior written consent. Lessor shall not be
obligated to exercise any standard of reasonableness in determining whether to
permit an auction.
34. Signs. All signs must comply with all Applicable Requirements. (SEE ALSO
PARAGRAPH 52)
35. Termination; Merger. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, that Lessor may elect to continue any one or all
existing subtenancies. Lessor's failure within 10 days following any such event
to elect to the contrary by written notice to the holder of any such lesser
interest, shall constitute Lessor's election to have such event constitute the
termination of such interest.
36. Consents. Except as otherwise provided herein, wherever in this Lease the
consent of a Party is required to an act by or for the other Party, such consent
shall not be unreasonably withheld or delayed. Lessor's actual reasonable costs
and expenses (including but not limited to architects', attorneys', engineers'
and other consultants' fees) incurred in the consideration of, or response to, a
request by Lessee for any Lessor consent, including but not limited to consents
to an assignment, a subletting or the presence or use of a Hazardous Substance,
shall be paid by Lessee upon receipt of an invoice and supporting documentation
therefor. Lessor's consent to any act, assignment or subletting shall not
constitute an acknowledgment that no Default or Breach by Lessee of this Lease
exists, nor shall such consent be deemed a waiver of any then existing Default
or Breach, except as may be otherwise specifically stated in writing by Lessor
at the time of such consent. The failure to specify herein any particular
condition to Lessor's consent shall not preclude the imposition by Lessor at the
time of consent of such further or other conditions as are then reasonable with
reference to the particular matter for which consent is being given. In the
event that either Party disagrees with any determination made by the other
hereunder and reasonably requests the reasons for such determination, the
determining party shall furnish its reasons in writing and in reasonable detail
within 10 business days following such request.
37. Guarantor.
37.1 Execution. The Guarantors, if any, shall each execute a guaranty in
the form most recently published by the American Industrial Real Estate
Association, and each such Guarantor shall have the same obligations as Lessee
under this Lease.
37.2 Default. It shall constitute a Default of the Lessee if any
Guarantor fails or refuses, upon request to provide: (a) evidence of the
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execution of the guaranty, including the authority of the party signing on
Guarantor's behalf to obligate Guarantor, and in the case of a corporate
Guarantor, a certified copy of a resolution of its board of directors
authorizing the making of such guaranty, (b) current financial statements, (c)
an Estoppel Certificate, or (d) vritten confirmation that the guaranty is still
in effect.
38. Quiet Possession. Subject to payment by Lessee of the Rent and performance
of all of the covenants, conditions and provisions on Lessee's part to be
observed and performed under this Lease, Lessee shall have quiet possession and
quiet enjoyment of the Premises during the term hereof.
39. Options. If Lessee is granted an option, as defined below, then the
following provisions shall apply.
39.1 Definition. "Option" shall mean: (a) the right to extend the term
of or renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (b) the right of first refusal or first offer to lease
either the Premises or other property of Lessor; (c) the right to purchase or
the right of first refusal to purchase the Premises or other property of Lessor.
(ALSO SEE PARAGRAPH 53)
39.2
39.3 Multiple Options. In the event that Lessee has any multiple Options
to extend or renew this Lease, a later Option cannot be exercised unless the
prior Options have been validly exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option: (i) during the
period commencing with the giving of any notice of Default and continuing until
said Default is cured, (ii) during the period of time any Rent is unpaid
(without regard to whether notice thereof is given Lessee), (iii) during the
time Lessee is in Breach of this Lease, or (iv) in the event that Lessee has
been given 3 or more notices of separate Default, whether or not the Defaults
are cured, during the 12 month period immediately preceding the exercise of the
Option.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) An Option shall terminate and be of no further force or effect,
notwithstanding Lessee's due and timely exercise of the Option, if, after such
exercise and prior to the commencement of the extended term, (i) Lessee fails to
pay Rent for a period of 30 days after such Rent becomes due (without any
necessity of Lessor to give notice thereof), (ii) Lessor gives to Lessee 3 or
more notices of separate Default during any 12 month period, whether or not the
Defaults are cured, or (iii) if Lessee commits a Breach of this Lease.
40. Security Measures. Lessee hereby acknowledges that the Rent payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
41. Reservations. Lessor reserves the right: (i) to grant, without the consent
or joinder of Lessee, such easements, rights and dedications that Lessor deems
necessary, (ii) to cause the recordation of parcel maps and restrictions, and
(iii) to create and/or install new utility raceways, so long as such easements,
rights, dedications, maps, restrictions, and utility raceways do not
unreasonably interfere with the use of the Premises by Lessee. Lessee agrees to
sign any documents reasonably requested by Lessor to effectuate such rights.
42. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay.
43. Authority. If either Party hereto is a corporation, trust, limited liability
company, partnership, or similar entity, each individual executing this Lease on
behalf of such entity represents and warrants that he or she is duly authorized
to execute and deliver this Lease on its behalf. Each party shall, within 30
days after request, deliver to the other party satisfactory evidence of such
authority.
44. Conflict. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
45. Offer. Preparation of this Lease by either party or their agent and
submission of same to the other Party shall not be deemed an offer to lease to
the other Party. This Lease is not intended to be binding until executed and
delivered by all Parties hereto.
46. Amendments. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by a Lender in connection with the obtaining of normal financing or
refinancing of the Premises.
47. Multiple Parties. If more than one person or entity is named herein as
either Lessor or Lessee, such multiple Parties shall have joint and several
responsibility to comply with the terms of this Lease.
48. Waiver of Jury Trial. The Parties hereby waive their respective rights to
trial by jury in any action or proceeding involving the Property or arising out
of this Agreement.
49. Mediation and Arbitration of Disputes. An Addendum requiring the Mediation
disputes between the Parties and/or Brokers arising out of this Lease [ ] is [X]
is not attached to this Lease.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT
RELATES. THE PARTIES ARE URGED TO:
1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF THE
PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE POSSIBLE
PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE STRUCTURAL
INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, COMPLIANCE WITH THE
AMERICANS WITH DISABILITIES ACT AND THE SUITABILITY OF THE PREMISES FOR LESSEE'S
INTENDED USE.
WARNING: IF THE PREMISES ARE LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN
PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE
STATE IN WHICH THE PREMISES ARE LOCATED.
The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
Executed at: Vacaville, California Executed at: Vacaville, California
-------------------------- --------------------------
on: 12/6/99 on: 12/13/99
----------------------------------- -----------------------------------
By LESSOR: By LESSEE:
B&C Stocking LLC North Bay Bancorp or its Assignee
- -------------------------------------- --------------------------------------
- -------------------------------------- --------------------------------------
By: /s/ Curtis Stocking By: /s/ Terry Robinson
----------------------------------- -----------------------------------
Name Printed: Curtis Stocking Name Printed: Terry Robinson
------------------------- -------------------------
Title: Manager Title: President & CEO
-------------------------------- --------------------------------
By: By:
----------------------------------- -----------------------------------
Name Printed: Name Printed:
------------------------- -------------------------
Title: Title:
-------------------------------- --------------------------------
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Initials Initials
Page 12 of 13
(C)1999 - American Industrial Real Estate Association REVISED FORM MTN-2-2/99E
<PAGE>
Address: 401 Davis Street, Vacaville, Address: 1500 Soscol Ave., Napa,
------------------------------ ------------------------------
Ca. 95688 Ca. 94558
- -------------------------------------- --------------------------------------
Telephone: (707) 448 2313 Telephone: (707) 257 8535
---------------------------- ----------------------------
Facsimile: (707) 678 7321 Facsimile: (707) 226 1247
---------------------------- ----------------------------
Federal ID No. Federal ID No.
------------------------ ------------------------
These forms are often modified to meet changing requirements of law and needs of
the industry. Always write or call to make sure you are utilizing the most
current form: American Industrial Real Estate Association, 700 South Flower
Street, Suite 600, Los Angeles, CA 90017. (213) 687-8777.
(c)Copyright 1999 By American Industrial Real Estate Association.
All rights reserved.
No part of these works may be reproduced in any form
without permission in writing.
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Initials Initials
Page 13 of 13
(C)1999 - American Industrial Real Estate Association REVISED FORM MTN-2-2/99E
<PAGE>
ADDENDUM TO LEASE
BY AND BETWEEN
B&C STOCKING LLC, LESSOR
AND
NORTH BAY BANCORP OR ITS ASSIGNEE, LESSEE
49. Parking. Both Lessor and Lessee acknowledge that all parking available to
the Premises and the Project is subject to reciprocal parking agreements with
adjacent landowners. Both Lessor and Lessee agree to require their respective
employees to park in spaces that allow Lessee's customers the greatest
convenience in parking. Lessor agrees to use its best efforts to obtain the
approval for six (6) 1 hour parking spaces immediately adjacent to the entrance
of the Premises from all applicable parties with parking rights in the event
that Lessee notifies Lessor of Lessee's need for said parking.
50. Base Rent Adjustment; Increase. Lessee shall occupy 5,000 square feet of
floor space on the first floor of 403 Davis Street. Lessee may utilize an
additional 210 square feet on the second floor of 403 Davis Street as an arched
entrance to the Premises (the "Entrance Area"). Lessee shall have until March 1,
2000 to determine in its sole discretion whether it will utilize the Entrance
Area. In the event that Lessee elects to utilize the Entrance Area, the Base
Rent shall be $5,210 per month on the Commencement Date. In the event Lessee
elects not to utilize the Entrance Area, the Base Rent shall be $5,000 per month
on the Commencement Date. The determination of the Base Rent is based upon
Lessee's willingness to improve the Premises pursuant to the elevations prepared
by Robert Sesar attached hereto as Exhibit "B". If the Lessee makes any material
deviation from said plans the Lessor and Lessee shall renegotiate the terms of
the Base Rent. The Base Rent shall be increased annually on the anniversary date
of the Commencement Date by three percent (3%) beginning with the payment on the
first anniversary of the Commencement Date, that being March 1, 2001. Such
increase in the Base Rent shall occur every twelve (12) months thereafter for
the duration of the term of the Lease, as the same may be extended by the
exercise of Lessee's options hereunder.
51. Commissions. Six percent (6%) of the total lease amount to be paid by Lessor
to Coldwell Banker Commercial North Bay for the term of the Lease and for any
extensions and/or options. Commissions to be paid upon rent commencement (March
1, 2000), at the rate of $5,000 per month until paid in full. If and when any
extensions or options are exercised, at the beginning of such option period a
lease commission of six percent (6%) for that particular option period shall be
paid at the rate of $5,000 per month until paid in full. If escrow is opened by
Lessee and a purchase completed, Lessor agrees to pay Coldwell Banker Commercial
North Bay a commission equal to six percent (6%) of the sales price, less any
leasing commissions paid.
52. Signage. Lessee is granted building signage rights to the north, west and
south ends of the Building, and to any monument sign if approved by the City of
Vacaville. Lessor shall have the right to approve the size and location of any
such signage, which consent shall not be unreasonably withheld or delayed. All
other signage, if any, shall be permitted by the sign ordinance of the City of
Vacaville.
53. Options to Extend; Covenant to Negotiate.
(a) Lessor grants to Lessee three (3) options to extend the lease term
for a period of five (5) years each subject to the conditions described in
Paragraph 39 of the Lease but otherwise on all the provisions contained in this
Lease. In order to exercise the options described above, Lessee shall notify
Lessor in writing no less than one hundred and twenty (120) days prior to the
expiration of the lease term or any extension thereof of its election to
exercise such option.
(b) The Lessor covenants and agrees to negotiate in good faith with
Lessee in the event Lessor intends to sell all or any part of the Project. If
the parties are unable to enter into a
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<PAGE>
contractual relationship regarding such sale within 60 days of Lessor's
notification of its intent to sell, Lessor shall thereafter be entitled to
negotiate with any third party buyer. If Lessor is unable to secure a buyer
within the twelve month period following Lessor's notification to Lessee of its
intent to sell all or any part of the Project, this covenant to negotiate shall
be reinstated.
54. Exclusive Use. Lessor grants Lessee the exclusive right within the Project
(a) to install and operate any form of automated teller machine or similar
device which dispenses currency to its user ("ATM"), and (b) to operate a bank.
Lessor covenants for the term of this Lease, including any extended terms, that
it shall not permit any other tenant to operate a bank, savings and loan
association, credit union or other similar financial institution within the
Project.
55. Tenant Improvements. Lessee to take the Premises as is subject to Paragraphs
2.2, 2.3 and 2.4 of the Lease with the following stipulations: (i) Lessor shall
have all HVAC, duct work, thermostats, lighting, electrical panels and light
switches separated and independent from the adjacent portion of the Project
(being 401 Davis Street) at Lessor's sole cost and expense, (ii) all such work
described in subsection (i) above shall be completed in compliance with all
Applicable Requirements, completed in a good workman-like quality and completed
no later than the Start Date, (iii) Lessor warrants all heating, HVAC,
electrical, roof, and plumbing systems are adequate for the current size,
configuration and use of the Premises as office space, (iv) all first story
windows to be purchased and installed by Lessee at Lessee's sole cost and
expense, (v) all second story windows (excluding arch way windows) to be
installed on the courtyard side of the building by Lessor at Lessor's sole cost
and expense, (vi) the location, size and type of second story windows shall be
mutually agreed upon by both Lessor and Lessee, and (vii) Lessee acknowledges
that the Premises is absent a fire sprinkler system and Lessor does not assume
any responsibility for the installation of a fire sprinkler system if such a
system should be required by the City of Vacaville.
56. Contingency. This Lease is contingent upon the Lessee to obtain regulatory
approval for the Premises as noted herein for its intended use. Lessee shall
have the right to terminate the Lease if Lessee is unable to obtain such
approval, and Lessee notifies Lessor of its inability to obtain such approval in
writing on or before March 1, 2000. In the event Lessee so terminates the Lease
Lessor shall be entitled to retain the Security Deposit and the first month's
Base Rent (totaling approximately $10,420.00) as compensation for (i) Lessee's
use of the Premises during the period of Early Possession and (ii) Lessor's
taking the Premises off the market from the date of this Lease. In the event the
Lease is terminated because Lessee is unable to obtain said regulatory approval,
Lessor may require that the Premises, or any portion thereof, be restored (at
Lessee's cost) to their original condition, or Lessor may elect, in Lessor's
sole and absolute discretion, to retain any improvements made by Lessee. In the
event Lessee is unable to obtain the necessary regulatory approvals prior to
March 1, 2000 and Lessee assigns this Lease or sublets any portion of the
Premises to an entity that is not affiliated with Lessee, all rent received by
Lessee from its subtenants in excess of the rent payable by Lessee to Lessor
under this Lease shall be paid to Lessor, or any sums to be paid by an assignee
to Lessee in consideration of the assignment of this Lease shall be paid to
Lessor.
All improvements completed by Lessee prior to March 1, 2000 shall be at the sole
cost and expense of Lessee. If Lessee if unable to obtain said regulatory
approval, Lessee shall immediately vacate the Premises with no compensation to
Lessee from Lessor for Lessee's improvements.
57. Metering and Billing of Utilities. (a) Lessor and Lessee acknowledge and
agree that individual metering of all utilities to each tenant in the Project is
financially impractical at this time. The Project consists of two buildings
separated by a common wall (two stories each) located at 401 and 403 Davis
Street respectively. Each address encompasses approximately 10,000 square feet,
of which approximately 5,000 square feet is first floor space and 5,000 square
feet is second floor space. Lessee shall occupy approximately 5,000 or, 5,210
square feet depending upon whether Lessee elects to utilize the Entrance Area.
This shall include the first floor space located at 403 Davis Street and
potentially 210 square feet of the second floor area of 403 Davis Street
(previously
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<PAGE>
defined as the "Entrance Area"). Both parties acknowledge and agree that one
water meter has been installed to serve the Project, and one electric meter and
one gas meter have been installed to serve the building located at 403 Davis
Street.
(b) For the purpose of billing of utilities, Lessee shall pay for a prorated
share of utilities (gas, water, electric) based on the square footage occupied
and/or utilized for the metered area in addition to any Common Area Operating
Expenses for utilities (See Paragraph 4.2). This formula assumes that any
adjacent space the Premises are metered with is used as office space with normal
business hours (8am - 6pm six days a week), without an unusually high number of
employees or customers in or on such adjacent space on a regular basis, or any
use that would use an unusually high amount of gas, water or electricity. If any
abnormal uses become evident to Lessee, Lessee shall have the right to request
that the Lessor and Lessee re-calculate the billing to derive a more equitable
billing formula with the goal being a fair share of utilities being paid by all
parties. If the parties cannot mutually agree upon a more equitable billing
formula, either party may initiate binding arbitration to establish such billing
formula. Such arbitration shall be conducted by a single arbitrator
knowledgeable in the field of real estate using the Commercial Arbitration Rules
of the American Arbitration Association. Each party shall bear its own expenses
and one half of the aggregate amount of the arbitration costs.
58. Interior Alterations. Lessee may make such alterations as Lessee may elect
to the interior of the Premises in order to make same suitable in Lessee's sole
opinion for Lessee's intended use of the Premises. Lessee shall have no
obligation to remove any of its interior improvements or otherwise restore the
Premises upon the expiration of the Lease excepting only that Lessee shall, at
Lessee's sole cost and expense, remove its Trade Fixtures (including safes,
vaults, automated teller machines) and repair any damage occasioned by such
removal.
59. Exterior Improvements. Upon the expiration or the Lease, Lessee shall not be
required to restore any improvements or alterations Lessee made or caused to be
made to the Entrance Area but Lessee shall remove any ATM and replace same with
matching wall or glazing.
60. Assignment. Notwithstanding anything in the Lease to the contrary and except
as provided in Section 56, Lessee shall have the unfettered right to assign its
rights under this Lease, including the right to exercise any options to
extend/renew and rights of first refusal contained herein, to any financial
institution regulated by state and/or federal agencies without having to obtain
any form of approval or payment of any type of fee to Lessor or its agents. The
right shall include the right to assign the Lease to a financial institution
with which Lessee may merge or consolidate, to any parent or subsidiary of
Lessee or subsidiary of Lessee's parent corporation, or to a purchaser of
substantially as of Lessee's assets.
61. Covenants, Conditions and Restrictions. Lessee acknowledges that it has read
and approved the Declaration of Reciprocal Easements, Covenants, Conditions and
Restrictions for Basic American Foods Site recorded September 4, 1997 as
Instrument No. 97-57528 (the "CC&R's") pertaining to the Project and Lessee
agrees not to violate any of the terms and conditions of the CC&R's during the
term of the Lease. A copy of the CC&R's is attached hereto as Exhibit "C".
62. Notice of Default; Option to Purchase. In the event that a notice of default
is recorded against the Premises or the building of which the Premises are a
part ("Notice Recordation"), Lessor shall forthwith deliver a copy of same to
Lessee and Lessee shall have the right to purchase the Premises, or the building
of which the Premises are a part, in accordance with the provisions of this
Section. Lessee shall exercise this option to purchase by giving notice ("Option
Notice") to Lessor no sooner than thirty (30) days after the Notice Recordation.
The purchase price of the Premises or the building of which the Premises are a
part shall be payable in cash in lawful money of the United States to Lessor by
Lessee at the close of escrow with the closing to occur within ten (10) days of
the determination of the purchase price pursuant to the process described below.
The parties shall
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<PAGE>
have five (5) days after Lessor receives the Option Notice in which to agree on
the purchase price. If the parties are unable to agree on the purchase price
within that period, then within five (5) days after the expiration of that
period the parties shall attempt to agree upon a single qualified real estate
appraiser with at least 5 years' full time commercial appraisal experience in
the area in which the Premises are located to appraise and set the purchase
price of the Premises or the building of which the Premises are a part. In the
event the parties agree upon a single appraiser each of the parties shall bear
one half of the cost of appointing such appraiser and of paying such appraiser's
fee. If the parties are unable to agree on a single appraiser within that
period, then within five (5) days after the expiration of that period, each
party at its respective cost and by giving notice to the other party, shall
appoint an appraiser meeting the qualifications stated in this Section. If a
party does not appoint an appraiser within the stipulated time period and other
party has given notice of the name of its appraiser, the single appraiser
appointed shall be the sole appraiser and shall set the purchase price for the
Premises or the building of which the Premises are a part. If two appraisers are
appointed by the parties as stated in this Section, they shall meet promptly and
attempt to set the purchase price of the Premises or the building of which the
Premises are a part. If they are unable to agree on the purchase price within
ten (10) days after the second appraiser has been appointed, they shall select a
third appraiser meeting the qualifications stated in this Section within five
(5) days after the last day the two appraisers are given to set the purchase
price. If they are unable to agree on the third appraiser, either of the parties
to this Lease by giving five (5) days' notice to the other party can apply to
the presiding judge of the superior court of that county, for the selection of a
third appraiser who meets the qualifications stated in this Section. Each of the
parties shall bear one half of the cost of appointing the third appraiser and of
paying the third appraiser's fee. The third appraiser, however selected, shall
be a person who has not previously acted in any capacity for either party.
Within ten (10) days after the selection of the third appraiser, majority of the
appraisers shall set the purchase price of the Premises or the building of which
the Premises are a part. If a majority of the appraisers are unable to set the
purchase price within the stipulated period of time, the three appraisals shall
be added together and their total divided by three; the resulting quotient shall
be the purchase price of the Premises or the building of which the Premises area
part.
In appraising the Premises or the building of which the Premises are a part, the
appraisers shall not take into consideration the existence of this Lease. After
the purchase price has been set, the appraisers shall immediately notify the
parties. If Lessee objects to the purchase price that has been set, Lessee shall
have the right to elect not to purchase the Premises or the building of which
the Premises are a part, as long as Lessee pays all the costs in connection with
the appraisal procedure that set the purchase price. Lessee's election not to
purchase the Premises or the building of which the Premises are a part must be
exercised within ten (10) days after receipt of notice from the appraisers of
the purchase price. If Lessee does not exercise its election within the ten (10)
day period, Lessee shall purchase the Premises or the building of which the
Premises are a part as provided in this Section. In the event the default which
is the subject of the Notice Recordation is cured by Lessor within sixty (60)
days after Notice Recordation or prior to the consummation of Lessee's purchase
of the Premises or the building of which the Premises are a part pursuant to
this Section, the exercise of this option by Lessee shall be null and void
provided that Lessor reimburses Lessee for all out of pocket expenses in
connection with its exercise of the option. If escrow is opened by Lessee and a
purchase of the Premises or the building of which the Premises are a part is
completed, Lessor shall agree to pay Coldwell Banker Commercial North Bay a
commission equal to six percent (6%) of the sales price, less any leasing
commissions paid.
The option provided to Lessee pursuant to this Section shall not be applicable
in the event that Lessee receives a nondisturbance agreement reasonably
satisfactory to Lessee from any lender having a lien against the Premises or the
building of which the Premises that has priority over this Lease.
63. Access to Premises. Lessee, Lessee's agents and authorized representatives
shall have the right to enter the Premises upon prior notice to Lessor for
planning and design inspections of the Premises and related activities for the
period commencing with the full execution of the Lease by Lessor until the Early
Possession Period.
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<PAGE>
EXHIBIT "A"
GRAPHIC OMITTED
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<PAGE>
EXHIBIT "B"
GRAPHIC OMITTED
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Exhibit 10.4
Lease by and between Davies Partners II, as Lessor, and North Bay Bancorp,
as Lessee, with respect to premises at 1395 E. 2d Street, Benicia, California.
<PAGE>
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE - MODIFIED NET
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
[GRAPHIC]
1. Basic Provisions ("Basic Provisions").
1.1 Parties: This Lease ("Lease"), dated for reference purposes only,
October 28, 1999, is made by and between Davies Partners II, a California
limited partnership ("Lessor") and North Bay Bancorp, a California corporation
("Lessee"), (collectively the "Parties," or individually a "Party").
1.2(a) Premises: That certain portion of the Building, including all
improvements therein or to be provided by Lessor under the terms of this Lease,
commonly known by the street address of 1395 E. 2nd Street (+/- 2,OOOsf),
located in the City of Benicia, County of Solano, State of CA, with zip code
94510, as outlined on Exhibit ______ attached hereto ("Premises"). The
"Building" is that certain building containing the Premises and generally
described as (describe briefly the nature of the Building): 8,500 +/- square
foot Retail/Office Center with related site improvements fronting onto East 2nd
Street and not including the companion building fronting onto Military Avenue.
In addition to Lessees rights to use and occupy the Premises as hereinafter
specified, Lessee shall have non-exclusive rights to the Common Areas (as
defined in Paragraph 2.7 below) as hereinafter, specified, but shall not have
any rights to the roof, exterior walls or utility raceways of the Building or to
any other buildings in the Industrial Center. The Premises, the Building, the
Common Areas, the land upon which they are located, along with all other
buildings and improvements thereon, are herein collectively referred to as the
"Industrial Center," (Also see Paragraph 2.) As used throughout this Lease, the
term "lndustrial Center" shall mean "Retail/Office Center."
1.2(b) Parking: 38 +/ - as available unreserved vehicle parking spaces
("Unreserved Parking Spaces"); and three (3) reserved vehicle parking spaces
("Reserved Parking Spaces"). (Also see Paragraph 2.6.) (See Paragraph 51)
1.3 Term: 5 years and 4 months ("Original Term") commencing December 1,
1999 ("Commencement Date") and ending March 31, 2005 ("Expiration Date"). (Also
see Paragraph 3 and Paragraph 56.)
1.4 Early Possession: Not Applicable ("Early Possession Date"). (Also
see Paragraphs 3.2 and 3.3.)
1.5 Base Rent: $2,980.00 per month ("Base Rent"), payable on the the 1st
day of each month, in advance, commencing December 1, 1999 (Also see Paragraph
4.) [Also See Paragraph 50]
[X] If this box is checked, this Lease provides for the Base Rent to be
adjusted per Par 50 , attached hereto.
1.6(a) Base Rent Paid Upon Execution: $1,000.00 as Base Rent for the
period 12/1/99-12/31/99 (See also Paragraph 50).
1.6(b) Lessee's Share of Common Area Operating Expenses: See Paragraph
61 percent (N/A %) ("Lessee's Share") as determined by [ ] prorata square
footage of the Premises as compared to the total square footage of the Building
or [ ] other criteria as described in Addendum _________. Lessee's obligation to
pay Common Area Expenses is waved in its entirety for the period of December 1,
1999 through March 31, 2000.
1.7 Security Deposit: $4,000.00 ("Security Deposit"). (Also see
Paragraph 5.)
1.8 Permitted Use: Banking Facility and Lending Offices and related
activities______________________________________________________________________
___________________________________________________("Permitted Use") (Also see
Paragraph 6.)
1.9 Insuring Party. Lessor is the "Insuring Party." (Also see Paragraph
8.)
1.10(a) Real Estate Brokers. The following real estate broker(s)
(collectively, the "Brokers") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):
[ ] None represents Lessor exclusively ("Lessor's Broker");
[X] Spectrum Properties represents Lessee exclusively ("Lessee's Broker");
or
[ ] None represents both Lessor and Lessee ("Dual Agency"). (Also see
Paragraph 15.)
1.10(b) Payment to Brokers. Lessor shall pay to said Broker a fee as set
forth in a separate written agreement between Lessor and said Broker(s) (or in
the event there is no separate written agreement between Lessor and said
Broker(s), the sum of $4,000.00) for brokerage services rendered by said
Broker(s) in connection with this transaction [Also See Paragraph 6O].
1.11 Guarantor. The obligations of the Lessee under this Lease are to be
guaranteed by None______________________________________________________________
________________________________________________________________________________
("Guarantor") (Also see Paragraph 37.)
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MULTI-TENANT-MODIFIED NET
(c)1993 - American Industrial Real Estate Association
Page 1 of 19
REVISED Form MTN-1-6/93E
<PAGE>
1.12 Addenda and Exhibits. Attached hereto is an Addendum or Addenda
consisting of Paragraphs ____________ through __________, and Exhibits n/a
through n/a , all of which constitute a part of this Lease.
2. Premises, Parking and Common Areas.
2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental and/or Common Area Operating
Expenses, is an approximation which Lessor and Lessee agree is reasonable and
the rental and Lessee's Share (as defined in Paragraph 1.6(b)) based thereon is
not subject to revision whether or not the actual square footage is more or
less.
2.2 Condition. Lessor shall deliver the Premises to Lessee clean and
free of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, electrical systems, fire sprinkler system, lighting, air conditioning
and heating systems, and loading doors, if any, in the Premises, other than
those constructed by Lessee, shall be in good operating condition and the roof
shall be watertight on the Commencement Date. If a non-compliance with said
warranty exists as of the Commencement Date, Lessor shall, except as otherwise
provided in this Lease, promptly after receipt of written notice from Lessee
setting forth with specificity the nature and extent of such non-compliance,
rectify same at Lessor's expense. If Lessee does not give Lessor written notice
of a non-compliance with this warranty within sixty (60) days after the
Commencement Date, correction of that non-compliance shall be the obligation of
Lessee at Lessee's sole cost and expense.
2.3 Compliance with Covenants, Restrictions and Building Code. Lessor
warrants that any improvements (other than those constructed by Lessee or at
Lessee's direction) on or in the Premises which have been constructed or
installed by Lessor or with Lessor's consent or at Lessor's direction shall
comply with all applicable covenants or restrictions of record and applicable
building codes, regulations and ordinances in effect on the Commencement Date.
Lessor further warrants to Lessee that Lessor has no knowledge of any violation
or violations of applicable building codes, regulations, or ordinances exist
with regard to the Premises as of the Commencement Date. Said warranties shall
not apply to any Alterations or Utility Installations (defined in Paragraph
7.3(a)) made or to be made by Lessee. If the Premises do not comply with said
warranties, Lessor shall, except as otherwise provided in this Lease, promptly
after receipt of written notice from Lessee given within six (6) months
following the Commencement Date and setting forth with specificity the nature
and extent of such non-compliance, take such action, at Lessor's expense, as may
be reasonable or appropriate to rectify the non-compliance. Lessor makes no
warranty that the Permitted Use in Paragraph 1.8 is permitted for the Premises
under Applicable Laws (as defined in Paragraph 2.4).
2.4 Acceptance of Premises. Except for conditions subject to Sections
2.2 and 2.3, Lessee hereby acknowledges: (a) that it has been advised by the
Broker(s) to satisfy itself with respect to the condition of the Premises
(including, but not limited to, the electrical and fire sprinkler systems,
security, environmental aspects, seismic and earthquake requirements, and
compliance with the Americans with Disabilities Act and applicable zoning,
municipal, county, state and federal laws, ordinances and regulations, and any
covenants or restrictions of record (collectively, "Applicable Laws") and the
present and future suitability of the Premises for Lessee's intended use; (b)
that Lessee has made such investigation as it deems necessary with reference to
such matters, is satisfied with reference thereto, and assumes all
responsibility therefore as the same relate to Lessee's occupancy of the
Premises and/or the terms of this Lease; and (c) that neither Lessor, nor any of
Lessor's agents, has made any oral or written representations or warranties with
respect to said matters other than as set forth in this Lease.
2.5 Lessee as Prior Owner/Occupant. The warranties made by Lessor in
this Paragraph 2 shall be of no force or effect if immediately prior to the date
set forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In
such event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
2.6 Vehicle Parking. [See Also Paragraph 51] Lessee shall be entitled to
use the number of Unreserved Parking Spaces and Reserved Parking Spaces
specified in Paragraph 1.2(b) on those portions of the Common Areas designated
from time to time by Lessor for parking. Lessee shall not use more parking
spaces than said number. Said parking spaces shall be used for parking by
vehicles no larger than full-size passenger automobiles or pick-up trucks,
herein called "Permitted Size Vehicles" Vehicles other than Permitted Size
Vehicles shall be parked and loaded or unloaded as directed by Lessor in the
Rules and Regulations (as defined in Paragraph 40) issued by Lessor. (Also see
Paragraph 2.9.)
(a) Lessee shall not permit or allow any vehicles that belong to
or are controlled by Lessee or Lessee's employees, suppliers, shippers,
customers, contractors or invitees to be loaded, unloaded, or parked in areas
other than those designated by Lessor for such activities.
(b) If Lessee permits or allows any of the prohibited activities
described in this Paragraph 2.6, then Lessor shall have the right, without
notice, in addition to such other rights and remedies that it may have, to
remove or tow away the vehicle involved and charge the cost to Lessee, which
cost shall be immediately payable upon demand by Lessor.
(c) Lessor shall at the Commencement Date of this Lease provide
the parking facilities required by Applicable Law.
2.7 Common Areas - Definition. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Industrial Center and interior utility raceways within the Premises that
are provided and designated by the Lessor from time to time for the general
nonexclusive use of Lessor, Lessee and other lessees of the Industrial Center
and their respective employees, suppliers, shippers, customers, contractors and
invitees, including parking areas, loading and unloading areas, trash areas,
roadways, sidewalks, walkways, parkways, driveways and landscaped areas.
2.8 Common Areas - Lessee's Rights. Lessor hereby grants to Lessee, for
the benefit of Lessee and its employees, suppliers, shippers, contractors,
customers and invitees, during the term of this Lease, the non-exclusive right
to use, in common with others entitled to such use, the Common Areas as they
exist from time to time, subject to any rights, powers, and privileges reserved
by Lessor under the terms hereof or under the terms of any rules and regulations
or restrictions governing the use of the Industrial Center. Under no
circumstances shall the right herein granted to use the Common Areas be deemed
to include the right to store any property, temporarily or permanently, in the
Common Areas. Any such storage shall be permitted only by the prior written
consent of Lessor or Lessor's designated agent, which consent may be revoked at
any time. In the event that any unauthorized storage shall occur then Lessor
shall have, the right, without notice, in addition to such other rights and
remedies that it may have, to remove the property and charge the cost to Lessee,
which cost shall be immediately payable upon demand by Lessor.
2.9 Common Areas - Rules and Regulations. Lessor or such other person(s)
as Lessor may appoint shall have the exclusive control and management of the
Common Areas and shall have the right, from time to time, to establish, modify,
amend and enforce reasonable Rules and Regulations with respect thereto in
accordance with Paragraph 10. Lessee agrees to abide by and conform to all such
Rules and Regulations, and to cause its employees, suppliers, shippers,
customers, contractors and invitees to so abide and conform. Lessor shall not be
responsible to Lessee for the non-compliance with said rules and regulations by
other lessees of the Industrial Center.
2.10 Common Areas - Changes. Lessor shall have the right, in Lessor's
sole discretion, except as otherwise expressly provided below, from time to
time: (a) Upon receipt of the prior approval of Lessee, to make changes to the
Common Areas, including, without limitation, changes in the location, size,
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shape and number of driveways, entrances, parking spaces, parking areas, loading
and unloading areas, ingress, egress, direction of traffic, landscaped areas,
walkways and utility raceways;
(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;
(d) To add additional buildings and improvements to the Common
Areas so long as there is (1) no reduction in the number of parking spaces in
the Industrial Center and (2) no obstruction of the visibility of the Premises
adjacent public streets;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Industrial Center, or any portion
thereof; and
(f) To do and perform such other acts and make such other
changes in, to or with respect to the Common Areas and Industrial Center as
Lessor may, in the exercise of sound business judgment, deem to be appropriate.
3. Term.
3.1 Term. The Commencement Date, Expiration Date and Original Term
of this Lease are as specified in Paragraph 1.3.
3.2 Early Possession. If an Early Possession Date is specified in
Paragraph 1.4 and if Lessee totally or partially occupies the Premises after the
Early Possession Date but prior to the Commencement Date, the obligation to pay
Base Rent shall be abated for the period of such early occupancy. All other
terms of this Lease, however, (including, but not limited to, the obligations to
pay Lessee's Share of Common Area Operating Expenses and to carry the insurance
required by Paragraph 8) shall be in effect during such period. Any such eariy
possession shall not affect nor advance the Expiration Date of the Original
Term.
3.3 Delay in Possession. If for any reason Lessor cannot deliver
possession of the Premises to Lessee by the Early Possession Date, if one is
specified in Paragraph 1.4, or if no Early Possession Date is specified, by the
Commencement Date, Lessor shall not be subject to any liability therefor, nor
shall such failure affect the validity of this Lease, or the obligations of
Lessee hereunder, or extend the term hereof, but in such case, Lessee shall not,
except as otherwise provided herein, be obligated to pay rent or perform any
other obligation of Lessee under the terms of this Lease until Lessor delivers
possession of the Premises to Lessee. If possession of the Premises is not
delivered to Lessee within ten (10) days after the Commencement Date. Lessee
may, at its option, by notice in writing to Lessor within ten (10) days after
the end of said ten (10) day period, cancel this Lease, in which event the
Parties shall be discharged from all obligations hereunder; provided further,
however, that if such written notice of Lessee is not received by Lessor within
said ten (10) day period, Lessee's right to cancel this Lease hereunder shall
terminate and be of no further force or effect. Except as may be otherwise
provided, and regardless of when the Original Term actually commences, if
possession is not tendered to Lessee when required by this Lease and Lessee does
not terminate this Lease, as aforesaid, the period free of the obligation to pay
Base Rent, if any, that Lessee would otherwise have enjoyed shall run from the
date of delivery of possession and continue for a period equal to the period
during which the Lessee would have otherwise enjoyed under the terms hereof, but
minus any days of delay caused by the acts, changes or omissions of Lessee.
4. Rent.
4.1 Base Rent. Lessee shall pay Base Rent and other rent or charges, as
the same may be adjusted from time to time, to Lessor in lawful money of the
United States, without offset or deduction, on or before the day on which it is
due under the terms of this Lease. Base Rent and all other rent and charges for
any period during the term hereof which is for less than one full month shall be
prorated based upon the actual number of days of the month involved. Payment of
Base Rent and other charges shall be made to Lessor at its address stated herein
or to such other persons or at such other addresses as Lessor may from time to
time designate in writing to Lessee.
4.2 Common Area Operating Expenses. Lessee shall pay to Lessor during
the term hereof, in addition to the Base Rent, Lessee's Share (as specified in
Paragraph 61 of all Common Area Operating Expenses, as hereinafter defined,
during each calendar year of the term of this Lease, in accordance with the
following provisions:
(a) "Common Area Operating Expenses" are defined, for purposes
of this Lease, as all costs incurred by Lessor relating to the ownership and
operation of the Industrial Center, including, but not limited to, the
following:
(i) The operation, repair and maintenance, in neat, clean,
good order and condition, of the following:
(aa) The Common Areas, including parking areas,
loading and unloading areas, trash areas, roadways, sidewalks, walkways,
parkways, driveways, landscaped areas, striping, bumpers, irrigation systems,
Common Area lighting facilities, fences and gates, elevators and roof.
(bb) Exterior signs and any tenant directories.
(cc) Fire detection and sprinkler systems.
(ii) The cost of water, gas, electricity and telephone to
service the Common Areas.
(iii) Trash disposal, property management and security
services and the costs of any environmental inspections.
(iv) Reserves set aside for maintenance and repair of
Common Areas.
(v) Real Property Taxes (as defined in Paragraph 10.2) to
be paid by Lessor for the Building and the Common Areas under Paragraph 10
hereof.
(vi) The costs of the premiums for the insurance policies
maintained by Lessor under Paragraph 8 hereof.
(vii) Any deductible portion of an insured loss concerning
the Building or the Common Areas.
(viii) Any other services to be provided by Lessor that
are stated elsewhere in this Lease to be a Common Area Operating Expense.
(b) Any Common Area Operating Expenses and Real Property Taxes
that are specifically attributable to the Building or to any other building in
the Industrial Center or to the operation, repair and maintenance thereof, shall
be allocated entirely to the Building or to such other building. However, any
Common Area Operating Expenses and Real Property Taxes that are not specifically
attributable to the Building or to any other building or to the operation,
repair and maintenance thereof, shall be equitably allocated by Lessor to all
buildings in the Industrial Center.
(c) The inclusion of the improvements, facilities and services
set forth in Subparagraph 4.2(a) shall not be deemed to impose an obligation
upon Lessor to either have said improvements or facilities or to provide those
services unless the Industrial Center already has the same, Lessor already
provides the services, or Lessor has agreed elsewhere in this Lease to provide
the same or some of them.
(d) Lessee's Share of Common Area Operating Expenses shall be
due and payable by Lessee with Lessee's payrnent of Base Rent.
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5. Security Deposit. Lessee shall deposit with Lessor upon Lessee's execution
hereof the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee fails
to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults
under this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain
all or any portion of said Security Deposit for the payment of any amount due
Lessor or to reimburse or compensate Lessor for any liability, cost, expense,
loss or damage (including attorneys' fees) which Lessor may suffer or incur by
reason thereof. If Lessor uses or applies all or any portion of said Security
Deposit, Lessee shall within ten (10) days after written request therefore
deposit monies with Lessor sufficient to restore said Security Deposit to the
full amount required by this Lease. Lessor shall not be required to keep all or
any part of the Security Deposit separate from its general accounts. Lessor
shall, at the expiration or earlier termination of the term hereof and after
Lessee has vacated the Premises, return to Lessee (or, at Lessors option, to the
last assignee, if any, of Lessee's interest herein), that portion of the
Security Deposit not used or applied by Lessor. Unless otherwise expressly
agreed in writing by Lessor, no part of the Security Deposit shall be considered
to be held in trust, to bear interest or other increment for its use, or to be
prepayment for any monies to be paid by Lessee under this Lease.
6. Use.
6.1 Permitted Use.
(a) Lessee shall use and occupy the Premises only for the
Permitted Use set forth in Paragraph 1.8, or any other legal use which is
reasonably comparable thereto, and for no other purpose. Lessee shall not use or
permit the use of the Premises in a manner that is unlawful, creates waste or a
nuisance, or that disturbs owners and/or occupants of, or causes damage to the
Premises or neighboring premises or properties.
(b) Lessor hereby agrees to not unreasonably withhold or delay
its consent to any written request by Lessee, Lessee's assignees or subtenants,
and by prospective assignees and subtenants of Lessee, its assignees and
subtenants, for a modification of said Permitted Use, so long as the same will
not impair the structural integrity of the improvements on the Premises or in
the Building or the mechanical or electrical systems therein, does not conflict
with uses by other lessees, is not significantly more burdensome to the Premises
or the Building and the improvements thereon, and is otherwise permissible
pursuant to this Paragraph 6. If Lessor elects to withhold such consent, Lessor
shall within five (5) business days after such request give a written
notification of same, which notice shall include an explanation of Lessors
reasonable objections to the change in use.
6.2 Hazardous Substances.
(a) Reportable Uses Require Consent. The term "Hazardous
Substance" as used in this Lease shall mean any product, substance, chemical,
material or waste whose presence, nature, quantity and/or intensity of
existence, use, manufacture, disposal, transportation, spill, release or effect,
either by itself or in combination with other materials expected to be on the
Premises, is either: (i) potentially injurious to the public health, safety or
welfare, the environment, or the Premises; (ii) regulated or monitored by any
governmental authority; or (iii) a basis for potential liability of Lessor to
any govemmental agency or third party under any applicable statute or common law
theory. Hazardous Substance shall include, but not be limited to, hydrocarbons,
petroleum, gasoline, crude oil or any products or by-products thereof. Lessee
shall not engage in any activity in or about the Premises which constitutes a
Reportable Use (as hereinafter defined) of Hazardous Substances without the
express prior written consent of Lessor and compliance in a timely manner (at
Lessee's sole cost and expense) with all Applicable Requirements (as defined in
Paragraph 6.3). "Reportable Use" shall mean (i) the installation or use of any
above or below ground storage tank; (ii) the generation, possession, storage,
use, transportation, or disposal of a Hazardous Substance that requires a permit
from, or with respect to which a report, notice, registration or business plan
is required to be filed with, any governmental authority; and (iii) the presence
in, on or about the Premises of a Hazardous Substance with respect to which any
Applicable Laws require that a notice be given to persons entering or occupying
the Premises or neighboring properties. Notwithstanding the foregoing, Lessee
may, without Lessor's prior consent, but upon notice to Lessor and in compliance
with all Applicable Requirements, use any ordinary and customary materials
reasonably required to be used by Lessee in the normal course of the Permitted
Use, so long as such use is not a Reportable Use and does not expose the
Premises or neighboring properties to any meaningful risk of contamination or
damage or expose Lessor to any liability therefor. In addition, Lessor may (but
without any obligation to do so) condition its consent to any Reportable Use of
any Hazardous Substance by Lessee upon Lessee's giving Lessor such additional
assurances as Lessor, in its reasonable discretion, deems necessary to protect
itself, the public, the Premises and the environment against damage,
contamination or injury and/or liability therefor, including, but not limited
to, the installation (and, at Lessors option, removal on or before Lease
expiration or earlier termination) of reasonably necessary protective
modifications to the Premises (such as concrete encasements) and/or the deposit
of an additional Security Deposit under Paragraph 5 hereof.
(b) Duty to Inform Lessor. If Lessee knows, or has reasonable
cause to believe, that a Hazardous Substance has come to be located in, on,
under or about the Premises or the Building, other than as previously consented
to by Lessor, Lessee shall immediately give Lessor written notice thereof,
together with a copy of any statement, report, notice, registration,
application, permit, business plan, license, claim, action, or proceeding given
to, or received from, any governmental authority or private party concerning the
presence, spill, release, discharge of, or exposure to, such Hazardous Substance
including, but not limited to, all such documents as may be involved in any
Reportable Use involving the Premises. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under or about the
Premises (including, without limitation, through the plumbing or sanitary sewer
system).
(c) Indemnification. Lessee shall indemnify, protect, defend
and hold Lessor, its agents, employees, lenders and ground lessor, if any, and
the Premises, harmless from and against any and all damages, liabilities,
judgments, costs, claims, liens, expenses, penalties, loss of permits and
attorneys' and consultants' fees arising out of or involving any Hazardous
Substance brought onto the Premises by or for Lessee or by anyone under Lessee's
control. Lessee's obligations under this Paragraph 6.2(c) shall include, but not
be limited to, the effects of any contamination or injury to person, property or
the environment created or suffered by Lessee, and the cost of investigation
(including consultants' and attorneys' fees and testing), removal, remediation,
restoration and/or abatement thereof,
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or of any contamination therein involved, and shall survive the expiration or
earlier termination of this Lease. No termination, cancellation or release
agreement entered into by Lessor and Lessee shall release Lessee from its
obligations under this Lease with respect to Hazardous Substances, unless
specifically so agreed by Lessor in writing at the time of such agreement.
(d) Lessor's Warranty. Lessor hereby represents and warrants
to Lessee there are no Hazardous Substances on the Premises or in or on the
Industrial Center in which the Premises are located. Lessor shall indemnify,
protect, defend and hold Lessee, its agents, employees, lenders, if any,
harmless from and against any and all damages, liabilities, judgments, costs,
claims, liens, expenses, penalties, loss of permits and attorneys' and
consultants' fees arising out of or involving any Hazardous Substances (i)
existing on the Premises or in or on the Industrial Center in which the Premises
are located in contravention of Lessors warranty given in the preceding sentence
or (ii) brought onto the Premises or the Industrial Center by or for Lessor or
by anyone under Lessor's control. Lessor's obligations under this Paragraph
6.2(d) shall include, but not be limited to, the effects of any contamination or
injury to person, property or the environment created or suffered by Lessee and
the cost of investigation (including consultants' and attorneys' fees and
testing) removal, remediation, restoration and/or abatement thereof, or of any
contamination therein involved, and shall survive the expiration or earlier
termination of this Lease.
6.3 Lessee's Compliance with Requirements. Lessee shall, at Lessee's
sole cost and expense, fully, diligently and in a timely manner, comply with all
"Applicable Requirements," which term is used in this Lease to mean all laws,
rules, regulations, ordinances, directives, covenants, easements and
restrictions of record, permits, the requirements of any applicable fire
insurance underwriter or rating bureau, and the recommendations of Lessor's
engineers and/or consultants, relating in any manner to the Premises (including,
but not limited to, matters pertaining to (i) industrial hygiene: (ii)
environmental conditions on, in, under or about the Premises, including soil and
groundwater conditions; and (iii) the use, generation, manufacture, production,
installation, maintenance, removal, transportation, storage, spill, or release
of any Hazardous Substance), now in effect or which may hereafter come into
effect. Lessee shall, within five (5) days after receipt of Lessor's written
request, provide Lessor with copies of all documents and information, including,
but not limited to, permits, registrations, manifests, applications, reports and
certificates, evidencing Lessee's compliance with any Applicable Requirements
specified by Lessor, and shall immediately upon receipt, notify Lessor in
writing (with copies of any documents involved) of any threatened or actual
claim, notice, citation, warning, complaint or report pertaining to or involving
failure by Lessee or the Premises to comply with any Applicable Requirements.
6.4 Inspection; Compliance with Law. Lessor, Lessor's agents, employees,
contractors and designated representatives, and the holders of any mortgages,
deeds of trust or ground leases on the Premises ("Lenders") shall have the right
to enter the Premises at any time in the case of an emergency (such entry shall
be permissable only for the limited purpose of admitting fire, police or other
public safety officials onto the Premises), and otherwise at reasonable times
upon three (3) business days advance notice, for the purpose of inspecting the
condition of the Premises and for verifying compliance by Lessee with this Lease
and all Applicable Requirements (as defined in Paragraph 6.3), and Lessor shall
be entitled to employ experts and/or consultants in connection therewith to
advise Lessor with respect to Lessee's activities, including but not limited to
Lessee's installation, operation, use, monitoring, maintenance, or removal of
any Hazardous Substance on or from the Premises. Any inspections conducted
pursuant to this Section shall be conducted in a manner which will not
unreasonably interfere with the operation of Lessee's business. The costs and
expenses of any such inspections shall be paid by the party requesting same,
unless a Default or Breach of this Lease by Lessee or a violation of Applicable
Requirements or a contamination, caused or materially contributed to by Lessee,
is found to exist or to be imminent, or unless the inspection is requested or
ordered by a governmental authority as the result of any such existing or
imminent violation or contamination. In such case, Lessee shall upon request
reimburse Lessor or Lessor's Lender, as the case may be, for the costs and
expenses of such inspections.
7. Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations.
7.1 Lessee's Obligations.
(a) Subject to the provisions of Paragraphs 2.2 (Condition),
2.3 (Compliance with Covenants, Restrictions and Building Code), 7.2 (Lessor's
Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at
Lessee's sole cost and expense and at all times, keep the Premises and every
part thereof in good order, condition and repair (whether or not such portion of
the Premises requiring repair, or the means of repairing the same, are
reasonably or readily accessible to Lessee, and whether or not the need for such
repairs occurs as a result of Lessee's use, any prior use, the elements or the
age of such portion of the Premises), including, without limiting the generality
of the foregoing, all equipment or facilities specifically serving the Premises,
such as plumbing, heating, air conditioning, ventilating, electrical, lighting
facilities, boilers, fired or unfired pressure vessels, fire hose connections if
within the Premises, fixtures, interior walls, interior surfaces of exterior
walls, ceilings, floors, windows, doors, plate glass, and skylights, but
excluding any items which are the responsibility of Lessor pursuant to Paragraph
7.2 below. Lessee, in keeping the Premises in good order, condition and repair,
shall exercise and perform good maintenance practices. Lessee's obligations
shall include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order, condition
and state of repair.
(c) If Lessee fails to perform Lessee's obligations under this
Paragraph 7.1, Lessor may enter upon the Premises after ten (10) days' prior
written notice to Lessee (except in the case of an emergency, in which case no
notice shall be required), perform such obligations on Lessee's behalf, and put
the Premises in good order, condition and repair, in accordance with Paragraph
13.2 below.
7.2 Lessor's Obligations. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9
(Damage or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement
pursuant to Paragraph 4.2, shall keep in good order, in a first class condition
and repair the foundations, exterior walls (including repainting), structural
condition of interior bearing walls, exterior roof, fire sprinkler and/or
standpipe and hose (if located in the Common Areas) or other automatic fire
extinguishing system including fire alarm and/or smoke detection systems and
equipment, fire hydrants, parking lots, walkways, parkways, driveways,
landscaping, fences, signs and utility systems serving the Common Areas and all
parts thereof, as well as providing the services for which there is a Common
Area Operating Expense pursuant to Paragraph 4.2. Lessor shall not be obligated
to paint the interior surfaces of exterior walls nor shall Lessor be obligated
to maintain, repair or replace windows, doors or plate glass of the Premises.
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7.3 Utility Installations, Trade Fixtures, Alterations. [See Also
Paragraph 53)
(a) Definitions; Consent Required. The term "Utility
Installations" is used in this Lease to refer to all air lines, power panels,
electrical distribution, security, fire protection systems, communications
systems, lighting fixtures, heating, ventilating and air conditioning equipment,
plumbing, and fencing in, on or about the Premises. The term "Trade Fixtures"
shall mean Lessee's machinery and equipment which can be removed without doing
material damage to the Premises. The term "Alterations" shall mean any
modification of the improvements on the Premises which are provided by Lessor
under the terms of this Lease, other than Utility Installations or Trade
Fixtures. "Lessee-Owned Alterations and/or Utility Installations" are defined as
Alterations and/or Utility Installations made by Lessee that are not yet owned
by Lessor pursuant to Paragraph 7.4(a).
All Alterations and Utility Installations to be made by Lessee
shall be deemed conditioned upon: (i) Lessee's acquiring all applicable permits
required by governmental authorities; (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for the Alteration
or Utility Installation to Lessor prior to commencement of the work thereon; and
(iii) the compliance by Lessee with all conditions of said permits in a prompt
and expeditious manner. Any Alterations or Utility Installations by Lessee
during the term of this Lease shall be done in a good and workmanlike manner,
with good and sufficient materials, and be in compliance with all Applicable
Requirements. Lessee shall promptly upon completion thereof furnish Lessor with
as-built plans and specifications therefor.
(c) Lien Protection. Lessee shall pay when due all claims for
labor or materials furnished or alleged to have been furnished to or for Lessee
at or for use on the Premises, which claims are or may be secured by any
mechanic's or materialmen's lien against the Premises or any interest therein.
Lessee shall give Lessor not less than ten (10) days' notice prior to the
commencement of any work in, on, or about the Premises, and Lessor shall have
the right to post notices of non-responsibility in or on the Premises as
provided by law. If Lessee shall, in good faith, contest the validity of any
such lien, claim or demand, then Lessee shall, at its sole expense, defend and
protect itself, Lessor and the Premises against the same and shall pay and
satisfy any such adverse judgment that may be rendered thereon before the
enforcement thereof against the Lessor or the Premises.
7.4 Ownership, Removal, Surrender, and Restoration.
(a) Ownership. All Alterations and Utility Installations made
to the Premises by Lessee shall be the property of and owned by Lessee, but
considered a part of the Premises. Lessor may, at any time and at its option,
elect in writing to Lessee to be the owner of all or any specified part of the
Lessee-Owned Alterations and Utility Installations. Unless otherwise instructed
per Subparagraph 7.4(b) hereof, all Lessee-Owned Alterations and Utility
Installations shall, at the expiration or earlier termination of this Lease,
become the property of Lessor and remain upon the Premises and be surrendered
with the Premises by Lessee.
(b) Removal. [See Paragraphs 53 and 54]
(c) Surrender/Restoration. Lessee shall surrender the Premises
by the end of the last day of the Lease term or any earlier termination date,
clean and free of debris and in good operating order, condition and state of
repair, ordinary wear and tear excepted. Ordinary wear and tear shall not
include any damage or deterioration that would have been prevented by good
maintenance practice or by Lessee performing all of its obligations under this
Lease. Except as otherwise agreed or specified herein, the Premises, as
surrendered, shall include the Alterations and Utility Installations. The
obligation of Lessee shall include the repair of any damage occasioned by the
installation, maintenance or removal of Lessee's Trade Fixtures, furnishings,
equipment, as well as the removal of any storage tank installed by or for
Lessee, and the removal, replacement, or remediation of any soil, material or
ground water contaminated by Lessee, all as may then be required by Applicable
Requirements and/or good practice. Lessee's Trade Fixtures shall remain the
property of Lessee and shall be removed by Lessee subject to its obligation to
repair and restore the Premises per this Lease.
8. Insurance; Indemnity.
8.1 Payment of Premiums. The cost of the premiums for the insurance
policies maintained by Lessor under this Paragraph 8 shall be a Common Area
Operating Expense pursuant to Paragraph 4.2 hereof. Premiums for policy periods
commencing prior to, or extending beyond, the term of this Lease shall be
prorated to coincide with the corresponding Commencement Date or Expiration
Date.
8.2 Liability Insurance.
(a) Carried by Lessee. Lessee shall obtain and keep in force during the
term of this Lease a Commercial General Liability policy of insurance protecting
Lessee, Lessor and any Lender(s) whose names have been provided to Lessee in
writing (as additional insureds) against claims for bodily injury, personal
injury and property damage based upon, involving or arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be on an occurrence basis providing
single limit coverage in an amount not less than $1,000,000 per occurrence with
an "Additional Insured-Managers or Lessors of Premises" endorsement. The limits
of said insurance required by this Lease or as carried by Lessee shall not,
however, limit the liability of Lessee nor relieve Lessee of any obligation
hereunder. All insurance to be carried by Lessee shall be primary to and not
contributory with any similar insurance carried by Lessor, whose insurance shall
be considered excess insurance only.
(b) Carried by Lessor. Lessor shall also maintain liability insurance
described in Paragraph 8.2(a) above, in addition to and not in lieu of, the
insurance required to be maintained by Lessee. Lessee shall not be named as an
additional insured therein.
8.3 Property Insurance - Building, Improvements and Rental Value.
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(a) Building and Improvements. Lessor shall obtain and keep in
force during the term of this Lease a policy or policies in the name of Lessor,
with loss payable to Lessor and to any Lender(s), insuring against loss or
damage to the Premises. Such insurance shall be for full replacement cost, as
the same shall exist from time to time, or the amount required by any Lender(s),
but in no event more than the commercially reasonable and available insurable
value thereof if, by reason of the unique nature or age of the improvements
involved, such latter amount is less than full replacement cost. Lessee-Owned
Alterations and Utility installations, Trade Fixtures and Lessee's personal
property shall be insured by Lessee pursuant to Paragraph 8.4. If the coverage
is available and commercially appropriate, Lessor's policy or policies shall
insure against all risks of direct physical loss or damage (except the perils of
flood and/or earthquake unless required by a Lender), including coverage for any
additional costs resulting from debris removal and reasonable amounts of
coverage for the enforcement of any ordinance or law regulating the
reconstruction or replacement of any undamaged sections of the Building required
to be demolished or removed by reason of the enforcement of any building,
zoning, safety or land use laws as the result of a covered loss, but not
including plate glass insurance. Said policy or policies shall also contain an
agreed valuation provision in lieu of any co-insurance clause, waiver of
subrogation, and inflation guard protection causing an increase in the annual
property insurance coverage amount by a factor of not less than the adjusted
U.S. Department of Labor Consumer Price Index for All Urban Consumers for the
city nearest to where the Premises are located.
(b) Rental Value. Lessor shall also obtain and keep in force
during the term of this Lease a policy or policies in the name of Lessor, with
loss payable to Lessor and any Lender(s), insuring the loss of the full rental
and other charges payable by all lessees of the Building to Lessor for one year
(including all Real Property Taxes, insurance costs, all Common Area Operating
Expenses and any scheduled rental increases). Said insurance may provide that in
the event the Lease is terminated by reason of an insured loss, the period of
indemnity for such coverage shall be extended beyond the date of the completion
of repairs or replacement of the Premises, to provide for one full year's loss
of rental revenues from the date of any such loss. Said insurance shall contain
an agreed valuation provision in lieu of any co-insurance clause, and the amount
of coverage shall be adjusted annually to reflect the projected rental income,
Real Property Taxes, insurance premium costs and other expenses, if any,
otherwise payable, for the next 12-month period. Common Area Operating Expenses
shall include any deductible amount in the event of such loss.
(c) Adjacent Premises. Lessee shall pay for any increase in
the premiums for the property insurance of the Building and for the Common Areas
or other buildings in the Industrial Center if said increase is caused by
Lessee's acts, omissions, use or occupancy of the Premises.
(d) Lessee's Improvements: Since Lessor is the Insuring Party,
Lessor shall not be required to insure Lessee-Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 Lessee's Property Insurance. Subject to the requirements of
Paragraph 8.5, Lessee at its cost shall either by separate policy or, at
Lessor's option, by endorsement to a policy already carried, maintain insurance
coverage on all of Lessee's personal property, Trade Fixtures and Lessee-Owned
Alterations and Utility Installations in, on or about the Premises similar in
coverage to that carried by Lessor as the Insuring Party under Paragraph 8.3(a).
Such insurance shall be full replacement cost coverage with a deductible not to
exceed $1,000 per occurrence. The proceeds from any such insurance shall be used
by Lessee for the replacement of personal property and the restoration of Trade
Fixtures and Lessee-Owned Alterations and Utility Installations. Upon request
from Lessor, Lessee shall provide Lessor with written evidence that such
insurance is in force.
8.5 Insurance Policies. Insurance required hereunder shall be in
companies duly licensed to transact business in the state where the Premises are
located, and maintaining during the policy term a "General Policyholders Rating"
of at least B+, V, or such other rating as may be required by a Lender, as set
forth in the most current issue of "Best's Insurance Guide." Lessee shall not do
or permit to be done anything which shall invalidate the insurance policies
referred to in this Paragraph 8. Lessee shall cause to be delivered to Lessor,
within seven (7) days after the earlier of the Early Possession Date or the
Commencement Date, certified copies of, or certificates evidencing the existence
and amounts of, the insurance required under Paragraph 8.2(a) and 8.4. No such
policy shall be cancelable or subject to modification except after thirty (30)
days' prior written notice to Lessor. Lessee shall, at least thirty (30) days
prior to the expiration of such policies, furnish Lessor with evidence of
renewals or "insurance binders" evidencing renewal thereof, or Lessor may order
such insurance and charge the cost thereof to Lessee, which amount shall be
payable by Lessee to Lessor upon demand.
8.6 Waiver of Subrogation. Without affecting any other rights or
remedies, Lessee and Lessor each hereby release and relieve the other, and waive
their entire right to recover damages (whether in contract or in tort) against
the other, for loss or damage to their property arising out of or incident to
the perils required to be insured against under Paragraph 8. The effect of such
releases and waivers of the right to recover damages shall not be limited by the
amount of insurance carried or required, or by any deductibles applicable
thereto. Lessor and Lessee agree to have their respective insurance companies
issuing property damage insurance waive any right to subrogation that such
companies may have against Lessor or Lessee, as the case may be, so long as the
insurance is not invalidated thereby.
8.7 Indemnity. Except for Lessor's negligence, willful acts or omissions
and/or breach of express warranties, Lessee shall indemnify, protect, defend and
hold harmless the Premises, Lessor and its agents, Lessor's master or ground
lessor, partners and Lenders, from and against any and all claims, loss of rents
and/or damages, costs, liens, judgments, penalties, loss of permits, attorneys'
and consultants' fees, expenses and/or liabilities arising out of, involving, or
in connection with, the occupancy of the Premises by Lessee, the conduct of
Lessee's business, any act, omission or neglect of Lessee, its agents,
contractors, employees or invitees, and out of any Default or Breach by Lessee
in the performance in a timely manner of any obligation on Lessee's part to be
performed under this Lease. The foregoing shall include, but not be limited to,
the defense or pursuit of any claim or any action or proceeding involved
therein, and whether or not (in the case of claims made against Lessor)
litigated and/or reduced to judgment. In case any action or proceeding be
brought against Lessor by reason of any of the foregoing matters, Lessee, upon
notice from Lessor, shall defend the same at Lessee's expense by counsel
reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such
defense. Lessor need not have first paid any such claim in order to be so
indemnified.
8.8 Exemption of Lessor from Liability. Except for Lessor's negligence,
willful acts and/or omissions, Lessor shall not be liable for injury or damage
to the person or goods, wares, merchandise or other property of Lessee, Lessee's
employees, contractors, invitees, customers, or any other person in or about the
Premises, whether such damage or injury is caused by or results from fire,
steam, electricity, gas, water or rain, or from the breakage, leakage,
obstruction or other defects of pipes, fire sprinklers, wires, appliances,
plumbing, air conditioning or lighting fixtures, or from any other cause,
whether said injury or damage results from conditions arising upon the Premises
or upon other portions of the Building of which the Premises are a part, from
other sources or places, and regardless of whether the cause of such damage or
injury or the means of repairing the same is accessible or not. Lessor shall not
be liable for any damages arising from any act or neglect of any other lessee of
Lessor nor from the failure by Lessor to enforce the provisions of any other
lease in the Industrial Center.
9. Damage or Destruction.
9.1 Definitions.
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(a) "Premises Partial Damage" shall mean damage or destruction
to the Premises, other than Lessee-Owned Alterations and Utility Installations,
the repair cost of which damage or destruction is less than fifty percent (50%)
of the then Replacement Cost (as defined in Paragraph 9.1(d)) of the Premises
(excluding Lessee-Owned Alterations and Utility Installations and Trade
Fixtures) immediately prior to such damage or destruction.
(b) "Premises Total Destruction" shall mean damage or
destruction to the Premises, other than Lessee-Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is fifty percent
(50%) or more of the then Replacement Cost of the Premises (excluding
Lessee-Owned Alterations and Utility Installations and Trade Fixtures)
immediately prior to such damage or destruction. In addition, damage or
destruction to the Building, other than Lessee-Owned Alterations and Utility
Installations and Trade Fixtures of any lessees of the Building, the cost of
which damage or destruction is fifty percent (50%) or more of the then
Replacement Cost (excluding Lessee-Owned Alterations and Utility Installations
and Trade Fixtures of any lessees of the Building) of the Building shall, at the
option of Lessor, be deemed to be Premises Total Destruction.
(c) "Insured Loss" shall mean damage or destruction to the
Premises, other than Lessee-Owned Alterations and Utility Installations and
Trade Fixtures, which was caused by an event required to be covered by the
insurance described in Paragraph 8.3(a) irrespective of any deductible amounts
or coverage limits involved.
(d) "Replacement Cost" shall mean the cost to repair or
rebuild the improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the operation of applicable building codes,
ordinances or laws, and without deduction for depreciation.
(e) "Hazardous Substance Condition" shall mean the occurrence
or discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 Premises Partial Damage - Insured Loss. If Premises Partial Damage
that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair
such damage (but not Lessee's Trade Fixtures or Lessee-Owned Alterations and
Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect. In the event, however, that there is a
shortage of insurance proceeds and such shortage is due to the fact that, by
reason of the unique nature of the improvements in the Premises, full
replacement cost insurance coverage was not commercially reasonable and
available, Lessor shall have no obligation to pay for the shortage in insurance
proceeds or to fully restore the unique aspects of the Premises, provided such
damage is not the result of Lessor's negligence, willful acts and/or omissions,
unless Lessee provides Lessor with the funds to cover same, or adequate
assurance thereof, within ten (10) days following receipt of written notice of
such shortage and request therefor. If Lessor receives said funds or adequate
assurance thereof within said ten (10) day period, Lessor shall complete them as
soon as reasonably possible and this Lease shall remain in full force and
effect. If Lessor does not receive such funds or assurance within said period,
Lessor may nevertheless elect by written notice to Lessee within ten (10) days
thereafter to make such restoration and repair as is commercially reasonable
with Lessor paying any shortage in proceeds, in which case this Lease shall
remain in full force and effect. If Lessor does not receive such funds or
assurance within such ten (10) day period, and if Lessor does not so elect to
restore and repair, then this Lease shall terminate sixty (60) days following
the occurrence of the damage or destruction. Unless otherwise agreed, Lessee
shall in no event have any right to reimbursement from Lessor for any funds
contributed by Lessee to repair any such damage or destruction. Premises Partial
Damage due to flood or earthquake shall be subject to Paragraph 9.3 rather than
Paragraph 9.2, notwithstanding that there may be some insurance coverage, but
the net proceeds of any such insurance shall be made available for the repairs
if made by either Party.
9.3 Partial Damage - Uninsured Loss. If Premises Partial Damage that is
not an Insured Loss occurs as a result of Lessor's negligence, willful acts
and/or omissions, Lessor shall be required to repair such damage as soon as
reasonably possible at Lessor's expense. If Premises Partial Damage that is not
an Insured Loss occurs, unless caused by a negligent or willful act of Lessee
(in which event Lessee shall make the repairs at Lessee's expense and this Lease
shall continue in full force and effect), Lessor may, at Lessor's option, either
(i) repair such damage as soon as reasonably possible at Lessor's expense, in
which event this Lease shall continue in full force and effect, or (ii) give
written notice to Lessee within thirty (30) days after receipt by Lessor of
knowledge of the occurrence of such damage of Lessor's desire to terminate this
Lease as of the date sixty (60) days following the date of such notice. In the
event Lessor elects to give such notice of Lessor's intention to terminate this
Lease, Lessee shall have the right within ten (10) days after the receipt of
such notice to give written notice to Lessor of Lessee's commitment to pay for
the repair of such damage totally at Lessee's expense and without reimbursement
from Lessor. Lessee shall provide Lessor with the required funds or satisfactory
assurance thereof within thirty (30) days following such commitment from Lessee.
In such event this Lease shall continue in full force and effect, and Lessor
shall proceed to make such repairs as soon as reasonably possible after the
required funds are available. If Lessee does not give such notice and provide
the funds or assurance thereof within the times specified above, this Lease
shall terminate as of the date specified in Lessor's notice of termination.
9.4 Total Destruction. Notwithstanding any other provision hereof, if
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate as of the date of such
total destruction, whether or not the damage or destruction is an insured Loss
or was caused by a negligent or willful act of Lessee. In the event, however,
that the damage or destruction was caused by Lessee, Lessor shall have the right
to recover Lessor's damages from Lessee except as released and waived in
Paragraph 9.7. In the event, however, that the damage or destrutlon was caused
by Lessor, Lessee shail have the right to recover Lessee's damages from Lessor
except as released or waived in Paragraph 9.7.
9.5 Damage Near End of Term. If at any time during the last six (6)
months of the term of this Lease there is damage for which the cost to repair
exceeds one month's Base Rent, whether or not an Insured Loss, Lessor may, at
Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by (a) exercising such option, and (b) providing Lessor with any shortage
in insurance proceeds if such damage is not due to Lessor's negligence, willful
acts and/or omissions in which event Lessor shall pay any such shortage, (or
adequate assurance thereof) needed to make the repairs on or before the earlier
of (i) the date which is ten (10) days after Lessee's receipt of Lessor's
written notice purporting to terminate this Lease, or (ii) the day prior to the
date upon which such option expires. If Lessee duly exercises such option during
such period and provides Lessor with funds (or adequate assurance thereof) to
cover any shortage in insurance proceeds, Lessor shall, at Lessor's expense,
repair such damage as soon as reasonably possible and this Lease shall continue
in full force and effect. If Lessee fails to exercise such option and provide
such funds or assurance during such period, then this Lease shall terminate as
of the date set forth in the first sentence of this Paragraph 9.5.
9.6 Abatement of Rent; Lessee's Remedies.
(a) In the event of (i) Premises Partial Damage or (ii)
Hazardous Substance Condition for which Lessee is not legally responsible, the
Base Rent, Common Area Operating Expenses and other charges, if any, payable by
Lessee hereunder for the period during which such damage or condition, its
repair, remediation or restoration continues, shall be abated in proportion to
the degree to which Lessee's use of the Premises is impaired, but not in excess
of proceeds from insurance required to be carried under Paragraph 8.3(b). Except
for abatement of Base Rent, Common Area Operating Expenses and other charges, if
any, as aforesaid, all other obligations of Lessee hereunder shall be performed
by Lessee, and Lessee shall have no claim against Lessor for any damage suffered
by reason
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of any such damage, destruction, repair, remediation or restoration.
(b) If Lessor shall be obligated to repair or restore the
Premises under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after the receipt of such notice, this Lease
shall continue in full force and effect. "Commence" as used in this Paragraph
9.6 shall mean either the unconditional authorization of the preparation of the
required plans, or the beginning of the actual work on the Premises, whichever
occurs first. In the event that Lessor does not perform its obligations to
repair and restore the Premises as provided under the provisions of this
Section 9 in a timely manner, Lessee shall have the right to recover its damages
resulting from such delay by Lessor.
9.7 Hazardous Substance Conditions. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable
Requirements and this Lease shall continue in full force and effect, but subject
to Lessor's rights under Paragraph 6.2(c) and Paragraph 13), Lessor may, at
Lessor's option, either (i) investigate and remediate such Hazardous Substance
Condition, if required, as soon as reasonably possible at Lessor's expense, in
which event this Lease shall continue in full force and effect, or (ii) if the
estimated cost to investigate and remediate such condition exceeds twelve (12)
times the then monthly Base Rent or $100,000, whichever is greater, give written
notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of
the occurrence of such Hazardous Substance Condition of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the excess costs of (a) investigation and remediation of such
Hazardous Substance Condition to the extent required by Applicable Requirements,
over (b) an amount equal to twelve (12) times the then monthly Base Rent or
$100,000, whichever is greater. Lessee shall provide Lessor with the funds
required of Lessee or satisfactory assurance thereof within thirty (30) days
following said commitment by Lessee. In such event this Lease shall continue in
full force and effect, and Lessor shall proceed to make such investigation and
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required funds or
assurance thereof within the time period specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
In the event of any investigatIon of the Premises or the Industrial Center due
to the occurrence of a Hazardous Substance Condition. Lessor shall promptly
provide Lessee with a copy of any and all reports generated in connection vith
the investigation or remediation of same. Lessee shall have the right to
terminate this Lease effective upon delivery of written notice to Lessor if, in
the judgment and sole discretion of Lessee, remediation of the Hazardous
Substance Condition will materially interfere with the conduct of its business
at the Premises.
9.8 Termination - Advance Payments. Upon termination of this Lease
pursuant to this Paragraph 9, Lessor shall retum to Lessee any advance payment
made by Lessee to Lessor and so much of Lessee's Security Deposit as has not
been, or is not then required to be, used by Lessor under the terms of this
Lease.
9.9 Waiver of Statutes. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
and the Building with respect to the termination of this Lease and hereby waive
the provisions of any present or future statute to the extent it is inconsistent
herewith.
10. Real Property Taxes.
10.1 Payment of Taxes. Lessor shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Industrial Center, and except as
otherwise provided in Paragraph 10.3, any such amounts shall be included in the
calculation of Common Area Operating Expenses in accordance with the provisions
of Paragraph 4.2.
10.2 Real Property Tax Definition. As used herein, the term "Real
Property Taxes" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed upon the Industrial Center by any
authority having the direct or indirect power to tax, including any city, state
or federal govemment, or any school, agricultural, sanitary, fire, street,
drainage, or other improvement district thereof, levied against any legal or
equitable interest of Lessor in the Industrial Center or any portion thereof,
Lessor's right to rent or other income therefrom, and/or Lessor's business of
leasing the Premises. The term "Real Property Taxes" shall also include any tax,
fee, levy, assessment or charge, or any increase therein, imposed by reason of
events occurring, or changes in Applicable Law taking effect, during the term of
this Lease, including, but not limited to, a change in the ownership of the
Industrial Center or in the improvements thereon, the execution of this Lease,
or any modification, amendment or transfer thereof, and whether or not
contemplated by the Parties. In calculating Real Property Taxes for any calendar
year, the Real Property Taxes for any real estate tax year shall be included in
the calculation of Real Property Taxes for such calendar year based upon the
number of days which such calendar year and tax year have in common.
10.3 Additional Improvements. Common Area Operating Expenses shall not
include Real Property Taxes specified in the tax assessor's records and work
sheets as being caused by additional improvements placed upon the Industrial
Center by other lessees or by Lessor for the exclusive enjoyment of such other
lessees. Notwithstanding Paragraph 10.1 hereof, Lessee shall, however, pay to
Lessor at the time Common Area Operating Expenses are payable under Paragraph
4.2, the entirety of any increase in Real Property Taxes if assessed solely by
reason of Alterations, Trade Fixtures or Utility Installations placed upon the
Premises by Lessee or at Lessee's request.
10.4 Joint Assessment. If the Building is not separately assessed, Real
Property Taxes allocated to the Building shall be an equitable proportion of the
Real Property Taxes for all of the land and improvements included within the tax
parcel assessed, such proportion to be determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available. Lessor's reasonable determination thereof, in good
faith, shall be conclusive.
10.5 Lessee's Property Taxes. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, fumishings, equipment and all personal property
of Lessee contained in the Premises or stored within the Industrial Center. When
possible, Lessee shall cause its Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
If any of Lessee's said property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee's property within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
11. Utilities. Lessee shall pay directly for all utilities and services supplied
to the Premises, including, but not limited to, electricity, telephone,
security, gas and cleaning of the Premises, together with any taxes thereon. If
any such utilities or services are not separately metered to the Premises or
separately billed to the
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Premises, Lessee shall pay to Lessor a reasonable proportion to be determined by
Lessor of all such charges jointly metered or billed with other premises in the
Building, in the manner and within the time periods set forth in Paragraph
4.2(d).
12. Assignment and Subletting. [See Also Paraqraph 52)
12.1 Lessor's Consent Required.
(a) Lessee shall not voluntarily or by operation of law
assign, transfer, mortgage or otherwise transfer or encumber (collectively,
"assign") or sublet all or any part of Lessee's interest in this Lease or in the
Premises without Lessor's prior written consent given under and subject to the
terms of Paragraph 36.
(b) A change in the control of Lessee or any parent
corporation of Lessee shall not constitute an assignment requiring Lessor's
consent so long as the stock of Lessee or any parent corporation of Lessee is
traded through an exchange, over the counter or the OTC Bulletin Board.
(c) The involvement of Lessee or its assets in any
transaction, or series of transactions (by way of merger, sale, acquisition,
financing, refinancing, transfer, leveraged buy-out or otherwise), whether or
not a formal assignment or hypothecation of this Lease or Lessee's assets
occurs, which results or will result in a reduction of the Net Worth of Lessee,
as hereinafter defined, by an amount equal to or greater than twenty-five
percent (25%) of such Net Worth of Lessee as it was represented to Lessor at the
time of full execution and delivery of this Lease or at the time of the most
recent assignment to which Lessor has consented, or as it exists immediately
prior to said transaction or transactions constituting such reduction, at
whichever time said Net Worth of Lessee was or is greater, shall be considered
an assignment of this Lease by Lessee to which Lessor may reasonably withhold
its consent. "Net Worth of Lessee" for purposes of this Lease shall be the net
worth of Lessee (excluding any Guarantors) established under generally accepted
accounting principles consistently applied.
(d) An assignment or subletting of Lessee's interest in this
Lease without Lessor's specific prior written consent shall, at Lessor's option,
be a Default curable after notice per Paragraph 13.1, or a non-curable Breach
without the necessity of any notice and grace period. If Lessor elects to treat
such unconsented to assignment or subletting as a non-curable Breach, Lessor
shall have the right to either: (i) terminate this Lease, or (ii) upon thirty
(30) days' written notice ("Lessor's Notice"), increase the monthly Base Rent
for the Premises to the greater of the then fair market rental value of the
Premises, as reasonably determined by Lessor, or one hundred ten percent (110%)
of the Base Rent then in effect. Pending determination of the new fair market
rental value, if disputed by Lessee, Lessee shall pay the amount set forth in
Lessor's Notice, with any overpayment credited against the next installment(s)
of Base Rent coming due, and any underpayment for the period retroactively to
the effective date of the adjustment being due and payable immediately upon the
determination thereof. Further, in the event of such Breach and rental
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to the then fair market value
as reasonably determined by Lessor (without the Lease being considered an
encumbrance or any deduction for depreciation or obsolescence, and considering
the Premises at its highest and best use and in good condition) or one hundred
ten percent (110%) of the price previously in effect, (ii) any index-oriented
rental or price adjustment formulas contained in this Lease shall be adjusted to
require that the base index be determined with reference to the index applicable
to the time of such adjustment, and (iii) any fixed rental adjustments scheduled
during the remainder of the Lease term shall be increased in the same ratio as
the new rental bears to the Base Rent in effect immediately prior the adjustment
specified in Lessor's Notice.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by
Lessor shall be limited to compensatory damages and/or injunctive relief.
12.2 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of Lessor's consent; any assignment or
subletting shall not (i) be effective without the express written assumption by
such assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, nor (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval of
an assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent for performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting
shall not constitute a consent to any subsequent assignment or subletting by
Lessee or to any subsequent or successive assignment or subletting by the
assignee or sublessee. However, Lessor may consent to subsequent sublettings and
assignments of the sublease or any amendments or modifications thereto without
notifying Lessee or anyone else liable under this Lease or the sublease and
without obtaining their consent, and such action shall not relieve such persons
from liability under this Lease or the sublease.
(d) In the event of any Default or Breach of Lessee's
obligation under this Lease, Lessor may proceed directly against Lessee, any
Guarantors or anyone else responsible for the performance of the Lessee's
obligations under this Lease, including any sublessee, without first exhausting
Lessor's remedies against any other person or entity responsible therefor to
Lessor, or any security held by Lessor.
(e) Each request for consent to an assignment or subletting
shall be in writing, accompanied by information relevant to Lessor's
determination as to the financial and operational responsibility and
appropriateness of the proposed assignee or sublessee, including, but not
limited to, the intended use and/or required modification of the Premises, if
any, together with a non-refundable deposit of $1,000 or ten percent (10%) of
the monthly Base Rent applicable to the portion of the Premises which is the
subject of the proposed assignment or sublease, whichever is greater, as
reasonable consideration for Lessor's considering and processing the request for
consent. Lessee agrees to provide Lessor with such other or additional
information and/or documentation as may be reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by
reason of accepting such assignment or entering into such sublease, be deemed,
for the benefit of Lessor, to have assumed and agreed to conform and comply with
each and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph
12.2(c) shall give Lessor the right (but not the obligation) to require that the
Security Deposit be increased by an amount equal to six (6) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
Security Deposit increase a condition to Lessor's consent to such transaction.
(h) Lessor, as a condition to giving its consent to any
assignment or subletting, may require that the amount and adjustment schedule of
the rent payable under this Lease be adjusted to what is then the market value
and/or adjustment schedule for property similar to the Premises as then
constituted, as determined by Lessor.
12.3 Additional Terms and Conditions Applicable to Subletting. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations under this
Lease;
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provided, however, that until a Breach (as defined in Paragraph 13.1) shall
occur in the performance of Lessee's obligations under this Lease, Lessee may,
except as otherwise provided in this Lease, receive, collect and enjoy the rents
accruing under such sublease. Lessor shall not, by reason of the foregoing
provision or any other assignment of such sublease to Lessor, nor by reason of
the collection of the rents from a sublessee, be deemed liable to the sublessee
for any failure of Lessee to perform and comply with any of Lessee's obligations
to such sublessee under such Sublease. Lessee hereby irrevocably authorizes and
directs any such sublessee, upon receipt of a written notice from Lessor stating
that a Breach exists in the performance of Lessee's obligations under this
Lease, to pay to Lessor the rents and other charges due and to become due under
the sublease. Sublessee shall rely upon any such statement and request from
Lessor and shall pay such rents and other charges to Lessor without any
obligation or right to inquire as to whether such Breach exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against such sublessee, or, until the Breach has
been cured, against Lessor, for any such rents and other charges so paid by said
sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of
its obligations under this Lease, Lessor, at its option and without any
obligation to do so, may require any sublessee to attorn to Lessor, in which
event Lessor shall undertake the obligations of the sublessor under such
sublease from the time of the exercise of said option to the expiration of such
sublease; provided, however, Lessor shall not be liable for any prepaid rents or
security deposit paid by such sublessee to such sublessor or for any other prior
defaults or breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor
under a sublease shall also require the consent of Lessor herein.
(d) No sublessee under a sublease approved by Lessor shall
further assign or sublet all or any part of the Premises without Lessor's prior
written consent.
(e) Lessor shall deliver a copy of any notice of Default or
Breach by Lessee to the sublessee, who shall have the right to cure the Defauit
of Lessee within the grace period, if any, specified in such notice. The
sublessee shall have a right of reimbursement and offset from and against Lessee
for any such Defaults
13. Default; Breach; Remedies.
13.1 Default; Breach. A "Default" by Lessee is defined as a failure by
Lessee to observe, comply with or perform any of the terms, covenants,
conditions or rules applicable to Lessee under this Lease. A "Breach" by Lessee
is defined as the occurrence of any one or more of the following Defaults, and,
where a grace period for cure after notice is specified herein, the failure by
Lessee to cure such Default prior to the expiration of the applicable grace
period, and shall entitle Lessor to pursue the remedies set forth in Paragraphs
13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to
reoccupy same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the
failure by Lessee to make any payment of Base Rent, Lessee's Share of Common
Area Operating Expenses, or any other monetary payment required to be made by
Lessee hereunder as and when due, the failure by Lessee to provide Lessor with
reasonable evidence of insurance or surety bond required under this Lease, or
the failure of Lessee to fulfill any obligation under this Lease which endangers
or threatens life or property, where such failure continues for a period of
three (3) days following written notice thereof by or on behalf of Lessor to
Lessee.
(c) Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with reasonable written evidence (in duly
executed original form, if applicable) of (i) compliance with Applicable
Requirements per Paragraph 6.3, (ii) the inspection, maintenance and service
contracts required under Paragraph 7.1(b), (iii) the rescission of an
unauthorized assignment or subletting per Paragraph 12.1, (iv) a Tenancy
Statement per Paragraphs 16 or 37, (v) the subordination or non-subordination of
this Lease per Paragraph 30, (vi) the guaranty of the performance of Lessee's
obligations under this Lease if required under Paragraphs 1.11 and 37, (vii) the
execution of any document requested under Paragraph 42 (easements), or (viii)
any other documentation or information which Lessor may reasonably require of
Lessee under the terms of this Lease, where any such failure continues for a
period of ten (10) days following written notice by or on behalf of Lessor to
Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions
or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof
that are to be observed, complied with or performed by Lessee, other than those
described in Subparagraphs 13.1(a), (b) or (c), above, where such Default
continues for a period of thirty (30) days after written notice thereof by or on
behalf of Lessor to Lessee; provided, however, that if the nature of Lessee's
Default is such that more than thirty (30) days are reasonably required for its
cure, then it shall not be deemed to be a Breach of this Lease by Lessee if
Lessee commences such cure within said thirty (30) day period and thereafter
diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the
making by Lessee of any general arrangement or assignment for the benefit of
creditors; (ii) Lessee's becoming a "debtor" as defined in 11 U.S. Code Section
101 or any successor statute thereto (unless, in the case of a petition filed
against Lessee, the same is dismissed within sixty (60) days); (iii) the
appointment of a trustee or receiver to take possession of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this Lease,
where possession is not restored to Lessee within thirty (30) days; or (iv) the
attachment, execution or other judicial seizure of substantially all of Lessee's
assets located at thd Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this Subparagraph 13.1(e) is contrary to any
applicable law, such provision shall be of no force or effect, and shall not
affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement of
Lessee or of any Guarantor, given to Lessor by Lessee or any Guarantor, was
materially false.
(g) If the performance of Lessee's obligations under this
Lease is guaranteed: (i) the death of a Guarantor, (ii) the termination of a
Guarantor's liability with respect to this Lease other than in accordance with
the terms of such guaranty, (iii) a Guarantor's becoming insolvent or the
subject of a bankruptcy filing, (iv) a Guarantor's refusal to honor the
guaranty, or (v) a Guarantor's breach of its guaranty obligation on an
anticipatory breach basis, and Lessee's failure, within sixty (60) days
following written notice by or on behalf of Lessor to Lessee of any such event,
to provide Lessor with written alternative assurances of security, which, when
coupled with the then existing resources of Lessee, equals or exceeds the
combined financial resources of Lessee and the Guarantors that existed at the
time of execution of this Lease.
13.2 Remedies. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including, but not limited to, the obtaining of reasonably required
bonds, insurance policies, or govemmental licenses, permits or approvals. The
costs and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its own
option, may require all future payments to be made under this Lease by Lessee to
be made only by cashier's check.
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In the event of a Breach of this Lease by Lessee (as defined in Paragraph 13.1),
with or without further notice or demand, and without limiting Lessor in the
exercise of any right or remedy which Lessor may have by reason of such Breach,
Lessor may;
(a) Terminate Lessee's right to possession of the Premises by
any lawful means, in which case this Lease and the term hereof shall terminate
and Lessee shall immediately surrender possession of the Premises to Lessor. In
such event Lessor shall be entitled to recover from Lessee: (i) the worth at the
time of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including, but not limited to, the cost of
recovering possession of the Premises, expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorneys' fees,
and that portion of any leasing commission paid by Lessor in connection with
this Lease applicable to the unexpired term of this Lease. The worth at the time
of award of the amount referred to in provision (iii) of the immediately
preceding sentence shall be computed by discounting such amount at the discount
rate of the Federal Reserve Bank of San Francisco or the Federal Reserve Bank
District in which the Premises are located at the time of award plus one percent
(1%). Efforts by Lessor to mitigate damages caused by Lessee's Defauit or Breach
of this Lease shall not waive Lessor's right to recover damages under this
Paragraph 13.2. If termination of this Lease is obtained through the provisional
remedy of unlawful detainer, Lessor shall have the right to recover in such
proceeding the unpaid rent and damages as are recoverable therein, or Lessor may
reserve the right to recover all or any part thereof in a separate suit for such
rent and/or damages. If a notice and grace period required under Subparagraphs
13.1(b), (c) or (d) was not previously given, a notice to pay rent or quit, or
to perform or quit, as the case may be, given to Lessee under any statute
authorizing the forfeiture of leases for unlawful detainer shall also constitute
the applicable notice for grace period purposes required by Subparagraph
13.1(b), (c) or (d). In such case, the applicable grace period under the
unlawful detainer statute shall run concurrently after the one such statutory
notice, and the failure of Lessee to cure the Default within the greater of the
two (2) such grace periods shall constitute both an unlawful detainer and a
Breach of this Lease entitling Lessor to the remedies provided for in this Lease
and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in
effect (in California under California Civil Code Section 1951.4) after Lessee's
Breach and recover the rent as it becomes due, provided Lessee has the right to
sublet or assign, subject only to reasonable limitations. Lessor and Lessee
agree that the limitations on assignment and subletting in this Lease are
reasonable. Acts of maintenance or preservation, efforts to relet the Premises,
or the appointment of a receiver to protect the Lessor's interest under this
Lease, shall not constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to
Lessor under the laws or judicial decisions of the state wherein the Premises
are located.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.
13.3 lnducement Recapture in Event of Breach. Any agreement by Lessor
for free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "Inducement Provisions" shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach (as defined in Paragraph 13.1) of this Lease by Lessee, any such
Inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor, as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph 13.3 shall not be deemed a waiver by Lessor of the provisions of this
Paragraph 13.3 unless specifically so stated in writing by Lessor at the time of
such acceptance.
13.4 Late Charges. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficuit to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Lessor by the terms of any ground lease, mortgage or deed of trust covering the
Premises. Accordingly, if any installment of rent or other sum due from Lessee
shall not be received by Lessor or Lessor's designee within ten (10) days after
such amount shall be due, then, without any requirement for notice to Lessee,
Lessee shall pay to Lessor a late charge equal to six percent (6%) of such
overdue amount. The Parties hereby agree that such late charge represents a fair
and reasonable estimate of the costs Lessor will incur by reason of late payment
by Lessee. Acceptance of such late charge by Lessor shall in no event constitute
a waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 Breach by Lessor. Lessor shall not be deemed in breach of this
Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph 13.5, a
reasonable time shall in no event be less than thirty (30) days after receipt by
Lessor, and by any Lender(s) whose name and address shall have been furnished to
Lessee in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor's obligation is such that more than thirty (30) days after such
notice are reasonably required for its performance, then Lessor shall not be in
breach of this Lease if performance is commenced within such thirty (30) day
period and thereafter diligently pursued to completion.
14. Condemnation. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the portion of
the Common Areas designated for Lessee's parking, is taken by condemnation,
Lessee may, at Lessee's option, to be exercised in writing within ten (10) days
after Lessor shall have given Lessee written notice of such taking (or in the
absence of such notice, within ten (10) days after the condemning authority
shall have taken possession) terminate this Lease as of the date the condemning
authority takes such possession, If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the Base Rent shall be
reduced in the same proportion as the rentable floor area of the Premises taken
bears to the total rentable floor area of the Premises. No reduction of Base
Rent shall occur if the condemnation does not apply to any portion of the
Premises. Any award for the taking of all or any part of the Premises under the
power of eminent domain or any payment made under threat of the exercise of such
power shall be the property of Lessor, whether such award shall be made as
compensation for diminution of value of the leasehold or
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for the taking of the fee, or as severance damages; provided, however, that
Lessee shall be entitled to any compensation, separately awarded to Lessee for
Lessee's relocation expenses and/or loss of Lessee's Trade Fixtures. In the
event that this Lease is not terminated by reason of such condemnation, Lessor
shall to the extent of its net severance damages received, over and above
Lessee's share of the legal and other expenses incurred by Lessor in the
condemnation matter, repair any damage to the Premises caused by such
condemnation authority. Lessee shall be responsible for the payment of any
amount in excess of such net severance damages required to complete such repair.
15. Brokers' Fees [See Also Paragraph 60]
15.1 Procuring Cause. The Broker named in Paragraph 1.10 is the
procuring cause of this Lease.
15.2 Additional Terms. Lessor agrees that: (a) if Lessee exercises any
Option (as defined in Paragraph 39.1) granted under this Lease or any Option
subsequently granted, or (b) if Lessee acquires any rights to the Premises or
other premises in which Lessor has an interest, or (c) if Lessee remains in
possession of the Premises with the consent of Lessor after the expiration of
the term of this Lease after having failed to exercise an Option, or (d) if
Lessor and Lessee enter into any other lease pertaining to the Premises and/or
any adjacent property in which Lessor has an interest. Lessor shall pay said
Broker a fee of $720.00 for each 12 months of such occupancy, payable at the end
of each 12 month period, such fee being prorated for any occupancy of less than
12 months.
15.3 Assumption of Obligations. Any buyer or transferee of Lessor's
interest in this Lease, whether such transfer is by agreement or by operation of
law, shall be deemed to have assumed Lessor's obligation under this Paragraph
15. Each Broker shall be an intended third party beneficiary of the provisions
of Paragraph 1.10 and of this Paragraph 15 to the extent of its interest in any
commission arising from this Lease and may enforce that right directly against
Lessor and its successors.
15.4 Representations and Warranties. Lessee and Lessor each represent
and warrant to the other that it has had no dealings with any person, firm,
broker or finder other than as named in Paragraph 1.10(a) in connection with the
negotiation of this Lease and/or the consummation of the transaction
contemplated hereby, and that no broker or other person, firm or entity other
than said named Broker(s) is entitled to any commission or finder's fee in
connection with said transaction. Lessee and Lessor do each hereby agree to
indemnify, protect, defend and hold the other harmless from and against
liability for compensation or charges which may be claimed by any such unnamed
broker, finder or other similar party by reason of any dealings or actions of
the indemnifying Party, including any costs, expenses, and/or attorneys' fees
reasonably incurred with respect thereto.
16. Tenancy and Financial Statements.
16.1 Tenancy Statement. Each Party (as "Responding Party") shall within
ten (10) days after written notice from the other Party (the "Requesting Party")
execute, acknowledge and deliver to the Requesting Party a statement in writing
in a form similar to the then most current "Tenancy Statement" form published by
the American Industrial Real Estate Association, plus such additional
information, confirmation and/or statements as may be reasonably requested by
the Requesting Party.
16.2 Financial Statement. If Lessor desires to finance, refinance, or
sell the Premises or the Building, or any part thereof, Lessee and all
Guarantors shall deliver to any potential lender or purchaser designated by
Lessor such publicly available financial statements of Lessee and such
Guarantors as may be reasonably required by such lender or purchaser, including,
but not limited to, Lessee's publicly available financial statements for the
past three (3) years. All such financial statements shall be received by Lessor
and such lender or purchaser in confidence and shall be used only for the
purposes herein set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean the owner or
owners at the time in question of the fee title to the Premises. In the event of
a transfer of Lessor's title or interest in the Premises or in this Lease,
Lessor shall deliver to the transferee or assignee (in cash or by credit) any
unused Security Deposit held by Lessor at the time of such transfer or
assignment. Except as provided in Paragraph 15.3, upon such transfer or
assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor
shall be relieved of all liability with respect to the obligations and/or
covenants under this Lease thereafter to be performed by the Lessor. Subject to
the foregoing, the obligations and/or covenants in this Lease to be performed by
the Lessor shall be binding only upon the Lessor as hereinabove defined.
18. Severability. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. Interest on Past-Due Obligations. Any monetary payment due Lessor hereunder,
other than late charges, not received by Lessor within ten (10) days following
the date on which it was due, shall bear interest from the date due at the prime
rate charged by the largest state chartered bank in the state in which the
Premises are located plus four percent (4%) per annum, but not exceeding the
maximum rate allowed by law, in addition to the potential late charge provided
for in Paragraph 13.4.
20. Time of Essence. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. Rent Defined. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. No Prior or Other Agreements; Broker Disclaimer. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party. Each Broker shall be an intended third party beneficiary
of the provisions of this Paragraph 22.
23. Notices.
23.1 Notice Requirements. All notices required or permitted by this
Lease shall be in writing and may be delivered in person (by hand or by
messenger or
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courier service) or may be sent by regular, certified or registered mail or U.S.
Postal Service Express Mail, with postage prepaid, or by facsimile transmission
during normal business hours, and shall be deemed sufficiently given if served
in a manner specified in this Paragraph 23. The addresses noted adjacent to a
Party's signature on this Lease shall be that Party's address for delivery or
mailing of notice purposes. Either Party may by written notice to the other
specify a different address for notice purposes, except that upon Lessee's
taking possession of the Premises, the Premises shall constitute Lessee's
address for the purpose of mailing or delivering notices to Lessee. A copy of
all notices required or permitted to be given to Lessor hereunder shall be
concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by written notice to Lessee.
23.2 Date of Notice. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown on
the receipt card, or if no delivery date is shown, the postmark thereon. If sent
by regular mail, the notice shall be deemed given forty-eight (48) hours after
the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that
guarantees next day delivery shall be deemed given twenty-four (24) hours after
delivery of the same to the United States Postal Service or courier. If any
notice is transmitted by facsimile transmission or similar means, the same shall
be deemed served or delivered upon telephone or facsimile confirmation of
receipt of the transmission thereof, provided a copy is also delivered via
delivery or mail. If notice is received on a Saturday or a Sunday or a legal
holiday, it shall be deemed received on the next business day.
24. Waivers. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any such act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any Default or Breach by Lessee of
any provision hereof. Any payment given Lessor by Lessee may be accepted by
Lessor on account of monies or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee in connection therewith which
such statements and/or conditions shall be of no force or effect whatsoever
unless specifically agreed to in writing by Lessor at or before the time of
deposit of such payment.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. No Right to Holdover. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease. In the event that Lessee holds over in violation of this Paragraph
26 then the Base Rent payable from and after the time of the expiration or
earlier termination of this Lease shall be increased to two hundred percent
(200%) of the Base Rent applicable during the month immediately preceding such
expiration or eariler termination. Nothing contained herein shall be construed
as a consent by Lessor to any holding over by Lessee.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. Covenants and Conditions. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. Binding Effect; Choice of Law. This Lease shall be binding upon the Parties,
their personal representatives, successors and assigns and be governed by the
laws of the state in which the Premises are located. Any litigation between the
Parties hereto concerning this Lease shall be initiated in the county in which
the Premises are located.
30. Subordination; Attornment; Non-Disturbance.
30.1 Subordination. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default pursuant
to Paragraph 13.5. If any Lender shall elect to have this Lease and/or any
Option granted hereby superior to the lien of its Security Device and shall give
written notice thereof to Lessee, this Lease and such Options shall be deemed
prior to such Security Device, notwithstanding the relative dates of the
documentation or recordation thereof.
30.2 Attornment. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one (1) month's rent.
30.3 Non-Disturbance. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
30.4 Self-Executing. The agreements contained in this Paragraph 30 shall
be effective without the execution of any further documents; provided, however,
that upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. Attorneys' Fees. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) in any such proceeding, action, or appeal thereon, shall be
entitled to reasonable attorneys' fees. Such fees may be awarded in the same
suit or recovered in a separate suit, whether or not such action or proceeding
is pursued to decision or judgment. The term "Prevailing Party" shall include,
without
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limitation, a Party or Broker who substantially obtains or defeats the relief
sought, as the case may be, whether by compromise, settlement, judgment, or the
abandonment by the other Party or Broker of its claim or defense. The attorneys'
fee award shall not be computed in accordance with any court fee schedule, but
shall be such as to fully reimburse all attorneys' fees reasonably incurred.
Lessor shall be entitled to attorneys' fees, costs and expenses incurred in
preparation and service of notices of Default and consultations in connection
therewith, whether or not a legal action is subsequently commenced in connection
with such Default or resulting Breach. Broker(s) shall be intended third party
beneficiaries of this Paragraph 31.
32. Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents shall
have the right to enter the Premises at any time, in the case of an emergency
for only the limited purpose of admitting fire, police or other public safety
officals on the Premies, and otherwise at reasonable times upon three (3)
business days advance written notice for the purpose of showing the same to
prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the Building, as Lessor
may reasonably deem necessary provided that same shall be done in a manner that
does not unreasonably interfere with the conduct of Lessee's business. Lessor
may at any time place on or about the Premises or Building any ordinary "For
Sale" signs and Lessor may at any time during the last sixty (60) days of the
term hereof place on or about the Premises any ordinary "For Lease" signs. All
such activities of Lessor shall be without abatement of Rent or liability to
Lessee.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. Signs. Lessee shall not place any sign upon the exterior of the Premises or
the Building, except that Lessee may, with Lessor's prior written consent,
install (but not on the roof) such signs as are reasonably required to advertise
Lessee's own business so long as such signs are in a location designated by
Lessor and comply with Applicable Requirements and the signage criteria
established for the Industrial Center by Lessor. The installation of any sign on
the Premises by or for Lessee shall be subject to the provisions of Paragraph 7
(Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations).
Unless otherwise expressly agreed herein, Lessor reserves all rights to the use
of the roof of the Building, and the right to install advertising signs on the
Building, including the roof, which do not unreasonably interfere with the
conduct of Lessee's business; Lessor shall be entitled to all revenues from such
advertising signs.
35. Termination; Merger. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. Consents.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise
provided herein, wherever in this Lease the consent of a Party is required to an
act by or for the other Party, such consent shall not be unreasonably withheld
or delayed. Lessor's actual reasonable costs and expenses (including, but not
limited to, architects', attorneys', engineers' and other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including, but not
limited to, consents to an assignment, a subletting or the presence or use of a
Hazardous Substance, shall be paid by Lessee to Lessor upon receipt of an
invoice and supporting documentation therefor. In addition to the deposit
described in Paragraph 12.2(e), Lessor may, as a condition to considering any
such request by Lessee, require that Lessee deposit with Lessor an amount of
money (in addition to the Security Deposit held under Paragraph 5) reasonably
calculated by Lessor to represent the cost Lessor will incur in considering and
responding to Lessee's request. Any unused portion of said deposit shall be
refunded to Lessee without interest. Lessor's consent to any act, assignment of
this Lease or subletting of the Premises by Lessee shall not constitute an
acknowiedgment that no Default or Breach by Lessee of this Lease exists, nor
shall such consent be deemed a waiver of any then existing Default or Breach,
except as may be otherwise specifically stated in writing by Lessor at the time
of such consent.
(b) All conditions to Lessor's consent authorized by this
Lease are acknowledged by Lessee as being reasonable. The failure to specify
herein any particular condition to Lessor's consent shall not preclude the
impositions by Lessor at the time of consent of such further or other conditions
as are then reasonable with reference to the particular matter for which consent
is being given.
37. Guarantor.
37.1 Form of Guaranty. If there are to be any Guarantors of this Lease
per Paragraph 1.11, the form of the guaranty to be executed by each such
Guarantor shall be in the form most recently published by the American
Industrial Real Estate Association, and each such Guarantor shall have the same
obligations as Lessee under this Lease, including, but not limited to, the
obligation to provide the Tenancy Statement and information required in
Paragraph 16.
37.2 Additional Obligations of Guarantor. It shall constitute a Default
of the Lessee under this Lease if any such Guarantor fails or refuses, upon
reasonable request by Lessor to give: (a) evidence of the due execution of the
guaranty called for by this Lease, including the authority of the Guarantor (and
of the party signing on Guarantor's behalf) to obligate such Guarantor on said
guaranty, and resolution of its board of directors authorizing the making of
such guaranty, together with a certificate of incumbency showing the signatures
of the persons authorized to sign on its behalf, (b) current financial
statements of Guarantor as may from time to time be requested by Lessor, (c) a
Tenancy Statement, or (d) written confirmation that the guaranty is still in
effect.
38. Quiet Possession. Upon payment by Lessee of the Rent for the Premises and
the performance of all of the covenants, conditions and provisions on Lessee's
part to be observed and performed under this Lease, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease.
39. Options. [Also See Paragraph 57)
39.1 Definition. As used in this Lease, the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises,
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or the right of first refusal to purchase the Premises, or the right of first
offer to purchase the Premises, or the right to purchase other property of
Lessor, or the right of first refusal to purchase other property of Lessor, or
the right of first offer to purchase other property of Lessor.
39.3 Multiple Options. In the event that Lessee has any multiple Options
to extend or renew this Lease, a later option cannot be exercised unless the
prior Options to extend or renew this Lease have been validly exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary: (i) during
the period commencing with the giving of any notice of Default under Paragraph
13.1 and continuing until the noticed Default is cured, or (ii) during the
period of time any monetary obligation due Lessor from Lessee is unpaid (without
regard to whether notice thereof is given Lessee), or (iii) during the time
Lessee is in Breach of this Lease, or (iv) in the event that Lessor has given to
Lessee three (3) or more notices of separate Default under Paragraph 13.1 during
the twelve (12) month period immediately preceding the exercise of the Option,
whether or not the Defaults are cured.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option
shall terminate and be of no further force or effect, notwithstanding Lessee's
due and timely exercise of the Option, if, after such exercise and during the
term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of
Lessee for a period of thirty (30) days after such obligation becomes due
(without any necessity of Lessor to give notice thereof to Lessee), or (ii)
Lessor gives to Lessee three (3) or more notices of separate Defaults under
Paragraph 13.1 during any twelve (12) month period, whether or not the Defaults
are cured, or (iii) if Lessee commits a Breach of this Lease.
40. Rules and Regulations. Lessee agrees that it will abide by, and keep and
observe all reasonable rules and regulations ("Rules and Regulations") which
Lessor may make from time to time for the management, safety, care, and
cleanliness of the grounds, the parking and unloading of vehicles and the
preservation of good order, as well as for the convenience of other occupants or
tenants of the Building and the Industrial Center and their invitees.
41. Security Measures. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. Reservations. Lessor reserves the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights of way, utility
raceways, and dedications that Lessor deems necessary, and to cause the
recordation of parcel maps and restrictions, so long as such easements, rights
of way, utility raceways, dedications, maps and restrictions do not unreasonably
interfere with the use of the Premises by Lessee. Lessee agrees to sign any
documents reasonably requested by Lessor to effectuate any such easement rights,
dedication, map or restrictions.
43. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. Authority. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. Conflict. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. Offer. Preparation of this Lease by either Lessor or Lessee or Lessor's
agent or Lessee's agent and submission of same to Lessee or Lessor shall not be
deemed an offer to lease. This Lease is not intended to be binding until
executed and delivered by all Parties hereto.
47. Amendments. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. The Parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional insurance company or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. Multiple Parties. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
49. Broker Status Acknowledgement: Lessee acknowledges that it has been informed
that one or more of the partners of Lessor is/are licensed California real
estate brokers.
50. Monthly Status Rent and Adjustment: Notwitstanding anything in this Lease
to the contrary the Monthly Base Rent payable hereunder for the period of
December 1, 1999 through March 31, 2000 shall be ONE THOUSAND DOLLARS
($1,000.00). The Monthly Base Rent for the Period of April 1, 2000 through March
31, 2001 shall be TWO
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THOUSAND NINE HUNDRED EIGHTY DOLLARS ($2,980.00). On April 1, 2001 and on each
April 1st thereafter ("Rent Adjustment Date"), including each April 1st during
any option period, the Monthly Base Rent payable hereunder shall be increased,
but not decreased, to an amount which is determined by multiplying $2,980.00
times a fraction, the numerator of which is the Consumer Price Index All Urban
Consumers, All Items (1984=100) for the San Franclsco/Oakland/San Jose Region
("CPI") for the month of February Immediately preceding the Rent Adjustment Date
and the denominator of which is the CPI for the month of February 2000. In no
event, however, shall the rent increase on any Rent Adjustment Date result in
the new Monthly Base Rent being less than l02% nor more than 104% of the Monthly
Base Rent payable immediately prior to such Rent Adjustment Date.
Should publication of the CPI be discontinued for any reason, Lessor and Lessee
shall immediately agree upon a replacement index which measures the general
inflation rate for the area in which the Premises are located.
Lessor and Lessee mutually agree that the $l,000.00 per month Base Rent payable
during the period of December 1999 through March 2000 shall not constitute an
"Inducement Provision" as such term is used in Paragraph 13.3 of this Lease.
51. Parking Spaces: Lessor hereby grants Lessee the exclusive right to use the
three (3) parking spaces at the rear of the building in which the Premises are
located (closest to N Street) and agrees that Lessee may mark throughout the
term of the Lease such spaces as reserved for Lessee's exclusive use. Lessor
also grants Lessee the right, throughout the term of the Lease, to paint the end
of stall curb for the six spaces closest to "N" Street which are located
immediately in front of the Premises green and stencil same as "30 Minute
Parking." In consideration of the reserved parking granted to Lessee and
Lessee's right to mark spaces in the Retail/Office Center as "30 Minute
Parking," Lessee covenants that it shall take all reasonable steps to ensure
that its employees do not park their vehicles in the Retail/Office Center's
parking lot (other than in Lessee's three (3) reserved spaces).
52. Assignment: Notwithstanding anything in the Lease to the contrary, Lessee
shall have the unfettered right to assign its rights under this Lease, including
the right to exercise any options to extend/renew contained herein, to any
financial institution regulated by state and/or federal agencies without having
to obtain any form of approval or payment of any type of fee to Lessor or its
agents. This right shall include the right to assign the Lease to a financial
institution with which Lessee may merge or consolidate, to any parent or
subsidiary of Lessee or subsidiary of Lessee's parent corporation, or to a
purchaser of substantially all of Lessee's assets.
53. Interior Alterations: Lessee may make such alterations as Lessee may elect
to the interior of the Premises in order to make same suitable in Lessee's sole
opinion for Lessee's intended use of the Premises. Lessee shall have no
obiligation to remove any of its interior improvements or otherwise restore the
Premises upon the expiration of the Lease excepting only that Lessee shall, at
Lessee's sole cost and expense, remove its Trade Fixtures (including safes,
vaults, automated teller machines) and repair any damage occasioned by such
removal. Lessee shall not undertake any demolition or modification of the
existing improvements at the Premises or construct any improvements at the
Premises prior to the earlier of (a) April 1, 2000; or (b) Lessee's written
waiver of its right to terminate the Lease as provided in Paragraph 56 below.
54. Exterior Improvements: Lessor acknowledges and consents to Lessee's
installation and operation of an automated teller machine ("ATM") which may be
accessible from the exterior of the Premises. Lessor also hereby consents,
subject to approval of the City of Benicia, to Lessee's remodeling of the front
exterior facade of the Premises, including the relocation of the Premises entry
door provided, however, that such facade remodeling shall utilize substantially
the same materials as presently exist, shall be painted to match and shall not
result in more than a 25% reduction in the glass area facing East 2nd Street.
Upon the expiration or termination of the Lease, Lessee shall not be required to
restore such front facade to its original condition but shall remove any ATM and
replace same with matching wall or glazing. Lessee shall not undertake any
improvement or modification of the exterior of the Premises until the earlier of
(a) April 1, 2000; or (b) Lessee's written waiver of its right to terminate the
Lease as provided in Paragraph 56 below.
55. Tenant Applications: Lessor covenants that it will fully co-operate with
Lessee In obtaining all appropriate governmental approvals of the improvements
that Lessee wishes to make to the interior and exterior of the Premises. Lessor
agrees to execute all applications and similar documents as are required to be
executed by the property owner in order to facilitate Lessee's obtaining such
governmental approvals provided, however, that Lessor shall incur no costs in
such regard nor shall Lessor obligate itself to construct any improvements as a
result of such applications and/or other documents.
56. Lessee's Right to Terminate: By written notice to Lessor delivered not later
than February 29, 2000, Lessee shall have the right to terminate this Lease
effective on the date set forth in such notice (but in no event later than
February 29, 2000) if Lessee has been unable for any reason to obtain all
governmental approvals it requires to operate a banking facility in the
Premises. Rents shall be pro rated as of such termination date. Upon such
termination date Lessee shall return all keys to Lessor and Lessor shall return
Lessee's Security Deposit and thereafter neither party shall have any rights or
obligations to the other party under this Lease.
57. Options to Extend: Lessor hereby grants Lessee three (3) consecutIve 60
month options to extend the term of this Lease. The first Option Period shall be
from April 1, 2005, through March 31, 2010, the second Option Period shall be
from April 1, 2010 through March 31, 2015 and the Third Option Period shall be
from April 1, 2015 through March 31, 2020. All terms and conditions of this
Lease shall apply during each Option Period and the Monthly Base Rent payable
during each Option Period shall be governed by the provisions of Paragraph 50
above. Lessee may exercise its right to extend the term of this Lease for each
Option Period only by delivery of written notice of such election to Lessor not
less than ninety (90) days prior to the commencement of the applicable Option
Period.
58. Exclusive Use of ATM: As a material inducement to Lessee to enter into this
Lease, Lessor hereby grants Lessee the exclusive right within the Industrial
Center (a) to install and operate any form of automated teller machine or
similar device which dispenses currency to its user, and (b) to operate a bank.
Lessor covenants for the term of this Lease, including any extended terms, that
it shall not permit any other tenant to operate a bank, savings and loan
association, credit union or other financial institution within the Industrial
Center.
59. Tenant Improvement Allowance: Provided that Lessee does not terminate this
Lease in accorance with Paragraph 56 above, Lessor shall grant Lessee a tenant
improvement/demolition allowance of TWENTY THOUSAND DOLLARS ($20,000.00). Such
tenant improvement/demoilition allowance shall be paid to Lessee in five (5)
equal installments, the first of which shall be due and payable upon
commencement of Lessee's demolition of existing improvements within the
Premises. The remaining four installment payments shall be due and payable each
15 days after Lessee commences such demolition of existing improvements at the
Premises.
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60. Brokerage Fee: The brokerage fee payable by Lessor to Spectrum Properties in
accordance with Paragraph 15 above shall be due and payable if, and only if,
Lessee does not terminate this Lease in accordance with Paragraph 56 above. Such
brokerage fee shall be fully due and payable on March 1, 2000.
61. Lessee's Share of Common Area Expenses: Throughout the term of this Lease,
including any options or other extensions hereof, Lessee's share of Common Area
Expenses shall be fixed in accordance with this Paragraph notwithstanding the
actual Common Area Expenses of the Industrial Center.
For the period of December 1999 through March 2000 Lessee's Common Area Expenses
shall be zero ($0). For the period of April 2000 through March 2001, Lessee's
Common Area Expenses shall be Seven Hundred Twenty ($720.00) per month. On April
1, 2001 and on each succeeding April 1st, Lessee's Common Area Expense
obligation shall be adjusted to reflect changes in the Consumer Price Index in
accordance with the provisions of Paragraph 50 above.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR YOUR ATTORNEY'S
REVIEW AND APPROVAL. FURTHER EXPERTS SHOULD BE CONSULTED TO EVALUATE THE
CONDITION OF THE PROPERTY FOR THE POSSIBLE PRESENCE OF ASBESTOS,
UNDERGROUND STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
OR BY THE REAL ESTATE BROKERS OR THEIR CONTRACTORS, AGENTS OR EMPLOYEES AS
TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE
OR THE TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON
THE ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF
THIS LEASE. IF THE SUBJECT PROPERTY IS IN A STATE OTHER THAN CALIFORNIA, AN
ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED.
The Parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
Executed at: Fairfield, CA Executed at: San Rafael, CA
--------------------------- --------------------------
on: October , 1999 on: October , 1999
------------------------------------ ----------------------------------
By LESSOR: By LESSEE:
Davies Partners II, a California limited North Bay Bancorp, a California
- ---------------------------------------- --------------------------------------
partnership coporation
- ---------------------------------------- --------------------------------------
By: /s/ Robert Braghetta By: /s/ Terry L. Robinson
------------------------------------- -----------------------------------
Name Printed: Robert Braghetta Name Printed; Terry L. Robinson
--------------------------- ------------------------
Title: General Partner Title: Chief Executive Officer
--------------------------------- --------------------------------
By: /s/ Robert Braghetta By:
------------------------------------- ----------------------------------
Name Printed: Name Printed:
--------------------------- -------------------------
Title: Title:
---------------------------------- --------------------------------
Address: 49 Mt. Whitney Drive, Address:
------------------------------- ------------------------------
San Rafael, CA 94903
- ---------------------------------------- --------------------------------------
Telephone: (415) 472-9000 Telephone: (707)
----------------------------- ----------------------------
Facsimile: (415) 472-9001 Facsimile: (707)
----------------------------- ----------------------------
BROKER: BROKER:
Executed at: Not Applicable Executed at: Fairfield, CA
--------------------------- ------------------------
on: Not Applicable on: October __, 1999
------------------------------------ ----------------------------------
By: By: /s/ Bruce L. Bishop
------------------------------------- ----------------------------------
MULTI-TENANT - MODIFIED NET
(c)1993 - American Industrial Real Estate Association
Page 18 of 19
REVISED Form MTN-1-6/93E
<PAGE>
Name Printed: None Name Printed: Spectrum Properties None
-------------------------- --------------------------
Title: Title: President
--------------------------------- ---------------------------------
Address: Address: 785 Alamo Drive #110,
------------------------------- -------------------------------
Vacaville, CA 95688
- --------------------------------------- ---------------------------------------
Telephone: ( ) Telephone:(707) 447-6l22
----------------------------- -----------------------------
Facsimile: ( ) Facsimile: (707) 447-6136
----------------------------- -----------------------------
NOTE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are
utilizing the most current form; AMERICAN INDUSTRIAL REAL ESTATE
ASSOCIATION, 700 South Flower Street, Suite 600, Los Angeles, California
90017. (213) 687-8777.
MULTI-TENANT - MODIFIED NET
(c)1993 - American Industrial Real Estate Association
Page 19 of 19
REVISED Form MTN-1-6/93E
<PAGE>
EXHIBIT "C"
We hereby certify this to be a true and
correct copy of the original document
Recording Requested By recorded September 4, 1997 in Book
and when recorded return to: _________________ page Series 97-57528
Solano County Official Records.
Vacaville Redevelopment Agency
40 Eldridge Avenue, Suite 1-5
Vacaville, California 95688 First American Title Guaranty Company
by: /s/ ???????
-----------------------------------
DECLARATION OF
RECIPROCAL EASEMENTS,
COVENANTS, CONDITIONS AND RESTRICTIONS
FOR
BASIC AMERICAN FOODS SITE
August 27, 1997
This Declaration of Reciprocal Easements, Covenants, Conditions and
Restrictions (this "Declaration") is made this day of August 27, 1997, by the
VACAVILLE REDEVELOPMENT AGENCY, a public body corporate and politic ("Agency").
RECITALS
A. Agency owns certain real property generally located on the north side
of Interstate 80 freeway and bounded by Davis Street, Mason Street, Interstate
80, and the Depot Street on/off ramps to the freeway in Vacaville, California
more particularly described as Parcels 1 through 6 ("Parcels") on Exhibit A,
attached hereto;
B. Agency intends by this Declaration to impose reciprocal access,
parking, utility and drainage easements with respect to the Parcels;
C. Agency further intends by this Declaration to impose upon the Parcels
mutually beneficial restrictions under a general plan of improvement for the
benefit of all of the Parcels;
D. Agency will hereafter hold and convey title to all of the Parcels
subject to the easements, covenants, conditions and restrictions hereafter set
forth.
1
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<PAGE>
NOW, THEREFORE, the Agency declares that the Parcels shall be owned,
sold, leased, mortgaged, encumbered, rented, developed, improved, conveyed,
graded, landscaped, maintained, repaired, occupied and used subject to the
uniform covenants, conditions, restrictions, easements, rights, rights-of-way,
liens, charges, and other protective and beneficial provisions set forth in this
Declaration, each and all of which:
(i) are hereby expressly imposed upon and against each Parcel
as mutual, beneficial, and equitable servitudes in favor of and for the mutual
use and benefit of the other Parcels, the Agency and all subsequent Owners (as
defined below) of the Parcels or any part thereof;
(ii) are hereby expressly declared to be binding upon the
Parcels, the Agency and upon all subsequent Owners of the Parcels or any part
thereof; and
(iii) shall run with the land and each and every part thereof,
inuring to the benefit of and being a burden upon the Parcels and shall bind the
respective Owners of the Parcels. Upon recordation of this Declaration, any
conveyance, sale, hypothecation, assignment, lease or other transfer made by the
Agency or an Owner shall be and hereby is deemed to incorporate by reference the
provisions of this Declaration, as the same may be amended from time to time.
The covenants contained herein shall be covenants running with the land pursuant
to applicable law, including, but not limited to, Section 1468 of the California
Civil Code.
In consideration of the foregoing, the Agency declares as follows:
ARTICLE 1. DEFINITIONS
Unless the context clearly indicates otherwise, the following terms used
in this Declaration are defined as follows:
Section 1.1 "Access and Parking" shall mean and be deemed to include and
permit the following:
(a) The parking of passenger vehicles and the pedestrian and
vehicular traffic of the Owners and their Permitees, in conjunction with use of
any and all portions of Building Areas within the Parcels;
(b) The ingress and egress of any of the Owners or Permitees
and the vehicles thereof, to any and from any portion of the Common Area and the
Building Area and public streets adjacent to the Common Area;
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(c) The movement of pedestrians and passenger vehicles between
mercantile, business and professional establishments and occupants located or to
be located within the Building Areas;
(d) Subject to Section 2.2, the construction, maintenance,
repair, replacement, rearrangement and reconstruction in the Common Area of
parking sites or stalls, including wheel stops, sidewalks, landscaping, ramps,
driveways, lanes, curbs, gutters, traffic control areas, signals, directional
signs, traffic and parking, lighting, facilities and other similar improvements
and facilities; and
(e) The ingress and egress of delivery and service trucks and
vehicles to and from Building Areas or any portion thereof and the public
streets adjacent to the Parcels for the delivery of goods, wares or merchandise
and the rendering of services to the Owners and their respective Permitees.
Other than in designated loading areas, the Common Area shall not at any time be
used for the parking of trucks, or the loading or unloading thereof, except for
the temporary parking, loading or unloading of trucks during and in connection
with the construction or demolition of buildings upon a Building Area, the
servicing and supplying of a Building Area which cannot be reasonably serviced
and supplied from areas designated as loading areas, the delivery or removal of
trade fixtures (including signs) or the construction, repair or maintenance of
parking area and improvements and facilities herein permitted, upon the
condition, however, that any such use shall be confined to that which is
reasonably necessary in connection with the matters herein specified and shall
be diligently and promptly performed.
Section 1.2 "Agency" shall mean the Vacaville Redevelopment Agency.
Section 1.3 "Association" shall mean the association of Owners formed
pursuant to the provisions of Article 12.
Section 1.4 "Building Areas" shall mean those portions of the Parcels
on which structures are located, as determined in accordance with Section 2.1.4.
Section 1.5 "Building Improvements" shall mean structures located
within Building Areas.
Section 1.6 "City" shall mean the City of Vacaville, a municipal
corporation.
Section 1.7 "Common Areas" shall mean the landscaping areas, driveways,
access and parking areas and associated improvements (including landscaping in
the area owned by the State of California that is between an Owner's Parcel and
Interstate 80) constructed by an Owner in accordance with plans
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and specifications approved by City and by the Agency so long as Agency has any
direct or indirect interest in any Parcel, which are used for landscaping,
access and parking, as and when the Common Area Improvements for a Parcel are
actually constructed, as determined in accordance with Section 2.1.4.
Section 1.8 "Common Area Expenses" shall mean all of the costs and
expenses incurred for operation, control, repair and maintenance of the Common
Areas, including, without limitation, Common Area Improvements, and Common
Utility Facilities which shall be operated, controlled, repaired and maintained
at the sole expense of the Owner of the Parcel on which such Common Area, Common
Area Improvement or Common Utility Facility, or portion thereof, is located.
Section 1.9 "Common Area Improvements" shall mean the landscaping,
parking, lighting, and vehicular, pedestrian access ways and any other
improvements located or to be located within, over and across or on the Common
Areas.
Section 1.10 "Common Utility Facilities" shall mean underground and
above ground utility facilities for drainage, storm sewers, detention/retention
facilities, joint trench and water lines, and pumping facilities, fire hydrants
or other fire protection installations (including those between the Parcels) and
the lines or facilities of the governmental body or public utility providing
storm drainage and fire protection (excluding however, laterals within five (5)
feet of any building servicing only such building and located entirely on the
Parcel on which said building is located) and underground facilities for
electricity, gas, telephone, telecommunications or other utilities.
Section 1.11 "Direct or Indirect Interest" shall mean the following real
estate interests: fee title, a leasehold interest either as lessee or lessor or
a security interest as mortgagee, or an interest as an equity holder in any
entity possessing such a real estate interest.
Section 1.12 "Mortgage" shall mean any duly recorded mortgage or deed of
trust encumbering a Parcel or portion thereof.
Section 1.13 "Mortgagee" shall mean the mortgagee or beneficiary under
any Mortgage.
Section 1.14 "Owner" shall mean the record owner of fee simple title to
all or any part of a Parcel, and its successors and assigns. If the ownership of
any buildings or other improvements or any portion thereof shall ever be
separated from the land, whether by lease or by deed, the owner(s) of the
interest in the land and not such buildings or other improvements
4
<PAGE>
or portion thereof shall be deemed an Owner hereunder. A landlord and tenant may
agree upon a different method of allocating duties imposed upon a Parcel which
agreement shall be controlling as to said Owner and tenant but not as to the
Owners of the other Parcels.
Section 1.15 "Owners" shall mean collectively all Owners of all Parcels
or parts thereof.
Section 1.16 "Parcel Map" shall mean that certain Parcel Map, dated
July, 1997 and recorded by City in the Official Records of Solano County,
California, on 9/4, 1997 as Book 40 **Instrument No. 97-57527 legally describing
the Parcels.
*of Parcel Maps, Page 66,**
Section 1.17 "Permittee" shall mean an Owner, any tenant or other lawful
occupant of a Parcel, and officers, directors, employees, contractors,
customers, clients, vendors, suppliers, visitors or concessionaires of an Owner,
tenant or other lawful occupant of a Parcel.
Section 1.18 "Policy Plan" shall mean the Basic American Foods Site
Policy Plan, dated January 1996 and adopted by the City. The Policy Plan as it
currently exists or as it may be amended from time to time shall be deemed
incorporated in this Declaration by this reference.
Section 1.19 "Services and Activities" shall mean and be deemed to
include and permit the following:
(a) The installation, maintenance, repair, replacement and
operation, within the confines of the Common Area, of private and/or public
utilities, including without limitation gas lines, water lines, fire protection
systems, electrical lines and telephone and telecommunications lines, and
sewage, storm water and drainage facilities serving Building Areas, together
with and including vaults, manholes, meters, pipelines, grease interceptors,
valves, hydrants, sprinkler controls, conduits and related facilities, all of
which shall be even with or below the surface, except hydrants, transformers,
risers and other facilities which by their nature must be installed, maintained
or operated above ground; provided, however, that any poles or other
above-surface installations shall be located so that there shall be an unimpeded
access for vehicles and trucks to and from the public streets from and to the
loading areas of any Building Area, and all crossarms and pole racks and the
like attached thereto shall be in compliance with all applicable laws;
(b) The provision of other facilities such as mailboxes,
public telephones and benches for the comfort and convenience of customers,
visitors, invitees, licensees, and patrons of the mercantile, business and
professional establishments and occupants located or to be located upon the
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Building Areas or any portion thereof, provided that the foregoing shall be
located on sidewalks or in landscaping areas abutting Building Improvements and
installed in accordance with the approval of the governmental agencies having
jurisdiction over the Parcel and in compliance with all applicable laws and
regulations;
(c) Subject to Section 2.2, the installation, maintenance,
repair, replacement and operation of truck loading and unloading areas including
ramps, docks and similar facilities; trash, refuse and garbage container storage
areas; and other incidental and related facilities; provided that the foregoing
shall be located and installed in accordance with the approval of the
governmental agencies having jurisdiction over the Parcel, and in compliance
with the Policy Plan and all applicable laws and regulations;
(d) The construction, maintenance and repair of monument signs
installed or erected in accordance with the Policy Plan and/or an approved
Planned Sign Program and all other applicable sign laws and regulations, subject
to the approval of City; and
(e) The construction, maintenance, repair, replacement and
operation of any landscaped area including plants, planting boxes, edges,
decorative walls or sculpture, and sprinklers and valves.
Section 1.20 "Substantially Complete" shall mean that an improvement has
been constructed to the point where it can be used for the purpose intended
although there may be minor adjustments or work to be completed that do not
interfere with the intended use or constitutes a public health or safety issue
as determined by any public agency having jurisdiction over said public health
or safety issue.
ARTICLE 2. COMMON AREAS
Section 2.1 Easements.
2.1.1 Access and Parking. Each Owner shall have reciprocal
non-exclusive easements appurtenant to each Parcel over the Common Area of each
Parcel for Access and Parking for the Owner and its Permitees, except as set out
in Section 2.1.7 below. The Access and Parking easements on any Parcel shall be
effective as of the date the Common Area Improvements for such parcel are first
Substantially Complete.
2.1.2 Utilities. Each Owner shall have the nonexclusive and
perpetual right and reciprocal easement to install, maintain, repair, and
replace the Common Utility
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Facilities, within and upon the Common Area, together with such temporary
construction and access easements as are reasonably necessary to permit the
foregoing activities. Owners will use reasonable efforts to cause the
installation of such utility and service lines prior to paving of the Common
Areas. No such lines, sewers, utilities or services of one party shall be
installed within the Building Areas or under accessory buildings on any other
Owner's Parcel. If any Owner desires to install a Common Utility Facility on
another Owner's Parcel, the Owner so desiring shall obtain the consent of the
other Owner, which consent shall not be unreasonably withheld. If the Common
Area has not been designated on a Parcel at the time an Owner desires to install
Common Utility Facilities on that Parcel, the Owner of the Parcel on which the
Common Utilities Facilities are to be located shall designate the portion of the
Parcel that is reasonably expected to be Common Area and the Common Utility
Facilities shall be installed in that area. Subject to obtaining necessary
approval(s), if any, of any public agency, any Owner upon whose Parcel any
Common Utility Facilities shall have been installed shall have the right, upon
sixty (60) days prior notice to the other Owners serviced by said Common Utility
Facilities, at any time or from time to time, to move and relocate such
facilities to such place on its Parcel as it shall designate, provided, however,
that such relocation shall be made at the sole cost and expense of the Owner
requesting such relocation and shall not substantially interfere with or
increase the cost of any other users' utility service, or unreasonably interfere
with the conduct or operation of another Owner's business or cause any damage to
another Owner's Parcel. To the greatest extent possible, the Owners shall
install Common Utility Facilities in a manner that will permit the separate
metering of all utilities to an Owner's Parcel, including without limitation,
utilities serving the Common Areas located on such Parcel.
2.1.3 Drainage. Any alteration in the natural water drainage
flow which may occur as a consequence of normal construction activities and the
existence of the improvements contemplated by the site plans approved by the
City from time to time shall be permitted. Each Owner shall have reciprocal,
nonexclusive easements over and across the Common Areas to grade, establish, and
maintain drainage patterns. This easement shall not permit drainage flow which
materially adversely affects an Owner's use of its Parcel. All grading shall be
done pursuant to plans and specifications approved by City and the Agency, so
long as the Agency has any direct or indirect interest in a Parcel.
2.1.4 Locations. The location of the Building Areas and Common
Areas on a Parcel shall be as shown on the plans and specifications for the
construction of any improvement on a Parcel, which plans and specifications
shall be approved by City and the Agency so long as the Agency has any direct or
indirect interest in a Parcel. There must be sufficient Common Area on a
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parcel to provide parking in the ratios required by Section 2.2.3.
2.1.5 Easements Appurtenant to the Parcels. Easements that
benefit or burden any Parcel shall be appurtenant to that Parcel and shall
automatically accompany the conveyance of the Parcel, even though the
description in the instrument of conveyance may refer only to the fee title to
the Parcel.
2.1.6 Right to Repair. The reciprocal easements granted herein
shall include the right of the Owner to any Parcel, but not the obligation, to
construct, reconstruct, maintain, repair and replace any Common Area
Improvements and/or Common Utility Facilities on any other Parcel in accordance
with Section 2.4.3.
2.1.7 Effectiveness of the Easements. The Parcels are not
developed as of the date of this Declaration. As a result, the Parking and
Access easements will not be effective as to a Parcel until the Common Area
Improvements are first constructed on such Parcel. The Owner of a Parcel shall
be obligated to construct or cause the construction of the Common Area
Improvements to be located on such Parcel, as shown on the plans and
specifications for such improvements approved in accordance with this
Declaration, and as further provided in Section 2.2.5 at the time it first
constructs Building Improvements on the Parcel.
2.1.8 Interim Access. Prior to the construction of the Common
Area Improvements on a Parcel, each Owner shall have an access easement over
that Parcel so as to provide access from the public streets to the Owner's
Parcel.
Section 2.2 Use of Common Area.
2.2.1 General. The Common Area shall be used for Access and Parking and
for Services, and Activities and for no other purposes except those specifically
described herein, without the prior written consent of City, the Agency so long
as the Agency has any direct or indirect interest in a Parcel, and the Owners of
the Parcels. The Common Area shall be used in compliance with all applicable
laws including, without limitation, all laws relating to environmental matters,
and in compliance with all rules and regulations promulgated pursuant to Section
2.4.2. All the Services and Activities permitted within the Common Area shall be
performed with reason and judgment so as not to create a nuisance or to
unreasonably interfere with other uses of the Common Area including the serving
and supplying of the loading areas of the Building Areas. All of the activity
permitted within the Common Areas including the construction and maintenance of
improvements located thereon, shall be reasonably conducted so construction and
maintenance of improvements located
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thereon, shall be reasonably conducted so as not to interfere, in any material
respect, with the primary purpose to the Common Areas which is to provide
parking for the visitors, customers, invitees and employees of those businesses
located within the Building Improvements on the Parcels and for the servicing
and supplying of such businesses.
2.2.2 Standard of Operations. Each Owner shall keep, maintain,
repair, manage and operate their respective Parcels and buildings, whether
occupied or unoccupied, located thereon in compliance with all applicable laws
and in good and clean order, operation, condition and repair in conformity with
first-class standards for retail projects, in such a manner as to establish,
maintain and present, at all times, the appearance of a clean, well-painted,
well-managed, attractive, and well-coordinated operation. In addition, at any
time when a Parcel has not been improved, the Owner thereof shall at such
Owner's sole cost and expense, keep the unimproved Parcel in a neat and orderly
condition and clear of all trash.
2.2.3 Parking. Parking ratios for each Parcel shall at all
times comply with all applicable legal requirements as specified in the Policy
Plan and as approved by the City. No changes in the number of parking spaces, or
in the configuration of the Common Area from that shown on the approved plans
and specifications for a Parcel shall be made without the prior written consent
of the City, the Agency so long as the Agency has any direct or indirect
interest in a Parcel, and of the Owners of the Parcels. The approval of the
Owners shall not be unreasonably withheld.
2.2.4 Fees for Use of the Common Area. Except as provided in
Section 2.2.6, persons using the Common Areas in accordance with this
Declaration shall not be charged any fee for such use unless such fee is imposed
by a governmental entity with jurisdiction over the Parcel or improvements
thereon.
2.2.5 Construction of Common Area Improvements. Each Owner
whose Parcel does not as of the date hereof have improvements in the Building
Area on such Parcel shall construct, at such Owner's sole cost and expense, the
Common Area Improvements shown on the plans and specifications for such Parcel,
approved in accordance with this Declaration, at such time as the Building
Improvements to be located in the Building Areas are constructed. No Owner shall
be obligated to construct Common Area Improvements unless and until such Owner
constructs Building Improvements within the Building Area. All Common Area
Improvements shall be constructed in accordance with plans and specifications
approved by City, the Agency so long as the Agency has any direct or indirect
interest in the Parcels, and by the Owners of the Parcels. Approval by the
Agency or an Owner shall not be unreasonably withheld.
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2.2.6 Parking Charges. No system of charges or validation for
parking in the Common Area shall be instituted unless the system is approved by
all the Owners and is either necessary to prevent use of the Common Area parking
facilities by persons other than Permitees or results in increased parking
efficiency provided the cost thereof does not exceed the benefit derived
therefrom.
2.2.7 Pylon Signs. The Owner of Parcel 1 intends to construct a
pylon sign as part of the Common Area Improvements on its Parcel in order to
identify the theater to be developed on that parcel. At least sixty (60) but not
more than one hundred eighty (180) days prior to the date the Owner of Parcel 1
intends to commence construction of that pylon sign, that Owner shall offer to
the other Owners the reasonable opportunity to have use of advertising space on
the pylon sign on reasonable terms that assure that each participating Owner is
paying a fair share of the cost of constructing and maintaining the pylon sign.
Section 2.3 Maintenance
2.3.1 Standards. The Owners shall maintain the Common Area,
Common Area Improvements, and Common Utility Facilities in a first-class
condition and repair. The maintenance is to conform `in type, quantity and
quality to the design and specifications previously approved for such Common
Area Improvement in accordance with this Declaration, and shall include, without
limitations, the following:
2.3.1.1 Maintaining the paved surfaces and striping and
wheel stops in a level, smooth and evenly covered condition with the type of
surfacing material originally installed or such substitute as shall in all
material respects be substantially equivalent to the original with respect to
function and durability;
2.3.1.2 Removing all papers, mud and sand, debris, filth
and refuse and sweeping or blowing the Common Areas to the extent reasonably
necessary to keep the Common Areas in a clean and orderly condition; provided
that each Owner shall contain all trash within suitable enclosures, shall keep
such enclosures free of debris and grease, shall obtain trash removal services
adequate for the uses of the improvements located on such Owner's Parcel, and
shall take all reasonable steps at such Owner's cost to limit refuse in the
Building Areas and the Common Areas
2.3.1.3 Placing, keeping in repair and replacing any
necessary and appropriate directional signs, markers and lines;
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2.3.1.4 Operating, keeping in repair and replacing, where
necessary, such artificial lighting facilities as shall be reasonably required;
2.3.1.5 Installing and maintaining the landscaping and
sprinkler systems installed in the Common Area;
2.3.1.6 Provision of adequate water and electricity to
the Common Area Improvements; and
2.3.1.7 Provision of any other items of repair,
replacement or maintenance that may be needed from time to time to properly
maintain the Common Area, the Common Area Improvements and the Common Utility
Facilities.
2.3.2 Security. Each Owner shall provide adequate security for
the Common Area, including providing any security or security measures required
by the City pursuant to the Policy Plan.
2.3.3 Common Area Expenses. The Agency hereby covenants, and
each Owner of any Parcel or part thereof by acceptance of a deed therefor,
whether or not it shall be so expressed in such deed, covenants and agrees to
pay for the Common Area expenses applicable to such Owner's Parcel under Section
2.3.1 or Section 2.3.2.
2.3.4 Common Area Operation, Maintenance and Repair. At all
times, each Owner of a Parcel shall have the obligation to operate, maintain and
repair the Common Areas and Common Area Improvements on such Owner's Parcel(s)
at its own expense without contribution by any other Owner. Common Utility
Facilities on a Parcel which exclusively serve another Parcel or Parcels shall
be maintained by the Owner or Owners of the other Parcel or Parcels. Common
Utility Facilities on a Parcel which serve the Parcel on which they are located
shall be maintained by the Owner of that Parcel at its own expense and without
contribution by any other Owner even though such facilities may also serve other
Parcels.
2.3.5 Owner's Cooperation. Each Owner agrees that it will
cooperate in all reasonable respects to facilitate the maintenance and operation
of the Common Area Improvements and Common Utility Facilities located on its
Parcel(s) for the benefit of the other Parcels. Any maintenance and repair shall
be carried out with as little interference as is reasonably possible with the
business operations located on any Parcel not owned by such Owner.
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Section 2.4 Operations.
2.4.1 Rules and Regulations, Owners' Association. Any Owner may
propose rules and regulations of general application for the supervision,
control and use of the Common Area, including, without limitation, employee
parking. All rules and regulations must be approved by the Agency so long as the
Agency has any direct or indirect interest in a Parcel, and by the Owners of the
Parcels, which approvals shall not be unreasonably withheld or delayed. Such
rules and regulations shall apply to all Parcels, and each Owner of a Parcel
shall be obligated to enforce such rules and regulations in a manner consistent
with this Declaration. The Owners may delegate to the Association the authority
to establish rules and regulations for the Common Area or other responsibilities
under this Declaration including the provision of security.
2.4.2 Termination of Owner's Obligations. If any Owner sells a
Parcel owned by it, then such Owner shall have no further obligation under this
Declaration with respect to the Parcel thus sold after the date of the
conveyance, other than obligations arising prior to the date of the conveyance.
2.4.3 Owner's Failure to Pay or Perform Obligations. If an
Owner (the "Non-Performing Owner") fails to pay any sum due under this
Declaration, including without limitation, any of the Common Area Expenses, or
to perform any obligation under this Declaration, within ten (10) business days
after notice from the Agency (whether or not the Agency retains any direct or
indirect interest in a Parcel) or from any other Owner, then the Agency, or such
other Owner (the "Performing Owners"), as the case may be, shall have the right,
but not the obligation, to make such payment or perform such obligation on
behalf of the Non-Performing Owner. If any Owner fails or refuses at any time
to pay then, after written demand and failure to pay within ten (10) business
days after receipt of such demands, legal action may be instituted by any Owner
against the Non-Performing Owner for reimbursement, plus interest at the lesser
of (i) two (2) percentage points over the then current reference rate of
interest as announced by the Bank of America, N.T. & S.A. main office, San
Francisco, California or (ii) the maximum rate permitted by law (the "Default
Rate"). If any Owner defaults under this Declaration, any other Owner may
institute legal action against the defaulting Owner for specific performance,
declaratory relief, damages or other available remedy. In addition to recovery
of the sum or sums expended on behalf of the Non-Performing Owner, the
prevailing Owner shall be entitled to receive from the Non-Performing Owner such
amount as the court may adjudge to be reasonable attorneys' fees, including
without limitation, attorneys' fees incurred in executing upon any judgment.
Pursuant to Article 8 hereof, any and all delinquent amounts together with said
interest shall be a lien and charge
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upon all of the Parcel or Parcels of such Owner subject to, and junior to, and
shall in no way impair or defeat the lien or charge of any bona fide mortgage or
deed of trust upon the same or any part thereof at any time given or made.
2.4.4 Effect of Agreements Between Owner and Tenant.
Notwithstanding anything contained herein to the contrary, if a particular lease
between an Owner and its tenant with respect to the calculation, time and method
of billing and payment of Common Area Expenses is different from the provisions
of this Declaration, the lease provisions shall prevail between said Owner and
its tenants, but as among the Owners, this Declaration shall prevail.
2.4.5 Direct Payment of Metered Utility Services. Each Owner
shall be solely responsible for the payment of utility charges for separately
metered utility services to such Owner's Parcel, including, without limitation,
the Common Areas located on such Owner's Parcel.
ARTICLE 3. TAXES AND ASSESSMENTS
Section 3.1 Taxes to be Segregated and Paid Promptly. As to any portion
of the Parcels, it is intended and agreed that all real estate taxes and
assessments which may be levied, assessed or charged by any public authority
against that Parcel or any part thereof, shall be segregated to the extent
reasonably possible and be paid prior to delinquency by the respective Owner of
said Parcel.
Section 3.2 Right to Contest. If any Owner shall deem any real estate
tax or assessment (including the rate thereof or the assessed valuation of the
property in question or any other aspect thereof) to be paid by said Owner to be
excessive or illegal, said Owner shall have the right, at its own cost and
expense, to contest the same by appropriate proceedings, and nothing contained
in this Section 3.2 shall require the Owner to pay any such real estate tax or
assessment as long as (a) no other Owner's Parcel could be affected by such
failure to pay, and (b) the amount or validity thereof shall be contested in
good faith. If the failure to pay such tax would affect any other Owner's
Parcel, such other Owner shall have the right to pay such tax and shall have a
lien on the non-paying Owner's Parcel for the amount so paid. Any such lien
shall be subject to, and junior to, and shall in no way impair or defeat the
lien or charge of any bona fide mortgage or deed of trust upon the same or any
part thereof at any time given or made.
Section 3.3 Assessments. Any assessment, for public improvements levied
against a Parcel shall be paid solely by the Owner of that Parcel.
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ARTICLE 4. BUILDING HEIGHT, SETBACK/ARCHITECTURAL
AND LANDSCAPING APPROVAL/ENVIRONMENTAL MATTERS
Section 4.1 Building Height and Setbacks. The Owners covenant and agree
that the height of all structures on a Parcel shall be limited to the permitted
heights under the Policy Plan, as it currently exists or is amended or replaced
by other plans or regulations in the future. The Owners covenant and agree that
except as set forth in the next sentence, no building structures shall be
erected within the Building Setback. Such Building Setback may be improved with
Common Area Improvements, Common Utility Facilities and landscaping.
Section 4.2 Architectural and Landscaping Approvals. All improvements
located in the Building Areas, and landscaping, shall be constructed, altered,
remodeled, painted or replaced in accordance with the Policy Plan as it
currently exists or is amended or replaced by other plans or regulations in the
future and all other applicable laws.
Section 4.3 Environmental Matters. Except for materials stored and used
in accordance with an approved permitted or conditionally permitted use and in
accordance with all applicable laws, no toxic or hazardous substances or
materials shall be discharged from, used, disposed of or stored on any Parcel.
ARTICLE 5. IDEMNIFICATION/INSURANCE
Section 5.1 Indemnification. Each Owner ("Indemnitor") hereby agrees to
defend, indemnify and save the other Owners and each of them (collectively, the
"Indemnitee") harmless from and against any and all liability damage, expense,
causes of action, suits, claims or judgments suffered by the Indemnitee arising
from personal injury, death or property damage and occurring from the exercise
by the Indemnitor of its rights hereunder, the breach of any provision hereof by
such Indemnitor, or the failure of the Indemnitor to fulfill its obligations
hereunder. No Indemnitor shall be responsible for the negligence or willful
misconduct of any other Owner.
Section 5.2 Insurance.
5.2.1 Comprehensive General Liability Insurance. Each Owner
shall procure and maintain in full force and effect throughout the term of this
Declaration comprehensive general liability insurance and property damage
insurance against claims for personal injury, death or property damage, each
Owner's insurance to afford protection to the limit of not less than Two Million
Dollars ($2,000,000.00) for injury or death of a single person, and to the limit
of not less than Five Million Dollars
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($5,000,000.00) for injury or death of more than one person in any one
occurrence, and to the limit of not less than Two Hundred Fifty Thousand Dollars
($250,000.00) for property damage. Such insurance may be written by additional
premises endorsement on any master policy of insurance carried by the Owner
which may cover other property in addition to the property covered by this
Declaration. Such insurance shall provide that the same may not be cancelled
without thirty (30) days' prior written notice to the other Owners and shall
name the Agency as an additional insured so long as Agency owns a Parcel. The
amount of coverage required hereunder may be increased (but not decreased) every
three (3) years, on or about July 1 of such year, to a then commercially
reasonable amount agreed to by the Agency so long as the Agency has any direct
or indirect interest in any Parcel and the Owners of the Parcels.
5.2.2 Casualty Insurance. Each Owner shall procure a policy or
policies of insurance insuring against the perils insured against by the
standard fire and extended coverage insurance, including glass breakage,
vandalism and signage coverage, in an amount equal to one hundred percent (100%)
of the replacement value of the Common Area Improvements located on such Owner's
Parcel, exclusive of foundation and excavations, as such value shall be
determined on an annual basis. No Owner shall have the right to elect not to
obtain such insurance but all Owners shall have the right to obtain additional
insurance.
5.2.3 Insurers and Additional Insureds. Policies of insurance
provided for in this Section 5.2 shall be issued by companies rated A XII or
better in "Best's Key Rating Guide." Each Owner shall provide to each other
Owner certificates, upon written request, evidencing the fact that such
insurance has been obtained.
5.2.4 Waiver of Subrogation and Other Provisions of the
Policies. Each Owner's policy of insurance described herein shall contain a
waiver by said insurer of any and all rights of subrogation against each other
Owner, and their officers, employees, agents, associates and representatives,
and said insurance policy shall provide that any "non-control" provision in said
policy is excluded or superseded by an endorsement providing that the insurance
obtained pursuant to this Section. 5.2 shall not be prejudiced by any act or
omission of any of the insureds when such act or omission is not within the
actual knowledge and control of all of the insureds collectively and shall
likewise not be prejudiced by any failure of the insureds, individually or
collectively, to comply with any warranty or condition with regard to any
portion of any Parcel or the improvements thereon over which each insured
individually, or the insureds collectively, have no control. Said insurance
policy shall provide that it may not be canceled, suspended or avoided
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in whole or in part by reason of any act, omission or breach of any covenant,
condition or restriction contained herein.
ARTICLE 6. DAMAGE AND DESTRUCTION/CONDEMNATION
Section 6.1 Damage and Destruction. Subject to the following provisions,
upon any damage or destruction of any portion of a Parcel, the Owner thereof
shall promptly restore or repair the Common Area Improvements thereon which have
been damaged or destroyed, at such Owner's cost without contribution from the
other Owners except to the extent that such damage or destruction is caused by
or results from the act or omission of such other Owner or its agents, employees
or tenants. If an Owner fails to commence repair or restoration of the Common
Area Improvements within a reasonable period, not to exceed ninety (90) days,
and/or thereafter fails to diligently pursue the completion of such repair or
restoration, such Owner shall be in default hereunder, and any other Owner may,
in addition to any other remedy, take the actions permitted under Section 2.4.3.
Section 6.2 Condemnation. In the event of any condemnation (by any duly
constituted authority for a public or quasi-public use), or deed in lieu
thereof, of all or any part of the Parcels, the portion of the award
attributable to the value of any land and improvements within the Common Area
shall be payable only to the Owner(s) thereof, and no claim therefor shall be
made by other Owners of any other portion of the Parcels; provided, however,
that all other Owners of the parcels may file collateral claims with the
condemning authority over and above the value of the land taken and for losses
related to rights such other Owners or their tenants have in any Common Area
being condemned. The Owner of any portion of the area so condemned shall
promptly repair and restore the remaining portion of the area owned by such
Owner as nearly as practical to its condition immediately prior to the
condemnation, at such Owner's cost, without contributions from any other Owner.
Upon any such taking, the easement rights granted hereunder shall terminate with
respect to the portion so taken but shall continue in force and effect with
respect with any portion not so taken.
ARTICLE 7. RIGHTS OF MORTGAGEES
Any notice served upon any Owner shall be served concurrently upon any
Mortgagee of the Parcel owned by such Owner that has previously notified the
Owners of the Parcels of such Mortgagee's address, in accordance with Section
9.5. No breach of any covenant, condition or restriction contained in this
Declaration shall render invalid the lien of any Mortgage. Any payment by any
Mortgagee for any delinquent assessments shall
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have the same force and effect as if made by the delinquent Owner and such
Mortgagee shall have all rights of subrogation against said delinquent Owner as
may be available to such Mortgagee under its Mortgage and/or under applicable
law. All of the easements, covenants, conditions and restrictions contained
herein shall inure to the benefit of and be binding upon any Owner of any Parcel
whose title is derived through foreclosure, trustee's sale, deed in lieu thereof
of otherwise. Any Mortgagee or purchaser therefrom who takes title to any
Parcel, pursuant to a foreclosure of the lien of such Mortgage, the acceptance
of a deed in lieu of foreclosure of such Mortgage or a sale under a power of
sale included in such Mortgage, shall take title free of any lien on such Parcel
arising under this Declaration which accrued prior to the date such Mortgagee or
purchaser takes title thereto, and such Mortgagee or purchaser shall be liable
for the obligations that shall accrue only during the period of time such
Mortgagee or purchaser is the Owner of such Parcel.
ARTICLE 8. LIEN RIGHTS
Section 8.1 Agreement to Pay. Each Owner covenants and agrees for each
Parcel owned by it that such ownership, and the ownership thereof by each
successor and assign of such party, is expressly made subject to the payment
obligations imposed under this Declaration, including, without limitation, those
imposed pursuant to Sections 2.3 and 2.4 of this Declaration. Each Owner on
becoming an Owner of a Parcel and each ground lessee of a Parcel covenants and
agrees, to pay the sums required for such Parcel in accordance with the
provisions of this Declaration, and to allow the party entitled thereto to
enforce any payments due under Section 2.4.3, and any liens imposed pursuant
thereto, in accordance with the provisions of this Declaration. No Owner,
tenant, lessee, mortgagee or beneficiary may be relieved from the obligation to
pay any sum by waiving the use or enjoyment of all or any portion of the Common
Areas, or Common Area Improvements, or by abandoning some or all of its
Parcel(s).
Section 8.2 Lien and Personal Obligation of Owner. Until paid in full,
any sum payable by an Owner or a ground lessee of an Owner ("Debtor") to another
Owner pursuant to this Declaration, together with all collection costs,
including reasonable attorneys' fees (collectively, the "Debt"), shall be a lien
upon the Parcel and the improvements thereon, whether or not Debtor then owns or
occupies the Parcel. Each such Debt shall also be the personal obligation of the
Debtor who owned or occupied the subject Parcel at the time the Debt arose. The
personal obligation shall not pass to successors in title of a Debtor unless
expressly assumed by such successors. Such assumption shall not relieve the
Debtor's obligation unless the Owner to whom the obligation is owed so agrees.
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Section 8.3 Imposition of Lien. If any Owner determines that any lien
shall be imposed for one of the purposes specified in this Declaration, such
Owner shall provide written notice to the Owner of each Parcel, and any
Mortgagee of whom the Owner has been notified in accordance with Article 7, upon
which such lien is to be imposed, describing the amount due, the reason
therefor, and the date upon which payment was due. If said amount is not paid
within ten (10) days after the effective date of such notice, interest shall
accrue upon such sum as provided in Section 2.4.3. At any time after the
occurrence of any delinquency in the payment of any such sum, the Owner seeking
reimbursement may thereafter elect to file and record a Notice of Claim of Lien
against the Parcel of the defaulting Owner in the Office of the County Recorder
of Solano County. The amount of the sums due, plus any costs of collection and
interest assessed in accordance with this Declaration shall be a lien on the
Owner's Parcel and the improvements located thereon from and after the time such
Notice of Claim of Lien is recorded.
Section 8.4 Notice of Claim of Lien. Any Notice of Claim of Lien
prepared with respect to any amount due under this Declaration shall be a
statement under oath and shall describe the amount of the delinquency (including
collection costs and attorneys' fees is known), the person(s) on whom demand was
made which shall include any Mortgagee having given notice in accordance with
Article 7, the date on which demand for payment was made, the basis for the
amount due, a legal description of the Parcel, the name of the Owner of the
Parcel to be liened, the name and address of the claimant, and a statement that
such sum is due and owing under this Declaration. Such Notice of Claim of Lien
shall be executed and acknowledged by a person having authority to execute deeds
on behalf of the claimant. If the delinquent sum, (including related collection
charges) is paid or otherwise satisfied in full, the party recording such notice
shall record a notice of satisfaction and release of lien.
Section 8.5 Foreclosure Under Lien. The party recording such Notice of
Lien Claim may enforce such lien established hereunder by filing an action for
judicial foreclosure or by recording a notice of default in the form described
in the California Civil Code to commence a nonjudicial foreclosure under power
of sale. Any nonjudicial foreclosure under power of sale shall be conducted in
accordance with the requirements of California Civil Code that are applicable to
nonjudicial foreclosures of Mortgages, under power of sale, provided that the
party recording the Notice of Lien Claim may appoint its attorney, any officer
or director, or any title insurance company authorized to do business in
California to conduct the sale in the role of trustee. The party recording such
notice may bid on the Parcel at the sale in the role of trustee. The party
recording such notice may bid on the Parcel at the sale. The party acquiring the
Parcel at the sale may hold, lease, mortgage
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and convey and acquire Parcel free of all rights of redemption after nonjudicial
sale. If the Parcel Owner's default is cured before the last date for redemption
as described in the California Civil Code, or before the completion of a
judicial foreclosure, including a payment of all costs and expenses incurred by
the party recording the Notice of Lien Claim, the party recording such Notice of
Lien Claim shall record a notice of satisfaction and release of lien, and upon
receipt of written request by the Owner of the Parcel, a notice of recission
rescinding the declaration of default and demand for sale.
Section 8.6 Other. No Owner shall be limited to one form of action in
enforcing and collecting such sums. Each Owner may commence and maintain a
lawsuit directly on the debt without waiving its right to enforce its lien
against the Owner's Parcel(s) for the delinquent assessment. In any action
instituted by any Owner to collect delinquent sums, the prevailing party shall
be entitled to recover costs and reasonable attorneys' fees.
ARTICLE 9. MISCELLANEOUS
Section 9.1 Declaration Runs With the Land. The reciprocal easements,
covenants, conditions and restrictions set forth herein shall be appurtenant to
and shall run with the Parcels and shall benefit and bind each Owner during his
period of ownership, whether by operation of law or otherwise for the benefit of
the other Owner's Parcel(s). Any person acquiring an interest in a Parcel or any
portion thereof shall be bound by this Declaration only as to the Parcel or
portion of the Parcel acquired by such person.
Section 9.2 Enforcement. In addition to the rights, powers and remedies
given in this declaration to any party or its successor, including, without
limitation, the assessment powers provided for herein, each Owner may, in their
own absolute discretion, at any time, and from time to time, exercise any and
all rights and powers, and pursue any and all remedies now or hereafter given at
law or in equity, including but not limited to any rights or remedies granted
herein or by California or federal case, statutory or regulatory law. The Agency
and Owners acknowledge and agree that they have bargained for specific
performance of the covenants, conditions, restrictions, rights, easements, and
rights-of-way contained in this Declaration, and all other provisions hereof,
and that each Owner entitled to enforcement of the terms hereof shall be
entitled to injunctive relief, including but not limited to temporary
restraining orders, preliminary injunctions and permanent injunctions, both
mandatory and prohibitory. In the event of breach or threatened breach of this
Declaration, only a record Owner of any Parcel, or the Agency so long as Agency
has any direct or indirect interest in any Parcel, shall be entitled to
institute proceedings, at law
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or in equity, for full and adequate relief from the consequences of said breach
or threatened breach.
Section 9.3 No Public Dedication. Neither the fact that the Agency is a
public agency nor anything herein contained shall cause any portion of any
Parcel to be deemed to be given or dedicated to the general public or for the
general public or for any public purpose whatsoever, it being the intention of
the Agency that this Declaration shall be strictly limited to the Parcels. Use
of any portion thereof (other than any use expressly allowed by a written or
recorded map, agreement, deed or dedication) is by permission, and subject to
the control of the Owner thereof. Notwithstanding any other provision herein to
the contrary, the Owners of the Parcels affected thereby may periodically
restrict ingress to and egress from any Parcel in order to prevent a public
prescriptive easement from arising by reasons of continued public use.
Section 9.4 Effect of a Breach. A breach by any Owner of any of its
obligations hereunder shall not terminate the easements and other rights granted
to such Owner hereunder.
Section 9.5 Notices. All notices and demands of any kind which any Owner
or Mortgagee may be required or may desire to serve on the other in connection
with this Declaration shall be in writing and may be served by personal delivery
or Registered or Certified Mail, return receipt requested or by a reliable
overnight air courier service. Any notices or demands so served by courier,
Registered or Certified Mail shall be deposited in the United States Mail, or
with the courier with postage thereon fully prepaid addressed to the parties
entitled to notice.
Any such communication shall be deemed to have been given at the time of
personal delivery or upon receipt or rejection if mailed as required hereunder
or one day after mailing if sent by reliable overnight courier. Any Owner may
change the address at which it is to receive notice of and additional parties to
receive notice by so notifying the other Owners in writing.
Notices to the Agency shall be addressed as follows:
City of Vacaville Redevelopment Agency
650 Merchant Street
Vacaville, CA 95688
Attn: Executive Director
The Agency or an Owner when selling a Parcel shall provide the purchaser
with the addresses of the other Owners as well as the address of any Mortgagee
who has requested notices.
Section 9.6 Estoppels. Any Owner shall, from time to time upon not less
than fifteen (15) days notice from any other Owner,
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execute and deliver to such other Owner(s) a certificate in recordable form
stating that this Declaration is unmodified and in full force and effect or, if
modified, that this Declaration is in full force and effect, as modified, and
stating the modifications and stating whether or not, to be the best of its
knowledge, any Owner is in default in any respect under this Declaration, and if
in default, and that no facts exist that would entitle such Owner to enforce a
lien or specifying such facts.
Section 9.7 Governing Law. This Declaration shall be governed by the
laws of the State of California.
Section 9.8 Attorneys' Fees. If there is any legal action or proceeding
or arbitration to enforce or interpret any provision of this Declaration or to
protect or establish any right or remedy of any party, the unsuccessful party to
such action or proceeding or arbitration whether such action or settled or
prosecuted to final judgment, shall pay to the prevailing party as finally
determined, all costs and expenses, including attorneys' fees and costs,
incurred by such prevailing party in such action or proceeding or arbitration,
in enforcing such judgment, and in connection with any appeal from such
judgment. Attorneys' fees and costs incurred in enforcing any judgment or in
connection with any appeal shall be recoverable separately from and in addition
to any other amount included in such judgment. This section is intended to be
severable from the other provisions of this Declaration, and the prevailing
party's rights under this Section shall not merge into any judgment and this
Section and any judgment shall survive until all such fees and costs have been
paid.
Section 9.9 No Third Party Beneficiaries. Except as herein specifically
provided, no rights, privileges or immunities conferred upon Owners by this
Declaration shall insure to the benefit of any tenant, customer, employee,
visitor or invitee of the Parcels, or any other third party; nor shall any
tenant, customer, employee, visitor or invitee of the Parcels or any other third
party be deemed to be a third party beneficiary of any of the provisions
contained herein.
Section 9.10 Further Assurances. Each Owner and Mortgagee shall execute
such other and further documents and instruments reasonably requested by any
other Owner or Mortgagee to more clearly evidence and carry out the provisions
of this Declaration.
Section 9.11 No Joint Venture. Nothing contained in this Declaration
shall be deemed or construed to create the relationship of principal and agent
or create any partnership, joint venture or other association between any of the
Owners.
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Section 9.12 Allocation of Responsibilitv. Any person acquiring fee or
leasehold title to any Parcel shall be bound by this Declaration only as to the
rights and obligations pertaining to the Parcel acquired by such person. In
addition, such person shall be bound by the Declaration only during the period
such person is the fee or leasehold Owner of such Parcel or portion of the
Parcel, and such person's obligations shall survive and shall not be released
only as to obligations, liabilities, or responsibilities that accrue during said
period. Although persons may be released from liability under this section, the
easements, covenants and restrictions in this Declaration shall continue to be
benefits to and servitudes upon said Parcels running with the land. A landlord
and tenant may agree upon a different method of allocating duties imposed upon
Parcel which agreement shall be controlling as to said Owner and tenant but not
as to the Owners of any other Parcels.
Section 9.13 No Merger. This Declaration shall not be subject to the
doctrine of merger.
Section 9.14 No Waiver. The failure to exercise any right or remedy
shall not be deemed a waiver of that right or remedy unless the party entitled
to that right or remedy has so agreed, expressly and in writing, and the failure
to so exercise any right or remedy shall not preclude the party entitled thereto
from later exercising any such right or remedy. The written waiver of any
default hereunder given by only one party shall not be binding upon the other
parties hereto if such default was by a third party. Any written waiver of
default shall not constitute a continuing waiver or waiver of any other same,
similar, or different events of default on any future occasion, unless such a
waiver of such future defaults is expressed, in writing, with precision. No
course of dealing between any party hereto, or any Owner, tenant, or other user
of the Parcels or any encumbrancer thereof, in exercising any rights under this
Declaration shall operate as a waiver of such rights, nor shall any such delay,
unless agreed to in writing by the parties entitled to enforce this Declaration,
constitute a waiver of any obligation or default. No waiver of default shall
extend to or impair any other obligation not expressly waived, nor impair any
right otherwise consequent on such covenant, condition or obligation. Any waiver
may be given subject to satisfaction of conditions stated therein.
Section 9.15 Time is of the Essence. Time is of the essence with regard
to performance under the terms and provisions of this Declaration, and any
amendment, modification or revision thereof, with respect to the actions and
obligations of each person bound by the terms hereof. No extension of time for
payment for any sum due hereunder shall operate to release, discharge, modify,
change, or affect the original liability as established hereunder, either in
whole or in part. In accepting
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an interest in any Parcel each Owner, tenant, lessee, user, and mortgagee, and
trust deed beneficiary shall be deemed to take its interest knowingly and
willingly subject to this time is of the essence clause.
Section 9.16 Severability. If any provision of this Declaration
conflicts with applicable law or is declared invalid, such provision shall be
severed from the document and the remainder shall continue to be given full
force and effect.
Section 9.17 Interpretation. Section headings or captions used herein
are for convenience and do not in any way limit, define or amplify the scope or
intent of any provision.
Section 9.18 Approvals. Whenever approvals are required under this
Declaration such approval shall not be unreasonably withheld or delayed. The
Agency, the City and any Owner shall not have any responsibility or liability of
any nature to any person or entity for the improvements built on the basis of
plans and specifications approved by the Agency, the City and the Owners
pursuant to this Declaration, and the Owner and/or ground lessee, whose plans
are approved shall defend, indemnify and hold the Agency, the City and all other
Owners harmless from any liability arising out of such approvals. All approvals
shall be made in a non-discriminatory manner.
Section 9.19 Amendment and Termination. The terms of the Declaration may
only be (i) amended by an instrument signed by the Agency so long as the Agency
has any direct or indirect interest in any Parcel, and the Owners of the
Parcels, or (ii) terminated prior to the end of the term by an instrument signed
by all of the record Owners of all the Parcels. Any amendment or termination
shall be recorded in the Official Records of Solano County, California.
Section 9.20 Annexation of Parcels. Notwithstanding the provisions of
Section 9.19, this Declaration shall be amended to annex additional parcels
within the area governed by the Policy Plan as parcels that will be subject to
this Declaration if the Agency requests such amendment and the owners of the
parcels to be annexed agree in a writing in recordable form to be bound by this
Declaration. Upon such amendment the Owners shall record in the Official Records
of Solano County documents to evidence that amendment.
Section 9.21 Counterparts. This Declaration may be executed, in
counterparts, each of which shall be considered an original and all of which
together shall constitute one and the same instrument.
ARTICLE 10. ARBITRATION
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Section 10.1 Arbitration. Any dispute arising under this Declaration
shall be submitted to arbitration. Subject to subsection (e) below the judgment
or award rendered in any such arbitration shall be final binding upon the
parties. The arbitration shall be conducted and determined in the City of
Vacaville, State of California, in accordance with the then prevailing rules of
the American Arbitration Association ("AAA") and the provisions of California
Code of Civil Procedure Section 1283.05 or any successor or amended statute or
law containing similar provisions, except to the extent that the procedures
mandated by said rules, statutes and laws shall be modified by the provisione of
Article 10.
(a) An Owner shall submit a demand for arbitration to the AAA
specifying the issue to be determined, in which case the other party must
participate and be bound. The AAA shall assist the parties in selecting a
neutural arbitrator in accordance with its then prevailing rules.
(b) The arbitrator shall conduct the arbitration as provided
herein and shall render a decision within sixty (60) days after appointment. In
the event of a failure, refusal or inability of the arbitrator to act, a
successor shall be appointed in accordance with then applicable rules of the
AAA.
(c) Each party shall pay one-half of the fee and expenses of
the arbitrator, including the fees of any expert or authority consulted by the
arbitrator. The prevailing party, in the event the arbitrator determines that
one party prevails, shall recover its reasonable attorneys' fees and costs in
accordance with Section 9.8
(d) The arbitrator shall have the right to consult experts and
competent authorties regarding factual information, or evidence pertaining to a
determination of the matter being arbitrated, but any such consultation shall be
made in the presence of both parties with full right on their part to cross
examine. The arbitrator shall hold a hearing, at which both parties may present
evidence and cross examine witnesses, prior to the arbitrator rendering a
decision. The arbitrator's decision and award shall be rendered in writing with
counterpart copies to each party.
(e) If any Owner so elects, the judgment or award rendered in
any such arbitration may be entered in the Superior Court of Solano County,
California. The Superior Court may enter judgment upon any award, either by
confirming the award or by vacating or correcting the award. The Superior Court
may vacate or correct an award only if the vacation or correction is based upon
any of the grounds in the California Arbitration Act.
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ARTICLE 11. TERM
Section 11.1 Term. The covenants, conditions and restriction contained
in this Declaration shall be recorded and shall run with the land and be binding
upon each and all of the Owners for a period of sixty (60) years after the
recording date hereof. The easements will remain in effect in perpetuity.
Section 11.2 Effectiveness. This Declaration though executed on the date
above written, shall only be effective upon, from and after its recording in the
office of the County Recorder for Solano County, California.
ARTICLE 12. ASSOCIATION
Section 12.1 Formation. Not later than substantial completion of the
Common Area Improvements and Building Improvements on two of the parcels, the
Owners shall form an association (the "Association") to carry out the functions
described in Section 12.2 for those Parcels on which the Common Area
Improvements and Building Improvements have been substantially completed. The
Association may be an unincorporated association, non-profit corporation, or
other entity as determined by the Owners. Each of the Owners shall be a member
or participant in the Association. The Agency shall have the right to review and
approve the articles, bylaws or other organizational or governing documents of
the Association of any amendments thereto. The Agency's approval shall not be
unreasonably withheld.
Section 12.2 Functions. The Association shall have responsibility for
such regular maintenance and operation functions in the Common Area and relating
to the Common Area Improvements as are reasonably performed in common for all
the Parcels rather than by the Owner of each Parcel. The Owners may also
delegate to the Association such other matters under this Declaration as the
Owners agree should be delegated to the Association.
Section 12.3 Association Decisions. The by-laws or other governing
documents of the Association shall provide for decisions to be made by a
majority vote of the Owners with the votes of the Owners weighted in accordance
with the number of square feet of enclosed building area in the Building
Improvements on each Owner's Parcel.
25
<PAGE>
Section 12.4 Allocation of Costs. The costs incurred by the Association
in fulfillment of its tasks under this Declaration shall be allocated to and
paid by the Owners in the same manner those costs would be allocated among the
Owners, pursuant to Section 2.3.3. and 2.3.4. of this Declaration if each Owner
rather than the Association performed the tasks performed by the Association.
Executed as of the date first written above.
VACAVILLE REDEVELOPMENT
AGENCY, a public body
corporate and politic
By: /s/ John P. Thompson
-----------------------------
Name: John P. Thompson
----------------------------
Title: City Manager
---------------------------
Executive Director
26
<PAGE>
NOTARY ACKNOWLEDGMENT
STATE OF CALIFORNIA }ss
COUNTY OF SOLANO }
------------------
On August 27, 1997, before me, Cheri Dee Barrieau, a Notary Public in and for
---------------- ------------------
said State, personally appeared John P. Tompson
-----------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he executed the same in his authorized capacity, and
that by his signature on the instrument the person or the entity upon behalf of
which the person acted, executed the instrument.
----------------------------------------
WITNESS my hand and official seal. CHERI DEE BARRIEAU
[SEAL] COMM. #1088902
NOTARY PUBLIC - CALIFORNIA
SOLANO COUNTY
My Comm. Expires Feb. 28, 2000
----------------------------------------
Signature /s/ Cheri Dee Barrieau
----------------------
(This area for official notary seal)
OPTIONAL:
DESCRIPTION OF ATTACHED DOCUMENT
Declaration - CC&R'S
- -------------------------
Title or Type of Document
- -------------------------
Date of Document
<PAGE>
ORIGINAL
Escrow No. 504421SJAM
WHEN RECORDED MAIL TO: We hereby certify that the
Vacaville Redevelopment Agency attached is a true and exact
C/O Housing & Redevelopment copy of the instrument
40 Eldridge Avenue, Suites 1-5 recorded in the office of the
Vacaville, CA 95688 County Recorder of the County
Attn: Special Projects of Solano, State of California
on 4-6-99 under Recorder's
Serial No. 99-29264
Placer Title Co.
By R ??????
AMENDMENT
of
RECIPROCAL EASEMENTS, COVENANTS, CONDITIONS AND RESTRICTIONS
for the
ANNEXATION OF AN ADDITIONAL PARCEL
This document (the "Amendment") shall amend the Reciprocal Easements, Covenants,
Conditions and Restrictions (the "CC&R's") executed by the Vacaville
Redevelopment Agency, dated August 27, 1997, and recorded on September 29, 1997
as document number 1997-0064270, in the official records of Solano County.
As provided for in Section 9.20-Annexation of Parcels of the CC&R's, the purpose
of this Amendment is to annex an additional parking lot parcel (the "Annexed
Parcel") which is owned by the Vacaville Redevelopment Agency, and is described
by legal description in the attached Exhibit "A" and shown on the plan in the
attached Exhibit "B" of this Amendment. The Annexed Parcel is within the area
governed by the City of Vacaville Basic Policy Plan dated January, 1996 and
revised August, 1998. The Agency has requested that the Annexed Parcel be made
subject to the covenants contained in the CC&R's.
As stated in Section 9.20 of the CC&R's, the Annexed Parcel will be subject to
the covenants contained in the CC&R's which are covenants running with the land
pursuant to applicable law, including, but not limited to, Section 1468 of the
California Civil Code.
It is hereby stated by the Vacaville Redevelopment Agency that the CC&R's shall
be amended to include the annexation of the Annexed Parcel, as described above.
Vacaville Redevelopment Agency
/s/ John P. Thompson 4/2/99
- ------------------------------------
John P. Thompson
Executive Director
(NOTARY ACKNOWLEDGMENT REQUIRED)
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION
All that real property in the City of Vacaville, County of Solano,
State of California, described as follows:
Being a portion of Parcel 7 as shown on the Parcel Map, filed in Book
40 of Parcel Maps, Page 67, Solano County Records, being more particularly
described as follows:
COMMENCING at the southwest corner of said Parcel 7, also being the
northwest corner of Parcel 2 of said Parcel Map, said corner being the POINT OF
BEGINNING for this described easement; thence along the westerly line of said
Parcel 7, North 00"07'13" East, 0.48 feet, thence continuing along said westerly
line North 02"37'03" West, 290.20 feet, thence continuing along the northerly
line of said Parcel 7 the following six (6) courses: (1) North 31"50'06" East,
36.14 feet; (2) thence South 89"53'56" East, 109.77 feet; (3) thence South
00"07'13" West, 8.00 feet; (4) thence South 89"53'56" East, 20.00 feet; (5)
thence 00"07'13" East, 7.90 feet; (6) thence North 82"51'04" East, 20.0 feet;
(5) thence North 00"07'13" East, 7.90 feet; (6) thence North 89"51'04" East,
1.10 feet; thence leaving said northerly line South 00"07'13" West, 321.19 feet
to a point on the line common to Parcel 2 and Parcel 7 of said map; thence along
said common line North 89"52'47" West, 136.00 feet to the POINT OF BEGINNING.
Containing 45,656 square feet (1.05 acres), more or less.
LICENSED LAND SURVEYOR
LARRY E. JOHNSON
Exp. 12-31-01
No. 4991
STATE OF CALIFORNIA
<PAGE>
EXHIBIT "B"
GRAPHIC OMITTED
METES AND BOUNDS DESCRIPTION
FOR PARKING EASEMENT
<PAGE>
STATE OF CALIFORNIA )
)ss
COUNTY OF SOLANO )
On April 2, 199_, before me, the undersigned, a Notary Public, personally
appeared John P. Thompson, personally known to me to be the person whose name is
subscribed to the within instrument, and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and that by
his/her/their signature on the instrument the person, or the entity upon behalf
of which the person acted, executed the instrument.
WITNESS my hand and official seal. ------------------------------
SEAL CAROL J. YOUNT
Commission #1108644
Notary Public-California
Solano County
My Comm. Expires Sep. 20, 2000
------------------------------
/s/ Carol J. Yount
- ------------------
Carol J. Yount
<PAGE>
EXHIBIT "D"
Penn Environmental Logo
Asbestos-Containing
Material Survey
Two-story Office Building
Intersection of Davis and Mason Streets
Vacaville, California
A Report Prepared For:
Mr. David Gouin
City of Vacaville, Office of Housing and Redevelopment
40 Eldridge Avenue, Suites 1-5
Vacaville, California
A Report Prepared By:
Penn Environmental
1261 Travis Boulevard, Suite 380
Fairfield, California
January 4, 1999
Project Number: PE98-2344
1261 Travis Blvd., Suite 380 o Fairfield, California 94533
o Phone (707) 421-1595 o Fax: (707) 425-0257
??? tw
- ------- --------
<PAGE>
I. Introduction
Penn Environmental was retained by Mr. David Gouin of City of Vacaville, Office
of Housing and Redevelopment Agency to perform an investigative survey for
asbestos-containing material (ACM) within the two-story office building located
in the southeastern corner of the intersection between Davis and Mason Streets,
in the city of Vacaville, California. The purpose of the survey was to locate,
sample and analyze visible and accessible suspect ACM within that location.
On December 29, 1998, representative bulk samples of suspect materials were
collected from various locations at each unit. The inspection was performed by
Mr. Eric J. Zamb, a Cal/OSHA Certified Asbestos Consultant (#96-1934).
II. Survey Methodology
Penn Environmental began the survey with a thorough pre-investigation of the
structure which provided the inspector with the opportunity to identify suspect
ACM. After the pre-investigation, a detailed inspection was conducted. The
inspector collected samples of material including resilient sheet flooring
(linoleum), 12" x 12" floor tile and mastic, 9" x 9" floor tile and mastic,
ceiling tile, composite wall samples of sheetrock with associated joint
compound, carpet adhesive, basecove mastic, stucco, and various roofing
materials.
Samples collected were placed in plastic bags, sealed and labeled with sample
identification numbers. Each sample was given a unique number which included the
sampling date, the sampler's employee number, and the index number of the sample
collected on that day.
Samples collected were analyzed by Environmental Hazards Services in Richmond,
Virginia. Bulk samples were examined by Polarized Light Microscopy (PLM) with
Dispersion Staining as recommended by the U.S. Environmental Protection Agency.
Laboratory results are attached as Appendix A.
III. Analytical Results
<TABLE>
The following is a summary of material locations and analytical results.
<CAPTION>
Sample# Location Description Percent Asbestos
------- -------- ----------- ----------------
<S> <C> <C> <C>
122998-801 Main Entrance/ White 12" x 12" Floor Tile 8 in Floor Tile
Foyer w/Black Streaks and 18 in Tile Mastic
Mastic
122998-802 Main Entrance/Foyer Ceiling Tile None Detected
-1-
<PAGE>
Sample# Location Description Percent Asbestos
------- -------- ----------- ----------------
122998-803 Telephone Room Off-white 12" x 12" Floor 4 in Floor Tile
Tile and Mastic 10 in Tile Mastic
122998-804 Office - First Floor Sheetrock/Joint Compound None Detected
122998-805 Office - First Floor Carpet Adhesive None Detected
122998-806 Office - First Floor 2' x 4' Ceiling Tile None Detected
122998-807 Rear Entrance Sheetrock/Joint Compound None Detected
122998-808 Kitchen #2 2' x 4' Ceiling Tile None Detected
122998-809 Kitchen #3 Light Green 9" x 9" Floor 4 in Floor Tile
Tile and Mastic 12 in Tile Mastic
122998-810 Female Restroom Sheetrock/Joint Compound None Detected
First Floor
122998-811 Office - 2nd Floor Carpet Mastic None Detected
122998-812 Office - 2nd Floor 2' x 4' Ceiling Tile None Detected
122998-813 Stairway Sheetrock/Joint Compound None Detected
122998-814 Hallway - 2nd Floor 2' x 4' Ceiling Tile None Detected
122998-815 Storage - 2nd Floor Sheetrock/Joint Compound None Detected
122998-816 Storage - 2nd Floor Baseboard Mastic None Detected
122998-817 Roof - Partial Wall Partial Wall Pier Flashing None Detected
122998-818 Roof Field Tar None Detected
122998-819 Roof - Base of Tar None Detected
Mechanical Equipment
122998-820 Exterior Brick Mortar None Detected
122998-821 Exterior Stucco None Detected
</TABLE>
-2-
<PAGE>
IV. Summary of Results
Asbestos containing material (ACM), as defined by the Environmental Protection
Agency (EPA), is any material which contains greater than one percent of
asbestos as determined by PLM analysis. According to this definition, the
following materials are considered asbestos containing:
o 12" x 12" and 9" x 9" Floor Tile (Sample Numbers 122998-801, 803 & 809) -
All floor tile within the structure contains between 4 and 8 percent
asbestos. The floor tile is located within the following areas:
- First floor foyer and kitchen within the southwest corner of the
building;
- First floor maintenance closet and telephone room on the west side of
the building;
- Kitchen and neighboring file room in the center of the first floor;
and
- Second floor stairway landing and storage area in the southwest
corner of the building.
o Floor Tile Mastic (Sample Numbers 122998-801, 803 & 809) - All floor tile
mastic within the structure contains between 10 and 18 percent asbestos.
The floor tile mastic is located within the following areas:
- First floor foyer and kitchen within the southwest corner of the
building;
- First floor maintenance closet and telephone room on the west side of
the building;
- Kitchen and neighboring file room in the center of the first floor;
and
- Second floor stairway landing and storage area in the southwest corner
of the building.
All remaining samples reported non-detectable concentrations of asbestos,
meaning no asbestos fibers were detected during analysis.
V. Recommendations
Prior to demolition activities, all asbestos-containing materials should be
removed by a certified asbestos abatement contractor.
-3-
Exhibit 13
1999 Annual Report to Shareholders (parts not incorporated by
reference are furnished for informational purposes only and not filed herewith).
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
To Our Shareholders 2
Selected Financial Data 4
Management's Discussion
and Analysis of Financial Condition
and Results of Operations 5
Balance Sheets 14
Income Statements 15
Shareholders' Statement 16
Statements of Cash Flows 17
Notes to Financial Statements 18
Report of Independent Public Accountants 31
Directors 32
Corporate Information 33
1
<PAGE>
- --------------------------------------------------------------------------------
TO OUR SHAREHOLDERS
- --------------------------------------------------------------------------------
Nineteen hundred ninety nine was an exceptional year for your Company. We again
generated sound growth and record profits. Perhaps more importantly, your Board
made some major decisions and initiated actions that will profoundly affect the
direction of your Company for the next several years.
In early 1999 The Vintage Bank's Board identified an exceptional opportunity for
community banking in Solano County. The I-80 corridor from Vacaville to Benicia,
home to nearly 350,000 residents, had only one community bank with significant
market share and it was poised for sale. Our research identified a strong desire
for a community bank based in Central and Western Solano County that would focus
on the needs of the local constituency. Concurrent with our study of the region,
Glen Terry, an exceptional candidate for the position of President & CEO of a
Solano based community bank, expressed interest in being part of a new bank as a
result of the acquisition of Sierra West Bank by Bank of the West.
In August, 1999, Mr. Terry, formerly Regional President for Sierra West Bank,
affiliated with The Vintage Bank as Senior Vice President/Solano Regional
Manager. Shortly thereafter, the Bank opened a Loan Production Office (LPO) on
Oliver Road in Fairfield, California. In addition to loan services, the LPO
offers alternative investment services through an affiliation with Raymond James
Financial Services, Inc.
In order to position ourselves to organize a new bank and take advantage of
other opportunities, we formed our Holding Company, North Bay Bancorp. Following
shareholder approval of a plan of reorganization and merger, The Vintage Bank
became a wholly owned subsidiary of North Bay Bancorp effective November 1,
1999. In December, 1999, we submitted an application for organization of a new
bank in Solano County with the California Department of Financial Institutions
and for Federal deposit insurance with the Federal Deposit Insurance
Corporation. The proposed bank will also apply for membership in the Federal
Reserve System. Solano Bank (Proposed) is anticipated to open in June, 2000,
providing we receive regulatory approval. (We must refer to the Bank as
"Proposed" until regulatory approval is obtained.) Initially, offices are
planned for Vacaville, Fairfield and Benicia.
In preparing your Company for expansion beyond a single bank operation, your
Directors added Conrad W. Hewitt and Richard S. Long to the North Bay Bancorp
Board. Mr. Hewitt retired to Napa after serving as Commissioner of Financial
Institutions for the State of California. Prior to his term as Commissioner,
Conrad worked 33 years for Ernst & Young, serving as Managing Partner, North Bay
area prior to his retirement. Mr. Hewitt currently serves on the Boards of
several public companies and nonprofit corporations. Richard S. Long, a
long-time Napa resident, currently serves as President and CEO of Regulus
Corporation, a remittance processor for major banks. Mr. Long sold his Napa
based company, Quantum Information Systems, to Regulus in 1998. These new
Directors provide us experience and perspective that will be invaluable in our
expanding operating environment.
Another major undertaking initiated by your Board was a commitment to new
technology. We converted to a new item processing/imaging system in February,
2000. We are currently in the final stages of testing our internet banking
product, using software from Q-Up, a major internet banking solution vendor. We
are preparing for conversion to a new core banking system using Open Solutions
(OSI) software. We anticipate Solano Bank (Proposed) will first utilize the new
core banking software with The Vintage Bank converting to the OSI platform in
July, 2000. The item processing and core processing systems are owned and
operated by North Bay Bancorp, which will provide data processing and support
services to our two subsidiary banks, providing Solano Bank (Proposed) receives
regulatory approval. With our new system in place, we will have technology-based
service capabilities that exceed any of our competitors, including the very
large banks.
To capitalize the new bank, your Company is offering for sale $5,000,000 in new
stock at $25 per share. As disclosed in the Prospectus, we are giving preference
to Solano County residents and business owners in subscribing to the new stock
in order to build a shareholder base that will patronize, support and
2
<PAGE>
market Solano Bank (Proposed). The total initial capital of the proposed bank is
set at $9 million, with the additional $4 million coming from North Bay Bancorp
through a combination of dividends from The Vintage Bank and outside borrowings.
As disclosed in this Annual Report, your Company has continued to generate sound
profits, even after absorbing significant costs associated with forming North
Bay Bancorp and preparing the new bank charter application. Earnings for 1999
were a record $2,715,377, or $1.66 per share, compared with $2,110,736, or $1.30
per share, in 1998. Total assets as of December 31, 1999 were $197,106,319. Net
income for the year equates to a return of 1.44% on average assets and 15.5% on
average shareholders' equity, thereby meeting our stated goal of achieving or
exceeding 15% on equity on a consolidated basis. Due to the unavoidable expenses
associated with opening a new bank, we anticipate that consolidated net income
for 2000 will be less than 1999 net income. In the long run, however, the
combined Company will be significantly larger than a single bank operation, with
the capacity for higher earnings per share and higher return on equity due to
efficiencies and better leverage of our capital.
Our chartering a new bank in Solano County in no way diverts us from our goal of
insuring that The Vintage Bank be the premier community bank of the Napa Valley.
The recently announced sale of Napa National Bank not only leaves us with the
sole community bank based in Napa Valley, we believe it opens new opportunities,
most notably in St. Helena. Two recent additions to The Vintage Bank Board, Dr.
Andrew Nicks and Andrew Beckstoffer, attest to our focus and commitment. The
addition of Dr. Nicks maintains and expands our close ties with the Valley's
medical community in anticipation of the retirement of our founding director and
largest shareholder, Dr. Houghton Gifford. Andrew Beckstoffer brings us a St.
Helena presence and exceptional knowledge of and contacts with grape growers and
vintners, thereby assisting us with our goal of increasing our presence and
activities in the wine industry.
These decisions and activities represent a new era for your Company. We believe
they are prudent and necessary for us to realize our objectives of remaining
independent while increasing shareholder value over the long term. In today's
environment, these objectives require us to invest heavily in technology, grow
in assets each year, leverage our capital appropriately, increase earnings per
share and increase liquidity in our stock. If we can achieve these goals over
the long term, we will meet our objectives and thereby continue to serve our
customers and you, our Shareholders.
Very truly yours,
Terry L. Robinson Thomas F. Malloy
President & Chief Chairman of the Board
Executive Officer
3
<PAGE>
- --------------------------------------------------------------------------------
SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------
<TABLE>
The following table presents a summary of selected data for North Bay Bancorp
consolidated (the Company) for the five years ended December 31, 1999. This
information should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations and the financial
statements and notes thereto appearing elsewhere in the annual report:
<CAPTION>
(In 000's except share data)
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Interest income $ 13,688 $ 11,907 $ 10,085 $ 9,154 $ 8,309
Interest expense 4,364 3,992 3,141 2,982 2,641
---------- ---------- ---------- ---------- ----------
Net interest income 9,324 7,915 6,944 6,172 5,668
Provision for loan losses 240 240 240 240 180
---------- ---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 9,084 7,675 6,704 5,932 5,488
Noninterest income 1,777 1,397 1,443 776 320
Noninterest expense 6,496 5,660 5,050 3,989 3,648
Provision for income taxes 1,650 1,301 1,243 1,073 792
---------- ---------- ---------- ---------- ----------
Net income $ 2,715 $ 2,111 $ 1,854 $ 1,646 $ 1,368
========== ========== ========== ========== ==========
BASIC PER SHARE DATA: (1)
Earnings per share $ 1.70 $ 1.34 $ 1.24 $ 1.12 $ .95
Average shares outstanding 1,598,914 1,571,079 1,501,274 1,475,304 1,433,356
DILUTED PER SHARE DATA: (1)
Earnings per share $ 1.66 $ 1.30 $ 1.20 $ 1.10 $ .94
Average shares outstanding 1,636,731 1,619,915 1,548,690 1,500,493 1,458,393
BALANCE SHEET DATA:
Net loans $ 120,166 $ 94,775 $ 80,991 $ 70,780 $ 63,370
Total assets 197,106 180,291 146,982 122,740 110,124
Total deposits 172,380 162,173 131,390 109,849 96,488
Shareholders' equity 18,090 16,910 14,486 12,116 10,458
<FN>
(1) All per share amounts have been adjusted to reflect the 5% stock dividends
declared February 27, 1995, January 22, 1996, January 27, 1997, January 26,
1998, January 28, 1999 and January 18, 2000 as well as a two-for-one stock split
effective October 1, 1997.
</FN>
</TABLE>
4
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION
- --------------------------------------------------------------------------------
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENT
This Annual Report contains statements relating to future results of the Company
that are considered to be "forward looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements relate to,
among other things, credit loss reserve adequacy, simulation of changes in
interest rates and litigation results. Actual results may differ materially from
those expressed or implied as a result of certain risks and uncertainties,
including, but not limited to, changes in political and economic conditions,
interest rate fluctuations, competitive product and pricing pressures within the
Company's markets, equity and fixed income market fluctuations, personal and
corporate customers' bankruptcies, inflation, acquisitions and integration's of
acquired businesses, technological change, changes in law, changes in fiscal,
monetary, regulatory and tax policies, monetary fluctuations, success in gaining
regulatory approvals when required as well as other risks and uncertainties.
Such forward-looking statements speak only as of the date on which such
statements are made, and the corporation undertakes no obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which such statement is made or to reflect the occurrence of unanticipated
events.
OVERVIEW
- --------------------------------------------------------------------------------
North Bay Bancorp (Bancorp) incorporated November 1, 1999, is the Holding
Company for The Vintage Bank (Bank), a wholly owned subsidiary. The consolidated
entity (the Company) reported net income of $2,715,377 or $1.66 per share in
1999 compared with $2,110,736, or $1.30 per share, in 1998 and $1,854,076, or
$1.20 per share, in 1997, equating to a return on average assets of 1.44%, 1.29%
and 1.39% for years 1999, 1998 and 1997, respectively. The return on average
equity was 15.52% in 1999 compared with 13.45% and 14.17% in 1998 and 1997,
respectively. The increase in net income during 1999 compared with 1998 resulted
primarily from growth in net interest income.
As of December 31, 1999, total assets were $197,106,319 compared with total
assets of $180,290,550 and $146,982,232 at year end 1998 and 1997, respectively,
representing a 9% increase in 1999 and a 23% increase in 1998. Deposits
increased 6% in 1999 compared with a 23% increase in 1998. Loans, net of the
allowance for loan losses, increased 27% in 1999 compared with a 17% increase in
1998.
SUMMARY OF EARNINGS
Net Interest Income
Net interest income before provision for loan losses (total interest income less
total interest expense) was $9,324,483, $7,914,604 and $6,943,764 in 1999, 1998
and 1997, respectively, representing increases of 18% and 14% in 1999 and 1998,
respectively.
Net interest income is impacted by changes in the volume and mix of earning
assets and interest-bearing liabilities, and changes in interest rates. The
increase in net interest income in 1999 compared with 1998 was primarily the
result of volume increases in loans. The net interest margin (defined as net
interest income divided by average earning assets) increased slightly in 1999 as
the loan-to-deposit ratio increased in 1999 compared to 1998. The Company has
traditionally enjoyed an overall cost of funds lower than peer institutions of
comparable size.
Taxable-equivalent interest income increased $1,837,360 in 1999 compared with
1998. Increases in the volume of earning assets accounted for $2,434,752 of this
increase, with a decrease of $596,392 attributable to lower rates. An increase
of $1,901,256 in 1998 compared with 1997 consisted of a
5
<PAGE>
$2,241,994 increase due to growth of earning assets and a decrease of $340,738
attributable to lower rates on earning assets.
Interest paid on interest-bearing liabilities increased $372,265 in 1999
compared with 1998. Increases in the volume of deposits and other borrowings
accounted for $571,289 of this increase, with a $199,024 decrease attributable
to a decline in rates. Interest paid on interest-bearing liabilities increased
$850,321 in 1998 compared with 1997; the effect of volume increases accounted
for $623,652 with $226,669 attributable to an increase in rates.
The net interest margin, using taxable equivalent interest income, was 5.47% in
1999 compared with 5.36% in 1998. The increase in the net interest margin is
primarily the result of a higher average loan-to-deposit ratio in 1999 compared
to 1998.
The net interest margin is expected to remain fairly consistent during 2000
unless general rates increase or decrease significantly during the year.
Assuming there are no dramatic changes in general interest rates or deposit mix,
total net interest income is expected to increase during 2000 consistent with
the expected increase with volumes of earning assets.
Provision and Allowance for Loan Losses
Credit risk is inherent in the business of lending. As a result, the Company
maintains an Allowance for Loan Losses to absorb losses inherent in the
Company's loan portfolio. This is maintained through periodic charges to
earnings. These charges are shown in the Consolidated Income Statement as
Provision for Loan Losses. All specifically identifiable and quantifiable losses
are immediately charged off against the allowance. However, for a variety of
reasons, not all losses are immediately known to the Company and, of those that
are known, the full extent of the loss may not be quantifiable at that point in
time. The balance of the Company's Allowance for Loan Losses is meant to be an
estimate of the probable losses inherent in the portfolio.
The Company's written lending policies, along with applicable laws and
regulations governing the extension of credit, require risk analysis as well as
ongoing portfolio and credit management through loan product diversification,
lending limits, ongoing credit reviews and approval policies prior to funding of
any loan. The Company manages and controls credit risk through diversification,
dollar limits on loans to one borrower, and by restricting loans made to its
principal market area. Loans that are performing but have shown some signs of
weakness are subjected to more stringent reporting and oversight. The existing
portfolio consists of commercial loans to businesses, both commercial and
residential real estate loans and consumer products. The portfolio contains five
and 10 year fixed rate loans. Fixed rate loans primarily are associated with
real estate lending.
As of December 31, 1999, loans increased approximately $25 million, a 27%
increase from December 31, 1998. On an average balance basis, the Company's loan
portfolio increased approximately $22 million over the average balance in 1998.
In 1998, average balances increased from the prior year by 13% or $10 million.
The increase in 1999 was due to strong loan demand for commercial real estate
loans along with an aggressive marketing of loan services.
Assessment of the Adequacy of the Allowance for Loan Losses and the Allocation
Process
The Company formally assesses the adequacy of the allowance on a quarterly
basis. Determination of the adequacy is based on ongoing assessments of the
probable risk in the outstanding loan portfolio and, to a lesser extent, the
Company's off balance sheet commitments. These assessments include periodic
re-grading of credits based on changes in their individual credit
characteristics including delinquency, seasoning, recent financial performance
of the borrower, economic factors, changes in the interest rate environment,
growth of the portfolio as a whole or by segment and other factors as warranted.
Loans are initially graded when originated. They are re-graded as they are
renewed, when there is a new loan to the same borrower, when identified facts
demonstrate heightened risk of nonpayment or if they become delinquent on a
frequent basis. Re-grading of larger problem loans occur at least quarterly.
Confirmation of the quality of the grading process is obtained by independent
credit reviews conducted by consultants specifically hired for this purpose and
by regulatory examiners. The quarterly provision and allowance for loss
evaluation establishes a specific allowance for all impaired loans over $50,000
and establishes
6
<PAGE>
percentage allowance requirements for all other loans according to their
classification as determined by the Bank's internal grading system.
As of December 31, 1999 the allowance for loan losses of $1,986,931 represented
1.63% of loans outstanding, compared with an allowance balance of 1.81% and
1.86% of loans outstanding at year-end 1998 and 1997, respectively. During 1999,
1998, and 1997, $240,000 was charged to expense each year for the provision for
loan losses.
Management recognizes that the estimation of probable loss in the portfolio is
not a science and therefore actual losses may differ from the estimate. The
current Allowance for Loan Losses is reviewed periodically and, as adjustments
become necessary, they are reported in earnings in the period that they become
known.
Non Performing Loans
The Company's policy is to place loans on non-accrual status when, for any
reason, principal or interest is past due for ninety days or more unless it is
both well secured and in the process of collection. Any interest accrued, but
unpaid, is reversed against current income. Thereafter, interest is recognized
as income only as it is collected in cash and if collection of remaining
principal is reasonably assured. As of December 31, 1999, there were no
non-accrual loans compared to $88,694 at the end of 1998.
Noninterest Income
Noninterest income was $1,777,144 in 1999 compared with $1,397,158 in 1998 and
$1,443,473 in 1997. Fee income from service charges on deposit accounts
increased from the previous year 32% and 10% in years 1999 and 1998,
respectively.
Noninterest Expense
Details of noninterest expense are as follows:
(In 000's)
1999 1998 1997
------ ------ ------
Salaries & Benefits $3,497 $3,069 $2,636
Occupancy 401 392 361
Equipment/Data Processing 463 450 474
Other 2,135 1,749 1,579
------ ------ ------
Total $6,496 $5,660 $5,050
====== ====== ======
Salaries and benefits expense increased 14% and 16% in 1999 and 1998,
respectively, from the previous year. The increases were primarily due to
increases in the number of full-time equivalent employees, which has increased
from approximately 58 at year-end 1996 to 77 at year-end 1999. It is anticipated
that full-time equivalents will increase by approximately 15 during the year
2000 due to the proposed Solano Bank opening.
The increase in occupancy expense during 1999 compared with 1998 was primarily
in rent and depreciation. Occupancy expense is expected to increase
approximately 50% in the year 2000 compared to 1999 due to the anticipated
opening of three offices of the proposed Solano Bank and the possible
establishment of a new Vintage Bank Branch in St. Helena.
Equipment and Data Processing expense increased 3% in 1999 compared with 1998.
The increase was primarily due to an increase in maintenance on older equipment.
Equipment is depreciated over periods of three to five years. Purchases of all
types of equipment during 1999 totaled approximately $360,000.
Major anticipated equipment purchases during 2000 include hardware and software
associated with a new bank-wide information system and an item processing and
imaging system. The Company will also be purchasing necessary furniture needed
to equip new offices. Expenditures in these areas are anticipated to total
approximately $2,000,000. All other anticipated expenditures for equipment
during 2000, including routine purchases of vehicles and miscellaneous
equipment, are expected to total less than $400,000. The
7
<PAGE>
financial impact of these capital expenditures, if all are made, will be to
increase monthly depreciation by approximately $50,000.
The key components of other expenses are as follows:
(In 000's)
1999 1998 1997
------ ------ ------
Business Promotion $ 328 $ 274 $ 236
Professional Services 485 350 321
ATM Expenses 160 109 85
Stationery & Supplies 200 172 159
Insurance 64 54 49
Other 898 790 729
------ ------ ------
Total $2,135 $1,749 $1,579
====== ====== ======
Business promotion expense increased in both 1999 and 1998 compared to the prior
year primarily due to increases in advertising, customer relations expense and
donations. Professional services increased in 1999 compared with 1998 primarily
due to costs associated with formation of the new Company. Also, ATM expenses
increased by approximately 46% and 28% in 1999 and 1998, respectively,
reflecting costs associated with adding two additional ATM's in 1997 and
additional expenses to issue new debit cards in 1999. Stationery and supplies
expense increased 16% and 8% in 1999 and 1998, respectively, reflecting overall
volume increases. Insurance expenses have remained relatively constant for three
years, reflecting the benefits of generally lower premiums resulting from an
improving insurance market, offsetting the effects on premiums of the Company's
increasing size and volumes. Other expenses increased approximately $100,000 in
1999 compared with 1998, primarily due to increased expenses in telephone,
postage, courier services, conferences and other miscellaneous expenses. These
expense increases were generally less than proportionate with our overall growth
and volume increases.
The Company reported a provision for income taxes of $1,650,000, $1,301,000, and
$1,243,000 for years 1999, 1998 and 1997, respectively. These provisions reflect
accrual for taxes at the applicable rates for Federal and California State
income taxes based upon reported pre-tax income, and adjusted for the beneficial
effect of the Company's investment in qualified municipal securities. The
Company has not been subject to an alternative minimum tax (AMT).
BALANCE SHEET
- --------------------------------------------------------------------------------
Total assets as of December 31, 1999 were $197,106,319 compared with
$180,290,550, and $146,982,232 as of year end 1998 and 1997, respectively,
representing a 9% increase in 1999 and a 23% increase in 1998. Total deposits
grew $10,206,833 to $172,380,039 in 1999, representing a 6% increase, compared
with a 23% increase in 1998. Total loans, net of allowance for loan losses, grew
$25,390,353 to $120,165,530 in 1999, representing a 27% increase compared with a
17% increase in 1998. Investment securities decreased from $62,018,042 at
year-end 1998 to $56,654,407 in 1999, a 9% decrease, compared with an increase
of 57% during 1998.
Liquidity and Capital Adequacy
The Company's liquidity is determined by the level of assets (such as cash,
federal funds sold, and marketable securities together with other funding
sources) that are readily convertible and other funding sources to meet customer
withdrawal and borrowing needs. The Company's liquidity position is reviewed by
management on a regular basis to verify that it is adequate to meet projected
loan funding and potential withdrawal of deposits. The Company has a
comprehensive Asset/Liability Management and Liquidity Policy that it uses to
determine adequate liquidity.
Securities classified as "Held-to-Maturity" are reported at amortized cost, and
"Available-for-Sale" securities are reported at fair value with unrealized gains
and losses excluded from earnings and reported as a separate component of
accumulated other comprehensive income. As of December 31, 1999,
"Held-to-
8
<PAGE>
Maturity" securities had an amortized cost of $1,389,964 and
"Available-for-Sale" securities had a fair value of $55,264,443 with an
unrealized loss, net of income taxes, of $1,170,688 reflected as a component of
accumulated other comprehensive income in the shareholders' equity section of
the Balance Sheet.
The Company also has available funding from other sources such as the Federal
Home Loan Bank. As of December 31, 1999 the Company had $58,708,000 available
from these sources for borrowing.
At year end 1999 liquid assets represented 34% of total assets, as compared with
42% and 39% in liquid assets as of year-end 1998 and 1997, respectively. The
level of liquid assets at December 31, 1999 exceeds the liquidity required by
the Company's liquidity policy. Management expects to be able to meet the
liquidity needs of the Company during 2000 primarily through balancing loan
growth with corresponding increases in deposits.
Interest Rate Sensitivity
<TABLE>
The following table sets forth the repricing opportunities for rate-sensitive
assets and rate-sensitive liabilities at December 31, 1999. Rate sensitivity
analysis usually excludes Noninterest-bearing demand deposits. Including these
deposits, which totaled $38,337,447, would result in a significant shift in the
gap position. Rate-sensitive assets and rate-sensitive liabilities are
classified by the earliest possible repricing date or maturity, whichever comes
first.
<CAPTION>
(In 000's)
3 Months Over 3 Mos. Over 1 Yr. Over 5
or Less To 1 Yr. To 5 Yrs. Years Total
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Interest rate-sensitive assets:
Loans, gross $ 54,815 $ 4,651 $ 24,391 $ 38,295 $ 122,152
Interest-bearing deposits in
other banks 100 0 0 0 100
Investment securities 1,000 4,141 15,119 36,394 56,654
Federal funds sold 1,500 0 0 0 1,500
---------------------------------------------------------------
Total 57,415 8,792 39,510 74,689 180,406
Interest rate-sensitive liabilities:
Interest-bearing demand
deposits 57,166 0 0 0 57,166
Time deposits >$100,000 11,927 9,128 866 0 21,922
Other time deposits 19,535 17,205 2,501 0 39,241
Savings deposits 15,714 0 0 0 15,714
Short-term borrowings 5,000 0 0 0 5,000
---------------------------------------------------------------
Total $ 109,343 $ 26,333 $ 3,367 0 $ 139,043
Interest rate sensitivity gap ($ 51,928) ($ 17,541) $ 36,143 $ 74,689 $ 46,363
===============================================================
Ratio of interest rate sensitivity to (28.78%) (9.72%) 20.03% 41.40%
earning assets
</TABLE>
This table indicates that the Company has a "negative" GAP for one year into the
future and a "positive" GAP beyond one year. The implication is that during the
negative GAP "horizon" Company earnings will increase in a falling interest rate
environment, as interest rates on interest-bearing liabilities reprice downward
more rapidly than rates on earning assets; conversely, earnings would decline in
a rising rate environment. This traditional analysis does not recognize or
assume any "lag" in interest rate changes on earning assets and interest-bearing
liabilities, and it assumes that all earning assets and interest-bearing
liabilities reprice to the same absolute degree, regardless of the mix of
earning assets and interest-bearing liabilities. The Company utilizes a
simulation model as its primary tool for asset/liability management. This model
considers the effects of lags and different ranges of interest rate changes
among various classes of earning assets and interest-bearing liabilities and
produces a more accurate projection of the impact
9
<PAGE>
changing interest rates will have on the Company. Based on the model, the
Company is free of material interest rate risk for the one-year horizon (i.e.,
the earnings will not change significantly with an increase or decrease in
interest rates), as opposed to being liability-sensitive as indicated by this
table using traditional GAP analysis.
The Company's capital ratios remained relatively steady during 1999 compared
with 1998 levels. As of December 31, 1999 the Company's total risk-based capital
ratio, Tier I risk-based capital ratio and leverage ratio were 14.1%, 12.8% and
9.6%, respectively. These compare with ratios of 14.4%, 13.1% and 9.3% as of
December 31, 1998. The Company is in the process of raising $5 million of new
capital through a secondary stock issue. Projections indicate that the Company
will remain capitalized in accordance with our policies for five years even if
consolidated growth exceeds projections.
In January, 2000, the Company declared a 5% stock dividend and a $.20 per share
cash dividend for shareholders of record as of March 1, 2000. The stock dividend
will affect the Company's capital and its capital ratios only to the extent that
cash is distributed in lieu of fractional shares. Accordingly, the stock
dividend will not materially impact the Company's overall capital. The cash
dividend will total approximately $310,000, equating to a reduction in the
Company's leverage ratio of approximately .02%.
DESCRIPTION OF OPERATIONS
- --------------------------------------------------------------------------------
North Bay Bancorp (Bancorp) is a California corporation incorporated November 1,
1999 and is registered with the Board of Governors of the Federal Reserve System
as a bank holding company under the Bank Holding Company Act of 1956, as
amended. The Vintage Bank (Bank) is a wholly-owned subsidiary of the Bancorp,
organized as a state chartered Bank in 1984. (The consolidated entity is
referred to herein as the "Company"). The Bank engages in the commercial banking
business in Napa County from its main banking office located at 1500 Soscol
Avenue, Napa, California. The Bank has two other business locations, one located
in the Brown's Valley Shopping Center at 3271 Brown's Valley Road, Napa,
California and one at 3626 Bel Aire Plaza, Napa, California. The Bank has a
remote ATM and night drop services at 629 Factory Stores Drive, Suite B, Napa
California and at 6498 Washington Street, Yountville, California. The Bank
conducts a commercial banking business, offering a full range of commercial
banking services to individuals, businesses and agricultural communities in Napa
County. The Bank emphasizes its retail commercial banking operations and accepts
checking and savings deposits, issues drafts, sells traveler's checks and
provides other customary banking services.
SECURITIES OF THE HOLDING COMPANY
- --------------------------------------------------------------------------------
The Company's outstanding securities consist of one class; common stock of which
there were 1,536,568 shares outstanding at March 1, 2000, held by 892
shareholders of record. The Company's common stock is traded over-the-counter
and is quoted on the OTC "Bulletin Board" under the symbol NBAN. The firm of
Hoefer & Arnett serves as the primary market maker in the Company's stock.
The following table (adjusted for the 1999 and 2000 stock dividend) summarizes
the common stock high and low bid prices based upon transactions of which the
Company is aware:
Quarter ended High Low
March 31, 1998 $24.49 $20.86
June 30, 1998 20.86 18.14
September 30, 1998 19.73 16.33
December 31, 1998 18.59 16.10
March 31, 1999 22.86 19.05
June 30, 1999 22.86 19.05
September 30, 1999 25.71 22.38
December 31, 1999 25.71 24.05
There may be other transactions of which the Company is not aware, and
accordingly, they are not reflected in the range of actual sales prices stated.
Further, quotations reflect inter-dealer prices, without
10
<PAGE>
retail mark-up, mark-down or commission and may not represent actual
transactions. Additionally, since trading in the Company's common stock is
limited, the range of prices stated are not necessarily representative of prices
that would result from a more active market.
The Company paid cash dividends of $0.20 per share in 1999 and $.20 in 1998. The
holders of common stock of the Company are entitled to receive cash dividends
when and as declared by the Board of Directors out of funds legally available.
Federal Reserve Board regulations prohibit cash dividends, except under limited
circumstances, if the distribution would result in a withdrawal of capital or
exceed the Company's net profits then on hand after deducting its losses and bad
debts. Furthermore, cash dividends cannot be paid without the prior written
approval of the Federal Reserve Board if the total of all dividends declared in
one year exceeds the total of net profits for that year plus the preceding two
calendar years, less any required transfers to surplus under state or federal
law. The shareholders of North Bay are entitled to receive dividends when and as
declared by its Board of Directors out of funds legally available, subject to
the restrictions set forth in the California General Corporation Law. The
Corporation Law provides that a corporation may make a distribution to its
shareholders if the corporation's retained earnings equal at least the amount of
the proposed distribution. The Corporation Law further provides that, in the
event that sufficient retained earnings are not available for the proposed
distribution, a corporation may nevertheless make a distribution to its
shareholders if it meets two conditions, which generally stated are as
follows:1) The corporation's assets equal at least 1.25 times its liabilities;
and the corporation's current assets equal at least its current liabilities or,
if the average of the corporation's earnings before taxes on income and before
interest expense for the two preceding fiscal years was less than the average of
the corporation's interest expense for such fiscal years, then the corporation's
current assets must equal at least 1.25 times its current liabilities.
In the past, The Vintage Bank has in the past paid cash and stock dividends on
its common stock. It is contemplated that North Bay will follow The Vintage
Bank's policy of paying cash and stock dividends subject to the restrictions on
payments of cash dividends as described above, the earnings of North Bay,
management's assessment of the future capital needs, and other factors.
Initially, the funds for payment of dividends and expenses of North Bay are
expected to be obtained from dividends paid by The Vintage Bank. As of December
31, 1999, the Company had retained earnings of $6,367,990 eligible for
dividends.
YEAR 2000 DATA PROCESSING ISSUES
The Company previously recognized the material nature of the business issues
surrounding computer processing of dates into and beyond the Year 2000 and began
taking corrective action as required pursuant to the interagency statements
issued by the Federal Financial Institutions Examination Council.
Management believes the Company has completed all of the activities within its
control to ensure that the Company's systems are Year 2000 compliant. The
Company has not experienced any interruptions to normal operations due to the
start of the Year 2000.
The Company's Year 2000 readiness costs were approximately $75,000. The Company
does not currently expect to apply any further funds to address Year 2000
issues.
As of March 3, 2000, the Company has not experienced any material disruptions of
its internal computer systems or software applications and has not experienced
any problems with the computer systems or software applications of its third
party vendors, suppliers or service providers. The Company will continue to
monitor these third parties to determine the impact, if any, on its business and
the actions it must take, if any, in the event of non-compliance by any of these
third parties. Based upon the Company's assessment of compliance by third
parties, there appears to be no material business risk posed by any such
non-compliance.
Although the Company's Year 2000 rollover did not present any material business
disruption, there may be some remaining Year 2000 related risks. Management
believes that appropriate actions have been taken to address these remaining
Year 2000 issues and contingency plans are in place to minimize the financial
impact to the Company. Management, however, cannot be certain that Year 2000
issues affecting its customers, suppliers or service providers will not have a
material adverse impact on the Company.
11
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------------------
CONSOLIDATED
BALANCE SHEETS
- --------------------------------------------------------------------------------------------------
<CAPTION>
December 31, 1999 and 1998
1999 1998
------------- -------------
<S> <C> <C>
ASSETS
CASH AND DUE FROM BANKS $ 8,465,636 $ 8,401,566
FEDERAL FUNDS SOLD 1,500,000 6,000,000
------------- -------------
Cash and cash equivalents 9,965,636 14,401,566
TIME DEPOSITS WITH OTHER
FINANCIAL INSTITUTIONS 100,000 200,000
INVESTMENT SECURITIES:
Held-to-maturity 1,389,964 13,512,384
Available-for-sale 55,264,443 48,505,658
------------- -------------
TOTAL INVESTMENT SECURITIES 56,654,407 62,018,042
LOANS, net of allowance for loan losses of
$1,986,931 in 1999 and $1,751,693 in 1998 120,165,530 94,775,177
BANK PREMISES AND EQUIPMENT, net 2,882,776 2,733,834
INTEREST RECEIVABLE AND OTHER ASSETS 7,337,970 6,161,931
------------- -------------
Total assets $ 197,106,319 $ 180,290,550
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS:
Demand $ 38,337,447 $ 39,469,756
Interest-bearing transaction 57,165,864 54,500,653
Time and savings 76,876,728 68,202,797
------------- -------------
Total deposits 172,380,039 162,173,206
SHORT-TERM BORROWINGS 5,000,000 0
INTEREST PAYABLE AND OTHER LIABILITIES 1,635,789 1,207,313
------------- -------------
Total liabilities 179,015,828 163,380,519
COMMITMENTS AND CONTINGENT LIABILITIES (Note 5)
SHAREHOLDERS' EQUITY:
Preferred stock, no par value - Authorized 500,000 shares
Issued and outstanding - None
Common stock, no par value - Authorized 10,000,000
shares Issued and outstanding - 1,536,568 shares in 1999
and 1,437,491 shares in 1998 12,893,189 11,003,574
Retained earnings 6,367,990 5,521,351
Accumulated other comprehensive income (loss) (1,170,688) 385,106
------------- -------------
Total shareholders' equity 18,090,491 16,910,031
Total liabilities and shareholders' equity $ 197,106,319 $ 180,290,550
============= =============
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
12
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------------------------------
CONSOLIDATED INCOME
STATEMENTS
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
For the Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 9,818,961 $ 8,465,003 $ 7,537,434
Interest on federal funds sold 192,223 461,039 142,480
Interest on investment securities - taxable 2,980,760 2,472,704 2,144,912
Interest on investment securities - tax exempt 689,683 496,666 249,000
Interest on time deposits with other
financial institutions 6,947 11,018 11,443
------------ ------------ ------------
Total interest income 13,688,574 11,906,430 10,085,269
------------ ------------ ------------
INTEREST EXPENSE:
Interest on interest-bearing
transaction deposits 1,338,642 1,104,570 595,046
Interest on time and savings deposits 2,828,380 2,886,573 2,520,219
Interest on short-term borrowings 197,069 683 26,240
------------ ------------ ------------
Total interest expense 4,364,091 3,991,826 3,141,505
------------ ------------ ------------
Net interest income 9,324,483 7,914,604 6,943,764
PROVISION FOR LOAN LOSSES 240,000 240,000 240,000
------------ ------------ ------------
Net interest income after
provision for loan 9,084,483 7,674,604 6,703,764
losses
NONINTEREST INCOME:
Service charges on deposit accounts 978,858 743,291 674,219
Gain on securities transactions, net 9,753 65,278 395,252
Gain (loss) on sale of other real estate owned 0 (2,512) 24,180
Other 788,533 591,101 349,822
------------ ------------ ------------
Total noninterest income 1,777,144 1,397,158 1,443,473
------------ ------------ ------------
NONINTEREST EXPENSE:
Salaries and related benefits 3,496,938 3,068,958 2,636,617
Occupancy 401,243 392,357 360,744
Equipment 462,579 450,118 474,141
Other 2,135,490 1,748,593 1,578,659
------------ ------------ ------------
Total noninterest expense 6,496,250 5,660,026 5,050,161
------------ ------------ ------------
Income before provision for income taxes 4,365,377 3,411,736 3,097,076
PROVISION FOR INCOME TAXES 1,650,000 1,301,000 1,243,000
------------ ------------ ------------
NET INCOME $ 2,715,377 $ 2,110,736 $ 1,854,076
============ ============ ============
BASIC EARNINGS PER SHARE: $ 1.70 $ 1.34 $ 1.24
DILUTED EARNINGS PER SHARE: $ 1.66 $ 1.30 $ 1.20
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
13
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY
For the Years Ended December 31, 1999, 1998 and 1997
<CAPTION>
Accumulated
Common Other Total
Shares Common Retained Comprehensive Shareholders Comprehensive
Outstanding Stock Earnings Income(los) Equity Income
----------- ------------ ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 1,219,300 $ 7,403,310 $4,604,110 $ 108,708 $12,116,128
Stock dividend 60,198 872,871 (883,992) (11,121)
Cash dividend (213,378) (213,378)
Comprehensive income:
Net income 1,854,076 - 1,854,076 $ 1,854,076
Other comprehensive income, net of tax:
Change in net unrealized gains on available-
for-sale securities, net of tax of $137,771,
net of reclassification adjustment 192,219
-----------
Total other comprehensive income 192,219 192,219 192,219
-----------
Comprehensive income 2,046,295
===========
Stock options exercised 47,359 547,958 547,958
--------- ------------ ---------- ----------- -----------
BALANCE, DECEMBER 31, 1997 1,326,857 8,824,139 5,360,816 300,927 14,485,882
Stock dividend 66,788 1,669,700 (1,681,208) (11,508)
Cash dividend (268,993) (268,993)
Comprehensive income:
Net income 2,110,736 2,110,736 2,110,736
Other comprehensive income, net of tax:
Change in net unrealized gains on
available-for-sale securities, net
of tax of $60,334, net of reclassification
adjustment 84,179
-----------
Total other comprehensive income 84,179 84,179 84,179
-----------
Comprehensive income 2,194,915
===========
Stock options exercised 43,846 509,735 509,735
--------- ------------ ---------- ----------- -----------
BALANCE, DECEMBER 31, 1998 1,437,491 11,003,574 5,521,351 385,106 16,910,031
Stock dividend 71,442 1,571,724 (1,581,240) (9,516)
Cash dividend (287,498) (287,498)
Comprehensive income:
Net income 2,715,377 2,715,377 2,715,377
Other comprehensive income, net of tax:
Cumulative effect of change in
accounting principle (154,379)
Change in unrealized loss on securities,
net of tax of $832,885, net of
reclassification adjustment (1,401,415)
-----------
Total other comprehensive income (loss) (1,555,794) (1,555,794) (1,555,794)
-----------
Comprehensive income 1,159,583
===========
Stock options exercised 27,635 317,891 317,891
--------- ------------ ---------- ----------- -----------
BALANCE, DECEMBER 31, 1999 1,536,568 $12,893,189 $6,367,990 $(1,170,688) $18,090,491
========= ============ ========== =========== ===========
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
14
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
For the Years Ended December 31, 1999, 1998 and (In 000's)
1997
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $ 2,715 $ 2,111 $ 1,854
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 362 388 404
Provision for loan losses 240 240 240
Amortization of deferred loan fees (262) (161) (149)
Amortization (accretion) of investment securities
premiums (discounts), net (3) (60) (14)
Provision for deferred income taxes (186) (6) 47
Loss (gain) on sale of OREO 0 3 (24)
Gain on sale or retirement of capital assets (15) 0 0
Gain on securities transactions (8) (65) (395)
Changes in:
Interest receivable and other assets 117 (589) (2,875)
Interest payable and other liabilities 428 102 332
-------- -------- --------
Total adjustments 673 (148) (2,434)
-------- -------- --------
Net cash provided (used) by operating activities 3,388 1,963 (580)
-------- -------- --------
Cash Flows From Investing Activities:
Investment securities held to maturity:
Proceeds from maturities and principal payments 10 540 1,530
Purchases (1,400) (10,043) (749)
Investment securities available for sale:
Proceeds from maturities and principal payments 15,304 17,786 2,348
Proceeds from sales and recoveries 1,008 4,341 4,411
Purchases (12,210) (34,809) (8,849)
Proceeds from sale of time deposits with other financial institutions 100 0 0
Net increase in loans (25,369) (13,874) (10,302)
Proceeds from sale of OREO 0 11 366
Sale of capital assets 22 0 0
Capital expenditures (517) (146) (702)
-------- -------- --------
Net cash used in investing activities (23,052) (36,194) (11,947)
-------- -------- --------
Cash Flows From Financing Activities:
Net increase in deposits 10,207 30,783 21,541
Increase in short-term borrowings 5,000 0 0
Stock options exercised 318 510 548
Dividends (297) (281) (224)
-------- -------- --------
Net cash provided by financing activities 15,228 31,012 21,865
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (4,436) (3,219) 9,338
Cash and cash equivalents at beginning of year 14,402 17,621 8,283
-------- -------- --------
Cash and cash equivalents at end of year $ 9,966 $ 14,402 $ 17,621
======== ======== ========
Supplemental Disclosures of Cash Flow Information:
Interest paid $ 4,149 $ 3,984 $ 2,987
Income taxes paid $ 1,396 $ 1,254 $ 1,232
<FN>
The accompanying notes are an integral part of these statements.
</FN>
15
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
December 31, 1999, 1998 and 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
North Bay Bancorp (Bancorp) is a registered bank holding company headquartered
in Napa, California, established on November 1, 1999. Bancorp's principal line
of business is serving as a holding company for The Vintage Bank (Bank) a
California state chartered bank. The Bank operates three branches in the
California county of Napa. The Bank offers a full range of commercial banking
services to individuals and the business and agricultural communities of Napa
County. Most of the Bank's customers are retail customers and small to
medium-sized businesses.
The consolidated financial statements of Bancorp and Bank (collectively the
Company) are prepared in conformity with generally accepted accounting
principles and general practice within the banking industry. The more
significant accounting and reporting policies are discussed below.
Principals of Consolidation. The consolidated financial statements includes the
accounts of Bancorp and Bank. All material intercompany transactions and
accounts have been eliminated in consolidation.
Use of estimates in the preparation of financial statements. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets, liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Investment securities Investments in debt and equity securities are classified
as "held-to-maturity" or "available-for-sale". Investments classified as
held-to-maturity are those that the Company has the ability and intent to hold
until maturity and are reported at cost, adjusted for the amortization or
accretion of premiums or discounts. Investments classified as available-for-sale
are reported at fair value with unrealized gains and losses net of related tax,
if any, reported as other comprehensive income and are included in shareholders'
equity.
Premiums and discounts are amortized or accreted over the life of the related
investment security as an adjustment to yield using the effective interest
method. Dividend and interest incomes are recognized when earned. Realized gains
and losses are computed on the specific identification method. Securities with
losses judged by the Company to be other than temporary are written down in the
period such a determination is made.
Loans Loans are stated at the principal amount outstanding net of unearned
income. Nonrefundable loan origination fees and loan origination costs are
deferred and amortized into income over the contractual life of the loan. The
majority of the Company's interest income is accrued on a simple interest basis.
Loans on which the accrual of interest has been discontinued are designated as
nonaccrual loans. The Company's policy is to place loans on nonaccrual status
when management believes the borrower's financial condition, after giving
consideration to economic and business conditions and collection efforts, is
such that the presumption of collectibility of interest no longer is prudent.
When a loan is placed on nonaccrual status, the accrued and unpaid interest
receivable is reversed and charged against current earnings. In determining
income recognition on loans, generally no interest is recognized with respect to
loans on which a default of interest or principal has occurred for a period of
90 days or more.
The Bank defines a loan as impaired when it is probable the Bank will be unable
to collect all amounts due according to the contractual terms of the loan
agreement. Impaired loans are measured based on the present value of expected
future cash flows discounted at the loan's original effective interest rate or
based on the loan's observable market price or the fair value of the collateral
if the loan is collateral dependent. When the measure of the impaired loan is
less than the recorded investment in the loan, the impairment is recorded
through a valuation allowance.
16
<PAGE>
Allowance for loan losses The Bank maintains an allowance for loan losses at a
level considered adequate to provide for probable losses inherent in the
existing loan portfolio. The allowance is increased by provisions for loan
losses and reduced by net charge-offs. The allowance for loan losses is based on
estimates, and ultimate losses may vary from current estimates. These estimates
are reviewed periodically and, as adjustments become necessary, they are
reported in earnings in the periods in which they become known. The Bank makes
credit reviews of the loan portfolio and considers current economic conditions,
historical loan loss experience, and other factors in determining the adequacy
of the allowance balance.
Other real estate owned Other real estate owned represents real estate acquired
through foreclosure and is carried at the lower of cost or fair value less
estimated selling costs.
Premises and equipment Premises, leasehold improvements, furniture, fixtures and
equipment are carried at cost net of accumulated depreciation and amortization,
which are calculated on a straight-line basis over the estimated useful life of
the property or the term of the lease (if less). Premises are depreciated over
40 years, furniture and fixtures are depreciated over five to 15 years, and
equipment is generally depreciated over three to five years.
Income taxes For financial reporting purposes, the Company records a provision
for income taxes using the liability method of accounting. A deferred tax
liability or asset is recorded for all temporary differences between financial
and tax reporting. Deferred tax expense or benefit results from the net change
during the year of the deferred tax assets and liabilities. The measurement of
tax assets and liabilities is based on the provisions of enacted tax laws.
Statements of cash flows The Company defines cash, due from banks, and federal
funds sold as cash and cash equivalents for the statements of cash flows.
Stock-based compensation The Company uses the intrinsic value method to account
for its stock option plans (in accordance with the provisions of Accounting
Principles Board Opinion No. 25). Under this method, compensation expense is
recognized for awards of options to purchase shares of common stock to employees
under compensatory plans only if the fair market value of the stock at the
option grant date (or other measurement date, if later) is greater than the
amount the employee must pay to acquire the stock. Statement of Financial
Accounting Standards No. 123; (SFAS 123) "Accounting for Stock-Based
Compensation" permits companies to continue using the intrinsic-value method to
account for stock option plans. The fair value based method results in
recognizing as expense over the vesting period the fair value of all stock-based
awards on the date of grant. The Company has elected to continue to use the
intrinsic value method and the pro forma disclosures required by SFAS 123 using
the fair value method and are included in Note 15.
Earnings per common share In 1997, the Company adopted SFAS No. 128, "Earnings
Per Share", which establishes standards for computing and presenting earnings
per share (EPS). It replaced the presentation of primary and fully diluted EPS
with a presentation of basic and diluted EPS. It also requires a reconciliation
of the numerator and denominator of the basic EPS computation to the numerator
and denominator of the diluted EPS computation. The implementation of this
statement had no effect on Company's reported financial position or net income.
Comprehensive Income Effective January 1, 1998, the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS
130). This statement establishes standards for the reporting and display of
comprehensive income and its components in the financial statements. For the
Company, comprehensive income includes net income reported on the income
statement and changes in the fair value of its available-for-sale investments
reported as other comprehensive income.
Segment reporting Effective January 1, 1998, the Company adopted Statement of
Financial Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise and Related Information," (SFAS 131). This Statement establishes
standards for the reporting and display of information about operating segments
and related disclosures. The Company's operating segments consist of its
traditional community banking
17
<PAGE>
activities provided through its branches and activities related to the Bancorp.
Community banking activities include the Bank's commercial and retail lending,
deposit gathering, and investment and liquidity management activities. As
permitted under the Statement, the Company has aggregated the results of the
branches into a single reportable segment, and the Bancorp activities reported
as "Other". See Note 14 for details.
Accounting and Reporting Changes Financial Accounting Standards Board SFAS No.
133; "Accounting for Derivative Instruments and Hedging Activities" (as amended
by SFAS No. 137), establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statements of financial
position and measures those instruments at fair value.
Effective July 1, 1999, the Company adopted SFAS 133. The adoption of SFAS 133
did not materially impact the Company's financial position or results of
operations. The Company does not currently utilize derivative instruments in its
operations and does not engage in hedging activities. Under the provisions of
SFAS No. 133, and in connection with its adoption, the Company reclassified
investment securities carried at $13,506,000 with a fair value of $13,242,000
from the held-to-maturity classification to the available-for-sale
classification. As a result of this transfer, an unrealized loss of $154,000,
net of tax, was recognized in other comprehensive income as a cumulative effect
of change in accounting principle.
(2) INVESTMENT SECURITIES
<TABLE>
The amortized cost and estimated fair value of investment securities at December
31, 1999 are as follows:
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Held-to-maturity:
Municipal securities $ 1,389,964 $ 0 $ 0 $ 1,389,964
=========== =========== =========== ===========
Available-for-sale:
Equity securities $ 924,750 $ 0 $ 0 $ 924,750
Securities of the U.S. Treasury
And other government agencies 10,579,971 6,578 202,606 10,383,943
Corporate debt securities 11,900,060 5,267 291,839 11,613,488
Mortgage-backed securities 20,904,085 11,225 937,982 19,977,328
Municipal securities 12,959,148 36,651 630,865 12,364,934
----------- ----------- ----------- -----------
Total $57,268,014 $ 59,721 $ 2,063,292 $55,264,443
=========== =========== =========== ===========
</TABLE>
<TABLE>
The amortized cost and estimated fair value of investment securities at December
31, 1998 are as follows:
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Held-to-maturity:
Municipal securities $13,512,384 $ 289,032 $ 44,644 $13,756,772
=========== =========== =========== ===========
Available-for-sale:
Equity securities $ 777,200 $ 0 $ 0 $ 777,200
Securities of the U.S. Treasury
And other government agencies 11,531,766 172,189 523 11,703,432
Corporate debt securities 12,272,305 179,936 7 12,452,234
Mortgage-backed securities 23,265,298 340,384 32,890 23,572,792
----------- ----------- ----------- -----------
Total $47,846,569 $ 692,509 $ 33,420 $48,505,658
=========== =========== =========== ===========
</TABLE>
18
<PAGE>
<TABLE>
The following table shows the amortized cost and estimated fair value of
investment securities by contractual maturity at December 31, 1999:
<CAPTION>
Held-to-Maturity Available-for-Sale
Amortized Fair Amortized Fair
Cost Value Cost Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Within one year $ 0 $ 0 $ 5,128,100 $ 5,141,125
After one but within five years 0 0 14,479,453 14,146,959
After five but within ten years 0 0 7,661,119 7,309,434
Over ten years 1,389,964 1,389,964 8,170,507 7,764,847
Equity securities 0 0 924,750 924,750
Mortgage-backed securities 0 0 20,904,085 19,977,328
----------- ----------- ----------- -----------
Total $ 1,389,964 $ 1,389,964 $57,268,014 $55,264,443
=========== =========== =========== ===========
</TABLE>
As of December 31, 1999 and 1998 securities carried at $2,005,310 and
$2,067,813, respectively, were pledged to secure public and other deposits as
required by law.
Total proceeds from the sale of securities available-for-sale during 1999 were
$1,004,179. Gross gains of $4,752 were realized on those sales. The Company also
recovered $5,001 on previously charged off securities.
Total proceeds from the sale of securities available-for-sale during 1998 were
$4,327,823. Gross gains of $52,600 were realized on those sales. The Company
also recovered $12,678 on previously charged off securities.
Total proceeds from the sale of securities available-for-sale during 1997 were
$4,003,516. Gross gains of $7,699 and gross losses of $19,377 were realized on
those sales. The Company also recovered $406,930 on previously charged off
securities.
(3) LOANS AND ALLOWANCE FOR LOAN LOSSES
At December 31, 1999 and 1998, the loan portfolio consisted of the following,
net of deferred loan fees of $590,881 and $439,302 respectively:
1999 1998
------------ ------------
Real estate loans $ 58,368,548 $ 51,643,406
Installment loans 20,868,859 18,460,555
Construction loans 8,441,142 5,950,207
Commercial loans secured by real estate 13,010,890 6,062,585
Commercial loans 21,463,022 14,410,117
------------ ------------
122,152,461 96,526,870
Less allowance for loan losses 1,986,931 1,751,693
------------ ------------
Total $120,165,530 $ 94,775,177
============ ============
There were no nonaccrual loans at December 31, 1999 and nonaccrual loans were
$88,694 at December 31, 1998. As a result of being placed on nonaccrual status,
approximately $65,905 in interest income was foregone during 1997. There was no
interest foregone during 1999 or 1998. As of December 31, 1999 and 1998, there
were no loans 90 days or more past due but still accruing interest.
19
<PAGE>
Changes in the allowance for loan losses are as follows:
1999 1998 1997
----------- ----------- -----------
Balance, beginning of year $ 1,751,693 $ 1,532,128 $ 1,474,437
Provision for loan losses 240,000 240,000 240,000
Loans charged off (24,382) (59,210) (195,903)
Recoveries of loans
previously charged off 19,620 38,775 13,594
----------- ----------- -----------
Balance, end of year $ 1,986,931 $ 1,751,693 $ 1,532,128
=========== =========== ===========
As of December 31, 1999 and 1998, the Bank's recorded investment in impaired
loans was $1,084,740 and $1,174,054, respectively, and the related valuation
allowance as of those dates was $231,737 and $120,000 respectively. This
valuation allowance is included in the allowance for loan losses on the balance
sheet. The average recorded investment in impaired loans was $933,000,
$1,660,000 and $1,906,000 for the years ended December 31, 1999, 1998 and 1997,
respectively.
Interest payments received on impaired loans are recorded as interest income
unless collection of the remaining recorded investment is doubtful, in which
case payments received are recorded as reductions of principal. The Bank
recognized interest income on impaired loans of $81,697, $106,379, and $202,262
in 1999, 1998 and 1997, respectively.
(4) PREMISES AND EQUIPMENT
Premises and equipment at December 31, 1999 and 1998 consisted of the following:
Accumulated Net
Depreciation Book
Cost & Amortization Value
---------- ---------- ----------
1999
Land $ 706,277 $ 0 $ 706,277
Premises 1,745,867 386,832 1,359,035
Furniture, fixtures and equipment 2,697,017 2,091,451 605,566
Leasehold improvements 335,446 123,548 211,898
---------- ---------- ----------
Total $5,484,607 $2,601,831 $2,882,776
========== ========== ==========
1998
Land $ 706,277 $ 0 $ 706,277
Premises 1,611,508 337,419 1,274,089
Furniture, fixtures and equipment 2,368,523 1,838,755 529,768
Leasehold improvements 312,335 88,635 223,700
---------- ---------- ----------
Total $4,998,643 $2,264,809 $2,733,834
========== ========== ==========
Depreciation and amortization expense, included in occupancy expense and
equipment expense, was $361,854, $388,632 and $403,593 in 1999, 1998 and 1997,
respectively.
(5) COMMITMENTS AND CONTINGENCIES
The Bank leases the premises for its Brown's Valley and Bel Aire offices. Total
rent was $138,654 $128,043 and $113,271 in 1999, 1998 and 1997, respectively,
and is included in occupancy and equipment expenses. The total commitments under
non-cancelable leases are as follows:
Year Total
---------- ----------
2000 $ 211,428
2001 192,372
2002 198,996
2003 198,996
2004 198,996
Thereafter 220,792
----------
Total $1,221,580
==========
20
<PAGE>
(6) TIME DEPOSITS AND INTEREST ON TIME DEPOSITS
Time certificates of deposit in denominations of $100,000 or greater were
$21,921,918 and $17,443,413 at December 31, 1999 and 1998, respectively.
Interest expense on these deposits was $813,293, $831,094, and $717,442 for
1999, 1998 and 1997, respectively.
At December 31, 1999, the scheduled maturities of Time Deposits are as follows:
Year Total
------ -----------
2000 $57,796,643
2001 1,934,913
2002 342,099
2003 1,002,101
2004 87,038
-----------
$61,162,794
(7) SHORT-TERM BORROWINGS
The Company maintains a collateralized line of credit with the Federal Home Loan
Bank of San Francisco. Based on the FHLB stock requirements at December 31,
1999, this line provided for maximum borrowings of $54,708,000 of which
$5,000,000 was outstanding: leaving $49,708,000 available. The Company also has
available unused lines of credit totaling $9,000,000 for Federal funds
transactions at December 31, 1999.
(8) FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Bank makes commitments to extend credit in the normal course of business to
meet the financing needs of its customers. Commitments to extend credit are
agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee.
Since many of the commitments are expected to expire without being drawn upon,
the total commitment amount does not necessarily represent future cash
requirements.
The Bank is exposed to credit loss, in the event of nonperformance by the
borrower, in the contract amount of the commitment. The Bank uses the same
credit policies in making commitments as it does for on-balance-sheet
instruments and evaluates each customer's creditworthiness on a case-by-case
basis. The amount of collateral obtained, if deemed necessary by the Bank is
based on management's credit evaluation of the borrower. Held collateral varies,
but may include accounts receivable, inventory, plant and equipment and real
property.
The Bank also issues standby letters of credit, which are conditional
commitments to guarantee the performance of a customer to a third party. These
guarantees are primarily issued to support construction bonds, private borrowing
arrangements, and similar transactions. Most of these guarantees are short-term
commitments expiring in decreasing amounts through 2000 and are not expected to
be drawn upon. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers.
The Bank holds collateral as deemed necessary, as described above.
The contract amounts of commitments not reflected on the Balance Sheet at
December 31, 1999 were as follows:
Contract Amounts
----------------
Loan Commitments $33,559,000
Standby Letters of Credit $ 1,521,000
21
<PAGE>
(9) CONCENTRATIONS OF CREDIT RISKS
The majority of the Bank's loan activity is with customers located in Napa
County, California. Although the Bank has a diversified loan portfolio, a large
portion of its loans is for construction of residences, and many of the Bank's
commercial loans are secured by real estate in Napa County. Approximately 79% of
the Bank's loans are secured by real estate. This concentration is presented
below:
As of
December 31, 1999
-----------------
Construction/Land Development:
Land Development $ 1,091,000
Owner Occupied Residential 3,951,000
Non-owner Occupied Residential 1,179,000
Commercial 2,220,000
Real Estate 58,369,000
Commercial - Real Estate Secured 13,011,000
Installment - Real Estate Secured 17,205,000
-----------
Total $97,026,000
===========
(10) INCOME TAXES
The provision (benefits) federal and state income taxes for the years ended
December 31, 1999, 1998 and 1997 consisted of:
1999 1998 1997
----------- ----------- -----------
Current
Federal $ 1,345,000 $ 926,000 $ 873,000
State 491,000 381,000 323,000
----------- ----------- -----------
1,836,000 1,307,000 1,196,000
Deferred
Federal (164,000) (1,000) 31,500
State (22,000) (5,000) 15,500
----------- ----------- -----------
(186,000) ($ 6,000) 47,000
----------- ----------- -----------
Total $ 1,650,000 $ 1,301,000 $ 1,243,000
=========== =========== ===========
Deferred tax assets and liabilities result from differences in the timing of the
recognition of certain income and expense items for tax and financial accounting
purposes. The sources of these differences and the amount of each are as follows
as of December 31, 1999 and 1998:
1999 1998
---------- ----------
Deferred Tax Assets:
Allowance for loan losses $ 849,000 $ 674,000
Unrealized loss on securities 833,000 0
Other 269,000 171,000
---------- ----------
$1,951,000 $ 845,000
========== ==========
Deferred Tax Liabilities:
Unrealized gain on securities $ 0 $ 274,000
Accumulated accretion 101,000 36,000
Depreciation more than book 45,000 60,000
State income taxes 75,000 65,000
Other 257,000 230,000
---------- ----------
478,000 665,000
---------- ----------
Net Deferred Tax Asset $1,473,000 $ 180,000
========== ==========
The Company had no valuation allowance as of December 31, 1999 or 1998.
22
<PAGE>
<TABLE>
The total tax differs from the federal statutory rate of 34% because of the
following:
<CAPTION>
1999 1998 1997
-------------------------- -------------------------- ---------------------------
Amount Rate Amount Rate Amount Rate
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Tax provision at statutory rate $ 1,503,000 34% $ 1,160,000 34% $ 1,053,000 34%
Interest on obligations of
states and political
subdivisions exempt from
federal taxation (193,000) (3%) (154,000) (3%) (77,000) (3%)
State franchise taxes 317,000 7% 245,000 7% 221,500 7%
Other, net 23,000 2% 50,000 2% 45,500 2%
----------- ----------- ----------- ----------- ----------- -----------
Total $ 1,650,000 40% $ 1,301,000 40% $ 1,243,000 40%
=========== =========== =========== =========== =========== ===========
</TABLE>
(11) DIVIDEND RESTRICTIONS
The Company is regulated by the Board of Governors of the Federal Reserve
System. Federal Reserve Board regulations prohibit cash dividends, except under
limited circumstances, if the distribution would result in a withdrawal of
capital or exceed the Bancorp's net profits then on hand after deducting its
losses and bad debts. Furthermore, cash dividends cannot be paid without the
prior written approval of the Federal Reserve Board if the total of all
dividends declared in one year exceeds the total of net profits for that year,
plus the preceding two calendar years, and less any required transfers to
surplus under state or federal law.
The shareholders of North Bay are entitled to receive dividends when and as
declared by its Board of Directors out of funds legally available, subject to
the restrictions set forth in the California General Corporation Law. The
Corporation Law provides that a corporation may make a distribution to its
shareholders if the corporation's retained earnings equal at least the amount of
the proposed distribution. The Corporation Law further provides that, in the
event that sufficient retained earnings are not available for the proposed
distribution, a corporation may nevertheless make a distribution to its
shareholders if it meets two conditions, which generally stated are as follows:
1) the corporation's assets equal at least 1.25 times its liabilities; and 2)
the corporation's current assets equal at least its current liabilities or, if
the average of the corporation's earnings before taxes on income and before
interest expense for the two preceding fiscal years was less than the average of
the corporation's interest expense for such fiscal years, then the corporation's
current assets must equal at least 1.25 times its current liabilities.
(12) SHAREHOLDERS' EQUITY AND EARNINGS PER SHARE
The Company declared 5% stock dividends on January 22, 1996, January 27, 1997,
January 26, 1998, January 28, 1999 and January 18, 2000. As a result of the
stock dividends and stock split, the number of common shares outstanding and
earnings per share data was adjusted retroactively for all periods presented.
The following table reconciles the numerator and denominator of the Basic and
Diluted earnings per share computations:
23
<PAGE>
<TABLE>
<CAPTION>
Weighted Average Per-Share
Net Income Shares Amount
---------- ------ ------
<S> <C> <C> <C>
For the year ended 1999
-----------------------
Basic earnings per share $2,715,377 1,598,914 $1.70
Stock options 37,817
Diluted earnings per share 1,636,731 $1.66
For the year ended 1998
-----------------------
Basic earnings per share $2,110,736 1,571,079 $1.34
Stock options 48,836
Diluted earnings per share 1,619,915 $1.30
For the year ended 1997
-----------------------
Basic earnings per share $1,854,076 1,501,274 $1.24
Stock options 48,416
Diluted earnings per share 1,549,690 $1.20
</TABLE>
(13) OTHER NONINTEREST INCOME AND EXPENSE
The components of Other Noninterest Income for the years ended December 31,
1999, 1998 and 1997 were as follows:
1999 1998 1997
-------- -------- --------
ATM Surcharge $223,345 $104,480 $ 42,447
Increase of Cash Value on
Insurance Policies 156,232 155,819 82,972
Other 408,956 330,802 224,403
-------- -------- --------
Total $788,533 $591,101 $349,822
======== ======== ========
The components of Other Noninterest Expense for the years ended December 31,
1999, 1998 and 1997 were as follows:
1999 1998 1997
---------- ---------- ----------
Professional Services $ 485,320 $ 350,119 $ 320,890
Business Promotions 328,068 273,985 235,982
ATM Expenses 159,532 108,721 84,820
Stationary & Supplies 199,789 171,654 158,675
Other 962,781 844,114 778,312
---------- ---------- ----------
Total $2,135,490 $1,748,593 $1,578,659
========== ========== ==========
(14) BUSINESS SEGMENTS
The Company's operating segments consist of its traditional community banking
activities provided through its three branches and activities related to the
Bancorp. Community banking activities include the Bank's commercial and retail
lending, deposit gathering and investment and liquidity management activities.
The Company has aggregated the results of the branches into a single reportable
segment, and the Bancorp activities reported as "Other". Segment data for prior
reporting period were not applicable since the Holding Company was established
in 1999.
The components of the Company's business segments for December, 1999 were as
follows:
24
<PAGE>
<TABLE>
<CAPTION>
(In 000's)
Community Intersegment
Banking Other Adjustments Consolidated
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest Income $ 13,688 $ 0 $ 0 $ 13,688
Interest Expense 4,363 1 0 4,364
-------- -------- -------- --------
Net Interest Income 9,325 (1) 0 9,324
Provision for loan losses
240 0 0 240
Noninterest Income 1,777 490 (490) 1,777
Noninterest Expense 6,440 56 0 6,496
-------- -------- -------- --------
Income Before Tax 4,422 433 (490) 4,365
Provision for
Income Taxes 1,650 0 0 1,650
-------- -------- -------- --------
Net Income $ 2,772 $ 433 ($ 490) $ 2,715
-------- -------- -------- --------
Assets $197,003 $ 18,090 ($17,986) $197,106
Loans, Net 120,166 0 0 120,166
Deposits 173,319 0 (939) 172,380
Equity 17,047 18,090 (17,047) 18,090
</TABLE>
(15) STOCK OPTION PLAN
The Company has a stock option plan under which it may grant up to 354,072
options. The Company has granted 310,545 options through December 31, 1999. The
option exercise price equals the stock's market price on the date of grant. The
options become exercisable over five years and expire in five to 10 years.
<TABLE>
A summary of the status of the Company's stock option plan at December 31, 1999,
1998 and 1997 and stock option activity during the years then ended is presented
in the table below:
<CAPTION>
1999 1998 1997
----------------------- ------------------------ -----------------------
Weighted Weighted Weighted
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
-------- --------- -------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
Beginning of year 176,440 $ 12.34 220,617 $ 10.61 142,020 $ 5.96
Granted 25,200 $ 21.79 4,410 $ 18.93 138,915 $ 13.49
Exercised (29,017) $ 8.13 (48,587) $ 5.94 (54,824) $ 5.54
Cancelled (14,981) $ 12.87 0 $ 0 (5,494) $ 6.16
Outstanding at
End of year 157,642 $ 14.54 176,440 $ 12.34 220,617 $ 10.61
Exercisable at
End of year 36,049 $ 12.62 32,368 $ 9.10 46,342 $ 5.84
Weighted-average
Fair value of
Options granted
During the year -- $ 7.42 -- $ 6.97 -- $ 5.81
The following table summarizes information about stock options outstanding at
December 31, 1999:
25
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted-
Range Number Average Weighted- Number Exercisable Weighted-
of Outstanding Remaining Average at Average
Exercise Prices at 12/31/99 Contractual Life Exercise Price 12/31/99 Exercise Price
--------------- ----------- ---------------- -------------- -------- --------------
<S> <C> <C> <C> <C> <C>
$7.61 11,784 1.25 $ 7.61 6,436 $ 7.61
$13.39 to $22.38 145,858 3.32 $15.10 29,613 $13.70
-------
157,642
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1999, 1998 and 1997, respectively: risk-free
interest rate of 4.75% and 6% for options issued in 1999, 4.62% for options
issued in 1998 and 6.33% and 6.65% for options issued in 1997; expected dividend
yields of .92%, .94% and 1.01%; expected lives of 6, 6 and 6 years and expected
volatility of 26.32%, 30.85% and 27.42%.
The Company accounts for stock options under APB Opinion No. 25. Had the Company
used the fair value based method prescribed by SFAS No. 123, the Company's net
income and earnings per share amounts would have been reduced to the pro forma
amounts indicated below:
1999 1998 1997
------------- ------------- -------------
Net Income:
As Reported $ 2,715,377 $ 2,110,736 $ 1,854,076
Pro Forma $ 2,558,261 $ 1,984,736 $ 1,733,004
Earnings Per Share:
As Reported:
Basic $ 1.70 $ 1.34 $ 1.23
Diluted $ 1.66 $ 1.30 $ 1.20
Pro Forma:
Basic $ 1.60 $ 1.26 $ 1.20
Diluted $ 1.56 $ 1.22 $ 1.17
26
<PAGE>
(16) RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Bank makes loans to directors, officers
and principal shareholders on substantially the same terms, including interest
rates and collateral, as those for comparable transactions with unaffiliated
persons. An analysis of net loans to related parties for the year ended December
31, 1999 is as follows:
Balance at beginning of year 4,105,000
Additions 3,479,000
Repayments 2,852,000
---------
Balance at end of year 4,732,000
=========
Total undisbursed commitments as of December 31, 1999 were $3,073,163.
A law firm in which one of the Company's directors and one of its officers are
principals serves as the Company's general counsel. During 1999, 1998 and 1997
fees of $58,000, $38,000 and $31,000, respectively, were paid to this firm.
(17) RESTRICTIONS
The Bank is required to maintain reserves with the Federal Reserve Bank equal to
a percentage of its reservable deposits. Reserve balances that were required by
the Federal Reserve Bank were $2,805,000 and $1,506,000 for December 31, 1999
and 1998, respectively and are reported in cash and due from banks on the
balance sheet.
(18) RETIREMENT PLANS
The Company has a Profit Sharing and Salary Deferral 401(K) Plan to enable its
employees to share in the Company's profits and to defer receipt of a portion of
their salaries. Employees can defer up to 15% of their base pay, up to the
maximum amount allowed by the Internal Revenue Code. In addition, the Company
makes discretionary contributions to the profit sharing account and the 401(K)
account, which are determined by the Board of Directors each year. Amounts
charged to operating expenses under this plan representing the Company's
contribution were $159,000, $120,000 and $109,000 for the years ended December
31, 1999, 1998 and 1997, respectively.
During 1998, The Vintage Bank implemented a Director's Supplemental Retirement
Program. The Program contains a non-qualified defined benefit plan and a
non-qualified defined contribution plan. Directors and select officers
designated by the Board of Directors of the Vintage Bank are covered by one or
the other of these plans. The plans are unfunded, however the Bank has purchased
life insurance on the lives of the participants and expects to use the cash
values of these policies ($2,617,533 at December 31, 1999) to pay the retirement
obligations.
(19) FAIR VALUE OF FINANCIAL INSTRUMENTS
<TABLE>
The following table presents the carrying amounts and fair values of the
Company's financial instruments at December 31, 1999 and 1998:
<CAPTION>
Carrying Fair Carrying Fair
Amounts Value Amounts Value
------- -------- -------- --------
(In 000's)
1999 1998
---------------------- ----------------------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and cash equivalents $ 9,966 $ 9,966 $ 14,402 $ 14,402
Time deposits with other
financial institutions 100 100 200 200
Investment securities 56,654 56,654 62,018 62,262
Loans, net 120,166 119,264 94,775 95,828
Accrued interest receivable 1,447 1,447 1,335 1,335
Financial Liabilities:
Deposits 172,380 172,430 $162,173 $162,385
Short term borrowing 5,000 5,000 0 0
Accrued interest payable 725 725 509 509
27
</TABLE>
<PAGE>
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
Cash and cash equivalents - Cash and cash equivalents are valued at their
carrying amounts because of the short-term nature of these instruments.
Investment Securities - Investment securities are valued at quoted market
prices. See Note 2 for further analysis.
Loans - Loans with variable interest rates are valued at the current carrying
value, because these loans are regularly adjusted to market rates. The fair
value of fixed rate loans is estimated by discounting the future cash flows
using current rates at which similar loans would be made to borrowers with
similar credit ratings for the same remaining maturities. The fair value of
impaired loans is stated net of the related valuation allowance, if any.
Accrued interest receivable and payable- The balance approximates its fair
value.
Deposits, time deposits with other Bank's - The fair value of demand deposits,
savings accounts and interest-bearing transaction accounts is the amount payable
on demand at the reporting date. The fair value of time deposits is estimated by
discounting the contractual cash flows at current rates offered for similar
instruments with the same remaining maturities.
Short-Term Borrowing - The balance approximates its fair value due to the
short-term nature of these borrowings.
(20) COMPREHENSIVE INCOME
The changes in the components of other comprehensive income (loss) for the years
ended December 31 1999, 1998 and 1997 are reported as follows:
1999 1998 1997
----------- ----------- -----------
Unrealized holding gain (loss)
arising during the period, net of
tax benefit of $1,106,868 for 1999
and tax expense of $59,889 and
$136,754 for 1998 and 1997,
respectively ($1,396,051) $ 122,321 $ 421,412
Reclassification adjustment for
net realized gains (losses) on
securities available-for-sale
included in net income during the
year, net of tax expenses of
$3,816, $27,136 and $163,059,
respectively (5,364) (38,142) (229,193)
----------- ----------- -----------
Other comprehensive income (loss) ($1,401,415) $ 84,179 $ 192,219
(21) REGULATORY MATTERS
The Company is subject to various regulatory capital requirements. Failure to
meet minimum capital requirements can initiate certain mandatory--and possible
additional discretionary--actions by regulators that, if undertaken, could have
a direct 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 classification are also subject to qualitative judgments by the
regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital to risk-weighted assets, and of Tier I
capital to average assets. Management believes, as of December 31, 1999, that
the Company meets all capital adequacy requirements to which it is subject.
28
<PAGE>
As of December 31, 1999, the most recent notification from the Federal Reserve
Bank categorized the Company as well capitalized under the regulatory framework
for prompt corrective action. To be categorized as well capitalized, the Company
must maintain minimum total risk-based, Tier I risk-based and Tier I leverage
ratios as set forth in the table. There were no conditions or events since that
notification that management believes have changed the institution's category.
29
<PAGE>
<TABLE>
The Company's actual capital amounts and ratios are also presented in the table
below:
<CAPTION>
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
------ ----------------- -----------------
(In 000's)
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999:
Total Capital (to Risk
Weighted Assets)
Consolidated $21,141 14.07% $12,019 >8.00% $15,023 >10.00%
- -
The Vintage Bank 20,154 13.02% 12,384 >8.00% 15,480 >10.00%
- -
Tier I Capital (to Risk
Weighted Assets)
Consolidated 19,262 12,82% 6,009 >4.00% 9,014 >6.00%
- -
The Vintage Bank 18,218 11.77% 6,192 >4.00% 9,288 >6.00%
- -
Tier I Capital (to
Average Assets)
Consolidated 19,262 9.58% 8,046 >4.00% 10,058 >5.00%
- -
The Vintage Bank 18,218 9.06% 8,046 >4.00% 10,058 >5.00%
- -
As of December 31, 1998:
Total Capital (to Risk
Weighted Assets) $18,100 14.39% $10,065 >8.0% $12,581 >10.0%
- -
Tier I Capital (to Risk
Weighted Assets) 16,525 13.14% 5,032 >4.0% 7,548 >6.0%
- -
Tier I Capital (to
Average Assets) 16,525 9.29% 7,114 >4.0% 8,892 >5.0%
- -
</TABLE>
30
<PAGE>
(22) FINANCIAL STATEMENTS OF NORTH BAY BANCORP (Parent Company Only)
The Bancorp was organized as of November 1, 1999. As a result, comparative
financial information is not available information below is for the two month
period ended December 31, 1999.
Balance Sheet
1999
------------
Assets
Cash $ 939,263
Investment in The Vintage Bank 17,047,592
Equipment 88,216
Other assets 15,420
------------
Total assets $ 18,090,491
Liabilities and shareholders' equity
Total Liabilities $ 0
Shareholders' equity
Preferred stock, no par value - Authorized 500,000 shares
Issued and outstanding - None
Common stock, no par value - Authorized 10,000,000 shares
Issued and outstanding - 1,536,568 12,893,189
shares in 1999
Retained earnings 6,367,990
Accumulated other comprehensive income (1,170,688)
------------
Total shareholders' equity 18,090,491
Total liabilities and shareholders' equity $ 18,090,491
Income Statement
1999
------------
Equity Income of Bank
Distributed $ 490,055
Interest Expense 826
Other Administrative Expenses 56,275
------------
Net Income $ 432,954
Statement of Cash Flows
1999
------------
Operating Activities:
Net income $ 432,954
Adjustments to reconcile net income to net cash
provided by operating activities:
Changes in:
Interest receivable and other assets (15,420)
Total adjustments (15,420)
------------
Net cash provided by operating activities 417,534
------------
Investing Activities:
Capital expenditures (88,216)
------------
Net cash used in investing activities (88,216)
------------
Financing Activities:
Net cash provided by financing activities
Dividend received from The Vintage Bank in
excess of equity in net income 609,945
------------
Net increase (decrease) in cash and cash 939,263
equivalents
Cash and cash equivalents at beginning of year 0
------------
Cash and cash equivalents at end of year $ 939,263
============
31
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of North Bay Bancorp:
We have audited the accompanying consolidated balance sheets of North Bay
Bancorp (a California state-chartered Holding Company) and subsidiary as of
December 31, 1999 and 1998 and the related consolidated statements of income,
changes in shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 financial statements referred to above present fairly, in
all material respects, the financial position of North Bay Bancorp and
subsidiary as of December 31, 1999 and 1998 and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1999 in conformity with accounting principles generally accepted in the
United States.
/s/ ARTHUR ANDERSEN LLP
San Francisco, California
February 25, 2000
32
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
DIRECTORS
- ------------------------------------------------------------------------------------------------------
<S> <C>
NORTH BAY BANCORP
Conrad W. Hewitt Retired, Commissioner of State Department of Financial Institutions
Richard S. Long President, Quantum Information Corp.
NORTH BAY BANCORP AND THE VINTAGE BANK
David B. Gaw Attorney with Gaw, Van Male, Smith, Myers & Miroglio
A Professional Law Corporation
Harlan R. Kurtz General Contractor and President of K-H Development Corporation
Thomas H. Lowenstein President, North Bay Plywood
Thomas F. Malloy Senior Partner, Malloy Imrie & Vasconi Insurance Services LLC
Chairman of the Board
Terry L. Robinson President & Chief Executive Officer
James E. Tidgewell Certified Public Accountant G & J Seiberlich & Co LLP
THE VINTAGE BANK
Andrew J. Berkstoffer CEO and Chairman, Beckstoffer Vineyards
Sandra H. Funseth Investor
Houghton Gifford, M D Physician and Attorney, Retired
William L. Kastner President, Kastner Pontiac-Olds-GMC-Honda
Andrew J. Nicks, M D Physician
Carolyn D. Sherwood Real Estate Broker Coldwell Banker/Brokers of the Valley
Director Emeritus Chairman of the Board
Joseph Vallerga Vallerga's Markets
North Bay Bancorp & The Vintage Bank Corporate Secretary
Wyman G. Smith, III Attorney with Gaw, Van Male, Smith, Myers & Miroglio
A Professional Law Corporation
33
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
CORPORATE INFORMATION
- -------------------------------------------------------------------------------------------------------------
<S> <C>
Corporate Headquarters & Main Office Location:
1500 Soscol Avenue
Napa, CA 94559-1314
Branch Locations:
3271 Browns Valley Road
Napa, CA 94558-5499
3626 Bel Aire Plaza
Napa, CA 94558-2831
Shareholder Information:
Trading OTC Bulletin Board - Symbol NBAN
Market Makers Hoefer & Arnett
353 Sacramento Street, 10th Floor
San Francisco, CA 94111
1 (800) 346-5544
Van Kasper & Company
600 California Street, Suite 1700
San Francisco, CA 94108
1 (800) 652-1747
Pacific Crest Securities
111 SW Fifth Avenue, 42nd Floor
Portland, OR 97204
1 (800) 473-3775
Transfer Agent ChaseMellon Shareholder Services, L.L.C.
Shareholder Relations
P. O. Box 3315
South Hackensack, New Jersey 07606
1 (800) 356-2017
TTD FOR HEARING IMPAIRED: 1 (800) 231-5469
Foreign Shareholders: (201) 329-8660
Internet Address: www.chasemellon.com
Notice of Annual Meeting Marriott Hotel - Napa Valley
3425 Solano Ave.
Napa, CA 94558
May 9, 2000 - 7:00 p.m.
General Counsel: Wyman G. Smith, III
Gaw, Van Male, Smith, Myers & Mirogilo
944 Main Street
Napa, CA 94559
Corporate Secretary: Wyman G. Smith, III
For additional copies of this report or Pansy F. Smith
copies of the 10-KSB Report contact: Assistant Corporate Secretary
North Bay Bancorp
1500 Soscol Avenue
Napa, CA 94559-1314
(707) 258-3971
Independent Public Accountants: Arthur Andersen LLP
101 Second Street, Suite 1100
San Francisco, CA 94105-3601
Web Site: www.vintagebank.com
</TABLE>
35
Exhibit 23.1
Consent of Arthur Andersen LLP as independent public accountants
for North Bay Bancorp and The Vintage Bank.
-37-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the North Bay Bancorp's previously filed
Form S-8 Registration Statement No.333-93537.
/s/Arthur Andersen LLP
San Francisco, California
March 24, 2000
-38-
Exhibit 24
Power of Attorney
-39-
<PAGE>
<TABLE>
POWER OF ATTORNEY
Each person whose signature appears below hereby authorizes Terry L. Robinson or
Thomas F. Malloy and either of them, as attorney-in-fact, to sign in his or her
behalf, individually and in each capacity stated below, and to file this Annual
Report on Form 10- KSB and all amendments and/or supplements to this file this
Annual Report on Form 10- KSB
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/David B. Gaw Director March 28, 2000
- ------------------------------------
David B. Gaw
Director March __, 2000
- ------------------------------------
Conrad W. Hewitt
/s/Harlan R. Kurtz Director March 28, 2000
- ------------------------------------
Harlan R. Kurtz
/s/Richard S. Long Director March 28, 2000
- ------------------------------------
Richard S. Long
/s/Thomas H. Lowenstein Director and March 28, 2000
- ------------------------------------ Vice Chairman of the Board
Thomas H. Lowenstein
/s/Thomas F. Malloy Director and March 28, 2000
- ------------------------------------ Chairman of the Board
Thomas F. Malloy
/s/Terry L. Robinson President, Chief March 28, 2000
- ------------------------------------ Executive Officer and Director
Terry L. Robinson (Principal Executive Officer)
/s/James E. Tidgewell Director March 28, 2000
- ------------------------------------
James E. Tidgewell
/s/Lee-Ann Almeida Vice President March 27, 2000
- ------------------------------------ Chief Financial Officer
Lee-Ann Almeida (Principal Financial Officer)
</TABLE>
-40-
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEETS OF NORTH BAY BANCORP AS OF DECEMBER 31, 1999 AND 1998 AND THE
RELATED CONSOLIDATED STATEMENTS OF INCOME,CHANGES IN SHAREHOLDERS' EQUITY AND
CASH FLOWS FOR EACH OF THE THREE YEARS INTHE PERIOD ENDED DECEMBER 31, 1999 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 8,466
<INT-BEARING-DEPOSITS> 100
<FED-FUNDS-SOLD> 1,500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 55,264
<INVESTMENTS-CARRYING> 1,390
<INVESTMENTS-MARKET> 1,390
<LOANS> 122,153
<ALLOWANCE> 1,987
<TOTAL-ASSETS> 197,106
<DEPOSITS> 172,380
<SHORT-TERM> 5,000
<LIABILITIES-OTHER> 1,636
<LONG-TERM> 0
0
0
<COMMON> 12,893
<OTHER-SE> 5,197
<TOTAL-LIABILITIES-AND-EQUITY> 197,106
<INTEREST-LOAN> 9,819
<INTEREST-INVEST> 3,671
<INTEREST-OTHER> 199
<INTEREST-TOTAL> 13,689
<INTEREST-DEPOSIT> 4,167
<INTEREST-EXPENSE> 4,364
<INTEREST-INCOME-NET> 9,324
<LOAN-LOSSES> 240
<SECURITIES-GAINS> 9
<EXPENSE-OTHER> 6,496
<INCOME-PRETAX> 4,365
<INCOME-PRE-EXTRAORDINARY> 4,365
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,715
<EPS-BASIC> 1.70
<EPS-DILUTED> 1.66
<YIELD-ACTUAL> 8.01
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,752
<CHARGE-OFFS> 24
<RECOVERIES> 19
<ALLOWANCE-CLOSE> 1,987
<ALLOWANCE-DOMESTIC> 1,987
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
